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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
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/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1999
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OR
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/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM TO
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COMMISSION FILE NO. 1-10410
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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 Incorporation) (I.R.S. Employer Identification No.)
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5100 WEST SAHARA AVENUE, SUITE 200
LAS VEGAS, NEVADA 89146
(Address of principal executive offices) (zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (702) 579-2300
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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
7 7/8% Senior Subordinated Notes Due 2005 of Harrah's NEW YORK STOCK EXCHANGE
Operating Company, Inc.**
7 1/2% Senior Notes Due 2009 of Harrah's Operating NEW YORK STOCK EXCHANGE
Company, Inc.**
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* Common Capital Stock also has special stock purchase rights listed on each
of the same exchanges
** Securities guaranteed by Registrant
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value of the voting and non-voting common equity held
by non-affiliates of the registrant as of January 31, 2000, based upon the
closing price of $19 15/16 for the Common Stock on the New York Stock Exchange
on that date, was $2,436,362,400.
As of January 31, 2000, the Registrant had 123,423,321 shares of Common
Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the 2000 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, 1999
(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., a Delaware corporation, is the leading
consumer marketing company in the gaming industry, and operates casinos in more
markets than any other casino company. (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.) Formerly
named The Promus Companies Incorporated ("Promus"), we were incorporated on
November 2, 1989 and on June 30, 1995, changed our name to Harrah's
Entertainment, Inc., after the spin-off of our hotel business into a separate
public company.
We conduct our business through a wholly-owned subsidiary, Harrah's
Operating Company, Inc. ("HOC") (formerly named Embassy Suites, Inc.
("Embassy")), and through HOC's subsidiaries. Our principal asset is the stock
of HOC, which holds, directly or indirectly through subsidiaries, substantially
all of the assets of our businesses. Our principal executive offices are located
at 5100 West Sahara Avenue, Suite 200, Las Vegas, Nevada 89146, telephone
(702) 579-2300.
On January 1, 1999, we completed our 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. In connection with the merger, we issued
approximately 25 million shares of our common stock and assumed Rio's
outstanding debt of $435 million face amount. During second quarter 1999, we
redeemed all $225 million face amount of Rio's 10 5/8% Senior Subordinated Notes
due 2005 and 9 1/2% Senior Subordinated Notes due 2007, and we retired Rio's
revolving credit facility scheduled to mature in 2003 (collectively, the "Rio
Debt").
In January 1999, we issued $500 million of 7 1/2% Senior Notes due 2009 and
used the net proceeds to reduce amounts outstanding under our revolving credit
facility scheduled to mature in 2000 (the "Previous Facility"). In April 1999,
we consummated new revolving credit and letter of credit facilities (the "Bank
Facility") in the amount of $1.6 billion. See "Management's Discussion and
Analysis--Debt and Liquidity" on page 29 of the Annual Report. This page is
incorporated into this document by reference. Proceeds from the Bank Facility
were used to retire the Previous Facility and the Rio Debt.
In February 1999, we consummated an agreement with our partners owning the
other 45% interest in Showboat Marina Casino Partnership ("SMCP"), which owns
our East Chicago casino property, to increase our ownership interest in SMCP to
99.55%. Partnership agreements were amended to give us greater flexibility in
operating this property, and in March 1999 it was rebranded from a "Showboat" to
a "Harrah's" casino. Also in March 1999, we redeemed all $150 million of SMCP's
13 1/2% First Mortgage Notes due 2009.
In April 1999, we announced plans to sell our interests in the Star City
casino in Sydney, Australia to TABCORP Holdings Limited ("TABCORP"), an
Australia-based company, in connection with that company's intention to offer to
acquire the issued and outstanding shares of Star City Holdings Ltd ("SCHL"). In
fourth quarter 1999, we engaged in a series of transactions in which we divested
our outstanding shares and options of SCHL, and the disposition of our
management contract for the Star City casino was completed in January 2000.
In July 1999, we announced that we had reached an agreement to sell the
Showboat Las Vegas casino. We expect the sale to close by the end of first
quarter 2000, subject to certain conditions, including regulatory approval. This
property was determined to be a non-strategic asset at the time of the Showboat
acquisition.
In August 1999, we relocated our corporate headquarters and moved our senior
corporate executives and their support staffs to Las Vegas, Nevada. Our national
service headquarters remains in Memphis, Tennessee. We believe that the
relocation of our corporate headquarters to the epicenter of
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the casino industry will improve our business by expanding our knowledge base of
the gaming market, enhancing our product and service innovation, fueling our
corporate development and increasing our visibility and accessibility to
important industry, political and customer constituencies. We further believe
that expanding our presence in the world's largest casino marketplace will
benefit our entire national distribution network and will enhance our ability to
attract and retain the highest quality gaming industry executives.
In August 1999, we announced the signing of a definitive agreement to
acquire Players International, Inc. ("Players"). Under the terms of the
agreement, Players' shareholders will receive $8.50 in cash for each share
outstanding and we will assume approximately $150 million of Players' debt. We
expect to fund the acquisition through our Bank Facility. Players stockholders
approved the proposed merger at a special stockholders meeting held October 28,
1999, however, the transaction is subject to various conditions, including
regulatory approvals. In January 2000 we successfully completed a consent
solicitation to an amendment to the Indenture governing Players' 10 7/8% Senior
Notes due 2005, conditioned upon closing of the Players acquisition, which will
allow the merger to take place without creating a default under the Indenture.
Players operates a dockside riverboat casino on the Ohio River in
Metropolis, Illinois, two cruising riverboat casinos in Lake Charles, Louisiana,
two dockside riverboat casinos in Maryland Heights, Missouri, and a horse
racetrack in Paducah, Kentucky. Since March 1997, Players and Harrah's have
jointly operated a landside hotel and entertainment facility at our St.
Louis-Riverport property in Maryland Heights.
Prior to entering into the agreement with us, Players terminated a
previously announced merger agreement with another gaming company. As a result
of the termination of that agreement, Players paid a $13.5 million break-up fee
pursuant to that agreement's terms. In connection with our agreement with
Players, we agreed to provide the funds necessary to make this payment. Players
must reimburse us for this advance, plus pay an additional termination fee
should certain events occur resulting in the termination of our agreement with
Players. The funds we have advanced are a component of the total purchase price
we will pay for Players.
We expect our acquisition of Players to close by the end of March 2000.
In September 1999, we announced that we had signed a contract with the Ak
Chin Indian Community to continue management of the Harrah's Ak Chin Casino near
Phoenix, Arizona for another five years after the expiration of our original
management agreement at the end of 1999. The new agreement is subject to various
regulatory approvals, and contemplates an extension of the Community's compact
with the state of Arizona, which expires in 2003. The existing management
agreement has been temporarily extended through July 1, 2000 (on the new
financial terms) while regulatory approvals are obtained. In addition, the Tribe
announced a planned expansion of the facility to include a new 150-room hotel,
an additional restaurant, meeting and banquet room facilities, a resort pool and
a landscaped courtyard.
In October 1999, the new Harrah's New Orleans Casino, the exclusive
land-based casino entertainment facility in New Orleans, Louisiana opened. One
of our subsidiaries owns approximately 43% of the equity in JCC Holding Company,
a publicly-traded company which owns the casino, and another of our subsidiaries
manages the casino pursuant to a management agreement. JCC Holding is the
successor to the operations of Harrah's Jazz Company pursuant to a plan of
reorganization under Chapter 11 of the Bankruptcy Code. In November 1995,
Harrah's Jazz Company and its wholly-owned subsidiary, Harrah's Jazz Finance
Corp., filed petitions for relief under Chapter 11. In April 1996, Harrah's Jazz
Company filed a plan of reorganization and later 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.
See "Casino Entertainment--Land-Based Casinos--New Orleans" on pages 6 through 8
for recent developments concerning the New Orleans casino.
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In November 1999, we announced an agreement with the Eastern Band of
Cherokee Indians to extend our management contract for the Harrah's Cherokee
Smoky Mountains casino for another two years after its expiration in November
2002.
Operating data for the three most recent fiscal years is set forth on page
23 of the Annual Report. This page of the Annual Report is incorporated into
this document by reference.
For information on operating results and a discussion of those results, see
"Management's Discussion and Analysis--Operating Results and Development Plans"
on pages 23 through 28 of the Annual Report. These pages are incorporated into
this document by reference.
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward looking statements. Certain information included in this
Annual Report on Form 10-K and other materials filed or to be filed by the
Company with the Securities and Exchange Commission ("SEC") (as well as
information included in oral statements or other written statements made or to
be made by the Company) contains statements that are forward looking. These
include statements relating to the following activities, among others: (A)
operations and expansions of existing properties, including future performance,
anticipated scope and opening dates of expansions; (B) planned construction or
development of casinos and hotels that would be owned or managed by the Company
and the pursuit of strategic acquisitions; (C) planned capital expenditures for
2000 and beyond; (D) the impact of the WINet and Total Gold Programs; and (E)
any future impact of the Showboat acquisition, the Rio merger or the planned
acquisition of Players. 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, including international and national economic
problems; litigation, judicial actions and political uncertainties, including
gaming legislative action, referenda 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
Our casino business commenced operations in 1937 and is unique among casino
entertainment companies in its broad geographic diversification. At year end, we
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. We also
operated a riverboat casino in East Chicago, Indiana; dockside casinos in
Joliet, Illinois, 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. We also operated the Rio Hotel & Casino in Las Vegas,
Nevada and Showboat casinos in Las Vegas, Nevada (which we have reached
agreement to sell) and Atlantic City, New Jersey. In November 1999, we completed
the sale of our equity interests in the Star City casino in Sydney, Australia to
a third party, and in January 2000 we sold our management contract for the
casino.
As of December 31, 1999, we operated a total of approximately 1,180,000
square feet of casino space, 33,794 slot machines, 1,044 table games, 11,760
hotel rooms or suites, approximately 281,286 square feet of convention space, 86
restaurants, 34 snack bars, ten showrooms and five cabarets.
We continued in 1999 to implement our Total Gold program, a fully integrated
national player recognition and rewards program that connects player activity
and provides rewards across all Harrah's properties. During 1999, we embarked on
the next stage of our strategy with the launch of the tiered customer loyalty
card program--Total Diamond, Total Platinum and Total Gold--to reward customers
for choosing our casinos. We have obtained four 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 our geographic distribution and links all of our
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. Our 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 35.8 acres in the
Marina area of Atlantic City and at year end had approximately 86,100 square
feet of casino space with 2,826 slot machines and 83 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 seven restaurants, an 800-seat showroom, a health
club with swimming pool, customer parking for 3,085 cars, including a
substantial portion in a parking garage, and a 1,600-space employee/ valet
parking lot. The property also has a 63-slip marina. We also own 174 acres of
wetlands in the Brigantine area and parcels totaling 6.2 acres in Atlantic City
outside the Marina area.
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 3,744 slot machines and 75
table games. The hotel and casino also has seven restaurants, two lounges and
snack bars, a shopping center, a 60-lane bowling center, a 346-seat showroom and
a total of 800 hotel rooms (including 69 suites). There are 3,046 parking spaces
available.
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Most of Harrah's Atlantic City's and Atlantic City Showboat's customers
arrive by car or bus 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 17.7 acres on the Las Vegas
Strip and consists of a 15-floor hotel tower, a 23-floor hotel tower, two
35-floor hotel towers, and adjacent low-rise buildings which house a 25,000
square foot convention center and the casino. The hotel has 2,467 regular rooms
and 146 suites. The Harrah's Las Vegas complex has approximately 86,700 square
feet of casino space, with 1,819 slot machines and 75 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 Rio Hotel & Casino is situated adjacent to Interstate 15 near the heart
of the Las Vegas Strip and has approximately 110,000 square feet of casino
gaming space containing 2,368 slot machines, 106 table games including a premium
gaming area, poker, keno and race and sports book. The carnival and Mardi
Gras-themed hotel and casino also has 2,548 hotel suites, including
approximately 1,500 suites contained in the three interconnected 21-story
"Ipanema Towers," approximately 1,000 suites in the 41-story "Masquerade Tower"
and nine luxury Palazzo Suites in a complex adjoining the casino. In addition,
the facility contains 13 restaurants, four 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 6,293 parking spaces available, including self-parking and valet. Rio
also owns the Rio Secco Golf Club in nearby Seven Hills, Nevada.
In October 1997, Rio, having acquired or contracted to acquire 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 completed, 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. Subsequent phases
of the New Rio Master Plan are in the conceptual stage. 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 first quarter 1999, Rio began construction of a showroom complex as an
addition to its existing entertainment venues. The showroom will include a 1,500
seat, state-of-the-art theater with a balcony, a three-level lobby with
hospitality center, and a theater promenade with approximately 10,000 square
feet of retail space. Completion is scheduled for second quarter 2000. Rio also
is constructing a road across some of its recently acquired properties that will
provide an additional east/west conduit for Las Vegas residents and tourists.
Rio has agreed with Clark County, Nevada to deed the roadway acreage to Clark
County upon its completion in exchange for other Clark County acreage and
reimbursement of a portion of the construction costs.
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.
We have entered into an agreement to sell the Showboat Las Vegas casino,
which was determined to be a non-strategic asset at the time of the Showboat
acquisition. We expect the sale to close by the end of first quarter 2000,
subject to certain conditions, including regulatory approval.
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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 approximately
66,500 square feet of casino space, with 1,668 slot machines and 84 table games,
and an 18,000 square foot convention center. The casino hotel, with 78 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.
We also operate 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 579 slot machines and 18 table games, and one
restaurant.
The primary feeder market for both casinos is California.
RENO
Harrah's Reno, situated on approximately five 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 1,536 slot
machines and 70 table games. The facilities include two hotel towers, with 934
rooms and 24 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 owned and operated by a non-affiliated restaurant company.
The complex can accommodate guest parking for 1,661 cars, including a valet
parking garage, a self-park garage and off-site valet parking. In June 1999, we
purchased properties adjacent to Harrah's Reno and are demolishing the existing
buildings on the site, where we plan to develop a plaza area. Other long-term
plans for the site are being considered.
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 1,480 standard
rooms and 99 suites, a 378-seat showroom, a 3,164-seat outdoor amphitheater,
five restaurants and two snack bars, including a McDonald's and a Baskin Robbins
which are operated by non-affiliated companies. Harrah's Laughlin has
approximately 47,000 square feet of casino space, with 1,170 slot machines and
41 table games, and approximately 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.
NEW ORLEANS
On October 28, 1999, the new Harrah's New Orleans Casino opened. A
subsidiary of the Company owns approximately 43% of the equity in JCC Holding
Company, a publicly-traded company which owns the casino, and another subsidiary
manages the casino pursuant to a management agreement. The casino includes
100,000 square feet of gaming space with approximately 2,900 slot machines and
120 table games including live poker, a 250-seat buffet, two parking garages,
and approximately 10,000 square feet of multi-function, special event, food
service and meeting-room space on the first floor of the premises. The casino
contains five themed areas intended to evoke the atmosphere of New Orleans.
Parking for approximately 300 cars and approximately 145,000 square feet of
back-of-house and support areas are provided underneath the main gaming floor.
Two parking facilities which contain
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approximately 1,550 parking spaces are located across Poydras Street and are
connected to the casino by an underground tunnel. The second floor of the casino
premises contains approximately 150,000 square feet of unfinished multipurpose
non-gaming entertainment space.
A subsidiary of the Company 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 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"), was responsible for completing
construction of the Harrah's New Orleans Casino. In exchange for an equity
investment 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),
one of our subsidiaries 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 subsidiary'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 interest. We also own a warrant which entitles us to acquire additional
shares in JCC Holding Company sufficient to increase our ownership in JCC
Holding Company to 50% for a predetermined price.
Another subsidiary of the Company (the "Manager") manages the Casino
pursuant to a management agreement under which it earns a base management fee of
3% of Casino revenues and 7% of Casino EBITDA in excess of $75 million. We are
obligated to defer receipt of management fees under certain circumstances, and
these fees are currently being deferred by JCC. We have also entered into
settlements with former partners of Jazz whereby such partners (or their
creditors) are entitled to future payments from us based on management fees
actually received by the Manager.
We (i) guaranteed JCC's initial $100 million twelve-month payment under the
casino operating contract to the State of Louisiana gaming board (the "State
Guarantee"), (ii) guaranteed $166.5 million of a $236.5 million JCC bank credit
facility, including a $25 million working capital loan, (iii) guaranteed 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) made a $22.5 million
subordinated loan to JCC to finance construction of the Casino in 1999. Since
the Casino opened on October 28, 1999, our obligations under the completion
guarantees have been performed except that we remain responsible to ensure that
JCC has sufficient funds to pay any remaining unpaid completion bills. The
amount of the funding necessary to pay these bills is not expected to be
material to us.
With respect to the State Guarantee, we guaranteed JCC's first $100 million
twelve-month payment obligation commencing upon the opening of the Casino
(October 28, 1999). Additionally, if certain cash flow tests and other
conditions are satisfied each year, we are obligated to repost the guarantee
beginning April 1, 2000, for each 12 month period ending March 31, up to the 12
month period ending March 31, 2004. There are no cash flow conditions for the
first reposting period of April 1, 2000 to March 31, 2001, but reposting is
subject to other conditions. If we repost the guarantee for the twelve-month
period from April 1, 2000 to March 31, 2001, any unfunded portion of our initial
guarantee for the period ending October 27, 2000 is extinguished. Our 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
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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.
On February 28, 2000 JCC notified us that it was suspending its daily
minimum payments to the State of Louisiana gaming board until such time as JCC
is able to generate sufficient cash flow to pay its operating expenses and make
the daily payments. On February 29, 2000 the State made a demand on us under the
State Guarantee. We began funding the daily payment to the State on February 29,
2000.
The funding of the State Guarantee creates a demand obligation from JCC to
us which is the most senior of the project debt, senior to the bank and bond
financing, and secured by a first priority lien on all assets of the casino
project. JCC's bank credit facility permits funding of up to $5 million under
the State Guarantee without a default under the bank loan documents. JCC has
obtained a waiver from its bank syndicate to permit funding of up to $40 million
under the State Guarantee on certain conditions, including (1) reposting by the
Company of the State Guarantee for the one-year period ending March 31, 2001,
subject to certain conditions set forth in our agreement with JCC concerning the
State Guarantee, and (2) forbearance until at the earliest March 31, 2001 by the
Company of collection of up to $40 million principal on the demand obligation
from JCC to us which arises when we fund under the State Guarantee, and also
deferral until March 31, 2000 of any interest on such principal up to $40
million.
On February 29, 2000, we notified JCC that if certain conditions are met, we
will issue a new State Guarantee for the daily payments due from April 1, 2000
through March 31, 2001. We also agreed to forbear from collecting principal and
interest on up to $40 million in loans under the State Guarantee until
March 31, 2001.
For providing the State Guarantee, we earn 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 also earn 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
Bank 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, and the fees are currently being deferred by JCC.
We have executed a forbearance agreement with JCC whereby we have agreed to
forbear until August 1, 2000, or to such later date as we in our sole discretion
may determine, from collecting from JCC slot machine rental, certain
reimbursable items pursuant to the Management Agreement and certain service fees
pursuant to an Administrative Services Agreement with JCC.
AUSTRALIA
We sold our interests in the Star City casino in Sydney, Australia during
fourth quarter 1999 and first quarter 2000 by divesting our outstanding shares
and options of Star City Holdings Ltd. and selling our management contract for
the casino. In connection with the sale of our management contract, we entered
into a three-year casino services agreement whereby we provide consulting and
advisory services to the purchaser for a fee.
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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 43
table games and 1,066 slot machines. Harrah's Joliet has operated as a dockside
casino entertainment facility since the Illinois Riverboat Gambling Act was
amended to allow dockside gaming in June 1999.
The dockside facilities, which are situated on 6.8 acres, include a pavilion
with three restaurants, two snack bars, a lounge, approximately 4,700 square
feet of meeting space and a retail shop. Parking is available for 1,229 cars,
including a portion in a 4-story parking garage. In 1999 Harrah's Joliet
acquired 1.14 acres of additional land adjacent to the facility as a site for
future development.
On November 8, 1999, Harrah's Joliet opened a $29 million development
project located in Joliet's City Center. The 11-story project includes a
204-room hotel (including four suites), 8,000 square feet of new and renovated
office space and a fitness center. The hotel is located adjacent to Harrah's
pavilion. We are now considering further modifications to the property to take
advantage of the dockside operating environment.
A partnership, in which an indirect subsidiary of the Company is the 80
percent general partner, owns the dockside facilities and underlying real
property, the Harrah's Northern Star and the Southern Star II vessels, and the
riverboat businesses. The businesses are operated by Harrah's, as general
partner in the partnership. The partnership also holds long-term rights to the
boat basin/berth.
The Chicago metropolitan area is the primary feeder market for Harrah's
Joliet, with Joliet being only 30 miles from downtown Chicago.
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 66 table games and
approximately 1,800 slot machines. The shoreside facilities include a 105,000
square foot pavilion located on approximately 27 acres of land. The property has
three 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 800 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
has an almost 100% ownership interest. We acquired a 55% interest in SMCP in
connection with our acquisition of Showboat in June 1998 and in February 1999
increased our ownership interest by buying out substantially all of the minority
partners in SMCP. 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 our interest to no less than 91%. On March 15, 1999, we
converted the facility to the Harrah's brand name.
In March 1999, we redeemed the $140 million of 13 1/2% First Mortgage Notes
due 2009 issued by SMCP and its subsidiary.
The casino's primary feeder market is the Chicago metropolitan area.
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
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stationary barge with approximately 50,000 square feet of casino space, 1,437
slot machines and 23 table games. Shoreside facilities, which are situated on 88
acres of land, include a Harrah's hotel, which features 182 rooms, 18 suites,
exercise facilities, four 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 2,700
cars.
The dockside 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, along with two nearby
competitors, owns a golf course and related facilities adjacent to Harrah's
Tunica.
The primary feeder market for Harrah's Tunica is the Memphis metropolitan
area.
We also operated another dockside casino in Tunica which closed in May 1997.
In March 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 21,000 square feet of casino
space, 696 slot machines and 26 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 1,153 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 1,461 cars, including 1,365 spaces in a parking garage.
We have begun construction to expand our Shreveport facilities to include a
514 room hotel as well as four restaurants (including a 156-seat steakhouse, a
198-seat coffee shop, a 446-seat buffet and a coffee/snack bar) as well as a new
convention center, health spa and 437-space valet parking garage. We expect the
expansion to be completed in fourth quarter 2000 at a cost of approximately $147
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.
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NORTH KANSAS CITY
We own and operate dockside 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, 2,239 slot
machines and 65 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.
ST. LOUIS-RIVERPORT
Harrah's St. Louis-Riverport is part of a dockside riverboat casino complex
owned and operated by the Company and Players in Maryland Heights, Missouri, in
northwest St. Louis County, 16 miles from downtown St. Louis. The partnership
formed by the Company and Players leases space both to us and to Players in
which we each operate our separately branded casinos and specialty restaurants.
Upon completion of our acquisition of Players, we will own 100% of the
partnership and the operations at this property.
Currently, 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 1,664 slot machines and 48 table games.
A shoreside pavilion includes five 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 is an 8-story Harrah's hotel with 277 rooms and 14 suites. Parking is
available for 4,071 cars, including a portion in a parking garage. We manage 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 and 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, 3,250 square feet
of meeting room space and a retail shop. The complex has customer parking for
approximately 1,100 cars and has valet parking available. We manage the casino
for a fee under a management contract. The original contract expired in December
1999, and we have signed a contract with the Ak Chin Indian Community to
continue management of the Casino for another five years after that date. The
new agreement is subject to various regulatory approvals, and contemplates an
extension of the Community's compact with the state of Arizona, which expires in
2003. The existing management
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agreement has been temporarily extended through July 1, 2000 (on the new
financial terms) while regulatory approvals are obtained.
The primary feeder markets for the casino are Phoenix and Tucson.
CHEROKEE
We developed the Harrah's Cherokee Smoky Mountains Casino for the Eastern
Band of Cherokee Indians on approximately 39 acres of land on their reservation
in Cherokee, North Carolina. The casino includes 60,000 square feet of casino
space, with 2,518 video gaming machines. Additional facilities consist of a
multi-purpose entertainment room with approximately 1,500 theater-style seats,
three restaurants, a gift shop and child care facilities. Parking is available
for approximately 1,985 cars. We manage the casino for a fee under a management
contract expiring in November 2002. In November 1999, we announced an agreement
with the Tribe to extend our management contract for the casino for another two
years after its expiration in November 2002.
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 1999, $65.6 million of the loan was outstanding. In connection with the
extension of the management contract, we have agreed to guarantee up to an
additional $60 million in project financing to expand the facility.
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, was developed by the Company 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 702 slot
machines and 31 table games. The complex also includes a 100-room hotel, a
restaurant, two snack bars, an entertainment lounge, a gift shop and parking for
approximately 820 vehicles. The facilities are managed by the Company for a fee
under a management contract expiring in January 2003. Renewal of the contract
would require mutual agreement between us and the Prairie Band and approval by
the NIGC.
We have 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 1999,
$14.8 million of the loan was outstanding.
Topeka and Wichita are the primary feeder markets for the casino.
OTHER
NATIONAL AIRLINES, INC.
We own approximately 47.8% of the stock of National Airlines, Inc., a new
airline based in Las Vegas and presently offering nonstop flights between Las
Vegas and New York, Chicago, Philadelphia, Miami, Dallas, Los Angeles and San
Francisco. Up to six additional routes are expected to be added during 2000. We
originally invested $15 million in National Airlines, and prior to our
acquisition of Rio, Rio also invested $15 million. The consummation of the
merger with Rio increased our equity interest to approximately 47.8%; however,
our voting power is limited to 25% Our investment in the airline allows us to
offer additional valued services and conveniences to customers. We have entered
into marketing agreements with National Airlines to support joint promotions
involving the airline, Harrah's Las Vegas and the Rio Hotel & Casino, and, we
have provided two letters of credit totaling $15 million as collateral for
financial accommodations extended to National Airlines by two lenders, for
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which we receive fees and warrants to purchase additional stock in the airline.
Rio's interest in the airline is reported as an asset-held-for-sale in our
financial statements.
OTHER
In September 1999, we sold our interest in Sodak Gaming, Inc. ("Sodak") to a
gaming equipment manufacturing company which acquired all of Sodak's outstanding
shares. Sodak is a leading distributor of electronic gaming machines and
gaming-related products and systems.
We own 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, we wrote off our investment in IEL.
We own a one-third interest in Turfway Park LLC, which is the owner of the
Turfway Park race course located on 197 acres in Boone County, Kentucky. We also
own 47 acres of undeveloped land in the vicinity of the race track, which are
currently listed for sale.
In addition to the above, we are actively pursuing a variety of casino
entertainment opportunities in various jurisdictions both domestically and
abroad, including land-based, riverboat and dockside casino and Indian gaming
projects in the United States. A number of these projects, if they go forward,
could require significant capital investments.
PATENTS AND TRADEMARKS
We own the following trademarks used in this document:
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); Masquerade Village(sm); Palazzo Suites(sm); Sammy's Showroom(sm);
South Shore Showroom(sm) and Rio Secco Golf Club(sm). We consider all of these
marks, and the associated name recognition, to be valuable to our business. We
hold four U.S. patents covering the technology associated with our 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, U.S. patent No. 5,809,482 issued September 15,
1998, and U.S. patent No. 6,003,013 issued December 14, 1999. We consider these
patents to be valuable to our business.
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COMPETITION
We operate land-based, dockside, riverboat and Indian casino facilities in
all of the traditional, and most of the new, U.S. casino entertainment
jurisdictions. We compete with numerous casinos and casino hotels of varying
quality and size in the market areas where our properties are located. We also
compete 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, we compete
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, we compete directly with other casino facilities operating
in the immediate and surrounding market areas. In major casino destinations,
such as Las Vegas and Atlantic City, we face competition from other markets in
addition to direct competition in our 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 our
acquisition of the casinos owned by Rio and Showboat and our planned acquisition
of Players. This expansion of existing casino entertainment properties, the
increase in the number of properties and the aggressive marketing strategies of
many of our competitors has increased competition in many markets in which we
compete, and this intense competition can be expected to continue. These
competitive pressures have adversely affected our financial performance in
certain markets and, we believe, have also adversely affected the financial
performance of certain competitors operating in these markets.
We believe we are 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 us. For example, in September 1999, the State of
California and approximately 60 Indian Tribes executed Class III Gaming
compacts, which other California tribes can join. The Compacts, which allow each
tribe to operate, on tribal trust lands, two casinos with up to 2,000 slot
machines per tribe and unlimited house-banked card games, were the subject of an
amendment to the state's constitution approved in a statewide referendum on
March 7, 2000. At this time, the ultimate impact that the compacts and the
California referendum may have on the industry or on our Company are uncertain.
Moreover, the casino entertainment industry is subject to political and
regulatory uncertainty. In 1996, the U.S. government formed the National
Gambling Impact Study Commission to study gambling in the United States,
including the casino gaming industry. The commission issued its report in June
1999. At this time, we are not sure of the ultimate impact of the commission's
report on the casino industry or on the Company. See also "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Effects of Current Economic and Political Conditions" on pages 31
and 32 and portions of "Management's Discussion and Analysis--Operating Results
and Development Plans" on pages 25 and 26 of the Annual Report. These pages are
incorporated into this document by reference.
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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 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)
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or elect one or more of its directors. Any person holding 5% or more of a
security in an intermediary or ultimate holding company, or having the ability
to elect one or more of the directors of a company, is presumed to have the
ability to control the company and thus may be required to seek qualification
unless the presumption is rebutted. Notwithstanding this presumption of control,
the New Jersey Act permits the waiver of the qualification requirements for
passive "institutional investors" (as defined by the New Jersey Act), when such
institutional holdings are for investment purposes only and where such
securities represent less than 10% of the equity securities of a casino
licensee's holding or intermediary companies or debt securities of a casino
licensee's holding or intermediary companies not exceeding 20% of a company's
total outstanding debt or 50% of an individual debt issue. The waiver, which is
subject to certain specified conditions including, upon request, the filing of a
certified statement that the investor has no intention of influencing the
affairs of the issuer, may be granted to an "institutional investor" holding a
higher percentage of such securities upon a showing of good cause. If an
"institutional investor" is granted a waiver of the qualification requirements
and subsequently changes its investment intent, the New Jersey Act provides that
no action other than divestiture may be taken by the investor without compliance
with the Interim Casino Authorization Act (the "Interim Act") described below.
In the event a security holder of either equity or debt is required to
qualify under the New Jersey Act, the provisions of the Interim Act may be
triggered requiring, among other things, either: (i) the filing of a completed
application for qualification within 30 days after being ordered to do so, which
application must 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
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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 revocation of
the casino license of Marina and/or Showboat. 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. The New Jersey Commission has begun the renewal process for
Marina's license, which we expect to result in the granting of an additional
four-year license for Marina in April 2000. 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.
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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 Board, the City of Las Vegas, the CCLGLB, the City of
Reno, and Douglas County are collectively referred to as the "Nevada Gaming
Authorities."
The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy which are concerned
with, among other things: (i) the prevention of unsavory or unsuitable persons
from having a direct or indirect involvement with gaming at any time or in any
capacity; (ii) the establishment and maintenance of responsible accounting
practices and procedures; (iii) the maintenance of effective controls over the
financial practices of licensees, including the establishment of minimum
procedures for internal fiscal affairs and the safeguarding of assets and
revenues, providing reliable record keeping and requiring the filing of periodic
reports with the Nevada Gaming Authorities; (iv) the prevention of cheating and
fraudulent practices; and (v) providing a source of state and local revenues
through taxation and licensing fees. Changes in such laws, regulations and
procedures could have an adverse effect on 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"), (ii) Showboat, Inc. ("Showboat"), (iii)
Harrah's Las Vegas, Inc. ("HLVI") and (iv) Harrah's Laughlin, Inc. ("HLI"). Rio
has been registered as an intermediary company and found suitable to own the
stock of Rio Properties, Inc. ("RPI") and Rio Leasing, Inc. ("RLI"). Showboat
also has been registered as an intermediary company and has been found suitable
to own the stock of Showboat Operating Company ("SBOC"). HOC, Rio, 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 and HOC 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 equity securities without the prior
approval of the Nevada Commission. Harrah's Entertainment 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
or the Gaming Subsidiaries in order to
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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 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 or the Gaming
Subsidiaries to terminate the employment of any person who refuses to file
appropriate applications. Determinations of suitability or of questions
pertaining to licensing are not subject to judicial review in Nevada.
Harrah's Entertainment 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 Entertainment'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's 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
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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 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 including, if necessary, the immediate purchase
of said 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 is required to maintain a current stock ledger at its
corporate headquarters in Las Vegas, Nevada which may be examined by the Nevada
Gaming Authorities at any time. If any securities are held in trust by an agent
or by a nominee, the record holder may be required to disclose the identity of
the beneficial owner to the Nevada Gaming Authorities. A failure to make 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
Harrah's Entertainment'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.
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Harrah's Entertainment and HOC may not make a public offering of their
securities without the prior approval of the Nevada Commission if the securities
or the proceeds therefrom are intended to be used to construct, acquire or
finance gaming facilities in Nevada, or to retire or extend obligations incurred
for such purposes. On November 19, 1998, the Nevada Commission granted Harrah's
Entertainment and HOC prior approval to make public offerings for a period of
two years, subject to certain conditions ("Shelf Approval"). On November 18,
1999 the Nevada Commission amended the 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 evidenced by a security issued by, Harrah's Entertainment or
an Affiliate in a public offering under the Shelf Approval. The Shelf Approval,
however, may be rescinded for good cause without prior notice upon the issuance
of an interlocutory stop order by the Chairman of the Nevada 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.
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.
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Any person who is licensed, required to be licensed, registered, required to
be registered, or is under common control with such persons (collectively,
"Licensees") and who proposes to become involved in a gaming venture outside of
Nevada is required to deposit with the Nevada Board, and thereafter maintain, a
revolving fund in the amount of $10,000 to pay the expenses of investigation of
the Nevada Board of their participation in such foreign gaming. The revolving
fund is subject to increase or decrease in the discretion of the Nevada
Commission. Thereafter, Licensees are required to comply with certain reporting
requirements imposed by the Nevada Act. Licensees are also subject to
disciplinary action by the Nevada Commission if they knowingly violate any laws
of the foreign jurisdiction pertaining to the foreign gaming operation, fail to
conduct the foreign gaming operation in accordance with the standards of honesty
and integrity required of Nevada gaming operations, engage in activities 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 unsuitability.
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 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
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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 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
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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. 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 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.
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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, which issued its final report on December 31, 1999. The effect of the
report on gaming in Indiana, if any, cannot be determined at this time.
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, filed a motion for summary judgment, which was granted, upholding
the constitutionality of the Riverboat Gambling Act. The plaintiffs have filed
an appeal, 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"), assumed responsibility for, among other things, operating the casino
(the "New Orleans Casino") in accordance with a casino operating contract (the
"Casino Contract") with the Louisiana Gaming Control Bord ("LGCB"). In exchange
for an equity investment, a subsidiary of the Company acquired, at the time of
consummation of the Plan, approximately a 43% 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") manages the New Orleans Casino pursuant
to a management agreement with JCC.
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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 Casino 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, 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 license to own and operate the casino derives from the Casino Contract.
Subject to the terms and conditions of the Casino Contract, the term of the
authorization for gaming runs to July 2014, with a ten-year renewal period.
The Gaming Act and the Rules and Regulations require suitability findings
for, among others, HNOMC and the Company, anyone with a direct ownership
interest (regardless of percentage interest) or the ability to control JCC,
HNOMC and the Company as well as certain officers and directors of such
companies, certain employees and certain specified debt holders and lenders
loaning funds related to the Casino project. Suitability of an applicant
requires that the applicant demonstrate 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 prctices, 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 Casino 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
a sufficient amount, as determined by the LGCB, to guarantee successful
completion of and compliance with the Casino Contract or such other projects
that are regulated by the LGCB.
Under the Gaming Act and Rules and Regulations, any person holding or
controlling a direct or beneficial 5% or more equity interest (either alone or
in combination with others) in a direct or indirect holding company of JCC or
HNOMC is presumed to have the ability to control JCC or HNOMC (or their holdings
companies, 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 and, upon request, such institution files necessary documentation
demonstrating that it does not have the ability to control such entity and that
it does not intend to influence the affairs of JCC or HNOMC. To the extent any
holder of such securities fails to satisfy such requirement, such holder may be
required to obtain certain qualifications or approvals (including a finding of
suitability) from the LGCB to continue to hold such securities. Any failure to
obtain such qualifications or approvals may 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.
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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 against JCC or HNOMC on the grounds that a person found
suitable as required by the Gaming Act is associated with, or controls, or is
controlled by, or is under common control with, an unsuitable or disqualified
person. Under the Rules and Regulations and the Casino Contract, if at any time
the LGCB finds that any person required to be and remain suitable has failed to
demonstrate suitability, the LGCB may, consistent with the Gaming Act and the
Casino 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, HNOMC or their affiliate, intermediary or holding
companies, as the case may be, has failed to be found or remain suitable, the
LGCB wil not declare such companies 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 dispostion, ensure that the disqualified person
does not receive any ownership benefits. The above safe harbor protections do
not apply if JCC, HNOMC or their affiliate, intermediary, or holding companies,
as the case may be: (i) fail to remain suitable, (ii) had actual or constructive
knowledge of the facts that are the basis of the LGCB regulatory action and
failed to take appropriate action, or (iii) are so tainted by such person that
it affects the suitability of such entity under the standards of the Gaming Act.
Under the Gaming Act, the LGCB and the its investigatory arm, the State
Police, are also required to issue licenses or permits to certain persons
associated with gaming operations, including: (i) certain employees of JCC and
HNOMC; (ii) certain manufacturers, distributors and suppliers of gaming devices;
(iii) certain suppliers of non-gaming goods or services; (iv) any person who
furnishes services or property to JCC 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 are 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 find unsuitable 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 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 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, the gaming activities that may be conducted at the
official gaming establishment, 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 Casino Contract, for each fiscal year of the Casino's operation,
JCC is required to pay to LGCB the greater of (i) $100 million; and (ii) the sum
of a sliding scale of gross gaming revenue that begins with a percentage of
18.5% of such revenues up to $600 million and escalates in differing
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percentages to a high of 25% for such revenues in excess of $900 million. JCC is
required to make such payments in daily increments, with an end of year
settlement for gross gaming revenues in excess of $100 million. At least one day
prior to the beginning of each fiscal year (no later than March 31(st) of each
year), JCC is required to post with LGCB an unconditional guaranty of the
minimum $100 million payments to LGCB in a form acceptable to LGCB and issued by
a lender or third party with resources suitable to cover this payment (as
determined by LGCB). The failure to post such a guaranty will result in the
automatic termination of the Casino Contract with no cure period. The Casino
Contract also imposes certain financial stability requirements on JCC relating
to its ability to meet ongoing operating expenses, casino bankroll requirements,
project debt payments and capital maintenance requirements. If JCC fails to
clearly and convincingly demonstrate compliance with such requirements, LGCB may
impose certain regulatory conditions, including, without limitation, placing
restrictions on certain distributions by JCC to affiliates or entities in a
control relationship with any of them and appointing a fiscal agent. The failure
to cure a financial stability default within the specified period of time is an
Event of Default under the Casino Contract that could lead to the closure of the
Casino, the termination of the Casino Contract, and/or the appointment of a
conservator.
The sale, transfer, assignment, or alienation of a casino operating
contract, or an interest therein, in violation of the Gaming Act is prohibited.
The LGCB may approve the sale, transfer, assignment, or may grant the approval
subject to conditions imposed by the LGCB. Further, under the Gaming Act, the
sale, transfer, assignment, pledge, alienation, disposition, public offering, or
acquisition of securities that results 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 of LGCB of a
person acquiring 5% or more of the total outstanding shares of a licensee or 5%
or more economic interest in JCC is grounds for cancellation of the Casino
Contract or license suspension or revocation.
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 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 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 certain limited food
offerings 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 Casino Contract; (iv) engage in the sale of
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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 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 on an annual basis
between the LGCB and the City of New Orleans, subject to approval by the State
legislature.
The Gaming Act, the Casino Contract and the Rules and Regulations have
extensive prior approval requirements relating to certain borrowings and
security interests related to the casino project. 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.
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
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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 oversight structure. There can be no
assurances that legislation having a material detrimental impact on the New
Orleans Casino will not be enacted.
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.
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 a license of the applicant issued
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under the Illinois legislation or a license to own or operate gaming facilities
in any other jurisdiction has been revoked.
In determining whether to grant a license, the Illinois Gaming Board
considers: (i) the character, reputation, experience and financial integrity of
the applicants; (ii) the type of facilities (including riverboat and docking
facilities) proposed by the applicant; (iii) the highest prospective total
revenue to be derived by the state from the conduct of riverboat gaming; (iv)
affirmative action plans of the applicant, including minority training and
employment; and (v) the financial ability of the applicant to purchase and
maintain adequate liability and casualty insurance. Municipal (or county, if an
operation is located outside of a municipality) approval of a proposed applicant
is required, and all documents, resolutions, and letters of support must be
submitted with the initial application.
A holder of a license is subject to the imposition of fines, suspension or
revocation of its license for any act that is injurious to the public health,
safety, morals, good order, and general welfare of the people of the state of
Illinois, or that would discredit or tend to discredit the Illinois gaming
industry or the state of Illinois, including without limitation: (i) failing to
comply with or make provision for compliance with the legislation, the rules
promulgated thereunder or any federal, state or local law or regulation; (ii)
failing to comply with any rule, order or ruling of the Illinois Gaming Board or
its agents pertaining to gaming; (iii) receiving goods or services from a person
or business entity who does not hold a supplier's license but who is required to
hold such license by the rules; (iv) being suspended or ruled ineligible or
having a license revoked or suspended in any state or gaming jurisdiction;
(v) associating with, either socially or in business affairs, or employing
persons of, notorious or unsavory reputation or who have extensive police
records, or who have failed to cooperate with any official constituted
investigatory or administrative body and would adversely affect public
confidence and trust in gaming; and (vi) employing in any Illinois riverboat's
gaming operation any person known to have been found guilty of cheating or using
any improper device in connection with any game. Fines may be made of up to
$5,000 against individuals and up to the greater of $10,000 or an amount equal
to the daily gross receipts against licensees for each violation.
An ownership interest in a license or in a business entity, other than a
publicly held business entity which holds an owner's license, may not be
transferred without approval of the Illinois Gaming Board. In addition, an
ownership interest in a license or in a business entity, other than a publicly
held business entity, which holds either directly or indirectly an owner's
license, may not be pledged as collateral without approval of the Illinois
Gaming Board.
A person employed at a riverboat gaming operation must hold an occupational
license which permits the holder to perform only activities included within such
holder's level of occupation license or any lower level of occupation license.
In addition, the Illinois Gaming Board issues suppliers licenses which authorize
the supplier licensee to sell or lease gaming equipment and supplies to any
licensee involved in the ownership and management of gaming operations.
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
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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.
In 1999, the Riverboat Gambling Act was amended, INTER ALIA, to allow
dockside gaming, the ownership of multiple casino licenses, and the movement of
a riverboat gaming license from one location to another. Subsequently, a lawsuit
was filed challenging the constitutionality of certain aspects of the amendment.
If the lawsuit is successful, it may result in a finding that the entire
amendment is unconstitutional. Such a finding could have a material adverse
effect on the Company's ownership of multiple casino licenses and the operating
results of the Company's riverboats.
GAMING--MISSISSIPPI
The ownership and operation of a gaming business in the State of Mississippi
is subject to extensive laws and regulations, including the Mississippi Gaming
Control Act (the "Mississippi Act") and the regulations (the "Mississippi
Regulations") promulgated thereunder by the Mississippi Gaming Commission (the
"Mississippi Commission"), which is empowered to oversee and enforce the
Mississippi Act. Gaming in Mississippi can be legally conducted only on vessels
of a certain minimum size in navigable waters within any county bordering the
Mississippi River or in waters of the State of Mississippi which lie adjacent
and to the south (principally in the Gulf of Mexico) of the Counties of Hancock,
Harrison and Jackson, provided that the county in question has not voted by
referendum not to permit gaming in that county. The underlying policy of the
Mississippi Act is to ensure that gaming operations in Mississippi are
conducted: (i) honestly and competitively; (ii) free of criminal and corruptive
influences; and (iii) in a manner which protects the rights of the creditors of
gaming operations.
The Mississippi Act requires that a person (including any corporation or
other entity) be licensed to conduct gaming activities in the State of
Mississippi. A license will be issued only for a specified location which has
been approved in advance as a gaming site by the Mississippi Commission.
Harrah's Vicksburg Corporation, an indirect subsidiary of Harrah's, is licensed
to operate a riverboat casino in Vicksburg, Mississippi. Harrah's Tunica
Corporation, another indirect subsidiary, is the general partner of Tunica
Partners L.P. and Tunica Partners II L.P., each of which is the licensed
operator of a riverboat casino in Tunica, Mississippi. (Harrah's Vicksburg
Corporation is the limited partner of both partnerships.) As stated above, the
casino operated by Tunica Partners L.P. closed in May 1997, 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
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from acceptable sources, and that persons associated with the applicant have
sufficient business probity, competence and experience to engage in the proposed
gaming enterprise. The Mississippi Commission may refuse to issue a work permit
to a gaming employee: (i) if the employee has committed larceny, embezzlement or
any crime of moral turpitude, or has knowingly violated the Mississippi Act or
Mississippi Regulations; or (ii) for any other reasonable cause.
There can be no assurance that such persons will be found suitable by the
Mississippi Commission. An application for licensing, finding of suitability or
registration may be denied for any cause deemed reasonable by the issuing
agency. Changes in licensed positions must be reported to the issuing agency. In
addition to its authority to deny an application for a license, finding of
suitability or registration, the Mississippi Commission has jurisdiction to
disapprove a change in corporate position. If the Mississippi Commission were to
find a director, officer or key employee unsuitable for licensing or unsuitable
to continue having a relationship with the licensee, such entity would be
required to suspend, dismiss and sever all relationships with such person. The
licensee would have similar obligations with regard to any person who refuses to
file appropriate applications. Each gaming employee must obtain a work permit
which may be revoked upon the occurrence of certain specified events.
Any individual who is found to have a material relationship to, or material
involvement with, Harrah's 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
33
<PAGE>
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 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.
34
<PAGE>
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.
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. Red River
received a one-year renewal in July, 1999. Subsequent renewals will be for
two-year terms. In determining whether to grant a license, the Division
considers: (i) the good character, honesty and integrity of the applicant; (ii)
the applicant's ability to conduct gaming operations; (iii) the adequacy and
source of the applicant's financing; (iv) the adequacy of the design documents
submitted; (v) the docking facilities to be used; (vi) applicant's plan to
recruit, train, and upgrade minorities in employment and to provide for
minority-owned business participation.
A holder of a license is subject to the imposition of penalties, suspension
or revocation of its license for any act that is injurious to the public health,
safety, morals, good order, and general welfare of the people of the state of
Louisiana, or that violates the gaming laws and regulations.
The transfer of a license or an interest in a license is prohibited. In
addition, an ownership interest of five percent or more in a business entity
which holds a gaming license may not be sold, assigned, transferred or pledged
without the Division's approval.
No person may be employed as a gaming employee unless such person holds a
gaming employee permit issued by the Division. In addition, the Division issues
suppliers licenses which authorize the supplier licensee to sell or lease gaming
equipment and supplies to any licensee.
Minimum and maximum wagers on games are set by the licensee and wagering may
be conducted only with a cashless wagering system, whereby all money is
converted to tokens, electronic cards, or chips used only for wagering in the
gaming establishment. No person under the age of 21 is permitted to wager, and
wagers may only be taken from a person present on a licensed riverboat.
The legislation imposes a franchise fee for the right to operate on
Louisiana waterways of 15% of net gaming proceeds and a license fee of $50,000
(first year) and $100,000 (subsequent years) plus three and one-half percent of
net gaming proceeds. All fees are paid to the Division. In addition, the
legislation authorizes local governing authorities the power to levy an
admission fee for each person boarding the riverboat. Currently that amount is
paid by the license holder. The Company's operation is currently making a
payment in lieu of such admission fee of 4.75% of net gaming proceeds.
35
<PAGE>
GAMING--MISSOURI
The ownership and operation of a gaming riverboat in Missouri is subject to
extensive regulation under the Missouri Riverboat Gambling Act and the rules and
regulations promulgated thereunder. A five-member Missouri Gaming Commission
("Commission") is charged with such regulatory authority, including the issuance
of riverboat gaming licenses. Harrah's-North Kansas City Corporation, an
indirect subsidiary of Harrah's, has been issued two licenses by the Commission
to conduct riverboat gaming at its North Kansas City location. Harrah's Maryland
Heights LLC, also an indirect subsidiary of the Company, has been issued two
licenses by the Commission to conduct riverboat gaming at its Maryland Heights
location. Gaming in Missouri can be conducted legally only on either excursion
gambling boats or floating facilities approved by the Commission on the
Mississippi and Missouri Rivers. Unless permitted to be continuously docked by
the Commission for certain stated reasons, including safety, excursion gambling
boats must cruise. The Commission has approved dockside gaming for the Company's
riverboats in North Kansas City and Maryland Heights.
To obtain a gaming license, applicants must submit comprehensive application
forms, be fingerprinted and undergo an extensive background investigation by the
Commission. An applicant is ineligible to receive an owner's license if the
applicant has not established good reputation and moral character or if the
applicant, any of its officers, directors or managerial employees or any person
who participates in the management or operation of gaming operations has been
convicted of a felony. There are separate licenses for owners and operators of
riverboat gambling operations, which can be applied for and held concurrently.
Each license granted entitles a licensee to own and/or operate an excursion
gambling boat and equipment thereon from a specific location. The duration of
the license initially runs for two one-year terms followed by two-year terms.
The Commission also licenses the serving of alcoholic beverages on riverboats
and adjacent facilities. All local income, earnings, use, property and sales
taxes are applicable to licensees.
In determining whether to grant a license, the Commission considers: (i) the
integrity of the applicants; (ii) the types and variety of games to be offered;
(iii) the quality of the physical facility, together with improvements and
equipment, and how soon the project will be completed; (iv) the financial
ability of the applicant to develop and operate the facility successfully; (v)
the status of governmental actions required for the facility; (vi) management
ability of the applicant; (vii) compliance with applicable laws, rules,
charters, and ordinances; (viii) the economic, ecological and social impact of
the facility as well as the cost of public improvements; (ix) the extent of
public support or opposition; (x) the plan adopted by the home dock city or
county; and (xi) effects on competition.
A holder of a license is subject to the imposition of penalties, suspension
or revocation of its license for any act that is injurious to the public health,
safety, morals, good order, and general welfare of the people of the state of
Missouri, or that would discredit or tend to discredit the Missouri gaming
industry or the state of Missouri, including without limitation: (i) failing to
comply with or make provision for compliance with the legislation, the rules
promulgated thereunder or any federal, state or local law or regulation; (ii)
failing to comply with any rules, order or ruling of the Commission or its
agents pertaining to gaming; (iii) receiving goods or services from a person or
business entity who does not hold a supplier's license but who is required to
hold such license by the legislation or the rules; (iv) being suspended or ruled
ineligible or having a license revoked or suspended in any state or gaming
jurisdiction; (v) associating with, either socially or in business affairs, or
employing persons of notorious or unsavory reputation or who have extensive
police records, or who have failed to cooperate with any official constituted
investigatory or administrative body and would adversely affect public
confidence and trust in gaming; (vi) employing in any Missouri gaming operation
any person known to have been found guilty of cheating or using any improper
device in connection with any game; (vii) use of fraud, deception,
misrepresentation or bribery in securing any license or permit issued pursuant
to the legislation; (viii) obtaining any fee, charge, or other compensation by
fraud, deception or
36
<PAGE>
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.
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. The management contracts relating to the Harrah's managed casinos for
the Ak-Chin Indian Community, the Eastern Band of Cherokee Indians and the
Prairie Band of Potawatomi Nation 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
37
<PAGE>
chance of unsuitable activities in gaming or the business and financial
arrangements incidental thereto. In addition, the NIGC will not approve a
management contract if the management company or any of its agents have
attempted to unduly influence any decision or process of tribal government
relating to gaming, or if the management company has materially breached the
terms of the management contract or the tribe's gaming ordinance, or a trustee,
exercising due diligence, would not approve such management contract. A
management contract can be approved only after NIGC determines that the contract
provides, among other things, for: (i) adequate accounting procedures and
verifiable financial reports, which must be furnished to the tribe; (ii) tribal
access to the daily operations of the gaming enterprise, including the right to
verify daily gross revenues and income; (iii) minimum guaranteed payments to the
tribe, which must have priority over the retirement of development and
construction costs; (iv) a ceiling on the repayment of such development and
construction costs and (v) a contract term not exceeding five years and a
management fee not exceeding 30% of net revenues (as determined by the NIGC);
provided that the NIGC may approve up to a seven year term and a management fee
not to exceed 40% of net revenues if NIGC is satisfied that the capital
investment required, and the income projections for the particular gaming
activity require the larger fee and longer term. There is no periodic or ongoing
review of approved contracts by the NIGC. The only post-approval action which
could result in possible modification or cancellation of a contract would be as
the result of an enforcement action taken by the NIGC based on a violation of
the law or an issue affecting suitability.
IGRA established three separate classes of tribal gaming--Class I, Class II
and Class III. Class I includes all traditional or social games solely for
prizes of minimal value played by a tribe in connection with celebrations or
ceremonies. Class II gaming includes games such as bingo, pulltabs, punchboards,
instant bingo and non-banked card games (those that are not played against the
house), such as poker. Class III gaming is casino-style gaming and includes
banked table games such as blackjack, craps and roulette, and gaming machines
such as slots, video poker, lotteries and pari-mutuel wagering. Harrah's Phoenix
Ak-Chin provides Class II gaming and, as limited by the tribal-state compact,
Class III gaming. The Cherokee and Prairie Band casinos provide 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"). 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 manage
the Prairie Band of Potawatomi Indians' casino and the Eastern Band of Cherokee
Indians' casino, respectively.
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. We believe that we have
complied with the requirements of section 81 with respect to our management
contracts for Harrah's Phoenix Ak-Chin, Harrah's Cherokee and Harrah's Prairie
Band and intend to comply with Section 81 with respect to any other contract to
manage casinos located on Indian land in the United States.
38
<PAGE>
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
Harrah's Entertainment, 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 us. We have 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 Cherokee Indians and the Prairie Band of Potawatomi Nation are ongoing
conditions of our agreements with these tribes.
OTHER REGULATIONS
Our 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 our operating results.
FUEL SHORTAGES AND COSTS; WEATHER
Although gasoline supplies are now in relative abundance, gasoline shortages
and price increases may have adverse effects on our casino business. Access to
several of our 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, Atlantic City Showboat, Harrah's Joliet and Harrah's East Chicago.
EMPLOYEE RELATIONS
Harrah's Entertainment, through its subsidiaries, has approximately 36,100
employees. Labor relations with employees are good.
Our 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, Harrah's
East Chicago and both Showboat facilities.
ITEM 3. LEGAL PROCEEDINGS.
The Company is party to routine litigation incidental to our business. We do
not expect the outcome of any pending litigation to have a material adverse
effect on our consolidated financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
39
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
POSITIONS AND OFFICES HELD AND PRINCIPAL
NAME AND AGE OCCUPATIONS OR EMPLOYMENT DURING PAST 5 YEARS
- ------------ ------------------------------------------------------------
<S> <C>
Philip G. Satre (50).......... Director since 1989, member of the three-executive Office of
the President since May, 1999, Chairman of the Board since
January 1997, and Chief Executive Officer since April 1994
of Harrah's Entertainment. President (1991-1999), 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. He is also a director of TABCORP Holdings
Limited, an Australia public company, JDN Realty Corporation
and JCC Holding Company.
Colin V. Reed (52)............ Director since 1998, member of the three-executive Office of
the President since May 1999, Executive Vice President of
Harrah's Entertainment from September 1995 to May 1999.
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 National Airlines, Inc., as well as
Chairman of the Board of JCC Holding Company.
Gary W. Loveman (39).......... Director since 2000; Chief Operating Officer since May 1998;
member of the three-executive Office of the President since
May 1999; Executive Vice President of Harrah's Entertainment
from May 1998 to May 1999. 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. He is also a director of National
Airlines, Inc.
John M. Boushy (44)........... Senior Vice President, Brand Operations and Information
Technology since February 1999; Senior Vice President,
Information Technology and Marketing Services of Harrah's
Entertainment from 1993 to 1999. He is a director of
Interactive Entertainment Limited.
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
POSITIONS AND OFFICES HELD AND PRINCIPAL
NAME AND AGE OCCUPATIONS OR EMPLOYMENT DURING PAST 5 YEARS
- ------------ ------------------------------------------------------------
<S> <C>
Stephen H. Brammell (42)...... Senior Vice President and General Counsel since July 1999;
Vice President and Associate General Counsel from 1997 to
1999; Associate General Counsel from 1993 to 1997 of
Harrah's Entertainment.
Janis L. Jones (50)........... Senior Vice President of Communications/Government Relations
of Harrah's Entertainment since October 1999; Mayor of Las
Vegas from 1991 to 1999. She is also a director of the
Community Bank of Nevada and HEALTHSOUTH Corporation.
Marilyn G. Winn (47).......... Senior Vice President, Human Resources of Harrah's
Entertainment since May 1999; Senior Vice President and
General Manager of Harrah's Shreveport from 1997 to 1999;
Director of Slot Operations of Harrah's Las Vegas from 1995
to 1997.
</TABLE>
41
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PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
Our 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 our
Common Stock for the last two years:
<TABLE>
<CAPTION>
1999 HIGH LOW
- ---- ----------- ----------
<S> <C> <C>
First Quarter............................................... 20 1/4 14 3/8
Second Quarter.............................................. 24 9/16 18 7/16
Third Quarter............................................... 27 3/4 19 5/8
Fourth Quarter.............................................. 30 3/4 23 3/8
</TABLE>
<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
</TABLE>
The approximate number of holders of record of our Common Stock as of
January 31, 2000, is as follows:
<TABLE>
<CAPTION>
APPROXIMATE
NUMBER OF
TITLE OF CLASS HOLDERS OF RECORD
- -------------- -----------------
<S> <C>
Common Stock, Par Value $0.10 per share..................... 11,063
</TABLE>
We do not presently intend to declare cash dividends. Our Board of Directors
may reevaluate this dividend policy in the future in light of our results of
operations, financial condition, cash requirements, future prospects and other
factors deemed relevant by the Board.
ITEM 6. SELECTED FINANCIAL DATA.
See the information for the years 1995 through 1999 set forth under
"Financial and Statistical Highlights" on pages 20 and 21 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 23 through 33 of the Annual Report,
which pages are incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
We are exposed to market risk, primarily changes in interest rates. We have
entered into derivative transactions to hedge our exposure to interest rate
changes. We do not hold or issue derivative financial instruments for trading
purposes and do not enter into derivative transactions that would be considered
speculative positions.
The table below provides information about our derivative financial
instruments and other financial instruments that are sensitive to changes in
interest rates, including interest rate swaps and
42
<PAGE>
debt obligations. For debt obligations, the table presents notional amounts and
weighted average interest rates by contractual maturity dates.
<TABLE>
<CAPTION>
MATURITY DATE
----------------------------------------------------------------- FAIR
2000 2001 2002 2003 2004 THEREAFTER TOTAL VALUE(1)
---- ---- ---- ---- ---- ---------- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN MILLIONS)
LIABILITIES
Long-term debt
Fixed rate.......................... $ 2.9 $ 2.7 $ 1.4 $ 1.3 $ 1.3 $1,402.5 $1,412.1 $1,353.8
Average interest rate............. 11.4% 10.5% 7.3% 7.1% 7.1% 7.7% 7.7%
Variable rate....................... $ - $ - $ - $ - $1,131.0 $ - $1,131.0 $1,131.0
Average interest rate(2).......... -% -% -% -% 7.4% -% 7.4%
INTEREST RATE SWAPS
Variable to Fixed................... $300.0 $ - $ - $ - $ - $ - $ 300.0 $ 0.5
Average pay rate.................. 6.5% -% -% -% -% -% 6.5%
Average receive rate.............. 6.1% -% -% -% -% -% 6.1%
</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, 1999, variable rates.
Actual rates in future periods could vary.
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. We
minimize this risk by evaluating the creditworthiness of our counterparties,
which are limited to major banks and financial institutions.
Foreign currency translation gains and losses were not material to our
results of operations for the year ended December 31, 1999. We sold our equity
interest in a casino in a foreign country during fourth quarter 1999 and sold
our management contract for that casino in January 2000. As a result of these
transactions, we no longer have any interests in businesses in foreign countries
and, therefore, are not subject to foreign currency exchange rate risk.
Accordingly, we are not currently subject to material foreign currency exchange
rate risk from the effects that exchange rate movements of foreign currencies
would have on our future operating results or cash flows.
We also hold investments in various available-for-sale equity securities.
Our exposure to price risk arising from the ownership of these investments is
not material to our consolidated financial position, results of operations or
cash flows.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See the information set forth on pages 34 through 51 of the Annual Report,
which pages are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS.
DIRECTORS
See the information regarding the names, ages, positions and prior business
experience of our directors set forth in the section entitled "Board of
Directors" of the Proxy Statement, which information is incorporated herein by
reference.
43
<PAGE>
EXECUTIVE OFFICERS
See "Executive Officers of the Registrant" on page 40 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 1999 and
December 31, 1999 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, 1999 and 1998.
Consolidated Statements of Income for the Years Ended December 31, 1999,
1998 and 1997.
Consolidated Statements of Stockholders' Equity and Comprehensive Income for
the Years Ended December 31, 1999, 1998 and 1997.
Consolidated Statements of Cash Flows for the Years Ended December 31, 1999,
1998 and 1997.
2. Schedules for the years ended December 31, 1999, 1998 and 1997, are
as follows:
<TABLE>
<CAPTION>
NO.
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<C> <C> <S>
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>
- ------------------------
* Incorporated by reference from pages 34 through 51 of the Annual Report.
3. Exhibits (footnotes appear on pages 51 through 53)
<TABLE>
<CAPTION>
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<C> <S>
1 Underwriting Agreement, dated as of January 12, 1999,
between Harrah's Entertainment, Inc., Harrah's Operating
Company, Inc. and the Underwriters named therein. (26)
</TABLE>
44
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<TABLE>
<CAPTION>
NO.
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<C> <S>
2(1) 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. (8)
2(2) Agreement and Plan of Merger, dated as of August 19, 1999,
by and among Harrah's Entertainment, Inc., HEI Acquisition
Corp. II and Players International, Inc. (including form of
Stockholder Support Agreement entered into by stockholders
of Players as of the same date). (27)
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. (19)
3(2) Bylaws of Harrah's Entertainment, Inc., as amended May 7,
1999. (28)
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. (21)
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. (4)
4(4) Letter to Stockholders dated July 23, 1997 regarding Summary
of Rights To Purchase Special Shares As Amended Through
April 25, 1997. (14)
4(5) Certificate of Elimination of Series B Special Stock of
Harrah's Entertainment, Inc., dated February 21, 1997. (21)
4(6) Certificate of Designations of Series A Special Stock of
Harrah's Entertainment, Inc., dated February 21, 1997. (21)
4(7) Interest Swap Agreement between Bank of America National
Trust and Savings Association and Harrah's Operating
Company, Inc. dated December 22, 1995. (19)
4(8) Interest Swap Agreement between Bank of America and Harrah's
Entertainment, Inc. dated December 22, 1995. (19)
4(9) Interest Swap Agreement between Bankers Trust Company and
Embassy Suites, Inc. dated May 10, 1995. (7)
4(10) Interest Swap Agreement between The Sumitomo Bank, Limited
and Embassy Suites, Inc. dated June 6, 1995. (7)
4(11) Interest Swap Agreement between Bankers Trust Company and
Embassy Suites, Inc. dated June 6, 1995. (7)
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
NO.
---
<C> <S>
4(12) 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. (29)
4(13) 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.
(29)
4(14) Third Amendment, dated as of January 19, 1999, 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. (30)
4(15) Five Year Loan Agreement dated as of April 30, 1999 among
Harrah's Entertainment, Inc., as Guarantor, Harrah's
Operating Company, Inc. and Marina Associates, as Borrowers,
The Lenders, Syndication Agent, Document Agents and
Co-Documentation Agents and Bank of America National Trust
and Savings Association, as Administrative Agent. (28)
4(16) 364-Day Loan Agreement dated as of April 30, 1999 among
Harrah's Entertainment, Inc., as Guarantor, Harrah's
Operating Company, Inc. and Marina Associates, as Borrowers,
The Lenders, Syndication Agent, Document Agents and
Co-Documentation Agents and Bank of America National Trust
and Savings Association, as Administrative Agent. (28)
4(17) 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. (29)
4(18) 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.
(29)
4(19) Press Release dated January 13, 1999--Harrah's to Issue
Senior Notes. (26)
4(20) Press Release dated February 11, 1999--Harrah's Reports
Record Year in 1998 (32)
4(21) Press Release dated April 21, 1999--Harrah's Reports First
Quarter 1999 Results. (33)
4(22) Press Release dated August 19, 1999--Harrah's Signs
Definitive Agreement to Acquire Players International. (27)
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
NO.
---
<C> <S>
4(23) 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. (25)
4(24) 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. (25)
**4(25) Purchase and Sale Agreement by and between Harrah's
Operating Company, Inc. and RBM Venture Company dated
September 15, 1999.
**4(26) Agreement of Lease by and between RBM Cherry Road Partners
and Harrah's Operating Company, Inc. dated October 25, 1999
(Building 1); Agreement of Lease by and between RBM Cherry
Road Partners and Harrah's Operating Company, Inc. dated
October 25, 1999 (Building 2).
10(1) Tax Sharing Agreement, dated June 30, 1995, between The
Promus Companies Incorporated and Promus Hotel Corporation.
(7)
+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. (19)
+10(4) The Promus Companies Incorporated 1996 Non-Management
Director's Stock Incentive Plan dated April 5, 1995. (6)
+10(5) Amendment dated February 20, 1997 to 1996 Non-Management
Director's Stock Incentive Plan. (4)
+10(6) Trust Agreement dated November 7, 1997 between Harrah's
Entertainment, Inc. and NationsBank concerning the
Non-Management Director's Stock Incentive Plan. (23)
+10(7) The Promus Companies Incorporated Key Executive Officer
Annual Incentive Plan dated February 24, 1995. (7)
+10(8) Summary Plan Description of Executive Term Life Insurance
Plan. (21)
+10(9) Form of Harrah's Entertainment, Inc.'s Annual Management
Bonus Plan, as amended 1995. (19)
+10(10) Amendment dated as of December 12, 1997 to Harrah's
Entertainment, Inc.'s Annual Management Bonus Plan. (23)
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
NO.
---
<C> <S>
+10(11) Amendment dated December 10, 1998 to Harrah's Entertainment,
Inc.'s Annual Management Bonus Plan. (29)
**+10(12) Description of Amendment to Harrah's Entertainment, Inc.'s
Annual Management Bonus Plan on November 11, 1999.
+10(13) Amended and Restated Severance Agreement dated as of October
31, 1997 entered into with Philip G. Satre. (23)
+10(14) Form of Amended and Restated Severance Agreement dated as of
October 31, 1997 entered into with John M. Boushy and Colin
V. Reed. (23)
+10(15) Severance Agreement dated October 29, 1998 entered into with
Gary W. Loveman. (29)
+10(16) Severance Agreement dated October 29, 1998 entered into with
Philip G. Satre. (29)
+10(17) Form of Severance Agreement dated October 29, 1998 entered
into with John M. Boushy, Colin V. Reed and Judy T. Wormser.
(29)
+10(18) Form of Employment Agreement dated April 1, 1998 entered
into with John M. Boushy and Colin V. Reed. (29)
+10(19) Addendum dated April 1, 1998, to Employment Agreement
between Harrah's Entertainment, Inc. and John M. Boushy.
(29)
+10(20) Employment Agreement and Addendum dated May 4, 1998, between
Harrah's Entertainment, Inc. and Gary W. Loveman. (29)
+10(21) Employment Agreement between Harrah's Entertainment, Inc.
and J. Kell Houssels, III, dated June 1, 1998. (13)
+10(22) 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. (29)
**+10(23) Employment Agreement dated as of January 1, 1999, between
Harrah's Entertainment, Inc. and Philip G. Satre
+10(24) Employment Agreement dated May 7, 1999, between Harrah's
Entertainment, Inc. and Marilyn G. Winn. (28)
+10(25) Severance Agreement dated May 7, 1999, between Harrah's
Entertainment, Inc. and Marilyn G. Winn. (28)
+10(26) Employment Agreement dated July 30, 1999, between Harrah's
Entertainment, Inc. and Stephen H. Brammell. (34)
+10(27) Severance Agreement dated July 30, 1999, between Harrah's
Entertainment, Inc. and Stephen H. Brammell. (34)
**+10(28) Employment Agreement dated November 1, 1999, between
Harrah's Operating Company, Inc. and Janis L. Jones.
**+10(29) Severance Agreement dated November 1, 1999, between Harrah's
Entertainment, Inc. and Janis L. Jones.
+10(30) The Promus Companies Incorporated 1990 Stock Option Plan.
(9)
+10(31) The Promus Companies Incorporated 1990 Stock Option Plan (as
amended as of April 30, 1993). (15)
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
NO.
---
<C> <S>
+10(32) The Promus Companies Incorporated 1990 Stock Option Plan, as
amended April 29, 1994. (5)
+10(33) The Promus Companies Incorporated 1990 Stock Option Plan, as
amended July 29, 1994. (16)
+10(34) Amendment, dated April 5, 1995, to The Promus Companies
Incorporated 1990 Stock Option Plan as adjusted on December
12, 1996. (21)
+10(35) Amendment, dated February 26, 1998, to the Harrah's
Entertainment, Inc. 1990 Stock Option Plan. (10)
+10(36) Amendment, dated April 30, 1998, to the Harrah's
Entertainment, Inc. 1990 Stock Option Plan. (13)
+10(37) Amendment, dated October 29, 1998, to the Harrah's
Entertainment, Inc. 1990 Stock Option Plan. (29)
+10(38) Revised Form of Stock Option (1990 Stock Option Plan). (19)
+10(39) Revised Form of Stock Option with attachments (1990 Stock
Option Plan). (21)
+10(40) Form of memorandum agreement dated July 2, 1991, eliminating
stock appreciation rights under stock options held by Philip
G. Satre. (11)
+10(41) The Promus Companies Incorporated 1990 Restricted Stock
Plan. (9)
+10(42) Amendment, dated April 5, 1995, to The Promus Companies
Incorporated 1990 Restricted Stock Plan. (6)
+10(43) Amendment, dated February 26, 1998, to the Harrah's
Entertainment, Inc. 1990 Restricted Stock Plan. (10)
+10(44) Amendment, dated April 30, 1998, to the Harrah's
Entertainment, Inc. 1990 Restricted Stock Plan. (13)
+10(45) Amendment, dated October 29, 1998, to the Harrah's
Entertainment, Inc. 1990 Restricted Stock Plan. (29)
**+10(46) Amendment, dated November 11, 1999, to the Harrah's
Entertainment, Inc. 1990 Restricted Stock Plan.
+10(47) Revised Forms of Restricted Stock Award (1990 Restricted
Stock Plan). (19)
+10(48) Revised Form of Restricted Stock Award (1990 Restricted
Stock Plan). (21)
+10(49) Administrative Regulations, Long Term Compensation Plan
(Restricted Stock Plan and Stock Option Plan) dated October
27, 1995. (19)
+10(50) Amendment to Administrative Regulations, Long Term
Compensation Plan (Restricted Stock Plan and Stock Option
Plan) dated December 12, 1996. (21)
+10(51) Description of Terms of Stock Option and TARSAP grants for
Gary W. Loveman on April 30, 1998. (13)
**+10(52) Description of Terms of Amendment to TARSAP grants for Gary
W. Loveman on November 11, 1999.
+10(53) Deferred Compensation Plan dated October 16, 1991. (12)
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
NO.
---
<C> <S>
+10(54) Amendment, dated May 26, 1995, to The Promus Companies
Incorporated Deferred Compensation Plan. (2)
+10(55) Forms of Deferred Compensation Agreement. (19)
+10(56) Amended and Restated Executive Deferred Compensation Plan
dated as of October 27, 1995. (19)
+10(57) Amendment dated April 24, 1997 to Harrah's Entertainment,
Inc.'s Executive Deferred Compensation Plan. (14)
+10(58) Amendment dated April 30, 1998 to the Harrah's
Entertainment, Inc. Executive Deferred Compensation Plan.
(13)
+10(59) Amendment dated October 29, 1998 to the Harrah's
Entertainment, Inc. Executive Deferred Compensation Plan.
(29)
+10(60) Description of Amendments to Executive Deferred Compensation
Plan. (17)
+10(61) Restated Amendment, dated July 18, 1996, to Harrah's
Entertainment, Inc. Executive Deferred Compensation Plan.
(21)
+10(62) Forms of Executive Deferred Compensation Agreement. (19)
+10(63) Amendment dated April 24, 1997, to Harrah's Entertainment,
Inc.'s Deferred Compensation Plan. (14)
+10(64) Escrow Agreement dated February 6, 1990 between The Promus
Companies Incorporated, certain subsidiaries thereof, and
Sovran Bank, as escrow agent. (9)
+10(65) First Amendment to Escrow Agreement dated January 31, 1990
among Holiday Corporation, certain subsidiaries thereof and
Sovran Bank, as escrow agent. (9)
+10(66) Amendment to Escrow Agreement dated as of October 29, 1993
among The Promus Companies Incorporated, certain
subsidiaries thereof, and NationsBank, formerly Sovran Bank.
(18)
+10(67) Amendment, dated as of June 7, 1995, to Escrow Agreement
among The Promus Companies Incorporated, certain
subsidiaries thereof and NationsBank. (2)
+10(68) Amendment, dated as of July 18, 1996, to Escrow Agreement
between Harrah's Entertainment, Inc. and NationsBank. (20)
+10(69) Time Accelerated Restricted Stock Award Plan ("TARSAP")
program dated December 12, 1996. (21)
+10(70) Form of TARSAP Award. (21)
+10(71) Form of Agreement, dated October 30, 1996, regarding
cancellation and reissue of stock options, entered into with
Philip G. Satre, Colin V. Reed, and John M. Boushy; and Form
of Reissued Stock Option. (21)
+10(72) Amendment, dated as of October 30, 1997, to Escrow Agreement
between Harrah's Entertainment, Inc., Harrah's Operating
Company, Inc. and NationsBank. (23)
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
NO.
---
<C> <S>
10(73) 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., CP Development, L.L.C., and JCC Development Company,
L.L.C., dated as of October 29, 1998. (24)
10(74) 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. (24)
10(75) HET/JCC Agreement between Harrah's Entertainment, Inc.,
Harrah's Operating Company, Inc. and Jazz Casino Company,
L.L.C., dated October 30, 1998. (24)
10(76) 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. (24)
10(77) Master Agreement dated April 15, 1999 between TABCORP
Holdings Limited and Harrah's Entertainment, Inc., with
attachments. (28)
10(78) Amendment to Harrah's Entertainment, Inc. 1990 Stock Option
Plan. (28)
10(79) Amendment to Harrah's Entertainment, Inc.'s Annual
Management Bonus Plan. (28)
10(80) TARSAP Deferral Plan dated July 28, 1999. (34)
10(81) TARSAP Deferral Plan--Deferral Agreement dated August 30,
1999, between Harrah's Entertainment, Inc. and Philip G.
Satre. (34)
10(82) TARSAP Deferral Plan--Deferral Agreement dated August 16,
1999, between Harrah's Entertainment, Inc. and Colin V.
Reed. (34)
**11 Computations of per share earnings.
**12 Computations of ratios.
**13 Portions of Annual Report to Stockholders for the year ended
December 31, 1999. (22)
**21 List of subsidiaries of Harrah's Entertainment, Inc.
**27 Financial Data Schedule.
99 Press Release dated January 1, 1999--Harrah's and Rio Hotel
Casino Complete Merger. (31)
</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.
51
<PAGE>
(3) Incorporated by reference from the Company's Current Report on Form 8-K,
filed August 9, 1996, File No. 1-10410.
(4) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1997, filed May 13, 1997, File No. 1-10410.
(5) 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.
(6) Incorporated by reference from the Company's Proxy Statement for the May 26,
1995 Annual Meeting of Stockholders, filed April 25, 1995.
(7) 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.
(8) 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.
(9) 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.
(10) 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.
(11) 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.
(12) 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.
(13) 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.
(14) 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.
(15) 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.
(16) 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.
(17) 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.
(18) 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.
(19) 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.
(20) 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.
(21) 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.
(22) Filed herewith to the extent portions of such report are specifically
included herein by reference.
(23) 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.
52
<PAGE>
(24) Incorporated by reference from JCC Holding Company's Registration Statement
on Form 10/A, filed November 20, 1998.
(25) Incorporated by reference from Showboat, Inc.'s Annual Report on Form 10-K
for the year ended December 31, 1997, File No. 1-7123.
(26) Incorporated by reference from the Company's Current Report on Form 8-K
filed January 13, 1999, File No. 1-10410.
(27) Incorporated by reference from the Company's Current Report on Form 8-K
filed August 23, 1999, File No. 1-10410.
(28) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1999, filed August 12, 1999, File No.
1-10410.
(29) Incorporated by reference from the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1998, filed March 19, 1999, File No.
1-10410.
(30) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1999, filed May 13, 1999, File No. 1-10410.)
(31) Incorporated by reference from the Company's Current Report on Form 8-K,
filed January 7, 1999, File No. 1-10410.
(32) Incorporated by reference from the Company's Current Report on Form 8-K
filed February 12, 1999, File No. 1-10410.
(33) Incorporated by reference from the Company's Current Report on Form 8-K
filed April 23, 1999, File No. 1-10410.
(34) Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1999, filed November 12, 1999, File No.
1-10410.
(b) No reports on Form 8-K were filed by the Company during the fourth
quarter of 1999 and thereafter through March 13, 2000.
53
<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: /s/ PHILIP G. SATRE
-----------------------------------------
Philip G. Satre
CHAIRMAN,
CHIEF EXECUTIVE OFFICER,
OFFICE OF THE PRESIDENT
</TABLE>
Dated: March 13, 2000
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>
/s/ SUSAN CLARK-JOHNSON
------------------------------------------- Director March 13, 2000
Susan Clark-Johnson
/s/ JAMES B. FARLEY
------------------------------------------- Director March 13, 2000
James B. Farley
/s/ JOE M. HENSON
------------------------------------------- Director March 13, 2000
Joe M. Henson
/s/ RALPH HORN
------------------------------------------- Director March 13, 2000
Ralph Horn
/s/ J. KELL HOUSSELS, III
------------------------------------------- Director March 13, 2000
J. Kell Houssels, III
/s/ GARY W. LOVEMAN Director,
------------------------------------------- Chief Operating Officer March 13, 2000
Gary W. Loveman Office of the President
/s/ R. BRAD MARTIN
------------------------------------------- Director March 13, 2000
R. Brad Martin
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ ROBERT G. MILLER
------------------------------------------- Director March 13, 2000
Robert G. Miller
/s/ COLIN V. REED Director,
------------------------------------------- Chief Financial Officer March 13, 2000
Colin V. Reed Office of the President
/s/ WALTER J. SALMON
------------------------------------------- Director March 13, 2000
Walter J. Salmon
/s/ PHILIP G. SATRE Director, Chairman and
------------------------------------------- Chief Executive Officer March 13, 2000
Philip G. Satre Office of the President
/s/ BOAKE A. SELLS
------------------------------------------- Director March 13, 2000
Boake A. Sells
/s/ EDDIE N. WILLIAMS
------------------------------------------- Director March 13, 2000
Eddie N. Williams
/s/ JUDY T. WORMSER
------------------------------------------- Controller and Principal March 13, 2000
Judy T. Wormser Accounting Officer
</TABLE>
55
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Harrah's Entertainment, Inc.:
We have audited in accordance with auditing standards generally accepted in
the United States, the financial statements included in the Harrah's
Entertainment, Inc. 1999 annual report to stockholders incorporated by reference
in this Form 10-K, and have issued our report hereon dated February 8, 2000
(except with respect to the matter discussed in note 18, as to which the date is
February 29, 2000). 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 8, 2000
<PAGE>
SCHEDULE I
HARRAH'S ENTERTAINMENT, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1999 1998
---------- --------
<S> <C> <C>
ASSETS
Cash........................................................ $ -- $ --
Investments in and advances to subsidiaries (eliminated in
consolidation)............................................ 1,486,277 851,407
---------- --------
$1,486,277 $851,407
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Commitments and contingencies (Notes 2, 3, 6 through 9)
Stockholders' equity (Note 4)
Common stock, $0.10 par value, authorized--360,000,000
shares outstanding--124,379,760 and 102,188,018 shares
(net of 9,286,772 and 3,036,562 held in treasury)....... $ 12,438 $ 10,219
Capital surplus........................................... 987,322 407,691
Retained earnings......................................... 512,539 451,410
Accumulated other comprehensive income.................... (493) 6,567
Deferred compensation related to restricted stock......... (25,529) (24,480)
---------- --------
$1,486,277 $851,407
========== ========
</TABLE>
The accompanying Notes to Financial Statements
are an integral part of these balance sheets.
S-1
<PAGE>
SCHEDULE I (CONTINUED)
HARRAH'S ENTERTAINMENT, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenues.................................................... $ -- $ -- $ --
Costs and expenses.......................................... 150 165 144
-------- -------- --------
Loss before income taxes and equity in subsidiaries'
earnings.................................................. (150) (165) (144)
Income tax benefit.......................................... 53 58 50
-------- -------- --------
Loss before equity in subsidiaries' earnings................ (97) (107) (94)
Equity in subsidiairies' earnings........................... 219,600 121,824 107,616
-------- -------- --------
Income before extraordinary loss............................ 219,503 121,717 107,522
Extraordinary loss, net of tax benefit of $5,990, $10,522
and $4,477 (Note 3)....................................... (11,033) (19,693) (8,134)
-------- -------- --------
Net income.................................................. $208,470 $102,024 $ 99,388
======== ======== ========
</TABLE>
The accompanying Notes to Financial Statements
are an integral part of these statements.
S-2
<PAGE>
SCHEDULE I (CONTINUED)
HARRAH'S ENTERTAINMENT, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities
Net income................................................ $ 208,470 $ 102,024 $ 99,388
Adjustment to reconcile net income to cash flows from
operating activities
Equity in undistributed continuing earnings of
subsidiaries........................................ (219,600) (121,824) (107,616)
Extraordinary loss.................................... 17,023 29,491 12,611
Other non-cash activity............................... (5,893) (9,691) (4,383)
--------- --------- ---------
Cash flows from operating activities................ -- -- --
--------- --------- ---------
Cash flows from financing activities
Distributions from subsidiary............................. 147,952 -- 41,022
Treasury stock purchases.................................. (147,952) -- (41,022)
--------- --------- ---------
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. ("HET" 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"). HOC holds, directly and through its subsidiaries, the
principal assets of HET's businesses. References to HOC include its subsidiaries
where the context requires. These condensed financial statements should be read
in conjunction with the consolidated financial statements of HET and
subsidiaries.
NOTE 2--INVESTMENT IN ASTER
The value of HET's investment in Aster has been reduced below zero. HET's
negative investment in Aster at December 31, 1999 and 1998 was $7.3 million and
$7.3 million, respectively, and is included in investments in and advances to
subsidiaries on the balance sheet. In addition, HET has guaranteed the payment
by Aster of certain insurance-related liabilities.
NOTE 3--LONG-TERM DEBT
HET has no long-term debt obligations. In addition to entering into new
revolving credit and letter of credit facilities ("the Bank Facility"), HOC
refinanced certain of its outstanding debts, in particular those debt
obligations assumed in our acquisition transactions, to reduce effective
interest rates and/or lengthen maturities. The extraordinary losses reported in
HET's Statements of income for each period are primarily due to HOC's
refinancing activities.
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").
In January 1999, HOC completed a public offering of $500.0 million principal
amount $7 1/2% Senior Notes due 2009 (the "7 1/2% Notes").
HET has guaranteed HOC's Bank Facility, the 7 7/8% Notes and the 7 1/2%
Notes.
NOTE 4--STOCKHOLDERS' EQUITY
In addition to its common stock, Harrah's has the following classes of stock
authorized but unissued:
Preferred stock, $100 par value, 150,000 shares authorized
Special stock, $1.125 par value 5,000,000 shares authorized--
Series A Special Stock, 2,000,000 shares designated
HET'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.
S-4
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--STOCKHOLDERS' EQUITY (CONTINUED)
Under certain conditions, each Right entitles its holder to purchase stock of an
acquiring company at a discount. Rights held by the 15% holder will become void.
The Rights will expire on October 5, 2006, unless earlier redeemed by the Board
at one cent per Right.
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.
In July 1999, the Company's Board of Directors authorized the repurchase in
open market and other transactions of up to 10 million shares of the Company's
common stock. HET expects to acquire our shares from time to time at prevailing
market prices through the December 31, 2000, expiration of the approved plan. At
December 31, 1999, we had repurchased 5.6 million shares under the provisions of
this plan. These repurchases are in addition to 0.5 million shares repurchased
earlier in 1999 in connection with the increase of our ownership interest in the
East Chicago property.
The shares repurchased under these programs are held in treasury and
reflected in HET's balance sheet as if they were retired.
NOTE 5--INCOME TAXES
Harrah's files a consolidated tax return with its subsidiaries.
NOTE 6--COMMITMENTS AND CONTINGENCIES
NEW ORLEANS CASINO. HOC has an approximate 43% ownership interest in the
parent of Jazz Casino Company, L.L.C. ("JCC"), the company which owns and
operates the exclusive land-based casino (the "Casino") in New Orleans,
Louisiana. HOC manages that Casino pursuant to a management agreement between
JCC and an HOC subsidiary. HET has (i) guaranteed JCC's initial $100.0 million
annual tax payment under the Casino operating contract to the State of Louisiana
gaming board (the "State Guarantee"), (ii) guaranteed $166.5 million of a
$236.5 million JCC bank credit facility, and (iii) made a $22.5 million
subordinated loan to JCC to finance construction of the casino.
With respect to the State Guarantee, HET and HOC are obligated to guarantee
JCC's first $100 million annual payment obligation commencing upon the
October 28, 1999, opening of the Casino, and, if certain cash flow tests (for
the renewal periods beginning April 1, 2001) 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 period in which
the guarantee is in effect and is secured by a first priority lien on JCC's
assets. JCC's payment (and therefore the amount we have guaranteed) is
$100 million at 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. (See Note 9.)
S-5
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7--LITIGATION
HET is involved in various inquiries, administrative proceedings and
litigation relating to contracts, sales of property and other matters arising in
the normal course of business. While any proceeding or litigation has an element
of uncertainty, management believes that the final outcome of these matters will
not have a material adverse effect upon our consolidated financial position or
our results of operations.
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.
On January 1, 1999, HET completed the merger with Rio Hotel & Casino, Inc.
("Rio"), issuing approximately 25 million shares of HET common stock to acquire
all of Rio's outstanding shares in a one-for-one transaction and assuming Rio's
outstanding debt of approximately $432 million. HET transferred the Rio stock to
HOC upon completion of the merger.
In August 1999, HET announced the signing of a definitive agreement to
acquire Players International, Inc. ("Players"). Players shareholders will
receive $8.50 in cash for each share outstanding, and HET will assume
$150 million of Players' debt. Completion of the transaction is subject to
various conditions, including regulatory approvals and other third party
approvals.
NOTE 9--SUBSEQUENT EVENT
On February 28, 2000, HET and HOC were notified by JCC that is was
suspending payment of the daily payments to the State of Louisiana until JCC is
able to generate sufficient cash flow to pay its operating expenses and make the
daily payments. On February 29, 2000, the State made a demand on the Company
under the State Guarantee, and HOC began funding the daily payment to the State
on that date. HOC has also agreed, subject to certain conditions, to renew the
State Guarantee for the period April 1, 2000, until March 31, 2001. See Note 6
for further discussion of the State Guarantee.
S-6
<PAGE>
SCHEDULE II
HARRAH'S ENTERTAINMENT, INC.
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------------------------------------------------ ---------- -------------------- ---------- ---------
ADDITIONS
--------------------
CHARGED
BALANCE AT TO COSTS CHARGED DEDUCTIONS BALANCE
BEGINNING AND TO OTHER FROM AT CLOSE
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS RESERVES OF PERIOD
- ------------------------------------------------------------ ---------- --------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1999
Allowance for doubtful accounts
Current................................................... $14,356 $22,774 $25,935 $(18,979)(A) $44,086
======= ======= ======= ======== =======
Long-term................................................. $12,693 $ -- $ 2,639 $ (7,327) $ 8,005
======= ======= ======= ======== =======
Reserve against investments in and advances to
nonconsolidated affiliates (B)............................ $13,000 $ -- $ -- $ -- $13,000
======= ======= ======= ======== =======
Reserve for impairment of long-lived assets (C)............. $36,490 $ 3,367 $ 2,385 $(29,005) $13,237
======= ======= ======= ======== =======
Reserve for contingent liability exposure................... $ 1,041 $ -- $ -- $ (163) $ 878
======= ======= ======= ======== =======
Insurance allowances and reserves........................... $45,771 $68,654 $ 0 $(63,417) $51,008
======= ======= ======= ======== =======
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
======= ======= ======= ======== =======
</TABLE>
- ------------------------------
(A) Uncollectible accounts written off, net of amounts recovered.
(B) See Note 7 to our Consolidated Financial Statements.
(C) Reduction of reserve due to disposition of property.
S-7
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports dated February 8, 2000 (except with respect to the matter discussed
in note 18, as to which the date is February 29, 2000), included in this
Form 10-K for the year ended December 31, 1999, into the Company's previously
filed Registration Statements File Nos. 333-80899 and 333-77937.
ARTHUR ANDERSEN LLP
Memphis, Tennessee
March 13, 2000
<PAGE>
Exhibit 4(25)
PURCHASE AND SALE AGREEMENT
BY AND BETWEEN
HARRAH'S OPERATING COMPANY, INC.,
as Seller
AND
RBM VENTURE COMPANY,
as Purchaser
<PAGE>
PURCHASE AND SALE AGREEMENT
THIS PURCHASE AND SALE AGREEMENT (this "Agreement") is made and entered
into by and between HARRAH'S OPERATING COMPANY, INC., a Delaware corporation
("Seller"), and RBM VENTURE COMPANY, a Delaware corporation, or assigns
("Purchaser").
RECITALS:
A. Seller is the owner of an office campus located in Memphis, Shelby
County, Tennessee which Seller currently uses as Seller's corporate
headquarters.
B. Seller desires to sell the Property (as hereinafter defined) to
Purchaser, and Purchaser desires to purchase the Property from Seller, on the
terms and conditions hereinafter set forth.
AGREEMENT:
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
ARTICLE 1
The Contract
For and in consideration of the mutual benefits enjoyed by one another
under this Agreement, Seller agrees to sell and convey the Property to Purchaser
and Purchaser agrees to purchase and accept conveyance of the Property pursuant
to the terms and conditions set forth in this Agreement.
ARTICLE 2
Property
As used in this Agreement, the term "Property" shall mean and refer to
the following:
(a) approximately 25.5 acres of real property located at 1023 Cherry
Road, Memphis, Tennessee 38117, together with all
-2-
<PAGE>
rights and interests appurtenant thereto (collectively the "Land");
(b) a three story office building containing approximately 59,159
usable square feet ("Building 1") located on the Land;
(c) a two-story office building containing approximately 54,397 usable
square feet, together with all lower level parking spaces ("Building 2") located
on the Land;
(d) a former residence converted to use as an office building located
on the Land (the "Mansion");
(e) a pool house/cafeteria building (the "Pool House");
(f) a facility/security building (the "Security Building");
(g) a two story parking structure (the "Parking Structure");
(h) surface parking spaces (the "Surface Parking");
(i) all tangible personal property and fixtures (collectively, the
"FF&E") of any kind whatsoever attached to, or located upon and used in
connection with the ownership, maintenance, use or operation of Building 1,
Building 2, the Mansion, the Pool House, the Security Building, the Parking
Structure, and the Surface Parking (Building 1, Building 2, the Mansion, the
Pool House, the Security Building, the Parking Structure, and the Surface
Parking are sometimes referenced to collectively hereinafter as the
"Improvements") as of the date hereof (or acquired by Seller and so employed
prior to Closing, as defined below), including, but not limited to, all
furniture, fixtures, equipment, personal property; all cameras, sensors, alarms,
and other security systems; key pad and entry systems; sprinklers and fire
suppression systems; landscaping equipment; irrigation systems and equipment;
pool equipment; all heating, lighting, plumbing, drainage, electrical, air
conditioning, and other mechanical fixtures and equipment and systems; building
and energy management systems and controls; power backup and generator systems;
telephone switches and systems; satellite dishes; fiber optic networks; computer
wiring and cables; utility and other meters; all keys, locks, combinations,
codes; building systems computers and software; all elevators and related motors
and electrical equipment and systems; all hot water heaters,
-3-
<PAGE>
furnaces, heating controls, motors and boiler pressure systems and equipment,
all shelving and partitions, all ventilating equipment, and all incinerating and
disposal equipment; all carpet, drapes, blinds, window treatments, chandeliers,
furniture, and other furnishings; all stoves, ovens, freezers, refrigerators,
dishwashers, disposals, kitchen equipment and utensils, tables, chairs, plates
and other dishes, glasses, silverware, serving pieces and other restaurant and
bar equipment, apparatus and utensils; including all items as described on
Exhibit A attached hereto, but excluding, however, those certain items as
described on Exhibit A-1 attached hereto. Purchaser shall have the option to
elect to purchase any of the items described on Exhibit A-1 at the price
reflected on Exhibit A-1. Seller agrees that between the date hereof and the
Closing Date (as hereinafter defined), Seller will not cause or permit FF&E
which is to be sold to Purchaser to be removed from the Improvements except for
the purpose of discarding worn and valueless items;
(j) all supplies and other items used for the operation and maintenance
of the Property, engineers' supplies, paint and painters' supplies, and pool and
other cleaning and maintenance supplies (collectively, the "Supplies");
provided, however, that Supplies shall not be deemed to include business
supplies consumed by Seller in the ordinary course of Seller's day-to-day
business. Seller agrees that between the date hereof and the Closing Date,
Seller will not cause or permit depletion of Supplies except in the ordinary
course of business;
(k) to the extent assignable, any and all of the following that relate
to or affect in any way, the design, construction, ownership, use, occupancy,
leasing, maintenance, service, or operation of the Land, Improvements, Supplies,
or FF&E:
(i) contracts or agreements, such as maintenance, supply,
service or utility contracts, a list of which is attached hereto as
Exhibit A-2 and which shall be reviewed during the Review Period and
either assumed or rejected by Purchaser, but only to the extent assumed
by Purchaser (collectively, the "Service Contracts");
(ii) warranties, guaranties, indemnities, and claims for the
benefit of Seller, a list of which is attached hereto as Exhibit A-3,
(collectively the "Warranties");
-4-
<PAGE>
(iii) licenses, permits, software, franchises, utility
reservations, certificates of occupancy, and similar documents issued
by any federal, state, or municipal authority or by any private party,
a list of which is attached hereto as Exhibit A-4 (collectively the
"Licenses"), excluding, however, any business permits or licenses
pertaining to the conduct of Seller's business on the Property;
(iv) all files and records related to the Property (including,
without limitation, all maintenance and repair records, logs, tax
assessment appeal records and files, planned development files and
records, files and records related to neighborhood owners agreements,
service manuals, and related correspondence) plans, drawings,
specifications, surveys, soil reports, engineering reports,
environmental reports, material safety data sheets and similar
documentation, inspection reports, and other technical descriptions and
reports to the extent in Seller's possession or control, a list of
which is attached hereto as Exhibit A-5 (collectively, the "Plans and
Specs");
(v) leases of any FF&E and other contracts permitting the use
of any FF&E at the Property, a list of which is attached hereto as
Exhibit A-6 and which shall be reviewed during the Review Period and
either assumed or rejected by Purchaser, but only to the extent assumed
by Purchaser (collectively, the "FF&E Leases"), excluding, however, any
business leases pertaining to the conduct of Seller's business.
(l) to the extent assignable, Seller's interest in the right to receive
immediately on and after Closing and continuously consume thereafter water
service, sanitary and storm sewer service, electrical service, gas service, and
telephone service on and for the Land and Improvements in capacities that are
adequate to operate the Improvements for the purposes for which they were
intended, free and clear of all qualifications and encumbrances other than the
obligation to pay the applicable utility company the published rate for utility
consumption after Closing, and the foregoing right shall include, but not be
limited to (i) the right to the present and future use of wastewater, drainage,
water and other utility facilities to the
-5-
<PAGE>
extent such use benefits the Land or Improvements, (ii) all reservations of or
commitments covering any such use in the future, and (iii) all wastewater
capacity reservations relating to the Land or Improvements (all of the foregoing
are referred to in this Agreement collectively as the "Utility Reservations",
and a list of which is attached hereto as Exhibit A-7); and
(m) all rights, titles, and interests of Seller appurtenant to the
Property (collectively, the "Appurtenances"), including, but not limited to,
(i) all easements, rights of way, rights of ingress and egress, tenements,
hereditaments, privileges, and appurtenances in any way belonging to the Land
or Improvements, (ii) any land lying in the bed of any alley, highway,
street, road or avenue, open or proposed, in front of or abutting or
adjoining the Land, (iii) any strips or gores of real estate adjacent to the
Land, (iv) all minerals, mineral rights, and air rights, and (v) the use of
all alleys, easements and rights-of-way, if any, abutting, adjacent,
contiguous to or adjoining the Land.
The Property shall be conveyed, assigned, and transferred to Purchaser
at Closing, free and clear of all mortgages, liens, encumbrances, licenses,
franchises, concession agreements, security interests, prior assignments or
conveyances, conditions, restrictions, rights-of-way, easements, encroachments,
claims and other matters affecting title, except for those matters specifically
approved of in writing by Purchaser or otherwise permitted by the express terms
of this Agreement. At Purchaser's option and in Purchaser's sole discretion, the
FF&E Leases, collectively, or on a case by case basis, either shall be assigned
to Purchaser or Seller shall elect either (i) to retain same or (ii) pay off at
Seller's expense.
ARTICLE 3
Purchase Price
3.1. PURCHASE PRICE. The total price (the "Purchase Price") for which
Seller agrees to sell and convey the Property to Purchaser, and which Purchaser
agrees to pay or deliver to Seller, subject to the terms of this Agreement and
adjustments as provided herein, shall be Fourteen Million Three Hundred
Forty-Nine Thousand Four Hundred Fifty-Three and No/100 Dollars ($14,349,453),
payable as follows:
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(a) Two Hundred Fifty Thousand Dollars ($250,000.00) ("Earnest Money
Deposit") shall be deposited into escrow with the Title Company as hereinafter
defined within two business days of the full execution of this Agreement.
(b) at Closing (as defined in Article 11 of this Agreement), the
balance of the purchase price will be paid to Seller in cash, cashier's check or
wired funds. Purchaser shall receive a credit of $10,220.00 for the Roof Repair
as set forth on Exhibit H.
(c) all interest accruing on Earnest Money deposited under this
Agreement shall become a part of and be added to the Earnest Money so that it
shall be subject to disbursement or application in the same manner as is the
principal of the Earnest Money. The Title Company shall deposit the Earnest
Money in an interest bearing account at a bank or savings institution reasonably
acceptable to Seller and Purchaser, and all interest accrued thereon shall be
reported under Purchaser's federal tax identification number. If the sale of the
Property is not consummated in accordance with the terms hereof, the Earnest
Money shall be returned to Purchaser, or delivered to Seller as liquidated
damages as herein provided. If the sale of the Property is consummated in
accordance with the terms hereof, the Earnest Money shall be applied to the
Purchase Price.
3.2. ALLOCATIONS. Subject to adjustments in accordance with the terms
of this Agreement, the Purchase Price shall be allocated by Seller and Purchaser
at Closing as set forth on Exhibit B attached hereto, and neither party shall
take any position contrary to such allocation.
ARTICLE 4
Deliveries
4.1. DEED. On the Closing Date, Seller shall convey, transfer, and
assign title to the Property to Purchaser. The Land, Improvements and
Appurtenances shall be conveyed to Purchaser by Seller's general warranty deed
in the form attached hereto as Exhibit C ("Seller's Deed") conveying good,
indefeasible, and insurable fee simple title to the Land and Improvements, and
except for the lease of certain of the Improvements by Purchaser pursuant to the
Lease (as hereinafter defined) free and clear of all mortgages, liens,
encumbrances, leases, licenses, franchises, concession agreements, security
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interests, prior assignments or conveyances, conditions, restrictions, rights of
way, easements, encroachments, claims, and other matters affecting title except
only those title exceptions specifically approved of in writing by Purchaser or
otherwise permitted under the express terms of this Agreement.
4.2. BILL OF SALE. Seller's interest in all FF&E, Supplies, Service
Contracts, Warranties, Licenses, Plans and Specs, and other personal property
shall be conveyed to Purchaser by one or more Assignment and Bill of Sale and,
to the extent, if any, that Purchaser elects to assume the obligations related
thereto, such Assignment and Assumption Agreements in the form attached hereto
as Exhibit D.
4.3. TITLE COMMITMENT. Within 15 days after the execution of this
Agreement, Seller shall obtain and deliver to Purchaser, at Seller's sole cost
and expense, the following:
(a) a Commitment for Title Insurance (the "Title Commitment") issued by
First American Title Insurance Company (the "Title Company"), for the most
recent form of ALTA owner's policy, covering the Land and Improvements, setting
forth the current status of the title to the Land and Improvements, showing all
liens, claims, encumbrances, easements, rights of way, encroachments,
reservations, restrictions, and any other matters affecting the Land and
Improvements, and pursuant to which the Title Company agrees to issue to
Purchaser at Closing an owner's policy of title insurance (the "Title Policy")
on the most recent form of ALTA owner's policy; and
(b) true, complete, legible and, where applicable, recorded copy of all
documents and instruments (the "Supporting Documents") referred to or identified
in the Title Commitment, including, but not limited to, all deeds, lien
instruments, leases, plats, surveys, reservations, restrictions, and easements.
4.4. UCC SEARCH. Within 15 days after the execution hereof, Seller
shall obtain and deliver to Purchaser, at Seller's sole cost and expense,
current written reports (the "UCC Searches") from the Office of the Secretary of
State of Tennessee and the Shelby County Tennessee Register's Office reflecting
the results of current searches of the uniform commercial code records
maintained by such offices.
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4.5. SURVEY. Within 10 days after the execution hereof, Seller shall
provide to Purchaser, at Seller's sole cost and expense, a current "as built"
ALTA/ACSM survey (the "Survey") of the Land and Improvements made on the ground
and certified by a professional land surveyor licensed in the State of Tennessee
(the "Surveyor"). The Survey shall contain a certification by the Surveyor in
form reasonably acceptable and addressed to Seller, Purchaser and the Title
Company, indicating that the Survey was made on the ground and accurately shows
all the matters required above. The legal description of the Land contained in
the Survey shall be used as the legal description in Seller's Deed.
4.6. PHASE I ENVIRONMENTAL SURVEY. Within 10 days after the execution
hereof, Seller shall provide to Purchaser any environmental surveys of the
Property which Seller has in its records, a list of which is attached hereto as
Exhibit E.
ARTICLE 5
Property Documents, Inspection and Objections
5.1. INSPECTION OF PROPERTY. Seller shall give Purchaser and
Purchaser's agents and representatives reasonable access to the Property during
normal business hours prior to Closing. Seller shall give Purchaser and
Purchaser's agents and representatives the right to physically inspect the
Property and to conduct soil tests and other inspections (so long as such tests
and inspections do not unreasonably interfere with the use and occupancy of the
Property by Seller). The costs and expenses of Purchaser's investigation shall
be borne by Purchaser. In the event that the transaction contemplated by this
Agreement does not close for any reason, Purchaser shall have the obligation to
repair any damage to the Property caused by such investigation, which obligation
shall survive any termination of this
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Agreement. All non-public information furnished by Seller to Purchaser in
accordance with the provisions of this Agreement or obtained by Purchaser from
third parties in the course of its investigations shall be treated as
confidential information by Purchaser, except that Purchaser may disclose such
information to prospective investors and lenders, as well as attorneys and other
parties assisting or representing Purchaser in connection with the subject
transaction. The foregoing obligation to treat such information as confidential
shall survive any termination of this Agreement but shall not survive Closing.
