Property Transaction with CGP LLC and Related Financing

Property Transaction between CEOC and CGP LLC

As disclosed in greater detail in CEC's Current Report on Form 8-K filed on May 6, 2014 with the Securities and Exchange Commission, and in Note 19, "Subsequent Events - Amendment to Transaction Agreement," Caesars amended the agreement entered into on March 1, 2014, under which CGP LLC (or one or more of its designated direct or indirect subsidiaries) agreed to acquire from CEOC or one or more of its affiliates, the following (hereafter referred to as the "CEOC-CGP LLC Property Transaction"):


(i)	The subsidiaries of CEOC that own the assets comprising: The Cromwell, The Quad Resort & Casino, Bally’s Las Vegas (the “Nevada Properties”);


(ii)	The CEOC subsidiary that owns Harrah’s New Orleans. (Collectively, Harrah’s New Orleans and the Nevada Properties are referred to as the "Properties");


(iii)	50% of the ongoing management fees and any termination fees payable under property management agreements to be entered between a subsidiary of CEOC and the owners of each of the Properties; and


(iv)	Certain intellectual property that is specific to each of the Properties.

CGP LLC will pay CEOC $2,000.0 million, minus assumed debt for (i) through (iv) above. In addition, the final proceeds are subject to various pre-closing and post-closing adjustments in accordance with the terms of the agreements governing the CEOC-CGP LLC Property Transaction. Consistent with the 2013 sale of Planet Hollywood Las Vegas, this transaction will also be accounted for as a reorganization of entities under common control.

The CEOC-CGP LLC Property Transaction was fully negotiated by and between a Special Committee of CEC’s Board of Directors (the "CEC Special Committee") and a Special Committee of CAC’s Board of Directors (the "CAC Special Committee"), each comprised solely of independent directors, and was recommended by both committees and approved by the Boards of Directors of CEC and CAC.

The terms of the CEOC-CGP LLC Property Transaction contain certain closing conditions, all of which have been met other than the receipt of gaming and other required governmental approvals from the Louisiana Gaming Control Board with respect to the transfer of the subsidiary of CEOC that owns Harrah’s New Orleans, which approval we are currently seeking. Because we have obtained all necessary conditions to closing with respect to the Nevada Properties, including the approval of the Nevada Gaming Control Board and the necessary financing for that transaction, we will complete the CEOC-CGP LLC Property Transaction via two closings, the first of which, the sale of the Nevada Properties, closed on May 5, 2014.

Under the terms of the agreements governing the CEOC-CGP LLC Property Transaction, upon closing, each property will be managed by CEOC. In addition, upon closing, each property will license enterprise-wide intellectual property from Caesars Licensing Company, LLC. The ongoing management fees payable to CEOC during the term of the related property management agreement consists of a (i) base management fee of 2% of monthly net operating revenues and (ii) an incentive management fee in an amount equal to 5% of EBITDA for each operating year.

In addition to the above, the agreements governing the CEOC-CGP LLC Property Transaction also provide that CEC and the sellers of the Properties will indemnify the acquirers of the Properties for certain obligations, including:


(i)	New construction and renovation of The Quad of at least $223.0 million;


(ii)	CEOC's full funding of the remaining amounts required to construct and open The Cromwell;


(iii)	CEOC's provision of a minimum amount of House Funds in connection with the opening of The Cromwell;


(iv)	Other indemnifications amongst the parties to the agreements governing the CEOC-CGP LLC Property Transaction;

(v)

The agreement to establish a new services joint venture (the "Services JV") between CEOC, CERP and CGP LLC and certain of their respective subsidiaries. The Services JV will include common management of enterprise-wide intellectual property, which will be licensed by the Services JV to each of the owners of the properties, and shared services operations across the portfolio of CEOC, CERP and CGP LLC properties; and


(vi)	The assignment of the related property management agreements from CEOC to the Services JV upon receipt of any required regulatory approvals. Services JV will thereafter manage the properties.

The CEOC-CGP LLC Property Transaction is subject to termination if the Closing is not completed by June 30, 2014, which date may be extended until August 31, 2014 in certain circumstances.

Related Financing Agreement

On April 17, 2014, subsidiaries of CGP LLC (the "Issuers") entered into a credit agreement providing for $1,325.0 million in senior secured credit facilities (a $1,175.0 million senior secured term facility and a $150.0 million senior secured revolving facility) and completed the offering of $675.0 million aggregate principal amount of their 9.375% second-priority senior secured notes due May 1, 2022 (the "CEOC-CGP LLC Property Transaction Notes"). As disclosed in greater detail in Note 19, "Subsequent Events - The CEOC-CGP LLC Property Transaction Credit Agreement," Caesars Growth Properties Holdings, LLC, an indirect subsidiary of CGP LLC, entered into a $700.0 million term facility that, along with CGP LLC cash on hand, funded the purchase price of the first closing for the Nevada Properties.

