<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
/X/ Filed by the Registrant
/ / Filed by a Party other than the Registrant
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
SHOWBOAT, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required.
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
1) Title of each class of securities to which transaction applies:
Common Stock, par value $1.00 per share
-----------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
16,549,365
-----------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
$30.75 (the consideration to be paid per share of Common Stock, par
value $1.00 per share, of Showboat, Inc. pursuant to the merger
described herein)
-----------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
$508,892,973.75
-----------------------------------------------------------------------
5) Total fee paid:
$101,780
-----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/X/ Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
$101,667
-----------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
Schedule 14A
-----------------------------------------------------------------------
3) Filing Party:
Showboat, Inc.
-----------------------------------------------------------------------
4) Date Filed:
March 11, 1998
-----------------------------------------------------------------------
<PAGE>
[LOGO]
SPECIAL MEETING OF STOCKHOLDERS
MERGER PROPOSED--YOUR VOTE IS VERY IMPORTANT
YOU ARE CORDIALLY INVITED TO ATTEND A SPECIAL MEETING OF OUR STOCKHOLDERS AT
WHICH YOU WILL BE ASKED TO VOTE ON THE PROPOSED MERGER BETWEEN SHOWBOAT, INC.
(THE "COMPANY") AND A SUBSIDIARY OF HARRAH'S ENTERTAINMENT, INC. ("HARRAH'S").
If the merger is completed, Harrah's will pay $30.75 per share for each of
your shares of the Company's common stock and then the Company will become a
subsidiary of Harrah's.
Because our Board of Directors has determined that the terms of the merger
agreement and the merger are fair to and in the best interests of our
stockholders, the board unanimously approved and adopted the merger agreement.
The Board of Directors considered the opinion of Donaldson, Lufkin & Jenrette
Securities Corporation that the cash to be paid in the merger is fair to our
stockholders from a financial point of view. THE BOARD OF DIRECTORS RECOMMENDS
THAT YOU VOTE "FOR" APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
The merger cannot be completed unless our stockholders approve it.
Therefore, we have scheduled a special meeting for our stockholders to vote on
the merger. YOUR VOTE IS VERY IMPORTANT.
The date, time and place of the meeting is: Thursday, April 23, 1998 10:00
a.m., local time
Mississippi Pavilion
Showboat Casino Hotel
801 Boardwalk
Atlantic City, New Jersey 08401
Whether or not you plan to attend the meeting, please take the time to vote
by completing and mailing the enclosed proxy card to us. If you sign, date and
mail your proxy without indicating how you want to vote, your proxy will be
counted as a vote in favor of the merger. If you abstain or do not vote, it will
have the effect of a vote against the merger.
This proxy statement provides you with detailed information about the
proposed merger. In addition, you may obtain information about the Company from
documents that we have filed with the Securities and Exchange Commission. We
encourage you to read the entire document carefully.
<TABLE>
<S> <C>
[LOGO] [LOGO]
J.K. Houssels J. Kell Houssels, III
CHAIRMAN PRESIDENT & CHIEF EXECUTIVE OFFICER
</TABLE>
NONE OF THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION, THE NEVADA
GAMING COMMISSION, THE NEVADA STATE GAMING CONTROL BOARD, THE NEW JERSEY CASINO
CONTROL COMMISSION, THE INDIANA GAMING COMMISSION, THE REGULATORY AUTHORITY OF
ANY OTHER STATE, NOR THE CASINO CONTROL AUTHORITY OF NEW SOUTH WALES, AUSTRALIA
HAS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
Proxy Statement dated March 20, 1998 and first mailed to stockholders on
March 20, 1998.
<PAGE>
SHOWBOAT, INC.
2800 Fremont Street
Las Vegas, Nevada 89104
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 23, 1998
To Our Stockholders:
Notice is hereby given that a Special Meeting of Stockholders (the "Special
Meeting") of Showboat, Inc. a Nevada corporation (the "Company"), will be held
on Thursday, April 23, 1998, at 10:00 a.m., local time, at the Mississippi
Pavilion, Showboat Casino Hotel, 801 Boardwalk, Atlantic City, New Jersey 08401,
for the following purposes:
1. To consider and vote upon a proposal to approve and adopt an
Agreement and Plan of Merger, dated as of December 18, 1997 (the "Merger
Agreement"), by and among Harrah's Entertainment, Inc., a Delaware
corporation ("Harrah's"), HEI Acquisition Corp., a Nevada corporation and an
indirect wholly-owned subsidiary of Harrah's ("Sub"), and the Company,
pursuant to which, (i) Sub will be merged with and into the Company (the
"Merger"), with the Company continuing as the surviving corporation and
becoming an indirect wholly-owned subsidiary of Harrah's and (ii) each
outstanding share of common stock, par value $1.00 per share, of the Company
(the "Common Stock"), other than shares owned by Harrah's or by the Company
as treasury stock (which will be cancelled), will be converted into the
right to receive $30.75 in cash, without interest.
2. To transact such other business as may properly come before the
Special Meeting or any adjournments or postponements thereof, including
without limitation, potential adjournments or postponements of the Special
Meeting for the purpose of soliciting additional proxies in order to approve
and adopt the Merger Agreement.
March 19, 1998 has been fixed as the record date (the "Record Date") for the
determination of stockholders entitled to notice of and to vote at the Special
Meeting or any adjournments or postponements thereof. Only holders of record of
Common Stock at the close of business on that date will be entitled to notice of
and to vote at the Special Meeting or any adjournments or postponements thereof.
Because the Company's Common Stock is listed on the New York Stock Exchange,
Inc., holders of Common Stock entitled to vote on the Record Date who do not
wish to accept $30.75 per share of Common Stock will not have a right of dissent
with respect to the Merger Agreement, in accordance with applicable statutory
procedures of Section 92A.390 of the Nevada Revised Statutes. See "The
Merger--Limitations on Right of Dissent."
The accompanying Proxy Statement describes the Merger Agreement, the
proposed Merger and certain actions to be taken in connection with the Merger.
Stockholders are cordially invited to attend the meeting in person. To ensure
that your vote will be counted, please complete, date and sign the enclosed
proxy card and return it promptly in the enclosed postage-paid envelope, whether
or not you plan to attend the Special Meeting. You may revoke your proxy in the
manner described in the accompanying Proxy Statement at any time before it is
voted at the Special Meeting. Executed proxies with no instructions indicated
thereon will be voted "FOR" approval and adoption of the Merger Agreement.
By Order Of The Board Of Directors,
[LOGO]
H. GREGORY NASKY
Secretary
Las Vegas, Nevada
March 20, 1998
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT.
YOUR VOTE IS IMPORTANT. TO VOTE YOUR SHARES, PLEASE MARK, DATE, SIGN AND
RETURN THE ENCLOSED PROXY CARD AS SOON AS POSSIBLE IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING.
PLEASE DO NOT SEND YOUR COMMON STOCK CERTIFICATES AT THIS TIME. IF THE
MERGER IS CONSUMMATED, YOU WILL BE SENT INSTRUCTIONS REGARDING THE SURRENDER OF
YOUR CERTIFICATES.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE
MERGER............................... 3
SUMMARY................................ 4
MARKET PRICES OF COMMON STOCK.......... 7
SELECTED FINANCIAL DATA................ 8
THE COMPANIES.......................... 10
The Company.......................... 10
Harrah's............................. 10
THE SPECIAL MEETING.................... 10
General.............................. 10
Matters to Be Considered at the
Special Meeting.................... 10
Record Date; Quorum; Voting at the
Special Meeting.................... 11
Proxies; Revocation of Proxies....... 11
Solicitation of Proxies.............. 12
THE MERGER............................. 13
Background of the Merger............. 13
The Company's Reasons for the Merger;
Recommendation of the Board of
Directors.......................... 15
Opinion of the Company's Financial
Advisor............................ 16
Interests of Certain Persons in the
Merger............................. 21
Financing the Merger................. 24
Accounting Treatment................. 25
Certain Federal Income Tax
Consequences....................... 25
Regulatory Approvals................. 26
Certain Consequences of the Merger... 27
Effect of Merger on Outstanding
Debt............................... 27
Limitation on Right of Dissent....... 27
THE MERGER AGREEMENT................... 28
The Merger........................... 28
Conversion of Shares................. 28
Exchange of Stock Certificates....... 28
Treatment of Stock Options and
SARs............................... 29
Representations and Warranties....... 30
Certain Covenants.................... 30
Conditions to Obligations to Effect
the Merger......................... 35
Termination; Termination Fees and
Expenses........................... 36
Amendment and Waiver................. 38
Stockholder Support Agreements....... 38
CERTAIN PROJECTIONS OF FUTURE OPERATING
RESULTS.............................. 39
SECURITY OWNERSHIP OF MANAGEMENT AND
CERTAIN OTHER BENEFICIAL OWNERS...... 40
REGULATION AND LICENSING............... 42
STOCKHOLDER PROPOSALS.................. 50
INDEPENDENT ACCOUNTANTS................ 50
WHERE YOU CAN FIND MORE INFORMATION.... 51
FORWARD-LOOKING STATEMENTS............. 52
LIST OF DEFINED TERMS.................. 53
Annex A
Agreement and Plan of Merger......... A-1
Annex B
Opinion of Donaldson, Lufkin &
Jenrette Securities Corporation.... B-1
</TABLE>
2
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHAT IS THE MERGER PROPOSAL? HOW WILL I BENEFIT?
A: We have agreed to merge Showboat, Inc. (the "Company") with a subsidiary
of Harrah's in exchange for Harrah's paying $30.75 in cash for each of your
shares. Following the merger, the Company's stockholders will no longer own any
interest in the combined company.
Q: WHEN AND WHERE IS THE SPECIAL MEETING?
A: The special meeting will take place at 10:00 a.m., local time, on
Thursday, April 23, 1998 at the Mississippi Pavilion, Showboat Casino Hotel, 801
Boardwalk, Atlantic City, New Jersey 08401.
Q: WHAT DO I NEED TO DO NOW?
A: Just indicate on your proxy card how you want to vote, and sign and mail
it in the enclosed return envelope as soon as possible, so that your shares will
be represented at the special meeting. If you sign and send in your proxy and do
not indicate how you want to vote, your proxy will be counted as a vote for the
merger. If you do not send in your proxy or you abstain, it will have the effect
of a vote against the merger.
Q: WHAT DO I DO IF I WANT TO CHANGE MY VOTE?
A: Just mail or deliver a later-dated, signed proxy card so that the proxy
card is received by the Company before the special meeting or attend the special
meeting in person and tell the Secretary you want to cancel your proxy and vote
in person.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker will vote your shares for you only if you provide
instructions on how to vote. You should instruct your broker to vote your
shares, following the directions provided by your broker. Without instructions,
your broker will not vote your shares which will have the same effect as a vote
against the merger.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the merger is completed, we will send you written instructions
for exchanging your stock certificates.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working toward completing the merger as quickly as possible. In
addition to stockholder approval, we must also obtain regulatory approvals,
including approvals from gaming regulators in Nevada, New Jersey, Indiana and
New South Wales, Australia. We hope to complete the merger during the second
quarter of 1998.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE MERGER TO ME?
A: The merger will be taxable to you unless you are exempt from tax. The
gain or loss will be capital gain or loss for most stockholders. If you are an
individual stockholder and have held the stock for more than a year but not more
than 18 months, the maximum federal rate of tax on such capital gains will be
28%. If you are an individual stockholder and have held the stock for more than
18 months, the maximum federal rate of tax on such capital gains will be 20%. If
you are an individual stockholder and have held your shares for one year or
less, any capital gains will be taxed at ordinary income rates.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: For additional information about the merger, including information about
how to complete and return your proxy card, please contact D.F. King & Co., Inc.
at 800-829-6551.
3
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT AND DOES NOT
CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. TO UNDERSTAND THE
MERGER FULLY AND FOR A MORE COMPLETE DESCRIPTION OF THE LEGAL TERMS OF THE
MERGER, YOU SHOULD READ CAREFULLY THIS ENTIRE DOCUMENT AND THE DOCUMENTS TO
WHICH WE HAVE REFERRED YOU. SEE "WHERE YOU CAN FIND MORE INFORMATION" ON PAGE
51. WE HAVE INCLUDED PAGE REFERENCES PARENTHETICALLY TO DIRECT YOU TO A MORE
COMPLETE DESCRIPTION OF THE TOPICS PRESENTED IN THIS SUMMARY.
THE COMPANIES (PAGE 10)
SHOWBOAT, INC
2800 Fremont Street
Las Vegas, Nevada 89104
(702) 650-1200
The Company is an international gaming company with over 40 years of gaming
experience. It owns and operates the Showboat Casino Hotel in Atlantic City, New
Jersey, the Showboat Hotel, Casino and Bowling Center in Las Vegas, Nevada, and
owns a 24.6% interest in and manages Star City, an entertainment and casino
complex located in Sydney, Australia. The Company also owns a 55% interest in
and is the manager of Showboat Mardi Gras Casino, a state-of-the-art cruising
gaming vessel and related land-based entertainment complex in East Chicago,
Indiana.
HARRAH'S ENTERTAINMENT, INC.
1023 Cherry Road
Memphis, Tennessee 38117
(901) 762-8600
Harrah's is one of the leading casino entertainment companies in the United
States and is unique in its broad geographic diversification. Harrah's operates
casino hotels in the five traditional U.S. gaming markets of Reno, Lake Tahoe,
Las Vegas and Laughlin, Nevada and Atlantic City, New Jersey. It also operates
riverboat or dockside casinos in Joliet, Illinois, Vicksburg and Tunica,
Mississippi, Shreveport, Louisiana and St. Louis and North Kansas City,
Missouri; manages casinos on four Indian reservations, near Phoenix, Arizona,
north of Seattle, Washington, in Cherokee, North Carolina and north of Topeka,
Kansas; and manages a land-based casino in Auckland, New Zealand.
HEI ACQUISITION CORP.
1023 Cherry Road
Memphis, Tennessee 38117
(901) 762-8600
HEI Acquisition Corp. ("Sub") is an indirect wholly-owned subsidiary of
Harrah's which has been organized solely to be merged with and into the Company.
Once Sub and the Company merge, the surviving corporation will be an indirect
wholly-owned subsidiary of Harrah's.
OUR REASONS FOR THE MERGER (PAGE 15)
We believe that the merger agreement, including the price of $30.75 per
share, is fair and in the best interests of our stockholders. We believe the
gaming industry will continue to consolidate and that the combined company will
be more competitive. We believe the merger is an opportunity for our
stockholders to take advantage of this industry consolidation and receive an
attractive price for their shares.
To review the background and reasons for the merger in greater detail, see
pages 13 through 16.
OUR RECOMMENDATION TO STOCKHOLDERS (PAGE 16)
Our Board of Directors believes that the merger is in your best interests
and unanimously recommends that you vote FOR approval and adoption of the merger
agreement.
WHAT YOU WILL RECEIVE
Following completion of the merger, you will receive $30.75 in cash for each
share of stock which you own.
THE STOCKHOLDERS' MEETING (PAGE 10)
We are holding a special meeting of our stockholders at the Mississippi
Pavilion, Showboat Casino Hotel, 801 Boardwalk, Atlantic City, New Jersey 08401,
at 10:00 a.m., local time, on April 23, 1998. At the special meeting, our
stockholders will be asked to approve and adopt the merger agreement. If the
merger is completed, we will not hold a 1998 annual meeting.
4
<PAGE>
VOTE REQUIRED (PAGE 11)
In order to complete the merger, two-thirds (66 2/3%) of the shares of the
Company must vote in favor of adopting the merger agreement.
As of March 17, 1998, executive officers, directors and their affiliates
owned and were allowed to vote 2,142,052 shares, or approximately 13.0% of the
Company's common stock. Five large stockholders who are also on our Board of
Directors, J. K. Houssels, Jeanne S. Stewart, Carolyn M. Sparks, John D. Gaughan
and J. Kell Houssels, III, have agreed with Harrah's to vote their shares "for"
adoption of the merger agreement. These stockholders own an aggregate of
2,037,520 shares or 12.3% of the Company's common stock. For a description of
these agreements, see page 38.
THE MERGER (PAGE 13)
THE MERGER AGREEMENT IS ATTACHED AS ANNEX A TO THIS PROXY STATEMENT. WE
ENCOURAGE YOU TO READ THE MERGER AGREEMENT AS IT IS THE LEGAL DOCUMENT THAT
GOVERNS THE MERGER.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
(PAGE 21)
A number of officers and directors of the Company have interests in the
merger that are different from or in addition to your interests. For example,
some officers, including some officers who also are directors, have severance
agreements that entitle them to compensation if they are terminated within a
certain period of time following a change of control of the Company. The
approval of the merger qualifies as a change of control of the Company. The
Company estimates that the maximum aggregate payments required to be paid under
such severance agreements to executive officers, if all such persons were to be
terminated after the merger, would be approximately $8,470,000. In addition,
certain officers and employees of the Company who do not have severance
agreements may be eligible to receive retention bonuses in connection with the
merger. The aggregate amount of such bonuses that could be payable is
approximately $2,789,000 of which $470,000 could be payable to executive
officers of the Company.
Certain executive officers and directors will also receive cash in exchange
for stock options and stock appreciation rights previously granted to them by
the Company. The aggregate amount to be paid to executive officers for stock
options and stock appreciation rights will be approximately $6,435,800. The
non-employee directors of the Company may be entitled to receive certain
additional compensation including director fees and the continuation of health
insurance for certain periods. The aggregate amount of such fees and benefits
will be approximately $631,000. For more information on the interests of
officers and directors in the merger see pages 21 through 24.
J. Kell Houssels, III a director, President and Chief Executive Officer of
the Company, and Harrah's expect to enter into an employment agreement,
effective upon completion of the merger, for four years with an initial annual
salary of $350,000 plus participation in Harrah's bonus and stock option plans
and severance benefits. For a description of this agreement, see page 21.
Certain executive officers of the Company will enter into consulting
agreements with Harrah's to provide services after the merger. The aggregate
amount to be paid under these consulting agreements will be approximately
$975,000.
CONDITIONS TO THE MERGER (PAGE 35)
The completion of the merger depends upon meeting a number of conditions
including the following:
(a) approval by our stockholders;
(b) absence of governmental prohibitions to completion of the merger;
(c) obtaining required gaming and other regulatory approvals; and
(d) obtaining all required third-party consents.
Certain of the conditions to the merger may be waived by the party entitled
to assert the condition.
TERMINATION OF THE MERGER AGREEMENT (PAGE 36)
Our Board of Directors along with Harrah's can jointly agree to terminate
the merger agreement at any time without completing the merger. Either party may
also terminate if:
5
<PAGE>
(1) the merger is not completed by July 1, 1998 (or January 1, 1999 if
extended due to delays in obtaining regulatory approvals);
(2) any governmental entity has taken action, which is final and binding, to
prohibit the merger;
(3) we do not obtain stockholder approval;
(4) under certain circumstances, a third party has proposed a competing
transaction; or
(5) the other party materially breaches any representation, warranty,
covenant or agreement in the merger agreement.
TERMINATION FEES (PAGE 36)
The merger agreement generally requires us to pay Harrah's a termination fee
of $20 million if the merger agreement is terminated under certain circumstances
involving a significant transaction between the Company and a third party or the
Company's failure to hold a stockholders' meeting to approve the merger by July
1, 1998.
In addition, the merger agreement requires Harrah's to pay us $10 million if
the merger agreement is terminated under certain circumstances relating to
Harrah's ability to obtain required consents from its current lenders or finance
the merger.
FAIRNESS OPINION OF FINANCIAL ADVISOR (PAGE 16)
In deciding to approve the merger, our Board of Directors considered the
opinion of our financial advisor, Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ"), that the cash to be paid in the merger is fair to our
stockholders from a financial point of view. This opinion is not a
recommendation to vote in favor of the merger agreement. This opinion is
attached to this Proxy Statement as Annex B. We encourage you to read the
opinion.
DLJ performed several analyses in connection with delivering its opinion.
These analyses included: break-up valuation analysis, analysis of selected
publicly traded comparable companies, selected comparable acquisitions analysis,
premiums paid analysis and discounted cash flow analysis.
CERTAIN REGULATORY MATTERS (PAGE 26)
In order to complete the merger, we and Harrah's must make certain filings
and receive authorizations from various governmental agencies, both in the
United States and in New South Wales, Australia. These filings relate to
antitrust matters and gaming and other regulations.
It is possible that some of these governmental authorities may impose
conditions for granting approval. We cannot predict whether we will obtain all
the required regulatory approvals within the time frame contemplated by the
merger agreement or without burdensome conditions.
FEDERAL INCOME TAX CONSIDERATIONS (PAGE 25)
The merger will be a taxable transaction to you if you are not exempt from
tax. Generally, your gain or loss will be capital gain or loss. If you are an
individual stockholder and have held your shares for more than a year and not
more than 18 months prior to the merger, the maximum federal tax rate on any
capital gains will be 28%. If you are an individual stockholder and have held
your shares for more than 18 months prior to the merger, the maximum federal tax
rate on any capital gains will be 20%. If you are an individual stockholder and
have held your shares for one year or less prior to the merger, any capital
gains will be taxed at ordinary income rates.
NO RIGHT OF DISSENT (PAGE 27)
Under Nevada law, you will not have a right to dissent and obtain payment of
"fair value" for your shares with respect to the merger agreement.
6
<PAGE>
MARKET PRICES OF COMMON STOCK
The common stock, par value $1.00 per share (the "Common Stock") of the
Company is listed and traded on the New York Stock Exchange, Inc. ("NYSE"). The
following table sets forth the high and low sales prices per share of the
Company's Common Stock, as reported on the NYSE for the periods indicated:
<TABLE>
<CAPTION>
HIGH LOW
-------- -------
<S> <C> <C> <C> <C>
1995
First Quarter.......................................................... $ 15 3/4 $ 13 1/2
Second Quarter......................................................... 18 5/8 13 1/2
Third Quarter.......................................................... 24 3/8 17 1/2
Fourth Quarter......................................................... 29 3/8 21
1996
First Quarter.......................................................... $ 28 1/2 $ 21
Second Quarter......................................................... 35 1/2 24 1/2
Third Quarter.......................................................... 30 3/8 18 3/4
Fourth Quarter......................................................... 22 5/8 17
1997
First Quarter.......................................................... $ 23 3/4 $ 17 1/4
Second Quarter......................................................... 20 7/8 17 5/16
Third Quarter.......................................................... 20 3/4 15 5/8
Fourth Quarter......................................................... 29 3/4 17 7/8
1998
First Quarter (through March 17, 1998)................................. $ 29 13/16 $ 29 1/8
</TABLE>
On December 18, 1997, the last trading day before public announcement of the
execution of the Merger Agreement, the closing price of the Common Stock as
reported on the NYSE was $21.125 with a high sales price of $21.50 and a low
sales price of $20.00. On March 17, 1998, the closing price of the Common Stock
as reported on the NYSE was $29.5 per share with a high sales price of $29.75
and a low sales price of $29.4375.
The Company has declared and paid a dividend of $.025 per share for each
complete quarter listed above and has declared a dividend for the first quarter
of 1998 which will be paid on April 10, 1998.
Stockholders are urged to obtain current market quotations for the Common
Stock.
7
<PAGE>
SELECTED FINANCIAL DATA
We are providing the following financial information to aid you in your
analysis of the financial aspects of the merger. We derived this information
from audited financial statements from 1992 through 1996 and unaudited financial
statements for the nine months ended September 30, 1996 and 1997. The
information is only a summary and you should read it in conjunction with our
historical financial statements (and related notes) contained in our annual
reports and other information that we have filed with the Securities and
Exchange Commission (the "Commission"). See "Where You Can Find More
Information."
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
---------------------- ----------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME STATEMENT DATA
Net revenues.......................... $ 415,737 $ 334,057 $ 433,705 $ 428,592 $ 401,333 $ 375,727 $ 355,236
Income from operations................ 35,881 35,114 42,121 46,674 51,828 45,419 46,508
Income before extraordinary items and
cumulative effect of change in
method of accounting for income
taxes (a)(b)(c)(d)(f)(g)............ 2,392 5,236 6,003 13,175 15,699 13,464 15,857
Net income............................ 2,392 5,236 6,003 13,175 15,699 7,341 12,449
Income before extraordinary items and
cumulative effect of change in
method of accounting for income
taxes per share-diluted
(a)(b)(c)(d)(f)(g).................. 0.15 0.32 0.37 0.84 1.02 0.89 1.37
Net income per share-diluted.......... 0.15 0.32 0.37 0.84 1.02 0.49 1.08
Income before extraordinary items and
cumulative effect of change in
method of accounting for income
taxes per share-basic
(a)(b)(c)(d)(f)(g).................. $ 0.15 $ 0.33 $ 0.37 $ 0.85 $ 1.03 $ 0.90 $ 1.39
Net income per share-basic............ $ 0.15 $ 0.33 $ 0.37 $ 0.85 $ 1.03 $ 0.49 $ 1.09
Cash dividends declared per common
share............................... .075 .075 .10 .10 .10 .10 .10
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT DECEMBER 31,
---------------- ----------------------------------------------------------
1997 1996 1995 1994 1993 1992
---------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
BALANCE SHEET DATA
Total assets (e)............................ $ 821,242 $ 814,669 $ 649,395 $ 623,691 $ 470,700 $ 384,900
Long-term recourse debt (including current
maturities) (a)(b)(e)..................... 393,008 392,744 392,391 392,035 280,617 209,116
Long-term nonrecourse debt (including
current maturities) (h)................... 158,820 140,000 -- -- -- --
Shareholders' equity (e).................... 185,306 192,145 173,941 157,461 135,158 126,018
Shares outstanding at year-end (e).......... 16,237 16,181 15,720 15,369 14,980 14,804
</TABLE>
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(a) In the year ended December 31, 1992, the Company recognized an extraordinary
loss of $3.4 million net of tax, as a result of the planned redemption of
all of its outstanding 13% Subordinated Sinking Fund Debentures due 2004
("Debentures").
(b) The Company adopted FAS 109 in 1993 and reported the cumulative effect of
the change in method of accounting for income taxes as of January 1, 1993 in
the 1993 Consolidated Statement of Income.
(c) In the year ended December 31, 1993, the Company recognized an extraordinary
loss of $6.7 million, net of tax, as a result of the redemption of all of
its outstanding 11 3/8% Mortgage-Backed Bonds due 2002.
(d) In 1993, the Company acquired a 30% equity interest in Showboat Star
Partnership ("SSP") which was engaged in the development of a riverboat
casino on Lake Pontchartrain in New Orleans, Louisiana. Operation of the
riverboat casino commenced on November 8, 1993. The Company's share of the
partnership's loss from the commencement of operations through December 31,
1993, is included in income from operations for the year ended December 31,
1993, including the write-off of preopening costs, of $1.3 million. In March
1994, the Company increased its equity interest in SSP to 50%. The Company's
share of the net income of the partnership was $12.8 million and is included
in income from operations for the year ended December 31, 1994. In March
1995, the Company acquired the remaining 50% of the equity of SSP. In March
1995, SSP sold certain of its assets, and the Company sold all of its equity
in SSP, resulting in a pretax gain of $2.6 million to the Company which is
included in the 1995 Consolidated Statement of Income as gain on sale of
affiliate.
(e) In the year ending December 31, 1992, the Company sold 3.45 million shares
of its Common Stock in a public offering. Net proceeds of the offering were
$50.4 million. Proceeds of the offering were used in January 1993 to redeem
all of the Company's Debentures and to prepay the outstanding balance of its
construction and term loan.
(f) In the years ended December 31, 1996 and 1995, the Company recognized a
pre-tax write-down of $3.8 million and $1.4 million respectively on its
investment in Showboat Mardi Gras, L.L.C.
(g) In April 1997, the Showboat Mardi Gras Casino opened and the Company
recorded a pre-tax loss of $9.6 million for pre-opening costs.
(h) In March 1996, Showboat Marina Casino Partnership ("SMCP") and Showboat
Marina Finance Corporation issued $140.0 million 13 1/2% First Mortgage
Notes due 2003 for the development of the Showboat Mardi Gras Casino.
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THE COMPANIES
THE COMPANY
The Company is an international gaming company with over 40 years of gaming
experience. It owns and operates the Showboat Casino Hotel in Atlantic City, New
Jersey ("Atlantic City Showboat"), the Showboat Hotel, Casino and Bowling Center
in Las Vegas, Nevada ("Las Vegas Showboat") and owns a 24.6% interest in and
manages through subsidiaries, Star City, an entertainment and casino complex
located in Sydney, Australia ("Star City"). The Company, through subsidiaries,
also owns a 55% partnership interest in and is the manager of Showboat Mardi
Gras Casino, a state-of-the-art cruising gaming vessel and related land-based
entertainment complex in East Chicago, Indiana ("East Chicago Showboat"). The
Company's principal executive offices are located at 2800 Fremont Street, Las
Vegas, Nevada 89104, (702) 650-1200.
For a more detailed description of the business and properties of the
Company, see the descriptions thereof set forth in the Company's Annual Report
on Form 10-K for the year ended December 31, 1996, which is incorporated herein
by reference. See "Where You Can Find More Information."
HARRAH'S
Harrah's Entertainment, Inc. ("Harrah's") is one of the leading casino
entertainment companies in the United States and is unique in its broad
geographic diversification. Harrah's operates casino hotels in the five
traditional U.S. gaming markets of Reno, Lake Tahoe, Las Vegas and Laughlin,
Nevada and Atlantic City, New Jersey. It also operates riverboat or dockside
casinos in Joliet, Illinois, Vicksburg and Tunica, Mississippi, Shreveport,
Louisiana and St. Louis and North Kansas City, Missouri; manages casinos on four
Indian reservations, near Phoenix, Arizona, north of Seattle, Washington, in
Cherokee, North Carolina and north of Topeka, Kansas; and manages a land-based
casino in Auckland, New Zealand. Harrah's principal executive offices are
located at 1023 Cherry Road, Memphis, Tennessee 38117, (901) 762-8600.
Sub is an indirect wholly-owned subsidiary of Harrah's which has been
organized solely to be merged with and into the Company. Sub's principal
executive offices are located at 1023 Cherry Road, Memphis, Tennessee 38117,
(901) 762-8600.
THE SPECIAL MEETING
GENERAL
This Proxy Statement is being furnished to holders of the Company's Common
Stock in connection with the solicitation of proxies by and on behalf of the
board of directors of the Company (the "Board of Directors") for use at the
Special Meeting of Stockholders (the "Special Meeting") to be held at 10:00
a.m., local time, on Thursday, April 23, 1998, at the Mississippi Pavilion,
Showboat Casino Hotel, 801 Boardwalk, Atlantic City, New Jersey 08401, and at
any adjournments or postponements thereof. This Proxy Statement and the
accompanying Notice of Special Meeting of Stockholders (the "Notice") and Proxy
Card are first being mailed to holders of Common Stock entitled to notice of,
and to vote at, the Special Meeting, on March 20, 1998.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the Special Meeting, stockholders will be asked to consider and vote upon
a proposal to approve and adopt the Agreement and Plan of Merger, dated as of
December 18, 1997 (the "Merger Agreement"). The Board of Directors has
determined that the Merger Agreement and the merger of Sub with and into the
Company (the "Merger") are fair to and in the best interests of the Company and
its stockholders and has unanimously approved and adopted the Merger Agreement.
ACCORDINGLY, THE BOARD OF
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DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT. See "The Merger--Background of the Merger" and "--The
Company's Reasons for the Merger; Recommendation of the Board of Directors."
STOCKHOLDERS ARE REQUESTED PROMPTLY TO COMPLETE, DATE, SIGN AND RETURN THE
ACCOMPANYING PROXY CARD TO THE COMPANY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
FAILURE TO RETURN A PROPERLY EXECUTED PROXY CARD OR TO VOTE AT THE SPECIAL
MEETING WILL HAVE THE SAME EFFECT AS A VOTE "AGAINST" THE MERGER AGREEMENT.
RECORD DATE; QUORUM; VOTING AT THE SPECIAL MEETING
Only stockholders of record at the close of business on March 19, 1998 (the
"Record Date") will be entitled to notice of, and to vote at, the Special
Meeting. At the close of business on the Record Date, there were 16,548,765
shares of Common Stock outstanding and entitled to vote at the Special Meeting,
held by approximately 1,283 stockholders of record.
Stockholders of record on the Record Date are entitled to one vote per
share, exercisable in person or by properly executed proxy, upon each matter
properly submitted for the vote of stockholders at the Special Meeting. The
presence of the holders of at least a majority of the shares of Common Stock
outstanding on the Record Date, whether present or by properly executed and
delivered proxy, will constitute a quorum for purposes of the Special Meeting.
The affirmative vote of the holders of 66 2/3% of the outstanding shares of
Common Stock is required to approve and adopt the Merger Agreement. Abstentions
will have the effect of votes "AGAINST" the proposal to approve and adopt the
Merger Agreement.
Because the Company's Common Stock is listed on the NYSE, holders of Common
Stock entitled to vote on the Record Date who do not wish to accept $30.75 per
share of Common Stock will not have a right of dissent with respect to the
Merger Agreement, in accordance with applicable statutory procedures of Section
92A.390 of the Nevada Revised Statutes ("NRS"). See "The Merger--Limitations on
Right of Dissent."
The Board of Directors is not aware of any matters other than those set
forth in the Notice transmitted with this Proxy Statement that may be brought
before the Special Meeting, and under the Company's By-laws only business within
the purposes described in such Notice may be transacted at the Special Meeting.
If any other matters properly come before the Special Meeting, the persons named
in the accompanying Proxy Card will vote the shares represented by all properly
executed proxies on such matters in such manner as shall be determined by a
majority of the Board of Directors, provided that no proxy which is voted
against the proposal to approve and adopt the Merger Agreement will be voted in
favor of any adjournment or postponement of the Special Meeting.
PROXIES; REVOCATION OF PROXIES
All shares of Common Stock which are represented at the Special Meeting by
properly executed proxies received and not duly and timely revoked will be voted
at the Special Meeting in accordance with the instructions contained therein. In
the absence of contrary instructions, such shares will be voted "FOR" the
approval and adoption of the Merger Agreement.
The required vote of the stockholders on the Merger Agreement is based upon
the total number of outstanding shares of Common Stock as of the Record Date.
Therefore, the failure to submit a Proxy Card (or to vote in person at the
Special Meeting) and the abstention from voting by a stockholder will have the
same effect as a vote "AGAINST" the approval and adoption of the Merger
Agreement.
A proxy may be revoked prior to its being voted by: (i) delivering to the
Secretary of the Company, at or before the Special Meeting, a written instrument
bearing a later date than the proxy which instrument,
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<PAGE>
by its terms, revokes the proxy; (ii) duly executing a subsequent proxy relating
to the same shares and delivering it to the Secretary of the Company at or
before the Special Meeting; or (iii) attending the Special Meeting and giving
notice of revocation to the Secretary of the Company or in open meeting prior to
the proxy being voted (although attendance at the Special Meeting without taking
other affirmative action as aforementioned will not constitute a revocation of a
proxy). Any written instrument revoking a proxy should be sent to: Showboat,
Inc., 2800 Fremont Street, Las Vegas, Nevada 89104, Attention: H. Gregory Nasky,
Secretary.
In the absence of representation by the holders of at least 66 2/3% of the
outstanding shares of Common Stock, or if fewer shares of Common Stock than the
number required therefor are voted in favor of approval and adoption of the
Merger Agreement, it is expected that the Special Meeting will be postponed or
adjourned in order to permit additional time for soliciting and obtaining
additional proxies or votes, and, at any subsequent reconvening of the Special
Meeting, all proxies will be voted in the same manner as such proxies would have
been voted at the original convening of the Special Meeting, except for any
proxies which have theretofore effectively been revoked or withdrawn. In the
absence of representation by the holders of at least 66 2/3% of the outstanding
shares of Common Stock, the Special Meeting may be adjourned from time to time
by the holders of a majority of the shares represented at Special Meeting in
person or by proxy. With respect to any vote to adjourn or postpone the Special
Meeting if fewer than 66 2/3% of the outstanding shares of Common Stock are
represented or voted in favor of approval and adoption of the Merger, proxies
voting against the proposal to approve and adopt the Merger Agreement will not
be voted in favor of any such adjournment or postponement.
The obligations of the Company and Harrah's to consummate the Merger are
subject to, among other things, the condition that the stockholders of the
Company, by the requisite vote thereof, approve and adopt the Merger Agreement.
See "The Merger Agreement--Conditions to the Merger."
STOCKHOLDERS SHOULD NOT FORWARD ANY CERTIFICATES REPRESENTING COMMON STOCK
WITH THEIR PROXY CARDS. IN THE EVENT THE MERGER IS CONSUMMATED, CERTIFICATES
SHOULD BE DELIVERED IN ACCORDANCE WITH INSTRUCTIONS SET FORTH IN A LETTER OF
TRANSMITTAL WHICH WILL BE SENT TO STOCKHOLDERS PROMPTLY AFTER THE EFFECTIVE TIME
(AS DEFINED BELOW). SEE "THE MERGER AGREEMENT--THE MERGER--EXCHANGE OF STOCK
CERTIFICATES."
SOLICITATION OF PROXIES
The Company will bear the costs of soliciting proxies in the accompanying
form from stockholders. In addition to soliciting proxies by mail, directors,
officers and employees of the Company, without receiving additional compensation
therefor, may solicit proxies by telephone, by telegram, or in person. In
addition, the Company has retained D.F. King & Co., Inc. at an estimated cost of
$7,500, plus reimbursement of expenses, to assist the Company in the
solicitation of proxies from brokerage firms and other custodians, nominees and
fiduciaries. Arrangements also will be made with brokerage firms and other
custodians, nominees and fiduciaries to forward solicitation materials to the
beneficial owners of shares of Common Stock held of record by such persons, and
the Company will reimburse such brokerage firms, custodians, nominees and
fiduciaries for reasonable out-of-pocket expenses incurred by them in connection
therewith.
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<PAGE>
THE MERGER
BACKGROUND OF THE MERGER
Over the past few years, the Company and its financial advisor have been
approached at various times by other companies in the gaming industry, including
Harrah's, about the possibility of pursuing a merger or other business
combination. However, such contacts were generally preliminary or exploratory in
nature and did not lead to substantive discussions or negotiations. Such
contacts included an approach by Harrah's in July, 1996 which did not result in
any specific offer for a transaction involving the Company.
During the last two years, the Company has periodically reviewed its
position in the gaming industry and its potential strategic alternatives in
light of (i) the continued consolidation of the gaming industry, (ii)
opportunities with respect to existing or planned operations, (iii) potential
opportunities to expand its operations into new markets and (iv) the capital
necessary to pursue expansion.
In the fall of 1996, the Company was approached by several parties with
respect to the sale of the Company's interest in Sydney Harbour Casino Holdings
Limited ("SHCH") and the assignment of the Company's interest in the management
of Star City, a casino and entertainment complex which is wholly-owned by SHCH.