Purchaser covenants and agrees that the Property shall not be materially damaged
or impaired in any way as the result of Purchaser's activities on the Property,
and Purchaser hereby agrees to indemnify and hold Seller harmless from and
against any claims, causes of action, mechanics' and/or materialmen's liens,
damages, and expenses (including attorneys' fees) to the extent resulting from
the presence in, on or about the Property of Purchaser, or Purchaser's agents or
representatives, or out of any such test or inspection conducted by Purchaser on
the Property. Such indemnity shall survive the Closing or any termination of
this Agreement and not be merged therein.
5.2. PROPERTY DOCUMENTS. Within 15 days after the execution of this
Agreement, Seller, at Seller's sole cost and expense, will deliver to Purchaser
true, correct and complete copies (or where specifically indicated, original
counterparts) of the following, together with all amendments, modifications,
renewals or extensions thereof:
(i) All Warranties relating to the Property or any part
thereof which are still in effect;
(ii) All Licenses and all files and other information related
to the zoning, planned development, neighborhood homeowners, and other
rights or limitations with respect to the use of the Property;
(iii) Personal property tax statements and files with respect
to the FF & E, FF & E Leases, and real estate property tax statements
and files with respect to the Property and notices of appraised value
for the Land and Improvements for the years 1996, 1997, and 1998;
(iv) To the extent in Seller's possession or control,
engineering and architectural plans, drawings and specifications
relating to the Property, as well as copies of any environmental
reports, topographical, boundary or "as built" surveys, engineering
reports and subsurface studies affecting the Property. If the Property
is purchased by Purchaser, all such documents and information shall
thereupon be and become the property of Purchaser without payment of
any additional consideration therefor; provided, however, in the extent
that the Closing does not actually
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occur, Purchaser shall return to Seller all such Plans and Specs;
(v) All Service Contracts and all FF & E Leases; and
(vi) To the extent in Seller's possession or control, all
notices received from governmental authorities or from neighborhood
homeowners in connection with the Property subsequent to January 1,
1996.
5.3. PROCEDURE FOR PURCHASER'S OBJECTIONS. Purchaser shall have until
the later of: i) thirty (30) days after the date of this Agreement, ii) thirty
(30) days after the approval of this Agreement by Seller's board of directors,
or iii) fifteen (15) business days following the completion of all deliveries
required by Seller to Purchaser under Articles 4 and 5 hereof (the "Review
Period") to notify Seller in writing of any objections Purchaser may have to
matters reflected in or concerning the Title Commitment, the Survey, the UCC
Searches, the Environmental Report, any documents or items delivered by Seller
to Purchaser, or the results of any other tests or inspections of the Property
made by Purchaser. If Purchaser shall so notify Seller of any objections, Seller
may elect to cure such objections within ten (10) business days from the date on
which Seller receives Purchaser's objections (the "Cure Period") and shall
provide written notice within such Cure Period of the nature and extent of
Seller's cure of such objections. If Purchaser, in Purchaser's sole discretion,
is not satisfied with the results of any cure efforts by Seller, or with any
other matter relating to the Property for any reason whatsoever, Purchaser may
terminate this Agreement by giving written notice of termination to Seller at
any time within ten (10) business days after the end of the Cure Period. If
Purchaser terminates this Agreement pursuant to this Section, Seller shall be
entitled to retain and, to the extent it has not already done so, Purchaser
shall deliver to Seller all reports and studies relating to the Property
resulting from the inspection of the Property (or the portions thereof which are
specific to the Property) and all documents delivered to Purchaser pursuant to
Section 5.2 hereof. The Earnest Money shall be returned to Purchaser within five
(5) business days after any such termination and neither party shall have any
further rights or obligations one to the other, except for the indemnity set
forth in Section 5.1. If Purchaser does not terminate this Agreement prior to
the expiration of the Review
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Period (or, if applicable, within ten (10) business days of the expiration of
the Cure Period) as provided herein, Purchaser shall be deemed to have waived
the right to terminate this Agreement under this Section and shall be deemed to
have accepted and approved the condition of the Property, subject to the
remaining terms of this Agreement.
ARTICLE 6
Permitted Exceptions
6.1. PERMITTED EXCEPTIONS. Notwithstanding any other provision herein
set forth, Purchaser shall not be entitled to make any objection or terminate
this Agreement on the basis of any lien, encumbrance or security interest
created by Purchaser at Closing in connection with Purchaser's acquisition of
the Property. Any title exceptions to which the Purchaser does not object in
accordance with Section 5.3 and any title exceptions to which Purchaser objects
that are not cured and which Purchaser is deemed to have accepted and approved
in accordance with Section 5.3 shall be hereinafter referred to as the
"Permitted Exceptions." The Permitted Exceptions shall be described in an
exhibit to Seller's Deed referred to in Section 4.1.
ARTICLE 7
(Intentionally Deleted.)
ARTICLE 8
Operation of Property
8.1. INTERIM OPERATION. Seller hereby covenants and agrees that between
the date of this Agreement and the Closing Date Seller shall:
(a) operate and maintain the Property consistent with Seller's prior
practice;
(b) not commit waste of any portion of the Property;
(c) keep and maintain the Property in a good state of repair and
condition, reasonable and ordinary wear and tear excepted;
(d) keep, observe, and perform all its obligations under the Service
Contracts, and all other applicable contractual arrangements relating to the
Property;
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(e) timely make all repairs, maintenance, and replacements to keep the
Property and all FF&E in good operating condition;
(f) keep Supplies adequately stocked, consistent with good business
practice, as if the sale of the Property hereunder were not to occur;
(g) advise Purchaser promptly of any litigation, arbitration, or
administrative hearing before any court or governmental agency concerning or
affecting the Property which is instituted or threatened after the date of this
Agreement or if any representation or warranty contained in this Agreement shall
become false;
(h) not take, or omit to take, any action that would have the effect of
violating any of the representations, warranties, covenants or agreements of
Seller contained in this Agreement;
(i) comply with all federal, state, and municipal laws, ordinances,
regulations, zoning, planned development, neighborhood owners agreements, and
judicial or administrative orders relating to the Property, including, without
limitation, Seller's covenant to use the Property for executive office space use
until December 31, 1999;
(j) not sell or assign, or enter into any agreement to sell or assign,
or create or permit to exist any lien or encumbrance (other than a Permitted
Exception) on, the Property or any portion thereof;
(k) not allow any permit, receipt, license, or right currently in
existence with respect to the operation, use, occupancy or maintenance of the
Property to expire, be canceled or otherwise terminated; and
(l) pay or cause to be paid all taxes, assessments and other
impositions levied or assessed on the Property or any part thereof prior to the
date on which the payment thereof is due.
8.2. MECHANICS' AND MATERIALMEN'S LIENS. Seller hereby represents,
warrants, and covenants that all work done prior to the Closing Date has been or
will be performed and fully paid for by Seller prior to the Closing Date, and
all mechanics' and
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materialmen's liens arising from any labor or material furnished prior to the
Closing Date will be discharged or bonded so as to be omitted from the Title
Policy.
8.3. NOTICES OF VIOLATION. Seller hereby covenants and agrees that all
notices of violation of federal, state or municipal laws, ordinances, orders,
regulations or requirements ("Notices of Violation") issued by, or filed by, or
served by, the neighborhood owners or any governmental agency having
jurisdiction over the Property against or affecting the Property on or before
the Closing Date of which Seller has actual knowledge shall be promptly
disclosed to Purchaser and fully cured by Seller. At Purchaser's option, the
existence of any such uncured Notices of Violation shall give Purchaser the
right to elect to terminate this Agreement.
8.4. THIRD PARTY CONSENTS. Prior to the Closing Date, Seller shall, at
Seller's expense, use Seller's best efforts and cooperate with Purchaser to
obtain planned development or zoning amendments, amendments to agreements with
neighborhood owners, and all third party consents and approvals, if any,
required in order for Purchaser to purchase the Property, to lease a portion of
the Property to Seller in accordance with the terms of the Lease, and to use the
Property for general office use. At Purchaser's option, failure of Seller to
obtain such planned development or zoning amendments, amendments to agreements
with neighborhood owners, and other third party consents shall give Purchaser
the right to elect to terminate this Agreement.
ARTICLE 9
Representations and Covenants
9.1. REPRESENTATIONS BY PURCHASER. Purchaser hereby represents and
warrants unto Seller that each and every one of the following statements is
true, correct and complete in every material respect as of the date of this
Agreement and will be true, correct and complete as of the Closing Date:
(a) Purchaser is duly organized, validly existing and in good standing
under the laws of the State of Delaware and has full right, power and authority
to enter into this Agreement and to assume and perform all of its obligations
under this
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Agreement; and, the execution and delivery of this Agreement and the performance
by Purchaser of its obligations under this Agreement require no further action
or approval of Purchaser's shareholders, directors, members, managers or
partners (as the case may be) or of any other individuals or entities in order
to constitute this Agreement as a binding and enforceable obligation of
Purchaser.
(b) Purchaser is not a foreign entity, foreign corporation, foreign
partnership, foreign trust or foreign estate (as those terms are defined in the
Internal Revenue Code and Income tax regulations).
(c) neither the entry into nor the performance of, or compliance with,
this Agreement by Purchaser has resulted, or will result, in any violation of,
or default under, or result in the acceleration of, any obligation under any
existing corporate charter, certificate of incorporation, bylaw, articles of
organization, limited liability company agreement or regulations, partnership
agreement, mortgage indenture, lien agreement, note, contract, permit, judgment,
decree, order, restrictive covenant, statute, rule or regulation applicable to
Purchaser.
9.2. REPRESENTATIONS BY SELLER. Seller hereby represents and warrants
unto Purchaser that each and every one of the following statements is true,
correct and complete in every material respect as of the date of this Agreement
and will be true, correct and complete as of the Closing Date:
(a) Seller is duly organized, validly existing and in good standing
under the laws of the State of Delaware, and is qualified to transact business
in the State of Tennessee, and has full right, power and authority to enter into
this Agreement.
(b) Seller is not a foreign entity, foreign corporation, foreign
partnership, foreign trust or foreign estate (as those terms are defined in the
Internal Revenue Code and Income tax regulations).
(c) neither the entry into nor the performance of, or compliance with,
this Agreement or the Lease, as hereinafter defined in Section 11.2 (g), by
Seller has resulted, or will result, in any violation of, or default under, or
result in the acceleration of, any obligation under any existing corporate
charter, certificate of incorporation, bylaw, articles of organization, limited
liability company agreement or regulations,
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partnership agreement, mortgage indenture, lien agreement, note, contract,
permit, judgment, decree, order, restrictive covenant, zoning or planned
development plan conditions for Harrah's Entertainment, Inc. Corporate
Headquarters P.D. 93-322, statute, rule or regulation applicable to Seller or to
the Property.
(d) there are no leases, management agreements, leasing agent's
agreements, equipment leases, building service agreements, maintenance
contracts, suppliers contracts, warranty contracts, operating agreements, or
other agreements (i) to which Seller is a party or an assignee, or (ii) binding
upon the Property, relating to the ownership, occupancy, operation or
maintenance of the Land, Improvements, FF&E or Supplies, except for those
Service Contracts, Warranties and FF&E Leases to be delivered to Purchaser and
described in the respective Exhibits A-2, A-3, and A-6, and except for Seller's
agreement with CB Richard Ellis for the payment of a commission upon the
consummation of the sale of the Property, and Purchaser's agreement with CB
Richard Ellis for the payment of a commission upon the commencement of rents as
provided in the Lease of the Property by Purchaser to Seller.
(e) Seller has received no notice, and has no knowledge, that it lacks
any permit, license, certificates or authority necessary for the present use and
occupancy of the Improvements.
(f) the present level of insurance, a schedule of which is provided in
Exhibit F, with respect to the Property will be maintained in full force and
effect until the Closing Date.
(g) no party has any right or option to acquire the Property or any
portion thereof, other than Purchaser.
(h) there are no:
(i) pending arbitration proceedings or unsatisfied arbitration
awards, or judicial proceedings or orders respecting awards, which
might become a lien on the Property;
(ii) pending unfair labor practice charges or complaints,
unsatisfied unfair labor practice orders or judicial proceedings or
orders with respect thereto, which might become a lien on the Property;
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(iii) pending charges or complaints with or by city, state or
federal civil or human rights agencies, unremedied orders by such
agencies or judicial proceedings or orders with respect to obligations
under city, state or federal civil or human rights or
antidiscrimination laws or executive orders, which might become a lien
of the Property; or
(iv) other pending, or threatened or actual litigation claims,
charges, complaints, petitions or unsatisfied orders by or before any
administrative agency or court which affects the Property or might
become a lien on the Property (collectively, the "Pending Claims").
(i) Seller has received no Notice of Violations.
(j) to the best of Seller's knowledge, information and belief, Seller
and the Property are, and upon commencement of the Lease will be, in compliance
in all material respects with all terms and conditions of all notices, permits,
licenses, registrations, zoning or planned development plan conditions for
Harrah's Entertainment, Inc. Corporate Headquarters P.D. 93-322, neighborhood
owners agreements, certificates of occupancy, applications, consents, variances,
notices of intent, and/or other authorizations which are required for the use or
operation of the Property, and with all limitations, requirements, restrictions,
conditions, standards, prohibitions, schedules and timetables contained in all
applicable laws, rules, regulations, ordinances or orders promulgated by any
federal, state or local executive, legislative, judicial, regulatory or
administrative agency, board or authority, or any applicable judicial or
administrative decision in connection therewith, that relate to the Property,
including without limitation the Americans With Disabilities Act of 1990 and
regulations or orders promulgated thereunder, and all such laws, rules and
regulations that relate to the environment or the pollution, preservation,
protection, clean-up or remediation thereof, or the treatment, storage, disposal
or other management of "hazardous substances," as such term is currently defined
in the Comprehensive Environmental Response, Compensation Liability Act of 1980,
with respect to the Property.
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(k) there is no condemnation proceeding pending or, to Seller'
knowledge, threatened with regard to all or part of the Property.
(l) to the best of Seller's knowledge, information, and belief, there
is no material defect in the condition of the Property, or any portion thereof,
which has not been corrected or which will materially impair the operation of
the Property and the Property will be in materially good operating condition on
the Closing Date.
9.3. SUBSEQUENT DEVELOPMENTS. After the date of this Agreement and
until the Closing Date, Seller shall keep Purchaser fully informed of all
subsequent developments ("Subsequent Developments") which would cause any of
Seller's representations contained in this Agreement to be no longer accurate in
any material respect. In the event any of Seller's representations contained in
this Agreement are, as of the Closing Date, no longer accurate in any material
respect, Purchaser shall have the right to elect to terminate this Agreement.
9.4. NEW CONTRACTS. Prior to Closing, Seller shall not amend, modify,
renew or extend any of the FF&E Leases or Service Contracts or enter into any
new contractual relationships with any party to provide services or goods to the
Property other than in the ordinary course of business and other than those
which Purchaser elects to be terminated.
9.5. SELLER'S INDEMNITY. Seller agrees to indemnify and hold Purchaser
harmless of and from all liabilities, losses, damages, costs, expenses
(including reasonable attorneys' fees) which the Purchaser may suffer or incur
by reason of any act or cause of action occurring or accruing prior to the
Closing Date and arising from any breach of Seller's representations and
warranties or from the ownership or operation of the Property prior to the
Closing Date, including but not limited to any claims by employees of Seller or
third parties under insurance carried by Seller.
9.6. PURCHASER'S INDEMNITY. Purchaser agrees to indemnify and hold
Seller harmless of and from all liabilities, losses, damages, costs, expenses
(including reasonably attorneys' fees) which the Seller may suffer or incur by
reason of any act or cause of action occurring or accruing on or after the
Closing
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Date and arising from the ownership or operation of the Property subsequent to
the Closing Date, including but not limited to any claims by employees of
Purchaser or third parties under insurance carried by Purchaser; provided,
however, that the Lease shall govern certain post-closing matters with respect
to the portions of the Property described in the Lease and provided further,
however, Purchaser shall not be required to indemnify Seller with respect to
activities conducted by Seller in connection with Seller's lease of certain of
the Improvements pursuant to the Lease (as hereinafter defined).
ARTICLE 10
Conditions Precedent to the Closing
In addition to any other conditions set forth in this Agreement, the
obligations of the parties to consummate the Closing are subject to the timely
satisfaction of each and every one of the conditions and requirements set forth
in this Article 10, all of which shall be conditions precedent to the parties'
respective obligations under this Agreement.
10.1. SELLER'S OBLIGATIONS. Seller shall have performed all obligations
of Seller hereunder which are to be performed prior to Closing.
10.2. PURCHASER"S REPRESENTATIONS AND WARRANTIES. Purchaser's
representations and warranties set forth in Section 9.1 shall be true and
correct in all material respects as if made again on the Closing Date.
10.3. SELLER'S REPRESENTATIONS AND WARRANTIES. Seller's representations
and warranties set forth in Section 9.2 shall be true and correct in all
material respects as if made again on the Closing Date.
10.4. BOARD APPROVAL. Seller's board of directors shall have approved
this Agreement and the sale of the Property and shall have approved the Lease at
a duly called meeting of such board of directors on or before July 30, 1999.
10.5 LEASE. The Lease shall have been executed by both Seller and
Purchaser.
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10.6 ZONING AND USE AMENDMENTS. Seller shall have obtained final
approved amendments of the planned development or zoning provisions, amendments
to agreements with neighborhood owners, and all third party consents and
approvals, if any, required in order for Purchaser to purchase the Property, to
lease a portion of the Property to Seller in accordance with the terms of the
Lease, and to use the Property for general office use.
ARTICLE 11
Closing and Closing Documents
11.1. CLOSING. The consummation and closing (the "Closing") of the
transaction contemplated under this Agreement shall take place at the offices of
Seller's attorneys, Burch, Porter & Johnson, PLLC, 50 N. Front Street, Suite
800, Memphis, Tennessee, or such other place as is mutually agreeable to the
parties not later than sixty (60) days after the date of this Agreement, (the
"Closing Date"), or on such other date as may be mutually agreed to by the
parties. The Closing Date shall be extended by such period, but in no event to a
date subsequent to December 31, 1999, as may be necessary to obtain approval of
the amendments to the planned development and neighborhood owners agreements as
provided in Section 8.4.
11.2. SELLER'S DELIVERIES. At the Closing and at Seller's sole cost and
expense, Seller shall deliver the following to Purchaser in addition to all
other items required to be delivered to Purchaser by Seller:
(a) SELLER'S DEED. Seller's Deed duly executed and acknowledged by
Seller, granting and conveying to Purchaser good and indefeasible title in fee
simple to the Land and Improvements, free and clear of all liens, encumbrances,
covenants, conditions, restrictions, rights-of-way, easements, and other matters
affecting the title to the same that are not included within the term Permitted
Exceptions and all of Seller's right, title and interest in the Appurtenances;
(b) ASSIGNMENT AND BILL OF SALE. An Assignment and Bill of Sale
covering FF&E duly executed and acknowledged by Seller, and an Assignment and
Bill of Sale covering all personal property located at the Property other than
FF&E duly executed and acknowledged by Seller;
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(c) ASSIGNMENT AND ASSUMPTION AGREEMENT (SERVICE CONTRACTS). An
Assignment and Assumption Agreement (Service Contracts) covering service
contracts for the Property;
(d) FIRPTA AFFIDAVIT. An affidavit from Seller in form and substance
acceptable to Purchaser, as required by Section 1445 of the Internal Revenue
Code, specifying (i) that Seller is not a foreign entity, foreign corporation,
foreign partnership, foreign trust or foreign estate (as those terms are defined
in the Internal Revenue Code and Income tax regulations), (ii) Seller's taxpayer
identification number or U.S. employer identification number, (iii) Seller's
office address, and (iv) such other matters as Purchaser may reasonably require
in order to satisfy itself that no withholding is required under Section 1445 of
the Internal Revenue Code including an indemnity against any claim for taxes
which should have been withheld;
(e) AUTHORITY DOCUMENTS. Evidence satisfactory to Purchaser and the
Title Company that the person or persons executing the closing documents on
behalf of Seller have full right, power and authority to do so;
(f) TITLE POLICY. The Title Policy insuring good and indefeasible fee
simple title to the Land and Improvements, subject only to the Permitted
Exceptions, in the amount of the Purchase Price;
(g) LEASE. A lease of Building 1, Building 2, the Parking Structure,
and certain portions of the surface parking substantially in the form attached
hereto as Exhibit G together with such revisions as may be mutually satisfactory
to Seller and Purchaser, duly executed by Seller (the "Lease");
(h) PLANS AND LICENSES. To the extent not previously delivered to and
in the possession of Purchaser, all Plans and Specs and all Licenses; and
(i) MISCELLANEOUS. Such other instruments as are customarily executed
by a seller in Shelby County, Tennessee to effectuate the conveyance of property
similar to the Property, with the effect that, after the Closing, Purchaser will
have succeeded to all of the rights, titles, and interests of Seller related to
the Property and Seller will no longer have any
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rights, titles, or interests in and to the Property other than those rights
afforded to Seller pursuant to the terms of the Lease. Such instruments shall
include, if appropriate, any documents required to effectively transfer the
Utility Reservations by Seller to Purchaser.
On the Closing Date, Seller shall deliver to Purchaser possession of
the Property free and clear of all tenancies of every kind and parties in
possession, except for Seller's occupancy under the Lease, and with all parts of
the Property (including, without limitation, the Improvements and FF&E) in
substantially the same condition as the same were on the date of this Agreement,
normal wear and tear excepted.
11.3. PURCHASER'S DELIVERIES. At the Closing and at Purchaser's sole
cost and expense, Purchaser shall deliver the following to Seller:
(a) PURCHASE PRICE. The Purchase Price pursuant to Section 3.1 above,
plus or minus the adjustments to be made at the Closing in accordance with the
terms of this Agreement;
(b) ASSIGNMENT AND ASSUMPTION AGREEMENT (SERVICE CONTRACTS). An
Assignment and Assumption Agreement (Service Contracts) covering service
contracts for the Property;
(c) AUTHORITY DOCUMENTS. Evidence satisfactory to Seller and the Title
Company that the person or persons executing the closing documents on behalf of
Purchaser have full right, power and authority to do so;
(d) LEASE. The Lease duly executed by Purchaser; and
(e) MISCELLANEOUS. Such other instruments as are customarily executed
by a purchaser in Shelby County, Tennessee to effectuate the purchase of
property similar to the Property.
11.4. PRORATIONS. At Closing, the following items of expense shall be
prorated, adjusted, and appropriated as of 12:01 a.m. on the Closing Date:
(a) PROPERTY TAXES. Real estate taxes, personal property or use taxes
and sewer rents, on the basis of the best available estimates for such taxes and
rents that will be due and payable
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on the Property for the calendar year in which the Closing occurs, and Seller
shall pay to Purchaser in cash at the Closing or credit against the Purchase
Price, Seller's pro rata portion of such taxes. In the event that taxes for the
year in which the Closing occurs are more or less than such estimated amount,
Seller or Purchaser shall promptly pay the amount necessary to adjust for the
correct proration as soon as the actual tax amount becomes available;
(b) OPERATING COSTS. All costs and expenses (including, without
limitation, all utilities) of operating the Property, and amounts paid or
payable under the Service Contracts; and
(c) SUPPLIES. At Closing, Purchaser shall purchase from Seller all of
the usable Supplies at the Property. The cost of such goods shall be equal to
the lower of i) fair market value, or ii) Seller's actual cost thereof.
11.5. DOCUMENT PREPARATION, CLOSING COSTS AND TRANSFER COSTS. Purchaser
shall pay all transfer and recording fees and taxes, the cost of the Title
Policy (including any extra hazard coverages desired by Purchaser), and the cost
of preparing or obtaining documents to be delivered by Purchaser to Seller
pursuant to this Agreement. Seller shall pay for the abstract or title search,
UCC Searches, the cost of the Survey, transfer, assumption and/or assignment
fees and charges imposed by any party having an interest in the Property, and
the cost of preparing or obtaining documents to be delivered by Seller to
Purchaser pursuant to this Agreement. Seller and Purchaser each shall pay
one-half of the Title Company's escrow fee, and each shall pay its own
attorney's fees.
11.6. RECONCILIATION AND FINAL PAYMENT. Seller and Purchaser shall
reasonably cooperate after Closing to make a final determination of the
prorations required hereunder. Upon the final reconciliation of the prorations
under this Section and Section 11.4, the party which owes the other party any
sums hereunder shall pay such party such sums within ten (10) days after the
reconciliation of such sums. The obligations to calculate such prorations, make
such reconciliations and pay any such sums shall survive the Closing.
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ARTICLE 12
Casualty and Condemnation
12.1. RISK OF LOSS; NOTICE. Prior to Closing and the delivery of
possession of the Property to Purchaser in accordance with this Agreement, all
risk of loss to the Property (whether by casualty, condemnation or otherwise)
shall be borne by Seller. In the event that (a) any loss or damage to the
Property shall occur prior to the Closing Date as a result of fire or other
casualty, or (b) Seller receives notice that a governmental authority has
initiated or threatened to initiate a condemnation proceeding affecting the
Property, Seller shall give Purchaser immediate written notice of such loss,
damage or condemnation proceeding.
12.2. PURCHASER'S TERMINATION RIGHT. If, prior to Closing and the
delivery of possession of the Property to Purchaser in accordance with this
Agreement, (a) any condemnation proceeding shall be pending against a
substantial portion of the Property or (b) there is any substantial loss or
damage to the Property, Purchaser shall have the option to terminate this
Agreement provided it delivers written notice to Seller of its election so to
terminate this Agreement within thirty (30) days after the date Seller has
delivered Purchaser written notice of any such loss, damage or condemnation, and
in such event all Earnest Money shall be delivered to Purchaser and thereafter
no party shall have any further obligation or liability to the other under this
Agreement. "Substantial" condemnation or loss shall mean a condemnation or loss
in excess of $100,000 in value.
12.3. PROCEDURE FOR CLOSING. If, after a substantial loss or damage or
substantial condemnation, Purchaser shall not timely elect to terminate this
Agreement, or if the loss or condemnation is not substantial, Seller agrees to
pay to Purchaser at the Closing all insurance proceeds or condemnation awards
which Seller has received as a result of the same plus an amount equal to the
insurance deductible, if any, and assign to Purchaser all insurance proceeds and
condemnation awards payable as a result of the same in which event the Closing
shall occur without Seller replacing or repairing such damage.
12.4. SELLER'S OPTION TO REPAIR OR RESTORE THE PROPERTY.
Notwithstanding the foregoing provisions of this Article 12, if
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the condemnation, loss, or damage to the Property is capable of being repaired
or restored within a period of not more than thirty (30) days, Seller may elect
to make such repairs or restoration at Seller's sole cost, in which event
Purchaser shall not have the right to terminate the Agreement as provided in
this Article 12.
ARTICLE 13
Default and Remedies
13.1. PURCHASER'S DEFAULT. If, at or prior to Closing, (i) Purchaser
refuses or fails to consummate the purchase of the Property pursuant to this
Agreement for any reason other than termination hereof pursuant to a right
granted to Purchaser hereunder to do so or a default by Seller, or (ii) any
representation or warranty made by or on behalf of Purchaser herein shall have
been materially incorrect when made or shall become incorrect in any material
respect, or (iii) Purchaser shall otherwise fail in any material respect to
perform any of its material obligations as and when required hereunder, then
Seller shall give Purchaser and the Title Company written notice specifying the
nature of the default, and Purchaser shall have fifteen (15) days from receipt
of Seller's notice within which to cure the specified default; provided,
however, if at the end of said fifteen (15) day period Purchaser is diligently
pursuing the cure of the default but the default has not been cured, Purchaser
shall have an additional period not to exceed fifteen (15) days within which to
complete the cure of the default. If at the end of the initial fifteen (15) or,
if applicable, additional fifteen (15) day period, the default is not still
cured, the Seller, as its sole and exclusive remedy, shall have the right to
terminate this Agreement by giving Purchaser and the Title Company written
notice thereof, in which event neither party shall have any further rights,
duties or obligations hereunder (except to the extent this Agreement
specifically provides for the survival of certain obligations of Purchaser) and
Seller shall be entitled to receive, as liquidated damages (Seller and Purchaser
hereby acknowledging that the amount of damages resulting from breach of this
Agreement by Purchaser would be difficult or impossible to accurately
ascertain), the Earnest Money, and the Title Company shall immediately deliver
to Seller the Earnest Money. Notwithstanding the foregoing, in the event of any
default by Purchaser under this Agreement due to a material breach after Closing
or any termination hereof of any covenant or indemnity
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<PAGE>
which survives the Closing or any termination hereof, or if Seller shall
discover after Closing that any warranty or representation made by Purchaser
herein or in connection with the transaction contemplated herein was materially
incorrect or breached when made, Seller shall have any and all rights and
remedies available at law or in equity by reason of such default. If Purchaser
terminates this Agreement pursuant to a right granted to Purchaser hereunder to
do so, then neither party shall have any further rights, duties or obligations
hereunder (except to the extent this Agreement specifically provides for the
survival of certain obligations of Purchaser), and the Earnest Money together
with all interest earned thereon shall be returned to Purchaser.
13.2. SELLER'S DEFAULT. If Seller (i) refuses or fails to consummate
the transaction contemplated by this Agreement, or (ii) otherwise wrongfully
fails to perform any of its obligations or agreements hereunder, either prior to
or at Closing, for any reason other than termination hereof pursuant to a right
granted to Seller hereunder to do so, then Purchaser shall give Seller and the
Title Company written notice specifying the nature of the default, and Seller
shall have fifteen (15) days from receipt of Purchaser's notice within which to
cure the specified default; provided, however, if at the end of said fifteen
(15) day period Seller is diligently pursuing the cure of the default but the
default has not been cured, Seller shall have an additional period not to exceed
fifteen (15) days within which to complete the cure of the default. If at the
end of the initial fifteen (15) or, if applicable, additional fifteen (15) day
period, the default is still not cured, the Purchaser, as its sole remedy, shall
have the right to do any one or more of the following:
(a) terminate this Agreement by written notice given to Seller and the
Title Company within fifteen (15) days of the expiration of the initial fifteen
(15) or additional fifteen (15) day cure period (whichever is applicable), in
which event (i) the Earnest Money shall be returned to Purchaser by the Title
Company promptly upon receipt of such notice, and (ii) Seller shall pay to
Purchaser, within ten (10) days following written demand from Purchaser, the
amount of reasonable out-of-pocket expenses incurred by Purchaser in connection
with its inspection and investigation of the Property and the preparation,
negotiation and execution of this Agreement; or
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(b) seek specific performance of this Agreement.
Notwithstanding the foregoing, in the event of any default by Seller under this
Agreement due to a material breach after Closing or any termination hereof of
any covenant or indemnity which survives the Closing or any termination hereof,
or if Purchaser shall discover after Closing that any warranty or representation
made by Seller herein or in connection with the transaction contemplated herein
was materially incorrect or breached when made, Purchaser shall have any and all
rights and remedies available at law or in equity by reason of such default.
Neither Purchaser's nor Seller's attendance or appearance at Closing shall be
deemed to nullify or void the provisions of this Section.
ARTICLE 14
Brokers
14.1. IDENTITY OF BROKERS. The parties hereto represent to each other
that other than CB Richard Ellis Memphis, LLC ("CB Richard Ellis") they dealt
with no finder, broker or consultant in connection with this Agreement, the
Lease, or the transactions contemplated hereby.
14.2. INDEMNIFICATION BY SELLER. Seller shall be responsible for paying
any fee due to CB Richard Ellis on account of the sale of the Property. Seller
agrees to, and hereby does, indemnify and save harmless Purchaser and its
affiliates and their respective successors and assigns against and from any
loss, liability or expense, including reasonable attorneys' fees, arising out of
any claim or claims for commissions or other compensation for bringing about
this Agreement or the transactions contemplated hereby made by any broker,
finder, consultant or like agent if such claim or claims made by any such
broker, finder, consultant or like agent are based in whole or in part on any
agreements entered into with Seller or its representatives for a commission or
other compensation.
14.3. INDEMNIFICATION BY PURCHASER. Purchaser shall be responsible for
paying any fee due to CB Richard Ellis on account of the Lease. Purchaser agrees
to, and hereby does, indemnify and save harmless Seller and its affiliates and
their respective successors and assigns against and from any loss, liability or
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expense, including reasonable attorneys' fees, arising out of any claim or
claims for commissions or other compensation for bringing about this Agreement
or the transactions contemplated hereby (including any fees payable to CB
Richard Ellis in accordance with the terms of Purchaser's separate written
agreement with CB Richard Ellis to pay a commission on account of the Lease, but
excluding any claim by CB Richard Ellis on account of the sale of the Property)
made by any broker, finder, consultant or like agent if such claim or claims
made by any such broker, finder, consultant or like agent are based on any
agreements entered into with Purchaser or its representatives for a commission
or other compensation.
ARTICLE 15
Miscellaneous
15.1. NOTICES. Any notice provided for by this Agreement and any other
notice, demand or communication which any party may wish to send to another
shall be in writing and either delivered in person (including by confirmed
facsimile transmission) or sent by registered or certified mail or overnight
courier, return receipt requested, in a sealed envelope, postage prepaid, and
addressed to the party for which such notice, demand or communication is
intended at such party's address as set forth in this Section. Seller's address
for all purposes under this Agreement shall be the following:
Harrah's Operating Company, Inc.
1023 Cherry Road
Memphis, TN 38117
Attention: Corporate Secretary
Fax No. 901/762-8735
with a copy to:
William A. Carson, II, Esq.
Burch, Porter & Johnson, PLLC
50 N. Front St., Suite 800
Memphis, TN 38103
Fax No. 901/ 524-5026
Purchaser's address for all purposes under this Agreement shall be the
following:
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Mr. Brad Martin
RBM Venture Company
5810 Shelby Oaks Drive
Memphis, TN 38134
Fax No. 901/ 386-4594
with a copy to:
Boyd L. Rhodes, Jr., Esq.
Baker, Donelson, Bearman & Caldwell
165 Madison Avenue
Memphis, Tennessee 38103
Fax No. 901/577-2303
Any address or name specified above may be changed by a notice given by the
addressee to the other party. Any notice, demand or other communication shall be
deemed given and effective as of the date of delivery in person or receipt set
forth on the return receipt. The inability to deliver because of changed address
of which no notice was given, or rejection or other refusal to accept any
notice, demand or other communication, shall be deemed to be receipt of the
notice, demand or other communication as of the date of such attempt to deliver
or rejection or refusal to accept.
15.2. ENTIRE AGREEMENT; MODIFICATIONS AND WAIVERS; CUMULATIVE REMEDIES.
This Agreement supersedes any existing term sheet between the parties,
constitutes the entire agreement between the parties hereto and may not be
modified or amended except by instrument in writing signed by the parties
hereto, and no provisions or conditions may be waived other than by a writing
signed by the party waiving such provisions or conditions. No delay or omission
in the exercise of any right or remedy accruing to Seller or Purchaser upon any
breach under this Agreement shall impair such right or remedy or be construed as
a waiver of any such breach theretofore or thereafter occurring. The waiver by
Seller or Purchaser of any breach of any term, covenant or condition herein
stated shall not be deemed to be a waiver of any other breach, or of a
subsequent breach of the same or any other term, covenant or condition herein
contained. All rights, powers, options or remedies afforded to Seller or
Purchaser either hereunder or by law shall be cumulative and not alternative,
and the exercise of one right, power, option or
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remedy shall not bar other rights, powers, options or remedies allowed herein or
by law, unless expressly provided to the contrary herein.
15.3. EXHIBITS. All exhibits referred to in this Agreement and attached
hereto are hereby incorporated in this Agreement by reference.
15.4. SUCCESSORS AND ASSIGNS. Purchaser may assign its rights under
this Agreement to an affiliated entity for the purpose of purchasing the
Property. This Agreement shall be binding upon, and inure to the benefit of,
Seller and Purchaser and their respective legal representatives, successors, and
permitted assigns. Whenever a reference is made in this Agreement to Purchaser,
it shall include Purchaser's successors and permitted assigns under this
Agreement.
15.5. ARTICLE HEADINGS. Article headings and article and section
numbers are inserted herein only as a matter of convenience and in no way
define, limit or prescribe the scope or intent of this Agreement or any part
thereof and shall not be considered in interpreting or construing this
Agreement.
15.6. GOVERNING LAW. This Agreement shall be construed and interpreted
in accordance with the laws of the State of Tennessee without regard to the
principles of conflicts of laws.
15.7. TIME PERIODS. If the final day of any time period or limitation
set out in any provision of this Agreement falls on a Saturday, Sunday or legal
holiday under the laws of the State of Tennessee, or the federal government,
then and in such event the time of such period shall be extended to the next day
which is not a Saturday, Sunday or legal holiday.
15.8. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by either party hereto on a separate counterpart, each of which
when so executed and delivered shall be deemed an original and all of which
taken together shall constitute but one and the same instrument.
15.9. SURVIVAL. All covenants and agreements contained in the Agreement
which contemplate performance after the Closing Date shall survive the Closing.
All representations, warranties and indemnities contained in this Agreement
which are not by
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their nature intended to survive Closing shall be merged into Seller's Deed.
15.10. FURTHER ACTS. In addition to the acts, deeds, instruments and
agreements recited herein and contemplated to be performed, executed and
delivered by Purchaser and Seller, Purchaser and Seller shall perform, execute
and deliver or cause to be performed, executed and delivered at the Closing or
after the Closing, any and all further acts, deeds, instruments and agreements
and provide such further assurances as the other party or the Title Company may
reasonably require to consummate the transaction contemplated hereunder.
15.11. SEVERABILITY. In case any one or more of the provisions
contained in this Agreement shall for any reason be held to be invalid, illegal
or unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision hereof, and this Agreement shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein.
15.12. ATTORNEYS' FEES. Should either party employ an attorney or
attorneys to enforce any of the provisions hereof or to protect its interest in
any manner arising under this Agreement, or to recover damages for breach of
this Agreement, the nonprevailing party in any action pursued in a court of
competent jurisdiction (the finality of which is not legally contested) agrees
to pay to the prevailing party all reasonable costs, damages, and expenses,
including attorneys' fees, expended or incurred in connection therewith.
15.13. 1031 EXCHANGE TRANSACTION. Seller may elect to treat the
proceeds for the purchase of the Property as a Section 1031 exchange for tax
purposes. If Seller so elects, Purchaser agrees to cooperate with Seller in
effecting such Section 1031 exchange.
Likewise, Purchaser may elect to treat this transaction for the
purchase of the Property as a Section 1031 exchange for tax purposes. If
Purchaser so elects, Seller agrees to cooperate with Purchaser in effecting such
Section 1031 exchange.
15.14. JOINT PREPARATION. Seller and Purchaser acknowledge that they
and their legal counsel have participated
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in the negotiation and preparation of this Agreement. Therefore, this Agreement
and the other documents required or contemplated hereunder shall be construed
without regard to any presumption or other rule requiring construction against
the party causing the Agreement to be drafted.
15.15. FUTURE DEVELOPMENT OF THE PROPERTY. Seller acknowledges that
Purchaser has informed Seller that Purchaser may at some future date decide to
develop additional portions of the Property. Seller agrees to cooperate with
Purchaser's attempts to rezone, subdivide, or obtain approval of a planned
development for the Property (the "Redevelopment"), provided that the
Redevelopment shall not interfere with Seller's use of the portions of the
Property covered by the Lease, and that the Redevelopment shall be consistent
with the character and quality of a Class A office space or residential
atmosphere.
15.16. BEST OF KNOWLEDGE. Whenever any statement set forth herein with
respect to the existence of absence of facts is qualified by "to (Purchaser's or
Seller's) knowledge" or "to the best of (Purchaser's or Seller's) knowledge,"
such phrase indicates only that no information has come to the attention of the
party making such statement that would give such party actual knowledge of the
existence or absence of such facts. For the purpose of making the Seller's
covenants, representations and warranties contained in Articles 8 and 9, Seller
shall, as a minimum, consult with its attorneys and with the executives or other
management personnel whose duties include responsibility for the matters
included within the purpose and intent of those covenants, representations, and
warranties. Except as otherwise expressly stated herein, such party shall not be
deemed to have undertaken any independent investigation to determine the
existence or absence of any such facts.
15.17 TRANSITION ASSISTANCE. In order to aid in the orderly transition
of ownership and operation of the Property, Seller shall provide the services of
Mr. Walt Phelan, Director of Administrative Services, to Purchaser twenty (20)
hours per week for a period of four (4) weeks after the Closing Date.
IN WITNESS WHEREOF, this Agreement has been entered into effective as
of the 15th day of September, 1999.
SELLER:
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HARRAH's OPERATING COMPANY, INC.,
a Delaware corporation
By: /s/ COLIN V. REED
-------------------------------------
Its: Executive VP/Chief Financial Officer
PURCHASER:
RBM VENTURE COMPANY
a Delaware corporation
By: /s/ SCOTT IMORDE
-------------------------------------
Its: Vice President
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LIST OF EXHIBITS
<TABLE>
<S> <C>
Exhibit A - All Personal Property on the Premises
except items listed on Exhibit A-1.
Exhibit A-1 - Personal Property which is not to be
included in the sale, unless purchased by
Purchaser for the prices shown on Exhibit
A-1.
Exhibit A-2 - Service Contracts
Exhibit A-3 - Warranties
Exhibit A-4 - Licenses
Exhibit A-5 - Plans & Specs
Exhibit A-6 - FF & E Leases
Exhibit A-7 - Utility Reservations
Exhibit B - Agreed allocation of purchase price between
real estate and personal property
Exhibit C - Seller's Deed
Exhibit D - Bill of Sale
Exhibit E - Environmental Surveys
Exhibit F - Insurance Schedule
Exhibit G - Form of Lease of a portion of the
Improvements from Purchaser to Seller
Exhibit H - Roof Repair Report
</TABLE>
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EXHIBIT A
All tangible personal property and fixtures of any kind whatsoever attached
to, or located upon and used in connection with the ownership, maintenance,
use or operation of Building 1, Building 2, the Mansion, the Pool House, the
Security Building, the Parking Structure, and the Surface Parking as of the
date hereof (or acquired by Seller and so employed prior to Closing),
including, but not limited to, all furniture, fixtures, equipment, personal
property; all cameras, sensors, alarms, and other security systems; key pad
and entry systems; sprinklers and fire suppression systems; landscaping
equipment; irrigation systems and equipment; pool equipment; all heating,
lighting, plumbing, drainage, electrical, air conditioning, and other
mechanical fixtures and equipment and systems; building and energy management
systems and controls; power backup and generator systems; telephone switches
and systems; satellite dishes; fiber optic networks; computer wiring and
cables; utility and other meters; all keys, locks, combinations, codes;
building systems computers and software; all elevators and related motors and
electrical equipment and systems; all hot water heaters, furnaces, heating
controls, motors and boiler pressure systems and equipment, all shelving and
partitions, all ventilating equipment, and all incinerating and disposal
equipment; all carpet, drapes, blinds, window treatments, chandeliers,
furniture, and other furnishings; all stoves, ovens, freezers, refrigerators,
dishwashers, disposals, kitchen equipment and utensils, tables, chairs,
plates and other dishes, glasses, silverware, serving pieces and other
restaurant and bar equipment, apparatus and utensils; but excluding, however,
those certain items as described on Exhibit A-1 attached hereto.
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EXHIBIT A-1
Personal Property which is not to be included in the sale, unless purchased by
Purchaser for the prices shown on this Exhibit A-1.
1. All of Seller's personal property, furniture, furnishings, and
office equipment presently located in Building 1 and Building 2.
2. The following items located in the Mansion:
<TABLE>
<CAPTION>
Foyer Amount
----- ------
<S> <C>
Reproduction small bachelor's chest 225.00
Reproduction arm chair -
"Prince of Windsor" back 75.00
Tall case (grandfather) clock - Irish face 2,000.00
Two (2) odd lamps 100.00
English antique box 150.00
Reproduction small Queen Anne mirror 175.00
Upstairs Landing
----------------
Serpentine side table 475.00
Reproduction oval mirror 300.00
Two (2) china planters 125.00
Sitting Room (Philip Satre)
--------------------------
Club Chair (upholstered) 300.00
Three-seat sofa (upholstered) 450.00
Pair Chippendale armchairs 500.00
Pair yew-wood side cabinets (antique) 1,500.00
Pair URN lamps (partially old) 500.00
Two (2) English wood boxes (antique) 400.00
English lap desk made into table 400.00
Pair brass floor lamps 150.00
Brass fire fender, tools, and andirons 250.00
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT A-1 CONTINUED
Back Hall (by Norma Eghert) Amount
-------------------------- ------
<S> <C>
Walnut reveneuvered chest & concave center 2,500.00
Pair Country French oak side chairs 400.00
Two (2) fish bowl planters and stands 300.00
Queen Anne style low boy table 375.00
Brass bouillarte lamp 125.00
Reproduction Chippendale style mirror 375.00
Cloisonne Box 75.00
Candy jar 10.00
Sun Room
--------
Country French 3-door chest 1,250.00
Reproduction side board 450.00
Square inlaid sidetable 375.00
Reproduction arm chair 125.00
Reproduction conference table 2,500.00
Set (10) reproduction conference arm chairs 2,000.00
Three (3) fish bowl planters and stands 300.00
Bronze figure of a girl 150.00
Four (4) miscellaneous lamps - reproductions 800.00
Pair rattan arm chairs 300.00
Reproduction Chinese Chippendale mirror 375.00
Cut crystal inkwell - silver top - as is 75.00
Dining Room
-----------
Reproduction banded dining room table 4,000.00
Set (12) Queen Anne style dining chairs in hand-
carved (late 19th century early 20th century) 7,500.00
Chinese Chippendale display cabinet 2,500.00
Set (5) walnut Queen Anne dining room chairs
(striped fabric) 1,500.00
Reproduction bow-front sideboard & inlay 2,500.00
Mahogany plant stand 150.00
Pair large Rose Medallion covered temple jars
w/ chips 2,500.00
Reproduction (Baker) tea-table 275.00
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT A-1 CONTINUED
Dining Room Amount
----------- ------
<S> <C>
Mahogany Chippendale side table 750.00
Six (6) English Ironstone plates 300.00
Pair Japanese Kutami plates 300.00
Seven (7) piece silver-plated American
tea set (Wilcox) 750.00
Three (3) silver-plated trays 300.00
Two (2) silver-plated (Wallace) cream pitchers 25.00
Silver-plated punch bowl 250.00
Reproduction Chippendale mirror 450.00
Pair silver-plated 3-branch candelabras 350.00
Three (3) crystal decanters 100.00
Porcelain fish bowl planters 125.00
China planter (on plant stand) 45.00
Pair Gorham silver-plated candlesticks 50.00
Pair brass/crystal wall sconces (electric) 750.00
Living Room
-----------
Two drawer low boy 1,500.00
Chinese lamp - single figure 350.00
Plant stand - 3 legs 350.00
Black lacquer small table 1,000.00
Chinese Chippendale arm chair 1,250.00
Queen Anne pole screen 2,500.00
Pair French Sampson armorial baskets 450.00
Brass fire fender 1,250.00
Pair brass andirons 1,000.00
Stone beside fireplace 150.00
Pie-crust tilt-top table 1,850.00
Queen Anne armchair (rose upholstery) 750.00
Walnut veneered Chippendale chest 2,250.00
Reproduction bonnet-top secretary 2,250.00
20th century wheel-back side chair 375.00
Crystal & sterling inkwell (English) 225.00
Rectangular side-table & gallery top 1,100.00
Pair 19th century Rose Medallion lamps mounted
in bronze as-is 1,750.00
</TABLE>
-38-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT A-1 CONTINUED
Living Room Amount
----------- ------
<S> <C>
Cobalt cut glass newel post (finial) 350.00
Carved Queen Anne armchair (upholstered) 1,250.00
Chippendale camel back sofa (down cushions) 1,250.00
Rectangular side table & pierced gallery 400.00
Chinese Chippendale Gainesborough chairs
(stripe) 1,750.00
Four (4) fabric pillows 150.00
Miscellaneous reproduction china 1,000.00
Four (4) miscellaneous lamps 600.00
Kimball Grand Piano 4,200.00
Basement Office (D Ann Glen)
---------------------------
Pair brass sconces 150.00
Pair Queen Anne wingback chairs 500.00
Two-seat sofa 250.00
Antique tilt-top round table 850.00
Pine trunk 300.00
Mahogany side table (games table) 400.00
Fruitwood country French side table (stripped) 450.00
Five (5) miscellaneous lamps 275.00
Metal planters 25.00
Chinese ceramic planters 100.00
Pair metal andirons and tools 175.00
Rugs: Amount
----- ------
Basement - 4.9 X 7.7 Turkish 1,000.00
11.10 X 17.50 Persian 3,500.00
</TABLE>
-39-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT A-1 CONTINUED
First Floor: Amount
----------- ------
<S> <C>
Foyer - 11.1 X 13.8 Persian 15,000.00
4.3 X 6.10 Persian 3,500.00
Between Living Room and Foyer 1,200.00
3.2 X 4.10 Antique Persian
West side of Foyer - 2.7 X 16.7
Antique Persian 1,000.00
Dining Room - 12.3 X 20.11 Antique Persian 40,000.00
Living Room - 12 X 17.2 Antique Persian 20,000.00
Second Floor:
-------------
Sitting Room - 3.11 X 7 Antique Persian 4,000.00
Upstairs Hall - 5 X 11.10 Antique Persian 800.00
Miscellaneous:
-------------
Formal Place Settings - approximately 12
settings 5,325.00
includes Lenox, Wallace, silverware, Waterford
Crystal
Everyday Place Settings - approx. 36 settings
includes Spode China, Onleda everyday ware
assorted glassware 2,850.00
</TABLE>
3. The following items located in the Pool House:
<TABLE>
<CAPTION>
Item Inventory Count Amount
- ---- --------------- ------
<S> <C> <C>
Conference Room Tables & Chairs 2 rooms 20,400.00
Television Sets & VCR's 5 TV's, 2 VCR's 1,650.00
Cash Registers 2 1,150.00
Dining Tables & Chairs 76 top tables 12,530.00
42 top tables
344 top tables
175 chairs
Portable Food Prep Equipment 1 frozen yogurt
machine 1,000.00
Piano 1 1,700.00
</TABLE>
-40-
<PAGE>
EXHIBIT A-2
SERVICE CONTRACTS
1. HOUSEKEEPING - Contract is between Horizon of Memphis, Inc. and
Harrah's Operating Company, Inc. Term began 1/1/99 and is a 1-year
term.
2. LANDSCAPING/IRRIGATION - Contract is between Environmental Landscaping
Service (Roberts Company, ltd. of TN) and Harrah's Operating Company,
Inc. Term began 3/1/99 and ends 2/29/00.
3. HVAC - Contract is between Walker-J-Walker and Harrah's Operating
Company, Inc. Term began 6/10/99 and is a 1-year term.
4. WATER TREATMENT (CHEMICAL MAINTENANCE TREATMENT) - Contract is between
Walker-J-Walker and Harrah's Operating Company, Inc. Term began 3/1/99
and is a 1-year term.
5. METASYS (BUILDING MANAGEMENT SYSTEM) - Contract is between Johnson
Controls, Inc. and Harrah's Operating Company, Inc. Term began 2/1/97
and is a 3-year term.
6. PEST CONTROL - Contract is between Kolter Exterminating Company, Inc.
and Harrah's Entertainment, Inc. Term began 7/1/99 and is a 1-year
term.
7. ELEVATORS - Contract is between Dover Elevator Company and Harrah's
Operating Company, Inc. Term began 3/1/99 and is a 1-year term.
8. UPS/GENERATORS - Contract is between Computer Power and Signal. There
are three (3) separate agreements. One (1) for each generator - term
for Catepillar is 1/1/99 and is a 1-year term; term for Liebert is
1/1/99 and is a 1-year term; and the term for Controlled Power is
9/15/98 thru 9/30/99.
9. TRASH DISPOSAL - Contract is between Harrah's Entertainment, Inc. and
BFI of TN, Inc. Term began 8/20/98 and is a 2-year term.
10. TERMITE - Contract is between Kolter Exterminating Company, Inc. and
Harrah's Entertainment, Inc. Term begins 4/18/99 and is a 1-year term.
-41-
<PAGE>
EXHIBIT A-3
WARRANTIES
1. None
-42-
<PAGE>
EXHIBIT A-4
LICENSES
1. Use & Occupancy Permit
2. Elevator Permit
3. Certificate of Operation (C of O) Permit
4. Boiler Permit (Pressure Valve)
5. Backflow Prevention Permit
-43-
<PAGE>
EXHIBIT A-5
PLANS & SPECS
1. Mechanical Details - HQ Building (Office Building #2)
2. Residence / Facility / Pool House Full Set (Mechanicals)
3. Site, Electrical, and Finish Schedules - HQ Building
(Office Building #2)
4. Site Plan; Electrical and Mechanical
5. Full Set Office Building #1 (Mechanical, Electrical, CD's)
-44-
<PAGE>
EXHIBIT A-6
FF & E
1. Dish Machine
2. Coffee Urns & Pots (Employee Center)
3. Coffee Makers (except Board Room, Komen Room, Riverboat
Room)
4. Coffee Hot Pots (Employee center & elsewhere)
5. Coke Machine (Employee Center)
6. Coke Logo Refrigerator (Employee Center)
7. Linens (Employee center & elsewhere)
-45-
<PAGE>
EXHIBIT A-7
UTILITY RESERVATIONS
1. None
-46-
<PAGE>
EXHIBIT B
Agreed allocation of purchase price between real estate and personal property:
Real Estate $14,300,000.00.
Personal Property $49,453.00.
-47-
<PAGE>
EXHIBIT C
Seller's Deed
-48-
<PAGE>
WARRANTY DEED
THIS INDENTURE, made and entered into this ----- day of ---, 1999, by
and between HARRAH'S OPERATING COMPANY, INC., party of the first part, and RBM
VENTURE COMPANY party of the second part.
W I T N E S S E T H :
That for and in consideration of Ten Dollars ($10.00), cash in hand
paid, and other good and valuable considerations, the receipt of all of which is
hereby acknowledged, the said party of the first part has bargained and sold and
does hereby bargain, sell, convey, and confirm unto the said party of the second
part the following described real estate, situated and being in Memphis, County
of Shelby, State of Tennessee, to-wit:
PROPERTY DESCRIBED ON ATTACHED EXHIBIT "A"
The aforesaid property is conveyed subject to the Permitted Exceptions
described on attached Exhibit "B".
TO HAVE AND TO HOLD the aforesaid real estate, together with all the
appurtenances and hereditaments thereunto appertaining unto the said party of
the second part, its successors, and assigns in fee simple forever.
The said party of the first part does hereby covenant with the said
party of the second part that they are lawfully seized in fee of the
aforedescribed real estate; that they have a good right to sell and convey the
same; that the same is unencumbered, except as aforesaid; and that the title and
quiet possession thereto they will warrant and defend against the lawful claims
of all persons.
The word "party" as used herein shall mean "parties" if more than one
person or entity be referred to, and pronouns shall be construed according to
their gender and number according to the context thereof.
WITNESS the signature of the party of the first part the day and year
first above written.
HARRAH'S OPERATING COMPANY, INC.
By:
---------------------------------
Title:
---------------------------------
-49-
<PAGE>
STATE OF TENNESSEE
COUNTY OF SHELBY
Before me, ---------------, a Notary Public in and for the State and
County aforesaid, personally appeared --------------------, with whom I am
personally acquainted (or proved to me on the basis of satisfactory evidence),
and who, upon oath, acknowledged himself (or herself) to be the
- --------------------- of HARRAH'S OPERATING COMPANY, INC., the within named
bargainor, a corporation, and that -he as such officer, being duly authorized so
to do, executed the foregoing instrument for the purposes therein contained, by
signing the name of the corporation by --- self as such officer.
WITNESS my hand and seal at office, on this the ----- day of
- ----------, 1999.
---------------------------
Notary Public
My Commission Expires:
- ----------------------
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
PROPERTY ADDRESS:
Memphis, TN
THIS INSTRUMENT PREPARED BY:
Tax Parcel I.D. #:
State Tax $
MAIL TAX BILLS TO: (Person or Register's fee 1.00
Agency responsible for payment Computer fee
of taxes) Recording fee --------
Total $-------
-50-
<PAGE>
I, or we, hereby swear or
affirm that, to the best of
affiant's knowledge,
information and belief, the
actual consideration for this
transfer or value of the
property transferred,
whichever is greater, is $--------
- -----, which amount is equal
to or greater than the amount
which the property transferred
would command at a fair
voluntary sale.
- ------------------------------
Affiant
SUBSCRIBED AND SWORN TO
BEFORE ME this ---- day of ---
- ---------------, 1999.
- --------------------
Notary Public
My Commission Expires:
- ---------------------
-51-
<PAGE>
EXHIBIT "A"
Property in Memphis, Shelby County, Tennessee more particularly described as
follows:
Being the same property conveyed to Grantor by Deed of record as Instrument No.
- ---------------.
-52-
<PAGE>
EXHIBIT "B"
The aforesaid property is conveyed subject to the following:
-53-
<PAGE>
EXHIBIT D
Bill of Sale
BILL OF SALE dated as of the ---- day of -------, 1999, by and between
HARRAH'S OPERATING COMPANY, INC. ("Seller"), and RBM VENTURE COMPANY ("Buyer").
FOR AND IN CONSIDERATION of Ten Dollars ($10.00) cash in hand paid by
the Buyer to the Seller, and for other good and valuable consideration, receipt
of which is hereby acknowledged, Seller does hereby sell, assign, transfer, and
deliver to Buyer all of Seller's right, title an interest in the Seller's
property, more particularly described in Exhibit "A" attached hereto and
incorporated herein by reference (the "Property").
Seller warrants that Seller has the good right to sell the aforesaid
Property and that the Property is unencumbered. The aforesaid Property is
conveyed and accepted AS IS WHERE IS without warranty of MERCAHNTABILTY or
FITNESS FOR PARTICULAR PURPOSE.
IN WITNESS WHEREOF, the Seller has executed this Bill of Sale on the
day and year first above written.
HARRAH'S OPERATING COMPANY, INC.
By:
----------------------------
Title:
----------------------------
STATE OF TENNESSEE
COUNTY OF SHELBY
On this ---- day of -------, 1999, before me, a Notary Public in and
for said State and County, duly commissioned and qualified, personally appeared
- -------------, the --------- of HARRAH'S OPERATING COMPANY, INC., the within
named corporation, who acknowledged that he/she executed the same as said
officer of said corporation, being duly authorized so to do.
WITNESS my hand and Notarial Seal at office, the day and year above
written.
------------------------------
Notary Public
My Commission Expires:
- ----------------------
-54-
<PAGE>
EXHIBIT E
Environmental Surveys
1. None
-55-
<PAGE>
EXHIBIT F
Insurance Schedule
Harrah's Entertainment, Inc.
Schedule of Insurance Coverages
Cherry Road Facility
<TABLE>
<S> <C>
Best's Rating: A-VII
Policy Period: 3/31/99-3/31/2000
Company: United Capitol Ins. Co.
Policy Number: ARIN000592
Coverage: All Risk Property (including
Boiler & Machinery and Crime)
Limit of Liability: Primary $10M
Deductible: $100K
Best's Rating: A+ IX
Policy Period: 6/1/99-6/1/2000
Company: Old Republic
Policy Number: MWZY 54917
Coverage: Fronted Primary General
Liability
Limit of Liability: $2M
Deductible: $2M
Best's Rating: A+ IX
Policy Period: 6/1/99-6/1/2000
Company: Old Republic
Policy Number: MWTB 17822
Coverage: Fronted Primary Auto
Liability
Limit of Liability: $1M
Deductible: $1M
Best's Rating: A IX
Policy Period: 6/1/99-6/1/2000
Company: Westchester
Policy Number: CUA 1043670
Coverage: Umbrella Liability
(Incl. EPLI) (Layer One)
Limit of Liability: $25M/$25M Agg x/s Primary
Deductible: NIL
</TABLE>
-56-
<PAGE>
<TABLE>
<S> <C>
Best's Rating: A XIV
Policy Period: 6/1/99-6/1/2000
Company: Royal
Policy Number: PHA 013328
Coverage: Umbrella Liability
(Incl. EPLI) (Layer Two)
Limit of Liability: $25MM XS Layer One
Deductible: NIL
Best's Rating: A XIII
Policy Period: 6/1/99-6/1/2000
Company: Agricultural
Policy Number: EXC 2626355
Coverage: Umbrella Liability
(Incl. EPLI) (Layer Three)
Limit of Liability: $50MM XS Layer Two
Deductible: NIL
Best's Rating: A XIII
Policy Period: 6/1/99-6/1/2000
Company: Agricultural
Policy Number: EXC 2626355
Coverage: Umbrella Liability
(Layer Four)
Limit of Liability: $200M X/S Layer Three
Deductible: NIL
Best's Rating: A XIII
Policy Period: 6/1/99-6/1/2000
Company: American Nat'L
Policy Number: EXX 9032775-02
Coverage:
Limit of Liability: ($75M P/O $200M)
Deductible:
Best's Rating: A++ XV
Policy Period: 6/1/99-6/1/2000
Company: Federal
Policy Number: (00) 7941-22-06
Coverage:
Limit of Liability: ($25M P/O $200M)
Deductible:
</TABLE>
-57-
<PAGE>
<TABLE>
<S> <C>
Best's Rating: A+ IX
Policy Period: 6/1/99-6/1/2000
Company: Gulf Insur. Co.
Policy Number: GA 0476211
Coverage:
Limit of Liability: ($50M P/0 $200M)
Deductible:
Best's Rating: A- XII
Policy Period: 6/1/99-6/1/2000
Company: Reliance
Policy Number: ELOOP 034001094
Coverage:
Limit of Liability: ($50M P/0 $200M)
Deductible:
Best's Rating: A+ IX
Policy Period: 6/1/99-6/1/2000
Company: Old Republic
Policy Number: MWXS 531
Coverage: Excess Workers Comp/Employers
Liability SIR States (LA, MS,
MO, NV, TN)
Limit of Liability: WC: Statutory
EL: $1.9M each occur.
Deductible: $100K
Best's Rating: A- VII
Policy Period: 3/31/99-3/31/2000
Company: United Capitol Insurance Co.
Policy Number: ARIN 000592
Coverage: Crime
Credit Card Forgery
Safe Deposit Box
Limit of Liability: $10M
Deductible: $100K
</TABLE>
-58-
<PAGE>
EXHIBIT G
Form of Lease of a portion of the Improvements from Purchaser to Seller.
AGREEMENT OF LEASE
between
RBM CHERRY ROAD PARTNERS
Landlord
and
HARRAH'S OPERATING COMPANY, INC.
Tenant
Dated: October 25, 1999
Premises:
Office Building #1
1023 Cherry Road
Memphis, Tennessee 38117
-59-
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
REFERENCE PAGE .......................................................... 1
ARTICLE I
GLOSSARY................................................................. 2
ARTICLE II
DEMISE, PREMISES, TERM, RENT............................................. 5
ARTICLE III
ESCALATION............................................................... 7
ARTICLE IV
USE AND OCCUPANCY....................................................... 11
ARTICLE V
ALTERATIONS............................................................. 12
ARTICLE VI
REPAIRS................................................................. 14
ARTICLE VII
CONNECTING CORRIDORS.................................................... 15
ARTICLE VIII
REQUIREMENTS OF LAW..................................................... 15
ARTICLE IX
SUBORDINATION........................................................... 16
ARTICLE X
RULES AND REGULATIONS................................................... 18
ARTICLE XI
INSURANCE, PROPERTY LOSS OR DAMAGE, REIMBURSEMENT....................... 18
ARTICLE XII
DESTRUCTION BY FIRE OR OTHER CAUSE...................................... 20
ARTICLE XIII
EMINENT DOMAIN.......................................................... 21
</TABLE>
-60-
<PAGE>
<TABLE>
<S> <C>
ARTICLE XIV
ASSIGNMENT, SUBLETTING, MORTGAGE, ETC................................... 21
ARTICLE XV
ACCESS TO PREMISES...................................................... 23
ARTICLE XVI
CERTIFICATE OF OCCUPANCY................................................ 24
ARTICLE XVII
DEFAULT................................................................. 24
ARTICLE XVIII
REMEDIES AND DAMAGES.................................................... 26
ARTICLE XIX
FEES AND EXPENSES....................................................... 27
ARTICLE XX
NO REPRESENTATIONS BY LANDLORD.......................................... 27
ARTICLE XXI
END OF TERM............................................................. 28
ARTICLE XXII
POSSESSION.............................................................. 28
ARTICLE XXIII
NO WAIVER............................................................... 28
ARTICLE XXIV
WAIVER OF TRIAL BY JURY................................................. 29
ARTICLE XXV
INABILITY TO PERFORM.................................................... 29
ARTICLE XXVI
BILLS AND NOTICES....................................................... 29
ARTICLE XXVII
SERVICES AND EQUIPMENT.................................................. 30
ARTICLE XXVIII
[RESERVED].............................................................. 31
ARTICLE XXIX
[RESERVED].............................................................. 31
</TABLE>
-61-
<PAGE>
<TABLE>
<S> <C>
ARTICLE XXX
SIGNS................................................................... 31
ARTICLE XXXI
BROKER.................................................................. 31
ARTICLE XXXII
INDEMNITY............................................................... 32
ARTICLE XXXIII
[RESERVED].............................................................. 32
ARTICLE XXXIV
[RESERVED].............................................................. 33
ARTICLE XXXV
[RESERVED].............................................................. 33
ARTICLE XXXVI
COVENANT OF QUIET ENJOYMENT............................................. 33
ARTICLE XXXVII
MISCELLANEOUS........................................................... 33
</TABLE>
-62-
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS:
<S> <C>
Exhibit A Legal Description........................................... A-1
Exhibit B Building and Building No. 2................................. B-1
Exhibit C Rules and Regulations....................................... C-1
Exhibit D Cleaning Specifications......................................D-1
Exhibit E Rating Level Multiplier..................................... E-1
Exhibit F [RESERVED].................................................. F-1
Exhibit G Tenant Design and Construction Standards.................... G-1
Exhibit H First American Subordination, Non-Disturbance and
Attornment Agreement........................................ H-1
Exhibit I Memphis and Shelby County Land Use
Control Board - Staff Report #16
Correspondence Item, Case No.: P.D.
93-322, L.U.C.B. Meeting
October 14, 1999....................................... I-1
</TABLE>
-63-
<PAGE>
AGREEMENT OF LEASE
AGREEMENT OF LEASE, made as of the 25th day of October, 1999, between
RBM CHERRY ROAD PARTNERS, a Tennessee general partnership, or its assigns,
having an address at 5810 Shelby Oaks Drive, Memphis, Tennessee 38134, as
Landlord, and HARRAH'S OPERATING COMPANY, INC., a Delaware corporation, having
an address at 1023 Cherry Road, Memphis, Tennessee 38117, as Tenant.
REFERENCE PAGE
In addition to other terms elsewhere defined in this Lease, the
following terms whenever used in this Lease shall have the meanings set forth in
this Reference Page.
(1) Premises: Floors one (1) through three (3) of
the Building, shown hatched on the
site plan attached hereto as Exhibit
"B," excluding, however, any
portions thereof which are defined
as Common Area(s).
(2) Commencement Date: October 25, 1999
(3) Fixed Expiration Date: April 30, 2017
(4) Fixed Rent: (a) $1,183,180.00 per annum
($98,598.33 per month) from the
Commencement Date through October
31, 2004;
(b) $1,307,413.90 per annum
($108,951.15 per month) from
November 1, 2004 through October 31,
2009; and
(c) $1,413,900.10 per annum
($117,825.00 per month) from
November 1, 2009 through the Fixed
Expiration Date, in each case, as
adjusted pursuant to Section 2.6 of
this Lease.
-64-
<PAGE>
(5) Fixed Rent Adjustment
Factor: $19,928.00.
(6) Tenant's Share: Fifty-two and one-tenth percent
(52.1%).
(7) Base Tax Factor: The Taxes applicable to the Real
Property equal to $221,848.00.
(8) Base Operating Factor: The Operating Expenses applicable to
the Real Property equal to
$583,835.00.
(9) Permitted Use: Executive and administrative offices
and operational activities related
to data processing and information
technology, and for no other use or
purpose.
(10) Broker(s): CB Richard Ellis Memphis, LLC
(11) Security Deposit: NONE
(12) Landlord's Contribution: NONE
W I T N E S S E T H:
The parties hereto, for themselves, their legal representatives,
successors and assigns, hereby agree as follows:
ARTICLE I
GLOSSARY
The following terms shall have the meanings indicated below:
"Additional Rent" shall have the meaning set forth in Section 2.2.
"Adjacent Property" shall mean the real property south of and adjacent
to the Land, consisting of approximately nineteen and ninety-two-thousandths
(19.092) acres, being purchased by Landlord at or about the date of this Lease,
together with the
-65-
<PAGE>
improvements thereon. The Adjacent Property is described as Parcel I in the
legal description attached hereto as Exhibit "A," and incorporated herein by
reference.
"Alterations" shall mean alterations, decorations, installations,
repairs, improvements, additions, replacements or other physical changes in or
about the Premises; provided, however, that the term "Alterations" shall exclude
those made by Landlord, if any, in accordance with any provisions of this Lease
in order to prepare the Premises for Tenant's initial occupancy.
"Applicable Rate" shall mean the lesser of (x) three percentage points
above the then current Base Rate, and (y) the maximum rate permitted by
applicable law.
"ASHRAE" shall mean the American Society of Heating, Refrigeration and
Air-Conditioning Engineers.
"Bankruptcy Code" shall mean 11 U.S.C. Section 101 ET SEQ., or any
statute, federal or state, of similar nature and purpose.
"Base Rate" shall mean the rate of interest publicly announced from
time to time by Citibank, N.A., or its successor, as its "base rate" (or such
other term as may be used by Citibank, N.A., from time to time, for the rate
presently referred to as its "base rate").
"Building" shall mean that certain three (3) story office building
located on the Land and having an address of 1023 Cherry Road, Memphis,
Tennessee 38117, and all of the equipment and other improvements and
appurtenances related thereto of every kind and description now located or
hereafter erected, constructed or placed upon the Land and any and all
alterations, renewals, and replacements thereof, additions thereto and
substitutions therefor. The Building is located as shown on Exhibit "B" attached
hereto.
"Building No. 2" shall mean that certain two (2) story office building
located on the Land and having an address of 1023 Cherry Road, Memphis,
Tennessee 38117, and all of the equipment and other improvements and
appurtenances related thereto of every kind and description now located or
hereafter erected, constructed or placed upon the Land and any and all
alterations, renewals, and replacements thereof, additions thereto and
substitutions therefor. Building No. 2 is located as shown on Exhibit "B"
attached hereto.
-66-
<PAGE>
"Building Standard Condition" shall mean the condition of the Building
as of the date of this Lease (reasonable wear and tear excepted), plus any
Alterations approved by Landlord, except to the extent Landlord's approval is
conditioned upon Tenant's removal of the approved Alteration prior to the
Expiration Date.
"Building Systems" shall mean the base building mechanical, electrical,
sanitary, heating, air conditioning, ventilating, elevator, plumbing,
life-safety and other service systems of the Building but shall not include the
Security System or installations made by Tenant after the date of this Lease.
For purposes of calculating Operating Expenses, the term "Building Systems"
shall include the base building mechanical, electrical, sanitary, heating, air
conditioning, ventilating, elevator, plumbing, life-safety and other service
systems of Building No. 2, but shall not include the Security System or
installations made by Tenant after the date of this Lease.
"Business Days" shall mean all days, excluding Saturdays, Sundays and
all days observed as holidays by the State of Tennessee or the federal
government.
"Common Area" shall mean any and all portions of the Land and the
improvements thereon not part of the Building or Building No. 2. Common Area
includes all landscaping, fountains and related water works, walkways,
sidewalks, parking lots, parking garages, parking decks, loading platforms,
driveways, trash removal facilities, mechanical, electrical and utility rooms
and service areas on the Land, regardless of whether they are part of the
Building or Building No. 2.
"Control" shall have the meaning set forth in Section 14.2.
"Deficiency" shall have the meaning set forth in Section 18.2.
"Escalation Rent" shall mean payments required to be made by Tenant
pursuant to Article 3.
"Event of Default" shall have the meaning set forth in Section 17.1.
"Expiration Date" shall mean the Fixed Expiration Date or such earlier
or later date on which the Term sooner or later ends pursuant to any of the
terms, conditions or covenants of this Lease (including, but not limited to, the
terms and provisions of Section 2.7 hereof) or pursuant to law.
-67-
<PAGE>
"Fixed Rent Adjustment Factor" shall have the meaning set out on the
Reference Page.
"Government Authority (Authorities)" shall mean the United States of
America, the State of Tennessee, the County of Shelby, the City of Memphis, any
political subdivision thereof and any agency, department, commission, board,
bureau or instrumentality of any of the foregoing, now existing or hereafter
created, having jurisdiction over the Real Property or any portion thereof.
"HVAC" shall mean heat, ventilation and air conditioning.
"HVAC System" shall mean the Building Systems providing HVAC.
"Hazardous Materials" shall have the meaning set forth in Section 8.2.
"HET" shall mean Harrah's Entertainment, Inc., a Delaware corporation,
and any affiliated or related company or subsidiary whose financial information
is required by GAAP to be reported on Harrah's Entertainment Company, Inc.'s
consolidated financial statements.
"Land" shall mean the land containing approximately six and four
hundred five-thousandths (6.405) acres of real estate located in Shelby County,
Tennessee, and more particularly described as Parcel II in Exhibit "A."
"Landlord" on the date as of which this Lease is made, shall mean RBM
Venture Company, but thereafter, "Landlord" shall mean only the fee owner of the
Real Property.
"Landlord Indemnitees" shall mean Landlord, its trustees, partners,
shareholders, officers, directors, employees, agents and contractors and the
Manager (and the partners, shareholders, officers, directors and employees of
Landlord's agents and contractors and of the Manager).
"Landlord's Operating Statement" shall mean a statement containing a
computation of Escalation Rent due pursuant to the provisions of Section 3.3
furnished by Landlord to Tenant.
"Landlord's Statement" shall mean either a Landlord's Operating
Statement or a Landlord's Tax Statement.
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"Landlord's Tax Statement" shall mean a statement containing a
computation of Escalation Rent due pursuant to the provisions of Section 3.2
furnished by Landlord to Tenant.
"Leveraged Transaction" shall mean any transaction entered into by HET
whereby HET (a) uses debt or a financing source having characteristics of debt
to complete the transaction, or (b) as a result of the transaction, HET assumes
or becomes liable for debt or other obligations characteristic of debt which
were originally the obligations of the other party(ies) to the transaction.
"Manager" shall mean any person or entity with which Landlord from time
to time contracts for the management of the Building and/or Building No. 2.
"Mortgage(s)" shall mean any trust deed, trust indenture or mortgage
which may now or hereafter affect the Real Property, the Building, and all
renewals, extensions, supplements, amendments, modifications, consolidations and
replacements thereof or thereto, substitutions therefor, and advances made
thereunder.
"Mortgagee(s)" shall mean any trustee under or mortgagee or holder of a
Mortgage.
"Notice(s)" shall have the meaning set forth in Section 26.1.
"Office Use" shall mean those uses which are included in the
computation of Office Square Footage as such term is used in the Restrictive
Covenants.
"Operating Expenses" shall have the meaning set forth in Section 3.1.
"Operating Hours" shall mean 7:00 a.m. to 7:00 p.m. on Business Days.
"Operating Year" shall mean each calendar year that includes any part
of the Term.
"Parties" shall have the meaning set forth in Section 37.2.
"Person or Person(s)" shall mean any natural person or persons, a
partnership, a corporation, a limited liability
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company, a limited liability partnership and any other form of business or legal
association or entity.
"Persons Within Landlord's Control" shall mean and include Landlord,
all of Landlord's respective principals, officers, agents, contractors,
servants, employees, licensees and invitees.
"Persons Within Tenant's Control" shall mean and include Tenant, all of
Tenant's respective principals, officers, agents, contractors, servants,
employees, licensees and invitees.
"Rating Level Multiplier" shall have the meaning set out in Exhibit "E"
hereto.
"Real Property" shall mean the Building, Building No. 2 and the Land.
"Rental" shall mean and be deemed to include Fixed Rent, Additional
Rent and any other sums payable by Tenant hereunder.
"Requirements" shall mean (i) all present and future laws, rules,
ordinances, regulations, statutes, requirements, codes and executive orders,
extraordinary as well as ordinary, retroactive and prospective, of all
Governmental Authorities now existing or hereafter created, and of any
applicable fire rating bureau, or other body exercising similar functions,
affecting the Real Property, or any street, avenue or sidewalk comprising a part
or in front thereof or any vault in or under the same, or requiring removal of
any encroachment, or affecting the maintenance, use or occupation of the Real
Property, (ii) all requirements, obligations and conditions of all instruments
of record on the date of this Lease including, without limitation, the
Restrictive Covenants, and (iii) all requirements, obligations and conditions
imposed by the carrier of Landlord's hazard insurance policy for the Building.
"Restrictive Covenants" shall mean Final Plat P.D. 93-322, Phase I
Harrah's Corporate Headquarters P.D., recorded at Plat Book 155, Page 8, in the
Register's Office of Shelby County, Tennessee, as amended in accordance with the
decision of the Memphis and Shelby County Land Use Control Board on October 14,
1999, pursuant to Staff Report #16 Correspondence Item, a copy of which is
attached hereto as Exhibit "I"; and Agreement dated January 26, 1984 between
Audubon Park Community Association and Holiday Inns, Inc. recorded at Instrument
No. U9-9849, as amended at Instrument Nos. V8-8105 and BE 1706, in said
Register's Office, for so long as said Agreement remains in effect.
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"Rules and Regulations" shall mean the rules and regulations annexed
hereto as Exhibit "C," and such other and further reasonable rules and
regulations as Landlord and Landlord's agents may from time to time adopt, on
notice to Tenant to be given in accordance with the terms of this Lease.
"Security System" shall mean the keypad security system in use in the
Building and Building No. 2 and located at various locations on the Real
Property at the date of this Lease as modified from time to time.
"Sublease Additional Rent" shall have the meaning set forth in Section
14.4.
"Taxes" shall have the meaning set forth in Section 3.1.
"Tax Year" shall mean each period of twelve (12) months, commencing on
the first day of January of each year, that includes any part of the Term, or
such other period of twelve (12) months as may be duly adopted as the fiscal
year for real estate tax purposes by the City of Memphis, and Shelby County.
"Tenant," on the date as of which this Lease is made, shall mean the
Tenant named in this Lease, but thereafter "Tenant" shall mean only the tenant
under this Lease at the time in question; provided, however, that the Tenant
named in this Lease and any successor tenant hereunder shall not be released
from liability hereunder in the event of any assignment of this Lease.
"Tenant Indemnitees" shall mean Tenant, its trustees, partners,
shareholders, officers, directors, employees, agents and contractors.
"Tenant's Operating Payment" shall have the meaning set forth in
Section 3.3.
"Tenant's Projected Operating Share" shall have the meaning set forth
in Section 3.3.
"Tenant's Property" shall mean Tenant's movable fixtures and movable
partitions, and other equipment, furniture, furnishings and other movable items
of personal property, but excluding all FF&E acquired by Landlord under that
certain Purchase and Sale Agreement by and between Tenant, as seller, and
Landlord, as purchaser, dated September 15, 1999 (the term "FF&E" as used in
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this Lease shall have the meaning ascribed thereto in the aforedescribed
Purchase Agreement).
"Tenant's Tax Payment" shall have the meaning set forth in Section 3.2.
"Term" shall mean the period from the Commencement Date through the
Expiration Date.
"Unavoidable Delays" shall have the meaning set forth in Article 25.
ARTICLE II
DEMISE, PREMISES, TERM, RENT
Section 2.1. Landlord hereby leases to Tenant and Tenant hereby leases
from Landlord the Premises for the Term to commence on the Commencement Date and
to end on the Fixed Expiration Date, unless earlier terminated or extended as
provided herein.
Section 2.2. Commencing upon the Commencement Date, Tenant shall pay to
Landlord, in lawful money of the United States of America, without notice or
demand, by good and sufficient check drawn to Landlord's order on a bank or
trust company with an office in the United States of America, at the office of
Landlord or at such other place as Landlord may designate from time to time, the
following:
(a) the Fixed Rent, at the annual fixed rental rate set forth
in the Reference Page, which shall be payable in equal monthly
installments of Fixed Rent in advance on the first day of each and
every calendar month during the Term, except that the first monthly
installment of Fixed Rent shall be payable by Tenant upon execution and
delivery of this Lease; and
(b) additional rent ("Additional Rent") consisting of all
other sums of money (including, without limitation, Escalation Rent) as
shall become due from and be payable by Tenant hereunder (for default
in the payment of which Landlord shall have the same remedies as for a
default in the payment of Fixed Rent).
Section 2.3. If the Commencement Date is other than the first day of a
calendar month, or the Expiration Date is other
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than the last Day of a calendar month, Rental for such month shall be prorated
on a per diem basis.
Section 2.4. [RESERVED]
Section 2.5. Tenant shall pay the Fixed Rent and Additional Rent when
due without abatement, deduction, counterclaim, setoff or defense for any reason
whatsoever, except said abatement as may be occasioned by the occurrence of any
event permitting an abatement of Fixed Rent and Escalation Rent as specifically
set forth in this Lease.
Section 2.6 Notwithstanding anything to the contrary set forth in this
Lease, in the event that HET's corporate credit rating issued by Standard &
Poor's falls below "BBB" [ignoring for purposes hereof pluses (+) and minuses
(-) included in such ratings] as a result of one or more Leveraged Transactions,
then for such period of time as such rating remains below "BBB," Fixed Rent per
annum shall be increased by an amount equal to the product of the Fixed Rent
Adjustment Factor multiplied by the Rating Level Multiplier (and Fixed Rent per
month shall be adjusted commensurately). Changes in the Fixed Rent resulting
from increases or decreases in HET's Corporate Credit Rating shall become
effective as of the official change date of the Standard & Poor's rating, and
the adjustments in Fixed Rent shall be prorated to take into account the number
of days in the month during which such rating was at each level. In no event
shall the Fixed Rent be adjusted to an amount less than that set out in the
Reference Page of this Lease.
Section 2.7. Provided Tenant is not in default under this Lease at the
time the option may be exercised, Landlord grants Tenant the option to renew
this Lease with respect to all of the Premises for two (2) additional terms of
five (5) years each. Each option shall be exercised by Tenant delivering written
notice to Landlord at least six (6) months prior to the Fixed Expiration Date,
as extended by any previously exercised option.
(a) The renewal rental rates for each option period shall be the Market
Rental Rate (as hereinafter defined)(such rate being hereinafter referred to as
the "Renewal Rental Rate"). The Market Rental Rate is the rental rate then being
charged by landlords (including Landlord) in the Memphis area on new leases to
tenants of a similar credit quality to Tenant for space of similar quality and
size as the Premises, taking into account, all relevant factors, including
without limitation, age, extent and quality of tenant improvements, leasing
commissions, length
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of term, amenities of the Building and the Real Property and the location and/or
floor height and definition of usable area, reasonable projections of Fixed
Rent, Additional Rent, Escalation Rent and allowances or concessions that have
been granted such as abatements, lease assumptions and leasehold improvement and
moving allowances.
(b) Within ten (10) days after Tenant's exercise of each of the options
to renew, Landlord shall notify Tenant in writing of the Renewal Rental Rate for
that renewal period as determined by the above formula. Tenant shall have ten
(10) days from the receipt of Landlord's notice to either accept or dispute
Landlord's determination of the Renewal Rental Rate. In the event that Tenant
disputes Landlord's determination, Tenant shall so notify Landlord and advise
Landlord of Tenant's determination of the Renewal Rental Rate for the option
period as determined by the above formula. If Landlord and Tenant cannot agree
upon the Renewal Rental Rate within thirty (30) days of Tenant's original notice
of its intent to exercise its renewal option, the following "Dispute Resolution
Mechanisms" shall be utilized:
(c) The parties, within ten (10) days thereafter, shall each select an
MAI-certified commercial real estate appraiser with a minimum of ten (10) years
experience in the Memphis market (each party to pay the cost of the appraiser
selected by it). Each appraiser, within thirty (30) days after selection, shall
present to the other their determination of the Market Rental Rate. If the
Market Rental Rates determined by each appraiser are within ten percent (10%) of
each other, then the Renewal Rental Rate for the option period shall be the
average of the two (2) Market Rental Rates as determined by the parties'
appraisers. If the appraisers' determinations are greater than ten percent (10%)
apart, then the appraisers shall jointly select, within ten (10) days
thereafter, a third MAI-certified commercial real estate appraiser with a
minimum of ten (10) years experience in the Memphis market, with the cost of the
third appraiser to be divided equally between Landlord and Tenant. Within thirty
(30) days after appointment, the third appraiser shall announce his/her
determination of the Market Rental Rate. The Renewal Rental Rate shall be equal
to the average of the Market Rental Rate determined by the two appraisers whose
determinations are numerically closest to each other (disregarding the
determination of the appraiser whose determination is further apart from either
of the others). Notwithstanding the foregoing, in the event that the third
appraiser's determination is exactly in the middle of the first two appraisers'
determinations, then the third appraiser's determination shall be the Renewal
Rental Rate.
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(d) Landlord and Tenant shall execute an amendment to this Lease within
sixty (60) days after the determination of the Renewal Rental Rate, which
amendment shall set forth the extended Term and all other terms and conditions
applicable to the renewal period, and shall establish the Renewal Rental Rate as
the annual Fixed Rent for the renewal period.
(e) Except for the Renewal Rental Rate as set forth above, this Lease,
and all of the terms and conditions hereof, shall remain in full force and
effect throughout the entire renewal term.
ARTICLE III
ESCALATION
Section 3.1. For the purposes of this Article 3, the following terms
shall have the meanings set forth below:
(a) "Operating Expenses" shall mean the aggregate of all
costs, expenses and disbursements (and taxes thereon, if any), of every
kind and nature, paid or incurred by Landlord or on behalf of Landlord
with respect to the ownership, operation, cleaning, repair, safety,
replacement, management, security and maintenance of the Real Property,
including the Building Systems and Common Areas, and with respect to
the services provided to tenants, including, without limitation: (i)
salaries, wages and bonuses paid to, and the cost of any
hospitalization, medical, surgical, union and general welfare benefits
(including group life insurance), any pension, retirement or life
insurance plans and other benefits or similar expenses relating to
employees of Landlord and/or of Manager (on and off-site) engaged in
the operation, cleaning, repair, safety, replacement, management,
security or maintenance of the Real Property and the Building Systems
or in providing services to tenants; (ii) social security, unemployment
and other payroll taxes, the cost of providing disability and worker's
compensation coverage imposed by any Requirement, union contract or
otherwise with respect to said employees; (iii) the cost of gas, oil,
steam, water, sewer rental, HVAC, water treatment, and other utilities
furnished to the Building and Building No. 2 and utility taxes; (iv)
the expenses incurred for casualty, rent, liability, fidelity, plate
glass and any other insurance; (v) the cost of repairs, maintenance and
painting, including the cost of acquiring or renting all
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supplies, tools, materials and equipment used in operating or repairing
the Building and Building No. 2 including, without limitation, their
roofs; (vi) expenditures, whether by purchase or lease, for capital
improvements and capital equipment (except for roof replacement and
repairs to structural components of the Building or Building No. 2
which were not necessitated by the acts or omissions of Tenant) to the
extent (but only to the extent) that such capital expenditures reduce
or result in savings in Operating Expenses, the amortized cost of such
capital expenditures (or portion thereof resulting in reduction or
savings in Operating Expenses) to be included in Operating Expenses for
the Operating Year in which such costs are incurred and every
subsequent Operating Year, amortized on a straight-line basis over the
accounting life of the capital improvement, with interest calculated at
a per annum rate equal to eight percent (8%); (vii) operation, repair
and replacement of building management systems; (viii) the cost or
rental of all supplies, tools, materials and equipment; (ix) the cost
of uniforms, work clothes and dry cleaning; (x) the cost of window
cleaning, repair, resealing and replacement, janitorial, pest control,
concierge, guard, watchman or other security personnel, service or
system, fire extinguishers and sprinklers, power generators, fences and
electronic/motorized gates, if any; (xi) management fees and expenses;
(xii) charges of independent contractors performing work included
within this definition of Operating Expenses; (xiii) telephone and
stationery costs; (xiv) legal, accounting and other professional fees
and disbursements incurred in connection with the operation and
management of the Real Property; (xv) association fees and dues; (xvi)
the cost of seasonal decorations; (xvii) depreciation of hand tools and
other movable equipment used in the operation, cleaning, repair,
safety, management, security or maintenance of the Building and
Building No. 2; (xviii) exterior and interior landscaping, irrigation
and tree care; (xix) all electrical costs incurred in the operation of
the Real Property; (xx) striping, re-striping, sweeping and repairing
parking areas and garages; and (xxi) waste removal.
Provided, however, that the foregoing costs and expenses shall exclude
or have deducted from them, as the case may be:
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(1) amounts received by Landlord through proceeds of
insurance to the extent they are compensation for sums
previously included in Operating Expenses;
(2) cost of repairs or replacements incurred by
reason of fire or other casualty or condemnation to the extent
Landlord is compensated therefor;
(3) Taxes; and
(4) leasing commissions, rental concessions and lease
buy-outs.
If Landlord leases any item of capital equipment that would otherwise
be included in Operating Expenses, then the rentals and other costs paid with
respect to such leasing shall be included in Operating Expenses for the
Operating Years in which such rentals and costs are incurred.
Notwithstanding anything to the contrary set forth herein, if the
Building and Building No. 2 are not fully occupied during any calendar year of
the Term, Operating Expenses shall be determined as if the Building and Building
No. 2 had been fully occupied during such year, by adding to actual Operating
Expenses an amount equal to those costs which would have been incurred if the
Building and Building No. 2 had been fully occupied. For the purposes of this
Lease, "fully occupied" shall mean occupancy of ninety-five percent (95%) of the
usable square feet in the Building and Building No. 2 with Landlord providing
all services.
Notwithstanding anything to the contrary set forth herein, in the event
that (a) utilities serving the Real Property are not separately metered or (b)
any maintenance of the Real Property is covered by a contract which also covers
the Adjacent Property or any portion thereof, then the Landlord shall make a
fair and equitable allocation of the costs between the Real Property and the
Adjacent Property receiving utility service and/or being covered by the
maintenance contracts, and such fair and equitable amount shall be included in
Operating Expenses under this Lease.
(b) "Taxes" shall mean the aggregate amount of real estate
taxes and any general or special assessments (exclusive of penalties
and interest thereon) imposed upon the Real Property (including,
without limitation, (i) assessments made upon or with respect to any
"air" and "development" rights now or hereafter appurtenant to or
affecting the Real Property, (ii) any fee, tax or charge
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imposed by any Government Authority for any vaults, vault space or
other space within or outside the boundaries of the Real Property,
(iii) any assessments levied after the date of this Lease for public
benefits to the Real Property or the Building or Building No. 2); and
(iv) franchise taxes; provided that if, because of any change in the
taxation of real estate, any other tax or assessment, however
denominated (including, without limitation, any profit, sales, use,
occupancy, gross receipts or rental tax) is imposed upon Landlord or
the owner of the Real Property or the Building or Building No. 2, or
the occupancy, rents or income therefrom, in substitution for any of
the foregoing Taxes or for an increase in any of the foregoing Taxes,
such other tax or assessment shall be deemed part of Taxes computed as
if Landlord's sole asset were the Real Property. With respect to any
Tax Year, all expenses, including attorneys' fees and disbursements and
experts' and other witnesses' fees, incurred in contesting the validity
or amount of any Taxes or in obtaining a refund of Taxes shall be
considered as part of the Taxes for such Tax Year. Anything contained
herein to the contrary notwithstanding, Taxes shall not be deemed to
include (a) any federal taxes on Landlord's income, (b) estate or
inheritance taxes, or (c) any similar taxes imposed on Landlord, unless
such taxes are levied, assessed or imposed as a substitute for the
whole or any part of, or as a substitute for an increase in, the taxes,
assessments, levies, fees, charges and impositions that now constitute
Taxes. In the event that the Real Property and the Adjacent Property
are assessed together for ad valorem taxes, then for so long as there
are no additions or expansions which result in increase in size of the
exterior walls of the buildings on the Real Property or Adjacent
Property, no additional buildings constructed on the Real Property or
Adjacent Property, and no additional parking facilities or structures
constructed on the Real Property or Adjacent Property (collectively,
the "Additional Taxable Improvements"), the parties stipulate and agree
that eighty-nine percent (89%) of the ad valorem real estate taxes
imposed on the Real Property and Adjacent Property shall be "Taxes"
within the meaning of this Lease, attributable to the Real Property.
Upon the construction of Additional Taxable Improvements on the Real
Property or Adjacent Property (provided that they are assessed
together), the parties shall make an equitable adjustment to the
foregoing stipulated percentage to account for any increase in
assessment resulting from such Additional Taxable Improvements.
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Section 3.2. (a) Tenant shall pay as Escalation Rent for each Tax Year,
an amount ("Tenant's Tax Payment") equal to Tenant's Share of the amount by
which the Taxes for such Tax Year are greater than the Base Tax Factor. Tenant's
Tax Payment shall be payable by Tenant to Landlord in twelve (12) equal monthly
installments (subject to the further provisions of this Section 3.2), the first
of which shall be due within ten (10) days after receipt of a Landlord's Tax
Statement, regardless of whether such Landlord's Tax Statement is received prior
to, on or after the first day of such Tax Year and the remaining installments
shall be due on the first day of each month thereafter. If there is any increase
in Taxes for any Tax Year, whether during or after such Tax Year, or if there is
any decrease in the Taxes for any Tax Year during such Tax Year, Landlord shall
furnish a revised Landlord's Tax Statement for any Tax Year affected, and
Tenant's Tax Payment for such Tax Year shall be adjusted and, (a) within ten
(10) days after Tenant's receipt of such revised Landlord's Tax Statement,
Tenant shall (with respect to any increase in Taxes for such Tax Year) pay the
appropriate increase in Tenant's Tax Payment to Landlord, or (b) (with respect
to any decrease in Taxes for such Tax Year) Landlord shall promptly, at its
election, either credit such decrease in Tenant's Tax Payment against the next
installment of Rental payable by Tenant or refund the amount of such decrease by
check to the order of Tenant or, if at the end of the Term, there shall not be
any further installments of Rental remaining against which Landlord can credit
any decrease in Taxes due Tenant, Landlord shall deliver to Tenant Landlord's
check in the amount of the refund due Tenant within thirty (30) days after
Landlord's receipt of any refund. If, during the Term, Taxes are required to be
paid (either to the appropriate taxing authorities or as tax escrow payments to
the Lessor or the Mortgagee), in full or in quarterly or other installments on
any other date or dates than as presently required, then Tenant's Tax Payments
shall be correspondingly accelerated or revised so that Tenant's Tax Payments
are due at least thirty (30) days prior to the date payments are due to the
taxing authorities, the Lessor or the Mortgagee. The benefit of any discount for
any early payment or prepayment of Taxes shall accrue solely to the benefit of
Landlord and Taxes shall be computed without subtracting such discount.
(b) (i) Except as provided in Section 3.2(b)(ii) below, only Landlord
shall be eligible to institute tax reduction or other proceedings to
reduce Taxes. If, after a Landlord's Tax Statement has been sent to
Tenant, a refund
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of Taxes is actually received by or on behalf of Landlord, then,
promptly after receipt of such refund, Landlord shall send Tenant a
Landlord's Tax Statement adjusting the Taxes for such Tax Year (taking
into account Landlord's expenses therefor) and setting forth Tenant's
Share of such refund, and Tenant shall be entitled to receive such
amount by way of a credit against the Escalation Rent; provided,
however, that Tenant's Share of such refund shall be limited to the
amount of Tenant's Tax Payment, if any, which Tenant had theretofore
paid to Landlord attributable to increases in Taxes for the Tax Year to
which the refund is applicable.
(ii) In the event Landlord does not contest any increase in ad
valorem Taxes applicable to the Real Property, Tenant, at its sole cost
and expense, shall have the right to contest any such increase and
shall keep Landlord informed of the steps being taken. Landlord agrees
to fully cooperate with Tenant in prosecuting any appeal taken by
Tenant as a result of such increase, at no cost or expense to Landlord.
During the pendency of any such contest, Tenant shall take all actions
required to prevent the execution/enforcement by the taxing authorities
of any rights against Landlord and/or the Real Property. All Escalation
Rent charged by Landlord shall be paid by Tenant during the pendency of
any such action. If, after a Landlord's Tax Statement has been sent to
Tenant, a refund of Taxes is actually received as a result of a contest
made by Tenant, then, promptly after receipt of such refund, Landlord
shall send Tenant a Landlord's Tax Statement adjusting the Taxes for
such Tax Year and setting forth Tenant's Share of such refund, and
Tenant shall be entitled to receive such amount by way of a credit
against the Escalation Rent; provided, however, that Tenant's Share of
such refund shall be limited to the amount of Tenant's Tax Payment, if
any, which Tenant had theretofore paid to Landlord attributable to
increases in Taxes for the Tax Year to which the refund is applicable.
(c) Tenant's Tax Payment and any credits with respect thereto as
provided in this Section 3.2 shall be made as provided in this Section 3.2
regardless of the fact that Tenant may be exempt, in whole or in part, from the
payment of any taxes by reason of Tenant's tax exempt status or for any other
reason whatsoever.
(d) Tenant shall pay to Landlord within thirty (30) days after demand
as Additional Rent any occupancy tax or rent tax now
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in effect or hereafter enacted, if payable by Landlord in the first instance or
hereafter required to be paid by Landlord.
(e) Each Landlord's Tax Statement furnished by Landlord with respect to
Tenant's Tax Payment shall be accompanied by a copy of the real estate tax bill
or bills for the Tax Year referred to therein, but Landlord shall have no
obligation to deliver more than one such copy of the real estate tax bill or
bills in respect of any Tax Year, and Landlord's failure to deliver such copy
shall not affect Tenant's obligations as to amount or due date(s) thereof.
(f) If the Base Tax Factor subsequently shall be adjusted, corrected or
reduced whether as the result of protest, by means of agreement or as the result
of legal proceedings, the Base Tax Factor for the purpose of computing any
Additional Rent Payable pursuant to this Article shall be the Base Tax Factor as
so adjusted, corrected or reduced. Until the Base Tax is so adjusted, corrected
or reduced, if ever, Tenant shall pay Additional Rent hereunder based upon the
unadjusted, uncorrected or unreduced Base Tax Factor and upon such adjustment,
correction or reduction occurring, any Additional Rent payable by Tenant prior
to the date of such occurrence shall be recomputed and Tenant shall pay to
Landlord any Escalation Rent found due by such recomputation within thirty (30)
days after being billed therefor (which bill shall set forth in reasonable
detail the pertinent data causing and comprising such recomputation).
(g) If the Commencement Date or the Expiration Date occurs on a date
other than January 1 or December 31, respectively, any Tenant's Tax Payment
under this Article 3 for the Tax Year in which such Commencement Date or
Expiration Date occurs shall be apportioned in that percentage which the number
of days in the period from the Commencement Date to December 31 or from January
1 to the Expiration Date, as the case may be, both inclusive, bears to the total
number of days in such Tax Year. If the Commencement Date or the Expiration Date
occurs on a date other than January 1 or December 31, respectively, any Tenant's
Operating Payment under this Article 3 for the Operating Year in which such
Commencement Date or Expiration Date occurs shall be apportioned in that
percentage which the number of days in the period from the Commencement Date to
December 31 or from January 1 to the Expiration Date, as the case may be, both
inclusive, bears to the total number of days in such Operating Year. In the
event of a termination of this Lease, any Escalation Rent under this Article 3
shall be paid or adjusted within thirty (30) days after submission of a
Landlord's Statement. The rights and
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obligations of Landlord and Tenant under the provisions of Article 3 with
respect to any Escalation Rent shall survive for a period of six (6) months
after the end of the calendar year in which the Expiration Date falls.
Section 3.3. (a) Tenant shall pay as Escalation Rent for each Operating
Year an amount ("Tenant's Operating Payment") equal to Tenant's Share of the
amount by which Operating Expenses for such Operating Year are greater than the
Base Operating Factor.
(b) Landlord shall furnish to Tenant, with respect to each Operating
Year, a Landlord's Operating Statement setting forth Landlord's estimate of
Tenant's Operating Payment for such Operating Year ("Tenant's Projected
Operating Share"). Tenant shall pay to Landlord on the first day of each month
during such Operating Year, as Escalation Rent, an amount equal to one-twelfth
(1/12) of Tenant's Projected Operating Share for such Operating Year. If,
however, Landlord furnishes any such Landlord's Operating Statement for an
Operating Year subsequent to the commencement of such Operating Year, then (a)
until the first day of the month following the month in which such Landlord's
Operating Statement is furnished to Tenant, Tenant shall pay to Landlord on the
first day of each month an amount equal to the monthly sum payable by Tenant to
Landlord under this Section 3.3 in respect of the last month of the preceding
Operating Year; (b) after such Landlord's Operating Statement is furnished to
Tenant or together therewith, Landlord shall give notice to Tenant stating
whether the installments of Tenant's Projected Operating Share previously made
for such Operating Year were greater or less than the installments of Tenant's
Projected Operating Share to be made for such Operating Year in accordance with
such estimate, and (i) if there is a deficiency, Tenant shall pay the amount
thereof within thirty (30) days after demand therefor, or (ii) if there was an
overpayment, Landlord shall credit the amount thereof against subsequent
payments of Rental or, if at the end of the Term there shall not be any further
installments of Rental remaining against which Landlord can credit any such
overpayment due Tenant, Landlord shall deliver to Tenant Landlord's check in the
amount of the refund due Tenant within thirty (30) days after Tenant shall first
be entitled to a credit for the overpayment of Operating Expenses; and (c) on
the first day of the month following the month in which such Landlord's
Operating Statement is furnished to Tenant, and monthly thereafter throughout
the remainder of such Operating Year, Tenant shall pay to Landlord an amount
equal to one-twelfth (1/12) of Tenant's Projected Operating Share shown in such
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Landlord's Operating Statement. Landlord shall furnish to Tenant a revised
Landlord's Operating Statement with a new estimate of Tenant's Projected
Operating Share for such Operating Year and, in such case, Tenant's Projected
Operating Share for such Operating Year shall be adjusted and paid or credited,
as the case may be, substantially in the same manner as provided in the
preceding sentence.
(c) After the end of each Operating Year, Landlord shall furnish to
Tenant a Landlord's Operating Statement for such Operating Year. Each such
year-end Landlord's Operating Statement shall be accompanied by a computation of
Operating Expenses prepared by the Manager or a certified public accountant
designated by Landlord from which Landlord shall make the computation of
Escalation Rent due in respect of Operating Expenses hereunder. In making
computations of Operating Expenses, the certified public accountant or the
Manager may rely on Landlord's reasonable estimates and allocations whenever
said estimates and allocations are needed for this Article 3. If the Landlord's
Operating Statement shows that the sums paid by Tenant under Section 3.3(B)
exceeded Tenant's Operating Payments required to be paid by Tenant for such
Operating Year, Landlord shall credit the amount of such excess against
subsequent payments of Rental or, if at the end of the Term there shall not be
any further installments of Rental remaining against which Landlord can credit
any such overpayments due Tenant, Landlord shall promptly deliver to Tenant
Landlord's check in the amount of the refund due Tenant within thirty (30) days
after Tenant shall first be entitled to a credit for the overpayment of
Operating Expenses; and if the Landlord's Operating Statement for such Operating
Year shows that the sums so paid by Tenant were less than Tenant's Operating
Payment due for such Operating Year, Tenant shall pay the amount of such
deficiency within thirty (30) days after demand therefor.
(d) In addition, Tenant shall pay to the appropriate taxing authority,
as and when due, any and all taxes due with respect to Tenant's personal
property and/or leasehold interest in the Premises.
Section 3.4. Landlord's failure to render any Landlord's Statement with
respect to any Tax Year or Operating Year shall not prejudice Landlord's right
thereafter to render a Landlord's Statement with respect thereto or with respect
to any subsequent Tax Year or Operating Year, as the case may be, nor shall the
rendering of a Landlord's Statement prejudice Landlord's right
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thereafter to render a corrected Landlord's Statement for that Tax Year or
Operating Year.
