-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NpACQ9Fy9J04e5T66RanzzKh/ddGdACikopNJnlMVm9gzxQ0ySfO7PcC6FE2ES7O xE2KGKBDVoaxBvQfTj1DvA== /in/edgar/work/20000814/0000912057-00-037417/0000912057-00-037417.txt : 20000921 0000912057-00-037417.hdr.sgml : 20000921 ACCESSION NUMBER: 0000912057-00-037417 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 16 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HARRAHS ENTERTAINMENT INC CENTRAL INDEX KEY: 0000858339 STANDARD INDUSTRIAL CLASSIFICATION: [7990 ] IRS NUMBER: 621411755 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-10410 FILM NUMBER: 700077 BUSINESS ADDRESS: STREET 1: 5100 W SAHARA AVE STREET 2: SUITE 200 CITY: LAS VEGAS STATE: NV ZIP: 89146 BUSINESS PHONE: 9017628600 MAIL ADDRESS: STREET 1: 5100 W SAHARA BLVD CITY: LAS VEGAS STATE: NV ZIP: 89146 FORMER COMPANY: FORMER CONFORMED NAME: PROMUS COMPANIES INC DATE OF NAME CHANGE: 19920703 10-Q 1 form_10-q.txt FORM 10-Q - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-Q --------------- (MARK ONE) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NO. 1-10410 HARRAH'S ENTERTAINMENT, INC. (Exact name of registrant as specified in its charter) ------------------------------ DELAWARE I.R.S. NO. 62-1411755 (State of Incorporation) (I.R.S. Employer Identification No.)
5100 W. SAHARA AVENUE, SUITE 200 LAS VEGAS, NEVADA 89146 (Current address of principal executive offices) (702) 579-2300 (Registrant's telephone number, including area code) ------------------------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/............................... No / /
------------------------ At June 30, 2000, there were outstanding 116,672,553 shares of the Company's Common Stock. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Page 1 of 35 Exhibit Index Page 36 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS The accompanying unaudited Consolidated Condensed Financial Statements of Harrah's Entertainment, Inc., a Delaware corporation, have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and notes necessary for complete financial statements in conformity with generally accepted accounting principles. The results for the periods indicated are unaudited, but reflect all adjustments (consisting only of normal recurring adjustments) that management considers necessary for a fair presentation of operating results. Results of operations for interim periods are not necessarily indicative of a full year of operations. See Note 2 to these Consolidated Condensed Financial Statements regarding the completion of our acquisition of Players International, Inc. on March 22, 2000. These Consolidated Condensed Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in our 1999 Annual Report to Stockholders. 2 HARRAH'S ENTERTAINMENT, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
JUNE 30, DECEMBER 31, 2000 1999 (IN THOUSANDS, EXCEPT SHARE AMOUNTS) ----------- ------------ ASSETS Current assets Cash and cash equivalents................................. $ 226,624 $ 233,581 Receivables, less allowance for doubtful accounts of $45,659 and $44,086..................................... 108,445 121,186 Deferred income taxes..................................... 34,243 33,208 Prepayments and other..................................... 85,876 68,028 Inventories............................................... 28,708 30,666 ----------- ----------- Total current assets.................................... 483,896 486,669 ----------- ----------- Land, buildings, riverboats and equipment................... 4,490,244 3,983,754 Less: accumulated depreciation.............................. (1,002,461) (922,524) ----------- ----------- 3,487,783 3,061,230 Goodwill, net of amortization of $62,620 and $54,346 (Note 2)........................................................ 671,875 505,217 Investments in and advances to nonconsolidated affiliates... 133,239 168,511 Deferred costs, trademarks and other........................ 298,560 545,220 ----------- ----------- $ 5,075,353 $ 4,766,847 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable.......................................... $ 65,353 $ 81,200 Accrued expenses.......................................... 355,226 287,494 Short-term debt........................................... 169,982 - Current portion of long-term debt......................... 3,211 2,877 ----------- ----------- Total current liabilities............................... 593,772 371,571 Long-term debt.............................................. 2,707,466 2,540,268 Deferred credits and other.................................. 144,250 120,827 Deferred income taxes....................................... 206,146 228,955 ----------- ----------- 3,651,634 3,261,621 ----------- ----------- Minority interests.......................................... 20,705 18,949 ----------- ----------- Commitments and contingencies (Notes 5 and 7 through 9) Stockholders' equity Common stock, $0.10 par value, authorized 360,000,000 shares, outstanding 116,672,553 and 124,379,760 shares (net of 18,856,723 and 9,286,772 shares held in treasury)............................................... 11,667 12,438 Capital surplus........................................... 1,016,323 987,322 Retained earnings......................................... 392,394 512,539 Accumulated other comprehensive income.................... 21 (493) Deferred compensation related to restricted stock......... (17,391) (25,529) ----------- ----------- 1,403,014 1,486,277 ----------- ----------- $ 5,075,353 $ 4,766,847 =========== ===========
See accompanying Notes to Consolidated Condensed Financial Statements. 3 HARRAH'S ENTERTAINMENT, INC. CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
SECOND QUARTER ENDED SIX MONTHS ENDED --------------------- ----------------------- JUNE 30, JUNE 30, JUNE 30, JUNE 30, 2000 1999 2000 1999 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) --------- --------- ---------- ---------- Revenues Casino......................................... $721,057 $599,603 $1,354,814 $1,165,562 Food and beverage.............................. 120,877 105,387 231,145 208,540 Rooms.......................................... 68,824 63,802 133,018 126,438 Management fees................................ 16,269 18,275 33,490 34,995 Other.......................................... 37,557 33,718 71,118 63,969 Less: casino promotional allowances............ (85,403) (69,648) (160,790) (136,699) -------- -------- ---------- ---------- Total revenues............................. 879,181 751,137 1,662,795 1,462,805 -------- -------- ---------- ---------- Operating expenses Direct Casino....................................... 377,195 314,397 711,628 615,923 Food and beverage............................ 59,157 55,449 113,029 112,243 Rooms........................................ 17,631 16,513 34,306 33,594 Depreciation and amortization.................. 61,934 49,971 112,505 96,201 Development costs.............................. 1,706 1,509 3,865 2,270 Write-downs, reserves and recoveries........... 627 (1,598) 640 (1,475) Project opening costs.......................... 1,452 45 1,744 397 Other.......................................... 191,715 165,929 376,164 320,363 -------- -------- ---------- ---------- Total operating expenses................... 711,417 602,215 1,353,881 1,179,516 -------- -------- ---------- ---------- Operating profit......................... 167,764 148,922 308,914 283,289 Corporate expense.............................. (14,572) (13,492) (25,593) (21,423) Headquarters relocation and reorganization costs........................................ (917) (1,422) (2,713) (4,492) Equity in losses of nonconsolidated affiliates................................... (10,600) (6,153) (34,296) (12,821) Venture restructuring costs.................... - - - 397 Amortization of goodwill and trademarks........ (5,337) (4,351) (9,874) (8,963) -------- -------- ---------- ---------- Income from operations........................... 136,338 123,504 236,438 235,987 Interest expense, net of interest capitalized.... (58,126) (48,692) (108,585) (99,587) Other income, including interest income.......... 1,178 4,404 4,794 6,570 -------- -------- ---------- ---------- Income before income taxes and minority interests...................................... 79,390 79,216 132,647 142,970 Provision for income taxes....................... (28,632) (28,742) (47,278) (53,380) Minority interests............................... (3,544) (2,551) (7,407) (4,322) -------- -------- ---------- ---------- Income before extraordinary losses............... 47,214 47,923 77,962 85,268 Extraordinary losses, net of income tax benefit of $388, $4,004, $388 and $5,768............... (716) (7,375) (716) (10,623) -------- -------- ---------- ---------- Net income....................................... $ 46,498 $ 40,548 $ 77,246 $ 74,645 ======== ======== ========== ==========
4 HARRAH'S ENTERTAINMENT, INC. CONSOLIDATED CONDENSED STATEMENTS OF INCOME (CONTINUED) (UNAUDITED)
SECOND QUARTER ENDED SIX MONTHS ENDED --------------------- ----------------------- JUNE 30, JUNE 30, JUNE 30, JUNE 30, 2000 1999 2000 1999 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) --------- --------- ---------- ---------- Earnings per share-basic Income before extraordinary losses............. $ 0.40 $ 0.38 $ 0.65 $ 0.67 Extraordinary losses, net...................... (0.01) (0.06) (0.01) (0.08) -------- -------- ---------- ---------- Net income................................... $ 0.39 $ 0.32 $ 0.64 $ 0.59 ======== ======== ========== ========== Earnings per share-diluted Income before extraordinary losses............... $ 0.40 $ 0.37 $ 0.65 $ 0.66 Extraordinary losses, net........................ (0.01) (0.06) (0.01) (0.08) -------- -------- ---------- ---------- Net income................................... $ 0.39 $ 0.31 $ 0.64 $ 0.58 ======== ======== ========== ========== Average common shares outstanding................ 118,625 126,203 119,947 125,864 ======== ======== ========== ========== Average common and common equivalent shares outstanding.................................... 119,993 128,984 121,429 127,866 ======== ======== ========== ==========
See accompanying Notes to Consolidated Condensed Financial Statements. 5 HARRAH'S ENTERTAINMENT, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED ----------------------- JUNE 30, JUNE 30, 2000 1999 (IN THOUSANDS) --------- ----------- Cash flows from operating activities Net income................................................ $ 77,246 $ 74,645 Adjustments to reconcile net income to cash flows from operating activities Extraordinary losses, before income taxes............... 1,104 16,391 Depreciation and amortization........................... 130,448 110,443 Write-downs, reserves and recoveries.................... 625 - Other noncash items..................................... 5,768 23,384 Minority interests' share of income..................... 7,407 4,322 Equity in losses of nonconsolidated affiliates.......... 34,296 12,821 Net losses (gains) from asset sales..................... 303 (1,714) Net change in long-term accounts........................ (26,320) 11,591 Net change in working capital accounts.................. 25,269 (7,827) --------- ----------- Cash flows provided by operating activities........... 256,146 244,056 --------- ----------- Cash flows from investing activities Payment for purchases of acquisitions, net of cash acquired................................................ (256,333) 22,025 Land, buildings, riverboats and equipment additions....... (191,762) (172,406) Investments in and advances to nonconsolidated affiliates.............................................. (73,065) (34,381) (Decrease) increase in construction payables.............. (1,252) 7,387 Proceeds from sale of Star City management contract....... 131,475 - Proceeds from other asset sales........................... 69,977 10,789 Sale of marketable equity securities for defeasance of debt.................................................... 58,091 - Purchase of minority interest in subsidiary............... - (26,000) Other..................................................... (3,161) 10,215 --------- ----------- Cash flows used in investing activities............... (266,030) (182,371) --------- ----------- Cash flows from financing activities Net borrowings under long-term lending agreements, net of deferred financing cost of $1,486 in 2000............... 246,514 960,651 Net short-term borrowings, net of deferred financing costs of $460................................................. 148,522 - Net repayments under retired revolving facility........... - (1,086,000) Proceeds from issuance of senior notes, net of discount and issue costs of $5,980............................... - 494,020 Purchases of treasury stock............................... (198,469) (3,180) Early extinguishments of debt............................. (213,063) (408,904) Proceeds from exercise of stock options................... 27,061 10,064 Scheduled debt retirements................................ (1,438) (3,866) Premiums paid on early extinguishments of debt............ (1,104) (2,739) Minority interests' distributions, net of contributions... (5,096) (4,400) --------- ----------- Cash flows provided by (used in) financing activities.......................................... 2,927 (44,354) --------- ----------- Net (decrease) increase in cash and cash equivalents........ (6,957) 17,331 Cash and cash equivalents, beginning of period.............. 233,581 158,995 --------- ----------- Cash and cash equivalents, end of period.................... $ 226,624 $ 176,326 ========= ===========
See accompanying Notes to Consolidated Condensed Financial Statements. 6 HARRAH'S ENTERTAINMENT, INC. CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
SECOND QUARTER ENDED SIX MONTHS ENDED ---------------------- ---------------------- JUNE 30, JUNE 30, JUNE 30, JUNE 30, 2000 1999 2000 1999 (IN THOUSANDS) -------- -------- -------- -------- Net income............................................ $46,498 $40,548 $77,246 $74,645 ------- ------- ------- ------- Other comprehensive income Foreign currency translation adjustments, net of tax provision of none, $2,247, $56, and $1,402........ - 3,035 90 2,288 Realization of foreign currency adjustments, net of tax provision of $148............................. - - 191 - Unrealized gains on available-for-sale securities, net of tax provision of $35, $641, $143, and $1,279............................................ 57 1,047 233 2,087 ------- ------- ------- ------- Other comprehensive income...................... 57 4,082 514 4,375 ------- ------- ------- ------- Comprehensive income.................................. $46,555 $44,630 $77,760 $79,020 ======= ======= ======= =======
7 HARRAH'S ENTERTAINMENT, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS JUNE 30, 2000 (UNAUDITED) NOTE 1 - BASIS OF PRESENTATION AND ORGANIZATION Harrah's Entertainment, Inc. ("Harrah's Entertainment", the "Company", "we", "our" or "us", and including our subsidiaries where the context requires), a Delaware corporation, is one of America's leading casino companies. Our casino entertainment facilities, operating under the Harrah's, Rio, Showboat and Players brand names, include casino hotels in Reno, Lake Tahoe, Las Vegas and Laughlin, Nevada; two casino hotel properties in Atlantic City, New Jersey; and riverboat and dockside casinos in Joliet and Metropolis, Illinois; East Chicago, Indiana; Shreveport and Lake Charles, Louisiana; Tunica and Vicksburg, Mississippi; and North Kansas City and St. Louis, Missouri. We also manage the land-based casino in New Orleans, Louisiana, and casinos on Indian lands near Phoenix, Arizona; Cherokee, North Carolina; and Topeka, Kansas. We discontinued management of the Star City casino in Sydney, Australia, during first quarter 2000. NOTE 2 - PLAYERS ACQUISITION On March 22, 2000, we completed our acquisition of Players International, Inc. ("Players"). Players operated a dockside riverboat casino on the Ohio River in Metropolis, Illinois; two cruising riverboat casinos in Lake Charles, Louisiana; two dockside riverboat casinos in Maryland Heights, Missouri, a suburb of St. Louis; and a horse racetrack in Paducah, Kentucky. Players and the Company jointly operated a landside hotel and entertainment facility at the Maryland Heights property. The operations of the Players facility in Maryland Heights were consolidated with the adjacent Harrah's operation in second quarter 2000. The Lake Charles and Metropolis casino operations will be converted to the Harrah's brand name after capital improvements are completed. We paid approximately $294 million in cash and assumed $150 million in Players 10 7/8% Senior Notes due 2005 (the "Players Notes"). The acquisition was funded by our Bank Facility (see Note 4) and is being accounted for as a purchase. The purchase price is being allocated to the underlying assets and liabilities based upon their estimated fair values at the date of acquisition. We are determining the estimated fair values based on independent appraisals, discounted cash flows, quoted market prices and estimates made by management. The allocation of the purchase price will be completed within one year from the date of the acquisition. To the extent that the purchase price exceeds the fair value of the net identifiable tangible assets acquired, such excess will be allocated to goodwill and amortized over 40 years. Until we complete the purchase price allocation, our financial statements will include estimated goodwill amortization expense. See Note 4 for a discussion of the retirement of the Players Notes. NOTE 3 - STOCKHOLDERS' EQUITY In addition to its common stock, Harrah's Entertainment has the following classes of authorized but unissued stock: Preferred stock, $100 par value, 150,000 shares authorized Special stock, $1.125 par value, 5,000,000 shares authorized Series A Special Stock, 2,000,000 shares designated In July 1999, our Board of Directors authorized the repurchase in open market and other transactions of up to 10 million shares of the Company's common stock. We acquired our shares from 8 HARRAH'S ENTERTAINMENT, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2000 (UNAUDITED) NOTE 3 - STOCKHOLDERS' EQUITY (CONTINUED) time to time at prevailing market prices and at June 30, 2000, we had repurchased all 10 million shares under the provisions of this plan. In April 2000, our Board of Directors authorized the repurchase of an additional 12.5 million shares of our common stock in open market and other transactions as market conditions warrant. This plan will expire on December 31, 2001. At June 30, 2000, we had repurchased approximately 5.0 million shares under the provisions of this plan. NOTE 4 - DEBT BANK FACILITY In second quarter 2000, our revolving credit and letter of credit facilities (collectively, the "Bank Facility") were amended to expand our borrowing capacity from $1.6 billion to $1.9 billion. The five-year $1.3 billion revolving credit and letter of credit facility maturing in 2004 was expanded to $1.525 billion, and the $300 million revolving