In January 1997, the Company entered into a letter of intent with Publishing &
Broadcasting Limited ("PBL") to sell a portion of its interest in SHCH and to
assign its management rights to PBL. In May 1997, the Company announced that it
had been advised by PBL that PBL would let the letter of intent lapse and PBL
announced it was no longer interested in pursuing a purchase of the Company's
interest in SHCH or Star City.
In the months following the termination of the letter of intent with PBL,
the Company had contacts with various gaming industry participants and others in
the United States and Australia regarding the potential sale of the Company's
interests in SHCH and Star City. The Company also had various discussions with
representatives of the board of directors of SHCH as to the possible termination
of the management contract for Star City in consideration for cash payments.
In the course of the Company's discussions relating to a potential sale of
its interests in SHCH and Star City, the Company began to examine its options
and strategic alternatives in light of a potential sale of one of its
significant assets. In the course of such examination the Company reviewed the
present gaming industry in light of recent consolidation in the industry, the
Company's competitive position in the gaming industry, opportunities for growth
in the gaming industry and the need for substantial capital in order to compete
effectively. Such review was ongoing and the Company had not reached any
specific conclusions by mid-August 1997.
In mid-August 1997, Philip G. Satre, Chairman of the Board, President and
Chief Executive Officer of Harrah's, called H. Gregory Nasky, Executive Vice
President of the Company, to arrange a meeting to discuss a possible business
combination. Following such approach, the Company contacted DLJ to seek advice
regarding a potential transaction with Harrah's.
In late August 1997, J. Kell Houssels III, President and Chief Executive
Officer of the Company, H. Gregory Nasky, and R. Craig Bird, Executive Vice
President and Chief Financial Officer of the Company, met Mr. Satre, and Colin
V. Reed, Executive Vice President and Chief Financial Officer of Harrah's, to
discuss the possibility of a business combination involving the Company.
On September 16, 1997, the Company and Harrah's executed mutual
Confidentiality Agreements and, thereafter, began to exchange certain non-public
information regarding each other.
At around the same time, representatives of the Company met with
representatives of the Board of Directors of SHCH to discuss a potential
transaction whereby the management contract for Star City would be terminated in
consideration for cash payments. The Company has continued its discussions with
SHCH regarding a potential transaction. However, there can be no assurance that
discussions will continue
13
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or that any agreement will be reached and, if any agreement is reached, that it
will be approved by the New South Wales Casino Control Authority or otherwise be
completed.
From September through November 1997, several meetings and telephone
conversations were held between executives of the Company and Harrah's to
continue general discussions as to the possibility of a business combination. In
October 1997, the Company's Board of Directors was first informed of discussions
with Harrah's regarding a possible transaction and thereafter updated on the
progress of these discussions on a periodic basis during regularly scheduled
board meetings.
Following the initial contact by Harrah's, the Company was not contacted by
any other parties regarding a potential merger or other business combination nor
did the Company contact or solicit other parties with respect to any such
transaction. The Company was interested in pursuing the potential Harrah's
merger transaction because the consideration being discussed constituted a
significant premium to the market price of the Common Stock. The Company did not
solicit other parties because the Company believed that the transaction being
discussed with Harrah's was favorable to the Company and its stockholders and
represented a very attractive premium which was unlikely to be matched. In
addition, the Company was informed by Harrah's that Harrah's would not
participate in further discussions with the Company concerning the potential
merger transaction if the Company were to solicit other offers.
The general discussions with Harrah's included a discussion of the
possibility of Harrah's offering at least part of the consideration to be paid
in Harrah's common stock. However, Harrah's indicated that the amount per share
of any common stock consideration would be less than the cash consideration
offered. In addition, there was some uncertainty as to whether the aggregate
amount of common stock consideration discussed would have been sufficient to
allow those stockholders electing to receive common stock to have tax-free
treatment with respect to such election. As a result, the Company did not
continue discussions with respect to a common stock component for the
consideration.
During the first week of December 1997, telephone conferences were held
between the Company and Harrah's regarding a possible merger and among the
Company, DLJ and the Company's legal advisors regarding the progress of
discussions with Harrah's.
During the second week of December 1997, representatives of Harrah's and its
financial advisors met with representatives of the Company and DLJ, the
Company's financial advisor, to discuss business and financial issues with a
view to a business combination. Later that week, meetings were held at Harrah's
executive offices in Memphis, Tennessee between representatives of the Company,
including Messrs. Houssels, III, Nasky and Bird, and representatives of
Harrah's, to discuss various aspects of the transactions, and Harrah's legal
counsel provided a draft merger agreement to the Company and its legal counsel.
On December 12, 1997, the board of directors of Harrah's met in Memphis to
consider Harrah's acquisition of the Company. At that meeting, Messrs. Satre and
Reed made a presentation regarding the proposed transaction. BT Wolfensohn ("BT
Wolfensohn"), Harrah's financial advisor, made a presentation to the Harrah's
board regarding certain financial aspects of the proposed merger. The Harrah's
board took no formal action at such meeting, but directed Harrah's management to
continue working toward obtaining a definitive agreement.
Commencing December 13, 1997 and continuing through December 18, 1997,
representatives of the Company and Harrah's and their respective financial
advisors and legal counsel proceeded to negotiate the terms of the Merger
Agreement and other ancillary agreements and to finalize other matters,
including the amount and form of consideration to be offered.
The entire Board of Directors of the Company met on December 17, 1997 to
begin consideration of the proposed merger agreement and related matters. At
this meeting certain members of management, representatives of Weil, Gotshal &
Manges LLP ("WGM"), the Company's legal counsel, and DLJ made presentations to,
and had discussions with, the Board of Directors as to various aspects of the
proposed
14
<PAGE>
transaction. The Board of Directors reviewed and discussed the proposed
transaction. DLJ rendered its oral opinion that, as of such date, the
consideration to be paid to the Company's stockholders pursuant to the Merger
was fair to such stockholders from a financial point of view. The Board of
Directors adjourned this meeting without taking any action with respect to the
proposed merger transaction.
The Board of Directors met again on December 18, 1997, with one director
absent. At that meeting, WGM made a presentation updating the directors on the
final negotiations with respect to the Merger Agreement and DLJ affirmed its
oral opinion as to the fairness of the Merger from a financial point of view.
After further discussion, the Board of Directors, with one director absent,
voted unanimously to approve the Merger Agreement and the transactions
contemplated thereby. The absent director later affirmed his approval of the
Merger Agreement and the transactions contemplated thereby.
The Harrah's board of directors met telephonically on December 18, 1997,
with Harrah's senior management, BT Wolfensohn and a representative of Latham &
Watkins, Harrah's outside legal counsel, also participating in the meeting.
Messrs. Satre and Reed updated the Harrah's board concerning the developments in
the proposed transaction. Following discussion regarding the transaction, the
Harrah's board unanimously approved the Merger.
Following the approval of the Merger by the Boards of Directors of the
Company and Harrah's, the Company and Harrah's executed the Merger Agreement. On
December 19, 1997, the Company and Harrah's issued a joint press release
announcing the execution of the Merger Agreement.
THE COMPANY'S REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors has determined that the Merger Agreement and the
Merger are fair to and in the best interests of the Company and its stockholders
and has unanimously approved and adopted the Merger Agreement. Accordingly, the
Board of Directors recommends that stockholders vote "FOR" approval and adoption
of the Merger Agreement.
In reaching its determination that the Merger Agreement and the Merger are
fair to and in the best interests of the Company and its stockholders, the Board
of Directors considered a number of factors, including, without limitation, the
following:
(1) the present and anticipated environment of the gaming industry,
including the potential for further consolidation within the industry and
the need for substantial capital in order for the Company to compete
effectively, which led to the belief that it would become harder for smaller
companies, like the Company, to compete in its markets and that continued
growth would require significant additional capital and that stockholder
value may be maximized by selling the Company to a larger, better
capitalized Company;
(2) the historical market prices and trading information with respect to
the Common Stock, and that (A) the price of $30.75 per share (the "Merger
Consideration") represents a premium of approximately 46% over the $21.125
closing price of the Common Stock on the NYSE on December 18, 1997, the last
day prior to the public announcement of the execution of the Merger
Agreement and (B) the Merger Consideration represents a 66% premium over the
average closing price of the Common Stock for the period beginning June 18,
1997 and ending December 18, 1997;
(3) the financial condition, results of operations, business and
prospects of the Company, including the increasingly competitive nature of
the markets in which the Company operates and its position in such markets,
which helped the directors evaluate the future prospects of the Company and
determine whether the Merger Consideration is fair and whether it is an
appropriate time to engage in the proposed merger;
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<PAGE>
(4) the terms and conditions of the Merger Agreement, including the
amount of the Merger Consideration and that Harrah's would be required to
pay a termination fee under certain circumstances if the Merger were not
consummated;
(5) the Merger Consideration consists solely of cash, which although it
will result in a taxable transaction to the Company's stockholders, it comes
at a time when federal long-term capital gains tax rates had recently been
reduced and are at their lowest level in ten years; and
(6) the presentation of DLJ to the Board of Directors of the Company,
including DLJ's written opinion, dated as of December 18, 1997, to the
effect that, as of the date of such opinion, the consideration to be
received by the holders of Common Stock pursuant to the Merger is fair to
such holders.
The foregoing discussion of the information and factors considered by the
Board of Directors is not meant to be exhaustive but includes all material
factors considered by the Board of Directors. The Board of Directors did not
quantify or attach any particular weight to the various factors that it
considered in reaching its determination that the Merger Agreement and the
Merger are fair to and in the best interests of the Company and its
stockholders. As a result of its consideration of the foregoing, the Board of
Directors determined that the Merger Agreement and the Merger are fair to and in
the best interests of the Company and its stockholders and approved and adopted
the Merger Agreement. In considering the recommendation of the Board of
Directors with respect to the Merger, stockholders should be aware that the
interests of certain directors and executive officers with respect to the Merger
are or may be different from or in addition to the interests of the stockholders
generally. The Board of Directors was aware of these interests, and took these
interests into account in approving the Merger Agreement and the transactions
contemplated thereby. See "--Interests of Certain Persons in the Merger."
ACCORDINGLY, THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
OPINION OF THE COMPANY'S FINANCIAL ADVISOR
The Board of Directors selected DLJ to act as its exclusive financial
advisor in the Merger because DLJ is an internationally recognized investment
banking firm with substantial expertise in the gaming industry and in
transactions similar to the Merger and because it is familiar with the Company
and its business. DLJ, as part of its investment banking services, is regularly
engaged in the valuation of businesses and securities in connection with
mergers, acquisitions, underwritings, sales and distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes.
In its role as financial advisor to the Company, DLJ was asked by the
Company to render an opinion to the Board of Directors as to the fairness to the
holders of Common Stock, from a financial point of view, of the consideration to
be received by such holders pursuant to the terms of the Merger Agreement.
DLJ delivered to the Board of Directors on December 17, 1997, its oral
opinion to the effect that the consideration to be received by the holders of
Common Stock pursuant to the Merger Agreement was fair from a financial point of
view. This opinion was subsequently confirmed in both an oral opinion delivered
to the Board of Directors on December 18, 1997 and a written opinion dated as of
December 18, 1997 ("the DLJ Opinion") to the Board of Directors to the effect
that, as of such date and based upon and subject to, the assumptions,
limitations and qualifications set forth in such opinion, the consideration to
be received by holders of the Common Stock pursuant to the Merger Agreement was
fair from a financial point of view.
A COPY OF THE DLJ OPINION IS ATTACHED HERETO AS ANNEX B. THE COMPANY'S
STOCKHOLDERS ARE URGED TO READ THE DLJ OPINION IN ITS ENTIRETY FOR ASSUMPTIONS
MADE, PROCEDURES FOLLOWED, OTHER MATTERS CONSIDERED AND LIMITS OF THE REVIEW BY
DLJ.
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<PAGE>
The DLJ Opinion was prepared for the Board of Directors and is directed only
to the fairness of the consideration pursuant to the Merger Agreement to holders
of Common Stock from a financial point of view and does not constitute a
recommendation to any of the Company's stockholders as to how such stockholder
should vote at the Special Meeting.
The consideration pursuant to the Merger Agreement was determined in
arm's-length negotiations between the Company and Harrah's, in which
negotiations DLJ advised the Company. No restrictions or limitations were
imposed by the Company upon DLJ with respect to the investigations made or the
procedures followed by DLJ in rendering its opinion. DLJ was not requested to,
nor did it, solicit the interest of any other party in acquiring the Company.
In arriving at its opinion, DLJ reviewed drafts of the Merger Agreement. DLJ
also reviewed financial and other information that was publicly available or
furnished to it by the Company, including information provided during
discussions with the Company's management. Included in the information provided
during discussions with the Company's management were certain financial
projections of the Company for the period beginning January 1, 1997 and ending
December 31, 2002 prepared by the management of the Company. In addition, DLJ
compared certain financial and securities data of the Company with various other
companies whose securities are traded in public markets, reviewed the historical
stock prices and trading volumes of the Common Stock, reviewed prices and
premiums paid in certain other business combinations and conducted such other
financial studies, analyses and investigations as DLJ deemed appropriate for
purposes of its opinion.
In rendering its opinion, DLJ relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available to
it from public sources, that was provided to it by the Company or its
representatives, or that it otherwise reviewed. With respect to the financial
projections supplied to it, DLJ assumed that they have been reasonably prepared
on the basis reflecting the best currently available estimates and judgments of
the management of the Company as to the future operating and financial
performance of the Company. DLJ did not assume any responsibility for making an
independent evaluation of the Company's assets or liabilities or for making any
independent verification of any of the information that it reviewed.
The DLJ Opinion is necessarily based on economic, market, financial and
other conditions as they existed on, and on the information made available to it
as of, the date of its opinion. It should be understood that, although
subsequent developments may affect its opinion, DLJ does not have any obligation
to update, revise or reaffirm the DLJ Opinion.
The following is a summary of the presentation made by DLJ to the Board of
Directors at its December 17 and 18, 1997 board meetings. Valuations for the
Company were calculated on an Implied Enterprise Value basis and an Adjusted
Enterprise Value basis (each as defined below) and converted to a per share
basis based upon $422.0 million of pro forma net debt (total debt less cash and
cash equivalents outstanding on September 30, 1997) which did not include the
debt of the Company's two partially owned subsidiaries, the East Chicago
Showboat and Star City, and 16.677 million fully diluted shares outstanding.
In order to derive the Implied Enterprise Value, DLJ calculated an
enterprise value (equity value plus net debt) less the value of the Company's
investment in two assets that DLJ believes may not be valued based on operating
earnings: East Chicago Showboat and a loan to Rockingham (as defined below). The
after tax value of the investments in East Chicago Showboat and Rockingham were
assumed to be the Company's cash investment in each property, which consist of
$45.0 million liquidation preference of 12% preferred stock in the entity that
owns the East Chicago Showboat, together with accrued dividends of $10.0
million, and an $8.0 million 8.3% second mortgage loan to Rockingham. For the
calculation of Adjusted Enterprise Value, DLJ calculated the Implied Enterprise
Value less the after tax value of the Company's holdings in Star City. The value
attributed to Star City was estimated at $241.3 million using the values
management believes it could receive upon the disposition of its interest in the
management
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contract to operate Star City and the Company's equity in the entity that owns
the casino based upon the market value of publicly traded shares in such entity.
BREAKUP VALUATION ANALYSIS. DLJ performed a breakup valuation analysis on
the Company based on the estimated value of the separate operating divisions.
On a standalone basis, DLJ estimated that Atlantic City Showboat has an
enterprise value between 6.0x and 7.0x EBITDA. DLJ utilized a 1997 estimated,
pro forma EBITDA figure of $95.5 million, which is prior to the deduction of
corporate expenses and pro forma for the issuance of First Mortgage Bonds (as
defined below) by Showboat Land LLC to repurchase the land upon which most of
the Atlantic City Showboat is situated. Such analysis yielded enterprise values
ranging from approximately $573.1 million to $668.6 million for the Atlantic
City Showboat.
The Company's holdings in Star City consist of an 85% ownership interest in
the contract to manage the property, a 24.6% interest in the common equity of
the entity that owns Star City, and options to purchase an additional 37.4
million shares of common equity at an exercise price of AUD$1.15 per share. The
Company's management estimated the value of its interest in the management
contract of Star City to be $105.2 million after payment of taxes. Based on the
estimated value of the management contract, the current share price of its 24.6%
interest in the equity of the entity that owns Star City, and its 37.4 million
equity options at an exercise price of AUD$1.15 per share, DLJ estimated the
Company's combined holdings in Star City to be $241.3 million on an after-tax
basis.
DLJ valued the Company's holdings in Las Vegas Showboat at $34.0 million,
which represents the after tax proceeds the Company would expect to receive upon
a sale of this property.
The Company's ownership in East Chicago Showboat is through a combination of
its 55% ownership of the common equity of the entity that owns the East Chicago
Showboat and the liquidation preference of 12% preferred stock in such entity of
$45.0 million plus accrued dividends of approximately $10.0 million. Given the
results of operations since opening in 1997, DLJ believes that the Company's
investment is equal to the face value of its preferred investment and accrued
dividends. Accordingly, DLJ valued the Company's holdings in East Chicago
Showboat at $55.0 million.
The Company holds an outstanding loan to Rockingham Venture, Inc., which
owns the Rockingham Park, a thoroughbred racetrack in New Hampshire
("Rockingham"), which is secured by a second mortgage on Rockingham. The
principal amount of the loan is $8.0 million and bears interest at 8.3%. Based
on the loan's current performance, DLJ estimated the value of the Company's loan
to be the full principal amount of $8.0 million.
In summary, the breakup valuation analysis calculated from the compilation
of the asset values from each of the Company's holdings resulted in a range of
enterprise values for the Company of $911.4 million to $1,006.9 million, which
represents a per share value ranging from $27.14 to $32.87.
ANALYSIS OF SELECTED PUBLICLY TRADED COMPARABLE COMPANIES. To provide
contextual data and comparative market information, DLJ compared certain
financial operating, and projected financial performance information for the
Company with seven publicly traded gaming companies that compete in its industry
(the "Public Comparables"). The Public Comparables were: Aztar Corporation, Boyd
Gaming Corporation, Primadonna Resorts Inc., Rio Hotel & Casino, Inc., Hollywood
Casino Corporation, Grand Casinos, Inc., and Station Casinos, Inc. The Public
Comparables were selected because they are of relative equivalent market size to
the Company. In addition, the Public Comparables represent companies operating
in similar geographic markets and with similar business operations as the
Company. DLJ analyzed, among other things, the enterprise value (defined to be
the market value of the common stock plus total debt less cash, cash equivalents
and other investments) of each Public Comparable as of December 11, 1997 as a
multiple of its latest twelve months ("LTM") revenue, earnings before interest,
taxes, depreciation and amortization ("EBITDA"), earnings before interest and
taxes ("EBIT"), earnings and projected earnings.
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DLJ applied average multiples (derived from the average multiples of the
Public Comparable information analyzed by DLJ) of 1.6x to the Company's 1997
estimated revenue, 6.8x to the Company's 1997 estimated EBITDA, 10.6x to the
Company's 1997 estimated EBIT, and 1.7x to the Company's book value per share.
DLJ then determined the resulting enterprise valuation for each of the
applicable revenue, EBITDA and EBIT multiples and added the investment values
for the excluded holdings of the Company in the calculations of Implied
Enterprise Value and Adjusted Enterprise Value. This analysis produced per share
values ranging from $16.82 to $22.59 on an Implied Enterprise Value basis and
ranging from $23.58 to $36.09 on an Adjusted Enterprise Value basis. In
addition, an average book value multiple analysis produced a per share value of
$19.18.
SELECTED COMPARABLE ACQUISITIONS ANALYSIS. DLJ also reviewed certain
information relating to twelve relevant business combination transactions: (1)
Hilton Hotels Corporation's merger with Bally Entertainment Corporation; (2) Sun
International Hotels Limited's merger with Griffin Gaming & Entertainment, Inc.;
(3) Trump Hotels & Casino Resorts, Inc.'s acquisition of Trump Castle
Associates; (4) Trump Hotels & Casino Resorts, Inc.'s merger with Taj Mahal
Holding Corp.; (5) Circus Circus Enterprises, Inc.'s acquisition of Goldstrike
Properties; (6) Caesars World, Inc.'s acquisition of Caesars New Jersey, Inc.;
(7) The Griffin Company's merger with Resorts International, Inc.; (8) Bally
Manufacturing Corporation's acquisition of GNAC Corporation; (9) Bally
Manufacturing Corporation's merger with MGM Grand Hotels, Inc.; (10) Donald
Trump's acquisition of the remaining equity interest in Trump Plaza; (11)
Trump's Castle Hotel & Casino's acquisition of Hilton Hotel Corporation
(Atlantic City, NJ--Trump Castle); and (12) Tracinada Corporation's acquisition
of MGM Grand Hotels, Inc. (collectively, the "Comparable Acquisitions").
DLJ reviewed the resulting enterprise values as a multiple of LTM revenues,
LTM EBITDA and LTM EBIT of the target company for each of the transactions. DLJ
applied the average (excluding high and low) of the range of multiples from the
Comparable Acquisitions information analyzed of 1.7x to the Company's 1997
estimated revenues, 8.2x to the Company's 1997 estimated EBITDA, and 12.0x to
the Company's 1997 estimated EBIT. This analysis produced per share values
ranging from $21.56 to $24.78 on an Implied Enterprise Value basis and ranging
from $27.05 to $37.81 on an Adjusted Enterprise Value basis.
PREMIUMS PAID ANALYSIS. DLJ performed a premiums paid analysis based on its
review of premiums paid in selected M&A transactions between $250 million and
$1.0 billion involving a publicly traded target. DLJ applied average premiums
(derived from the average premiums paid for all public targets in the universe
of merger and acquisition transactions analyzed by DLJ) of 26.5% above the
market price per share one trading day prior to announcement, 32.3% above the
market price per share one week prior to announcement, and 42.7% above the
market price per share one month prior to announcement to the Company's stock
one day, one week, and one month prior to December 11, 1997. This analysis
produced per share valuations ranging from $23.72 to $27.56.
In addition, DLJ performed a premiums paid analysis based on its review of
premiums paid in selected M&A transactions between $250 million and $1.0 billion
involving a publicly traded target which excluded all stock transactions. DLJ
applied average premiums derived in the same manner of 26.9% above the market
price per share one trading day prior to announcement, 34.5% above the market
price per share one week prior to announcement, and 42.1% above the market price
per share one month prior to announcement to the Company's stock price one day,
one week, and one month prior to December 11, 1997. This analysis produced per
share valuations ranging from $23.80 to $27.45.
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DISCOUNTED CASH FLOW ANALYSIS. DLJ performed a discounted cash flow
analysis of the Company based upon estimates of projected financial performance
prepared by the Company's management for the fiscal years 1998 to 2002, pro
forma for the sale of the Company's holdings in Star City, Las Vegas Showboat
and Rockingham. Utilizing these projections, DLJ calculated a range of present
values for the Company based upon the discounted net present value of the sum of
(i) the projected stream of after-tax unlevered free cash flows of the Company
(defined as operating cash flow available after working capital, capital
spending and tax requirements) to the year 2002; and (ii) the projected terminal
value of the Company at such year based upon a range of multiples of the
Company's projected EBITDA in such year. Applying discount rates ranging from 8%
to 11% and multiples of terminal EBITDA ranging from 6.0x to 7.0x, DLJ estimated
equity values per share for the Company ranging from $22.58 to $30.00.
Additionally, DLJ performed a discounted cash flow analysis of the Company
based upon a second set of projected financial data prepared by the Company's
management for the fiscal years 1998 to 2002, pro forma for the sale of only the
Company's holdings in Rockingham. Utilizing these projections, DLJ calculated a
range of present values for the Company based upon the discounted net present
value of the sum of (i) the projected stream of after-tax unlevered free cash
flows of the Company (defined as operating cash flow available after working
capital, capital spending and tax requirements) to the year 2002; and (ii) the
projected terminal value of the Company at such year based upon a range of
multiples of the Company's projected EBITDA in such year. Applying discount
rates ranging from 8% to 11% and multiples of terminal EBITDA ranging from 6.0x
to 7.0x, DLJ estimated equity values per share for the Company ranging from
$20.78 to $30.91.
The summary set forth above does not purport to be a complete description of
the analysis by DLJ but describes, in summary form, the material elements of the
presentations made by DLJ to the Board of Directors on December 17 and 18, 1997
in connection with preparation of the DLJ Opinion. The preparation of a fairness
opinion involves various determinations as to the most appropriate and relevant
methods of financial analysis and the application of these methods to the
particular circumstances and, therefore, such an opinion is not readily
susceptible to partial or summary description. Each of the analyses conducted by
DLJ was carried out in order to provide a different perspective on the
transaction and add to the total mix of information available. DLJ did not form
a conclusion as to whether any individual analysis, considered in isolation,
supported or failed to support an opinion as to the fairness from a financial
point of view. Rather, in reaching its conclusion, DLJ considered the results of
the analyses in light of each other and ultimately rendered its opinion based on
the results of all the analyses taken as a whole. DLJ did not place particular
reliance or weight on any individual analysis, but instead concluded that its
analyses, taken as a whole, supported its determination. Accordingly,
notwithstanding the separate factors summarized below, DLJ believes that its
analyses must be considered as a whole and that selecting portions of its
analyses and of the factors considered by it, without considering all such
factors and analysis, could create an incomplete or misleading view of the
process underlying its analyses set forth in the DLJ opinion. The analyses
performed by DLJ are not necessarily indicative of actual past or future results
or values, which may be significantly more or less favorable than such estimates
or those suggested by such analysis.
Pursuant to the terms of an engagement letter dated December 2, 1997, the
Company agreed to pay DLJ a fee equal to 1.0% of the equity value of the price
paid for the Company by Harrah's, which is approximately $5,400,000 (including
$1,000,000 previously received by DLJ upon delivery of the DLJ Opinion). The
Company also agreed to reimburse DLJ promptly for all out-of-pocket expenses
(including the reasonable fees and out-of-pocket expenses of counsel) incurred
by DLJ in connection with its engagement, and to indemnify DLJ and certain
related persons against certain liabilities in connection with its engagement,
including liabilities under the federal securities laws. The terms of the fee
arrangement with DLJ, which DLJ and the Company believe are customary in
transactions of this nature, were negotiated at arm's length between the Company
and DLJ and the Board of Directors was aware of such arrangement, including the
fact that a significant portion of the aggregate fee payable to DLJ is
contingent upon consummation of the Merger.
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INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Board with respect to the Merger,
stockholders of the Company should be aware that the directors and executive
officers of the Company have certain interests in the Merger that may be
substantial or in addition to the interests of stockholders of the Company
generally. The Board was aware of these interests and considered them, among
other factors, in approving the Merger Agreement. These interests are summarized
below.
INTERESTS IN COMMON STOCK, OPTIONS AND SARS
As of March 17, 1998, the executive officers and directors of the Company
owned an aggregate of 2,142,052 shares of Common Stock, which will be treated in
the same manner as shares of Common Stock held by other stockholders. The
aggregate consideration which would be received in the Merger by the executive
officers and directors of the Company in respect of such shares would be
$65,868,099.
As of March 17, 1998, the executive officers of the Company had the right to
acquire 230,000 shares of Common Stock upon the exercise of Options granted to
such executive officers pursuant to the Company's option plans, and the
non-employee directors of the Company had the right to acquire 59,000 shares of
Common Stock upon the exercise of Options (as defined) granted to such
non-employee directors pursuant to the Company's option plans. Pursuant to the
Merger Agreement, at the effective time of the Merger (the "Effective Time"),
(i) each unexpired and unexercised option to purchase shares of Common Stock
(individually an "Option" and collectively the "Options") previously granted by
the Company or any of its subsidiaries under any of the Company's option plans
will become exercisable in full, and (ii) each holder of an Option will be
entitled to receive from the Company in cancellation thereof a payment (subject
to applicable income tax withholding and employment taxes) of an amount in cash
equal to the product of (A) the excess, if any, of the Merger Consideration over
the per share exercise price of such Option and (B) the number of shares subject
to such Option. The aggregate consideration which would be received by the
executive officers and the non-employee directors of the Company upon
consummation of the Merger pursuant to the foregoing formula would be
approximately $2,487,000 and $811,500, respectively. See "The Merger
Agreement--Treatment of Stock Options and SARs."
As of March 17, 1998, the executive officers of the Company had 640,000
stock appreciation rights (individually a "SAR" and collectively, the "SARs")
granted by the Company under its 1996 Stock Appreciation Rights Plan (the "SAR
Plan"). Pursuant to the Merger Agreement, at the Effective Time, each then
outstanding SAR, whether or not then vested or exercisable in accordance with
its terms, will become exercisable in full and each holder of a SAR will be
entitled to receive from the Company in cancellation thereof, a payment of an
amount in cash equal to the product of (A) the excess, if any, of the Merger
Consideration over the exercise price of such SAR and (B) the number of shares
of Common Stock subject to such SAR, subject to any withholding of taxes and any
reduction in the Rights Payments (as defined in the SAR Plan) pursuant to the
terms of the SAR Plan. The maximum aggregate consideration which would be
received by the executive officers of the Company upon consummation of the
Merger pursuant to the foregoing formula would be approximately $3,948,800
(subject to possible reduction pursuant to the terms of the SAR Plan). See "The
Merger Agreement--Treatment of Stock Options and SARs."
EMPLOYMENT AGREEMENTS
J. Kell Houssels, III, President and Chief Executive Officer of the Company,
and Harrah's expect to enter into an employment agreement (the "Houssels
Employment Agreement") for a four year term commencing as of the Effective Time.
It is expected that the Houssels Employment Agreement will provide that Mr.
Houssels, III will be President of the Showboat Division of Harrah's with an
initial annual salary of $350,000 plus participation in Harrah's bonus and stock
option plans (with an initial annual grant of 70,400 options). Harrah's intends
to appoint, or take such actions necessary to nominate and seek
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election of Mr. Houssels, III to the board of directors of Harrah's for a term
ending in 2001. It is anticipated that under certain circumstances, in the event
of early termination of the Houssels Employment Agreement other than for Cause
(as defined therein), Mr. Houssels, III will receive certain payments (which
would not exceed $1,100,000 if termination occurs during the first year of the
agreement or would continue his then current salary for 18 months if termination
occurs thereafter) and continuation of certain benefits. In addition, if the
Houssels Employment Agreement is terminated during the first year other than for
Cause (as defined therein), the parties may enter into certain continuing
agreements for aggregate consideration of approximately $700,000. The specific
terms of the Houssels Employment Agreement are still being negotiated and are
subject to change.
SEVERANCE AGREEMENTS
The Company has severance agreements (collectively, the "Severance
Agreements") with several of its executive officers (individually an "Employee"
and collectively the "Employees"). The Severance Agreements are with J.K.
Houssels, Chairman of the Board of the Company; J. Kell Houssels, III, President
and Chief Executive Officer of the Company; H. Gregory Nasky, Executive Vice
President of the Company; R. Craig Bird, Executive Vice President and Chief
Financial Officer of the Company; Paul S. Harris, Executive Vice President-Human
Resources of the Company; Mark J. Miller, Executive Vice President-Finance and
Administration of the Company; Donald L. Tatzin, former Executive Vice President
of the Company and currently a consultant to the Company; Herbert R. Wolfe,
President and Chief Executive Officer of Atlantic City Showboat, Inc.; J. Keith
Wallace, President and Chief Executive Officer of the Las Vegas Showboat and
Carlton L. Geer, President and Chief Executive Officer of Showboat Marina Casino
Partnership and Showboat Indiana, Inc. The Severance Agreements are renewed,
unless terminated, on an annual basis. The Severance Agreements provide for
severance benefits if the Employee is terminated by the Company or any
subsidiary of the Company (other than for cause or by reason of the Employee's
retirement, death or disability) or by the Employee for Good Reason (as defined
in the Severance Agreements) within 24 months after a Change in Control (as
defined in the Severance Agreements) or by the Employee for any reason other
than Good Reason within one year after a Change in Control or, in the case of
Mr. Houssels or Mr. Houssels, III, if either of their employments are terminated
for any reason, except death, within 12 months after a Change in Control. The
approval by the Company's stockholders of the Merger would constitute a Change
of Control. Each Severance Agreement provides that, in the event of a Potential
Change in Control (as defined in the Severance Agreements), the Employee will
not voluntarily resign, subject to certain conditions, for at least six months
after the occurrence of such Potential Change in Control (or, if earlier, the
date of the Change in Control). The signing of the Merger Agreement constituted
a Potential Change of Control.
The Severance Agreements provide for: (i) a lump-sum payment equal to 200%
of the Employee's annual salary if his employment was terminated by the Company
or any subsidiary of the Company (other than for cause or by reason of the
Employee's retirement, death or disability) or by the Employee for Good Reason
or 100% of the Employee's annual salary if his employment was terminated by the
Employee for any reason other than Good Reason (or, in the case of Mr. Houssels
or Mr. Houssels, III, 300% of his annual salary in the case of termination for
any reason except death), plus 200% of the average bonuses awarded to the
Employee for the three fiscal years preceding the Employee's termination if his
employment was terminated by the Company or any subsidiary of the Company (other
than for cause or by reason of the Employee's retirement, death or disability)
or by the Employee for Good Reason or 100% of the average bonuses awarded to the
Employee for the three fiscal years preceding his termination if his employment
was terminated by the Employee for any reason other than Good Reason (or, in the
case of Mr. Houssels or Mr. Houssels, III, 300% of his average bonus for the
three fiscal years preceding his termination in the case of termination for any
reason except death), (ii) the reimbursement of legal fees and expenses incurred
by the Employee in seeking to enforce the Employee's rights under the Severance
Agreement and (iii) continuation of the benefit of life, disability, accident
and health insurance benefits, substantially similar to those which the Employee
is receiving immediately prior to termination, for the
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duration of the Severance Period (as defined in the Severance Agreements). In
addition, in the event that payments to the Employee pursuant to the Employee's
Severance Agreement would subject such Employee to an excise tax under the Code,
the Employee may reduce his severance benefits to an amount below the amount
which would require the Employee to pay such tax.
The Severance Agreements also provide that the Employee will receive
additional service credit of up to two years under the SERP (as defined below)
upon termination of employment following a change in control.
Based on the compensation levels as of December 31, 1997, assuming a Change
in Control of the Company and a subsequent termination within 12 months for any
reason except death, J.K. Houssels and J. Kell Houssels, III would be entitled
to receive a maximum lump-sum payment of $931,542 and $1,809,852 respectively,
under their Severance Agreements. It is anticipated that the Houssels Employment
Agreement would supersede the Severance Agreement for J. Kell Houssels, III.
Based on compensation levels as of December 31, 1997, assuming a Change in
Control of the Company and a subsequent termination by the Company (other than
for cause or by reason of the Employee's retirement, death or disability) or by
the Employee for Good Reason within 24 months, the following Employees would be
entitled to receive maximum lump sum payments, under the Severance Agreements in
the following amounts: H. Gregory Nasky $990,146, R. Craig Bird $767,876, Paul
S. Harris $589,299, Mark J. Miller $783,216, Donald L. Tatzin $370,000, Herbert
R. Wolfe $968,184, J. Keith Wallace $678,583 and Carlton L. Geer $578,510.
Based on compensation levels as of December 31, 1997, assuming a Change in
Control of the Company and a subsequent termination by the Employee for any
reason other than Good Reason within one year, the following Employees would be
entitled to receive maximum lump-sum payments under the Severance Agreements in
the following amounts: H. Gregory Nasky $495,073, R. Craig Bird $383,938, Paul
S. Harris $294,650, Mark J. Miller $391,608, Donald L. Tatzin $185,000, Herbert
R. Wolfe $484,092, J. Keith Wallace $339,291 and Carlton L. Geer $289,255.
TRANSITION AGREEMENTS
On or prior to the Effective Time, it is expected that Harrah's will enter
into consulting agreements (each a "Consulting Agreement") with each of R. Craig
Bird, Executive Vice President and Chief Financial Officer, Paul S. Harris,
Executive Vice President--Human Resources and Mark J. Miller, Executive Vice
President--Finance and Administration, pursuant to which each of such executive
officers will be available for Harrah's to consult regarding transition issues
for a period of six months following the Effective Time. The amount payable
under each Consulting Agreement will be approximately $100,000 for Mr. Bird, and
approximately $75,000 for each of Messrs. Harris and Miller.
On or prior to the Effective Time, it is expected that Harrah's will enter
into a consulting agreement with H. Gregory Nasky, Executive Vice President of
the Company, (the "Nasky Consulting Agreement"), pursuant to which Mr. Nasky
will be available to consult regarding transition issues and specific projects
for a period of one year following the Effective Time. The amount payable under
the Nasky Consulting Agreement will be approximately $475,000.
On or prior to the Effective Time, Harrah's plans to enter into a consulting
agreement (the "Houssels Consulting Agreement") with J.K. Houssels, the Chairman
of the Board of the Company pursuant to which he will be available to consult
with Harrah's regarding transition issues for a period of two years. The total
amount payable under the Houssels Consulting Agreement will be approximately
$250,000.
RETENTION BONUS
The Company's Board of Directors has approved the payment of retention
bonuses to those corporate officers who are not parties to Severance Agreements
and to certain other employees who are employed by
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the Company immediately prior to the Effective Time. Assuming all such persons
are entitled to receive the retention bonuses, an aggregate of approximately
$2,735,000 will be payable by the Company. The total amount to be paid out as
retention bonuses which will be received by executive officers of the Company
will not exceed $470,000.
SYDNEY HARBOUR CASINO BONUS
On December 31, 1997 the Company made payment of a special bonus to certain
officers and employees of the Company who were instrumental in (a) obtaining the
license for the interim Sydney Harbour Casino ("Sydney Harbour Casino") and Star
City, (b) overseeing the development of Star City and the operations of Sydney
Harbour Casino and (c) successfully opening Sydney Harbour Casino and Star City.
Star City was built by SHCH, of which the Company is a 24.6% shareholder, and is
managed by subsidiaries of the Company. The Sydney Harbour Casino Bonus (the
"Bonus") was paid in recognition of (i) the aforementioned roles played by the
individual recipients of the Bonus and (ii) the fact that the recipients had
foregone portions of prior bonuses that would have otherwise been payable to
them while Star City was being constructed. Certain of the executive officers of
the Company received payments in respect of the Bonus in the following amounts:
J.K. Houssels, $686,931; J. Kell Houssels, III, $900,241; H. Gregory Nasky,
$659,845; R. Craig Bird, $320,476; Mark J. Miller, $312,742; and an aggregate of
$503,074 of the Bonus was paid to other executive officers of the Company.
DIRECTOR COMPENSATION
The Company has agreed to continue to pay director fees to each of its
non-employee directors (at an annual rate of $50,000) for the longer of the
remainder of 1998 or six months following the Effective Time. Each of the
non-employee directors will be offered health insurance, in substantially the
form currently provided, for a period of up to five years after the Effective
Time.