Section 3.5. Any Landlord's Statement sent to Tenant shall be
conclusively binding upon Tenant unless, within thirty (30) days after such
Landlord's Statement is sent, Tenant shall send a written notice to Landlord
objecting to such Landlord's Statement and specifying, to the extent reasonably
practicable, the respects in which such Landlord's Statement is disputed. If
Tenant shall send such notice with respect to a Landlord's Statement, Tenant may
select and pay an independent certified public accountant or a member of an
independent firm which is engaged in the business of auditing lease escalation
clauses (an "Approved Examiner") provided that such Approved Examiner is not and
has not during the Term been affiliated with, a shareholder in, an officer,
director, partner, or employee of, any Manager during the Term or the Manager
named in this Lease, and such Approved Examiner may examine Landlord's books and
records relating solely to disputed aspects of the Operating Expenses to
determine the accuracy of Landlord's Operating Statement. Tenant recognizes the
confidential nature of Landlord's books and records, and agrees that any
information obtained by an Approved Examiner during any examination shall be
maintained in strict confidence by such Approved Examiner, without revealing
same to any Person except Tenant. If, after such examination, such Approved
Examiner shall dispute such Landlord's Operating Statement, either party may
refer the decision of the issues raised to a reputable independent firm of
certified public accountants, selected by Landlord and approved by Tenant, which
approval shall not be unreasonably withheld or delayed, and the decision of such
accountants shall be conclusively binding upon the parties. The fees and
expenses involved in resolving such dispute shall be borne by Tenant, unless the
final determination is that Landlord's Statement overstated Operating Expenses
by more than five percent (5%), in which case Landlord shall pay the reasonable
fees and expenses involved in resolving the dispute. Notwithstanding the giving
of such notice by Tenant, and pending the resolution of any such dispute, Tenant
shall pay to Landlord when due the amount shown on any such Landlord's
Statement, as provided in this Article 3. Tenant shall pay the amount of any
underpayment to Landlord and Landlord shall refund the amount of any overpayment
to Tenant, within thirty (30) days after resolution of such dispute (and if
Landlord fails to refund such overpayment to Tenant, Tenant shall be entitled to
offset the same against future payments of Additional Rent).
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ARTICLE IV
USE AND OCCUPANCY
Section 4.1. Tenant shall use and occupy the Premises for the Permitted
Use and for no other purpose. Tenant and Tenant's use of the Premises shall
comply in all respects with the Restrictive Covenants; and Tenant shall
indemnify Landlord against any loss, cost or damage (including costs of defense
and reasonable attorney fees) arising as a result of the failure of the Tenant
or Tenant's use of the Premises to so comply. Tenant covenants and agrees that
in no event and under no circumstances shall the Office Use within the Building
exceed forty-six thousand seven hundred sixty-three (46,763) square feet unless
Landlord and Tenant otherwise agree in a writing signed by them; and if the
Office Use within the Building shall ever exceed said square footage, Tenant
shall diligently take steps to remove area within the Building from Office Use
in order that Tenant shall be in compliance with the foregoing provisions.
Section 4.2. Tenant shall not use the Premises or any part thereof, or
permit the Premises or any part thereof to be used, (1) for the business of
photographic, multilith or multigraph reproductions or offset printing (other
than those which are ancillary to an otherwise Permitted Use), (2) for an
off-the-street retail commercial banking, thrift institution, loan company,
trust company, depository or safe deposit business accepting deposits from the
general public, (3) for the off-the-street retail sale of travelers checks,
money orders, drafts, foreign exchange or letters of credit or for the receipt
of money for transmission, (4) by the United States government, the state or
local government, or any agency or department of any of the foregoing having or
asserting sovereign immunity, (5) for the preparation, dispensing or consumption
of food or beverages in any manner whatsoever, except for the preparation,
dispensing and consumption of food by Tenant's employees who work in the
Premises and not for the sale of food to any Persons other than such employees,
(6) as an employment agency, daycare facility (other than as a self-operated
facility for use only by Tenant's employees), labor union, school, or vocational
training center (except for the training of employees of Tenant intended to be
employed at the Premises), (7) as a barber shop, beauty salon or manicure shop,
(8) for product display activities (such as those of a manufacturer's
representative), (9) as offices of any public utility company, (10) for health
care activities, (11) for clerical support services or offices of public
stenographers or typists (other than those which are ancillary to an otherwise
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Permitted Use), (12) as reservation or call centers, (13) for retail or
manufacturing use, (14) as studios for radio, television or other media, or (15)
any use which extends the hours of use or operations in the Premises (other than
infrequently or sporadically) beyond the Operating Hours. Furthermore, the
Premises shall not be used for any purpose that would, in Landlord's reasonable
judgment, tend to lower the first-class character of the Building, create
unreasonable or excessive elevator or floor loads, violate the certificate of
occupancy of the Building, materially impair or interfere with any of the
Building operations or the proper and economic heating, air-conditioning,
cleaning or any other services of the Building, materially interfere with the
use of the other areas of the Building by any other tenants, or materially
impair the appearance of the Building.
ARTICLE V
ALTERATIONS
Section 5.1. (a) Except as otherwise set out in Section 5.1(f), Tenant
shall not make or permit to be made any Alterations without Landlord's prior
written consent. Reference is made to Exhibit "G" hereto, which contains the
Tenant Design and Construction Standards applicable to the Building, which is
incorporated by reference in this Lease. Landlord reserves the right to make
reasonable changes and additions thereto.
(b) (1) Prior to making any such Alterations, Tenant shall (i) submit
to Landlord two (2) sets of detailed plans and specifications
(including layout, architectural, electrical, mechanical and structural
drawings) that comply with all Requirements for each proposed
Alteration, and Tenant shall not commence any such Alteration without
first obtaining Landlord's approval of such plans and specifications,
which approval shall not be unreasonably withheld or delayed, (ii) at
Tenant's expense, obtain all permits, approvals and certificates
required by any Governmental Authorities, and (iii) furnish to Landlord
duplicate original policies or certificates thereof of worker's
compensation insurance (covering all persons to be employed by Tenant,
and Tenant's contractors and subcontractors, in connection with such
Alteration) and commercial general liability insurance (including
premises operation, bodily injury, personal injury, death, independent
contractors, products and completed operations, broad form contractual
liability and broad form property damage coverages) in such form, with
such companies, for such periods and in such amounts as
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Landlord may reasonably approve, naming Landlord and its agents, any
Lessor and any Mortgagee, as additional insureds. Upon completion of
such Alteration, Tenant, at Tenant's expense, shall obtain certificates
of final approval of such Alterations required by any Governmental
Authority and shall furnish Landlord with copies thereof, together with
the "as built" plans and specifications for such Alterations. All
Alterations shall be made and performed in accordance with the plans
and specifications therefor as approved by Landlord, all Requirements,
Restrictive Covenants, and the Rules and Regulations. All materials and
equipment to be incorporated in the Premises as a result of any
Alterations shall be first quality and no such materials or equipment
shall be subject to any lien, encumbrance, chattel mortgage, title
retention or security agreement. In addition, any such Alteration for
which the cost of labor and materials (as estimated by Landlord's
architect, engineer or contractor) is in excess of Seventy-Five
Thousand Dollars ($75,000.00), either individually or in the aggregate
with any other Alteration constructed in any twelve (12) month period,
shall be performed only under the supervision of a licensed architect
satisfactory to Landlord.
(2) Landlord reserves the right to disapprove any plans and
specifications in whole or in part, to reserve approval of items shown
thereon pending its review and approval of other plans and
specifications, and to condition its approval upon Tenant making
revisions to the plans and specifications or supplying additional
information; provided, however, that Landlord shall be reasonable in
its exercise of these rights. Additionally, Landlord shall be deemed to
have approved Tenant's plans and specifications if Landlord fails to
respond to Tenant's plans and specifications within fifteen (15) days
of Landlord's receipt thereof. Tenant agrees that any review or
approval by Landlord of any plans and/or specifications with respect to
any Alteration is solely for Landlord's benefit, and without any
representation or warranty whatsoever to Tenant or any other Person
with respect to the adequacy, correctness or sufficiency thereof or
with respect to Requirements, Restrictive Covenants or otherwise.
(c) Alterations shall be performed at Tenant's expense and at such
times and in such manner as Landlord may from time to time reasonably designate,
unless, at the time of the Alterations, Tenant is the only occupant of the
Building and
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Building No. 2, in which event, Tenant may control the times and manner (but
always in accordance with all Requirements) to perform the Alterations. All
Alterations shall become a part of the Building and shall be Landlord's property
from and after the installation thereof and may not be removed or changed
without Landlord's consent. Notwithstanding the foregoing, however, Landlord,
upon notice given at least sixty (60) days prior to the Expiration Date or upon
such shorter notice as is reasonable under the circumstances upon the earlier
expiration of the Term, may require Tenant to remove any specified Alterations
(other than those comprising part of Building Standard Condition) and to repair
and restore in a good and workmanlike manner to Building Standard Condition
(reasonable wear and tear excepted) any damage to the Premises or the Building
caused by such removal. All Tenant's Property shall remain the property of
Tenant and, unless Landlord and Tenant shall agree otherwise, on or before the
Expiration Date shall, at Tenant's cost, be removed from the Premises by Tenant,
and Tenant shall repair and restore in a good and workmanlike manner to Building
Standard Condition (reasonable wear and tear excepted) any damage to the
Premises or the Building caused by such removal. The provisions of this Section
5.1(c) shall survive the expiration or earlier termination of this Lease.
(d) (1) All Alterations shall be performed, at Tenant's sole cost and
expense, by contractors, subcontractors or mechanics approved by
Landlord in Landlord's reasonable discretion.
(2) Notwithstanding the foregoing, with respect to any
Alteration affecting any Building Systems, (i) Tenant, if required by
Landlord, shall employ Landlord's or the Manager's designated
contractor, and (ii) the Alteration shall, if required by Landlord, at
Tenant's expense, be designed by either Landlord's or the Manager's
engineer.
(e) (1) Any mechanic's lien filed against the Premises or the Real
Property for work claimed to have been done for, or materials claimed
to have been furnished to, Tenant shall be canceled or discharged by
Tenant, at Tenant's expense, within twenty (20) days after such lien
shall be filed, by payment or filing of the bond required by law, and
Tenant shall indemnify and hold Landlord harmless from and against any
and all costs, expenses, claims, losses or damages resulting therefrom
by reason thereof.
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(2) If Tenant shall fail to discharge such mechanic's lien
within the aforesaid period, then, in addition to any other right or
remedy of Landlord, Landlord may, but shall not be obligated to,
discharge the same either by paying the amount claimed to be due or by
procuring the discharge of such lien by deposit in court or bonding,
and in any such event, Landlord shall be entitled, if Landlord so
elects, to compel the prosecution of an action for the foreclosure of
such mechanic's lien by the lienor and to pay the amount of the
judgment, if any, in favor of the lienor, with interest, costs and
allowances.
(3) Any amount paid by Landlord for any of the aforesaid
charges and for all expenses of Landlord (including, but not limited
to, attorneys' fees and disbursements) incurred in defending any such
action, discharging said lien or in procuring the discharge of said
lien, with interest on all such amounts at the maximum legal rate of
interest then chargeable to Tenant from the date of payment, shall be
repaid by Tenant within ten (10) days after written demand therefor,
and all amounts so repayable, together with such interest, shall be
considered Additional Rent.
(f) Notwithstanding anything to the contrary set forth in this
Article V, Tenant, without Landlord's consent, is permitted to make
Alterations to the Premises which relate only to the cosmetic
appearance, nonstructural components, and/or non-load-bearing
portions of the Premises (and which do not affect the structural
and/or load-bearing elements of the Building or the Building
Systems), provided such Alterations do not cost, in the aggregate,
more than Seventy-Five Thousand Dollars ($75,000.00) during any
twelve (12) month period during the Term.
Section 5.2. Tenant shall reimburse Landlord, within five (5) Business
Days after demand therefor, for any reasonable out-of-pocket expense incurred by
Landlord for reviewing the plans and specifications for any Alterations or
inspecting the progress of completion of the same.
Section 5.3. Landlord, at Tenant's expense, and upon the request of
Tenant, shall join in any applications for any permits, approvals or
certificates required to be obtained by Tenant in connection with any permitted
Alteration (provided that the provisions of the applicable Requirements shall
require that Landlord join in such application) and shall otherwise cooperate
with Tenant in connection therewith, provided that Landlord shall
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not be obligated to incur any cost or expense or liability in connection
therewith.
Section 5.4. Tenant shall furnish to Landlord copies of records of all
Alterations and of the cost thereof within fifteen (15) days after the
completion of such Alterations.
Section 5.5. TENANT HEREBY ACCEPTS THE PREMISES "AS IS, WHERE IS," AND
WITHOUT ANY WARRANTY, EXPRESS OR IMPLIED, EXCEPT AS OTHERWISE SET FORTH IN THIS
LEASE.
Section 5.6. Tenant shall not, at any time prior to or during the Term,
directly or indirectly employ, or permit the employment of, any contractor,
mechanic or laborer in the Premises, whether in connection with any Alteration
or otherwise, if such employment would unreasonably interfere or cause any
unreasonable conflict with other contractors, mechanics or laborers engaged in
the construction, maintenance or operation of the Building by Landlord, Tenant
or others, or of any other property owned by Landlord. In the event of any such
unreasonable interference or conflict, Tenant, upon demand of Landlord, shall
cause all contractors, mechanics or laborers causing such interference or
conflict to leave the Building immediately.
Section 5.7. During the course of any Alteration and any construction
by Landlord, whether on the Land or on any real property adjacent to the Land,
Landlord and Tenant shall cooperate with each other, and shall cause their
contractors and subcontractors to cooperate, so as to minimize interruption and
interference with each other's construction activities.
ARTICLE VI
REPAIRS
Section 6.1. Tenant covenants to use due care in its use and occupancy
of the Premises and not to commit waste. Except as otherwise provided in this
Section 6.1, Tenant shall not be obligated to repair any Building Systems.
Tenant shall, however, at its own cost and expense, maintain and repair and, to
the extent deemed appropriate by Tenant, monitor the Security System.
Notwithstanding any provision contained in this Lease to the contrary, all
damage or injury to the Premises, and all damage or injury to any other part of
the Building, or to its fixtures, equipment and appurtenances (including
Building Systems), whether requiring structural or nonstructural repairs, caused
by the
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moving of Tenant's Property or caused by or resulting from any act or omission
of, or Alterations made by, Tenant or Persons Within Tenant's Control, shall be
repaired by Tenant, at Tenant's sole cost and expense, to the reasonable
satisfaction of Landlord (if the required repairs are non-structural in nature
and do not affect any Building Systems), or by Landlord at Tenant's sole cost
and expense (if the required repairs are structural in nature or affect any
Building Systems). All of the aforesaid repairs shall be performed in a manner
and with materials and design of first class and quality consistent with
first-class office buildings in Memphis and shall be made in accordance with the
provisions of Article 5. If Tenant shall fail, after five (5) days notice (or
such shorter period as may be required because of an emergency), to proceed with
due diligence to make repairs required to be made by Tenant, the same may be
made by Landlord, at the expense of Tenant, and the expenses thereof incurred by
Landlord, with interest thereon at the Applicable Rate, shall be paid to
Landlord, as Additional Rent, within ten (10) days after rendition of a bill or
statement therefor. Tenant shall give Landlord prompt notice of any defective
condition in any Building Systems located in, servicing or passing through the
Premises.
Section 6.2. Tenant shall not place a load upon any floor of the
Premises which exceeds seventy-five (75) pounds per square foot "live load."
Tenant shall not locate or move any safe, heavy machinery, heavy equipment,
business machines, freight, bulky matter or fixtures into or out of the Building
without Landlord's prior consent, which consent shall not be unreasonably
withheld, and Tenant shall make payment to Landlord of Landlord's costs in
connection therewith (if such move is not part of an Alteration). If such safe,
machinery, equipment, freight, bulky matter or fixture requires special handling
(as determined by Landlord), Tenant shall employ only persons holding a Master
Rigger's license to do said work. All work in connection therewith shall comply
with the Requirements, and shall be done during such hours as Landlord may
designate. Business machines and mechanical equipment shall be placed and
maintained by Tenant, at Tenant's expense, in settings sufficient, in Landlord's
reasonable judgment, to absorb and prevent vibration, noise and annoyance.
Section 6.3. Landlord shall operate, maintain and make all necessary
repairs (both structural and non-structural) to the Building Systems and the
public portions of the Building, both exterior and interior, in conformance with
standards applicable to first-class office buildings in Memphis, except for
those
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repairs for which Tenant is responsible pursuant to any other provision of this
Lease. Landlord shall use reasonable efforts to minimize interference with
Tenant's use and occupancy of the Premises in making any repairs, alterations,
additions or improvements; provided, however, that Landlord shall have no
obligation to employ contractors or labor at so-called overtime or other premium
pay rates or to incur any other overtime costs in connection with such repairs,
alterations, additions or improvements. Notwithstanding the foregoing, if Tenant
shall so request, Landlord shall employ contractors or labor at so-called
overtime or other premium pay rates or incur other overtime costs in making such
repairs, alterations, additions or improvements, provided Tenant shall pay to
Landlord, as Additional Rent, within ten (10) days after demand therefor, an
amount equal to the excess costs incurred by Landlord by reason of compliance
with Tenant's request. Except as expressly provided in this Lease, there shall
be no allowance to Tenant for a diminution of rental value and no liability on
the part of Landlord by reason of inconvenience, annoyance or injury to business
arising from Landlord, Tenant or others making, or failing to make, any repairs,
alterations, additions or improvements in or to any portion of the Building or
the Premises, or its fixtures, appurtenances or equipment.
Section 6.4. Without abatement or diminution in rent, Landlord reserves
and shall have the following additional rights:
1 To erect, use and maintain pipes and conduits in and through
the Premises; provided that all such conduits and pipes shall
be located behind then-existing walls, under floors or above
suspended ceilings and shall not interfere with the use and
operation of the Premises, or any equipment or facilities
located therein.
2 To take any and all measures, including inspections, repairs,
alterations, additions and improvements to the Premises or to
the Building, as may be necessary or desirable for the safety,
protection or preservation of the Premises or the Building or
Landlord's interests, or as may be necessary or desirable in
the operation of the Building.
ARTICLE VII
CONNECTING CORRIDORS
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Section 7.1 Within sixty (60) days after the Commencement Date, Tenant
shall, at its own expense, install a doorway or wall in the enclosed corridor
which leads to the building on the Adjacent Property, the design and location of
the doorway or wall to be approved by Landlord.
Section 7.2 In the event that the Expiration Date of this Lease shall
be earlier or later than the expiration date of Tenant's lease of Building No.
2, then at such time as Tenant no longer occupies both of such buildings, Tenant
shall, at its own expense, construct a door or doors in the corridor which
connects the Building and Building No. 2, in such manner as Landlord and Tenant
shall mutually agree, to prevent access between the Building and Building No. 2.
ARTICLE VIII
REQUIREMENTS OF LAW
Section 8.1. Tenant shall not do, and shall not permit Persons Within
Tenant's Control to do, any act or thing in or upon the Premises or the Building
which will invalidate or be in conflict with the certificate of occupancy for
the Premises or the Building or violate any Requirements or Restrictive
Covenants. Tenant shall, at Tenant's sole cost and expense, take all action,
including making any required Alterations necessary to comply with all
Requirements (including, but not limited to, applicable terms of the Americans
With Disabilities Act of 1990 (the "ADA"), as modified and supplemented from
time to time) which shall impose any violation, order or duty upon Landlord or
Tenant arising from, or in connection with, the Premises, Tenant's occupancy,
use or manner of use of the Premises (including, without limitation, any
occupancy, use or manner of use that constitutes a "place of public
accommodation" under the ADA), or any installations by Tenant in the Premises,
or required by reason of a breach of any of Tenant's covenants or agreements
under this Lease, whether or not such Requirements shall now be in effect or
hereafter enacted or issued, and whether or not any work required shall be
ordinary or extraordinary or foreseen or unforeseen at the date hereof;
provided, however, that Landlord shall be responsible for complying with such
Requirement or Restrictive Covenant and for the cost of such compliance if and
to the extent that non-compliance arose because of the acts of Landlord.
Section 8.2. Tenant covenants and agrees that Tenant shall, at Tenant's
sole cost and expense, comply at all times
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with all Requirements governing the use, generation, storage, treatment and/or
disposal of any Hazardous Materials (as defined below), the presence of which
results from or in connection with the act or omission of Tenant or Persons
Within Tenant's Control or the breach of this Lease by Tenant or Persons Within
Tenant's Control. The term "Hazardous Materials" shall mean any biologically or
chemically active or other toxic or hazardous wastes, pollutants or substances,
including, without limitation, asbestos, PCBs, petroleum products and
by-products, substances defined or listed as "hazardous substances" or "toxic
substances" or similarly identified in or pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. 9601 ET SEQ.,
and as hazardous wastes under the Resource Conservation and Recovery Act, 42
U.S.C. 6010, ET SEQ., any chemical substance or mixture regulated under the
Toxic Substance Control Act of 1976, as amended 15 U.S.C. 2601, ET SEQ., any
"toxic pollutant" under the Clean Water Act, 33 U.S.C. 466 ET SEQ., as amended,
any hazardous air pollutant under the Clean Air Act, 42 U.S.C. 7401 ET SEQ.,
hazardous materials identified in or pursuant to the Hazardous Materials
Transportation Act, 49 U.S.C. 1802, ET SEQ., and any hazardous or toxic
substances or pollutant regulated under any other Requirements. Tenant shall
agree to execute, from time to time, at Landlord's request, affidavits,
representations and the like concerning Tenant's best knowledge and belief
regarding the presence of Hazardous Materials in, on, under or about the
Premises, the Building or the Land. Tenant shall indemnify and hold harmless all
Indemnitees from and against any loss, cost, damage, liability or expense
(including attorneys' fees and disbursements) arising by reason of any clean up,
removal, remediation, detoxification action or any other activity required or
recommended of any Indemnitees by any Governmental Authority by reason of the
presence in or about the Building or the Premises of any Hazardous Materials, as
a result of or in connection with the act or omission of Tenant or Persons
Within Tenant's Control or the breach of this Lease by Tenant or Persons Within
Tenant's Control. The foregoing covenants and indemnity shall survive the
expiration or any termination of this Lease.
Section 8.3. If Tenant shall receive notice of any violation of, or
defaults under, any Requirements, liens or other encumbrances applicable to the
Premises, Tenant shall give prompt notice thereof to Landlord.
Section 8.4. If any governmental license or permit shall be required
for the proper and lawful conduct of Tenant's business and if the failure to
secure such license or permit
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would, in any way, affect Landlord or the Building, then Tenant, at Tenant's
expense, shall promptly procure and thereafter maintain, submit for inspection
by Landlord, and at all times comply with the terms and conditions of, each such
license or permit.
Section 8.5. Tenant, at Tenant's sole cost and expense and after notice
to Landlord, may contest, by appropriate proceedings prosecuted diligently and
in good faith, the legality or applicability of any Requirement affecting the
Premises provided that: (a) neither Landlord nor any Indemnitees shall be
subject to criminal penalties, nor shall the Real Property or any part thereof
be subject to being condemned or vacated, nor shall the certificate of occupancy
for the Premises or the Building be suspended or threatened to be suspended, by
reason of non-compliance or by reason of such contest; (b) before the
commencement of such contest, if Landlord or any Indemnitees may be subject to
any civil fines or penalties or if Landlord may be liable to any independent
third party as a result of such non-compliance, then Tenant shall furnish to
Landlord either (i) a bond of a surety company satisfactory to Landlord, in form
and substance reasonably satisfactory to Landlord, and in an amount at least
equal to Landlord's estimate of the sum of (A) the cost of such compliance, (B)
the penalties or fines that may accrue by reason of such non-compliance (as
reasonably estimated by Landlord) and (C) the amount of such liability to
independent third parties, and shall indemnify Landlord (and any Indemnitees)
against the cost of such compliance and liability resulting from or incurred in
connection with such contest or non-compliance; or (ii) other security
satisfactory in all respects to Landlord; (c) such non-compliance or contest
shall not constitute or result in a violation (either with the giving of notice
or the passage of time or both) of the terms of any Mortgage, or if such
Mortgage conditions such non-compliance or contest upon the taking of action or
furnishing of security by Landlord, such action shall be taken or such security
shall be furnished at the expense of Tenant; and (d) Tenant shall keep Landlord
regularly advised as to the status of such proceedings.
ARTICLE IX
SUBORDINATION
Section 9.1. This Lease shall be subject and subordinate to each
Mortgage, whether made prior to or after the execution of this Lease, and to all
renewals, extensions, supplements, amendments, modifications, consolidations and
replacements
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thereof or thereto, substitutions therefor, and advances made thereunder. This
clause shall be self-operative and no further agreement of subordination shall
be required to make the interest of any Lessor or Mortgagee superior to the
interest of Tenant hereunder. In confirmation of such subordination, however,
Tenant shall promptly execute and deliver, at its own cost and expense, any
document, in recordable form if requested, that Landlord, any Lessor or any
Mortgagee may request to evidence such subordination. Tenant shall not do
anything that would constitute a default under any Mortgage, or omit to do
anything that Tenant is obligated to do under the terms of this Lease so as to
cause Landlord to be in default thereunder. If, in connection with the financing
of the Real Property or the Building, any lending institution or Lessor, as the
case may be, requests reasonable modifications of this Lease that do not
increase rent or change the Term of this Lease, or materially and adversely
affect the rights or obligations of Tenant under this Lease, Tenant shall make
such modifications.
Section 9.2. If, at any time prior to the expiration of the Term, any
Mortgagee comes into possession of the Real Property or the Building by receiver
or otherwise, Tenant agrees, at the election and upon demand of any owner of the
Real Property or the Building, or of any Mortgagee in possession of the Real
Property or the Building, to attorn, from time to time, to any such owner or
Mortgagee or any person acquiring the interest of Landlord as a result of any
such termination, or as a result of a foreclosure of the Mortgage or the
granting of a deed in lieu of foreclosure, upon the then executory terms and
conditions of this Lease (except as provided below), for the remainder of the
Term, provided that such owner or Mortgagee, as the case may be, or receiver
caused to be appointed by any of the foregoing, is then entitled to possession
of the Premises. Any such attornment shall be made upon the condition that no
such owner or Mortgagee shall be:
1. liable for any act or omission of any prior
landlord (including, without limitation, the then defaulting landlord);
or
2. subject to any defense or offsets (except as
expressly set forth in this Lease) which Tenant may have against any
prior landlord (including, without limitation, the then defaulting
landlord); or
3. bound by any payment of Rental which Tenant might
have paid for more than the current month to any prior
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landlord (including, without limitation, the then defaulting landlord);
or
4. bound by any obligation to make any payment to
Tenant which was required to be made prior to the time such owner or
Mortgagee succeeded to any prior landlord's interest; or
5. bound by any obligation to perform any work or to
make improvements to the Premises except for (i) repairs and
maintenance pursuant to the provisions of Article 6, (ii) repairs to
the Premises or any part thereof as a result of damage by fire or other
casualty pursuant to Article 12, but only to the extent that such
repairs can be reasonably made from the net proceeds of any insurance
actually made available to such owner or Mortgagee and (iii) repairs to
the Premises as a result of a partial condemnation pursuant to Article
13, but only to the extent that such repairs can be reasonably made
from the net proceeds of any award made available to such owner or
Mortgagee. The provisions of this Section 9.2 shall inure to the
benefit of any such owner or Mortgagee, shall apply notwithstanding
that, as a matter of law, this Lease may terminate, and shall be
self-operative upon any such demand, and no further agreement shall be
required to give effect to said provisions. Tenant, however, upon
demand of any such owner or Mortgagee, shall execute, from time to
time, agreements in confirmation of the foregoing provisions of this
Section 9.2, satisfactory to any such owner, Lessor or Mortgagee, and
acknowledging such attornment and setting forth the terms and
conditions of its tenancy. Nothing contained in this Section 9.2 shall
be construed to impair any right otherwise exercisable by any such
owner or Mortgagee.
Section 9.3. If requested by any Mortgagee or Landlord, Tenant shall
promptly execute and deliver, at Tenant's own cost and expense, any document in
accordance with the terms of this Article 9, in recordable form, to evidence
such subordination.
Section 9.4. At any time and from time to time upon not less than
twenty (20) days' prior notice to Tenant or Landlord given by the other, or to
Tenant given by a Mortgagee, Tenant or Landlord, as the case may be, shall,
without charge, execute, acknowledge and deliver a statement in writing
addressed to such party as Tenant, Landlord or Mortgagee, as the case may be,
may designate, in form satisfactory to Tenant, Landlord or Mortgagee,
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as the case may be, certifying all or any of the following: (i) that this Lease
is unmodified and in full force and effect (or if there have been modifications,
that this Lease is in full force and effect as modified and stating the
modifications); (ii) whether the Term has commenced and Fixed Rent and
Additional Rent have become payable hereunder and, if so, the dates to which
they have been paid; (iii) whether or not, to the best knowledge of the signer
of such certificate, Landlord is in default in performance of any of the terms
of this Lease and, if so, specifying each such event of default of which the
signer may have knowledge; (iv) whether Tenant has accepted possession of the
Premises; (v) whether Tenant has made any claim against Landlord under this
Lease and, if so, the nature thereof and the dollar amount, if any, of such
claim; (vi) either that Tenant does not know of any default in the performance
of any provision of this Lease or specifying the details of any default of which
Tenant may have knowledge and stating what action Tenant is taking or proposes
to take with respect thereto; (vii) that, to the knowledge of Tenant, there are
no proceedings pending or threatened against Tenant before or by any court or
administrative agency which, if adversely decided, would materially and
adversely affect the financial condition or operations of Tenant or, if any such
proceedings are pending or threatened to the knowledge of Tenant, specifying and
describing the same; and (viii) such further information with respect to the
Lease or the Premises as Landlord may reasonably request or Mortgagee may
require; it being intended that any such statement delivered pursuant hereto may
be relied upon by any prospective purchaser of the Real Property or any part
thereof or of the interest of Landlord in any part thereof, by any Mortgagee or
prospective Mortgagee, by any tenant or prospective tenant of the Real Property
or any part thereof, or by any prospective assignee of any Mortgage or by any
assignee of Tenant.
The failure of either Tenant or Landlord to execute, acknowledge and
deliver to the other a statement in accordance with the provisions of this
Section 9.4 within said twenty (20) day period shall constitute an
acknowledgment by Tenant or Landlord, as the case may be, which may be relied on
by any person who would be entitled to rely upon any such statement, that such
statement as submitted by Landlord or Tenant, as the case may be, is true and
correct.
Section 9.5. As long as any Mortgage exists, Tenant shall not seek to
terminate this Lease by reason of any act or omission of Landlord until Tenant
has given written notice of such act or omission to all Mortgagees at such
addresses as may have been
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furnished to Tenant by such Mortgagees and, if any such Mortgagee notifies
Tenant within thirty (30) days following receipt of such notice that it intends
to remedy such act or omission, Mortgagee shall have a reasonable period of time
to remedy such act or omission.
ARTICLE X
RULES AND REGULATIONS
Section 10.1. Tenant and Persons Within Tenant's Control shall comply
with Exhibit "C," "Rules and Regulations." Nothing contained in this Lease shall
be construed to impose upon Landlord any duty or obligation to enforce the Rules
and Regulations or the terms, covenants or conditions in any other lease against
any other tenant, and Landlord shall not be liable to Tenant for violation of
the same by any other tenant, its employees, agents, visitors or licensees.
Landlord shall not discriminate against Tenant in enforcing the Rules and
Regulations. In case of any conflict or inconsistency between the provisions of
this Lease and of any of the Rules and Regulations as originally or as
hereinafter adopted, the provisions of this Lease shall control.
ARTICLE XI
INSURANCE, PROPERTY LOSS OR DAMAGE, REIMBURSEMENT
Section 11.1. (a) Tenant shall not entrust any property to any Building
employee. Any Building employee to whom any property is entrusted by or on
behalf of Tenant in violation of the foregoing prohibition shall be deemed to be
acting as Tenant's agent with respect to such property and neither Landlord nor
its agents shall be liable for any damage to property of Tenant or of others
entrusted to employees of the Building, nor for the loss of or damage to any
property of Tenant by theft or otherwise. Landlord and Landlord's agents shall
not be liable for any damage to any of Tenant's Property or for interruption of
Tenant's business, however caused, including but not limited to damage caused by
other tenants or persons in the Building. Landlord shall not be liable for any
latent defect in the Premises or in the Building.
(b) Tenant shall give notice to Landlord promptly after Tenant learns
of any accident, emergency or occurrence for which Landlord might be liable,
fire or other casualty and all damages to or defects in the Premises or the
Building for the repair of
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which Landlord might be responsible or which constitutes Landlord's property.
Such notice shall be given by telecopy or personal delivery to the address(es)
of Landlord in effect for notice.
Section 11.2. Tenant shall not do or permit to be done any act or thing
in or upon the Premises which will invalidate or be in conflict with the terms
of the State of Tennessee standard policies of fire insurance and liability
(hereinafter referred to as "Building Insurance"); and Tenant, at Tenant's own
expense, shall comply with all rules, orders, regulations and requirements of
all insurance boards, and shall not do or permit anything to be done in or upon
the Premises or bring or keep anything therein or use the Premises in a manner
which increases the rate of premium for any of the Building Insurance over the
rate in effect at the commencement of the Term of this Lease.
Section 11.3. If by reason of any failure of Tenant to comply with the
provisions of this Lease, the rate of premium for Building Insurance or other
insurance on the property and equipment of Landlord shall increase, Tenant shall
reimburse Landlord for that part of the insurance premiums thereafter paid by
Landlord which shall have been charged because of such failure by Tenant. Tenant
shall make said reimbursement on the first day of the month following such
payment by Landlord.
Section 11.4. (a) At Tenant's own cost and expense, Tenant shall
obtain, maintain and keep in full force and effect during the Term commercial
general liability insurance (without deductible) in a form approved in the State
of Tennessee (including broad form property damage coverages). The limits of
liability shall be not less than Five Million Dollars ($5,000,000.00) per
occurrence, which amount may be satisfied with a primary commercial general
liability policy of not less than Two Million Dollars ($2,000,000.00) and an
excess (or "Umbrella") liability policy affording coverage, at least as broad as
that afforded by the primary commercial general liability policy, in an amount
not less than Three Million Dollars ($3,000,000.00). Landlord, the Manager, any
Lessors and any Mortgagees shall be included as additional insureds in said
policies and shall be protected against all liability arising in connection with
this Lease. All said policies of insurance shall be written as "occurrence"
policies. Whenever, in Landlord's reasonable judgment, good business practice
and changing conditions indicate a need for additional amounts or different
types of insurance coverage, Tenant shall, within ten (10) days
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after Landlord's request, obtain such insurance coverage, at Tenant's expense.
(b) Tenant, at Tenant's sole cost and expense, shall maintain all-risk
insurance, with deductibles in an amount reasonably satisfactory to Landlord,
protecting and indemnifying Tenant against any and all damage to or loss of any
Alterations and leasehold improvements, including any made by Landlord to
prepare the Premises for Tenant's occupancy, and Tenant's Property. All said
policies shall cover the full replacement value of all Alterations, leasehold
improvements and Tenant's Property.
(c) All policies of insurance shall be: (i) written as primary policy
coverage and not contributing with or in excess of any coverage which Landlord
or any Lessor may carry; and (ii) issued by reputable and independent insurance
companies rated in Best's Insurance Guide or any successor thereto (or, if there
is none, an organization having a national reputation), as having a general
policyholder rating of "A" and a financial rating of at least "VII," and which
are licensed to do business in the State of Tennessee. Tenant shall, not later
than ten (10) Business Days prior to the Commencement Date, deliver to Landlord
either (a) the policies of insurance or (b) certificates thereof with a copy of
the declaration page, and shall thereafter furnish to Landlord, at least thirty
(30) days prior to the expiration of any such policies and any renewal thereof,
a new policy or certificate (with copy of the declaration page) in lieu thereof.
Each of said policies shall also contain a provision whereby the insurer agrees
not to cancel, fail to renew, diminish or materially modify said insurance
policy(ies) without having given Landlord, the Manager and any Lessors and
Mortgagees at least thirty (30) days prior written notice thereof. Tenant shall
promptly send to Landlord a copy of all notices sent to Tenant by Tenant's
insurer.
(d) Tenant shall pay all premiums and charges for all of said policies,
and, if Tenant shall fail to make any payment when due or carry any such policy,
then after notice to Tenant, Landlord may, but shall not be obligated to, make
such payment or carry such policy, and the amount paid by Landlord, with
interest thereon (at the Applicable Rate), shall be repaid to Landlord by Tenant
on demand, and all such amounts so repayable, together with such interest, shall
be deemed to constitute Additional Rent hereunder. Payment by Landlord of any
such premium, or the carrying by Landlord of any such policy, shall not be
deemed to waive or release the default of Tenant with respect thereto.
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Section 11.5. (a) Landlord shall cause each policy carried by Landlord
insuring the Building against loss, damage or destruction by fire or other
casualty, and Tenant shall cause each insurance policy carried by Tenant and
insuring the Premises and Tenant's Alterations, leasehold improvements and
Tenant's Property against loss, damage or destruction by fire or other casualty,
to be written in a manner so as to provide that the insurance company waives all
rights of recovery by way of subrogation against Landlord, Tenant and any tenant
of space in the Building in connection with any loss or damage covered by any
such policy. Neither party shall be liable to the other for the amount of such
loss or damage which is in excess of the applicable deductible, if any, caused
by fire or any of the risks enumerated in its policies.
(b) The waiver of subrogation referred to in Section 11.5(a) above
shall extend to the agents and employees of each party (including, as to
Landlord, the Manager). Nothing contained in this Section 11.5 shall be deemed
to relieve either party from any duty imposed elsewhere in this Lease to repair,
restore and rebuild.
(c) During the Term, Landlord agrees to maintain:
(i) "all risk" full replacement cost property insurance on the
Building in an amount sufficient to prevent Landlord from being deemed
a coinsurer of the risks insured under the policy, which shall include
customary rent loss insurance covering loss of rents from Tenant under
this Lease and other tenants under other leases and which shall
include, as and to the extent customarily included by prudent owners of
comparable first class office buildings in Memphis, Tennessee, boiler
and machinery and electrical apparatus coverage;
(ii) commercial general liability insurance (which may be a
combination of primary and umbrella coverages) in an amount which
Landlord deems appropriate; and
(iii) Landlord shall furnish to Tenant certificates or other
evidence of insurance from the insurer, or, if not available from the
insurer, then from the insurance agent, evidencing such coverage at the
time this Lease is executed and, at Tenant's request, within thirty
(30) days after any policy is renewed, replaced or changed.
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ARTICLE XII
DESTRUCTION BY FIRE OR OTHER CAUSE
Section 12.1. If the Premises or any part thereof shall be damaged by
fire or other casualty, Tenant shall give prompt written notice thereof to
Landlord. Landlord shall, subject to the provisions of Sections 12.2 and 12.3
below, proceed with reasonable diligence within 120 days of the casualty to
repair or cause to be repaired such damage at its expense; and, if the Premises,
or any part thereof, shall be rendered untenantable by reason of such damage and
such damage shall not be due to the fault of Tenant or Persons Within Tenant's
Control, then the Fixed Rent and the Escalation Rent hereunder, or an amount
thereof apportioned on a pro rata basis according to the area of the Premises so
rendered untenantable (if less than the entire Premises shall be so rendered
untenantable), shall be abated for the period from the date of such damage to
the date when the repair of such damage shall have been substantially completed.
Tenant covenants and agrees to cooperate with Landlord and any Lessor or any
Mortgagee in their efforts to collect insurance proceeds (including rent
insurance proceeds) payable to such parties. Landlord shall not be liable for
any delay which may arise by reason of adjustment of insurance on the part of
Landlord and/or Tenant, or any cause beyond the control of Landlord or
contractors employed by Landlord.
Section 12.2. Landlord shall not be liable for any inconvenience or
annoyance to Tenant or injury to the business of Tenant resulting in any way
from damage from fire or other casualty or the repair thereof. Tenant
understands that Landlord, in reliance upon Section 12.4, will not carry
insurance of any kind on Tenant's Property, Tenant's Alterations and on
leasehold improvements, and that Landlord shall not be obligated to repair any
damage thereto or replace the same.
(a) Notwithstanding anything to the contrary contained in
Sections 12.1 and 12.2 above, in the event that:
(i) at least twenty-five thousand (25,000) rentable
square feet of the Building shall be damaged by a fire or
other casualty so that substantial alteration or
reconstruction of the Building shall, in Landlord's sole
opinion, be required (whether or not the Premises shall have
been damaged by such fire or other casualty and without regard
to the structural integrity of the Building); or
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(ii) the Premises shall be totally or substantially
damaged or shall be rendered wholly or substantially
untenantable; or
(iii) there shall be any damage to the Premises
within the last two (2) years of the Term wherein the cost of
repair exceeds an amount equal to three (3) monthly
installments of Fixed Rent,
then either Landlord or Tenant may terminate this Lease and the term
and estate hereby granted, by notifying the other party in writing of
such termination prior to commencement of work to repair the damage to
the Premises or within one hundred twenty (120) days after the date of
such damage, whichever first occurs. In the event that such a notice of
termination shall be given, then this Lease and the Term and estate
hereby granted shall expire as of the date of termination stated in
said notice with the same effect as if that were the Fixed Expiration
Date, and the Fixed Rent and Escalation Rent hereunder shall be
apportioned as of such date.
(b) Notwithstanding anything to the contrary contained in this Section
12.2, upon written request which is made by Tenant prior to commencement of work
to repair the damage to the Premises, Landlord shall deliver to Tenant an
estimate prepared by a reputable contractor selected by Landlord setting forth
such contractor's estimate as to the time reasonably required to repair such
damage. If the period to repair set forth in any such estimate exceeds nine (9)
months, Tenant may elect to terminate this Lease by notice to Landlord given not
later than thirty (30) days following Tenant's receipt of such estimate. If
Tenant exercises such election, this Lease and the term and estate hereby
granted shall expire as of the sixtieth (60th) day after notice of such election
given by Tenant with the same effect as if that were the Fixed Expiration Date,
and the Fixed Rent and Escalation Rent hereunder shall be apportioned as of such
date.
Section 12.3. Except as may be provided in Section 11.5, nothing herein
contained shall relieve Tenant from any liability to Landlord or to Landlord's
insurers in connection with any damage to the Premises or the Building by fire
or other casualty if Tenant shall be legally liable in such respect.
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Section 12.4. This Lease shall be considered an express agreement
governing any case of damage to or destruction of the Building or any part
thereof by fire or other casualty.
ARTICLE XIII
EMINENT DOMAIN
Section 13.1. If the whole of the Real Property, the Building or the
Premises is acquired or condemned for any public or quasi-public use or purpose,
this Lease and the Term shall end as of the date of the vesting of title with
the same effect as if said date were the Fixed Expiration Date. If only a part
of the Real Property and not the entire Premises is so acquired or condemned
then, (a) except as hereinafter provided in this Section 13.1, this Lease and
the Term shall continue in effect but, if a part of the Premises is included in
the part of the Real Property so acquired or condemned, from and after the date
of the vesting of title, the Fixed Rent and Tenant's Share shall be reduced in
the proportion which the area of the part of the Premises so acquired or
condemned bears to the total area of the Premises immediately prior to such
acquisition or condemnation; (b) whether or not the Premises are affected
thereby, Landlord, at Landlord's option, may give to Tenant, within sixty (60)
days next following the date upon which Landlord receives notice of vesting of
title, a thirty (30) day notice of termination of this Lease; and (c) if the
part of the Real Property so acquired or condemned contains more than thirty
percent (30%) of the total area of the Premises immediately prior to such
acquisition or condemnation, or if, by reason of such acquisition or
condemnation, Tenant no longer has access to the Premises, Tenant, at Tenant's
option, may give to Landlord, within sixty (60) days next following the date
upon which Tenant receives notice of vesting of title, a thirty (30) day notice
of termination of this Lease. If any such thirty (30) day notice of termination
is given, by Landlord or Tenant, this Lease and the Term shall come to an end
and expire upon the expiration of said thirty (30) days with the same effect as
if the date of expiration of said thirty (30) days were the Fixed Expiration
Date. If a part of the Premises is so acquired or condemned and this Lease and
the Term are not terminated pursuant to the foregoing provisions of this Section
13.1, Landlord, at Landlord's cost and expense, shall restore that part of the
Premises not so acquired or condemned to a self-contained rental unit, exclusive
of Tenant's Alterations and Tenant's Property. In the event of any termination
of this Lease and the Term pursuant to the provisions of this Section 13.1, the
Fixed Rent
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shall be apportioned as of the date of the termination and any prepaid portion
of the Fixed Rent or Escalation Rent for any period after such date shall be
refunded by Landlord to Tenant.
Section 13.2. In the event of any such acquisition or condemnation of
all or any part of the Real Property, Landlord shall be entitled to receive the
entire award for any such acquisition or condemnation. Tenant shall have no
claim against Landlord or the condemning authority for the value of any
unexpired portion of the Term and Tenant hereby expressly assigns to Landlord
all of its right in and to any such award. Nothing contained in this Section
13.2 shall be deemed to prevent Tenant from making a separate claim in any
condemnation proceedings for the value of any Tenant's Property included in such
taking, and for any moving expenses, so long as Landlord's award is not reduced
thereby.
ARTICLE XIV
ASSIGNMENT, SUBLETTING, MORTGAGE, ETC.
Section 14.1 Except as otherwise provided in this Article 14, Tenant
shall not (a) assign this Lease (whether by operation of law, transfers of
interests in Tenant or otherwise); or (b) mortgage or encumber Tenant's interest
in this Lease, in whole or in part; or (c) sublet, or permit the subletting of,
the Premises or any part thereof. Tenant shall not advertise or authorize a
broker to advertise for a subtenant or assignee, without in each instance,
obtaining the prior written consent of Landlord, which shall not be unreasonably
withheld or delayed.
Section 14.2 If Tenant's interest in this Lease shall be assigned in
violation of the provisions of this Article 14, such assignment shall be invalid
and of no force and effect against Landlord; provided, however, that Landlord
may collect an amount equal to the then Fixed Rent plus any other item of Rental
from the assignee as a fee for its use and occupancy. If the Premises or any
part thereof are sublet to, or occupied by, or used by, any person other than
Tenant, whether or not in violation of this Article 14, Landlord, after default
by Tenant under this Lease, may collect any item of Rental or other sums paid by
the subtenant, user or occupant as a fee for its use and occupancy, and shall
apply the net amount collected to the Fixed Rent and the items of Rental
reserved in this Lease. No such assignment, subletting, occupancy, or use,
whether with or without Landlord's prior consent, nor any such collection or
application of Rental or fee for use and occupancy, shall be deemed a waiver by
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Landlord of any term, covenant or condition of this Lease or the acceptance by
Landlord of such assignee, subtenant, occupant or user as Tenant hereunder, nor
shall the same, in any circumstances, relieve Tenant of any of its obligations
under this Lease. The consent by Landlord to any assignment, subletting,
occupancy or use shall not relieve Tenant from its obligation to obtain the
express prior consent of Landlord to any further assignment, subletting,
occupancy or use. Any person to which this Lease is assigned with Landlord's
consent shall be deemed without more to have assumed all of the obligations
arising under this Lease from and after the date of such assignment and shall
execute and deliver to Landlord, upon demand, an instrument confirming such
assumption. Notwithstanding and subsequent to any assignment, Tenant's primary
liability hereunder shall continue notwithstanding (a) any subsequent amendment
hereof, or (b) Landlord's forbearance in enforcing against Tenant any obligation
or liability, without notice to Tenant, to each of which Tenant hereby consents
in advance. If any such amendment operates to increase the obligations of Tenant
under this Lease, the liability under this Section 14.2 of the assigning Tenant
shall continue to be no greater than if such amendment had not been made (unless
such party shall have expressly consented in writing to such amendment).
(a) For purposes of this Article 14, (i) the transfer of a majority of
the issued and outstanding capital stock of any corporate tenant, or of a
corporate subtenant, or the transfer of a majority of the total interest in any
partnership tenant or subtenant, or the transfer of control in any limited
partnership tenant or subtenant, or the transfer of control in any limited
liability company tenant or subtenant or the transfer of control in any limited
liability partnership tenant or subtenant, however accomplished, whether in a
single transaction or in a series of related or unrelated transactions, shall be
deemed an assignment of this Lease, or of such sublease, as the case may be,
except that the transfer of the outstanding capital stock of any corporate
tenant, or subtenant, shall be deemed not to include the sale of such stock by
persons or parties, other than those deemed "affiliates" of Tenant within the
meaning of Rule 144 promulgated under the Securities Act of 1933, as amended,
through the "over-the-counter market" or through any recognized stock exchange,
(ii) any increase in the amount of issued and/or outstanding capital stock of
any corporate tenant, or of a corporate subtenant, and/or the creation of one or
more additional classes of capital stock of any corporate tenant or any
corporate subtenant, in a single transaction or a series of
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related or unrelated transactions, resulting in a change in the legal or
beneficial ownership of such tenant or subtenant so that the shareholders of
such tenant or subtenant existing immediately prior to such transaction or
series of transactions shall no longer own a majority of the issued and
outstanding capital stock of such tenant or subtenant, shall be deemed an
assignments of this Lease, (iii) an agreement by any other person or entity,
directly or indirectly, to assume Tenant's obligations under this Lease shall be
deemed an assignment, (iv) any person or legal representative of Tenant, to whom
Tenant's interest under this lease passes by operation of law, or otherwise,
shall be bound by the provisions of this Article 14, and (v) a modification,
amendment or extension of a sublease shall be deemed a sublease. Tenant agrees
to furnish to Landlord on request at any time such information and assurances as
Landlord may reasonably request that neither Tenant, nor any previously
permitted subtenant, has violated the provisions of this Article 14.
(b) The provisions of clauses (a), (c) and (d) of Section 14.1 shall
not apply to transactions with a corporation into or with which Tenant is merged
or consolidated or with a Person to which substantially all of Tenant's assets
are transferred (provided such merger or transfer of assets is for a good
business purpose and not principally for the purpose of transferring the
leasehold estate created by this Lease, and provided further, that the assignee
has a net worth at least equal to or in excess of the net worth of Tenant as of
the date of this Lease and as of the date immediately prior to such merger or
transfer, whichever is greater) or, if Tenant is a partnership, with a successor
partnership, nor shall the provisions of clause (a), (c) and (d) of Section 14.1
apply to transactions with an entity that controls or is controlled by Tenant or
is under common control with Tenant. Tenant shall notify Landlord before any
such transaction is consummated.
(c) The term "control" as used in this Lease (i) in the case of a
corporation shall mean ownership of more than fifty percent (50%) of the
outstanding capital stock of that corporation, (ii) in the case of a general
partnership, shall mean more than fifty percent (50%) of the general partnership
interest of the partnership, (iii) in the case of a limited partnership, shall
mean more than fifty percent (50%) of the general and limited partnership
interests of such limited partnership; (iv) in the case of a limited liability
company, shall mean more than fifty percent (50%) of the membership interests of
such limited liability company, and (v) in the case of a limited liability
partnership, shall mean more than fifty
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percent (50%) of the partnership interest of such limited liability partnership.
Section 14.3. [RESERVED]
Section 14.4. (a) If Tenant sublets any portion of the Premises to a
Person in a transaction for which Landlord's consent is required, Landlord shall
be entitled to and Tenant shall pay to Landlord, as Additional Rent (the
"Sublease Additional Rent"), a sum equal to fifty percent (50%) of any rents,
additional charges and other consideration payable under the sublease to Tenant
by the subtenant in excess of the Fixed Rent and Escalation Rent accruing during
the term of the sublease in respect of the subleased space (at the rate per
square foot payable by Tenant under this Lease) pursuant to the terms of this
Lease (including, but not limited to, sums paid for the sale or rental of
Tenant's Property and Alterations less the then net unamortized or undepreciated
cost thereof determined on the basis of Tenant's federal income tax or federal
information returns), net of any reasonable brokerage commissions incurred in
connection therewith; provided, however, that no reduction shall be allowed if
brokerage commissions are paid to any Person under Tenant's control. Such
Sublease Additional Rent shall be payable as and when received by Tenant.
(b) Landlord may, by notice to Tenant, elect to waive the benefits of
this Section 14.4, for any month or months, prospectively or retroactively. Any
retroactive waiver shall be accompanied by a return to Tenant of all Sublease
Additional Rent theretofore paid to and retroactively waived by Landlord for the
months in question.
Section 14.5. (a) If Tenant shall assign this Lease to a Person in a
transaction for which Landlord's consent is required, Landlord shall be entitled
to and Tenant shall pay to Landlord, as Additional Rent, an amount equal to all
sums and other consideration paid to Tenant by the assignee for or by reason of
such assignment (including, but not limited to, sums paid for the sale or rental
of Tenant's Property and Alterations less the then net unamortized or
undepreciated cost thereof determined on the basis of Tenant's federal income
tax or federal information returns). Such Additional Rent shall be payable as
and when received by Tenant from the assignee.
(b) Landlord may, by notice to Tenant, elect to waive the benefits of
this Section 14.5, prospectively or retrospectively. Any retroactive waiver
shall be accompanied by a return to
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Tenant of all amounts theretofore paid to and retroactively waived by Landlord.
Section 14.6. Landlord shall have no liability for brokerage
commissions incurred with respect to any assignment of this Lease or any
subletting of all or any part of the Premises by or on behalf of Tenant. Tenant
shall pay, and shall indemnify and hold Landlord harmless from and against, any
and all cost, expense (including reasonable attorneys' fees and disbursements)
and liability in connection with any compensation, commissions or charges
claimed by any broker or agent with respect to any such assignment or
subletting.
ARTICLE XV
ACCESS TO PREMISES
Section 15.1. (a) Tenant shall permit Landlord, Landlord's agents and
independent contractors and public utilities servicing the Building to have
reasonable access for the purpose of maintaining existing concealed ducts, pipes
and conduits in and through and to access all Common Areas within the Building
and all Common Areas comprising a portion of the Land. Landlord or Landlord's
agents shall have the right to enter the Premises at all reasonable times upon
(except in case of emergency) reasonable prior notice, which notice may be oral,
to examine the same, to show the same to prospective purchasers, Mortgagees or
lessees of the Building or space therein, and to make such repairs, alterations,
improvements or additions (i) as Landlord may deem necessary or desirable to the
Premises or to any other portion of the Building, or (ii) which Landlord may
elect to perform at least ten (10) days after notice (except in an emergency
when no notice shall be required) following Tenant's failure to make repairs or
perform any work which Tenant is obligated to make or perform under this Lease,
or (iii) for the purpose of complying with Requirements, and Landlord shall be
allowed to take all material into and upon the Premises that may be required
therefor without the same constituting an eviction or constructive eviction of
Tenant in whole or in part and the Fixed Rent (and any other item of Rental)
shall in no respect abate or be reduced by reason of said repairs, alterations,
improvements or additions, wherever located, or while the same are being made,
by reason of loss or interruption of business of Tenant, or otherwise. Landlord
shall promptly repair any damage caused to the Premises by such work,
alterations, improvements or additions. Tenant shall, at Tenant's cost, take
such action as may be reasonably necessary to grant to Landlord, its agents and
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independent contractors clearance and access by means of the Security System for
the purposes herein set out.
(b) Any work performed or installations made pursuant to this Article
15 shall be made with reasonable diligence and otherwise pursuant to Section
6.3.
(c) Any pipes, ducts, or conduits installed in or through the Premises
pursuant to this Article 15 shall, if reasonably practicable, either be
concealed behind, beneath or within partitioning, columns, ceilings or floors
located or to be located in the Premises, or completely furred at points
immediately adjacent to partitioning, columns or ceilings located or to be
located in the Premises.
Section 15.2. If Tenant is not present when for any reason entry into
the Premises may be necessary or permissible, Landlord or Landlord's agents may
enter the same without rendering Landlord or such agents liable therefor (if
during such entry Landlord or Landlord's agents accord reasonable care to
Tenant's Property), and without in any manner affecting this Lease.
Section 15.3. All parts (except surfaces facing the interior of the
Premises) of all walls, windows and doors bounding the Premises (including
exterior Building walls, exterior core corridor walls, exterior doors and
entrances), all balconies, terraces and roofs adjacent to the Premises, all
space in or adjacent to the Premises used for shafts, stacks, stairways, chutes,
pipes, conduits, ducts, fan rooms, heating, air cooling, plumbing and other
mechanical facilities, service closets and other Building facilities are not
part of the Premises, and Landlord shall have the use thereof, as well as access
thereto through the Premises for the purposes of operation, maintenance,
alteration and repair.
ARTICLE XVI
CERTIFICATE OF OCCUPANCY
Section 16.1. Tenant shall not at any time use or occupy the Premises
in violation of the certificate of occupancy at such time issued for the
Premises or for the Building and in the event that any Governmental Authority
hereafter contends or declares by notice, violation, order or in any other
manner whatsoever that the Premises are used by Tenant for a purpose that is a
violation of such certificate of occupancy, Tenant shall, upon three (3)
Business Days' written notice from Landlord or any Government
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Authority, immediately discontinue such use of the Premises; provided, however,
that nothing herein shall prevent Tenant from contesting such violation pursuant
to and in accordance with the provisions of Section 8.5.
ARTICLE XVII
DEFAULT
Section 17.1. Each of the following events shall be an "Event of
Default" under this Lease:
(a) if Tenant shall on any occasion default in the payment
when due of any installment of Fixed Rent or in the payment when due of
any other item of Rental and the same shall not be cured within five
(5) days after written notice of default by Landlord to Tenant; or
(b) if Tenant shall fail on three (3) or more occasions in any
period of eighteen (18) consecutive months to make a payment when due
of any Rental, and Landlord shall have given Tenant written notice of
such default after two (2) such occurrences; or
(c) if Tenant shall default in the observance or performance
of any term, covenant or condition on Tenant's part to be observed or
performed under that certain Agreement of Lease of even date herewith
between Landlord and Tenant with respect to Building No. 2, or any
renewal, modification or extension thereof, and such default shall
continue beyond any grace period set forth in such other lease for the
remedying of such default; or
(d) if the Premises shall become vacant or abandoned; or
(e) if Tenant's interest in this Lease shall devolve upon or
pass to any person, whether by operation of law or otherwise, except as
expressly permitted under Article 14 hereof; or
(f) (1) if Tenant shall not, or shall be unable to, or shall
admit in writing Tenant's inability to, as to any obligation,
pay Tenant's debts as they become due; or
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(2) if Tenant shall commence or institute any case,
proceeding or other action (a) seeking relief on Tenant's
behalf as debtor, or to adjudicate it a bankrupt or insolvent,
or seeking reorganization, arrangement, adjustment,
winding-up, liquidation, dissolution, composition or other
relief with respect to Tenant or Tenant's debts under any
existing or future law of any jurisdiction, domestic or
foreign, relating to bankruptcy, insolvency, reorganization or
relief of debtors, or (b) seeking appointment of a receiver,
trustee, custodian or other similar official for it or for all
or any substantial part of its property; or
(3) if Tenant shall make a general assignment for the
benefit of creditors; or
(4) if any case, proceeding or other action shall be
commenced or instituted against Tenant (a) seeking to have an
order for relief entered against Tenant as debtor or to
adjudicate Tenant a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief with
respect to Tenant or Tenant's debts under any existing or
future law of any jurisdiction, domestic or foreign, relating
to bankruptcy, insolvency, reorganization or relief of
debtors, or (b) seeking appointment of a receiver, trustee,
custodian or other similar official for Tenant or for all or
any substantial part of Tenant's property, which either (i)
results in any such entry of an order for relief, adjudication
of bankruptcy or insolvency or such an appointment or the
issuance or entry of any other order having a similar effect
or (ii) remains undismissed for a period of sixty (60) days;
or
(5) if a trustee, receiver or other custodian shall
be appointed for any substantial part of the assets of Tenant
which appointment is not vacated or effectively stayed within
sixty (60) days; or
(g) if Tenant shall default in the observance or performance
of any other term, covenant or condition of this Lease on Tenant's part
to be observed or performed and Tenant shall fail to remedy such
default within fifteen (15) days after notice by Landlord to Tenant of
such default, or if such default is of such a nature that it cannot
with due
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diligence be completely remedied within said period of fifteen (15)
days and the continuation of which for the period required for cure
will not subject Landlord to the risk of criminal liability or
foreclosure of any Mortgage, if Tenant shall not, (i) within said
fifteen (15) day period advise Landlord of Tenant's intention duly to
institute all steps necessary to remedy such situation, (ii) duly
institute within said fifteen (15) day period, and thereafter
diligently and continuously prosecute to completion all steps necessary
to remedy the same and (iii) complete such remedy within such time
after the date of the giving of said notice by Landlord as shall
reasonably be necessary.
Section 17.2. If an Event of Default shall occur, Landlord may, at any
time thereafter, at Landlord's option, give written notice to Tenant stating
that this Lease and the Term shall expire and terminate on the date specified in
such notice, which date shall not be less than three (3) days after Tenant's
receipt of such notice, or such longer term as specified in the notice,
whereupon this Lease and the Term and all rights of Tenant under this Lease
shall automatically expire and terminate as if the date specified in the notice
given pursuant to this Section 17.2 were the Fixed Expiration Date and Tenant
immediately shall quit and surrender the Premises, but Tenant shall remain
liable for damages as provided herein or pursuant to law. Anything contained
herein to the contrary notwithstanding, if such termination shall be stayed by
order of any court having jurisdiction over any proceeding described in Section
17.1(f), or by federal or state statute, then, following the expiration of any
such stay, or if the trustee appointed in any such proceeding, Tenant or Tenant
as debtor-in-possession fails to assume Tenant's obligations under this Lease
within the period prescribed therefor by law or within one hundred twenty (120)
days after entry of the order for relief or as may be allowed by the court, or
if said trustee, Tenant or Tenant as debtor-in-possession shall fail to provide
adequate protection of Landlord's right, title and interest in and to the
Premises or adequate assurance of the complete and continuous future performance
of Tenant's obligations under this Lease, Landlord, to the extent permitted by
law or by leave of the court having jurisdiction over such proceeding, shall
have the right, at its election, to terminate this Lease on three (3) days'
prior written notice to Tenant, Tenant as debtor-in possession or said trustee
and upon the expiration of said three (3) day period this Lease shall cease and
expire as aforesaid and Tenant, Tenant as
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debtor-in-possession or said trustee shall immediately quit and surrender the
Premises as aforesaid.
Section 17.3. If, at any time, (i) Tenant shall consist of two (2) or
more persons, or (ii) Tenant's obligations under this Lease shall have been
guaranteed by any person other than Tenant, or (iii) Tenant's interest in this
Lease has been assigned, the word "Tenant" as used in Section 17.1(f), shall be
deemed to mean any one or more of the persons primarily or secondarily liable
for Tenant's obligations under this Lease. Any monies received by Landlord from
or on behalf of Tenant during the pendency of any proceeding of the types
referred to in Section 17.1(f) shall be deemed paid as compensation for the use
and occupancy of the Premises and the acceptance of any such compensation by
Landlord shall not be deemed an acceptance of Rental or a waiver on the part of
Landlord of any rights under Section 17.2.
ARTICLE XVIII
REMEDIES AND DAMAGES
Section 18.1. (a) If any Event of Default shall occur, or this Lease
and the Term shall expire and come to an end as provided in Article 17:
6. Tenant shall quit and peacefully surrender the Premises to
Landlord, and Landlord and its agents may immediately, or at any time after such
Event of Default or after the date upon which this Lease and the Term shall
expire and come to an end, re-enter the Premises or any part thereof, without
notice, either by summary proceedings, or by any other applicable action or
proceeding or otherwise (without being liable to indictment, prosecution or
damages therefor), but excluding by force, and may repossess the Premises and
dispossess Tenant and any other persons from the Premises by summary proceedings
or otherwise (excluding by force) and remove any and all of their property and
effects from the Premises (and Tenant shall remain liable for damages as
provided herein or pursuant to law); and
7. Landlord, at Landlord's option, may relet the whole or any
part or parts of the Premises from time to time, either in the name of
Landlord or otherwise, to such tenant or tenants, for such term or
terms ending before, on or after the Fixed Expiration Date, at such
rent or rentals and upon such other conditions, which may include
concessions and free rent periods, as Landlord, in Landlord's sole
discretion, may determine; provided,
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however, that Landlord shall have no obligation to relet the Premises
or any part thereof and shall in no event be liable for refusal or
failure to relet the Premises or any part thereof, or, in the event of
any such reletting, for refusal or failure to collect any rent due upon
any such reletting, and no such refusal or failure shall operate to
relieve Tenant of any liability under this Lease or otherwise affect
any such liability, and Landlord, at Landlord's option, may make such
Alterations, in and to the Premises as Landlord, in Landlord's sole
discretion, shall consider advisable or necessary in connection with
any such reletting or proposed reletting, without relieving Tenant of
any liability under this Lease or otherwise affecting any such
liability.
(b) Tenant hereby waives the service of any notice of intention to
re-enter that may otherwise be required to be given under any present or future
law. Tenant, on its own behalf and on behalf of all persons claiming through or
under Tenant, including all creditors, does further hereby waive any and all
rights that Tenant and all such persons might otherwise have under any present
or future law to redeem the Premises, or to re-enter or repossess the Premises,
or to restore the operation of this Lease, after (1) Tenant shall have been
dispossessed by a judgment or by warrant of any court or judge, or (2) any
reentry by Landlord, or (3) any expiration or termination of this Lease and the
Term, whether such dispossess, re-entry, expiration or termination is by
operation of law or pursuant to the provisions of this Lease.
The words "re-entry," "re-enter" and "re-entered" as used in this Lease
shall not be deemed to be restricted to their technical legal meanings.
In the event of a breach or threatened breach by Tenant, or any persons
claiming through or under Tenant, of any term, covenant or condition of
this Lease, Landlord shall have the right to enjoin such breach and the
right to invoke any other remedy allowed by law or in equity as if
reentry, summary proceedings and other special remedies were not
provided in this Lease for such breach. The right to invoke the
remedies hereinbefore set forth are cumulative and shall not preclude
Landlord from invoking any other remedy allowed at law or in equity.
Section 18.2. (a) If this Lease and the Term shall expire and come to
an end as provided in Article 18, or by or under any summary proceeding or any
other action or proceeding, or if Landlord shall re-enter the Premises as
provided in Section 18.1,
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or by or under any summary proceeding or any other action or proceeding, then,
in any of said events:
1. Tenant shall pay to Landlord all Fixed Rent, Escalation
Rent, other Additional Rent and other items of Rental payable under
this Lease by Tenant to Landlord to the date upon which this Lease and
the Term shall have expired and come to an end or to the date of
re-entry upon the Premises by Landlord, as the case may be;
2. Tenant also shall be liable for and shall pay to Landlord,
as damages, any deficiency ("Deficiency") between the Rental for the
period which otherwise would have constituted the unexpired portion of
the Term and the net amount, if any, of rents collected under any
reletting effected pursuant to the provisions of Section 18.1(a)(2) for
any part of such period (after first deducting from the rents collected
under any such reletting all of Landlord's expenses in connection with
the termination of this Lease, Landlord's reentry upon the Premises and
such reletting including, but not limited to, all repossession costs,
brokerage commissions, attorneys' fees and disbursements, alteration
costs and other expenses of preparing the Premises for such reletting);
any such Deficiency shall be paid in monthly installments by Tenant on
the days specified in this Lease for payment of installments of Fixed
Rent; Landlord shall be entitled to recover from Tenant each monthly
Deficiency as the same shall arise, and no suit to collect the amount
of the Deficiency for any month shall prejudice Landlord's right to
collect the Deficiency for any subsequent month by a similar
proceeding; and
3. whether or not Landlord shall have collected any monthly
Deficiency as aforesaid, Landlord shall be entitled to recover from
Tenant, and Tenant shall pay to Landlord, on demand, in lieu of any
further Deficiency as and for liquidated and agreed final damages, a
sum equal to the amount by which the unpaid Rental for the period which
otherwise would have constituted the unexpired portion of the Term
exceeds the then fair and reasonable rental value of the Premises for
the same period, both discounted to present worth at the Base Rate; if,
before presentation of proof of such liquidated damages to any court,
commission or tribunal, the Premises, or any part thereof, are relet by
Landlord for the period which otherwise would have constituted the
unexpired portion of the Term, or any part thereof, the amount of rent
reserved upon such reletting
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shall be deemed, prima facie, to be the fair and reasonable rental
value for the part or the whole of the Premises so relet during the
term of the reletting.
(b) Tenant shall in no event be entitled to any rents collected or
payable under any reletting, whether or not such rents exceed the Fixed Rent
reserved in this Lease. Solely for the purposes of this Article 18, the term
"Escalation Rent" as used in Section 18.2(a) shall mean the Escalation Rent in
effect immediately prior to the Expiration Date, or the date of re-entry upon
the Premises by Landlord, as the case may be, adjusted to reflect any increase
pursuant to the provisions of Article 3 hereof for the Operating Year
immediately preceding such event. Nothing contained in Article 17 or this
Article 18 shall be deemed to limit or preclude the recovery by Landlord from
Tenant of the maximum amount allowed to be obtained as damages by any statute or
rule of law, or of any sums or damages to which Landlord may be entitled in
addition to the damages set forth in this Section 18.2.
ARTICLE XIX
FEES AND EXPENSES
Section 19.1. If an Event of Default shall have occurred, Landlord may
(a) perform the obligations of Tenant for the account of Tenant, or (b) make any
expenditure or incur any obligation for the payment of money in connection with
any obligation owed by Tenant to Landlord, including, but not limited to,
reasonable attorneys' fees and disbursements in instituting, prosecuting or
defending any action or proceeding arising out of such Event of Default, and in
either case the cost thereof, with interest thereon at the Applicable Rate,
shall be deemed to be Additional Rent hereunder and shall be paid by Tenant to
Landlord within ten (10) days after rendition of any bill or statement to Tenant
therefor.
Section 19.2. If Tenant shall fail to pay any installment of Fixed
Rent, Additional Rent or any other item of Rental for a period longer than five
(5) days after the same shall have become due, Tenant shall pay to Landlord, in
addition to such installment of Fixed Rent, Additional Rent or other item of
Rental, as the case may be, as a late charge and as Additional Rent, a sum equal
to interest at the Applicable Rate on the amount unpaid, computed from the date
such payment was due, without regard to any such grace period, to and including
the date of payment.
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ARTICLE XX
NO REPRESENTATIONS BY LANDLORD
Section 20.1. Landlord and Landlord's agents have made no
representations or promises with respect to the Building, the Real Property or
the Premises except as herein expressly set forth, and no rights, easements or
licenses are acquired by Tenant by implication or otherwise except as expressly
set forth herein. Tenant shall accept possession of the Premises in its "AS IS"
condition on the Commencement Date, and Landlord shall have no obligation to
perform any work or make any installations in order to prepare the Premises for
Tenant's occupancy. The taking of occupancy of the whole or any part of the
Premises by Tenant shall be conclusive evidence, as against Tenant, that Tenant
accepts possession of the same and that the Premises and the Building were in
good and satisfactory condition at the time such occupancy was so taken. All
references in this Lease to the consent or approval of Landlord shall be deemed
to mean the written consent or approval executed by Landlord and no other
consent or approval of Landlord shall be effective for any purpose whatsoever.
ARTICLE XXI
END OF TERM
Section 21.1. Upon the expiration or other termination of this Lease,
Tenant shall quit and surrender to Landlord the Premises, vacant, broom clean,
in good order and condition, ordinary wear and tear excepted, and Tenant shall
remove all of Tenant's Alterations as may be required pursuant to Article 5.
Tenant shall also remove all of Tenant's Property and all other personal
property and personal effects of all persons claiming through or under Tenant,
and shall pay the cost of repairing all damage to the Premises and the Real
Property occasioned by such removal. Any Tenant's Property or other personal
property that remains in the Premises after the termination of this Lease shall
be deemed to have been abandoned and either may be retained by Landlord as its
property or may be disposed of in such manner as Landlord may see fit. If such
Tenant's Property or other personal property or any part thereof is sold,
Landlord may receive and retain the proceeds of such sale as the property of
Landlord. Any expense incurred by Landlord in removing or disposing of such
Tenant's Property or other personal property or Alterations required to be
removed as provided in Article 5, as
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well as the cost of repairing all damage to the Building or the Premises caused
by such removal, shall be reimbursed to Landlord by Tenant, as Additional Rent,
on demand.
Section 21.2. If the Expiration Date falls on a day which is not a
Business Day, then Tenant's obligations under Section 21.1 shall be performed on
or prior to the immediately preceding Business Day.
Section 21.3. If the Premises are not surrendered upon the expiration
or other termination of this Lease, Tenant hereby indemnifies Landlord against
liability resulting from delay by Tenant in so surrendering the Premises,
including any claims made by any succeeding tenant or prospective tenant founded
upon such delay and agrees to be liable to Landlord for (i) any payment or rent
concession which Landlord may be required to make to any tenant obtained by
Landlord for all or any part of the Premises in order to induce such tenant not
to terminate its lease by reason of the holding-over by Tenant and (ii) the loss
of the benefit of the bargain if any such tenant shall terminate its lease by
reason of the holding-over by Tenant.
Section 21.4. Tenant's obligation under this Article shall survive the
expiration or termination of this Lease for a period ending six (6) months after
the end of the calendar year in which the Expiration Date falls.
ARTICLE XXII
POSSESSION
Section 22.1. Tenant acknowledges that it is in possession of the
Premises as of the Commencement Date (Tenant being the prior owner of the Real
Property and Building) and that no further act on Landlord's part is required as
a condition to commencement of the Term of this Lease.
ARTICLE XXIII
NO WAIVER
Section 23.1 No act or thing done by Landlord or Landlord's agents
during the Term shall be deemed an acceptance of a surrender of the Premises,
and no agreement to accept such surrender shall be valid unless in writing
signed by Landlord. Only an executive officer of Landlord shall have the power
to
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accept surrender of the Premises prior to the termination of this Lease.
Section 23.2. The failure of Landlord to seek redress for violation of,
or to insist upon the strict performance of, any covenant or condition of this
Lease, or any of the Rules and Regulations, shall not prevent a subsequent act,
which would have originally constituted a violation, from having all of the
force and effect of an original violation. The receipt by Landlord of Fixed
Rent, Additional Rent or any other item of Rental with knowledge of the breach
of any covenant of this Lease shall not be deemed a waiver of such breach. The
failure of Landlord to enforce any of the Rules and Regulations against Tenant
or any other tenant of the Real Property or the Adjacent Property shall not be
deemed a waiver of any such Rules and Regulations. No provision of this Lease
shall be deemed to have been waived by Landlord, unless such waiver shall be in
writing and shall be signed by Landlord. No payment by Tenant or receipt by
Landlord of a lesser amount than the Rental then due and payable shall be deemed
to be other than on account of the earliest item(s) of Rental, or as Landlord
may elect to apply the same, nor shall any endorsement or statement on any check
or any letter accompanying any check or payment be deemed an accord and
satisfaction, and Landlord may accept such check or payment without prejudice to
Landlord's right to recover the balance due of the Rental or pursue any other
remedy in this Lease provided. This Lease contains the entire agreement between
the parties and all prior negotiations and agreements are merged herein. Any
executory agreement hereafter made shall be ineffective to change, discharge or
effect an abandonment of this Lease in whole or in part unless such executory
agreement is in writing and signed by the party against whom enforcement of the
change, discharge or abandonment is sought.
ARTICLE XXIV
WAIVER OF TRIAL BY JURY
Section 24.1. LANDLORD AND TENANT SHALL AND THEY HEREBY DO WAIVE TRIAL
BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THEM
AGAINST THE OTHER ON ANY MATTERS WHATSOEVER ARISING OUT OF OR IN ANY WAY
CONNECTED WITH THIS LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT, TENANT'S USE
OR OCCUPANCY OF THE PREMISES, WHETHER DURING OR AFTER THE TERM, OR FOR THE
ENFORCEMENT OF ANY REMEDY UNDER ANY STATUTE, EMERGENCY OR OTHERWISE.
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ARTICLE XXV
INABILITY TO PERFORM
Section 25.1. This Lease and the obligation of Tenant to pay Rental
hereunder and to perform all of the other covenants and agreements hereunder on
the part of Tenant to be performed shall in no way be affected, impaired or
excused because Landlord is unable to fulfill any of Landlord's obligations
under this Lease, expressly or implicitly to be performed by Landlord, or
because Landlord is unable to make or is delayed in making any repairs,
additions, alterations, improvements or decorations, or is unable to supply or
is delayed in supplying any services, equipment or fixtures, if Landlord is
prevented from or delayed in so doing by reason of acts of God, casualty,
strikes or labor troubles, accident, governmental preemption in connection with
an emergency, Requirements, Restrictive Covenants, conditions of supply and
demand which have been or are affected by war or other emergency, or any other
cause whatsoever, whether similar or dissimilar to the foregoing, beyond
Landlord's reasonable control ("Unavoidable Delays").
Section 25.2 Notwithstanding anything to the contrary set forth in this
Lease, Landlord shall not be liable for any cessation and/or interruption of
services to the Premises caused by failure of any Building Systems or other
computerized functions affecting use or occupancy of the Premises to be able to
perform properly datesensitive functions for dates leading up to or following
January 1, 2000 (that is, to be Year 2000 compliant), nor shall any such failure
constitute an eviction or constructive eviction or give rise to abatement of
Rental.
ARTICLE XXVI
BILLS AND NOTICES
Section 26.1. (a) Except as otherwise expressly provided in this Lease,
any bills, statements, consents, notices, demands, requests or other
communications given or required to be given under this Lease ("Notice(s)")
shall be in writing and shall be deemed sufficiently given or rendered if
delivered by hand, or if sent by a nationally-recognized overnight courier
service, delivery cost prepaid, marked for next-day delivery, or if deposited in
a postage prepaid envelope in a depository that is regularly maintained by the
U.S. Postal Service, sent by registered or certified mail (return receipt
requested) and in either case addressed:
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(i) if to Tenant, to Harrah's Operating Company, Inc., 5100
West Sahara Boulevard, Suite 200, Las Vegas, Nevada 89146, Attention:
Office of the President and with a copy to Harrah's Operating Company,
Inc., 5100 West Sahara Boulevard, Suite 200, Las Vegas, Nevada 89146,
Attention: General Counsel, or
(ii) if to Landlord, at Landlord's address set forth in the
first paragraph of this Lease, with a copy to Baker, Donelson, Bearman
& Caldwell, 2000 First Tennessee Building, 165 Madison Avenue, Memphis,
Tennessee 38103, Attn: Frank L. Watson, Jr., and with a copy to any
Mortgagee who may have requested the same, by Notice given in
accordance with the provisions of this Article 26, at the address
designated by such Mortgagee, or
to such other address(es) as either Landlord or Tenant may designate as its new
address(es) for such purpose by notice given to the other in accordance with the
provisions of this Article 26.
(b) Notices shall be deemed to have been rendered or given (i) on the
date delivered, if delivered by hand, or (ii) the day after shipment, if sent by
overnight courier service, or (iii) three (3) days after mailing, if mailed as
provided in Section 26.1(a). Notice given by counsel for either party on behalf
of such party or by the Manager on behalf of Landlord shall be deemed valid
notices if addressed and sent in accordance with the provisions of this Article.
Section 26.2. Notwithstanding the provisions of Section 26.1, Notices
requesting services for Overtime Periods pursuant to Article 27 may be given by
delivery to the Building Manager or any other person in the Building designated
by Landlord to receive such Notices, and bills may be rendered by delivering
them to the Premises.
ARTICLE XXVII
SERVICES AND EQUIPMENT
Section 27.1. Landlord shall, at Landlord's expense:
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(a) Provide passenger elevator service to the Premises on Business Days
during Operating Hours and, subject to Section 27.3, have one passenger elevator
on call at all other times.
(b) Furnish and distribute to the Premises, through the HVAC System,
during Operating Hours, air-conditioning, and heat or ventilation, as needed;
provided that Tenant shall, at all times, cooperate fully with Landlord and
abide by all of the Rules and Regulations which Landlord may prescribe for the
proper functioning of the HVAC System. Tenant hereby expressly waives any claims
against Landlord arising out of the cessation of operation of the HVAC System,
or the suitability of the Premises when the same is not in operation, whether
due to normal scheduling or the reasons set forth in Section 27.3. Landlord will
not be responsible for the failure of the HVAC System if such failure results
from the occupancy of the Premises by more persons than the number of persons
for which HVAC System is designed. If Tenant occupies the Premises at an
occupancy rate of greater than that for which the HVAC System was designed, or
if Tenant's partitions are arranged in such a way as to interfere with the
normal operation of the HVAC System, Landlord may elect to make changes to the
HVAC System or the ducts through which it operates required by reason thereof,
and the cost thereof shall be reimbursed by Tenant to Landlord as Additional
Rent within ten (10) days after presentation of a bill therefor. Landlord,
throughout the Term, shall have free access to all mechanical installations of
Landlord, including but not limited to air cooling, fan, ventilating and machine
rooms and electrical closets, and Tenant shall not construct partitions or other
obstructions that may interfere with Landlord's free access thereto, or
interfere with the moving of Landlord's equipment to and from the enclosures
containing said installations. Neither Tenant nor its agents, employees or
contractors shall at any time enter the said enclosures or tamper with, adjust,
touch or otherwise in any manner affect said mechanical installations.
Landlord's obligations under this Section 27.1 and under Section 27.2 are
subject to applicable Requirements that may limit the hours or the extent to
which Landlord is permitted to supply HVAC.
(c) Furnish hot and cold water for ordinary drinking, cleaning and
lavatory purposes.
(d) Provided Tenant shall keep the Premises in order, Landlord, at
Landlord's expense, shall cause the Premises, excluding any portions thereof
used as secured areas, to be cleaned on Business Days in accordance with the
cleaning
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specifications annexed to this Lease as Exhibit "D." If, however, any additional
cleaning of the Premises is to be done by Tenant, it shall be done at Tenant's
sole expense, in a manner reasonably satisfactory to Landlord and no one other
than persons approved by Landlord shall be permitted to enter the Premises or
the Building for such purpose. Tenant shall pay to Landlord the cost of removal
of any of Tenant's refuse and rubbish from the Premises and the Building (i) to
the extent that the same, in any one day, exceeds the average daily amount of
refuse and rubbish usually attendant upon the use of such Premises as offices,
as described and included in Landlord's cleaning contract for the Building or
recommended by Landlord's cleaning contractor, and (ii) related to or deriving
from the preparation or consumption of food or drink. Bills for the same shall
be rendered by Landlord to Tenant at such time as Landlord may elect and shall
be due and payable as Additional Rent within ten (10) days after the time
rendered.
Section 27.2. Landlord reserves the right to stop the furnishing of the
Building services and to stop service of the Building Systems, when necessary,
by reason of accident, or emergency, or for Alterations in the judgment of
Landlord desirable or necessary to be made, until said Alterations shall have
been completed; and Landlord shall have no responsibility or liability for
failure to supply air-conditioning, ventilation, heat, elevator, plumbing,
electric, or other services during said period or when prevented from so doing
by strikes, lockouts, difficulty of obtaining materials, accidents or by any
cause beyond Landlord's reasonable control, or by Requirements or failure of
electricity, water, steam, coal, oil or other suitable fuel or power supply, or
inability by exercise of reasonable diligence to obtain electricity, water,
steam, coal, oil or other suitable fuel or power. No diminution or abatement of
rent or other compensation shall or will be claimed by Tenant as a result
therefrom, nor shall this Lease or any of the obligations of Tenant be affected
or reduced by reason of such interruption, curtailment or suspension, nor shall
the same constitute an actual or constructive eviction; provided, however, that
if the cessation is caused by Landlord and continues for more than three (3)
days, then Fixed Rent shall abate on a per diem basis from the fourth (4th) day
until Landlord restores the Building services.
Section 27.3. Tenant agrees to abide by all requirements which Landlord
may prescribe for the proper protection and functioning of its Building Systems
and the furnishing of the Building services. Tenant further agrees to cooperate
with
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Landlord in any conservation effort pursuant to a program or procedure
promulgated or recommended by ASHRAE or any Requirements.
ARTICLE XXVIII
[RESERVED]
ARTICLE XXIX
[RESERVED]
ARTICLE XXX
SIGNS
Section 30.1. Landlord may replace the signs at the main entrance which
serves the Real Property and Adjacent Property with signs which identify the
businesses on both such properties, and may install signage at the driveway
intersections on the Real Property and Adjacent Property which direct traffic to
the appropriate businesses and parking area, all at Tenant's reasonable cost and
expense, except that Landlord shall pay for signs with respect to the Adjacent
Property. The location, size, materials, quality, design, color and lettering of
any signs desired by Tenant shall be subject to the prior approval of Landlord
and shall be in compliance with the standards set forth in Tenant Design and
Construction Standards.
ARTICLE XXXI
BROKER
Section 31.1. Landlord represents and warrants to Tenant that Landlord
has not dealt with any broker or other Person who might claim a leasing
commission in connection with this Lease other than the Broker(s). Landlord
acknowledges that it is solely responsible to pay the leasing commissions due to
the Broker in connection with the execution of this Lease. Tenant represents and
warrants to Landlord that Tenant has not dealt with any broker or other Person
who might claim a leasing commission in connection with this Lease. The
execution and delivery of this Lease by Tenant shall be conclusive evidence that
Tenant acknowledges that Landlord has relied upon the foregoing representation
and warranty. Tenant shall indemnify
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and hold harmless Landlord from and against any and all claims for commission,
fee or other compensation by any Person (other than Broker) who claims to have
dealt with Tenant in connection with this Lease and for any and all costs
incurred by Landlord in connection with such claims, including, without
limitation, attorneys' fees and disbursements. The execution and delivery of
this Lease by Landlord shall be conclusive evidence that Landlord acknowledges
that Tenant has relied upon the foregoing representation and warranty. Landlord
shall indemnify and hold harmless Tenant from and against any and all claims for
commission, fee or other compensation by any Person (including Broker) who
claims to have dealt with Landlord in connection with this Lease and for any and
all costs incurred by Tenant in connection with such claims, including, without
limitation, attorneys' fees and disbursements. This provision shall survive the
expiration or earlier termination of this Lease.
ARTICLE XXXII
INDEMNITY
Section 32.1. Tenant shall indemnify and save harmless the Landlord
Indemnitees from and against (a) all claims of third parties of whatever nature
against the Landlord Indemnitees arising from any act, omission or negligence of
Tenant or Persons Within Tenant's Control, (b) all claims of third parties
against the Landlord Indemnitees arising from any accident, injury or damage
whatsoever caused to any such third party or such party's property and occurring
in or about the Premises during the Term or during Tenant's occupancy of the
Premises, unless and to the extent caused by the negligence or willful
misconduct of Landlord or its principals, officers or employees, (c) all claims
of third parties against the Landlord Indemnitees arising from any accident,
injury or damage occurring outside of the Premises but anywhere within or about
the Real Property, where such accident, injury or damage results or is claimed
to have resulted from an act, omission or negligence of Tenant or Persons Within
Tenant's Control, and (d) any breach, violation or non-performance of any
covenant, condition or agreement contained in this Lease to be fulfilled, kept,
observed and performed by Tenant except as otherwise provided in this Lease;
provided, however, that the indemnity and save harmless provision set out in
this Section 32.1 and 32.2 shall have no effect to the extent that the Landlord
Indemnitees are protected by insurance maintained under the provisions of
Article XI hereof. This indemnity and hold harmless agreement shall include
indemnity from and against any and all liability, fines, suits, demands, costs
and expenses of
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any kind or nature (including, without limitation, attorneys' fees and
disbursements) incurred in or in connection with any such claim or proceeding
brought thereon, and the defense thereof.
Section 32.2. If any claim, action or proceeding is made or brought
against any Landlord Indemnitee, against which claim, action or proceeding
Tenant is obligated to indemnify such Landlord Indemnitee pursuant to the terms
of this Lease, then, upon demand by the Landlord Indemnitee, Tenant, at its sole
cost and expense, shall resist or defend such claim, action or proceeding in the
Landlord Indemnitee's name, if necessary, by such attorneys as the Landlord
Indemnitee may select. The provisions of this Article 32 shall survive the
expiration or earlier termination of this Lease.
Section 32.3 Landlord shall indemnify and save harmless the Tenant
Indemnitees from and against (a) all claims of third parties of whatever nature
against the Tenant Indemnitees arising from any act, omission or negligence of
Landlord or Persons Within Landlord's Control, (b) all claims of third parties
against the Tenant Indemnitees arising from any accident, injury or damage
whatsoever caused to any such third party or such party's property and occurring
in or about the Premises during the Term or during Tenant's occupancy of the
Premises where such accident, injury or damage results or is claimed to have
resulted from an act or omission or negligence of Landlord or Persons Within
Landlord's Control, (c) all claims of third parties against the Tenant
Indemnitees arising from any accident, injury or damage occurring outside of the
Premises but anywhere within or about the Real Property, unless and to the
extent caused by the negligence or willful misconduct of Tenant or its
principals, officers or employees, and (d) any breach, violation or
non-performance of any covenant, condition or agreement in this Lease to be
fulfilled, kept, observed and performed by Tenant, except as otherwise provided
in this Lease; provided, however, that the indemnity and save harmless provision
set out in this Section 32.3 and 32.4 shall have no effect to the extent that
Tenant Indemnitees are protected by insurance maintained under the provisions of
Article XI hereof. This indemnity and hold harmless agreement shall include
indemnity from and against any and all liability, fines, suits, demands, costs
and expenses of any kind or nature (including, without limitation, attorneys'
fees and disbursements) incurred in or in connection with any such claim or
proceeding brought thereon, and the defense thereof.
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Section 32.4 If any claim, action or proceeding is made or brought
against any Tenant Indemnitee, against which claim, action or proceeding
Landlord is obligated to indemnify such Tenant Indemnitee pursuant to the terms
of this Lease, then, upon demand by the Tenant Indemnitee, Landlord, at its sole
cost and expense, shall resist or defend such claim, action or proceeding in the
Tenant Indemnitee's name, if necessary, by such attorneys as the Tenant
Indemnitee may select. The provisions of this Article 32 shall survive the
expiration or earlier termination of this Lease.
ARTICLE XXXIII
[RESERVED]
ARTICLE XXXIV
[RESERVED]
ARTICLE XXXV
[RESERVED]
ARTICLE XXXVI
COVENANT OF QUIET ENJOYMENT
Section 36.1. Landlord covenants that, upon Tenant paying the Fixed
Rent and Additional Rent and observing and performing all the terms, agreements,
covenants, provisions and conditions of this Lease on Tenant's part to be
observed and performed, Tenant may peaceably and quietly enjoy the Premises,
subject nevertheless to the terms and conditions of this Lease; provided,
however, that no impairment or deprivation of Tenant's use of the Premises which
results from a violation of Restrictive Covenants shall be construed as a breach
of this covenant nor permit abatement of Rental due hereunder unless such
violation results from acts or neglect of Landlord in which Tenant played no
part; provided further that no eviction of Tenant by reason of the foreclosure
of any Mortgage now or hereafter affecting the Premises, shall be construed as a
breach of this covenant nor shall any action by reason thereof be brought
against Landlord;
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and provided further that this covenant shall bind and be enforceable against
Landlord or any successor to Landlord's interest, subject to the terms hereof,
only so long as Landlord or any successor to Landlord's interest, is in
possession and is collecting rent from Tenant but not thereafter.
ARTICLE XXXVII
MISCELLANEOUS
Section 37.1. Landlord retains all air rights over the Premises. Tenant
may not place anything on or attach anything to the roof of the Premises without
first obtaining Landlord's written consent, which consent may be granted or
withheld in Landlord's reasonable discretion.
Section 37.2. The obligations of Landlord under this Lease shall not be
binding upon Landlord named herein after the sale, conveyance, assignment or
transfer by such Landlord (or upon any subsequent landlord after the sale,
conveyance, assignment or transfer by such subsequent landlord) of its interest
in the Building or the Real Property, as the case may be, and in the event of
any such sale, conveyance, assignment or transfer, Landlord shall be and hereby
is entirely freed and relieved of all covenants and obligations of Landlord
under this Lease thereafter arising, and the transferee shall be deemed to have
assumed, subject to the remaining provisions of this Section 37.2, all
obligations of the Landlord under this Lease arising after the effective date of
the transfer. No trustee, partner, shareholder, director or officer of Landlord,
or of any partner or shareholder of Landlord (collectively, the "Parties") shall
have any direct or personal liability for the performance of Landlord's
obligations under this Lease, and Tenant shall look solely to Landlord's
interest in the Building to enforce Landlord's obligations hereunder and shall
not otherwise seek any damages against Landlord personally or any of the Parties
whatsoever.
Section 37.3. [RESERVED]
Section 37.4. The parties shall prepare and sign a suitable memorandum
of this Lease for recordation. This Lease shall not be recorded.
Section 37.5. Except as otherwise expressly stated in this Lease, any
consent or approval required to be obtained from Landlord may be granted by
Landlord in its sole discretion.
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Section 37.6. [RESERVED]
Section 37.7. If Tenant shall remain in possession of the Premises
after the Expiration Date, without the execution by both Tenant and Landlord of
a new lease, Tenant, at the election of Landlord, shall be deemed to be
occupying the Premises as a Tenant from month-to-month, at a monthly rental
equal to one and one-half (1.5) times the Rental payable during the last month
of the Term, subject to all the other conditions, provisions and obligations of
this Lease insofar as the same are applicable to a month-to-month tenancy.
Section 37.8. This Lease shall be construed without regard to any
presumption or other rule requiring construction against the party causing this
Lease to be drafted. If any words or phrases in this Lease are stricken out or
otherwise eliminated, whether or not any other words or phrases have been added,
this Lease shall be construed as if the words or phrases stricken out or
otherwise eliminated were never included in this Lease and no implication or
inference shall be drawn from the fact that such words or phrases were stricken
out or otherwise eliminated.
Section 37.9. [RESERVED]
Section 37.10. [RESERVED]
Section 37.11. If any of the provisions of this Lease, or the
application thereof to any person or circumstance, shall, to any extent, be
invalid or unenforceable, the remainder of this Lease, or the application of
such provisions to persons or circumstances other than those as to whom or which
it is held invalid or unenforceable, shall not be affected thereby and shall
remain valid and enforceable, and every provision of this Lease shall be valid
and enforceable to the fullest extent permitted by law.
Section 37.12. Landlord shall have the right to erect any gate, chain
or other obstruction or to close off any portion of the Real Property to the
public at any time to the extent necessary to prevent a dedication thereof for
public use.
Section 37.13. Tenant agrees that in all disputes arising directly or
indirectly out of this Lease Tenant shall be subject to service of process in,
and the jurisdiction of the courts of, the State of Tennessee. The provisions of
this Section 37.13 shall survive the expiration of this Lease.
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Section 37.14. This Lease contains the entire agreement between the
parties and all prior negotiations and agreements are merged into this Lease.
Except as provided in Section 37.6, this Lease may not be changed, abandoned or
discharged, in whole or in part, nor may any of its provisions be waived except
by a written agreement that (a) expressly refers to this Lease, (b) is executed
by the party against whom enforcement of the change, abandonment, discharge or
waiver is sought, and (c) is permissible under the Mortgage(s).
Section 37.15. Any apportionment or prorations of Rental to be made
under this Lease shall be computed on the basis of a three hundred sixty (360)
day year, with twelve (12) months of thirty (30) days each.
Section 37.16. The laws of the State of Tennessee applicable to
contracts made and to be performed wholly within the State of Tennessee shall
govern and control the validity, interpretation, performance and enforcement of
this Lease.
Section 37.17. Tenant warrants and represents that it is duly
incorporated under the laws of the State of Delaware and is duly qualified to do
business in the State of Tennessee (a copy of evidence thereof to be supplied to
Landlord upon request); and that each person executing this Lease on behalf of
Tenant is an officer of Tenant and that he or she is duly authorized to execute,
acknowledge and deliver this Lease to Landlord (a copy of a resolution to that
effect to be supplied to Landlord upon request).
Section 37.18. The captions are inserted only as a matter of
convenience and for reference and in no way define, limit or describe the scope
of this Lease nor the intent of any provision thereof.
Section 37.19. The covenants, conditions and agreements contained in
this Lease shall bind and inure to the benefit of Landlord and Tenant and their
respective legal representatives, successors, and, except as otherwise provided
in this Lease, their assigns.
Section 37.20. For the purposes of this Lease and all agreements
supplemental to this Lease, unless the context otherwise requires:
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(a) The words "herein", "hereof", "hereunder" and "hereby" and
words of similar import shall be construed to refer to this Lease as a
whole and not to any particular Article or Section unless expressly so
stated.
(b) Reference to "termination of this Lease" or "expiration of
this Lease" and words of like import includes expiration or sooner
termination of this Lease and the Term and the estate hereby granted or
cancellation of this Lease pursuant to any of the provisions of this
Lease or to law. Upon the termination of this Lease, the Term and
estate granted by this Lease shall end at noon on the date of
termination as if such date were the Fixed Expiration Date, and neither
party shall have any further obligation or liability to the other after
such termination except (i) as shall be expressly provided for in this
Lease, and (ii) for such obligations as by their nature under the
circumstances can only be, or by the provisions of this Lease, may be,
performed after such termination, and, in any event, unless expressly
otherwise provided in this Lease, any liability for a payment (which
shall be apportioned as of such termination) which shall have accrued
to or with respect to any period ending at the time of termination
shall survive the termination of this Lease.
(c) Words and phrases used in the singular shall be deemed to
include the plural and vice versa, and nouns and pronouns used in any
particular gender shall be deemed to include any other gender.
Section 37.21. All exhibits attached to this Lease are
incorporated herein and Tenant agrees to execute Exhibit "H" upon
Landlord's request without unreasonable delay.
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IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Lease
as of the day and year first above written.
RBM CHERRY ROAD PARTNERS, a
Tennessee general partnership
BY: RBM Venture Company, a Delaware
corporation, its managing general
partner
By:
------------------------------------
Its: Vice President
------------------------------------
LANDLORD
HARRAH'S OPERATING COMPANY, INC.
By:
------------------------------------
Its: Chief Financial Officer
------------------------------------
TENANT
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Exhibit "A"
Legal Description
PROPERTY LOCATED IN SHELBY COUNTY, TENNESSEE:
PARCEL I
BEING A PART OF THE HARRAH'S ENTERTAINMENT, INC. CORPORATE HEADQUARTERS
P.D. AS RECORDED IN PLAT BOOK 155, PAGE 8, ALSO BEING A PART OF THE
HOLIDAY INNS, INC. PROPERTY AS RECORDED IN INSTRUMENT U7-2133 AT THE
SHELBY COUNTY REGISTER'S OFFICE, LOCATED IN MEMPHIS, TENNESSEE AND
BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS:
BEGINNING AT A POINT ON THE NORTH LINE OF HAVERHILL ROAD (50' R.O.W.),
25.15 FEET WEST OF THE WEST LINE OF CHERRY ROAD (R.O.W. VARIES); THENCE
ALONG SAID NORTH LINE N89 38'59"W A DISTANCE OF 986.49 FEET TO A POINT
OF CURVATURE; THENCE ALONG A CURVE TO THE RIGHT HAVING A RADIUS OF
257.02 FEET, AN ARC LENGTH OF 120.30 FEET, (CHORD N76 22'21"W - 119.20
FEET) TO A FOUND CROW'S MARK AT THE SOUTHEAST CORNER OF THE JOEL M. COX
PROPERTY (INST. S9-0045); THENCE N37 29'55"E ALONG THE EAST LINE OF
SAID COX PROPERTY A DISTANCE OF 163.78 FEET TO A POINT, SAID POINT
BEING THE NORTHEAST CORNER OF SAID JOEL M. COX PROPERTY, ALSO BEING THE
SOUTHEAST CORNER OF LOT 31, AUDUBON PARK SUBDIVISION (PB. 14, PG. 30);
THENCE ALONG THE EAST LINE OF SAID AUDUBON PARK SUBDIVISION N0 13'10"W
A DISTANCE OF 579.13 FEET TO A POINT, SAID POINT BEING ON THE EAST LINE
OF LOT 26 OF AUDUBON PARK SUBDIVISION (PB. 14, PG. 30) AND 15.11 FEET
SOUTH OF THE NORTH LINE OF SAID LOT 26; THENCE ALONG THE FOLLOWING
COURSES AND DISTANCES: S59 52'06"E A DISTANCE OF 225.85 FEET TO A
POINT; THENCE N30 15'47"E A DISTANCE OF 48.67 FEET TO A POINT; THENCE
S86 44'15"E A DISTANCE OF 75.95 FEET TO A POINT; THENCE S3 15'45"W A
DISTANCE OF 27.58 FEET TO A POINT; THENCE S86 44'15"E A DISTANCE OF
173.28 FEET TO A POINT; THENCE N27 16'38"E A DISTANCE OF 188.13 FEET TO
A POINT; THENCE S89 37'17"E A DISTANCE OF 222.36 FEET TO A POINT;
THENCE N0 00'14"W A DISTANCE OF 267.93 FEET TO A POINT ON THE SOUTH
LINE OF THE DIXON GALLERY AND GARDENS PROPERTY (K8-7671); THENCE ALONG
SAID SOUTH LINE S89 37'17"E A DISTANCE OF 264.26 FEET TO A FOUND AXLE
ON THE WEST LINE OF SAID CHERRY ROAD, SAID POINT ALSO BEING THE
SOUTHEAST CORNER OF SAID DIXON GALLERY AND GARDENS PROPERTY; THENCE
ALONG SAID WEST LINE
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S0 00'14"E A DISTANCE OF 905.25 FEET TO A POINT; THENCE N98 38'59"W A
DISTANCE OF 10.00 FEET TO A POINT; THENCE S0 00'14E A DISTANCE OF
131.85 FEET TO A POINT OF CURVATURE; THENCE ALONG A CURVE TO THE RIGHT
HAVING A RADIUS OF 25.00 FEET, AN ARC LENGTH OF 39.42 FEET (CHORD
S45 10'23"W - 35.46 FEET) TO THE POINT OF BEGINNING.
PARCEL II
The property on which exists a three (3) story office building is situated in
Memphis, Shelby County, Tennessee, and is described as follows:
BEING A PART OF THE HARRAH'S ENTERTAINMENT, INC. CORPORATE HEADQUARTERS
P.D. AS RECORDED IN PLAT BOOK 155, PAGE 8, ALSO BEING THE HOLIDAY INN'S
INC. PROPERTY AS RECORDED IN INSTRUMENT U7-2133 AT THE SHELBY COUNTY
REGISTER'S OFFICE, LOCATED IN MEMPHIS, TENNESSEE AND BEING MORE
PARTICULARLY DESCRIBED AS FOLLOWS:
COMMENCING AT A POINT ON THE CENTERLINE OF CHERRY ROAD (R.O.W. VARIES),
1087.24 FEET NORTH OF THE INTERSECTION OF HAVERHILL ROAD (50' R.O.W.)
AND SAID CHERRY ROAD; THENCE NO89 37'17"W A DISTANCE OF 30.00 FEET TO
A FOUND AXLE ON THE WEST LINE OF SAID CHERRY ROAD; SAID POINT ALSO
BEING THE SOUTHEAST CORNER OF THE DIXON GALLERY AND GARDENS PROPERTY
(INST. K8-7671); THENCE N89 37'17"W A DISTANCE OF 264.26 FEET TO THE
POINT OF BEGINNING, SAID POINT BEING ON THE SOUTH LINE OF SAID DIXON
GALLERY AND GARDENS PROPERTY; THENCE ALONG THE FOLLOWING COURSES AND
DISTANCES: S0 00'14"E A DISTANCE OF 267.93 FEET TO A POINT; THENCE
N89 37'17"W A DISTANCE OF 222.36 FEET TO A POINT; THENCE S27 16'38"W A
DISTANCE OF 188.13 FEET TO A POINT; THENCE N86 44'15"W A DISTANCE OF
173.28 FEET TO A POINT; THENCE N3 15'45"E A DISTANCE OF 27.58 FEET TO A
POINT; THENCE N86 44'15"W A DISTANCE OF 75.95 FEET TO A POINT; THENCE
S30 15'47"W A DISTANCE OF 48.67 FEET TO A POINT; THENCE N59 52'06"W A
DISTANCE OF 225.85 FEET TO A POINT ON THE EAST LINE OF LOT 26 OF
AUDUBON PARK SUBDIVISION (PB. 14, PG. 30), SAID POINT BEING 15.11 FEET
SOUTH OF THE NORTH LINE OF SAID LOT 26; THENCE ALONG SAID EAST LINE AND
THE EAST LINE OF THE RESUBDIVISION OF LOTS 21-25, AUDUBON PARK
SUBDIVISION (PB. 15, PG. 4) N0 13'10"W A DISTANCE OF 325.74 FEET TO A
FOUND AXLE, SAID AXLE ALSO BEING THE SOUTHWEST CORNER OF SAID DIXON
GALLERY AND GARDENS PROPERTY; THENCE ALONG THE SOUTH LINE OF SAID DIXON
GALLERY AND GARDENS PROPERTY
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S89 37'17"E A DISTANCE OF 776.93 FEET TO THE POINT OF BEGINNING.