credit facility, which is renewable annually at the borrower's and lenders' options, was expanded to $375 million. The amended Bank Facility provides the Company with increased financial flexibility without changing any of the other terms of the agreement. At June 30, 2000, we had $521.6 million of borrowing capacity available to us. Currently, the Bank Facility bears interest based upon 80 basis points over LIBOR for current borrowings under the five-year facility and 85 basis points over LIBOR for the 364-day facility. In addition, there is a facility fee for borrowed and unborrowed amounts which is currently 20 basis points on the five-year facility and 15 basis points on the 364-day facility. The interest rate and facility fee are based on our current debt ratings and leverage ratio and may change as our debt ratings and leverage ratio change. CREDIT AGREEMENT In June 2000, we entered into a 364-day credit agreement (the "Credit Agreement") with a lender whereby we borrowed $150 million to redeem the Players Notes. Interest rates, facility fees and covenants in the Credit Agreement are identical to those provisions contained in our Bank Facility. COMMERCIAL PAPER To provide the Company with cost-effective borrowing flexibility, we established a $200 million Commercial Paper program that will be used to borrow funds for general corporate purposes. Although the debt instruments are short-term in tenor, they are classified in long-term debt because the Commercial Paper is backed by our Bank Facility and we have committed to keep available capacity under our Bank Facility in an amount equal to or greater than amounts borrowed under this program. At June 30, 2000, $13.0 million was outstanding under this program. LINE OF CREDIT AGREEMENT In a program designed for short-term borrowings at lower interest rates than the rates paid under our Bank Facility, we have entered into uncommitted line of credit agreements with two lenders 9 HARRAH'S ENTERTAINMENT, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2000 (UNAUDITED) NOTE 4 - DEBT (CONTINUED) whereby we can borrow up to $65 million for periods of ninety days or less. At June 30, 2000, we had borrowed $20 million under these agreements. These agreements have no impact on and do not decrease our borrowing capacity under our Bank Facility. INTEREST RATE AGREEMENTS Our interest rate swap agreements, which were entered into to manage the relative mix of our debt between fixed and variable rate instruments, have expired and were not renewed. We have no immediate plans to enter into new swap agreements. EARLY EXTINGUISHMENTS OF DEBT Approximately $2.3 million of the Players Notes were retired on April 28, 2000, in connection with a change of control offer. On June 5, 2000, we purchased approximately $13.1 million of the Players Notes in the open market for the face amount plus accrued interest and a premium. The remaining Players Notes were redeemed on June 30, 2000, for the face amount plus accrued interest and a premium. We recorded liabilities assumed in the Players acquisition, including the notes, at their fair value as of the date of consummation of the acquisition. The difference between the consideration paid to the holders of the Players Notes and the carrying value of the Notes on the dates of the redemptions was recorded in the second quarter as an extraordinary loss of $0.7 million, net of tax. We retired the Players Notes using proceeds from our new $150 million Credit Agreement and our Bank Facility. We redeemed the Showboat, Inc. 9 1/4% First Mortgage Bonds on May 1, 2000, the first call date. These bonds were defeased in 1998 by purchasing treasury securities which were deposited with trustees to pay the scheduled interest payments to the first call date and principal on the securities outstanding on such date. In second quarter 1999, we redeemed all $100 million of Rio Hotel & Casino, Inc.'s ("Rio") 10 5/8% Senior Subordinated Notes due 2005 and all $125 million of Rio's 9 1/2% Senior Subordinated Notes due 2007. An extraordinary loss of $4.5 million, net of tax, was recorded. In first quarter 1999, we redeemed all $140 million of our 99.55% owned subsidiary, Showboat Marina Casino Partnership's, 13 1/2% First Mortgage Notes due 2003 and recorded an extraordinary loss of $2.0 million, net of tax. NOTE 5 - LEASES In June 2000, we sold and leased back our corporate aircraft. The lease agreement consists of an interim term of six months, a base term of one year and annual renewal options. The aggregate of the interim term, the base term and the renewal options will not exceed a total of five years. Our future minimum rental commitments under the lease agreement as of June 30, 2000, were $1.7 million and $6.6 million payable in the years ending December 31, 2000 and 2001, respectively. At the end of the base term, or any renewal term, we can, at our option, (a) renew the lease; (b) purchase the equipment subject to the lease; or (c) sell the equipment on behalf of the Lessor under the terms provided for in the lease agreement. 10 HARRAH'S ENTERTAINMENT, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2000 (UNAUDITED) NOTE 6 - SUPPLEMENTAL CASH FLOW DISCLOSURES CASH PAID FOR INTEREST AND TAXES The following table reconciles our interest expense, net of interest capitalized, per the Consolidated Condensed Statements of Income, to cash paid for interest:
SIX MONTHS ENDED ------------------- JUNE 30, JUNE 30, 2000 1999 -------- -------- (IN THOUSANDS) Interest expense, net of amount capitalized................. $108,585 $99,587 Adjustments to reconcile to cash paid for interest: Net change in accruals.................................... (11,461) (5,411) Amortization of deferred finance charges.................. (1,931) (5,553) Net amortization of discounts and premiums................ 168 1,313 -------- ------- Cash paid for interest, net of amount capitalized........... $ 95,361 $89,936 ======== ======= Cash payments of income taxes, net of refunds............... $ 2,358 $12,743 ======== =======
NOTE 7 - COMMITMENTS AND CONTINGENT LIABILITIES NEW ORLEANS CASINO The Company has an approximate 43% beneficial ownership interest in JCC Holding Company and its subsidiary, Jazz Casino Company, LLC (collectively, "JCC"). JCC owns and operates an exclusive land-based casino in New Orleans, Louisiana (the "Casino"), which is managed by a subsidiary of the Company. The Company has guaranteed certain obligations, made certain commitments, advanced funds and deferred collection of fees and other receivables relative to JCC, as summarized below: - Guaranteed $100 million annual payment obligation of JCC owed to the State of Louisiana gaming board (the "State Obligation") - Guaranteed $166.5 million of a $236.5 million JCC bank credit facility - Made $27.8 million, as of June 30, 2000, in subordinated loans to JCC to finance construction and completion of the Casino - Agreed to certain other contractual commitments and guarantees totaling less than $20 million - Agreed to defer collection of certain fees under certain circumstances - Agreed to forbear from collection of certain payments and reimbursables arising from existing agreements with JCC Initially, the Company guaranteed the State Obligation for the period from October 28, 1999 to October 28, 2000 (the "Initial State Guarantee"). In accordance with an existing agreement, the Initial State Guarantee was replaced with a new guarantee (the "Current State Guarantee"), pursuant to which the Company has guaranteed the State Obligation for the period from April 1, 2000 to 11 HARRAH'S ENTERTAINMENT, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2000 (UNAUDITED) NOTE 7 - COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED) March 31, 2001. JCC is required to make daily payments of approximately $273,973 to satisfy the State Obligation. The Current State Guarantee obligation is reduced to the extent JCC makes such daily payments. Payments made to the State by the Company pursuant to the Initial State Guarantee and the Current State Guarantee are secured by a first priority collateral security interest in JCC's assets. Subject to the satisfaction of certain cash flow tests and other conditions each year, the Company is required to provide a new guarantee to the State for each of the 12-month periods ending March 31, 2002, 2003 and 2004. For the period ending March 31, 2002, the requirement to provide a new guarantee is conditioned upon, among other things, JCC producing net cash flow, as defined, of at least $15 million for the 12-month period ending November 30, 2000. Based on results to date, it appears unlikely that JCC will satisfy this cash flow test. In the event that JCC does not in fact satisfy this cash flow test, the Company will not be required to guarantee the State Obligation for the 12-month period ending March 31, 2002. If in such event the Company elects not to voluntarily guarantee the State Obligation, and JCC cannot find a substitute guarantor, JCC could lose its State gaming license. Commencing February 28, 2000, JCC ceased making its daily payment in respect of the State Obligation. On February 29, 2000, the State made a demand to the Company pursuant to the Initial State Guarantee and the Company began making the daily payment to the State on that date. The Company paid $9.6 million to the State pursuant to the Initial State Guarantee. The Company's remaining obligations pursuant to the Initial State Guarantee expired when the Company provided the Current State Guarantee. The Company's obligations pursuant to the Current State Guarantee for the 12-month period ending March 31, 2001 are limited to $100 million. The Company commenced making payments in respect of the State Obligation pursuant to the Current State Guarantee on April 1, 2000, made payments totaling $30.4 million through July 20, 2000, and ceased making payments on July 21, 2000, at which time JCC resumed making the payments. Subject to certain conditions, which are presently being satisfied, JCC's bank credit facility permits the Company to pay up to an aggregate of $40 million pursuant to the Initial State Guarantee and Current State Guarantee without a default under that facility. The Company has agreed until March 31, 2001, to defer the collection from JCC of amounts paid pursuant to the Initial State Guarantee and Current State Guarantee to the extent that such payments do not exceed $40 million in the aggregate. JCC has exercised its right, pursuant to agreements entered into at the time of its emergence from bankruptcy in October 1998, to defer the payment of certain management fees, credit support fees, guarantee obligations, and interest on subordinated debt due to the Company. Such deferred payments totaled approximately $12.6 million as of June 30, 2000. Separately, the Company and certain Company affiliates have agreed, until December 31, 2000, to forbear from the collection of certain fees, lease payments and reimbursable costs arising from existing agreements with JCC that accrued through July 31, 2000. These amounts totaled approximately $13.1 million as of June 30, 2000. Certain of these costs accruing on or after August 1, 2000, are due and payable by JCC pursuant to the terms of the respective underlying agreements. The Company is aware that, given liquidity issues facing JCC, JCC is exploring alternatives to restructure its obligations. Possible alternatives include requesting a reduction of the State Obligation, seeking relaxation of certain operational restrictions, and pursuing adjustments to its debt and capital 12 HARRAH'S ENTERTAINMENT, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2000 (UNAUDITED) NOTE 7 - COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED) structures. A reduction of the State Obligation and/or a relaxation of operational restrictions require action by the State of Louisiana. There is no assurance that the State will consider or take such action. Similarly, there is no assurance that JCC will successfully restructure any or all of its obligations in a timely and sufficient manner. Management believes that a failure by JCC to successfully restructure its obligations in a timely and sufficient fashion would have a material adverse effect on JCC and could result in the loss by JCC of its State gaming license. Such failure, whether total or in part, to timely and sufficiently restructure any or all of its obligations, and/or such loss by JCC of its State gaming license, could result in (i) an impairment of the Company's investment in JCC; (ii) the inability of the Company to collect all or any of the advances made to and/or fees, rents, and assessments owed by JCC; and/or (iii) the requirement that the Company perform under one or more of its guarantees of JCC's debt and/or other contractual commitments related to the Company's investment in JCC. The Company is also aware that JCC has failed to satisfy a financial covenant in its bank credit facility. Although the lenders have granted JCC relief from this covenant default for a limited period, the lenders have restricted JCC's borrowing capacity under its working capital facility. There is no assurance that the lenders will provide continued relief from this default without imposing additional restrictions on JCC, or at all. Discussion with the lenders concerning these issues have commenced. In the event a default is declared by the lenders under JCC's bank credit facility, the lenders have a right to require the Company to perform under its guarantee of $166.5 million of the $236.5 million JCC bank facility ($141.8 million of which was outstanding as of June 30, 2000). Such default could materially adversely affect JCC's business prospects and results of operations, which could result in an impairment of the Company's investment in JCC and/or the inability of the Company to collect all or any of the advances made to and/or fees, rents, and assessments owed by JCC. Given the actions being undertaken by JCC described above and the many variables involved in bringing these matters to a resolution, management is currently unable to estimate the losses the Company would incur, individually or in the aggregate, if JCC is partially or totally unsuccessful in such efforts. At June 30, 2000, the Company's total investment in JCC was approximately $109 million consisting of its net equity investment and various receivables, and its total potential liability for contingent obligations was approximately $260 million, which contingent liability includes approximately $75 million of unfunded amounts under the Current State Guarantee as of June 30, 2000. This unfunded sum may be reduced, as described above, and is presently being reduced. CONTRACTUAL COMMITMENTS We continue to pursue additional casino development opportunities that may require, individually and in the aggregate, significant commitments of capital, up-front payments to third parties, guarantees by the Company of third party debt and development completion guarantees. Excluding guarantees and commitments for the New Orleans casino discussed above, as of June 30, 2000, we had guaranteed third party loans and leases of $91.6 million, which are secured by certain assets, and had commitments of $182.8 million for construction-related and other obligations. During second quarter 1999, we performed under our guarantee of the Upper Skagit Tribe's development financing and purchased its receivable from the lender for $11.4 million. Under the terms of our agreement with the Tribe, it has agreed to fund the retirement of this debt. The Tribe is 13 HARRAH'S ENTERTAINMENT, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2000 (UNAUDITED) NOTE 7 - COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED) attempting to secure new financing; however, there is no assurance that its efforts will be successful and that the receivable will be collected. The agreements under which we manage casinos on Indian lands contain provisions required by law, which provide that a minimum monthly payment be made to the tribe. That obligation has priority over scheduled payments of borrowings for development costs. In the event that insufficient cash flow is generated by the operations to fund this payment, we must pay the shortfall to the tribe. Such advances, if any, would be repaid to us in future periods in which operations generate cash flow in excess of the required minimum payment. These commitments will terminate upon the occurrence of certain defined events, including termination of the management contract. As of June 30, 2000, the aggregate monthly commitment pursuant to these contracts, which extend for periods of up to 54 months from June 30, 2000, was $1.1 million. SEVERANCE AGREEMENTS As of June 30, 2000, we have severance agreements with 37 of our senior executives, which provide for payments to the executives in the event of their termination after a change in control, as defined. These agreements provide, among other things, for a compensation payment of 1.5 to 3.0 times the executive's average annual compensation, as defined, as well as for accelerated payment or accelerated vesting of any compensation or awards payable to the executive under any of our incentive plans. The estimated amount, computed as of June 30, 2000, that would be payable under the agreements to these executives based on earnings and stock options aggregated approximately $55.7 million. TAX SHARING AGREEMENTS In connection with the 1995 spin-off of certain hotel operations (the "PHC Spin-off") to Promus Hotel Corporation ("PHC"), we entered into a Tax Sharing Agreement with PHC wherein each company is obligated for those taxes associated with their respective businesses. Additionally, we are obligated for all taxes for periods prior to the PHC Spin-off date which are not specifically related to PHC operations and/or PHC hotel locations. Our obligations under this agreement are not expected to have a material adverse effect on our consolidated financial position or results of operations. SELF-INSURANCE We are self-insured for various levels of general liability, workers' compensation and employee medical coverage. We also have stop loss coverage to protect against unexpected claims. Insurance claims and reserves include accruals of estimated settlements for known claims, as well as accruals of actuarial estimates of incurred but not reported claims. NOTE 8 - LITIGATION We are involved in various inquiries, administrative proceedings and litigation relating to contracts, sales of property and other matters arising in the normal course of business. While any proceeding or litigation has an element of uncertainty, we believe that the final outcome of these matters will not have a material adverse effect upon our consolidated financial position or our results of operations. 14 HARRAH'S ENTERTAINMENT, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2000 (UNAUDITED) NOTE 9 - NONCONSOLIDATED AFFILIATES Summarized balance sheet and income statement information of nonconsolidated affiliates as of June 30, 2000 and December 31, 1999, and for the second quarters and six months ended June 30, 2000 and 1999, is included in the following tables.