In addition, each of William C. Richardson, John D. Gaughan, Frank A. Modica
and George A. Zettler has agreed to serve on an advisory committee to the
Company for one year following the Effective Time and will receive a $50,000 fee
for such services.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
The Merger Agreement confirms that participants in the Company's
Supplemental Executive Retirement Plan (the "SERP") who, as of the Effective
Date, are receiving benefits or are eligible to receive benefits upon their
retirement will continue to be entitled to such benefits. In addition, the
Merger Agreement requires the surviving corporation to provide retirement
benefits to one executive officer who is expected to be eligible for retirement
benefits under the SERP on or about September 1, 1998.
INDEMNIFICATION AND INSURANCE
The Merger Agreement provides for certain arrangements with respect to the
ongoing obligations of Harrah's to indemnify, and maintain insurance on behalf
of, the directors and executive officers of the Company in respect of certain
liabilities. See "The Merger Agreement--Certain Covenants--Director and Officer
Insurance and Indemnification."
FINANCING THE MERGER
The total amount (the "Required Funding") required to pay the aggregate
Merger Consideration to the Company's stockholders, to make the requisite
payments to the holders of Options and SARs and to pay estimated fees, expenses
and other transaction costs of Harrah's and Sub in connection with the Merger
will be approximately $550 million. Harrah's Operating Company, Inc., a
wholly-owned subsidiary of Harrah's ("Harrah's Operating"), and certain other
subsidiaries of Harrah's presently have a revolving credit loan facility with
Bankers Trust Company as agent for a syndicate of Banks (collectively, the
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"Banks"). This credit facility is being increased and amended and restated to
accommodate the Merger and if Harrah's so elects, to enable Harrah's to
consummate tender offers for the Company's outstanding 9 1/4% First Mortgage
Bonds due 2008 (the "First Mortgage Bonds") and 13% Senior Subordinated Notes
due 2009 (the "Senior Subordinated Notes"). Proceeds from this amended and
restated credit facility, together with cash on hand, will be used, among other
things, (i) to pay the aggregate Merger Consideration payable to the Company's
stockholders, Option holders, and SAR holders in connection with the Merger,
(ii) if needed, to consummate the tender offers, (iii) to pay
transaction-related costs and expenses, and (iv) for working capital purposes.
The amended and restated credit facility will be entered into on or before the
closing of the Merger. This refinancing is not a condition to the obligations of
Harrah's to effect the Merger.
ACCOUNTING TREATMENT
Harrah's will account for the Merger as a "purchase" in accordance with
generally accepted accounting principles. Therefore, the aggregate consideration
paid by Harrah's in connection with the Merger will be allocated to the
Company's assets and liabilities based upon their fair values, with any excess
being treated as goodwill. The assets and liabilities and results of operations
of the Company will be consolidated into the assets and liabilities and results
of operations of Harrah's subsequent to the consummation of the Merger.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion describes the material United States federal income
tax consequences relevant to the Merger. The discussion is based upon the
Internal Revenue Code of 1986, as amended (the "Code"), existing and proposed
Treasury regulations promulgated thereunder, rulings, administrative
pronouncements and judicial decisions, changes to which could materially affect
the tax consequences described herein and could be made on a retroactive basis.
The receipt of cash in exchange for Common Stock pursuant to the Merger will
be a taxable transaction for federal income tax purposes and may also be a
taxable transaction under applicable state, local and foreign income and other
tax laws. The tax consequences of such receipt may vary depending upon, among
other things, the particular circumstances of the stockholder. In general, a
stockholder will recognize gain or loss for federal income tax purposes equal to
the difference between the adjusted tax basis of his or her Common Stock and the
amount of cash received in exchange therefor in the Merger. Such gain or loss
will be capital gain or loss if the Common Stock is a capital asset in the hands
of the stockholder and will be either long-term or short-term if the stockholder
is a corporation; or long-term, mid-term or short-term if the stockholder is an
individual or a non-corporate entity, depending on the stockholder's holding
period at the Effective Time.
In the case of a stockholder that is an individual or a non-corporate entity
that has held the Common Stock as a capital asset for (i) 12 months or less
prior to the Effective Time, any gain will be taxed at ordinary income rates,
(ii) more than 12 months, but not more than 18 months prior to the Effective
Time, the maximum federal capital gains tax rate is 28%, or (iii) more than 18
months prior to the Effective Time, the maximum federal capital gains tax rate
is 20%.
The receipt of cash by a stockholder of the Company pursuant to the Merger
may be subject to backup withholding at the rate of 31% unless the stockholder
(i) is a corporation or comes within certain other exempt categories, or (ii)
provides a certified taxpayer identification number on Form W-9 and otherwise
complies with the backup withholding rules. Backup withholding is not an
additional tax; any amounts so withheld may be credited against the federal
income tax liability of the stockholder subject to the withholding.
The foregoing discussion does not address all aspects of federal income
taxation that may be relevant to a stockholder and may not apply to stockholders
(i) who acquired their Common Stock pursuant to the
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exercise of employee stock options or other compensation arrangements with the
Company, or (ii) who are not citizens or residents of the United States or (iii)
who are subject to special tax treatment under the Code (such as dealers in
securities, insurance companies, other financial institutions, regulated
investment companies and tax-exempt entities).
DUE TO THE INDIVIDUAL NATURE OF TAX CONSEQUENCES, STOCKHOLDERS ARE URGED TO
CONSULT THEIR TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE
MERGER, INCLUDING THE EFFECTS OF APPLICABLE STATE, LOCAL OR FOREIGN INCOME OR
OTHER TAX LAWS.
REGULATORY APPROVALS
ANTITRUST. Transactions such as the Merger are reviewed by the Antitrust
Division of the United States Department of Justice (the "DOJ") and the United
States Federal Trade Commission (the "FTC") to determine whether they comply
with applicable antitrust laws. Under the provisions of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), the Merger may
not be consummated until such time as the applicable waiting period requirements
of the HSR Act have been satisfied. Harrah's and the Company each filed
notification reports, together with requests for early termination of the
waiting period, with the DOJ and the FTC under the HSR Act on January 12, 1998.
The applicable waiting periods for both Harrah's and the Company expired on
February 11, 1998 and no request for additional information was made.
At any time before or after the Effective Time, the DOJ, the FTC or a
private person or entity could seek under the antitrust laws, among other
things, to enjoin the Merger or to cause Harrah's to divest itself, in whole or
in part, of the Company or of other businesses conducted by Harrah's. There can
be no assurance that a challenge to the Merger will not be made or that, if such
a challenge is made, Harrah's and the Company will prevail.
GAMING REGULATION. The gaming operations of each of Harrah's and the
Company are subject to extensive regulation, and each of Harrah's and the
Company hold registrations, approvals, gaming licenses or permits in each
jurisdiction in which it operates gaming activities. In each such jurisdiction,
certain regulatory requirements must be complied with and/or certain approvals
must be obtained in connection with the Merger. Harrah's and the Company's
obligations to consummate the Merger are subject to the satisfaction at or prior
to the Effective Time of the condition that all necessary gaming regulatory
approvals and authorizations have been obtained. See "The Merger
Agreement--Conditions to Obligations to Effect the Merger."
Harrah's has filed applications for approvals from and initiated discussions
with, gaming authorities in the four jurisdictions in which the Company conducts
gaming activities: Indiana, Nevada, New Jersey, and New South Wales, Australia.
Harrah's filed (i) an application with the Indiana Gaming Commission on or about
January 12, 1998 for approval of the transfer of the Company's beneficial
interest in Showboat Marina Casino Partnership, the licensee of the East Chicago
Showboat, (ii) an application with the Nevada Gaming Commission on or about
December 24, 1997 for approval of the acquisition of control of the Company and
(iii) a petition with the New Jersey Casino Control Commission on January 6,
1998 seeking a declaratory ruling relating to the acquisition of the Company.
Harrah's notified the New South Wales Casino Control Authority on December 22,
1997 regarding its intention to become a "close associate" of Star City and the
manager of the casino. See "Regulations and Licensing."
Review of the Merger by gaming regulatory authorities will involve
examination of the structure of the combined company and its financial stability
after the Merger and may require the demonstration of qualifications and
suitability of key individuals associated with the combined company, i.e.
officers, directors, major stockholders and other individuals deemed appropriate
by the gaming regulatory authorities.
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The failure to obtain the required approval of the Merger or the failure to
comply with the procedural requirements prescribed by any applicable gaming
regulatory authority or the failure of the combined company to qualify or make
disclosure or applications as required under the laws and regulations of any
applicable gaming regulatory authority may result in the loss of license or
denial of application for licensure in any such jurisdiction. See "Regulation
and Licensing."
CERTAIN CONSEQUENCES OF THE MERGER
As a result of the Merger, Sub will be merged with and into the Company and
the Company will become an indirect wholly-owned subsidiary of Harrah's.
Following consummation of the Merger, the Common Stock will be delisted from the
NYSE, deregistered under the Exchange Act and will no longer be publicly traded.
EFFECT OF MERGER ON OUTSTANDING DEBT
The Merger will constitute a "change of control" under the Company's
outstanding First Mortgage Bonds and Senior Subordinated Notes and,
consequently, the surviving corporation in the Merger will be required to make
an offer to purchase the First Mortgage Bonds and the Senior Subordinated Notes
at 101% of the principal amount thereof following the Effective Time. The Merger
Agreement contains a representation by Harrah's that it will have sufficient
funds on the Closing Date to purchase the First Mortgage Bonds and the Senior
Subordinated Notes tendered in response to such offer.
LIMITATION ON RIGHT OF DISSENT
Although the Board of Directors recommends that stockholders vote "FOR"
approval and adoption of the Merger Agreement, all holders of shares of Common
Stock who are entitled to vote may vote for, against, or abstain from voting
for, the approval and adoption of the Merger Agreement. However, because the
Company's Common Stock is listed on the NYSE, any stockholder who does not wish
to accept $30.75 per share for his or her shares of Common Stock will not have a
right to dissent and obtain payment of "fair value" for his or her shares with
respect to the Merger Agreement in accordance with applicable statutory
procedures of Section 92A.390 of the NRS.
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THE MERGER AGREEMENT
THE FOLLOWING IS A BRIEF SUMMARY OF THE MATERIAL PROVISIONS OF THE MERGER
AGREEMENT, A COPY OF WHICH IS ATTACHED AS ANNEX A TO THIS PROXY STATEMENT AND IS
INCORPORATED HEREIN BY REFERENCE. SUCH SUMMARY IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE MERGER AGREEMENT. STOCKHOLDERS OF THE COMPANY ARE URGED TO READ
THE MERGER AGREEMENT IN ITS ENTIRETY FOR A MORE COMPLETE DESCRIPTION OF THE
TERMS AND CONDITIONS OF THE MERGER.
THE MERGER
Following the approval of the Merger by the stockholders of the Company, the
receipt of all gaming and other regulatory approvals and the satisfaction or
waiver of the other conditions to the Merger, the Company will become an
indirect wholly-owned subsidiary of Harrah's, and the holders of Common Stock
will become entitled to receive, without interest, $30.75 in cash per share of
Common Stock.
If the Merger Agreement is approved by the Company's stockholders, and the
other conditions to the Merger are satisfied or waived, the Closing will take
place on the third business day (the "Closing Date") following the date on which
the last of the conditions is satisfied or waived, or at such other date agreed
to by the Company and Harrah's. On the Closing Date, Harrah's and the Company
will cause articles of merger to be filed with the Secretary of State of the
State of Nevada as provided in Section 92A.200 of the NRS. The Merger will
become effective upon the filing of such articles of merger or such later time
as is specified therein. See "The Merger Agreement--Conditions to Obligations to
Effect the Merger." Subject to the satisfaction (or waiver) of the other
conditions to the obligations of the Company and Harrah's to consummate the
Merger, it is presently expected that the Merger will be consummated during the
second quarter of 1998.
CONVERSION OF SHARES
The Merger will be effected by merger of Sub with and into the Company, with
the Company as the surviving corporation (the "Surviving Corporation"). At the
Effective Time: (i) each issued and outstanding share of Common Stock (other
than shares that are canceled as described below) will be converted into the
right to receive the Merger Consideration; (ii) each issued and outstanding
share of common stock of Sub will be converted into one share of the Surviving
Corporation; and (iii) each share of Common Stock that is owned by the Company
as treasury stock or is owned by Harrah's or any of its subsidiaries will be
canceled and will cease to exist and no consideration will be delivered in
exchange therefor. Consequently, as a result of the Merger, the Company will
become an indirect wholly-owned subsidiary of Harrah's.
EXCHANGE OF STOCK CERTIFICATES
Immediately prior to the Effective Time, Harrah's shall deposit or cause to
be deposited with a bank or trust company appointed to act as exchange agent for
the purpose of paying the Merger Consideration (the "Exchange Agent"), cash in
an aggregate amount sufficient to pay the Merger Consideration. Not later than
five business days after the Effective Time, the Exchange Agent will mail to
each holder of record of a certificate or certificates which immediately prior
to the Effective Time represented outstanding shares of Common Stock a letter of
transmittal and instructions for use in effecting the surrender of such
certificates in exchange for payment of the Merger Consideration. Upon surrender
of certificates for cancellation to the Exchange Agent, together with such
letter of transmittal, duly executed and completed in accordance with the
instructions thereto, the holder of such certificates will be entitled to
receive cash in an amount equal to the product of (x) the number of shares of
Common Stock represented by such certificates and (y) the Merger Consideration,
and the certificates so surrendered will promptly be canceled.
NO FURTHER OWNERSHIP RIGHTS IN THE COMMON STOCK. The Merger Consideration
paid upon the surrender for exchange of certificates which immediately prior to
the Effective Time represented shares of Common Stock will be deemed to have
been issued in full satisfaction of all rights pertaining to the shares
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of Common Stock theretofore represented by such certificates, and from and after
the Effective Time there shall be no further registration of transfers on the
stock transfer books of the Surviving Corporation of the shares of the Company
Common Stock which were outstanding immediately prior to the Effective Time. If,
after the Effective Time, certificates which immediately prior to the Effective
Time represented shares of Common Stock are presented to the Surviving
Corporation for any reason, such certificates will be canceled and exchanged in
the manner described above.
FAILURE TO EXCHANGE. Any cash which remains undistributed to the former
stockholders of the Company following the first anniversary of the Effective
Time will be delivered by the Exchange Agent to the Surviving Corporation, and
any former stockholder of the Company who has not previously exchanged
certificates which immediately prior to the Effective Time represented shares of
Common Stock will thereafter look only to the Surviving Corporation for payment
of such former stockholder's claim for Merger Consideration.
NO LIABILITY. None of Harrah's, the Surviving Corporation or the Exchange
Agent will be liable to any holder of shares of Common Stock for any cash
constituting the Merger Consideration delivered to a public official pursuant to
any applicable abandoned property, escheat or similar law. The Surviving
Corporation or the Exchange Agent will be entitled to deduct and withhold from
the consideration otherwise payable pursuant to the Merger Agreement to any
holder of certificates which prior to the Effective Time represented shares of
Common Stock such amounts as it is required to deduct and withhold with respect
to the making of such payment under the Code, or any provision of state, local
or foreign tax law. To the extent that amounts are so withheld, such withheld
amounts shall be treated for all purposes of the Merger Agreement as having been
paid to the holder of the shares of Common Stock in respect of which such
deduction and withholding was made.
HOLDERS OF COMMON STOCK SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY
RECEIVE A TRANSMITTAL FORM FROM AMERICAN STOCK TRANSFER AND TRUST COMPANY, THE
EXCHANGE AGENT THEREFOR.
TREATMENT OF STOCK OPTIONS AND SARS
At the Effective Time, each unexpired and unexercised outstanding Option,
whether or not then vested or exercisable in accordance with its terms, will
become exercisable in full and each holder of an Option will be entitled to
receive from the Company (or the Surviving Corporation) in cancellation thereof
a payment (subject to applicable income tax withholding and employment taxes) in
cash in an amount equal to the excess, if any, of the Merger Consideration over
the per share exercise price of such Option, multiplied by the number of shares
of Common Stock subject to such Option (the "Option Settlement Amount"). At the
Effective Time, each outstanding SAR granted by the Company under the SAR Plan,
whether or not then vested or exercisable in accordance with its terms, will
become exercisable in full and each holder of a SAR will be entitled to receive
from the Company (or the Surviving Corporation) in cancellation thereof a
payment in cash of an amount equal to the excess, if any, of the Merger
Consideration over the exercise price of such SAR multiplied by the number of
shares of Common Stock subject to such SAR, subject to any withholding of taxes
and any reduction in the Rights Payments (as defined in the SAR Plan) pursuant
to the terms of Section IV of the SAR Plan (the "SAR Settlement Amount").
From and after the Effective Time, all Options and SARs will represent only
the right of the holders of such Options or SARs to receive payment of the
Option Settlement Amount or SAR Settlement Amount, as the case may be, upon the
surrender thereof. The surrender of an Option or a SAR will be deemed a release
of any and all rights the holder had or may have in respect of such Option or
SAR. All agreements, plans, programs or arrangements of the Company and its
subsidiaries that provide for the issuance or grant of Options or any other
interest in respect of the capital stock of the Company or capital stock or
other ownership interest in any of its subsidiaries will terminate as of the
Effective Time. The
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Merger Agreement further provides that the Company will take all permitted
actions necessary to ensure that, following the Effective Time, no participant
in any agreement, plan, program or arrangement of the Company shall have any
right thereunder to acquire securities or other ownership interests of the
Company, the Surviving Corporation or any subsidiary thereof and to terminate
all such plans.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains, with respect to the Company and its
subsidiaries, various customary representations and warranties relating to,
among other things, (a) due organization, valid existence and good standing of
the Company and its subsidiaries and certain similar corporate matters; (b)
capital structure; (c) the authorization, execution, delivery and enforceability
of the Merger Agreement and the consummation of the transactions contemplated by
the Merger Agreement; (d) conflicts under charters or by-laws, required consents
or approvals and violations of any instruments or law; (e) documents and
financial statements filed with the Commission and the accuracy of information
contained therein; (f) the absence of undisclosed liabilities; (g) the absence
of certain material adverse changes or events; (h) taxes and tax returns; (i)
real property; (j) title to personal property and the absence of liens; (k)
intellectual property; (l) agreements, contracts and commitments; (m)
litigation; (n) environmental matters and hazardous materials; (o) employee
benefit plans; (p) compliance with laws (including gaming laws); (q) the
accuracy of information contained in this Proxy Statement; (r) labor matters;
(s) insurance; (t) opinion of financial advisor; (u) the absence of existing
discussions with other parties; (v) the Rights Agreement, dated October 5, 1995,
between the Company and American Stock Transfer and Trust Company (the "Showboat
Rights Plan"); (w) the inapplicability to the Merger of certain provisions of
the Nevada Revised Statutes; (x) retention of brokers in connection with the
transactions contemplated by the Merger Agreement; and (y) transactions with
affiliates.
The Merger Agreement contains, with respect to Harrah's and its
subsidiaries, various customary representations and warranties relating to,
among other things, (a) due organization, valid existence and good standing of
Harrah's and its subsidiaries and certain similar corporate matters; (b) the
authorization, execution, delivery and enforceability of the Merger Agreement
and agreements between Harrah's and certain stockholders who are directors of
the Company (each, a "Stockholder Support Agreement" and collectively, the
"Stockholder Support Agreements"), the consummation of the transactions
contemplated by the Merger Agreement and the agreements between Harrah's and the
Stockholder Support Agreements and related matters; (c) conflicts under charters
or by-laws, required consents or approvals and violations of any instruments or
law; (d) the accuracy of information supplied in connection with this Proxy
Statement; (e) retention of brokers in connection with the transactions
contemplated by the Merger Agreement; and (f) the availability to Harrah's of
sufficient funds to pay, at Closing, the aggregate Merger Consideration and to
purchase any of the Company's outstanding First Mortgage Bonds and Senior
Subordinated Notes required to be purchased pursuant to the change of control
provisions contained in the instruments governing such indebtedness; and (g)
compliance with gaming laws.
CERTAIN COVENANTS
CONDUCT OF BUSINESS. The Company has agreed that, during the period from
the date of the Merger Agreement until the earlier of the termination of the
Merger Agreement or the Effective Time, except as otherwise consented to in
writing by Harrah's or as contemplated by the Merger Agreement, it and each of
its subsidiaries will: (a) carry on its business in the usual, regular and
ordinary course in substantially the same manner as previously conducted; (b)
pay its debts and taxes when due subject to good faith disputes over such debts
or taxes, and pay or perform other obligations when due; (c) use reasonable
efforts consistent with past practices and policies to preserve intact its
present business organization, keep available the services of its present
officers and key employees and preserve its relationships with customers,
supplies, distributors and others having business dealings with it; (d) not
amend its Articles of Incorporation or Bylaws; (e) not issue, pledge or sell, or
authorize the issuance, pledge or sale of additional
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shares of its capital stock (other than upon exercise of the Options outstanding
on the date of the Merger Agreement) or securities convertible into capital
stock, or any rights, warrants or options to acquire any convertible securities
or capital stock, or any other securities in substitution for outstanding shares
of Common Stock; (f) not amend or waive any terms of any option, warrant or
stock option plan of the Company or any of its subsidiaries; (g) not declare or
pay any dividends on or make other distributions in respect of any of its
capital stock (other than between any wholly-owned subsidiary of the Company and
the Company or any other wholly-owned subsidiary of the Company and other than
regular quarterly dividends on shares of Common Stock not to exceed $.025 per
share); (h) not effect certain other changes in its capitalization, and not
purchase or otherwise acquire, directly or indirectly, any shares of its capital
stock; (i) not increase the compensation or fringe benefits payable to its
directors, officers or employees or pay any benefit not required by any existing
plan or arrangement or grant any severance or termination pay (except pursuant
to existing agreements or policies, which will be interpreted and implemented in
a manner consistent with past practice), enter into employment or severance
agreements, or establish, adopt, enter into, or amend any plan or policy for the
benefit of any directors, officers, or current or former employees, subject to
certain exceptions; (j) not sell, pledge, lease, dispose of, grant, encumber, or
otherwise authorize the sale, pledge, disposition, grant or encumbrance of any
properties or assets of the Company or any of its subsidiaries, except for sales
of assets in the ordinary course of business in connection with the Company's
gaming operations in an amount not to exceed $500,000 individually or $2,000,000
in the aggregate or other sales which individually do not exceed $100,000 and in
the aggregate do not exceed $250,000; (k) not acquire any corporation,
partnership, other business organization or any division thereof or any other
assets, except for acquisitions of assets in the ordinary course of business in
connection with the Company's gaming operations in an amount individually not to
exceed $500,000 or other acquisitions which individually do not exceed $100,000
and in the aggregate do not exceed $250,000; (l) not incur, assume or prepay
long-term debt or incur or assume any short-term debt, assume, guarantee or
become liable for the obligations of any other person, or make any loans,
advances or capital contributions to or investments in any other person, in each
case other than in the ordinary course of business consistent with past
practice; (m) not adopt or announce any intention to adopt a plan of complete or
partial liquidation or dissolution of the Company or any of its subsidiaries;
(n) not make or rescind any material tax elections, settle any tax claims or
make any material change in its accounting methods; (o) not pay, discharge or
satisfy any material claims, liabilities or obligations, or waive any rights of
substantial value, in each case other than in the ordinary course of business
and consistent with past practice of liabilities reflected or reserved against
in the consolidated financial statements of the Company; (p) not fail to
maintain its existing insurance coverage; (q) not enter into any new or
successor collective bargaining agreement other than agreements covering
employees at the Las Vegas Showboat on terms consistent with those agreed to by
the majority of casinos in downtown Las Vegas; (r) not take any action
inconsistent with the ordinary course of business and past practice with respect
to accounting policies, unless required by generally accepted accounting
principles or the Commission; (s) not modify, amend or terminate, or waive,
release or assign any rights with respect to, any of the Company's material
contracts except in the ordinary course of business consistent with past
practice; (t) not take any action that would make any of its representations or
warranties set forth in the Merger Agreement inaccurate in any respect at, or as
of any time prior to, the Effective Time; (u) not engage in any transactions
with any of the Company's affiliates other than pursuant to agreements,
arrangements or understandings existing on the date of the Merger Agreement; (v)
not close or shut down any of the casinos owned or operated by the Company or
any of its subsidiaries unless required by law or due to acts of God or other
force majeure events; or (w) not enter into any agreement or announce any
intention to take any of the actions described in (d) through (v) above.
NO SOLICITATION. The Company will not, directly or indirectly, through any
officer, director, employee, financial advisor, representative or agent, (i)
solicit, initiate or encourage any inquiries or proposals that constitute, or
could reasonably be expected to lead to, a proposal or offer for a merger,
consolidation, business combination, sale of substantial assets, sale of shares
of capital stock (including without limitation
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by way of a tender offer) or similar transaction involving the Company or any of
its subsidiaries, other than the transactions contemplated or permitted by the
Merger Agreement (any of the foregoing inquiries or proposals being referred to
as an "Acquisition Proposal"), (ii) engage in negotiations or discussions with,
or provide any non-public information, to any person (or group of persons) other
than Harrah's and its affiliates (a "Third Party") relating to any Acquisition
Proposal, or (iii) agree to or recommend any Acquisition Proposal; provided,
however, that nothing contained in the Merger Agreement will prevent the Company
or its Board of Directors from (a) furnishing non-public information to, or
entering into discussions or negotiations with, any person or entity in
connection with an unsolicited bona fide written proposal for an Alternative
Transaction (as defined below) by such person or entity or modifying or
withdrawing its recommendation with respect to the transactions contemplated by
the Merger Agreement or recommending an unsolicited bona fide written proposal
for an Alternative Transaction to the stockholders of the Company, if and only
to the extent that (1) a Third Party has made a written proposal to the Board of
Directors of the Company to consummate an Alternative Transaction, which
proposal identifies a price or range of values to be paid for the outstanding
securities or substantially all of the assets of the Company, (2) the Board of
Directors of the Company believes in good faith, after consultation with its
financial advisor, that such Alternative Transaction is reasonably capable of
being completed on the terms proposed and would, if consummated, result in a
transaction more favorable to the stockholders of the Company than the
transaction contemplated by the Merger Agreement (any such more favorable
Alternative Transaction being referred to as a "Superior Proposal"), (3) the
Board of Directors of the Company determines in good faith, based on the advice
of outside legal counsel, that the failure to take such action would be
inconsistent with its fiduciary duties to the Company's stockholders under
applicable law and (4) prior to furnishing such non-public information to, or
entering into discussions or negotiations with, such person or entity, the Board
of Directors receives from such person or entity an executed confidentiality and
standstill agreement with material terms no less favorable to such party than
those contained in the Confidentiality Agreements, each dated September 16,
1997, between Harrah's and the Company; or (b) complying with Rule 14e-2
promulgated under the Securities Exchange Act of 1934 (the "Exchange Act") with
regard to an Acquisition Proposal. The Company agrees not to release any Third
Party from, or waive any provision of, any standstill agreement to which it is a
party or any confidentiality agreement between it and another person who has
made, or who may reasonably be considered likely to make, an Acquisition
Proposal, unless the Board of Directors of the Company determines in good faith,
based on the advice of outside legal counsel, that the failure to take such
action would be inconsistent with its fiduciary duties to the Company's
stockholders under applicable law.
"Alternative Transaction" means (i) a transaction pursuant to which any
Third Party acquires more than 30% of the outstanding shares of Common Stock,
pursuant to a tender offer or exchange offer or otherwise, (ii) a merger or
other business combination involving the Company pursuant to which any Third
Party (or the stockholders of a Third Party) acquires more than 30% of the
outstanding shares of Common Stock or the entity surviving such merger or
business combination, as the case may be, or (iii) any other transaction
pursuant to which any Third Party acquires control of assets (including for this
purpose the outstanding equity securities of subsidiaries of the Company, and
the entity surviving any merger or business combination including any of them)
of the Company having a fair market value (as determined by the Board of
Directors of the Company, in good faith) equal to more than 30% of the fair
market value of all the assets of the Company, and its subsidiaries, taken as a
whole, immediately prior to such transaction.
The Company will promptly notify Harrah's (orally and in writing) upon
receipt of any Acquisition Proposal or request for non-public information in
connection with an Acquisition Proposal or for access to its properties, books
or records in connection with an Acquisition Proposal. Such notice must indicate
in reasonable detail the identity of the offeror and the terms and conditions of
such proposal, inquiry or contact. The Company will not accept or enter into any
agreement concerning a Superior Proposal for a period of at least two business
days after Harrah's receipt of the notification of the terms thereof, during
which period Harrah's will be afforded the opportunity to match the terms and
conditions contained in such Superior Proposal.
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STOCKHOLDERS' MEETING. The Merger Agreement provides that the Company will
call a meeting of its stockholders to be held as promptly as practicable for the
purpose of voting upon the Merger Agreement and the Merger. Subject to the
discussion above under "--No Solicitation," the Company agreed to recommend to
its stockholders adoption of the Merger Agreement and approval of such matters
and to use its best efforts to hold such meeting as soon as practicable after
the date of the Merger Agreement. The Company agreed to use all reasonable
efforts to solicit from its stockholders proxies in favor of such matters unless
doing so would be inconsistent with the Company's Board of Directors' fiduciary
duties to its stockholders under applicable law based on the advice of outside
legal counsel.
GOVERNMENTAL APPROVALS. Harrah's and the Company agreed to cooperate with
each other and use their best efforts (and, with respect to certain federal,
state, local and foreign gaming laws, to use their best efforts to cause their
respective directors and officers to do so) to promptly prepare and file all
necessary documentation, to effect all applications, notices, petitions and
filings, to obtain as promptly as practicable all permits, registrations,
licenses, findings of suitability, consents, variances, exemptions, orders,
approvals and authorizations of all third parties and governmental entities
which are necessary or advisable to consummate the transactions contemplated by
the Merger Agreement, including, without limitation, all filings required under
the HSR Act, the Australian Corporations Act, the Foreign Acquisitions &
Takeovers Act, and certain federal, state, local and foreign gaming laws
("Governmental Approvals"), and to comply (and, with respect to certain federal,
state, local and foreign gaming laws, to cause their respective directors and
officers to so comply) with the terms and conditions of all such Governmental
Approvals. Harrah's and the Company and their respective officers, directors and
affiliates agreed to use their best efforts to file within 30 days after the
date of the Merger Agreement, and in all events to file within 60 days after the
date of the Merger Agreement, all required initial applications and documents in
connection with obtaining the Governmental Approvals (including without
limitation under applicable federal, state, local and foreign gaming laws) and
to act reasonably and promptly thereafter in responding to additional requests
in connection therewith. The Company and Harrah's will have the right to review
in advance, and to the extent practicable each will consult the other on, in
each case subject to applicable laws relating to the exchange of information,
all the information relating to the Company or Harrah's, as the case may be, and
any of their respective subsidiaries, directors, officers and stockholders which
appear in any filing made with, or written materials submitted to, any third
party or any governmental entity in connection with the transactions
contemplated by the Merger Agreement. Without limiting the foregoing, each of
the Company and Harrah's agreed to notify the other promptly of the receipt of
comments or requests from governmental entities relating to Governmental
Approvals and to supply the other party with copies of all such correspondence;
provided, however, that neither the Company nor Harrah's will be required to
supply the other party with copies of correspondence relating to the personal
applications of individual applicants except for evidence of filing.
The Company and Harrah's agreed to promptly advise each other upon receiving
any communication from any governmental entity whose consent or approval is
required for consummation of the transactions contemplated by the Merger
Agreement which causes such party to believe that there is a reasonable
likelihood that any approval needed from a governmental entity will not be
obtained or that the receipt of any such approval will be materially delayed.
The Company and Harrah's agreed to take any and all actions reasonably necessary
to vigorously defend, lift, mitigate and rescind the effect of any litigation or
administrative proceeding adversely affecting the Merger Agreement or the
transactions contemplated by the Merger Agreement, including, without
limitation, promptly appealing any adverse court or administrative order or
injunction to the extent reasonably necessary for the foregoing purposes.
However, Harrah's will have no obligation or affirmative duty to dispose of any
of its assets or properties, disassociate itself from any person or entity, or
agree to do any of the foregoing at any time in the future, in connection with
seeking any Governmental Approval.
33
<PAGE>
DIRECTOR AND OFFICER INSURANCE AND INDEMNIFICATION. From and after the
Effective Time, Harrah's will cause the Surviving Corporation to indemnify and
hold harmless each present and former director and officer of the Company
against any costs or expenses (including attorneys' fees), judgments, fines,
losses, claims, damages, liabilities or amounts paid in settlement incurred in
connection with any claim, action, suit, proceeding or investigation, whether
civil, criminal, administrative or investigative, arising out of or pertaining
to any matter existing or occurring at or prior to the Effective Time, whether
asserted or claimed prior to, at or after the Effective Time, to the fullest
extent that the Company would have been permitted under Nevada law and its
Articles of Incorporation or Bylaws in effect on the date of the Merger
Agreement to indemnify such person. For a period of six years after the
Effective Time, Harrah's will maintain or will cause the Surviving Corporation
to maintain in effect a directors' and officers' liability insurance policy
covering those persons who are covered as of the date of the Merger Agreement by
the Company's directors' and officers' liability insurance policy, with coverage
in an amount and scope at least as favorable as the Company's existing coverage;
provided that in no event will Harrah's or the Surviving Corporation be required
to expend in excess of 200% of the annual premium paid by the Company for such
coverage, and if the premium would at any time exceed 200% of such amount, then
Harrah's or the Surviving Corporation will maintain insurance policies which
provide the maximum and best coverage available at an annual premium equal to
200% of such amount.
EMPLOYMENT ARRANGEMENTS. Harrah's will offer to enter into employment
agreements with J. Kell Houssels, III and H. Gregory Nasky on terms mutually
satisfactory to each such person and Harrah's. See "The Merger--Interests of
Certain Persons in the Merger--Employment Agreements." Harrah's also agreed to
appoint or take such actions as are necessary to nominate and seek the election
of J. Kell Houssels, III to the Board of Directors of Harrah's for a three year
term. The Merger Agreement provides that Harrah's will maintain a "Showboat
Division" in its business for as long as J. Kell Houssels, III is employed by
Harrah's pursuant to his new employment agreement.
EMPLOYEE BENEFITS. For at least one year following the Effective Time, the
Company's current employees (other than the Company's employees that are covered
by collective bargaining agreements) will be entitled to participate in, at
Harrah's' option, (a) benefits plans and arrangements substantially similar to
the Company's existing benefit plans and arrangements, (b) Harrah's' employee
benefit plans and arrangements on substantially the same basis as
similarly-situated employees of Harrah's (based on such employees' duties,
geographic location, seniority and other similar factors), or (c) some
combination of the benefit plans and arrangements described in clauses (a) and
(b). The Merger Agreement also requires Harrah's to cause the Surviving
Corporation to honor all written employment, severance and termination
agreements (including change in control provisions) of the employees of the
Company and its subsidiaries provided to Harrah's on or prior to the date of the
Merger Agreement. For purposes of determining eligibility to participate,
vesting and accrual or entitlement to benefits where length of service is
relevant under any employee benefit plan or arrangement of Harrah's or the
Surviving Corporation, employees of the Company and its subsidiaries as of the
Effective Time will receive service credit for service with the Company and any
of its subsidiaries to the same extent such service was granted under the
Company's employee plans, subject to offsets for previously accrued benefits and
no duplication of benefits. The Company agreed to amend, prior to the Effective
Time, its Supplemental Executive Retirement Plan to clarify that only the
bonuses payable under its Executive Incentive Plan will be taken into account
under its Supplemental Executive Retirement Plan. The Surviving Corporation (i)
will take certain actions with respect to the retirement benefits of five
individuals affiliated with the Company and (ii) will calculate retirement
benefits with respect to the Company's Supplemental Executive Retirement Plan in
accordance with certain actuarial methods and assumptions. See "The
Merger--Interests of Certain Persons in the Merger---Supplemental Executive
Retirement Plan." From and after the Effective Time, Harrah's and the Surviving
Corporation will not amend the Company's Supplemental Executive Retirement Plan
in any manner that adversely affects a participant's rights with respect to the
amount of his or her accrued benefit as of the Effective Time; provided,
however, that the Surviving Corporation may, in its sole discretion, terminate
such plan at any time in accordance with the terms of such plan. Nothing in
34
<PAGE>
the Merger Agreement is intended to create any right of employment for any
person or to create any obligation for Harrah's or the Surviving Corporation to
continue any employee benefit plan or arrangement following the Effective Time.
USE OF THE COMPANY NAME. Until the third anniversary of the Effective Time,
Harrah's agreed to retain the "Showboat" name currently used at the Atlantic
City Showboat and to cause the "Showboat" name to be used in connection with
certain other possible operations.
OTHER COVENANTS. Each of Harrah's and the Company has agreed: (a) to confer
with the other party on a regular and frequent basis regarding ongoing
operations and to give prompt notice to the other of, and use all commercially
reasonable efforts to cure before the Closing Date, any event, transaction or
circumstance which causes or will cause any covenant or agreement under the
Merger Agreement to be breached or that renders or will render untrue in any
material respect any representation or warranty contained in the Merger
Agreement; (b) to file this Proxy Statement; (c) to give (and to cause its
respective subsidiaries to give) Harrah's and its representatives access to all
its personnel, properties, books, contracts, commitments and records, and to
furnish related information reasonably requested by Harrah's and certain
additional financial reports and other information relating to the Company's
operations and periods between the date of the Merger Agreement and the
Effective Time; (d) to consult with the other party before issuing, and use all
reasonable efforts to agree upon, any press release or other public statement
concerning the transactions contemplated by the Merger Agreement; and (e) to use
its reasonable best efforts to take all appropriate action to consummate the
transactions contemplated by the Merger Agreement.
CONDITIONS TO OBLIGATIONS TO EFFECT THE MERGER
The respective obligations of the Company and Harrah's to effect the Merger
are subject to the satisfaction (or waiver) of the following conditions: (a) the
Merger and the Merger Agreement shall have been approved and adopted by the
stockholders of the Company; (b) no order, executive order, stay, decree,
judgment or injunction or statute, rule or regulation shall be in effect that
makes the Merger illegal or otherwise prohibits the consummation of the Merger;
and (c) all governmental authorizations, consents, orders or approvals shall
have been obtained (including under all gaming laws), all statutory waiting
periods in respect thereof (including under the HSR Act) shall have expired and
no such approval shall contain any material conditions, limitations or
restrictions.