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Exhibit "B"
Plat Showing Building and Building No. 2
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Exhibit "C"
Rules and Regulations
Definitions 1. Wherever in these Rules and
Regulations the word "Tenant" is
used, it shall be taken to apply to
and include the Tenant and his
agents, employees, invitees,
licensees, visitors, subtenants and
contractors, and shall be deemed of
such number and gender as the
circumstances require. The word
"Landlord" shall be taken to
include the employees and agents of
Landlord.
Obstructions 2. The streets, sidewalks, entrances,
driveways, halls, passages,
elevators, stairways and Common
Areas provided by Landlord shall
not be obstructed by Tenant.
Washrooms 3. Toilet rooms, water-closets and
other water apparatus shall not be
used for any purposes other than
those for which constructed.
Fire Prevention 4. Tenant shall not do anything in the
Premises or bring or keep anything
therein, which shall in any way
increase or tend to increase the
risk of fire or the rate of fire
insurance, or which shall conflict
with the regulations of the Fire
Department or the fire laws, or
with the rules and regulations of
the City of Memphis, or equivalent
bodies, or with any insurance
policy on the Building or any part
thereof, or with any law,
ordinance, rule or regulation
affecting the occupancy and use the
Premises, now existing or hereafter
enacted or promulgated by any
public authority or by the City of
Memphis or any equivalent body.
Tenant's Equipment 5. It is Tenant's responsibility to
properly operate all business
equipment and coffee machines and
to service such equipment and
machines.
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General 6. In order to insure proper use and
Prohibitions care of the Premises, Tenant shall
not, without the consent of
Landlord or unless otherwise
permitted in the Lease:
a. Keep or permit animals or birds in
the Building except as required for
handicapped persons.
b. Use the Premises as sleeping
apartments.
c. Allow any sign, advertisement or
notice to be fixed to the Building,
inside or outside, without
Landlord's written consent.
d. Make improper noise or disturbances
of any kind, or otherwise do
anything to disturb other tenants
or tend to injure the reputation of
the Building.
e. Mark or defile elevators, water
closets, toilet rooms, walls,
windows, doors or any other parts
of the Building.
f. Place anything on the outside of
the Building, including roof
setbacks, window ledges and other
projections; or drop anything from
the windows, stairways or parapets;
or place trash or other matter in
the halls, stairways, elevators or
light wells of the Building.
g. Cover, block or obstruct any
window, skylight, door or transom
or any other surface that admits
light, except building standard
blinds.
h. Interfere with the heating or
cooling apparatus.
i. Allow anyone but Landlord's
employees to clean Premises.
j. Leave open doors to the Premises at
any time except as otherwise
approved by Landlord, and same
shall be locked at all times when
Premises are not occupied.
k. Install any shades, blinds or
awnings without consent of the
Landlord, except building standard
blinds.
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l. Use any electric heating device,
such as a space heater, without
consent of the Landlord.
m. Install call boxes, or any kind of
wire in or on the Building without
Landlord's permission and
direction.
n. Manufacture any commodity, or
prepare or dispense any foods,
beverages, or alcoholic beverages,
tobacco, drugs, flowers, or other
commodities or articles without the
written consent of Landlord. All
food and beverage vending machines
will be provided by the Landlord
Approved Contractor.
o. Secure duplicate keys for Premises
or toilets, except from Landlord,
or change the locks of any doors to
or in the Premises.
p. Give employees or other persons
permission to go upon or erect or
place any antennae, tower or other
structure or equipment on the roof
of the Building without the written
consent of the Landlord.
q. Place door mats in public corridors
(i.e., within the Common Area)
without consent of Landlord.
r. Schedule, receive or accept freight
other than Monday through Friday,
excluding holidays, between the
hours of 7:00 a.m. to 7:00 p.m.
s. Leave the Land and enter the
Adjacent Property, except via the
designated entrance driveway
between the Land and Cherry Road,
but then only during the course of
arriving and leaving for work
during Operating Hours.
Business 7. Business machines and mechanical
Machines equipment which cause vibration,
noise, cold or heat that may be
transmitted to Building structure
or to any leased space outside
Premises shall be placed and
maintained by Tenant, at its sole
cost and expense, in settings of
cork, rubber,
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or spring type vibration
eliminators sufficient to absorb
and prevent such vibration, noise,
cold or heat. No business machines
or mechanical equipment which
require above normal business
machine level or high amounts of
electricity shall be used or
installed in the Premises without
Landlord's written consent and if
installed, all electricity used
shall be metered and paid by Tenant
as Additional Rent.
Movement of 8. Landlord reserves the right to
Equipment designate the time when and the
method whereby freight, small
office equipment, furniture, safes
and other like articles may be
brought into, moved, or removed
from the Building or Premises, and
to designate the location for
temporary disposition of such
items.
Tenant Moves 9. Landlord's tenant move in/move out
policy is as follows:
a. All moves will be done at such
times as shall not unduly interfere
with other tenants or occupants of
the Real Property or Adjacent
Property.
b. Landlord shall approve the moving
contractor and such contractor
shall coordinate all aspects of the
move with Landlord.
c. Tenant's contractor shall provide a
certificate of insurance evidencing
liability, property damage and
workmen's compensation insurance of
not less than $1,000,000, naming
Landlord as additional insured.
d. Tenant's contractor shall use
appropriate padding and masonite
floor covering to protect all
surfaces including door jambs,
subject to Landlord's inspection
and approval.
e. Tenant will reimburse Landlord for
all security provided.
f. Tenant will be responsible for any
damages during the move.
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Rights Reserved 10. Without abatement or diminution in
to Landlord rent, Landlord reserves and shall
have the following additional
rights:
a. To install and maintain a sign or
signs on the exterior of the
Building.
b. To designate all sources furnishing
sign painting and lettering, ice,
drinking water, towels and toilet
supplies and other like services
used on the Premises.
c. At any time or times Landlord
either voluntarily or pursuant to
governmental requirement, may, at
Landlord's own expense, make
repairs, alterations or
improvements in or to the Building
or any part thereof and during
alterations, any close entrances,
doors, windows, corridors,
elevators or other facilities,
provided that such acts shall not
unreasonably interfere with
Tenant's use and occupancy of the
Premises as a whole.
d. During the last six (6) months of
the term or any part thereof, if
during or prior to that time the
Tenant vacates the Premises, to
decorate, remodel, repair, alter or
otherwise prepare the Premises for
re-occupancy.
e. To constantly have pass keys and
Security System clearance to the
Premises.
f. Landlord may reasonably enter upon
the Premises and may exercise any
or all of the foregoing rights
hereby reserved without being
deemed guilty of an eviction or
disturbance of Tenant's use or
possession and without being liable
in any manner to the Tenant.
g. To access the Dixon Gallery and
Gardens via the Common Area.
Regulation 11. Landlord shall have the right to
Change make such other and further
reasonable rules and regulations as
in the judgment of Landlord, may
from time to time be needful for
the safety, appearance, care and
cleanliness of the Building and
Building No. 2 and for the
preservation
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of order therein, Landlord shall
not be responsible to Tenant for
any violation of rules and
regulations by other tenants or
occupants of the Real Property or
Adjacent Property.
Smoking Areas 12. Landlord shall have the right, from
time to time, to designate and
thereafter to change, alter or
redesignate, smoking and
non-smoking area(s) outside the
Building and shall further be
permitted to prohibit or limit such
activity in order to fully comply
with any applicable governmental
ordinance, law or regulation.
Tenant shall not permit any of its
employees, agents or invitees to
smoke except in the designated
smoking area(s) and, in any event,
never inside the Building.
Plumbing 13. Plumbing fixtures and appliances
shall be used only for purposes for
which constructed, and no
sweepings, rubbish, rags or other
unsuitable material shall be thrown
or placed therein. Damage resulting
to any such fixtures or appliances
from misuse by Tenant shall be
repaired and replaced at Tenant's
sole cost and expense, and Landlord
shall not in any case be
responsible therefor.
Parking 14. Tenant shall use best efforts to
cause Tenant's employees to park
their motor vehicles in those
portions of the parking area
designated by Landlord ("Tenant's
Parking Area").
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Access 15. Tenant shall access Tenant's
Parking Area and/or the Building
via the driveway designated on
Exhibit "C-1" which is attached
hereto and supplements these Rules
and Regulations.
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Exhibit "D"
Cleaning Specifications
Landlord agrees that, at its expense, it will do the following standard
janitorial work for the Premises.
I. General Space Cleaning - five (5) nights per week Monday thru Friday
A. Nightly
1. Empty and dust wipe all receptacles.
2. Replace plastic liners in waste receptacles as
required.
3. Remove waste to a compactor, hamper, or place waste
in bags and leave in a designated area.
4. Empty and damp-wipe ashtrays.
5. Clean entrance glass.
6. Clean glass in directories.
7. Spot clean all interior glass, including the glass
railing on the plaza and third floor.
8. Damp-wipe all glass top desks and tables.
9. Spot clean walls, doors, door frames and around light
switches.
10. Clean the elevators including walls, floors, doors,
lights, tracks and indicator panels.
11. Clean and polish stainless steel in the main lobby,
elevator lobbies, elevators, etc.
12. Damp-wipe spillages on furniture in lounge and
lunchroom areas. (Tenant shall be responsible for
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cleaning of dishes, refrigerators and other kitchen
appliances.)
13. Sanitize and polish all drinking fountains.
14. Vacuum all carpeted areas with particular attention
being paid to under desks, moveable furniture,
corners and edges, etc.
15. Spot clean carpet as needed.
16. Sweep all granite pavers and composition tile
flooring with a specially treated mop and buff.
17. Damp mop trackage and spillage as required.
18. Sweep cement stairways. Damp-mop as required.
19. Dust or damp-wipe handrails and metalwork as
required.
20. Sweep with specially treated mop, and wash floors in
service areas.
21. Upon the completion of cleaning, the cleaning
equipment will be stored neatly in a designated
location.
B. Monthly
1. Clean and polish desk tops.
2. Perform high dusting not reached in normal cleaning.
3. Dust Venetian blinds.
4. Spray buff vinyl tile flooring in tenant and service
areas.
C. Quarterly
1. Strip and wax all vinyl tile flooring in tenant and
service areas.
2. Vacuum upholstered chairs.
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II. Lavatories
A. Nightly
1. Empty waste and sanitary napkin disposal receptacles.
2. Replace plastic liners as required.
3. Clean commodes and urinals with a disinfectant.
4. Clean washbowls with a scouring powder.
5. Polish mirrors.
6. Polish all brightwork.
7. Spot clean ceramic tile walls and metal
partitions.
8. Floors to be swept, wet mopped and rinsed, using a
disinfectant detergent.
9. Fill all towel, toilet issue, sanitary napkin and
hand soap dispensers.
B. Monthly
1. Wash and disinfect ceramic tile walls and metal
partitions.
2. Wash interior of waste and sanitary napkin disposal
containers.
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Exhibit "E"
Rating Level Multiplier
For purposes of Section 2.6 of the Lease:
If HET's Corporate . . . then the
Credit Rating is . . . Rating Level Multiplier is:
BBB 0
BB 1.0
B 2.0
CCC 3.0
CC or lower 4.0
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Exhibit "F"
[RESERVED]
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Exhibit "G"
Tenant Design and Construction Standards
Tenant agrees to furnish Landlord the following information in
drawings, in accordance with the below-listed schedules.
1. PRELIMINARY DRAWINGS
No later than four (4) weeks prior to the projected construction
commencement date, Tenant shall furnish Landlord one (1) sepia and six
(6) complete sets of prints of -" scale preliminary drawings showing at
least the following information:
a. Floor plan including furniture layout, partition layout, door
layout, power and telephone outlet locations, items above
standard finish, floor loading information beyond 70 psf, etc.
b. Reflected ceiling plan including lighting layout, exit signs,
registers, grilles, diffusers, exhaust fans, ceiling breaks,
etc.
c. Written scope sheet of special Tenant mechanical and
electrical requirements and/or custom construction and finish
requirements.
d. Take-off sheet of building standard items shall be used.
2. ARCHITECTURAL WORKING DRAWINGS FOR CONSTRUCTION
No later than two (2) weeks prior to the projected construction
commencement date, Tenant shall furnish Landlord two (2) background
mylars of the partition and ceiling plans and one (1) sepia and two (2)
sets of prints of complete -" scale working drawings on or before
showing at least the following information and marked "issued for
engineering and Landlord review":
a. Location and type of all partitions and doors (specify
hardware and provide keying schedule), glass
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partitions, windows and glass doors (indicate framing sections
if not building standard).
b. Indication of all critical dimensions necessary for
construction.
c. Location of telephone equipment room accompanied by an
approval of the telephone company.
d. Location of all building standard and above building standard
electrical items including outlets, switches, telephone
outlets and lighting.
e. Location and type of equipment that require special
electrical; requirements including manufacturer's
specifications for use and operations.
f. Location, weight per square foot and description of any
exceptionally heavy equipment or filing system exceeding 75
psf live load including 20 psf for partitions.
g. Requirements for special air conditioning or ventilation
including occupancy information for each room and space.
h. Type and color of floor covering, wall covering, and building
standard and above-building standard paint or finishes.
i. Requirements for special plumbing including all line sizes,
fixtures and specifications.
j. Location and type of kitchen equipment including
specifications.
k. Details showing:
(1) Construction of all partition types;
(2) Head, jamb and sill sections with elevations for all
door types;
(3) Shelving, cabinet work and architectural millwork
with dimensions and dimensions of all equipment to be
built in;
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(4) Special corridor entrance with framing and support
requirements; and
(5) Bracing or support of special walls, glass
partitions, drapery track, etc.
3. MECHANICAL/ELECTRICAL WORKING DRAWINGS FOR CONSTRUCTION
No later than two (2) weeks prior to the projected construction
commencement date, Tenant shall furnish two (2) sets of prints of --"
scale mechanical/electrical working drawings which, among other things,
shall identify requirements beyond the building standard scope.
4. Within ten (10) days after the furnishing of any such drawings by
Tenant, Landlord shall approve, disapprove, or request further
information concerning the drawings submitted, indicating the reason
for any disapproval and specifying clearly the nature and scope of any
request for further information. In all events, Landlord shall use good
faith efforts to respond to such submissions by Tenant expeditiously so
as to not delay unnecessarily Tenant's construction of Alterations.
5. Tenant shall be responsible for obtaining city review and approval of
preliminary drawings (as referred to in paragraph 1 above). Tenant
shall make application and obtain a city building permit.
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Exhibit "H"
First American SNDA
SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
Building No. 1
THIS AGREEMENT, made as of the ----- day of October, 1999, by FIRST
AMERICAN NATIONAL BANK, with a place of business at 6000 Poplar Avenue, Suite
300, Memphis, Tennessee 38119 ("Mortgagee") and Harrah's Operating Company,
Inc., a Delaware corporation, having an office address at 5100 West Sahara
Avenue, Suite 200, Las Vegas, NV 89146 ("Tenant").
WITNESSETH:
WHEREAS, Mortgagee has entered into, or is about to enter into, a
mortgage loan transaction with RBM Cherry Road Partners, a Tennessee general
partnership, having an office address of 5810 Shelby Oaks Drive, Memphis, TN
38134 ("Landlord"); and
WHEREAS, Mortgagee is, or is to become, the beneficiary of a Deed of
Trust, Assignment of Rents and Security Agreement (said Deed of Trust,
Assignment of Rents and Security Agreement being hereinafter referred to as the
"Mortgage") covering that certain parcel of land owned by Landlord and described
on Exhibit "A" annexed hereto and made a part hereof, together with the
improvements erected thereon (said parcel of land and improvements thereon being
commonly known as 1023 Cherry Road, Memphis, TN 38117, hereinafter called the
"Improvements"); and
WHEREAS, by a certain Lease entered into between Landlord and Tenant
dated as of October 25, 1999 ("Lease"), Landlord leased to Tenant a portion of
the Improvements, to wit, the premises designated as floors one (1) through
three (3) of the three-story office building located at 1023 Cherry Road,
Memphis, TN 38117, generally depicted on Exhibit "B" annexed hereto and made a
part hereof (said premises being hereinafter called the "Demised Premises"); and
WHEREAS, a copy of the Lease has been delivered to Mortgagee, the
receipt of which is hereby acknowledged; and
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WHEREAS, the parties hereto desire to effect the subordination of the
Lease to the Mortgage and to provide for the non-disturbance of Tenant by the
holder of the Mortgage.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein contained, the parties hereto intending to be
legally bound hereby agree as follows:
1. Mortgagee hereby consents to and approves the Lease and the term
thereof, including any options to extend the term as set forth in the Lease, and
covenants and agrees that the exercise by Tenant of any of the rights, remedies,
and options therein contained shall not constitute a default under the Mortgage.
2. Tenant covenants and agrees with Mortgagee that the Lease is hereby
made, and shall continue hereafter to be, subject and subordinate to the lien of
the Mortgage, and to all modifications and extensions thereof, with the same
force and effect as if the Mortgage had been executed and delivered prior to the
execution and delivery of the Lease and without regard to the order of priority
of recording the Mortgage, subject, however, to the provisions of this
Agreement. Tenant shall take such steps and execute such documents from time to
time hereafter as Mortgagee may reasonably request in order to carry into effect
the provisions and intent of this Agreement and to confirm the subordination of
the Lease to the lien of the Mortgage subject to the terms hereof.
3. Tenant certifies that the Lease is presently in full force and
effect and unmodified and Tenant as of this date has no knowledge of any
default, charge, lien or claim of offset under the Lease.
4. The Tenant shall deliver to Mortgagee, within thirty (30) days after
receipt of a written request for same, further certifications that (i) the Lease
is then in full force and effect; (ii) there have been no modifications to the
Lease (except those specified therein); (iii) there is then no default, charge,
lien or claim of offset under the Lease (or stating any of the same which may be
claimed or known); (iv) not more than one month's installment of rent has been
paid in advance of the due date (or stating any such other payments, if made);
and (v) such other information as Mortgagee may reasonably request. For so long
as Tenant is not in default under the terms of the Lease
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and the Lease shall be in full force and effect, Mortgagee agrees that:
(a) Except as may be procedurally required by law, Tenant
shall not be named or joined as a party or otherwise in any suit, action or
proceeding for the foreclosure of the Mortgage or to enforce any rights under
the Mortgage or note or other obligation secured thereby. Nothing hereinabove
shall prohibit or prevent the Mortgagee from suing the Tenant for any default
(as defined in the Lease) by Tenant under the Lease.
(b) The possession by Tenant of the Demised Premises and
Tenant's rights thereto shall not be disturbed, affected or impaired by, nor
will the Lease, Tenant's rights thereunder, or the term thereof be terminated or
otherwise affected (i) by any suit, action or proceeding upon the Mortgage or
note or other obligation secured thereby, or for the foreclosure of the Mortgage
or the enforcement of any rights under the Mortgage or any other documents held
by the holder of the Mortgage, or (ii) by any judicial sale or execution or
other sale of the Demised Premises in connection with the Mortgage, or any deed
given in lieu of foreclosure, or (iii) by any default under the Mortgage or note
or other obligation secured thereby.
(c) Neither the Mortgage nor any other security instrument
executed in connection therewith shall cover or be construed as subjecting in
any manner to the lien thereof, any trade fixtures, equipment, inventory or
other personal property at any time furnished or installed by or for Tenant in
the Demised Premises unless the same are permanently affixed to the real estate
thereof. Tenant agrees that upon removal of any of its trade fixtures,
equipment, inventory or other personal property at any time furnished or
installed by or for Tenant in the Demised Premises, Tenant shall, at its
expense, repair all damage to the Demised Premises caused by any such removal.
5. If Mortgagee or any future holder of the Mortgage shall become the
owner of the Improvements by reason of foreclosure of the Mortgage or otherwise,
or if the Improvements shall be sold as a result of any action or proceeding to
foreclose the Mortgage, or transfer of ownership by deed given in lieu of
foreclosure, the Lease shall continue in full force and effect, without
necessity for executing any new lease, as a direct lease between Tenant and the
then owner of the Improvements, as
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"Landlord," upon all of the same terms, covenants, and provisions contained in
the Lease, and in such event:
(a) Tenant shall be bound to such new owner under all of the
terms, covenants, and provisions of the Lease for the remainder of the term
thereof (including also any extension periods, if Tenant elects or has elected
to exercise its option to extend the term) and Tenant hereby agrees to attorn to
such new owner and to recognize such new owner as "Landlord" under the Lease;
and
(b) Such new owner shall be bound to Tenant under all of the
terms, covenants, and provisions of the Lease for the remainder of the term
thereof (including also any extension periods, if Tenant elects or has elected
to exercise its options to extend the term) which such new owner hereby agrees
to assume and perform; and Tenant shall, from and after the date such new owner
succeeds to the interest of "Landlord" under the Lease, have the same remedies
against such new owner for any subsequently occurring breach of any covenant
contained in the Lease as Tenant might have had under the Lease against Landlord
if such new owner had not succeeded to the interest of Landlord, provided,
however, that such new owner shall not (i) be bound by any rent or additional
rent which Tenant might have paid for more than one month in advance to any
prior landlord (including Landlord); or (ii) be bound by any amendment or
modification of the Lease made without its consent.
6. Any notices or communications given under this Agreement shall be in
writing and shall be given by certified mail, return receipt requested, postage
prepaid, (a) if to Mortgagee, at the address for Mortgagee hereinabove set forth
or at such other address as Mortgagee may designate by notice to Tenant, or (b)
if to Tenant, at the address of Tenant as hereinabove set forth or at such
address as Tenant may designate by notice to Mortgagee.
7. Tenant agrees, by notice given in the manner provided in the Lease,
to give to Mortgagee at the address provided above a copy of any notice of
default served upon the Landlord by Tenant. Tenant shall give such notice to
Mortgagee simultaneously with the giving of any such notice of default to
Landlord. Tenant further agrees that if Landlord shall have failed to cure any
such default within such time as may be provided for in the
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Lease, then Tenant shall give Mortgagee written notice of such failure and
Mortgagee shall have an additional forty-five (45) days from receipt of such
notice within which to cure such default, or if such default cannot be cured
within that time, then within such additional time as may be necessary if within
such forty-five (45) days Mortgagee has commenced and is diligently pursuing the
remedies necessary to cure such default (including but not limited to
commencement of foreclosure proceedings, if necessary to effect such cure); and
in such event the Lease shall not be terminated and Tenant shall not be excused
or released from the timely performance and payment of all of Tenant's
obligations under the Lease, without setoff or deduction, while such remedies
are being so diligently pursued by Mortgagee. Mortgagee shall not be deemed, as
a result of any such curing or attempted curing, to have assumed or become
personally liable for Landlord's obligations under the Lease.
8. Upon notification by Mortgagee to the Tenant of the exercise of
Mortgagee's rights under the Mortgage to receive direct payment of rents or
other charges, Tenant shall pay rent and any other sums payable under the terms
of the Lease directly to Mortgagee. Notwithstanding the Tenant's payment to
Mortgagee of the rent and other sums payable under the terms of the Lease,
Tenant hereby acknowledges and agrees that Mortgagee shall have no duties or
obligations with respect to the Lease until Mortgagee has notified Tenant of
Mortgagee's assumption of the Landlord's obligations under the Lease.
9. This Agreement shall bind and inure to the benefit of and be binding
upon and enforceable by the parties hereto and their respective successors and
assigns.
10. This Agreement contains the entire agreement between the parties and
cannot be changed, modified, waived, or cancelled except by an agreement in
writing executed by the parties against whom enforcement of such modification,
change, waiver or cancellation is sought.
11. This Agreement and the covenants herein contained are intended to
run with and bind all lands affected thereby.
12. Any notices sent to Mortgagee herein shall include a copy to: J.
Philip Jones, Esq., Martin, Tate, Morrow & Marston, P.C., 6000 Poplar Avenue,
Suite 340, Memphis, TN 38119-3971.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
MORTGAGEE:
FIRST AMERICAN NATIONAL BANK
By:-----------------------------
Title:--------------------------
TENANT:
HARRAH'S OPERATING COMPANY, INC.
By:-----------------------------
Title:--------------------------
STATE OF TENNESSEE
COUNTY OF SHELBY
Before me, a Notary Public, of the State and County aforesaid,
personally appeared --------------------, with whom I am personally acquainted
(or proved to me on the basis of satisfactory evidence), and who, upon oath,
acknowledged himself/herself to be the ---------------------- of First American
National Bank, the within named bargainor, a national banking association, and
that he/she as such officer, being authorized so to do, executed the foregoing
instrument for the purpose therein contained, by signing the name of the
association by himself/herself as such officer.
WITNESS my hand and official seal this -----day of --------, 199--.
----------------------------
NOTARY PUBLIC
My commission expires:
- ----------------------
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STATE OF ----------------------
COUNTY OF ---------------------
Before me, a Notary Public, of the State and County aforesaid,
personally appeared --------------------, with whom I am personally acquainted
(or proved to me on the basis of satisfactory evidence) and who, upon oath,
acknowledged himself/herself to be the ------------------- of HARRAH'S OPERATING
COMPANY, INC., the within named bargainor, a Delaware corporation, and that
he/she as such officer, being authorized so to do, executed the foregoing
instrument for the purpose therein contained by signing the name of the
corporation by himself/herself as such officer.
WITNESS my hand and seal at office this ---- day of --------, 199--.
----------------------------
NOTARY PUBLIC
My commission expires:
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Exhibit "I"
Memphis and Shelby County Land Use Control Board
- Staff Report #16 Correspondence Item,
Case No.: P.D. 93-322
L.U.C.B. Meeting October 14, 1999
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EXHIBIT H
DEFERRED ROOF REPAIR
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<PAGE>
Exhibit 4(26)
AGREEMENT OF LEASE
between
RBM CHERRY ROAD PARTNERS
Landlord
and
HARRAH'S OPERATING COMPANY, INC.
Tenant
Dated: October 25, 1999
Premises:
Office Building #1
1023 Cherry Road
Memphis, Tennessee 38117
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
REFERENCE PAGE................................................................ 6
ARTICLE I
GLOSSARY...................................................................... 7
ARTICLE II
DEMISE, PREMISES, TERM, RENT.................................................. 14
ARTICLE III
ESCALATION.................................................................... 17
ARTICLE IV
USE AND OCCUPANCY............................................................. 27
ARTICLE V
ALTERATIONS................................................................... 28
ARTICLE VI
REPAIRS....................................................................... 32
ARTICLE VII
CONNECTING CORRIDORS.......................................................... 34
ARTICLE VIII
REQUIREMENTS OF LAW........................................................... 35
ARTICLE IX
SUBORDINATION................................................................. 37
ARTICLE X
RULES AND REGULATIONS......................................................... 41
ARTICLE XI
INSURANCE, PROPERTY LOSS OR DAMAGE, REIMBURSEMENT............................. 41
ARTICLE XII
DESTRUCTION BY FIRE OR OTHER CAUSE............................................ 45
ARTICLE XIII
EMINENT DOMAIN................................................................ 47
</TABLE>
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<TABLE>
<S>
<C>
ARTICLE XIV
ASSIGNMENT, SUBLETTING, MORTGAGE, ETC........................................ 48
ARTICLE XV
ACCESS TO PREMISES........................................................... 52
ARTICLE XVI
CERTIFICATE OF OCCUPANCY..................................................... 53
ARTICLE XVII
DEFAULT...................................................................... 54
ARTICLE XVIII
REMEDIES AND DAMAGES......................................................... 57
ARTICLE XIX
FEES AND EXPENSES............................................................ 60
ARTICLE XX
NO REPRESENTATIONS BY LANDLORD............................................... 61
ARTICLE XXI
END OF TERM.................................................................. 61
ARTICLE XXII
POSSESSION................................................................... 62
ARTICLE XXIII
NO WAIVER.................................................................... 62
ARTICLE XXIV
WAIVER OF TRIAL BY JURY...................................................... 63
ARTICLE XXV
INABILITY TO PERFORM......................................................... 64
ARTICLE XXVI
BILLS AND NOTICES............................................................ 64
ARTICLE XXVII
SERVICES AND EQUIPMENT....................................................... 65
ARTICLE XXVIII
[RESERVED]................................................................... 68
ARTICLE XXIX
[RESERVED]................................................................... 68
</TABLE>
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<TABLE>
<S> <C>
ARTICLE XXX
SIGNS........................................................................ 68
ARTICLE XXXI
BROKER....................................................................... 68
ARTICLE XXXII
INDEMNITY.................................................................... 69
ARTICLE XXXIII
[RESERVED]................................................................... 71
ARTICLE XXXIV
[RESERVED]................................................................... 71
ARTICLE XXXV
[RESERVED]................................................................... 71
ARTICLE XXXVI
COVENANT OF QUIET ENJOYMENT.................................................. 71
ARTICLE XXXVII
MISCELLANEOUS................................................................ 72
</TABLE>
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EXHIBITS:
Exhibit A Legal Description................................................A-1
Exhibit B Building and Building No. 2......................................B-1
Exhibit C Rules and Regulations............................................C-1
Exhibit D Cleaning Specifications..........................................D-1
Exhibit E Rating Level Multiplier..........................................E-1
Exhibit F [RESERVED].......................................................F-1
Exhibit G Tenant Design and Construction Standards.........................G-1
Exhibit H First American Subordination, Non-Disturbance and
Attornment Agreement........................................H-1
Exhibit I Memphis and Shelby County Land Use
Control Board - Staff Report #16
Correspondence Item, Case No.: P.D.
93-322, L.U.C.B. Meeting October 14, 1999...................I-1
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<PAGE>
AGREEMENT OF LEASE
AGREEMENT OF LEASE, made as of the 25th day of October, 1999, between
RBM CHERRY ROAD PARTNERS, a Tennessee general partnership, or its assigns,
having an address at 5810 Shelby Oaks Drive, Memphis, Tennessee 38134, as
Landlord, and HARRAH'S OPERATING COMPANY, INC., a Delaware corporation, having
an address at 1023 Cherry Road, Memphis, Tennessee 38117, as Tenant.
REFERENCE PAGE
In addition to other terms elsewhere defined in this Lease, the
following terms whenever used in this Lease shall have the meanings set forth in
this Reference Page.
(1) Premises: Floors one (1) through three (3)
of the Building, shown hatched
on the site plan attached hereto
as Exhibit "B," excluding,
however, any portions thereof
which are defined as Common
Area(s).
(2) Commencement Date: October 25, 1999
(3) Fixed Expiration Date: April 30, 2017
(4) Fixed Rent: (a) $1,183,180.00 per annum
($98,598.33 per month) from the
Commencement Date through
October 31, 2004;
(b) $1,307,413.90 per annum
($108,951.15 per month) from
November 1, 2004 through October
31, 2009; and
(c) $1,413,900.10 per annum
($117,825.00 per month) from
November 1, 2009 through the
Fixed Expiration Date, in each
case, as adjusted pursuant to
Section 2.6 of this Lease.
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(5) Fixed Rent Adjustment
Factor: $19,928.00.
(6) Tenant's Share: Fifty-two and one-tenth percent
(52.1%).
(7) Base Tax Factor: The Taxes applicable to the Real
Property equal to $221,848.00.
(8) Base Operating Factor: The Operating Expenses
applicable to the Real Property
equal to $583,835.00.
(9) Permitted Use: Executive and administrative
offices and operational
activities related to data
processing and information
technology, and for no other use
or purpose.
(10) Broker(s): CB Richard Ellis Memphis, LLC
(11) Security Deposit: NONE
(12) Landlord's Contribution: NONE
W I T N E S S E T H:
The parties hereto, for themselves, their legal representatives,
successors and assigns, hereby agree as follows:
ARTICLE I
GLOSSARY
The following terms shall have the meanings indicated below:
"Additional Rent" shall have the meaning set forth in Section 2.2.
"Adjacent Property" shall mean the real property south of and adjacent
to the Land, consisting of approximately nineteen and ninety-two-thousandths
(19.092) acres, being purchased by Landlord at or about the date of this Lease,
together with the
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<PAGE>
improvements thereon. The Adjacent Property is described as Parcel I in the
legal description attached hereto as Exhibit "A," and incorporated herein by
reference.
"Alterations" shall mean alterations, decorations, installations,
repairs, improvements, additions, replacements or other physical changes in or
about the Premises; provided, however, that the term "Alterations" shall exclude
those made by Landlord, if any, in accordance with any provisions of this Lease
in order to prepare the Premises for Tenant's initial occupancy.
"Applicable Rate" shall mean the lesser of (x) three percentage points
above the then current Base Rate, and (y) the maximum rate permitted by
applicable law.
"ASHRAE" shall mean the American Society of Heating, Refrigeration and
Air-Conditioning Engineers.
"Bankruptcy Code" shall mean 11 U.S.C. Section 101 ET SEQ., or any
statute, federal or state, of similar nature and purpose.
"Base Rate" shall mean the rate of interest publicly announced from
time to time by Citibank, N.A., or its successor, as its "base rate" (or such
other term as may be used by Citibank, N.A., from time to time, for the rate
presently referred to as its "base rate").
"Building" shall mean that certain three (3) story office building
located on the Land and having an address of 1023 Cherry Road, Memphis,
Tennessee 38117, and all of the equipment and other improvements and
appurtenances related thereto of every kind and description now located or
hereafter erected, constructed or placed upon the Land and any and all
alterations, renewals, and replacements thereof, additions thereto and
substitutions therefor. The Building is located as shown on Exhibit "B" attached
hereto.
"Building No. 2" shall mean that certain two (2) story office building
located on the Land and having an address of 1023 Cherry Road, Memphis,
Tennessee 38117, and all of the equipment and other improvements and
appurtenances related thereto of every kind and description now located or
hereafter erected, constructed or placed upon the Land and any and all
alterations, renewals, and replacements thereof, additions thereto and
substitutions therefor. Building No. 2 is located as shown on Exhibit "B"
attached hereto.
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"Building Standard Condition" shall mean the condition of the Building
as of the date of this Lease (reasonable wear and tear excepted), plus any
Alterations approved by Landlord, except to the extent Landlord's approval is
conditioned upon Tenant's removal of the approved Alteration prior to the
Expiration Date.
"Building Systems" shall mean the base building mechanical, electrical,
sanitary, heating, air conditioning, ventilating, elevator, plumbing,
life-safety and other service systems of the Building but shall not include the
Security System or installations made by Tenant after the date of this Lease.
For purposes of calculating Operating Expenses, the term "Building Systems"
shall include the base building mechanical, electrical, sanitary, heating, air
conditioning, ventilating, elevator, plumbing, life-safety and other service
systems of Building No. 2, but shall not include the Security System or
installations made by Tenant after the date of this Lease.
"Business Days" shall mean all days, excluding Saturdays, Sundays and
all days observed as holidays by the State of Tennessee or the federal
government.
"Common Area" shall mean any and all portions of the Land and the
improvements thereon not part of the Building or Building No. 2. Common Area
includes all landscaping, fountains and related water works, walkways,
sidewalks, parking lots, parking garages, parking decks, loading platforms,
driveways, trash removal facilities, mechanical, electrical and utility rooms
and service areas on the Land, regardless of whether they are part of the
Building or Building No. 2.
"Control" shall have the meaning set forth in Section 14.2.
"Deficiency" shall have the meaning set forth in Section 18.2.
"Escalation Rent" shall mean payments required to be made by Tenant
pursuant to Article 3.
"Event of Default" shall have the meaning set forth in Section 17.1.
"Expiration Date" shall mean the Fixed Expiration Date or such earlier
or later date on which the Term sooner or later ends pursuant to any of the
terms, conditions or covenants of this Lease (including, but not limited to, the
terms and provisions of Section 2.7 hereof) or pursuant to law.
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<PAGE>
"Fixed Rent Adjustment Factor" shall have the meaning set out on the
Reference Page.
"Government Authority (Authorities)" shall mean the United States of
America, the State of Tennessee, the County of Shelby, the City of Memphis, any
political subdivision thereof and any agency, department, commission, board,
bureau or instrumentality of any of the foregoing, now existing or hereafter
created, having jurisdiction over the Real Property or any portion thereof.
"HVAC" shall mean heat, ventilation and air conditioning.
"HVAC System" shall mean the Building Systems providing HVAC.
"Hazardous Materials" shall have the meaning set forth in Section 8.2.
"HET" shall mean Harrah's Entertainment, Inc., a Delaware corporation,
and any affiliated or related company or subsidiary whose financial information
is required by GAAP to be reported on Harrah's Entertainment Company, Inc.'s
consolidated financial statements.
"Land" shall mean the land containing approximately six and four
hundred five-thousandths (6.405) acres of real estate located in Shelby County,
Tennessee, and more particularly described as Parcel II in Exhibit "A."
"Landlord" on the date as of which this Lease is made, shall mean RBM
Venture Company, but thereafter, "Landlord" shall mean only the fee owner of the
Real Property.
"Landlord Indemnitees" shall mean Landlord, its trustees, partners,
shareholders, officers, directors, employees, agents and contractors and the
Manager (and the partners, shareholders, officers, directors and employees of
Landlord's agents and contractors and of the Manager).
"Landlord's Operating Statement" shall mean a statement containing a
computation of Escalation Rent due pursuant to the provisions of Section 3.3
furnished by Landlord to Tenant.
"Landlord's Statement" shall mean either a Landlord's Operating
Statement or a Landlord's Tax Statement.
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"Landlord's Tax Statement" shall mean a statement containing a
computation of Escalation Rent due pursuant to the provisions of Section 3.2
furnished by Landlord to Tenant.
"Leveraged Transaction" shall mean any transaction entered into by HET
whereby HET (a) uses debt or a financing source having characteristics of debt
to complete the transaction, or (b) as a result of the transaction, HET assumes
or becomes liable for debt or other obligations characteristic of debt which
were originally the obligations of the other party(ies) to the transaction.
"Manager" shall mean any person or entity with which Landlord from time
to time contracts for the management of the Building and/or Building No. 2.
"Mortgage(s)" shall mean any trust deed, trust indenture or mortgage
which may now or hereafter affect the Real Property, the Building, and all
renewals, extensions, supplements, amendments, modifications, consolidations and
replacements thereof or thereto, substitutions therefor, and advances made
thereunder.
"Mortgagee(s)" shall mean any trustee under or mortgagee or holder of a
Mortgage.
"Notice(s)" shall have the meaning set forth in Section 26.1.
"Office Use" shall mean those uses which are included in the
computation of Office Square Footage as such term is used in the Restrictive
Covenants.
"Operating Expenses" shall have the meaning set forth in Section 3.1.
"Operating Hours" shall mean 7:00 a.m. to 7:00 p.m. on Business Days.
"Operating Year" shall mean each calendar year that includes any part
of the Term.
"Parties" shall have the meaning set forth in Section 37.2.
"Person or Person(s)" shall mean any natural person or persons, a
partnership, a corporation, a limited liability
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company, a limited liability partnership and any other form of business or legal
association or entity.
"Persons Within Landlord's Control" shall mean and include Landlord,
all of Landlord's respective principals, officers, agents, contractors,
servants, employees, licensees and invitees.
"Persons Within Tenant's Control" shall mean and include Tenant, all of
Tenant's respective principals, officers, agents, contractors, servants,
employees, licensees and invitees.
"Rating Level Multiplier" shall have the meaning set out in Exhibit "E"
hereto.
"Real Property" shall mean the Building, Building No. 2 and the Land.
"Rental" shall mean and be deemed to include Fixed Rent, Additional
Rent and any other sums payable by Tenant hereunder.
"Requirements" shall mean (i) all present and future laws, rules,
ordinances, regulations, statutes, requirements, codes and executive orders,
extraordinary as well as ordinary, retroactive and prospective, of all
Governmental Authorities now existing or hereafter created, and of any
applicable fire rating bureau, or other body exercising similar functions,
affecting the Real Property, or any street, avenue or sidewalk comprising a part
or in front thereof or any vault in or under the same, or requiring removal of
any encroachment, or affecting the maintenance, use or occupation of the Real
Property, (ii) all requirements, obligations and conditions of all instruments
of record on the date of this Lease including, without limitation, the
Restrictive Covenants, and (iii) all requirements, obligations and conditions
imposed by the carrier of Landlord's hazard insurance policy for the Building.
"Restrictive Covenants" shall mean Final Plat P.D. 93-322, Phase I
Harrah's Corporate Headquarters P.D., recorded at Plat Book 155, Page 8, in the
Register's Office of Shelby County, Tennessee, as amended in accordance with the
decision of the Memphis and Shelby County Land Use Control Board on October 14,
1999, pursuant to Staff Report #16 Correspondence Item, a copy of which is
attached hereto as Exhibit "I"; and Agreement dated January 26, 1984 between
Audubon Park Community Association and Holiday Inns, Inc. recorded at Instrument
No. U9-9849, as amended at Instrument Nos. V8-8105 and BE 1706, in said
Register's Office, for so long as said Agreement remains in effect.
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"Rules and Regulations" shall mean the rules and regulations annexed
hereto as Exhibit "C," and such other and further reasonable rules and
regulations as Landlord and Landlord's agents may from time to time adopt, on
notice to Tenant to be given in accordance with the terms of this Lease.
"Security System" shall mean the keypad security system in use in the
Building and Building No. 2 and located at various locations on the Real
Property at the date of this Lease as modified from time to time.
"Sublease Additional Rent" shall have the meaning set forth in Section
14.4.
"Taxes" shall have the meaning set forth in Section 3.1.
"Tax Year" shall mean each period of twelve (12) months, commencing on
the first day of January of each year, that includes any part of the Term, or
such other period of twelve (12) months as may be duly adopted as the fiscal
year for real estate tax purposes by the City of Memphis, and Shelby County.
"Tenant," on the date as of which this Lease is made, shall mean the
Tenant named in this Lease, but thereafter "Tenant" shall mean only the tenant
under this Lease at the time in question; provided, however, that the Tenant
named in this Lease and any successor tenant hereunder shall not be released
from liability hereunder in the event of any assignment of this Lease.
"Tenant Indemnitees" shall mean Tenant, its trustees, partners,
shareholders, officers, directors, employees, agents and contractors.
"Tenant's Operating Payment" shall have the meaning set forth in
Section 3.3.
"Tenant's Projected Operating Share" shall have the meaning set forth
in Section 3.3.
"Tenant's Property" shall mean Tenant's movable fixtures and movable
partitions, and other equipment, furniture, furnishings and other movable items
of personal property, but excluding all FF&E acquired by Landlord under that
certain Purchase and Sale Agreement by and between Tenant, as seller, and
Landlord, as purchaser, dated September 15, 1999 (the term "FF&E" as used in
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this Lease shall have the meaning ascribed thereto in the aforedescribed
Purchase Agreement).
"Tenant's Tax Payment" shall have the meaning set forth in Section 3.2.
"Term" shall mean the period from the Commencement Date through the
Expiration Date.
"Unavoidable Delays" shall have the meaning set forth in Article 25.
ARTICLE II
DEMISE, PREMISES, TERM, RENT
Section 2.1. Landlord hereby leases to Tenant and Tenant hereby leases
from Landlord the Premises for the Term to commence on the Commencement Date and
to end on the Fixed Expiration Date, unless earlier terminated or extended as
provided herein.
Section 2.2. Commencing upon the Commencement Date, Tenant shall pay to
Landlord, in lawful money of the United States of America, without notice or
demand, by good and sufficient check drawn to Landlord's order on a bank or
trust company with an office in the United States of America, at the office of
Landlord or at such other place as Landlord may designate from time to time, the
following:
(a) the Fixed Rent, at the annual fixed rental rate set forth
in the Reference Page, which shall be payable in equal monthly
installments of Fixed Rent in advance on the first day of each and
every calendar month during the Term, except that the first monthly
installment of Fixed Rent shall be payable by Tenant upon execution and
delivery of this Lease; and
(b) additional rent ("Additional Rent") consisting of all
other sums of money (including, without limitation, Escalation Rent) as
shall become due from and be payable by Tenant hereunder (for default
in the payment of which Landlord shall have the same remedies as for a
default in the payment of Fixed Rent).
Section 2.3. If the Commencement Date is other than the first day of a
calendar month, or the Expiration Date is other
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than the last Day of a calendar month, Rental for such month shall be prorated
on a per diem basis.
Section 2.4. [RESERVED]
Section 2.5. Tenant shall pay the Fixed Rent and Additional Rent when
due without abatement, deduction, counterclaim, setoff or defense for any reason
whatsoever, except said abatement as may be occasioned by the occurrence of any
event permitting an abatement of Fixed Rent and Escalation Rent as specifically
set forth in this Lease.
Section 2.6 Notwithstanding anything to the contrary set forth in this
Lease, in the event that HET's corporate credit rating issued by Standard &
Poor's falls below "BBB" [ignoring for purposes hereof pluses (+) and minuses
(-) included in such ratings] as a result of one or more Leveraged Transactions,
then for such period of time as such rating remains below "BBB," Fixed Rent per
annum shall be increased by an amount equal to the product of the Fixed Rent
Adjustment Factor multiplied by the Rating Level Multiplier (and Fixed Rent per
month shall be adjusted commensurately). Changes in the Fixed Rent resulting
from increases or decreases in HET's Corporate Credit Rating shall become
effective as of the official change date of the Standard & Poor's rating, and
the adjustments in Fixed Rent shall be prorated to take into account the number
of days in the month during which such rating was at each level. In no event
shall the Fixed Rent be adjusted to an amount less than that set out in the
Reference Page of this Lease.
Section 2.7. Provided Tenant is not in default under this Lease at the
time the option may be exercised, Landlord grants Tenant the option to renew
this Lease with respect to all of the Premises for two (2) additional terms of
five (5) years each. Each option shall be exercised by Tenant delivering written
notice to Landlord at least six (6) months prior to the Fixed Expiration Date,
as extended by any previously exercised option.
(a) The renewal rental rates for each option period shall be the Market
Rental Rate (as hereinafter defined)(such rate being hereinafter referred to as
the "Renewal Rental Rate"). The Market Rental Rate is the rental rate then being
charged by landlords (including Landlord) in the Memphis area on new leases to
tenants of a similar credit quality to Tenant for space of similar quality and
size as the Premises, taking into account, all relevant factors, including
without limitation, age, extent and quality of tenant improvements, leasing
commissions, length
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of term, amenities of the Building and the Real Property and the location and/or
floor height and definition of usable area, reasonable projections of Fixed
Rent, Additional Rent, Escalation Rent and allowances or concessions that have
been granted such as abatements, lease assumptions and leasehold improvement and
moving allowances.
(b) Within ten (10) days after Tenant's exercise of each of the options
to renew, Landlord shall notify Tenant in writing of the Renewal Rental Rate for
that renewal period as determined by the above formula. Tenant shall have ten
(10) days from the receipt of Landlord's notice to either accept or dispute
Landlord's determination of the Renewal Rental Rate. In the event that Tenant
disputes Landlord's determination, Tenant shall so notify Landlord and advise
Landlord of Tenant's determination of the Renewal Rental Rate for the option
period as determined by the above formula. If Landlord and Tenant cannot agree
upon the Renewal Rental Rate within thirty (30) days of Tenant's original notice
of its intent to exercise its renewal option, the following "Dispute Resolution
Mechanisms" shall be utilized:
(c) The parties, within ten (10) days thereafter, shall each select an
MAI-certified commercial real estate appraiser with a minimum of ten (10) years
experience in the Memphis market (each party to pay the cost of the appraiser
selected by it). Each appraiser, within thirty (30) days after selection, shall
present to the other their determination of the Market Rental Rate. If the
Market Rental Rates determined by each appraiser are within ten percent (10%) of
each other, then the Renewal Rental Rate for the option period shall be the
average of the two (2) Market Rental Rates as determined by the parties'
appraisers. If the appraisers' determinations are greater than ten percent (10%)
apart, then the appraisers shall jointly select, within ten (10) days
thereafter, a third MAI-certified commercial real estate appraiser with a
minimum of ten (10) years experience in the Memphis market, with the cost of the
third appraiser to be divided equally between Landlord and Tenant. Within thirty
(30) days after appointment, the third appraiser shall announce his/her
determination of the Market Rental Rate. The Renewal Rental Rate shall be equal
to the average of the Market Rental Rate determined by the two appraisers whose
determinations are numerically closest to each other (disregarding the
determination of the appraiser whose determination is further apart from either
of the others). Notwithstanding the foregoing, in the event that the third
appraiser's determination is exactly in the middle of the first two appraisers'
determinations, then the third appraiser's determination shall be the Renewal
Rental Rate.
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(d) Landlord and Tenant shall execute an amendment to this Lease within
sixty (60) days after the determination of the Renewal Rental Rate, which
amendment shall set forth the extended Term and all other terms and conditions
applicable to the renewal period, and shall establish the Renewal Rental Rate as
the annual Fixed Rent for the renewal period.
(e) Except for the Renewal Rental Rate as set forth above, this Lease,
and all of the terms and conditions hereof, shall remain in full force and
effect throughout the entire renewal term.
ARTICLE III
ESCALATION
Section 3.1. For the purposes of this Article 3, the following terms
shall have the meanings set forth below:
(a) "Operating Expenses" shall mean the aggregate of all
costs, expenses and disbursements (and taxes thereon, if any), of every
kind and nature, paid or incurred by Landlord or on behalf of Landlord
with respect to the ownership, operation, cleaning, repair, safety,
replacement, management, security and maintenance of the Real Property,
including the Building Systems and Common Areas, and with respect to
the services provided to tenants, including, without limitation: (i)
salaries, wages and bonuses paid to, and the cost of any
hospitalization, medical, surgical, union and general welfare benefits
(including group life insurance), any pension, retirement or life
insurance plans and other benefits or similar expenses relating to
employees of Landlord and/or of Manager (on and off-site) engaged in
the operation, cleaning, repair, safety, replacement, management,
security or maintenance of the Real Property and the Building Systems
or in providing services to tenants; (ii) social security, unemployment
and other payroll taxes, the cost of providing disability and worker's
compensation coverage imposed by any Requirement, union contract or
otherwise with respect to said employees; (iii) the cost of gas, oil,
steam, water, sewer rental, HVAC, water treatment, and other utilities
furnished to the Building and Building No. 2 and utility taxes; (iv)
the expenses incurred for casualty, rent, liability, fidelity, plate
glass and any other insurance; (v) the cost of repairs, maintenance and
painting, including the cost of acquiring or renting all
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supplies, tools, materials and equipment used in operating or repairing
the Building and Building No. 2 including, without limitation, their
roofs; (vi) expenditures, whether by purchase or lease, for capital
improvements and capital equipment (except for roof replacement and
repairs to structural components of the Building or Building No. 2
which were not necessitated by the acts or omissions of Tenant) to the
extent (but only to the extent) that such capital expenditures reduce
or result in savings in Operating Expenses, the amortized cost of such
capital expenditures (or portion thereof resulting in reduction or
savings in Operating Expenses) to be included in Operating Expenses for
the Operating Year in which such costs are incurred and every
subsequent Operating Year, amortized on a straight-line basis over the
accounting life of the capital improvement, with interest calculated at
a per annum rate equal to eight percent (8%); (vii) operation, repair
and replacement of building management systems; (viii) the cost or
rental of all supplies, tools, materials and equipment; (ix) the cost
of uniforms, work clothes and dry cleaning; (x) the cost of window
cleaning, repair, resealing and replacement, janitorial, pest control,
concierge, guard, watchman or other security personnel, service or
system, fire extinguishers and sprinklers, power generators, fences and
electronic/motorized gates, if any; (xi) management fees and expenses;
(xii) charges of independent contractors performing work included
within this definition of Operating Expenses; (xiii) telephone and
stationery costs; (xiv) legal, accounting and other professional fees
and disbursements incurred in connection with the operation and
management of the Real Property; (xv) association fees and dues; (xvi)
the cost of seasonal decorations; (xvii) depreciation of hand tools and
other movable equipment used in the operation, cleaning, repair,
safety, management, security or maintenance of the Building and
Building No. 2; (xviii) exterior and interior landscaping, irrigation
and tree care; (xix) all electrical costs incurred in the operation of
the Real Property; (xx) striping, re-striping, sweeping and repairing
parking areas and garages; and (xxi) waste removal.
Provided, however, that the foregoing costs and expenses shall exclude
or have deducted from them, as the case may be:
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(1) amounts received by Landlord through proceeds of
insurance to the extent they are compensation for sums
previously included in Operating Expenses;
(2) cost of repairs or replacements incurred by
reason of fire or other casualty or condemnation to the extent
Landlord is compensated therefor;
(3) Taxes; and
(4) leasing commissions, rental concessions and lease
buy-outs.
If Landlord leases any item of capital equipment that would otherwise
be included in Operating Expenses, then the rentals and other costs paid with
respect to such leasing shall be included in Operating Expenses for the
Operating Years in which such rentals and costs are incurred.
Notwithstanding anything to the contrary set forth herein, if the
Building and Building No. 2 are not fully occupied during any calendar year of
the Term, Operating Expenses shall be determined as if the Building and Building
No. 2 had been fully occupied during such year, by adding to actual Operating
Expenses an amount equal to those costs which would have been incurred if the
Building and Building No. 2 had been fully occupied. For the purposes of this
Lease, "fully occupied" shall mean occupancy of ninety-five percent (95%) of the
usable square feet in the Building and Building No. 2 with Landlord providing
all services.
Notwithstanding anything to the contrary set forth herein, in the event
that (a) utilities serving the Real Property are not separately metered or (b)
any maintenance of the Real Property is covered by a contract which also covers
the Adjacent Property or any portion thereof, then the Landlord shall make a
fair and equitable allocation of the costs between the Real Property and the
Adjacent Property receiving utility service and/or being covered by the
maintenance contracts, and such fair and equitable amount shall be included in
Operating Expenses under this Lease.
(b) "Taxes" shall mean the aggregate amount of real estate
taxes and any general or special assessments (exclusive of penalties
and interest thereon) imposed upon the Real Property (including,
without limitation, (i) assessments made upon or with respect to any
"air" and "development" rights now or hereafter appurtenant to or
affecting the Real Property, (ii) any fee, tax or charge
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imposed by any Government Authority for any vaults, vault space or
other space within or outside the boundaries of the Real Property,
(iii) any assessments levied after the date of this Lease for public
benefits to the Real Property or the Building or Building No. 2); and
(iv) franchise taxes; provided that if, because of any change in the
taxation of real estate, any other tax or assessment, however
denominated (including, without limitation, any profit, sales, use,
occupancy, gross receipts or rental tax) is imposed upon Landlord or
the owner of the Real Property or the Building or Building No. 2, or
the occupancy, rents or income therefrom, in substitution for any of
the foregoing Taxes or for an increase in any of the foregoing Taxes,
such other tax or assessment shall be deemed part of Taxes computed as
if Landlord's sole asset were the Real Property. With respect to any
Tax Year, all expenses, including attorneys' fees and disbursements and
experts' and other witnesses' fees, incurred in contesting the validity
or amount of any Taxes or in obtaining a refund of Taxes shall be
considered as part of the Taxes for such Tax Year. Anything contained
herein to the contrary notwithstanding, Taxes shall not be deemed to
include (a) any federal taxes on Landlord's income, (b) estate or
inheritance taxes, or (c) any similar taxes imposed on Landlord, unless
such taxes are levied, assessed or imposed as a substitute for the
whole or any part of, or as a substitute for an increase in, the taxes,
assessments, levies, fees, charges and impositions that now constitute
Taxes. In the event that the Real Property and the Adjacent Property
are assessed together for ad valorem taxes, then for so long as there
are no additions or expansions which result in increase in size of the
exterior walls of the buildings on the Real Property or Adjacent
Property, no additional buildings constructed on the Real Property or
Adjacent Property, and no additional parking facilities or structures
constructed on the Real Property or Adjacent Property (collectively,
the "Additional Taxable Improvements"), the parties stipulate and agree
that eighty-nine percent (89%) of the ad valorem real estate taxes
imposed on the Real Property and Adjacent Property shall be "Taxes"
within the meaning of this Lease, attributable to the Real Property.
Upon the construction of Additional Taxable Improvements on the Real
Property or Adjacent Property (provided that they are assessed
together), the parties shall make an equitable adjustment to the
foregoing stipulated percentage to account for any increase in
assessment resulting from such Additional Taxable Improvements.
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Section 3.2. (a) Tenant shall pay as Escalation Rent for each Tax Year,
an amount ("Tenant's Tax Payment") equal to Tenant's Share of the amount by
which the Taxes for such Tax Year are greater than the Base Tax Factor. Tenant's
Tax Payment shall be payable by Tenant to Landlord in twelve (12) equal monthly
installments (subject to the further provisions of this Section 3.2), the first
of which shall be due within ten (10) days after receipt of a Landlord's Tax
Statement, regardless of whether such Landlord's Tax Statement is received prior
to, on or after the first day of such Tax Year and the remaining installments
shall be due on the first day of each month thereafter. If there is any increase
in Taxes for any Tax Year, whether during or after such Tax Year, or if there is
any decrease in the Taxes for any Tax Year during such Tax Year, Landlord shall
furnish a revised Landlord's Tax Statement for any Tax Year affected, and
Tenant's Tax Payment for such Tax Year shall be adjusted and, (a) within ten
(10) days after Tenant's receipt of such revised Landlord's Tax Statement,
Tenant shall (with respect to any increase in Taxes for such Tax Year) pay the
appropriate increase in Tenant's Tax Payment to Landlord, or (b) (with respect
to any decrease in Taxes for such Tax Year) Landlord shall promptly, at its
election, either credit such decrease in Tenant's Tax Payment against the next
installment of Rental payable by Tenant or refund the amount of such decrease by
check to the order of Tenant or, if at the end of the Term, there shall not be
any further installments of Rental remaining against which Landlord can credit
any decrease in Taxes due Tenant, Landlord shall deliver to Tenant Landlord's
check in the amount of the refund due Tenant within thirty (30) days after
Landlord's receipt of any refund. If, during the Term, Taxes are required to be
paid (either to the appropriate taxing authorities or as tax escrow payments to
the Lessor or the Mortgagee), in full or in quarterly or other installments on
any other date or dates than as presently required, then Tenant's Tax Payments
shall be correspondingly accelerated or revised so that Tenant's Tax Payments
are due at least thirty (30) days prior to the date payments are due to the
taxing authorities, the Lessor or the Mortgagee. The benefit of any discount for
any early payment or prepayment of Taxes shall accrue solely to the benefit of
Landlord and Taxes shall be computed without subtracting such discount.
(b) (i) Except as provided in Section 3.2(b)(ii) below, only Landlord
shall be eligible to institute tax reduction or other proceedings to
reduce Taxes. If, after a Landlord's Tax Statement has been sent to
Tenant, a refund
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of Taxes is actually received by or on behalf of Landlord, then,
promptly after receipt of such refund, Landlord shall send Tenant a
Landlord's Tax Statement adjusting the Taxes for such Tax Year (taking
into account Landlord's expenses therefor) and setting forth Tenant's
Share of such refund, and Tenant shall be entitled to receive such
amount by way of a credit against the Escalation Rent; provided,
however, that Tenant's Share of such refund shall be limited to the
amount of Tenant's Tax Payment, if any, which Tenant had theretofore
paid to Landlord attributable to increases in Taxes for the Tax Year to
which the refund is applicable.
(ii) In the event Landlord does not contest any increase in ad
valorem Taxes applicable to the Real Property, Tenant, at its sole cost
and expense, shall have the right to contest any such increase and
shall keep Landlord informed of the steps being taken. Landlord agrees
to fully cooperate with Tenant in prosecuting any appeal taken by
Tenant as a result of such increase, at no cost or expense to Landlord.
During the pendency of any such contest, Tenant shall take all actions
required to prevent the execution/enforcement by the taxing authorities
of any rights against Landlord and/or the Real Property. All Escalation
Rent charged by Landlord shall be paid by Tenant during the pendency of
any such action. If, after a Landlord's Tax Statement has been sent to
Tenant, a refund of Taxes is actually received as a result of a contest
made by Tenant, then, promptly after receipt of such refund, Landlord
shall send Tenant a Landlord's Tax Statement adjusting the Taxes for
such Tax Year and setting forth Tenant's Share of such refund, and
Tenant shall be entitled to receive such amount by way of a credit
against the Escalation Rent; provided, however, that Tenant's Share of
such refund shall be limited to the amount of Tenant's Tax Payment, if
any, which Tenant had theretofore paid to Landlord attributable to
increases in Taxes for the Tax Year to which the refund is applicable.
(c) Tenant's Tax Payment and any credits with respect thereto as
provided in this Section 3.2 shall be made as provided in this Section 3.2
regardless of the fact that Tenant may be exempt, in whole or in part, from the
payment of any taxes by reason of Tenant's tax exempt status or for any other
reason whatsoever.
(d) Tenant shall pay to Landlord within thirty (30) days after demand
as Additional Rent any occupancy tax or rent tax now
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in effect or hereafter enacted, if payable by Landlord in the first instance or
hereafter required to be paid by Landlord.
(e) Each Landlord's Tax Statement furnished by Landlord with respect to
Tenant's Tax Payment shall be accompanied by a copy of the real estate tax bill
or bills for the Tax Year referred to therein, but Landlord shall have no
obligation to deliver more than one such copy of the real estate tax bill or
bills in respect of any Tax Year, and Landlord's failure to deliver such copy
shall not affect Tenant's obligations as to amount or due date(s) thereof.
(f) If the Base Tax Factor subsequently shall be adjusted, corrected or
reduced whether as the result of protest, by means of agreement or as the result
of legal proceedings, the Base Tax Factor for the purpose of computing any
Additional Rent Payable pursuant to this Article shall be the Base Tax Factor as
so adjusted, corrected or reduced. Until the Base Tax is so adjusted, corrected
or reduced, if ever, Tenant shall pay Additional Rent hereunder based upon the
unadjusted, uncorrected or unreduced Base Tax Factor and upon such adjustment,
correction or reduction occurring, any Additional Rent payable by Tenant prior
to the date of such occurrence shall be recomputed and Tenant shall pay to
Landlord any Escalation Rent found due by such recomputation within thirty (30)
days after being billed therefor (which bill shall set forth in reasonable
detail the pertinent data causing and comprising such recomputation).
(g) If the Commencement Date or the Expiration Date occurs on a date
other than January 1 or December 31, respectively, any Tenant's Tax Payment
under this Article 3 for the Tax Year in which such Commencement Date or
Expiration Date occurs shall be apportioned in that percentage which the number
of days in the period from the Commencement Date to December 31 or from January
1 to the Expiration Date, as the case may be, both inclusive, bears to the total
number of days in such Tax Year. If the Commencement Date or the Expiration Date
occurs on a date other than January 1 or December 31, respectively, any Tenant's
Operating Payment under this Article 3 for the Operating Year in which such
Commencement Date or Expiration Date occurs shall be apportioned in that
percentage which the number of days in the period from the Commencement Date to
December 31 or from January 1 to the Expiration Date, as the case may be, both
inclusive, bears to the total number of days in such Operating Year. In the
event of a termination of this Lease, any Escalation Rent under this Article 3
shall be paid or adjusted within thirty (30) days after submission of a
Landlord's Statement. The rights and
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obligations of Landlord and Tenant under the provisions of Article 3 with
respect to any Escalation Rent shall survive for a period of six (6) months
after the end of the calendar year in which the Expiration Date falls.
Section 3.3. (a) Tenant shall pay as Escalation Rent for each Operating
Year an amount ("Tenant's Operating Payment") equal to Tenant's Share of the
amount by which Operating Expenses for such Operating Year are greater than the
Base Operating Factor.
(b) Landlord shall furnish to Tenant, with respect to each Operating
Year, a Landlord's Operating Statement setting forth Landlord's estimate of
Tenant's Operating Payment for such Operating Year ("Tenant's Projected
Operating Share"). Tenant shall pay to Landlord on the first day of each month
during such Operating Year, as Escalation Rent, an amount equal to one-twelfth
(1/12) of Tenant's Projected Operating Share for such Operating Year. If,
however, Landlord furnishes any such Landlord's Operating Statement for an
Operating Year subsequent to the commencement of such Operating Year, then (a)
until the first day of the month following the month in which such Landlord's
Operating Statement is furnished to Tenant, Tenant shall pay to Landlord on the
first day of each month an amount equal to the monthly sum payable by Tenant to
Landlord under this Section 3.3 in respect of the last month of the preceding
Operating Year; (b) after such Landlord's Operating Statement is furnished to
Tenant or together therewith, Landlord shall give notice to Tenant stating
whether the installments of Tenant's Projected Operating Share previously made
for such Operating Year were greater or less than the installments of Tenant's
Projected Operating Share to be made for such Operating Year in accordance with
such estimate, and (i) if there is a deficiency, Tenant shall pay the amount
thereof within thirty (30) days after demand therefor, or (ii) if there was an
overpayment, Landlord shall credit the amount thereof against subsequent
payments of Rental or, if at the end of the Term there shall not be any further
installments of Rental remaining against which Landlord can credit any such
overpayment due Tenant, Landlord shall deliver to Tenant Landlord's check in the
amount of the refund due Tenant within thirty (30) days after Tenant shall first
be entitled to a credit for the overpayment of Operating Expenses; and (c) on
the first day of the month following the month in which such Landlord's
Operating Statement is furnished to Tenant, and monthly thereafter throughout
the remainder of such Operating Year, Tenant shall pay to Landlord an amount
equal to one-twelfth (1/12) of Tenant's Projected Operating Share shown in such
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Landlord's Operating Statement. Landlord shall furnish to Tenant a revised
Landlord's Operating Statement with a new estimate of Tenant's Projected
Operating Share for such Operating Year and, in such case, Tenant's Projected
Operating Share for such Operating Year shall be adjusted and paid or credited,
as the case may be, substantially in the same manner as provided in the
preceding sentence.
(c) After the end of each Operating Year, Landlord shall furnish to
Tenant a Landlord's Operating Statement for such Operating Year. Each such
year-end Landlord's Operating Statement shall be accompanied by a computation of
Operating Expenses prepared by the Manager or a certified public accountant
designated by Landlord from which Landlord shall make the computation of
Escalation Rent due in respect of Operating Expenses hereunder. In making
computations of Operating Expenses, the certified public accountant or the
Manager may rely on Landlord's reasonable estimates and allocations whenever
said estimates and allocations are needed for this Article 3. If the Landlord's
Operating Statement shows that the sums paid by Tenant under Section 3.3(B)
exceeded Tenant's Operating Payments required to be paid by Tenant for such
Operating Year, Landlord shall credit the amount of such excess against
subsequent payments of Rental or, if at the end of the Term there shall not be
any further installments of Rental remaining against which Landlord can credit
any such overpayments due Tenant, Landlord shall promptly deliver to Tenant
Landlord's check in the amount of the refund due Tenant within thirty (30) days
after Tenant shall first be entitled to a credit for the overpayment of
Operating Expenses; and if the Landlord's Operating Statement for such Operating
Year shows that the sums so paid by Tenant were less than Tenant's Operating
Payment due for such Operating Year, Tenant shall pay the amount of such
deficiency within thirty (30) days after demand therefor.
(d) In addition, Tenant shall pay to the appropriate taxing authority,
as and when due, any and all taxes due with respect to Tenant's personal
property and/or leasehold interest in the Premises.
Section 3.4. Landlord's failure to render any Landlord's Statement with
respect to any Tax Year or Operating Year shall not prejudice Landlord's right
thereafter to render a Landlord's Statement with respect thereto or with respect
to any subsequent Tax Year or Operating Year, as the case may be, nor shall the
rendering of a Landlord's Statement prejudice Landlord's right
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thereafter to render a corrected Landlord's Statement for that Tax Year or
Operating Year.
Section 3.5. Any Landlord's Statement sent to Tenant shall be
conclusively binding upon Tenant unless, within thirty (30) days after such
Landlord's Statement is sent, Tenant shall send a written notice to Landlord
objecting to such Landlord's Statement and specifying, to the extent reasonably
practicable, the respects in which such Landlord's Statement is disputed. If
Tenant shall send such notice with respect to a Landlord's Statement, Tenant may
select and pay an independent certified public accountant or a member of an
independent firm which is engaged in the business of auditing lease escalation
clauses (an "Approved Examiner") provided that such Approved Examiner is not and
has not during the Term been affiliated with, a shareholder in, an officer,
director, partner, or employee of, any Manager during the Term or the Manager
named in this Lease, and such Approved Examiner may examine Landlord's books and
records relating solely to disputed aspects of the Operating Expenses to
determine the accuracy of Landlord's Operating Statement. Tenant recognizes the
confidential nature of Landlord's books and records, and agrees that any
information obtained by an Approved Examiner during any examination shall be
maintained in strict confidence by such Approved Examiner, without revealing
same to any Person except Tenant. If, after such examination, such Approved
Examiner shall dispute such Landlord's Operating Statement, either party may
refer the decision of the issues raised to a reputable independent firm of
certified public accountants, selected by Landlord and approved by Tenant, which
approval shall not be unreasonably withheld or delayed, and the decision of such
accountants shall be conclusively binding upon the parties. The fees and
expenses involved in resolving such dispute shall be borne by Tenant, unless the
final determination is that Landlord's Statement overstated Operating Expenses
by more than five percent (5%), in which case Landlord shall pay the reasonable
fees and expenses involved in resolving the dispute. Notwithstanding the giving
of such notice by Tenant, and pending the resolution of any such dispute, Tenant
shall pay to Landlord when due the amount shown on any such Landlord's
Statement, as provided in this Article 3. Tenant shall pay the amount of any
underpayment to Landlord and Landlord shall refund the amount of any overpayment
to Tenant, within thirty (30) days after resolution of such dispute (and if
Landlord fails to refund such overpayment to Tenant, Tenant shall be entitled to
offset the same against future payments of Additional Rent).
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ARTICLE IV
USE AND OCCUPANCY
Section 4.1. Tenant shall use and occupy the Premises for the Permitted
Use and for no other purpose. Tenant and Tenant's use of the Premises shall
comply in all respects with the Restrictive Covenants; and Tenant shall
indemnify Landlord against any loss, cost or damage (including costs of defense
and reasonable attorney fees) arising as a result of the failure of the Tenant
or Tenant's use of the Premises to so comply. Tenant covenants and agrees that
in no event and under no circumstances shall the Office Use within the Building
exceed forty-six thousand seven hundred sixty-three (46,763) square feet unless
Landlord and Tenant otherwise agree in a writing signed by them; and if the
Office Use within the Building shall ever exceed said square footage, Tenant
shall diligently take steps to remove area within the Building from Office Use
in order that Tenant shall be in compliance with the foregoing provisions.
Section 4.2. Tenant shall not use the Premises or any part thereof, or
permit the Premises or any part thereof to be used, (1) for the business of
photographic, multilith or multigraph reproductions or offset printing (other
than those which are ancillary to an otherwise Permitted Use), (2) for an
off-the-street retail commercial banking, thrift institution, loan company,
trust company, depository or safe deposit business accepting deposits from the
general public, (3) for the off-the-street retail sale of travelers checks,
money orders, drafts, foreign exchange or letters of credit or for the receipt
of money for transmission, (4) by the United States government, the state or
local government, or any agency or department of any of the foregoing having or
asserting sovereign immunity, (5) for the preparation, dispensing or consumption
of food or beverages in any manner whatsoever, except for the preparation,
dispensing and consumption of food by Tenant's employees who work in the
Premises and not for the sale of food to any Persons other than such employees,
(6) as an employment agency, daycare facility (other than as a self-operated
facility for use only by Tenant's employees), labor union, school, or vocational
training center (except for the training of employees of Tenant intended to be
employed at the Premises), (7) as a barber shop, beauty salon or manicure shop,
(8) for product display activities (such as those of a manufacturer's
representative), (9) as offices of any public utility company, (10) for health
care activities, (11) for clerical support services or offices of public
stenographers or typists (other than those which are ancillary to an otherwise
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Permitted Use), (12) as reservation or call centers, (13) for retail or
manufacturing use, (14) as studios for radio, television or other media, or (15)
any use which extends the hours of use or operations in the Premises (other than
infrequently or sporadically) beyond the Operating Hours. Furthermore, the
Premises shall not be used for any purpose that would, in Landlord's reasonable
judgment, tend to lower the first-class character of the Building, create
unreasonable or excessive elevator or floor loads, violate the certificate of
occupancy of the Building, materially impair or interfere with any of the
Building operations or the proper and economic heating, air-conditioning,
cleaning or any other services of the Building, materially interfere with the
use of the other areas of the Building by any other tenants, or materially
impair the appearance of the Building.
ARTICLE V
ALTERATIONS
Section 5.1. (a) Except as otherwise set out in Section 5.1(f), Tenant
shall not make or permit to be made any Alterations without Landlord's prior
written consent. Reference is made to Exhibit "G" hereto, which contains the
Tenant Design and Construction Standards applicable to the Building, which is
incorporated by reference in this Lease. Landlord reserves the right to make
reasonable changes and additions thereto.
(b) (1) Prior to making any such Alterations, Tenant shall (i) submit
to Landlord two (2) sets of detailed plans and specifications
(including layout, architectural, electrical, mechanical and structural
drawings) that comply with all Requirements for each proposed
Alteration, and Tenant shall not commence any such Alteration without
first obtaining Landlord's approval of such plans and specifications,
which approval shall not be unreasonably withheld or delayed, (ii) at
Tenant's expense, obtain all permits, approvals and certificates
required by any Governmental Authorities, and (iii) furnish to Landlord
duplicate original policies or certificates thereof of worker's
compensation insurance (covering all persons to be employed by Tenant,
and Tenant's contractors and subcontractors, in connection with such
Alteration) and commercial general liability insurance (including
premises operation, bodily injury, personal injury, death, independent
contractors, products and completed operations, broad form contractual
liability and broad form property damage coverages) in such form, with
such companies, for such periods and in such amounts as
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Landlord may reasonably approve, naming Landlord and its agents, any
Lessor and any Mortgagee, as additional insureds. Upon completion of
such Alteration, Tenant, at Tenant's expense, shall obtain certificates
of final approval of such Alterations required by any Governmental
Authority and shall furnish Landlord with copies thereof, together with
the "as built" plans and specifications for such Alterations. All
Alterations shall be made and performed in accordance with the plans
and specifications therefor as approved by Landlord, all Requirements,
Restrictive Covenants, and the Rules and Regulations. All materials and
equipment to be incorporated in the Premises as a result of any
Alterations shall be first quality and no such materials or equipment
shall be subject to any lien, encumbrance, chattel mortgage, title
retention or security agreement. In addition, any such Alteration for
which the cost of labor and materials (as estimated by Landlord's
architect, engineer or contractor) is in excess of Seventy-Five
Thousand Dollars ($75,000.00), either individually or in the aggregate
with any other Alteration constructed in any twelve (12) month period,
shall be performed only under the supervision of a licensed architect
satisfactory to Landlord.
(2) Landlord reserves the right to disapprove any plans and
specifications in whole or in part, to reserve approval of items shown
thereon pending its review and approval of other plans and
specifications, and to condition its approval upon Tenant making
revisions to the plans and specifications or supplying additional
information; provided, however, that Landlord shall be reasonable in
its exercise of these rights. Additionally, Landlord shall be deemed to
have approved Tenant's plans and specifications if Landlord fails to
respond to Tenant's plans and specifications within fifteen (15) days
of Landlord's receipt thereof. Tenant agrees that any review or
approval by Landlord of any plans and/or specifications with respect to
any Alteration is solely for Landlord's benefit, and without any
representation or warranty whatsoever to Tenant or any other Person
with respect to the adequacy, correctness or sufficiency thereof or
with respect to Requirements, Restrictive Covenants or otherwise.
(c) Alterations shall be performed at Tenant's expense and at such
times and in such manner as Landlord may from time to time reasonably designate,
unless, at the time of the Alterations, Tenant is the only occupant of the
Building and
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Building No. 2, in which event, Tenant may control the times and manner (but
always in accordance with all Requirements) to perform the Alterations. All
Alterations shall become a part of the Building and shall be Landlord's property
from and after the installation thereof and may not be removed or changed
without Landlord's consent. Notwithstanding the foregoing, however, Landlord,
upon notice given at least sixty (60) days prior to the Expiration Date or upon
such shorter notice as is reasonable under the circumstances upon the earlier
expiration of the Term, may require Tenant to remove any specified Alterations
(other than those comprising part of Building Standard Condition) and to repair
and restore in a good and workmanlike manner to Building Standard Condition
(reasonable wear and tear excepted) any damage to the Premises or the Building
caused by such removal. All Tenant's Property shall remain the property of
Tenant and, unless Landlord and Tenant shall agree otherwise, on or before the
Expiration Date shall, at Tenant's cost, be removed from the Premises by Tenant,
and Tenant shall repair and restore in a good and workmanlike manner to Building
Standard Condition (reasonable wear and tear excepted) any damage to the
Premises or the Building caused by such removal. The provisions of this Section
5.1(c) shall survive the expiration or earlier termination of this Lease.
(d) (1) All Alterations shall be performed, at Tenant's sole cost and
expense, by contractors, subcontractors or mechanics approved by
Landlord in Landlord's reasonable discretion.
(2) Notwithstanding the foregoing, with respect to any
Alteration affecting any Building Systems, (i) Tenant, if required by
Landlord, shall employ Landlord's or the Manager's designated
contractor, and (ii) the Alteration shall, if required by Landlord, at
Tenant's expense, be designed by either Landlord's or the Manager's
engineer.
(e) (1) Any mechanic's lien filed against the Premises or the Real
Property for work claimed to have been done for, or materials claimed
to have been furnished to, Tenant shall be canceled or discharged by
Tenant, at Tenant's expense, within twenty (20) days after such lien
shall be filed, by payment or filing of the bond required by law, and
Tenant shall indemnify and hold Landlord harmless from and against any
and all costs, expenses, claims, losses or damages resulting therefrom
by reason thereof.
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(2) If Tenant shall fail to discharge such mechanic's lien
within the aforesaid period, then, in addition to any other right or
remedy of Landlord, Landlord may, but shall not be obligated to,
discharge the same either by paying the amount claimed to be due or by
procuring the discharge of such lien by deposit in court or bonding,
and in any such event, Landlord shall be entitled, if Landlord so
elects, to compel the prosecution of an action for the foreclosure of
such mechanic's lien by the lienor and to pay the amount of the
judgment, if any, in favor of the lienor, with interest, costs and
allowances.
(3) Any amount paid by Landlord for any of the aforesaid
charges and for all expenses of Landlord (including, but not limited
to, attorneys' fees and disbursements) incurred in defending any such
action, discharging said lien or in procuring the discharge of said
lien, with interest on all such amounts at the maximum legal rate of
interest then chargeable to Tenant from the date of payment, shall be
repaid by Tenant within ten (10) days after written demand therefor,
and all amounts so repayable, together with such interest, shall be
considered Additional Rent.
(f) Notwithstanding anything to the contrary set forth in
this Article V, Tenant, without Landlord's consent, is permitted to
make Alterations to the Premises which relate only to the cosmetic
appearance, nonstructural components, and/or non-load-bearing
portions of the Premises (and which do not affect the structural
and/or load-bearing elements of the Building or the Building
Systems), provided such Alterations do not cost, in the aggregate,
more than Seventy-Five Thousand Dollars ($75,000.00) during any
twelve (12) month period during the Term.
Section 5.2. Tenant shall reimburse Landlord, within five (5) Business
Days after demand therefor, for any reasonable out-of-pocket expense incurred by
Landlord for reviewing the plans and specifications for any Alterations or
inspecting the progress of completion of the same.
Section 5.3. Landlord, at Tenant's expense, and upon the request of
Tenant, shall join in any applications for any permits, approvals or
certificates required to be obtained by Tenant in connection with any permitted
Alteration (provided that the provisions of the applicable Requirements shall
require that Landlord join in such application) and shall otherwise cooperate
with Tenant in connection therewith, provided that Landlord shall
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not be obligated to incur any cost or expense or liability in connection
therewith.
Section 5.4. Tenant shall furnish to Landlord copies of records of all
Alterations and of the cost thereof within fifteen (15) days after the
completion of such Alterations.
Section 5.5. TENANT HEREBY ACCEPTS THE PREMISES "AS IS, WHERE IS," AND
WITHOUT ANY WARRANTY, EXPRESS OR IMPLIED, EXCEPT AS OTHERWISE SET FORTH IN THIS
LEASE.
Section 5.6. Tenant shall not, at any time prior to or during the Term,
directly or indirectly employ, or permit the employment of, any contractor,
mechanic or laborer in the Premises, whether in connection with any Alteration
or otherwise, if such employment would unreasonably interfere or cause any
unreasonable conflict with other contractors, mechanics or laborers engaged in
the construction, maintenance or operation of the Building by Landlord, Tenant
or others, or of any other property owned by Landlord. In the event of any such
unreasonable interference or conflict, Tenant, upon demand of Landlord, shall
cause all contractors, mechanics or laborers causing such interference or
conflict to leave the Building immediately.
Section 5.7. During the course of any Alteration and any construction
by Landlord, whether on the Land or on any real property adjacent to the Land,
Landlord and Tenant shall cooperate with each other, and shall cause their
contractors and subcontractors to cooperate, so as to minimize interruption and
interference with each other's construction activities.
ARTICLE VI
REPAIRS
Section 6.1. Tenant covenants to use due care in its use and occupancy
of the Premises and not to commit waste. Except as otherwise provided in this
Section 6.1, Tenant shall not be obligated to repair any Building Systems.
Tenant shall, however, at its own cost and expense, maintain and repair and, to
the extent deemed appropriate by Tenant, monitor the Security System.
Notwithstanding any provision contained in this Lease to the contrary, all
damage or injury to the Premises, and all damage or injury to any other part of
the Building, or to its fixtures, equipment and appurtenances (including
Building Systems), whether requiring structural or nonstructural repairs, caused
by the
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moving of Tenant's Property or caused by or resulting from any act or omission
of, or Alterations made by, Tenant or Persons Within Tenant's Control, shall be
repaired by Tenant, at Tenant's sole cost and expense, to the reasonable
satisfaction of Landlord (if the required repairs are non-structural in nature
and do not affect any Building Systems), or by Landlord at Tenant's sole cost
and expense (if the required repairs are structural in nature or affect any
Building Systems). All of the aforesaid repairs shall be performed in a manner
and with materials and design of first class and quality consistent with
first-class office buildings in Memphis and shall be made in accordance with the
provisions of Article 5. If Tenant shall fail, after five (5) days notice (or
such shorter period as may be required because of an emergency), to proceed with
due diligence to make repairs required to be made by Tenant, the same may be
made by Landlord, at the expense of Tenant, and the expenses thereof incurred by
Landlord, with interest thereon at the Applicable Rate, shall be paid to
Landlord, as Additional Rent, within ten (10) days after rendition of a bill or
statement therefor. Tenant shall give Landlord prompt notice of any defective
condition in any Building Systems located in, servicing or passing through the
Premises.
Section 6.2. Tenant shall not place a load upon any floor of the
Premises which exceeds seventy-five (75) pounds per square foot "live load."
Tenant shall not locate or move any safe, heavy machinery, heavy equipment,
business machines, freight, bulky matter or fixtures into or out of the Building
without Landlord's prior consent, which consent shall not be unreasonably
withheld, and Tenant shall make payment to Landlord of Landlord's costs in
connection therewith (if such move is not part of an Alteration). If such safe,
machinery, equipment, freight, bulky matter or fixture requires special handling
(as determined by Landlord), Tenant shall employ only persons holding a Master
Rigger's license to do said work. All work in connection therewith shall comply
with the Requirements, and shall be done during such hours as Landlord may
designate. Business machines and mechanical equipment shall be placed and
maintained by Tenant, at Tenant's expense, in settings sufficient, in Landlord's
reasonable judgment, to absorb and prevent vibration, noise and annoyance.
Section 6.3. Landlord shall operate, maintain and make all necessary
repairs (both structural and non-structural) to the Building Systems and the
public portions of the Building, both exterior and interior, in conformance with
standards applicable to first-class office buildings in Memphis, except for
those
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repairs for which Tenant is responsible pursuant to any other provision of this
Lease. Landlord shall use reasonable efforts to minimize interference with
Tenant's use and occupancy of the Premises in making any repairs, alterations,
additions or improvements; provided, however, that Landlord shall have no
obligation to employ contractors or labor at so-called overtime or other premium
pay rates or to incur any other overtime costs in connection with such repairs,
alterations, additions or improvements. Notwithstanding the foregoing, if Tenant
shall so request, Landlord shall employ contractors or labor at so-called
overtime or other premium pay rates or incur other overtime costs in making such
repairs, alterations, additions or improvements, provided Tenant shall pay to
Landlord, as Additional Rent, within ten (10) days after demand therefor, an
amount equal to the excess costs incurred by Landlord by reason of compliance
with Tenant's request. Except as expressly provided in this Lease, there shall
be no allowance to Tenant for a diminution of rental value and no liability on
the part of Landlord by reason of inconvenience, annoyance or injury to business
arising from Landlord, Tenant or others making, or failing to make, any repairs,
alterations, additions or improvements in or to any portion of the Building or
the Premises, or its fixtures, appurtenances or equipment.
Section 6.4. Without abatement or diminution in rent, Landlord reserves
and shall have the following additional rights:
1. To erect, use and maintain pipes and conduits in and through
the Premises; provided that all such conduits and pipes shall
be located behind then-existing walls, under floors or above
suspended ceilings and shall not interfere with the use and
operation of the Premises, or any equipment or facilities
located therein.
2. To take any and all measures, including inspections, repairs,
alterations, additions and improvements to the Premises or to
the Building, as may be necessary or desirable for the safety,
protection or preservation of the Premises or the Building or
Landlord's interests, or as may be necessary or desirable in
the operation of the Building.
ARTICLE VII
CONNECTING CORRIDORS
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Section 7.1 Within sixty (60) days after the Commencement Date, Tenant
shall, at its own expense, install a doorway or wall in the enclosed corridor
which leads to the building on the Adjacent Property, the design and location of
the doorway or wall to be approved by Landlord.
Section 7.2 In the event that the Expiration Date of this Lease shall
be earlier or later than the expiration date of Tenant's lease of Building No.
2, then at such time as Tenant no longer occupies both of such buildings, Tenant
shall, at its own expense, construct a door or doors in the corridor which
connects the Building and Building No. 2, in such manner as Landlord and Tenant
shall mutually agree, to prevent access between the Building and Building No. 2.
ARTICLE VIII
REQUIREMENTS OF LAW
Section 8.1. Tenant shall not do, and shall not permit Persons Within
Tenant's Control to do, any act or thing in or upon the Premises or the Building
which will invalidate or be in conflict with the certificate of occupancy for
the Premises or the Building or violate any Requirements or Restrictive
Covenants. Tenant shall, at Tenant's sole cost and expense, take all action,
including making any required Alterations necessary to comply with all
Requirements (including, but not limited to, applicable terms of the Americans
With Disabilities Act of 1990 (the "ADA"), as modified and supplemented from
time to time) which shall impose any violation, order or duty upon Landlord or
Tenant arising from, or in connection with, the Premises, Tenant's occupancy,
use or manner of use of the Premises (including, without limitation, any
occupancy, use or manner of use that constitutes a "place of public
accommodation" under the ADA), or any installations by Tenant in the Premises,
or required by reason of a breach of any of Tenant's covenants or agreements
under this Lease, whether or not such Requirements shall now be in effect or
hereafter enacted or issued, and whether or not any work required shall be
ordinary or extraordinary or foreseen or unforeseen at the date hereof;
provided, however, that Landlord shall be responsible for complying with such
Requirement or Restrictive Covenant and for the cost of such compliance if and
to the extent that non-compliance arose because of the acts of Landlord.
Section 8.2. Tenant covenants and agrees that Tenant shall, at Tenant's
sole cost and expense, comply at all times
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with all Requirements governing the use, generation, storage, treatment and/or
disposal of any Hazardous Materials (as defined below), the presence of which
results from or in connection with the act or omission of Tenant or Persons
Within Tenant's Control or the breach of this Lease by Tenant or Persons Within
Tenant's Control. The term "Hazardous Materials" shall mean any biologically or
chemically active or other toxic or hazardous wastes, pollutants or substances,
including, without limitation, asbestos, PCBs, petroleum products and
by-products, substances defined or listed as "hazardous substances" or "toxic
substances" or similarly identified in or pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. 9601 ET SEQ.,
and as hazardous wastes under the Resource Conservation and Recovery Act, 42
U.S.C. 6010, ET SEQ., any chemical substance or mixture regulated under the
Toxic Substance Control Act of 1976, as amended 15 U.S.C. 2601, ET SEQ., any
"toxic pollutant" under the Clean Water Act, 33 U.S.C. 466 ET SEQ., as amended,
any hazardous air pollutant under the Clean Air Act, 42 U.S.C. 7401 ET SEQ.,
hazardous materials identified in or pursuant to the Hazardous Materials
Transportation Act, 49 U.S.C. 1802, ET SEQ., and any hazardous or toxic
substances or pollutant regulated under any other Requirements. Tenant shall
agree to execute, from time to time, at Landlord's request, affidavits,
representations and the like concerning Tenant's best knowledge and belief
regarding the presence of Hazardous Materials in, on, under or about the
Premises, the Building or the Land. Tenant shall indemnify and hold harmless all
Indemnitees from and against any loss, cost, damage, liability or expense
(including attorneys' fees and disbursements) arising by reason of any clean up,
removal, remediation, detoxification action or any other activity required or
recommended of any Indemnitees by any Governmental Authority by reason of the
presence in or about the Building or the Premises of any Hazardous Materials, as
a result of or in connection with the act or omission of Tenant or Persons
Within Tenant's Control or the breach of this Lease by Tenant or Persons Within
Tenant's Control. The foregoing covenants and indemnity shall survive the
expiration or any termination of this Lease.
Section 8.3. If Tenant shall receive notice of any violation of, or
defaults under, any Requirements, liens or other encumbrances applicable to the
Premises, Tenant shall give prompt notice thereof to Landlord.
Section 8.4. If any governmental license or permit shall be required
for the proper and lawful conduct of Tenant's business and if the failure to
secure such license or permit
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would, in any way, affect Landlord or the Building, then Tenant, at Tenant's
expense, shall promptly procure and thereafter maintain, submit for inspection
by Landlord, and at all times comply with the terms and conditions of, each such
license or permit.
Section 8.5. Tenant, at Tenant's sole cost and expense and after notice
to Landlord, may contest, by appropriate proceedings prosecuted diligently and
in good faith, the legality or applicability of any Requirement affecting the
Premises provided that: (a) neither Landlord nor any Indemnitees shall be
subject to criminal penalties, nor shall the Real Property or any part thereof
be subject to being condemned or vacated, nor shall the certificate of occupancy
for the Premises or the Building be suspended or threatened to be suspended, by
reason of non-compliance or by reason of such contest; (b) before the
commencement of such contest, if Landlord or any Indemnitees may be subject to
any civil fines or penalties or if Landlord may be liable to any independent
third party as a result of such non-compliance, then Tenant shall furnish to
Landlord either (i) a bond of a surety company satisfactory to Landlord, in form
and substance reasonably satisfactory to Landlord, and in an amount at least
equal to Landlord's estimate of the sum of (A) the cost of such compliance, (B)
the penalties or fines that may accrue by reason of such non-compliance (as
reasonably estimated by Landlord) and (C) the amount of such liability to
independent third parties, and shall indemnify Landlord (and any Indemnitees)
against the cost of such compliance and liability resulting from or incurred in
connection with such contest or non-compliance; or (ii) other security
satisfactory in all respects to Landlord; (c) such non-compliance or contest
shall not constitute or result in a violation (either with the giving of notice
or the passage of time or both) of the terms of any Mortgage, or if such
Mortgage conditions such non-compliance or contest upon the taking of action or
furnishing of security by Landlord, such action shall be taken or such security
shall be furnished at the expense of Tenant; and (d) Tenant shall keep Landlord
regularly advised as to the status of such proceedings.
ARTICLE IX
SUBORDINATION
Section 9.1. This Lease shall be subject and subordinate to each
Mortgage, whether made prior to or after the execution of this Lease, and to all
renewals, extensions, supplements, amendments, modifications, consolidations and
replacements
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thereof or thereto, substitutions therefor, and advances made thereunder. This
clause shall be self-operative and no further agreement of subordination shall
be required to make the interest of any Lessor or Mortgagee superior to the
interest of Tenant hereunder. In confirmation of such subordination, however,
Tenant shall promptly execute and deliver, at its own cost and expense, any
document, in recordable form if requested, that Landlord, any Lessor or any
Mortgagee may request to evidence such subordination. Tenant shall not do
anything that would constitute a default under any Mortgage, or omit to do
anything that Tenant is obligated to do under the terms of this Lease so as to
cause Landlord to be in default thereunder. If, in connection with the financing
of the Real Property or the Building, any lending institution or Lessor, as the
case may be, requests reasonable modifications of this Lease that do not
increase rent or change the Term of this Lease, or materially and adversely
affect the rights or obligations of Tenant under this Lease, Tenant shall make
such modifications.
Section 9.2. If, at any time prior to the expiration of the Term, any
Mortgagee comes into possession of the Real Property or the Building by receiver
or otherwise, Tenant agrees, at the election and upon demand of any owner of the
Real Property or the Building, or of any Mortgagee in possession of the Real
Property or the Building, to attorn, from time to time, to any such owner or
Mortgagee or any person acquiring the interest of Landlord as a result of any
such termination, or as a result of a foreclosure of the Mortgage or the
granting of a deed in lieu of foreclosure, upon the then executory terms and
conditions of this Lease (except as provided below), for the remainder of the
Term, provided that such owner or Mortgagee, as the case may be, or receiver
caused to be appointed by any of the foregoing, is then entitled to possession
of the Premises. Any such attornment shall be made upon the condition that no
such owner or Mortgagee shall be:
1. liable for any act or omission of any prior
landlord (including, without limitation, the then defaulting landlord);
or
2. subject to any defense or offsets (except as
expressly set forth in this Lease) which Tenant may have against any
prior landlord (including, without limitation, the then defaulting
landlord); or
3. bound by any payment of Rental which Tenant might
have paid for more than the current month to any prior
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landlord (including, without limitation, the then defaulting landlord);
or
4. bound by any obligation to make any payment to
Tenant which was required to be made prior to the time such owner or
Mortgagee succeeded to any prior landlord's interest; or
5. bound by any obligation to perform any work or to
make improvements to the Premises except for (i) repairs and
maintenance pursuant to the provisions of Article 6, (ii) repairs to
the Premises or any part thereof as a result of damage by fire or other
casualty pursuant to Article 12, but only to the extent that such
repairs can be reasonably made from the net proceeds of any insurance
actually made available to such owner or Mortgagee and (iii) repairs to
the Premises as a result of a partial condemnation pursuant to Article
13, but only to the extent that such repairs can be reasonably made
from the net proceeds of any award made available to such owner or
Mortgagee. The provisions of this Section 9.2 shall inure to the
benefit of any such owner or Mortgagee, shall apply notwithstanding
that, as a matter of law, this Lease may terminate, and shall be
self-operative upon any such demand, and no further agreement shall be
required to give effect to said provisions. Tenant, however, upon
demand of any such owner or Mortgagee, shall execute, from time to
time, agreements in confirmation of the foregoing provisions of this
Section 9.2, satisfactory to any such owner, Lessor or Mortgagee, and
acknowledging such attornment and setting forth the terms and
conditions of its tenancy. Nothing contained in this Section 9.2 shall
be construed to impair any right otherwise exercisable by any such
owner or Mortgagee.
Section 9.3. If requested by any Mortgagee or Landlord, Tenant shall
promptly execute and deliver, at Tenant's own cost and expense, any document in
accordance with the terms of this Article 9, in recordable form, to evidence
such subordination.
Section 9.4. At any time and from time to time upon not less than
twenty (20) days' prior notice to Tenant or Landlord given by the other, or to
Tenant given by a Mortgagee, Tenant or Landlord, as the case may be, shall,
without charge, execute, acknowledge and deliver a statement in writing
addressed to such party as Tenant, Landlord or Mortgagee,
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as the case may be, may designate, in form satisfactory to Tenant, Landlord or
Mortgagee, as the case may be, certifying all or any of the following: (i) that
this Lease is unmodified and in full force and effect (or if there have been
modifications, that this Lease is in full force and effect as modified and
stating the modifications); (ii) whether the Term has commenced and Fixed Rent
and Additional Rent have become payable hereunder and, if so, the dates to which
they have been paid; (iii) whether or not, to the best knowledge of the signer
of such certificate, Landlord is in default in performance of any of the terms
of this Lease and, if so, specifying each such event of default of which the
signer may have knowledge; (iv) whether Tenant has accepted possession of the
Premises; (v) whether Tenant has made any claim against Landlord under this
Lease and, if so, the nature thereof and the dollar amount, if any, of such
claim; (vi) either that Tenant does not know of any default in the performance
of any provision of this Lease or specifying the details of any default of which
Tenant may have knowledge and stating what action Tenant is taking or proposes
to take with respect thereto; (vii) that, to the knowledge of Tenant, there are
no proceedings pending or threatened against Tenant before or by any court or
administrative agency which, if adversely decided, would materially and
adversely affect the financial condition or operations of Tenant or, if any such
proceedings are pending or threatened to the knowledge of Tenant, specifying and
describing the same; and (viii) such further information with respect to the
Lease or the Premises as Landlord may reasonably request or Mortgagee may
require; it being intended that any such statement delivered pursuant hereto may
be relied upon by any prospective purchaser of the Real Property or any part
thereof or of the interest of Landlord in any part thereof, by any Mortgagee or
prospective Mortgagee, by any tenant or prospective tenant of the Real Property
or any part thereof, or by any prospective assignee of any Mortgage or by any
assignee of Tenant.
The failure of either Tenant or Landlord to execute, acknowledge and
deliver to the other a statement in accordance with the provisions of this
Section 9.4 within said twenty (20) day period shall constitute an
acknowledgment by Tenant or Landlord, as the case may be, which may be relied on
by any person who would be entitled to rely upon any such statement, that such
statement as submitted by Landlord or Tenant, as the case may be, is true and
correct.
Section 9.5. As long as any Mortgage exists, Tenant shall not seek to
terminate this Lease by reason of any act or omission of Landlord until Tenant
has given written notice of such act or omission to all Mortgagees at such
addresses as may have been
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furnished to Tenant by such Mortgagees and, if any such Mortgagee notifies
Tenant within thirty (30) days following receipt of such notice that it intends
to remedy such act or omission, Mortgagee shall have a reasonable period of time
to remedy such act or omission.
ARTICLE X
RULES AND REGULATIONS
Section 10.1. Tenant and Persons Within Tenant's Control shall comply
with Exhibit "C," "Rules and Regulations." Nothing contained in this Lease shall
be construed to impose upon Landlord any duty or obligation to enforce the Rules
and Regulations or the terms, covenants or conditions in any other lease against
any other tenant, and Landlord shall not be liable to Tenant for violation of
the same by any other tenant, its employees, agents, visitors or licensees.
Landlord shall not discriminate against Tenant in enforcing the Rules and
Regulations. In case of any conflict or inconsistency between the provisions of
this Lease and of any of the Rules and Regulations as originally or as
hereinafter adopted, the provisions of this Lease shall control.
ARTICLE XI
INSURANCE, PROPERTY LOSS OR DAMAGE, REIMBURSEMENT
Section 11.1. (a) Tenant shall not entrust any property to any
Building employee. Any Building employee to whom any property is entrusted by or
on behalf of Tenant in violation of the foregoing prohibition shall be deemed to
be acting as Tenant's agent with respect to such property and neither Landlord
nor its agents shall be liable for any damage to property of Tenant or of others
entrusted to employees of the Building, nor for the loss of or damage to any
property of Tenant by theft or otherwise. Landlord and Landlord's agents shall
not be liable for any damage to any of Tenant's Property or for interruption of
Tenant's business, however caused, including but not limited to damage caused by
other tenants or persons in the Building. Landlord shall not be liable for any
latent defect in the Premises or in the Building.
(b) Tenant shall give notice to Landlord promptly after Tenant learns
of any accident, emergency or occurrence for which Landlord might be liable,
fire or other casualty and all damages to or defects in the Premises or the
Building for the repair of
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which Landlord might be responsible or which constitutes Landlord's property.
Such notice shall be given by telecopy or personal delivery to the address(es)
of Landlord in effect for notice.
Section 11.2. Tenant shall not do or permit to be done any act or thing
in or upon the Premises which will invalidate or be in conflict with the terms
of the State of Tennessee standard policies of fire insurance and liability
(hereinafter referred to as "Building Insurance"); and Tenant, at Tenant's own
expense, shall comply with all rules, orders, regulations and requirements of
all insurance boards, and shall not do or permit anything to be done in or upon
the Premises or bring or keep anything therein or use the Premises in a manner
which increases the rate of premium for any of the Building Insurance over the
rate in effect at the commencement of the Term of this Lease.
Section 11.3. If by reason of any failure of Tenant to comply with the
provisions of this Lease, the rate of premium for Building Insurance or other
insurance on the property and equipment of Landlord shall increase, Tenant shall
reimburse Landlord for that part of the insurance premiums thereafter paid by
Landlord which shall have been charged because of such failure by Tenant. Tenant
shall make said reimbursement on the first day of the month following such
payment by Landlord.
Section 11.4. (a) At Tenant's own cost and expense, Tenant shall
obtain, maintain and keep in full force and effect during the Term commercial
general liability insurance (without deductible) in a form approved in the State
of Tennessee (including broad form property damage coverages). The limits of
liability shall be not less than Five Million Dollars ($5,000,000.00) per
occurrence, which amount may be satisfied with a primary commercial general
liability policy of not less than Two Million Dollars ($2,000,000.00) and an
excess (or "Umbrella") liability policy affording coverage, at least as broad as
that afforded by the primary commercial general liability policy, in an amount
not less than Three Million Dollars ($3,000,000.00). Landlord, the Manager, any
Lessors and any Mortgagees shall be included as additional insureds in said
policies and shall be protected against all liability arising in connection with
this Lease. All said policies of insurance shall be written as "occurrence"
policies. Whenever, in Landlord's reasonable judgment, good business practice
and changing conditions indicate a need for additional amounts or different
types of insurance coverage, Tenant shall, within ten (10) days
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after Landlord's request, obtain such insurance coverage, at Tenant's expense.
(b) Tenant, at Tenant's sole cost and expense, shall maintain all-risk
insurance, with deductibles in an amount reasonably satisfactory to Landlord,
protecting and indemnifying Tenant against any and all damage to or loss of any
Alterations and leasehold improvements, including any made by Landlord to
prepare the Premises for Tenant's occupancy, and Tenant's Property. All said
policies shall cover the full replacement value of all Alterations, leasehold
improvements and Tenant's Property.
(c) All policies of insurance shall be: (i) written as primary policy
coverage and not contributing with or in excess of any coverage which Landlord
or any Lessor may carry; and (ii) issued by reputable and independent insurance
companies rated in Best's Insurance Guide or any successor thereto (or, if there
is none, an organization having a national reputation), as having a general
policyholder rating of "A" and a financial rating of at least "VII," and which
are licensed to do business in the State of Tennessee. Tenant shall, not later
than ten (10) Business Days prior to the Commencement Date, deliver to Landlord
either (a) the policies of insurance or (b) certificates thereof with a copy of
the declaration page, and shall thereafter furnish to Landlord, at least thirty
(30) days prior to the expiration of any such policies and any renewal thereof,
a new policy or certificate (with copy of the declaration page) in lieu thereof.
Each of said policies shall also contain a provision whereby the insurer agrees
not to cancel, fail to renew, diminish or materially modify said insurance
policy(ies) without having given Landlord, the Manager and any Lessors and
Mortgagees at least thirty (30) days prior written notice thereof. Tenant shall
promptly send to Landlord a copy of all notices sent to Tenant by Tenant's
insurer.
(d) Tenant shall pay all premiums and charges for all of said policies,
and, if Tenant shall fail to make any payment when due or carry any such policy,
then after notice to Tenant, Landlord may, but shall not be obligated to, make
such payment or carry such policy, and the amount paid by Landlord, with
interest thereon (at the Applicable Rate), shall be repaid to Landlord by Tenant
on demand, and all such amounts so repayable, together with such interest, shall
be deemed to constitute Additional Rent hereunder. Payment by Landlord of any
such premium, or the carrying by Landlord of any such policy, shall not be
deemed to waive or release the default of Tenant with respect thereto.
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Section 11.5. (a) Landlord shall cause each policy carried by
Landlord insuring the Building against loss, damage or destruction by fire or
other casualty, and Tenant shall cause each insurance policy carried by Tenant
and insuring the Premises and Tenant's Alterations, leasehold improvements and
Tenant's Property against loss, damage or destruction by fire or other casualty,
to be written in a manner so as to provide that the insurance company waives all
rights of recovery by way of subrogation against Landlord, Tenant and any tenant
of space in the Building in connection with any loss or damage covered by any
such policy. Neither party shall be liable to the other for the amount of such
loss or damage which is in excess of the applicable deductible, if any, caused
by fire or any of the risks enumerated in its policies.