JUNE 30, DEC. 31, 2000 1999 --------- --------- (IN THOUSANDS) Combined Summarized Balance Sheet Information Current assets............................................ $ 75,800 $ 73,560 Land, buildings and equipment, net........................ 398,649 570,204 Other assets.............................................. 128,506 130,889 --------- --------- Total assets............................................ 602,955 774,653 --------- --------- Current liabilities....................................... 130,465 100,336 Long-term debt............................................ 494,758 437,756 --------- --------- Total liabilities....................................... 625,223 538,092 --------- --------- Net assets............................................ $ (22,268) $ 236,561 ========= =========
15 HARRAH'S ENTERTAINMENT, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2000 (UNAUDITED) NOTE 9 - NONCONSOLIDATED AFFILIATES (CONTINUED)
SECOND QUARTER ENDED SIX MONTHS ENDED --------------------- ------------------- JUNE 30, JUNE 30, JUNE 30, JUNE 30, 2000 1999 2000 1999 --------- --------- -------- -------- (IN THOUSANDS) Combined Summarized Statements of Operations Revenues.......................................... $133,236 $ 99,073 $246,386 $187,656 ======== ======== ======== ======== Operating loss.................................... $(16,347) $(12,593) $(58,804) $(16,012) ======== ======== ======== ======== Net loss.......................................... $(30,662) $(12,997) $(83,841) $(27,287) ======== ======== ======== ========
Our share of nonconsolidated affiliates' combined net operating results are reflected in the accompanying Consolidated Condensed Statements of Income as Equity in losses of nonconsolidated affiliates. Our investments in and advances to nonconsolidated affiliates are reflected in the accompanying Consolidated Condensed Balance Sheets as follows:
JUNE 30, DEC. 31, 2000 1999 -------- -------- (IN THOUSANDS) Investments in and advances to nonconsolidated affiliates Accounted for under the equity method..................... $127,014 $167,828 Accounted for at historical cost.......................... 5,166 - Equity securities available-for-sale and recorded at market value............................................ 1,059 683 -------- -------- $133,239 $168,511 ======== ========
With the acquisition of Players in March 2000, we increased our ownership interest in the St. Louis shoreside facilities joint venture to 100% and began consolidating that operation with our St. Louis operations upon the closing of the acquisition. In accordance with the provisions of Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities", we adjust the carrying value of certain marketable equity securities to include unrealized gains and losses. A corresponding adjustment is recorded in our stockholders' equity and deferred income tax accounts. NOTE 10 - SUMMARIZED FINANCIAL INFORMATION Harrah's Operating Company, Inc. ("HOC") is a wholly-owned subsidiary and the principal asset of Harrah's Entertainment. HOC is the issuer of certain debt securities that have been guaranteed by Harrah's Entertainment. Due to the comparability of HOC's consolidated financial information with that of Harrah's Entertainment, complete separate financial statements and other disclosures regarding HOC have not been presented. Management has determined that such information is not material to holders of HOC's debt securities. Summarized financial information of HOC as of June 30, 2000 and 16 HARRAH'S ENTERTAINMENT, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2000 (UNAUDITED) NOTE 10 - SUMMARIZED FINANCIAL INFORMATION (CONTINUED) December 31, 1999, and for the second quarters and six months ended June 30, 2000 and 1999, prepared on the same basis as Harrah's Entertainment, was as follows:
JUNE 30, DEC. 31, 2000 1999 ---------- ---------- (IN THOUSANDS) Current assets.............................................. $ 481,861 $ 481,437 Land, buildings, riverboats and equipment, net.............. 3,487,783 3,061,230 Goodwill.................................................... 671,875 505,217 Other assets................................................ 421,717 713,649 ---------- ---------- 5,063,236 4,761,533 ---------- ---------- Current liabilities......................................... 565,410 353,534 Long-term debt.............................................. 2,707,466 2,540,268 Other liabilities........................................... 354,696 349,782 Minority interests.......................................... 20,705 18,949 ---------- ---------- 3,648,277 3,262,533 ---------- ---------- Net assets.............................................. $1,414,959 $1,499,000 ========== ==========
SECOND QUARTER ENDED SIX MONTHS ENDED --------------------- ----------------------- JUNE 30, JUNE 30, JUNE 30, JUNE 30, 2000 1999 2000 1999 --------- --------- ---------- ---------- (IN THOUSANDS) Revenues......................................... $879,065 $751,012 $1,662,595 $1,462,597 ======== ======== ========== ========== Income from operations........................... $134,830 $124,444 $ 234,916 $ 236,856 ======== ======== ========== ========== Income before extraordinary losses............... $ 46,234 $ 48,534 $ 76,973 $ 85,834 ======== ======== ========== ========== Net income....................................... $ 45,518 $ 41,159 $ 76,257 $ 75,211 ======== ======== ========== ==========
Certain of our debt guarantees contain covenants, which, among other things, place limitations on HOC's ability to pay dividends and make other restricted payments, as defined, to Harrah's Entertainment. The amount of HOC's restricted net assets, as defined, computed in accordance with the most restrictive of these covenants regarding restricted payments, was approximately $1.41 billion at June 30, 2000. 17 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of the financial position and operating results of Harrah's Entertainment, Inc. (referred to in this discussion, together with its consolidated subsidiaries where appropriate, as "Harrah's Entertainment", "Company", "we", "our" and "us") for second quarter and first six months of 2000 and 1999, updates, and should be read in conjunction with, Management's Discussion and Analysis of Financial Position and Results of Operations presented in our 1999 Annual Report. We are the leading consumer marketing company in the gaming industry, operating casinos in more markets than any other casino company. We seek to differentiate ourselves through a unique strategy aimed at building loyalty to our brands from our guests. To accomplish this objective, we focus on continued investment and emphasis on marketing, technology and database programs, a commitment to service and a broadened national appeal. We begin our review with a discussion of an acquisition that positions our Company to continue its progress toward achieving our strategic objectives. PLAYERS ACQUISITION On March 22, 2000, we completed our acquisition of Players International, Inc. ("Players"). Players operated a dockside riverboat casino on the Ohio River in Metropolis, Illinois; two cruising riverboat casinos in Lake Charles, Louisiana; two dockside riverboat casinos in Maryland Heights, Missouri, a suburb of St. Louis; and a horse racetrack in Paducah, Kentucky. Players and the Company jointly operated a landside hotel and entertainment facility at the Maryland Heights property. The operations of the Players facility in Maryland Heights were consolidated with the adjacent Harrah's operation in second quarter 2000. The Lake Charles and Metropolis casino operations will be converted to the Harrah's brand name after capital improvement projects are completed. We paid approximately $294 million in cash and assumed $150 million in Players 10 7/8% Senior Notes due 2005 (the "Players Notes"). The acquisition was funded by our Bank Facility (see DEBT AND LIQUIDITY) and is being accounted for as a purchase. The purchase price is being allocated to the underlying assets and liabilities based upon their estimated fair values at the date of acquisition. We are determining the estimated fair values based on independent appraisals, discounted cash flows, quoted market prices and estimates made by management. The allocation of the purchase price will be completed within one year from the date of the acquisition. To the extent that the purchase price exceeds the fair value of the net identifiable tangible assets acquired, such excess will be allocated to goodwill and amortized over 40 years. Until we complete the purchase price allocation, our financial statements will include estimated goodwill amortization expense. See DEBT AND LIQUIDITY for a discussion of the retirement of the Players Notes. OPERATING RESULTS AND DEVELOPMENT PLANS OVERALL Second quarter 2000 revenues increased 17.0% over second quarter 1999, and net income increased 14.7% from the same period last year. The primary factors contributing to the increase in revenues and net income were inclusion of the Players properties for the first full quarter since their acquisition and improved performances at our Harrah's brand properties. Partially offsetting these increases was the impact of a low table games hold percentage at the Rio Hotel & Casino ("Rio") in Las Vegas, Nevada. Second quarter gaming revenues at owned and managed properties, which were in our system during second quarter 2000 and second quarter 1999, grew 7.2% over the same period last year. 18 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Excluding properties acquired or opened since June 1998, company-owned and managed properties generated same-store gaming revenue growth of 11.7% over second quarter 1999. Revenues for the six months ended June 30, 2000, were up 13.7% over revenues for the same period last year and net income was up 3.5%. These results reflect the impact of the March 2000 Players acquisition and the low table-games hold percentage experienced by Rio during the first half of 2000. WESTERN REGION
SECOND QUARTER PERCENTAGE FIRST SIX MONTHS PERCENTAGE ------------------- INCREASE/ ------------------- INCREASE/ 2000 1999 (DECREASE) 2000 1999 (DECREASE) (IN MILLIONS) -------- -------- ---------- -------- -------- ---------- Casino revenues.................... $168.0 $175.7 (4.4)% $340.0 $352.8 (3.6)% Total revenues..................... 273.6 283.0 (3.3)% 549.0 565.4 (2.9)% Operating profit................... 25.0 43.9 (43.1)% 48.7 88.8 (45.2)% Operating margin................... 9.1% 15.5% (6.4)pts 8.9% 15.7% (6.8)pts
The declines in second quarter 2000 revenues and operating income from the same period last year were primarily due to a well-below-average table games hold percentage at Rio, where second quarter revenues were 19.6% below second quarter 1999, and an operating loss of $9.5 million was reported compared to operating income of $16.1 million for the same period last year. In addition to the revenue shortfalls, operating margin at the Rio declined due to the increased marketing and promotional costs incurred by the property in an effort to maintain its competitive position in the market and due to increased entertainment costs. Despite higher entertainment costs, the new theater at Rio has not yet attracted a significant increase in entertainment revenues. Our Southern Nevada Harrah's properties posted record second quarter revenues, increased operating income 14.6% and increased operating margin 1.3 points over the same period last year. Northern Nevada revenues were also a second quarter record, up 8.2% over the same period last year. Operating income in Northern Nevada was 36.7% higher than the same period last year resulting from successful marketing programs and cost savings efforts at Harrah's Reno and increased visitation at Lake Tahoe driven by the introduction of Total Rewards, our nationwide customer rewards program. A renovation program was completed during the quarter at Lake Tahoe and a new events plaza opened during the quarter at Reno. In second quarter 2000, Rio opened its new $32 million showroom complex, which includes a 1,500 seat, state-of-the-art theater with balcony; a three-level lobby with hospitality center; and a theater promenade with approximately 10,000 square feet of retail space. The showroom complex is located adjacent to the Pavilion, Rio's 110,000 square foot entertainment/convention complex, which opened in March 1999. For the six months ended June 30, 2000, revenues increased 5.1% in Northern Nevada and 7.1% at Harrah's Southern Nevada properties, but declined 15.7% at the Rio. The impact of the low table-games hold percentage and increased costs at the Rio during the first six months of 2000 more than offset improved operating profit at the Harrah's properties, causing Western Region operating profit to decline 45.2% from the same six month period last year. 19 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) During first quarter 2000, we completed the sale for cash of the Showboat Las Vegas property, which was acquired in our June 1998 acquisition of Showboat, Inc. No gain or loss resulted from the sale of this nonstrategic asset. EASTERN REGION
SECOND QUARTER PERCENTAGE FIRST SIX MONTHS PERCENTAGE ------------------- INCREASE/ ------------------- INCREASE/ 2000 1999 (DECREASE) 2000 1999 (DECREASE) (IN MILLIONS) -------- -------- ---------- -------- -------- ---------- Casino revenues......................... $190.3 $183.1 3.9% $364.6 $350.9 3.9% Total revenues.......................... 202.4 196.8 2.8% 387.8 375.8 3.2% Operating profit........................ 49.3 45.4 8.6% 87.5 81.5 7.4% Operating margin........................ 24.4% 23.1% 1.3pts 22.6% 21.7% 0.9pts
Eastern Region results were driven by Harrah's Atlantic City's record revenues and operating profit for the quarter. While Showboat Atlantic City's revenues were basically level compared to second quarter 1999, operating income declined 7.2% due to increased marketing and promotional costs. We believe that the above-market growth achieved by Harrah's Atlantic City is due to the successful execution by the property of strategic marketing programs utilizing the available technological tools offered by our WINet customer database and Total Rewards program. Showboat Atlantic City was integrated into the Total Rewards customer-loyalty program in late June 2000. For the first six months of 2000, the Eastern Region's increases in revenues and operating profits were due to the strength of Harrah's Atlantic City's operations, where revenues increased 6.6% and operating profit increased 24.3%. In April 2000, we announced plans for a 450-room expansion at Harrah's Atlantic City, increasing the hotel's capacity to more than 1,600 rooms. The expansion is expected to cost approximately $110 million and is scheduled to be completed in first quarter 2002. The expansion is subject to regulatory approvals. CENTRAL REGION
SECOND QUARTER PERCENTAGE FIRST SIX MONTHS PERCENTAGE ------------------- INCREASE/ ------------------- INCREASE/ 2000 1999 (DECREASE) 2000 1999 (DECREASE) (IN MILLIONS) -------- -------- ---------- -------- -------- ---------- Casino revenues......................... $362.6 $240.7 50.6% $619.0 $461.9 34.0% Total revenues.......................... 382.0 252.6 51.2% 683.5 485.6 40.8% Operating profit........................ 83.1 50.8 63.6% 151.9 92.0 65.1% Operating margin........................ 21.8% 20.1% 1.7pts 22.2% 18.9% 3.3pts