The obligation of the Company to effect the Merger is also subject to the
satisfaction of the following conditions: (a) the representations and warranties
of Harrah's and Sub in the Merger Agreement shall be true and correct in all
material respects (except for those qualified as to materiality or a Harrah's
Material Adverse Effect (as defined below) which shall be true and correct) as
of the date of the Merger Agreement and, except to the extent such
representations speak as of an earlier date, as of the Closing Date as though
made on and as of the Closing Date, except for changes contemplated by the
Merger Agreement (the "Harrah's Representation Bringdown Condition"); (b)
Harrah's shall have performed in all material respects all obligations required
to be performed by it under the Merger Agreement at or prior to the Closing
Date; and (c) Harrah's shall have received all third-party consents and
approvals and approvals required to be obtained by Harrah's, except for such
third-party consents and approvals as to which the failure to obtain,
individually or in the aggregate, would not reasonably be expected to impair or
delay the consummation of the Merger. A "Harrah's Material Adverse Effect" means
a material adverse effect on the business, properties, condition (financial or
otherwise), results of operations or prospects of Harrah's and its subsidiaries,
taken as a whole.
In addition, the obligations of Harrah's and Sub to effect the Merger are
also subject to the satisfaction of the following conditions: (a) the
representations and warranties of the Company in the Merger Agreement shall be
true and correct in all material respects (except for those qualified as to
materiality or a Showboat Material Adverse Effect (as defined below), which
shall be true and correct) as
35
<PAGE>
of the date of the Merger Agreement and, except to the extent such
representations and warranties speak as of an earlier date, as of the Closing
Date as though made on and as of the Closing Date, except for changes
contemplated by the Merger Agreement (the "Showboat Representation Bringdown
Condition"); (b) the Company shall have performed in all material respects all
obligations required to be performed by it under the Merger Agreement at or
prior to the Closing Date; (c) between the date of the Merger Agreement and the
Effective Date, there shall have been no material adverse change in the
business, properties, assets, liabilities, operations, condition (financial or
otherwise) or prospects of the Company and its subsidiaries, taken as a whole;
(d) Harrah's and the Company shall have received all third-party consents and
approvals required to be obtained by Harrah's or the Company, except for such
third-party consents and approvals as to which the failure to obtain, either
individually or in the aggregate, would not reasonably be expected to result in
(i) a material adverse change in the business, properties, assets, liabilities,
operations, condition (financial or otherwise) or prospects of the Company and
its subsidiaries, taken as a whole, or (ii) a Harrah's Material Adverse Effect,
as the case may be; and (e) no event has occurred that has or would result in
the triggering of any right or entitlement of the Company's stockholders under
the Showboat Rights Plan, or will occur as a result of the consummation of the
Merger. A "Showboat Material Adverse Effect" means a material adverse effect on
the business, properties, condition (financial or otherwise), results of
operations or prospects of the Company and its subsidiaries, taken as a whole,
or any of the three separate businesses operated as the Atlantic City Showboat,
East Chicago Showboat and Star City.
TERMINATION; TERMINATION FEES AND EXPENSES
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval of the matters presented in connection
with the Merger by the Company's stockholders:
(a) by mutual written consent of the Company and Harrah's; or
(b) by either Harrah's or the Company if the Merger has not been consummated
by July 1, 1998 (provided that (i) if the Merger has not been consummated
because the requisite governmental approvals have not been obtained and are
still being pursued, either Harrah's or the Company may extend such date to
January 1, 1999 by providing written notice thereof to the other party on or
prior to July 1, 1998 and (ii) the right to terminate the Merger Agreement will
not be available to any party whose failure to fulfill any obligation under the
Merger Agreement has been the cause of or resulted in the failure of the Merger
to occur on or before such date); or
(c) by either Harrah's or the Company if a court of competent jurisdiction
or other governmental entity has issued a nonappealable final order, decree or
ruling or taken any other nonappealable final action, in each case having the
effect of permanently restraining, enjoining or otherwise prohibiting the
Merger; or
(d) by either Harrah's or the Company, if, at the meeting of the Company's
stockholders (including any adjournment or postponement), the requisite vote of
the stockholders of the Company in favor of the approval and adoption of the
Merger Agreement and the Merger has not been obtained; or
(e) by Harrah's, if (i) the Board of Directors of the Company has withdrawn
or modified its recommendation of the Merger Agreement or the Merger in
accordance with the provisions described above under "-- No Solicitation."
(provided that Harrah's' right to terminate the Merger Agreement under such
clause (i) will not be available if at such time the Company would be entitled
to terminate the Merger Agreement under subparagraph (g) below); (ii) after the
receipt by the Company of a proposal for an Alternative Transaction, Harrah's
requests in writing that the Board of Directors of the Company reconfirm its
recommendation of the Merger Agreement and the Merger to the stockholders of the
Company and the Board of Directors of the Company fails to do so within five
business days after its receipt of Harrah's' request; (iii) the Board of
Directors of the Company has recommended to the stockholders of the Company, or
entered into a definitive agreement with respect to, an Alternative
36
<PAGE>
Transaction; or (iv) for any reason the Company fails to call and hold the
meeting of the Company's stockholders by July 1, 1998 (provided that Harrah's'
right to terminate the Merger Agreement under such clause (iv) will not be
available if at such time the Company would be entitled to terminate the Merger
Agreement under subparagraph (g) below); or
(f) by the Company, prior to the approval of the Merger Agreement by its
stockholders, if, as a result of a Superior Proposal received by the Company
from a Third Party, the Board of Directors of the Company determines in good
faith, based on advice of outside legal counsel, that the failure to accept such
Superior Proposal would be inconsistent with its fiduciary duties to
stockholders under applicable law; provided, however, that no termination will
be effective under the circumstances described in this subparagraph (f) under
circumstances in which a termination fee is payable by the Company as described
below, unless concurrently with such termination, such termination fee is paid
in full by the Company as described below; or
(g) by Harrah's or the Company, if there has been a breach of any
representation, warranty, covenant or agreement on the part of the other party
set forth in the Merger Agreement, which breach will cause the conditions to the
Company's obligation to effect the Merger described above under "-- Conditions
to Obligations to Effect the Merger" (in the case of termination by the Company)
or to Harrah's obligation to effect the Merger described above under
"--Conditions to Obligations to Effect the Merger" (in the case of termination
by Harrah's) not to be satisfied.
In the event of termination of this Agreement as provided above, the Merger
Agreement will immediately become void and there will be no liability or
obligation on the part of Harrah's, Sub or the Company, or their respective
officers, directors, stockholders or Affiliates, except as provided below with
respect to termination fees and expenses and except that such termination will
not limit liability for a willful breach of the Merger Agreement; provided that,
the provisions described below with respect to termination fees and expenses and
the Confidentiality Agreements, dated September 16, 1997, between the Company
and Harrah's will remain in full force and effect and survive any termination of
the Merger Agreement.
Except as set forth below, all fees and expenses incurred in connection with
the Merger Agreement and the transactions contemplated hereby will be paid by
the party incurring such expenses, whether or not the Merger is consummated.
The Company will pay Harrah's a termination fee of $20 million upon the
earliest to occur of the following events: (i) the termination of the Merger
Agreement by Harrah's or the Company under the circumstances described in
subparagraph (d) above, if a proposal for an Alternative Transaction involving
the Company has been publicly announced prior to the meeting of the Company's
stockholders and either a definitive agreement for an Alternative Transaction is
entered into, or an Alternative Transaction is consummated, within one year of
such termination; (ii) the termination of the Merger Agreement by Harrah's under
the circumstances described in clauses (i), (iii) or (iv) of subparagraph (e)
above; (iii) the termination of the Merger Agreement by Harrah's under the
circumstances described in clause (ii) of subparagraph (e) above, and either a
definitive agreement for an Alternative Transaction is entered into, or an
Alternative Transaction is consummated, within one year of such termination; or
(iv) the termination of the Merger Agreement by the Company under the
circumstances described in subparagraph (f) above. The Company's payment of a
termination fee as described above will be the sole and exclusive remedy of
Harrah's against the Company and any of its subsidiaries and their respective
directors, officers, employees, agents, advisors or other representatives with
respect to the occurrences giving rise to such payment; provided that this
limitation will not apply in the event of a willful breach of the Merger
Agreement by the Company. If applicable, the fees payable as described above
will be paid concurrently with the first to occur of the relevant termination
events.
In the event that the Merger Agreement is terminated by Harrah's or the
Company under the circumstances described in subparagraph (b) above and all the
conditions to Closing set forth in the
37
<PAGE>
Merger Agreement have been satisfied or waived except for obtaining the consents
of Harrah's lenders required under the Merger Agreement or the continued
accuracy at such time of Harrah's' representation with respect to its ability to
pay, at Closing, the aggregate Merger Consideration and to purchase any of the
Company's outstanding public debt required to be purchased pursuant to the
change of control provisions contained in the instruments governing such
indebtedness, Harrah's will pay to the Company liquidated damages in the amount
of $10.0 million. Harrah's payment of such liquidated damages will be the sole
and exclusive remedy of the Company against Harrah's and any of its subsidiaries
and their respective directors, officers, employees, agents, advisors or other
representatives with respect to the occurrences giving rise to such payment.
AMENDMENT AND WAIVER
The Merger Agreement may be amended by the parties thereto, by action taken
or authorized by their respective Boards of Directors, at any time before or
after approval of the matters presented in connection with the Merger by the
stockholders of the Company, but, after any such approval, no amendment may be
made which (i) by law requires further approval by such stockholders or (ii) is
in any manner adverse to the stockholders of the Company, in each case without
such further approval. The Merger Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties. At any time prior
to the Effective Time, the parties to the Merger Agreement, by action taken or
authorized by their respective Boards of Directors, may, to the extent legally
allowed, (i) extend the time for the performance of any of the obligations or
other acts of the other parties thereto, (ii) waive any inaccuracies in the
representations and warranties contained therein or in any document delivered
pursuant thereto and (iii) waive compliance with any of the agreements or
conditions contained therein. Any agreement on the part of a party to the Merger
Agreement to any such extension or waiver will be valid only if set forth in a
written instrument signed on behalf of such party.
STOCKHOLDER SUPPORT AGREEMENTS
As an inducement and condition to the willingness of Harrah's and the
Company to enter into the Merger Agreement, certain stockholders of the Company
(each, a "Stockholder" and collectively, the "Stockholders") entered into
Stockholder Support Agreements. The Stockholders are J.K. Houssels, Jeanne S.
Stewart, Carolyn M. Sparks, John D. Gaughan, and J. Kell Houssels, III.
Collectively, the Stockholders held, at the Record Date, approximately 12.3% of
the combined voting power of the outstanding capital stock of the Company.
In each Stockholder Support Agreement, each Stockholder has agreed, at the
meeting of the Company's Stockholders to vote upon the Merger Agreement and the
Merger or at any other meeting of the stockholders of the Company, however
called, and in any action by written consent of the stockholders of the Company,
to vote all of such Stockholder's shares of Common Stock (a) in favor of
adoption of the Merger Agreement and the approval of the Merger and the other
transactions contemplated by the Merger Agreement, and (b) in favor of any other
matter necessary to the consummation of the transactions contemplated by the
Merger Agreement and considered and voted upon by the stockholders of the
Company (or any class thereof). Pursuant to the terms of each Stockholder
Support Agreement, each Stockholder also has agreed that he or she will not, nor
will he or she authorize or permit any of his or her employees, agents and
representatives to, directly or indirectly, initiate or solicit any inquiries or
the making of any Acquisition Proposal. In the Stockholder Support Agreement to
which he is a party, J. Kell Houssels, III also has agreed that he will notify
Harrah's as soon as possible if any such inquiries or proposals are received by,
any information or documents is requested from, or any negotiations or
discussions are sought to be initiated or continued with, him or any of his
affiliates.
Each Stockholder Support Agreement will terminate upon the earliest to occur
of (a) the Effective Time or (b) any termination of the Merger Agreement in
accordance with the terms thereof.
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<PAGE>
CERTAIN PROJECTIONS OF FUTURE OPERATING RESULTS
The Company does not as a matter of course make public forecasts as to its
future financial performance and condition. However, in connection with its
discussions with Harrah's, the Company furnished Harrah's and its advisors with
certain data relating to projected future operating results on a standalone
basis without giving effect to a sale of the Company. The projections set forth
below for fiscal years 1998 through 2003 were prepared by the Company in the
fourth quarter of 1997 for the purpose of providing information for Harrah's
consideration for entering into a business combination with the Company and were
included in the data provided by the Company to Harrah's. These projections were
not prepared in compliance with the published guidelines of the American
Institute of Certified Public Accountants or the Commission regarding
projections or financial forecasts and are included herein only because such
information was provided to Harrah's. These projections constitute
forward-looking statements and were based upon numerous assumptions which are
inherently subject to significant uncertainties and contingencies that are
difficult or impossible to predict and are beyond the Company's control,
including, without limitation, the sale of significant assets by the Company and
the absence of any adverse consequences on the operations of the business (i.e.,
increased competition in the jurisdictions in which the Company currently
competes, decreased demand for gaming entertainment or the introduction of
legalized gaming in new jurisdictions). Harrah's was not involved in the
preparation of the projections set forth below and considered their relevancy
along with all other information obtained or developed by Harrah's in forming
its decision to acquire the Company. For a list of important factors that, in
the view of the Company could cause actual results to differ materially from
those set forth in these projections, see "Forward Looking Statements."
SHOWBOAT, INC.
FORECASTED INCOME (IN THOUSANDS)(1)
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002 2003
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Revenues....................................... $ 576,791 $ 638,226 $ 696,643 $ 725,547 $ 727,623 $ 753,018
EBITDA(2).......................................... 116,631 142,682 152,087 150,077 147,787 155,277
Income From Operations............................. 77,951 104,004 113,007 110,999 108,709 116,199
Net Income......................................... 29,512 37,304 38,442 55,592 57,063 64,704
</TABLE>
- ------------------------
(1) All projections reflect the assumed sale of certain significant assets of
the Company in 1997 and 1998.
(2) EBITDA is defined as income from operations before depreciation and
amortization. EBITDA should not be construed as a substitute for income from
operations, net earnings (loss) and cash flows from operating activities
determined in accordance with Generally Accepted Accounting Principals.
Forecasts of future financial performance could differ materially from the
data set forth above if management were to prepare projections based upon
circumstances existing as of the date of this Proxy Statement. Neither the
Company nor Harrah's intends or has any duty or obligation to publicly disclose
updates or revisions to any of the projections set forth above which are made
after the date hereof to reflect circumstances existing or developments
occurring after the preparation of such projections or to reflect the occurrence
of unanticipated events. The Company's independent auditors have not examined or
complied the foregoing forward-looking statements or applied any procedures with
respect to such statements. Accordingly, such auditors have not expressed any
opinion or other form of assurance with respect to such statements and assumed
no responsibility for them.
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<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT AND
CERTAIN OTHER BENEFICIAL OWNERS
The following table sets forth the number of shares of Common Stock and the
number of shares of Common Stock subject to options beneficially owned by the
Company's directors and executive officers, by all directors and executive
officers as a group, and by persons beneficially owning more than 5% of the
outstanding Common Stock at the close of business on March 17, 1998.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
----------------------------------------------------------------------
NUMBER OF SHARES NUMBER OF SHARES TOTAL NUMBER
EXCLUDING SHARES SUBJECT TO OPTIONS OF SHARES
SUBJECT TO BENEFICIALLY BENEFICIALLY
NAME OPTIONS(1) OWNED(2) OWNED PERCENT
- ------------------------------------- ------------------ ------------------ ----------------- -----------
<S> <C> <C> <C> <C> <C>
DIRECTORS
J.K. Houssels(3)..................... 1,137,087(4) 16,000 1,153,087 7.0
William C. Richardson................ 6,000 13,000 19,000 *
John D. Gaughan...................... 174,824(5) 13,000 187,824 1.1
Jeanne S. Stewart.................... 376,686 13,000 389,686 2.4
Frank A. Modica...................... 0 7,000 7,000 *
H. Gregory Nasky..................... 15,827(6) 12,000 27,827 *
J. Kell Houssels, III................ 131,717(7) 16,000 147,717 *
George A. Zettler.................... 3,405 7,000 10,405 *
Carolyn M. Sparks.................... 217,206(8) 6,000 223,206 1.4
EXECUTIVE OFFICERS (EXCLUDING ANY
DIRECTOR LISTED ABOVE)
R. Craig Bird........................ 16,350 12,000 28,350 *
Mark Miller.......................... 12,700 12,000 24,700 *
Paul S. Harris....................... 22,000 16,000 38,000 *
Herbert R. Wolfe(9).................. 4,550 12,000 16,550 *
J. Keith Wallace(10)................. 4,500 34,800 39,300 *
Carlton Geer(11)..................... 7,500 30,000 37,500 *
Neil Gamble(12)...................... 7,500 50,000 57,500 *
Mark A. Clayton...................... 1,800 12,000 13,800 *
Brad Straub.......................... 1,200 4,800 6,000 *
Randy Taylor......................... 1,200 2,400 3,600 *
All directors and executive officers
as a group (19 persons)............ 2,142,052 289,000 2,431,052 14.5
5% BENEFICIAL OWNERS (EXCLUDING THOSE
LISTED ABOVE)......................
Bankers Trust New York Corporation... 1,109,870(13) 0 1,109,870 6.7
FMR Corp............................. 1,160,000(14) 0 1,160,000 7.0
</TABLE>
- ------------------------
* Beneficial ownership does not exceed 1% of the outstanding Common Stock.
(1) Unless otherwise specifically stated herein, each person has sole voting
power and sole investment power as to the identified Common Stock ownership.
(2) Including all options currently outstanding whether or not vested because
all unexercised options will have the right to receive the Option Settlement
Amount.
(3) Mr. Houssels may be deemed to be a control person. Mr. Houssels is the
Chairman of the Board of the Company.
(4) Mr. Houssels' shareholdings include 11,450 shares held in his individual
retirement account and 1,119,637 shares as a trustee of the J.K. and Nancy
Houssels 1992 Trust No. 1. He disclaims beneficial
40
<PAGE>
ownership of 7,000 shares owned by his wife and 35,700 shares beneficially
owned by dependent children pursuant to the J.K. Houssels, Jr. 1976 Trust
Agreement and such shares are excluded from this table.
(5) Mr. Gaughan's shareholdings include 86,000 shares held by Exber, Inc., a
Nevada corporation controlled by Mr. Gaughan.
(6) Mr. Nasky is an Executive Vice President and Secretary of the Company. Mr.
Nasky's shareholdings include 1,302 shares owned by Mr. Nasky's wife over
which he does not have voting or investment power.
(7) Mr. Houssels, III is the President and Chief Executive Officer of the
Company. Mr. Houssels, III's shareholdings include 35,700 shares
beneficially owned by him as trustee of the J.K. Houssels 1976 Trust
Agreement.
(8) Mrs. Sparks' shareholdings include 41,635 shares beneficially owned by her
as co-trustee of the Fred L. Morledge and Malvina W. Morledge Family Trust;
161,563 shares beneficially owned by her as co-trustee of the Sparks Family
Trust; 6,998 shares beneficially owned as custodian for her son; and 7,000
shares beneficially owned as custodian for her daughter.
(9) Mr. Wolfe is the President and Chief Executive Officer of Atlantic City
Showboat.
(10) Mr. Wallace is the President and Chief Executive Officer of Las Vegas
Showboat.
(11) Mr. Geer is the President and Chief Executive Officer of SMCP and Showboat
Indiana.
(12) Mr. Gamble is the Managing Director of Showboat Australia and Chief
Executive Officer of SHCH.
(13) Bankers Trust New York Corporation ("BTNYC"), the parent holding company
of Bankers Trust Company and indirect parent holding company of BT Australia
Limited, reported on Schedule 13G/A filed as of February 17, 1998, that
Bankers Trust & Company and BT Australia Limited have sole investment power
with respect to 246,500 and 863,270, respectively, of such shares and sole
voting power with respect to 79,000 and 863,270, respectively, of such
shares. BTNYC's address is 280 Park Avenue, New York, New York 10017.
(14) FMR Corp. reported on a Schedule 13G/A filed February 11, 1998, that a
wholly-owned subsidiary, Fidelity Management & Research Company
("Fidelity"), a registered investment advisor to various investment
companies, has sole investment power (but does not have voting power) with
respect to the shares. FMR Corp.'s address is 82 Devonshire Street, Boston,
Massachusetts 02109.
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REGULATION AND LICENSING
NEW JERSEY GAMING
The ownership and operations of hotel-casino facilities in Atlantic City,
New Jersey are subject to extensive state regulation under the New Jersey Casino
Control Act (the "New Jersey Act"). No hotel-casino facility may operate unless
various licenses and approvals are obtained from New Jersey regulatory
authorities, including the Casino Control Commission (the "New Jersey
Commission"). The New Jersey Commission is authorized under the New Jersey Act
to adopt regulations covering a broad spectrum of gaming and gaming related
activities and to prescribe the methods and forms of applications for licenses.
In order to be granted a casino license under the New Jersey Act, officers
and directors of a licensee and its employees who are employed in hotel or
casino operations in Atlantic City are required to be licensed or approved by
the New Jersey Commission. In addition, all contracts and leases entered into by
a licensee would be subject to approval and certain enterprises which transact
business with the licensee would themselves have to be licensed.
The New Jersey Act requires prior approval from the New Jersey Commission
before control of a casino licensee can be transferred. However, pursuant to an
interim casino authorization, the New Jersey Act permits an entity that obtains
the securities of a casino licensee to acquire and own such securities upon
obtaining interim authorization from the New Jersey Commission. During the
period of interim authorization the securities of any such licensee must be held
in trust pursuant to the provisions of the New Jersey Act. Prior to a
determination of final approval, the holder of the securities of the licensee
retains complete authority over the actions of the trustee of the trust. If the
New Jersey Commission thereafter denies qualification, the trustee of the trust
will be charged with disposing of the trust property.
For a more complete description of the various applicable gaming regulatory
requirements under the New Jersey Act, see "Additional Information--Regulation
and Licensing" in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996.
NEVADA GAMING
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 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"), and the City Council of the City of Las Vegas
("City Board"). The Nevada Commission, the Nevada Board, and the City Board 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) to provide a source of state and local revenues
through taxation and licensing fees. Change in such laws, regulations and
procedures could have an adverse effect on the Company's gaming operations.
Showboat Operating Company ("SBOC"), a wholly owned subsidiary of the
Company which operates the Las Vegas Showboat, is required to be licensed by the
Nevada Gaming Authorities. The gaming license requires the periodic payment of
fees and taxes and is not transferable. The Company is registered by the Nevada
Commission as a publicly traded corporation ("Registered Corporation") and as
such, it is
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required periodically to submit detailed financial and operating reports to the
Nevada Commission and furnish any other information which the Nevada Commission
may require. No person may become a shareholder of, or receive any percentage of
profits from, SBOC without first obtaining licenses and approvals from the
Nevada Gaming Authorities. The Company and SBOC have obtained from the Nevada
Gaming Authorities the various registrations, approvals, permits and licenses
required in order to engage in gaming activities in Nevada.
The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, the Company or SBOC in
order to determine whether such individual is suitable or should be licensed as
a business associate of a gaming licensee. Officers, directors and certain key
employees of SBOC 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 the Company who are
actively and directly involved in gaming activities of SBOC 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 the Company or SBOC, the companies involved would have to
sever all relationships with such person. In addition, the Nevada Commission may
require the Company or SBOC 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.
The Company and SBOC 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 SBOC must be reported
to, or approved by, the Nevada Commission.
If it were determined that the Nevada Act was violated by SBOC the gaming
licenses it holds could be limited, conditioned, suspended or revoked, subject
to compliance with certain statutory and regulatory procedures. In addition,
SBOC, the Company, 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 the Company's gaming properties and, under certain
circumstances, earnings generated during the supervisor's appointment (except
for the reasonable rental value of the Company's gaming properties) could be
forfeited to the state of Nevada. Limitation, conditioning or suspension of any
gaming license or the appointment of a supervisor could (and revocation of any
gaming license would) materially adversely affect the Company's gaming
operations.
Any beneficial holder of the Company's voting securities, regardless of the
number of shares owned, may be required to file an application, be investigated,
and have his suitability as a beneficial holder of the Company's voting
securities determined if the Nevada Commission has reason to believe that such
ownership would otherwise be inconsistent with the declared policies of the
state of Nevada. The applicant must pay all costs of investigation incurred by
the Nevada Gaming Authorities in conducting any such investigation.
The Nevada Act requires any person who acquires more than 5% of the
Company's voting securities to report the acquisition to the Nevada Commission.
The Nevada Act requires that beneficial owners of more than 10% of the Company's
voting securities apply to the Nevada Commission for a finding of suitability
within thirty days after the Chairman of the Nevada Board mails the written
notice requiring
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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 the Company's voting securities may apply to the Nevada Commission for a
waiver of such finding of suitability if such institutional investor holds the
voting securities for investment purposes only. An institutional investor shall
not be deemed to hold voting securities for investment purposes unless the
voting securities were acquired and are held in the ordinary course of business
as an institutional investor and not for the purpose of causing, directly or
indirectly, the election of a majority of the members of the board of directors
of the Company, any change in the Company's corporate charter, bylaws,
management, policies or operations of the Company, or any of its gaming
affiliates, or any other action which the Nevada Commission finds to be
inconsistent with holding the Company's voting securities for investment
purposes only. Activities which are not deemed to be inconsistent with holding
voting securities for investment purposes only include: (i) voting on all
matters voted on by stockholders; (ii) making financial and other inquiries of
management of the type normally made by securities analysts for informational
purposes and not to cause a change in its management, policies or operations;
and (iii) such other activities as the Nevada Commission may determine to be
consistent with such investment intent. If the beneficial holder of voting
securities who must be found suitable is a corporation, partnership or trust, it
must submit detailed business and financial information including a list of
beneficial owners. The applicant is required to pay all costs of investigation.
Any person who fails or refuses to apply for a finding of suitability or a
license within 30 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 shareholder found unsuitable and who holds, directly
or indirectly, any beneficial ownership of the common stock of the Company
beyond such period of time as may be prescribed by the Nevada Commission may be
guilty of a criminal offense. The Company is subject to disciplinary action if,
after it receives notice that a person is unsuitable to be a shareholder or to
have any other relationship with the Company or SBOC, the Company (i) pays that
person any dividend or interest upon voting securities of the Company, (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.
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.
The Company is required to maintain a current stock ledger in Nevada which
may be examined by the Nevada Gaming Authorities at any time. If any securities
are held in trust by an agent or by a nominee, the record holder may be required
to disclose the identity of the beneficial owner to the Nevada Gaming
Authorities. A failure to make such disclosure may be grounds for finding the
record holder unsuitable. The Company is also required to render maximum
assistance in determining the identity of the beneficial owner. The Nevada
Commission has the power at any time to require the Company's stock certificates
to bear a legend indicating that the securities are subject to the Nevada Act.
However, to date, the Nevada Commission has not imposed such a requirement on
the Company.
The Company may not make a public offering of its securities without the
prior approval of the Nevada Commission if the securities or the proceeds
therefrom are intended to be used to construct,
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acquire or finance gaming facilities in Nevada, or retire or extend obligations
incurred for such purposes. In November, 1997, the Nevada Commission granted the
Company prior approval to make public offerings for a period of one year,
subject to certain conditions ("Shelf Approval"). The Shelf Approval also
applies to any affiliated company wholly owned by the Company (a "Gaming
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 of the Company's licensed Nevada subsidiaries to guaranty
any security issued by, or to hypothecate their assets to secure the payment or
performance of any obligations issued by the Company or a Gaming Affiliate in a
public offering under the Shelf Approval. However, the Shelf Approval 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 the Company 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
a 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
party of the approval process relating to the transaction. The Merger requires
the prior approval of the Nevada Commission upon the recommendation of the
Nevada Board. Application for approval of the Merger has been filed.
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 Company can make exceptional purchases 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 by the Nevada Commission of a plan of recapitalization
proposed by the Company's Board of Directors in response to a tender offer made
directly to its shareholders for the purpose of acquiring control of the
Company.
The sale of alcoholic beverages by the casino is subject to licensing,
control and regulation by the City Board. All licenses are revocable and are not
transferable. The City Board has full power to limit, condition, suspend or
revoke any such license, and any such disciplinary action could (and revocation
would) have a material affect upon the operations of the casino.
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 Nevada licensee's 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 serving or selling of food or refreshments or
the selling of any 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 it knowingly violates any laws
of the foreign jurisdiction pertaining to the foreign gaming operation, fails to
conduct the foreign gaming operation in accordance with the standards of honesty
and integrity required of Nevada gaming operations, engages in activities that
are harmful to the state of Nevada or its ability to collect gaming taxes and
fees, or employs a person in the foreign operation who has been denied a license
or finding of suitability in Nevada on the ground of personal unsuitability.
NEW SOUTH WALES GAMING
The New South Wales Casino Control Authority ("NSWCCA") was created pursuant
to the Casino Control Act 1992 (NSW) ("NSW Casino Act") to maintain and
administer systems for licensing, supervision and control of a casino.
If the Merger proceeds, Harrah's will become a "close associate" (as defined
in the NSW Casino Act) of Star City Pty Limited (the holder of the relevant
casino license). Harrah's would also be "entitled" (as defined in the Australian
Corporations Law) to in excess of 5% of the issued and outstanding shares in
SHCH.
Approval of Harrah's becoming a close associate of Star City Pty Limited and
entitled to in excess of 5% of the issued and outstanding shares in SHCH is
being sought. On receiving an application for an approval, the NSWCCA must carry
out all such investigations and inquiries as it deems necessary. The costs of
the investigation by the NSWCCA are payable to the NSWCCA by the applicant
unless the NSWCCA determines otherwise. The NSWCCA must not grant such an
approval unless it is satisfied that Harrah's is a suitable person to be
associated with the management of a casino. In that regard, the NSWCCA must to
the extent applicable consider that: (a) the applicant and each close associate
are of good repute, having regard to character, honesty and integrity; (b) the
applicant and each close associate are of sound and stable financial background;
(c) in the case of an applicant that is not a natural person, the applicant has
or has arranged a satisfactory ownership, trust or corporate structure; (d)
applicant has or is able to obtain financial resources that are both suitable
and adequate for insuring the financial viability of the proposed casino; (e)
the applicant has or is able to obtain the services of persons who have
sufficient experience in the management and operation of a casino; (f) the
applicant has sufficient business ability to establish and maintain a successful
casino; (g) the applicant or any close associate who has any business
association with any person, body or association who, in the opinion of the
NSWCCA is not of good repute, having regard to character, honesty and integrity
or has undesirable or unsatisfactory financial sources; and (h) each director,
partner, trustee, executive officer and secretary and any other officer or
person determined by the NSWCCA to be associate or connected with the ownership,
administration or management of the operations or business of the applicant or a
close associate of the applicant is a suitable person to act in that capacity.
INDIANA GAMING
In 1993, the State of Indiana passed a Riverboat Gambling Act which created
the Indiana Gaming Commission (the "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).
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With the exception of Lake County, a county must pass a referendum approving
(by a majority of those who voted) riverboat gaming before riverboat gaming can
be legalized in that county. If a referendum fails to pass in any county,
another referendum may not be held for another two years. Once a referendum has
passed in a county, the Riverboat Gambling Act requires any proposed riverboat
to operate from the most populous city in that county, unless such city passes a
resolution authorizing a riverboat to operate elsewhere in the county. For Lake
County, the Riverboat Gambling Act provides that the second and third most
populous cities of the county, Hammond and East Chicago, respectively, according
to the 1990 census, may authorize riverboat gaming within such cities, by
passage of a municipal referendum. Voters in both cities have passed such
referenda. Gary, Lake County's most populous city, is exempted by the Riverboat
Gambling Act from the gaming referendum requirement altogether. Pursuant to
Indiana Commission resolution, the cost of any referendum is to be borne by all
license applicants for the voting county or municipality.
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 licenses or
holder of such certificate of suitability has not begun regular riverboat
excursions prior to the end of the twelve month period following the Indiana
Commission's approval of the application for an owner's license. In addition,
the Indiana Commission may revoke an owner's license if it is determined by the
Indiana Commission that revocation is in the best interests of the state of
Indiana. The Indiana Commission will (1) authorize the route of the riverboat
and stops that the riverboat may make, (2) establish minimum amounts of
insurance and (3) after consulting with the Corps of Engineers, determine which
waterways are navigable waterways for purposes of the Riverboat Gambling Act and
determine which navigable waterways are suitable for the operation of
riverboats.
The Riverboat Gambling Act requires an extensive disclosure of records and
other information concerning an applicant, including disclosure of all
directors, officers and persons holding one percent (1%) or more direct or
indirect beneficial interest.
In determining whether to grant an owner's license to an applicant, the
Indiana Commission shall consider (1) the character, reputation, experience and
financial integrity of the applicant and any person who (a) directly or
indirectly controls the applicant, or (b) is directly or indirectly controlled
by either the applicant or a person who directly or indirectly controls the
applicant, (2) the facilities or proposed facilities for the conduct of
riverboat gaming, (3) the highest total prospective revenue to be collected by
the state from the conduct of riverboat gaming, (4) the good faith affirmative
action plan to recruit, train and upgrade minorities in all employment
classifications, (5) the financial ability of the applicant to purchase and
maintain adequate liability and casualty insurance, (6) whether the applicant
has adequate capitalization to provide and maintain the riverboat for the
duration of the license and (7) the extent to which the applicant meets or
exceeds other standards adopted by the Indiana Commission. The Indiana
Commission may also give favorable consideration to applicants for economically
depressed areas and applicants who provide for significant development of a
large geographic area. Each applicant must pay an application fee of $50,000 and
may be assessed additional fees 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, an annual license renewal fee of $5,000. The
Indiana Commission has issued eight of these eleven licenses-five in Lake County
Indiana (2 in Gary, 1 in Hammond, 1 in Michigan City and 1 to SMCP
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in East Chicago); one in Vanderburgh County, one in Ohio County; and one in
Dearborn County. One applicant in Harrison County has been selected by the
Indiana Commission as suitable for licensure and has been awarded a certificate
of suitability. 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. As a condition of its permanent riverboat
owner's license, SMCP agreed that it would 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, which was April 18, 1997. A gaming license is
a revocable privilege and is not a property right. The Indiana Commission
awarded a Certificate of Suitability to Showboat Marina Partnership ("SMP") on
January 8, 1996, which certificate was thereafter extended through June 2, 1997.
On March 20, 1996, the Indiana Commission approved a transfer of the Certificate
of Suitability from SMP to SMCP. The Indiana Commission approved a surety bond
for SMCP in the initial amount of $15,426,000. The Indiana Commission granted a
riverboat owner's license to SMCP on April 15, 1997, and the riverboat was open
to the public beginning April 18, 1997.
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, its passengers and crew, (3) if either the
vessel or the docking facility is undergoing mechanical or structural repair,
(4) if water traffic conditions present a danger to (A) the riverboat, riverboat
passengers, and crew, or (B) other vessels on the water, or (5) if the master
has been notified that a condition exists that would cause a violation of
federal law if the riverboat were to cruise. The Indiana Commission has adopted
rules governing cruising on Lake Michigan by a riverboat casino. The period of
time during which passengers embark and disembark constitutes a portion of the
gambling excursion if gambling is allowed. At the conclusion of the
thirty-minute embarkation period, the gangway or its equivalent must be closed.
However, a riverboat licensee must allow patrons to disembark at anytime the
riverboat remains at the dock and gambling continues. A standard excursion
schedule for a casino vessel on Lake Michigan must include at least one full
excursion (a cruise into the open water on Lake Michigan, not more than three
statute miles from the dock site July through September and not more than one
statute mile October through June) and one intermediate excursion during which
the vessel cruises in protected navigable water on or accessible to Lake
Michigan. An intermediate excursion is to be conducted if the statutory
conditions that permit dockside gaming are not present and if sea conditions or
weather conditions, or both, do not permit a full excursion. If a casino vessel
remains dockside because of statutory conditions, the embarkation and
disembarkation rules still apply.
An admission tax of $3.00 for each person admitted to the gaming excursion
is imposed upon the license owner. The admissions tax is paid by the riverboat
licensee for each excursion or part of an excursion the patron remains on board.
An additional 20% tax is imposed on the adjusted gross receipts received from
gaming operations, which is defined as the total of all cash and property
(including checks received by the licensee whether collected or not) received,
less the total of all cash paid out as winnings to patrons and uncollected
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. In 1996, legislation was enacted in
Indiana permitting the imposition of property taxes on the riverboats at rates
to be determined by local taxing authorities of the jurisdiction in which a
riverboat operates. SMCP is contesting the assessment by Lake County of property
taxes on the riverboat vessel. The Riverboat Gambling Act requires a riverboat
owner licensee to directly reimburse the Indiana Commission
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for the costs of inspectors and agents required to be present during the conduct
of gaming operations. Pursuant to agreements with the City of East Chicago, and
as reflected in the certificate of suitability and license issued by the Indiana
Commission, 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 to the City and
two not-for-profit foundations for its public schools and housing and commercial
development, and (3) pay 0.75% of adjusted gross receipts for community
development projects to East Chicago Second Century, Inc., a for-profit
corporation owned by SMP ("Second Century") and (4) complete the Washington High
School Site town home development with a total projected cost of $5.0 million.
Funding for the Washington High School Site project 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 enterprise.
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. Under the Merger, Harrah's or
its affiliate, will need to file an application for a transfer of Showboat's
beneficial interest in SMCP, including an application fee of $50,000 for
background investigation, and the Indiana Commission will investigate the key
persons and substantial owners of Harrah's, and the Indiana Commission must find
that Harrah's meets the criteria for licensing of riverboat owners under the
rules of the Indiana Commission.
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. Periodic reporting of certain contracts and
transactions is required by rules of the Indiana Commission.
A riverboat 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 authorized the sale of $140 million, 13 1/2% First Mortgage Notes, by
SMCP and Showboat Marina Finance Corporation, in March of 1996, and a $3 million
revolving line of credit by SMCP with Fleet Bank, N.A. in October of 1997. The
Indiana Commission Staff has advised SMCP that intercompany loans and
third-party debt transactions that do not encumber or relate to SMCP do not
require approval of the Indiana Commission.
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 that
holds at least a 1% interest in the licensee, or by a person holding at least a
1% interest in the licensee. The Indiana
49
<PAGE>
Commission adopted 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 has proposed a rule which would, if adopted, prohibit
the 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. An additional proposed rule, if
adopted, would require the riverboat licensee 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 Riverboat Gambling Act prohibits the Indiana Commission from issuing an
owner's license to a person that owns more than 10% in more than one other
person holding an owner's license. The Indiana Commission has adopted a rule
that a person may own up to 100% in one owner's license and no more than 10% in
a second owner's license. Crawford County Casino Corporation ("CCCC") filed an
application for a riverboat owner's license in Crawford County, Indiana, on the
Ohio River, with the Indiana Commission. Harrah's Indiana Casino Corporation, an
affiliate of Harrah's, has an option to acquire all the stock of CCCC through
Casino Magic Corp., the parent of CCCC. Harrah's Operating Company, a
wholly-owned subsidiary of Harrah's has a loan commitment of up to $170 million
to CCCC. Both the option and the loan commitment are subject to several
conditions, including the issuance by the Indiana Commission of a Certificate of
Suitability to CCCC for the operation of a riverboat in Crawford County,
Indiana. The Riverboat Gambling Act authorizes five riverboat owners licenses on
the Ohio River and the Indiana Commission has issued three owner's licenses and
one certificate of suitability. Another applicant has filed an application for a
riverboat owner's license in Switzerland County on the Ohio River. The Indiana
Commission has not indicated if, or when, and to which applicant, if any, it may
issue another riverboat owner's license on the Ohio River.