(b) The waiver of subrogation referred to in Section 11.5(a) above
shall extend to the agents and employees of each party (including, as to
Landlord, the Manager). Nothing contained in this Section 11.5 shall be deemed
to relieve either party from any duty imposed elsewhere in this Lease to repair,
restore and rebuild.
(c) During the Term, Landlord agrees to maintain:
(i) "all risk" full replacement cost property insurance on the
Building in an amount sufficient to prevent Landlord from being deemed
a coinsurer of the risks insured under the policy, which shall include
customary rent loss insurance covering loss of rents from Tenant under
this Lease and other tenants under other leases and which shall
include, as and to the extent customarily included by prudent owners of
comparable first class office buildings in Memphis, Tennessee, boiler
and machinery and electrical apparatus coverage;
(ii) commercial general liability insurance (which may be a
combination of primary and umbrella coverages) in an amount which
Landlord deems appropriate; and
(iii) Landlord shall furnish to Tenant certificates or other
evidence of insurance from the insurer, or, if not available from the
insurer, then from the insurance agent, evidencing such coverage at the
time this Lease is executed and, at Tenant's request, within thirty
(30) days after any policy is renewed, replaced or changed.
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ARTICLE XII
DESTRUCTION BY FIRE OR OTHER CAUSE
Section 12.1. If the Premises or any part thereof shall be damaged by
fire or other casualty, Tenant shall give prompt written notice thereof to
Landlord. Landlord shall, subject to the provisions of Sections 12.2 and 12.3
below, proceed with reasonable diligence within 120 days of the casualty to
repair or cause to be repaired such damage at its expense; and, if the Premises,
or any part thereof, shall be rendered untenantable by reason of such damage and
such damage shall not be due to the fault of Tenant or Persons Within Tenant's
Control, then the Fixed Rent and the Escalation Rent hereunder, or an amount
thereof apportioned on a pro rata basis according to the area of the Premises so
rendered untenantable (if less than the entire Premises shall be so rendered
untenantable), shall be abated for the period from the date of such damage to
the date when the repair of such damage shall have been substantially completed.
Tenant covenants and agrees to cooperate with Landlord and any Lessor or any
Mortgagee in their efforts to collect insurance proceeds (including rent
insurance proceeds) payable to such parties. Landlord shall not be liable for
any delay which may arise by reason of adjustment of insurance on the part of
Landlord and/or Tenant, or any cause beyond the control of Landlord or
contractors employed by Landlord.
Section 12.2. Landlord shall not be liable for any inconvenience or
annoyance to Tenant or injury to the business of Tenant resulting in any way
from damage from fire or other casualty or the repair thereof. Tenant
understands that Landlord, in reliance upon Section 12.4, will not carry
insurance of any kind on Tenant's Property, Tenant's Alterations and on
leasehold improvements, and that Landlord shall not be obligated to repair any
damage thereto or replace the same.
(a) Notwithstanding anything to the contrary contained in
Sections 12.1 and 12.2 above, in the event that:
(i) at least twenty-five thousand (25,000) rentable
square feet of the Building shall be damaged by a fire or
other casualty so that substantial alteration or
reconstruction of the Building shall, in Landlord's sole
opinion, be required (whether or not the Premises shall have
been damaged by such fire or other casualty and without regard
to the structural integrity of the Building); or
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(ii) the Premises shall be totally or substantially
damaged or shall be rendered wholly or substantially
untenantable; or
(iii) there shall be any damage to the Premises
within the last two (2) years of the Term wherein the cost of
repair exceeds an amount equal to three (3) monthly
installments of Fixed Rent,
then either Landlord or Tenant may terminate this Lease and the term
and estate hereby granted, by notifying the other party in writing of
such termination prior to commencement of work to repair the damage to
the Premises or within one hundred twenty (120) days after the date of
such damage, whichever first occurs. In the event that such a notice of
termination shall be given, then this Lease and the Term and estate
hereby granted shall expire as of the date of termination stated in
said notice with the same effect as if that were the Fixed Expiration
Date, and the Fixed Rent and Escalation Rent hereunder shall be
apportioned as of such date.
(b) Notwithstanding anything to the contrary contained in this Section
12.2, upon written request which is made by Tenant prior to commencement of work
to repair the damage to the Premises, Landlord shall deliver to Tenant an
estimate prepared by a reputable contractor selected by Landlord setting forth
such contractor's estimate as to the time reasonably required to repair such
damage. If the period to repair set forth in any such estimate exceeds nine (9)
months, Tenant may elect to terminate this Lease by notice to Landlord given not
later than thirty (30) days following Tenant's receipt of such estimate. If
Tenant exercises such election, this Lease and the term and estate hereby
granted shall expire as of the sixtieth (60th) day after notice of such election
given by Tenant with the same effect as if that were the Fixed Expiration Date,
and the Fixed Rent and Escalation Rent hereunder shall be apportioned as of such
date.
Section 12.3. Except as may be provided in Section 11.5, nothing herein
contained shall relieve Tenant from any liability to Landlord or to Landlord's
insurers in connection with any damage to the Premises or the Building by fire
or other casualty if Tenant shall be legally liable in such respect.
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Section 12.4. This Lease shall be considered an express agreement
governing any case of damage to or destruction of the Building or any part
thereof by fire or other casualty.
ARTICLE XIII
EMINENT DOMAIN
Section 13.1. If the whole of the Real Property, the Building or the
Premises is acquired or condemned for any public or quasi-public use or purpose,
this Lease and the Term shall end as of the date of the vesting of title with
the same effect as if said date were the Fixed Expiration Date. If only a part
of the Real Property and not the entire Premises is so acquired or condemned
then, (a) except as hereinafter provided in this Section 13.1, this Lease and
the Term shall continue in effect but, if a part of the Premises is included in
the part of the Real Property so acquired or condemned, from and after the date
of the vesting of title, the Fixed Rent and Tenant's Share shall be reduced in
the proportion which the area of the part of the Premises so acquired or
condemned bears to the total area of the Premises immediately prior to such
acquisition or condemnation; (b) whether or not the Premises are affected
thereby, Landlord, at Landlord's option, may give to Tenant, within sixty (60)
days next following the date upon which Landlord receives notice of vesting of
title, a thirty (30) day notice of termination of this Lease; and (c) if the
part of the Real Property so acquired or condemned contains more than thirty
percent (30%) of the total area of the Premises immediately prior to such
acquisition or condemnation, or if, by reason of such acquisition or
condemnation, Tenant no longer has access to the Premises, Tenant, at Tenant's
option, may give to Landlord, within sixty (60) days next following the date
upon which Tenant receives notice of vesting of title, a thirty (30) day notice
of termination of this Lease. If any such thirty (30) day notice of termination
is given, by Landlord or Tenant, this Lease and the Term shall come to an end
and expire upon the expiration of said thirty (30) days with the same effect as
if the date of expiration of said thirty (30) days were the Fixed Expiration
Date. If a part of the Premises is so acquired or condemned and this Lease and
the Term are not terminated pursuant to the foregoing provisions of this Section
13.1, Landlord, at Landlord's cost and expense, shall restore that part of the
Premises not so acquired or condemned to a self-contained rental unit, exclusive
of Tenant's Alterations and Tenant's Property. In the event of any termination
of this Lease and the Term pursuant to the provisions of this Section 13.1, the
Fixed Rent
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shall be apportioned as of the date of the termination and any prepaid portion
of the Fixed Rent or Escalation Rent for any period after such date shall be
refunded by Landlord to Tenant.
Section 13.2. In the event of any such acquisition or condemnation of
all or any part of the Real Property, Landlord shall be entitled to receive the
entire award for any such acquisition or condemnation. Tenant shall have no
claim against Landlord or the condemning authority for the value of any
unexpired portion of the Term and Tenant hereby expressly assigns to Landlord
all of its right in and to any such award. Nothing contained in this Section
13.2 shall be deemed to prevent Tenant from making a separate claim in any
condemnation proceedings for the value of any Tenant's Property included in such
taking, and for any moving expenses, so long as Landlord's award is not reduced
thereby.
ARTICLE XIV
ASSIGNMENT, SUBLETTING, MORTGAGE, ETC.
Section 14.1 Except as otherwise provided in this Article 14, Tenant
shall not (a) assign this Lease (whether by operation of law, transfers of
interests in Tenant or otherwise); or (b) mortgage or encumber Tenant's interest
in this Lease, in whole or in part; or (c) sublet, or permit the subletting of,
the Premises or any part thereof. Tenant shall not advertise or authorize a
broker to advertise for a subtenant or assignee, without in each instance,
obtaining the prior written consent of Landlord, which shall not be unreasonably
withheld or delayed.
Section 14.2 If Tenant's interest in this Lease shall be assigned in
violation of the provisions of this Article 14, such assignment shall be invalid
and of no force and effect against Landlord; provided, however, that Landlord
may collect an amount equal to the then Fixed Rent plus any other item of Rental
from the assignee as a fee for its use and occupancy. If the Premises or any
part thereof are sublet to, or occupied by, or used by, any person other than
Tenant, whether or not in violation of this Article 14, Landlord, after default
by Tenant under this Lease, may collect any item of Rental or other sums paid by
the subtenant, user or occupant as a fee for its use and occupancy, and shall
apply the net amount collected to the Fixed Rent and the items of Rental
reserved in this Lease. No such assignment, subletting, occupancy, or use,
whether with or without Landlord's prior consent, nor any such collection or
application of Rental or fee for use and occupancy, shall be deemed a waiver by
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Landlord of any term, covenant or condition of this Lease or the acceptance by
Landlord of such assignee, subtenant, occupant or user as Tenant hereunder, nor
shall the same, in any circumstances, relieve Tenant of any of its obligations
under this Lease. The consent by Landlord to any assignment, subletting,
occupancy or use shall not relieve Tenant from its obligation to obtain the
express prior consent of Landlord to any further assignment, subletting,
occupancy or use. Any person to which this Lease is assigned with Landlord's
consent shall be deemed without more to have assumed all of the obligations
arising under this Lease from and after the date of such assignment and shall
execute and deliver to Landlord, upon demand, an instrument confirming such
assumption. Notwithstanding and subsequent to any assignment, Tenant's primary
liability hereunder shall continue notwithstanding (a) any subsequent amendment
hereof, or (b) Landlord's forbearance in enforcing against Tenant any obligation
or liability, without notice to Tenant, to each of which Tenant hereby consents
in advance. If any such amendment operates to increase the obligations of Tenant
under this Lease, the liability under this Section 14.2 of the assigning Tenant
shall continue to be no greater than if such amendment had not been made (unless
such party shall have expressly consented in writing to such amendment).
(a) For purposes of this Article 14, (i) the transfer of a majority of
the issued and outstanding capital stock of any corporate tenant, or of a
corporate subtenant, or the transfer of a majority of the total interest in any
partnership tenant or subtenant, or the transfer of control in any limited
partnership tenant or subtenant, or the transfer of control in any limited
liability company tenant or subtenant or the transfer of control in any limited
liability partnership tenant or subtenant, however accomplished, whether in a
single transaction or in a series of related or unrelated transactions, shall be
deemed an assignment of this Lease, or of such sublease, as the case may be,
except that the transfer of the outstanding capital stock of any corporate
tenant, or subtenant, shall be deemed not to include the sale of such stock by
persons or parties, other than those deemed "affiliates" of Tenant within the
meaning of Rule 144 promulgated under the Securities Act of 1933, as amended,
through the "over-the-counter market" or through any recognized stock exchange,
(ii) any increase in the amount of issued and/or outstanding capital stock of
any corporate tenant, or of a corporate subtenant, and/or the creation of one or
more additional classes of capital stock of any corporate tenant or any
corporate subtenant, in a single transaction or a series of
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related or unrelated transactions, resulting in a change in the legal or
beneficial ownership of such tenant or subtenant so that the shareholders of
such tenant or subtenant existing immediately prior to such transaction or
series of transactions shall no longer own a majority of the issued and
outstanding capital stock of such tenant or subtenant, shall be deemed an
assignments of this Lease, (iii) an agreement by any other person or entity,
directly or indirectly, to assume Tenant's obligations under this Lease shall be
deemed an assignment, (iv) any person or legal representative of Tenant, to whom
Tenant's interest under this lease passes by operation of law, or otherwise,
shall be bound by the provisions of this Article 14, and (v) a modification,
amendment or extension of a sublease shall be deemed a sublease. Tenant agrees
to furnish to Landlord on request at any time such information and assurances as
Landlord may reasonably request that neither Tenant, nor any previously
permitted subtenant, has violated the provisions of this Article 14.
(b) The provisions of clauses (a), (c) and (d) of Section 14.1 shall
not apply to transactions with a corporation into or with which Tenant is merged
or consolidated or with a Person to which substantially all of Tenant's assets
are transferred (provided such merger or transfer of assets is for a good
business purpose and not principally for the purpose of transferring the
leasehold estate created by this Lease, and provided further, that the assignee
has a net worth at least equal to or in excess of the net worth of Tenant as of
the date of this Lease and as of the date immediately prior to such merger or
transfer, whichever is greater) or, if Tenant is a partnership, with a successor
partnership, nor shall the provisions of clause (a), (c) and (d) of Section 14.1
apply to transactions with an entity that controls or is controlled by Tenant or
is under common control with Tenant. Tenant shall notify Landlord before any
such transaction is consummated.
(c) The term "control" as used in this Lease (i) in the case of a
corporation shall mean ownership of more than fifty percent (50%) of the
outstanding capital stock of that corporation, (ii) in the case of a general
partnership, shall mean more than fifty percent (50%) of the general partnership
interest of the partnership, (iii) in the case of a limited partnership, shall
mean more than fifty percent (50%) of the general and limited partnership
interests of such limited partnership; (iv) in the case of a limited liability
company, shall mean more than fifty percent (50%) of the membership interests of
such limited liability company, and (v) in the case of a limited liability
partnership, shall mean more than fifty
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percent (50%) of the partnership interest of such limited liability partnership.
Section 14.3. [RESERVED]
Section 14.4. (a) If Tenant sublets any portion of the Premises to a
Person in a transaction for which Landlord's consent is required, Landlord shall
be entitled to and Tenant shall pay to Landlord, as Additional Rent (the
"Sublease Additional Rent"), a sum equal to fifty percent (50%) of any rents,
additional charges and other consideration payable under the sublease to Tenant
by the subtenant in excess of the Fixed Rent and Escalation Rent accruing during
the term of the sublease in respect of the subleased space (at the rate per
square foot payable by Tenant under this Lease) pursuant to the terms of this
Lease (including, but not limited to, sums paid for the sale or rental of
Tenant's Property and Alterations less the then net unamortized or undepreciated
cost thereof determined on the basis of Tenant's federal income tax or federal
information returns), net of any reasonable brokerage commissions incurred in
connection therewith; provided, however, that no reduction shall be allowed if
brokerage commissions are paid to any Person under Tenant's control. Such
Sublease Additional Rent shall be payable as and when received by Tenant.
(b) Landlord may, by notice to Tenant, elect to waive the benefits of
this Section 14.4, for any month or months, prospectively or retroactively. Any
retroactive waiver shall be accompanied by a return to Tenant of all Sublease
Additional Rent theretofore paid to and retroactively waived by Landlord for the
months in question.
Section 14.5. (a) If Tenant shall assign this Lease to a Person in a
transaction for which Landlord's consent is required, Landlord shall be entitled
to and Tenant shall pay to Landlord, as Additional Rent, an amount equal to all
sums and other consideration paid to Tenant by the assignee for or by reason of
such assignment (including, but not limited to, sums paid for the sale or rental
of Tenant's Property and Alterations less the then net unamortized or
undepreciated cost thereof determined on the basis of Tenant's federal income
tax or federal information returns). Such Additional Rent shall be payable as
and when received by Tenant from the assignee.
(b) Landlord may, by notice to Tenant, elect to waive the benefits of
this Section 14.5, prospectively or retrospectively. Any retroactive waiver
shall be accompanied by a return to
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Tenant of all amounts theretofore paid to and retroactively waived by Landlord.
Section 14.6. Landlord shall have no liability for brokerage
commissions incurred with respect to any assignment of this Lease or any
subletting of all or any part of the Premises by or on behalf of Tenant. Tenant
shall pay, and shall indemnify and hold Landlord harmless from and against, any
and all cost, expense (including reasonable attorneys' fees and disbursements)
and liability in connection with any compensation, commissions or charges
claimed by any broker or agent with respect to any such assignment or
subletting.
ARTICLE XV
ACCESS TO PREMISES
Section 15.1. (a) Tenant shall permit Landlord, Landlord's agents and
independent contractors and public utilities servicing the Building to have
reasonable access for the purpose of maintaining existing concealed ducts, pipes
and conduits in and through and to access all Common Areas within the Building
and all Common Areas comprising a portion of the Land. Landlord or Landlord's
agents shall have the right to enter the Premises at all reasonable times upon
(except in case of emergency) reasonable prior notice, which notice may be oral,
to examine the same, to show the same to prospective purchasers, Mortgagees or
lessees of the Building or space therein, and to make such repairs, alterations,
improvements or additions (i) as Landlord may deem necessary or desirable to the
Premises or to any other portion of the Building, or (ii) which Landlord may
elect to perform at least ten (10) days after notice (except in an emergency
when no notice shall be required) following Tenant's failure to make repairs or
perform any work which Tenant is obligated to make or perform under this Lease,
or (iii) for the purpose of complying with Requirements, and Landlord shall be
allowed to take all material into and upon the Premises that may be required
therefor without the same constituting an eviction or constructive eviction of
Tenant in whole or in part and the Fixed Rent (and any other item of Rental)
shall in no respect abate or be reduced by reason of said repairs, alterations,
improvements or additions, wherever located, or while the same are being made,
by reason of loss or interruption of business of Tenant, or otherwise. Landlord
shall promptly repair any damage caused to the Premises by such work,
alterations, improvements or additions. Tenant shall, at Tenant's cost, take
such action as may be reasonably necessary to grant to Landlord, its agents and
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independent contractors clearance and access by means of the Security System for
the purposes herein set out.
(b) Any work performed or installations made pursuant to this Article
15 shall be made with reasonable diligence and otherwise pursuant to Section
6.3.
(c) Any pipes, ducts, or conduits installed in or through the Premises
pursuant to this Article 15 shall, if reasonably practicable, either be
concealed behind, beneath or within partitioning, columns, ceilings or floors
located or to be located in the Premises, or completely furred at points
immediately adjacent to partitioning, columns or ceilings located or to be
located in the Premises.
Section 15.2. If Tenant is not present when for any reason entry into
the Premises may be necessary or permissible, Landlord or Landlord's agents may
enter the same without rendering Landlord or such agents liable therefor (if
during such entry Landlord or Landlord's agents accord reasonable care to
Tenant's Property), and without in any manner affecting this Lease.
Section 15.3. All parts (except surfaces facing the interior of the
Premises) of all walls, windows and doors bounding the Premises (including
exterior Building walls, exterior core corridor walls, exterior doors and
entrances), all balconies, terraces and roofs adjacent to the Premises, all
space in or adjacent to the Premises used for shafts, stacks, stairways, chutes,
pipes, conduits, ducts, fan rooms, heating, air cooling, plumbing and other
mechanical facilities, service closets and other Building facilities are not
part of the Premises, and Landlord shall have the use thereof, as well as access
thereto through the Premises for the purposes of operation, maintenance,
alteration and repair.
ARTICLE XVI
CERTIFICATE OF OCCUPANCY
Section 16.1. Tenant shall not at any time use or occupy the Premises
in violation of the certificate of occupancy at such time issued for the
Premises or for the Building and in the event that any Governmental Authority
hereafter contends or declares by notice, violation, order or in any other
manner whatsoever that the Premises are used by Tenant for a purpose that is a
violation of such certificate of occupancy, Tenant shall, upon three (3)
Business Days' written notice from Landlord or any Government
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Authority, immediately discontinue such use of the Premises; provided, however,
that nothing herein shall prevent Tenant from contesting such violation pursuant
to and in accordance with the provisions of Section 8.5.
ARTICLE XVII
DEFAULT
Section 17.1. Each of the following events shall be an "Event of
Default" under this Lease:
(a) if Tenant shall on any occasion default in the payment
when due of any installment of Fixed Rent or in the payment when due of
any other item of Rental and the same shall not be cured within five
(5) days after written notice of default by Landlord to Tenant; or
(b) if Tenant shall fail on three (3) or more occasions in any
period of eighteen (18) consecutive months to make a payment when due
of any Rental, and Landlord shall have given Tenant written notice of
such default after two (2) such occurrences; or
(c) if Tenant shall default in the observance or performance
of any term, covenant or condition on Tenant's part to be observed or
performed under that certain Agreement of Lease of even date herewith
between Landlord and Tenant with respect to Building No. 2, or any
renewal, modification or extension thereof, and such default shall
continue beyond any grace period set forth in such other lease for the
remedying of such default; or
(d) if the Premises shall become vacant or abandoned; or
(e) if Tenant's interest in this Lease shall devolve upon or
pass to any person, whether by operation of law or otherwise, except as
expressly permitted under Article 14 hereof; or
(f) (1) if Tenant shall not, or shall be unable to, or shall
admit in writing Tenant's inability to, as to any obligation,
pay Tenant's debts as they become due; or
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(2) if Tenant shall commence or institute any case,
proceeding or other action (a) seeking relief on Tenant's
behalf as debtor, or to adjudicate it a bankrupt or insolvent,
or seeking reorganization, arrangement, adjustment,
winding-up, liquidation, dissolution, composition or other
relief with respect to Tenant or Tenant's debts under any
existing or future law of any jurisdiction, domestic or
foreign, relating to bankruptcy, insolvency, reorganization or
relief of debtors, or (b) seeking appointment of a receiver,
trustee, custodian or other similar official for it or for all
or any substantial part of its property; or
(3) if Tenant shall make a general assignment for the
benefit of creditors; or
(4) if any case, proceeding or other action shall be
commenced or instituted against Tenant (a) seeking to have an
order for relief entered against Tenant as debtor or to
adjudicate Tenant a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief with
respect to Tenant or Tenant's debts under any existing or
future law of any jurisdiction, domestic or foreign, relating
to bankruptcy, insolvency, reorganization or relief of
debtors, or (b) seeking appointment of a receiver, trustee,
custodian or other similar official for Tenant or for all or
any substantial part of Tenant's property, which either (i)
results in any such entry of an order for relief, adjudication
of bankruptcy or insolvency or such an appointment or the
issuance or entry of any other order having a similar effect
or (ii) remains undismissed for a period of sixty (60) days;
or
(5) if a trustee, receiver or other custodian shall
be appointed for any substantial part of the assets of Tenant
which appointment is not vacated or effectively stayed within
sixty (60) days; or
(g) if Tenant shall default in the observance or performance
of any other term, covenant or condition of this Lease on Tenant's part
to be observed or performed and Tenant shall fail to remedy such
default within fifteen (15) days after notice by Landlord to Tenant of
such default, or if such default is of such a nature that it cannot
with due
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diligence be completely remedied within said period of fifteen (15)
days and the continuation of which for the period required for cure
will not subject Landlord to the risk of criminal liability or
foreclosure of any Mortgage, if Tenant shall not, (i) within said
fifteen (15) day period advise Landlord of Tenant's intention duly to
institute all steps necessary to remedy such situation, (ii) duly
institute within said fifteen (15) day period, and thereafter
diligently and continuously prosecute to completion all steps necessary
to remedy the same and (iii) complete such remedy within such time
after the date of the giving of said notice by Landlord as shall
reasonably be necessary.
Section 17.2. If an Event of Default shall occur, Landlord may, at any
time thereafter, at Landlord's option, give written notice to Tenant stating
that this Lease and the Term shall expire and terminate on the date specified in
such notice, which date shall not be less than three (3) days after Tenant's
receipt of such notice, or such longer term as specified in the notice,
whereupon this Lease and the Term and all rights of Tenant under this Lease
shall automatically expire and terminate as if the date specified in the notice
given pursuant to this Section 17.2 were the Fixed Expiration Date and Tenant
immediately shall quit and surrender the Premises, but Tenant shall remain
liable for damages as provided herein or pursuant to law. Anything contained
herein to the contrary notwithstanding, if such termination shall be stayed by
order of any court having jurisdiction over any proceeding described in Section
17.1(f), or by federal or state statute, then, following the expiration of any
such stay, or if the trustee appointed in any such proceeding, Tenant or Tenant
as debtor-in-possession fails to assume Tenant's obligations under this Lease
within the period prescribed therefor by law or within one hundred twenty (120)
days after entry of the order for relief or as may be allowed by the court, or
if said trustee, Tenant or Tenant as debtor-in-possession shall fail to provide
adequate protection of Landlord's right, title and interest in and to the
Premises or adequate assurance of the complete and continuous future performance
of Tenant's obligations under this Lease, Landlord, to the extent permitted by
law or by leave of the court having jurisdiction over such proceeding, shall
have the right, at its election, to terminate this Lease on three (3) days'
prior written notice to Tenant, Tenant as debtor-in possession or said trustee
and upon the expiration of said three (3) day period this Lease shall cease and
expire as aforesaid and Tenant, Tenant as
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debtor-in-possession or said trustee shall immediately quit and surrender the
Premises as aforesaid.
Section 17.3. If, at any time, (i) Tenant shall consist of two (2) or
more persons, or (ii) Tenant's obligations under this Lease shall have been
guaranteed by any person other than Tenant, or (iii) Tenant's interest in this
Lease has been assigned, the word "Tenant" as used in Section 17.1(f), shall be
deemed to mean any one or more of the persons primarily or secondarily liable
for Tenant's obligations under this Lease. Any monies received by Landlord from
or on behalf of Tenant during the pendency of any proceeding of the types
referred to in Section 17.1(f) shall be deemed paid as compensation for the use
and occupancy of the Premises and the acceptance of any such compensation by
Landlord shall not be deemed an acceptance of Rental or a waiver on the part of
Landlord of any rights under Section 17.2.
ARTICLE XVIII
REMEDIES AND DAMAGES
Section 18.1. (a) If any Event of Default shall occur, or this Lease
and the Term shall expire and come to an end as provided in Article 17:
6. Tenant shall quit and peacefully surrender the Premises to
Landlord, and Landlord and its agents may immediately, or at any time after such
Event of Default or after the date upon which this Lease and the Term shall
expire and come to an end, re-enter the Premises or any part thereof, without
notice, either by summary proceedings, or by any other applicable action or
proceeding or otherwise (without being liable to indictment, prosecution or
damages therefor), but excluding by force, and may repossess the Premises and
dispossess Tenant and any other persons from the Premises by summary proceedings
or otherwise (excluding by force) and remove any and all of their property and
effects from the Premises (and Tenant shall remain liable for damages as
provided herein or pursuant to law); and
7. Landlord, at Landlord's option, may relet the whole or any
part or parts of the Premises from time to time, either in the name of
Landlord or otherwise, to such tenant or tenants, for such term or
terms ending before, on or after the Fixed Expiration Date, at such
rent or rentals and upon such other conditions, which may include
concessions and free rent periods, as Landlord, in Landlord's sole
discretion, may determine; provided,
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however, that Landlord shall have no obligation to relet the Premises
or any part thereof and shall in no event be liable for refusal or
failure to relet the Premises or any part thereof, or, in the event of
any such reletting, for refusal or failure to collect any rent due upon
any such reletting, and no such refusal or failure shall operate to
relieve Tenant of any liability under this Lease or otherwise affect
any such liability, and Landlord, at Landlord's option, may make such
Alterations, in and to the Premises as Landlord, in Landlord's sole
discretion, shall consider advisable or necessary in connection with
any such reletting or proposed reletting, without relieving Tenant of
any liability under this Lease or otherwise affecting any such
liability.
(b) Tenant hereby waives the service of any notice of intention to
re-enter that may otherwise be required to be given under any present or future
law. Tenant, on its own behalf and on behalf of all persons claiming through or
under Tenant, including all creditors, does further hereby waive any and all
rights that Tenant and all such persons might otherwise have under any present
or future law to redeem the Premises, or to re-enter or repossess the Premises,
or to restore the operation of this Lease, after (1) Tenant shall have been
dispossessed by a judgment or by warrant of any court or judge, or (2) any
reentry by Landlord, or (3) any expiration or termination of this Lease and the
Term, whether such dispossess, re-entry, expiration or termination is by
operation of law or pursuant to the provisions of this Lease.
The words "re-entry," "re-enter" and "re-entered" as used in this Lease
shall not be deemed to be restricted to their technical legal meanings.
In the event of a breach or threatened breach by Tenant, or any persons
claiming through or under Tenant, of any term, covenant or condition of
this Lease, Landlord shall have the right to enjoin such breach and the
right to invoke any other remedy allowed by law or in equity as if
reentry, summary proceedings and other special remedies were not
provided in this Lease for such breach. The right to invoke the
remedies hereinbefore set forth are cumulative and shall not preclude
Landlord from invoking any other remedy allowed at law or in equity.
Section 18.2. (a) If this Lease and the Term shall expire and come to
an end as provided in Article 18, or by or under any summary proceeding or any
other action or proceeding, or if Landlord shall re-enter the Premises as
provided in Section 18.1,
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or by or under any summary proceeding or any other action or proceeding, then,
in any of said events:
1. Tenant shall pay to Landlord all Fixed Rent, Escalation
Rent, other Additional Rent and other items of Rental payable under
this Lease by Tenant to Landlord to the date upon which this Lease and
the Term shall have expired and come to an end or to the date of
re-entry upon the Premises by Landlord, as the case may be;
2. Tenant also shall be liable for and shall pay to Landlord,
as damages, any deficiency ("Deficiency") between the Rental for the
period which otherwise would have constituted the unexpired portion of
the Term and the net amount, if any, of rents collected under any
reletting effected pursuant to the provisions of Section 18.1(a)(2) for
any part of such period (after first deducting from the rents collected
under any such reletting all of Landlord's expenses in connection with
the termination of this Lease, Landlord's reentry upon the Premises and
such reletting including, but not limited to, all repossession costs,
brokerage commissions, attorneys' fees and disbursements, alteration
costs and other expenses of preparing the Premises for such reletting);
any such Deficiency shall be paid in monthly installments by Tenant on
the days specified in this Lease for payment of installments of Fixed
Rent; Landlord shall be entitled to recover from Tenant each monthly
Deficiency as the same shall arise, and no suit to collect the amount
of the Deficiency for any month shall prejudice Landlord's right to
collect the Deficiency for any subsequent month by a similar
proceeding; and
3. whether or not Landlord shall have collected any monthly
Deficiency as aforesaid, Landlord shall be entitled to recover from
Tenant, and Tenant shall pay to Landlord, on demand, in lieu of any
further Deficiency as and for liquidated and agreed final damages, a
sum equal to the amount by which the unpaid Rental for the period which
otherwise would have constituted the unexpired portion of the Term
exceeds the then fair and reasonable rental value of the Premises for
the same period, both discounted to present worth at the Base Rate; if,
before presentation of proof of such liquidated damages to any court,
commission or tribunal, the Premises, or any part thereof, are relet by
Landlord for the period which otherwise would have constituted the
unexpired portion of the Term, or any part thereof, the amount of rent
reserved upon such reletting
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shall be deemed, prima facie, to be the fair and reasonable rental
value for the part or the whole of the Premises so relet during the
term of the reletting.
(b) Tenant shall in no event be entitled to any rents collected or
payable under any reletting, whether or not such rents exceed the Fixed Rent
reserved in this Lease. Solely for the purposes of this Article 18, the term
"Escalation Rent" as used in Section 18.2(a) shall mean the Escalation Rent in
effect immediately prior to the Expiration Date, or the date of re-entry upon
the Premises by Landlord, as the case may be, adjusted to reflect any increase
pursuant to the provisions of Article 3 hereof for the Operating Year
immediately preceding such event. Nothing contained in Article 17 or this
Article 18 shall be deemed to limit or preclude the recovery by Landlord from
Tenant of the maximum amount allowed to be obtained as damages by any statute or
rule of law, or of any sums or damages to which Landlord may be entitled in
addition to the damages set forth in this Section 18.2.
ARTICLE XIX
FEES AND EXPENSES
Section 19.1. If an Event of Default shall have occurred, Landlord may
(a) perform the obligations of Tenant for the account of Tenant, or (b) make any
expenditure or incur any obligation for the payment of money in connection with
any obligation owed by Tenant to Landlord, including, but not limited to,
reasonable attorneys' fees and disbursements in instituting, prosecuting or
defending any action or proceeding arising out of such Event of Default, and in
either case the cost thereof, with interest thereon at the Applicable Rate,
shall be deemed to be Additional Rent hereunder and shall be paid by Tenant to
Landlord within ten (10) days after rendition of any bill or statement to Tenant
therefor.
Section 19.2. If Tenant shall fail to pay any installment of Fixed
Rent, Additional Rent or any other item of Rental for a period longer than five
(5) days after the same shall have become due, Tenant shall pay to Landlord, in
addition to such installment of Fixed Rent, Additional Rent or other item of
Rental, as the case may be, as a late charge and as Additional Rent, a sum equal
to interest at the Applicable Rate on the amount unpaid, computed from the date
such payment was due, without regard to any such grace period, to and including
the date of payment.
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ARTICLE XX
NO REPRESENTATIONS BY LANDLORD
Section 20.1. Landlord and Landlord's agents have made no
representations or promises with respect to the Building, the Real Property or
the Premises except as herein expressly set forth, and no rights, easements or
licenses are acquired by Tenant by implication or otherwise except as expressly
set forth herein. Tenant shall accept possession of the Premises in its "AS IS"
condition on the Commencement Date, and Landlord shall have no obligation to
perform any work or make any installations in order to prepare the Premises for
Tenant's occupancy. The taking of occupancy of the whole or any part of the
Premises by Tenant shall be conclusive evidence, as against Tenant, that Tenant
accepts possession of the same and that the Premises and the Building were in
good and satisfactory condition at the time such occupancy was so taken. All
references in this Lease to the consent or approval of Landlord shall be deemed
to mean the written consent or approval executed by Landlord and no other
consent or approval of Landlord shall be effective for any purpose whatsoever.
ARTICLE XXI
END OF TERM
Section 21.1. Upon the expiration or other termination of this Lease,
Tenant shall quit and surrender to Landlord the Premises, vacant, broom clean,
in good order and condition, ordinary wear and tear excepted, and Tenant shall
remove all of Tenant's Alterations as may be required pursuant to Article 5.
Tenant shall also remove all of Tenant's Property and all other personal
property and personal effects of all persons claiming through or under Tenant,
and shall pay the cost of repairing all damage to the Premises and the Real
Property occasioned by such removal. Any Tenant's Property or other personal
property that remains in the Premises after the termination of this Lease shall
be deemed to have been abandoned and either may be retained by Landlord as its
property or may be disposed of in such manner as Landlord may see fit. If such
Tenant's Property or other personal property or any part thereof is sold,
Landlord may receive and retain the proceeds of such sale as the property of
Landlord. Any expense incurred by Landlord in removing or disposing of such
Tenant's Property or other personal property or Alterations required to be
removed as provided in Article 5, as
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well as the cost of repairing all damage to the Building or the Premises caused
by such removal, shall be reimbursed to Landlord by Tenant, as Additional Rent,
on demand.
Section 21.2. If the Expiration Date falls on a day which is not a
Business Day, then Tenant's obligations under Section 21.1 shall be performed on
or prior to the immediately preceding Business Day.
Section 21.3. If the Premises are not surrendered upon the expiration
or other termination of this Lease, Tenant hereby indemnifies Landlord against
liability resulting from delay by Tenant in so surrendering the Premises,
including any claims made by any succeeding tenant or prospective tenant founded
upon such delay and agrees to be liable to Landlord for (i) any payment or rent
concession which Landlord may be required to make to any tenant obtained by
Landlord for all or any part of the Premises in order to induce such tenant not
to terminate its lease by reason of the holding-over by Tenant and (ii) the loss
of the benefit of the bargain if any such tenant shall terminate its lease by
reason of the holding-over by Tenant.
Section 21.4. Tenant's obligation under this Article shall survive the
expiration or termination of this Lease for a period ending six (6) months after
the end of the calendar year in which the Expiration Date falls.
ARTICLE XXII
POSSESSION
Section 22.1. Tenant acknowledges that it is in possession of the
Premises as of the Commencement Date (Tenant being the prior owner of the Real
Property and Building) and that no further act on Landlord's part is required as
a condition to commencement of the Term of this Lease.
ARTICLE XXIII
NO WAIVER
Section 23.1 No act or thing done by Landlord or Landlord's agents
during the Term shall be deemed an acceptance of a surrender of the Premises,
and no agreement to accept such surrender shall be valid unless in writing
signed by Landlord. Only an executive officer of Landlord shall have the power
to
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accept surrender of the Premises prior to the termination of this Lease.
Section 23.2. The failure of Landlord to seek redress for violation of,
or to insist upon the strict performance of, any covenant or condition of this
Lease, or any of the Rules and Regulations, shall not prevent a subsequent act,
which would have originally constituted a violation, from having all of the
force and effect of an original violation. The receipt by Landlord of Fixed
Rent, Additional Rent or any other item of Rental with knowledge of the breach
of any covenant of this Lease shall not be deemed a waiver of such breach. The
failure of Landlord to enforce any of the Rules and Regulations against Tenant
or any other tenant of the Real Property or the Adjacent Property shall not be
deemed a waiver of any such Rules and Regulations. No provision of this Lease
shall be deemed to have been waived by Landlord, unless such waiver shall be in
writing and shall be signed by Landlord. No payment by Tenant or receipt by
Landlord of a lesser amount than the Rental then due and payable shall be deemed
to be other than on account of the earliest item(s) of Rental, or as Landlord
may elect to apply the same, nor shall any endorsement or statement on any check
or any letter accompanying any check or payment be deemed an accord and
satisfaction, and Landlord may accept such check or payment without prejudice to
Landlord's right to recover the balance due of the Rental or pursue any other
remedy in this Lease provided. This Lease contains the entire agreement between
the parties and all prior negotiations and agreements are merged herein. Any
executory agreement hereafter made shall be ineffective to change, discharge or
effect an abandonment of this Lease in whole or in part unless such executory
agreement is in writing and signed by the party against whom enforcement of the
change, discharge or abandonment is sought.
ARTICLE XXIV
WAIVER OF TRIAL BY JURY
Section 24.1. LANDLORD AND TENANT SHALL AND THEY HEREBY DO WAIVE TRIAL
BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THEM
AGAINST THE OTHER ON ANY MATTERS WHATSOEVER ARISING OUT OF OR IN ANY WAY
CONNECTED WITH THIS LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT, TENANT'S USE
OR OCCUPANCY OF THE PREMISES, WHETHER DURING OR AFTER THE TERM, OR FOR THE
ENFORCEMENT OF ANY REMEDY UNDER ANY STATUTE, EMERGENCY OR OTHERWISE.
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ARTICLE XXV
INABILITY TO PERFORM
Section 25.1. This Lease and the obligation of Tenant to pay Rental
hereunder and to perform all of the other covenants and agreements hereunder on
the part of Tenant to be performed shall in no way be affected, impaired or
excused because Landlord is unable to fulfill any of Landlord's obligations
under this Lease, expressly or implicitly to be performed by Landlord, or
because Landlord is unable to make or is delayed in making any repairs,
additions, alterations, improvements or decorations, or is unable to supply or
is delayed in supplying any services, equipment or fixtures, if Landlord is
prevented from or delayed in so doing by reason of acts of God, casualty,
strikes or labor troubles, accident, governmental preemption in connection with
an emergency, Requirements, Restrictive Covenants, conditions of supply and
demand which have been or are affected by war or other emergency, or any other
cause whatsoever, whether similar or dissimilar to the foregoing, beyond
Landlord's reasonable control ("Unavoidable Delays").
Section 25.2 Notwithstanding anything to the contrary set forth in this
Lease, Landlord shall not be liable for any cessation and/or interruption of
services to the Premises caused by failure of any Building Systems or other
computerized functions affecting use or occupancy of the Premises to be able to
perform properly datesensitive functions for dates leading up to or following
January 1, 2000 (that is, to be Year 2000 compliant), nor shall any such failure
constitute an eviction or constructive eviction or give rise to abatement of
Rental.
ARTICLE XXVI
BILLS AND NOTICES
Section 26.1. (a) Except as otherwise expressly provided in this Lease,
any bills, statements, consents, notices, demands, requests or other
communications given or required to be given under this Lease ("Notice(s)")
shall be in writing and shall be deemed sufficiently given or rendered if
delivered by hand, or if sent by a nationally-recognized overnight courier
service, delivery cost prepaid, marked for next-day delivery, or if deposited in
a postage prepaid envelope in a depository that is regularly maintained by the
U.S. Postal Service, sent by registered or certified mail (return receipt
requested) and in either case addressed:
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(i) if to Tenant, to Harrah's Operating Company, Inc., 5100
West Sahara Boulevard, Suite 200, Las Vegas, Nevada 89146, Attention:
Office of the President and with a copy to Harrah's Operating Company,
Inc., 5100 West Sahara Boulevard, Suite 200, Las Vegas, Nevada 89146,
Attention: General Counsel, or
(ii) if to Landlord, at Landlord's address set forth in the
first paragraph of this Lease, with a copy to Baker, Donelson, Bearman
& Caldwell, 2000 First Tennessee Building, 165 Madison Avenue, Memphis,
Tennessee 38103, Attn: Frank L. Watson, Jr., and with a copy to any
Mortgagee who may have requested the same, by Notice given in
accordance with the provisions of this Article 26, at the address
designated by such Mortgagee, or
to such other address(es) as either Landlord or Tenant may designate as its new
address(es) for such purpose by notice given to the other in accordance with the
provisions of this Article 26.
(b) Notices shall be deemed to have been rendered or given (i) on the
date delivered, if delivered by hand, or (ii) the day after shipment, if sent by
overnight courier service, or (iii) three (3) days after mailing, if mailed as
provided in Section 26.1(a). Notice given by counsel for either party on behalf
of such party or by the Manager on behalf of Landlord shall be deemed valid
notices if addressed and sent in accordance with the provisions of this Article.
Section 26.2. Notwithstanding the provisions of Section 26.1, Notices
requesting services for Overtime Periods pursuant to Article 27 may be given by
delivery to the Building Manager or any other person in the Building designated
by Landlord to receive such Notices, and bills may be rendered by delivering
them to the Premises.
ARTICLE XXVII
SERVICES AND EQUIPMENT
Section 27.1. Landlord shall, at Landlord's expense:
(a) Provide passenger elevator service to the Premises on Business Days
during Operating Hours and, subject to Section 27.3, have one passenger elevator
on call at all other times.
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(b) Furnish and distribute to the Premises, through the HVAC System,
during Operating Hours, air-conditioning, and heat or ventilation, as needed;
provided that Tenant shall, at all times, cooperate fully with Landlord and
abide by all of the Rules and Regulations which Landlord may prescribe for the
proper functioning of the HVAC System. Tenant hereby expressly waives any claims
against Landlord arising out of the cessation of operation of the HVAC System,
or the suitability of the Premises when the same is not in operation, whether
due to normal scheduling or the reasons set forth in Section 27.3. Landlord will
not be responsible for the failure of the HVAC System if such failure results
from the occupancy of the Premises by more persons than the number of persons
for which HVAC System is designed. If Tenant occupies the Premises at an
occupancy rate of greater than that for which the HVAC System was designed, or
if Tenant's partitions are arranged in such a way as to interfere with the
normal operation of the HVAC System, Landlord may elect to make changes to the
HVAC System or the ducts through which it operates required by reason thereof,
and the cost thereof shall be reimbursed by Tenant to Landlord as Additional
Rent within ten (10) days after presentation of a bill therefor. Landlord,
throughout the Term, shall have free access to all mechanical installations of
Landlord, including but not limited to air cooling, fan, ventilating and machine
rooms and electrical closets, and Tenant shall not construct partitions or other
obstructions that may interfere with Landlord's free access thereto, or
interfere with the moving of Landlord's equipment to and from the enclosures
containing said installations. Neither Tenant nor its agents, employees or
contractors shall at any time enter the said enclosures or tamper with, adjust,
touch or otherwise in any manner affect said mechanical installations.
Landlord's obligations under this Section 27.1 and under Section 27.2 are
subject to applicable Requirements that may limit the hours or the extent to
which Landlord is permitted to supply HVAC.
(c) Furnish hot and cold water for ordinary drinking, cleaning and
lavatory purposes.
(d) Provided Tenant shall keep the Premises in order, Landlord, at
Landlord's expense, shall cause the Premises, excluding any portions thereof
used as secured areas, to be cleaned on Business Days in accordance with the
cleaning specifications annexed to this Lease as Exhibit "D." If, however, any
additional cleaning of the Premises is to be done by Tenant, it shall be done at
Tenant's sole expense, in a manner reasonably satisfactory to Landlord and no
one other than persons
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approved by Landlord shall be permitted to enter the Premises or the Building
for such purpose. Tenant shall pay to Landlord the cost of removal of any of
Tenant's refuse and rubbish from the Premises and the Building (i) to the extent
that the same, in any one day, exceeds the average daily amount of refuse and
rubbish usually attendant upon the use of such Premises as offices, as described
and included in Landlord's cleaning contract for the Building or recommended by
Landlord's cleaning contractor, and (ii) related to or deriving from the
preparation or consumption of food or drink. Bills for the same shall be
rendered by Landlord to Tenant at such time as Landlord may elect and shall be
due and payable as Additional Rent within ten (10) days after the time rendered.
Section 27.2. Landlord reserves the right to stop the furnishing of the
Building services and to stop service of the Building Systems, when necessary,
by reason of accident, or emergency, or for Alterations in the judgment of
Landlord desirable or necessary to be made, until said Alterations shall have
been completed; and Landlord shall have no responsibility or liability for
failure to supply air-conditioning, ventilation, heat, elevator, plumbing,
electric, or other services during said period or when prevented from so doing
by strikes, lockouts, difficulty of obtaining materials, accidents or by any
cause beyond Landlord's reasonable control, or by Requirements or failure of
electricity, water, steam, coal, oil or other suitable fuel or power supply, or
inability by exercise of reasonable diligence to obtain electricity, water,
steam, coal, oil or other suitable fuel or power. No diminution or abatement of
rent or other compensation shall or will be claimed by Tenant as a result
therefrom, nor shall this Lease or any of the obligations of Tenant be affected
or reduced by reason of such interruption, curtailment or suspension, nor shall
the same constitute an actual or constructive eviction; provided, however, that
if the cessation is caused by Landlord and continues for more than three (3)
days, then Fixed Rent shall abate on a per diem basis from the fourth (4th) day
until Landlord restores the Building services.
Section 27.3. Tenant agrees to abide by all requirements which Landlord
may prescribe for the proper protection and functioning of its Building Systems
and the furnishing of the Building services. Tenant further agrees to cooperate
with Landlord in any conservation effort pursuant to a program or procedure
promulgated or recommended by ASHRAE or any Requirements.
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ARTICLE XXVIII
[RESERVED]
ARTICLE XXIX
[RESERVED]
ARTICLE XXX
SIGNS
Section 30.1. Landlord may replace the signs at the main entrance which
serves the Real Property and Adjacent Property with signs which identify the
businesses on both such properties, and may install signage at the driveway
intersections on the Real Property and Adjacent Property which direct traffic to
the appropriate businesses and parking area, all at Tenant's reasonable cost and
expense, except that Landlord shall pay for signs with respect to the Adjacent
Property. The location, size, materials, quality, design, color and lettering of
any signs desired by Tenant shall be subject to the prior approval of Landlord
and shall be in compliance with the standards set forth in Tenant Design and
Construction Standards.
ARTICLE XXXI
BROKER
Section 31.1. Landlord represents and warrants to Tenant that Landlord
has not dealt with any broker or other Person who might claim a leasing
commission in connection with this Lease other than the Broker(s). Landlord
acknowledges that it is solely responsible to pay the leasing commissions due to
the Broker in connection with the execution of this Lease. Tenant represents and
warrants to Landlord that Tenant has not dealt with any broker or other Person
who might claim a leasing commission in connection with this Lease. The
execution and delivery of this Lease by Tenant shall be conclusive evidence that
Tenant acknowledges that Landlord has relied upon the foregoing representation
and warranty. Tenant shall indemnify and hold harmless Landlord from and against
any and all claims for commission, fee or other compensation by any Person
(other than Broker) who claims to have dealt with Tenant in connection with this
Lease and for any and all costs incurred by Landlord in
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connection with such claims, including, without limitation, attorneys' fees and
disbursements. The execution and delivery of this Lease by Landlord shall be
conclusive evidence that Landlord acknowledges that Tenant has relied upon the
foregoing representation and warranty. Landlord shall indemnify and hold
harmless Tenant from and against any and all claims for commission, fee or other
compensation by any Person (including Broker) who claims to have dealt with
Landlord in connection with this Lease and for any and all costs incurred by
Tenant in connection with such claims, including, without limitation, attorneys'
fees and disbursements. This provision shall survive the expiration or earlier
termination of this Lease.
ARTICLE XXXII
INDEMNITY
Section 32.1. Tenant shall indemnify and save harmless the Landlord
Indemnitees from and against (a) all claims of third parties of whatever nature
against the Landlord Indemnitees arising from any act, omission or negligence of
Tenant or Persons Within Tenant's Control, (b) all claims of third parties
against the Landlord Indemnitees arising from any accident, injury or damage
whatsoever caused to any such third party or such party's property and occurring
in or about the Premises during the Term or during Tenant's occupancy of the
Premises, unless and to the extent caused by the negligence or willful
misconduct of Landlord or its principals, officers or employees, (c) all claims
of third parties against the Landlord Indemnitees arising from any accident,
injury or damage occurring outside of the Premises but anywhere within or about
the Real Property, where such accident, injury or damage results or is claimed
to have resulted from an act, omission or negligence of Tenant or Persons Within
Tenant's Control, and (d) any breach, violation or non-performance of any
covenant, condition or agreement contained in this Lease to be fulfilled, kept,
observed and performed by Tenant except as otherwise provided in this Lease;
provided, however, that the indemnity and save harmless provision set out in
this Section 32.1 and 32.2 shall have no effect to the extent that the Landlord
Indemnitees are protected by insurance maintained under the provisions of
Article XI hereof. This indemnity and hold harmless agreement shall include
indemnity from and against any and all liability, fines, suits, demands, costs
and expenses of any kind or nature (including, without limitation, attorneys'
fees and disbursements) incurred in or in connection with any such claim or
proceeding brought thereon, and the defense thereof.
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Section 32.2. If any claim, action or proceeding is made or brought
against any Landlord Indemnitee, against which claim, action or proceeding
Tenant is obligated to indemnify such Landlord Indemnitee pursuant to the terms
of this Lease, then, upon demand by the Landlord Indemnitee, Tenant, at its sole
cost and expense, shall resist or defend such claim, action or proceeding in the
Landlord Indemnitee's name, if necessary, by such attorneys as the Landlord
Indemnitee may select. The provisions of this Article 32 shall survive the
expiration or earlier termination of this Lease.
Section 32.3 Landlord shall indemnify and save harmless the Tenant
Indemnitees from and against (a) all claims of third parties of whatever nature
against the Tenant Indemnitees arising from any act, omission or negligence of
Landlord or Persons Within Landlord's Control, (b) all claims of third parties
against the Tenant Indemnitees arising from any accident, injury or damage
whatsoever caused to any such third party or such party's property and occurring
in or about the Premises during the Term or during Tenant's occupancy of the
Premises where such accident, injury or damage results or is claimed to have
resulted from an act or omission or negligence of Landlord or Persons Within
Landlord's Control, (c) all claims of third parties against the Tenant
Indemnitees arising from any accident, injury or damage occurring outside of the
Premises but anywhere within or about the Real Property, unless and to the
extent caused by the negligence or willful misconduct of Tenant or its
principals, officers or employees, and (d) any breach, violation or
non-performance of any covenant, condition or agreement in this Lease to be
fulfilled, kept, observed and performed by Tenant, except as otherwise provided
in this Lease; provided, however, that the indemnity and save harmless provision
set out in this Section 32.3 and 32.4 shall have no effect to the extent that
Tenant Indemnitees are protected by insurance maintained under the provisions of
Article XI hereof. This indemnity and hold harmless agreement shall include
indemnity from and against any and all liability, fines, suits, demands, costs
and expenses of any kind or nature (including, without limitation, attorneys'
fees and disbursements) incurred in or in connection with any such claim or
proceeding brought thereon, and the defense thereof.
Section 32.4 If any claim, action or proceeding is made or brought
against any Tenant Indemnitee, against which claim, action or proceeding
Landlord is obligated to indemnify such Tenant Indemnitee pursuant to the terms
of this Lease, then, upon
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demand by the Tenant Indemnitee, Landlord, at its sole cost and expense, shall
resist or defend such claim, action or proceeding in the Tenant Indemnitee's
name, if necessary, by such attorneys as the Tenant Indemnitee may select. The
provisions of this Article 32 shall survive the expiration or earlier
termination of this Lease.
ARTICLE XXXIII
[RESERVED]
ARTICLE XXXIV
[RESERVED]
ARTICLE XXXV
[RESERVED]
ARTICLE XXXVI
COVENANT OF QUIET ENJOYMENT
Section 36.1. Landlord covenants that, upon Tenant paying the Fixed
Rent and Additional Rent and observing and performing all the terms, agreements,
covenants, provisions and conditions of this Lease on Tenant's part to be
observed and performed, Tenant may peaceably and quietly enjoy the Premises,
subject nevertheless to the terms and conditions of this Lease; provided,
however, that no impairment or deprivation of Tenant's use of the Premises which
results from a violation of Restrictive Covenants shall be construed as a breach
of this covenant nor permit abatement of Rental due hereunder unless such
violation results from acts or neglect of Landlord in which Tenant played no
part; provided further that no eviction of Tenant by reason of the foreclosure
of any Mortgage now or hereafter affecting the Premises, shall be construed as a
breach of this covenant nor shall any action by reason thereof be brought
against Landlord; and provided further that this covenant shall bind and be
enforceable against Landlord or any successor to Landlord's interest, subject to
the terms hereof, only so long as Landlord or any successor to Landlord's
interest, is in possession and is collecting rent from Tenant but not
thereafter.
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ARTICLE XXXVII
MISCELLANEOUS
Section 37.1. Landlord retains all air rights over the Premises. Tenant
may not place anything on or attach anything to the roof of the Premises without
first obtaining Landlord's written consent, which consent may be granted or
withheld in Landlord's reasonable discretion.
Section 37.2. The obligations of Landlord under this Lease shall not be
binding upon Landlord named herein after the sale, conveyance, assignment or
transfer by such Landlord (or upon any subsequent landlord after the sale,
conveyance, assignment or transfer by such subsequent landlord) of its interest
in the Building or the Real Property, as the case may be, and in the event of
any such sale, conveyance, assignment or transfer, Landlord shall be and hereby
is entirely freed and relieved of all covenants and obligations of Landlord
under this Lease thereafter arising, and the transferee shall be deemed to have
assumed, subject to the remaining provisions of this Section 37.2, all
obligations of the Landlord under this Lease arising after the effective date of
the transfer. No trustee, partner, shareholder, director or officer of Landlord,
or of any partner or shareholder of Landlord (collectively, the "Parties") shall
have any direct or personal liability for the performance of Landlord's
obligations under this Lease, and Tenant shall look solely to Landlord's
interest in the Building to enforce Landlord's obligations hereunder and shall
not otherwise seek any damages against Landlord personally or any of the Parties
whatsoever.
Section 37.3. [RESERVED]
Section 37.4. The parties shall prepare and sign a suitable memorandum
of this Lease for recordation. This Lease shall not be recorded.
Section 37.5. Except as otherwise expressly stated in this Lease, any
consent or approval required to be obtained from Landlord may be granted by
Landlord in its sole discretion.
Section 37.6. [RESERVED]
Section 37.7. If Tenant shall remain in possession of the Premises
after the Expiration Date, without the execution by both
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<PAGE>
Tenant and Landlord of a new lease, Tenant, at the election of Landlord, shall
be deemed to be occupying the Premises as a Tenant from month-to-month, at a
monthly rental equal to one and one-half (1.5) times the Rental payable during
the last month of the Term, subject to all the other conditions, provisions and
obligations of this Lease insofar as the same are applicable to a month-to-month
tenancy.
Section 37.8. This Lease shall be construed without regard to any
presumption or other rule requiring construction against the party causing this
Lease to be drafted. If any words or phrases in this Lease are stricken out or
otherwise eliminated, whether or not any other words or phrases have been added,
this Lease shall be construed as if the words or phrases stricken out or
otherwise eliminated were never included in this Lease and no implication or
inference shall be drawn from the fact that such words or phrases were stricken
out or otherwise eliminated.
Section 37.9. [RESERVED]
Section 37.10. [RESERVED]
Section 37.11. If any of the provisions of this Lease, or the
application thereof to any person or circumstance, shall, to any extent, be
invalid or unenforceable, the remainder of this Lease, or the application of
such provisions to persons or circumstances other than those as to whom or which
it is held invalid or unenforceable, shall not be affected thereby and shall
remain valid and enforceable, and every provision of this Lease shall be valid
and enforceable to the fullest extent permitted by law.
Section 37.12. Landlord shall have the right to erect any gate, chain
or other obstruction or to close off any portion of the Real Property to the
public at any time to the extent necessary to prevent a dedication thereof for
public use.
Section 37.13. Tenant agrees that in all disputes arising directly or
indirectly out of this Lease Tenant shall be subject to service of process in,
and the jurisdiction of the courts of, the State of Tennessee. The provisions of
this Section 37.13 shall survive the expiration of this Lease.
Section 37.14. This Lease contains the entire agreement between the
parties and all prior negotiations and agreements are merged into this Lease.
Except as provided in Section 37.6, this Lease may not be changed, abandoned or
discharged, in whole or in
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<PAGE>
part, nor may any of its provisions be waived except by a written agreement that
(a) expressly refers to this Lease, (b) is executed by the party against whom
enforcement of the change, abandonment, discharge or waiver is sought, and (c)
is permissible under the Mortgage(s).
Section 37.15. Any apportionment or prorations of Rental to be made
under this Lease shall be computed on the basis of a three hundred sixty (360)
day year, with twelve (12) months of thirty (30) days each.
Section 37.16. The laws of the State of Tennessee applicable to
contracts made and to be performed wholly within the State of Tennessee shall
govern and control the validity, interpretation, performance and enforcement of
this Lease.
Section 37.17. Tenant warrants and represents that it is duly
incorporated under the laws of the State of Delaware and is duly qualified to do
business in the State of Tennessee (a copy of evidence thereof to be supplied to
Landlord upon request); and that each person executing this Lease on behalf of
Tenant is an officer of Tenant and that he or she is duly authorized to execute,
acknowledge and deliver this Lease to Landlord (a copy of a resolution to that
effect to be supplied to Landlord upon request).
Section 37.18. The captions are inserted only as a matter of
convenience and for reference and in no way define, limit or describe the scope
of this Lease nor the intent of any provision thereof.
Section 37.19. The covenants, conditions and agreements contained in
this Lease shall bind and inure to the benefit of Landlord and Tenant and their
respective legal representatives, successors, and, except as otherwise provided
in this Lease, their assigns.
Section 37.20. For the purposes of this Lease and all agreements
supplemental to this Lease, unless the context otherwise requires:
(a) The words "herein", "hereof", "hereunder" and "hereby" and
words of similar import shall be construed to refer to this Lease as a
whole and not to any particular Article or Section unless expressly so
stated.
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<PAGE>
(b) Reference to "termination of this Lease" or "expiration of
this Lease" and words of like import includes expiration or sooner
termination of this Lease and the Term and the estate hereby granted or
cancellation of this Lease pursuant to any of the provisions of this
Lease or to law. Upon the termination of this Lease, the Term and
estate granted by this Lease shall end at noon on the date of
termination as if such date were the Fixed Expiration Date, and neither
party shall have any further obligation or liability to the other after
such termination except (i) as shall be expressly provided for in this
Lease, and (ii) for such obligations as by their nature under the
circumstances can only be, or by the provisions of this Lease, may be,
performed after such termination, and, in any event, unless expressly
otherwise provided in this Lease, any liability for a payment (which
shall be apportioned as of such termination) which shall have accrued
to or with respect to any period ending at the time of termination
shall survive the termination of this Lease.
(c) Words and phrases used in the singular shall be deemed to
include the plural and vice versa, and nouns and pronouns used in any
particular gender shall be deemed to include any other gender.
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<PAGE>
Section 37.21. All exhibits attached to this Lease are incorporated
herein and Tenant agrees to execute Exhibit "H" upon Landlord's request without
unreasonable delay.
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Lease
as of the day and year first above written.
RBM CHERRY ROAD PARTNERS, a
Tennessee general partnership
BY: RBM Venture Company, a
Delaware corporation, its
managing general partner
By: /s/ SCOTT IMORDE
---------------------------------------------
Its: Vice President
---------------------------------------------
LANDLORD
HARRAH'S OPERATING COMPANY, INC.
By: /s/ COLIN V. REED
---------------------------------------------
Its: Chief Financial Officer
---------------------------------------------
TENANT
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<PAGE>
Exhibit "A"
Legal Description
PROPERTY LOCATED IN SHELBY COUNTY, TENNESSEE:
PARCEL I
BEING A PART OF THE HARRAH'S ENTERTAINMENT, INC. CORPORATE HEADQUARTERS
P.D. AS RECORDED IN PLAT BOOK 155, PAGE 8, ALSO BEING A PART OF THE
HOLIDAY INNS, INC. PROPERTY AS RECORDED IN INSTRUMENT U7-2133 AT THE
SHELBY COUNTY REGISTER'S OFFICE, LOCATED IN MEMPHIS, TENNESSEE AND
BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS:
BEGINNING AT A POINT ON THE NORTH LINE OF HAVERHILL ROAD (50' R.O.W.),
25.15 FEET WEST OF THE WEST LINE OF CHERRY ROAD (R.O.W. VARIES); THENCE
ALONG SAID NORTH LINE N89 38'59"W A DISTANCE OF 986.49 FEET TO A POINT
OF CURVATURE; THENCE ALONG A CURVE TO THE RIGHT HAVING A RADIUS OF
257.02 FEET, AN ARC LENGTH OF 120.30 FEET, (CHORD N76 22'21"W - 119.20
FEET) TO A FOUND CROW'S MARK AT THE SOUTHEAST CORNER OF THE JOEL M. COX
PROPERTY (INST. S9-0045); THENCE N37 29'55"E ALONG THE EAST LINE OF
SAID COX PROPERTY A DISTANCE OF 163.78 FEET TO A POINT, SAID POINT
BEING THE NORTHEAST CORNER OF SAID JOEL M. COX PROPERTY, ALSO BEING THE
SOUTHEAST CORNER OF LOT 31, AUDUBON PARK SUBDIVISION (PB. 14, PG. 30);
THENCE ALONG THE EAST LINE OF SAID AUDUBON PARK SUBDIVISION N0 13'10"W
A DISTANCE OF 579.13 FEET TO A POINT, SAID POINT BEING ON THE EAST LINE
OF LOT 26 OF AUDUBON PARK SUBDIVISION (PB. 14, PG. 30) AND 15.11 FEET
SOUTH OF THE NORTH LINE OF SAID LOT 26; THENCE ALONG THE FOLLOWING
COURSES AND DISTANCES: S59 52'06"E A DISTANCE OF 225.85 FEET TO A
POINT; THENCE N30 15'47"E A DISTANCE OF 48.67 FEET TO A POINT; THENCE
S86 44'15"E A DISTANCE OF 75.95 FEET TO A POINT; THENCE S3 15'45"W A
DISTANCE OF 27.58 FEET TO A POINT; THENCE S86 44'15"E A DISTANCE OF
173.28 FEET TO A POINT; THENCE N27 16'38"E A DISTANCE OF 188.13 FEET TO
A POINT; THENCE S89 37'17"E A DISTANCE OF 222.36 FEET TO A POINT;
THENCE N0 00'14"W A DISTANCE OF 267.93 FEET TO A POINT ON THE SOUTH
LINE OF THE DIXON GALLERY AND GARDENS PROPERTY (K8-7671); THENCE ALONG
SAID SOUTH LINE S89 37'17"E A DISTANCE OF 264.26 FEET TO A FOUND AXLE
ON THE WEST LINE OF SAID CHERRY ROAD, SAID POINT ALSO BEING THE
SOUTHEAST CORNER OF SAID DIXON GALLERY AND GARDENS PROPERTY; THENCE
ALONG SAID WEST LINE
<PAGE>
S0 00'14"E A DISTANCE OF 905.25 FEET TO A POINT; THENCE N98 38'59"W A
DISTANCE OF 10.00 FEET TO A POINT; THENCE S0 00'14E A DISTANCE OF
131.85 FEET TO A POINT OF CURVATURE; THENCE ALONG A CURVE TO THE RIGHT
HAVING A RADIUS OF 25.00 FEET, AN ARC LENGTH OF 39.42 FEET (CHORD S45
10'23"W - 35.46 FEET) TO THE POINT OF BEGINNING.
PARCEL II
The property on which exists a three (3) story office building is situated in
Memphis, Shelby County, Tennessee, and is described as follows:
BEING A PART OF THE HARRAH'S ENTERTAINMENT, INC. CORPORATE HEADQUARTERS
P.D. AS RECORDED IN PLAT BOOK 155, PAGE 8, ALSO BEING THE HOLIDAY INN'S
INC. PROPERTY AS RECORDED IN INSTRUMENT U7-2133 AT THE SHELBY COUNTY
REGISTER'S OFFICE, LOCATED IN MEMPHIS, TENNESSEE AND BEING MORE
PARTICULARLY DESCRIBED AS FOLLOWS:
COMMENCING AT A POINT ON THE CENTERLINE OF CHERRY ROAD (R.O.W. VARIES),
1087.24 FEET NORTH OF THE INTERSECTION OF HAVERHILL ROAD (50' R.O.W.)
AND SAID CHERRY ROAD; THENCE NO89 37'17"W A DISTANCE OF 30.00 FEET TO
A FOUND AXLE ON THE WEST LINE OF SAID CHERRY ROAD; SAID POINT ALSO
BEING THE SOUTHEAST CORNER OF THE DIXON GALLERY AND GARDENS PROPERTY
(INST. K8-7671); THENCE N89 37'17"W A DISTANCE OF 264.26 FEET TO THE
POINT OF BEGINNING, SAID POINT BEING ON THE SOUTH LINE OF SAID DIXON
GALLERY AND GARDENS PROPERTY; THENCE ALONG THE FOLLOWING COURSES AND
DISTANCES: S0 00'14"E A DISTANCE OF 267.93 FEET TO A POINT; THENCE
N89 37'17"W A DISTANCE OF 222.36 FEET TO A POINT; THENCE S27 16'38"W A
DISTANCE OF 188.13 FEET TO A POINT; THENCE N86 44'15"W A DISTANCE OF
173.28 FEET TO A POINT; THENCE N3 15'45"E A DISTANCE OF 27.58 FEET TO A
POINT; THENCE N86 44'15"W A DISTANCE OF 75.95 FEET TO A POINT; THENCE
S30 15'47"W A DISTANCE OF 48.67 FEET TO A POINT; THENCE N59 52'06"W A
DISTANCE OF 225.85 FEET TO A POINT ON THE EAST LINE OF LOT 26 OF
AUDUBON PARK SUBDIVISION (PB. 14, PG. 30), SAID POINT BEING 15.11 FEET
SOUTH OF THE NORTH LINE OF SAID LOT 26; THENCE ALONG SAID EAST LINE AND
THE EAST LINE OF THE RESUBDIVISION OF LOTS 21-25, AUDUBON PARK
SUBDIVISION (PB. 15, PG. 4) N0 13'10"W A DISTANCE OF 325.74 FEET TO A
FOUND AXLE, SAID AXLE ALSO BEING THE SOUTHWEST CORNER OF SAID DIXON
GALLERY AND GARDENS PROPERTY; THENCE ALONG THE SOUTH LINE OF SAID DIXON
GALLERY AND GARDENS PROPERTY
<PAGE>
S89 37'17"E A DISTANCE OF 776.93 FEET TO THE POINT OF BEGINNING.
<PAGE>
Exhibit "B"
Plat Showing Building and Building No. 2
<PAGE>
Exhibit "C"
Rules and Regulations
Definitions 1. Wherever in these Rules and
Regulations the word "Tenant" is
used, it shall be taken to apply to
and include the Tenant and his
agents, employees, invitees,
licensees, visitors, subtenants and
contractors, and shall be deemed of
such number and gender as the
circumstances require. The word
"Landlord" shall be taken to
include the employees and agents of
Landlord.
Obstructions 2. The streets, sidewalks, entrances,
driveways, halls, passages,
elevators, stairways and Common
Areas provided by Landlord shall
not be obstructed by Tenant.
Washrooms 3. Toilet rooms, water-closets and
other water apparatus shall not be
used for any purposes other than
those for which constructed.
Fire Prevention 4. Tenant shall not do anything in the
Premises or bring or keep anything
therein, which shall in any way
increase or tend to increase the
risk of fire or the rate of fire
insurance, or which shall conflict
with the regulations of the Fire
Department or the fire laws, or
with the rules and regulations of
the City of Memphis, or equivalent
bodies, or with any insurance
policy on the Building or any part
thereof, or with any law,
ordinance, rule or regulation
affecting the occupancy and use the
Premises, now existing or hereafter
enacted or promulgated by any
public authority or by the City of
Memphis or any equivalent body.
Tenant's Equipment 5. It is Tenant's responsibility to
properly operate all business
equipment and coffee machines and
to service such equipment and
machines.
<PAGE>
General 6. In order to insure proper use and
Prohibitions care of the Premises, Tenant shall
not, without the consent of
Landlord or unless otherwise
permitted in the Lease:
a. Keep or permit animals or birds in
the Building except as required for
handicapped persons.
b. Use the Premises as sleeping
apartments.
c. Allow any sign, advertisement or
notice to be fixed to the Building,
inside or outside, without
Landlord's written consent.
d. Make improper noise or disturbances
of any kind, or otherwise do
anything to disturb other tenants
or tend to injure the reputation of
the Building.
e. Mark or defile elevators, water
closets, toilet rooms, walls,
windows, doors or any other parts
of the Building.
f. Place anything on the outside of
the Building, including roof
setbacks, window ledges and other
projections; or drop anything from
the windows, stairways or parapets;
or place trash or other matter in
the halls, stairways, elevators or
light wells of the Building.
g. Cover, block or obstruct any
window, skylight, door or transom
or any other surface that admits
light, except building standard
blinds.
h. Interfere with the heating or
cooling apparatus.
i. Allow anyone but Landlord's
employees to clean Premises.
j. Leave open doors to the Premises at
any time except as otherwise
approved by Landlord, and same
shall be locked at all times when
Premises are not occupied.
k. Install any shades, blinds or
awnings without consent of the
Landlord, except building standard
blinds.
<PAGE>
l. Use any electric heating device,
such as a space heater, without
consent of the Landlord.
m. Install call boxes, or any kind of
wire in or on the Building without
Landlord's permission and
direction.
n. Manufacture any commodity, or
prepare or dispense any foods,
beverages, or alcoholic beverages,
tobacco, drugs, flowers, or other
commodities or articles without the
written consent of Landlord. All
food and beverage vending machines
will be provided by the Landlord
Approved Contractor.
o. Secure duplicate keys for Premises
or toilets, except from Landlord,
or change the locks of any doors to
or in the Premises.
p. Give employees or other persons
permission to go upon or erect or
place any antennae, tower or other
structure or equipment on the roof
of the Building without the written
consent of the Landlord.
q. Place door mats in public corridors
(i.e., within the Common Area)
without consent of Landlord.
r. Schedule, receive or accept freight
other than Monday through Friday,
excluding holidays, between the
hours of 7:00 a.m. to 7:00 p.m.
s. Leave the Land and enter the
Adjacent Property, except via the
designated entrance driveway
between the Land and Cherry Road,
but then only during the course of
arriving and leaving for work
during Operating Hours.
Business 7. Business machines and mechanical
Machines equipment which cause vibration,
noise, cold or heat that may be
transmitted to Building structure
or to any leased space outside
Premises shall be placed and
maintained by Tenant, at its sole
cost and expense, in settings of
cork, rubber,
<PAGE>
or spring type vibration
eliminators sufficient to absorb
and prevent such vibration, noise,
cold or heat. No business machines
or mechanical equipment which
require above normal business
machine level or high amounts of
electricity shall be used or
installed in the Premises without
Landlord's written consent and if
installed, all electricity used
shall be metered and paid by Tenant
as Additional Rent.
Movement of 8. Landlord reserves the right to
Equipment designate the time when and the
method whereby freight, small
office equipment, furniture, safes
and other like articles may be
brought into, moved, or removed
from the Building or Premises, and
to designate the location for
temporary disposition of such
items.
Tenant Moves 9. Landlord's tenant move in/move out
policy is as follows:
a. All moves will be done at such
times as shall not unduly interfere
with other tenants or occupants of
the Real Property or Adjacent
Property.
b. Landlord shall approve the moving
contractor and such contractor
shall coordinate all aspects of the
move with Landlord.
c. Tenant's contractor shall provide a
certificate of insurance evidencing
liability, property damage and
workmen's compensation insurance of
not less than $1,000,000, naming
Landlord as additional insured.
d. Tenant's contractor shall use
appropriate padding and masonite
floor covering to protect all
surfaces including door jambs,
subject to Landlord's inspection
and approval.
e. Tenant will reimburse Landlord for
all security provided.
f. Tenant will be responsible for any
damages during the move.
<PAGE>
Rights Reserved 10. Without abatement or diminution in
to Landlord rent, Landlord reserves and shall
have the following additional
rights:
a. To install and maintain a sign or
signs on the exterior of the
Building.
b. To designate all sources furnishing
sign painting and lettering, ice,
drinking water, towels and toilet
supplies and other like services
used on the Premises.
c. At any time or times Landlord
either voluntarily or pursuant to
governmental requirement, may, at
Landlord's own expense, make
repairs, alterations or
improvements in or to the Building
or any part thereof and during
alterations, any close entrances,
doors, windows, corridors,
elevators or other facilities,
provided that such acts shall not
unreasonably interfere with
Tenant's use and occupancy of the
Premises as a whole.
d. During the last six (6) months of
the term or any part thereof, if
during or prior to that time the
Tenant vacates the Premises, to
decorate, remodel, repair, alter or
otherwise prepare the Premises for
re-occupancy.
e. To constantly have pass keys and
Security System clearance to the
Premises.
f. Landlord may reasonably enter upon
the Premises and may exercise any
or all of the foregoing rights
hereby reserved without being
deemed guilty of an eviction or
disturbance of Tenant's use or
possession and without being liable
in any manner to the Tenant.
g. To access the Dixon Gallery and
Gardens via the Common Area.
Regulation 11. Landlord shall have the right to
Change make such other and further
reasonable rules and regulations as
in the judgment of Landlord, may
from time to time be needful for
the safety, appearance, care and
cleanliness of the Building and
Building No. 2 and for the
preservation
<PAGE>
of order therein, Landlord shall
not be responsible to Tenant for
any violation of rules and
regulations by other tenants or
occupants of the Real Property or
Adjacent Property.
Smoking Areas 12. Landlord shall have the right, from
time to time, to designate and
thereafter to change, alter or
redesignate, smoking and
non-smoking area(s) outside the
Building and shall further be
permitted to prohibit or limit such
activity in order to fully comply
with any applicable governmental
ordinance, law or regulation.
Tenant shall not permit any of its
employees, agents or invitees to
smoke except in the designated
smoking area(s) and, in any event,
never inside the Building.
Plumbing 13. Plumbing fixtures and appliances
shall be used only for purposes for
which constructed, and no
sweepings, rubbish, rags or other
unsuitable material shall be thrown
or placed therein. Damage resulting
to any such fixtures or appliances
from misuse by Tenant shall be
repaired and replaced at Tenant's
sole cost and expense, and Landlord
shall not in any case be
responsible therefor.
Parking 14. Tenant shall use best efforts to
cause Tenant's employees to park
their motor vehicles in those
portions of the parking area
designated by Landlord ("Tenant's
Parking Area").
<PAGE>
Access 15. Tenant shall access Tenant's
Parking Area and/or the Building
via the driveway designated on
Exhibit "C-1" which is attached
hereto and supplements these Rules
and Regulations.
Exhibit "D"
Cleaning Specifications
Landlord agrees that, at its expense, it will do the following standard
janitorial work for the Premises.
I. General Space Cleaning - five (5) nights per week Monday thru Friday
A. Nightly
1. Empty and dust wipe all receptacles.
2. Replace plastic liners in waste receptacles as
required.
3. Remove waste to a compactor, hamper, or place waste
in bags and leave in a designated area.
4. Empty and damp-wipe ashtrays.
5. Clean entrance glass.
6. Clean glass in directories.
7. Spot clean all interior glass, including the glass
railing on the plaza and third floor.
8. Damp-wipe all glass top desks and tables.
9. Spot clean walls, doors, door frames and around light
switches.
10. Clean the elevators including walls, floors, doors,
lights, tracks and indicator panels.
11. Clean and polish stainless steel in the main lobby,
elevator lobbies, elevators, etc.
12. Damp-wipe spillages on furniture in lounge and
lunchroom areas. (Tenant shall be responsible for
<PAGE>
cleaning of dishes, refrigerators and other kitchen
appliances.)
13. Sanitize and polish all drinking fountains.
14. Vacuum all carpeted areas with particular attention
being paid to under desks, moveable furniture,
corners and edges, etc.
15. Spot clean carpet as needed.
16. Sweep all granite pavers and composition tile
flooring with a specially treated mop and buff.
17. Damp mop trackage and spillage as required.
18. Sweep cement stairways. Damp-mop as required.
19. Dust or damp-wipe handrails and metalwork as
required.
20. Sweep with specially treated mop, and wash floors in
service areas.
21. Upon the completion of cleaning, the cleaning
equipment will be stored neatly in a designated
location.
B. Monthly
1. Clean and polish desk tops.
2. Perform high dusting not reached in normal cleaning.
3. Dust Venetian blinds.
4. Spray buff vinyl tile flooring in tenant and service
areas.
C. Quarterly
1. Strip and wax all vinyl tile flooring in tenant and
service areas.
2. Vacuum upholstered chairs.
<PAGE>
II. Lavatories
A. Nightly
1. Empty waste and sanitary napkin disposal receptacles.
2. Replace plastic liners as required.
3. Clean commodes and urinals with a disinfectant.
4. Clean washbowls with a scouring powder.
5. Polish mirrors.
6. Polish all brightwork.
7. Spot clean ceramic tile walls and metal
partitions.
8. Floors to be swept, wet mopped and rinsed, using a
disinfectant detergent.
9. Fill all towel, toilet issue, sanitary napkin and
hand soap dispensers.
B. Monthly
1. Wash and disinfect ceramic tile walls and metal
partitions.
2. Wash interior of waste and sanitary napkin disposal
containers.
<PAGE>
Exhibit "E"
Rating Level Multiplier
For purposes of Section 2.6 of the Lease:
If HET's Corporate . . . then the
Credit Rating is . . . Rating Level Multiplier is:
BBB 0
BB 1.0
B 2.0
CCC 3.0
CC or lower 4.0
<PAGE>
Exhibit "F"
[RESERVED]
<PAGE>
Exhibit "G"
Tenant Design and Construction Standards
Tenant agrees to furnish Landlord the following information in
drawings, in accordance with the below-listed schedules.
1. PRELIMINARY DRAWINGS
No later than four (4) weeks prior to the projected construction
commencement date, Tenant shall furnish Landlord one (1) sepia and
six (6) complete sets of prints of -" scale preliminary drawings
showing at least the following information:
a. Floor plan including furniture layout, partition layout, door
layout, power and telephone outlet locations, items above
standard finish, floor loading information beyond 70 psf, etc.
b. Reflected ceiling plan including lighting layout, exit signs,
registers, grilles, diffusers, exhaust fans, ceiling breaks,
etc.
c. Written scope sheet of special Tenant mechanical and
electrical requirements and/or custom construction and finish
requirements.
d. Take-off sheet of building standard items shall be used.
2. ARCHITECTURAL WORKING DRAWINGS FOR CONSTRUCTION
No later than two (2) weeks prior to the projected construction
commencement date, Tenant shall furnish Landlord two (2) background
mylars of the partition and ceiling plans and one (1) sepia and two (2)
sets of prints of complete -" scale working drawings on or before
showing at least the following information and marked "issued for
engineering and Landlord review":
a. Location and type of all partitions and doors (specify
hardware and provide keying schedule), glass
<PAGE>
partitions, windows and glass doors (indicate framing sections
if not building standard).
b. Indication of all critical dimensions necessary for
construction.
c. Location of telephone equipment room accompanied by an
approval of the telephone company.
d. Location of all building standard and above building standard
electrical items including outlets, switches, telephone
outlets and lighting.
e. Location and type of equipment that require special
electrical; requirements including manufacturer's
specifications for use and operations.
f. Location, weight per square foot and description of any
exceptionally heavy equipment or filing system exceeding 75
psf live load including 20 psf for partitions.
g. Requirements for special air conditioning or ventilation
including occupancy information for each room and space.
h. Type and color of floor covering, wall covering, and building
standard and above-building standard paint or finishes.
i. Requirements for special plumbing including all line sizes,
fixtures and specifications.
j. Location and type of kitchen equipment including
specifications.
k. Details showing:
(1) Construction of all partition types;
(2) Head, jamb and sill sections with elevations for all
door types;
(3) Shelving, cabinet work and architectural millwork
with dimensions and dimensions of all equipment to be
built in;
<PAGE>
(4) Special corridor entrance with framing and support
requirements; and
(5) Bracing or support of special walls, glass
partitions, drapery track, etc.
3. MECHANICAL/ELECTRICAL WORKING DRAWINGS FOR CONSTRUCTION
No later than two (2) weeks prior to the projected construction
commencement date, Tenant shall furnish two (2) sets of prints of -"
scale mechanical/electrical working drawings which, among other things,
shall identify requirements beyond the building standard scope.
4. Within ten (10) days after the furnishing of any such drawings by
Tenant, Landlord shall approve, disapprove, or request further
information concerning the drawings submitted, indicating the reason
for any disapproval and specifying clearly the nature and scope of any
request for further information. In all events, Landlord shall use good
faith efforts to respond to such submissions by Tenant expeditiously so
as to not delay unnecessarily Tenant's construction of Alterations.
5. Tenant shall be responsible for obtaining city review and approval of
preliminary drawings (as referred to in paragraph 1 above). Tenant
shall make application and obtain a city building permit.
<PAGE>
Exhibit "H"
First American SNDA
SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
Building No. 1
THIS AGREEMENT, made as of the ----- day of October, 1999, by FIRST
AMERICAN NATIONAL BANK, with a place of business at 6000 Poplar Avenue, Suite
300, Memphis, Tennessee 38119 ("Mortgagee") and Harrah's Operating Company,
Inc., a Delaware corporation, having an office address at 5100 West Sahara
Avenue, Suite 200, Las Vegas, NV 89146 ("Tenant").
WITNESSETH:
WHEREAS, Mortgagee has entered into, or is about to enter into, a
mortgage loan transaction with RBM Cherry Road Partners, a Tennessee general
partnership, having an office address of 5810 Shelby Oaks Drive, Memphis, TN
38134 ("Landlord"); and
WHEREAS, Mortgagee is, or is to become, the beneficiary of a Deed of
Trust, Assignment of Rents and Security Agreement (said Deed of Trust,
Assignment of Rents and Security Agreement being hereinafter referred to as the
"Mortgage") covering that certain parcel of land owned by Landlord and described
on Exhibit "A" annexed hereto and made a part hereof, together with the
improvements erected thereon (said parcel of land and improvements thereon being
commonly known as 1023 Cherry Road, Memphis, TN 38117, hereinafter called the
"Improvements"); and
WHEREAS, by a certain Lease entered into between Landlord and Tenant
dated as of October 25, 1999 ("Lease"), Landlord leased to Tenant a portion of
the Improvements, to wit, the premises designated as floors one (1) through
three (3) of the three-story office building located at 1023 Cherry Road,
Memphis, TN 38117, generally depicted on Exhibit "B" annexed hereto and made a
part hereof (said premises being hereinafter called the "Demised Premises"); and
WHEREAS, a copy of the Lease has been delivered to Mortgagee, the
receipt of which is hereby acknowledged; and
<PAGE>
WHEREAS, the parties hereto desire to effect the subordination of the
Lease to the Mortgage and to provide for the non-disturbance of Tenant by the
holder of the Mortgage.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein contained, the parties hereto intending to be
legally bound hereby agree as follows:
1. Mortgagee hereby consents to and approves the Lease and the term
thereof, including any options to extend the term as set forth in the Lease, and
covenants and agrees that the exercise by Tenant of any of the rights, remedies,
and options therein contained shall not constitute a default under the Mortgage.
2. Tenant covenants and agrees with Mortgagee that the Lease is hereby
made, and shall continue hereafter to be, subject and subordinate to the lien of
the Mortgage, and to all modifications and extensions thereof, with the same
force and effect as if the Mortgage had been executed and delivered prior to the
execution and delivery of the Lease and without regard to the order of priority
of recording the Mortgage, subject, however, to the provisions of this
Agreement. Tenant shall take such steps and execute such documents from time to
time hereafter as Mortgagee may reasonably request in order to carry into effect
the provisions and intent of this Agreement and to confirm the subordination of
the Lease to the lien of the Mortgage subject to the terms hereof.
3. Tenant certifies that the Lease is presently in full force and
effect and unmodified and Tenant as of this date has no knowledge of any
default, charge, lien or claim of offset under the Lease.
4. The Tenant shall deliver to Mortgagee, within thirty (30) days after
receipt of a written request for same, further certifications that (i) the Lease
is then in full force and effect; (ii) there have been no modifications to the
Lease (except those specified therein); (iii) there is then no default, charge,
lien or claim of offset under the Lease (or stating any of the same which may be
claimed or known); (iv) not more than one month's installment of rent has been
paid in advance of the due date (or stating any such other payments, if made);
and (v) such other information as Mortgagee may reasonably request. For so long
as Tenant is not in default under the terms of the Lease
<PAGE>
and the Lease shall be in full force and effect, Mortgagee agrees that:
(a) Except as may be procedurally required by law, Tenant
shall not be named or joined as a party or otherwise in any suit, action or
proceeding for the foreclosure of the Mortgage or to enforce any rights under
the Mortgage or note or other obligation secured thereby. Nothing hereinabove
shall prohibit or prevent the Mortgagee from suing the Tenant for any default
(as defined in the Lease) by Tenant under the Lease.
(b) The possession by Tenant of the Demised Premises and
Tenant's rights thereto shall not be disturbed, affected or impaired by, nor
will the Lease, Tenant's rights thereunder, or the term thereof be terminated or
otherwise affected (i) by any suit, action or proceeding upon the Mortgage or
note or other obligation secured thereby, or for the foreclosure of the Mortgage
or the enforcement of any rights under the Mortgage or any other documents held
by the holder of the Mortgage, or (ii) by any judicial sale or execution or
other sale of the Demised Premises in connection with the Mortgage, or any deed
given in lieu of foreclosure, or (iii) by any default under the Mortgage or note
or other obligation secured thereby.
(c) Neither the Mortgage nor any other security instrument
executed in connection therewith shall cover or be construed as subjecting in
any manner to the lien thereof, any trade fixtures, equipment, inventory or
other personal property at any time furnished or installed by or for Tenant in
the Demised Premises unless the same are permanently affixed to the real estate
thereof. Tenant agrees that upon removal of any of its trade fixtures,
equipment, inventory or other personal property at any time furnished or
installed by or for Tenant in the Demised Premises, Tenant shall, at its
expense, repair all damage to the Demised Premises caused by any such removal.
5. If Mortgagee or any future holder of the Mortgage shall become the
owner of the Improvements by reason of foreclosure of the Mortgage or otherwise,
or if the Improvements shall be sold as a result of any action or proceeding to
foreclose the Mortgage, or transfer of ownership by deed given in lieu of
foreclosure, the Lease shall continue in full force and effect, without
necessity for executing any new lease, as a direct lease between Tenant and the
then owner of the Improvements, as
<PAGE>
"Landlord," upon all of the same terms, covenants, and provisions contained in
the Lease, and in such event:
(a) Tenant shall be bound to such new owner under all of the
terms, covenants, and provisions of the Lease for the remainder of the term
thereof (including also any extension periods, if Tenant elects or has elected
to exercise its option to extend the term) and Tenant hereby agrees to attorn to
such new owner and to recognize such new owner as "Landlord" under the Lease;
and
(b) Such new owner shall be bound to Tenant under all of the
terms, covenants, and provisions of the Lease for the remainder of the term
thereof (including also any extension periods, if Tenant elects or has elected
to exercise its options to extend the term) which such new owner hereby agrees
to assume and perform; and Tenant shall, from and after the date such new owner
succeeds to the interest of "Landlord" under the Lease, have the same remedies
against such new owner for any subsequently occurring breach of any covenant
contained in the Lease as Tenant might have had under the Lease against Landlord
if such new owner had not succeeded to the interest of Landlord, provided,
however, that such new owner shall not (i) be bound by any rent or additional
rent which Tenant might have paid for more than one month in advance to any
prior landlord (including Landlord); or (ii) be bound by any amendment or
modification of the Lease made without its consent.
6. Any notices or communications given under this Agreement shall be in
writing and shall be given by certified mail, return receipt requested, postage
prepaid, (a) if to Mortgagee, at the address for Mortgagee hereinabove set forth
or at such other address as Mortgagee may designate by notice to Tenant, or (b)
if to Tenant, at the address of Tenant as hereinabove set forth or at such
address as Tenant may designate by notice to Mortgagee.
7. Tenant agrees, by notice given in the manner provided in the Lease,
to give to Mortgagee at the address provided above a copy of any notice of
default served upon the Landlord by Tenant. Tenant shall give such notice to
Mortgagee simultaneously with the giving of any such notice of default to
Landlord. Tenant further agrees that if Landlord shall have failed to cure any
such default within such time as may be provided for in the
<PAGE>
Lease, then Tenant shall give Mortgagee written notice of such failure and
Mortgagee shall have an additional forty-five (45) days from receipt of such
notice within which to cure such default, or if such default cannot be cured
within that time, then within such additional time as may be necessary if within
such forty-five (45) days Mortgagee has commenced and is diligently pursuing the
remedies necessary to cure such default (including but not limited to
commencement of foreclosure proceedings, if necessary to effect such cure); and
in such event the Lease shall not be terminated and Tenant shall not be excused
or released from the timely performance and payment of all of Tenant's
obligations under the Lease, without setoff or deduction, while such remedies
are being so diligently pursued by Mortgagee. Mortgagee shall not be deemed, as
a result of any such curing or attempted curing, to have assumed or become
personally liable for Landlord's obligations under the Lease.
8. Upon notification by Mortgagee to the Tenant of the exercise of
Mortgagee's rights under the Mortgage to receive direct payment of rents or
other charges, Tenant shall pay rent and any other sums payable under the terms
of the Lease directly to Mortgagee. Notwithstanding the Tenant's payment to
Mortgagee of the rent and other sums payable under the terms of the Lease,
Tenant hereby acknowledges and agrees that Mortgagee shall have no duties or
obligations with respect to the Lease until Mortgagee has notified Tenant of
Mortgagee's assumption of the Landlord's obligations under the Lease.
9. This Agreement shall bind and inure to the benefit of and be binding
upon and enforceable by the parties hereto and their respective successors and
assigns.
10. This Agreement contains the entire agreement between the parties and
cannot be changed, modified, waived, or cancelled except by an agreement in
writing executed by the parties against whom enforcement of such modification,
change, waiver or cancellation is sought.
11. This Agreement and the covenants herein contained are intended to
run with and bind all lands affected thereby.
12. Any notices sent to Mortgagee herein shall include a copy to: J.
Philip Jones, Esq., Martin, Tate, Morrow & Marston, P.C., 6000 Poplar Avenue,
Suite 340, Memphis, TN 38119-3971.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
MORTGAGEE:
FIRST AMERICAN NATIONAL BANK
By:-----------------------------
Title:--------------------------
TENANT:
HARRAH'S OPERATING COMPANY, INC.
By:-----------------------------
Title:--------------------------
STATE OF TENNESSEE
COUNTY OF SHELBY
Before me, a Notary Public, of the State and County aforesaid,
personally appeared --------------------, with whom I am personally acquainted
(or proved to me on the basis of satisfactory evidence), and who, upon oath,
acknowledged himself/herself to be the ---------------------- of First American
National Bank, the within named bargainor, a national banking association, and
that he/she as such officer, being authorized so to do, executed the foregoing
instrument for the purpose therein contained, by signing the name of the
association by himself/herself as such officer.
WITNESS my hand and official seal this -----day of --------, 199--.
----------------------------
NOTARY PUBLIC
My commission expires:
- ----------------------
<PAGE>
STATE OF ----------------------
COUNTY OF ---------------------
Before me, a Notary Public, of the State and County aforesaid,
personally appeared --------------------, with whom I am personally acquainted
(or proved to me on the basis of satisfactory evidence) and who, upon oath,
acknowledged himself/herself to be the ------------------- of HARRAH'S OPERATING
COMPANY, INC., the within named bargainor, a Delaware corporation, and that
he/she as such officer, being authorized so to do, executed the foregoing
instrument for the purpose therein contained by signing the name of the
corporation by himself/herself as such officer.
WITNESS my hand and seal at office this ---- day of --------, 199--.
----------------------------
NOTARY PUBLIC
My commission expires:
<PAGE>
Exhibit "I"
Memphis and Shelby County Land Use Control Board
- Staff Report #16 Correspondence Item,
Case No.: P.D. 93-322
L.U.C.B. Meeting October 14, 1999
<PAGE>
Exhibit 4(26)
AGREEMENT OF LEASE
between
RBM CHERRY ROAD PARTNERS
Landlord
and
HARRAH'S OPERATING COMPANY, INC.
Tenant
Dated: October 25, 1999
Premises:
Office Building #2
1023 Cherry Road
Memphis, Tennessee 38117
<PAGE>
TABLE OF CONTENTS
Page
REFERENCE PAGE............................................................... 6
ARTICLE I
GLOSSARY..................................................................... 7
ARTICLE II
DEMISE, PREMISES, TERM, RENT................................................. 14
ARTICLE III
ESCALATION................................................................... 17
ARTICLE IV
USE AND OCCUPANCY............................................................ 26
ARTICLE V
ALTERATIONS.................................................................. 28
ARTICLE VI
REPAIRS...................................................................... 32
ARTICLE VII
CONNECTING CORRIDORS......................................................... 34
ARTICLE VIII
REQUIREMENTS OF LAW.......................................................... 35
ARTICLE IX
SUBORDINATION................................................................ 37
ARTICLE X
RULES AND REGULATIONS........................................................ 40
ARTICLE XI
INSURANCE, PROPERTY LOSS OR DAMAGE, REIMBURSEMENT............................ 41
ARTICLE XII
DESTRUCTION BY FIRE OR OTHER CAUSE........................................... 44
2
<PAGE>
ARTICLE XIII
EMINENT DOMAIN............................................................... 46
ARTICLE XIV
ASSIGNMENT, SUBLETTING, MORTGAGE, ETC........................................ 48
ARTICLE XV
ACCESS TO PREMISES........................................................... 52
ARTICLE XVI
CERTIFICATE OF OCCUPANCY..................................................... 53
ARTICLE XVII
DEFAULT...................................................................... 53
ARTICLE XVIII
REMEDIES AND DAMAGES......................................................... 57
ARTICLE XIX
FEES AND EXPENSES............................................................ 60
ARTICLE XX
NO REPRESENTATIONS BY LANDLORD............................................... 60
ARTICLE XXI
END OF TERM.................................................................. 61
ARTICLE XXII
POSSESSION................................................................... 62
ARTICLE XXIII
NO WAIVER.................................................................... 62
ARTICLE XXIV
WAIVER OF TRIAL BY JURY...................................................... 63
ARTICLE XXV
INABILITY TO PERFORM......................................................... 63
ARTICLE XXVI
BILLS AND NOTICES............................................................ 64
ARTICLE XXVII
SERVICES AND EQUIPMENT....................................................... 65
3
<PAGE>
ARTICLE XXVIII
[RESERVED]................................................................... 67
ARTICLE XXIX
[RESERVED]................................................................... 68
ARTICLE XXX
SIGNS........................................................................ 68
ARTICLE XXXI
BROKER....................................................................... 68
ARTICLE XXXII
INDEMNITY.................................................................... 69
ARTICLE XXXIII
[RESERVED]................................................................... 71
ARTICLE XXXIV
[RESERVED]................................................................... 71
ARTICLE XXXV
[RESERVED]................................................................... 71
ARTICLE XXXVI
COVENANT OF QUIET ENJOYMENT.................................................. 71
ARTICLE XXXVII
MISCELLANEOUS................................................................ 71
4
<PAGE>
EXHIBITS:
Exhibit A Legal Description.................................................A-1
Exhibit B Building and Building No. 1.......................................B-1
Exhibit C Rules and Regulations.............................................C-1
Exhibit D Cleaning Specifications...........................................D-1
Exhibit E Rating Level Multiplier...........................................E-1
Exhibit F [RESERVED]........................................................F-1
Exhibit G Tenant Design and Construction Standards..........................G-1
Exhibit H First American Subordination, Non-Disturbance and
Attornment Agreement........................................H-1
Exhibit I Memphis and Shelby County Land Use
Control Board - Staff Report #16
Correspondence Item, Case No.: P.D.
93-322, L.U.C.B. Meeting October 14, 1999...................I-1
5
<PAGE>
AGREEMENT OF LEASE
AGREEMENT OF LEASE, made as of the 25th day of October, 1999, between
RBM CHERRY ROAD PARTNERS, a Tennessee general partnership, or its assigns,
having an address at 5810 Shelby Oaks Drive, Memphis, Tennessee 38134, as
Landlord, and HARRAH'S OPERATING COMPANY, INC., a Delaware corporation, having
an address at 1023 Cherry Road, Memphis, Tennessee 38117, as Tenant.
REFERENCE PAGE
In addition to other terms elsewhere defined in this Lease, the
following terms whenever used in this Lease shall have the meanings set forth in
this Reference Page.
(1) Premises: Floors one (1) through two (2)
of the Building, shown hatched
on the site plan attached hereto
as Exhibit "B," excluding,
however, any portions thereof
which are defined as Common
Area(s).
(2) Commencement Date: October 25, 1999
(3) Fixed Expiration Date: April 30, 2012
(4) Fixed Rent: (a) $1,087,940.00 per annum
($90,661.66 per month) from the
Commencement Date through
October 31, 2004;
(b) $1,202,173.70 per annum
($100,181.14 per month) from
November 1, 2004 through the
Fixed Expiration Date, in each
case, as adjusted pursuant to
Section 2.6 of this Lease.
(5) Fixed Rent Adjustment Factor: $18,321.52
(6) Tenant's Share: Forty-seven and nine-tenths
percent (47.9%).
(7) Base Tax Factor: The Taxes applicable to the
6
<PAGE>
Real Property equal to
$221,848.00.
(8) Base Operating Factor: The Operating Expenses
applicable to the Real Property
equal to $583,835.00.
(9) Permitted Use: Executive and administrative
offices and operational
activities related to data
processing and information
technology, and for no other use
or purpose.
(10) Broker(s): CB Richard Ellis Memphis, LLC
(11) Security Deposit: NONE
(12) Landlord's Contribution: NONE
W I T N E S S E T H:
The parties hereto, for themselves, their legal representatives,
successors and assigns, hereby agree as follows:
ARTICLE I
GLOSSARY
The following terms shall have the meanings indicated below:
"Additional Rent" shall have the meaning set forth in Section 2.2.
"Adjacent Property" shall mean the real property south of and adjacent
to the Land, consisting of approximately nineteen and ninety-two-thousandths
(19.092) acres, being purchased by Landlord at or about the date of this Lease,
together with the improvements thereon. The Adjacent Property is described as
Parcel I in the legal description attached hereto as Exhibit "A," and
incorporated herein by reference.
"Alterations" shall mean alterations, decorations, installations,
repairs, improvements, additions, replacements or other physical changes in or
about the Premises; provided, however, that the term "Alterations" shall exclude
those made by
7
<PAGE>
Landlord, if any, in accordance with any provisions of this Lease in order to
prepare the Premises for Tenant's initial occupancy.
"Applicable Rate" shall mean the lesser of (x) three percentage points
above the then current Base Rate, and (y) the maximum rate permitted by
applicable law.
"ASHRAE" shall mean the American Society of Heating, Refrigeration and
Air-Conditioning Engineers.
"Bankruptcy Code" shall mean 11 U.S.C. Section 101 ET SEQ., or any
statute, federal or state, of similar nature and purpose.
"Base Rate" shall mean the rate of interest publicly announced from
time to time by Citibank, N.A., or its successor, as its "base rate" (or such
other term as may be used by Citibank, N.A., from time to time, for the rate
presently referred to as its "base rate").
"Building" shall mean that certain two (2) story office building
located on the Land and having an address of 1023 Cherry Road, Memphis,
Tennessee 38117, and all of the equipment and other improvements and
appurtenances related thereto of every kind and description now located or
hereafter erected, constructed or placed upon the Land and any and all
alterations, renewals, and replacements thereof, additions thereto and
substitutions therefor. The Building is located as shown on Exhibit "B" attached
hereto.
"Building No. 1" shall mean that certain three (3) story office
building located on the Land and having an address of 1023 Cherry Road, Memphis,
Tennessee 38117, and all of the equipment and other improvements and
appurtenances related thereto of every kind and description now located or
hereafter erected, constructed or placed upon the Land and any and all
alterations, renewals, and replacements thereof, additions thereto and
substitutions therefor. Building No. 1 is located as shown on Exhibit "B"
attached hereto.
"Building Standard Condition" shall mean the condition of the Building
as of the date of this Lease (reasonable wear and tear excepted), plus any
Alterations approved by Landlord, except to the extent Landlord's approval is
conditioned upon Tenant's removal of the approved Alteration prior to the
Expiration Date.
"Building Systems" shall mean the base building mechanical, electrical,
sanitary, heating, air conditioning, ventilating,
8
<PAGE>
elevator, plumbing, life-safety and other service systems of the Building but
shall not include the Security System or installations made by Tenant after the
date of this Lease. For purposes of calculating Operating Expenses, the term
"Building Systems" shall include the base building mechanical, electrical,
sanitary, heating, air conditioning, ventilating, elevator, plumbing,
life-safety and other service systems of Building No. 1, but shall not include
the Security System or installations made by Tenant after the date of this
Lease.
"Business Days" shall mean all days, excluding Saturdays, Sundays and
all days observed as holidays by the State of Tennessee or the federal
government.
"Common Area" shall mean any and all portions of the Land and the
improvements thereon not part of the Building or Building No. 1. Common Area
includes all landscaping, fountains and related water works, walkways,
sidewalks, parking lots, parking garages, parking decks, loading platforms,
driveways, trash removal facilities, mechanical, electrical and utility rooms
and service areas on the Land, regardless of whether they are part of the
Building or Building No. 1.
"Control" shall have the meaning set forth in Section 14.2.
"Deficiency" shall have the meaning set forth in Section 18.2.
"Escalation Rent" shall mean payments required to be made by Tenant
pursuant to Article 3.
"Event of Default" shall have the meaning set forth in Section 17.1.
"Expiration Date" shall mean the Fixed Expiration Date or such earlier
or later date on which the Term sooner or later ends pursuant to any of the
terms, conditions or covenants of this Lease (including, but not limited to, the
terms and provisions of Section 2.7 hereof) or pursuant to law.
"Fixed Rent Adjustment Factor" shall have the meaning set out on the
Reference Page.
"Government Authority (Authorities)" shall mean the United States of
America, the State of Tennessee, the County of Shelby, the City of Memphis, any
political subdivision thereof and any agency, department, commission, board,
bureau or instrumentality
9
<PAGE>
of any of the foregoing, now existing or hereafter created, having jurisdiction
over the Real Property or any portion thereof.
"HVAC" shall mean heat, ventilation and air conditioning.
"HVAC System" shall mean the Building Systems providing HVAC.
"Hazardous Materials" shall have the meaning set forth in Section 8.2.
"HET" shall mean Harrah's Entertainment, Inc., a Delaware corporation,
and any affiliated or related company or subsidiary whose financial information
is required by GAAP to be reported on Harrah's Entertainment Company, Inc.'s
consolidated financial statements.
"Land" shall mean the land containing approximately six and four
hundred five-thousandths (6.405) acres of real estate located in Shelby County,
Tennessee, and more particularly described as Parcel II in Exhibit "A."
"Landlord" on the date as of which this Lease is made, shall mean RBM
Venture Company, but thereafter, "Landlord" shall mean only the fee owner of the
Real Property.
"Landlord Indemnitees" shall mean Landlord, its trustees, partners,
shareholders, officers, directors, employees, agents and contractors and the
Manager (and the partners, shareholders, officers, directors and employees of
Landlord's agents and contractors and of the Manager).