CHICAGOLAND/ILLINOIS - Second quarter revenues increased 43.3% at Harrah's Joliet and operating profit increased 64.6% compared to the same period last year. These results are attributable to the mid-1999 elimination of cruise scheduling and ticketing and the fourth quarter opening of the new hotel at this property. Subject to regulatory approvals, we plan to convert the casino in Joliet from cruising riverboats to barges and are considering our options for utilizing the riverboats, which we will remove from service in Joliet, to upgrade existing casino products at other riverboat properties. Harrah's East Chicago revenues increased 18.1% over second quarter 1999 and operating income 20 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) increased 27.0%. We believe that these results were driven by the March 1999 re-branding of this property to the Harrah's brand and the successful execution of the Company's loyalty strategy in East Chicago. On August 1, 2000 we announced plans to construct a 292-room hotel at the East Chicago property. This project is expected to cost approximately $47.0 million and is targeted for completion in fourth quarter 2001. This project is subject to regulatory approvals. For the six months ended June 30, 2000, Harrah's Joliet's revenues increased 51.3% and operating income increased 91.2%. Revenues at Harrah's East Chicago increased 28.2% over the comparable six-month period last year and operating income increased 68.9% compared to the first six months of 1999. Players Metropolis contributed $29.0 million in revenues and $9.0 million in operating income for second quarter 2000, which was the first full quarter reported since our March 22, 2000, acquisition of Players. Results at this property benefited from the mid-1999 change in regulations to allow dockside gaming in Illinois. Metropolis is expected to be converted to the Harrah's brand in the second half of 2001. LOUISIANA - Harrah's Shreveport's revenues and operating profit for the second quarter and first six months decreased from the same periods last year due to an on-going construction program and costs of promotions mounted to sustain business during construction activities. Construction began in May 1999 on a 514-room hotel with almost 18,000 square feet of convention center space. The new hotel and amenity expansion is expected to cost $146.6 million, of which $70.2 million had been spent through June 30, 2000. Weather related delays have pushed the expected completion date on the expansion to first quarter 2001. Players Lake Charles contributed $38.6 million in revenues and $7.2 million in operating income during second quarter 2000. We are currently investing approximately $40 million to upgrade the slot product and infrastructure of the Lake Charles property. This capital expenditure includes the cost of replacing one of the existing Players boats with a renovated riverboat that we purchased in 1998. We plan to rebrand this property to Harrah's by the end of 2000. MISSISSIPPI - Combined second quarter revenues by our Mississippi properties increased 4.2% over second quarter 1999 and operating profit increased 33.2% over the same quarter last year. For the first six months of 2000, revenues increased 6.6% and operating profit increased 24.4% compared with the comparable period last year. MISSOURI - Second quarter revenues at our Missouri properties increased 37.8% and operating profit increased 34.9% over the comparable period in 1999. Revenue increases are primarily attributable to Harrah's St. Louis, where revenues were 92.3% higher than in second quarter last year due principally to the integration of Players St. Louis and the Harrah's/Players jointly-owned shoreside facilities into the Harrah's St. Louis operations. Harrah's North Kansas City posted record second quarter revenues and increased operating profit by 23.4% over the same quarter last year. Missouri properties' revenues increased 26.6% and operating profit increased 39.6% for the first six months of 2000 compared to the same period last year. The Missouri properties' revenues have benefited from the elimination in the second half of 1999 of restricted boarding schedules, but operating profit was affected by higher admission taxes. The St. Louis shoreside facilities were owned jointly with Players prior to our March 22, 2000, acquisition of that company. Our pro rata share of the 2000 operating losses of the joint venture through the date of the Players acquisition was $2.4 million. These losses are included in Equity in 21 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) losses of nonconsolidated affiliates in the Consolidated Condensed Statements of Income (see Other Factors Affecting Net Income). Subsequent to the Players acquisition, results of the shoreside facilities, as well as for Players St. Louis operations, are combined with Harrah's St. Louis' operating results. In May 2000, we announced plans for facilities enhancements to Harrah's North Kansas City, including approximately 28,000 square feet of additional gaming space. The enhancements are expected to cost approximately $44.1 million and are expected to be completed in second quarter 2001. The expansion is subject to regulatory approvals. Upon completion of this project, the North Star riverboat may be deployed to another property. MANAGED AND OTHER CASINOS Our managed and other casinos results reflect the addition of fees from Harrah's New Orleans, which opened in fourth quarter 1999 and the impact on our management fee percentages of recent renewal and extension agreements for two of the Indian-owned facilities that we manage. See DEBT AND LIQUIDITY - Guarantees of Third Party Debt and Other Commitments for a discussion of our agreements to defer collection of fees from New Orleans. During first quarter 2000 we signed a definitive agreement with the Rincon San Luiseno Band of Mission Indians to build and manage a $110 million casino and hotel on Rincon tribal land 25 miles north of San Diego. This location provides convenient access to metropolitan San Diego, La Jolla, Del Mar, Escondido and Orange County, California. The Tribe plans to construct a temporary casino facility, which is expected to begin operations in fourth quarter 2000. We have committed to provide up to $14.6 million to finance this development and to provide the Tribe technical service related to the development and operation of the temporary casino, but we will not manage the temporary facility. The permanent facility, the cost of which is to be funded by a third-party loan that we expect to guarantee, is expected to open in fourth quarter 2001. We expect to manage the permanent facility for a fee. The operation of the permanent casino project is subject to various approvals, including approvals of the National Indian Gaming Commission. See DEBT AND LIQUIDITY for further discussion of Harrah's guarantees of debt related to Indian projects. We ceased management of the Star City casino in Sydney, Australia, in January 2000 upon the completion of the buy-out of our management contract by another company. No material gain or loss was recognized on the sale of this management contract. 22 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) OTHER FACTORS AFFECTING NET INCOME
SECOND QUARTER PERCENTAGE FIRST SIX MONTHS PERCENTAGE ---------------------- INCREASE/ ---------------------- INCREASE/ 2000 1999 (DECREASE) 2000 1999 (DECREASE) (IN MILLIONS) -------- -------- ---------- -------- -------- ---------- (INCOME)/EXPENSE Development costs................... $ 1.7 $ 1.5 13.3% $ 3.9 $ 2.3 69.6% Write-downs, reserves and recoveries........................ 0.6 (1.6) N/M 0.4 (1.5) N/M Project opening costs............... 1.5 - N/M 1.7 0.4 N/M Corporate expense................... 14.6 13.5 8.1% 25.6 21.4 19.6% Headquarters relocation and reorganization expense............ 0.9 1.4 (35.7)% 2.7 4.5 (40.0)% Equity in losses of nonconsolidated affiliates........................ 10.6 6.2 71.0% 34.3 12.8 168.0% Venture restructuring costs......... - - - - (0.4) N/M Amortization of goodwill and trademarks........................ 5.3 4.4 20.5% 9.9 9.0 10.0% Interest expense, net............... 58.1 48.7 19.3% 108.6 99.6 9.0% Other income, including interest income............................ (1.2) (4.4) (72.7)% (4.8) (6.6) (27.3)% Effective tax rate.................. 36.1% 36.3% (0.2)pts 35.6% 37.3% (1.7)pts Minority interests.................. $ 3.5 $ 2.6 34.6% $ 7.4 $ 4.3 72.1% Extraordinary loss, net of income taxes............................. 0.7 7.4 (90.5)% 0.7 10.6 (93.4)%
Development costs for second quarter 2000 increased slightly from the same period last year. However, development activities were limited in both periods due to the limited number of new markets opening for development. Corporate expense increased for second quarter and the first six months of 2000 from the prior year, but were only 1.7% and 1.5% of revenues for the second quarter and six months ended June 30, 2000, respectively, compared to 1.8% and 1.5%, respectively, for the same periods last year. Costs related to the relocation of the Company's headquarters to Las Vegas, Nevada, declined in 2000 as relocation activity began to subside. The increase in Equity in losses of nonconsolidated affiliates for second quarter 2000 reflects the increase in losses from Harrah's New Orleans, which began operations subsequent to second quarter 1999. Second quarter 1999 reflected losses from our share of National Airlines, Inc.'s ("NAI") preopening costs and our pro rata share of the losses from the St. Louis shoreside facilities. In second quarter 2000, NAI reported net income for the first time, of which our pro rata share was $0.4 million. With the acquisition of Players in March 2000, the St. Louis shoreside facilities are included in our St. Louis operations. For the six months ended June 30, 2000, the increase in Equity in losses of nonconsolidated affiliates reflects the increase in losses from Harrah's New Orleans and NAI and our pro rata share of the losses from the St. Louis shoreside facilities through the date of the Players acquisition. Amortization of goodwill and trademarks increased for the second quarter and six months from the same periods last year due to the Players acquisition in March 2000. Until such time as the Players purchase price allocation is finalized, amortization expense includes estimates for amortization related to the Players acquisition. 23 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Interest expense increased for the second quarter and the first six months of 2000 due to increased borrowings for the Players acquisition and our stock repurchase program. Other income decreased in the second quarter and the first half of 2000 due to lower income earned on the cash surrender value of company owned life insurance policies. The effective tax rates for both periods are higher than the federal statutory rate primarily due to state income taxes and the portion of our goodwill amortization that is not deductible for tax purposes. Minority interests reflects joint venture partners' share of income, which increased in 2000 from the prior year as a result of higher earnings from those ventures. The extraordinary losses reported in both years were due to the early extinguishments of debt and include premiums paid to the holders of the debt retired and the write-off of related unamortized deferred finance charges. (See DEBT AND LIQUIDITY - Extinguishments of Debt.) CAPITAL SPENDING AND DEVELOPMENT In addition to the specific development and expansion projects discussed in OPERATING RESULTS AND DEVELOPMENT PLANS, we perform on-going refurbishment and maintenance at our casino entertainment facilities in order to maintain the Company's quality standards. We also continue to pursue development and acquisition opportunities for additional casino entertainment facilities that meet our strategic and return on investment criteria. Prior to the receipt of necessary regulatory approvals, the costs of pursuing development projects are expensed as incurred. Construction-related costs incurred after the receipt of necessary approvals are capitalized and depreciated over the estimated useful life of the resulting asset. Project opening costs are expensed as incurred. Our planned development projects, if they go forward, will require, individually and in the aggregate, significant capital commitments and, if completed, may result in significant additional revenues. The commitment of capital, the timing of completion and the commencement of operations of casino entertainment development projects are contingent upon, among other things, negotiation of final agreements and receipt of approvals from the appropriate political and regulatory bodies. Cash needed to finance projects currently under development, as well as additional projects pursued, is expected to be made available from operating cash flows, bank borrowings (see DEBT AND LIQUIDITY), joint venture partners, specific project financing, guarantees of third party debt and, if necessary, additional debt and/or equity offerings. Our capital spending for the first six months of 2000 totaled approximately $268.0 million. Estimated total capital expenditures for 2000 are expected to be between $430 million and $500 million, excluding the acquisition of Players. DEBT AND LIQUIDITY FINANCING ACTIVITIES BANK FACILITY - In second quarter 2000, our revolving credit and letter of credit facilities (collectively, the "Bank Facility") were amended to expand our borrowing capacity from $1.6 billion to $1.9 billion. The five-year $1.3 billion revolving credit and letter of credit facility maturing in 2004 was expanded to $1.525 billion, and the $300 million revolving credit facility, which is renewable annually at the borrower's and lenders' options, was expanded to $375 million. The amended Bank Facility provides the Company with increased financial flexibility without changing any of the other terms of the agreement. At June 30, 2000, we had $521.6 million of borrowing capacity available to us. 24 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Currently, the Bank Facility bears interest based upon 80 basis points over LIBOR for current borrowings under the five-year facility and 85 basis points over LIBOR for the 364-day facility. In addition, there is a facility fee for borrowed and unborrowed amounts, which is currently 20 basis points on the five-year facility and 15 basis points on the 364-day facility. The interest rate and facility fee are based on our current debt ratings and leverage ratio and may change as our debt ratings and leverage ratio change. CREDIT AGREEMENT - On June 25, 2000, we entered into a 364-day credit agreement with a lender whereby we borrowed $150 million to redeem the Players Notes. Interest rates, facility fees and covenants in the credit agreement are identical to those provisions contained in our Bank Facility. COMMERCIAL PAPER - To provide the Company with cost-effective borrowing flexibility, we established a $200 million Commercial Paper program that will be used to borrow funds for general corporate purposes. Although the debt instruments are short-term in tenor, they are classified in long-term debt because the Commercial Paper is backed by our Bank Facility and we have committed to keep available capacity under our Bank Facility in an amount equal to or greater than amounts borrowed under this program. At June 30, 2000, we had borrowed $13.0 million under this program. LINE OF CREDIT AGREEMENT - In a program designed for short-term borrowings at lower interest rates than the rates paid under our Bank Facility, we have entered into uncommitted line of credit agreements with two lenders whereby we can borrow up to $65 million for periods of ninety days or less. At June 30, 2000, we had borrowed $20 million under these agreements. These agreements have no impact on and do not decrease our borrowing capacity under our Bank Facility. SYNTHETIC LEASE AGREEMENTS In June 2000 we sold and leased back our corporate aircraft. The lease agreement consists of an interim term of six months, a base term of one year and annual renewal options. The aggregate of the interim term, the base term and the renewal options will not to exceed a total of five years. At the end of the base term, or any renewal, term we can, at our option, (a) renew the lease; (b) purchase the equipment subject to the lease; or (c) sell the equipment on behalf of the Lessor under the terms provided for in the Lease Agreement. EQUITY REPURCHASE PROGRAM Under plans authorized by our Board of Directors in July 1999 and April 2000, we have repurchased 9.4 million shares of the Company's stock in the open market this year. Spending for these repurchases has totaled approximately $198.5 million for the six months ended June 30, 2000. The repurchases were funded through available operating cash and borrowings from our Bank Facility. Shares purchased during second quarter 2000 completed the plan approved by our Board of Directors in July 1999 for the repurchase of 10 million shares. Another 7.5 million shares may be purchased under the April 2000 plan, which will expire December 31, 2001. INTEREST RATE AGREEMENTS Our interest rate swap agreements, which were entered into to manage the relative mix of our debt between fixed and variable rate instruments, have expired and were not renewed. We have no immediate plans to enter into new swap agreements. 