The Governor of Indiana has appointed a Commission, chaired by the Attorney
General, to review the impact of all forms of gaming in Indiana.
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 allegedly
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, are not
allowed to resubmit a proposal; 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 State of Indiana recently filed an
answer to the complaint. The Indiana Supreme Court has previously upheld the
constitutionality of the Riverboat Gambling Act, although the prior challenge
was on different grounds than those contained in the recently filed lawsuit. If
the Riverboat Gambling Act ultimately was held unconstitutional it would, absent
timely corrective legislation, have a material adverse effect on SMCP's
operations.
STOCKHOLDER PROPOSALS
The Company will hold a 1998 Annual Meeting only if the Merger is not
consummated. In the event of such a meeting, in order to have been considered
for inclusion in the Company's proxy materials for the 1998 Annual Meeting of
Stockholders, stockholder proposals must have been received at the Company's
principal executive offices in Las Vegas, Nevada no later than December 23,
1997. The Company had not received any stockholder proposals by such date.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements incorporated in this Proxy Statement
by reference to the Company's Annual Report on Form 10-K for the year ended
December 31, 1996 have been audited by
50
<PAGE>
KPMG Peat Marwick independent accountants, as stated in their report, which also
is incorporated herein by reference.
Representatives of KPMG Peat Marwick will attend the Special Meeting and
will have an opportunity to make a statement and to respond to appropriate
questions from stockholders.
WHERE YOU CAN FIND MORE INFORMATION
The Company files annual, quarterly and special reports, proxy statements
and other information with the Commission. You may read and copy any reports,
statements or other information we file at the Commission's public reference
rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please call
the Commission at 1-800-SEC-0330 for further information on the public reference
rooms. Our filings are also available to the public from commercial document
retrieval services and at the web site maintained by the Commission at
"http://www.sec.gov."
The Commission allows us to "incorporate by reference" information into this
Proxy Statement, which means that we can disclose important information to you
by referring you to another document filed separately with the Commission. The
information incorporated by reference is deemed to be part of this Proxy
Statement, except for any information superseded by information in this Proxy
Statement. This Proxy Statement incorporates by reference the documents set
forth below that we have previously filed with the Commission. These documents
contain important information about us and our finances.
<TABLE>
<CAPTION>
FILINGS (FILE NO. 1-7123) PERIOD
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Annual Report on Form 10-K Year ended December 31, 1996
Quarterly Reports on Form 10-Q Quarters ended March 31, 1997, June 30, 1997 and
September 30, 1997
Current Reports on Form 8-K Dated January 12, 1997, May 3, 1997 and December 18,
1997
</TABLE>
We are also incorporating by reference additional documents that we file
with the Commission between the date of this Proxy Statement and the date of the
Special Meeting of our stockholders.
If you are a stockholder, we may have sent you some of the documents
incorporated by reference, but you can obtain any of them through us or the
Commission. Documents incorporated by reference are available from us without
charge, excluding all exhibits unless we have specifically incorporated by
reference an exhibit in this Proxy Statement. Stockholders may obtain documents
incorporated by reference in this Proxy Statement by requesting them in writing
or by telephone at the following address:
Showboat, Inc.
H. Gregory Nasky
Secretary
2800 Fremont Street
Las Vegas, Nevada 89104
(702) 650-1200
If you would like to request documents from us, please do so by April 10,
1998 to receive them before the Special Meeting.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROXY STATEMENT TO VOTE ON THE MERGER. WE HAVE NOT AUTHORIZED
ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED
IN THIS PROXY STATEMENT. THIS PROXY STATEMENT IS DATED MARCH 20, 1998. YOU
SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THE PROXY STATEMENT IS
ACCURATE AS OF ANY DATE OTHER THAN SUCH DATE, AND NEITHER THE MAILING OF THE
PROXY STATEMENT TO STOCKHOLDERS NOR THE COMPLETION OF THE MERGER SHALL CREATE
ANY IMPLICATION TO THE CONTRARY.
51
<PAGE>
FORWARD-LOOKING STATEMENTS
Certain information contained or incorporated by reference in this Proxy
Statement as to the future financial or operating performance of the Company,
may constitute "forward-looking statements." The Private Securities Litigation
Reform Act of 1995 provides certain "safe harbor" protections for forward-
looking statements in order to encourage companies to provide prospective
information about their businesses. Forward-looking statements include
statements concerning plans, objectives, goals, strategies, future events or
performance, and underlying assumptions and other statements which are other
than statements of historical facts.
The forward-looking statements set forth or incorporated by reference in
this Proxy Statement are based upon various assumptions, many of which are
based, in turn, upon further assumptions, including without limitation,
management's examination of historical operating trends, data contained in the
Company's records and other data available from third parties. Although the
Company believes that such assumptions were reasonable when made, because such
assumptions are inherently subject to significant uncertainties and
contingencies which are difficult or impossible to predict and are beyond the
Company's control, there can be no assurance, and no representation or warranty
is made, that management's expectations, beliefs or projections will result or
be achieved or accomplished. In addition to the other factors and matters
discussed elsewhere herein and in the documents incorporated by reference
herein, factors that, in the view of the Company, could cause actual results to
differ materially from those discussed in the forward-looking statements
include: completion of the transactions described herein; competition and
consolidation within the gaming industry; legalization of gambling in
jurisdictions from which the Company draws significant numbers of patrons;
changes in labor, equipment and capital costs; the ability to obtain necessary
regulatory approvals; changes in regulations affecting the gaming industry;
general business and economic conditions; and other factors described from time
to time in the Company's reports filed with the Commission.
None of the Company, Harrah's or any of their respective agents, employees
or advisors intend or have any duty or obligation to supplement, amend, update
or revise any of the forward-looking statements contained or incorporated by
reference in this Proxy Statement. Neither the Company nor Harrah's independent
auditors have examined or compiled such statements or applied any procedures
with respect to such statements. Accordingly, such auditors have not expressed
any opinion or other form of assurance with respect to such statements.
52
<PAGE>
LIST OF DEFINED TERMS
<TABLE>
<CAPTION>
DEFINED TERM PAGE NO.
- -------------------------------------------------------------------------------------------------------- -----------
<S> <C>
Acquisition Proposal.................................................................................... 32
Adjusted Enterprise Value............................................................................... 17
Alternative Transaction................................................................................. 32
Atlantic City Showboat.................................................................................. 10
Banks................................................................................................... 25
Board of Directors...................................................................................... 10
Bonus................................................................................................... 24
BTNYC................................................................................................... 41
BT Wolfensohn........................................................................................... 14
CCCC.................................................................................................... 50
City Board.............................................................................................. 42
Closing Date............................................................................................ 28
Code.................................................................................................... 25
Commission.............................................................................................. 8
Common Stock............................................................................................ 7
Company................................................................................................. 3
Comparable Acquisitions................................................................................. 19
Consulting Agreement.................................................................................... 23
Debentures.............................................................................................. 9
DLJ..................................................................................................... 6
DLJ Opinion............................................................................................. 16
DOJ..................................................................................................... 26
East Chicago Showboat................................................................................... 10
EBIT.................................................................................................... 18
EBITDA.................................................................................................. 18
Effective Time.......................................................................................... 21
Employee................................................................................................ 22
Employees............................................................................................... 22
Exchange Act............................................................................................ 32
Exchange Agent.......................................................................................... 28
Fidelity................................................................................................ 41
First Mortgage Bonds.................................................................................... 25
FTC..................................................................................................... 26
Gaming Affiliate........................................................................................ 45
Governmental Approvals.................................................................................. 33
Harrah's................................................................................................ 10
Harrah's Material Adverse Effect........................................................................ 35
Harrah's Operating...................................................................................... 24
Harrah's Representation Bringdown Condition............................................................. 35
Houssels Employment Agreement........................................................................... 21
Houssels Consulting Agreement........................................................................... 23
HSR Act................................................................................................. 26
Implied Enterprise Value................................................................................ 17
Indiana Commission...................................................................................... 46
Las Vegas Showboat...................................................................................... 10
Licensees............................................................................................... 46
Longleaf................................................................................................ 41
LTM..................................................................................................... 18
Merger.................................................................................................. 10
Merger Agreement........................................................................................ 10
Merger Consideration.................................................................................... 15
Nasky Consulting Agreement.............................................................................. 23
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
DEFINED TERM PAGE NO.
- -------------------------------------------------------------------------------------------------------- -----------
<S> <C>
Nevada Act.............................................................................................. 40
Nevada Board............................................................................................ 42
Nevada Commission....................................................................................... 42
Nevada Gaming Authorities............................................................................... 42
New Jersey Act.......................................................................................... 42
New Jersey Commission................................................................................... 42
Notice.................................................................................................. 10
NRS..................................................................................................... 11
NSWCCA.................................................................................................. 46
NSW Casino Act.......................................................................................... 46
NYSE.................................................................................................... 7
Option.................................................................................................. 21
Options................................................................................................. 21
Option Settlement Amount................................................................................ 29
PBL..................................................................................................... 13
Public Comparables...................................................................................... 18
Record Date............................................................................................. 11
Registered Corporation.................................................................................. 42
Required Funding........................................................................................ 24
Rockingham.............................................................................................. 18
SAR..................................................................................................... 21
SARs.................................................................................................... 21
SAR Plan................................................................................................ 21
SAR Settlement Amount................................................................................... 29
SBOC.................................................................................................... 42
Second Century.......................................................................................... 49
Senior Subordinated Notes............................................................................... 25
SERP.................................................................................................... 24
Severance Agreements.................................................................................... 21
SHCH.................................................................................................... 13
Shelf Approval.......................................................................................... 45
Showboat Material Adverse Effect........................................................................ 36
Showboat Representation Bringdown Condition............................................................. 36
Showboat Rights Plan.................................................................................... 30
SMCP.................................................................................................... 9
SMP..................................................................................................... 48
Southeastern............................................................................................ 41
Special Meeting......................................................................................... 10
SSP..................................................................................................... 9
Star City............................................................................................... 10
Stockholder............................................................................................. 38
Stockholders............................................................................................ 38
Stockholder Support Agreement........................................................................... 30
Stockholder Support Agreements.......................................................................... 30
Sub..................................................................................................... 4
Superior Proposal....................................................................................... 32
Surviving Corporation................................................................................... 28
Sydney Harbour Casino................................................................................... 24
Third Party............................................................................................. 32
WGM..................................................................................................... 14
</TABLE>
54
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
DATED AS OF DECEMBER 18, 1997
AMONG
HARRAH'S ENTERTAINMENT, INC.,
HEI ACQUISITION CORP.
AND
SHOWBOAT, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
A-1
ARTICLE I. THE MERGER....................................................................................
Section 1.1. The Merger.......................................................................... A-1
Section 1.2. Effective Time of the Merger........................................................ A-1
Section 1.3. Closing............................................................................. A-1
Section 1.4. Effect of the Merger................................................................ A-1
Section 1.5. Articles of Incorporation and Bylaws of the Surviving Corporation................... A-2
Section 1.6. Directors and Officers of the Surviving Corporation................................. A-2
A-2
ARTICLE II. EFFECT OF THE MERGER ON SECURITIES OF THE CONSTITUENT CORPORATIONS...........................
Section 2.1. Conversion of Securities............................................................ A-2
Section 2.2. Payment for Shares of Showboat Common Stock......................................... A-2
Section 2.3. Showboat Option Plans; SARs......................................................... A-3
A-4
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF SHOWBOAT..................................................
Section 3.1. Organization of Showboat and its Subsidiaries....................................... A-4
Section 3.2. Capitalization...................................................................... A-5
Section 3.3. Authority; No Conflict; Required Filings and Consents............................... A-6
Section 3.4. Public Filings; Financial Statements................................................ A-7
Section 3.5. No Undisclosed Liabilities.......................................................... A-8
Section 3.6. Absence of Certain Changes or Events................................................ A-8
Section 3.7. Taxes............................................................................... A-9
Section 3.8. Real Property....................................................................... A-10
Section 3.9. Title to Personal Property; Liens................................................... A-12
Section 3.10. Intellectual Property............................................................... A-12
Section 3.11. Agreements, Contracts and Commitments............................................... A-12
Section 3.12. Litigation.......................................................................... A-13
Section 3.13. Environmental Matters............................................................... A-13
Section 3.14. Employee Benefit Plans.............................................................. A-14
Section 3.15. Compliance.......................................................................... A-16
Section 3.16. Proxy Statement..................................................................... A-17
Section 3.17. Labor Matters....................................................................... A-18
Section 3.18. Insurance........................................................................... A-18
Section 3.19. Opinion of Financial Advisor........................................................ A-18
Section 3.20. No Existing Discussions............................................................. A-18
Section 3.21. Showboat Rights Plan; Nevada Takeover Statute....................................... A-18
Section 3.22. Brokers............................................................................. A-18
Section 3.23. Transactions With Affiliates........................................................ A-18
A-19
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF HARRAH'S AND MERGER SUB....................................
Section 4.1. Organization........................................................................ A-19
Section 4.2. Authority; No Conflict; Required Filings and Consents............................... A-19
</TABLE>
A-i
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C>
Section 4.3. Proxy Statement..................................................................... A-20
Section 4.4. Brokers............................................................................. A-20
Section 4.5. Financing........................................................................... A-20
Section 4.6. Compliance with Gaming Laws......................................................... A-20
A-22
ARTICLE V. COVENANTS.....................................................................................
Section 5.1. Conduct of Business of Showboat..................................................... A-22
Section 5.2. Cooperation; Notice; Cure........................................................... A-24
Section 5.3. No Solicitation..................................................................... A-24
Section 5.4. Proxy Statement..................................................................... A-25
Section 5.5. Special Meeting..................................................................... A-26
Section 5.6. Access to Information............................................................... A-26
Section 5.7. Governmental Approvals.............................................................. A-26
Section 5.8. Publicity........................................................................... A-27
Section 5.9. Indemnification..................................................................... A-27
Section 5.10. Stockholder Litigation.............................................................. A-28
Section 5.11. Employment Arrangements............................................................. A-28
Section 5.12. Further Assurances and Actions...................................................... A-28
Section 5.13. Employee Benefits................................................................... A-28
Section 5.14. Use of Showboat Name................................................................ A-29
A-29
ARTICLE VI. CONDITIONS TO MERGER.........................................................................
Section 6.1. Conditions to Each Party's Obligation to Effect the Merger.......................... A-29
Section 6.2. Additional Conditions to Obligations of Showboat.................................... A-30
Section 6.3. Additional Conditions to Obligations of Harrah's.................................... A-30
A-31
ARTICLE VII. TERMINATION AND AMENDMENT...................................................................
Section 7.1. Termination......................................................................... A-31
Section 7.2. Effect of Termination............................................................... A-32
Section 7.3. Fees and Expenses................................................................... A-32
Section 7.4. Amendment........................................................................... A-33
Section 7.5. Extension; Waiver................................................................... A-33
A-33
ARTICLE VIII. MISCELLANEOUS..............................................................................
Section 8.1. Nonsurvival of Representations, Warranties and Agreements........................... A-33
Section 8.2. Notices............................................................................. A-33
Section 8.3. Interpretation...................................................................... A-33
Section 8.4. Counterparts........................................................................ A-34
Section 8.5. Entire Agreement; No Third Party Beneficiaries...................................... A-34
Section 8.6. Governing Law....................................................................... A-34
Section 8.7. Assignment.......................................................................... A-34
EXHIBITS
Exhibit A Form of Stockholder Support Agreement
</TABLE>
A-ii
<PAGE>
TABLE OF DEFINED TERMS
<TABLE>
<CAPTION>
CROSS REFERENCE
TERMS IN AGREEMENT
- --------------------------------------------------------------------------------------------- -------------------
<S> <C>
Acquisition Proposal......................................................................... Section 5.3(a)
Agreement.................................................................................... Preamble
Alternative Transaction...................................................................... Section 5.3(c)
best knowledge............................................................................... Section 3.2(c)
Benefit Arrangement.......................................................................... Section 3.14(a)
Articles of Merger........................................................................... Section 1.2
Closing...................................................................................... Section 1.3
Closing Date................................................................................. Section 1.3
Code......................................................................................... Section 3.7(a)
Confidentiality Agreements................................................................... Section 5.3(a)
Effective Time............................................................................... Section 1.2
Employee Plans............................................................................... Section 3.14(a)
Environmental Condition...................................................................... Section 3.13
Environmental Laws........................................................................... Section 3.13
Environmental Liabilities and Costs.......................................................... Section 3.13
ERISA........................................................................................ Section 3.14(a)
ERISA Affiliate.............................................................................. Section 3.14(a)
Exchange Act................................................................................. Section 2.3
Exchange Agent............................................................................... Section 2.2(a)
Foreign Jurisdiction......................................................................... Section 3.3(c)
Foreign Plan................................................................................. Section 3.14(a)
Foreign Subsidiary........................................................................... Section 3.14(a)
Form 31...................................................................................... Section 3.11(e)
GAAP......................................................................................... Section 3.4(c)
Governmental Approvals....................................................................... Section 5.7(a)
Governmental Entity.......................................................................... Section 3.3(c)
Harrah's..................................................................................... Preamble
Harrah's Disclosure Schedule................................................................. Article IV
Harrah's Gaming Laws......................................................................... Section 4.6(b)
Harrah's Permits............................................................................. Section 4.6(c)
HSR Act...................................................................................... Section 3.3(c)
Indebtedness................................................................................. Section 3.11(a)
Indemnified Parties.......................................................................... Section 5.9(a)
IRS.......................................................................................... Section 3.7(d)
Merger Sub................................................................................... Preamble
Merger....................................................................................... Section 1.1
Merger Consideration......................................................................... Section 2.1(a)
Multiemployer Plan........................................................................... Section 3.14(a)
Nonqualified Plans........................................................................... Section 3.14(c)
Notifying Party.............................................................................. Section 5.7(a)
NRS.......................................................................................... Section 1.1
Option Settlement Amount..................................................................... Section 2.3
Options...................................................................................... Section 2.3
Pension Plan................................................................................. Section 3.14(a)
Proxy Statement.............................................................................. Section 3.16
Reporting Subsidiaries....................................................................... Section 3.4(a)
SARs......................................................................................... Section 2.3
</TABLE>
A-iii
<PAGE>
<TABLE>
<CAPTION>
CROSS REFERENCE
TERMS IN AGREEMENT
- --------------------------------------------------------------------------------------------- -------------------
<S> <C>
SAR Settlement Amount........................................................................ Section 2.3
Securities Act............................................................................... Section 3.4(a)
Showboat..................................................................................... Preamble
Showboat Balance Sheet....................................................................... Section 3.4(c)
Showboat Common Stock........................................................................ Section 2.1(a)
Showboat Disclosure Schedule................................................................. Article III
Showboat Gaming Laws......................................................................... Section 3.15(b)
Showboat Leased Property..................................................................... Section 3.8(a)
Showboat Material Adverse Effect............................................................. Section 3.1
Showboat Material Contracts.................................................................. Section 3.11(a)
Showboat Owned Property...................................................................... Section 3.8(a)
Showboat Permits............................................................................. Section 3.15(a)
Showboat Preferred Stock..................................................................... Section 3.2(a)
Showboat Rights Plan......................................................................... Section 3.2(b)
Showboat SEC Reports......................................................................... Section 3.4(a)
Showboat Stock Appreciation Rights Plan...................................................... Section 2.3
Showboat Stock Option Plans.................................................................. Section 2.3
Showboat Stock Plans......................................................................... Section 3.2(a)
Special Meeting.............................................................................. Section 3.16
SEC.......................................................................................... Section 3.3(c)
Stockholder Support Agreements............................................................... Preamble
Subsidiary................................................................................... Section 3.1
Superior Proposal............................................................................ Section 5.3(a)
Surviving Corporation........................................................................ Section 1.1
Sydney Harbour............................................................................... Section 3.2(c)
Sydney Harbour Management Agreement.......................................................... Section 3.11(e)
Sydney Harbour Material Contract............................................................. Section 3.11(c)
Sydney Harbour Reports....................................................................... Section 3.4(b)
Tax Return................................................................................... Section 3.7(d)
Taxes........................................................................................ Section 3.7(d)
Third Party.................................................................................. Section 5.3(a)
Voting Debt.................................................................................. Section 3.2(b)
Waterfront................................................................................... Section 3.5
Welfare Plan................................................................................. Section 3.14(a)
</TABLE>
A-iv
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of December 18,
1997, by and among HARRAH'S ENTERTAINMENT, INC., a Delaware corporation
("Harrah's"), HEI ACQUISITION CORP., a Nevada corporation and an indirect
wholly-owned subsidiary of Harrah's ("Merger Sub"), and SHOWBOAT, INC., a Nevada
corporation ("Showboat").
WHEREAS, the Board of Directors of Showboat has determined that the merger
of Merger Sub with and into Showboat, upon the terms and subject to the
conditions set forth in this Agreement (the "Merger"), is fair to, and in the
best interest of, Showboat and its stockholders;
WHEREAS, the Boards of Directors of Harrah's and Merger Sub have determined
that the Merger is in the best interests of Harrah's and Merger Sub and their
respective stockholders;
WHEREAS, the Boards of Directors of Harrah's, Merger Sub and Showboat have
each approved and adopted this agreement and approved the Merger and the other
transactions contemplated hereby;
WHEREAS, concurrently with the execution and delivery of this Agreement and
as a condition and inducement to each of Harrah's' and Merger Sub's willingness
to enter into this Agreement, certain stockholders of Showboat have entered into
Stockholder Support Agreements with Harrah's dated as of the date of this
Agreement in the form attached hereto as Exhibit A (the "Stockholder Support
Agreements"), pursuant to which such stockholders have agreed, among other
things, to vote all voting securities of Showboat beneficially owned by them in
favor of approval and adoption of the Agreement and the Merger;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth below, the
parties agree as follows:
ARTICLE I.
THE MERGER
Section 1.1. THE MERGER. Upon the terms and subject to the provisions of
this Agreement and in accordance with Chapter 92A of the Nevada Revised Statutes
(the "NRS"), at the Effective Time (as defined in Section 1.2), Merger Sub shall
be merged with and into Showboat (the "Merger"). As a result of the Merger, the
separate corporate existence of Merger Sub shall cease and Showboat shall
continue as the surviving corporation (the "Surviving Corporation").
Section 1.2. EFFECTIVE TIME OF THE MERGER. Subject to the provisions of
this Agreement (including Section 7.1 hereof), articles of merger with respect
to the Merger in such form as is required by NRS Section 92A.200 (the "Articles
of Merger") shall be duly prepared, executed and acknowledged and thereafter
delivered to the Secretary of State of the State of Nevada for filing, as
provided in the NRS, as early as practicable on the Closing Date (as defined in
Section 1.3). The Merger shall become effective at the later of the time of
filing of the Articles of Merger or at such time as is specified in the Articles
of Merger (the "Effective Time").
Section 1.3. CLOSING. The closing of the Merger (the "Closing") will take
place at such time and place to be agreed upon by the parties hereto, on a date
to be specified by Harrah's and Showboat, which shall be no later than the third
business day after satisfaction or, if permissible, waiver of the conditions set
forth in Article VI (the "Closing Date"), unless another date is agreed to by
Harrah's and Showboat.
Section 1.4. EFFECT OF THE MERGER. Upon becoming effective, the Merger
shall have the effects set forth in the NRS. Without limiting the generality of
the foregoing, and subject thereto, at the Effective Time, all properties,
rights, privileges, powers and franchises of Merger Sub and Showboat shall vest
in the Surviving Corporation, and all debts, liabilities and duties of Merger
Sub and Showboat shall become the debts, liabilities and duties of the Surviving
Corporation.
A-1
<PAGE>
Section 1.5. ARTICLES OF INCORPORATION AND BYLAWS OF THE SURVIVING
CORPORATION. At the Effective Time, the Articles of Incorporation and Bylaws of
the Surviving Corporation shall be amended to be identical to the Articles of
Incorporation and Bylaws, respectively, of Merger Sub as in effect immediately
prior to the Effective Time (except that the name of the Surviving Corporation
shall be "Showboat, Inc."), in each case until duly amended in accordance with
applicable law.
Section 1.6. DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION. The
directors of Merger Sub immediately prior to the Effective Time shall be the
initial directors of the Surviving Corporation, each to hold office in
accordance with the Articles of Incorporation and Bylaws of the Surviving
Corporation. The officers of Merger Sub immediately prior to the Effective Time
shall be the initial officers of the Surviving Corporation, each to hold office
in accordance with the Articles of Incorporation and Bylaws of the Surviving
Corporation.
ARTICLE II.
EFFECT OF THE MERGER ON SECURITIES
OF THE CONSTITUENT CORPORATIONS
Section 2.1. CONVERSION OF SECURITIES. At the Effective Time, by virtue of
the Merger and without any action on the part of any of the parties hereto or
the holders of any of the following:
(a) SHOWBOAT COMMON STOCK. Each share of Showboat Common Stock, par
value $1.00 per share, of Showboat ("Showboat Common Stock") issued and
outstanding immediately prior to the Effective Time (other than shares to be
canceled in accordance with Section 2.1(b)) shall be converted into the
right to receive, without interest, $30.75 in cash (the "Merger
Consideration"). Payment of Merger Consideration shall be made in the manner
described in Section 2.2. All shares of Showboat Common Stock, when so
converted, shall no longer be outstanding and shall automatically be
canceled and retired and shall cease to exist, and each holder of a
certificate representing any such shares shall cease to have any ownership
or other rights with respect thereto, except the right to receive the Merger
Consideration for such shares upon the surrender of such certificate in
accordance with Section 2.2.
(b) CANCELLATION OF TREASURY STOCK AND HARRAH'S-OWNED STOCK. All
shares of Showboat Common Stock that are owned by Showboat as treasury stock
and any shares of Showboat Common Stock owned by Harrah's or any
wholly-owned Subsidiary (as defined in Section 3.1) of Harrah's shall be
canceled and retired and shall cease to exist and no consideration shall be
delivered in exchange therefor.
(c) CAPITAL STOCK OF MERGER SUB. Each issued and outstanding share of
the common stock, par value $.01 per share, of Merger Sub shall be converted
into and become one fully paid and nonassessable share of Common Stock, par
value $.01 per share, of the Surviving Corporation.
(d) SHOWBOAT DEBT SECURITIES. All notes and other debt instruments of
Showboat that are outstanding at the Effective Time shall continue to be
outstanding subsequent to the Effective Time as debt instruments of the
Surviving Corporation, subject to their respective terms and provisions.
Section 2.2. PAYMENT FOR SHARES OF SHOWBOAT COMMON STOCK. (a) Prior to the
Effective Time, Harrah's shall appoint a bank or trust company reasonably
satisfactory to Showboat to act as exchange agent for the purpose of paying the
Merger Consideration (the "Exchange Agent"). Immediately prior to the Effective
Time, Harrah's shall deposit or cause to be deposited with the Exchange Agent,
for the benefit of the holders of Showboat Common Stock, cash in an aggregate
amount sufficient to pay the aggregate Merger Consideration. Not later than five
business days after the Effective Time, the Surviving Corporation shall cause
the Exchange Agent to mail to each person who was, immediately prior to the
Effective Time, a holder of record of issued and outstanding shares of Showboat
Common Stock, a form of
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letter of transmittal and instructions for use in effecting the surrender of the
certificates which, immediately prior to the Effective Time, represented any of
such shares in exchange for payment of the Merger Consideration. The Exchange
Agent's transmittal letter shall specify that delivery shall be effected and
risk of loss and title to the certificates shall pass only upon proper delivery
of the certificates to the Exchange Agent. Upon surrender to the Exchange Agent
of such certificates, together with such letter of transmittal, duly executed
and completed in accordance with the instructions thereto, and subject to
Section 2.2(b), the Surviving Corporation shall promptly cause to be paid to
each person entitled thereto cash in an amount equal to the product of (x) the
number of shares of Showboat Common Stock represented by such certificates and
(y) the Merger Consideration. Until surrendered in accordance with the
provisions of this Section 2.2(a), each certificate shall represent for all
purposes only the right to receive the Merger Consideration, without any
interest thereon.
(b) The Surviving Corporation or the Exchange Agent shall be entitled to
deduct and withhold from the consideration otherwise payable pursuant to this
Agreement to any holder of shares of Showboat Common Stock such amounts as the
Surviving Corporation or the Exchange Agent is required to deduct and withhold
with respect to the making of such payment under the Code (as defined in Section
3.7(a)), or any provision of state, local or foreign tax law. To the extent that
amounts are so withheld by the Surviving Corporation or the Exchange Agent, such
withheld amounts shall be treated for all purposes of this Agreement as having
been paid to the holder of shares of Showboat Common Stock in respect of which
deduction and withholding was made by the Surviving Corporation or the Exchange
Agent.
(c) Promptly following the first anniversary of the Effective Time, the
Exchange Agent shall deliver to the Surviving Corporation all cash, certificates
and other documents in its possession relating to the transactions described in
this Agreement, and the Exchange Agent's duties shall terminate. Thereafter,
each holder of a certificate formerly representing a share of Showboat Common
Stock may surrender such certificate to the Surviving Corporation and (subject
to applicable abandoned property, escheat and similar laws) receive in
consideration therefor the aggregate Merger Consideration relating thereto,
without any interest or dividends thereon. None of Harrah's, the Surviving
Corporation or the Exchange Agent shall be liable to any holder of shares of
Showboat Common Stock for any cash constituting the Merger Consideration
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
Section 2.3. SHOWBOAT OPTION PLANS; SARS. At the Effective Time, each
unexpired and unexercised outstanding option, whether or not then vested or
exercisable in accordance with its terms, to purchase shares of Showboat Common
Stock ("Options") previously granted by Showboat or its Subsidiaries under
Showboat's 1989 Long Term Incentive Plan, 1994 Long Term Incentive Plan, 1992
Employee Stock Option Plan and 1989 Board of Directors' Stock Option Plan as
amended and restated on January 30, 1996 (collectively, the "Showboat Stock
Option Plans") will become exercisable in full and each holder of an Option
shall be entitled to receive from Showboat (or the Surviving Corporation) in
cancellation thereof a payment (subject to applicable income tax withholding and
employer taxes) in an amount equal to the excess, if any, of the Merger
Consideration over the per share exercise price of such Option, multiplied by
the number of shares of Showboat Common Stock subject to such Option (the
"Option Settlement Amount"). The Option Settlement Amount shall be paid in cash
at the Effective Time. At the Effective Time, each then outstanding stock
appreciation right granted by Showboat under its 1996 Stock Appreciation Rights
Plan (the "Showboat Stock Appreciation Rights Plan"), whether or not then vested
or exercisable in accordance with its terms (collectively, "SARs"), shall become
exercisable in full and each holder of a SAR shall be entitled to receive from
Showboat (or the Surviving Corporation) in cancellation thereof a payment of an
amount in cash equal to the excess, if any, of the Merger Consideration over the
exercise price of such SAR multiplied by the number of shares of Showboat Common
Stock subject to such SAR, subject to any withholding of taxes and any reduction
in the Rights Payments (as defined in the Showboat Stock Appreciation Rights
Plan) pursuant to the terms of Section IV of the Stock Appreciation Rights Plan
(the "SAR Settlement Amount"). The SAR Settlement Amount shall be paid in cash
at the
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Effective Time. From and after the Effective Time, all Options and SARs shall
represent only the right of the holders of such Options or SARs to receive
payment of the Option Settlement Amount or SAR Settlement Amount, as the case
may be, upon the surrender thereof. The surrender of an Option or a SAR shall be
deemed a release of any and all rights the holder had or may have in respect of
such Option or SAR. Notwithstanding the foregoing, with respect to any person
subject to Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), any amount of the Option Settlement Amount or the SAR
Settlement Amount, as the case may be, shall be paid as soon as practicable
after the first date payment can be made without liability to such person under
Section 16(b) of the Exchange Act. All agreements, plans, programs or
arrangements of Showboat and its Subsidiaries that provide for the issuance or
grant of Options or any other interest in respect of the capital stock of
Showboat or capital stock of or other ownership interest in any of its
Subsidiaries shall terminate as of the Effective Time. Showboat shall take all
permitted actions necessary to ensure that, following the Effective Time, no
participant in any agreement, plan, program or arrangement of Showboat shall
have any right thereunder to acquire equity securities or other ownership
interests of Showboat, the Surviving Corporation or any Subsidiary thereof and
to terminate all such plans.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF SHOWBOAT
Showboat represents and warrants to Harrah's and Merger Sub that the
statements contained in this Article III are true and correct except as set
forth herein and in the disclosure schedule delivered by Showboat to Harrah's
and Merger Sub on or before the date of this Agreement (the "Showboat Disclosure
Schedule"). The Showboat Disclosure Schedule shall be arranged in paragraphs
corresponding to the numbered and lettered paragraphs contained in this Article
III and the disclosure in any paragraph shall qualify other paragraphs in this
Article III only to the extent that it is reasonable from a reading of such
disclosure that it also qualifies or applies to such other paragraphs.
Section 3.1. ORGANIZATION OF SHOWBOAT AND ITS SUBSIDIARIES. Each of
Showboat and its Subsidiaries (as defined below) is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization and has all requisite corporate, partnership or limited liability
company power and authority to carry on its business as now being conducted and
as proposed to be conducted. Each of Showboat and its Subsidiaries is duly
qualified or licensed to do business and is in good standing in each
jurisdiction in which the property owned, leased or operated by it or the nature
of the business conducted by it makes such qualification or licensing necessary,
except where the failure to be so qualified, licensed or in good standing would
not have a material adverse effect on the business, properties, condition
(financial or otherwise), results of operations or prospects of Showboat and its
Subsidiaries, taken as a whole, or any of the three separate businesses operated
as the Atlantic City Showboat, the East Chicago Showboat and the Sydney Harbour
Casino (a "Showboat Material Adverse Effect"). Showboat has delivered to
Harrah's a true and correct copy of the Articles of Incorporation and Bylaws of
Showboat, in each case as amended to the date of this Agreement. Assuming
compliance by Harrah's with all Showboat Gaming Laws (as defined in Section
3.15(b)) (including obtaining all necessary consents and approvals), the
respective organizational documents of Showboat's Subsidiaries do not contain
any provision that would limit or otherwise restrict the ability of Harrah's,
following the Effective Time, from owning or operating such Subsidiaries on the
same basis as Showboat. Except as set forth in Showboat SEC Reports (as defined
in Section 3.4) filed prior to the date hereof or as disclosed in Section 3.1 of
the Showboat Disclosure Schedule, neither Showboat nor any of its Subsidiaries
directly or indirectly owns (other than ownership interests in Showboat or in
one or more of its Subsidiaries) any equity or similar interest in, or any
interest convertible into or exchangeable or exercisable for, any corporation,
partnership, joint venture or other business association or entity. As used in
this Agreement, the word "Subsidiary" means, with respect to any party, any
corporation or other organization, whether incorporated or unincorporated, of
which (i) such party or any other Subsidiary of such party is a general partner
or (ii) at least a majority of the securities or
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other interests having by their terms ordinary voting power to elect a majority
of the Board of Directors or others performing similar functions with respect to
such corporation or other organization is directly or indirectly owned or
controlled by such party or by any one or more of its Subsidiaries, or by such
party and one or more of its Subsidiaries. Without limiting the generality of
the foregoing, the partnership between Showboat Australia Pty Ltd. and Leighton
Properties Pty Ltd. shall be considered a "Subsidiary" of Showboat for all
purposes of this Agreement.
Section 3.2. CAPITALIZATION.
(a) The authorized capital stock of Showboat consists of 50,000,000 shares
of Showboat Common Stock and 1,000,000 shares of preferred stock, $1.00 par
value per share ("Showboat Preferred Stock"). As of the date hereof, (i)
16,228,620 shares of Showboat Common Stock were issued and outstanding, all of
which are validly issued, fully paid and nonassessable, (ii) 137,070 shares of
Showboat Common Stock were held in the treasury of Showboat or by Subsidiaries
of Showboat, and (iii) no shares of Showboat Preferred Stock are issued and
outstanding. Section 3.2(a) of the Showboat Disclosure Schedule sets forth the
number of shares of Showboat Common Stock reserved for issuance upon exercise of
Options granted and outstanding as of the date hereof and the Showboat Stock
Option Plans and shares reserved for issuance in connection with Showboat's
employee stock purchase plans (the "Showboat Stock Purchase Plans," and together
with the Showboat Stock Option Plans, the "Showboat Stock Plans"). Section
3.2(a) of the Showboat Disclosure Schedule also sets forth, for each Showboat
Stock Option Plan, the dates on which Options under such plan were granted, the
number of Options granted on each such date and the exercise price thereof.
Since September 30, 1997, Showboat has not made any grants under any of the
Showboat Stock Plans. As of the date of this Agreement, Showboat has not granted
any SARs or any other contractual rights the value of which is derived from the
financial performance of Showboat or the value of shares of Showboat Common
Stock, except for 640,000 SARs granted to employees of Showboat at an exercise
price of $24.58, prior to the date of this Agreement pursuant to the Showboat
Stock Appreciation Rights Plan. Except as disclosed in Section 3.2(a) of the
Showboat Disclosure Schedule, there are no obligations, contingent or otherwise,
of Showboat or any of its Subsidiaries to repurchase, redeem or otherwise
acquire any shares of Showboat Common Stock or the capital stock or ownership
interests of any Subsidiary or to provide funds to or make any material
investment (in the form of a loan, capital contribution or otherwise) in any
such Subsidiary or any other entity other than guarantees of bank obligations or
indebtedness for borrowed money of Subsidiaries entered into in the ordinary
course of business. All of the outstanding shares of capital stock (including
shares which may be issued upon exercise of outstanding options) or other
ownership interests of each of Showboat's Subsidiaries are duly authorized,
validly issued, fully paid and nonassessable and, except as disclosed in Section
3.2 of the Showboat Disclosure Schedule, all such shares and ownership interests
are owned by Showboat or another Subsidiary of Showboat free and clear of all
security interests, liens, claims, pledges, agreements, limitations on
Showboat's voting rights, charges or other encumbrances or restrictions on
transfer of any nature.