"Landlord's Operating Statement" shall mean a statement containing a
computation of Escalation Rent due pursuant to the provisions of Section 3.3
furnished by Landlord to Tenant.
"Landlord's Statement" shall mean either a Landlord's Operating
Statement or a Landlord's Tax Statement.
"Landlord's Tax Statement" shall mean a statement containing a
computation of Escalation Rent due pursuant to the provisions of Section 3.2
furnished by Landlord to Tenant.
"Leveraged Transaction" shall mean any transaction entered into by HET
whereby HET (a) uses debt or a financing source having characteristics of debt
to complete the transaction, or
10
<PAGE>
(b) as a result of the transaction, HET assumes or becomes liable for debt or
other obligations characteristic of debt which were originally the obligations
of the other party(ies) to the transaction.
"Manager" shall mean any person or entity with which Landlord from time
to time contracts for the management of the Building and/or Building No. 1.
"Mortgage(s)" shall mean any trust deed, trust indenture or mortgage
which may now or hereafter affect the Real Property, the Building, and all
renewals, extensions, supplements, amendments, modifications, consolidations and
replacements thereof or thereto, substitutions therefor, and advances made
thereunder.
"Mortgagee(s)" shall mean any trustee under or mortgagee or holder of a
Mortgage.
"Notice(s)" shall have the meaning set forth in Section 26.1.
"Office Use" shall mean those uses which are included in the
computation of Office Square Footage as such term is used in the Restrictive
Covenants.
"Operating Expenses" shall have the meaning set forth in Section 3.1.
"Operating Hours" shall mean 7:00 a.m. to 7:00 p.m. on Business Days.
"Operating Year" shall mean each calendar year that includes any part
of the Term.
"Parties" shall have the meaning set forth in Section 37.2.
"Person or Person(s)" shall mean any natural person or persons, a
partnership, a corporation, a limited liability company, a limited liability
partnership and any other form of business or legal association or entity.
"Persons Within Landlord's Control" shall mean and include Landlord,
all of Landlord's respective principals, officers, agents, contractors,
servants, employees, licensees and invitees.
11
<PAGE>
"Persons Within Tenant's Control" shall mean and include Tenant, all of
Tenant's respective principals, officers, agents, contractors, servants,
employees, licensees and invitees.
"Rating Level Multiplier" shall have the meaning set out in Exhibit "E"
hereto.
"Real Property" shall mean the Building, Building No. 1 and the Land.
"Rental" shall mean and be deemed to include Fixed Rent, Additional
Rent and any other sums payable by Tenant hereunder.
"Requirements" shall mean (i) all present and future laws, rules,
ordinances, regulations, statutes, requirements, codes and executive orders,
extraordinary as well as ordinary, retroactive and prospective, of all
Governmental Authorities now existing or hereafter created, and of any
applicable fire rating bureau, or other body exercising similar functions,
affecting the Real Property, or any street, avenue or sidewalk comprising a part
or in front thereof or any vault in or under the same, or requiring removal of
any encroachment, or affecting the maintenance, use or occupation of the Real
Property, (ii) all requirements, obligations and conditions of all instruments
of record on the date of this Lease including, without limitation, the
Restrictive Covenants, and (iii) all requirements, obligations and conditions
imposed by the carrier of Landlord's hazard insurance policy for the Building.
"Restrictive Covenants" shall mean Final Plat P.D. 93-322, Phase I
Harrah's Corporate Headquarters P.D., recorded at Plat Book 155, Page 8, in the
Register's Office of Shelby County, Tennessee, as amended in accordance with the
decision of the Memphis and Shelby County Land Use Control Board on October 14,
1999, pursuant to Staff Report #16 Correspondence Item, a copy of which is
attached hereto as Exhibit "I"; and Agreement dated January 26, 1984 between
Audubon Park Community Association and Holiday Inns, Inc. recorded at Instrument
No. U9-9849, as amended at Instrument Nos. V8-8105 and BE 1706, in said
Register's Office, for so long as said Agreement remains in effect.
"Rules and Regulations" shall mean the rules and regulations annexed
hereto as Exhibit "C," and such other and further reasonable rules and
regulations as Landlord and Landlord's agents may from time to time adopt, on
notice to Tenant to be given in accordance with the terms of this Lease.
12
<PAGE>
"Security System" shall mean the keypad security system in use in the
Building and Building No. 1 and located at various locations on the Real
Property at the date of this Lease as modified from time to time.
"Sublease Additional Rent" shall have the meaning set forth in Section
14.4.
"Taxes" shall have the meaning set forth in Section 3.1.
"Tax Year" shall mean each period of twelve (12) months, commencing on
the first day of January of each year, that includes any part of the Term, or
such other period of twelve (12) months as may be duly adopted as the fiscal
year for real estate tax purposes by the City of Memphis, and Shelby County.
"Tenant," on the date as of which this Lease is made, shall mean the
Tenant named in this Lease, but thereafter "Tenant" shall mean only the tenant
under this Lease at the time in question; provided, however, that the Tenant
named in this Lease and any successor tenant hereunder shall not be released
from liability hereunder in the event of any assignment of this Lease.
"Tenant Indemnitees" shall mean Tenant, its trustees, partners,
shareholders, officers, directors, employees, agents and contractors.
"Tenant's Operating Payment" shall have the meaning set forth in
Section 3.3.
"Tenant's Projected Operating Share" shall have the meaning set forth
in Section 3.3.
"Tenant's Property" shall mean Tenant's movable fixtures and movable
partitions, and other equipment, furniture, furnishings and other movable items
of personal property, but excluding all FF&E acquired by Landlord under that
certain Purchase and Sale Agreement by and between Tenant, as seller, and
Landlord, as purchaser, dated September 15, 1999 (the term "FF&E" as used in
this Lease shall have the meaning ascribed thereto in the aforedescribed
Purchase Agreement).
"Tenant's Tax Payment" shall have the meaning set forth in Section 3.2.
"Term" shall mean the period from the Commencement Date through the
Expiration Date.
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"Unavoidable Delays" shall have the meaning set forth in Article 25.
ARTICLE II
DEMISE, PREMISES, TERM, RENT
Section 2.1. Landlord hereby leases to Tenant and Tenant hereby leases
from Landlord the Premises for the Term to commence on the Commencement Date and
to end on the Fixed Expiration Date, unless earlier terminated or extended as
provided herein.
Section 2.2. Commencing upon the Commencement Date, Tenant shall pay to
Landlord, in lawful money of the United States of America, without notice or
demand, by good and sufficient check drawn to Landlord's order on a bank or
trust company with an office in the United States of America, at the office of
Landlord or at such other place as Landlord may designate from time to time, the
following:
(a) the Fixed Rent, at the annual fixed rental rate set forth
in the Reference Page, which shall be payable in equal monthly
installments of Fixed Rent in advance on the first day of each and
every calendar month during the Term, except that the first monthly
installment of Fixed Rent shall be payable by Tenant upon execution and
delivery of this Lease; and
(b) additional rent ("Additional Rent") consisting of all
other sums of money (including, without limitation, Escalation Rent) as
shall become due from and be payable by Tenant hereunder (for default
in the payment of which Landlord shall have the same remedies as for a
default in the payment of Fixed Rent).
Section 2.3. If the Commencement Date is other than the first day of a
calendar month, or the Expiration Date is other than the last day of a calendar
month, Rental for such month shall be prorated on a per diem basis.
Section 2.4. [RESERVED]
Section 2.5. Tenant shall pay the Fixed Rent and Additional Rent when
due without abatement, deduction, counterclaim, setoff or defense for any reason
whatsoever, except said abatement as may be occasioned by the occurrence of any
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event permitting an abatement of Fixed Rent and Escalation Rent as specifically
set forth in this Lease.
Section 2.6 Notwithstanding anything to the contrary set forth in this
Lease, in the event that HET's corporate credit rating issued by Standard &
Poor's falls below "BBB" [ignoring for purposes hereof pluses (+) and minuses
(-) included in such ratings] as a result of one or more Leveraged Transactions,
then for such period of time as such rating remains below "BBB," Fixed Rent per
annum shall be increased by an amount equal to the product of the Fixed Rent
Adjustment Factor multiplied by the Rating Level Multiplier (and Fixed Rent per
month shall be adjusted commensurately). Changes in the Fixed Rent resulting
from increases or decreases in HET's Corporate Credit Rating shall become
effective as of the official change date of the Standard & Poor's rating, and
the adjustments in Fixed Rent shall be prorated to take into account the number
of days in the month during which such rating was at each level. In no event
shall the Fixed Rent be adjusted to an amount less than that set out in the
Reference Page of this Lease.
Section 2.7. Provided Tenant is not in default under this Lease at the
time the option may be exercised, Landlord grants Tenant the option to renew
this Lease with respect to all of the Premises for three (3) additional terms of
five (5) years each. Each option shall be exercised by Tenant delivering written
notice to Landlord at least six (6) months prior to the Fixed Expiration Date,
as extended by any previously exercised option.
(a) The renewal rental rates for each option period shall be the Market
Rental Rate (as hereinafter defined)(such rate being hereinafter referred to as
the "Renewal Rental Rate"). The Market Rental Rate is the rental rate then being
charged by landlords (including Landlord) in the Memphis area on new leases to
tenants of a similar credit quality to Tenant for space of similar quality and
size as the Premises, taking into account, all relevant factors, including
without limitation, age, extent and quality of tenant improvements, leasing
commissions, length of term, amenities of the Building and the Real Property and
the location and/or floor height and definition of usable area, reasonable
projections of Fixed Rent, Additional Rent, Escalation Rent and allowances or
concessions that have been granted such as abatements, lease assumptions and
leasehold improvement and moving allowances.
(b) Within ten (10) days after Tenant's exercise of each of the options
to renew, Landlord shall notify Tenant in writing of
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the Renewal Rental Rate for that renewal period as determined by the above
formula. Tenant shall have ten (10) days from the receipt of Landlord's notice
to either accept or dispute Landlord's determination of the Renewal Rental Rate.
In the event that Tenant disputes Landlord's determination, Tenant shall so
notify Landlord and advise Landlord of Tenant's determination of the Renewal
Rental Rate for the option period as determined by the above formula. If
Landlord and Tenant cannot agree upon the Renewal Rental Rate within thirty (30)
days of Tenant's original notice of its intent to exercise its renewal option,
the following "Dispute Resolution Mechanisms" shall be utilized:
(c) The parties, within ten (10) days thereafter, shall each select an
MAI-certified commercial real estate appraiser with a minimum of ten (10) years
experience in the Memphis market (each party to pay the cost of the appraiser
selected by it). Each appraiser, within thirty (30) days after selection, shall
present to the other their determination of the Market Rental Rate. If the
Market Rental Rates determined by each appraiser are within ten percent (10%) of
each other, then the Renewal Rental Rate for the option period shall be the
average of the two (2) Market Rental Rates as determined by the parties'
appraisers. If the appraisers' determinations are greater than ten percent (10%)
apart, then the appraisers shall jointly select, within ten (10) days
thereafter, a third MAI-certified commercial real estate appraiser with a
minimum of ten (10) years experience in the Memphis market, with the cost of the
third appraiser to be divided equally between Landlord and Tenant. Within thirty
(30) days after appointment, the third appraiser shall announce his/her
determination of the Market Rental Rate. The Renewal Rental Rate shall be equal
to the average of the Market Rental Rate determined by the two appraisers whose
determinations are numerically closest to each other (disregarding the
determination of the appraiser whose determination is further apart from either
of the others). Notwithstanding the foregoing, in the event that the third
appraiser's determination is exactly in the middle of the first two appraisers'
determinations, then the third appraiser's determination shall be the Renewal
Rental Rate.
(d) Landlord and Tenant shall execute an amendment to this Lease within
sixty (60) days after the determination of the Renewal Rental Rate, which
amendment shall set forth the extended Term and all other terms and conditions
applicable to the renewal period, and shall establish the Renewal Rental Rate as
the annual Fixed Rent for the renewal period.
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(e) Except for the Renewal Rental Rate as set forth above, this Lease,
and all of the terms and conditions hereof, shall remain in full force and
effect throughout the entire renewal term.
ARTICLE III
ESCALATION
Section 3.1. For the purposes of this Article 3, the following terms
shall have the meanings set forth below:
(a) "Operating Expenses" shall mean the aggregate of all
costs, expenses and disbursements (and taxes thereon, if any), of every
kind and nature, paid or incurred by Landlord or on behalf of Landlord
with respect to the ownership, operation, cleaning, repair, safety,
replacement, management, security and maintenance of the Real Property,
including the Building Systems and Common Areas, and with respect to
the services provided to tenants, including, without limitation: (i)
salaries, wages and bonuses paid to, and the cost of any
hospitalization, medical, surgical, union and general welfare benefits
(including group life insurance), any pension, retirement or life
insurance plans and other benefits or similar expenses relating to
employees of Landlord and/or of Manager (on- and off-site) engaged in
the operation, cleaning, repair, safety, replacement, management,
security or maintenance of the Real Property and the Building Systems
or in providing services to tenants; (ii) social security, unemployment
and other payroll taxes, the cost of providing disability and worker's
compensation coverage imposed by any Requirement, union contract or
otherwise with respect to said employees; (iii) the cost of gas, oil,
steam, water, sewer rental, HVAC, water treatment, and other utilities
furnished to the Building and Building No. 1 and utility taxes; (iv)
the expenses incurred for casualty, rent, liability, fidelity, plate
glass and any other insurance; (v) the cost of repairs, maintenance and
painting, including the cost of acquiring or renting all supplies,
tools, materials and equipment used in operating or repairing the
Building and Building No. 1 including, without limitation, their roofs;
(vi) expenditures, whether by purchase or lease, for capital
improvements and capital equipment (except for roof replacement and
repairs to structural components of the Building or Building No. 1
which were not necessitated by the acts or omissions of Tenant) to the
extent (but only to the extent) that such
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capital expenditures reduce or result in savings in Operating Expenses,
the amortized cost of such capital expenditures (or portion thereof
resulting in reduction or savings in Operating Expenses) to be included
in Operating Expenses for the Operating Year in which such costs are
incurred and every subsequent Operating Year, amortized on a
straight-line basis over the accounting life of the capital
improvement, with interest calculated at a per annum rate equal to
eight percent (8%); (vii) operation, repair and replacement of building
management systems; (viii) the cost or rental of all supplies, tools,
materials and equipment; (ix) the cost of uniforms, work clothes and
dry cleaning; (x) the cost of window cleaning, repair, resealing and
replacement, janitorial, pest control, concierge, guard, watchman or
other security personnel, service or system, fire extinguishers and
sprinklers, power generators, fences and electronic/motorized gates, if
any; (xi) management fees and expenses; (xii) charges of independent
contractors performing work included within this definition of
Operating Expenses; (xiii) telephone and stationery costs; (xiv) legal,
accounting and other professional fees and disbursements incurred in
connection with the operation and management of the Real Property; (xv)
association fees and dues; (xvi) the cost of seasonal decorations;
(xvii) depreciation of hand tools and other movable equipment used in
the operation, cleaning, repair, safety, management, security or
maintenance of the Building and Building No. 1; (xviii) exterior and
interior landscaping, irrigation and tree care; (xix) all electrical
costs incurred in the operation of the Real Property; (xx) striping,
re-striping, sweeping and repairing parking areas and garages; and
(xxi) waste removal.
Provided, however, that the foregoing costs and expenses shall exclude
or have deducted from them, as the case may be:
(1) amounts received by Landlord through proceeds of
insurance to the extent they are compensation for sums
previously included in Operating Expenses;
(2) cost of repairs or replacements incurred by
reason of fire or other casualty or condemnation to the extent
Landlord is compensated therefor;
(3) Taxes; and
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(4) leasing commissions, rental concessions and lease
buy-outs.
If Landlord leases any item of capital equipment that would otherwise
be included in Operating Expenses, then the rentals and other costs paid with
respect to such leasing shall be included in Operating Expenses for the
Operating Years in which such rentals and costs are incurred.
Notwithstanding anything to the contrary set forth herein, if the
Building and Building No. 1 are not fully occupied during any calendar year of
the Term, Operating Expenses shall be determined as if the Building and Building
No. 1 had been fully occupied during such year, by adding to actual Operating
Expenses an amount equal to those costs which would have been incurred if the
Building and Building No. 1 had been fully occupied. For the purposes of this
Lease, "fully occupied" shall mean occupancy of ninety-five percent (95%) of the
usable square feet in the Building and Building No. 1 with Landlord providing
all services.
Notwithstanding anything to the contrary set forth herein, in the event
that (a) utilities serving the Real Property are not separately metered or (b)
any maintenance of the Real Property is covered by a contract which also covers
the Adjacent Property or any portion thereof, then the Landlord shall make a
fair and equitable allocation of the costs between the Real Property and the
Adjacent Property receiving utility service and/or being covered by the
maintenance contracts, and such fair and equitable amount shall be included in
Operating Expenses under this Lease.
(b) "Taxes" shall mean the aggregate amount of real estate
taxes and any general or special assessments (exclusive of penalties
and interest thereon) imposed upon the Real Property (including,
without limitation, (i) assessments made upon or with respect to any
"air" and "development" rights now or hereafter appurtenant to or
affecting the Real Property, (ii) any fee, tax or charge imposed by any
Government Authority for any vaults, vault space or other space within
or outside the boundaries of the Real Property, (iii) any assessments
levied after the date of this Lease for public benefits to the Real
Property or the Building or Building No. 1); and (iv) franchise taxes;
provided that if, because of any change in the taxation of real estate,
any other tax or assessment, however denominated (including, without
limitation, any profit, sales, use, occupancy, gross receipts or rental
tax) is imposed upon Landlord or the owner of the Real Property or
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the Building or Building No. 1, or the occupancy, rents or income
therefrom, in substitution for any of the foregoing Taxes or for an
increase in any of the foregoing Taxes, such other tax or assessment
shall be deemed part of Taxes computed as if Landlord's sole asset were
the Real Property. With respect to any Tax Year, all expenses,
including attorneys' fees and disbursements and experts' and other
witnesses' fees, incurred in contesting the validity or amount of any
Taxes or in obtaining a refund of Taxes shall be considered as part of
the Taxes for such Tax Year. Anything contained herein to the contrary
notwithstanding, Taxes shall not be deemed to include (a) any federal
taxes on Landlord's income, (b) estate or inheritance taxes, or (c) any
similar taxes imposed on Landlord, unless such taxes are levied,
assessed or imposed as a substitute for the whole or any part of, or as
a substitute for an increase in, the taxes, assessments, levies, fees,
charges and impositions that now constitute Taxes. In the event that
the Real Property and the Adjacent Property are assessed together for
ad valorem taxes, then for so long as there are no additions or
expansions which result in increase in size of the exterior walls of
the buildings on the Real Property or Adjacent Property, no additional
buildings constructed on the Real Property or Adjacent Property, and no
additional parking facilities or structures constructed on the Real
Property or Adjacent Property (collectively, the "Additional Taxable
Improvements"), the parties stipulate and agree that eighty-nine
percent (89%) of the ad valorem real estate taxes imposed on the Real
Property and Adjacent Property shall be "Taxes" within the meaning of
this Lease, attributable to the Real Property. Upon the construction of
Additional Taxable Improvements on the Real Property or Adjacent
Property (provided that they are assessed together), the parties shall
make an equitable adjustment to the foregoing stipulated percentage to
account for any increase in assessment resulting from such Additional
Taxable Improvements.
Section 3.2. (a) Tenant shall pay as Escalation Rent for each Tax Year,
an amount ("Tenant's Tax Payment") equal to Tenant's Share of the amount by
which the Taxes for such Tax Year are greater than the Base Tax Factor. Tenant's
Tax Payment shall be payable by Tenant to Landlord in twelve (12) equal monthly
installments (subject to the further provisions of this Section 3.2), the first
of which shall be due within ten (10) days after receipt of a Landlord's Tax
Statement, regardless of whether such Landlord's Tax Statement is received prior
to, on or after the
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first day of such Tax Year and the remaining installments shall be due on the
first day of each month thereafter. If there is any increase in Taxes for any
Tax Year, whether during or after such Tax Year, or if there is any decrease in
the Taxes for any Tax Year during such Tax Year, Landlord shall furnish a
revised Landlord's Tax Statement for any Tax Year affected, and Tenant's Tax
Payment for such Tax Year shall be adjusted and, (a) within ten (10) days after
Tenant's receipt of such revised Landlord's Tax Statement, Tenant shall (with
respect to any increase in Taxes for such Tax Year) pay the appropriate increase
in Tenant's Tax Payment to Landlord, or (b) (with respect to any decrease in
Taxes for such Tax Year) Landlord shall promptly, at its election, either credit
such decrease in Tenant's Tax Payment against the next installment of Rental
payable by Tenant or refund the amount of such decrease by check to the order of
Tenant or, if at the end of the Term, there shall not be any further
installments of Rental remaining against which Landlord can credit any decrease
in Taxes due Tenant, Landlord shall deliver to Tenant Landlord's check in the
amount of the refund due Tenant within thirty (30) days after Landlord's receipt
of any refund. If, during the Term, Taxes are required to be paid (either to the
appropriate taxing authorities or as tax escrow payments to the Lessor or the
Mortgagee), in full or in quarterly or other installments on any other date or
dates than as presently required, then Tenant's Tax Payments shall be
correspondingly accelerated or revised so that Tenant's Tax Payments are due at
least thirty (30) days prior to the date payments are due to the taxing
authorities, the Lessor or the Mortgagee. The benefit of any discount for any
early payment or prepayment of Taxes shall accrue solely to the benefit of
Landlord and Taxes shall be computed without subtracting such discount.
(b) (i) Except as provided in Section 3.2(b)(ii) below, only Landlord
shall be eligible to institute tax reduction or other proceedings to
reduce Taxes. If, after a Landlord's Tax Statement has been sent to
Tenant, a refund of Taxes is actually received by or on behalf of
Landlord, then, promptly after receipt of such refund, Landlord shall
send Tenant a Landlord's Tax Statement adjusting the Taxes for such Tax
Year (taking into account Landlord's expenses therefor) and setting
forth Tenant's Share of such refund, and Tenant shall be entitled to
receive such amount by way of a credit against the Escalation Rent;
provided, however, that Tenant's Share of such refund shall be limited
to the amount of Tenant's Tax Payment, if any, which Tenant had
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theretofore paid to Landlord attributable to increases in Taxes for the
Tax Year to which the refund is applicable.
(ii) In the event Landlord does not contest any increase in ad
valorem Taxes applicable to the Real Property, Tenant, at its sole cost
and expense, shall have the right to contest any such increase and
shall keep Landlord informed of the steps being taken. Landlord agrees
to fully cooperate with Tenant in prosecuting any appeal taken by
Tenant as a result of such increase, at no cost or expense to Landlord.
During the pendency of any such contest, Tenant shall take all actions
required to prevent the execution/enforcement by the taxing authorities
of any rights against Landlord and/or the Real Property. All Escalation
Rent charged by Landlord shall be paid by Tenant during the pendency of
any such action. If, after a Landlord's Tax Statement has been sent to
Tenant, a refund of Taxes is actually received as a result of a contest
made by Tenant, then, promptly after receipt of such refund, Landlord
shall send Tenant a Landlord's Tax Statement adjusting the Taxes for
such Tax Year and setting forth Tenant's Share of such refund, and
Tenant shall be entitled to receive such amount by way of a credit
against the Escalation Rent; provided, however, that Tenant's Share of
such refund shall be limited to the amount of Tenant's Tax Payment, if
any, which Tenant had theretofore paid to Landlord attributable to
increases in Taxes for the Tax Year to which the refund is applicable.
(c) Tenant's Tax Payment and any credits with respect thereto as
provided in this Section 3.2 shall be made as provided in this Section 3.2
regardless of the fact that Tenant may be exempt, in whole or in part, from the
payment of any taxes by reason of Tenant's tax exempt status or for any other
reason whatsoever.
(d) Tenant shall pay to Landlord within thirty (30) days after demand
as Additional Rent any occupancy tax or rent tax now in effect or hereafter
enacted, if payable by Landlord in the first instance or hereafter required to
be paid by Landlord.
(e) Each Landlord's Tax Statement furnished by Landlord with respect to
Tenant's Tax Payment shall be accompanied by a copy of the real estate tax bill
or bills for the Tax Year referred to therein, but Landlord shall have no
obligation to deliver more than one such copy of the real estate tax bill or
bills in respect of any Tax Year, and Landlord's failure to
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deliver such copy shall not affect Tenant's obligations as to amount or due
date(s) thereof.
(f) If the Base Tax Factor subsequently shall be adjusted, corrected or
reduced whether as the result of protest, by means of agreement or as the result
of legal proceedings, the Base Tax Factor for the purpose of computing any
Additional Rent Payable pursuant to this Article shall be the Base Tax Factor as
so adjusted, corrected or reduced. Until the Base Tax is so adjusted, corrected
or reduced, if ever, Tenant shall pay Additional Rent hereunder based upon the
unadjusted, uncorrected or unreduced Base Tax Factor and upon such adjustment,
correction or reduction occurring, any Additional Rent payable by Tenant prior
to the date of such occurrence shall be recomputed and Tenant shall pay to
Landlord any Escalation Rent found due by such recomputation within thirty (30)
days after being billed therefor (which bill shall set forth in reasonable
detail the pertinent data causing and comprising such recomputation).
(g) If the Commencement Date or the Expiration Date occurs on a date
other than January 1 or December 31, respectively, any Tenant's Tax Payment
under this Article 3 for the Tax Year in which such Commencement Date or
Expiration Date occurs shall be apportioned in that percentage which the number
of days in the period from the Commencement Date to December 31 or from January
1 to the Expiration Date, as the case may be, both inclusive, bears to the total
number of days in such Tax Year. If the Commencement Date or the Expiration Date
occurs on a date other than January 1 or December 31, respectively, any Tenant's
Operating Payment under this Article 3 for the Operating Year in which such
Commencement Date or Expiration Date occurs shall be apportioned in that
percentage which the number of days in the period from the Commencement Date to
December 31 or from January 1 to the Expiration Date, as the case may be, both
inclusive, bears to the total number of days in such Operating Year. In the
event of a termination of this Lease, any Escalation Rent under this Article 3
shall be paid or adjusted within thirty (30) days after submission of a
Landlord's Statement. The rights and obligations of Landlord and Tenant under
the provisions of Article 3 with respect to any Escalation Rent shall survive
for a period of six (6) months after the end of the calendar year in which the
Expiration Date falls.
Section 3.3. (a) Tenant shall pay as Escalation Rent for each Operating
Year an amount ("Tenant's Operating Payment") equal to Tenant's Share of the
amount by which Operating Expenses
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for such Operating Year are greater than the Base Operating Factor.
(b) Landlord shall furnish to Tenant, with respect to each Operating
Year, a Landlord's Operating Statement setting forth Landlord's estimate of
Tenant's Operating Payment for such Operating Year ("Tenant's Projected
Operating Share"). Tenant shall pay to Landlord on the first day of each month
during such Operating Year, as Escalation Rent, an amount equal to one-twelfth
(1/12) of Tenant's Projected Operating Share for such Operating Year. If,
however, Landlord furnishes any such Landlord's Operating Statement for an
Operating Year subsequent to the commencement of such Operating Year, then (a)
until the first day of the month following the month in which such Landlord's
Operating Statement is furnished to Tenant, Tenant shall pay to Landlord on the
first day of each month an amount equal to the monthly sum payable by Tenant to
Landlord under this Section 3.3 in respect of the last month of the preceding
Operating Year; (b) after such Landlord's Operating Statement is furnished to
Tenant or together therewith, Landlord shall give notice to Tenant stating
whether the installments of Tenant's Projected Operating Share previously made
for such Operating Year were greater or less than the installments of Tenant's
Projected Operating Share to be made for such Operating Year in accordance with
such estimate, and (i) if there is a deficiency, Tenant shall pay the amount
thereof within thirty (30) days after demand therefor, or (ii) if there was an
overpayment, Landlord shall credit the amount thereof against subsequent
payments of Rental or, if at the end of the Term there shall not be any further
installments of Rental remaining against which Landlord can credit any such
overpayment due Tenant, Landlord shall deliver to Tenant Landlord's check in the
amount of the refund due Tenant within thirty (30) days after Tenant shall first
be entitled to a credit for the overpayment of Operating Expenses; and (c) on
the first day of the month following the month in which such Landlord's
Operating Statement is furnished to Tenant, and monthly thereafter throughout
the remainder of such Operating Year, Tenant shall pay to Landlord an amount
equal to one-twelfth (1/12) of Tenant's Projected Operating Share shown in such
Landlord's Operating Statement. Landlord shall furnish to Tenant a revised
Landlord's Operating Statement with a new estimate of Tenant's Projected
Operating Share for such Operating Year and, in such case, Tenant's Projected
Operating Share for such Operating Year shall be adjusted and paid or credited,
as the case may be, substantially in the same manner as provided in the
preceding sentence.
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(c) After the end of each Operating Year, Landlord shall furnish to
Tenant a Landlord's Operating Statement for such Operating Year. Each such
year-end Landlord's Operating Statement shall be accompanied by a computation of
Operating Expenses prepared by the Manager or a certified public accountant
designated by Landlord from which Landlord shall make the computation of
Escalation Rent due in respect of Operating Expenses hereunder. In making
computations of Operating Expenses, the certified public accountant or the
Manager may rely on Landlord's reasonable estimates and allocations whenever
said estimates and allocations are needed for this Article 3. If the Landlord's
Operating Statement shows that the sums paid by Tenant under Section 3.3(B)
exceeded Tenant's Operating Payments required to be paid by Tenant for such
Operating Year, Landlord shall credit the amount of such excess against
subsequent payments of Rental or, if at the end of the Term there shall not be
any further installments of Rental remaining against which Landlord can credit
any such overpayments due Tenant, Landlord shall promptly deliver to Tenant
Landlord's check in the amount of the refund due Tenant within thirty (30) days
after Tenant shall first be entitled to a credit for the overpayment of
Operating Expenses; and if the Landlord's Operating Statement for such Operating
Year shows that the sums so paid by Tenant were less than Tenant's Operating
Payment due for such Operating Year, Tenant shall pay the amount of such
deficiency within thirty (30) days after demand therefor.
(d) In addition, Tenant shall pay to the appropriate taxing authority,
as and when due, any and all taxes due with respect to Tenant's personal
property and/or leasehold interest in the Premises.
Section 3.4. Landlord's failure to render any Landlord's Statement with
respect to any Tax Year or Operating Year shall not prejudice Landlord's right
thereafter to render a Landlord's Statement with respect thereto or with respect
to any subsequent Tax Year or Operating Year, as the case may be, nor shall the
rendering of a Landlord's Statement prejudice Landlord's right thereafter to
render a corrected Landlord's Statement for that Tax Year or Operating Year.
Section 3.5. Any Landlord's Statement sent to Tenant shall be
conclusively binding upon Tenant unless, within thirty (30) days after such
Landlord's Statement is sent, Tenant shall send a written notice to Landlord
objecting to such Landlord's Statement and specifying, to the extent reasonably
practicable, the respects in which such Landlord's Statement is disputed. If
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Tenant shall send such notice with respect to a Landlord's Statement, Tenant may
select and pay an independent certified public accountant or a member of an
independent firm which is engaged in the business of auditing lease escalation
clauses (an "Approved Examiner") provided that such Approved Examiner is not and
has not during the Term been affiliated with, a shareholder in, an officer,
director, partner, or employee of, any Manager during the Term or the Manager
named in this Lease, and such Approved Examiner may examine Landlord's books and
records relating solely to disputed aspects of the Operating Expenses to
determine the accuracy of Landlord's Operating Statement. Tenant recognizes the
confidential nature of Landlord's books and records, and agrees that any
information obtained by an Approved Examiner during any examination shall be
maintained in strict confidence by such Approved Examiner, without revealing
same to any Person except Tenant. If, after such examination, such Approved
Examiner shall dispute such Landlord's Operating Statement, either party may
refer the decision of the issues raised to a reputable independent firm of
certified public accountants, selected by Landlord and approved by Tenant, which
approval shall not be unreasonably withheld or delayed, and the decision of such
accountants shall be conclusively binding upon the parties. The fees and
expenses involved in resolving such dispute shall be borne by Tenant, unless the
final determination is that Landlord's Statement overstated Operating Expenses
by more than five percent (5%), in which case Landlord shall pay the reasonable
fees and expenses involved in resolving the dispute. Notwithstanding the giving
of such notice by Tenant, and pending the resolution of any such dispute, Tenant
shall pay to Landlord when due the amount shown on any such Landlord's
Statement, as provided in this Article 3. Tenant shall pay the amount of any
underpayment to Landlord and Landlord shall refund the amount of any overpayment
to Tenant, within thirty (30) days after resolution of such dispute (and if
Landlord fails to refund such overpayment to Tenant, Tenant shall be entitled to
offset the same against future payments of Additional Rent).
ARTICLE IV
USE AND OCCUPANCY
Section 4.1. Tenant shall use and occupy the Premises for the Permitted
Use and for no other purpose. Tenant and Tenant's use of the Premises shall
comply in all respects with the Restrictive Covenants; and Tenant shall
indemnify Landlord against any loss, cost or damage (including costs of defense
and reasonable attorney fees) arising as a result of the failure of
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the Tenant or Tenant's use of the Premises to so comply. Tenant covenants and
agrees that in no event and under no circumstances shall the Office Use within
the Building exceed fifty-three thousand one hundred forty-nine (53,149) square
feet unless Landlord and Tenant otherwise agree in a writing signed by them; and
if the Office Use within the Building shall ever exceed said square footage,
Tenant shall diligently take steps to remove area within the Building from
Office Use in order that Tenant shall be in compliance with the foregoing
provisions.
Section 4.2. Tenant shall not use the Premises or any part thereof, or
permit the Premises or any part thereof to be used, (1) for the business of
photographic, multilith or multigraph reproductions or offset printing (other
than those which are ancillary to an otherwise Permitted Use), (2) for an
offthe-street retail commercial banking, thrift institution, loan company, trust
company, depository or safe deposit business accepting deposits from the general
public, (3) for the offthe-street retail sale of travelers checks, money orders,
drafts, foreign exchange or letters of credit or for the receipt of money for
transmission, (4) by the United States government, the state or local
government, or any agency or department of any of the foregoing having or
asserting sovereign immunity, (5) for the preparation, dispensing or consumption
of food or beverages in any manner whatsoever, except for the preparation,
dispensing and consumption of food by Tenant's employees who work in the
Premises and not for the sale of food to any Persons other than such employees,
(6) as an employment agency, day-care facility (other than as a self-operated
facility for use only by Tenant's employees), labor union, school, or vocational
training center (except for the training of employees of Tenant intended to be
employed at the Premises), (7) as a barber shop, beauty salon or manicure shop,
(8) for product display activities (such as those of a manufacturer's
representative), (9) as offices of any public utility company, (10) for health
care activities, (11) for clerical support services or offices of public
stenographers or typists (other than those which are ancillary to an otherwise
Permitted Use), (12) as reservation or call centers, (13) for retail or
manufacturing use, (14) as studios for radio, television or other media, or (15)
any use which extends the hours of use or operations in the Premises (other than
infrequently or sporadically) beyond the Operating Hours. Furthermore, the
Premises shall not be used for any purpose that would, in Landlord's reasonable
judgment, tend to lower the first-class character of the Building, create
unreasonable or excessive elevator or floor loads, violate the certificate of
occupancy of the Building, materially impair or interfere with
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any of the Building operations or the proper and economic heating,
air-conditioning, cleaning or any other services of the Building, materially
interfere with the use of the other areas of the Building by any other tenants,
or materially impair the appearance of the Building.
ARTICLE V
ALTERATIONS
Section 5.1. (a) Except as otherwise set out in Section 5.1(f), Tenant
shall not make or permit to be made any Alterations without Landlord's prior
written consent. Reference is made to Exhibit "G" hereto, which contains the
Tenant Design and Construction Standards applicable to the Building, which is
incorporated by reference in this Lease. Landlord reserves the right to make
reasonable changes and additions thereto.
(b) (1) Prior to making any such Alterations, Tenant shall (i) submit
to Landlord two (2) sets of detailed plans and specifications
(including layout, architectural, electrical, mechanical and structural
drawings) that comply with all Requirements for each proposed
Alteration, and Tenant shall not commence any such Alteration without
first obtaining Landlord's approval of such plans and specifications,
which approval shall not be unreasonably withheld or delayed, (ii) at
Tenant's expense, obtain all permits, approvals and certificates
required by any Governmental Authorities, and (iii) furnish to Landlord
duplicate original policies or certificates thereof of worker's
compensation insurance (covering all persons to be employed by Tenant,
and Tenant's contractors and subcontractors, in connection with such
Alteration) and commercial general liability insurance (including
premises operation, bodily injury, personal injury, death, independent
contractors, products and completed operations, broad form contractual
liability and broad form property damage coverages) in such form, with
such companies, for such periods and in such amounts as Landlord may
reasonably approve, naming Landlord and its agents, any Lessor and any
Mortgagee, as additional insureds. Upon completion of such Alteration,
Tenant, at Tenant's expense, shall obtain certificates of final
approval of such Alterations required by any Governmental Authority and
shall furnish Landlord with copies thereof, together with the "as
built" plans and specifications for such Alterations. All Alterations
shall be made and performed in accordance with the plans and
specifications
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therefor as approved by Landlord, all Requirements, Restrictive
Covenants, and the Rules and Regulations. All materials and equipment
to be incorporated in the Premises as a result of any Alterations shall
be first quality and no such materials or equipment shall be subject to
any lien, encumbrance, chattel mortgage, title retention or security
agreement. In addition, any such Alteration for which the cost of labor
and materials (as estimated by Landlord's architect, engineer or
contractor) is in excess of Seventy-Five Thousand Dollars ($75,000.00),
either individually or in the aggregate with any other Alteration
constructed in any twelve (12) month period, shall be performed only
under the supervision of a licensed architect satisfactory to Landlord.
(2) Landlord reserves the right to disapprove any plans and
specifications in whole or in part, to reserve approval of items shown
thereon pending its review and approval of other plans and
specifications, and to condition its approval upon Tenant making
revisions to the plans and specifications or supplying additional
information; provided, however, that Landlord shall be reasonable in
its exercise of these rights. Additionally, Landlord shall be deemed to
have approved Tenant's plans and specifications if Landlord fails to
respond to Tenant's plans and specifications within fifteen (15) days
of Landlord's receipt thereof. Tenant agrees that any review or
approval by Landlord of any plans and/or specifications with respect to
any Alteration is solely for Landlord's benefit, and without any
representation or warranty whatsoever to Tenant or any other Person
with respect to the adequacy, correctness or sufficiency thereof or
with respect to Requirements, Restrictive Covenants or otherwise.
(c) Alterations shall be performed at Tenant's expense and at such
times and in such manner as Landlord may from time to time reasonably designate,
unless, at the time of the Alterations, Tenant is the only occupant of the
Building and Building No. 1, in which event, Tenant may control the times and
manner (but always in accordance with all Requirements) to perform the
Alterations. All Alterations shall become a part of the Building and shall be
Landlord's property from and after the installation thereof and may not be
removed or changed without Landlord's consent. Notwithstanding the foregoing,
however, Landlord, upon notice given at least sixty (60) days prior to the
Expiration Date or upon such shorter notice as is reasonable under the
circumstances upon the earlier expiration of the Term,
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may require Tenant to remove any specified Alterations (other than those
comprising part of Building Standard Condition) and to repair and restore in a
good and workmanlike manner to Building Standard Condition (reasonable wear and
tear excepted) any damage to the Premises or the Building caused by such
removal. All Tenant's Property shall remain the property of Tenant and, unless
Landlord and Tenant shall agree otherwise, on or before the Expiration Date
shall, at Tenant's cost, be removed from the Premises by Tenant, and Tenant
shall repair and restore in a good and workmanlike manner to Building Standard
Condition (reasonable wear and tear excepted) any damage to the Premises or the
Building caused by such removal. The provisions of this Section 5.1(c) shall
survive the expiration or earlier termination of this Lease.
(d) (1) All Alterations shall be performed, at Tenant's sole cost and
expense, by contractors, subcontractors or mechanics approved by
Landlord in Landlord's reasonable discretion.
(2) Notwithstanding the foregoing, with respect to any
Alteration affecting any Building Systems, (i) Tenant, if required by
Landlord, shall employ Landlord's or the Manager's designated
contractor, and (ii) the Alteration shall, if required by Landlord, at
Tenant's expense, be designed by either Landlord's or the Manager's
engineer.
(e) (1) Any mechanic's lien filed against the Premises or the Real
Property for work claimed to have been done for, or materials claimed
to have been furnished to, Tenant shall be canceled or discharged by
Tenant, at Tenant's expense, within twenty (20) days after such lien
shall be filed, by payment or filing of the bond required by law, and
Tenant shall indemnify and hold Landlord harmless from and against any
and all costs, expenses, claims, losses or damages resulting therefrom
by reason thereof.
(2) If Tenant shall fail to discharge such mechanic's lien
within the aforesaid period, then, in addition to any other right or
remedy of Landlord, Landlord may, but shall not be obligated to,
discharge the same either by paying the amount claimed to be due or by
procuring the discharge of such lien by deposit in court or bonding,
and in any such event, Landlord shall be entitled, if Landlord so
elects, to compel the prosecution of an action for the foreclosure of
such mechanic's lien by the lienor and to pay the amount of
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the judgment, if any, in favor of the lienor, with interest, costs and
allowances.
(3) Any amount paid by Landlord for any of the aforesaid
charges and for all expenses of Landlord (including, but not limited
to, attorneys' fees and disbursements) incurred in defending any such
action, discharging said lien or in procuring the discharge of said
lien, with interest on all such amounts at the maximum legal rate of
interest then chargeable to Tenant from the date of payment, shall be
repaid by Tenant within ten (10) days after written demand therefor,
and all amounts so repayable, together with such interest, shall be
considered Additional Rent.
(f) Notwithstanding anything to the contrary set forth in this Article
V, Tenant, without Landlord's consent, is permitted to make Alterations
to the Premises which relate only to the cosmetic appearance,
nonstructural components, and/or non-load-bearing portions of the
Premises (and which do not affect the structural and/or load-bearing
elements of the Building or the Building Systems), provided such
Alterations do not cost, in the aggregate, more than Seventy-Five
Thousand Dollars ($75,000.00) during any twelve (12) month period
during the Term.
Section 5.2. Tenant shall reimburse Landlord, within five (5) Business
Days after demand therefor, for any reasonable out-of-pocket expense incurred by
Landlord for reviewing the plans and specifications for any Alterations or
inspecting the progress of completion of the same.
Section 5.3. Landlord, at Tenant's expense, and upon the request of
Tenant, shall join in any applications for any permits, approvals or
certificates required to be obtained by Tenant in connection with any permitted
Alteration (provided that the provisions of the applicable Requirements shall
require that Landlord join in such application) and shall otherwise cooperate
with Tenant in connection therewith, provided that Landlord shall not be
obligated to incur any cost or expense or liability in connection therewith.
Section 5.4. Tenant shall furnish to Landlord copies of records of all
Alterations and of the cost thereof within fifteen (15) days after the
completion of such Alterations.
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Section 5.5. TENANT HEREBY ACCEPTS THE PREMISES "AS IS, WHERE IS," AND
WITHOUT ANY WARRANTY, EXPRESS OR IMPLIED, EXCEPT AS OTHERWISE SET FORTH IN THIS
LEASE.
Section 5.6. Tenant shall not, at any time prior to or during the Term,
directly or indirectly employ, or permit the employment of, any contractor,
mechanic or laborer in the Premises, whether in connection with any Alteration
or otherwise, if such employment would unreasonably interfere or cause any
unreasonable conflict with other contractors, mechanics or laborers engaged in
the construction, maintenance or operation of the Building by Landlord, Tenant
or others, or of any other property owned by Landlord. In the event of any such
unreasonable interference or conflict, Tenant, upon demand of Landlord, shall
cause all contractors, mechanics or laborers causing such interference or
conflict to leave the Building immediately.
Section 5.7. During the course of any Alteration and any construction
by Landlord, whether on the Land or on any real property adjacent to the Land,
Landlord and Tenant shall cooperate with each other, and shall cause their
contractors and subcontractors to cooperate, so as to minimize interruption and
interference with each other's construction activities.
ARTICLE VI
REPAIRS
Section 6.1. Tenant covenants to use due care in its use and occupancy
of the Premises and not to commit waste. Except as otherwise provided in this
Section 6.1, Tenant shall not be obligated to repair any Building Systems.
Tenant shall, however, at its own cost and expense, maintain and repair and, to
the extent deemed appropriate by Tenant, monitor the Security System.
Notwithstanding any provision contained in this Lease to the contrary, all
damage or injury to the Premises, and all damage or injury to any other part of
the Building, or to its fixtures, equipment and appurtenances (including
Building Systems), whether requiring structural or nonstructural repairs, caused
by the moving of Tenant's Property or caused by or resulting from any act or
omission of, or Alterations made by, Tenant or Persons Within Tenant's Control,
shall be repaired by Tenant, at Tenant's sole cost and expense, to the
reasonable satisfaction of Landlord (if the required repairs are non-structural
in nature and do not affect any Building Systems), or by Landlord at Tenant's
sole cost and expense (if the required repairs are structural in
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nature or affect any Building Systems). All of the aforesaid repairs shall be
performed in a manner and with materials and design of first class and quality
consistent with first-class office buildings in Memphis and shall be made in
accordance with the provisions of Article 5. If Tenant shall fail, after five
(5) days notice (or such shorter period as may be required because of an
emergency), to proceed with due diligence to make repairs required to be made by
Tenant, the same may be made by Landlord, at the expense of Tenant, and the
expenses thereof incurred by Landlord, with interest thereon at the Applicable
Rate, shall be paid to Landlord, as Additional Rent, within ten (10) days after
rendition of a bill or statement therefor. Tenant shall give Landlord prompt
notice of any defective condition in any Building Systems located in, servicing
or passing through the Premises.
Section 6.2. Tenant shall not place a load upon any floor of the
Premises which exceeds seventy-five (75) pounds per square foot "live load."
Tenant shall not locate or move any safe, heavy machinery, heavy equipment,
business machines, freight, bulky matter or fixtures into or out of the Building
without Landlord's prior consent, which consent shall not be unreasonably
withheld, and Tenant shall make payment to Landlord of Landlord's costs in
connection therewith (if such move is not part of an Alteration). If such safe,
machinery, equipment, freight, bulky matter or fixture requires special handling
(as determined by Landlord), Tenant shall employ only persons holding a Master
Rigger's license to do said work. All work in connection therewith shall comply
with the Requirements, and shall be done during such hours as Landlord may
designate. Business machines and mechanical equipment shall be placed and
maintained by Tenant, at Tenant's expense, in settings sufficient, in Landlord's
reasonable judgment, to absorb and prevent vibration, noise and annoyance.
Section 6.3. Landlord shall operate, maintain and make all necessary
repairs (both structural and non-structural) to the Building Systems and the
public portions of the Building, both exterior and interior, in conformance with
standards applicable to first-class office buildings in Memphis, except for
those repairs for which Tenant is responsible pursuant to any other provision of
this Lease. Landlord shall use reasonable efforts to minimize interference with
Tenant's use and occupancy of the Premises in making any repairs, alterations,
additions or improvements; provided, however, that Landlord shall have no
obligation to employ contractors or labor at so-called overtime or other premium
pay rates or to incur any other overtime costs
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in connection with such repairs, alterations, additions or improvements.
Notwithstanding the foregoing, if Tenant shall so request, Landlord shall employ
contractors or labor at so-called overtime or other premium pay rates or incur
other overtime costs in making such repairs, alterations, additions or
improvements, provided Tenant shall pay to Landlord, as Additional Rent, within
ten (10) days after demand therefor, an amount equal to the excess costs
incurred by Landlord by reason of compliance with Tenant's request. Except as
expressly provided in this Lease, there shall be no allowance to Tenant for a
diminution of rental value and no liability on the part of Landlord by reason of
inconvenience, annoyance or injury to business arising from Landlord, Tenant or
others making, or failing to make, any repairs, alterations, additions or
improvements in or to any portion of the Building or the Premises, or its
fixtures, appurtenances or equipment.
Section 6.4. Without abatement or diminution in rent, Landlord reserves
and shall have the following additional rights:
1. To erect, use and maintain pipes and conduits in and through
the Premises; provided that all such conduits and pipes shall
be located behind then-existing walls, under floors or above
suspended ceilings and shall not interfere with the use and
operation of the Premises, or any equipment or facilities
located therein.
2. To take any and all measures, including inspections, repairs,
alterations, additions and improvements to the Premises or to
the Building, as may be necessary or desirable for the safety,
protection or preservation of the Premises or the Building or
Landlord's interests, or as may be necessary or desirable in
the operation of the Building.
ARTICLE VII
CONNECTING CORRIDORS
Section 7.1 [Reserved]
Section 7.2 In the event that the Expiration Date of this Lease shall
be earlier or later than the expiration date of Tenant's lease of Building No.
1, then at such time as Tenant no longer occupies both of such buildings, Tenant
shall, at its own expense, construct a door or doors in the corridor which
connects
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the Building and Building No. 1, in such manner as Landlord and Tenant shall
mutually agree, to prevent access between the Building and Building No. 1.
ARTICLE VIII
REQUIREMENTS OF LAW
Section 8.1. Tenant shall not do, and shall not permit Persons Within
Tenant's Control to do, any act or thing in or upon the Premises or the Building
which will invalidate or be in conflict with the certificate of occupancy for
the Premises or the Building or violate any Requirements or Restrictive
Covenants. Tenant shall, at Tenant's sole cost and expense, take all action,
including making any required Alterations necessary to comply with all
Requirements (including, but not limited to, applicable terms of the Americans
With Disabilities Act of 1990 (the "ADA"), as modified and supplemented from
time to time) which shall impose any violation, order or duty upon Landlord or
Tenant arising from, or in connection with, the Premises, Tenant's occupancy,
use or manner of use of the Premises (including, without limitation, any
occupancy, use or manner of use that constitutes a "place of public
accommodation" under the ADA), or any installations by Tenant in the Premises,
or required by reason of a breach of any of Tenant's covenants or agreements
under this Lease, whether or not such Requirements shall now be in effect or
hereafter enacted or issued, and whether or not any work required shall be
ordinary or extraordinary or foreseen or unforeseen at the date hereof;
provided, however, that Landlord shall be responsible for complying with such
Requirement or Restrictive Covenant and for the cost of such compliance if and
to the extent that non-compliance arose because of the acts of Landlord.
Section 8.2. Tenant covenants and agrees that Tenant shall, at Tenant's
sole cost and expense, comply at all times with all Requirements governing the
use, generation, storage, treatment and/or disposal of any Hazardous Materials
(as defined below), the presence of which results from or in connection with the
act or omission of Tenant or Persons Within Tenant's Control or the breach of
this Lease by Tenant or Persons Within Tenant's Control. The term "Hazardous
Materials" shall mean any biologically or chemically active or other toxic or
hazardous wastes, pollutants or substances, including, without limitation,
asbestos, PCBs, petroleum products and by-products, substances defined or listed
as "hazardous substances" or "toxic substances"
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or similarly identified in or pursuant to the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. 9601 ET SEQ., and as
hazardous wastes under the Resource Conservation and Recovery Act, 42 U.S.C.
6010, ET SEQ., any chemical substance or mixture regulated under the Toxic
Substance Control Act of 1976, as amended 15 U.S.C. 2601, ET SEQ., any "toxic
pollutant" under the Clean Water Act, 33 U.S.C. 466 ET SEQ., as amended, any
hazardous air pollutant under the Clean Air Act, 42 U.S.C. 7401 ET SEQ.,
hazardous materials identified in or pursuant to the Hazardous Materials
Transportation Act, 49 U.S.C. 1802, ET SEQ., and any hazardous or toxic
substances or pollutant regulated under any other Requirements. Tenant shall
agree to execute, from time to time, at Landlord's request, affidavits,
representations and the like concerning Tenant's best knowledge and belief
regarding the presence of Hazardous Materials in, on, under or about the
Premises, the Building or the Land. Tenant shall indemnify and hold harmless all
Indemnitees from and against any loss, cost, damage, liability or expense
(including attorneys' fees and disbursements) arising by reason of any clean up,
removal, remediation, detoxification action or any other activity required or
recommended of any Indemnitees by any Governmental Authority by reason of the
presence in or about the Building or the Premises of any Hazardous Materials, as
a result of or in connection with the act or omission of Tenant or Persons
Within Tenant's Control or the breach of this Lease by Tenant or Persons Within
Tenant's Control. The foregoing covenants and indemnity shall survive the
expiration or any termination of this Lease.
Section 8.3. If Tenant shall receive notice of any violation of, or
defaults under, any Requirements, liens or other encumbrances applicable to the
Premises, Tenant shall give prompt notice thereof to Landlord.
Section 8.4. If any governmental license or permit shall be required
for the proper and lawful conduct of Tenant's business and if the failure to
secure such license or permit would, in any way, affect Landlord or the
Building, then Tenant, at Tenant's expense, shall promptly procure and
thereafter maintain, submit for inspection by Landlord, and at all times comply
with the terms and conditions of, each such license or permit.
Section 8.5. Tenant, at Tenant's sole cost and expense and after notice
to Landlord, may contest, by appropriate proceedings prosecuted diligently and
in good faith, the legality or applicability of any Requirement affecting the
Premises provided that: (a) neither Landlord nor any Indemnitees shall be
subject
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to criminal penalties, nor shall the Real Property or any part thereof be
subject to being condemned or vacated, nor shall the certificate of occupancy
for the Premises or the Building be suspended or threatened to be suspended, by
reason of non-compliance or by reason of such contest; (b) before the
commencement of such contest, if Landlord or any Indemnitees may be subject to
any civil fines or penalties or if Landlord may be liable to any independent
third party as a result of such non-compliance, then Tenant shall furnish to
Landlord either (i) a bond of a surety company satisfactory to Landlord, in form
and substance reasonably satisfactory to Landlord, and in an amount at least
equal to Landlord's estimate of the sum of (A) the cost of such compliance, (B)
the penalties or fines that may accrue by reason of such non-compliance (as
reasonably estimated by Landlord) and (C) the amount of such liability to
independent third parties, and shall indemnify Landlord (and any Indemnitees)
against the cost of such compliance and liability resulting from or incurred in
connection with such contest or non-compliance; or (ii) other security
satisfactory in all respects to Landlord; (c) such non-compliance or contest
shall not constitute or result in a violation (either with the giving of notice
or the passage of time or both) of the terms of any Mortgage, or if such
Mortgage conditions such non-compliance or contest upon the taking of action or
furnishing of security by Landlord, such action shall be taken or such security
shall be furnished at the expense of Tenant; and (d) Tenant shall keep Landlord
regularly advised as to the status of such proceedings.
ARTICLE IX
SUBORDINATION
Section 9.1. This Lease shall be subject and subordinate to each
Mortgage, whether made prior to or after the execution of this Lease, and to all
renewals, extensions, supplements, amendments, modifications, consolidations and
replacements thereof or thereto, substitutions therefor, and advances made
thereunder. This clause shall be selfoperative and no further agreement of
subordination shall be required to make the interest of any Lessor or Mortgagee
superior to the interest of Tenant hereunder. In confirmation of such
subordination, however, Tenant shall promptly execute and deliver, at its own
cost and expense, any document, in recordable form if requested, that Landlord,
any Lessor or any Mortgagee may request to evidence such subordination. Tenant
shall not do anything that would constitute a default under any Mortgage, or
omit to do anything that Tenant is obligated to do under the terms of this Lease
so
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as to cause Landlord to be in default thereunder. If, in connection with the
financing of the Real Property or the Building, any lending institution or
Lessor, as the case may be, requests reasonable modifications of this Lease that
do not increase rent or change the Term of this Lease, or materially and
adversely affect the rights or obligations of Tenant under this Lease, Tenant
shall make such modifications.
Section 9.2. If, at any time prior to the expiration of the Term, any
Mortgagee comes into possession of the Real Property or the Building by receiver
or otherwise, Tenant agrees, at the election and upon demand of any owner of the
Real Property or the Building, or of any Mortgagee in possession of the Real
Property or the Building, to attorn, from time to time, to any such owner or
Mortgagee or any person acquiring the interest of Landlord as a result of any
such termination, or as a result of a foreclosure of the Mortgage or the
granting of a deed in lieu of foreclosure, upon the then executory terms and
conditions of this Lease (except as provided below), for the remainder of the
Term, provided that such owner or Mortgagee, as the case may be, or receiver
caused to be appointed by any of the foregoing, is then entitled to possession
of the Premises. Any such attornment shall be made upon the condition that no
such owner or Mortgagee shall be:
1. liable for any act or omission of any prior
landlord (including, without limitation, the then defaulting landlord);
or
2. subject to any defense or offsets (except as
expressly set forth in this Lease) which Tenant may have against any
prior landlord (including, without limitation, the then defaulting
landlord); or
3. bound by any payment of Rental which Tenant might
have paid for more than the current month to any prior landlord
(including, without limitation, the then defaulting landlord); or
4. bound by any obligation to make any payment to
Tenant which was required to be made prior to the time such owner or
Mortgagee succeeded to any prior landlord's interest; or
5. bound by any obligation to perform any work or to
make improvements to the Premises except for (i) repairs and
maintenance pursuant to the provisions of
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Article 6, (ii) repairs to the Premises or any part thereof as a result
of damage by fire or other casualty pursuant to Article 12, but only to
the extent that such repairs can be reasonably made from the net
proceeds of any insurance actually made available to such owner or
Mortgagee and (iii) repairs to the Premises as a result of a partial
condemnation pursuant to Article 13, but only to the extent that such
repairs can be reasonably made from the net proceeds of any award made
available to such owner or Mortgagee. The provisions of this Section
9.2 shall inure to the benefit of any such owner or Mortgagee, shall
apply notwithstanding that, as a matter of law, this Lease may
terminate, and shall be self-operative upon any such demand, and no
further agreement shall be required to give effect to said provisions.
Tenant, however, upon demand of any such owner or Mortgagee, shall
execute, from time to time, agreements in confirmation of the foregoing
provisions of this Section 9.2, satisfactory to any such owner, Lessor
or Mortgagee, and acknowledging such attornment and setting forth the
terms and conditions of its tenancy. Nothing contained in this Section
9.2 shall be construed to impair any right otherwise exercisable by any
such owner or Mortgagee.
Section 9.3. If requested by any Mortgagee or Landlord, Tenant shall
promptly execute and deliver, at Tenant's own cost and expense, any document in
accordance with the terms of this Article 9, in recordable form, to evidence
such subordination.
Section 9.4. At any time and from time to time upon not less than
twenty (20) days' prior notice to Tenant or Landlord given by the other, or to
Tenant given by a Mortgagee, Tenant or Landlord, as the case may be, shall,
without charge, execute, acknowledge and deliver a statement in writing
addressed to such party as Tenant, Landlord or Mortgagee, as the case may be,
may designate, in form satisfactory to Tenant, Landlord or Mortgagee, as the
case may be, certifying all or any of the following: (i) that this Lease is
unmodified and in full force and effect (or if there have been modifications,
that this Lease is in full force and effect as modified and stating the
modifications); (ii) whether the Term has commenced and Fixed Rent and
Additional Rent have become payable hereunder and, if so, the dates to which
they have been paid; (iii) whether or not, to the best knowledge of the signer
of such certificate, Landlord is in default in performance of any of the terms
of this Lease and, if so, specifying each such event of default of which the
signer may have knowledge; (iv) whether Tenant has accepted possession of
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the Premises; (v) whether Tenant has made any claim against Landlord under this
Lease and, if so, the nature thereof and the dollar amount, if any, of such
claim; (vi) either that Tenant does not know of any default in the performance
of any provision of this Lease or specifying the details of any default of which
Tenant may have knowledge and stating what action Tenant is taking or proposes
to take with respect thereto; (vii) that, to the knowledge of Tenant, there are
no proceedings pending or threatened against Tenant before or by any court or
administrative agency which, if adversely decided, would materially and
adversely affect the financial condition or operations of Tenant or, if any such
proceedings are pending or threatened to the knowledge of Tenant, specifying and
describing the same; and (viii) such further information with respect to the
Lease or the Premises as Landlord may reasonably request or Mortgagee may
require; it being intended that any such statement delivered pursuant hereto may
be relied upon by any prospective purchaser of the Real Property or any part
thereof or of the interest of Landlord in any part thereof, by any Mortgagee or
prospective Mortgagee, by any tenant or prospective tenant of the Real Property
or any part thereof, or by any prospective assignee of any Mortgage or by any
assignee of Tenant.
The failure of either Tenant or Landlord to execute, acknowledge and
deliver to the other a statement in accordance with the provisions of this
Section 9.4 within said twenty (20) day period shall constitute an
acknowledgment by Tenant or Landlord, as the case may be, which may be relied on
by any person who would be entitled to rely upon any such statement, that such
statement as submitted by Landlord or Tenant, as the case may be, is true and
correct.
Section 9.5. As long as any Mortgage exists, Tenant shall not seek to
terminate this Lease by reason of any act or omission of Landlord until Tenant
has given written notice of such act or omission to all Mortgagees at such
addresses as may have been furnished to Tenant by such Mortgagees and, if any
such Mortgagee notifies Tenant within thirty (30) days following receipt of such
notice that it intends to remedy such act or omission, Mortgagee shall have a
reasonable period of time to remedy such act or omission.
ARTICLE X
RULES AND REGULATIONS
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Section 10.1. Tenant and Persons Within Tenant's Control shall comply
with Exhibit "C," "Rules and Regulations." Nothing contained in this Lease shall
be construed to impose upon Landlord any duty or obligation to enforce the Rules
and Regulations or the terms, covenants or conditions in any other lease against
any other tenant, and Landlord shall not be liable to Tenant for violation of
the same by any other tenant, its employees, agents, visitors or licensees.
Landlord shall not discriminate against Tenant in enforcing the Rules and
Regulations. In case of any conflict or inconsistency between the provisions of
this Lease and of any of the Rules and Regulations as originally or as
hereinafter adopted, the provisions of this Lease shall control.
ARTICLE XI
INSURANCE, PROPERTY LOSS OR DAMAGE, REIMBURSEMENT
Section 11.1. (a) Tenant shall not entrust any property to any Building
employee. Any Building employee to whom any property is entrusted by or on
behalf of Tenant in violation of the foregoing prohibition shall be deemed to be
acting as Tenant's agent with respect to such property and neither Landlord nor
its agents shall be liable for any damage to property of Tenant or of others
entrusted to employees of the Building, nor for the loss of or damage to any
property of Tenant by theft or otherwise. Landlord and Landlord's agents shall
not be liable for any damage to any of Tenant's Property or for interruption of
Tenant's business, however caused, including but not limited to damage caused by
other tenants or persons in the Building. Landlord shall not be liable for any
latent defect in the Premises or in the Building.
(b) Tenant shall give notice to Landlord promptly after Tenant learns
of any accident, emergency or occurrence for which Landlord might be liable,
fire or other casualty and all damages to or defects in the Premises or the
Building for the repair of which Landlord might be responsible or which
constitutes Landlord's property. Such notice shall be given by telecopy or
personal delivery to the address(es) of Landlord in effect for notice.
Section 11.2. Tenant shall not do or permit to be done any act or thing
in or upon the Premises which will invalidate or be in conflict with the terms
of the State of Tennessee standard policies of fire insurance and liability
(hereinafter referred to as "Building Insurance"); and Tenant, at Tenant's own
expense,
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shall comply with all rules, orders, regulations and requirements of all
insurance boards, and shall not do or permit anything to be done in or upon the
Premises or bring or keep anything therein or use the Premises in a manner which
increases the rate of premium for any of the Building Insurance over the rate in
effect at the commencement of the Term of this Lease.
Section 11.3. If by reason of any failure of Tenant to comply with the
provisions of this Lease, the rate of premium for Building Insurance or other
insurance on the property and equipment of Landlord shall increase, Tenant shall
reimburse Landlord for that part of the insurance premiums thereafter paid by
Landlord which shall have been charged because of such failure by Tenant. Tenant
shall make said reimbursement on the first day of the month following such
payment by Landlord.
Section 11.4. (a) At Tenant's own cost and expense, Tenant shall
obtain, maintain and keep in full force and effect during the Term commercial
general liability insurance (without deductible) in a form approved in the State
of Tennessee (including broad form property damage coverages). The limits of
liability shall be not less than Five Million Dollars ($5,000,000.00) per
occurrence, which amount may be satisfied with a primary commercial general
liability policy of not less than Two Million Dollars ($2,000,000.00) and an
excess (or "Umbrella") liability policy affording coverage, at least as broad as
that afforded by the primary commercial general liability policy, in an amount
not less than Three Million Dollars ($3,000,000.00). Landlord, the Manager, any
Lessors and any Mortgagees shall be included as additional insureds in said
policies and shall be protected against all liability arising in connection with
this Lease. All said policies of insurance shall be written as "occurrence"
policies. Whenever, in Landlord's reasonable judgment, good business practice
and changing conditions indicate a need for additional amounts or different
types of insurance coverage, Tenant shall, within ten (10) days after Landlord's
request, obtain such insurance coverage, at Tenant's expense.
(b) Tenant, at Tenant's sole cost and expense, shall maintain all-risk
insurance, with deductibles in an amount reasonably satisfactory to Landlord,
protecting and indemnifying Tenant against any and all damage to or loss of any
Alterations and leasehold improvements, including any made by Landlord to
prepare the Premises for Tenant's occupancy, and Tenant's Property. All said
policies shall cover the full replacement
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value of all Alterations, leasehold improvements and Tenant's Property.
(c) All policies of insurance shall be: (i) written as primary policy
coverage and not contributing with or in excess of any coverage which Landlord
or any Lessor may carry; and (ii) issued by reputable and independent insurance
companies rated in Best's Insurance Guide or any successor thereto (or, if there
is none, an organization having a national reputation), as having a general
policyholder rating of "A" and a financial rating of at least "VII," and which
are licensed to do business in the State of Tennessee. Tenant shall, not later
than ten (10) Business Days prior to the Commencement Date, deliver to Landlord
either (a) the policies of insurance or (b) certificates thereof with a copy of
the declaration page, and shall thereafter furnish to Landlord, at least thirty
(30) days prior to the expiration of any such policies and any renewal thereof,
a new policy or certificate (with copy of the declaration page) in lieu thereof.
Each of said policies shall also contain a provision whereby the insurer agrees
not to cancel, fail to renew, diminish or materially modify said insurance
policy(ies) without having given Landlord, the Manager and any Lessors and
Mortgagees at least thirty (30) days prior written notice thereof. Tenant shall
promptly send to Landlord a copy of all notices sent to Tenant by Tenant's
insurer.
(d) Tenant shall pay all premiums and charges for all of said policies,
and, if Tenant shall fail to make any payment when due or carry any such policy,
then after notice to Tenant, Landlord may, but shall not be obligated to, make
such payment or carry such policy, and the amount paid by Landlord, with
interest thereon (at the Applicable Rate), shall be repaid to Landlord by Tenant
on demand, and all such amounts so repayable, together with such interest, shall
be deemed to constitute Additional Rent hereunder. Payment by Landlord of any
such premium, or the carrying by Landlord of any such policy, shall not be
deemed to waive or release the default of Tenant with respect thereto.
Section 11.5. (a) Landlord shall cause each policy carried by Landlord
insuring the Building against loss, damage or destruction by fire or other
casualty, and Tenant shall cause each insurance policy carried by Tenant and
insuring the Premises and Tenant's Alterations, leasehold improvements and
Tenant's Property against loss, damage or destruction by fire or other casualty,
to be written in a manner so as to provide that the insurance company waives all
rights of recovery by way of subrogation against Landlord, Tenant and any tenant
of space in
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the Building in connection with any loss or damage covered by any such policy.
Neither party shall be liable to the other for the amount of such loss or damage
which is in excess of the applicable deductible, if any, caused by fire or any
of the risks enumerated in its policies.
(b) The waiver of subrogation referred to in Section 11.5(a) above
shall extend to the agents and employees of each party (including, as to
Landlord, the Manager). Nothing contained in this Section 11.5 shall be deemed
to relieve either party from any duty imposed elsewhere in this Lease to repair,
restore and rebuild.
(c) During the Term, Landlord agrees to maintain:
(i) "all risk" full replacement cost property insurance on the
Building in an amount sufficient to prevent Landlord from being deemed
a co-insurer of the risks insured under the policy, which shall include
customary rent loss insurance covering loss of rents from Tenant under
this Lease and other tenants under other leases and which shall
include, as and to the extent customarily included by prudent owners of
comparable first class office buildings in Memphis, Tennessee, boiler
and machinery and electrical apparatus coverage;
(ii) commercial general liability insurance (which may be a
combination of primary and umbrella coverages) in an amount which
Landlord deems appropriate; and
(iii) Landlord shall furnish to Tenant certificates or other
evidence of insurance from the insurer, or, if not available from the
insurer, then from the insurance agent, evidencing such coverage at the
time this Lease is executed and, at Tenant's request, within thirty
(30) days after any policy is renewed, replaced or changed.
ARTICLE XII
DESTRUCTION BY FIRE OR OTHER CAUSE
Section 12.1. If the Premises or any part thereof shall be damaged by
fire or other casualty, Tenant shall give prompt written notice thereof to
Landlord. Landlord shall, subject to the provisions of Sections 12.2 and 12.3
below, proceed with reasonable diligence within 120 days of the casualty to
repair or cause to be repaired such damage at its expense; and, if the
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Premises, or any part thereof, shall be rendered untenantable by reason of such
damage and such damage shall not be due to the fault of Tenant or Persons Within
Tenant's Control, then the Fixed Rent and the Escalation Rent hereunder, or an
amount thereof apportioned on a pro rata basis according to the area of the
Premises so rendered untenantable (if less than the entire Premises shall be so
rendered untenantable), shall be abated for the period from the date of such
damage to the date when the repair of such damage shall have been substantially
completed. Tenant covenants and agrees to cooperate with Landlord and any Lessor
or any Mortgagee in their efforts to collect insurance proceeds (including rent
insurance proceeds) payable to such parties. Landlord shall not be liable for
any delay which may arise by reason of adjustment of insurance on the part of
Landlord and/or Tenant, or any cause beyond the control of Landlord or
contractors employed by Landlord.
Section 12.2. Landlord shall not be liable for any inconvenience or
annoyance to Tenant or injury to the business of Tenant resulting in any way
from damage from fire or other casualty or the repair thereof. Tenant
understands that Landlord, in reliance upon Section 12.4, will not carry
insurance of any kind on Tenant's Property, Tenant's Alterations and on
leasehold improvements, and that Landlord shall not be obligated to repair any
damage thereto or replace the same.
(a) Notwithstanding anything to the contrary contained in
Sections 12.1 and 12.2 above, in the event that:
(i) at least twenty thousand (20,000) rentable square
feet of the Building shall be damaged by a fire or other
casualty so that substantial alteration or reconstruction of
the Building shall, in Landlord's sole opinion, be required
(whether or not the Premises shall have been damaged by such
fire or other casualty and without regard to the structural
integrity of the Building); or
(ii) the Premises shall be totally or substantially
damaged or shall be rendered wholly or substantially
untenantable; or
(iii) there shall be any damage to the Premises
within the last two (2) years of the Term wherein the cost of
repair exceeds an amount equal to three (3) monthly
installments of Fixed Rent, then either Landlord or Tenant may
terminate this Lease and
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the term and estate hereby granted, by notifying the other
party in writing of such termination prior to commencement of
work to repair the damage to the Premises or within one
hundred twenty (120) days after the date of such damage,
whichever first occurs. In the event that such a notice of
termination shall be given, then this Lease and the Term and
estate hereby granted shall expire as of the date of
termination stated in said notice with the same effect as if
that were the Fixed Expiration Date, and the Fixed Rent and
Escalation Rent hereunder shall be apportioned as of such
date.
(b) Notwithstanding anything to the contrary contained in this Section
12.2, upon written request which is made by Tenant prior to commencement of work
to repair the damage to the Premises, Landlord shall deliver to Tenant an
estimate prepared by a reputable contractor selected by Landlord setting forth
such contractor's estimate as to the time reasonably required to repair such
damage. If the period to repair set forth in any such estimate exceeds nine (9)
months, Tenant may elect to terminate this Lease by notice to Landlord given not
later than thirty (30) days following Tenant's receipt of such estimate. If
Tenant exercises such election, this Lease and the term and estate hereby
granted shall expire as of the sixtieth (60th) day after notice of such election
given by Tenant with the same effect as if that were the Fixed Expiration Date,
and the Fixed Rent and Escalation Rent hereunder shall be apportioned as of such
date.
Section 12.3. Except as may be provided in Section 11.5, nothing herein
contained shall relieve Tenant from any liability to Landlord or to Landlord's
insurers in connection with any damage to the Premises or the Building by fire
or other casualty if Tenant shall be legally liable in such respect.
Section 12.4. This Lease shall be considered an express agreement
governing any case of damage to or destruction of the Building or any part
thereof by fire or other casualty.
ARTICLE XIII
EMINENT DOMAIN
Section 13.1. If the whole of the Real Property, the Building or the
Premises is acquired or condemned for any public or quasi-public use or purpose,
this Lease and the Term shall end
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as of the date of the vesting of title with the same effect as if said date were
the Fixed Expiration Date. If only a part of the Real Property and not the
entire Premises is so acquired or condemned then, (a) except as hereinafter
provided in this Section 13.1, this Lease and the Term shall continue in effect
but, if a part of the Premises is included in the part of the Real Property so
acquired or condemned, from and after the date of the vesting of title, the
Fixed Rent and Tenant's Share shall be reduced in the proportion which the area
of the part of the Premises so acquired or condemned bears to the total area of
the Premises immediately prior to such acquisition or condemnation; (b) whether
or not the Premises are affected thereby, Landlord, at Landlord's option, may
give to Tenant, within sixty (60) days next following the date upon which
Landlord receives notice of vesting of title, a thirty (30) day notice of
termination of this Lease; and (c) if the part of the Real Property so acquired
or condemned contains more than thirty percent (30%) of the total area of the
Premises immediately prior to such acquisition or condemnation, or if, by reason
of such acquisition or condemnation, Tenant no longer has access to the
Premises, Tenant, at Tenant's option, may give to Landlord, within sixty (60)
days next following the date upon which Tenant receives notice of vesting of
title, a thirty (30) day notice of termination of this Lease. If any such thirty
(30) day notice of termination is given, by Landlord or Tenant, this Lease and
the Term shall come to an end and expire upon the expiration of said thirty (30)
days with the same effect as if the date of expiration of said thirty (30) days
were the Fixed Expiration Date. If a part of the Premises is so acquired or
condemned and this Lease and the Term are not terminated pursuant to the
foregoing provisions of this Section 13.1, Landlord, at Landlord's cost and
expense, shall restore that part of the Premises not so acquired or condemned to
a self-contained rental unit, exclusive of Tenant's Alterations and Tenant's
Property. In the event of any termination of this Lease and the Term pursuant to
the provisions of this Section 13.1, the Fixed Rent shall be apportioned as of
the date of the termination and any prepaid portion of the Fixed Rent or
Escalation Rent for any period after such date shall be refunded by Landlord to
Tenant.
Section 13.2. In the event of any such acquisition or condemnation of
all or any part of the Real Property, Landlord shall be entitled to receive the
entire award for any such acquisition or condemnation. Tenant shall have no
claim against Landlord or the condemning authority for the value of any
unexpired portion of the Term and Tenant hereby expressly assigns to Landlord
all of its right in and to any such award. Nothing
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contained in this Section 13.2 shall be deemed to prevent Tenant from making a
separate claim in any condemnation proceedings for the value of any Tenant's
Property included in such taking, and for any moving expenses, so long as
Landlord's award is not reduced thereby.
ARTICLE XIV
ASSIGNMENT, SUBLETTING, MORTGAGE, ETC
Section 14.1 Except as otherwise provided in this Article 14, Tenant
shall not (a) assign this Lease (whether by operation of law, transfers of
interests in Tenant or otherwise); or (b) mortgage or encumber Tenant's interest
in this Lease, in whole or in part; or (c) sublet, or permit the subletting of,
the Premises or any part thereof. Tenant shall not advertise or authorize a
broker to advertise for a subtenant or assignee, without in each instance,
obtaining the prior written consent of Landlord, which shall not be unreasonably
withheld or delayed.
Section 14.2 If Tenant's interest in this Lease shall be assigned in
violation of the provisions of this Article 14, such assignment shall be invalid
and of no force and effect against Landlord; provided, however, that Landlord
may collect an amount equal to the then Fixed Rent plus any other item of Rental
from the assignee as a fee for its use and occupancy. If the Premises or any
part thereof are sublet to, or occupied by, or used by, any person other than
Tenant, whether or not in violation of this Article 14, Landlord, after default
by Tenant under this Lease, may collect any item of Rental or other sums paid by
the subtenant, user or occupant as a fee for its use and occupancy, and shall
apply the net amount collected to the Fixed Rent and the items of Rental
reserved in this Lease. No such assignment, subletting, occupancy, or use,
whether with or without Landlord's prior consent, nor any such collection or
application of Rental or fee for use and occupancy, shall be deemed a waiver by
Landlord of any term, covenant or condition of this Lease or the acceptance by
Landlord of such assignee, subtenant, occupant or user as Tenant hereunder, nor
shall the same, in any circumstances, relieve Tenant of any of its obligations
under this Lease. The consent by Landlord to any assignment, subletting,
occupancy or use shall not relieve Tenant from its obligation to obtain the
express prior consent of Landlord to any further assignment, subletting,
occupancy or use. Any person to which this Lease is assigned with Landlord's
consent shall be deemed without more to have assumed all of the obligations
arising under this Lease from and after the date of such
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assignment and shall execute and deliver to Landlord, upon demand, an instrument
confirming such assumption. Notwithstanding and subsequent to any assignment,
Tenant's primary liability hereunder shall continue notwithstanding (a) any
subsequent amendment hereof, or (b) Landlord's forbearance in enforcing against
Tenant any obligation or liability, without notice to Tenant, to each of which
Tenant hereby consents in advance. If any such amendment operates to increase
the obligations of Tenant under this Lease, the liability under this Section
14.2 of the assigning Tenant shall continue to be no greater than if such
amendment had not been made (unless such party shall have expressly consented in
writing to such amendment).
(a) For purposes of this Article 14, (i) the transfer of a majority of
the issued and outstanding capital stock of any corporate tenant, or of a
corporate subtenant, or the transfer of a majority of the total interest in any
partnership tenant or subtenant, or the transfer of control in any limited
partnership tenant or subtenant, or the transfer of control in any limited
liability company tenant or subtenant or the transfer of control in any limited
liability partnership tenant or subtenant, however accomplished, whether in a
single transaction or in a series of related or unrelated transactions, shall be
deemed an assignment of this Lease, or of such sublease, as the case may be,
except that the transfer of the outstanding capital stock of any corporate
tenant, or subtenant, shall be deemed not to include the sale of such stock by
persons or parties, other than those deemed "affiliates" of Tenant within the
meaning of Rule 144 promulgated under the Securities Act of 1933, as amended,
through the "over-the-counter market" or through any recognized stock exchange,
(ii) any increase in the amount of issued and/or outstanding capital stock of
any corporate tenant, or of a corporate subtenant, and/or the creation of one or
more additional classes of capital stock of any corporate tenant or any
corporate subtenant, in a single transaction or a series of related or unrelated
transactions, resulting in a change in the legal or beneficial ownership of such
tenant or subtenant so that the shareholders of such tenant or subtenant
existing immediately prior to such transaction or series of transactions shall
no longer own a majority of the issued and outstanding capital stock of such
tenant or subtenant, shall be deemed an assignments of this Lease, (iii) an
agreement by any other person or entity, directly or indirectly, to assume
Tenant's obligations under this Lease shall be deemed an assignment, (iv) any
person or legal representative of Tenant, to whom Tenant's interest under this
lease passes by operation of law, or otherwise, shall be bound by
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the provisions of this Article 14, and (v) a modification, amendment or
extension of a sublease shall be deemed a sublease. Tenant agrees to furnish to
Landlord on request at any time such information and assurances as Landlord may
reasonably request that neither Tenant, nor any previously permitted subtenant,
has violated the provisions of this Article 14.
(b) The provisions of clauses (a), (c) and (d) of Section 14.1 shall
not apply to transactions with a corporation into or with which Tenant is merged
or consolidated or with a Person to which substantially all of Tenant's assets
are transferred (provided such merger or transfer of assets is for a good
business purpose and not principally for the purpose of transferring the
leasehold estate created by this Lease, and provided further, that the assignee
has a net worth at least equal to or in excess of the net worth of Tenant as of
the date of this Lease and as of the date immediately prior to such merger or
transfer, whichever is greater) or, if Tenant is a partnership, with a successor
partnership, nor shall the provisions of clause (a), (c) and (d) of Section 14.1
apply to transactions with an entity that controls or is controlled by Tenant or
is under common control with Tenant. Tenant shall notify Landlord before any
such transaction is consummated.
(c) The term "control" as used in this Lease (i) in the case of a
corporation shall mean ownership of more than fifty percent (50%) of the
outstanding capital stock of that corporation, (ii) in the case of a general
partnership, shall mean more than fifty percent (50%) of the general partnership
interest of the partnership, (iii) in the case of a limited partnership, shall
mean more than fifty percent (50%) of the general and limited partnership
interests of such limited partnership; (iv) in the case of a limited liability
company, shall mean more than fifty percent (50%) of the membership interests of
such limited liability company, and (v) in the case of a limited liability
partnership, shall mean more than fifty percent (50%) of the partnership
interest of such limited liability partnership.
Section 14.3. [RESERVED]
Section 14.4. (a) If Tenant sublets any portion of the Premises to a
Person in a transaction for which Landlord's consent is required, Landlord shall
be entitled to and Tenant shall pay to Landlord, as Additional Rent (the
"Sublease Additional Rent"), a sum equal to fifty percent (50%) of any rents,
additional charges and other consideration payable under
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the sublease to Tenant by the subtenant in excess of the Fixed Rent and
Escalation Rent accruing during the term of the sublease in respect of the
subleased space (at the rate per square foot payable by Tenant under this Lease)
pursuant to the terms of this Lease (including, but not limited to, sums paid
for the sale or rental of Tenant's Property and Alterations less the then net
unamortized or undepreciated cost thereof determined on the basis of Tenant's
federal income tax or federal information returns), net of any reasonable
brokerage commissions incurred in connection therewith; provided, however, that
no reduction shall be allowed if brokerage commissions are paid to any Person
under Tenant's control. Such Sublease Additional Rent shall be payable as and
when received by Tenant.
(b) Landlord may, by notice to Tenant, elect to waive the benefits of
this Section 14.4, for any month or months, prospectively or retroactively. Any
retroactive waiver shall be accompanied by a return to Tenant of all Sublease
Additional Rent theretofore paid to and retroactively waived by Landlord for the
months in question.
Section 14.5. (a) If Tenant shall assign this Lease to a Person in a
transaction for which Landlord's consent is required, Landlord shall be entitled
to and Tenant shall pay to Landlord, as Additional Rent, an amount equal to all
sums and other consideration paid to Tenant by the assignee for or by reason of
such assignment (including, but not limited to, sums paid for the sale or rental
of Tenant's Property and Alterations less the then net unamortized or
undepreciated cost thereof determined on the basis of Tenant's federal income
tax or federal information returns). Such Additional Rent shall be payable as
and when received by Tenant from the assignee.
(b) Landlord may, by notice to Tenant, elect to waive the benefits of
this Section 14.5, prospectively or retrospectively. Any retroactive waiver
shall be accompanied by a return to Tenant of all amounts theretofore paid to
and retroactively waived by Landlord.
Section 14.6. Landlord shall have no liability for brokerage
commissions incurred with respect to any assignment of this Lease or any
subletting of all or any part of the Premises by or on behalf of Tenant. Tenant
shall pay, and shall indemnify and hold Landlord harmless from and against, any
and all cost, expense (including reasonable attorneys' fees and disbursements)
and liability in connection with any compensation, commissions or
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charges claimed by any broker or agent with respect to any such assignment or
subletting.
ARTICLE XV
ACCESS TO PREMISES
Section 15.1. (a) Tenant shall permit Landlord, Landlord's agents and
independent contractors and public utilities servicing the Building to have
reasonable access for the purpose of maintaining existing concealed ducts, pipes
and conduits in and through and to access all Common Areas within the Building
and all Common Areas comprising a portion of the Land. Landlord or Landlord's
agents shall have the right to enter the Premises at all reasonable times upon
(except in case of emergency) reasonable prior notice, which notice may be oral,
to examine the same, to show the same to prospective purchasers, Mortgagees or
lessees of the Building or space therein, and to make such repairs, alterations,
improvements or additions (i) as Landlord may deem necessary or desirable to the
Premises or to any other portion of the Building, or (ii) which Landlord may
elect to perform at least ten (10) days after notice (except in an emergency
when no notice shall be required) following Tenant's failure to make repairs or
perform any work which Tenant is obligated to make or perform under this Lease,
or (iii) for the purpose of complying with Requirements, and Landlord shall be
allowed to take all material into and upon the Premises that may be required
therefor without the same constituting an eviction or constructive eviction of
Tenant in whole or in part and the Fixed Rent (and any other item of Rental)
shall in no respect abate or be reduced by reason of said repairs, alterations,
improvements or additions, wherever located, or while the same are being made,
by reason of loss or interruption of business of Tenant, or otherwise. Landlord
shall promptly repair any damage caused to the Premises by such work,
alterations, improvements or additions. Tenant shall, at Tenant's cost, take
such action as may be reasonably necessary to grant to Landlord, its agents and
independent contractors clearance and access by means of the Security System for
the purposes herein set out.
(b) Any work performed or installations made pursuant to this Article
15 shall be made with reasonable diligence and otherwise pursuant to Section
6.3.
(c) Any pipes, ducts, or conduits installed in or through the Premises
pursuant to this Article 15 shall, if reasonably practicable, either be
concealed behind, beneath or within
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partitioning, columns, ceilings or floors located or to be located in the
Premises, or completely furred at points immediately adjacent to partitioning,
columns or ceilings located or to be located in the Premises.
Section 15.2. If Tenant is not present when for any reason entry into
the Premises may be necessary or permissible, Landlord or Landlord's agents may
enter the same without rendering Landlord or such agents liable therefor (if
during such entry Landlord or Landlord's agents accord reasonable care to
Tenant's Property), and without in any manner affecting this Lease.
Section 15.3. All parts (except surfaces facing the interior of the
Premises) of all walls, windows and doors bounding the Premises (including
exterior Building walls, exterior core corridor walls, exterior doors and
entrances), all balconies, terraces and roofs adjacent to the Premises, all
space in or adjacent to the Premises used for shafts, stacks, stairways, chutes,
pipes, conduits, ducts, fan rooms, heating, air cooling, plumbing and other
mechanical facilities, service closets and other Building facilities are not
part of the Premises, and Landlord shall have the use thereof, as well as access
thereto through the Premises for the purposes of operation, maintenance,
alteration and repair.
ARTICLE XVI
CERTIFICATE OF OCCUPANCY
Section 16.1. Tenant shall not at any time use or occupy the Premises
in violation of the certificate of occupancy at such time issued for the
Premises or for the Building and in the event that any Governmental Authority
hereafter contends or declares by notice, violation, order or in any other
manner whatsoever that the Premises are used by Tenant for a purpose that is a
violation of such certificate of occupancy, Tenant shall, upon three (3)
Business Days' written notice from Landlord or any Government Authority,
immediately discontinue such use of the Premises; provided, however, that
nothing herein shall prevent Tenant from contesting such violation pursuant to
and in accordance with the provisions of Section 8.5.
ARTICLE XVII
DEFAULT
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Section 17.1. Each of the following events shall be an "Event of
Default" under this Lease:
(a) if Tenant shall on any occasion default in the payment
when due of any installment of Fixed Rent or in the payment when due of
any other item of Rental and the same shall not be cured within five
(5) days after written notice of default by Landlord to Tenant; or
(b) if Tenant shall fail on three (3) or more occasions in any
period of eighteen (18) consecutive months to make a payment when due
of any Rental, and Landlord shall have given Tenant written notice of
such default after two (2) such occurrences; or
(c) if Tenant shall default in the observance or performance
of any term, covenant or condition on Tenant's part to be observed or
performed under that certain Agreement of Lease of even date herewith
between Landlord and Tenant with respect to Building No. 1, or any
renewal, modification or extension thereof, and such default shall
continue beyond any grace period set forth in such other lease for the
remedying of such default; or
(d) if the Premises shall become vacant or abandoned; or
(e) if Tenant's interest in this Lease shall devolve upon or
pass to any person, whether by operation of law or otherwise, except as
expressly permitted under Article 14 hereof; or
(f) (1) if Tenant shall not, or shall be unable to, or shall
admit in writing Tenant's inability to, as to any obligation,
pay Tenant's debts as they become due; or
(2) if Tenant shall commence or institute any case,
proceeding or other action (a) seeking relief on Tenant's
behalf as debtor, or to adjudicate it a bankrupt or insolvent,
or seeking reorganization, arrangement, adjustment,
winding-up, liquidation, dissolution, composition or other
relief with respect to Tenant or Tenant's debts under any
existing or future law of any jurisdiction, domestic or
foreign, relating to bankruptcy, insolvency, reorganization or
relief of debtors, or (b) seeking appointment of a
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receiver, trustee, custodian or other similar official for it
or for all or any substantial part of its property; or
(3) if Tenant shall make a general assignment for the
benefit of creditors; or
(4) if any case, proceeding or other action shall be
commenced or instituted against Tenant (a) seeking to have an
order for relief entered against Tenant as debtor or to
adjudicate Tenant a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief with
respect to Tenant or Tenant's debts under any existing or
future law of any jurisdiction, domestic or foreign, relating
to bankruptcy, insolvency, reorganization or relief of
debtors, or (b) seeking appointment of a receiver, trustee,
custodian or other similar official for Tenant or for all or
any substantial part of Tenant's property, which either (i)
results in any such entry of an order for relief, adjudication
of bankruptcy or insolvency or such an appointment or the
issuance or entry of any other order having a similar effect
or (ii) remains undismissed for a period of sixty (60) days;
or
(5) if a trustee, receiver or other custodian shall
be appointed for any substantial part of the assets of Tenant
which appointment is not vacated or effectively stayed within
sixty (60) days; or
(g) if Tenant shall default in the observance or performance
of any other term, covenant or condition of this Lease on Tenant's part
to be observed or performed and Tenant shall fail to remedy such
default within fifteen (15) days after notice by Landlord to Tenant of
such default, or if such default is of such a nature that it cannot
with due diligence be completely remedied within said period of fifteen
(15) days and the continuation of which for the period required for
cure will not subject Landlord to the risk of criminal liability or
foreclosure of any Mortgage, if Tenant shall not, (i) within said
fifteen (15) day period advise Landlord of Tenant's intention duly to
institute all steps necessary to remedy such situation, (ii) duly
institute within said fifteen (15) day period, and thereafter
diligently and continuously prosecute to
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completion all steps necessary to remedy the same and (iii) complete
such remedy within such time after the date of the giving of said
notice by Landlord as shall reasonably be necessary.
Section 17.2. If an Event of Default shall occur, Landlord may, at any
time thereafter, at Landlord's option, give written notice to Tenant stating
that this Lease and the Term shall expire and terminate on the date specified in
such notice, which date shall not be less than three (3) days after Tenant's
receipt of such notice, or such longer term as specified in the notice,
whereupon this Lease and the Term and all rights of Tenant under this Lease
shall automatically expire and terminate as if the date specified in the notice
given pursuant to this Section 17.2 were the Fixed Expiration Date and Tenant
immediately shall quit and surrender the Premises, but Tenant shall remain
liable for damages as provided herein or pursuant to law. Anything contained
herein to the contrary notwithstanding, if such termination shall be stayed by
order of any court having jurisdiction over any proceeding described in Section
17.1(f), or by federal or state statute, then, following the expiration of any
such stay, or if the trustee appointed in any such proceeding, Tenant or Tenant
as debtor-in-possession fails to assume Tenant's obligations under this Lease
within the period prescribed therefor by law or within one hundred twenty (120)
days after entry of the order for relief or as may be allowed by the court, or
if said trustee, Tenant or Tenant as debtor-in-possession shall fail to provide
adequate protection of Landlord's right, title and interest in and to the
Premises or adequate assurance of the complete and continuous future performance
of Tenant's obligations under this Lease, Landlord, to the extent permitted by
law or by leave of the court having jurisdiction over such proceeding, shall
have the right, at its election, to terminate this Lease on three (3) days'
prior written notice to Tenant, Tenant as debtor-in possession or said trustee
and upon the expiration of said three (3) day period this Lease shall cease and
expire as aforesaid and Tenant, Tenant as debtor-in-possession or said trustee
shall immediately quit and surrender the Premises as aforesaid.
Section 17.3. If, at any time, (i) Tenant shall consist of two (2) or
more persons, or (ii) Tenant's obligations under this Lease shall have been
guaranteed by any person other than Tenant, or (iii) Tenant's interest in this
Lease has been assigned, the word "Tenant" as used in Section 17.1(f), shall be
deemed to mean any one or more of the persons primarily or secondarily liable
for Tenant's obligations under this Lease. Any monies received
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by Landlord from or on behalf of Tenant during the pendency of any proceeding of
the types referred to in Section 17.1(f) shall be deemed paid as compensation
for the use and occupancy of the Premises and the acceptance of any such
compensation by Landlord shall not be deemed an acceptance of Rental or a waiver
on the part of Landlord of any rights under Section 17.2.
ARTICLE XVIII
REMEDIES AND DAMAGES
Section 18.1. (a) If any Event of Default shall occur, or this Lease
and the Term shall expire and come to an end as provided in Article 17:
6. Tenant shall quit and peacefully surrender the Premises to
Landlord, and Landlord and its agents may immediately, or at any time
after such Event of Default or after the date upon which this Lease and
the Term shall expire and come to an end, re-enter the Premises or any
part thereof, without notice, either by summary proceedings, or by any
other applicable action or proceeding or otherwise (without being
liable to indictment, prosecution or damages therefor), but excluding
by force, and may repossess the Premises and dispossess Tenant and any
other persons from the Premises by summary proceedings or otherwise
(excluding by force) and remove any and all of their property and
effects from the Premises (and Tenant shall remain liable for damages
as provided herein or pursuant to law); and
7. Landlord, at Landlord's option, may relet the whole or any
part or parts of the Premises from time to time, either in the name of
Landlord or otherwise, to such tenant or tenants, for such term or
terms ending before, on or after the Fixed Expiration Date, at such
rent or rentals and upon such other conditions, which may include
concessions and free rent periods, as Landlord, in Landlord's sole
discretion, may determine; provided, however, that Landlord shall have
no obligation to relet the Premises or any part thereof and shall in no
event be liable for refusal or failure to relet the Premises or any
part thereof, or, in the event of any such reletting, for refusal or
failure to collect any rent due upon any such reletting, and no such
refusal or failure shall operate to relieve Tenant of any liability
under this Lease or otherwise affect any such liability, and Landlord,
at Landlord's option, may make such Alterations, in and to the Premises
as Landlord,
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in Landlord's sole discretion, shall consider advisable or necessary in
connection with any such reletting or proposed reletting, without
relieving Tenant of any liability under this Lease or otherwise
affecting any such liability.
(b) Tenant hereby waives the service of any notice of intention to
re-enter that may otherwise be required to be given under any present or future
law. Tenant, on its own behalf and on behalf of all persons claiming through or
under Tenant, including all creditors, does further hereby waive any and all
rights that Tenant and all such persons might otherwise have under any present
or future law to redeem the Premises, or to re-enter or repossess the Premises,
or to restore the operation of this Lease, after (1) Tenant shall have been
dispossessed by a judgment or by warrant of any court or judge, or (2) any
reentry by Landlord, or (3) any expiration or termination of this Lease and the
Term, whether such dispossess, re-entry, expiration or termination is by
operation of law or pursuant to the provisions of this Lease.
The words "re-entry," "re-enter" and "re-entered" as used in this Lease
shall not be deemed to be restricted to their technical legal meanings.
In the event of a breach or threatened breach by Tenant, or any persons
claiming through or under Tenant, of any term, covenant or condition of
this Lease, Landlord shall have the right to enjoin such breach and the
right to invoke any other remedy allowed by law or in equity as if
reentry, summary proceedings and other special remedies were not
provided in this Lease for such breach. The right to invoke the
remedies hereinbefore set forth are cumulative and shall not preclude
Landlord from invoking any other remedy allowed at law or in equity.
Section 18.2. (a) If this Lease and the Term shall expire and come to
an end as provided in Article 18, or by or under any summary proceeding or any
other action or proceeding, or if Landlord shall re-enter the Premises as
provided in Section 18.1, or by or under any summary proceeding or any other
action or proceeding, then, in any of said events:
1. Tenant shall pay to Landlord all Fixed Rent, Escalation
Rent, other Additional Rent and other items of Rental payable under
this Lease by Tenant to Landlord to the date upon which this Lease and
the Term shall have expired and come to an end or to the date of
re-entry upon the Premises by Landlord, as the case may be;
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2. Tenant also shall be liable for and shall pay to Landlord,
as damages, any deficiency ("Deficiency") between the Rental for the
period which otherwise would have constituted the unexpired portion of
the Term and the net amount, if any, of rents collected under any
reletting effected pursuant to the provisions of Section 18.1(a)(2) for
any part of such period (after first deducting from the rents collected
under any such reletting all of Landlord's expenses in connection with
the termination of this Lease, Landlord's reentry upon the Premises and
such reletting including, but not limited to, all repossession costs,
brokerage commissions, attorneys' fees and disbursements, alteration
costs and other expenses of preparing the Premises for such reletting);
any such Deficiency shall be paid in monthly installments by Tenant on
the days specified in this Lease for payment of installments of Fixed
Rent; Landlord shall be entitled to recover from Tenant each monthly
Deficiency as the same shall arise, and no suit to collect the amount
of the Deficiency for any month shall prejudice Landlord's right to
collect the Deficiency for any subsequent month by a similar
proceeding; and
3. whether or not Landlord shall have collected any monthly
Deficiency as aforesaid, Landlord shall be entitled to recover from
Tenant, and Tenant shall pay to Landlord, on demand, in lieu of any
further Deficiency as and for liquidated and agreed final damages, a
sum equal to the amount by which the unpaid Rental for the period which
otherwise would have constituted the unexpired portion of the Term
exceeds the then fair and reasonable rental value of the Premises for
the same period, both discounted to present worth at the Base Rate; if,
before presentation of proof of such liquidated damages to any court,
commission or tribunal, the Premises, or any part thereof, are relet by
Landlord for the period which otherwise would have constituted the
unexpired portion of the Term, or any part thereof, the amount of rent
reserved upon such reletting shall be deemed, prima facie, to be the
fair and reasonable rental value for the part or the whole of the
Premises so relet during the term of the reletting.
(b) Tenant shall in no event be entitled to any rents collected or
payable under any reletting, whether or not such rents exceed the Fixed Rent
reserved in this Lease. Solely for the purposes of this Article 18, the term
"Escalation Rent" as used in Section 18.2(a) shall mean the Escalation Rent in
effect immediately prior to the Expiration Date, or the date of re-entry
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upon the Premises by Landlord, as the case may be, adjusted to reflect any
increase pursuant to the provisions of Article 3 hereof for the Operating Year
immediately preceding such event. Nothing contained in Article 17 or this
Article 18 shall be deemed to limit or preclude the recovery by Landlord from
Tenant of the maximum amount allowed to be obtained as damages by any statute or
rule of law, or of any sums or damages to which Landlord may be entitled in
addition to the damages set forth in this Section 18.2.
ARTICLE XIX
FEES AND EXPENSES
Section 19.1. If an Event of Default shall have occurred, Landlord may
(a) perform the obligations of Tenant for the account of Tenant, or (b) make any
expenditure or incur any obligation for the payment of money in connection with
any obligation owed by Tenant to Landlord, including, but not limited to,
reasonable attorneys' fees and disbursements in instituting, prosecuting or
defending any action or proceeding arising out of such Event of Default, and in
either case the cost thereof, with interest thereon at the Applicable Rate,
shall be deemed to be Additional Rent hereunder and shall be paid by Tenant to
Landlord within ten (10) days after rendition of any bill or statement to Tenant
therefor.
Section 19.2. If Tenant shall fail to pay any installment of Fixed
Rent, Additional Rent or any other item of Rental for a period longer than five
(5) days after the same shall have become due, Tenant shall pay to Landlord, in
addition to such installment of Fixed Rent, Additional Rent or other item of
Rental, as the case may be, as a late charge and as Additional Rent, a sum equal
to interest at the Applicable Rate on the amount unpaid, computed from the date
such payment was due, without regard to any such grace period, to and including
the date of payment.
ARTICLE XX
NO REPRESENTATIONS BY LANDLORD
Section 20.1. Landlord and Landlord's agents have made no
representations or promises with respect to the Building, the Real Property or
the Premises except as herein expressly set forth, and no rights, easements or
licenses are acquired by Tenant by implication or otherwise except as expressly
set forth
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herein. Tenant shall accept possession of the Premises in its "AS IS" condition
on the Commencement Date, and Landlord shall have no obligation to perform any
work or make any installations in order to prepare the Premises for Tenant's
occupancy. The taking of occupancy of the whole or any part of the Premises by
Tenant shall be conclusive evidence, as against Tenant, that Tenant accepts
possession of the same and that the Premises and the Building were in good and
satisfactory condition at the time such occupancy was so taken. All references
in this Lease to the consent or approval of Landlord shall be deemed to mean the
written consent or approval executed by Landlord and no other consent or
approval of Landlord shall be effective for any purpose whatsoever.
ARTICLE XXI
END OF TERM
Section 21.1. Upon the expiration or other termination of this Lease,
Tenant shall quit and surrender to Landlord the Premises, vacant, broom clean,
in good order and condition, ordinary wear and tear excepted, and Tenant shall
remove all of Tenant's Alterations as may be required pursuant to Article 5.
Tenant shall also remove all of Tenant's Property and all other personal
property and personal effects of all persons claiming through or under Tenant,
and shall pay the cost of repairing all damage to the Premises and the Real
Property occasioned by such removal. Any Tenant's Property or other personal
property that remains in the Premises after the termination of this Lease shall
be deemed to have been abandoned and either may be retained by Landlord as its
property or may be disposed of in such manner as Landlord may see fit. If such
Tenant's Property or other personal property or any part thereof is sold,
Landlord may receive and retain the proceeds of such sale as the property of
Landlord. Any expense incurred by Landlord in removing or disposing of such
Tenant's Property or other personal property or Alterations required to be
removed as provided in Article 5, as well as the cost of repairing all damage to
the Building or the Premises caused by such removal, shall be reimbursed to
Landlord by Tenant, as Additional Rent, on demand.
Section 21.2. If the Expiration Date falls on a day which is not a
Business Day, then Tenant's obligations under Section 21.1 shall be performed on
or prior to the immediately preceding Business Day.
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Section 21.3. If the Premises are not surrendered upon the expiration
or other termination of this Lease, Tenant hereby indemnifies Landlord against
liability resulting from delay by Tenant in so surrendering the Premises,
including any claims made by any succeeding tenant or prospective tenant founded
upon such delay and agrees to be liable to Landlord for (i) any payment or rent
concession which Landlord may be required to make to any tenant obtained by
Landlord for all or any part of the Premises in order to induce such tenant not
to terminate its lease by reason of the holding-over by Tenant and (ii) the loss
of the benefit of the bargain if any such tenant shall terminate its lease by
reason of the holding-over by Tenant.
Section 21.4. Tenant's obligation under this Article shall survive the
expiration or termination of this Lease for a period ending six (6) months after
the end of the calendar year in which the Expiration Date falls.
ARTICLE XXII
POSSESSION
Section 22.1. Tenant acknowledges that it is in possession of the
Premises as of the Commencement Date (Tenant being the prior owner of the Real
Property and Building) and that no further act on Landlord's part is required as
a condition to commencement of the Term of this Lease.
ARTICLE XXIII
NO WAIVER
Section 23.1 No act or thing done by Landlord or Landlord's agents
during the Term shall be deemed an acceptance of a surrender of the Premises,
and no agreement to accept such surrender shall be valid unless in writing
signed by Landlord. Only an executive officer of Landlord shall have the power
to accept surrender of the Premises prior to the termination of this Lease.