25 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) RETIREMENT OF DEBT Approximately $2.3 million of the Players Notes were retired on April 28, 2000, in connection with a change of control offer. On June 5, 2000, we purchased approximately $13.1 million of the Players Notes in the open market for the face amount plus accrued interest and a premium. The remaining Players Notes were redeemed on June 30, 2000, for the face amount plus accrued interest and a premium. We recorded liabilities assumed in the Players acquisition, including the notes, at their fair value as of the date of consummation of the acquisition. The difference between the consideration paid to the holders of the Players Notes and the carrying value of the Notes on the dates of the redemptions was recorded in the second quarter as an extraordinary loss of $0.7 million, net of tax. We retired the Players Notes using proceeds from our new $150 million credit agreement and our Bank Facility. We redeemed Showboat, Inc.'s 9 1/4% First Mortgage Bonds on May 1, 2000, the first call date. These bonds were defeased in 1998 by purchasing treasury securities which were deposited with trustees to pay the scheduled interest payments to the first call date and principal on the securities outstanding on such date. In second quarter 1999, we redeemed all $100 million of Rio's 10 5/8% Senior Subordinated Notes due 2005 and all $125 million of Rio's 9 1/2% Senior Subordinated Notes due 2007. An extraordinary loss of $4.5 million, net of tax, was recorded. In first quarter 1999, we redeemed all $140 million of our 99.55% owned subsidiary, Showboat Marina Casino Partnership's, 13 1/2% First Mortgage Notes due 2003 and recorded an extraordinary loss of $2.0 million, net of tax. GUARANTEES OF THIRD PARTY DEBT AND OTHER COMMITMENTS JCC HOLDING COMPANY - The Company has an approximate 43% beneficial ownership interest in JCC Holding Company and its subsidiary, Jazz Casino Company, LLC (collectively, "JCC"). JCC owns and operates an exclusive land-based casino in New Orleans, Louisiana (the "Casino"), which is managed by a subsidiary of the Company. The Company has guaranteed certain obligations, made certain commitments, advanced funds and deferred collection of fees and other receivables relative to JCC, as summarized below: - Guarantee of $100 million annual payment obligation of JCC owed to the State of Louisiana gaming board (the "State Obligation") - Guaranteed $166.5 million of a $236.5 million JCC bank credit facility - Made $27.8 million, as of June 30, 2000, in subordinated loans to JCC to finance construction and completion of the Casino - Agreed to certain other contractual commitments and guarantees totaling less than $20 million - Agreed to defer collection of certain fees under certain circumstances - Agreed to forbear from collection of certain payments and reimbursables arising from existing agreements with JCC Initially, the Company guaranteed the State Obligation for the period from October 28, 1999 to October 28, 2000 (the "Initial State Guarantee"). In accordance with an existing agreement, the Initial State Guarantee was replaced with a new guarantee (the "Current State Guarantee"), pursuant to which the Company has guaranteed the State Obligation for the period from April 1, 2000 to March 31, 2001. JCC is required to make daily payments of approximately $273,973 to satisfy the State 26 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Obligation. The Current State Guarantee obligation is reduced to the extent JCC makes such daily payments. Payments made to the State by the Company pursuant to the Initial State Guarantee and the Current State Guarantee are secured by a first priority collateral security interest in JCC's assets. Subject to the satisfaction of certain cash flow tests and other conditions each year, the Company is required to provide a new guarantee to the State for each of the 12-month periods ending March 31, 2002, 2003 and 2004. For the period ending March 31, 2002, the requirement to provide a new guarantee is conditioned upon, among other things, JCC producing net cash flow, as defined, of at least $15 million for the 12-month period ending November 30, 2000. Based on results to date, it appears unlikely that JCC will satisfy this cash flow test. In the event that JCC does not in fact satisfy this cash flow test, the Company will not be required to guarantee the State Obligation for the 12-month period ending March 31, 2002. If in such event the Company elects not to voluntarily guarantee the State Obligation, and JCC cannot find a substitute guarantor, JCC could lose its State gaming license. Commencing February 28, 2000, JCC ceased making its daily payment in respect of the State Obligation. On February 29, 2000, the State made a demand to the Company pursuant to the Initial State Guarantee and the Company began making the daily payment to the State on that date. The Company paid $9.6 million to the State pursuant to the Initial State Guarantee. The Company's remaining obligations pursuant to the Initial State Guarantee expired when the Company provided the Current State Guarantee. The Company's obligations pursuant to the Current State Guarantee for the 12-month period ending March 31, 2001, are limited to $100 million. The Company commenced making payments in respect of the State Obligation pursuant to the Current State Guarantee on April 1, 2000, made payments totaling $30.4 million through July 20, 2000, and ceased making payments on July 21, 2000, at which time JCC resumed making the payments. Subject to certain conditions, which are presently being satisfied, JCC's bank credit facility permits the Company to pay up to an aggregate of $40 million pursuant to the Initial State Guarantee and the Current State Guarantee without a default under that facility. The Company has agreed until March 31, 2001, to defer the collection from JCC of amounts paid pursuant to the Initial State Guarantee and Current State Guarantee to the extent that such payments do not exceed $40 million in the aggregate. JCC has exercised its right, pursuant to agreements entered into at the time of its emergence from bankruptcy in October 1998, to defer the payment of certain management fees, credit support fees, guarantee obligations, and interest on subordinated debt due to the Company. Such deferred payments totaled approximately $12.6 million as of June 30, 2000. Separately, the Company and certain Company affiliates have agreed, until December 31, 2000, to forbear from the collection of certain fees, lease payments and reimbursable costs arising from existing agreements with JCC that accrued through July 31, 2000. These amounts totaled approximately $13.1 million as of June 30, 2000. Certain of these costs accruing on or after August 1, 2000, are due and payable by JCC pursuant to the terms of the respective underlying agreements. The Company is aware that, given liquidity issues facing JCC, JCC is exploring alternatives to restructure its obligations. Possible alternatives include requesting a reduction of the State Obligation, seeking relaxation of certain operational restrictions, and pursuing adjustments to its debt and capital structures. A reduction of the State Obligation and/or a relaxation of operational restrictions require action by the State of Louisiana. There is no assurance that the State will consider or take such action. Similarly, there is no assurance that JCC will successfully restructure any or all of its obligations in a timely and sufficient manner. Management believes that a failure by JCC to successfully restructure its obligations in a timely and sufficient fashion would have a material adverse effect on JCC and could 27 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) result in the loss by JCC of its State gaming license. Such failure, whether in total or in part, to timely and sufficiently restructure any or all of its obligations, and/or such loss by JCC of its State gaming license, could result in (i) an impairment of the Company's investment in JCC; (ii) the inability of the Company to collect all or any of the advances made to and/or fees, rents, and assessments owed by JCC; and/or (iii) the requirement that the Company perform under one or more of its guarantees of JCC's debt and/or other contractual commitments related to the Company's investment in JCC. The Company is also aware that JCC has failed to satisfy a financial covenant in its bank credit facility. Although the lenders have granted JCC relief from this covenant default for a limited period, the lenders have restricted JCC's borrowing capacity under its working capital facility. There is no assurance that the lenders will provide continued relief from this default without imposing additional restrictions on JCC, or at all. Discussions with the lenders concerning these issues have commenced. In the event a default is declared by the lenders under JCC's bank credit facility, the lenders have a right to require the Company to perform under its guarantee of $166.5 million of the $236.5 million JCC bank facility ($141.8 million of which was outstanding as of June 30, 2000). Such default could materially adversely affect JCC's business prospects and results of operations, which could result in an impairment of the Company's investment in JCC and/or the inability of the Company to collect all or any of the advances made to and/or fees, rents and assessments owed by JCC. Given the actions being undertaken by JCC described above and the many variables involved in bringing these matters to a resolution, management is currently unable to estimate the losses the Company would incur, individually or in the aggregate, if JCC is partially or totally unsuccessful in such efforts. At June 30, 2000, the Company's total investment in JCC was approximately $109 million consisting of its net equity investment and various receivables, and its total potential liability for contingent obligations was approximately $260 million, which contingent liability includes approximately $75 million of unfunded amounts under the Current State Guarantee as of June 30, 2000. This unfunded sum may be reduced, as described above, and is presently being reduced. INDIAN AGREEMENTS - The agreements under which we manage casinos on Indian lands contain provisions required by law, which provide that a minimum monthly payment be made to the tribe. That obligation has priority over scheduled repayments of borrowings for development costs. In the event that insufficient cash flow is generated by the operations to fund this payment, we must pay the shortfall to the tribe. Such advances, if any, would be repaid to us in future periods in which operations generate cash flow in excess of the required minimum payment. These commitments will terminate upon the occurrence of certain defined events, including termination of the management contract. Our aggregate monthly commitment pursuant to the contracts for the three Indian-owned facilities now open, which extend for periods of up to 54 months from June 30, 2000, is $1.1 million. We may guarantee all or part of the debt incurred by Indian tribes with which we have entered a management contract to fund development of casinos on the Indian lands. For all existing guarantees of Indian debt, we have obtained a first lien on certain personal property (tangible and intangible) of the casino enterprise. There can be no assurance, however, the value of such property would satisfy our obligations in the event these guarantees were enforced. Additionally, we have received limited waivers from the Indian tribes of their sovereign immunity to allow us to pursue our rights under the contracts between the parties and to enforce collection efforts as to any assets in which a security interest is taken. The aggregate outstanding balance of such debt as of June 30, 2000, was $65.3 million. 28 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) NAI - We have provided $10 million in loans to NAI at June 30, 2000. In addition, we have provided letters of credit on behalf of NAI totaling $21 million dollars. $16 million in letters of credit serve as collateral to credit card processors in order to enable NAI to receive proceeds from the credit card processors for advance ticket sales. The remaining $5 million serves as collateral to enable NAI to secure space in airport terminals. We entered into an agreement with another investor of NAI whereby that investor will reimburse to us approximately sixty percent of any amount that we might pay in response to demands on the letters of credit. EFFECTS OF CURRENT ECONOMIC AND POLITICAL CONDITIONS COMPETITIVE PRESSURES Due to the limited number of new markets opening for development, many casino operators are investing in existing markets in an effort to attract new customers, thereby increasing competition in those markets. With the exception of the additional supply being added in Las Vegas, the amount of supply change in the long-established gaming markets of Nevada and New Jersey has represented a smaller percentage change than that experienced in some riverboat markets. In riverboat markets, the additions to supply had a more noticeable impact, due to the fact that competition was limited in the early stages of many of these markets. As companies have completed expansion projects, supply has typically grown at a faster pace than demand in some markets and competition has increased significantly. Furthermore, several operators, including Harrah's, have announced plans for additional developments or expansions in some markets. In the Las Vegas market, four new "mega" facilities have opened since October 1998, and others are planned and under development, including one scheduled to open in third quarter 2000. The impact that the additional supply will have on our operations cannot be determined at this time. Although the short-term effect of these competitive developments on the Company has been negative, we are not able to determine the long-term impact, whether favorable or unfavorable, that these trends and events will have on our current or future markets. We believe that the geographic diversity of our operations; our focus on multi-market customer relationships; our service training, measurements and rewards programs; and our continuing efforts to establish our brands as premier brands have well-positioned us to face the challenges present within the industry. In 1997, we introduced WINet, a sophisticated nationwide customer database, and our Total Gold Card, a nationwide reward and recognition card, both of which we believe provide competitive advantages, particularly with players who visit more than one market. During 1999, we implemented the next stage of our strategy with the launch of the tiered customer loyalty card program - Total Diamond, Total Platinum and Total Gold - to reward customers for choosing Harrah's Entertainment casinos. During second quarter 2000, we launched our new customer loyalty program - Total Rewards - which offers significant enhancements to Total Gold and provides our customers with a simpler understanding of exactly how to earn the cash, comps and other benefits they want. The Rio and Showboat properties are expected