Escrow Agreement

Pursuant to an escrow agreement, dated April 17, 2014, the gross proceeds of the CEOC-CGP LLC Property Transaction Notes, together with additional amounts necessary to redeem the CEOC-CGP LLC Property Transaction Notes, were deposited into a segregated escrow account (the "Escrow Account") until the escrow conditions are satisfied. The escrow conditions include, among other things, the receipt of all required regulatory approvals, the consummation of the CEOC-CGP LLC Property Transaction and the contribution by CGP LLC of the entity that owns the assets comprising the Planet Hollywood Resort & Casino (the "CEOC-CGP LLC Transactions").

In the event that the escrow conditions are not satisfied on or prior to August 31, 2014, the Issuers will redeem the notes at a redemption price equal to the initial issue price of the notes, plus accrued and unpaid interest, if any, from the issue date up to, but not including, the payment date of such mandatory redemption. The amount deposited into the Escrow Account will be used to pay for such mandatory redemption, if applicable.

Indenture and 9.375% Second-Priority Senior Secured Notes due 2022

The Issuers will pay interest on the CEOC-CGP LLC Property Transaction Notes at 9.375% per annum, semi-annually to holders of record at the close of business on April 15 or October 15 immediately preceding the interest payment date on May 1 and November 1 of each year, commencing on November 1, 2014.

The Issuers may redeem the CEOC-CGP LLC Property Transaction Notes at their option, in whole or part, at any time prior to May 1, 2017, at a price equal to 100% of the principal amount of the CEOC-CGP LLC Property Transaction Notes redeemed plus accrued and unpaid interest to the redemption date and a “make-whole” premium. The Issuers may redeem the CEOC-CGP LLC Property Transaction Notes, in whole or in part, on or after May 1, 2017, at the redemption prices set forth in the indenture governing the CEOC-CGP LLC Property Transaction Notes (the "Indenture"). In addition, at any time and from time to time on or before May 1, 2017, the Issuers may choose to redeem in the aggregate up to 35% of the original aggregate principal amount of the CEOC-CGP LLC Property Transaction Notes (calculated after giving effect to the issuance of additional notes) at a redemption price equal to 109.375% of the principal amount thereof with the net proceeds of one or more equity offerings so long as at least 50% of the original aggregate principal amount of the CEOC-CGP LLC Property Transaction Notes (calculated after giving effect to any issuance of additional notes) remain outstanding after each such redemption.

The CEOC-CGP LLC Property Transaction Notes are senior secured obligations of the Issuers and rank equally and ratably in right of payment with all existing and future senior obligations and senior to all future subordinated indebtedness. Upon the release of funds from the Escrow Account, the CEOC-CGP LLC Property Transaction Notes will be guaranteed on a senior secured basis by subsidiaries of Caesars Growth Properties Holding, LLC (a CGP LLC subsidiary, and an Issuer) that are guarantors of a new senior secured credit facility to be entered into in connection with the CEOC-CGP LLC Transactions, and secured by a second-priority security interest, subject to permitted liens, in certain assets of the Issuers and such subsidiary guarantors. None of CGP LLC, CEC or CEOC will guarantee the CEOC-CGP LLC Property Transaction Notes.

The Indenture contains customary covenants that limit the Issuers’ (and their restricted subsidiaries’) ability to, among other things: (i) incur additional debt or issue certain preferred shares; (ii) pay dividends on or make other distributions in respect of their capital stock or make other restricted payments; (iii) make certain investments; (iv) sell certain assets; (v) create or permit to exist dividend and/or payment restrictions affecting their restricted subsidiaries; (vi) create liens on certain assets to secure debt; (vii) consolidate, merge, sell or otherwise dispose of all or substantially all of their assets; (viii) enter into certain transactions with their affiliates; and (ix) designate their subsidiaries as unrestricted subsidiaries. These covenants are subject to a number of important limitations and exceptions outlined in the Indenture. The Indenture also provides for events of default, which, if any of them occurs, would permit or require the principal, premium, if any, interest and any other monetary obligations on all the then outstanding Property Transaction Notes to be immediately due and payable.

Upon closing of the transaction, the Issuers intend to pay all outstanding amounts under the senior secured term loan of PHWLV, LLC.

Registration Rights Agreement

In connection with the issuance of the CEOC-CGP LLC Property Transaction Notes, the Issuers agreed to use their commercially reasonable efforts to register with the Securities and Exchange Commission notes having substantially identical terms as the CEOC-CGP LLC Property Transaction Notes on or prior to 365 days after the issue date of the CEOC-CGP LLC Property Transaction Notes, and effect and exchange of the CEOC-CGP LLC Property Transaction Notes for the newly registered notes.

If the Issuers fail to meet the targets for the registration and exchange of notes, the annual interest rate on the CEOC-CGP LLC Property Transaction Notes will increase by 0.25%. The annual interest rate on the CEOC-CGP LLC Property Transaction Notes will increase by an additional 0.25% for each subsequent 90-day period during which the registration default continues, up to a maximum additional interest rate of 1.0% per year. If the registration default is corrected, the interest rate of the CEOC-CGP LLC Property Transaction Notes will revert to the original lev