Section 23.2. The failure of Landlord to seek redress for violation of,
or to insist upon the strict performance of, any covenant or condition of this
Lease, or any of the Rules and Regulations, shall not prevent a subsequent act,
which would have originally constituted a violation, from having all of the
force and effect of an original violation. The receipt by Landlord of Fixed
Rent, Additional Rent or any other item of Rental with
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knowledge of the breach of any covenant of this Lease shall not be deemed a
waiver of such breach. The failure of Landlord to enforce any of the Rules and
Regulations against Tenant or any other tenant of the Real Property or the
Adjacent Property shall not be deemed a waiver of any such Rules and
Regulations. No provision of this Lease shall be deemed to have been waived by
Landlord, unless such waiver shall be in writing and shall be signed by
Landlord. No payment by Tenant or receipt by Landlord of a lesser amount than
the Rental then due and payable shall be deemed to be other than on account of
the earliest item(s) of Rental, or as Landlord may elect to apply the same, nor
shall any endorsement or statement on any check or any letter accompanying any
check or payment be deemed an accord and satisfaction, and Landlord may accept
such check or payment without prejudice to Landlord's right to recover the
balance due of the Rental or pursue any other remedy in this Lease provided.
This Lease contains the entire agreement between the parties and all prior
negotiations and agreements are merged herein. Any executory agreement hereafter
made shall be ineffective to change, discharge or effect an abandonment of this
Lease in whole or in part unless such executory agreement is in writing and
signed by the party against whom enforcement of the change, discharge or
abandonment is sought.
ARTICLE XXIV
WAIVER OF TRIAL BY JURY
Section 24.1. LANDLORD AND TENANT SHALL AND THEY HEREBY DO WAIVE TRIAL
BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THEM
AGAINST THE OTHER ON ANY MATTERS WHATSOEVER ARISING OUT OF OR IN ANY WAY
CONNECTED WITH THIS LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT, TENANT'S USE
OR OCCUPANCY OF THE PREMISES, WHETHER DURING OR AFTER THE TERM, OR FOR THE
ENFORCEMENT OF ANY REMEDY UNDER ANY STATUTE, EMERGENCY OR OTHERWISE.
ARTICLE XXV
INABILITY TO PERFORM
Section 25.1. This Lease and the obligation of Tenant to pay Rental
hereunder and to perform all of the other covenants and agreements hereunder on
the part of Tenant to be performed shall in no way be affected, impaired or
excused because Landlord is unable to fulfill any of Landlord's obligations
under this Lease, expressly or implicitly to be performed by Landlord, or
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because Landlord is unable to make or is delayed in making any repairs,
additions, alterations, improvements or decorations, or is unable to supply or
is delayed in supplying any services, equipment or fixtures, if Landlord is
prevented from or delayed in so doing by reason of acts of God, casualty,
strikes or labor troubles, accident, governmental preemption in connection with
an emergency, Requirements, Restrictive Covenants, conditions of supply and
demand which have been or are affected by war or other emergency, or any other
cause whatsoever, whether similar or dissimilar to the foregoing, beyond
Landlord's reasonable control ("Unavoidable Delays").
Section 25.2 Notwithstanding anything to the contrary set forth in this
Lease, Landlord shall not be liable for any cessation and/or interruption of
services to the Premises caused by failure of any Building Systems or other
computerized functions affecting use or occupancy of the Premises to be able to
perform properly date-sensitive functions for dates leading up to or following
January 1, 2000 (that is, to be Year 2000 compliant), nor shall any such failure
constitute an eviction or constructive eviction or give rise to abatement of
Rental.
ARTICLE XXVI
BILLS AND NOTICES
Section 26.1. (a) Except as otherwise expressly provided in this Lease,
any bills, statements, consents, notices, demands, requests or other
communications given or required to be given under this Lease ("Notice(s)")
shall be in writing and shall be deemed sufficiently given or rendered if
delivered by hand, or if sent by a nationally-recognized overnight courier
service, delivery cost prepaid, marked for next-day delivery, or if deposited in
a postage prepaid envelope in a depository that is regularly maintained by the
U.S. Postal Service, sent by registered or certified mail (return receipt
requested) and in either case addressed:
(i) if to Tenant, to Harrah's Operating Company, Inc., 5100
West Sahara Boulevard, Suite 200, Las Vegas, Nevada 89146, Attention:
Office of the President and with a copy to Harrah's Operating Company,
Inc., 5100 West Sahara Boulevard, Suite 200, Las Vegas, Nevada 89146,
Attention: General Counsel, or
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(ii) if to Landlord, at Landlord's address set forth in the
first paragraph of this Lease, with a copy to Baker, Donelson, Bearman
& Caldwell, 2000 First Tennessee Building, 165 Madison Avenue, Memphis,
Tennessee 38103, Attn: Frank L. Watson, Jr., and with a copy to any
Mortgagee who may have requested the same, by Notice given in
accordance with the provisions of this Article 26, at the address
designated by such Mortgagee, or
to such other address(es) as either Landlord or Tenant may designate as its new
address(es) for such purpose by notice given to the other in accordance with the
provisions of this Article 26.
(b) Notices shall be deemed to have been rendered or given (i) on the
date delivered, if delivered by hand, or (ii) the day after shipment, if sent by
overnight courier service, or (iii) three (3) days after mailing, if mailed as
provided in Section 26.1(a). Notice given by counsel for either party on behalf
of such party or by the Manager on behalf of Landlord shall be deemed valid
notices if addressed and sent in accordance with the provisions of this Article.
Section 26.2. Notwithstanding the provisions of Section 26.1, Notices
requesting services for Overtime Periods pursuant to Article 27 may be given by
delivery to the Building Manager or any other person in the Building designated
by Landlord to receive such Notices, and bills may be rendered by delivering
them to the Premises.
ARTICLE XXVII
SERVICES AND EQUIPMENT
Section 27.1. Landlord shall, at Landlord's expense:
(a) Provide passenger elevator service to the Premises on Business Days
during Operating Hours and, subject to Section 27.3, have one passenger elevator
on call at all other times.
(b) Furnish and distribute to the Premises, through the HVAC System,
during Operating Hours, air-conditioning, and heat or ventilation, as needed;
provided that Tenant shall, at all times, cooperate fully with Landlord and
abide by all of the Rules and Regulations which Landlord may prescribe for the
proper functioning of the HVAC System. Tenant hereby expressly waives any claims
against Landlord arising out of the cessation of
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operation of the HVAC System, or the suitability of the Premises when the same
is not in operation, whether due to normal scheduling or the reasons set forth
in Section 27.3. Landlord will not be responsible for the failure of the HVAC
System if such failure results from the occupancy of the Premises by more
persons than the number of persons for which HVAC System is designed. If Tenant
occupies the Premises at an occupancy rate of greater than that for which the
HVAC System was designed, or if Tenant's partitions are arranged in such a way
as to interfere with the normal operation of the HVAC System, Landlord may elect
to make changes to the HVAC System or the ducts through which it operates
required by reason thereof, and the cost thereof shall be reimbursed by Tenant
to Landlord as Additional Rent within ten (10) days after presentation of a bill
therefor. Landlord, throughout the Term, shall have free access to all
mechanical installations of Landlord, including but not limited to air cooling,
fan, ventilating and machine rooms and electrical closets, and Tenant shall not
construct partitions or other obstructions that may interfere with Landlord's
free access thereto, or interfere with the moving of Landlord's equipment to and
from the enclosures containing said installations. Neither Tenant nor its
agents, employees or contractors shall at any time enter the said enclosures or
tamper with, adjust, touch or otherwise in any manner affect said mechanical
installations. Landlord's obligations under this Section 27.1 and under Section
27.2 are subject to applicable Requirements that may limit the hours or the
extent to which Landlord is permitted to supply HVAC.
(c) Furnish hot and cold water for ordinary drinking, cleaning and
lavatory purposes.
(d) Provided Tenant shall keep the Premises in order, Landlord, at
Landlord's expense, shall cause the Premises, excluding any portions thereof
used as secured areas, to be cleaned on Business Days in accordance with the
cleaning specifications annexed to this Lease as Exhibit "D." If, however, any
additional cleaning of the Premises is to be done by Tenant, it shall be done at
Tenant's sole expense, in a manner reasonably satisfactory to Landlord and no
one other than persons approved by Landlord shall be permitted to enter the
Premises or the Building for such purpose. Tenant shall pay to Landlord the cost
of removal of any of Tenant's refuse and rubbish from the Premises and the
Building (i) to the extent that the same, in any one day, exceeds the average
daily amount of refuse and rubbish usually attendant upon the use of such
Premises as offices, as described and included in Landlord's cleaning contract
for the
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Building or recommended by Landlord's cleaning contractor, and (ii) related to
or deriving from the preparation or consumption of food or drink. Bills for the
same shall be rendered by Landlord to Tenant at such time as Landlord may elect
and shall be due and payable as Additional Rent within ten (10) days after the
time rendered.
Section 27.2. Landlord reserves the right to stop the furnishing of the
Building services and to stop service of the Building Systems, when necessary,
by reason of accident, or emergency, or for Alterations in the judgment of
Landlord desirable or necessary to be made, until said Alterations shall have
been completed; and Landlord shall have no responsibility or liability for
failure to supply air-conditioning, ventilation, heat, elevator, plumbing,
electric, or other services during said period or when prevented from so doing
by strikes, lockouts, difficulty of obtaining materials, accidents or by any
cause beyond Landlord's reasonable control, or by Requirements or failure of
electricity, water, steam, coal, oil or other suitable fuel or power supply, or
inability by exercise of reasonable diligence to obtain electricity, water,
steam, coal, oil or other suitable fuel or power. No diminution or abatement of
rent or other compensation shall or will be claimed by Tenant as a result
therefrom, nor shall this Lease or any of the obligations of Tenant be affected
or reduced by reason of such interruption, curtailment or suspension, nor shall
the same constitute an actual or constructive eviction; provided, however, that
if the cessation is caused by Landlord and continues for more than three (3)
days, then Fixed Rent shall abate on a per diem basis from the fourth (4th) day
until Landlord restores the Building services.
Section 27.3. Tenant agrees to abide by all requirements which Landlord
may prescribe for the proper protection and functioning of its Building Systems
and the furnishing of the Building services. Tenant further agrees to cooperate
with Landlord in any conservation effort pursuant to a program or procedure
promulgated or recommended by ASHRAE or any Requirements.
ARTICLE XXVIII
[RESERVED]
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ARTICLE XXIX
[RESERVED]
ARTICLE XXX
SIGNS
Section 30.1. Landlord may replace the signs at the main entrance which
serves the Real Property and Adjacent Property with signs which identify the
businesses on both such properties, and may install signage at the driveway
intersections on the Real Property and Adjacent Property which direct traffic to
the appropriate businesses and parking area, all at Tenant's reasonable cost and
expense, except that Landlord shall pay for signs with respect to the Adjacent
Property. The location, size, materials, quality, design, color and lettering of
any signs desired by Tenant shall be subject to the prior approval of Landlord
and shall be in compliance with the standards set forth in Tenant Design and
Construction Standards.
ARTICLE XXXI
BROKER
Section 31.1. Landlord represents and warrants to Tenant that Landlord
has not dealt with any broker or other Person who might claim a leasing
commission in connection with this Lease other than the Broker(s). Landlord
acknowledges that it is solely responsible to pay the leasing commissions due to
the Broker in connection with the execution of this Lease. Tenant represents and
warrants to Landlord that Tenant has not dealt with any broker or other Person
who might claim a leasing commission in connection with this Lease. The
execution and delivery of this Lease by Tenant shall be conclusive evidence that
Tenant acknowledges that Landlord has relied upon the foregoing representation
and warranty. Tenant shall indemnify and hold harmless Landlord from and against
any and all claims for commission, fee or other compensation by any Person
(other than Broker) who claims to have dealt with Tenant in connection with this
Lease and for any and all costs incurred by Landlord in connection with such
claims, including, without limitation, attorneys' fees and disbursements. The
execution and delivery of this Lease by Landlord shall be conclusive evidence
that Landlord acknowledges that Tenant has relied upon the foregoing
representation and warranty. Landlord shall indemnify and hold harmless Tenant
from and against any and all claims for
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commission, fee or other compensation by any Person (including Broker) who
claims to have dealt with Landlord in connection with this Lease and for any and
all costs incurred by Tenant in connection with such claims, including, without
limitation, attorneys' fees and disbursements. This provision shall survive the
expiration or earlier termination of this Lease.
ARTICLE XXXII
INDEMNITY
Section 32.1. Tenant shall indemnify and save harmless the Landlord
Indemnitees from and against (a) all claims of third parties of whatever nature
against the Landlord Indemnitees arising from any act, omission or negligence of
Tenant or Persons Within Tenant's Control, (b) all claims of third parties
against the Landlord Indemnitees arising from any accident, injury or damage
whatsoever caused to any such third party or such party's property and occurring
in or about the Premises during the Term or during Tenant's occupancy of the
Premises, unless and to the extent caused by the negligence or willful
misconduct of Landlord or its principals, officers or employees, (c) all claims
of third parties against the Landlord Indemnitees arising from any accident,
injury or damage occurring outside of the Premises but anywhere within or about
the Real Property, where such accident, injury or damage results or is claimed
to have resulted from an act, omission or negligence of Tenant or Persons Within
Tenant's Control, and (d) any breach, violation or non-performance of any
covenant, condition or agreement contained in this Lease to be fulfilled, kept,
observed and performed by Tenant except as otherwise provided in this Lease;
provided, however, that the indemnity and save harmless provision set out in
this Section 32.1 and 32.2 shall have no effect to the extent that the Landlord
Indemnitees are protected by insurance maintained under the provisions of
Article XI hereof. This indemnity and hold harmless agreement shall include
indemnity from and against any and all liability, fines, suits, demands, costs
and expenses of any kind or nature (including, without limitation, attorneys'
fees and disbursements) incurred in or in connection with any such claim or
proceeding brought thereon, and the defense thereof.
Section 32.2. If any claim, action or proceeding is made or brought
against any Landlord Indemnitee, against which claim, action or proceeding
Tenant is obligated to indemnify such Landlord Indemnitee pursuant to the terms
of this Lease, then, upon demand by the Landlord Indemnitee, Tenant, at its sole
cost
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and expense, shall resist or defend such claim, action or proceeding in the
Landlord Indemnitee's name, if necessary, by such attorneys as the Landlord
Indemnitee may select. The provisions of this Article 32 shall survive the
expiration or earlier termination of this Lease.
Section 32.3 Landlord shall indemnify and save harmless the Tenant
Indemnitees from and against (a) all claims of third parties of whatever nature
against the Tenant Indemnitees arising from any act, omission or negligence of
Landlord or Persons Within Landlord's Control, (b) all claims of third parties
against the Tenant Indemnitees arising from any accident, injury or damage
whatsoever caused to any such third party or such party's property and occurring
in or about the Premises during the Term or during Tenant's occupancy of the
Premises where such accident, injury or damage results or is claimed to have
resulted from an act or omission or negligence of Landlord or Persons Within
Landlord's Control, (c) all claims of third parties against the Tenant
Indemnitees arising from any accident, injury or damage occurring outside of the
Premises but anywhere within or about the Real Property, unless and to the
extent caused by the negligence or willful misconduct of Tenant or its
principals, officers or employees, and (d) any breach, violation or
non-performance of any covenant, condition or agreement in this Lease to be
fulfilled, kept, observed and performed by Tenant, except as otherwise provided
in this Lease; provided, however, that the indemnity and save harmless provision
set out in this Section 32.3 and 32.4 shall have no effect to the extent that
Tenant Indemnitees are protected by insurance maintained under the provisions of
Article XI hereof. This indemnity and hold harmless agreement shall include
indemnity from and against any and all liability, fines, suits, demands, costs
and expenses of any kind or nature (including, without limitation, attorneys'
fees and disbursements) incurred in or in connection with any such claim or
proceeding brought thereon, and the defense thereof.
Section 32.4 If any claim, action or proceeding is made or brought
against any Tenant Indemnitee, against which claim, action or proceeding
Landlord is obligated to indemnify such Tenant Indemnitee pursuant to the terms
of this Lease, then, upon demand by the Tenant Indemnitee, Landlord, at its sole
cost and expense, shall resist or defend such claim, action or proceeding in the
Tenant Indemnitee's name, if necessary, by such attorneys as the Tenant
Indemnitee may select. The provisions of this Article 32 shall survive the
expiration or earlier termination of this Lease.
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ARTICLE XXXIII
[RESERVED]
ARTICLE XXXIV
[RESERVED]
ARTICLE XXXV
[RESERVED]
ARTICLE XXXVI
COVENANT OF QUIET ENJOYMENT
Section 36.1. Landlord covenants that, upon Tenant paying the Fixed
Rent and Additional Rent and observing and performing all the terms, agreements,
covenants, provisions and conditions of this Lease on Tenant's part to be
observed and performed, Tenant may peaceably and quietly enjoy the Premises,
subject nevertheless to the terms and conditions of this Lease; provided,
however, that no impairment or deprivation of Tenant's use of the Premises which
results from a violation of Restrictive Covenants shall be construed as a breach
of this covenant nor permit abatement of Rental due hereunder unless such
violation results from acts or neglect of Landlord in which Tenant played no
part; provided further that no eviction of Tenant by reason of the foreclosure
of any Mortgage now or hereafter affecting the Premises, shall be construed as a
breach of this covenant nor shall any action by reason thereof be brought
against Landlord; and provided further that this covenant shall bind and be
enforceable against Landlord or any successor to Landlord's interest, subject to
the terms hereof, only so long as Landlord or any successor to Landlord's
interest, is in possession and is collecting rent from Tenant but not
thereafter.
ARTICLE XXXVII
MISCELLANEOUS
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Section 37.1. Landlord retains all air rights over the Premises. Tenant
may not place anything on or attach anything to the roof of the Premises without
first obtaining Landlord's written consent, which consent may be granted or
withheld in Landlord's reasonable discretion.
Section 37.2. The obligations of Landlord under this Lease shall not be
binding upon Landlord named herein after the sale, conveyance, assignment or
transfer by such Landlord (or upon any subsequent landlord after the sale,
conveyance, assignment or transfer by such subsequent landlord) of its interest
in the Building or the Real Property, as the case may be, and in the event of
any such sale, conveyance, assignment or transfer, Landlord shall be and hereby
is entirely freed and relieved of all covenants and obligations of Landlord
under this Lease thereafter arising, and the transferee shall be deemed to have
assumed, subject to the remaining provisions of this Section 37.2, all
obligations of the Landlord under this Lease arising after the effective date of
the transfer. No trustee, partner, shareholder, director or officer of Landlord,
or of any partner or shareholder of Landlord (collectively, the "Parties") shall
have any direct or personal liability for the performance of Landlord's
obligations under this Lease, and Tenant shall look solely to Landlord's
interest in the Building to enforce Landlord's obligations hereunder and shall
not otherwise seek any damages against Landlord personally or any of the Parties
whatsoever.
Section 37.3. [RESERVED]
Section 37.4. The parties shall prepare and sign a suitable memorandum
of this Lease for recordation. This Lease shall not be recorded.
Section 37.5. Except as otherwise expressly stated in this Lease, any
consent or approval required to be obtained from Landlord may be granted by
Landlord in its sole discretion.
Section 37.6. [RESERVED]
Section 37.7. If Tenant shall remain in possession of the Premises
after the Expiration Date, without the execution by both Tenant and Landlord of
a new lease, Tenant, at the election of Landlord, shall be deemed to be
occupying the Premises as a Tenant from month-to-month, at a monthly rental
equal to one and one-half (1.5) times the Rental payable during the last month
of the Term, subject to all the other conditions, provisions and
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obligations of this Lease insofar as the same are applicable to a month-to-month
tenancy.
Section 37.8. This Lease shall be construed without regard to any
presumption or other rule requiring construction against the party causing this
Lease to be drafted. If any words or phrases in this Lease are stricken out or
otherwise eliminated, whether or not any other words or phrases have been added,
this Lease shall be construed as if the words or phrases stricken out or
otherwise eliminated were never included in this Lease and no implication or
inference shall be drawn from the fact that such words or phrases were stricken
out or otherwise eliminated.
Section 37.9. [RESERVED]
Section 37.10. [RESERVED]
Section 37.11. If any of the provisions of this Lease, or the
application thereof to any person or circumstance, shall, to any extent, be
invalid or unenforceable, the remainder of this Lease, or the application of
such provisions to persons or circumstances other than those as to whom or which
it is held invalid or unenforceable, shall not be affected thereby and shall
remain valid and enforceable, and every provision of this Lease shall be valid
and enforceable to the fullest extent permitted by law.
Section 37.12. Landlord shall have the right to erect any gate, chain
or other obstruction or to close off any portion of the Real Property to the
public at any time to the extent necessary to prevent a dedication thereof for
public use.
Section 37.13. Tenant agrees that in all disputes arising directly or
indirectly out of this Lease Tenant shall be subject to service of process in,
and the jurisdiction of the courts of, the State of Tennessee. The provisions of
this Section 37.13 shall survive the expiration of this Lease.
Section 37.14. This Lease contains the entire agreement between the
parties and all prior negotiations and agreements are merged into this Lease.
Except as provided in Section 37.6, this Lease may not be changed, abandoned or
discharged, in whole or in part, nor may any of its provisions be waived except
by a written agreement that (a) expressly refers to this Lease, (b) is executed
by the party against whom enforcement of the change, abandonment, discharge or
waiver is sought, and (c) is permissible under the Mortgage(s).
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Section 37.15. Any apportionment or prorations of Rental to be made
under this Lease shall be computed on the basis of a three hundred sixty (360)
day year, with twelve (12) months of thirty (30) days each.
Section 37.16. The laws of the State of Tennessee applicable to
contracts made and to be performed wholly within the State of Tennessee shall
govern and control the validity, interpretation, performance and enforcement of
this Lease.
Section 37.17. Tenant warrants and represents that it is duly
incorporated under the laws of the State of Delaware and is duly qualified to do
business in the State of Tennessee (a copy of evidence thereof to be supplied to
Landlord upon request); and that each person executing this Lease on behalf of
Tenant is an officer of Tenant and that he or she is duly authorized to execute,
acknowledge and deliver this Lease to Landlord (a copy of a resolution to that
effect to be supplied to Landlord upon request).
Section 37.18. The captions are inserted only as a matter of
convenience and for reference and in no way define, limit or describe the scope
of this Lease nor the intent of any provision thereof.
Section 37.19. The covenants, conditions and agreements contained in
this Lease shall bind and inure to the benefit of Landlord and Tenant and their
respective legal representatives, successors, and, except as otherwise provided
in this Lease, their assigns.
Section 37.20. For the purposes of this Lease and all agreements
supplemental to this Lease, unless the context otherwise requires:
(a) The words "herein", "hereof", "hereunder" and "hereby" and
words of similar import shall be construed to refer to this Lease as a
whole and not to any particular Article or Section unless expressly so
stated.
(b) Reference to "termination of this Lease" or "expiration of
this Lease" and words of like import includes expiration or sooner
termination of this Lease and the Term and the estate hereby granted or
cancellation of this Lease pursuant to any of the provisions of this
Lease or to law. Upon the termination of this Lease, the Term and
estate
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granted by this Lease shall end at noon on the date of termination as
if such date were the Fixed Expiration Date, and neither party shall
have any further obligation or liability to the other after such
termination except (i) as shall be expressly provided for in this
Lease, and (ii) for such obligations as by their nature under the
circumstances can only be, or by the provisions of this Lease, may be,
performed after such termination, and, in any event, unless expressly
otherwise provided in this Lease, any liability for a payment (which
shall be apportioned as of such termination) which shall have accrued
to or with respect to any period ending at the time of termination
shall survive the termination of this Lease.
(c) Words and phrases used in the singular shall be deemed to
include the plural and vice versa, and nouns and pronouns used in any
particular gender shall be deemed to include any other gender.
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Section 37.21. All exhibits attached to this Lease are incorporated
herein and Tenant agrees to execute Exhibit "H" upon Landlord's request without
unreasonable delay.
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Lease
as of the day and year first above written.
RBM CHERRY ROAD PARTNERS, a
Tennessee general partnership
BY: RBM Venture Company, a
Delaware corporation, its
managing general partner
By: /s/ SCOTT IMORDE
---------------------------------------------
Its: Vice President
---------------------------------------------
LANDLORD
HARRAH'S OPERATING COMPANY, INC.
By: /s/ COLIN V. REED
---------------------------------------------
Its: Chief Financial Officer
---------------------------------------------
TENANT
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Exhibit "A"
Legal Description
PROPERTY LOCATED IN SHELBY COUNTY, TENNESSEE:
PARCEL I
BEING A PART OF THE HARRAH'S ENTERTAINMENT, INC. CORPORATE HEADQUARTERS
P.D. AS RECORDED IN PLAT BOOK 155, PAGE 8, ALSO BEING A PART OF THE
HOLIDAY INNS, INC. PROPERTY AS RECORDED IN INSTRUMENT U7-2133 AT THE
SHELBY COUNTY REGISTER'S OFFICE, LOCATED IN MEMPHIS, TENNESSEE AND
BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS:
BEGINNING AT A POINT ON THE NORTH LINE OF HAVERHILL ROAD (50' R.O.W.),
25.15 FEET WEST OF THE WEST LINE OF CHERRY ROAD (R.O.W. VARIES); THENCE
ALONG SAID NORTH LINE N89 38'59"W A DISTANCE OF 986.49 FEET TO A POINT
OF CURVATURE; THENCE ALONG A CURVE TO THE RIGHT HAVING A RADIUS OF
257.02 FEET, AN ARC LENGTH OF 120.30 FEET, (CHORD N76 22'21"W - 119.20
FEET) TO A FOUND CROW'S MARK AT THE SOUTHEAST CORNER OF THE JOEL M. COX
PROPERTY (INST. S9-0045); THENCE N37 29'55"E ALONG THE EAST LINE OF
SAID COX PROPERTY A DISTANCE OF 163.78 FEET TO A POINT, SAID POINT
BEING THE NORTHEAST CORNER OF SAID JOEL M. COX PROPERTY, ALSO BEING THE
SOUTHEAST CORNER OF LOT 31, AUDUBON PARK SUBDIVISION (PB. 14, PG. 30);
THENCE ALONG THE EAST LINE OF SAID AUDUBON PARK SUBDIVISION N0 13'10"W
A DISTANCE OF 579.13 FEET TO A POINT, SAID POINT BEING ON THE EAST LINE
OF LOT 26 OF AUDUBON PARK SUBDIVISION (PB. 14, PG. 30) AND 15.11 FEET
SOUTH OF THE NORTH LINE OF SAID LOT 26; THENCE ALONG THE FOLLOWING
COURSES AND DISTANCES: S59 52'06"E A DISTANCE OF 225.85 FEET TO A
POINT; THENCE N30 15'47"E A DISTANCE OF 48.67 FEET TO A POINT; THENCE
S86 44'15"E A DISTANCE OF 75.95 FEET TO A POINT; THENCE S3 15'45"W A
DISTANCE OF 27.58 FEET TO A POINT; THENCE S86 44'15"E A DISTANCE OF
173.28 FEET TO A POINT; THENCE N27 16'38"E A DISTANCE OF 188.13 FEET TO
A POINT; THENCE S89 37'17"E A DISTANCE OF 222.36 FEET TO A POINT;
THENCE N0 00'14"W A DISTANCE OF 267.93 FEET TO A POINT ON THE SOUTH
LINE OF THE DIXON GALLERY AND GARDENS PROPERTY (K8-7671); THENCE ALONG
SAID SOUTH LINE S89 37'17"E A DISTANCE OF 264.26 FEET TO A FOUND AXLE
ON THE WEST LINE OF SAID CHERRY ROAD, SAID POINT
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ALSO BEING THE SOUTHEAST CORNER OF SAID DIXON GALLERY AND GARDENS
PROPERTY; THENCE ALONG SAID WEST LINE S0 00'14"E A DISTANCE OF 905.25
FEET TO A POINT; THENCE N98 38'59"W A DISTANCE OF 10.00 FEET TO A
POINT; THENCE S0 00'14E A DISTANCE OF 131.85 FEET TO A POINT OF
CURVATURE; THENCE ALONG A CURVE TO THE RIGHT HAVING A RADIUS OF 25.00
FEET, AN ARC LENGTH OF 39.42 FEET (CHORD S45 10'23"W - 35.46 FEET) TO
THE POINT OF BEGINNING.
PARCEL II
The property on which exists a two (2) story office building is situated in
Memphis, Shelby County, Tennessee, and is described as follows:
BEING A PART OF THE HARRAH'S ENTERTAINMENT, INC. CORPORATE HEADQUARTERS
P.D. AS RECORDED IN PLAT BOOK 155, PAGE 8, ALSO BEING THE HOLIDAY INN'S
INC. PROPERTY AS RECORDED IN INSTRUMENT U7-2133 AT THE SHELBY COUNTY
REGISTER'S OFFICE, LOCATED IN MEMPHIS, TENNESSEE AND BEING MORE
PARTICULARLY DESCRIBED AS FOLLOWS:
COMMENCING AT A POINT ON THE CENTERLINE OF CHERRY ROAD (R.O.W. VARIES),
1087.24 FEET NORTH OF THE INTERSECTION OF HAVERHILL ROAD (50' R.O.W.)
AND SAID CHERRY ROAD; THENCE NO89 37'17"W A DISTANCE OF 30.00 FEET TO
A FOUND AXLE ON THE WEST LINE OF SAID CHERRY ROAD; SAID POINT ALSO
BEING THE SOUTHEAST CORNER OF THE DIXON GALLERY AND GARDENS PROPERTY
(INST. K8-7671); THENCE N89 37'17"W A DISTANCE OF 264.26 FEET TO THE
POINT OF BEGINNING, SAID POINT BEING ON THE SOUTH LINE OF SAID DIXON
GALLERY AND GARDENS PROPERTY; THENCE ALONG THE FOLLOWING COURSES AND
DISTANCES: S0 00'14"E A DISTANCE OF 267.93 FEET TO A POINT; THENCE
N89 37'17"W A DISTANCE OF 222.36 FEET TO A POINT; THENCE S27 16'38"W A
DISTANCE OF 188.13 FEET TO A POINT; THENCE N86 44'15"W A DISTANCE OF
173.28 FEET TO A POINT; THENCE N3 15'45"E A DISTANCE OF 27.58 FEET TO A
POINT; THENCE N86 44'15"W A DISTANCE OF 75.95 FEET TO A POINT; THENCE
S30 15'47"W A DISTANCE OF 48.67 FEET TO A POINT; THENCE N59 52'06"W A
DISTANCE OF 225.85 FEET TO A POINT ON THE EAST LINE OF LOT 26 OF
AUDUBON PARK SUBDIVISION (PB. 14, PG. 30), SAID POINT BEING 15.11 FEET
SOUTH OF THE NORTH LINE OF SAID LOT 26; THENCE ALONG SAID EAST LINE AND
THE EAST LINE OF THE RESUBDIVISION OF LOTS 21-25, AUDUBON PARK
SUBDIVISION (PB. 15, PG. 4)
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N0 13'10"W A DISTANCE OF 325.74 FEET TO A FOUND AXLE, SAID AXLE ALSO
BEING THE SOUTHWEST CORNER OF SAID DIXON GALLERY AND GARDENS PROPERTY;
THENCE ALONG THE SOUTH LINE OF SAID DIXON GALLERY AND GARDENS PROPERTY
S89 37'17"E A DISTANCE OF 776.93 FEET TO THE POINT OF BEGINNING.
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Exhibit "B"
Plat Showing Building and Building No. 1
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Exhibit "C"
Rules and Regulations
Definitions 1. Wherever in these Rules and
Regulations the word "Tenant" is
used, it shall be taken to apply to
and include the Tenant and his
agents, employees, invitees,
licensees, visitors, subtenants and
contractors, and shall be deemed of
such number and gender as the
circumstances require. The word
"Landlord" shall be taken to
include the employees and agents of
Landlord.
Obstructions 2. The streets, sidewalks, entrances,
driveways, halls, passages,
elevators, stairways and Common
Areas provided by Landlord shall
not be obstructed by Tenant.
Washrooms 3. Toilet rooms, water-closets and
other water apparatus shall not be
used for any purposes other than
those for which constructed.
Fire Prevention 4. Tenant shall not do anything in the
Premises or bring or keep anything
therein, which shall in any way
increase or tend to increase the
risk of fire or the rate of fire
insurance, or which shall conflict
with the regulations of the Fire
Department or the fire laws, or
with the rules and regulations of
the City of Memphis, or equivalent
bodies, or with any insurance
policy on the Building or any part
thereof, or with any law,
ordinance, rule or regulation
affecting the occupancy and use the
Premises, now existing or hereafter
enacted or promulgated by any
public authority or by the City of
Memphis or any equivalent body.
Tenant's Equipment 5. It is Tenant's responsibility to
properly operate all business
equipment and coffee machines and
to service such equipment and
machines.
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General 6. In order to insure proper use and
Prohibitions care of the Premises, Tenant shall
not, without the consent of
Landlord or unless otherwise
permitted in the Lease:
a. Keep or permit animals or birds in
the Building except as required for
handicapped persons.
b. Use the Premises as sleeping
apartments.
c. Allow any sign, advertisement or
notice to be fixed to the Building,
inside or outside, without
Landlord's written consent.
d. Make improper noise or disturbances
of any kind, or otherwise do
anything to disturb other tenants
or tend to injure the reputation of
the Building.
e. Mark or defile elevators, water
closets, toilet rooms, walls,
windows, doors or any other parts
of the Building.
f. Place anything on the outside of
the Building, including roof
setbacks, window ledges and other
projections; or drop anything from
the windows, stairways or parapets;
or place trash or other matter in
the halls, stairways, elevators or
light wells of the Building.
g. Cover, block or obstruct any
window, skylight, door or transom
or any other surface that admits
light, except building standard
blinds.
h. Interfere with the heating or
cooling apparatus.
i. Allow anyone but Landlord's
employees to clean Premises.
j. Leave open doors to the Premises at
any time except as otherwise
approved by Landlord, and same
shall be locked at all times when
Premises are not occupied.
k. Install any shades, blinds or
awnings without consent of the
Landlord, except building standard
blinds.
l. Use any electric heating device,
such as
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a space heater, without consent of
the Landlord.
m. Install call boxes, or any kind of
wire in or on the Building without
Landlord's permission and
direction.
n. Manufacture any commodity, or
prepare or dispense any foods,
beverages, or alcoholic beverages,
tobacco, drugs, flowers, or other
commodities or articles without the
written consent of Landlord. All
food and beverage vending machines
will be provided by the Landlord
Approved Contractor.
o. Secure duplicate keys for Premises
or toilets, except from Landlord,
or change the locks of any doors to
or in the Premises.
p. Give employees or other persons
permission to go upon or erect or
place any antennae, tower or other
structure or equipment on the roof
of the Building without the written
consent of the Landlord.
q. Place door mats in public corridors
(i.e., within the Common Area)
without consent of Landlord.
r. Schedule, receive or accept freight
other than Monday through Friday,
excluding holidays, between the
hours of 7:00 a.m. to 7:00 p.m.
s. Leave the Land and enter the
Adjacent Property, except via the
designated entrance driveway
between the Land and Cherry Road,
but then only during the course of
arriving and leaving for work
during Operating Hours.
Business 7. Business machines and mechanical
Machines equipment which cause vibration,
noise, cold or heat that may be
transmitted to Building structure
or to any leased space outside
Premises shall be placed and
maintained by Tenant, at its sole
cost and expense, in settings of
cork, rubber, or spring type
vibration eliminators
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sufficient to absorb and prevent
such vibration, noise, cold
or heat. No business machines
or mechanical equipment which
require above normal business
machine level or high amounts of
electricity shall be used or
installed in the Premises without
Landlord's written consent and if
installed, all electricity used
shall be metered and paid by Tenant
as Additional Rent.
Movement of 8. Landlord reserves the right to
Equipment designate the time when and the
method whereby freight, small
office equipment, furniture, safes
and other like articles may be
brought into, moved, or removed
from the Building or Premises, and
to designate the location for
temporary disposition of such
items.
Tenant Moves 9. Landlord's tenant move in/move out
policy is as follows:
a. All moves will be done at such
times as shall not unduly interfere
with other tenants or occupants of
the Real Property or Adjacent
Property.
b. Landlord shall approve the moving
contractor and such contractor
shall coordinate all aspects of the
move with Landlord.
c. Tenant's contractor shall provide a
certificate of insurance evidencing
liability, property damage and
workmen's compensation insurance of
not less than $1,000,000, naming
Landlord as additional insured.
d. Tenant's contractor shall use
appropriate padding and masonite
floor covering to protect all
surfaces including door jambs,
subject to Landlord's inspection
and approval.
e. Tenant will reimburse Landlord for
all security provided.
f. Tenant will be responsible for any
damages during the move.
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Rights Reserved 10. Without abatement or diminution in
to Landlord rent, Landlord reserves and shall
have the following additional
rights:
a. To install and maintain a sign or
signs on the exterior of the
Building.
b. To designate all sources furnishing
sign painting and lettering, ice,
drinking water, towels and toilet
supplies and other like services
used on the Premises.
c. At any time or times Landlord
either voluntarily or pursuant to
governmental requirement, may, at
Landlord's own expense, make
repairs, alterations or
improvements in or to the Building
or any part thereof and during
alterations, any close entrances,
doors, windows, corridors,
elevators or other facilities,
provided that such acts shall not
unreasonably interfere with
Tenant's use and occupancy of the
Premises as a whole.
d. During the last six (6) months of
the term or any part thereof, if
during or prior to that time the
Tenant vacates the Premises, to
decorate, remodel, repair, alter or
otherwise prepare the Premises for
re-occupancy.
e. To constantly have pass keys and
Security System clearance to the
Premises.
f. Landlord may reasonably enter upon
the Premises and may exercise any
or all of the foregoing rights
hereby reserved without being
deemed guilty of an eviction or
disturbance of Tenant's use or
possession and without being liable
in any manner to the Tenant.
g. To access the Dixon Gallery and
Gardens via the Common Area.
Regulation 11. Landlord shall have the right to
Change make such other and further
reasonable rules and regulations as
in the judgment of Landlord, may
from time to time be needful for
the safety, appearance, care and
cleanliness of the Building and
Building No. 2 and for the
preservation
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of order therein, Landlord shall
not be responsible to Tenant for
any violation of rules and
regulations by other tenants or
occupants of the Real Property or
Adjacent Property.
Smoking Areas 12. Landlord shall have the right, from
time to time, to designate and
thereafter to change, alter or
redesignate, smoking and
non-smoking area(s) outside the
Building and shall further be
permitted to prohibit or limit such
activity in order to fully comply
with any applicable governmental
ordinance, law or regulation.
Tenant shall not permit any of its
employees, agents or invitees to
smoke except in the designated
smoking area(s) and, in any event,
never inside the Building.
Plumbing 13. Plumbing fixtures and appliances
shall be used only for purposes for
which constructed, and no
sweepings, rubbish, rags or other
unsuitable material shall be thrown
or placed therein. Damage resulting
to any such fixtures or appliances
from misuse by Tenant shall be
repaired and replaced at Tenant's
sole cost and expense, and Landlord
shall not in any case be
responsible therefor.
Parking 14. Tenant shall use best efforts to
cause Tenant's employees to park
their motor vehicles in those
portions of the parking area
designated by Landlord ("Tenant's
Parking Area").
Access 15. Tenant shall access Tenant's
Parking Area and/or the Building
via the driveway designated on
Exhibit "C-1" which is attached
hereto and supplements these Rules
and Regulations.
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Exhibit "D"
Cleaning Specifications
Landlord agrees that, at its expense, it will do the following standard
janitorial work for the Premises.
I. General Space Cleaning - five (5) nights per week Monday thru Friday
A. Nightly
1. Empty and dust wipe all receptacles.
2. Replace plastic liners in waste receptacles as
required.
3. Remove waste to a compactor, hamper, or place waste
in bags and leave in a designated area.
4. Empty and damp-wipe ashtrays.
5. Clean entrance glass.
6. Clean glass in directories.
7. Spot clean all interior glass, including the glass
railing on the plaza and third floor.
8. Damp-wipe all glass top desks and tables.
9. Spot clean walls, doors, door frames and around light
switches.
10. Clean the elevators including walls, floors, doors,
lights, tracks and indicator panels.
11. Clean and polish stainless steel in the main lobby,
elevator lobbies, elevators, etc.
12. Damp-wipe spillages on furniture in lounge and
lunchroom areas. (Tenant shall be responsible for
cleaning of dishes, refrigerators and other kitchen
appliances.)
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13. Sanitize and polish all drinking fountains.
14. Vacuum all carpeted areas with particular attention
being paid to under desks, moveable furniture,
corners and edges, etc.
15. Spot clean carpet as needed.
16. Sweep all granite pavers and composition tile
flooring with a specially treated mop and buff.
17. Damp mop trackage and spillage as required.
18. Sweep cement stairways. Damp-mop as required.
19. Dust or damp-wipe handrails and metalwork as
required.
20. Sweep with specially treated mop, and wash floors in
service areas.
21. Upon the completion of cleaning, the cleaning
equipment will be stored neatly in a designated
location.
B. Monthly
1. Clean and polish desk tops.
2. Perform high dusting not reached in normal cleaning.
3. Dust Venetian blinds.
4. Spray buff vinyl tile flooring in tenant and service
areas.
C. Quarterly
1. Strip and wax all vinyl tile flooring in tenant and
service areas.
2. Vacuum upholstered chairs.
II. Lavatories
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A. Nightly
1. Empty waste and sanitary napkin disposal receptacles.
2. Replace plastic liners as required.
3. Clean commodes and urinals with a disinfectant.
4. Clean washbowls with a scouring powder.
5. Polish mirrors.
6. Polish all brightwork.
7. Spot clean ceramic tile walls and metal
partitions.
8. Floors to be swept, wet mopped and rinsed, using a
disinfectant detergent.
9. Fill all towel, toilet issue, sanitary napkin and
hand soap dispensers.
B. Monthly
1. Wash and disinfect ceramic tile walls and metal
partitions.
2. Wash interior of waste and sanitary napkin disposal
containers.
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Exhibit "E"
Rating Level Multiplier
For purposes of Section 2.6 of the Lease:
If HET's Corporate . . . then the
Credit Rating is . . . Rating Level Multiplier is:
BBB 0
BB 1.0
B 2.0
CCC 3.0
CC or lower 4.0
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Exhibit "F"
[RESERVED]
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<PAGE>
Exhibit "G"
Tenant Design and Construction Standards
Tenant agrees to furnish Landlord the following information in
drawings, in accordance with the below-listed schedules.
1. PRELIMINARY DRAWINGS
No later than four (4) weeks prior to the projected construction
commencement date, Tenant shall furnish Landlord one (1) sepia and six
(6) complete sets of prints of -" scale preliminary drawings showing at
least the following information:
a. Floor plan including furniture layout, partition layout, door
layout, power and telephone outlet locations, items above
standard finish, floor loading information beyond 70 psf, etc.
b. Reflected ceiling plan including lighting layout, exit signs,
registers, grilles, diffusers, exhaust fans, ceiling breaks,
etc.
c. Written scope sheet of special Tenant mechanical and
electrical requirements and/or custom construction and finish
requirements.
d. Take-off sheet of building standard items shall be used.
2. ARCHITECTURAL WORKING DRAWINGS FOR CONSTRUCTION
No later than two (2) weeks prior to the projected construction
commencement date, Tenant shall furnish Landlord two (2) background
mylars of the partition and ceiling plans and one (1) sepia and two (2)
sets of prints of complete -" scale working drawings on or before
showing at least the following information and marked "issued for
engineering and Landlord review":
a. Location and type of all partitions and doors (specify
hardware and provide keying schedule), glass
partitions, windows and glass doors (indicate framing sections
if not building standard).
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b. Indication of all critical dimensions necessary for
construction.
c. Location of telephone equipment room accompanied by an
approval of the telephone company.
d. Location of all building standard and above building standard
electrical items including outlets, switches, telephone
outlets and lighting.
e. Location and type of equipment that require special
electrical; requirements including manufacturer's
specifications for use and operations.
f. Location, weight per square foot and description of any
exceptionally heavy equipment or filing system exceeding 75
psf live load including 20 psf for partitions.
g. Requirements for special air conditioning or ventilation
including occupancy information for each room and space.
h. Type and color of floor covering, wall covering, and building
standard and above-building standard paint or finishes.
i. Requirements for special plumbing including all line sizes,
fixtures and specifications.
j. Location and type of kitchen equipment including
specifications.
k. Details showing:
(1) Construction of all partition types;
(2) Head, jamb and sill sections with elevations for all
door types;
(3) Shelving, cabinet work and architectural millwork
with dimensions and dimensions of all equipment to be
built in;
(4) Special corridor entrance with framing and support
requirements; and
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(5) Bracing or support of special walls, glass
partitions, drapery track, etc.
3. MECHANICAL/ELECTRICAL WORKING DRAWINGS FOR CONSTRUCTION
No later than two (2) weeks prior to the projected construction
commencement date, Tenant shall furnish two (2) sets of prints of -"
scale mechanical/electrical working drawings which, among other things,
shall identify requirements beyond the building standard scope.
4. Within ten (10) days after the furnishing of any such drawings by
Tenant, Landlord shall approve, disapprove, or request further
information concerning the drawings submitted, indicating the reason
for any disapproval and specifying clearly the nature and scope of any
request for further information. In all events, Landlord shall use good
faith efforts to respond to such submissions by Tenant expeditiously so
as to not delay unnecessarily Tenant's construction of Alterations.
5. Tenant shall be responsible for obtaining city review and approval of
preliminary drawings (as referred to in paragraph 1 above). Tenant
shall make application and obtain a city building permit.
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Exhibit "H"
First American SNDA
SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
Building No. 2
THIS AGREEMENT, made as of the ----- day of October, 1999, by FIRST
AMERICAN NATIONAL BANK, with a place of business at 6000 Poplar Avenue, Suite
300, Memphis, Tennessee 38119 ("Mortgagee") and Harrah's Operating Company,
Inc., a Delaware corporation, having an office address at 5100 West Sahara
Avenue, Suite 200, Las Vegas, NV 89146 ("Tenant").
WITNESSETH:
WHEREAS, Mortgagee has entered into, or is about to enter into, a
mortgage loan transaction with RBM Cherry Road Partners, a Tennessee general
partnership, having an office address of 5810 Shelby Oaks Drive, Memphis, TN
38134 ("Landlord"); and
WHEREAS, Mortgagee is, or is to become, the beneficiary of a Deed of
Trust, Assignment of Rents and Security Agreement (said Deed of Trust,
Assignment of Rents and Security Agreement being hereinafter referred to as the
"Mortgage") covering that certain parcel of land owned by Landlord and described
on Exhibit "A" annexed hereto and made a part hereof, together with the
improvements erected thereon (said parcel of land and improvements thereon being
commonly known as 1023 Cherry Road, Memphis, TN 38117, hereinafter called the
"Improvements"); and
WHEREAS, by a certain Lease entered into between Landlord and Tenant
dated as of October 25, 1999 ("Lease"), Landlord leased to Tenant a portion of
the Improvements, to wit, the premises designated as floors one (1) through two
(2) of the three-story office building located at 1023 Cherry Road, Memphis, TN
38117, generally depicted on Exhibit "B" annexed hereto and made a part hereof
(said premises being hereinafter called the "Demised Premises"); and
WHEREAS, a copy of the Lease has been delivered to Mortgagee, the
receipt of which is hereby acknowledged; and
WHEREAS, the parties hereto desire to effect the subordination of the
Lease to the Mortgage and to provide for the non-disturbance of Tenant by the
holder of the Mortgage.
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<PAGE>
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein contained, the parties hereto intending to be
legally bound hereby agree as follows:
1. Mortgagee hereby consents to and approves the Lease and the term
thereof, including any options to extend the term as set forth in the Lease, and
covenants and agrees that the exercise by Tenant of any of the rights, remedies,
and options therein contained shall not constitute a default under the Mortgage.
2. Tenant covenants and agrees with Mortgagee that the Lease is hereby
made, and shall continue hereafter to be, subject and subordinate to the lien of
the Mortgage, and to all modifications and extensions thereof, with the same
force and effect as if the Mortgage had been executed and delivered prior to the
execution and delivery of the Lease and without regard to the order of priority
of recording the Mortgage, subject, however, to the provisions of this
Agreement. Tenant shall take such steps and execute such documents from time to
time hereafter as Mortgagee may reasonably request in order to carry into effect
the provisions and intent of this Agreement and to confirm the subordination of
the Lease to the lien of the Mortgage subject to the terms hereof.
3. Tenant certifies that the Lease is presently in full force and
effect and unmodified and Tenant as of this date has no knowledge of any
default, charge, lien or claim of offset under the Lease.
4. The Tenant shall deliver to Mortgagee, within thirty (30) days after
receipt of a written request for same, further certifications that (i) the Lease
is then in full force and effect; (ii) there have been no modifications to the
Lease (except those specified therein); (iii) there is then no default, charge,
lien or claim of offset under the Lease (or stating any of the same which may be
claimed or known); (iv) not more than one month's installment of rent has been
paid in advance of the due date (or stating any such other payments, if made);
and (v) such other information as Mortgagee may reasonably request. For so long
as Tenant is not in default under the terms of the Lease and the Lease shall be
in full force and effect, Mortgagee agrees that:
(a) Except as may be procedurally required by law, Tenant
shall not be named or joined as a party or otherwise in any suit, action or
proceeding for the foreclosure of the Mortgage or to enforce any rights under
the Mortgage or note or
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<PAGE>
other obligation secured thereby. Nothing hereinabove shall prohibit or prevent
the Mortgagee from suing the Tenant for any default (as defined in the Lease) by
Tenant under the Lease.
(b) The possession by Tenant of the Demised Premises and
Tenant's rights thereto shall not be disturbed, affected or impaired by, nor
will the Lease, Tenant's rights thereunder, or the term thereof be terminated or
otherwise affected (i) by any suit, action or proceeding upon the Mortgage or
note or other obligation secured thereby, or for the foreclosure of the Mortgage
or the enforcement of any rights under the Mortgage or any other documents held
by the holder of the Mortgage, or (ii) by any judicial sale or execution or
other sale of the Demised Premises in connection with the Mortgage, or any deed
given in lieu of foreclosure, or (iii) by any default under the Mortgage or note
or other obligation secured thereby.
(c) Neither the Mortgage nor any other security instrument
executed in connection therewith shall cover or be construed as subjecting in
any manner to the lien thereof, any trade fixtures, equipment, inventory or
other personal property at any time furnished or installed by or for Tenant in
the Demised Premises unless the same are permanently affixed to the real estate
thereof. Tenant agrees that upon removal of any of its trade fixtures,
equipment, inventory or other personal property at any time furnished or
installed by or for Tenant in the Demised Premises, Tenant shall, at its
expense, repair all damage to the Demised Premises caused by any such removal.
5. If Mortgagee or any future holder of the Mortgage shall become the
owner of the Improvements by reason of foreclosure of the Mortgage or otherwise,
or if the Improvements shall be sold as a result of any action or proceeding to
foreclose the Mortgage, or transfer of ownership by deed given in lieu of
foreclosure, the Lease shall continue in full force and effect, without
necessity for executing any new lease, as a direct lease between Tenant and the
then owner of the Improvements, as "Landlord," upon all of the same terms,
covenants, and provisions contained in the Lease, and in such event:
(a) Tenant shall be bound to such new owner under all of the
terms, covenants, and provisions of the Lease for the remainder of the term
thereof (including also any extension periods, if Tenant elects or has elected
to exercise its option to extend the term) and Tenant hereby agrees to attorn to
such new owner and to recognize such new owner as "Landlord" under the Lease;
and
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(b) Such new owner shall be bound to Tenant under all of the
terms, covenants, and provisions of the Lease for the remainder of the term
thereof (including also any extension periods, if Tenant elects or has elected
to exercise its options to extend the term) which such new owner hereby agrees
to assume and perform; and Tenant shall, from and after the date such new owner
succeeds to the interest of "Landlord" under the Lease, have the same remedies
against such new owner for any subsequently occurring breach of any covenant
contained in the Lease as Tenant might have had under the Lease against Landlord
if such new owner had not succeeded to the interest of Landlord, provided,
however, that such new owner shall not (i) be bound by any rent or additional
rent which Tenant might have paid for more than one month in advance to any
prior landlord (including Landlord); or (ii) be bound by any amendment or
modification of the Lease made without its consent.
6. Any notices or communications given under this Agreement shall be in
writing and shall be given by certified mail, return receipt requested, postage
prepaid, (a) if to Mortgagee, at the address for Mortgagee hereinabove set forth
or at such other address as Mortgagee may designate by notice to Tenant, or (b)
if to Tenant, at the address of Tenant as hereinabove set forth or at such
address as Tenant may designate by notice to Mortgagee.
7. Tenant agrees, by notice given in the manner provided in the Lease,
to give to Mortgagee at the address provided above a copy of any notice of
default served upon the Landlord by Tenant. Tenant shall give such notice to
Mortgagee simultaneously with the giving of any such notice of default to
Landlord. Tenant further agrees that if Landlord shall have failed to cure any
such default within such time as may be provided for in the Lease, then Tenant
shall give Mortgagee written notice of such failure and Mortgagee shall have an
additional forty-five (45) days from receipt of such notice within which to cure
such default, or if such default cannot be cured within that time, then within
such additional time as may be necessary if within such forty-five (45) days
Mortgagee has commenced and is diligently pursuing the remedies necessary to
cure such default (including but not limited to commencement of foreclosure
proceedings, if necessary to effect such cure); and in such event the Lease
shall not be terminated and Tenant shall not be excused or released from the
timely performance and payment of all of Tenant's obligations under the Lease,
without setoff or deduction, while such remedies are being so diligently pursued
by
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Mortgagee. Mortgagee shall not be deemed, as a result of any such curing or
attempted curing, to have assumed or become personally liable for Landlord's
obligations under the Lease.
8. Upon notification by Mortgagee to the Tenant of the exercise of
Mortgagee's rights under the Mortgage to receive direct payment of rents or
other charges, Tenant shall pay rent and any other sums payable under the terms
of the Lease directly to Mortgagee. Notwithstanding the Tenant's payment to
Mortgagee of the rent and other sums payable under the terms of the Lease,
Tenant hereby acknowledges and agrees that Mortgagee shall have no duties or
obligations with respect to the Lease until Mortgagee has notified Tenant of
Mortgagee's assumption of the Landlord's obligations under the Lease.
9. This Agreement shall bind and inure to the benefit of and be binding
upon and enforceable by the parties hereto and their respective successors and
assigns.
10. This Agreement contains the entire agreement between the parties and
cannot be changed, modified, waived, or cancelled except by an agreement in
writing executed by the parties against whom enforcement of such modification,
change, waiver or cancellation is sought.
11. This Agreement and the covenants herein contained are intended to
run with and bind all lands affected thereby.
12. Any notices sent to Mortgagee herein shall include a copy to: J.
Philip Jones, Esq., Martin, Tate, Morrow & Marston, P.C., 6000 Poplar Avenue,
Suite 340, Memphis, TN 38119-3971.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
MORTGAGEE:
FIRST AMERICAN NATIONAL BANK
By:-----------------------------
Title:--------------------------
TENANT:
HARRAH'S OPERATING COMPANY, INC.
By:-----------------------------
Title:--------------------------
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<PAGE>
STATE OF TENNESSEE
COUNTY OF SHELBY
Before me, a Notary Public, of the State and County aforesaid,
personally appeared --------------------, with whom I am personally acquainted
(or proved to me on the basis of satisfactory evidence), and who, upon oath,
acknowledged himself/herself to be the ---------------------- of First American
National Bank, the within named bargainor, a national banking association, and
that he/she as such officer, being authorized so to do, executed the foregoing
instrument for the purpose therein contained, by signing the name of the
association by himself/herself as such officer.
WITNESS my hand and official seal this -----day of --------, 199--.
----------------------------
NOTARY PUBLIC
My commission expires:
- ----------------------
STATE OF ----------------------
COUNTY OF ---------------------
Before me, a Notary Public, of the State and County aforesaid,
personally appeared --------------------, with whom I am personally acquainted
(or proved to me on the basis of satisfactory evidence) and who, upon oath,
acknowledged himself/herself to be the ------------------- of HARRAH'S OPERATING
COMPANY, INC., the within named bargainor, a Delaware corporation, and that
he/she as such officer, being authorized so to do, executed the foregoing
instrument for the purpose therein contained by signing the name of the
corporation by himself/herself as such officer.
WITNESS my hand and seal at office this ---- day of --------, 199--.
----------------------------
NOTARY PUBLIC
My commission expires:
- ---------------------
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Exhibit "I"
Memphis and Shelby County Land Use Control Board
- Staff Report #16 Correspondence Item,
Case No.: P.D. 93-322
L.U.C.B. Meeting October 14, 1999
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Exhibit 10(12)
Description of Amendment
to Harrah's Entertainment, Inc's
Annual Management Bonus Plan
In November, 1999, the Human Resources Committee of the Board of
Directors approved an amendment to the bonus matrix for the Annual Management
Bonus Plan. This amendment applies to employees in grades 30 and above which
includes executive officers. The amendment eliminates a specified maximum
amount of bonus which can be earned by reason of exceeding target
performance. The target bonus of 50% to 60% of base salary, depending on the
executive, remains the same and a minimum financial achievement is required
to pay any bonus unless an exception is approved by the Committee.
<PAGE>
Exhibit 10(23)
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made as of the 1st day of January, 1999, between
Harrah's Entertainment, Inc., a Delaware corporation with its executive offices
at 1023 Cherry Road, Memphis, Tennessee (the "Company"), and Philip G. Satre
(the "Executive").
The Company and the Executive agree as follows:
1. Introductory Statement
----------------------
The Company desires to secure the services of the Executive as Chairman
of Company's Board of Directors, Chief Executive Officer and President, and the
Executive is willing to execute this Agreement with respect to his employment.
This Agreement is effective on January 1, 1999, and shall expire December 31,
2002, subject to the terms and conditions herein.
2. Agreement of Employment
-----------------------
The Company agrees to, and hereby does, employ the Executive, and the
Executive agrees to, and hereby does accept, employment by the Company, in a
full-time capacity as Chairman of the Board, Chief Executive Officer, and
President, pursuant to the provisions of this Agreement and of the bylaws of the
Company, and subject to the control of the Board of Directors ("Board"). It is
understood that the Executive's positions as Chairman of the Board, Chief
Executive Officer, and President is subject to his yearly re-election to these
positions by the Board. (See paragraph 6 herein for Executive's rights if such
re-election does not occur during the term of this Agreement.)
The Company acknowledges that although Executive shall be employed in
the capacity of President, in addition to his positions as Chairman of the Board
and Chief Executive Officer, the Board and Executive have created the Office of
the President, which shall consist of Executive and other Company employees
recommended by the Executive and approved by the Board. The
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<PAGE>
Company also acknowledges that a person in the Office of the President (other
than Executive) may be appointed to the position of President during the term of
this Agreement. Based upon the foregoing, the Company and the Executive agree
that, notwithstanding anything in this Agreement to the contrary, Company's
obligations to Executive pursuant to this Agreement are based upon Executive's
employment as Chairman of the Board and Chief Executive Officer. The reduction
of Executive's role as President or the appointment or election of another
person to the position of President shall have no effect upon this Agreement.
3. Executive's Obligations
-----------------------
During the period of his service under this Agreement, the Executive
shall devote substantially all of his time and energies during business hours to
the supervision and conduct, faithfully and to the best of his ability, of the
business and affairs of the Company and to the furtherance of its interests, and
to such other duties as directed by the Board.
4. Compensation
------------
The Company shall pay to Executive a salary at the rate of $900,000 per
year, in equal bi-weekly installments, provided, however, that the Human
Resources Committee of the Board (the "HRC") shall in good faith review the
salary of the Executive, on an annual basis, with a view to consideration of
appropriate merit increases in such salary. In addition, except as otherwise
provided herein, during the term of this Agreement the Executive shall be
entitled to participate in incentive compensation programs and to receive
employee benefits and perquisites at least as favorable to the Executive as
those presently provided to Executive by the Company, and as may be enhanced for
all senior officers. Such benefits include, but are not limited to, the rabbi
trust (provided pursuant to the Escrow Agreement dated February 6, 1990, as
amended (the "Escrow Agreement"), and his Severance Agreement dated November 5,
1992, as amended by Amendments dated February 25, 1994, October 25, 1996 and
April
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25, 1997, attached hereto as Exhibit A (the "Severance Agreement"), each of
which will continue in force subject to their respective terms and conditions,
including the termination and amendment provisions thereof. There will be no
diminution of the above compensation, perquisites, or benefits except as
provided in this Agreement.
The Company acknowledges that it will be relocating its headquarters to
Las Vegas, Nevada, in August, 1999. The Company also acknowledges and approves
the Executive's intention to relocate his primary residence under the Group
Relocation Plan to Reno, Nevada, and to maintain a secondary residence (not
covered under the Group Relocation Plan) in Las Vegas, Nevada.
The Executive will use the Company's aircraft or charter aircraft for
security purposes for himself and his family for business and personal travel
(with standard charges for family members and for non-Company business usage),
including travel between Reno and Las Vegas, Nevada. The Executive also will be
entitled to be reimbursed for first class travel or charter aircraft travel
expenses between Reno and Las Vegas, Nevada. The Company also will provide
Executive with appropriate security arrangements at his residences.
If the Executive dies or resigns pursuant to this Agreement or pursuant
to any other Agreement between the Company and the Executive providing for such
resignation during the period of this Agreement, service for any part of the
month in which any such event occurs shall be considered service for the entire
month.
5. Termination From Employment on December 31, 2002
------------------------------------------------
5.1 Except as otherwise provided in this Agreement, the date of
Executive's termination from employment shall be December 31, 2002.
5.2 After the date of Executive's termination from employment at any
time (including termination or resignation prior to December 31, 2002, if that
should occur), he will be
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<PAGE>
entitled to participate for his lifetime in the Company's group health insurance
plans applicable to corporate executives, including family coverage as
applicable (medical, dental and vision coverage). His group health insurance
benefits after any termination of employment will not be less than those offered
to corporate officers of the Company, and he will be entitled to any later
enhancements in such benefits. His benefits will be the same as normally
provided to other retired management directors pursuant to the policy adopted by
the HRC on October 23, 1990 (except to the extent he voluntarily elects not to
participate in any plan).
5.3 After the date of Executive's termination from employment, the
Executive will become vested at the retirement rate under the Executive Deferred
Compensation Plan ("EDCP"), and his EDCP account and any other deferred
compensation balances will continue to be protected by the Escrow Agreement if
it is then in force, subject to the terms and conditions of that Agreement,
including its termination and amendment provisions.
6. Termination Without Cause or Resignation for Good Reason
--------------------------------------------------------
6.1 The Board reserves the right to terminate Executive from his then
current position without cause at any time upon at least three months prior
written notice. The failure of the Board to elect Executive as Chairman of the
Board and Chief Executive Officer during the annual election of officers shall
also be deemed termination without cause for purposes of this Agreement unless,
before the election, the Board has sent the written notice initiating
termination for Cause as provided in paragraph 11.1, and Executive is thereafter
terminated for Cause. Executive reserves the right to resign his position for
Good Reason (as defined in paragraph 11.2 herein) by giving the Company 30 days
written notice which states the reason for his resignation. For purposes of this
Agreement, Good Reason does not include changes that are expressly permitted by
this Agreement.
4
<PAGE>
6.2 Upon Executive's termination without cause or resignation from his
position for Good Reason as described in paragraph 6.1 above:
(a) Executive will continue in employee status as a consultant-employee
for two years beginning on the date of such termination without cause
or resignation for Good Reason (the "Transition Period"). His stock
options and any restricted stock will continue in force for vesting
purposes during the Transition Period. Any unvested stock options and
unvested shares of restricted stock that do not vest before the
expiration of the Transition Period will be forfeited. If a Change in
Control as defined in the Executive's Severance Agreement occurs during
the Transition Period, all unvested stock options and TARSAP will vest.
Executive also shall be entitled: (i) to the bonus Executive has earned
but for which he has not been paid for the year prior to the year in
which he is terminated without cause or in which he resigns his
position for Good Reason; and (ii) to a prorated bonus for the year in
which he is terminated without cause or in which he resigns for Good
Reason.
(b) Executive will become vested at the retirement rate under
the EDCP on the date of such termination without cause or resignation
for Good Reason.
(c) Executive will continue to receive his then-current salary rate and
the right to participate in the Company's benefit plans during the
Transition Period, but, except as otherwise provided in subsection (a)
above, he no longer will be eligible for bonus, stock option or
restricted stock grants or any other long-term incentive awards then in
effect.
(d) After the expiration of the Transition period, Executive will be
entitled to the lifetime group insurance benefits described in
paragraph 5.2.
7. Termination For Cause or Resignation Without Good Reason
--------------------------------------------------------
5
<PAGE>
7.1 The Board will have the right to terminate Executive at any time
from his then-current positions for Cause (as defined in paragraph 11.1 herein).
7.2 If Executive is terminated for Cause, or if he resigns his position
without Good Reason, then: (a) all his rights and benefits under this Agreement
shall thereupon terminate and his employment shall be deemed terminated on the
date of such termination or resignation; (b) he shall be entitled to all accrued
rights, bonuses, payments and benefits vested or paid on or before such date
under the Company's plans and programs, but unvested stock options and unvested
shares of restricted stock, if any, will be forfeited; (c) his right to exercise
vested stock options will expire at 12:00 p.m. midnight on the date of such
termination or resignation, and all stock options not so exercised will be
forfeited; (d) his Indemnification Agreement will continue in force; (e) the
Escrow Agreement, if then in force, will continue in force, unless such
agreement is thereafter amended or terminated pursuant to its terms; (f) he will
be entitled to the lifetime group insurance benefits described in paragraph 5.2
above, except that any future amendments to such benefits shall apply to him in
the same manner as such amendments apply to other employees; and, (g) his
Severance Agreement and all rights thereunder will terminate as of such
termination or resignation date, unless a Change in Control or Potential Change
in Control (as such terms are defined in the Severance Agreement) has occurred
prior to such termination or resignation or resignation date.
If Executive's Severance Agreement is in force upon a Change in Control
(as defined in the Severance Agreement), the provisions of this paragraph 7.2
will not be applicable if he resigns (for or without Good Reason) within two (2)
years after the Change Control. In the event of such resignation after a Change
in Control, he will be entitled to the payments, rights and benefits as provided
in paragraph 10 below.
8. Death
-----
6
<PAGE>
In the event of Executive's death prior to December 31, 2002, during
his employment under this Agreement, his salary and all rights and benefits
under this Agreement will terminate, and his estate and beneficiary(ies) will
receive the benefits they are entitled to under the terms of the Company's
benefit plans and programs by reason of a participant's death during active
employment, including the death benefits provided by the EDCP and applicable
rights and benefits under the Company's stock plans, including any accrued but
unpaid bonus. The Escrow Agreement, if then in force, will continue in force
(subject to its amendment or termination in accordance with its terms) for the
benefit of Executive's beneficiaries until his deferred compensation accounts
are paid in full, and Executive's Indemnification Agreement will continue in
force for the benefit of his estate. If the Executive dies during the Transition
Period, all of the provisions of the previous sentences apply, except that the
remaining salary will be paid in a lump sum to his estate.
9. Disability
---------
In the event of Executive's disability prior to December 31, 2002,
during his employment, 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 programs
(including EDCP, Stock Option, Restricted Stock and TARSAP 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: (a) the Escrow
Agreement (if then in force) and his Indemnification Agreement will continue in
force (subject to amendment or termination in accordance with their terms); and
(b) he will be entitled to the lifetime group insurance benefits described in
paragraph 5.2. If Executive is disabled so that he cannot perform his duties (as
determined by the HRC), and if he does not apply for long-term disability
benefits or is not accepted for such benefits, then the Board may terminate his
duties under this Agreement. In such event, he will receive two years salary
7
<PAGE>
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.
10. Change in Control
-----------------
Except as provided in paragraph 6.2, if a Change in Control as defined
in Executive's Severance Agreement occurs prior to Executive's termination of
employment, and if the Severance Agreement is in force when the Change in
Control occurs, then, upon his termination or voluntary or involuntary
resignation within two years after the Change in Control (including termination
on December 31, 2002, due to expiration of this Agreement), except if his
termination of employment is for "Cause," "Disability" or "Retirement" as set
forth in the Severance Agreement, he will be entitled to all the rights,
payments and benefits provided under his Severance Agreement, including the
benefits that the Severance Agreement provides with respect to the benefit plans
and programs of the Company resulting from his termination or voluntary
resignation, in lieu of the rights and benefits that would otherwise apply under
this Agreement by virtue of his termination or resignation; provided that: (a)
the Escrow Agreement (if then in force and subject to amendment or termination
in accordance with its terms) and his Indemnification Agreement will continue in
force; and (b) he will be entitled to the lifetime group insurance benefits
described in paragraph 5.2.
11. Definitions of Cause and Good Reason
------------------------------------
11.1 Cause. Termination by Company of this Agreement for "Cause" shall
mean termination upon the Executive's engaging in willful and continued
misconduct, or the Executive's willful and
8
<PAGE>
continued failure to substantially perform his 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 Executive 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
Executive has engaged in such failure or misconduct. For purposes of this
paragraph 11.1, no act, or failure to act, on the Executive's part shall be
deemed "willful" unless done, or omitted to be done, by the Executive not in
good faith and without reasonable belief that the Executive's action or omission
was in the best interest of the Company. Notwithstanding the foregoing, the
Executive shall not be deemed to have been terminated for Cause unless and until
there shall have been delivered to the Executive 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
purposes (after reasonable notice to the Executive and an opportunity for him,
together with his counsel, to be heard before the Board), finding that in the
good faith opinion of the Board the Executive was guilty of failure to
substantially perform his duties or of misconduct in accordance with the first
sentence of this paragraph, and of continuing such failure to substantially
perform his duties or misconduct as aforesaid after notice from the Board, and
specifying the particular thereof in detail.
11.2 Good Reason. "Good Reason" shall mean, without Executive's express
written consent, the occurrence of any of the following circumstances unless, in
the case of paragraphs (a), (e), (f) or (g), such circumstances are fully
corrected prior to the date of termination specified in the written notice given
by Executive notifying the Company of his resignation for Good Reason:
9
<PAGE>
(a) The assignment to Executive of any duties inconsistent
with his status as Chairman of the Board, Chief Executive Officer of
the Company or a substantial adverse alteration in the nature or
status of his responsibilities;
(b) A reduction by the Company in his annual base salary of
$900,000 or as the same may be increased from time to time pursuant to
paragraph 4 hereof;
(c) The relocation of the Company's principal executive
offices from Las Vegas, Nevada, to a location more than 50 miles from
such offices, or the Company's requiring Executive either: (i) to be
based anywhere other than the location of the Company's principal
offices in Las Vegas (except for required travel on the Company's
business to an extent substantially consistent with Executive's present
business travel obligations); or (ii) to relocate his primary residence
from Reno to Las Vegas;
(d) The failure by the Company, without Executive's consent,
to pay him any portion of his current compensation, except pursuant to
a compensation deferral elected by the Executive, or to pay to
Executive 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;
(e) Except as permitted by this Agreement, the failure by the
Company to continue in effect any compensation plan in which Executive
is participating on the date of this Agreement which is material to
Executive's total compensation, including, but not limited to, the
Company's annual bonus plan, the EDCP, the Restricted Stock Plan, the
TARSAP Plan, or the Stock Option Plan or any substitute plans, 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 Executive's participation therein
(or in such substitute or alternative plan) on a basis not materially
10
<PAGE>
less favorable, both in terms of the amount of benefits provided and
the level of Executive's participation relative to other participants
at Executive's grade level;
(f) The failure by the Company to continue to provide Executive
with benefits substantially similar to those enjoyed by him under the
S&RP and the life insurance, medical, health and accident, and
disability plans in which Executive is participating on the date of this
Agreement, the taking of any action by the Company which would directly
or indirectly materially reduce any of such benefits or deprive
Executive of any material fringe benefit enjoyed by Executive on the
date of this Agreement, except as permitted by this Agreement, or the
failure by the Company to provide Executive with the number of paid
vacation days to which Executive is entitled; or
(g) The failure of the Company to obtain a satisfactory
agreement from any successor to assume and agree to perform this
Agreement, as contemplated in paragraph 14 hereof.
Executive's right to terminate his employment pursuant to this
Agreement for Good Reason shall not be affected by Executive's incapacity due to
physical or mental illness. Executive's continued employment shall not
constitute consent to, or a waiver of rights with respect to, any circumstance
constituting Good Reason hereunder.
Notwithstanding any provision in this Agreement to the contrary, in the
event the Executive's active employment as an executive officer with the
Company, or its direct or indirect subsidiaries, terminates for any reason, any
TARSAP shares granted to Executive which are unvested on the date of such
termination of active employment will be forfeited as of 12:00 p.m. on such
date; provided that it is understood that the HRC could approve an exception, in
its discretion, based on its review of the circumstances at that time.
12. Non-Competition Agreement
-------------------------
11
<PAGE>
12.1 For a period of two years after Executive's full-time, active
employment (which, for purposes of this paragraph 12.1, shall not include
employee status as a consultant-employee under paragraph 6.2 (a)) with the
Company or a direct or indirect subsidiary ends, he will not, directly or
indirectly, solicit or recruit any employee of the Company or of any of its
direct or indirect subsidiaries, and he will not engage (as employee,
consultant, director, investor, contractor, or otherwise) directly or indirectly
in any business, including the development of such business, in the United
States, Canada or Mexico that is competitive with any business that the Company
or its direct or indirect subsidiaries are engaged (as owner, manager,
consultant, licensor, partner, or otherwise) in at the time such employment
ends, except with the prior specific approval of the Board.
12.2 If the Executive breaches any of the covenants in paragraph 12.1,
then the Board may terminate any of his rights under this Agreement upon thirty
days written notice, whereupon all of the Company's obligations under this
Agreement shall terminate (including, without limitation, the right to lifetime
group insurance) without further obligation to him except for obligations that
have been paid, accrued or are vested as of or prior to such termination date.
In addition the Company shall be entitled to enforce any such convenants,
including obtaining monetary damages, specific performance and injunctive
relief.
13. Binding Arbitration
-------------------
Any and all claims, disputes or controversies arising out of or related
to this Agreement or the breach thereof shall be resolved by arbitration in
accordance with the rules of the American Arbitration Association (the "AAA")
then in existence, subject to this paragraph 13. Such arbitration shall be
conducted by a panel of three arbitrators. The Executive and the Company each
shall appoint one arbitrator, and the third shall be appointed by the two
arbitrators appointed by the parties. The third arbitrator shall serve as
chairman of the panel. The parties shall appoint their arbitrators within 30
days after the
12
<PAGE>
demand for arbitration is served. If either party fails to do so, the AAA
promptly shall appoint a defaulting party's arbitrator. The two arbitrators
selected by the parties and/or the AAA shall select the third arbitrator within
15 days after their appointment, and if they cannot agree or fail so to appoint,
then the AAA promptly shall appoint the third arbitrator. The arbitrators shall
render their decision in writing within 60 days after the close of evidence or
other termination of the proceedings by the panel. The determination or award
rendered in such arbitration shall be binding and conclusive upon the parties
and shall not be appealable. Judgment may be entered thereon in accordance with
applicable law in any court of competent jurisdiction. Any arbitration hearings
shall be held in Las Vegas, Nevada, and shall be private and not open to the
public. Each party shall bear the fees and expenses of its arbitrator, counsel
and witnesses, and the fees and expenses of the third arbitrator shall be shared
equally by the parties. Other costs of the arbitration, including the fees of
AAA, shall be shared equally by the parties.
14. Assumption of Agreement on Merger, Consolidation or Sale of Assets
------------------------------------------------------------------
The Company agrees that until the termination of this Agreement as
above provided, it will not (i) enter into any merger or consolidation with
another company in which the Company is not the surviving company, or (ii) sell
or dispose of all or substantially all of its assets, unless the company which
is to survive such merger or consolidation or to purchase such assets first
makes a written agreement with the Executive to either: (1) assume the Company's
financial obligations to the Executive under this Agreement; or (2) make such
other provision for the Executive as is satisfactory to the Executive and
approved by him in writing in lieu of assuming the Company's financial
obligations to him under this Agreement.
15. Assurances on Liquidation
--------------------------
13
<PAGE>
The Company agrees that until the termination of this Agreement as
above provided, it will not voluntarily liquidate or dissolve without first
making a full settlement or, at the discretion of the Executive, a written
agreement with the Executive satisfactory to and approved by him in writing, in
fulfillment of or in lieu of its obligations to him under this Agreement.
16. Amendments
----------
This Agreement may not be amended or modified orally, and no provision
hereof may be waived, except in a writing signed by the parties hereto.
17. Assignment
----------
17.1 Except as otherwise provided in paragraph 17.2, this Agreement
cannot be assigned by either party hereto, except with the written consent of
the other. Any assignment of this Agreement by either party shall not relieve
such party of its or his obligations hereunder.
17.2 The Company may elect to perform any or all of its obligations
under this Agreement through its wholly-owned subsidiary, Harrah's Operating
Company, Inc., or another subsidiary, and if the Company so elects, Executive
will be an employee of Harrah's Operating Company, Inc., or such other
subsidiary. Notwithstanding any such election, the Company's obligations to the
Executive under this Agreement will continue in full force and effect as
obligations of the Company, and the Company shall retain primary liability for
their performance.
18. Binding Effect
--------------
This Agreement shall be binding upon and inure to the benefit of the
personal representatives and successors in interest of the Company.
19. Choice of Law
-------------
This Agreement shall be governed by the law of the Sate of Nevada as to
all matters, including but not limited to matters of validity, construction,
effect and performance.
14
<PAGE>
20. Severability of Provisions
--------------------------
In case any one or more of the provisions contained in this Agreement
shall be invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions hereof shall not in any
way be affected or impaired thereby, and this Agreement shall be interpreted as
if such invalid, illegal or unenforceable provision were not contained herein.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and the
Company has caused this Agreement to be executed in its name and on its behalf
and its corporate seal to be hereunto affixed and attested by its corporate
officers thereunto duly authorized.
/s/ PHILIP G. SATRE
----------------------------
Philip G. Satre
(Corporate Seal) HARRAH'S ENTERTAINMENT, INC.
By: /s/ E. O. ROBINSON, JR.
-------------------------
Its: Senior Vice President
ATTEST:
/s/ REBECCA W. BALLOU
----------------------------
Secretary
15
<PAGE>
Exhibit 10(28)
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into as of November
1, 1999, by and between Harrah's Operating Company, Inc. ("Company") and Janis
L. Jones ("Executive").
The Company and the Executive agree as follows:
1. EMPLOYMENT. The Company hereby employs the Executive as Senior Vice
President of Communications or in such other capacity as the Company reasonably
shall designate. The Executive may be an employee of the Company or one of its
subsidiaries.
2. DUTIES. During the term of this Agreement ("Active Employment"), the
Executive shall devote substantially all of her 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 her ability, and to follow the
policies and directions of the Company.
3. COMPENSATION. The Executive's compensation and benefits during her
Active Employment shall be as follows:
(a) BASE SALARY. The Company shall pay the Executive a base salary
("Base Salary") of $250,000 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. 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.
<PAGE>
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 November 1, 1999, and ending October 31, 2003.
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 no cause
termination or non-renewal of Agreement, the Executive shall remain an employee
of the Company during the subsequent Salary Continuation Period and shall be
entitled only to the salary and benefits set forth below, unless otherwise
specified in this Agreement.
<TABLE>
<CAPTION>
Termination Date of
Compensation or Benefit Compensation or Benefit
- ----------------------- -----------------------
<S> <C>
Base Salary (rate as of Separation Date) 18 months (78 weeks) ("Salary
Continuation Period") from
last day of Active Employment
("Separation Date").
PTO and Service Credit Separation Date (accrued PTO
will be paid within 30 days of
Separation Date).
Use of Credit Cards Separation Date.
Bonus--Payment and Eligibility (i) Eligible for prior year
bonus if Separation Date
occurs during payment year but
prior to payment; (ii)
eligible for prorated bonus
</TABLE>
2
<PAGE>
<TABLE>
<S> <C>
for the then current year if
in job for more than 6 months
and Separation Date occurs
after June 30; (iii) not
eligible for bonus for year
following Separation Date.
Group Health and Life Insurance End of Salary Continuation
Period.
18-month COBRA rights period
for health insurance
will commence on Separation
Date. (See also Paragraph 10.)
Retaining Existing Stock Options for Stock options are retained for
Vesting and Other Rights 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.
Retaining Existing Restricted Stock for All restricted stock that is
Vesting and Other Rights unvested as of the Separation
Date will be forfeited on that
date. Forfeited restricted stock
will not vest upon a Change
in Control during Salary
Continuation.
Eligibility for New Restricted Stock or New Separation Date.
Stock Options
TARSAP Next potential vesting, based on
Performance targets, after
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
Separation Date, at CEO's and
HRC's discretion. Accelerated
vesting of all shares if
Change of Control occurs during
Salary Continuation. Unvested
TARSAP shares at the end of Salary
Continuation are forfeited.
Use of Financial Counseling per Plan End of Salary Continuation Period.
Provisions The maximum remaining benefit shall
be the annual benefit remaining as
of Separation Date.
Savings and Retirement Plan Deductions End of year of Separation Date.
(Active Participation) Employment termination date will
be termination date under S&RP.
Executive Deferred Compensation End of year of Separation Date.
Plan/Deferred Compensation Plan (Active Distribution will commence after
Participation) Salary Continuation Period, in
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 including its
termination provisions.
</TABLE>
4
<PAGE>
7. DEATH OF EXECUTIVE. Upon the death of the Executive during her
Active Employment, her salary and all rights and benefits hereunder will
terminate, and her 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 (3X death benefit applies only if death
occurs 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. Employment status and
all salary and benefits shall thereupon 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 and this
effective date will be both her Separation Date and date of termination of
employment. 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 her
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
5
<PAGE>
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 her 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 under this Paragraph
9. shall also be her termination of employment date and 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 her written
notice except for applicable rights and benefits that apply to employees
generally upon termination of employment.
10. CERTAIN HEALTH INSURANCE BENEFITS. If (i) the Executive reaches the
age of 50 and, when added to her number of years of continuous service with the
Company including any period of salary continuation, the sum of her 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 including any period of salary
continuation, 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 her then-eligible
dependents shall be entitled to participate in the Company's group health
insurance plan, as amended from time to time by the 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
6
<PAGE>
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 her 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.
The Executive shall also receive the benefits and be bound by the
provisions of this Paragraph 10 if a Change in Control, as defined in the
Executive's Severance Agreement, occurs following the effective date of this
Agreement.
11. EDCP RETIREMENT RATE. If the Executive reaches the age of 50 and,
when added to her number of years of continuous service with the Company, the
sum of her 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 her
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 except as provided in Paragraph 10. If, prior to a Change in Control
(as defined above), the Executive's Active Employment has been terminated for
any
7
<PAGE>
reason by either party or this Agreement is not renewed by the Company, then
the Executive's Severance Agreement terminates automatically.
13. DISABILITY. If the Executive becomes disabled prior to the
termination of her Active Employment or the non-renewal of this Agreement, she
will be entitled to apply at her option for the Company's long-term disability
benefits. If she 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 her indemnification agreement will continue in force (the Escrow
Agreement will be subject to amendment or termination in accordance with its
terms), and (ii) she will be entitled to the lifetime group insurance benefits
as described in Paragraph 10 if the terms and conditions of Paragraph 10 are
satisfied. If the Executive is disabled so that she cannot perform her duties
(as determined by the Human Resources Committee (HRC)), and if she does not
apply for long-term disability benefits or is not accepted for such benefits,
then the Company may terminate her duties under this Agreement. In such event,
she will receive eighteen months Salary Continuation, together with all other
benefits associated with salary continuation as described in Paragraph 6.
However, during such period of salary continuation for disability, Executive
will not be eligible to participate in the annual bonus plan, nor will she 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, she 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 and subject to the provisions and requirements therein.
8
<PAGE>
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, including development
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 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
9
<PAGE>
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
15. Any confidentiality/non-solicitation agreement that Executive has
signed with the Company shall remain in full force and effect according to its
terms.
16. POST ACTIVE-EMPLOYMENT COOPERATION. Upon the termination of her
Active Employment, the Executive will cooperate with, and provide information
to, the Company in assuring an orderly transition of all matters being handled
by her. Upon the Company providing reasonable notice to her, she 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 her in connection with any such appearance
and that, if the Executive is no longer receiving salary compensation from the
Company, the Company will compensate her for all time spent, at either her then
current compensation rate or her salary rate as of the Separation Date,
whichever is higher. The Company agrees further to indemnify her as prescribed
in her 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.
17. RELEASE. Upon the termination of the Executive's Active Employment,
and in consideration of the receipt of
10
<PAGE>
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 her employment with Harrah's
Operating Company, Inc., its subsidiaries and affiliates, and the cessation of
that employment.
18. 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 her or its address by written notice in accordance with
this Paragraph 18.(a). Notices shall be deemed communicated as of the actual
receipt or refusal of receipt.
If to Executive: Janis L. Jones
9833 Glenrock
Las Vegas, NV 89134
If to Company: Harrah's Operating Company, Inc.
5100 W. Sahara Blvd., Ste. 200
Las Vegas, NV 89146
Attn: General Counsel
11
<PAGE>
(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 provisions 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 Nevada, without regard to
its conflict of laws provisions.
(d) NO CONFLICTING AGREEMENT. By signing this Agreement,
Executive warrants that she is not a party to any restrictive covenant,
agreement or contract which limits the performance of her 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, 14,
15, 16 and 17 hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
12
<PAGE>
Harrah's Operating Company, Inc.
By: /s/ PHILIP G. SATRE
------------------------------
Philip G. Satre
Chairman of the Board and
Chief Executive Officer
/s/ JANIS L. JONES
------------------------------
Janis L. Jones
Executive
13
<PAGE>
Exhibit 10(29)
HARRAH'S ENTERTAINMENT, INC
November 1, 1999
Ms. Janis L. Jones
c/o Harrah's Entertainment, Inc.
5100 W. Sahara Blvd.
Suite 200
Las Vegas, NV 89146
Re: Amended and Restated Severance Agreement
Dear Jan:
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>
Janis L. Jones
November 1, 1999
Page 2
this letter agreement ("this Agreement") in the event your employment with the
Company or its subsidiaries terminates subsequent to a "Change in Control of the
Company" (as defined in Section 2 hereof) under the circumstances described
below.
1. TERM OF AGREEMENT. This Agreement shall commence on November 1,
1999, and shall continue in effect through December 31, 1999; provided, however,
that commencing on January 1, 2000 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) occur:
(i) Any "person" (as such term is used in Section 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), other than an employee benefit plan of the Company, or a
trustee or other fiduciary holding securities under an employee benefit
plan of the Company, is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of 25%
or more of the Company's then outstanding voting securities carrying
the right to vote in elections of persons to the Board, regardless of
comparative voting power of such voting securities, and regardless of
whether or not
<PAGE>
Janis L. Jones
November 1, 1999
Page 3
the Board shall have approved the acquisition of such securities by the
acquiring person; or
(ii) During any period of two consecutive years, individuals
who, at the beginning of such period, constitute the Board together
with any new director(s) (other than a director designated by a person
who shall have entered into an agreement with the Company to effect a
transaction described in clauses (i) or (iii) of this Subsection) whose
election by the Board or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the
beginning of the two year period or whose election or nomination for
election was previously so approved, cease for any reason to constitute
a majority thereof; or
(iii) The holders of securities of the Company entitled to
vote thereon approve the following:
(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.
<PAGE>
Janis L. Jones
November 1, 1999
Page 4
(iv) Notwithstanding the definition of a "Change in Control"
of the Company as set forth in this Section 2(a), the Human Resources
Committee of the Board (the "Committee") shall have full and final
authority, which shall be exercised in its discretion, to determine
conclusively whether a Change in Control of the Company has occurred,
and the date of the occurrence of such Change in Control and any
incidental matters relating thereto, with respect to a transaction or
series of transactions which have resulted or will result in a
substantial portion of the assets or business of the Company (as
determined, prior to the transaction or series of transactions, by the
Committee in its sole discretion which determination as to whether a
substantial portion is involved shall be final and conclusive) being
held by a corporation at least 80% of whose voting securities are held,
immediately following such transaction or series of transactions, by
holders of the voting securities of the Company (as determined by the
Committee in its sole discretion prior to such transaction or series of
transactions which determination as to whether the 80% amount will be
satisfied shall be final and conclusive). The Committee may exercise
any such discretionary authority without regard to whether one or more
of the transactions in such series of transactions would otherwise
constitute a Change in Control of the Company under the definition set
forth in this Section 2(a).
(b) For purposes of this Agreement, a "Potential Change in Control of
the Company" shall be deemed to have occurred if the following occur:
(i) The Company enters into a written agreement or letter of
intent, the consummation of which would result in the occurrence of a
Change in Control of the Company;
(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;
<PAGE>
Janis L. Jones
November 1, 1999
Page 5
(iii) Any person (other than an employee benefit plan of the
Company, or a trustee or other fiduciary holding securities under an
employee benefit plan of the Company) who is or becomes the beneficial
owner, directly or indirectly, of securities of the Company
representing 9.5% or more of the Company's then outstanding voting
securities carrying the right to vote in elections of persons to the
Board increases such beneficial ownership of such securities by an
additional five percentage points or more thereby beneficially owning
14.5% or more of such securities; or
(iv) The Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control of the
Company has occurred.
You agree that, subject to the terms and conditions of this Agreement,
in the event of a Potential Change in Control of the Company, you will remain in
the employ of the Company (or the subsidiary thereof by which you are employed
at the date such Potential Change in Control occurs) until the earliest of (x) a
date which is six months from the occurrence of such Potential Change in Control
of the Company, (y) the termination by you of your employment by reasons of
Disability or Retirement (at your normal retirement age), as defined in
Subsection 3(a), or (z) the occurrence of a Change in Control of the Company.
(c) GOOD REASON. For purposes of this Agreement, "Good Reason" shall
mean, without your express written consent, the occurrence after a Change in
Control of the Company, of any of the following circumstances unless, in the
case of paragraphs (i), (v), (vi), (vii) or (viii), such circumstances are fully
corrected prior to the Date of Termination specified in the Notice of
Termination, as such terms are defined in Subsections 3(e) and 3(d),
respectively, given in respect thereof:
(i) The assignment to you of any duties inconsistent with your
status as an executive officer of the Company (or your status in the
position held by you immediately prior to the Change in Control) or a
substantial adverse alteration in the nature or status of your
responsibilities from those
<PAGE>
Janis L. Jones
November 1, 1999
Page 6
in effect immediately prior to the Change in Control of the Company;
(ii) A reduction by the Company in your annual base salary as
in effect on the date hereof or as the same may be increased from time
to time except for an across-the-board salary reduction of a specific
percentage applied to all individuals at grade levels 26 and above and
all individuals in similar grade levels of any person in control of the
Company;
(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
<PAGE>
Janis L. Jones
November 1, 1999
Page 7
Stock Plan, Stock Option Plan, or any substitute plans adopted prior to
the Change in Control, unless an equitable arrangement (embodied in an
ongoing substitute or alternative plan) has been made with respect to
such plan, or the failure by the Company to continue your participation
therein (or in such substitute or alternative plan) on a basis not
materially less favorable, both in terms of the amount of benefits
provided and the level of your participation relative to other
participants, as existed immediately prior to the Change in Control of
the Company;
(vi) The failure by the Company to continue to provide you
with benefits substantially similar to those enjoyed by you under any
of the Company's pension, savings and retirement plan, life insurance,
medical, health and accident, or disability plans in which you were
participating at the time of the Change in Control of the Company, the
taking of any action by the Company which would directly or indirectly
materially reduce any of such benefits or deprive you of any material
fringe benefit enjoyed by you at the time of the Change in Control of
the Company, or the failure by the Company to provide you with the
number of paid vacation or PTO days to which you are entitled on the
basis of years of service with the Company in accordance with the
Company's normal vacation policy and/or PTO policy in effect at the
time of the Change in Control of the Company;
(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) below; for purposes of this Agreement,
no such purported termination shall be effective.
<PAGE>
Janis L. Jones
November 1, 1999
Page 8
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 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.
(a) DISABILITY; RETIREMENT. If, as a result of your incapacity due to
physical or mental illness, you shall have been absent from the full-time
performance of your duties with the Company for six consecutive months, and
within thirty days after written notice of termination is given you shall not
have returned to the full-time performance of your duties, your employment may
be terminated for "Disability". Termination by the Company or you of your
employment based on "Retirement" shall mean termination at age 65 (or later)
with ten years of service or retirement in accordance with any retirement
contract between the Company and you.
(b) CAUSE. Termination by the Company of your employment for "Cause"
shall mean termination upon your engaging in willful and continued misconduct,
or your willful and continued failure to substantially perform your duties with
the Company (other than due to physical or mental illness), if such failure or
misconduct is materially damaging or materially detrimental to the business and
operations of the Company, provided that you shall have
<PAGE>
Janis L. Jones
November 1, 1999
Page 9
received written notice of such failure or misconduct and shall have continued
to engage in such failure or misconduct after 30 days following receipt of such
notice from the Board, which notice specifically identifies the manner in which
the Board believes that you have engaged in such failure or misconduct. For
purposes of this Subsection, no act, or failure to act, on your part shall be
deemed "willful" unless done, or omitted to be done, by you not in good faith
and without your reasonable belief that your action or omission was in the best
interest of the Company. Notwithstanding the foregoing, you shall not be deemed
to have been terminated for Cause unless and until there shall have been
delivered to you a copy of a resolution duly adopted by the affirmative vote of
not less than three-quarters of the entire membership of the Board at a meeting
of the Board called and held for such purpose (after reasonable notice to you
and an opportunity for you, together with your counsel, to be heard before the
Board), finding that in the good faith opinion of the Board you were guilty of
failure to substantially perform your duties or of misconduct in accordance with
the first sentence of this Subsection, and of continuing such failure to
substantially perform your duties or misconduct as aforesaid after notice from
the Board, and specifying the particulars thereof in detail.
(c) VOLUNTARY RESIGNATION. After a Change in Control of the Company and
for purposes of receiving the benefits provided in Subsection 4(c) hereof, you
shall be entitled to terminate your employment by voluntary resignation given at
any time during the two years following the occurrence of a Change in Control of
the Company hereunder, 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
<PAGE>
Janis L. Jones
November 1, 1999
Page 10
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
(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
<PAGE>
Janis L. Jones
November 1, 1999
Page 11
perfected); provided further that the Date of Termination shall be extended by a
notice of dispute only if such notice is given in good faith and the party
giving such notice pursues the resolution of such dispute with reasonable
diligence. Notwithstanding the pendency of any such dispute, the Company will
continue to pay you your full compensation in effect when the notice giving rise
to the dispute was given (including, but not limited to, base salary) and
continue you as a participant in all compensation, bonus, benefit and insurance
plans in which you were participating when the notice giving rise to the dispute
was given, until the dispute is finally resolved in accordance with this
Subsection. Amounts paid under this Subsection are in addition to all other
amounts due under this Agreement and shall not be offset against or reduce any
other amounts due under this Agreement.
4. COMPENSATION UPON TERMINATION FOLLOWING A CHANGE OF CONTROL (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:
(a) Deleted.
(b) If your employment shall be terminated by the Company for Cause,
the Company shall pay you your full base salary through the Date of Termination
at the rate in effect at the time Notice of Termination is given, plus the
Company shall pay all other amounts and honor all rights to which you are
entitled under any compensation plan of the Company at the time such payments
are due, and the Company shall have no other obligations to you under this
Agreement.
<PAGE>
Janis L. Jones
November 1, 1999
Page 12
(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;
(ii) In lieu of any further salary payments to you for periods
subsequent to the Date of Termination, the Company shall pay as
severance pay to you a lump sum severance payment (the "Severance
Payment") equal to 3.0 times the average of the Annual Compensation (as
defined below) payable to you by the Company or any corporation
affiliated with the Company within the meaning of Section 1504 of the
Internal Revenue Code of 1986, as amended (the "Code"). Annual
Compensation is defined to consist of two components: (a) Your annual
salary in effect immediately prior to the Change in Control or in
effect as of the Date of Termination, whichever annual salary is
higher. Your annual salary for this purpose will be determined without
any reduction for deferrals of such salary under any deferred
compensation plan (qualified or unqualified) and without any reduction
for any salary reductions used for making contributions to any group
insurance plan of the Company or its affiliates and also without
reduction for any other deductions from salary for any reason; plus (b)
The average of your annual bonuses under the Company's Annual
Management Bonus Plan, or any substitute or successor plan including
the Key Executive Officer Annual Incentive Plan, for the three highest
calendar years, in terms of annual bonus paid to you in such years,
during the five calendar years preceding the calendar year in which the
Change in Control occurred. Your annual bonuses for this purpose will
be
<PAGE>
Janis L. Jones
November 1, 1999
Page 13
determined without any reduction for deferrals under any deferred
compensation plan (qualified or unqualified) and without any reduction
for salary reductions used for making contributions to any group
insurance plan of the Company or its affiliates and also without
reduction for any other deductions from bonus for any reason. If you
were not employed by the Company or its affiliates for a sufficient
period of time to receive annual bonuses during each of the five
calendar years before the Change in Control occurred, then the average
bonus will be measured using the three highest calendar years, in terms
of annual bonus paid to you, in all the consecutive calendar years
immediately preceding the date the Change in Control occurred. If you
were not eligible for three years of bonuses paid during the calendar
years immediately preceding the date the Change in Control occurred,
then the average bonus will be the average of the annual bonuses that
were paid to you during such time under such Plan. If you were not
eligible for any bonus during such time because of not being employed
by the Company for a sufficient period of time to qualify for a
previous bonus payment, then Annual Compensation will only consist of
the salary component as provided above and will not include a bonus
component.
(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
<PAGE>
Janis L. Jones
November 1, 1999
Page 14
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 divided by 365 days). In addition, the Company
shall pay to you the amounts of any compensation or awards payable to
you or due to you under any incentive compensation plan of the Company
including, without limitation, the Company's Restricted Stock Plan,
Stock Option Plan (the "Option Plan") and Annual Management Bonus Plan
(or any substitute or successor plan including the Key Executive
Officer Annual Incentive Plan) and under any agreements with you in
connection therewith, and shall make any other payments and take any
other actions and honor such rights you may have accrued under such
plans and agreements including any rights you may have to payments
after the Date of Termination, which will include the payment to you of
any bonus earned during the bonus year fully completed prior to the
Date of Termination if such Date of Termination occurs prior to the
payment date for such bonus, it being understood, however, that the
pro-rata payment provided for in the first sentence of this paragraph
4(c)(iii) is in lieu of any bonus earned for the bonus plan year during
which occurred the Date of Termination.
(iv) In lieu of shares of common stock of the Company or any
securities of a successor company which shall have replaced such common
stock ("Company Shares") issuable upon exercise of outstanding and
unexercised options (whether or not they are fully exerciseable or
"vested"), if any, granted to you under the Option Plan including
options granted under the plan of any successor company that replaced
or assumed the options under said Option Plan ("Options") (which
Options shall be cancelled upon the making of the payment referred to
below), you shall receive an amount in cash equal to the product of (y)
the excess of the higher of the closing price of Company Shares as
reported on the New York Stock Exchange on or nearest the Date of
Termination (or, if not listed on such exchange, on a nationally
recognized exchange or quotation system on which trading volume in
Company Shares is highest) or the
<PAGE>
Janis L. Jones
November 1, 1999
Page 15
highest per share price (including cash, securities and any other
consideration) for Company Shares actually paid in connection with any
change in control of the Company, over the per share exercise price of
each Option held by you (whether or not then fully exercisable or
"vested"), times (z) the number of Company Shares covered by each such
option.
(v) The Company shall also pay to you all legal fees and
expenses incurred by you as a result of such termination (including all
such fees and expenses, if any, incurred in contesting or disputing any
such termination or in seeking to obtain or enforce any right or
benefit provided by this Agreement or in connection with any tax audit
or proceeding to the extent attributable to the application of Section
4999 of the Code to any payment or benefit provided hereunder).
(vi) In the event that you become entitled to the payments
(the "Severance Payments") provided under paragraphs (ii), (iii), and
(iv), above (and Subsections (d) and (e), below), and if any of the
Severance Payments will be subject to the tax (the "Excise Tax")
imposed by Section 4999 of the Code, the Company shall pay to you at
the time specified in paragraph (vii), below, an additional amount (the
"Gross-Up Payment") such that the net amount retained by you (such net
amount to be the amount remaining after deducting any Excise Tax on the
Severance Payments and any federal, state and local income tax and
Excise Tax payable on the payment provided for by this paragraph),
shall be equal to the amount of the Severance Payments after deducting
normal and ordinary taxes but not deducting (a) the Excise Tax and (b)
any federal, state and local income tax and Excise tax payable on the
payment provided for by this paragraph. For example, if the Severance
Payments are $1,000,000 and if you are subject to the Excise Tax, then
the Gross-Up Payment will be such that you will retain an amount of
$1,000,000 less only any normal and ordinary taxes on such amount. (The
Excise Tax and federal, state and local taxes and any Excise Tax on the
payment provided by
<PAGE>
Janis L. Jones
November 1, 1999
Page 16
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 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
<PAGE>
Janis L. Jones
November 1, 1999
Page 17
such regulations, in accordance with the principles of Section
280G(d)(3) and (4) of the Code. For purposes of determining the amount
of the Gross-Up Payment, you shall be deemed to pay Federal income
taxes at the highest marginal rate of federal income taxation in the
calendar year in which the Gross-Up Payment is to be made and state and
local income taxes at the highest marginal rate of taxation in the
state and locality of your residence on the Date of Termination, net of
the maximum reduction in Federal income taxes which could be obtained
from deduction of such state and local taxes. In the event that the
amount of Excise Tax attributable to Severance Payments is subsequently
determined to be less than the amount taken into account hereunder at
the time of termination of your employment, you shall repay to the
Company, at the time that the amount of such reduction in Excise Tax is
finally determined, the portion of the Gross-Up Payment attributable to
such reduction (plus the portion of the Gross-Up Payment attributable
to the Excise Tax and Federal (and state and local) income tax imposed
on the Gross-Up Payment being repaid by you if such repayment results
in a reduction in Excise Tax and/or a Federal (and state and local)
income tax deduction) plus interest on the amount of such repayment at
the rate provided in Section 1274(b)(2)(B) of the Code. In the event
that the Excise Tax attributable to Severance Payments is determined to
exceed the amount taken into account hereunder at the time of the
termination of your employment (including by reason of any payment the
existence or amount of which cannot be determined at the time of the
Gross-Up Payment), the Company shall make an additional gross-up
payment to you in respect of such excess (plus any interest payable
with respect to such excess) at the time that the amount of such excess
is finally determined.
(vii) The payments provided for in paragraphs (ii), (iii),
(iv) and (vi) above, shall be made not later than the fifth day
following the Date of Termination (or following
<PAGE>
Janis L. Jones
November 1, 1999
Page 18
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 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
<PAGE>
Janis L. Jones
November 1, 1999
Page 19
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.
(f) Notwithstanding that a Change in Control shall not have yet
occurred, if you so elect, by written notice to the Company given at any time
after the date hereof and prior to the time such amounts are otherwise payable
to you:
(i) The Company shall deposit with an escrow agent, pursuant
to an escrow agreement between the Company and such escrow agent, a sum
of money, or other property permitted by such escrow agreement, which
are substantially sufficient in the opinion of the Company's management
to fund payment of the following amounts to you, as such amounts become
payable (provided such deposit will not be necessary to the extent
<PAGE>
Janis L. Jones
November 1, 1999
Page 20
the escrow already contains funds or other assets which are
substantially sufficient in the opinion of the Company's management to
fund such payments):
(A) Amounts payable, or to become payable, to you or
to your beneficiaries or your estate under the Company's
Executive Deferred Compensation Plan and under any agreements
related thereto in existence at the time of your election to
make the deposit into escrow.
(B) Amounts payable, or to become payable, to you or
to your beneficiaries or your estate by reason of your
deferral of payments payable to you prior to the date of your
election to make the deposit into escrow under any other
deferred compensation agreements between you and the Company
in existence at the time of your election to make the deposit
into escrow, including but not limited to deferred
compensation agreements relating to the deferral of salary or
bonuses.
(C) Amounts payable, or to become payable, to you or
to your beneficiaries or your estate under any executed
agreement that expressly provides for your retirement from the
Company (including payments described under Subsection 4(e)
above) which agreement is in existence at the time of your
election to make the deposit into escrow, other than amounts
payable by a plan qualified under Section 401(a) of the Code.
(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
<PAGE>
Janis L. Jones
November 1, 1999
Page 21
agent (which shall be the same escrow agent, if one exists, acting
pursuant to clause (i) of this Subsection 4(f)), pursuant to an escrow
agreement between the Company and such escrow agent, a sum of money, or
other property permitted by such escrow agreement, substantially
sufficient in the opinion of Company management to fund the payment to
you of the amounts specified in Subsection 4(c) of this Agreement.