to be integrated into the Total Rewards program during 2000. INDUSTRY CONSOLIDATION As evidenced by the number of recent public announcements by casino entertainment companies of plans to acquire or be acquired by other companies, including our acquisitions of Showboat, Rio and Players, consolidation in the gaming industry continues. We believe we are well-positioned to, and may from time to time, pursue additional strategic acquisitions to further enhance our distribution, 29 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) strengthen our access to target customers and leverage our technological and centralized services infrastructure. POLITICAL UNCERTAINTIES The casino entertainment industry is subject to political and regulatory uncertainty. In 1996, the U.S. government formed a federal commission to study gambling in the United States, including the casino gaming industry. The commission issued its report in June 1999. In September 1999, the State of California and approximately 60 Indian tribes executed Class III Gaming Compacts, which other California tribes can join. The Compacts, when effective, will allow each tribe to operate, on tribal trust lands, two casinos with up to 2,000 slot machines per tribe and unlimited house-banked card games. At this time, the ultimate impacts that the National Gaming Impact Study Commission report and the California Compacts may have on the industry or on our Company are uncertain. From time to time, individual jurisdictions have also considered legislation or referendums that could adversely impact our operations, and the likelihood or outcome of similar legislation and referendums in the future is difficult to predict. The casino entertainment industry represents a significant source of tax revenues to the various jurisdictions in which casinos operate. From time to time, various state and federal legislators and officials have proposed changes in tax laws, or in the administration of such laws, which would affect the industry. It is not possible to determine with certainty the scope or likelihood of possible future changes in tax laws or in the administration of such laws. If adopted, such changes could have a material adverse effect on our financial results. INTERCOMPANY DIVIDEND RESTRICTION Certain of our debt guarantees require us to abide by covenants, which, among other things, limit HOC's ability to pay dividends and make other restricted payments, as defined, to Harrah's Entertainment. The amount of HOC's restricted net assets, as defined, computed in accordance with these covenants regarding restricted payments was approximately $1.41 billion at June 30, 2000. Harrah's Entertainment's principal asset is the stock of HOC, a wholly-owned subsidiary, which holds, directly and through subsidiaries, the principal assets of our businesses. Given this ownership structure, these restrictions should not impair our ability to conduct our business through our subsidiaries or to pursue our development plans. PRIVATE SECURITIES LITIGATION REFORM ACT The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. Certain information included in this Form 10-Q and other materials filed or to be filed by the Company with the Securities and Exchange Commission ("SEC") (as well as information included in oral statements or other written statements made or to be made by or on behalf of the Company) includes statements that are forward looking. These forward-looking statements generally can be identified by phrases such as the Company "believes," "expects," "anticipates," "foresees," "forecasts," "estimates," " intends," "plans," "seeks," or other words or phrases of similar import. These include statements relating to the following activities, among others: (A) operations and expansions of existing properties, including future performance, anticipated scope, and opening dates of expansions; (B) planned development of casinos and hotels that would be owned or managed by the Company and the pursuit of strategic acquisitions; (C) planned capital expenditures for 2000 and beyond; (D) the impact of the WINet, Total Gold Card, and Total Rewards Programs; and (E) any future impact of the 30 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Showboat or Players acquisitions, the Rio merger, or the Rincon development. Similarly, such statements herein that describe, generally or specifically, the Company's business strategy, outlook, objectives, plans, intentions, or goals are also forward-looking statements. All such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those expressed in any forward looking statements made by or on behalf of the Company. These include, but are not limited to, the following factors as well as other factors described from time to time in the Company's reports filed with the SEC: construction factors, including zoning issues, environmental restrictions, soil conditions, weather and other hazards, site access matters and building permit issues; access to available and feasible financing; regulatory, licensing and other government approvals, third party consents and approvals, and relations with partners, owners and other third parties; conditions of credit markets and other business and economic conditions, including international and national economic problems; litigation, judicial actions and political uncertainties, including gaming legislative action, referenda, and taxation; abnormal gaming holds; and the effects of competition, including locations of competitors and operating and marketing competition. Any forward-looking statements are made pursuant to the Private Securities Litigation Reform Act of 1995, speak only as of the date made, and are qualified in their entirety by this and other cautionary statements herein, in our Annual Report on Form 10-K, and in our other filings with the Securities and Exchange Commission. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices. Our primary exposure to market risk is interest rate risk associated with our debt. We attempt to limit our exposure to interest rate risk by managing the mix of our debt between fixed rate and variable rate obligations. We do not currently utilize derivative transactions to hedge our exposure to interest rate changes. We do not hold or issue derivative financial instruments for trading purposes and do not enter into derivative transactions that would be considered speculative positions. We sold our management contract for a casino in a foreign country in January 2000. As a result, we no longer have any ownership interest in businesses in foreign countries and, therefore, are not subject to material foreign currency exchange rate risk. We hold investments in various available-for-sale equity securities, however, our exposure to price risk arising from the ownership of these investments is not material to our consolidated financial position, results of operations or cash flows. 31 PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company held its annual stockholders meeting on April 27, 2000. The following matters were voted upon at the meeting: 1. ELECTION OF CLASS I DIRECTORS
VOTES CAST ------------------------ AGAINST OR NAME OF DIRECTOR ELECTED FOR WITHHELD ------------------------ ----------- ---------- Joe M. Henson......................................... 111,107,307 770,054 R. Brad Martin........................................ 108,191,058 3,686,303 Colin V. Reed......................................... 108,198,869 3,678,492 Eddie N. Williams..................................... 111,088,650 788,711
NAME OF EACH OTHER DIRECTOR WHOSE TERM OF OFFICE AS DIRECTOR CONTINUED AFTER THE MEETING ---------------------------------------------- Susan Clark-Johnson James B. Farley Ralph Horn J. Kell Houssels III Gary W. Loveman Robert G. Miller Walter J. Salmon Philip G. Satre Boake A. Sells
AGAINST OR FOR WITHHELD ABSTENTIONS --- -------- ----------- 2. ADOPTION OF THE COMPANY'S SENIOR EXECUTIVE 107,081,578 4,246,266 549,517 INCENTIVE PLAN
AGAINST OR FOR WITHHELD ABSTENTIONS --- -------- ----------- 3. APPROVAL OF AN AMENDMENT ADDING SHARES TO 92,221,284 19,083,187 572,890 THE COMPANY'S STOCK OPTION PLAN
AGAINST OR FOR WITHHELD ABSTENTIONS --- -------- ----------- 4. RATIFICATION OF ARTHUR ANDERSEN LLP AS 111,320,078 128,150 429,133 THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS FOR THE 2000 CALENDAR YEAR
32 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits *EX-4.1 364-Day Credit Agreement, dated as of June 26, 2000, among Harrah's Operating Company, Inc., as Borrower, Harrah's Entertainment, Inc., as Guarantor, and Citibank, N.A., as Lender. *EX-4.2 Guaranty, dated as of June 26, 2000, by Harrah's Entertainment, Inc., as Guarantor, in favor of Citibank, N.A., as Lender. *EX-4.3 First Amendment, dated as of April 3, 2000, to the Five Year Loan Agreement among Harrah's Entertainment, Inc., as Guarantor, Harrah's Operating Company, Inc. and Marina Associates, as Borrowers, The Lenders, Syndication Agent, Document Agents and Co-Documentation Agents and Bank of America National Trust and Savings Association, as Administrative Agent. *EX-4.4 First Amendment, dated as of April 3, 2000, to the Short Term Loan Agreement among Harrah's Entertainment, Inc., as Guarantor, Harrah's Operating Company, Inc. and Marina Associates, as Borrowers, The Lenders, Syndication Agent, Document Agents and Co-Documentation Agents and Bank of America, N.A. (under its former name, Bank of America National Trust and Savings Association), as Administrative Agent; Request for Extension to the Short Term Loan Agreement. *EX-4.5 Issuing and Paying Agent Agreement, dated as of May 19, 2000, among Harrah's Operating Company, Inc., as Issuer, Harrah's Entertainment, Inc., as Guarantor, and Bank One, National Association, as issuing an paying agent; Corporate Commercial Paper Master Note in favor of Cede & Co., as nominee of The Depository Trust Company, by Harrah's Operating Company, Inc., as Issuer, and Bank One, N.A., as Paying Agent. *EX-4.6 Commercial Paper Dealer Agreement, dated as of May 3, 2000, among Harrah's Operating Company, Inc., as Issuer, Harrah's Entertainment, Inc., as Guarantor, and Banc of America Securities LLC, as Dealer. *EX-4.7 Commercial Paper Dealer Agreement, dated as of May 3, 2000, among Harrah's Operating Company, Inc., as Issuer, Harrah's Entertainment, Inc., as Guarantor, and Credit Suisse First Boston Corporation, as Dealer. *EX-10.1 Harrah's Entertainment, Inc. Senior Executive Incentive Plan approved by the Stockholders on April 27, 2000, following approval by the Company's Human Resources Committee of the Board of Directors on February 23, 2000, and the Board of Directors on February 24, 2000. *EX-10.2 Amendment to Harrah's Entertainment, Inc. 1990 Stock Option Plan, dated as of February 23, 2000. *EX-10.3 Time Accelerated Restricted Stock Award Plan II (TARSAP II) approved by the Human Resources Committee of the Board of Directors on April 26, 2000. *EX-10.4 Amendment to Employment Agreement, dated April 26, 2000, between Harrah's Entertainment, Inc. and Gary W. Loveman. *EX-10.5 Amendment to Severance Agreement, dated April 26, 2000, between Harrah's Entertainment, Inc. and Gary W. Loveman. *EX-10.6 Severance Agreement, dated April 27, 2000, between Harrah's Entertainment, Inc. and Richard Mirman.
33 *EX-11 Computation of per share earnings. *EX-27 Financial Data Schedule. EX-99.1 Press Release dated April 13, 2000-Harrah's Estimates First-Quarter Earnings at 24 to 26 Cents Per Share; Low Hold Percentage at Rio Impacted Per-Share Earning by 9 Cents (Incorporated by reference from the Company's Current Report on Form 8-K, filed April 17, 2000, File No. 1-10410). EX-99.2 Press Release dated May 30, 2000-Harrah's Entertainment Calls Players International Notes for Redemption (Incorporated by reference from the Company's Current Report on Form 8-K, filed June 13, 2000, File No. 1-10410).
- ------------------------ * Filed herewith. (b) A Form 8-K was filed by the Company on April 17, 2000, reporting the estimates of first-quarter earnings. A Form 8-K was filed by the Company on June 13, 2000, calling for the redemption of the Players International, Inc. 10 7/8% Senior Notes due 2005. 34 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. HARRAH'S ENTERTAINMENT, INC. August 14, 2000 BY: /s/ COLIN V. REED ----------------------------------------- Colin V. Reed CHIEF FINANCIAL OFFICER AND OFFICE OF THE PRESIDENT
35 EXHIBIT INDEX
SEQUENTIAL EXHIBIT NO. DESCRIPTION PAGE NO. - ----------- ----------- ---------- EX-4.1 364-Day Credit Agreement, dated as of June 26, 2000, among Harrah's Operating Company, Inc., as Borrower, Harrah's Entertainment, Inc., as Guarantor, and Citibank, N.A., as Lender. EX-4.2 Guaranty, dated as of June 26, 2000, by Harrah's Entertainment, Inc., as Guarantor, in favor of Citibank, N.A., as Lender. EX-4.3 First Amendment, dated as of April 3, 2000, to the Five Year Loan Agreement among Harrah's Entertainment, Inc., as Guarantor, Harrah's Operating Company, Inc. and Marina Associates, as Borrowers, The Lenders, Syndication Agent, Document Agents and Co-Documentation Agents and Bank of America National Trust and Savings Association, as Administrative Agent. EX-4.4 First Amendment, dated as of April 3, 2000, to the Short Term Loan Agreement among Harrah's Entertainment, Inc., as Guarantor, Harrah's Operating Company, Inc. and Marina Associates, as Borrowers, The Lenders, Syndication Agent, Document Agents and Co-Documentation Agents and Bank of America, N.A. (under its former name, Bank of America National Trust and Savings Association), as Administrative Agent; Request for Extension to the Short Term Loan Agreement. EX-4.5 Issuing and Paying Agent Agreement, dated as of May 19, 2000, among Harrah's Operating Company, Inc., as Issuer, Harrah's Entertainment, Inc., as Guarantor, and Bank One, National Association, as issuing an paying agent; Corporate Commercial Paper Master Note in favor of Cede & Co., as nominee of The Depository Trust Company, by Harrah's Operating Company, Inc., as Issuer, and Bank One, N.A., as Paying Agent. EX-4.6 Commercial Paper Dealer Agreement, dated as of May 3, 2000, among Harrah's Operating Company, Inc., as Issuer, Harrah's Entertainment, Inc., as Guarantor, and Banc of America Securities LLC, as Dealer. EX-4.7 Commercial Paper Dealer Agreement, dated as of May 3, 2000, among Harrah's Operating Company, Inc., as Issuer, Harrah's Entertainment, Inc., as Guarantor, and Credit Suisse First Boston Corporation, as Dealer. EX-10.1 Harrah's Entertainment, Inc. Senior Executive Incentive Plan approved by the Stockholders on April 27, 2000, following approval by the Company's Human Resources Committee of the Board of Directors on February 23, 2000, and the Board of Directors on February 24, 2000. EX-10.2 Amendment to Harrah's Entertainment, Inc. 1990 Stock Option Plan, dated as of February 23, 2000. EX-10.3 Time Accelerated Restricted Stock Award Plan II (TARSAP II) approved by the Human Resources Committee of the Board of Directors on April 26, 2000. EX-10.4 Amendment to Employment Agreement, dated April 26, 2000, between Harrah's Entertainment, Inc. and Gary W. Loveman. EX-10.5 Amendment to Severance Agreement, dated April 26, 2000, between Harrah's Entertainment, Inc. and Gary W. Loveman.
36
SEQUENTIAL EXHIBIT NO. DESCRIPTION PAGE NO. - ----------- ----------- ---------- EX-10.6 Severance Agreement, dated April 27, 2000, between Harrah's Entertainment, Inc. and Richard Mirman. EX-11 Computation of per share earnings. EX-27 Financial Data Schedule. EX-99.1 Press Release dated April 13, 2000-Harrah's Estimates First-Quarter Earnings at 24 to 26 Cents Per Share; Low Hold Percentage at Rio Impacted Per-Share Earning by 9 Cents (Incorporated by reference from the Company's Current Report on Form 8-K, filed April 17, 2000, File No.1-10410). EX-99.2 Press Release dated May 30, 2000-Harrah's Entertainment Calls Players International Notes for Redemption (Incorporated by reference from the Company's Current Report on Form 8-K, filed June 13, 2000, File No. 1-10410).