(b) There are no bonds, debentures, notes or other indebtedness having
voting rights (or convertible into securities having such rights) ("Voting
Debt") of Showboat or any of its Subsidiaries issued and outstanding. Except as
set forth in this Section 3.2(b) or as reserved for future grants of options or
restricted stock under the Showboat Stock Plans and except for the preferred
stock purchase rights issued and issuable under the Rights Agreement dated
October 5, 1995, between Showboat and American Stock Transfer and Trust Company
(the "Showboat Rights Plan"), (i) there are no shares of capital stock of any
class of Showboat, or any security exchangeable into or exercisable for such
equity securities, issued, reserved for issuance or outstanding; (ii) there are
no options, warrants, equity securities, calls, rights, commitments or
agreements of any character to which Showboat or any of its Subsidiaries is a
party or by which it is bound obligating Showboat or any of its Subsidiaries to
issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of capital stock or other ownership interests (including Voting Debt) of
Showboat or any of its Subsidiaries or obligating Showboat or any of its
Subsidiaries to grant, extend, accelerate the vesting of or enter into any such
option, warrant, equity security, call, right,
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commitment or agreement; and (iii) there are no voting trusts, proxies or other
voting agreements or understandings with respect to the shares of capital stock
of Showboat. All shares of Showboat Common Stock subject to issuance as
specified in this Section 3.2(b) are duly authorized and, upon issuance on the
terms and conditions specified in the instruments pursuant to which they are
issuable, shall be validly issued, fully paid and nonassessable.
(c) To the best knowledge of Showboat, the capitalization of Sydney Harbour
Casino Holdings Limited ("Sydney Harbour") is accurately described in the
Showboat SEC Reports (as defined in Section 3.4(a)) or the Sydney Harbour
Reports (as defined in Section 3.4(b)). As used in this Agreement, "best
knowledge" means, with respect to Showboat or Harrah's, as the case may be, the
actual knowledge (without inquiry) of such entity's executive officers
(including, for the purposes of Section 3.7, Showboat's Vice President of
Taxes). All of the outstanding shares of capital stock (including shares which
may be issued upon exercise of outstanding options) or other ownership interests
held by Showboat or any of its Subsidiaries in Sydney Harbour are (or, in the
case of options, the shares subject to such options will be) duly authorized,
validly issued, fully paid, and nonassessable and, except as disclosed in
Schedule 3.2(c) of the Showboat Disclosure Schedule, all such shares and
ownership interests are owned by Showboat or a Subsidiary of Showboat free and
clear of all security interests, liens, claims, pledges, agreements, limitations
on Showboat's or its Subsidiary's voting rights, charges or other encumbrances
or restrictions on transfer of any nature.
Section 3.3. AUTHORITY; NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) Showboat has all requisite corporate power and authority to enter into
this Agreement and to consummate the transactions contemplated by this
Agreement. The execution and delivery of this Agreement and the consummation of
the transactions contemplated by this Agreement by Showboat have been duly
authorized by all necessary corporate action on the part of Showboat, subject
only to the approval and adoption of this Agreement and the Merger by two-thirds
of Showboat's stockholders. This Agreement has been duly executed and delivered
by Showboat and constitutes the valid and binding obligations of Showboat,
enforceable against it in accordance with their terms.
(b) Other than as disclosed in Section 3.3(b) of the Showboat Disclosure
Schedule, the execution and delivery of this Agreement by Showboat does not, and
the consummation of the transactions contemplated by this Agreement will not,
(i) conflict with, or result in any violation or breach of, any provision of the
Articles of Incorporation or Bylaws of Showboat or the comparable charter or
organizational documents of any of its Subsidiaries, (ii) result in any
violation or breach of, or constitute (with or without notice or lapse of time,
or both) a default (or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of any material benefit) under, or
require a consent or waiver under, any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, lease, contract or other agreement,
instrument or obligation to which Showboat or any of its Subsidiaries is a party
or by which any of them or any of their properties or assets may be bound, or
(iii) subject to the governmental filings and other matters referred to in
Section 3.3(c), conflict with or violate any permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Showboat or any of its Subsidiaries or any of its or their
properties or assets, except in the case of clauses (ii) and (iii) for any such
conflicts, violations, defaults, terminations, cancellations or accelerations
which (x) are not, individually or in the aggregate, reasonably likely to have a
Showboat Material Adverse Effect or (y) would not impair or delay the
consummation of the Merger.
(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency, commission, gaming
authority or other governmental authority or instrumentality ("Governmental
Entity") is required by or with respect to Showboat or any of its Subsidiaries
in connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby or thereby, except for (i)
the filing of the pre-merger notification report under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended ("HSR Act") and any similar
statute,
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rule or regulation of any foreign country, state, province, territory or city
(each, a "Foreign Jurisdiction"), (ii) the filing of the Articles of Merger with
respect to the Merger with the Secretary of State of the State of Nevada, (iii)
the filing of the Proxy Statement (as defined in Section 3.16 below) with the
Securities and Exchange Commission (the "SEC") in accordance with the Exchange
Act, (iv) any approvals and filing of notices required under the Showboat Gaming
Laws (as defined in Section 3.15(b)), (v) such consents, approvals, orders,
authorizations, permits, filings or registrations related to, or arising out of,
compliance with statutes, rules or regulations regulating the consumption, sale
or serving of alcoholic beverages, (vi) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable state securities laws and the securities laws of any Foreign
Jurisdiction, (vii) the approvals required from the Australian Securities
Commission (with respect to compliance with the Australian Corporations Law) and
the Australian Foreign Investment Review Board, (viii) such immaterial filings
and consents as may be required under any environmental health or safety law or
regulation pertaining to any notification, disclosure or required approval
triggered by the Merger or the transactions contemplated by this Agreement, and
(ix) such other filings, consents, approvals, orders, registrations and
declarations as may be required under the laws of any jurisdiction in which
Showboat or any of its Subsidiaries conducts any business or owns any assets the
failure of which to obtain would not have a Showboat Material Adverse Effect.
Section 3.4. PUBLIC FILINGS; FINANCIAL STATEMENTS.
(a) Showboat and its Subsidiaries that are required to file forms, reports
or other documents with the SEC (the "Reporting Subsidiaries") have filed and
made available to Harrah's all forms, reports and documents required to be filed
by Showboat and the Reporting Subsidiaries with the SEC since January 1, 1995
(collectively, the "Showboat SEC Reports"). The Showboat SEC Reports (including
any financial statements filed as a part thereof or incorporated by reference
therein) (i) at the time filed, complied in all material respects with the
applicable requirements of the Securities Act of 1933, as amended (the
"Securities Act"), and the Exchange Act, as the case may be, and (ii) did not,
at the time they were filed (or if amended or superseded by a filing prior to
the date of this Agreement, then on the date of such filing), contain any untrue
statement of a material fact or omit to state a material fact required to be
stated in such Showboat SEC Reports or necessary in order to make the statements
in such Showboat SEC Reports, in the light of the circumstances under which they
were made, not misleading. Other than Showboat Marina Casino Partnership and
Showboat Marina Finance Corporation, none of Showboat's Subsidiaries is a
Reporting Subsidiary.
(b) To the best knowledge of Showboat, the forms, reports, and documents
required to be filed by Sydney Harbour with the Australian Securities Commission
since June 1, 1995 (collectively, the "Sydney Harbour Reports"), when taken
together with the Showboat SEC Reports, did not, at the time they were filed (or
if amended or superseded by a filing prior to the date of this Agreement, then
on the date of such filing), contain any untrue statement of a material fact or
omit to state a material fact required to be stated in such Sydney Harbour
Reports and the Showboat SEC Reports or necessary in order to make the
statements in such Sydney Harbour Reports and Showboat SEC Reports, in the light
of the circumstances in which they were made, not misleading. Except as
disclosed in Section 3.4(b) of the Showboat Disclosure Schedule and to the best
knowledge of Showboat, since the end of the most recent fiscal year of Sydney
Harbour for which audited financial statements have been filed in a Sydney
Harbour Report, there has not been any event, development, state or affairs or
condition, or series or combination of events, developments, states of affairs
or conditions, which, individually or in the aggregate, has had or is reasonably
likely to have a Showboat Material Adverse Effect.
(c) Each of the consolidated financial statements (including, in each case,
any related notes) of Showboat contained in the Showboat SEC Reports complied as
to form in all material respects with the applicable published rules and
regulations of the SEC with respect thereto, was prepared in accordance with
generally accepted accounting principles ("GAAP") applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes to such
financial statements or, in the case of
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unaudited statements, as permitted by Form 10-Q under the Exchange Act) and
fairly presented the consolidated financial position of Showboat and its
consolidated Subsidiaries as of the dates and the consolidated results of its
operations and cash flows for the periods indicated, except that the unaudited
interim financial statements were or are subject to normal and recurring
year-end adjustments which, with respect to interim periods since December 31,
1996, were not or are not expected to be material in amount. The audited balance
sheet of Showboat as of December 31, 1996 is referred to herein as the "Showboat
Balance Sheet."
Section 3.5. NO UNDISCLOSED LIABILITIES. Except as disclosed in the
Showboat SEC Reports and the Sydney Harbour Reports filed prior to the date
hereof or in Section 3.5 of the Showboat Disclosure Schedule, and except for
liabilities and obligations incurred since December 31, 1996 in the ordinary
course of business consistent with past practices, Showboat and its consolidated
Subsidiaries (and, to the best knowledge of Showboat, Sydney Harbour) do not
have any indebtedness, obligations or liabilities of any kind, whether accrued,
contingent or otherwise (whether or not required to be reflected in financial
statements in accordance with GAAP), and whether due or to become due, which
would be reasonably likely to have a Showboat Material Adverse Effect. Without
limiting the generality of the foregoing, as of the date of this Agreement (a)
Waterfront Entertainment & Development, Inc. ("Waterfront") has not incurred any
expense relating to Showboat Mardi Gras Casino which is material to Showboat
Marina Partnership that has not been reimbursed which would entitle Waterfront
to receive preferential distributions from Showboat Marina Partnership, and (b)
except as disclosed in Section 3.5 of the Showboat Disclosure Schedule, Showboat
Marina Partnership has no liabilities, obligations or commitments to any
Governmental Entity arising out of or relating to the involvement of Showboat
Marina Partnership with the Showboat Mardi Gras Casino which are material to
Showboat Marina Partnership.
Section 3.6. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
the Showboat SEC Reports filed prior to the date hereof or in Section 3.6 of the
Showboat Disclosure Schedule, since the date of the Showboat Balance Sheet,
Showboat and its Subsidiaries have conducted their businesses only in the
ordinary course and in a manner consistent with past practice and, since such
date, there has not been (i) any event, development, state of affairs or
condition, or series or combination of events, developments, states of affairs
or conditions, which, individually or in the aggregate, has had or is reasonably
likely to have a Showboat Material Adverse Effect; (ii) any damage, destruction
or loss (whether or not covered by insurance) with respect to Showboat or any of
its Subsidiaries which is reasonably likely to have a Showboat Material Adverse
Effect; (iii) any material change by Showboat in its accounting methods,
principles or practices of which Harrah's has not previously been informed; (iv)
any revaluation by Showboat of any of its assets which is reasonably likely to
have a Showboat Material Adverse Effect; (v) any declaration, setting aside or
payment of any dividend or other distribution (whether in cash, stock or
property) with respect to the equity interests of Showboat or of any of its
Subsidiaries, other than dividends paid by wholly owned Subsidiaries or the
$0.025 per share cash dividend on shares of Showboat Common Stock declared on
November 20, 1997 and payable on January 9, 1998, or any redemption, purchase or
other acquisition by Showboat or any of its Subsidiaries of any securities of
Showboat or any of its Subsidiaries; (vi) any split, combination or
reclassification of any of Showboat's capital stock or any issuance or the
authorization of any issuance of any other securities in respect of, in lieu of
or in substitution for, shares of Showboat's capital stock; (vii) any increase
in or establishment of any bonus, insurance, severance, deferred compensation,
pension, retirement, profit sharing, stock option, stock purchase or other
employee benefit plan, or any other increase in the compensation payable or to
become payable to any officers or key employees of Showboat or any Subsidiary
other than increases which would not be material, individually or in the
aggregate, with respect to such officers or employees receiving such benefit or
compensation (based on a comparison to benefits and compensation received in the
year ended December 31, 1996); (viii) any entry into, renewal, modification or
extension of, any material contract, arrangement or agreement with any other
party except for contracts, arrangements or agreements in the ordinary course of
business or as contemplated by this Agreement; or (ix) any settlement of pending
or threatened litigation involving Showboat or any of its Subsidiaries (whether
brought by a private party or a
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Governmental Entity) other than any settlement which is not likely to have a
Showboat Material Adverse Effect.
Section 3.7. TAXES.
(a) Except as set forth in Section 3.7(a) of the Showboat Disclosure
Schedule:
(i) Each of Showboat and its Subsidiaries (and any affiliated group
(within the meaning of Section 1504 of the Internal Revenue Code of 1986, as
amended (the "Code"))) of which Showboat or any of its Subsidiaries is now
or has been a member) has timely filed with the appropriate taxing
authorities all federal, state and local income Tax Returns (as defined in
Section 3.7(c)) and all other material Tax Returns required to be filed
through the date hereof and will timely file any such returns required to be
filed on or prior to the Closing Date. Such Tax Returns are (and, to the
extent they will be filed prior to the Effective Time, will be) complete and
accurate in all material respects. None of Showboat, its Subsidiaries, nor
any affiliated group (within the meaning of Section 1504 of the Code) of
which Showboat or its Subsidiaries is now or was a member, has pending any
request for an extension of time within which to file federal, state or
local income Tax Returns. Showboat has provided to Harrah's and Merger Sub
complete and accurate (in all material respects) copies of Showboat's
federal and state income Tax Returns for the taxable years ended June 30,
1995, June 30, 1996 and December 31, 1996.
(ii) All Taxes (as defined in Section 3.7(c)) in respect of periods
beginning before the Closing Date have been paid or will be timely paid, or
an adequate reserve has been or will be established therefor in accordance
with GAAP by each of Showboat and its Subsidiaries subject to such
exceptions as are not likely to have a Showboat Material Adverse Effect.
(iii) Showboat and its Subsidiaries have complied in all respects with
all applicable laws, rules and regulations relating to the payment and
withholding of Taxes and have, within the time and the manner prescribed by
law, withheld and paid over to the proper governmental authorities all
amounts required to be so withheld and paid over under applicable laws
subject to such exceptions as are not likely to have a Showboat Material
Adverse Effect.
(iv) No federal, state, local or foreign audits or other administrative
proceedings or court proceedings are presently pending with regard to any
material Taxes or material Tax Returns of any of Showboat or its
Subsidiaries subject to such exceptions as are not likely to have a Showboat
Material Adverse Effect. Neither Showboat nor any of its Subsidiaries has
received a written notice of any such pending audits or proceedings.
(v) Neither the IRS nor any other taxing authority (whether domestic or
foreign) has asserted, or to the best knowledge of Showboat, is threatening
to assert, against Showboat or any of its Subsidiaries any material
deficiency or material claim for Taxes in excess of the reserves established
therefor except as which is not likely to have a Showboat Material Adverse
Effect.
(b) Except as set forth in Section 3.7(b) of Showboat Disclosure Schedule:
(i) There are no liens for Taxes upon any property or assets of Showboat
or any Subsidiary thereof, except for liens for Taxes not yet due and
payable and liens for Taxes that are being contested in good faith by
appropriate proceedings as set forth in Section 3.7(a) of Showboat
Disclosure Schedule and as to which adequate reserves have been established
in accordance with generally accepted accounting standards except as which
is not likely to have a Showboat Material Adverse Effect.
(ii) Neither Showboat nor any of its Subsidiaries is or has been a
member of an affiliated group of corporations filing a consolidated federal
income tax return (or a group of corporations filing a consolidated,
combined or unitary income tax return under comparable provisions of state,
local or
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foreign tax law) for any taxable period beginning on or after the taxable
period ending June 30, 1992, other than a group the common parent of which
is or was Showboat or any Subsidiary of Showboat.
(iii) Neither Showboat nor any of its Subsidiaries has any obligation
under any Tax sharing agreement or similar arrangement with any other person
with respect to Taxes of such other person.
(iv) Neither Showboat nor any of its Subsidiaries has, with regard to
any assets or property held or acquired by any of them, filed a consent to
the application of Section 341(f) of the Code, or agreed to have Section
341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as
such term is defined in Section 341(f)(4) of the Code) owned by Showboat or
any of its Subsidiaries;
(v) To the best knowledge of Showboat no member of the Showboat
affiliated group (as defined in Section 1504 of the Code) has recognized any
gain in connection with any intercompany transaction that has been deferred
for federal, state, local or foreign income tax purposes, except for such
gains as have been taken into account on Tax Returns filed prior to the date
hereof in accordance with Treas. Reg. Section 1.1502-13 or comparable
provisions of state, local or foreign Tax laws except as which is not likely
to have a Showboat Material Adverse Effect.
(c) "TAXES" shall mean any and all taxes, charges, fees, levies, duties,
liabilities, impositions or other assessments, including, without limitation,
income, gross receipts, profits, excise, real or personal property,
environmental, recapture, sales, use, value-added, withholding, social security,
retirement, employment, unemployment, occupation, service, license, net worth,
payroll, franchise, gains, stamp, transfer and recording taxes, fees and
charges, imposed by the Internal Revenue Service ("IRS") or any other taxing
authority (whether domestic or foreign including, without limitation, any state,
county, local or foreign government or any subdivision or taxing agency thereof
(including a United States possession)), whether computed on a separate,
consolidated, unitary, combined or any other basis; and such term shall include
any interest whether paid or received, fines, penalties or additional amounts
attributable to, or imposed upon, or with respect to, any such taxes, charges,
fees, levies or other assessments. For purposes of this Agreement, "Taxes" also
includes any obligations under any agreements or arrangements with any other
person with respect to Taxes of such other person (including pursuant to Treas.
Reg. Section 1.1502-6 or comparable provisions of state, local or foreign tax
law) and including any liability for Taxes of any predecessor entity. "Tax
Return" shall mean any report, return, document, declaration or other
information or filing required to be supplied to any taxing authority or
jurisdiction (foreign or domestic) with respect to Taxes, including, without
limitation, information returns, any documents with respect to or accompanying
payments of estimated Taxes, or with respect to or accompanying requests for the
extension of time in which to file any such report, return, document,
declaration or other information.
Section 3.8. REAL PROPERTY.
(a) Section 3.8(a) of the Showboat Disclosure Schedule identifies all real
property owned by Showboat and its subsidiaries (the "Showboat Owned Property")
and all real property leased or operated by Showboat and its Subsidiaries (the
"Showboat Leased Property"). The Showboat Owned Property and the Showboat Leased
Property is referred to herein collectively as the "Showboat Real Property."
(b) Showboat and its Subsidiaries have good and marketable fee simple title
to the Showboat Owned Property, and a valid leasehold interest in the Showboat
Leased Property, free and clear of any and all liens, encumbrances,
restrictions, leases, options to purchase, options to lease, conditions,
covenants, assessments, defects, claims or exceptions, except for the exceptions
described in the Showboat SEC Reports or on Schedule 3.8(b) of the Showboat
Disclosure Schedule and such other liens or exceptions that do not and would
not, individually or in the aggregate, materially interfere with the use of the
Showboat Real Property as currently used.
(c) True and correct copies of the documents under which the Showboat Owned
Property and Showboat Leased Property is leased or operated (the "Lease
Documents") have been delivered or made available for review to Harrah's. The
Lease Documents are unmodified and in full force and effect, and
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there are no other agreements, written or oral, between Showboat or any of its
Subsidiaries in the Showboat Owned Property, Showboat Leased Property or
otherwise relating to the use and occupancy of the Showboat Owned Property or
Showboat Leased Property. None of Showboat, its Subsidiaries or any other party
is in material default under the Lease Documents, and, to the best knowledge of
Showboat, no defaults (whether or not subsequently cured) by Showboat, its
Subsidiaries or any other party have been alleged thereunder. To the best
knowledge of Showboat and its Subsidiaries, each landlord named in any of the
Lease Documents is not in material default thereunder, and no material defaults
(whether or not subsequently cured) by such landlord have been alleged
thereunder.
(d) Except as disclosed in Section 3.8(d) of the Showboat Disclosure
Schedule, (i) to the best knowledge of Showboat, no land or property adjacent to
the Showboat Real Property is in material violation of any applicable laws,
regulations or Restrictions, except for such violations which, individually or
in the aggregate, would not be reasonably likely to result in a Showboat
Material Adverse Effect; and (ii) there are no material defects in the physical
condition of the Showboat Real Property or the improvements located on the
Showboat Real Property, except for defects which, individually or in the
aggregate, would not be reasonably likely to have a Showboat Material Adverse
Effect.
(e) Except as disclosed in Section 3.8(e) of the Showboat Disclosure
Schedule, there is no action, proceeding or litigation pending (or, to the best
knowledge of Showboat, overtly contemplated or threatened) (i) to take all or
any portion of the Showboat Real Property, or any interest therein, by eminent
domain; (ii) to modify the zoning of, or other governmental rules or
restrictions applicable to, the Showboat Real Property or the use or development
thereof; (iii) for any street widening or changes in highway or traffic lanes or
patterns in the immediate vicinity of the Showboat Real Property; or (iv)
otherwise relating to the Showboat Real Property or the interests of Showboat
and its Subsidiaries therein, or which otherwise would interfere with the use,
ownership, improvement, development and/or operation of the Showboat Real
Property; in each case except for such actions, proceedings or litigation which,
individually or in the aggregate, would not be reasonably expected to have a
Showboat Material Adverse Effect.
(f) Except as disclosed in Section 3.8(f) of the Showboat Disclosure
Schedule, no portion of the Showboat Real Property or the roads immediately
adjacent to the Showboat Real Property: (i) based on title reports and surveys,
is situated in a "Special Flood Hazard Area," as set forth on a Federal
Emergency Management Agency Flood Insurance Rate Map or Flood Hazard Boundary
Map; (ii) to the best knowledge of Showboat, was the former site of any public
or private landfill, dump site, retention basin or settling pond; (iii) to the
best knowledge of Showboat, was the former site of any oil or gas drilling
operations; or (iv) to the best knowledge of Showboat, was the former site of
any experimentation, processing, refining, reprocessing, recovery or
manufacturing operation for any petrochemicals.
(g) The parcels constituting the Showboat Real Property are assessed
separately from all other adjacent property for purposes of real property taxes.
(h) The Showboat Real Property is connected to and serviced by adequate
water, sewage disposal, gas and electricity facilities and all material systems
(heating, air conditioning, electrical, plumbing and the like) for the basic
operation of the Showboat Real Property are operable and in good condition
(ordinary wear and tear excepted), except as would not be reasonably expected to
have a Showboat Material Adverse Effect.
(i) There are no material commitments to or agreements with any governmental
authority or agency (federal, state or local) affecting the Showboat Real
Property which are not listed in Schedule 3.8(i) of the Showboat Disclosure
Schedule or described in the Showboat SEC Reports.
(j) There are no contracts or other obligations outstanding for the sale,
exchange, lease or transfer of any of the Showboat Real Property, or any portion
of it, or the businesses operated by Showboat or any of its Subsidiaries
thereon, except as disclosed on Schedule 3.8(j) of the Showboat Disclosure
Schedule and other than contracts and obligations entered into after the date of
this Agreement in compliance with Section 5.1.
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Section 3.9. TITLE TO PERSONAL PROPERTY; LIENS. To the best knowledge of
Showboat, Showboat and each of its Subsidiaries has sufficiently good and valid
title to, or an adequate leasehold interest in, its material tangible personal
properties and assets (including all riverboats operated by Showboat and its
Subsidiaries) in order to allow it to conduct, and continue to conduct, its
business as currently conducted. Such material tangible personal assets and
properties are sufficiently free of liens to allow each of Showboat and its
Subsidiaries to conduct, and continue to conduct, its business as currently
conducted and, to the best knowledge of Showboat, the consummation of the
transactions contemplated by this Agreement will not alter or impair such
ability in any respect which, individually or in the aggregate, would be
reasonably likely to have a Showboat Material Adverse Effect. There are no
defects in the physical condition or operability of such material tangible
personal assets and properties which would impair the use of such assets and
properties as such assets and properties are currently used, except for such
defects which, individually or in the aggregate, would not be reasonably likely
to have a Showboat Material Adverse Effect.
Section 3.10 INTELLECTUAL PROPERTY. Section 3.10 of the Showboat
Disclosure Schedule lists all (i) trademark and service mark registrations and
applications owned by Showboat or any of its Subsidiaries and (ii) trademark,
service mark and trade name license agreements to which Showboat or any of its
Subsidiaries is a party. Except as disclosed in Section 3.10 of the Showboat
Disclosure Schedule, Showboat and its Subsidiaries own or possess adequate and
enforceable rights to use all material trademarks, trademark applications, trade
names, service marks, trade secrets (including customer lists and customer
databases), copyrights, patents, licenses, know-how and other proprietary
intellectual property rights as are necessary in connection with the businesses
of Showboat and its Subsidiaries as currently conducted without material
restrictions or material conditions on use, and, to the best knowledge of
Showboat, there is no conflict with the rights of Showboat and its Subsidiaries
therein or any conflict by them with the rights of others therein which,
individually or in the aggregate would be reasonably likely to have a Showboat
Material Adverse Effect.
Section 3.11 AGREEMENTS, CONTRACTS AND COMMITMENTS.
(a) Except as disclosed in the Showboat SEC Reports filed prior to the date
of this Agreement or as disclosed in Section 3.11(a) of the Showboat Disclosure
Schedule, neither Showboat nor any of its Subsidiaries is a party to any oral or
written (i) agreement, contract, indenture or other instrument relating to
Indebtedness (as defined below) in an amount exceeding $1,000,000, (ii)
partnership, joint venture or limited liability or management agreement with any
person, (iii) agreement, contract, or other instrument relating to any merger,
consolidation, business combination, share exchange, business acquisition, or
for the purchase, acquisition, sale or disposition of any assets of Showboat or
any of its Subsidiaries outside the ordinary course of business, (iv) other
contract, agreement or commitment to be performed after the date hereof which
would be a material contract (as defined in Item 601(b)(10) of Regulation S-K of
the SEC), (v) agreement, contract, or other instrument relating to any
"strategic alliances" (i.e., cross-marketing, affinity relationships, etc.) or
(vi) contract, agreement or commitment which materially restricts
(geographically or otherwise) the conduct of any line of business by Showboat or
any of its Subsidiaries or Sydney Harbour (collectively, the "Showboat Material
Contracts"). "Indebtedness" means any liability in respect of (A) borrowed
money, (B) capitalized lease obligations, (C) the deferred purchase price of
property or services (other than trade payables in the ordinary course of
business) and (D) guarantees of any of the foregoing incurred by any other
person other than Showboat or any of its Subsidiaries.
(b) Except as disclosed in the Showboat SEC Reports or as disclosed in
Section 3.11(b) of the Showboat Disclosure Schedule, (i) each of the Showboat
Material Contracts is valid and binding upon Showboat or any of its Subsidiaries
(and, to Showboat's best knowledge, on all other parties thereto) in accordance
with its terms and is in full force and effect, (ii) there is no material breach
or violation of or default by Showboat or any of its Subsidiaries under any of
the Showboat Material Contracts, whether or not such breach, violation or
default has been waived, and (iii) no event has occurred with respect to
Showboat or any of its Subsidiaries which, with notice or lapse of time or both,
would constitute a material
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breach, violation or default, or give rise to a right of termination,
modification, cancellation, foreclosure, imposition of a lien, prepayment or
acceleration under any of the Showboat Material Contracts, which breach,
violation or default referred to in clauses (ii) or (iii), alone or in the
aggregate with other such breaches, violations or defaults referred to in
clauses (ii) or (iii), would be reasonably likely to have a Showboat Material
Adverse Effect. Section 3.11(b) of the Showboat Disclosure Schedule describes
any consents or approvals required to terminate or transfer the Casino Complex
Management Agreement, dated April 21, 1994, relating to the Sydney Harbour
Casino.
(c) Except as disclosed in Section 3.11(c) of the Showboat Disclosure
Schedule, Showboat and its Subsidiaries have terminated, and have no continuing
liabilities or obligations under, any agreement, contract or arrangement with
any person or entity relating to the Southboat Casino project in Lemay,
Missouri.
Section 3.12. LITIGATION. Except as disclosed in the Showboat SEC Reports
or the Sydney Harbour Reports filed prior to the date of this Agreement or in
Section 3.12 of the Showboat Disclosure Schedule, (a) there is no action, suit
or proceeding, claim, arbitration or investigation against Showboat, Sydney
Harbour or any of their respective Subsidiaries pending, or as to which
Showboat, Sydney Harbour or any of their respective Subsidiaries has received
any written notice of assertion or, to the best knowledge of Showboat,
threatened against or affecting, Showboat, Sydney Harbour or any of their
respective Subsidiaries or any property or asset of Showboat, Sydney Harbour or
any of their respective Subsidiaries, before any court, arbitrator, or
administrative, governmental or regulatory authority or body, domestic or
foreign, that, individually or in the aggregate, could reasonably be expected to
(i) have a Showboat Material Adverse Effect or (ii) prevent the consummation of
the transactions contemplated by this Agreement; and (b) there is no judgment,
order, injunction or decree of any Governmental Entity outstanding against
Showboat, Sydney Harbour or any of their respective Subsidiaries that could
reasonably be expected to have any effect referred to in clauses (i) or (ii)
above.
Section 3.13. ENVIRONMENTAL MATTERS. Except as disclosed in Section 3.13
of the Showboat Disclosure Schedule and as would not be reasonably likely to
have a Showboat Material Adverse Effect, (a) Showboat is in compliance with all
applicable Environmental Laws, (b) there are no Environmental Liabilities and
Costs of Showboat and its Subsidiaries, (c) there are no Environmental
Conditions, (d) none of Showboat and its Subsidiaries has received any notices
from any governmental agency or other third party alleging liability under or
violation of any Environmental Law, or alleging responsibility for the removal,
clean-up, or remediation of any Environmental Condition, (e) Showboat is not
subject to any enforcement or investigatory action by any governmental agency
regarding an Environmental Condition with respect to any Showboat Real Property
or any other property related in any way to Showboat or its Subsidiaries, (f) no
asbestos containing materials or polychlorinated biphenyls (i.e., PCBs) are
contained in or stored on any of the Showboat Real Properties, and (g) there
have been no leaks, releases, spills or discharge of fluids from any underground
or above-ground storage tanks located on any of the Showboat Real Properties,
and each underground storage tank meets 1998 monitoring standards. As used
herein, the terms "toxic" or "hazardous" wastes, substances or materials shall
include, without limitation, all those so designated and all those in any way
regulated by any Environmental Laws.
For purposes of this Section 3.13, the following definitions shall apply:
"ENVIRONMENTAL LAWS" means all applicable foreign, federal, state and local
statutes or laws, common law, judgments, orders, regulations, licenses, permits,
rules and ordinances relating to pollution or protection of health, safety or
the environment, including, but not limited to the Federal Water Pollution
Control Act (33 U.S.C. Section 1251 ET SEQ.), Resource Conservation and Recovery
Act (42 U.S.C. Section 6901 ET SEQ.), Safe Drinking Water Act (42 U.S.C. Section
3000(f) ET SEQ.), Toxic Substances Control Act (15 U.S.C. Section 2601 ET SEQ.),
Clean Air Act (42 U.S.C. Section 7401 ET SEQ.), Comprehensive Environmental
Response, Compensation and Liability Act (42 U.S.C. Section 9601) and other
similar state and local statutes, in effect as of the date hereof.
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"ENVIRONMENTAL CONDITION" means the release into the environment of any
pollution, including without limitation any contaminant, pollutant, hazardous or
toxic waste, substance or material as a result of which Showboat (1) has or may
become liable to any person, (2) is or was in violation of any Environmental
Law, (3) has or may be required to incur response costs for investigation or
remediation, or (4) by reason of which any of the Properties or other assets of
Showboat, may be subject to any lien under Environmental Laws.
"ENVIRONMENTAL LIABILITIES AND COSTS" means all liabilities, obligations,
responsibilities, obligations to conduct cleanup, losses, damages, deficiencies,
punitive damages, consequential damages, treble damages, costs and expenses
(including, without limitation, all reasonable fees, disbursements and expenses
of counsel, expert and consulting fees and costs of investigations and
feasibility studies and responding to government requests for information or
documents), fines, penalties, restitution and monetary sanctions, interest,
direct or indirect, known or unknown, absolute or contingent, past, present or
future, resulting from any claim or demand, by any person or entity, under any
Environmental Law, or arising from environmental, health or safety conditions.
Section 3.14. EMPLOYEE BENEFIT PLANS.
(a) DEFINITIONS. The following terms, when used in this Section 3.14 shall
have the following meanings. Any of these terms may, unless the context
otherwise requires, be used in the singular or the plural depending on the
reference.
(i) BENEFIT ARRANGEMENT. "Benefit Arrangement" shall mean any
employment, consulting, severance or other similar contract, arrangement or
policy and each plan, program or agreement providing for workers'
compensation, disability benefits, supplemental unemployment benefits,
vacation benefits, retirement benefits, life insurance, health, accident
benefits (including without limitation any "voluntary employees' beneficiary
association" as defined in Section 501(c)(9) of the Code providing for the
same or other benefits), deferred compensation, profit-sharing bonuses,
stock options, stock appreciation rights, stock purchases or other forms of
incentive compensation which
(1) is not a Welfare Plan, Pension Plan, Foreign Plan or
Multiemployer Plan under which Showboat or ERISA Affiliate may incur any
liability, and (2) covers any employee or former employee of Showboat or
any ERISA Affiliate (with respect to their relationship with such
entities).
(ii) CODE. "Code" shall have the meaning set forth in Section
3.7(a)(vi).
(iii) EMPLOYEE PLANS. "Employee Plans" shall mean all Benefit
Arrangements, Multiemployer Plans, Foreign Plans, Pension Plans and Welfare
Plans.
(iv) ERISA. "ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended.
(v) ERISA AFFILIATE. "ERISA Affiliate" shall mean any entity which is
(or at any relevant time was) a member of a "controlled group of
corporations" with, under "common control" with, or a member of an
"affiliated service group" with, Showboat as defined in Section 414(b), (c),
(m) or (o) of the Code or any partnership of which Showboat or any of its
Subsidiaries is a general partner.
(vi) FOREIGN PLAN. "Foreign Plan" shall mean any employee benefit plan
covering employees or former employees of any Subsidiary of Showboat or any
ERISA Affiliate which is organized under the laws of any country other than
the U.S. (with respect to such employees' relationship with such entities)
which if maintained or administered in or otherwise subject to the laws of
the United States would constitute a Pension Plan, a Multiemployer Plan or
Welfare Plan.
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(vii) MULTIEMPLOYER PLAN. "Multiemployer Plan" shall mean any
"multiemployer plan," as defined in Section 4001(a)(3) of ERISA, under which
Showboat or any ERISA Affiliate may incur any liability.
(viii) PENSION PLAN. "Pension Plan" shall mean any "employee pension
benefit plan" as defined in Section 3(2) of ERISA (other than a
Multiemployer Plan) under which Showboat or any ERISA Affiliate may incur
any liability.
(ix) WELFARE PLAN. "Welfare Plan" shall mean any "employee welfare
benefit plan" as defined in Section 3(1) of ERISA, under which Showboat or
any ERISA Affiliate may incur any liability.
(b) DISCLOSURE; DELIVERY OF COPIES OF RELEVANT DOCUMENTS AND OTHER
INFORMATION. Section 3.14 of the Showboat Disclosure Schedule contains a
complete list of the Employee Plans. Each copy of each (i) an Employee Plan
(other than any Multiemployer Plan) and, if applicable, related trust agreement,
and any amendment thereto, (ii) a determination letter issued by the IRS or
analogous ruling under foreign law with respect to each Employee Plan, (iii) an
Annual Report on Form 5500 Series required to be filed with any governmental
agency for each Pension Plan and Welfare Plan, and (iv) an actuarial report
prepared for a Pension Plan, in each case delivered by Showboat to Harrah's is a
true and complete copy of such documents.
(c) REPRESENTATIONS. Except as set forth in Section 3.14(c) of the
Showboat Disclosure Schedule:
(i) EMPLOYEE PLANS
(A) No Pension Plan is subject to Title IV of ERISA or the minimum
funding requirements of Section 412 of the Code. Each Pension Plan and
each related trust that is intended to qualify under the provisions of
Code Section 401(a) and 501(a) has so qualified during the period from
its adoption to date.
(B) Each Employee Plan has been maintained in material compliance
with its terms and, both as to form and in operation, with the
requirements prescribed by any and all applicable laws, including without
limitation ERISA and the Code to the extent applicable, except for such
non-compliance which would not be reasonably likely to have a Showboat
Material Adverse Effect.
(C) Section 3.14 (c) of the Showboat Disclosure Schedule sets forth
Showboat's good faith estimate as of September 30, 1997 of the accrued
liability under Showboat's 401(k) Restoration Plan, which has been
accrued on Showboat's financial statements in accordance with GAAP.
Section 5.13(e) of the Showboat Disclosure Schedule also sets forth the
actuarial assumptions and reflects the methodologies used by Showboat to
determine participants' benefits and Showboat's liabilities under
Showboat's Supplemental Executive Retirement Plan and Showboat's good
faith estimate of Showboat's projected liabilities under the Supplemental
Executive Retirement Plan as of May 31, 1998, assuming enhancements of
such benefits pursuant to Showboat's change in control severance
agreements and assuming that the employment of all participants who are
parties to such agreements is terminated without cause on May 1, 1998
immediately after a change in control of Showboat.
(ii) MULTIEMPLOYER PLANS
(A) Neither Showboat nor any ERISA Affiliate has, at any time,
withdrawn from a Multiemployer Plan in a "complete withdrawal" or a
"partial withdrawal" as defined in Sections 4203 and 4205 of ERISA,
respectively, so as to result in a liability, contingent or otherwise
(including without limitation the obligations pursuant to an agreement
entered into in accordance with Section 4204 of ERISA), of Showboat or
any ERISA Affiliate which has not been fully satisfied. Neither Showboat
nor any ERISA Affiliate has engaged in, or is a successor or parent
corporation to an entity that has engaged in, a transaction described in
Section 4212(c) of ERISA.
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(B) To the best of Showboat's knowledge, with respect to each
Multiemployer Plan: (1) no such Multiemployer Plan has been terminated or
is in reorganization under ERISA so as to result, directly or indirectly,
in any liability, contingent or otherwise, of Showboat or any ERISA
Affiliate under Title IV of ERISA; and (2) no proceeding has been
initiated by any person (including the Pension Benefit Guaranty
Corporation) to terminate any Multiemployer Plan.
(iii) WELFARE PLANS. None of Showboat, any ERISA Affiliate or any
Welfare Plan has any present or future obligation to make any payment to, or
with respect to any present or former employee of Showboat or any ERISA
Affiliate pursuant to, any retiree medical benefit plan, or other retiree
Welfare Plan, except to the extent required by the Code or ERISA.