(iii) It is intended that any amounts deposited in escrow
pursuant to the provisions of clause (i) or (ii) of this Subsection
4(f), shall be subject to the claims of the Company's creditors, as set
forth in the form of such escrow agreement.
(g) You shall not be required to mitigate the amount of any payment
provided for in this Section 4 by seeking other employment or otherwise, nor
shall the amount of any payment or benefit provided for in this Section 4 be
reduced by any compensation earned by you as the result of employment by another
employer, by retirement benefits, by offset against any amount claimed to be
owed by you to the Company, or otherwise (except as specifically provided in
this Section 4).
(h) In addition to all other amounts payable to you under this Section
4, you shall be entitled to receive all benefits payable to you under any
benefit plan of the Company in which you participate to the extent such benefits
are not paid under this Agreement.
5. SUCCESSORS; BINDING AGREEMENT.
(a) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
Failure of the Company to obtain such assumption and agreement prior to the
effectiveness of any such succession shall be a breach of this Agreement and
shall entitle you to compensation
<PAGE>
Janis L. Jones
November 1, 1999
Page 22
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
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
<PAGE>
Janis L. Jones
November 1, 1999
Page 23
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.
9. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but
<PAGE>
Janis L. Jones
November 1, 1999
Page 24
all of which together will constitute one and the same instrument.
10. ARBITRATION. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Memphis, Tennessee in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator's award in
any court having jurisdiction; provided, however, that you shall be entitled to
seek specific performance of your right to be paid until the Date of Termination
during the pendency of any dispute or controversy arising under or in connection
with this Agreement.
11. SIMILAR PROVISIONS IN OTHER AGREEMENT. The Severance Payment under
this Agreement supersedes and replaces any previous severance agreement and any
other severance payment to which you may be entitled under any previous
agreement between you and the Company or its affiliates.
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
Senior Vice President
Agreed:
/s/ JANIS L. JONES
- -------------------------
Janis L. Jones
<PAGE>
Exhibit 10(46)
Amendment to
Harrah's Entertainment, Inc.
1990 Restricted Stock Plan
Harrah's Entertainment, Inc. (the "Company") hereby adopts this
Amendment to the 1990 Restricted Stock Plan (the "Plan"), effective November 11,
1999.
Section 4(b)(1) of the Company's 1990 Restricted Stock Plan, as
amended, is amended by adding the following sentence at the end thereof:
"If a member of the Board continues in service after the last such
installment vests for that member, then such member will automatically
receive a new award of 1,000 restricted shares (effective the April 2
immediately following the last April 1 vesting date except that for the
last vesting on April 1, 1999, the effective date of this award will be
November 12, 1999); these shares will be subject to the same terms and
conditions as the original award of 1,000 restricted shares and will
vest in 100 share installments on each subsequent April 1 following the
last vesting of the original 1,000 share award provided such person is
a member of the Board on the vesting date."
This Amendment was duly adopted by the Human Resources Committee of the
Board of Directors of the Company on November 11, 1999.
/s/ REBECCA W. BALLOU
----------------------
Rebecca W. Ballou
Secretary of Harrah's
Entertainment, Inc.
<PAGE>
Exhibit 10(52)
Description of TARSAP Vesting Adjustment
Gary W. Loveman
Date: November 11, 1999
The Human Resources Committee of the Board of Directors modified the
TARSAP vesting schedule of Gary W. Loveman as follows:
<TABLE>
<CAPTION>
Current Performance Performance Vesting
Vesting As Modified
Plan Year (cumulative) (cumulative) Vest Date
- --------- -------------------- ------------------------ ---------
<S> <C> <C> <C>
1999 43.4% 50%
50.0% (target) 60% (target) 3/1/00
56.8% 70%
2000 73.4% 80%
80.0% (target) 90% (target) 3/1/00
86.8 % 100%
</TABLE>
<PAGE>
EXHIBIT 11
HARRAH'S ENTERTAINMENT, INC.
COMPUTATIONS OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Income before extraordinary losses................. $219,503,000 $121,717,000 $107,522,000
Extraordinary losses, net.......................... (11,033,000) (19,693,000) (8,134,000)
------------ ------------ ------------
Net income................................. $208,470,000 $102,024,000 $ 99,388,000
============ ============ ============
BASIC EARNINGS PER SHARE
Weighted average number of common shares
outstanding...................................... 126,071,980 100,231,327 100,618,139
============ ============ ============
BASIC EARNINGS PER COMMON SHARE
Income before extraordinary losses................. $ 1.74 $ 1.21 $ 1.07
Extraordinary losses, net.......................... (0.09) (0.19) (0.08)
------------ ------------ ------------
Net income................................. $ 1.65 $ 1.02 $ 0.99
============ ============ ============
DILUTED EARNINGS PER SHARE
Weighted average number of common shares
outstanding...................................... 126,071,980 100,231,327 100,618,139
Additional shares based on average market price
for period applicable to:
Restricted stock............................. 789,690 215,513 86,827
Stock options................................ 1,886,469 1,072,833 549,101
------------ ------------ ------------
Average number of common and common equivalent
shares outstanding............................... 128,748,139 101,519,673 101,254,067
============ ============ ============
DILUTED EARNINGS PER COMMON AND COMMON EQUIVALENT
SHARE
Income before extraordinary losses................. $ 1.71 $ 1.19 $ 1.06
Extraordinary losses, net.......................... (.09) (0.19) (0.08)
------------ ------------ ------------
Net income................................. $ 1.62 $ 1.00 $ 0.98
============ ============ ============
</TABLE>
<PAGE>
EXHIBIT 12
HARRAH'S ENTERTAINMENT, INC.
COMPUTATION OF RATIOS
(IN THOUSANDS, EXCEPT RATIO AMOUNTS)
<TABLE>
<CAPTION>
1999 (a) 1998 (b) 1997 (c) 1996 (d) 1995 (e)
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
RETURN ON REVENUES-CONTINUING
Income from continuing operations..................... $ 219,503 $ 121,717 $ 107,522 $ 98,897 $ 78,810
Revenues.............................................. 3,024,428 2,004,015 1,619,210 1,586,020 1,578,795
Return.............................................. 7.3% 6.1% 6.6% 6.2% 5.0%
RETURN ON AVERAGE INVESTED CAPITAL
Income from continuing operations..................... $ 219,503 $ 121,717 $ 107,522 $ 98,897 $ 78,810
Add: Interest expense after tax....................... 121,846 72,707 48,233 43,187 56,650
--------- --------- --------- --------- ---------
$ 341,349 $ 194,424 $ 155,755 $ 142,084 $ 135,460
========= ========= ========= ========= =========
Average invested capital.............................. $4,231,789 $2,426,028 $1,815,869 $1,619,880 $1,377,354
========= ========= ========= ========= =========
Return.............................................. 8.1% 8.0% 8.6% 8.8% 9.8%
========= ========= ========= ========= =========
RETURN ON AVERAGE EQUITY (f)
Income before extraordinary items..................... $ 219,503 $ 121,717 $ 107,522 $ 98,897 $ 78,846
Average equity........................................ 1,416,591 793,492 722,298 682,489 618,778
Return.............................................. 15.5% 15.3% 14.9% 14.5% 12.7%
RATIO OF EARNINGS TO FIXED CHARGES (g)
Income from continuing operations..................... $ 219,503 $ 121,717 $ 107,522 $ 98,897 $ 78,810
Add:
Provision for income taxes.......................... 128,914 74,600 68,746 67,316 60,677
Interest expense.................................... 193,407 117,270 79,071 69,968 73,890
Interest included in rental expense................. 10,801 9,718 7,692 7,663 6,738
Amortization of capitalized interest................ 1,359 1,444 606 763 580
(Income) or loss from equity investments............ 33,042 4,709 (473) (473) --
Adjustment to include 100% of nonconsolidated,
majority-owned affiliate (h)...................... -- 12,254 -- -- (34,775)
--------- --------- --------- --------- ---------
Earnings as defined................................... $ 587,026 $ 341,712 $ 263,164 $ 244,134 $ 185,920
========= ========= ========= ========= =========
Fixed charges:
Interest expense.................................... $ 193,407 $ 117,270 $ 79,071 $ 69,968 $ 73,890
Capitalized interest................................ 13,118 2,526 6,860 11,025 3,636
Interest included in rental expense................. 10,801 9,718 7,692 7,663 6,738
Adjustment to include 100% of nonconsolidated,
majority-owned affiliate (h).................... -- 12,071 -- -- 56,652
--------- --------- --------- --------- ---------
Total fixed charges................................... $ 217,326 $ 141,585 $ 93,623 $ 88,656 $ 140,916
========= ========= ========= ========= =========
Ratio of earnings to fixed charges.................. 2.7 2.4 2.8 2.8 1.3
========= ========= ========= ========= =========
COMPUTATION OF EBITDA AND ADJUSTED EBITDA
Income from continuing operations..................... $ 219,503 $ 121,717 $ 107,522 $ 98,897 $ 78,810
Add/(less):
Income tax provision................................ 128,914 74,600 68,746 67,316 60,677
Interest expense.................................... 193,407 117,270 79,071 69,968 73,890
Depreciation and amortization....................... 218,299 159,183 122,396 102,338 95,388
Amortization of deferred finance charge............. (4,459) (4,866) (3,021) (3,151) (3,626)
Amortization of debt discounts and premiums......... 543 74 (12) (21) (53)
--------- --------- --------- --------- ---------
Earnings before interest, taxes, depreciation and
amortization (EBITDA)(i)............................ 756,207 467,978 374,702 335,347 305,086
Add/(less):
Write-downs and reserves............................ 2,235 7,474 13,806 52,188 93,348
Project opening costs............................... 19,961 11,066 19,518 5,907 450
Venture restructuring costs......................... (322) 6,013 6,944 14,601 --
Gains on sales of ownership interests in
nonconsolidated affiliates........................ (59,824) (13,155) (37,388) -- (11,773)
Gain on sale of land................................ -- (6,607) -- -- --
Cancellation of management contract................. -- (10,254) -- -- --
Costs in connection with Missouri initiative........ 56 4,994 -- -- --
--------- --------- --------- --------- ---------
Adjusted EBITDA (i)................................... $ 718,313 $ 467,509 $ 377,582 $ 408,043 $ 387,111
========= ========= ========= ========= =========
</TABLE>
- ------------------------------
(a) 1999 includes $2.2 million in pretax charges for write-downs and reserves
and $59.8 million gains on the sales of equity interests in nonconsolidated
subsidiaries. 1999 also includes the financial results of Rio Hotel &
Casino, Inc., from its January 1, 1999, date of acquistion.
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
COMPUTATION OF RATIOS
(IN THOUSANDS, EXCEPT RATIO AMOUNTS)
(b) 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.
(c) 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.
(d) 1996 includes $52.2 million in pretax charges for write-downs and reserves,
primarily related to write-downs of impaired long-lived assets and reserves
for contingent liability exposure.
(e) 1995 includes $93.3 million in pretax charges for write-downs, primarily
related to our New Orleans casino development project.
(f) Amounts for the period prior to the June 30, 1995, dividend of Promus Hotel
Corporation common stock to the Company's stockholders reflect the impact of
the financial position and results of operations for the discontinued hotel
business in that period.
(g) As discussed in Note 12 to the Consolidated Financial Statements in the 1999
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: 1999, $6.2 million; 1998, $7.9 million; 1997,
$7.8 million; 1996, $5.2 million; and 1995, $6.8 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, reserves and recoveries,
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>
Exhibit 13
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
1999(a) 1998(b) 1997(c) 1996(d) 1995(e) Rate
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
OPERATING DATA
Revenues $ 3,024.4 $ 2,004.0 $ 1,619.2 $ 1,586.0 $ 1,578.8 17.7%
Income from operations 481.0 287.8 213.5 236.9 209.4 23.1%
Income before income taxes and minority interest 359.6 203.3 183.6 172.1 151.6 24.1%
Income from continuing operations 219.5 121.7 107.5 98.9 78.8 29.2%
Net income(f) 208.5 102.0 99.4 98.9 78.8 27.5%
COMMON STOCK DATA
Earnings per share-diluted
Continuing operations 1.71 1.19 1.06 0.95 0.76 22.4%
Net income(f) 1.62 1.00 0.98 0.95 0.76 20.7%
FINANCIAL POSITION
Total assets 4,766.8 3,286.3 2,005.5 1,974.1 1,636.7 30.6%
Long-term debt 2,540.3 1,999.4 924.4 889.5 753.7 35.5%
Stockholders' equity 1,486.3 851.4 735.5 719.7 585.5 26.2%
</TABLE>
(a) 1999 includes $2.2 million in pretax charges for write-downs, reserves and
recoveries (see Note 7) and $59.8 million of gains from sales of our
equity interests in nonconsolidated affiliates. 1999 also includes the
financial results of Rio Hotel & Casino, Inc., from its January 1, 1999,
date of acquisition.
(b) 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 our equity interest
in a nonconsolidated restaurant subsidiary. 1998 also includes the
financial results of Showboat, Inc., from its June 1, 1998, date of
acquisition.
(c) 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 our equity interest
in a New Zealand subsidiary.
(d) 1996 includes $52.2 million in pretax charges for write-downs and
reserves, primarily related to write-downs of impaired long-lived assets
and reserves for contingent liability exposure.
(e) 1995 includes $93.3 million in pretax charges for write-downs, primarily
related to our New Orleans casino development project.
(f) Amounts for the period prior to the June 30, 1995, dividend of Promus
Hotel Corporation common stock to our stockholders reflect the impact of
the financial position and results of operations for the discontinued
hotel business in that period.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS
Provided by operating activities 514.4 300.4 255.1 285.7 213.7 24.6%
EBITDA(g) 756.2 468.0 374.7 335.3 305.1 25.5%
Adjusted EBITDA(g) 718.3 467.5 377.6 408.0 387.1 16.7%
Capital expenditures 430.1 245.2 290.5 390.0 231.8 16.7%
FINANCIAL PERCENTAGES AND RATIOS
Return on revenues-continuing 7.3% 6.1% 6.6% 6.2% 5.0%
Return on average invested capital(h) 8.1% 8.0% 8.6% 8.8% 9.8%
Return on average equity(h) 15.5% 15.3% 14.9% 14.5% 12.7%
Ratio of earnings to fixed charges 2.7 2.4 2.8 2.8 1.3
</TABLE>
(g) EBITDA consists of earnings before interest, taxes, depreciation and
amortization. Adjusted EBITDA consists of EBITDA before write-downs,
reserves and recoveries, project opening costs, venture restructuring
costs, gains on sales of subsidiary equity interests and nonoperating
assets and costs related to a successful ballot initiative in Missouri.
See Exhibit 12 to our 1999 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 may not be comparable to similarly titled measures
presented by other companies.
(h) Ratio computed based on Income from continuing operations. See Exhibit 12
to our 1999 Form 10-K computations of these ratios.
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations
- --------------------------------------------------------------------------------
Harrah's Entertainment, Inc. is the leading consumer marketing company in the
gaming industry. 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 focused on continued investment and emphasis on marketing, technology and
database management, industry-leading customer reward and incentive programs, a
commitment to service and a broadened national appeal. We are building our
Harrah's, Rio and Showboat brands with a focus on those customers who are avid,
experienced players, especially those who play in more than one market, and, as
we will review with you in this discussion, our 1999 results reflect the success
of our strategy.
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.
OPERATING RESULTS AND DEVELOPMENT PLANS
Overall
- -------
<TABLE>
<CAPTION>
Percentage
Increase/(Decrease)
(In millions, except ---------------------
earnings per share) 1999 1998 1997 99 vs 98 98 vs 97
- -------------------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues ............................. $3,024.4 $2,004.0 $1,619.2 50.9% 23.8%
Operating profit ..................... 594.8 354.2 260.5 67.9% 36.0%
Income from operations ............... 481.0 287.8 213.5 67.1% 34.8%
Income before extraordinary items .... 219.5 121.7 107.5 80.4% 13.2%
Net income ........................... 208.5 102.0 99.4 104.4% 2.6%
Earnings per share-diluted
Before extraordinary items ......... 1.71 1.19 1.06 43.7% 12.3%
Net income ......................... 1.62 1.00 0.98 62.0% 2.0%
Operating margin ..................... 15.9% 14.4% 13.2% 1.5pts 1.2pts
</TABLE>
As reflected in the table above, we experienced significant growth in our
financial results in 1999 as compared to 1998, setting new records for almost
every measurement of financial performance, including revenues, income from
operations and diluted earnings per share. This continues the trends we reported
for 1998 as compared to 1997. Significant contributors to our growth over the
three years presented above were the strategic acquisitions of Rio Hotel &
Casino, Inc. ("Rio") and Showboat, Inc. ("Showboat"). However, even without the
impact of these acquisitions, we would have achieved record results in 1999. The
following table reflects the combined operating results for the 11 company-owned
casinos open throughout the three-year period and Harrah's St. Louis, which
opened in March 1997.
<TABLE>
<CAPTION>
Percentage
Increase/(Decrease)
----------------------
(In millions) 1999 1998 1997 99 vs 98 98 vs 97
- -------------------------------------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Casino revenues ...................... $1,626.5 $1,458.9 $1,328.0 11.5% 9.9%
Total revenues ....................... 1,896.4 1,720.5 1,571.3 10.2% 9.5%
Operating profit ..................... 384.1 306.7 287.2 25.2% 6.8%
Operating margin ..................... 20.3% 17.8% 18.3% 2.5pts (0.5)pts
</TABLE>
Strategic Acquisitions
- ----------------------
An important facet of our growth has been the pursuit of strategic
acquisitions to further enhance our distribution, strengthen our access to
target customers and leverage our technological and centralized services
infrastructure. The following provides a brief review of our acquisition
activities.
SHOWBOAT, INC. We acquired Showboat on June 1, 1998, for approximately $520.0
million in cash and assumption of $635.0 million of Showboat's outstanding
debt. Our acquisition of Showboat gives us a stronger presence in the two key
growth and feeder markets of Atlantic City and Chicago. In Atlantic City,
Showboat provides us with a very strong additional brand in a strategic
Boardwalk location that complements our 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, which has been
re-branded as a "Harrah's" property, 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. Our acquisition of Showboat
was accounted for as a purchase.
RIO HOTEL & CASINO, INC. We completed our merger with Rio on January 1, 1999,
issuing approximately 25 million shares of our common stock to acquire all of
Rio's outstanding shares in a one-for-one transaction and assuming Rio's
outstanding debt. The addition of the 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. In addition to the Rio
property, our acquisition also
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations, continued
- --------------------------------------------------------------------------------
included Rio Secco, an 18-hole, championship golf course, and approximately 35
acres adjacent to the Rio, which is available for further development. We
accounted for our merger with Rio as a purchase.
PLAYERS INTERNATIONAL, INC. In August 1999, we announced the signing of a
definitive agreement to acquire Players International, Inc. ("Players"). Players
operates a dockside riverboat casino on the Ohio River in Metropolis, Illinois;
two cruising riverboat casinos in Lake Charles, Louisiana; two dockside
riverboat casinos in Maryland Heights, Missouri; and a horse racetrack in
Paducah, Kentucky. Players and Harrah's jointly operate a landside hotel and
entertainment facility at the Maryland Heights property, a suburb of St. Louis.
Players' shareholders will receive $8.50 in cash for each share outstanding and
we will assume approximately $150 million of Players' debt. The acquisition will
be funded through our Bank Facility (see Debt and Liquidity section) and will be
accounted for as a purchase. The purchase price will be allocated to the
underlying assets and liabilities based upon their estimated fair values at the
date of the acquisition. Completion of the transaction is subject to various
conditions, including regulatory approvals.
Prior to entering into the agreement with us, Players terminated a
previously announced merger agreement with another gaming company. As a result
of the termination of that agreement, Players paid a $13.5 million break-up fee
pursuant to that agreement's terms. We provided the funds necessary to make this
payment. The funds advanced are a component of the total purchase price we will
pay for Players and, at December 31, 1999, were included in Deferred costs,
trademarks and other assets in the Consolidated Balance Sheets. During fourth
quarter 1999, we acquired approximately 1.0 million shares of Players common
stock in a negotiated transaction at a cost of $8.37 per share.
Western Region
- --------------
<TABLE>
<CAPTION>
Percentage
Increase/(Decrease)
----------------------
(In millions) 1999 1998 1997 99 vs 98 98 vs 97
- ------------------------------------- --------- ------ ------ -------- ---------
<S> <C> <C> <C> <C> <C>
Casino revenues ..................... $ 730.1 $457.6 $408.3 59.5% 12.1%
Total revenues ...................... 1,147.9 642.6 576.0 78.6% 11.6%
Operating profit .................... 182.4 94.3 88.3 93.4% 6.8%
Operating margin .................... 15.9% 14.7% 15.3% 1.2pts (0.6)pts
</TABLE>
SOUTHERN NEVADA. The acquisition of Rio in 1999 contributed $463.7 million in
revenues in the Western region. However, even without the addition of Rio,
Southern Nevada posted record revenues for 1999, an increase of 6.8% over 1998
revenues. Harrah's Las Vegas set record revenues for the second consecutive
year, and Harrah's Laughlin exceeded their previous revenue record by 4.5%.
Operating profit for Southern Nevada, excluding the impact of Rio, increased
30.5% over 1998.
Revenue and operating profit increases in Southern Nevada for 1998 versus
1997 were due to improved results reported by Harrah's Las Vegas. That
property's 1997 results were impacted by construction disruptions associated
with a $200 million expansion and renovation project completed in fourth quarter
1997.
Rio is expected to complete construction of a showroom complex during
second quarter 2000. The showroom will include a 1,500 seat, state-of-the-art
theater with balcony; a three-level lobby with hospitality center; and a theater
promenade with approximately 10,000 square feet of retail space. The showroom
complex is located adjacent to the Pavilion, Rio's new 110,000 square foot
entertainment/convention complex which opened in March 1999. The showroom
complex is expected to cost approximately $35 million, of which $24.6 million
had been spent through December 31, 1999.
At the time of the Showboat acquisition, the Showboat Las Vegas property
was determined to be a nonstrategic asset for us and is reported as an
asset-held-for-sale in our financial statements. The sale of this property is
expected to be completed in March 2000, and no gain or loss is expected to
result from the sale.
NORTHERN NEVADA. For 1999, Northern Nevada revenues increased 6.1% over 1998,
and operating profit was 14.6% higher than the prior year. This comparison
continues the trend reflected in the 1998 versus 1997 comparison in which
revenues increased 3.0% and operating profit increased 4.5%.
Central Region
- --------------
<TABLE>
<CAPTION>
Percentage
Increase/(Decrease)
---------------------
(In millions) 1999 1998 1997 99 vs 98 98 vs 97
- ------------------------------------- -------- ------ ------ -------- --------
<S> <C> <C> <C> <C> <C>
Casino revenues ..................... $ 970.9 $661.9 $614.8 46.7% 7.7 %
Total revenues ...................... 1,020.1 702.7 656.2 45.2% 7.1 %
Operating profit .................... 201.8 121.0 124.2 66.8% (2.6)%
Operating margin .................... 19.8% 17.2% 18.9% 2.6pts (1.7)pts
</TABLE>
The revenue and operating profit increases reported by the Central Region for
1999 versus 1998 are primarily due to the consolidation in 1999 of the East
Chicago property, the conversion of Harrah's Joliet from a cruising to a
dockside operation and continued improvements at our St. Louis property.
Excluding the impact of the consolidation of the East Chicago property, Central
Region revenues increased 14.7% over 1998 and operating profit increased 36.7%
for the same period. These
<PAGE>
improvements follow a decline in overall operating profits and margins from 1997
to 1998 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. In the Chicagoland market, our operating results benefited from
both the consolidation and re-branding in first quarter 1999 of the East Chicago
property and rule changes governing the operations of Harrah's Joliet. After our
acquisition of Showboat, we owned a 55% noncontrolling interest in the
partnership that owned the East Chicago Showboat property. During 1998, our
share of income from the East Chicago casino was included in Equity in losses of
nonconsolidated affiliates in the Consolidated Statements of Income. In first
quarter 1999, we consummated an agreement with our partners owning the other 45%
interest in the East Chicago Showboat property to increase our ownership
interest to 99.55%, and partnership agreements were amended to give us greater
flexibility in operating this property. Consequently, we began consolidating
this partnership with the financial results of our other businesses in first
quarter 1999.
Revenues increased 32.9% at Harrah's Joliet in Illinois in 1999 compared
to the prior year, and operating profit increased 61.0%. In late June 1999,
cruise scheduling and ticketing were eliminated at Harrah's Joliet, and business
levels have increased significantly since going "dockside". Operating profit at
the Joliet property declined in 1998 from 1997 levels due primarily to the
impact of higher Illinois gaming taxes. During fourth quarter 1999, we completed
construction of a 204-suite hotel at Harrah's Joliet. This follows the
completion in first quarter 1998 of a climate-controlled walkway, joining
Harrah's Joliet's self-parking garage to its pavilion, and a new VIP lounge. We
are now considering further modifications to the property to take advantage of
the dockside operating environment.
LOUISIANA. Harrah's Shreveport's 1999 revenues declined 3.8% and operating
profit declined 11.0% compared to 1998 due to substantial new additional hotel
and entertainment amenities added by our competitors in 1998. This performance
follows a 3.0% decline in revenues in 1998 compared to 1997 and a 10.6% decline
in operating profit for the same period.
Construction began in second quarter 1999 at Harrah's Shreveport on a
514-room hotel with almost 18,000 sq. ft. of convention center space. The new
hotel and amenity expansion is expected to cost $146.6 million, of which $28.7
million has been spent through December 31, 1999. The expansion is scheduled to
open in fourth quarter 2000.
MISSISSIPPI. Combined revenues from our Mississippi operations increased 6.1% in
1999 from 1998 levels. 1998 revenues were down 6.6% from 1997 levels, due to the
closing of our original Tunica property in second quarter 1997. Our Mississippi
properties' combined operating profit in 1999 was $5.2 million, compared to a
combined loss for 1998 due to disrupted operations at Harrah's Tunica for much
of the year in connection with our testing of service initiatives at that
property.
In March 1999, we consummated the sale of our original Tunica property to
another casino company. Our gain from this disposition is reported in
Writedowns, reserves and recoveries in the Consolidated Statements of Income.
MISSOURI. Revenues at Harrah's North Kansas City increased 8.8% in 1999 over the
prior year and operating profit increased 9.3% for the same period. 1998
revenues were up 3.1% from 1997 and operating profit was up 10.7% for the same
period.
Harrah's St. Louis Riverport reported record revenues and operating income
for 1999, up 31.5% and 86.6%, respectively, over 1998 levels. 1998 operating
income was $15.8 million 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. Our pro
rata share of the operating losses of the shoreside facilities was $10.4 million
for 1999, $10.8 million for 1998 and $11.5 million for 1997. These operating
losses are included in Equity in losses of nonconsolidated subsidiaries in the
Consolidated Statements of Income (see Other Factors Affecting Net Income). The
shoreside facilities are a joint venture with Players. Upon completion of our
acquisition of Players, we will own 100% of the joint venture operations.
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 foot
casino riverboat, shoreside facilities, parking garage, certain land, all gaming
equipment and computerized customer databases. Our plans for the acquired
riverboat, land and shoreside facilities have not been finalized.
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations, continued
- --------------------------------------------------------------------------------
Eastern Region
- --------------
<TABLE>
<CAPTION>
Percentage
Increase/(Decrease)
---------------------
(In millions) 1999 1998 1997 99 vs 98 98 vs 97
- ---------------------------------------- ------ ------ ------ -------- --------
<S> <C> <C> <C> <C> <C>
Casino revenues ........................ $723.3 $540.8 $314.9 33.7% 71.7%
Total revenues ......................... 775.6 590.8 349.5 31.3% 69.0%
Operating profit ....................... 173.8 129.2 73.3 34.5% 76.3%
Operating margin ....................... 22.4% 21.9% 21.0% 0.5pts 0.9pts
</TABLE>
Our Eastern Region is comprised of the operating results of Harrah's Atlantic
City and the Atlantic City Showboat property. Harrah's Atlantic City achieved
record revenues for the third consecutive year in 1999, and operating profit
increased 18.9% in 1999 compared to 1998. The Eastern Region's 1999 results
include a full year of operations from the Atlantic City Showboat, while 1998
results include only seven months.
We continue to monitor the progress of the development of new casino
projects in Atlantic City by other casino companies as we consider possible
expansions of our properties to maintain our competitive position. No decisions
concerning any such expansions have been made.
Managed Casinos and Other
- -------------------------
<TABLE>
<CAPTION>
Percentage
Increase/(Decrease)
----------------------
(In millions) 1999 1998 1997 99 vs 98 98 vs 97
- ---------------------------------------- ----- ----- ----- --------- --------
<S> <C> <C> <C> <C> <C>
Revenues ............................... $77.9 $65.6 $33.2 18.8% 97.6%
Operating profit ....................... 43.3 25.3 2.9 71.1% N/M
</TABLE>
N/M = Not meaningful
Our Managed Casinos and Other results for 1999 were led by increased management
fees from the tribal-owned casinos we manage. The increase in our operating
results for 1998 versus 1997 was primarily due to the addition of management
fees from the casinos managed for the Eastern Band of Cherokee, which opened in
November 1997, and the Prairie Band of Potawatomi, which opened in January 1998.
Although not a significant contributor to our 1999 Managed Casinos and
Other results, we also manage for a fee the Harrah's New Orleans casino, which
opened during fourth quarter 1999. (See Other Factors Affecting Net Income.)
Upon completion of the Showboat acquisition on June 1, 1998, we assumed
management of the Star City casino in Sydney, Australia. We ceased management of
that facility in January 2000 upon the completion of the buy-out of our
management contract by another company. Their acquisition of the management
contract followed their buy-out of our equity ownership in the casino in fourth
quarter 1999. (See Other Factors Affecting Net Income.)
In January 2000, we announced the signing of a letter of intent with
the Rincon San Luiseno Band of Mission Indians ("Rincon") to develop and
operate a $110 million casino and hotel project on Rincon tribal land in
Southern California. The Rincon tribal land is located near Valley Center, a
30 minute drive north of San Diego, California, and has convenient access to
metropolitan San Diego, La Jolla, Del Mar, Escondido and Orange County,
California. The project is subject to various approvals, including the
National Indian Gaming Commission ("NIGC").
In fourth quarter 1999, we announced an agreement with the Eastern Band of
Cherokee Indians for a two-year extension of the management contract for
Harrah's Cherokee Smoky Mountains Casino. Our agreement will now expire in
November 2004.
In third quarter 1999, we signed a contract with the Ak-Chin Indian
Community to continue management of its casino for another five years. The
five-year agreement contemplates an extension of the Tribe's compact with the
State of Arizona, which currently expires in 2003, and is subject to final
approval by the NIGC, which, in the interim, has approved a temporary extension
(on new financial terms) of the original agreement. In addition, the Tribe
announced a planned expansion of the casino to include a new 150-room hotel, an
additional restaurant, meeting and banquet room facilities, a resort pool and a
landscaped courtyard.
See Debt and Liquidity section for further discussion of our guarantees of
debt related to Indian projects.
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 consid-
<PAGE>
eration 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.
In November 1998, we ceased management of the casino owned by the Upper
Skagit Tribe, located on Indian lands near Seattle, Washington. We had
guaranteed the Skagit Tribe's development financing, and during second quarter
1999 we performed under our guarantee and purchased the Tribe's outstanding
development debt from the lender for $11.4 million. Under the terms of our
agreement with the Tribe, they have agreed to fund the retirement of this debt.
The Tribe is attempting to secure new financing. However, there is no assurance
that their efforts will be successful and that the receivable will be collected.
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).
Also included in Managed Casinos and Other are our brand marketing costs.
In 1998, we launched the first national brand advertising campaign by a casino
company. A portion of the 1998 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. In 1999, the cost of the brand advertising campaign was fully funded by
contributions from the properties.
Other Factors Affecting Net Income
- ----------------------------------
<TABLE>
<CAPTION>
Percentage
Increase/(Decrease)
(Income)/Expense ----------------------
(In millions) 1999 1998 1997 99 vs 98 98 vs 97
- -------------------------------------- ------ ------ ------ -------- ----------
<S> <C> <C> <C> <C> <C>
Development costs .................... $ 6.5 $ 9.0 $ 10.5 (27.8)% (14.3)%
Write-downs, reserves
and recoveries .................... 2.2 7.5 13.8 (70.7)% (45.7)%
Project opening costs ................ 2.3 8.1 17.6 (71.6)% (54.0)%
Corporate expense .................... 42.7 37.9 27.2 12.7 % 39.3 %
Headquarters relocation
and reorganization costs .......... 10.3 -- -- N/M N/M
Equity in losses of
nonconsolidated affiliates ........ 43.5 15.0 11.1 N/M 35.1 %
Venture restructuring costs .......... (0.3) 6.0 6.9 N/M (13.0)%
Amortization of goodwill
and trademarks .................... 17.6 7.5 1.8 N/M N/M
Interest expense, net ................ 193.4 117.3 79.1 64.9 % 48.3 %
Gains on sales of equity interests
in nonconsolidated affiliates ..... (59.8) (13.2) (37.4) N/M N/M
Other income ......................... (12.1) (19.6) (11.8) (38.3)% 66.1 %
Effective tax rate ................... 35.9% 36.7% 37.4% (0.8)pts (0.7)pts
Minority interests ................... $11.2 $ 7.0 $ 7.4 60.0 % (5.4)%
Extraordinary losses,
net of income taxes ............... 11.0 19.7 8.1 N/M N/M
</TABLE>
N/M = Not meaningful
Development costs have decreased over the years presented due to the decrease in
new casino development opportunities. Write-downs, reserves and recoveries for
1999 included a further write-down to estimated realizable value of an idle
riverboat, write-offs of obsolete assets, Year 2000 costs and recoveries of
costs previously written-off. In 1998, Write-downs and reserves included
write-offs of obsolete assets, the write-down to estimated realizable value of
an idle riverboat, a reserve for 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 million reserve against debtor-in-possession
financing provided to the original New Orleans casino project.
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations, continued
- --------------------------------------------------------------------------------
Project opening costs for 1999 included a fee paid in connection with the
renewal of a management contract and costs related to expansions at various
properties. In 1998, Project opening costs were incurred in connection with an
initiative to develop and implement strategies and employee training programs
designed to better focus our employees on serving our targeted customers.
Project opening costs for 1997 included costs incurred in connection with the
first quarter 1997 opening of Harrah's St. Louis Riverport casino property,
costs related to expansions at Harrah's Las Vegas and Harrah's Tunica and costs
incurred in connection with the customer service initiative.
Corporate expense increased 12.7% in 1999 over 1998 but represented only
1.4% of revenues in 1999, down from 1.9% in 1998 and 1.7% in 1997.
During 1999, we relocated our corporate headquarters and moved our senior
corporate executives and their support staffs to Las Vegas, Nevada. The
Company's national services headquarters remains in Memphis, Tennessee. $10.3
million of costs related to the relocation of the Company's headquarters were
expensed in 1999. The final phase of the relocation will be completed in 2000,
and the expense of that activity will be reported as relocation costs as
incurred.
Equity in losses of nonconsolidated affiliates for 1999 increased over the
previous two years primarily as a result of losses from our investments in two
companies which commenced operations in 1999, Jazz Casino Company, L.L.C.
("JCC") and National Airlines, Inc. ("NAI"). We have an approximate 43%
ownership interest in the parent of JCC, the company that owns and operates the
exclusive land-based casino in New Orleans, Louisiana (the "Casino"), which
opened in fourth quarter 1999. Our share of 1999 losses from JCC was $23.2
million, including $14.9 million of project opening costs. Our share of NAI's
1999 losses was $8.8 million, including $2.7 million of their project opening
costs. With the acquisition of Rio, our ownership interest in NAI, an airline
company in Las Vegas which opened for business in May 1999, increased from 23.9%
to 47.8%. During 1999, we accounted for Rio's investment in the airline as an
asset-held-for-sale. Although the Rio ownership interest is still for sale, our
equity pick-up percentage will increase in 2000 to reflect our full ownership
interest. Losses from the joint venture portion of the St. Louis development
were 4.2% less than our share of 1998 losses and 9.5% less than our share of
1997 losses, which included our $1.9 million share of the joint venture's
preopening costs (see Central Region - Missouri).
Venture restructuring costs represent our costs, including legal fees,
associated with the successful development of a reorganization plan for the New
Orleans casino.
Amortization of goodwill and trademarks increased in 1998 with the
acquisition of Showboat and again in 1999 with the acquisition of Rio.
Interest expense increased in 1999 over 1998 due to debt assumed and
incurred in connection with the Rio merger and Showboat acquisition. The
increase in Interest expense in 1998 over 1997 was also due to debt assumed and
incurred in connection with the acquisition of Showboat (see Debt and Liquidity
section).
In 1999, we sold our shares of Star City casino and recorded a pretax gain
of $43.5 million. We also sold our interest in Sodak Gaming, Inc. to a gaming
equipment manufacturing company and recorded a pretax gain of $16.3 million. 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 of $37.4 million. We sold our ownership
interest in Station Square, 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 Station Square site if casino gaming
is legalized in this jurisdiction. No gain or loss was recognized as a result of
this transaction.
The increase in Other income in 1998 as compared to the other two years
was primarily due to the sale of land in the Atlantic City area.
The effective tax rate for each year is higher than the federal statutory
rate primarily due to state income taxes and that portion of our goodwill
amortization which is not deductible for tax purposes. Minority interests
reflect joint venture partners' shares of income at joint venture riverboat
casinos.
Extraordinary losses reported in all three years are due primarily to
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.)
<PAGE>
- --------------------------------------------------------------------------------
CAPITAL SPENDING AND DEVELOPMENT
Year 2000
- ---------
Throughout 1999, we continued our efforts to address the potential impact of the
Year 2000 ("Y2K") on the technology systems and equipment that are essential to
our operations. All of our business systems and equipment were tested and
evaluated and then replaced or renovated as required to become Y2K compliant.
The total cost of system replacements and upgrades to address potential Y2K
problems, as well as enhancing business and operational functionality in some
areas, was approximately $10.5 million, including approximately $9 million of
costs which were capitalized. Approximately 80% of the total cost was related to
the cost to repair, replace and improve software and related hardware and
equipment and approximately 20% related to the cost to repair, replace and
improve embedded technology. Our systems and equipment were deemed Y2K compliant
by the end of 1999, and we have experienced no significant problems related to
the turn of the century.
Total Capital Spending and Development
- --------------------------------------
In addition to the specific development and expansion projects discussed in the
Operating Results and Development Plans section, 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. Project opening costs are expensed as incurred.
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 is expected to be made
available from operating cash flows, the Bank Facility (see Debt and Liquidity
section), joint venture partners, specific project financing, guarantees of
third party debt and, if necessary, additional debt and/or equity offerings. Our
capital spending for 1999 totaled approximately $430.1 million, excluding the
costs of our merger with Rio and our acquisition of the additional ownership
interest in the East Chicago partnership. Estimated total capital expenditures
for 2000 are expected to be between $370 million and $470 million, excluding the
acquisition of Players and the possible further expansion of our Atlantic City
properties.
DEBT AND LIQUIDITY
Bank Facility
- -------------
On April 30, 1999, we consummated new revolving credit and letter of credit
facilities (the "Bank Facility") in the amount of $1.6 billion. This Bank
Facility consists of a five-year $1.3 billion revolving credit and letter of
credit facility maturing in 2004 and a separate $300 million revolving credit
facility, which is renewable annually at the borrower's and lenders' options.
Currently, the Bank Facility bears interest based upon 80 basis points over
LIBOR for current borrowings under the five-year facility and 85 basis points
over LIBOR for the 364-day facility. In addition, there is a facility fee for
borrowed and unborrowed amounts which is currently 20 basis points on the
five-year facility and 15 basis points on the 364-day facility. The interest
rate and facility fee are based on our current debt ratings and leverage ratio
and may change as our debt ratings and leverage ratio change.
Borrowings under the Bank Facility were used to retire our previous
revolving credit facility, scheduled to mature in 2000, (the "Previous
Facility") and Rio's revolving credit facility scheduled to mature in 2003,
10 5/8% Senior Subordinated Notes due 2005 and 9 1/2% Senior Subordinated Notes
due 2007. As of December 31, 1999, $1.1 billion in borrowings were outstanding
under the Bank Facility, with an additional $37.5 million committed to back
letters of credit. After consideration of these borrowings, $452.5 million of
additional borrowing capacity was available to the Company as of December 31,
1999.
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations, continued
- --------------------------------------------------------------------------------
Issuance of Senior Notes
- ------------------------
In connection with obtaining consent from our bank lenders for the Rio merger,
we agreed to refinance a significant portion of our 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 net proceeds to reduce
the amount outstanding under our Previous Facility. In January 1999, we issued
$500 million of 7 1/2% Senior Notes due 2009 and used the net proceeds to
further reduce amounts outstanding under our Previous Facility.
Extinguishments of Debt
- -----------------------
During first quarter 1999, we redeemed all $140 million face amount of Showboat
Marina Casino Partnership's ("SMCP") 13 1/2% First Mortgage Notes due 2003 (the
"SMCP Notes"). We retired the SMCP Notes using proceeds from our Previous
Facility. We recorded liabilities assumed in the Showboat acquisition, including
the SMCP Notes, at their fair value as of the consummation date of the
transaction. The difference between the consideration of $159.8 million paid the
holders of the SMCP notes pursuant to this tender offer and the carrying value
of the SMCP Notes on the consummation date was recorded as an extraordinary loss
of $2.0 million, net of tax.
During second quarter 1999, we redeemed all $100 million face amount of
Rio's 10 5/8% Senior Subordinated Notes due 2005 and all $125 million of Rio's
9 1/2% Senior Subordinated Notes due 2007. We recorded liabilities assumed in
the Rio merger, including these notes, at their fair value as of the date of
consummation of the merger. The difference between the consideration of $251.8
million paid to the holders of the Rio notes pursuant to the tender offer and
the carrying value of the notes on the date of the redemption was recorded as an
extraordinary loss of $4.5 million, net of tax.
During third quarter 1999, we retired SMCP's capital lease obligations.
Approximately $9.2 million of debt was retired, and an extraordinary loss of
$0.4 million, net of tax, was recorded.
In 1998, we redeemed all $200 million of our 8 3/4% Senior Subordinated
Notes due 2002. We also redeemed approximately $218.6 million face amount of
Showboat's 9 1/4% First Mortgage Bonds due 2008 and approximately $117.9 million
face amount of Showboat's 13% Senior Notes due 2009 (collectively, the "Showboat
Notes"). Extraordinary losses, net of tax, in the amounts of $3.3 million and
$13.3 million, respectively, were recorded in conjunction with these early debt
extinguishments. The remaining balance of the Showboat Notes were defeased in
1998 by purchasing treasury securities which were 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 included in Deferred costs, trademarks and other assets and the remaining
balance of the Showboat Notes is reported in Long-term debt in the Consolidated
Balance Sheets.
In 1997, we redeemed our $200 million 10 7/8% Senior Subordinated Notes
due 2002 and recorded an extraordinary loss, net of tax, of $8.1 million.
Interest Rate Agreements
- ------------------------
To manage the relative mix of our debt between fixed and variable rate
instruments, we 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.
As of December 31, 1999, we were a party to six interest rate swaps for a
total notional amount of $300 million. All of these swaps will expire in 2000,
and we do not expect to enter into new swap agreements. For more information
regarding our interest rate swap agreements as of December 31, 1999, see Note 5
to the accompanying Consolidated Financial Statements.
Guarantees of Third Party Debt and Other Commitments
- ----------------------------------------------------
In addition to our ownership interest in JCC's parent, we manage the Harrah's
New Orleans property pursuant to a management agreement between JCC and a
subsidiary of our Company. We have (i) guaranteed JCC's initial $100.0 million
annual payment under the Casino operating contract to the State of Louisiana
gaming board (the "State Guarantee"), (ii) guaranteed $166.5 million of a $236.5
million JCC bank credit
<PAGE>
facility, and (iii) made 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 from the October 28,
1999, opening of the Casino, and, if certain cash flow tests (for the renewal
periods beginning April 1, 2001) and other conditions are satisfied each year,
to renew the guarantee beginning April 1, 2000, for each 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 (and therefore the amount we have guaranteed) is $100 million at
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.
On February 28, 2000, we were notified by JCC that it was suspending
payment of the daily payments to the State of Louisiana until JCC is able to
generate sufficient cash flow to pay its operating expenses and make the
daily payments. On February 29, 2000, the State made a demand on the Company
under the State Guarantee, and we began funding the daily payment to the
State on that date.
JCC's bank credit facility permits funding of up to $5 million under
the State Guarantee without a default under the bank loan documents. JCC has
obtained a waiver to permit funding of up to $40 million under the State
Guarantee on certain conditions, including (i) our renewal of the State
Guarantee for the one-year period ending March 31, 2001, and (ii) our
forbearance until at the earliest March 31, 2001, of the collection of the
principal or interest on the demand obligation which arises when we fund
under the State Guarantee. Separately, we have also agreed to forbear
collection until August 1, 2000, of certain fees and reimbursable costs
arising from our existing agreements with JCC. We have also agreed, subject
to certain conditions, to renew the State Guarantee for the period April 1,
2000, until March 31, 2001.
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 now
open, which extend for periods of up to 60 months from December 31, 1999, is
$1.1 million.
We may guarantee all or part of the debt incurred by Indian tribes with
which we have entered 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, 1999, was $80.4 million.
During second quarter 1999, we performed under our guarantee of the Upper
Skagit Tribe's development financing and purchased the outstanding development
debt from the lender for $11.4 million. Under the terms of our agreement with
the Tribe, they have agreed to fund the retirement of this debt. The Tribe is
attempting to secure new financing; however, there is no assurance that their
efforts will be successful and that the receivable will be collected.
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 been less affected by 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
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Results of Operations, continued
- --------------------------------------------------------------------------------
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
four new "mega" facilities have opened since 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.
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
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. During 1999, we embarked on the next
stage of our strategy with the launch of the tiered customer loyalty card
program - Total Diamond, Total Platinum and Total Gold - to reward customers for
choosing Harrah's Entertainment casinos.
Industry Consolidation
- ----------------------
As evidenced by the number of recent public announcements by casino
entertainment companies of plans to acquire or be acquired by other companies,
including our acquisition of Showboat, merger with Rio and planned acquisition
of Players, 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.
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.
The commission issued its report in June 1999. In September 1999, the State
of California and approximately 60 Indian tribes executed Class III Gaming
Compacts, which other California tribes can join. The Compacts allow each
tribe to operate, on tribal trust lands, two casinos with up to 2,000 slot
machines per tribe and unlimited house-banked card games. At this time, the
ultimate impacts that the National Gaming Impact Study Commission report and
the California Compacts may have on the industry or on our Company are
uncertain. From time to time, individual jurisdictions have also considered
legislation or referendums which could adversely impact our 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.
<PAGE>
- --------------------------------------------------------------------------------
INTERCOMPANY DIVIDEND RESTRICTION
Certain of our debt guarantees require us to abide by covenants which, among
other things, limit the ability of our principal operating subsidiary, Harrah's
Operating Company, Inc. ("HOC"), 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 the most restrictive of
these covenants regarding restricted payments was approximately $1.5 billion at
December 31, 1999. 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 implemented the provisions of Statement of Position ("SOP") 98-5, "Reporting
on the Costs of Start-up Activities," effective January 1, 1999. SOP 98-5,
issued by the Accounting Standards Executive Committee of the American Institute
of Certified Public Accountants, requires that the costs of all start-up
activities, as defined in the SOP, be expensed as incurred. The adoption of the
provisions of this SOP did not materially impact our results of operations or
financial position.
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 recognizes 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. During 1999, the effective date for
implementation of the provisions of SFAS No. 133 was delayed until years
beginning after June 15, 2000. We do not expect the adoption of SFAS No. 133 to
materially impact our results of operations or financial position.
PRIVATE SECURITIES LITIGATION REFORM ACT
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. Certain information included in 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) planned capital expenditures for 2000 and beyond;
(D) the impact of the WINet and Total Gold Card Programs; and (E) any future
impact of the Showboat acquisition, the Rio merger or the planned acquisition of
Players. 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; 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.
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
December 31,
---------------------------------
1999 1998
----------- ------------
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents ............................................................. $ 233,581 $ 158,995
Receivables, less allowance for doubtful accounts of $44,086 and $14,356 .............. 121,186 55,043
Deferred income taxes (Note 9) ........................................................ 33,208 22,478
Prepayments and other ................................................................. 68,028 27,521
Inventories ........................................................................... 30,666 15,306
----------- -----------
Total current assets ............................................................. 486,669 279,343
----------- -----------
Land, buildings, riverboats and equipment
Land and land improvements ............................................................ 653,101 323,692
Buildings, riverboats and improvements ................................................ 2,510,070 1,624,346
Furniture, fixtures and equipment ..................................................... 820,583 711,966
----------- -----------
3,983,754 2,660,004
Less: accumulated depreciation ........................................................ (922,524) (789,847)
------------ -----------
3,061,230 1,870,157
Goodwill, net of amortization of $54,346 and $40,051 (Note 2) ............................ 505,217 383,450
Investments in and advances to nonconsolidated affiliates (Note 15) ...................... 168,511 273,508
Deferred costs, trademarks and other (Note 4) ............................................ 545,220 479,874
----------- -----------
$ 4,766,847 $ 3,286,332
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable ...................................................................... $ 81,200 $ 58,493
Accrued expenses (Note 4) ............................................................. 287,494 172,021
Current portion of long-term debt (Note 5) ............................................ 2,877 2,332
----------- -----------
Total current liabilities ........................................................ 371,571 232,846
Long-term debt (Note 5) .................................................................. 2,540,268 1,999,354
Deferred credits and other ............................................................... 120,827 112,362
Deferred income taxes (Note 9) ........................................................... 228,955 75,457
----------- -----------
3,261,621 2,420,019
----------- -----------
Minority interests ....................................................................... 18,949 14,906
----------- -----------
Commitments and contingencies (Notes 6, 12 through 15 and 17)
Stockholders' equity (Notes 3, 14 and 15)
Common stock, $0.10 par value, authorized - 360,000,000
shares, outstanding - 124,379,760 and 102,188,018 shares
(net of 9,286,772 and 3,036,562 shares held in treasury) ............................ 12,438 10,219
Capital surplus ....................................................................... 987,322 407,691
Retained earnings ..................................................................... 512,539 451,410
Accumulated other comprehensive income ................................................ (493) 6,567
Deferred compensation related to restricted stock ..................................... (25,529) (24,480)
------------ -----------
1,486,277 851,407
----------- -----------
$ 4,766,847 $ 3,286,332
=========== ===========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these consolidated balance sheets.
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1999 1998 1997
---------- ---------- -------------
<S> <C> <C> <C>
Revenues
Casino ....................................................................... $2,424,237 $1,660,313 $1,338,003
Food and beverage ............................................................ 425,808 231,568 196,765
Rooms ........................................................................ 253,629 153,538 128,354
Management fees .............................................................. 75,890 64,753 24,566
Other ........................................................................ 131,403 78,320 78,954
Less: casino promotional allowances .......................................... (286,539) (184,477) (147,432)
---------- ----------- -----------
Total revenues ........................................................... 3,024,428 2,004,015 1,619,210
---------- ----------- -----------
Operating expenses
Direct
Casino ..................................................................... 1,254,557 868,622 685,942
Food and beverage .......................................................... 218,580 116,641 103,604
Rooms ...................................................................... 66,818 41,871 39,719
Depreciation of buildings, riverboats and equipment .......................... 188,199 130,128 103,670
Development costs ............................................................ 6,538 8,989 10,524
Write-downs, reserves and recoveries (Note 7) ................................ 2,235 7,474 13,806
Project opening costs ........................................................ 2,276 8,103 17,631
Other ........................................................................ 690,404 467,999 383,791
---------- ----------- ----------
Total operating expenses ................................................. 2,429,607 1,649,827 1,358,687
---------- ----------- ----------
Operating profit ........................................................ 594,821 354,188 260,523
Corporate expense ............................................................ (42,748) (37,890) (27,155)
Headquarters relocation and reorganization costs (Note 8) .................... (10,274) -- --
Equity in losses of nonconsolidated affiliates (Note 15) ..................... (43,467) (14,989) (11,053)
Venture restructuring costs .................................................. 322 (6,013) (6,944)
Amortization of goodwill and trademarks ...................................... (17,617) (7,450) (1,839)
---------- ----------- ----------
Income from operations .......................................................... 481,037 287,846 213,532
Interest expense, net of interest capitalized (Note 1) .......................... (193,407) (117,270) (79,071)
Gains on sales of equity interests in nonconsolidated affiliates (Note 15) ...... 59,824 13,155 37,388
Other income, including interest income ......................................... 12,129 19,575 11,799
---------- ----------- ------
Income before income taxes and minority interests ............................... 359,583 203,306 183,648
Provision for income taxes (Note 9) ............................................. (128,914) (74,600) (68,746)
Minority interests .............................................................. (11,166) (6,989) (7,380)
---------- ----------- ----------
Income before extraordinary losses .............................................. 219,503 121,717 107,522
Extraordinary losses, net of tax benefit of $5,990,
$10,522 and $4,477 (Note 10) ................................................. (11,033) (19,693) (8,134)
---------- ----------- ----------
Net income ...................................................................... $ 208,470 $ 102,024 $ 99,388
========== =========== ==========
Earnings (loss) per share - basic
Before extraordinary losses .................................................. $ 1.74 $ 1.21 1.07
Extraordinary losses, net .................................................... (0.09) 0.19) (0.08)
---------------------------------------------
Net income ................................................................. $ 1.65 $ 1.02 $ 0.99
=============================================
Earnings (loss) per share - diluted
Before extraordinary losses .................................................. $ 1.71 $ 1.19 $ 1.06
Extraordinary losses, net .................................................... (0.09) (0.19) (0.08)
---------------------------------------------
Net income ................................................................. $ 1.62 $ 1.00 $ 0.98
=============================================
Weighted average common shares outstanding ...................................... 126,072 100,231 100,618
Diluted effect of stock compensation programs ................................... 2,676 1,289 636
---------------------------------------------
Weighted average common and common equivalent shares outstanding ................ 128,748 101,520 101,254
=============================================
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these consolidated statements.
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
(NOTES 3, 14 AND 15)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Deferred
Common Stock Compensation
--------------------- Other Related to Compre-
Shares Capital Retained Comprehensive Restricted hensive
Outstanding Amount Surplus Earnings Income Stock Total Income
----------- ------ -------- -------- ------------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1996 ........... 102,970 $10,297 $385,941 $290,797 $51,394 $(18,683) $719,746
Net income ......................... 99,388 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) (22,735)
Decline in market value of other
available-for-sale securities,
less deferred tax benefit
of $16,362 ....................... (25,775) (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 ..... $ 50,878
------- ------ -------- -------- ------- -------- ------- ========
Balance - December 31, 1997 ........... 101,036 10,104 388,925 349,386 2,884 (15,796) 735,503
Net income ......................... 102,024 102,024 $102,024
Unrealized gain on available-
for-sale securities, less deferred
tax provision of $2,110 .......... 3,567 3,567 3,567
Foreign currency adjustment ........ 116 116 116
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 ..... $105,707
------- ------ -------- -------- ------- ------- ------- ========
Balance - December 31, 1998 ........... 102,188 10,219 407,691 451,410 6,567 (24,480) 851,407
Net income ......................... 208,470 208,470 208,470
Unrealized gain on available-
for-sale securities, less deferred
tax provision of $2,118 .......... 3,606 3,606 3,606
Realization of gain due
to sale of equity interest
in nonconsolidated affiliate,
net of tax provision of $6,031 ... (10,269) (10,269) (10,269)
Foreign currency adjustment ........ (397) (397) (397)
Treasury stock purchases ........... (6,108) (611) (147,341) (147,952)
Net shares issued in
acquisition of Rio and
minority interest in subsidiary .. 25,392 2,539 529,492 532,031
Net shares issued under incentive
compensation plans, including
income tax benefit of $2,625 ..... 2,908 291 50,139 (1,049) 49,381
-------
1999 Comprehensive Income ..... 201,410
------- ------- -------- -------- ------- -------- ---------- =======
Balance - December 31, 1999 ........... 124,380 $12,438 $987,322 $512,539 $ (493) $(25,529) $1,486,277
======= ======= ======== ======== ======= ======== ==========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these consolidated statements.
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(NOTE 11)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1999 1998 1997
--------- -------- ----------
<S> <C> <C> <C>
Cash flows from operating activities
Net income ................................................................ $208,470 $102,024 $ 99,388
Adjustments to reconcile net income to cash flows from
operating activities
Extraordinary losses, before income taxes ............................ 17,023 29,491 12,611
Depreciation and amortization ........................................ 218,299 159,183 122,396
Write-downs, reserves and recoveries ................................. 1,570 6,535 13,806
Other noncash items .................................................. 86,976 28,835 27,712
Minority interests' share of net income .............................. 11,166 6,989 7,380
Equity in losses of nonconsolidated affiliates ....................... 43,467 14,989 11,053
Realized gains from sales of equity interests in
nonconsolidated affiliates ......................................... (59,824) (13,155) (37,388)
Net losses (gains) from asset sales .................................. 878 (6,536) (4,117)
Net change in long-term accounts ..................................... 56,542 17,260 (1,452)
Net change in working capital accounts ............................... (70,161) (45,244) 3,713
---------- -------- ---------
Cash flows provided by operating activities ........................ 514,406 300,371 255,102
---------- -------- ---------
Cash flows from investing activities
Land, buildings, riverboats and equipment additions ....................... (340,468) (140,386) (229,529)
Increase (decrease) in construction payables .............................. 1,871 (6,557) (10,789)
Investments in and advances to nonconsolidated affiliates ................. (70,181) (76,052) (54,477)
Purchase of minority interest in subsidiary ............................... (26,000) -- --
Proceeds from sales of equity interests in subsidiaries ................... 172,576 17,000 53,755
Proceeds from other asset sales ........................................... 26,359 12,728 26,570
Cash acquired in acquisitions ............................................. 50,226 -- --
Payment for purchase of Showboat, Inc., net of cash acquired .............. -- (475,334) --
Purchase of marketable equity securities for defeasance of debt ........... -- (65,898) --
Other ..................................................................... 1,253 (28,739) (6,483)
---------- -------- ---------
Cash flows used in investing activities ............................ (184,364) (763,238) (220,953)
---------- -------- ---------
Cash flows from financing activities
Net borrowings under Bank Facility, net of financing costs of $4,556 ...... 1,105,444 -- --
Net (repayments) borrowings under Retired Facility,
net of financing costs of $9,332 in 1998 ................................ (1,086,000) 362,262 239,500
Proceeds from issuance of senior notes,
net of discount and issue costs of $5,980 ............................... 494,020 -- --
Proceeds from issuance of senior subordinated notes,
net of issue costs of $12,552 ........................................... -- 737,448 --
Other debt proceeds ....................................................... 21,000 -- --
Debt retirements .......................................................... (625,568) (563,522) (202,115)
Purchases of treasury stock ............................................... (147,952) -- (41,022)
Minority interests' distributions, net of contributions ................... (7,122) (6,200) (9,952)
Premiums paid on early extinguishments of debt ............................ (9,278) (24,569) (9,666)
Other ..................................................................... -- -- (45)
---------- -------- ---------
Cash flows (used in) provided by financing activities .............. (255,456) 505,419 (23,300)
---------- -------- ---------
Net increase in cash and cash equivalents .................................... 74,586 42,552 10,849
Cash and cash equivalents, beginning of year ................................. 158,995 116,443 105,594
---------- -------- ---------
Cash and cash equivalents, end of year ....................................... $233,581 $158,995 $ 116,443
========== ========= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of these consolidated statements.
<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. As of December 31, 1999, our U.S. operations included ten
land-based casinos, seven riverboat or dockside casinos, and three casinos on
Indian reservations.
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 (see Note 15).
CASH AND CASH EQUIVALENTS. Cash includes the minimum cash balances required to
be maintained by a state gaming commission, which totaled approximately $16.6
million and $14.0 million at December 31, 1999 and 1998, 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 $116.0 million and $21.7 million at December 31, 1999
and 1998, 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 $13.1 million, $2.5 million and $6.9 million in
1999, 1998 and 1997, 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:
Buildings and improvements ...................................... 10 to 40 years
Riverboats ...................................................... 30 years
Furniture, fixtures and equipment ............................... 2 to 15 years
TREASURY STOCK. The shares of Harrah's Entertainment common stock we hold in
treasury are reflected in our Consolidated Balance Sheets and our 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 costs of providing such complimentary
services, which we classify as casino expenses through interdepartmental
allocations, were as follows:
1999 1998 1997
-------- --------- --------
Food and beverage $144,841 $ 97,934 $ 83,491
Rooms 43,773 28,473 19,290
Other 14,450 6,138 3,768
-------- --------- --------
$203,064 $132,545 $106,549
======== ========= ========
AMORTIZATION. We amortize goodwill and other intangibles, including trademarks,
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.
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, 1999, common stock equivalents consisted
solely of net restricted shares and stock options outstanding under our employee
stock benefit plans. (See Note 14.)
RECLASSIFICATIONS. We have reclassified certain amounts for prior years to
conform with our presentation for 1999.
<PAGE>
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. Completed Acquisitions
We are accounting for each of the transactions described below as a purchase.
Accordingly, the purchase price is 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 was
completed within one year from the date of the acquisition. To the extent that
the purchase price exceeds the fair value of the net identifiable tangible and
intangible assets acquired, such excess is allocated to goodwill and amortized
for periods of up to 40 years. For periods prior to the completion of the
purchase price allocation, our financial statements included estimated goodwill
amortization expense.
SHOWBOAT, INC. On June 1, 1998, we completed our acquisition of Showboat, Inc.
("Showboat") for $30.75 per share in an all-cash transaction, and assumed
approximately $635 million of Showboat debt. The operating results for Showboat
are included in the 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 reported by the Company as an
asset-held-for-sale. As such, this property has been valued at its estimated net
realizable value, net of estimated selling expenses, carrying, and interest
costs through the expected date of sale. Also acquired in this transaction was a
55% noncontrolling interest in Showboat Marina Casino Partnership ("SMCP"),
which owned and operated the Showboat East Chicago casino. In first quarter 1999
we increased our ownership interest of SMCP to 99.55% and began consolidating
this partnership with the financial results of our other businesses. The East
Chicago property was re-branded as a "Harrah's" property during first quarter
1999. Also included in the Showboat acquisition was a 24.6% equity ownership
interest in the Star City Casino in Sydney, Australia, and an agreement to
manage that casino. In fourth quarter 1999 we sold our ownership interest in the
Star City Casino and in first quarter 2000 we completed the sale of our
management interests in that property. (See Note 15.)
Subsequent to the closing of the Showboat acquisition, all debt assumed in
the acquisition, including the debt of the partnership owning the East Chicago
property, was retired using proceeds from the Previous Facility. (See Note 5.)
RIO HOTEL & CASINO, INC. We completed our merger with Rio Hotel & Casino, Inc.
("Rio"), on January 1, 1999, issuing approximately 25 million shares of common
stock to acquire all of Rio's outstanding shares in a one-for-one transaction
and assuming Rio's outstanding debt of approximately $432 million. In addition
to the Rio property, our acquisition also included Rio Secco, an 18-hole
championship golf course, and approximately 35 acres adjacent to the Rio, which
is available for further development.
In second quarter 1999 we retired Rio's revolving credit facility
scheduled to mature in 2003 and Rio's 10 5/8% Senior Subordinated Notes due 2005
and 9 1/2% Senior Subordinated Notes due 2007 using proceeds from our Bank
Facility. (See Note 5.)
The following unaudited pro forma consolidated financial information for
the Company has been prepared assuming that the Showboat acquisition, the Rio
merger and the debt extinguishments discussed above had occurred on the first
day of the period:
Year Ended
(In millions, except December 31,
per share amounts) 1998
------------
Revenues..................................................... $2,764.7
========
Income from operations....................................... $ 380.5
========
Income before extraordinary losses........................... $ 126.1
========
Net income................................................... $ 106.4
========
Earnings per share-diluted
Income before extraordinary losses........................ $ 1.00
========
Net income................................................ $ 0.84
========
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, Rio merger and the debt
extinguishments been completed as of the beginning of the period, or of future
results.
<PAGE>
Notes to Consolidated Financial Statements, continued
(Dollars in thousands, unless otherwise stated)
- --------------------------------------------------------------------------------
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 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, 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.
In July 1999, our Board of Directors authorized the repurchase in open
market and other transactions of up to 10 million shares of the Company's common
stock. We expect to acquire our shares from time to time at prevailing market
prices through the December 31, 2000, expiration of the approved plan. At
December 31, 1999, we had repurchased 5.6 million shares under the provisions of
this plan. These repurchases are in addition to 0.5 million shares repurchased
earlier in 1999 in connection with the increase of our ownership interest in the
East Chicago property.
Under the terms of our employee stock benefit programs, we have reserved
shares of Harrah's Entertainment common stock for issuance under the Restricted
Stock and Stock Option Plans. (See Note 14 for a description of the plans.) The
following table summarizes the total number of shares authorized for issuance
under each of these plans and the remaining unissued shares as of December 31,
1999:
Restricted Stock
Stock Plan Option Plan
---------- -----------
Total shares authorized for issuance
under the plans ........................... 8,400,000 19,792,955
Shares issued and options granted,
net of cancellations ...................... (6,522,087) (18,111,670)
--------- -----------
Shares held in reserve for
issuance or grant under the plans
as of December 31, 1999 ................... 1,877,913 1,681,285
========= ==========
4. Detail of Certain Balance Sheet Accounts
Deferred costs, trademarks and other consisted of the following:
1999 1998
--------- ----------
Star City management contract, net of
amortization of $5,364 and $1,976 ............. $130,136 $133,524
Trademarks, net of amortization of
$4,061 and $981 ............................... 119,139 66,319
Cash surrender value of life
insurance (Note 14) ........................... 63,303 52,904
Treasury securities .............................. 62,555 64,510
Deferred finance charges, net of
amortization of $3,379 and $16,453 ............ 21,507 21,913
Other ............................................ 148,580 140,704
--------- ----------
$545,220 $479,874
========= ==========
Accrued expenses consisted of the following:
1999 1998
-------- --------
Insurance claims and reserves ................ $ 50,985 $ 45,770
Payroll and other compensation ............... 83,975 48,521
Accrued interest payable ..................... 24,147 18,465
Other accruals ............................... 128,387 59,265
-------- --------
$287,494 $172,021
======== ========
<PAGE>
- --------------------------------------------------------------------------------
5. Long-Term Debt
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Revolving Credit Facilities
7.0%-7.9% at December 31, 1999,
maturities to 2004 ....................... $1,110,000 $1,086,000
Secured Debt
7.1%, maturity 2028 ...................... 98,278 99,232
9 1/4%, maturity 2008 .................... 58,137 58,269
13%, maturity 2009 ....................... 2,377 2,393
Unsecured Senior Notes
7 1/2%, maturity 2009 .................... 498,072 --
Unsecured Senior Subordinated Notes
7 7/8%, maturity 2005 .................... 750,000 750,000
Other Unsecured Borrowings
5.5%-15.2%, maturities to 2001 ........... 23,409 3,605
Capitalized lease obligations
4.9%-8.9%, maturities to 2002 ............ 2,872 2,187
---------- ----------
2,543,145 2,001,686
Current portion of long-term debt .......... (2,877) (2,332)
---------- ----------
$2,540,268 $1,999,354
========== ==========
</TABLE>
As of December 31, 1999, aggregate annual principal maturities for the four
years subsequent to 2000 were: 2001, $2.7 million; 2002, $1.4 million; 2003,
$1.3 million; and 2004, $1.1 billion.
REVOLVING CREDIT FACILITIES. On April 30, 1999, we consummated new revolving
credit and letter of credit facilities (the "Bank Facility") in the amount of
$1.6 billion. This Bank Facility consists of a five-year $1.3 billion revolving
credit and letter of credit facility maturing in 2004 and a separate $300
million revolving credit facility, which is renewable annually at the borrower's
and lenders' options. Currently, the Bank Facility bears interest based upon 80
basis points over LIBOR for current borrowings under the five-year facility and
85 basis points over LIBOR for the 364-day facility. In addition, there is a
facility fee for borrowed and unborrowed amounts which is currently 20 basis
points on the five-year facility and 15 basis points on the 364-day facility.
The interest rate and facility fee are based on our current debt ratings and
leverage ratio and may change as our debt ratings and leverage ratio change.
Proceeds from the Bank Facility were used to retire our previous revolving
credit facility scheduled to mature in 2000 (the "Previous Facility"), Rio's
revolving credit facility scheduled to mature in 2003 and Rio's 10 5/8% Senior
Subordinated Notes due 2005 and 9 1/2% Senior Subordinated Notes due 2007. As of
December 31, 1999, $1.1 billion in borrowings were outstanding under the Bank
Facility, with an additional $37.5 million committed to back letters of credit.
After consideration of these borrowings, $452.5 million of additional borrowing
capacity was available to the Company as of December 31, 1999.
ISSUANCE OF NOTES. During December 1998, Harrah's Operating Company, Inc.,
("HOC"), a wholly-owned subsidiary of the Company, 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 certain
financial covenants.
In January 1999, 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 our 7 7/8% Notes.
The net proceeds from both debt offerings were used to reduce our
outstanding borrowings under the Previous Facility. Harrah's Entertainment has
unconditionally guaranteed HOC's obligations under both the 7 7/8% Notes and the
7 1/2% Notes.
EARLY EXTINGUISHMENTS OF DEBT. In addition to entering into the new Bank
Facility, we have refinanced certain of our outstanding debts, in particular
those debt obligations assumed in our acquisition transactions, to reduce our
effective interest rate and /or lengthen maturities. We financed these
activities using the proceeds from our bank facilities. The following table
summarizes the debt obligations that we have refinanced over the last three
years:
- -------------------------------------------------------------------------------
Date Face Value
Issuer Retired Debt Extinguished Retired
- -------------------------------------------------------------------------------
SMCP March 1999 13 1/2% First Mortgage Notes
due 2003 ...................... $140,000
Rio May 1999 10 5/8% Senior Subordinated Notes
due 2005 ...................... 100,000
Rio May 1999 9 1/2% Senior Subordinated Notes
due 2007 ...................... 125,000
SMCP July 1999 Capital lease obligations ............. 9,210
Showboat June 1998 9 1/4% First Mortgage Bonds
due 2008 ...................... 218,555
Showboat June 1998 13% Senior Subordinated Notes
due 2009 ...................... 117,900
HOC May 1998 8 3/4% Senior Subordinated Notes
due 2000 ...................... 200,000
HOC May 1997 10 7/8% Senior Subordinated Notes
due 2002 ...................... 200,000
The premiums paid to the holders of the debts retired and the write-off of the
related unamortized deferred finance charges are reported on the Consolidated
Statements of Income as
<PAGE>
Notes to Consolidated Financial Statements, continued
(Dollars in thousands, unless otherwise stated)
- --------------------------------------------------------------------------------
Extraordinary losses (see Note 10). We recorded the liabilities assumed in
acquisition transactions at their fair value at the date of consummation of the
acquisition. The premium charged to Extraordinary losses as a result of the
retirement of these assumed debts equaled the difference between the
consideration paid to the holders of the notes and the carrying value we
assigned to the notes at the time of purchase.
In addition to these debt extinguishments, in August 1998 we defeased the
remaining balance of Showboat's 9 1/4% First Mortgage Bonds due 2008 and 13%
Senior Subordinated Notes due 2009. Treasury securities were purchased and
deposited with trustees to fund both the payment of the scheduled interest
payments until the first call date and the payment of the premium and principal
of the securities outstanding on the call date. The treasury securities are
reported as Deferred costs, trademarks and other assets and the remaining
balance of the defeased debt is reported in Long-term debt in the Consolidated
Balance Sheets.
INTEREST RATE AGREEMENTS. To manage the relative mix of our debt between fixed
and variable rate instruments, we 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, 1999, 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:
Rate
Swap Rate Received
Paid (Variable) at
Notional Amount (Fixed) Dec. 31, 1999 Swap Maturity
- --------------- ---------- -------------- -------------
$50 million 6.985% 6.140% March 2000
$50 million 6.951% 6.163% March 2000
$50 million 6.945% 6.163% March 2000
$50 million 6.651% 6.066% May 2000
$50 million 5.788% 6.121% June 2000
$50 million 5.785% 6.121% June 2000
The differences to be paid or received under the terms of the interest rate swap
agreements are accrued as interest rates change and recognized as an adjustment
to interest expense for the related debt. Changes in the variable interest rates
to be paid or received by 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, 1999 and 1998, was as follows:
December 31,
------------
1999 1998
---------- ---------- ------------ ----------
Carrying Market Carrying Market
(In millions) Value Value Value Value
- --------------------------- ---------- ---------- ----------- ----------
Outstanding debt ........... $(2,543.1) $(2,484.6) $(2,001.7) $(2,019.0)
Interest rate swap
agreements (used
for hedging purposes) ... (0.1) (0.5) (0.2) (6.2)
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, 1999, the remaining lives
of our real estate operating leases ranged from one to 17 years, with various
automatic extensions totaling up to 45 years. The average remaining term for
other operating leases, which generally contain renewal options, extends
approximately five years.
Rental expense associated with operating leases is charged to expense in
the year incurred and was included in the Consolidated Statements of Income as
follows:
1999 1998 1997
---- ---- ----
Noncancelable
Minimum ..................... $16,385 $15,409 $16,455
Contingent .................. 4,666 4,029 2,929
Sublease .................... (385) (258) (294)
Other .......................... 6,859 4,168 3,584
------- ------- -------
$27,525 $23,348 $22,674
======= ======= =======
<PAGE>
- --------------------------------------------------------------------------------
Our future minimum rental commitments as of December 31, 1999, were as
follows:
Noncancelable
Operating
Leases
-------------
2000 ............................................................. $ 14,799
2001 ............................................................. 15,819
2002 ............................................................. 14,463
2003 ............................................................. 13,988
2004 ............................................................. 13,940
Thereafter ....................................................... 178,604
--------
Total minimum lease payments .................................. $251,613
========
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, Reserves and Recoveries
Our operating results include various pretax charges to record asset
impairments, contingent liability reserves, project write-offs and recoveries at
time of sale of previously recorded reserves for asset impairment. The
components of our write-downs, reserves and recoveries were as follows:
1999 1998 1997
---- ---- ----
Impairment of long-lived
assets .............................. $ 3,367 $2,740 $ 806
Write-off of abandoned
assets and other costs .............. 569 4,734 --
Reserve for debtor-in-
possession loans to Harrah's
Jazz Company ........................ -- -- 13,000
Recoveries from sale of
impaired assets ..................... (1,701) -- --
-------- ------ -------
$ 2,235 $7,474 $13,806
======= ====== =======
8. Headquarters Relocation and Reorganization Costs
During August 1999, we began the move of our corporate headquarters to Las
Vegas, Nevada, from Memphis, Tennessee. The move, to be completed in 2000, is
being accomplished in phases and the costs of the relocation are being expensed
as incurred. Certain headquarters employees elected not to accept an offer to
move, and the positions of other employees were eliminated as part of a staff
reorganization conducted in advance of the move. The expenses for the severance
payable to these employees were accrued when the employee became eligible for
the severance payments.
9. Income Taxes
Our federal and state income tax provision (benefit) allocable to identified
income statement and balance sheet line items was as follows:
1999 1998 1997
-------- -------- --------
Income before income taxes and
minority interests .................... $128,914 $ 74,600 $ 68,746
Extraordinary loss ....................... (5,990) (10,522) (4,477)
Stockholders' equity
Unrealized gain (loss)
on marketable
equity securities ................... 2,118 2,110 (16,362)
Compensation expense for
tax purposes in excess of
amounts recognized
for financial reporting
purposes ............................ (2,625) (787) (702)
-------- -------- --------
$122,417 $ 65,401 $ 47,205
======== ======== ========
Income tax expense attributable to Income before income taxes and minority
interests consisted of the following:
1999 1998 1997
--------- ------- --------
United States
Current
Federal ....................... $ 69,567 $45,084 $ 78,306
State ......................... 7,429 6,531 5,407
Deferred ........................ 34,052 22,985 (14,967)
Other countries
Current ......................... 17,866 -- --
-------- ------- --------
$128,914 $74,600 $ 68,746
======== ======= ========
<PAGE>
Notes to Consolidated Financial Statements, continued
(Dollars in thousands, unless otherwise stated)
- --------------------------------------------------------------------------------
The differences between the statutory federal income tax rate and the effective
tax rate expressed as a percentage of Income before income taxes and minority
interests were as follows:
1999 1998 1997
---- ---- ----
Statutory tax rate ............................. 35.0% 35.0% 35.0%
Increases (decreases) in tax
resulting from:
State taxes, net of federal
tax benefit ............................ 1.4 2.2 2.2
Goodwill amortization ..................... 1.3 1.1 --
Minority interests in
partnership earnings ................... (1.1) (1.2) (1.4)
Other ..................................... (0.7) (0.4) 1.6
---- ---- ----
Effective tax rate ............................. 35.9% 36.7% 37.4%
==== ==== ====
The components of our net deferred tax balance included in the Consolidated
Balance Sheets were as follows:
1999 1998
----- -----
Deferred tax assets
Compensation programs ........................ $ 41,670 $ 25,447
Bad debt reserve ............................. 12,951 4,735
Self-insurance reserves ...................... 7,910 5,302
Deferred income .............................. 1,278 1,137
Project opening expenses ..................... 1,274 2,573
Debt costs ................................... 768 1,592
Investments in
nonconsolidated affiliates ................. -- 31,773
Other ........................................ 3,308 4,423
--------- ---------
69,159 76,982
--------- ---------
Deferred tax liabilities
Property ..................................... (173,963) (60,016)
Management contract .......................... (45,547) (46,733)
Trademarks ................................... (41,697) (23,212)
Investment in
nonconsolidated affiliates ................. (3,699) --
--------- ---------
(264,906) (129,961)
--------- ---------
Net deferred tax liability ................... $(195,747) $ (52,979)
========= =========
10. Extraordinary Items
The components of our net extraordinary losses were as follows:
1999 1998 1997
------ ------ ------
Losses on early
extinguishments of debt ................. $(17,023) $(27,824) $(12,611)
Harrah's Entertainment's share
of nonconsolidated affiliate's
extraordinary loss ...................... -- (2,391) --
-------- -------- --------
(17,023) (30,215) (12,611)
Income tax benefit ......................... 5,990 10,522 4,477
-------- -------- --------
Extraordinary losses,
net of income taxes ..................... $(11,033) $(19,693) $ (8,134)
======== ======== ========
The extraordinary losses on early extinguishments of debt 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.
11. Supplemental Cash Flow Information
The increase (decrease) in cash and cash equivalents due to the changes in
long-term and working capital accounts was as follows:
1999 1998 1997
------ ------ ------
Long-term accounts
Deferred costs and
other assets .................... $ 51,717 $ (6,457) $ (1,746)
Deferred credits and
other long-term liabilities ..... 4,825 23,717 294
-------- -------- --------
Net change in
long-term accounts ......... $ 56,542 $ 17,260 $ (1,452)
======== ======== ========
Working capital accounts
Receivables ....................... $(53,620) $(21,734) $(12,062)
Inventories ....................... (307) (1,269) (565)
Prepayments and other ............. 75,986 (2,134) (3,454)
Other current assets .............. -- -- 27
Accounts payable .................. (1,849) 13,561 5,606
Accrued expenses .................. (90,371) (33,668) 14,161
-------- -------- --------
Net change in working
capital accounts ........... $(70,161) $(45,244) $ 3,713
======== ======== ========
<PAGE>
- --------------------------------------------------------------------------------
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:
1999 1998 1997
----- ------ -----
Interest expense, net of
amount capitalized ................ $193,407 $117,270 $79,071
Adjustments to reconcile
to cash paid for interest
Net change in accruals .......... (2,011) (16,917) (5,961)
Amortization of deferred
finance charges .............. (4,459) (4,982) (3,021)
Net amortization of
discounts and premiums ....... 543 74 (12)
-------- --------- ----------
Cash paid for interest,
net of amount capitalized ......... $187,480 $ 95,445 $70,077
======== ========= =========
Cash payments for income taxes,
net of refunds (Note 9) ........... $ 77,534 $ 51,785 $36,479
======== ========= ==========
12. 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
Harrah's Entertainment of third party debt and development completion
guarantees. Excluding guarantees and commitments for New Orleans (see Notes 15
and 18), as of December 31, 1999, we had guaranteed third party loans and leases
of $100.5 million, which are secured by certain assets, and had commitments of
$238.8 million, primarily construction-related.
During second quarter 1999, we performed under our guarantee of the Upper
Skagit Tribe's development financing and purchased their receivable from the
lender for $11.4 million. Under the terms of our agreement with the Tribe, they
have agreed to fund the retirement of this debt. The Tribe is attempting to
secure new financing; however, there is no assurance that their efforts will be
successful and that the receivable will be collected.
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, 1999, the
aggregate monthly commitment pursuant to these contracts, which extend for
periods of up to 60 months from December 31, 1999, was $1.1 million.
SEVERANCE AGREEMENTS. As of December 31, 1999, the Company has severance
agreements with 47 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 Harrah's
Entertainment's incentive plans. The estimated amount, computed as of December
31, 1999, that would be payable under the agreements to these executives based
on earnings and stock options aggregated approximately $88 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.
<PAGE>
Notes to Consolidated Financial Statements, continued
(Dollars in thousands, unless otherwise stated)
- --------------------------------------------------------------------------------
13. Litigation
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, management believes that the final outcome of these matters will
not have a material adverse effect upon our consolidated financial position or
our results of operations.
14. 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
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.
All outstanding stock options under Rio's stock option plans at the date of our
merger were fully vested and converted, at the same terms and conditions as
originally granted, into options for Harrah's Entertainment common stock. No
options for additional shares may be granted under the Rio plans, and any
options cancelled under the Rio plans may not be re-issued.
A summary of SOP activity for 1997, 1998 and 1999 is as follows:
<TABLE>
<CAPTION>
Number of
Common Shares
Weighted Avg. --------------------------------
Exercise Price Options Available
(Per Share) Outstanding For Grant
-------------- ----------- ---------
<S> <C> <C> <C>
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
Additional shares authorized ........................................... N/A -- 2,500,000
Rio acquisition ........................................................ 14.74 3,442,955 --
Granted ................................................................ 23.20 3,133,783 (3,133,783)
Exercised .............................................................. 14.95 (2,444,747) --
Canceled ............................................................... 18.17 (725,346) 725,346
Rio plans cancellations ................................................ 18.24 (14,500) --
---------- ---------
Balance - December 31, 1999 ............................................... 18.14 13,705,299 1,681,285
========== =========
</TABLE>
1999 1998 1997
------ ------ ------
Options exercisable at
December 31 ................. 4,727,341 2,257,662 1,536,964
Weighted average fair
value per share of options
granted during year ......... $11.74 $7.39 $9.98
The following table summarizes additional information regarding the
options outstanding at December 31, 1999:
Options Outstanding Options Exercisable
------------------------------------- -----------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contract Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
- ------------- ----------- --------- -------- ----------- --------
$ 3.00-$15.50 5,362,334 7.1 years $13.57 2,370,735 $12.60
15.63- 21.47 5,685,993 7.7 years 18.55 1,864,345 18.90
22.55- 35.59 2,656,972 9.0 years 26.51 492,261 24.44
---------- ---------
13,705,299 4,727,341
========== =========
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
<PAGE>
- --------------------------------------------------------------------------------
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>
1999 1998 1997
---------------------- ---------------------- ---------------------
As Pro As Pro As Pro
Reported Forma Reported Forma Reported Forma
-------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Net income ............ $208,470 $193,631 $102,024 $93,628 $99,388 $89,570
Earnings per share
Basic ............ 1.65 1.54 1.02 0.93 0.99 0.89
Diluted .......... 1.62 1.50 1.00 0.92 0.98 0.88
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions:
1999 1998 1997
------ ------ -----
Expected dividend yield ....................... 0.0% 0.0% 0.0%
Expected stock price volatility ............... 40.0% 47.0% 41.0%
Risk-free interest rate ....................... 5.9% 4.3% 5.8%
Expected average life of options (years) ...... 6 5 7
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 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 1999, 1998 and 1997,
including the TARSAP awards, were as follows:
1999 1998 1997
------ ------ ------
Number of shares granted .............. 560,085 990,893 309,833
Weighted-average grant
price per share .................... $23.62 $17.26 $19.46
Amortization expense
(In millions) ...................... 9.7 6.9 4.5
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 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 $22.2 million, $18.1 million and $14.6 million in 1999, 1998 and
1997, respectively.
DEFERRED COMPENSATION PLANS. Harrah's maintains deferred compensation plans
under which certain employees may defer a portion of their compensation. Amounts
deposited into these plans are unsecured liabilities of the Company and earn
interest at rates approved by the Human Resources Committee of the Board of
Directors. The total liability included in Deferred credits and other
liabilities for these plans at December 31, 1999 and 1998 was $59.3 million and
$49.6 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 4,900 of our employees are covered by
union sponsored, collectively bargained multi-employer pension plans. We
contributed and charged to expense $4.2 million, $4.4 million and $2.4 million
in 1999, 1998 and 1997, 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.
<PAGE>
Notes to Consolidated Financial Statements, continued
(Dollars in thousands, unless otherwise stated)
- --------------------------------------------------------------------------------
15. Nonconsolidated Affiliates
NEW ORLEANS CASINO. We have an approximate 43% ownership interest in the
parent of Jazz Casino Company, L.L.C. ("JCC"), the company which owns and
operates the exclusive land-based casino (the "Casino") in New Orleans,
Louisiana. We manage that Casino pursuant to a management agreement between
JCC and a subsidiary of our Company. We have (i) guaranteed JCC's initial
$100.0 million annual payment under the Casino operating contract to the
State of Louisiana gaming board (the "State Guarantee"), (ii) guaranteed
$166.5 million of a $236.5 million JCC bank credit facility, and (iii) made 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 October 28,
1999, opening of the Casino, and, if certain cash flow tests (for the renewal
periods beginning April 1, 2001) and other conditions are satisfied each year,
to renew the guarantee beginning April 1, 2000, for each 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 (and therefore the amount we have guaranteed) is $100 million at
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. (See Note 18.)
DISPOSITIONS OF EQUITY INTERESTS. In 1999 we sold our shares of Star City casino
and recorded a pretax gain of $43.5 million. We also sold our interest in Sodak
Gaming, Inc. to a gaming equipment manufacturing company and recorded a pretax
gain of $16.3 million.
During 1998, we sold our remaining equity interest in a restaurant
affiliate and recognized a gain on the sale of $13.1 million.
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.
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, 1999 and 1998, and for the three fiscal years
ended December 31, 1999, is included in the following tables.
1999 1998 1997
------ ------ ------
Combined Summarized Balance
Sheet Information
Current assets ............ $ 73,560 $ 111,218
Land, buildings and
equipment, net ......... 570,204 1,094,195
Other assets .............. 130,889 355,505
----------- -----------
Total assets ......... 774,653 1,560,918
----------- -----------
Current liabilities ....... 100,336 96,095
Long-term debt ............ 437,756 808,334
----------- -----------
Total liabilities .... 538,092 904,429
----------- -----------
Net assets ......... $ 236,561 $ 656,489
=========== ===========
Combined Summarized
Statements of Operations
Revenues .................. $ 116,236 $ 299,292 $ 23,464
=========== =========== ===========
Operating loss ............ $ (77,595) $ (2,774) $ (44,115)
=========== =========== ===========
Net loss .................. $ (108,082) $ (33,245) $ (39,290)
=========== =========== ===========
Our Investments in and advances to nonconsolidated affiliates are
reflected in the accompanying Consolidated Balance Sheets as follows:
1999 1998
-------- --------
Investments in and advances
to nonconsolidated affiliates
Accounted for under the equity
method ................................... $167,828 $231,366
Accounted for at historical cost ............ -- 15,087
Available for sale and recorded
at market value .......................... 683 27,055
-------- --------
$168,511 $273,508
======== ========
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
<PAGE>
- --------------------------------------------------------------------------------
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.
16. Summarized Financial Information
HOC is a wholly-owned subsidiary and the principal asset of Harrah's
Entertainment and the issuer of certain debt securities which have been
guaranteed by Harrah's Entertainment. Due to the comparability of HOC's
consolidated financial information with that of Harrah's Entertainment, complete
separate financial statements and other disclosures regarding HOC have not been
presented. Management has determined that such information is not material to
holders of HOC's debt securities. Summarized financial information of HOC as of
December 31, 1999 and 1998, and for each of the three years ended December 31,
1999, prepared on the same basis as Harrah's Entertainment was as follows:
1999 1998 1997
------ ------ -----
Current assets ....................... $ 481,437 $ 271,247
Land, buildings, riverboats and
equipment, net .................... 3,061,230 1,870,157
Other assets ......................... 1,218,866 1,136,750
---------- ----------
4,761,533 3,278,154
---------- ----------
Current liabilities .................. 353,534 209,651
Long-term debt ....................... 2,540,268 1,999,354
Other liabilities .................... 349,782 187,247
Minority interests ................... 18,949 14,906
---------- ----------
3,262,533 2,411,158
---------- ----------
Net assets ...................... $1,499,000 $ 866,996
========== ==========
Revenues ............................. $3,024,027 $2,003,861 $1,618,998
========== ========== ==========
Income from operations ............... $ 481,183 $ 286,703 $ 213,942
========== ========== ==========
Income before extraordinary
losses ............................ $ 219,598 $ 120,632 $ 105,343
========== ========== ==========
Net income ........................... $ 208,565 $ 100,939 $ 97,209
========== ========== ==========
Certain of our debt guarantees 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 the most
restrictive of these covenants regarding restricted payments was approximately
$1.5 billion at December 31, 1999.
17. Players International, Inc.
In August 1999, we signed a definitive agreement to acquire Players
International, Inc. ("Players"). Players operates a dockside riverboat casino on
the Ohio River in Metropolis, Illinois; two cruising riverboat casinos in Lake
Charles, Louisiana; two dockside riverboat casinos in Maryland Heights,
Missouri, and a horse racetrack in Paducah, Kentucky. Players and Harrah's
jointly operate a landside hotel and entertainment facility at the Maryland
Heights property, a suburb of St. Louis. Players' shareholders will receive
$8.50 in cash for each share outstanding and we will assume approximately $150
million of Players' debt. The acquisition will be funded through our Bank
Facility and will be accounted for as a purchase. Completion of the transaction
is subject to various conditions, including regulatory approvals.
18. Subsequent Event
On February 28, 2000, we were notified by JCC that it was suspending payment
of the daily payments to the State of Louisiana until JCC is able to generate
sufficient cash flow to pay its operating expenses and make the daily
payments. On February 29, 2000, the State made a demand on the Company under
the State Guarantee, and we began funding the daily payment to the State on
that date. We have also agreed, subject to certain conditions, to renew the
State Guarantee for the period April 1, 2000, until March 31, 2001. See Note
15 for further discussion of the State Guarantee.
<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's internal auditors report directly to the Audit Committee
pursuant to gaming regulations. The independent public accountants have direct
access to the Audit Committee, with and without the presence of management
representatives.
/s/ Philip G. Satre
Philip G. Satre
Chairman of the Board
and Chief Executive Officer
/s/ Judy T. Wormser
Judy T. Wormser
Vice President, Controller
and Chief Accounting Officer
Report of Independent Public Accountants
- --------------------------------------------------------------------------------
To the Stockholders and Board of Directors
of Harrah's Entertainment, Inc.:
We have audited the accompanying consolidated balance sheets of Harrah's
Entertainment, Inc. (a Delaware corporation) and subsidiaries ("Harrah's
Entertainment") as of December 31, 1999 and 1998, and the related consolidated
statements of income, stockholders' equity and comprehensive income and cash
flows for each of the three years ended December 31, 1999. 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 auditing standards generally
accepted in the United States. 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, 1999 and 1998, and the results of its operations and its cash flows
for each of the three years ended December 31, 1999 in conformity with
accounting principles generally accepted in the United States.
/s/ Arthur Anderson LLP
Las Vegas, Nevada,
February 8, 2000 (except with
respect to the matter discussed
in Note 18, as to which the
date is February 29, 2000).
<PAGE>
HARRAH'S ENTERTAINMENT, INC.
QUARTERLY RESULTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- ----
<S> <C> <C> <C> <C> <C>
1999(1)
Revenues .............................. $ 711,668 $ 751,137 $ 814,054 $ 747,569 $3,024,428
Income from operations ................ 112,483 123,504 155,921 89,129 481,037
Net income ............................ 34,097 40,548 74,634 59,191 208,470
Earnings per share(3)
Basic ............................... 0.27 0.32 0.59 0.47 1.65
Diluted ............................. 0.27 0.31 0.58 0.45 1.62
1998(2)
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
</TABLE>
(1) 1999 includes $16.3 million recognized in third quarter and $43.5 million
recognized in fourth quarter in pretax gains from the sales of our equity
interests in nonconsolidated affiliates. 1999 also includes the financial
results of Rio Hotel & Casino, Inc., from its January 1, 1999, date of
acquisition.
(2) 1998 includes $13.2 million in pretax income from the second quarter 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.
(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.
<PAGE>
Exhibit 21
HARRAH'S ENTERTAINMENT, INC.
SUBSIDIARIES
<TABLE>
<CAPTION>
Jurisdiction Percentage Date of
of of Incorpor- FEIN
Name Incorporation Ownership ation Number
---- ------------- ---------- --------- ------
<S> <C> <C> <C> <C>
Aster Insurance Ltd. Bermuda 100% 02/06/90 62-1428220
HEI Acquisition Corp. II Nevada 100% 07/22/98 88-0407469
Harrah's Operating Company,
Inc. Delaware 100% 08/08/83 75-1941623
Dusty Corporation Nevada 100% 07/02/98 88-0398744
Harrah South Shore
Corporation California 100% 10/02/59 88-0074793
Harrah's - Holiday Inns
of New Jersey, Inc. New Jersey 100% 09/19/79 62-1071040
Harrah's Alabama
Corporation Nevada 100% 09/09/93 88-0308027
Harrah's Arizona
Corporation Nevada 100% 01/26/93 62-1523519
Harrah's Asia
Development Company Nevada 100% 09/20/96 88-0368569
Harrah's Asia Investment
Company Nevada 100% 09/20/96 88-0368568
Harrah's Asia Management
Company Nevada 100% 09/20/96 88-0368567
Harrah's Atlantic
City, Inc. New Jersey 100% 02/13/79 93-0737757
Harrah's Aviation, Inc. Tennessee 100% 03/11/63 62-0694622
HCAL Corporation Nevada 100% 02/02/94 88-0313169
Harrah's Crescent City
Investment Company Nevada 100% 03/28/97 86-0863877
Harrah's Illinois
Corporation Nevada 100% 12/18/91 88-0284653
Van Buren Leasing
Corporation(1) Nevada 100% 08/30/96 93-1218215
Harrah's Indiana Casino
Corporation Nevada 100% 09/09/93 88-0308079
Harrah's Indiana
Management Corporation Nevada 100% 09/09/93 88-0308082
Harrah's Interactive
Entertainment Company Nevada 100% 09/21/94 88-0326037
Harrah's Interactive
Investment Company Nevada 100% 09/21/94 88-0326036
</TABLE>
- ----------------------
(1) 100% owned by Des Plaines Development Limited Partnership of which Harrah's
Illinois Corporation is 80% partner.
1
<PAGE>
Exhibit 21
HARRAH'S ENTERTAINMENT, INC.
SUBSIDIARIES
<TABLE>
<CAPTION>
Jurisdiction Percentage Date of
of of Incorpor- FEIN
Name Incorporation Ownership ation Number
---- ------------- ---------- --------- ------
<S> <C> <C> <C> <C>
Harrah's Kansas Casino
Corporation Nevada 100% 11/12/93 88-0313173
HPB Corporation Kansas 100% 11/13/97 74-2859636
Harrah's Las Vegas, Inc. Nevada 100% 03/21/68 88-0116377
Harrah's Laughlin, Inc. Nevada 100% 07/10/87 88-0230282
Harrah's Louisiana
Investment Company Nevada 100% 10/22/98 88-0407915
Harrah's Management
Company Nevada 100% 04/07/83 88-0187173
Harrah's Marketing
Services Corporation Nevada 100% 08/21/97 86-0889202
Harrah's Maryland Heights
Corporation Nevada 100% 07/30/93 88-0306276
Harrah's Maryland Heights
LLC(2) Delaware 99% 10/16/95 43-1725857
Harrah's Maryland Heights
Operating Company Nevada 100% 06/20/95 88-0343024
Harrah's Michigan
Corporation Nevada 100% 06/15/93 88-0307990
Harrah's Minnesota
Corporation Nevada 100% 10/20/92 88-0292681
Harrah's NC Casino
Company, LLC(3) North Carolina 99% 04/21/95 56-1936298
Harrah's New Jersey, Inc. New Jersey 100% 09/13/78 22-2219370
Harrah's New Orleans
Management Company Nevada 100% 05/21/93 62-1534758
Harrah's New Zealand Inc. Nevada 100% 02/18/92 88-0292682
Harrah's North Kansas City
LLC(4) Missouri 100% 12/15/99 62-1802713
Harrah's of Jamaica, Ltd. Jamaica 100% 07/12/85 N/A
Harrah's Operating Company
Memphis, Inc. Delaware 100% 12/15/99 62-1802711
Harrah's Pennsylvania
Development Co. Nevada 100% 05/18/94 88-0320301
</TABLE>
- ----------------------
(2) 99% Harrah's Operating Company, Inc., 1% Harrah's Maryland Heights Operating
Company
(3) 99% Harrah's Operating Company, nc., 1% Harrah's Management Company
(4) Successor by merger with Harrah's-North Kansas City Corporation; 100%
Harrah's Operating Company, Inc.
2
<PAGE>
Exhibit 21
HARRAH'S ENTERTAINMENT, INC.
SUBSIDIARIES
<TABLE>
<CAPTION>
Jurisdiction Percentage Date of
of of Incorpor- FEIN
Name Incorporation Ownership ation Number
---- ------------- ---------- --------- ------
<S> <C> <C> <C> <C>
Harrah's Pittsburgh
Management Company Nevada 100% 06/08/94 88-0320269
Harrah's Red River
Corporation Nevada 100% 08/05/96 88-0365487
Harrah's Reno Holding
Company, Inc. Nevada 100% 02/23/88 62-1440237
Harrah's Shreveport
Investment Company, Inc. Nevada 100% 04/23/92 88-0292677
Harrah's Shreveport
Management Company, Inc. Nevada 100% 04/23/92 88-0292678
Harrah's Skagit Valley
Agency Corporation Nevada 100% 11/08/95 88-0348745
Harrah's Southeast
Washington Casino
Corporation Nevada 100% 11/21/95 88-0352305
Harrah's Southwest
Michigan Casino Nevada 100% 04/06/95 88-0337476
Corporation
Harrah's Travel, Inc. Nevada 100% 07/30/98 88-0400542
Harrah's Tunica
Corporation Nevada 100% 08/10/92 88-0292680
Harrah's Vicksburg
Corporation Nevada 100% 07/13/92 88-0292320
Harrah's Washington
Corporation Nevada 100% 02/03/94 88-0313171
Harrah's Wheeling
Corporation Nevada 100% 04/29/94 88-0317848
Rio Hotel & Casino, Inc. Nevada 100% 06/14/88 88-0288115
Rio Resort Properties,
Inc. Nevada 100% 09/04/87 88-0229914
Rio Properties, Inc. Nevada 100% 02/24/92 95-3671082
Cinderlane, Inc. Nevada 100% 12/29/94 88-3331880
Twain Avenue, Inc. Nevada 100% 08/08/97 88-0438885
McKellar Industrial
Park Owner's Nevada 100% 12/03/84
Association, Inc.
(Non-Profit)
HLG, Inc. Nevada 100% 10/28/96 88-0371040
Rio Leasing, Inc. Nevada 100% 09/10/96 88-0369074
Rio Development Company,
Inc. Nevada 100% 08/28/96 88-0220505
</TABLE>
3
<PAGE>
Exhibit 21
HARRAH'S ENTERTAINMENT, INC.
SUBSIDIARIES
<TABLE>
<CAPTION>
Jurisdiction Percentage Date of
of of Incorpor- FEIN
Name Incorporation Ownership ation Number
---- ------------- ---------- --------- ------
<S> <C> <C> <C> <C>
Rio Vegas Hotel Casino,
Inc. Nevada 100% 09/28/88 N/A
Showboat, Inc. Nevada 100% 02/16/60 88-0090766
Showboat Australia PTY
Limited(5) Australia 50% 08/11/93 N/A
Ocean Showboat, Inc. New Jersey 100% 09/12/83 22-2500790
Atlantic City
Showboat, Inc. New Jersey 100% 01/10/84 22-2500794
Ocean Showboat Finance
Corporation New Jersey 100% 12/22/86 22-2773679
Showboat Development
Company Nevada 100% 06/09/83 88-0227522
Lake Pontchartrain
Showboat, Inc. Nevada 100% 03/18/93 88-0297741
Showboat Canada, Inc. Canada 100% 06/28/93 N/A
Dion Showboat, Inc. Canada 100% 06/28/93 N/A
Showboat Grande, Inc. Nevada 100% 06/08/93 88-0302251
Showboat Indiana, Inc. Nevada 100% 09/13/93 88-0308090
Showboat LMI, Inc. Nevada 100% 07/26/94 None
Showboat Louisiana,
Inc. Nevada 100% 05/18/93 88-0302250
Showboat Missouri, Inc. Nevada 100% 07/26/94 88-0344271
Showboat Mohawk, Inc. Nevada 100% 07/07/93 88-0308091
Showboat New Hampshire,
Inc. Nevada 100% 07/26/94 None
Showboat Rockingham
Company, LLC(6) New Hampshire 50% 09/09/97
Showboat One, Inc. Nevada 100% 07/26/94 None
Showboat Six, Inc. Nevada 100% 07/26/94 None
Showboat Seven, Inc. Nevada 100% 07/26/94 None
Showboat Eight, Inc. Nevada 100% 07/26/94 None
Showboat Nine, Inc. Nevada 100% 07/27/94 None
Showboat Ten, Inc. Nevada 100% 07/27/94 None
Showboat Eleven, Inc. Nevada 100% 07/27/94 None
Showboat Twelve, Inc. Nevada 100% 07/27/94 None
Showboat Thirteen, Inc. Nevada 100% 07/27/94 None
Showboat Fourteen, Inc. Nevada 100% 07/27/94 None
</TABLE>
- ----------------------
(5) 50% Showboat, Inc., 50% Showboat Development Company
(6) 50% Showboat New Hampshire, Inc., 50% Rockingham Venture, Inc.
4
<PAGE>
Exhibit 21
HARRAH'S ENTERTAINMENT, INC.
SUBSIDIARIES
<TABLE>
<CAPTION>
Jurisdiction Percentage Date of
of of Incorpor- FEIN
Name Incorporation Ownership ation Number
---- ------------- ---------- --------- ------
<S> <C> <C> <C> <C>
Showboat Fifteen, Inc. Nevada 100% 07/27/94 88-0335287
Showboat Finance
Corporation Nevada 100% 05/10/94 None
Showboat Intellectual
Property, Inc. Nevada 100% 01/25/94 88-0314414
Showboat Land Company Nevada 100% 11/12/97 88-0378914
Showboat Operating
Company Nevada 100% 04/10/73 88-0121120
Showboat Land LLC(7) Nevada 1% 11/04/97 88-0382943
Trigger Real Estate
Corporation Nevada 100% 07/02/98 88-0398745
Waterfront Entertainment
and Development, Inc. Indiana 100% 07/19/93
</TABLE>
- ----------------------
(7) 1% Showboat Operating Company, 99% Showboat Land Holding Limited Partnership
5
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 233,581
<SECURITIES> 0
<RECEIVABLES> 165,272
<ALLOWANCES> 44,086
<INVENTORY> 30,666
<CURRENT-ASSETS> 486,669
<PP&E> 3,983,754
<DEPRECIATION> 922,524
<TOTAL-ASSETS> 4,766,847
<CURRENT-LIABILITIES> 371,571
<BONDS> 2,540,268
0
0
<COMMON> 12,438
<OTHER-SE> 1,473,839
<TOTAL-LIABILITY-AND-EQUITY> 4,766,847
<SALES> 0
<TOTAL-REVENUES> 3,024,428
<CGS> 0
<TOTAL-COSTS> 2,429,607
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 193,407
<INCOME-PRETAX> 359,583
<INCOME-TAX> 128,914
<INCOME-CONTINUING> 219,503
<DISCONTINUED> 0
<EXTRAORDINARY> 11,033
<CHANGES> 0
<NET-INCOME> 208,470
<EPS-BASIC> 1.65
<EPS-DILUTED> 1.62
</TABLE>