37 EX-4.1 2 ex-4_1.txt EXHIBIT 4.1 Exhibit - 4.1 $150,000,000 364-DAY CREDIT AGREEMENT Dated as of June 26, 2000 among HARRAH'S OPERATING COMPANY, INC. AS BORROWER HARRAH'S ENTERTAINMENT, INC. AS GUARANTOR and CITIBANK, N.A. AS LENDER TABLE OF CONTENTS Page ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.01. Certain Defined Terms......................................... 4 SECTION 1.02 Types of Advances............................................. 7 ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES SECTION 2.01. The Commitment; Purpose....................................... 8 SECTION 2.02. Advances...................................................... 8 SECTION 2.03. Termination, Reduction and Extension of the Commitment........ 8 SECTION 2.04. Repayment of Advances......................................... 8 SECTION 2.05. Prepayment of Advances........................................ 9 SECTION 2.06. Fees.......................................................... 9 SECTION 2.07. Interest......................................................10 SECTION 2.08. Alternate Rate of Interest....................................12 SECTION 2.09. Increased Costs...............................................13 SECTION 2.10. Break Funding Payments........................................13 SECTION 2.11. Payments Generally............................................13 ARTICLE III CONDITIONS OF LENDING SECTION 3.01. Condition Precedent to Initial Advance........................14 SECTION 3.02. Conditions Precedent to Each Advance..........................15 ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01. Representations and Warranties................................15 ARTICLE V COVENANTS OF THE BORROWER SECTION 5.01. Covenants......................................................16 ARTICLE VI EVENTS OF DEFAULT SECTION 6.01. Events of Default.............................................17 ARTICLE VII MISCELLANEOUS SECTION 7.01. Amendments, Etc...............................................18 SECTION 7.02. Notices, Etc..................................................18 SECTION 7.03. No Waiver; Remedies...........................................18 SECTION 7.04. Costs, Expenses and Indemnification...........................19 SECTION 7.05. Assignments and Participations................................19 SECTION 7.06. Governing Law; Submission to Jurisdiction.....................20 SECTION 7.07. Severability..................................................21 SECTION 7.08. Execution in Counterparts.....................................21 SECTION 7.09. Survival......................................................21 SECTION 7.10. Waiver of Jury Trial..........................................21 SECTION 7.11. No Fiduciary Relationship.....................................21 SECTION 7.12. Gaming Boards.................................................22 SECTION 7.13. Gaming Regulations............................................22 SECTION 7.14. Designated Senior Debt........................................22 CREDIT AGREEMENT dated as of June 26, 2000 among HARRAH'S OPERATING COMPANY, INC., a Delaware corporation (the "Borrower"), as Borrower, HARRAH'S ENTERTAINMENT, INC., a Delaware corporation (the "Parent"), as Guarantor, and CITIBANK, N.A. (the "Lender"). The Parent and the Borrower have requested that the Lender make advances to the Borrower in an aggregate principal amount up to but not exceeding $150,000,000 at any one time outstanding to refinance certain indebtedness, and the Lender is prepared to make such advances on and subject to the terms and conditions hereof. Accordingly, the parties hereto agree as follows: ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.01. Certain Defined Terms. Except as otherwise expressly provided herein, capitalized terms used herein and not otherwise defined herein shall have the meanings ascribed thereto in the Existing Syndicated Credit Agreement as hereinafter defined (provided that said defined terms shall be construed mutatis mutandis and without limiting the foregoing, references in said defined terms to "any Lender", "the Administrative Agent" and "any Creditor" or the like shall be deemed to mean the Lender and references to the "Loan Documents" or the like shall be deemed to mean this Agreement). In addition: "Advance" means each advance by the Lender to the Borrower pursuant to Section 2.01. "Applicable Lending Office" means the office of the Lender specified on the signature page hereof, or such other office of the Lender as the Lender may from time to time specify to the Borrower. "Arranger" means Salomon Smith Barney, Inc. "Base Rate" means, for any period, a fluctuating interest rate per annum in effect from time to time which rate per annum shall at all times be equal to the higher of: (a) the rate of interest announced publicly by Citibank in New York, New York from time to time as Citibank's base rate; and (b) the Federal Funds Rate for such day plus 1/2 of 1% per annum. "Base Rate Advance" means, at any time, an Advance which bears interest computed on the basis of the Base Rate. "Business Day" means a day on which banks are not required or authorized to close in New York, New York and, in the case of any borrowing or payment in respect of or the interest rate on any Eurodollar Rate Advance, on which dealings in Dollar deposits are carried on in the London interbank market. "Citibank" means Citibank, N.A. "Commitment" has the meaning specified in Section 2.01. "Commitment Termination Date" means the date 364 days after the date hereof, provided, that if such day is not a Business Day, the Commitment Termination Date shall be the immediately preceding Business Day. "Debt Issuance" means any issuance or incurrence by a Borrower or the Parent or any of their respective Subsidiaries of Indebtedness for Borrowed Money. "Default" means an Event of Default or an event that, with notice or lapse of time or both, would become an Event of Default. "Dollars" and "$" mean lawful money of the United States of America. "Eurocurrency Liabilities" has the meaning assigned to that term in Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Eurodollar Rate" means, with respect to any Eurodollar Rate Advance, for any Interest Period: (a) the offered rate for deposits in Dollars with a maturity comparable to such Interest Period appearing on Page 3750 of the Telerate Service of Bridge Information Service (or on any successor or substitute page of such Service, or any successor to such Service, providing rate quotations comparable to those currently provided on such page of such Service, as determined by the Lender from time to time, for purposes of providing quotations of interest rates applicable to Dollar deposits in the London interbank market) as of approximately 11:00 a.m. (London time) on the date two Business Days prior to the commencement of such Interest Period; (b) if such date does not appear on said Page 3750 (or such successor), the offered rate for deposits in Dollars with a maturity comparable to such Interest Period appearing on the display designated on page "LIBO" on the Reuter Monitor Money Rates Service (or on any successor or substitute page of such Service, providing rate quotations comparable to those currently provided on such page of such Service, as determined by the Lender from time to time, for purposes of providing quotations of interest rates applicable to Dollar deposits in the London interbank market) as of approximately 11:00 a.m. (London time) on the date two Business Days prior to the commencement of such Interest Period; and (c) in the event that neither rate referred to in clauses (a) or (b) is available at such time for any reason, an interest rate per annum equal to the rate per annum at which deposits in Dollars are offered by the principal office of the Lender in London, England to prime banks in the London interbank market at approximately 11:00 a.m. (London time) on the date two Business Days before the first day of such Interest Period in the amount of the Advance if such Advance were to be outstanding for such Interest Period. "Eurodollar Rate Advance" means, at any time, an Advance which bears interest at a rate based upon the Eurodollar Rate. "Events of Default" has the meaning specified in Section 6.01. "Existing Syndicated Credit Agreement" means the 364-Day Loan Agreement dated as of April 30, 1999, among the Borrower, Marina Associates, certain financial institutions and Bank of America National Trust and Savings Association, as Administrative Agent, as amended to and in effect on the date hereof, without regard to any amendment or modification or waiver thereunder on or after the date hereof, and without regard to whether said agreement remains in effect among the parties thereto on or after the date hereof. "Guaranty" means a Guaranty in form and substance satisfactory to the Lender executed by the Parent with respect to the obligations of the Borrower hereunder, as from time to time amended. "Indebtedness for Borrowed Money" means Indebtedness arising from the issuance debt securities in private placement transactions or in the capital markets (not including refinancings of Indebtedness existing on the date hereof or the assumption or refinancing of Indebtedness of any Subsidiary which Indebtedness exists on the date of acquisition of by the Borrower or the Parent of such Subsidiary (and not created in contemplation thereof), and not including Indebtedness arising under commercial paper transactions). "Interest Payment Date" means (a) with respect to any Base Rate Advance, each Quarterly Payment Date and (b) with respect to any Eurodollar Rate Advance, the last day of each Interest Period therefor and, in the case of any Interest Period that has a duration of more than three months, each day prior to the last day of such Interest Period that occurs at intervals of three months after the first day of such Interest Period. "Interest Period" means, with respect to any Eurodollar Rate Advance, the period beginning on the date such Eurodollar Rate Advance is made, or on the last day of the immediately preceding Interest Period, and ending on the day 1, 2, 3 or 6 months thereafter, as the Borrower may select as hereinafter provided; provided, however, that (i) each Interest Period that begins on the last Business Day of a calendar month (or on any day for which there is no numerically corresponding day in the appropriate subsequent calendar month) shall end on the last Business Day of the appropriate subsequent calendar month, (ii) whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day, except that, if such extension would cause the last day of such Interest Period to occur in the next following calendar month, the last day of such Interest Period shall occur on the next preceding Business Day, and (iii) any Interest Period that would otherwise extend beyond the Commitment Termination Date shall end on the Commitment Termination Date. "Net Cash Proceeds" means, in connection with any Debt Issuance by any Person, the cash proceeds thereof net of reasonable costs and expenses incurred in connection with such Debt Issuance. "Parent" means Harrah's Entertainment, Inc., a Delaware corporation. "Players International" means Players International Inc., a Nevada corporation. "Senior Notes" means the $150,000,000 in 10.875% Senior Notes of Players International due 2005. SECTION 1.02 Types of Advances. The "Type" of an Advance refers to whether it is at the time a Base Rate Advance or a Eurodollar Rate Advance. ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES SECTION 2.01. The Commitment; Purpose. (a) The Lender agrees, on the terms and conditions hereinafter set forth, to make Advances in Dollars to the Borrower at any time and from time to time on any Business Day during the period from the date hereof until the Commitment Termination Date in an aggregate principal amount not to exceed at any one time outstanding $150,000,000 (the "Commitment"). Within the foregoing limits and subject to the terms and conditions of this Agreement, the Borrower may borrow, prepay and reborrow the amount of the Commitment. Each Advance shall be in a minimum amount of $5,000,000 or any whole multiple of $1,000,000 in excess thereof. (b) The proceeds of the Advances shall be used solely (i) first, to refinance in full the Senior Notes, and (ii) thereafter for the general corporate purposes of the Borrower. SECTION 2.02. Advances. To request an Advance, the Borrower shall give the Lender irrevocable, written notice of such Advance (i) in the case of a Eurodollar Rate Advance, not later than 10:00 a.m. (New York time) on the second Business Day prior to the date of such Advance or (ii) in the case of a Base Rate Advance, not later than 10:00 a.m. (New York time) on the day of such Advance. Each such notice shall be by telecopier and shall specify therein (1) the requested date of such Advance, (2) the requested Type of Advance, (3) the requested amount of such Advance and (4) in the case of a Eurodollar Rate Advance, the initial Interest Period with respect thereto. The Lender will make the proceeds of each Advance available to the Borrower by crediting the amount thereof, in immediately available funds, to an account of the Borrower by 11:00 a.m. New York time on the date of such Advance in accordance with standing wire instructions reasonably satisfactory to the Lender. SECTION 2.03. Termination, Reduction and Extension of the Commitment. (a) Unless previously terminated, the Commitment shall automatically terminate on the Commitment Termination Date. (b) The Borrower shall have the right to terminate or reduce the Commitment at any time or from time to time; provided, that (i) the Borrower shall give irrevocable, written notice of each such termination or reduction to the Lender at least three Business Days before such termination or reduction, (ii) each partial reduction shall be in a minimum amount of $5,000,000 or any whole multiple of $1,000,000 in excess thereof and (iii) the Borrower shall not terminate or reduce the Commitment if, after giving effect to any concurrent prepayment of the Advances pursuant to Section 2.05, at any time, the aggregate outstanding principal amount of the Advances at such time would exceed the Commitment. (c) The Commitment once terminated or reduced pursuant to this Section 2.03 may not be reinstated. SECTION 2.04. Repayment of Advances. The Borrower agrees to repay to the Lender the outstanding principal amount of the Advances on the Commitment Termination Date. SECTION 2.05. Prepayment of Advances. (a) The Borrower shall have the right at any time and from time to time to prepay any Advance in whole or in part, subject to the terms of clause (c) below. (b) The Borrower shall, on the date of any Debt Issuance after the date hereof, prepay the Advances in an aggregate amount equal to the Net Cash Proceeds of such Debt Issuance. The Borrower will give the Lender at least three Business Days' prior written notice of each Debt Issuance, specifying the date thereof and the principal amount thereof. (c) The Borrower shall notify the Lender in writing of any optional prepayment hereunder not later than 10:00 a.m. (New York time) (i) in the case of Eurodollar Rate Advance, three Business Days before the date of prepayment (ii) in the case of Base Rate Advance, on the date of such prepayment. Each such notice shall be irrevocable and shall specify the prepayment date and the principal amount of each Advance or portion thereof to be prepaid. Each partial prepayment of any Advance under Section 2.05(a) shall be in a minimum amount of $5,000,000 or any whole multiple of $1,000,000 in excess thereof. (d) All prepayments under this Section 2.05 shall be accompanied by accrued interest and all amounts payable in connection therewith pursuant to Section 2.10. SECTION 2.06. Fees. (a) The Borrower shall pay to the Lender a facility fee on the daily amount of the Commitment (whether or not utilized) for the period from and including the date of this Agreement to but not including the earlier of the date the Commitment is terminated or the Commitment Termination Date, at a rate per annum equal to the Facility Fee Rate. Accrued facility fee shall be payable in arrears on each Quarterly Payment Date and on the earlier of the date the Commitment terminates and the Commitment Termination Date. Facility fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed (including the first day but excluding the last day). (b) On the date hereof, the Borrower shall pay to the Lender, for the sole account of the Arranger, non-refundable fees in the amounts separately agreed in the fee letter dated as of the date hereof relating hereto. SECTION 2.07. Interest. (a) The Borrower agrees to pay interest on each Base Rate Advance at a rate per annum equal to the Base Rate plus the Base Rate Margin. (b) The Borrower agrees to pay interest on each Eurodollar Rate Advance at a rate per annum for each Interest Period equal to the Eurodollar Rate for such Interest Period plus the Eurodollar Margin. (c) Notwithstanding clauses (a) and (b) above, during any period that an Event of Default has occurred and is continuing, the Borrower agrees to pay to the Lender interest at a rate per annum equal to (i) in the case of any principal of any Advance, 2% per annum plus the rate otherwise applicable to such Advance or (ii) in the case of any other amount, 2% per annum plus the Base Rate plus the Base Rate Margin. (d) Accrued interest on each Advance shall be payable in arrears on each Interest Payment Date and upon termination of the Commitment; provided, that (i) interest accrued pursuant to paragraph (c) of this Section 2.07 shall be payable on demand, and (ii) in the event of any repayment or prepayment of any Advance, accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment. (e) Each Advance initially shall be of the Type specified in the notice of such Advance and, in the case of a Eurodollar Rate Advance, shall have an initial Interest Period as specified in such notice. Thereafter, the Borrower may elect to convert such Advance to a different Type or to continue such Advance as the same Type and, in the case of a Eurodollar Rate Advance, mayelect Interest Periods therefor, all as provided in this Section 2.07. The Borrower may elect different options with respect to different portions of the affected Advance, in which case each such portion shall be considered a separate Advance (provided, that each such portion, in the case of a Eurodollar Rate Advance, shall be in a minimum amount of $5,000,000 or any whole multiple of $1,000,000 in excess thereof). To make an election pursuant to this Section 2.07, the Borrower shall notify the Lender of such election by telephone by the time that a notice of Advance would be required under Section 2.02 if the Borrower were requesting an Advance of the Type resulting from such election to be made on the effective date of such elections. Each such telephonic election shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Lender of a written interest election request in a form approved by the Lender and signed by the Borrower. Each telephonic and written interest election request shall specify the following information: (i) the Advance to which such interest election request applies and, if different options are being elected with respect to different portions thereof, the portions thereof to be allocated to each resulting Advance (in which case the information to be specified pursuant to clauses (iii) and (iv) of this paragraph shall be specified for each resulting Advance); (ii) the effective date of the election made pursuant to such interest election request, which shall be a Business Day; (iii) whether the resulting Advance is to be a Base Rate Advance or a Eurodollar Rate Advance, or a specified combination thereof; and (iv) if the resulting Advance is a Eurodollar Rate Advance, the Interest Period to be applicable thereto after giving effect to such election, which shall be a period contemplated by the definition of the term "Interest Period". If any such interest election request requests a Eurodollar Rate Advance but does not specify an Interest Period, then the Borrower shall be deemed to have selected an Interest Period of one month's duration. If the Borrower fails to deliver a timely and complete interest election request with respect to a Eurodollar Rate Advance prior to the end of the Interest Period applicable thereto, then, unless such Advance is repaid as provided herein, at the end of such Interest Period such Advance shall be converted to a Base Rate Advance. Notwithstanding any contrary provision hereof, if an Event of Default has occurred and is continuing and the Lender so notifies the Borrower, then, so long as an Event of Default is continuing (i) no outstanding Advance may be converted to or continued as a Eurodollar Rate Advance and (ii) unless repaid, each Eurodollar Rate Advance shall be converted to a Base Rate Advance at the end of the Interest Period applicable thereto. Notwithstanding the foregoing, if an Event of Default has occurred and is continuing and the Lender so notifies the Borrower, then, so long as an Event of Default is continuing, (i) no outstanding Advance may be converted to or continued as a Eurodollar Rate Advance and (ii) unless repaid, each Eurodollar Rate Advance shall be converted to a Base Rate Advance at the end of the Interest Period applicable thereto. (f) The