(iv) DEDUCTIBILITY OF PAYMENTS. There is no contract, agreement, plan
or arrangement covering any employee or former employee of Showboat (with
respect to its relationship with such entities) that, individually or
collectively, provides for the payment by Showboat of any amount (i) that is
not deductible under Section 404 of the Code or (ii) that is an "excess
parachute payment" pursuant to Section 280G of the Code.
(v) LITIGATION. There is no material action, order, writ, injunction,
judgment or decree outstanding or claim, suit, litigation, proceeding,
arbitral action, governmental audit or investigation relating to or seeking
benefits under any Employee Plan that is pending against Showboat, any ERISA
Affiliate or any Employee Plan (other than routine claims for benefits).
(vi) NO ACCELERATION OR CREATION OF RIGHTS. Except as provided in
Section 2.3, 5.11 or disclosed in Section 5.13(c) of the Showboat Disclosure
Schedule neither the execution and delivery of this Agreement by Showboat
nor the consummation of the transactions contemplated hereby will result in
the acceleration or creation of any rights of any current or former employee
of Showboat or any of its Subsidiaries to benefits under any Employee Plan
(including, without limitation, the acceleration of the vesting or
exercisability of any stock options, the acceleration of the vesting of any
restricted stock, the acceleration of the accrual or vesting of any benefits
under any Pension Plan or the acceleration or creation of any rights under
any severance, parachute or change in control agreement).
Section 3.15. COMPLIANCE.
(a) Each of Showboat and its Subsidiaries, and each of their respective
directors (but with respect to non-employee directors, only to Showboat's best
knowledge), officers, persons performing management functions similar to
officers and, to Showboat's best knowledge, partners hold all permits,
registrations, findings of suitability, licenses, variances, exemptions,
certificates of occupancy, orders and approvals of all Governmental Entities
(including all authorizations under Environmental Laws, Showboat Gaming Laws,
the Merchant Marine Act of 1920 and the Shipping Act of 1916 and Certificates of
Inspection issued by the U.S. Coast Guard), necessary to conduct the business
and operations of Showboat and each of its Subsidiaries, each of which is in
full force and effect in all material respects, except for such permits,
registrations, findings of suitability, licenses, variances, exemptions,
certificates of occupancy, orders and approvals the failure of which to hold
would not, individually or in the aggregate, be reasonably likely to have a
Showboat Material Adverse Effect (the "Showboat Permits") and no event has
occurred which permits, or upon the giving of notice or passage of time or both
would permit, revocation, non-renewal, modification, suspension, limitation or
termination of any Showboat Permit that currently is in effect the loss of which
either individually or in the aggregate would be reasonably likely to have a
Showboat Material Adverse Effect. Each of Showboat and its Subsidiaries, and
each of their respective directors (but with respect to non-employee directors,
only to Showboat's best knowledge), officers, persons performing management
functions similar to officers and, to Showboat's best knowledge, partners, are
in compliance with the terms of the Showboat Permits, except for such failures
to comply, which singly or in the aggregate, would not, individually or in the
aggregate, be reasonably likely to have a Showboat Material Adverse Effect.
Except as disclosed in the Showboat SEC Reports filed prior to the date of this
Agreement, the businesses of Showboat and its Subsidiaries are not being
conducted in violation of any
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law, ordinance or regulation of any Governmental Entity (including, without
limitation, any Showboat Gaming Laws), except for possible violations which
individually or in the aggregate do not and would not be reasonably likely to
have a Showboat Material Adverse Effect. No investigation or review by any
Governmental Entity with respect to Showboat or any of its Subsidiaries is
pending, or, to the best knowledge of Showboat, threatened, nor has any
Governmental Entity indicated any intention to conduct the same, other than
those the outcome of which would not, individually or in the aggregate, be
reasonably likely to have a Showboat Material Adverse Effect.
(b) The term "Showboat Gaming Laws" means any Federal, state, local or
foreign statute, ordinance, rule, regulation, permit, consent, registration,
finding of suitability, approval, license, judgment, order, decree, injunction
or other authorization, including any condition or limitation placed thereon,
governing or relating to the current or contemplated casino and gaming
activities and operations of Showboat or any of its Subsidiaries, including,
without limitation, the Nevada Gaming Control Act and the rules and regulations
promulgated thereunder, the City of Las Vegas Ordinances, the Clark County,
Nevada Code and the rules and regulations promulgated thereunder, the Riverboat
Gambling Act and the rules and regulations of the Indiana Gaming Commission, the
codes, rules and regulations promulgated thereunder, the New Jersey Casino
Control Act and the rules and regulations promulgated thereunder, the Casino
Control Act 1992 (New South Wales) and the rules and regulations promulgated
thereunder, the Indian Gaming Regulatory Act of 1988 and the rules and
regulations promulgated thereunder, any state-tribal gaming compact and any
applicable state gaming law and any federal or state laws relating to currency
transactions.
(c) Except as disclosed in Section 3.15(c) of the Showboat Disclosure
Schedule, neither Showboat nor any of its Subsidiaries, nor any director (but
with respect to non-employee directors, only to Showboat's best knowledge),
officer, key employee or, to Showboat's best knowledge, partners of Showboat or
any of its Subsidiaries has received any written claim, demand, notice,
complaint, court order or administrative order from any Governmental Entity in
the past three years under, or relating to any violation or possible violation
of any Showboat Gaming Laws which did or would be reasonably likely to result in
fines or penalties of $50,000 or more. To Showboat's best knowledge, there are
no facts, which if known to the regulators under the Showboat Gaming Laws could
reasonably be expected to result in the revocation, limitation or suspension of
a license, finding of suitability, registration, permit or approval of it or
them, or of any officer, director, other person performing management functions
similar to an officer or partner, under any Showboat Gaming Laws. Neither
Showboat nor any of its Subsidiaries has suffered a suspension or revocation of
any material license, finding of suitability, registration, permit or approval
held under the Showboat Gaming Laws.
(d) For purposes of this Section 3.15, Sydney Harbour and each of its
Subsidiaries shall be considered a "Subsidiary" of Showboat such that the
representations contained in this Section 3.15 shall apply to Sydney Harbour,
except that all such representations shall be limited to Showboat's best
knowledge.
Section 3.16. PROXY STATEMENT. None of the information with respect to
Showboat or its Subsidiaries to be included or incorporated by reference in the
proxy statement to be sent to the stockholders of Showboat in connection with
the meeting of Showboat's stockholders to consider the Agreement and Merger (the
"Proxy Statement"), or any amendment thereof or supplement thereto, will, on the
date filed with the SEC, at the time of the mailing of the Proxy Statement or
any amendment or supplement, at the time of the meeting of Showboat's
stockholders (the "Special Meeting") and at the Effective Time, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading. The Proxy
Statement will comply as to form in all material respects with the provisions of
the Exchange Act and the rules and regulations thereunder; provided, however,
that Showboat makes no representation with respect to any information supplied
or to be supplied by Harrah's or Merger Sub for inclusion in the Proxy Statement
or any amendment thereof or supplement thereto.
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Section 3.17. LABOR MATTERS. Except as disclosed in Section 3.17 of the
Showboat Disclosure Schedule or as would not have a Showboat Material Adverse
Effect, (i) there are no controversies pending or, to the best knowledge of
Showboat, threatened between Showboat or any of its Subsidiaries and any of
their respective employees; (ii) to the best knowledge of Showboat, there are no
activities or proceedings of any labor union to organize any non-unionized
employees; (iii) neither Showboat nor any of its Subsidiaries has breached or
otherwise failed to comply with any provision of any collective bargaining
agreement or contract and there are no grievances outstanding against Showboat
or any of its Subsidiaries under any such agreement or contract; (iv) there are
no unfair labor practice complaints pending against Showboat or any of its
Subsidiaries before the National Labor Relations Board, or any similar foreign
labor relations governmental bodies, or any current union representation
questions involving employees of Showboat or any of its Subsidiaries; and (v)
there is no strike, slowdown, work stoppage or lockout, or, to the best
knowledge of Showboat, threat thereof, by or with respect to any employees of
Showboat or any of its Subsidiaries. Showboat and its Subsidiaries are not
parties to any collective bargaining agreements, except for collective
bargaining agreements disclosed in Section 3.17 of the Showboat Disclosure
Schedule.
Section 3.18. INSURANCE. Showboat has provided to Harrah's accurate and
complete copies of all material fire and casualty, general liability, business
interruption, product liability, and sprinkler and water damage insurance
policies maintained by Showboat or any of its Subsidiaries. All such insurance
policies are with reputable insurance carriers and provide coverage as is
reasonably prudent to cover normal risks incident to the business of Showboat
and its Subsidiaries and their respective properties and assets.
Section 3.19. OPINION OF FINANCIAL ADVISOR. Showboat has received the
opinion of Donaldson, Lufkin & Jenrette Securities Corporation, dated the date
of this Agreement, to the effect that the Merger Consideration is fair to the
holders of Showboat Common Stock from a financial point of view.
Section 3.20. NO EXISTING DISCUSSIONS. As of the date hereof, Showboat is
not engaged, directly or indirectly, in any discussions or negotiations with any
other party with respect to an Acquisition Proposal (as defined in Section 5.3).
Section 3.21. SHOWBOAT RIGHTS PLAN; NEVADA TAKEOVER STATUTE.
(a) Under the terms of the Showboat Rights Plan, neither the execution of
this Agreement, the Stockholder Support Agreements, nor the transactions
contemplated hereby or thereby, will cause a Distribution Date to occur or cause
the rights issued pursuant to the Showboat Rights Plan to become exercisable,
and all such rights shall become non-exercisable at the Effective Time.
(b) As of the date hereof and at all times on or prior to the Effective
Date, the restrictions of Sections 78.378 through 78.3793 of the NRS are, and
shall be, inapplicable to the Merger, and the transactions contemplated by this
Agreement.
Section 3.22. BROKERS. None of Showboat, any of its Subsidiaries, or any
of their respective officers, directors or employees have employed any broker,
financial advisor or finder or incurred any liability for any brokerage fees,
commissions or finder's fees in connection with the transactions contemplated by
this Agreement, except that Showboat has retained Donaldson, Lufkin & Jenrette
Securities Corporation as its financial advisor, the arrangements with which
have been disclosed in writing to Harrah's and Merger Sub prior to, and will not
be modified subsequent to, the date of this Agreement.
Section 3.23. TRANSACTIONS WITH AFFILIATES. Other than the transactions
contemplated by this Agreement and except to the extent disclosed in the
Showboat SEC Documents or as disclosed in Section 3.23 of the Showboat
Disclosure Schedule, from January 1, 1995 through the date of this Agreement,
there have been no transactions, agreements, arrangements or understandings
between Showboat or any of its Subsidiaries, on the one hand, and Showboat's
affiliates or other persons, on the other hand, that would be required to be
disclosed under Item 404 of Regulation S-K under the Securities Act.
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ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF HARRAH'S AND MERGER SUB
Harrah's and Merger Sub represent and warrant to Showboat that the
statements contained in this Article IV are true and correct except as set forth
herein and in the disclosure schedule delivered by Harrah's and Merger Sub to
Showboat on or before the date of this Agreement (the "Harrah's Disclosure
Schedule"). The Harrah's Disclosure Schedule shall be arranged in paragraphs
corresponding to the numbered and lettered paragraphs contained in this Article
IV and the disclosure in any paragraph shall qualify other paragraphs in this
Article IV only to the extent that it is reasonable from a reading of such
disclosure that it also qualifies or applies to such other paragraphs.
Section 4.1. ORGANIZATION. Each of Harrah's and its Subsidiaries is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization and has all requisite corporate, partnership
and limited liability company power and authority to carry on its business as
now being conducted and as proposed to be conducted. Each of Harrah's and its
Subsidiaries is duly qualified or licensed to do business and is in good
standing in each jurisdiction in which the property owned, leased or operated by
it or the nature of the business conducted by it makes such qualification or
licensing necessary, except where the failure to be so qualified, licensed or in
good standing would not have a material adverse effect on the business,
properties, condition (financial or otherwise), results of operations or
prospects of Harrah's and its Subsidiaries, taken as a whole (a "Harrah's
Material Adverse Effect"). Harrah's has delivered to Showboat true and correct
copy of the Certificate of Incorporation and Bylaws of each of Harrah's and
Merger Sub, in each case as amended to the date of this Agreement.
Section 4.2. AUTHORITY; NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(a) Harrah's and Merger Sub have all requisite corporate power and authority
to enter into this Agreement and the Stockholder Support Agreements to which
each is a party and to consummate the transactions contemplated by this
Agreement and the Stockholder Support Agreements. The execution and delivery of
this Agreement and the Stockholder Support Agreements and the consummation of
the transactions contemplated by this Agreement and the Stockholder Support
Agreements by Harrah's and Merger Sub have been duly authorized by all necessary
corporate action on the part of Harrah's and Merger Sub. This Agreement and the
Stockholder Support Agreements have been duly executed and delivered by Harrah's
and Merger Sub (as applicable) and constitute the valid and binding obligations
of Harrah's and Merger Sub (as applicable), enforceable against each of them in
accordance with their terms.
(b) Other than or as disclosed in Section 4.2(b) of the Harrah's Disclosure
Schedule, the execution and delivery of this Agreement and the Stockholder
Support Agreements by Harrah's and Merger Sub (as applicable) does not, and the
consummation of the transactions contemplated by this Agreement and the
Stockholder Support Agreements will not, (i) conflict with, or result in any
violation or breach of, any provision of the Certificate of Incorporation or
Bylaws of Harrah's or the comparable charter or organizational documents of any
of its Subsidiaries, (ii) result in any violation or breach of, or constitute
(with or without notice or lapse of time, or both) a default (or give rise to a
right of termination, cancellation or acceleration of any obligation or loss of
any material benefit) under, or require a consent or waiver under, any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, lease,
contract or other agreement, instrument or obligation to which Harrah's or any
of its Subsidiaries is a party or by which any of them or any of their
properties or assets may be bound, or (iii) subject to the governmental filings
and other matters referred to in Section 4.2(c), conflict with or violate any
permit, concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to Harrah's or any of its Subsidiaries
or any of its or their properties or assets, except in the case of clauses (ii)
and (iii) for any such conflicts, violations, defaults, terminations,
cancellations or accelerations which (x) are not, individually or in the
aggregate, reasonably likely to have a Harrah's Material Adverse Effect or (y)
would not impair or delay the consummation of the Merger.
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(c) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or with
respect to Harrah's or any of its Subsidiaries in connection with the execution
and delivery of this Agreement or the consummation of the transactions
contemplated hereby or thereby, except for (i) the filing of the pre-merger
notification report under the HSR Act and any similar statute, rule or
regulation of any Foreign Jurisdiction, (ii) the filing of the Articles of
Merger with respect to the Merger with the Secretary of State of the State of
Nevada, (iii) any approvals and filing of notices required under the Harrah's
Gaming Laws (as defined in Section 4.6) or the Showboat Gaming Laws, (iv) such
consents, approvals, orders, authorizations, permits, filings, or registrations
related to, or arising out of, compliance with statutes, rules or regulations
regulating the consumption, sale or serving of alcoholic beverages, (v) such
consents, approvals, orders, authorizations, registrations, declarations and
filings as may be required under applicable state securities laws and the
securities laws of any Foreign Jurisdiction, (vii) the approvals required from
the Australian Securities Commission (with respect to compliance with the
Australian Corporations Law) and the Australian Foreign Investment Review Board,
(viii) such immaterial filings and consents as may be required under any
environmental health or safety law or regulation pertaining to any notification,
disclosure or required approval triggered by the Merger or the transactions
contemplated by this Agreement, and (ix) such other filings, consents,
approvals, orders, registrations and declarations as may be required under the
laws of any jurisdiction in which the Company or any of its Subsidiaries
conducts any business or owns any assets the failure of which to obtain would
not have a Harrah's Material Adverse Effect.
Section 4.3. PROXY STATEMENT. None of the information supplied or to be
supplied by Harrah's or Merger Sub for inclusion in the Proxy Statement and any
amendments thereof or supplements thereto will, on the date filed with the SEC,
at the time of the mailing of the Proxy Statement or any amendment or supplement
thereto to the stockholders of Showboat, at the time of the Special Meeting and
at the Effective Time, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements made therein, in light of the circumstances under which
they were made, not misleading.
Section 4.4. BROKERS. None of Harrah's, any of its Subsidiaries, or any of
their respective officers, directors or employees have employed any broker,
financial advisor or finder or incurred any liability for any brokerage fees,
commissions or finder's fees in connection with the transactions contemplated by
this Agreement, except that Harrah's has retained BT Wolfensohn and Morgan
Stanley & Co. as financial advisors, the arrangements with which have been
disclosed in writing to Showboat prior to the date hereof.
Section 4.5. FINANCING. Harrah's has received and provided to Showboat a
letter, dated December 18, 1997, from Bankers Trust Company. Harrah's will have
available on the Closing Date sufficient funds to enable Harrah's to (i) pay the
Merger Consideration, the Option Settlement Amount and the SAR Settlement Amount
and (ii) purchase any of Showboat's outstanding 9 1/4% First Mortgage Bonds due
2008 and 13% Senior Subordinated Notes due 2009 required to be purchased
pursuant to the change of control provisions contained in the instruments
governing such indebtedness.
Section 4.6. COMPLIANCE WITH GAMING LAWS.
(a) Each of Harrah's and its Subsidiaries, and each of their respective
directors (but with respect to non-employee directors, only to Harrah's' best
knowledge), officers, persons performing management functions similar to
officers and, to Harrah's' best knowledge, partners, hold all permits,
registrations, findings of suitability, licenses, variances, exemptions,
certificates of occupancy, orders and approvals of all Governmental Entities
under the Harrah's Gaming Laws necessary to conduct the business and operations
of Harrah's and each of its Subsidiaries, each of which is in full force and
effect in all material respects, except for such permits, registrations,
findings of suitability, licenses, variances, exemptions, certificates of
occupancy, orders and approvals the failure of which to hold would not,
individually or in the aggregate, be reasonably likely to have a Harrah's
Material Adverse Effect (the "Harrah's Permits") and no event has occurred which
permits, or upon the giving of notice or passage of time or both would permit,
revocation,
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non-renewal, modification, suspension, limitation or termination of any Harrah's
Permit that currently is in effect the loss of which either individually or in
the aggregate would be reasonably likely to have a Harrah's Material Adverse
Effect. Each of Harrah's and its Subsidiaries, and each of their respective
directors (but with respect to non-employee directors, only to Harrah's' best
knowledge), officers, persons performing management functions similar to
officers and, to Harrah's' best knowledge, partners, are in compliance with the
terms of the Harrah's Permits, except for such failures to comply, which singly
or in the aggregate, would not, individually or in the aggregate, be reasonably
likely to have a Harrah's Material Adverse Effect. Except as disclosed in the
forms, reports, and documents required to be filed by Harrah's with the SEC
since January 1, 1995 and filed prior to the date of this Agreement, the
businesses of Harrah's and its Subsidiaries are not being conducted in violation
of any Harrah's Gaming Law, except for possible violations which individually or
in the aggregate do not and would not be reasonably likely to have a Harrah's
Material Adverse Effect. No investigation or review by any Governmental Entity
under any Harrah's Gaming Law with respect to Harrah's or any of its
Subsidiaries is pending, or, to the best knowledge of Harrah's, threatened, nor
has any Governmental Entity indicated any intention to conduct the same, other
than those the outcome of which would not, individually or in the aggregate, be
reasonably likely to have a Harrah's Material Adverse Effect.
(b) The term "Harrah's Gaming Laws" means any Federal, state, local or
foreign statute, ordinance, rule, regulation, permit, consent, registration,
finding of suitability, approval, license, judgment, order, decree, injunction
or other authorization, including any condition or limitation placed thereon,
governing or relating to the current or contemplated casino and gaming
activities and operations of Harrah's or any of its Subsidiaries, including,
without limitation, the Nevada Gaming Control Act and the rules and regulations
promulgated thereunder, the Clark County, Nevada Code and the rules and
regulations promulgated thereunder, the Douglas County, Nevada Code and the
rules and regulations promulgated thereunder, the Louisiana Economic Development
and Gaming Act and the rules and regulations promulgated thereunder, the
Louisiana Riverboat Economic Gaming Control Act and the rules and regulations
promulgated thereunder, the New Jersey Casino Control Act and the rules and
regulations promulgated thereunder, the Casino Control Act of 1990 (New Zealand)
and the rules and regulations promulgated thereunder, the Illinois Riverboat
Gambling Act and the rules and regulations promulgated thereunder, the
Mississippi Gaming Control Act and the rules and regulations promulgated
thereunder, the Missouri Riverboat Gambling Act and the rules and regulations
promulgated thereunder, the Indian Gaming Regulatory Act of 1988 and the rules
and regulations promulgated thereunder, any state-tribal gaming compact and any
applicable state gaming law and any federal or state laws relating to currency
transactions.
(c) Except as disclosed in Section 4.6(c) of the Harrah's Disclosure
Schedule, neither Harrah's nor any of its Subsidiaries, nor any director (but
with respect to non-employee directors, only to Harrah's' best knowledge),
officer, key employee or, to Harrah's best knowledge, partners of Harrah's or
any of its Subsidiaries has received any written claim, demand, notice,
complaint, court order or administrative order from any Governmental Entity in
the past three years under, or relating to any violation or possible violation
of any Harrah's Gaming Laws which did or would be reasonably likely to result in
fines or penalties of $50,000 or more. To Harrah's best knowledge, there are no
facts, which if known to the regulators under the Harrah's Gaming Laws could
reasonably be expected to result in the revocation, limitation or suspension of
a license, finding of suitability, registration, permit or approval of it or
them, or of any officer, director, person performing management functions
similar to an officer or partner, under any Harrah's Gaming Laws. Neither
Harrah's nor any of its Subsidiaries has suffered a suspension or revocation of
any material license, finding of suitability, registration, permit or approval
held under the Harrah's Gaming Laws.
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ARTICLE V.
COVENANTS
Section 5.1. CONDUCT OF BUSINESS OF SHOWBOAT. During the period from the
date of this Agreement and continuing until the earlier of the termination of
this Agreement or the Effective Time, Showboat agrees as to itself and each of
its Subsidiaries (except to the extent that Harrah's shall otherwise consent in
writing) to carry on its business in the usual, regular and ordinary course in
substantially the same manner as previously conducted, to pay its debts and
taxes when due subject to good faith disputes over such debts or taxes, to pay
or perform its other obligations when due, and, to the extent consistent with
such business, use all reasonable efforts consistent with past practices and
policies to preserve intact its present business organization, keep available
the services of its present officers and key employees and preserve its
relationships with customers, suppliers, distributors, and others having
business dealings with it. Without limiting the generality of the foregoing and
except as expressly contemplated by this Agreement, except as disclosed on
Section 5.1 of the Showboat Disclosure Schedule, during the period from the date
of this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, without the written consent of Harrah's,
Showboat shall not and shall not permit any of its Subsidiaries to:
(i) adopt any amendment to its Articles of Incorporation or Bylaws or
comparable charter or organizational documents;
(ii) (A) issue, pledge or sell, or authorize the issuance, pledge or
sale of additional shares of capital stock of any class (other than upon
exercise of Options outstanding on the date of this Agreement), or
securities convertible into capital stock of any class, or any rights,
warrants or options to acquire any convertible securities or capital stock,
or any other securities in respect of, in lieu of, or in substitution for,
shares of Showboat Common Stock outstanding on the date hereof or (B) amend,
waive or otherwise modify any of the terms of any option, warrant or stock
option plan of Showboat or any of its Subsidiaries, including without
limitation, the Options or the Showboat Stock Plans;
(iii) declare, set aside or pay any dividend or other distribution
(whether in cash, securities or property or any combination thereof) in
respect of any class or series of its capital stock other than (A) between
any wholly-owned Subsidiary of Showboat and Showboat or any other
wholly-owned Subsidiary of Showboat or (B) regular quarterly dividends on
shares of Showboat Common Stock not to exceed $.025 per share;
(iv) split, combine, subdivide, reclassify or redeem, purchase or
otherwise acquire, or propose to redeem or purchase or otherwise acquire,
any shares of its capital stock, or any of its other securities;
(v) increase the compensation or fringe benefits payable or to become
payable to its directors, officers or employees (whether from Showboat or
any of its Subsidiaries), or pay any benefit not required by any existing
plan or arrangement (including, without limitation, the granting of stock
options, stock appreciation rights, shares of restricted stock or
performance units) or grant any severance or termination pay to (except
pursuant to existing agreements or policies, which shall be interpreted and
implemented in a manner consistent with past practice), or enter into any
employment or severance agreement with, any director, officer or employee of
Showboat or any of its Subsidiaries or establish, adopt, enter into, or
amend any collective bargaining, bonus, profit sharing, thrift,
compensation, stock option, restricted stock, pension, retirement, savings,
welfare, deferred compensation, employment, termination, severance or other
employee benefit plan, agreement, trust, fund, policy or arrangement for the
benefit or welfare of any directors, officers or current or former
employees, including any Benefit Arrangement, Pension Plan or Welfare Plan,
except (i) to the extent required by applicable law or regulation, (ii)
pursuant to any collective bargaining agreements or Employee Plan as in
effect on the date of this Agreement consistent with past practices or (iii)
for salary increases in the ordinary course of business consistent with past
practice to employees other than executive officers of Showboat;
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(vi) (A) sell, pledge, lease, dispose of, grant, encumber, or otherwise
authorize the sale, pledge, disposition, grant or encumbrance of any of the
properties or assets of Showboat or any of its Subsidiaries, except for (1)
sales of assets in the ordinary course of business in connection with
Showboat's gaming operations in an amount not to exceed $500,000
individually or $2,000,000 in the aggregate or (2) other sales which,
individually do not exceed $100,000 or which, in the aggregate, do not
exceed $250,000 or (B) acquire (including, without limitation, by merger,
consolidation, lease or acquisition of stock or assets) any corporation,
partnership, other business organization or any division thereof (or a
substantial portion of the assets thereof) or any other assets, except for
(1) acquisitions of assets in the ordinary course of business in connection
with Showboat's gaming operations in an amount individually not to exceed
$500,000 or (2) other acquisitions which, individually, do not exceed
$100,000 or which, in the aggregate, do not exceed $250,000;
(vii) (A) incur, assume or pre-pay any long-term debt or incur or assume
any short-term debt, except that Showboat and its Subsidiaries may incur or
pre-pay debt in the ordinary course of business consistent with past
practice under existing lines of credit, (B) assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other person except in the ordinary
course of business consistent with past practice, or (C) make any loans,
advances or capital contributions to, or investments in, any other person
except in the ordinary course of business consistent with past practice
(including advances to employees) and except for loans, advances, capital
contributions or investments between any wholly-owned Subsidiary of Showboat
and Showboat or another wholly-owned Subsidiary of Showboat;
(viii) authorize, recommend, propose or announce an intention to adopt a
plan of complete or partial liquidation or dissolution of Showboat or any of
its Subsidiaries;
(ix) make or rescind any material express or deemed election relating to
Taxes, settle or compromise any material claim, action, suit, litigation,
proceeding, arbitration, investigation, audit or controversy relating to
Taxes, or except as may be required by applicable law, make any change to
any of its material methods of reporting income or deductions for federal
income tax purposes from those employed in the preparation of its federal
income tax return for the taxable year ending December 31, 1996, provided,
however, that Harrah's shall not unreasonably withheld its consent to any
such matter that would preclude Showboat from timely filing its Tax Returns
or timely paying its Tax Liabilities;
(x) pay, discharge or satisfy any material claims, liabilities or
obligations (absolute, accrued, asserted, unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the
ordinary course of business and consistent with past practice of liabilities
reflected or reserved against in the consolidated financial statements of
Showboat;
(xi) other than in the ordinary course of business and consistent with
past practice, waive any rights of substantial value or make any payment,
direct or indirect, of any material liability of Showboat or of any of its
Subsidiaries before the same comes due in accordance with its terms;
(xii) fail to maintain its existing insurance coverage of all types in
effect or, in the event any such coverage shall be terminated or lapse, to
the extent available at reasonable cost, procure substantially similar
substitute insurance policies which in all material respects are in at least
such amounts and against such risks as are currently covered by such
policies;
(xiii) enter into any collective bargaining agreement or any successor
collective bargaining agreement other than collective bargaining agreements
covering employees at the Las Vegas Showboat on terms consistent with those
agreed to by the majority of casinos in Downtown Las Vegas;
(xiv) take any action, other than reasonable and usual actions in the
ordinary course of business and consistent with past practice, with respect
to accounting policies or procedures, unless required by GAAP or the SEC;
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(xv) modify, amend or terminate any of the Showboat Material Contracts or
waive, release or assign any material rights or claims, except in the
ordinary course of business consistent with past practice;
(xvi) take, or agree to commit to take, any action that would make any
representation or warranty of Showboat contained herein inaccurate in any
respect at, or as of any time prior to, the Effective Time;
(xvii) engage in any transaction with, or enter into any agreement,
arrangement, or understanding with, directly or indirectly, any of
Showboat's affiliates which involves the transfer of consideration or has a
financial impact on Showboat, other than pursuant to such agreements,
arrangements, or understandings existing on the date of this Agreement;
(xviii) close, shut down, or otherwise eliminate any of the casinos owned
or operated by Showboat or any of its Subsidiaries, except for such
closures, shutdowns or eliminations which are (i) required by action, order,
writ, injunction, judgment or decree or otherwise required by law, or (ii)
due to acts of God or other force majeure events; or
(xix) enter into an agreement, contract, commitment or arrangement to do
any of the foregoing, or to authorize, recommend, propose or announce an
intention to do any of the foregoing.
Section 5.2. COOPERATION; NOTICE; CURE. Subject to compliance with
applicable law, from the date hereof until the Effective Time, each of Harrah's
and Showboat shall confer on a regular and frequent basis with one or more
representatives of the other party to report on the general status of ongoing
operations. Each of Harrah's and Showboat shall promptly notify the other in
writing of, and will use all commercially reasonable efforts to cure before the
Closing Date, any event, transaction or circumstance, as soon as practical after
it becomes known to such party, that causes or will cause any covenant or
agreement of Harrah's or Showboat under this Agreement to be breached in any
material respect or that renders or will render untrue in any material respect
any representation or warranty of Harrah's or Showboat contained in this
Agreement. No notice given pursuant to this paragraph shall have any effect on
the representations, warranties, covenants or agreements contained in this
Agreement for purposes of determining satisfaction of any condition contained
herein.
Section 5.3. NO SOLICITATION.
(a) Showboat shall not, directly or indirectly, through any officer,
director, employee, financial advisor, representative or agent of such party (i)
solicit, initiate, or encourage any inquiries or proposals that constitute, or
could reasonably be expected to lead to, a proposal or offer for a merger,
consolidation, business combination, sale of substantial assets, sale of shares
of capital stock (including without limitation by way of a tender offer) or
similar transaction involving Showboat or any of its Subsidiaries, other than
the transactions contemplated by this Agreement (any of the foregoing inquiries
or proposals being referred to in this Agreement as an "Acquisition Proposal"),
(ii) engage in negotiations or discussions with any person (or group of persons)
other than Harrah's or its respective affiliates (a "Third Party") concerning,
or provide any non-public information to any person or entity relating to, any
Acquisition Proposal, or (iii) agree to or recommend any Acquisition Proposal;
provided, however, that nothing contained in this Agreement shall prevent
Showboat or its Board of Directors from (A) furnishing non-public information
to, or entering into discussions or negotiations with, any person or entity in
connection with an unsolicited bona fide written proposal for an Alternative
Transaction (as defined below) by such person or entity or modifying or
withdrawing its recommendation with respect to the transactions contemplated
hereby or recommending an unsolicited bona fide written proposal for an
Alternative Transaction to the stockholders of Showboat, if and only to the
extent that (1) a Third Party has made a written proposal to the Board of
Directors of Showboat to consummate an Alternative Transaction, which proposal
identifies a price or range of values to be paid for the outstanding securities
or substantially all of the assets of Showboat, (2) the Board of Directors of
Showboat believes in good faith, after consultation with its financial advisor,
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that such Alternative Transaction is reasonably capable of being completed on
the terms proposed and would, if consummated, result in a transaction more
favorable to the stockholders of such party than the transaction contemplated by
this Agreement (a "Superior Proposal"), (3) the Board of Directors of Showboat
determines in good faith, based on the advice of outside legal counsel, that the
failure to take such action would be inconsistent with its fiduciary duties to
Showboat's stockholders under applicable law, and (4) prior to furnishing such
non-public information to, or entering into discussions or negotiations with,
such person or entity, such Board of Directors receives from such person or
entity an executed confidentiality and standstill agreement with material terms
no less favorable to such party than those contained in the Confidentiality
Agreements dated September 16, 1997 between Harrah's and Showboat (the
"Confidentiality Agreements"); or (B) complying with Rule 14e-2 promulgated
under the Exchange Act with regard to an Acquisition Proposal. Showboat agrees
not to release any Third Party from, or waive any provision of, any standstill
agreement to which it is a party or any confidentiality agreement between it and
another person who has made, or who may reasonably be considered likely to make,
an Acquisition Proposal, unless the Board of Directors of Showboat determines in
good faith, based on the written advice of outside legal counsel, that the
failure to take such action would be inconsistent with its fiduciary duties to
Showboat's stockholders under applicable law.
(b) Showboat shall notify Harrah's immediately after receipt by Showboat or
(or any of their advisors) of any Acquisition Proposal or any request for
non-public information in connection with an Acquisition Proposal or for access
to the properties, books or records of such party by any person or entity that
informs such party that it is considering making, or has made, an Acquisition
Proposal. Such notice shall be made orally and in writing and shall indicate the
identity of the offeror and the terms and conditions of such proposal, inquiry
or contact. Notwithstanding the foregoing, Showboat shall not accept or enter
into any agreement concerning a Superior Proposal for a period of at least two
business days after Harrah's' receipt of the notification of the terms thereof
pursuant the second preceding sentence, during which period Harrah's shall be
afforded the opportunity to match the terms and conditions contained in such
Superior Proposal.
(c) As used in this Agreement, "Alternative Transaction" means (i) a
transaction pursuant to which any Third Party acquires more than 30% of the
outstanding shares of Showboat Common Stock, pursuant to a tender offer or
exchange offer or otherwise, (ii) a merger or other business combination
involving Showboat pursuant to which any Third Party (or the stockholders of a
Third Party) acquires more than 30% of the outstanding shares of Showboat Common
Stock, as the case may be, or the entity surviving such merger or business
combination, or (iii) any other transaction pursuant to which any Third Party
acquires control of assets (including for this purpose the outstanding equity
securities of Subsidiaries of Showboat, and the entity surviving any merger or
business combination including any of them) of Showboat having a fair market
value (as determined by the Board of Directors of Showboat, in good faith) equal
to more than 30% of the fair market value of all the assets of Showboat, and its
Subsidiaries, taken as a whole, immediately prior to such transaction.
(d) Nothing contained in this Section 5.3 is intended to or shall limit in
any respect Showboat's ability to solicit, negotiate and consummate any
transaction permitted by Section 5.1(vi) of this Agreement or in Section 5.1 of
the Seller Disclosure Schedule.
Section 5.4. PROXY STATEMENT.
(a) As promptly as practical after the execution of this Agreement, Showboat
shall prepare and file with the SEC the Proxy Statement under the Exchange Act,
and shall use reasonable efforts to have the Proxy Statement cleared by the SEC
as soon after such filing as practical. Harrah's, Merger Sub and Showboat shall
cooperate with each other in the preparation of the Proxy Statement, and
Showboat shall notify Harrah's of the receipt of any comments of the SEC with
respect to the Proxy Statement and of any requests by the SEC for any amendment
or supplement thereto or for additional information and shall provide to
Harrah's promptly copies of all correspondence between Showboat or any
representative of
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Showboat and the SEC. Showboat shall give Harrah's and its counsel the
opportunity to review the Proxy Statement prior to its being filed with the SEC
and shall give Harrah's and its counsel the opportunity to review all amendments
and supplements to the Proxy Statement and all responses to requests for
additional information and replies to comments prior to their being filed with,
or sent to, the SEC. Each of Showboat, Harrah's and Merger Sub agrees to use all
reasonable efforts, after consultation with the other parties hereto, to respond
promptly to all such comments of and requests by the SEC and to cause the Proxy
Statement and all required amendments and supplements thereto to be mailed to
the holders of shares of Showboat Common Stock entitled to vote at the Special
Meeting at the earliest practicable time.
(b) Subject to the provisions of Section 5.3, the Proxy Statement shall
include the recommendation of the Board of Directors of Showboat in favor of
adoption of this Agreement and the Merger; provided that the Board of Directors
of Showboat may modify or withdraw such recommendation if Showboat's Board of
Directors believes in good faith, based on the advice of outside legal counsel,
that the failure to modify or withdraw such recommendation would be inconsistent
with its fiduciary duties to Showboat's stockholders under applicable law.
Section 5.5. SPECIAL MEETING. Showboat shall call a meeting of its
stockholders to be held as promptly as practicable for the purpose of voting
upon this Agreement and the Merger. Subject to Sections 5.3 and 5.4, Showboat
shall, through its Board of Directors, recommend to its stockholders adoption of
this Agreement and approval of such matters and shall use its best efforts to
hold such meeting as soon as practicable after the date hereof. Showboat shall
use all reasonable efforts to solicit from its stockholders proxies in favor of
such matters unless doing so would be inconsistent with the Showboat Board of
Directors' fiduciary duties to its stockholders under applicable law based on
the advice of outside legal counsel.
Section 5.6. ACCESS TO INFORMATION. Upon reasonable notice, Showboat shall
(and shall cause its Subsidiaries to) afford to the officers, employees,
accountants, counsel and other representatives of Harrah's, access, during
normal business hours during the period prior to the Effective Time, to all its
personnel, properties, books, contracts, commitments and records and, during
such period, Showboat shall, and shall cause its Subsidiaries to, furnish
promptly to the other (a) copies of monthly financial reports and development
reports, (b) a copy of each report, schedule, registration statement and other
document filed or received by it during such period pursuant to the requirements
of federal securities laws and (c) all other information concerning its
business, properties and personnel as Harrah's may reasonably request. Harrah's
will hold any such information furnished to it by Showboat which is nonpublic in
confidence in accordance with the Confidentiality Agreement binding Harrah's. No
information or knowledge obtained in any investigation pursuant to this Section
5.6 shall affect or be deemed to modify any representation or warranty contained
in this Agreement or the conditions to the obligations of the parties to
consummate the Merger. Paragraph 7 of the Confidentiality Agreement binding
Harrah's shall be terminated and be without effect upon any termination of this
Agreement pursuant to Sections 7.1(e) or 7.1(f).
Section 5.7. GOVERNMENTAL APPROVALS.
(a) The parties hereto shall cooperate with each other and use their best
efforts (and, with respect to the Showboat Gaming Laws and the Harrah's Gaming
Laws, shall use their best efforts to cause their respective directors and
officers to do so) to promptly prepare and file all necessary documentation, to
effect all applications, notices, petitions and filings, to obtain as promptly
as practicable all permits, registrations, licenses, findings of suitability,
consents, variances, exemptions, orders, approvals and authorizations of all
third parties and Governmental Entities which are necessary or advisable to
consummate the transactions contemplated by this Agreement, including, without
limitation, all filings required under the HSR Act, the Australian Corporations
Act, the Foreign Acquisitions & Takeovers Act, the Showboat Gaming laws and the
Harrah's Gaming Laws ("Governmental Approvals"), and to comply (and, with
respect to the Showboat Gaming Laws and the Harrah's Gaming Laws, to cause their
respective directors and officers to so comply) with the terms and conditions of
all such Governmental Approvals.
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Each of the parties hereto and their respective officers, directors and
affiliates shall use their best efforts to file within 30 days after the date
hereof, and in all events shall file within 60 days after the date hereof, all
required initial applications and documents in connection with obtaining the
Governmental Approvals (including without limitation under applicable Showboat
Gaming Laws and Harrah's Gaming Laws) and shall act reasonably and promptly
thereafter in responding to additional requests in connection therewith.
Showboat and Harrah's shall have the right to review in advance, and to the
extent practicable each will consult the other on, in each case subject to
applicable laws relating to the exchange of information, all the information
relating to Showboat or the Harrah's, as the case may be, and any of their
respective Subsidiaries, directors, officers and stockholders which appear in
any filing made with, or written materials submitted to, any third party or any
Governmental Entity in connection with the transactions contemplated by this
Agreement. Without limiting the foregoing, each of Showboat and Harrah's (the
"Notifying Party") will notify the other promptly of the receipt of comments or
requests from Governmental Entities relating to Governmental Approvals, and will
supply the other party with copies of all correspondence between the Notifying
Party or any of its representatives and Governmental Entities with respect to
Governmental Approvals; provided, however, that it shall not be required to
supply the other party with copies of correspondence relating to the personal
applications of individual applicants except for evidence of filing.
(b) Showboat and Harrah's shall promptly advise each other upon receiving
any communication from any Governmental Entity whose consent or approval is
required for consummation of the transactions contemplated by this Agreement
which causes such party to believe that there is a reasonable likelihood that
any approval needed from a Governmental Entity will not be obtained or that the
receipt of any such approval will be materially delayed. Showboat and Harrah's
shall take any and all actions reasonably necessary to vigorously defend, lift,
mitigate and rescind the effect of any litigation or administrative proceeding
adversely affecting this Agreement or the transactions contemplated hereby or
thereby, including, without limitation, promptly appealing any adverse court or
administrative order or injunction to the extent reasonably necessary for the
foregoing purposes.
(c) Notwithstanding the foregoing or any other provision of this Agreement,
Harrah's shall have no obligation or affirmative duty under this Section 5.7 to
dispose of any of its assets or properties, disassociate itself from any person
or entity, or agree to do any of the foregoing at any time in the future, in
connection with seeking any Governmental Approval.
Section 5.8. PUBLICITY. Harrah's and Showboat shall agree on the form and
content of the initial press release regarding the transactions contemplated
hereby and thereafter shall consult with each other before issuing, and use all
reasonable efforts to agree upon, any press release or other public statement
with respect to any of the transactions contemplated hereby and shall not issue
any such press release or make any such public statement prior to such
consultation, except as may be required by law.
Section 5.9. INDEMNIFICATION.
(a) From and after the Effective Time, Harrah's agrees that it will, and
will cause the Surviving Corporation to, indemnify and hold harmless each
present and former director and officer of Showboat (the "Indemnified Parties"),
against any costs or expenses (including attorneys' fees), judgments, fines,
losses, claims, damages, liabilities or amounts paid in settlement incurred in
connection with any claim, action, suit, proceeding or investigation, whether
civil, criminal, administrative or investigative, arising out of or pertaining
to matters existing or occurring at or prior to the Effective Time, whether
asserted or claimed prior to, at or after the Effective Time, to the fullest
extent that Showboat would have been permitted under Nevada law and its Articles
of Incorporation or Bylaws in effect on the date hereof to indemnify such
Indemnified Party.
(b) For a period of six years after the Effective Time, Harrah's shall
maintain or shall cause the Surviving Corporation to maintain in effect a
directors' and officers' liability insurance policy covering those persons who
are currently covered by Showboat's directors' and officers' liability insurance
policy (copies of which have been heretofore delivered by Showboat to Harrah's)
with coverage in amount and
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scope at least as favorable as Showboat's existing coverage; provided that in no
event shall Harrah's or the Surviving Corporation be required to expend in the
aggregate in excess of 200% of the annual premium currently paid by Showboat for
such coverage; and if such premium would at any time exceed 200% of the such
amount, then Harrah's or the Surviving Corporation shall maintain insurance
policies which provide the maximum and best coverage available at an annual
premium equal to 200% of such amount.
(c) The provisions of this Section 5.9 are intended to be an addition to the
rights otherwise available to the current officers and directors of Showboat by
law, charter, statute, bylaw or agreement, and shall operate for the benefit of,
and shall be enforceable by, each of the Indemnified Parties, their heirs and
their representatives.
Section 5.10. STOCKHOLDER LITIGATION. Showboat shall give Harrah's the
reasonable opportunity to participate in the defense of any stockholder
litigation against Showboat and its directors relating to the transactions
contemplated hereby.
Section 5.11. EMPLOYMENT ARRANGEMENTS. Prior to the Closing, Harrah's
shall offer to enter into employment agreements with J. Kell Houssels, III and
H. Gregory Nasky on terms mutually satisfactory to each such person and
Harrah's. Harrah's agrees to appoint, or take such actions as are necessary to
nominate and seek the election of J. Kell Houssels, III to its Board of
Directors for a three year term in accordance with his employment agreement. For
so long as J. Kell Houssels, III is employed by Harrah's pursuant to such
employment agreement, Harrah's shall maintain a "Showboat Division" in its
business.
Section 5.12. FURTHER ASSURANCES AND ACTIONS.
(a) Subject to the terms and conditions herein, each of the parties hereto
agrees to use its reasonable best efforts to take, or cause to be taken, all
appropriate action, and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement, including, without
limitation, (i) using their respective reasonable best efforts to obtain all
licenses, permits, consents, approvals, authorizations, qualifications and
orders of Governmental Entities and parties to contracts with each party hereto
as are necessary for consummation of the transactions contemplated by this
Agreement, and (ii) to fulfill all conditions precedent applicable to such party
pursuant to this Agreement.
(b) In case at any time after the Effective Date any further action is
necessary or desirable to carry out the purposes of this Agreement or to vest
the Surviving Corporation with full title to all properties, assets, rights,
approvals, immunities, franchises of any of the parties to the Merger, the
proper officers and/ or directors of Harrah's, Showboat and the Surviving
Corporation shall take all such necessary action.
Section 5.13. EMPLOYEE BENEFITS (a) For at least one year following the
Effective Time, Showboat's current employees (other than Showboat's employees
that are covered by collective bargaining agreements) shall be entitled to
participate in either, at Harrah's' option, (A) benefits plans and arrangements
substantially similar to Showboat's existing benefit plans and arrangements, (B)
Harrah's' employee benefit plans and arrangements on substantially the same
basis as similarly-situated employees of Harrah's (based on such employees'
duties, geographic location, seniority and other similar factors), or (C) some
combination of the benefit plans and arrangements described in clauses (A) and
(B).
(b) Harrah's shall cause the Surviving Corporation to honor all written
employment, severance and termination agreements (including change in control
provisions) of the employees of Showboat and its Subsidiaries provided to
Harrah's on or prior to the date of this Agreement.
(c) For purposes of determining eligibility to participate, vesting and
accrual or entitlement to benefits where length of service is relevant under any
employee benefit plan or arrangement of Harrah's or the Surviving Corporation,
employees of Showboat and its Subsidiaries as of the Effective Time shall
receive service credit for service with Showboat and any of its Subsidiaries to
the same extent such service
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was granted under the Employee Plans subject to offsets for previously accrued
benefits and no duplication of benefits.
(d) Prior to the Effective Time, Showboat shall amend its Supplemental
Executive Retirement Plan to clarify that only the bonuses payable under the
Executive Incentive Plan shall be taken into account under the Supplemental
Executive Retirement Plan.
(e) The Surviving Corporation shall cause the following actions to be taken
with respect to the Showboat's Supplemental Executive Retirement Plan:
(i) retirement payments to William Downey and Frank Modica shall
continue to be paid in the same amount and in the same manner as such
payments are currently being made to such participants;
(ii) retirement benefits shall be paid to J.K. Houssels, Jr. and Herbert
Wolfe and such benefits shall be non-forfeitable for any reason other than
death;
(iii) Paul Harris shall be eligible to receive a retirement benefit under
the Supplemental Executive Retirement Plan notwithstanding his termination
of employment, if any, prior to September 1, 1998; and
(iv) retirement benefits shall be calculated and payable to participants
who have not yet commenced receipt of such benefits in accordance with the
actuarial methods and assumptions set forth in Section 5.14(e) of the
Showboat Disclosure Schedule.
(f) From and after the Effective Time, Harrah's and the Surviving
Corporation shall not amend Showboat's Supplemental Executive Retirement Plan in
any manner that adversely affects a participant's rights with respect to the
amount of his or her accrued benefit as of the Effective Time; provided,
however, that the Surviving Corporation reserves the right, in its sole
discretion, to terminate such plan at any time in accordance with Section 5.2
thereof.
(g) Nothing in this Agreement is intended to create any right of employment
for any person or to create any obligation for Harrah's or the Surviving
Corporation to continue any Plan of Showboat following the Effective Time.
(h) Showboat will use its reasonable best efforts to cooperate with Harrah's
to minimize the effect of the application of Section 162(m) of the Code.
Section 5.14. USE OF SHOWBOAT NAME. Until the third anniversary of the
Effective Time, Harrah's shall cause the "Showboat" name to be used in
connection with its hotel-casino operations as set forth on Section 5.14 of the
Harrah's Disclosure Schedule.
ARTICLE VI.
CONDITIONS TO MERGER
Section 6.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligations of each party to this Agreement to effect
the Merger shall be subject to the satisfaction or waiver by each party prior to
the Effective Time of the following conditions:
(a) STOCKHOLDER APPROVAL. This Agreement and the Merger shall have been
approved by the stockholders of Showboat in the manner required under the NRS
and the Articles of Incorporation of Showboat.
(b) NO INJUNCTIONS. No Governmental Entity shall have enacted, issued,
promulgated, enforced or entered any order, executive order, stay, decree,
judgment or injunction or statute, rule, regulation which is in effect and which
has the effect of making the Merger illegal or otherwise prohibiting
consummation of the Merger.
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(c) GOVERNMENTAL APPROVALS. All Governmental Approvals required to
consummate the transactions contemplated hereby shall have been obtained
(including, without limitation, under the Showboat Gaming Laws and the Harrah's
Gaming Laws), all such approvals shall remain in full force and effect, all
statutory waiting periods in respect thereof (including, without limitation,
under the HSR Act) shall have expired and no such approval shall contain any
conditions, limitations or restrictions which Harrah's reasonably determines in
good faith will have or would reasonably be expected to have a Showboat Material
Adverse Effect or a Harrah's Material Adverse Effect.
Section 6.2. ADDITIONAL CONDITIONS TO OBLIGATIONS OF SHOWBOAT. The
obligation of Showboat to effect the Merger is subject to the satisfaction of
each of the following conditions prior to the Effective Time, any of which may
be waived in writing exclusively by Showboat:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Harrah's and Merger Sub set forth in this Agreement shall be true and correct in
all material respects (except for those qualified as to materiality or a
Harrah's Material Adverse Effect, which shall be true and correct) as of the
date of this Agreement and, except to the extent such representations speak as
of an earlier date, as of the Closing Date as though made on and as of the
Closing Date, except for changes contemplated by this Agreement. Showboat shall
have received a certificate signed on behalf of Harrah's by the chief executive
officer and the chief financial officer of Harrah's to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF HARRAH'S. Harrah's shall have performed in
all material respects all obligations required to be performed by it under this
Agreement at or prior to the Closing Date, and Showboat shall have received a
certificate signed on behalf of Harrah's by the chief executive officer and the
chief financial officer of Harrah's to such effect.
(c) THIRD-PARTY CONSENTS. Harrah's shall have received all third-party
consents and approvals required to be obtained by Harrah's in connection with
the transactions contemplated hereby under any contract to which Harrah's or any
of its Subsidiaries may be a party, except for such third-party consents and
approvals as to which the failure to obtain, individually or in the aggregate,
would not reasonably be expected to impair or delay the consummation of the
Merger.
Section 6.3. ADDITIONAL CONDITIONS TO OBLIGATIONS OF HARRAH'S. The
obligations of Harrah's and Merger Sub to effect the Merger are subject to the
satisfaction of each of the following conditions prior to the Effective Time,
any of which may be waived in writing exclusively by Harrah's:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Showboat set forth in this Agreement shall be true and correct in all material
respects (except for those qualified as to materially or a Showboat Material
Adverse Effect, which shall be true and correct) as of the date of this
Agreement and, except to the extent such representations and warranties speak as
of an earlier date, as of the Closing Date as though made on and as of the
Closing Date, except for changes contemplated by this Agreement; provided that,
with respect to the truth and correctness of such representations and warranties
as of the Closing Date, the use of the term "Showboat Material Adverse Effect"
in such representations and warranties shall mean a material adverse effect on
the business, properties, condition (financial or otherwise), results of
operations or prospects of Showboat and its Subsidiaries, taken as a whole.
Harrah's shall have received a certificate signed on behalf of Showboat by the
chief executive officer and the chief financial officer of Showboat to such
effect.
(b) PERFORMANCE OF OBLIGATIONS OF SHOWBOAT. Showboat shall have performed in
all material respects all obligations required to be performed by it under this
Agreement at or prior to the Closing Date; and Harrah's shall have received a
certificate signed on behalf of Showboat by the chief executive officer and the
chief financial officer of Showboat to such effect.
(c) NO MATERIAL ADVERSE CHANGE. Between the date of this Agreement and the
Effective Date, there shall have been no material adverse change in the
business, properties, assets, liabilities, operations, condition (financial or
otherwise) or prospects of Showboat and its Subsidiaries, taken as a whole.
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(d) THIRD-PARTY CONSENTS. Harrah's and Showboat shall have received all
third-party consents and approvals required to be obtained by Harrah's or
Showboat in connection with the transactions contemplated hereby, under any
contract to which Harrah's or Showboat (or any of their respective Subsidiaries)
may be a party, except for such third-party consents and approvals as to which
the failure to obtain, either individually or in the aggregate, would not
reasonably be expected to result in (i) a material adverse change in the
business, properties, assets, liabilities, operations, condition (financial or
otherwise) or prospects of Showboat and its Subsidiaries, taken as a whole, or
(ii) a Harrah's Material Adverse Effect, as the case may be.
(e) NO TRIGGER OF SHOWBOAT RIGHTS PLAN. No event shall have occurred that
has or would result in the triggering of any right or entitlement of
stockholders of Showboat under the Showboat Rights Plan, or will occur as a
result of the consummation of the Merger.
ARTICLE VII.
TERMINATION AND AMENDMENT
Section 7.1. TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time (with respect to Sections 7.1(b) through 7.1(h), by
written notice by the terminating party to the other party), whether before or
after approval of the matters presented in connection with the Merger by the
stockholders of Showboat:
(a) by mutual written consent of Showboat and Harrah's; or
(b) by either Harrah's or Showboat if the Merger shall not have been
consummated by July 1, 1998 (provided that (i) if the Merger shall not have been
consummated because the requisite Governmental Approvals required under Section
6.1(c) shall not have been obtained and are still being pursued, either Harrah's
or Showboat may extend such date to January 1, 1999 by providing written notice
thereof to the other party on or prior to July 1, 1998 and (ii) the right to
terminate this Agreement under this Section 7.1(b) shall not be available to any
party whose failure to fulfill any obligation under this Agreement has been the
cause of or resulted in the failure of the Merger to occur on or before such
date); or
(c) by either Harrah's or Showboat if a court of competent jurisdiction or
other Governmental Entity shall have issued a nonappealable final order, decree
or ruling or taken any other nonappealable final action, in each case having the
effect of permanently restraining, enjoining or otherwise prohibiting the
Merger; or
(d) by either Harrah's or Showboat, if, at the Special Meeting (including
any adjournment or postponement), the requisite vote of the stockholders of
Showboat in favor of the approval and adoption of this Agreement and the Merger
shall not have been obtained; or
(e) by Harrah's, if (i) the Board of Directors of Showboat shall have
withdrawn or modified its recommendation of this Agreement or the Merger in
accordance with Sections 5.3, 5.4 or 5.5 (provided that Harrah's' right to
terminate this Agreement under such clause (i) shall not be available if at such
time Showboat would be entitled to terminate this Agreement under Section
7.1(g)); (ii) after the receipt by Showboat of a proposal for an Alternative
Transaction, Harrah's requests in writing that the Board of Directors of
Showboat reconfirm its recommendation of this Agreement and the Merger to the
stockholders of Showboat and the Board of Directors of Showboat fails to do so
within five business days after its receipt of Harrah's' request; (iii) the
Board of Directors of Showboat shall have recommended to the stockholders of
Showboat, or entered into a definitive agreement with respect to, an Alternative
Transaction; or (iv) for any reason Showboat fails to call and hold the
Stockholders' Meeting by July 1, 1998 (provided that Harrah's' right to
terminate this Agreement under such clause (iv) shall not be available if at
such time Showboat would be entitled to terminate this Agreement under Section
7.1(g)); or
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(f) by Showboat, prior to the approval of this Agreement by its
stockholders, if, as a result of a Superior Proposal received by such party from
a Third Party, the Board of Directors of Showboat determines in good faith,
based on advice of outside legal counsel, that the failure to accept such
Superior Proposal would be inconsistent with its fiduciary duties to
stockholders under applicable law; provided, however, that no termination shall
be effective pursuant to this Section 7.1(f) under circumstances in which a
termination fee is payable by Showboat pursuant to Section 7.3(b)(iv), unless
concurrently with such termination, such termination fee is paid in full by
Showboat in accordance with Section 7.3(b)(iv); or
(g) by Harrah's or Showboat, if there has been a breach of any
representation, warranty, covenant or agreement on the part of the other party
set forth in this Agreement, which breach will cause the conditions set forth in
Section 6.2(a) or (b) (in the case of termination by Showboat) or 6.3(a) or (b)
(in the case of termination by Harrah's) not to be satisfied.
Section 7.2. EFFECT OF TERMINATION. In the event of termination of this
Agreement as provided in Section 7.1, this Agreement shall immediately become
void and there shall be no liability or obligation on the part of Harrah's,
Merger Sub or Showboat, or their respective officers, directors, stockholders or
Affiliates, except as set forth in Section 7.3 and except that such termination
shall not limit liability for a willful breach of this Agreement; provided that,
the provisions of Section 7.3 of this Agreement and the Confidentiality
Agreement shall remain in full force and effect and survive any termination of
this Agreement.
Section 7.3. FEES AND EXPENSES.
(a) Except as set forth in this Section 7.3, all fees and expenses incurred
in connection with this Agreement and the transactions contemplated hereby shall
be paid by the party incurring such expenses, whether or not the Merger is
consummated.
(b) Showboat shall pay Harrah's a termination fee of $20 million upon the
earliest to occur of the following events:
(i) the termination of this Agreement by Harrah's or Showboat pursuant
to Section 7.1(d), if a proposal for an Alternative Transaction involving
Showboat shall have been publicly announced prior to the Stockholders'
Meeting and either a definitive agreement for an Alternative Transaction is
entered into, or an Alternative Transaction is consummated, within one year
of such termination;
(ii) the termination of this Agreement by Harrah's pursuant to Section
7.1(e)(i), (iii) or (iv);
(iii) the termination of this Agreement by Harrah's pursuant to Sections
7.1(e)(ii), and either a definitive agreement for an Alternative Transaction
is entered into, or an Alternative Transaction is consummated, within one
year of such termination; or
(iv) the termination of this Agreement by Showboat pursuant to Section
7.1(f).
Showboat's payment of a termination fee pursuant to this subsection shall be
the sole and exclusive remedy of Harrah's against Showboat and any of its
Subsidiaries and their respective directors, officers, employees, agents,
advisors or other representatives with respect to the occurrences giving rise to
such payment; provided that this limitation shall not apply in the event of a
willful breach of this Agreement by Showboat.
(c) The fees payable pursuant to Section 7.3(b) shall be paid concurrently
with the first to occur of the events described in Section 7.3(b)(i), (ii),
(iii) or (iv).
(d) In the event that this Agreement is terminated by Harrah's or Showboat
pursuant to Section 7.1(b) and all the conditions to Closing set forth in
Article VI have been satisfied or waived except for obtaining the consents of
lenders set forth in Section 4.2 of the Harrah's Disclosure Schedule or the
continued accuracy at such time of Harrah's' representation in Section 4.5,
Harrah's shall pay to Showboat liquidated damages in the amount of $10.0
million. Showboat's payment of such liquidated damages
A-32
<PAGE>
pursuant to this subsection shall be the sole and exclusive remedy of Showboat
against Harrah's and any of its Subsidiaries and their respective directors,
officers, employees, agents, advisors or other representatives with respect to
the occurrences giving rise to such payment.
Section 7.4. AMENDMENT. This Agreement may be amended by the parties
hereto, by action taken or authorized by their respective Boards of Directors,
at any time before or after approval of the matters presented in connection with
the Merger by the stockholders of Showboat, but, after any such approval, no
amendment shall be made which (i) by law requires further approval by such
stockholders or (ii) is in any manner adverse to the stockholders of Showboat,
in each case without such further approval. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto.
Section 7.5. EXTENSION; WAIVER. At any time prior to the Effective Time,
the parties hereto, by action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (iii) waive compliance
with any of the agreements or conditions contained here. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party.
ARTICLE VIII.
MISCELLANEOUS
Section 8.1. NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND
AGREEMENTS. None of the representations, warranties and agreements in this
Agreement or in any instrument delivered pursuant to this Agreement shall
survive the Effective Time, except for the agreements contained in Sections 1.4,
2.1, 2.2, 2.3, 5.9, 5.11, 5.13 and 5.14 and Article VIII. The Confidentiality
Agreements shall survive the execution and delivery of this Agreement.
Section 8.2. NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally, telecopied
(which is confirmed) or mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
(a) if to Showboat, to
Showboat, Inc.
3720 Howard Hughes Parkway
Suite 200
Attn: H. Gregory Nasky
Telecopy: (702) 791-3410
with a copy to
Weil, Gotshal & Manges, LLP
767 Fifth Avenue
New York, NY
Attn: Robert Todd Lang, Esq.
Telecopy: (212) 310-8007
(b) if to Harrah's or Merger Sub, to
Harrah's Entertainment, Inc.
1023 Cherry Road
Memphis, Tennessee 38117
A-33
<PAGE>
Attn: Colin V. Reed
Telecopy: (901) 762-8804
with a copy to:
Latham & Watkins
633 West Fifth Street, Suite 4000
Los Angeles, CA 90071-2007
Attn: Edward Sonnenschein, Jr., Esq.
Telecopy: (213) 891-8763
Section 8.3. INTERPRETATION. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement they shall be deemed to be
followed by the words "without limitation." The phrase "made available" in this
Agreement shall mean that the information referred to has been made available if
requested by the party to whom such information is to be made available. The
phrases "the date of this Agreement", "the date hereof," and terms of similar
import, unless the context otherwise requires, shall be deemed to refer to
December 18, 1997.
Section 8.4. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
Section 8.5. ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES. This
Agreement and all documents and instruments referred to herein (a) constitute
the entire agreement and supersedes all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof, and (b) except as provided in Section 5.9 are not intended to confer
upon any person other than the parties hereto any rights or remedies hereunder;
provided that the Confidentiality Agreements shall remain in full force and
effect until the Effective Time. Each party hereto agrees that, except for the
representations and warranties contained in this Agreement, none of Harrah's,
Merger Sub or Showboat makes any other representations or warranties, and each
hereby disclaims any other representations and warranties made by itself or any
of its officers, directors, employees, agents, financial and legal advisors or
other representatives, with respect to the execution and delivery of this
Agreement or the transactions contemplated hereby, notwithstanding the delivery
or disclosure to any of them or their respective representatives of any
documentation or other information with respect to any one or more of the
foregoing.
Section 8.6. GOVERNING LAW. This Agreement shall be governed and construed
in accordance with the laws of the State of Nevada without regard to any
applicable conflicts of law.
Section 8.7. ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties, except that Merger Sub may assign its rights and
obligations hereunder to any direct or indirect wholly-owned subsidiary of
Harrah's; provided that no such assignment shall relieve Harrah's of its
obligations hereunder. Subject to the preceding sentence, this Agreement will be
binding upon, inure to the benefit of and be enforceable by the parties and
their respective successors and assigns.
A-34
<PAGE>
IN WITNESS WHEREOF, Harrah's Entertainment, Inc., HEI Acquisition Corp. and
Showboat, Inc. have caused this Agreement to be signed by their respective duly
authorized officers as of the date first written above.
HARRAH'S ENTERTAINMENT, INC.
/s/ E. O. ROBINSON, JR.
----------------------------------------
By: E. O. Robinson, Jr.
Its: SENIOR VICE PRESIDENT AND GENERAL
COUNSEL
HEI ACQUISITION CORP.
/s/ PHILIP G. SATRE
----------------------------------------
By: Philip G. Satre
Its: PRESIDENT
SHOWBOAT, INC.
/s/ J. K. HOUSSELS, III
----------------------------------------
By: J. K. Houssels, III
Its: PRESIDENT AND CHIEF EXECUTIVE
OFFICER
A-35
<PAGE>
EXHIBIT A
FORM OF STOCKHOLDER SUPPORT AGREEMENT
STOCKHOLDER SUPPORT AGREEMENT, dated as of December 18, 1997 (this "Agreement"),
by ("Stockholder") to and for the benefit of Harrah's Entertainment, Inc.,
a Delaware corporation ("Harrah's"). Capitalized terms used and not otherwise
defined herein shall have the respective meanings assigned to them in the Merger
Agreement referred to below.
WHEREAS, as of the date hereof, Stockholder owns of record and beneficially
shares (such shares, together with any other voting or equity securities
of Showboat, Inc., a Nevada corporation ("Showboat"), hereafter acquired by
Stockholder prior to the termination of this Agreement, being referred to herein
collectively as the "Shares") of common stock, par value $1.00 per share
("Showboat Common Stock");
WHEREAS, concurrently with the execution of this Agreement, Harrah's, HEI
Acquisition Corp., a Nevada corporation and indirect wholly-owned subsidiary of
Harrah's ("Merger Sub"), and Showboat are entering into an Agreement and Plan of
Merger, dated as of the date hereof (the "Merger Agreement"), pursuant to which,
upon the terms and subject to the conditions thereof, Merger Sub will be merged
with and into Showboat such that Showboat will become an indirect wholly-owned
subsidiary of Harrah's (the "Merger"); and
WHEREAS, as a condition to the willingness of Showboat, Harrah's and Merger
Sub to enter into the Merger Agreement, Harrah's has requested the Stockholder
agree, and in order to induce Harrah's and Merger Sub to enter into the Merger
Agreement, the Stockholder is willing to agree to vote in favor of adopting the
Merger Agreement and approving the Merger, upon the terms and subject to the
conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained herein, and intending to be legally bound hereby, the
parties hereby agree, severally and not jointly, as follows:
Section 1. VOTING OF SHARES. Until the termination of this Agreement in
accordance with the terms hereof, Stockholder hereby agrees that, at the
Special Meeting (as defined in the Merger Agreement) or any other meeting of
the stockholders of Showboat, however called, and in any action by written
consent of the stockholders of Showboat, Stockholder will vote all of his or
her respective Shares (a) in favor of adoption of the Merger Agreement and
approval of the Merger and the other transactions contemplated by the Merger
Agreement, and (b) in favor of any other matter necessary to the
consummation of the transactions contemplated by the Merger Agreement and
considered and voted upon by the stockholders of Showboat (or any class
thereof). Stockholder acknowledges receipt and review of a copy of the
Merger Agreement.
Section 2. TRANSFER OF SHARES. Until the termination of this Agreement
in accordance with the terms hereof, Stockholder will not, directly or
indirectly, (a) sell, assign, transfer, pledge, encumber or otherwise
dispose of any of the Shares, (b) deposit any of the Shares into a voting
trust or enter into a voting agreement or arrangement with respect to the
Shares or grant any proxy or power of attorney with respect thereto which is
inconsistent with this Agreement or (c) enter into any contract, option or
other arrangement or undertaking with respect to the direct or indirect
sale, assignment, transfer (including by merger, testamentary disposition,
interspousal disposition pursuant to a domestic relations proceeding or
otherwise by operation of law) or other disposition of any Shares; provided,
however, that Stockholder may transfer the Shares to family members or to a
trust so long as such trust or family member takes such Shares subject to
the obligations and restrictions contained in this Agreement.
A-A-1
<PAGE>
Section 3. REPRESENTATIONS AND WARRANTIES OF STOCKHOLDER. Stockholder
hereby represents and warrants to Harrah's with respect to himself or
herself and his or her ownership of the Shares as follows:
(a) OWNERSHIP OF SHARES. On the date hereof, the Shares are owned of
record and beneficially by Stockholder. Stockholder has sole voting
power, without restrictions, with respect to all of the Shares.
(b) POWER, BINDING AGREEMENT. Stockholder has the legal capacity,
power and authority to enter into and perform all of his or her
obligations under this Agreement. The execution, delivery and performance
of this Agreement by Stockholder will not violate any other agreement to
which Stockholder is a party, including, without limitation, any voting
agreement, shareholders' agreement, partnership agreement or voting
trust. This Agreement has been duly and validly executed and delivered by
Stockholder and constitutes a valid and binding obligation of
Stockholder, enforceable against Stockholder in accordance with its
terms, subject to applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally and subject, as to
enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity).
(c) NO CONFLICTS. The execution and delivery of this Agreement do
not, and the consummation of the transactions contemplated hereby will
not, conflict with or result in any violation of, or default (with or
without notice or lapse of time, or both) under, or give rise to a right
of termination, cancellation or acceleration of any obligation or to loss
of a material benefit under, any provision of any loan or credit
agreement, note, bond, mortgage, indenture, lease, or other agreement,
instrument, permit, concession, franchise, license, judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to
Stockholder or any of his or her properties or assets, other than such
conflicts, violations or defaults or terminations, cancellations or
accelerations which individually or in the aggregate do not materially
impair the ability of Stockholder to perform his or her obligations
hereunder. No consent, approval, order or authorization of, or
registration, declaration, or filing with, any governmental entity is
required by or with respect to the execution and delivery of this
Agreement by Stockholder and the consummation by Stockholder of the
transactions contemplated hereby.
Section 4. NO SOLICITATION. Prior to the termination of this Agreement
in accordance with its terms, Stockholder agrees (a) that he or she will
not, nor will he or she authorize or permit any of his or her employees,
agents and representatives to, directly or indirectly, initiate or solicit
any inquiries or the making of any Acquisition Proposal (as defined in the
Merger Agreement) and (b) that he or she will notify Harrah's as soon as
possible if any such inquiries or proposals are received by, any information
or documents is requested from, or any negotiations or discussions are
sought to be initiated or continued with, him or her or any of his or her
affiliates [(b) only as to JKH, III].
Section 5. TERMINATION. This Agreement shall terminate upon the earliest
to occur of (i) the Effective Time (as such term is defined in the Merger
Agreement) or (ii) any termination of the Merger Agreement in accordance
with the terms thereof (including, without limitation, any termination
pursuant to Section 7.1(f) thereof); provided that the provisions of Section
8 shall survive any termination of this Agreement, and provided further that
no such termination shall relieve any party of liability for a breach hereof
prior to termination.
Section 6. SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement
was not performed in accordance with the terms hereof and that the parties
shall be entitled to specific performance of the terms hereof, in addition
to any other remedy at law or in equity.
A-A-2
<PAGE>
Section 7. FIDUCIARY DUTIES. Notwithstanding anything in this Agreement
to the contrary, the covenants and agreements set forth herein shall not
prevent Stockholder from serving on Showboat's Board of Directors and from
taking any action, subject to the applicable provisions of the Merger
Agreement, while acting in such designee's capacity as a director of
Showboat.
Section 8. MISCELLANEOUS.
(a) This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof and supersedes
all prior agreements and understandings, both written and oral, between
the parties with respect thereto. This Agreement may not be amended,
modified or rescinded except by an instrument in writing signed by each
of the parties hereto.
(b) If any term or other provision of this Agreement is invalid,
illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect. Upon such determination
that any term or other provision is invalid, illegal or incapable of
being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties
as closely as possible to the fullest extent permitted by applicable law
in a mutually acceptable manner in order that the terms of this Agreement
remain as originally contemplated to the fullest extent possible.
(c) This Agreement shall be governed by and construed in accordance
with the laws of the State of Nevada without regard to the principles of
conflicts of law thereof.
(d) This Agreement may be executed in counterparts, each of which
shall be deemed an original and all of which together shall constitute
one and the same instrument.
A-A-3
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be signed by their respective duly authorized officers as of the date first
written above.
<TABLE>
<S> <C>
STOCKHOLDER
------------------------------------------
</TABLE>
Agreed and Acknowledged:
HARRAH'S ENTERTAINMENT, INC.
- -------------------------------------------
By:
Its:
A-A-4
<PAGE>
ANNEX B
[LOGO]
FAIRNESS OPINION
As of December 18, 1997
Board of Directors
Showboat, Inc.
6601 Ventnor Ave., Suite 105
Ventnor, NJ 08406
Dear Sirs:
You have requested our opinion as to the fairness from a financial point of
view to the holders of common stock, par value $1.00 per share ("Company Common
Stock") of Showboat, Inc. (the "Company") of the consideration to be received by
such holders pursuant to the terms of the Agreement and Plan of Merger, dated as
of December 18, 1997 (the "Agreement"), by and among Harrah's Entertainment,
Inc. ("Harrah's"), Harrah's Sub, a wholly-owned subsidiary of Harrah's, and the
Company, pursuant to which Harrah's Sub will be merged with and into the Company
(the "Merger").
Pursuant to the Agreement, each share of Company Common Stock will be
converted, subject to certain exceptions, into the right to receive $30.75 in
cash.
In arriving at our opinion, we have reviewed the draft dated December 11,
1997 of the Agreement. We also have reviewed financial and other information
that was publicly available or furnished to us by the Company, including
information provided during discussions with the Company's management. Included
in the information provided during discussions with the Company's management
were certain financial projections of the Company for the period beginning
January 1, 1997 and ending December 31, 2002 prepared by the management of the
Company. In addition, we have compared certain financial and securities data of
the Company with various other companies whose securities are traded in public
markets, reviewed the historical stock prices and trading volumes of Company
Common Stock, reviewed prices and premiums paid in certain other business
combinations and conducted such other financial studies, analyses and
investigations as we deemed appropriate for purposes of this opinion. We were
not requested to, nor did we, solicit the interest of any other party in
acquiring the Company.
In rendering our opinion, we have relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available to
us from public sources, that was provided to us by the Company or its
representatives, or that was otherwise reviewed by us. With respect to the
financial projections supplied to us, we have assumed that they have been
reasonably prepared on the basis reflecting the best currently available
estimates and judgments of the management of the Company as to the future
operating and financial performance of the Company. We have not assumed any
responsibility for making an independent evaluation of any assets or liabilities
or for making any independent verification of any of the information reviewed by
us.
Our opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on the information made available to us as of,
the date of this letter. It should be understood that, although subsequent
developments may affect this opinion, we do not have any obligation to update,
revise or reaffirm this opinion. Our opinion does not address the relative
merits of the Merger and the other
B-1
<PAGE>
business strategies being considered by the Company's Board of Directors, nor
does it address the Board's decision to proceed with the Merger. Further, our
opinion does not constitute a recommendation to any stockholder as to how such
stockholder should vote on the proposed transaction.
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), as part of its
investment banking services, is regularly engaged in the valuation of businesses
and securities in connection with mergers, acquisitions, underwritings, sales
and distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. DLJ has performed investment
banking and other services for the Company in the past and has been compensated
for such services. In particular, within the past two years, DLJ acted as a
manager for the issuance of $140 million of First Mortgage Notes at Showboat
Marina Casino Partnership, a subsidiary of the Company, for which we received
usual and customary compensation.
Based upon the foregoing and such other factors as we deem relevant, we are
of the opinion that the consideration to be received by holders of Company
Common Stock pursuant to the Agreement is fair to such holders from a financial
point of view.
Very truly yours,
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
B-2
<PAGE>
PROXY
SHOWBOAT, INC.
Proxy Solicited on Behalf of the Board of Directors for Special Meeting of
Stockholders, Thursday, April 23, 1998 at 10:00 a.m., local time.
The undersigned stockholder of Showboat, Inc. (the "Company") hereby
appoints J. Kell Houssels, III and H. Gregory Nasky and each of them, as
attorneys and proxies, each with power of substitution and revocation, to
represent the undersigned at the Special Meeting of Stockholders of Showboat,
Inc. to be held at the Mississippi Pavilion, Showboat Casino Hotel, 801
Boardwalk, Atlantic City, New Jersey 08401 at 10:00 a.m., local time, and at any
adjournment or postponement thereof, with authority to vote all shares held or
owned by the undersigned in accordance with the directions indicated herein.
Receipt of the Notice of Special Meeting of Stockholders dated March 18,
1998 and the Proxy Statement furnished herewith is hereby acknowledged.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED
FOR ITEM 1 AND PURSUANT TO ITEM 2.
(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)
<PAGE>
ITEM 1. Approval and adoption of the Merger Agreement (as described in the
Proxy Statement) pursuant to which, among other things, HEI Acquisition Corp., a
Nevada corporation and an indirect wholly-owned subsidiary of Harrah's
Entertainment, Inc., will be merged with and into Showboat, Inc., Showboat, Inc.
will cease to be a public company, and holders of shares of Showboat, Inc.
Common Stock will receive a payment of $30.75 for each share of Showboat, Inc.
Common Stock owned.
FOR / / AGAINST / / ABSTAIN / /
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR SUCH APPROVAL.
ITEM 2. In their discretion, the Proxies are authorized to vote upon such
other business as may properly be presented to the meeting or any adjournment
thereof including without limitation potential adjournments of the Special
Meeting for the purpose of soliciting additional proxies in order to approve and
adopt the Merger Agreement.
<TABLE>
<S> <C>
P Dated: , 1998
R ------------------------------------------------
O (Signature)
X ------------------------------------------------
Y (Signature if held jointly)
The signature should agree with the name on your
stock certificate. If acting as attorney,
executor, administrator, trustee, guardian,
etc., you should so indicate when signing. If
the signer is a corporation, please sign the
full corporate name by duly authorized officer.
If shares are held jointly, each stockholder
should sign.
</TABLE>