Borrower agrees to pay to the Lender, so long as the Lender shall be required under regulations of the Board of Governors of the Federal Reserve System to maintain reserves with respect to liabilities or assets consisting of or including Eurocurrency Liabilities (or the equivalent), additional interest on the unpaid principal amount of each Advance, from the date of such Advance until such principal amount is paid in full, at an interest rate per annum equal at all times to the remainder obtained by subtracting (i) the Eurodollar Rate for the relevant Interest Period from (ii) the rate obtained by dividing such Eurodollar Rate by a percentage equal to 100% minus the Reserve Percentage, payable on each date on which interest is payable on such Advance. A certificate of the Lender setting forth the amount to which the Lender is then entitled under this Section2.07(f) shall be conclusive and binding on the Borrower in the absence of manifest error. (g) All computations of interest based on the Base Rate shall be made on the basis of a year of 365 or 366 days, as the case may be, and all computations of interest based on the Eurodollar Rate and computations of interest pursuant to Section 2.07(f) shall be made on the basis of a year of 360 days, in each case for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest is payable. SECTION 2.08. Alternate Rate of Interest. If the Lender determines (which determination shall be conclusive absent manifest error) that adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for any Interest Period, then the Lender shall give notice thereof to the Borrower by telephone or telecopy as promptly as practicable thereafter and, until the Lender notifies the Borrower that the circumstances giving rise to such notice no longer exist, all Advances as shall be made and maintained as (and effective on the first day of such Interest Period all Eurodollar Rate Advances shall be converted to) Base Rate Advances. SECTION 2.09. Increased Costs. The Borrower agrees to pay to the Lender the amounts provided for in Section 3.7 and 3.8 of the Existing Syndicated Credit Agreement as if the references therein to any "Eurodollar Rate Loans" or "Eurodollar Rate Advances" referred to the Advances, each reference therein to "each Lender" or the "Administrative Agent" or the like referred to the Lender and said Sections were otherwise set forth herein in full mutatis mutandis. A certificate of the Lender setting forth any amount or amounts that the Lender is entitled to receive pursuant to this Section 2.09 shall be delivered to the Borrower and shall be conclusive absent manifest error. SECTION 2.10. Break Funding Payments. In the event of (a) the payment of any principal of any Eurodollar Rate Advance other than on the last day of an Interest Period therefor (including without limitation as a result of an Event of Default), or (b) the failure to borrow or prepay any Eurodollar Rate Advance on the date specified in any notice delivered pursuant hereto, then, in any such event, the Borrower shall reimburse the Lender on demand for the loss, cost and expense attributable to such event, which shall be the amount, as reasonably determined by the Lender, equal to the sum of (1) principal amount paid, not borrowed or not prepaid, as the case may be, times the quotient of (A) the number of days between the date of prepayment or failure to borrow, as applicable, and the last day in the applicable Interest Period, divided by (B) 360, times the applicable Interest Differential (provided that the product of the foregoing formula must be a positive number); plus (2) all out-of-pocket expenses incurred by the Lender reasonably attributable to such payment, prepayment or failure to borrow. A certificate of the Lender setting forth any amount or amounts that the Lender is entitled to receive pursuant to this Section 2.10 shall be delivered to the Borrower and shall be conclusive absent manifest error. SECTION 2.11. Payments Generally. (a) The Borrower shall make each payment required to be made by it hereunder (whether of principal, interest or fees, or under Section 2.09 or 2.10, or otherwise) prior to 2:00 p.m. (New York time) on the date when due, in Dollars and immediately available funds, without set-off or counterclaim. Any amounts received after such time on any date may, in the discretion of the Lender, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Lender at such place as the Lender may direct. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension. (b) If at any time insufficient funds are received by and available to the Lender to pay fully all amounts of principal, interest and fees then due hereunder, such funds shall be applied first, to pay interest then due hereunder, then to pay fees and other amounts (other than principal) hereunder, then to pay principal due hereunder. ARTICLE III CONDITIONS OF LENDING SECTION 3.01. Condition Precedent to Initial Advance. The obligation of the Lender to make its initial Advance is subject to the condition precedent that the Lender shall have received, on or before June 30, 2000: (1) The Guaranty, duly executed by the Parent. (2) Certified copies of (x) the charter and by-laws of the Borrower (or equivalent documents) and the Parent and (y) evidence of the taking of all necessary corporate action required for the making and performance by the Borrower and the Parent of this Agreement and the Guaranty. (3) A certificate of the Borrower and the Parent certifying the names and true signatures of the officers of the Borrower and the Parent authorized to sign this Agreement (in the case of the Borrower) and the Guaranty (in the case of the Parent) and any other documents to be delivered hereunder. (4) A certificate from each of the Secretary of the relevant states of incorporation dated a date reasonably close to the date hereof as to the good standing of and charter documents filed by the Borrower and the Parent. (5) Favorable written opinions of the Associate General Counsel or General Counsel of the Parent and the Borrower, covering such matters relating to this Agreement and the Guaranty as the Lender may require. (6) A certificate signed on Parent's and the Borrower's behalf by a Senior Officer setting forth the Total Debt Ratio as of March 31, 2000 and the Debt Rating as of the date hereof. (7) A copy of the Parent's audited consolidated annual financial statements for the Fiscal Year ended December 31, 1999. (8) Such other assurances, certificates, documents, consents or opinions as the Lender reasonably may require. In addition, it shall be a condition precedent to the obligation of the Lender to make any Advance that the Borrower shall have paid all fees then due and payable and the reasonable costs and expenses of the Lender in connection with the preparation of this Agreement and the Guaranty. SECTION 3.02. Conditions Precedent to Each Advance. The obligation of the Lender to make each Advance (including, without limitation, the initial Advance) shall be subject to the further conditions precedent that on the date of such Advance (a) the representations and warranties set forth in Article IV are true and correct on and as of the date of such Advance, before and after giving effect to such Advance and to the application of the proceeds thereof, as though made on and as of such date and (b) no Default has occurred and is continuing, or would result from such Advance or from the application of the proceeds thereof. ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01. Representations and Warranties. The Borrower and the Parent represent and warrant to the Lender that (1) except to the extent otherwise disclosed to the Lender in writing prior to the date of this Agreement, each of the representations and warranties of the Parent and the Borrower in Article 4 of the Existing Syndicated Credit Agreement is true on and as of the date of this Agreement as if made on and as of the date of this Agreement, and as if (i) each reference therein and in the defined terms used therein to the "Loan Documents" referred to this Agreement and the Guaranty; (ii) each reference therein to the "Closing Date" referred to the date of this Agreement; (iii) each reference therein to "any Loan hereunder" or the like referred to the Advances; (iv) the reference in Section 4.5 thereof to the financial statements of the Parent and its Subsidiaries for the Fiscal Year ended December 31, 1998 referred to the financial statements thereof for the Fiscal Year ended December 31, 1999; and (v) references therein to Schedules thereto referred to such Schedules as updated in writing and heretofore delivered to the Lender; 2) no filings (whether by the Borrower, the Parent or the Lender) with or licenses or approvals of any Gaming Board are required for the Borrower and/or the Parent to make and perform this Agreement and the Guaranty except as provided in Section 5.01(3); (3) Players International is a direct or indirect wholly-owned Subsidiary of the Borrower; (4) none of the proceeds of the Senior Notes were used for the purpose, whether immediate, incidental or ultimate, of buying or carrying margin stock within the meaning of Regulations U or X of the Board of Governors of the Federal Reserve System; and (5) the financing contemplated hereby is necessary to pursue the transactions contemplated by the Merger Agreement relating to Players International. ARTICLE V COVENANTS OF THE BORROWER SECTION 5.01. Covenants. So long as any principal of or interest on any Advance or any other amount payable hereunder remains outstanding or the Commitment remains in effect, (1) the Borrower and the Parent covenant and agree that they will perform and observe the covenants and agreements set forth in Section 3.7, Section 3.8, Articles 5 (other than Sections 5.7, 5.8 and 5.9), 6 (other than Section 6.4 thereof) and 7 of the Existing Syndicated Credit Agreement, and agree that said Sections 5 (other than said Sections 5.7, 5.8 and 5.9), 6 (other than Section 6.4 hereof) and 7, together with all related definitions and ancillary provisions, are hereby incorporated by reference into this Agreement mutatis mutandis and shall be deemed to continue in effect for the benefit of the Lender as in effect on the date hereof irrespective of whether the Existing Syndicated Credit Agreement remains in effect among the parties thereto or is modified or amended or whether any provision thereof is waived; and without limiting the foregoing, (i) each reference in said Articles 5, 6 and 7 and in the defined terms used therein to the "Loan Documents" shall be deemed to refer to this Agreement and the Guaranty; (ii) each reference therein to the "Closing Date" shall be deemed to refer to the date of this Agreement; (iii) each reference therein to "any Loan hereunder", "any Advance" or the like shall be deemed to refer to the Advances; (iv) each reference to the "Lenders", "the Administrative Agent and the Lenders", the "Requisite Lenders", any "Creditor" and the like shall be deemed to refer to the Lender; and (v) each reference to any "Default" referred to any Default as defined herein; (2) if the Borrower at any time provides collateral security for the obligations under the Existing Syndicated Credit Agreement or any amendment, replacement or refinancing thereof, the Borrower will assure that the obligations of the Borrower hereunder are equally and ratably secured thereby; and (3) the Borrower will within 30 days after the date of this Agreement provide evidence satisfactory to the Lender that it has made such filings relating hereto with the Nevada Gaming Board as are required by applicable law and regulation. ARTICLE VI EVENTS OF DEFAULT SECTION 6.01. Events of Default. If any of the following events ("Events of Default") shall occur and be continuing: (a) The Borrower fails to pay any principal of any Advance when the same becomes due and payable; or the Borrower or the Parent fails to pay any interest on any Advance or any facility fee payable hereunder within five Business Days after the date when due; or the Borrower or the Parent fails to pay any other fee or other amount payable hereunder (other than as specified above in this clause (a)) within five Business Days after demand therefor; or (b) Any representation or warranty made by the Borrower or the Parent herein or by any thereof in any certificate or other document delivered in connection herewith shall prove to have been incorrect when made or deemed made; or (c) The Borrower or the Parent shall fail to perform or observe any term, covenant or agreement contained in Article 6 (other than Section 6.3 and Section 6.4) of the Existing Syndicated Credit Agreement as incorporated herein by reference; or the Borrower or the Parent shall fail to perform the covenant in Section 7.1(h) of the Existing Syndicated Credit Agreement as so incorporated herein in any respect that is materially adverse to the interests of the Lender; or the Borrower or the Parent shall fail to perform or observe any other term or covenant in this Agreement on its part to be performed or observed and such failure remains unremedied for thirty days after notice thereof shall have been given to the Borrower by the Lender; or (d) Any Event of Default as defined in the Existing Syndicated Credit Agreement shall occur (without regard to any waiver thereunder); then, and in any such event, the Lender may, by notice to the Borrower, (i) declare the obligation of the Lender to make Advances to be terminated, whereupon the same shall forthwith terminate, and/or (ii) declare the Advances, all interest thereon and all other amounts payable under this Agreement to be forthwith due and payable, whereupon the Advances, all such interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower; provided, however, that in the event of an entry of an order for relief with respect to the Parent or the Borrower described in any bankruptcy, insolvency, reorganization or similar proceedings in respect of the Parent or the Borrower, (A) the obligation of the Lender to make Advances shall automatically be terminated and (B) the Advances, all such interest and all such amounts shall automatically become and be due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by the Borrower. ARTICLE VII MISCELLANEOUS SECTION 7.01. Amendments, Etc. No amendment or waiver of any provision of this Agreement, nor consent to any departure by the Parent or the Borrower therefrom, shall in any event be effective unless the same shall be in writing and signed by the Lender and the Borrower, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. This Agreement and the Guaranty and the documents referred to herein and therein constitute the entire agreement of the parties with respect to the subject matter hereof and thereof. SECTION 7.02. Notices, Etc. All notices and other communications provided for hereunder shall be in writing (including telecopier communication) and mailed, telecopied or delivered, to the respective addresses set forth on the signature pages hereof or at such other address as shall be designated by any party in a written notice to the other party. All such notices and communications shall, when mailed or telecopied, be effective on the earlier of receipt or the third calendar day after deposit in the mails or telecopied, respectively, except that notices and communications to the Lender pursuant to Article II shall not be effective until received by the Lender. SECTION 7.03. No Waiver; Remedies. No failure on the part of the Lender to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 7.04. Costs, Expenses and Indemnification. (a) The Borrower agrees to pay and reimburse the Lender upon demand for all reasonable costs and expenses incurred by the Lender in connection with the preparation, negotiation, execution and delivery, administration, modification, amendment or enforcement of this Agreement, the Guaranty and the other documents to be delivered hereunder, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Lender with respect thereto and with respect to advising the Lender as to its rights and responsibilities under or in connection with this Agreement or the Guaranty. (b) The Borrower hereby indemnify the Lender and each of its affiliates and their respective officers, directors, employees, agents, advisors and representatives (each, an "Indemnified Party") from and against any and all claims, damages, losses, liabilities and expenses (including, without limitation, reasonable fees and disbursements of counsel), joint or several, that may be incurred by or asserted or awarded against any Indemnified Party, in each case arising out of or in connection with or relating to any investigation, litigation or proceeding or the preparation of any defense with respect thereto arising out of or in connection with or relating to this Agreement or the transactions contemplated hereby or any use made or proposed to be made with the proceeds of the Advances, whether or not such investigation, litigation or proceeding is brought by the Borrower, any of its shareholders or creditors, an Indemnified Party or any other Person, or an Indemnified Party is otherwise a party thereto, and whether or not any of the conditions precedent set forth in Article III are satisfied or the other transactions contemplated by this Agreement are consummated, except to the extent such claim, damage, loss, liability or expense is found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted from such Indemnified Party's gross negligence or willful misconduct. SECTION 7.05. Assignments and Participations. (a) The Lender may, with the consent of the Parent and the Borrower, which consent may be held at the sole discretion of the Parent and the Borrower, assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of the Commitment or the Advances); provided, however, that no such consent by the Parent or the Borrower shall be required in the case of any assignment to an affiliate of the Lender; and provided, further, that any such partial assignment shall be in an amount at least equal to $5,000,000 or in an integral multiple of $1,000,000 in excess thereof. (b) The Lender may, with the consent of the Parent and the Borrower, which consent may be held at the sole discretion of the Parent and the Borrower, sell participations to one or more banks or other entities in or to all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment or the Advances); provided, however, that the Lender's obligations under this Agreement (including, without limitation, the Commitment) shall remain unchanged. (c) The Lender may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 7.05, disclose to the assignee or participant or proposed assignee or participant, any information relating to the Borrower or any of their Subsidiaries or affiliates furnished to the Lender by or on behalf of the Borrower. (d) Notwithstanding any other provision set forth in this Agreement, the Lender may at any time create a security interest in all or any portion of its rights under this Agreement (including, without limitation, the Advances) in favor of any Federal Reserve Bank in accordance with Regulation A of the Board of Governors of the Federal Reserve System. (e) All amounts payable by the Borrower to the Lender under Sections 2.07(f), 2.09, 2.10 and 7.05(b) shall be determined as if the Lender had not sold or agreed to sell any participations in the Advances or its Commitment and as if the Lender were funding each of such Advances and Commitment in the same way that it is funding the portion of such Advances and Commitment in which no participations have been sold. (f) Neither the Parent nor the Borrower may assign any of its rights or obligations hereunder without the prior written consent of the Lender. (g) Notwithstanding anything in this Section to the contrary, the rights of the Lender to make assignment of, and grant participations in, its Commitment shall be subject to the approval of any Gaming Board, to the extent required by applicable Gaming Laws. SECTION 7.06. Governing Law; Submission to Jurisdiction. This Agreement shall be governed by, and construed in accordance with, the law of the State of New York. The Borrower and the Parent hereby submit to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York state court sitting in New York County for the purposes of all legal proceedings arising out of or relating to this Agreement or the transactions contemplated hereby. The Borrower and the Parent irrevocably appoint Corporate Service Company, having an office on the date hereof at 80 State Street, Albany, NY 12207-2543, as their agent for service of process in connection with any action or proceeding arising under this Agreement. The Borrower and the Parent irrevocably waive, to the fullest extent permitted by applicable law, any objection that it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. SECTION 7.07. Severability. In case any provision in this Agreement shall be held to be invalid, illegal or unenforceable, such provision shall be severable from the rest of this Agreement , as the case may be, and the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 7.08. Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. SECTION 7.09. Survival. The obligations of the Borrower under Sections 2.07(f), 2.09, 2.10 and 7.05 shall survive for ninety days following the repayment of the Advances and the termination of the Commitment. Each representation and warranty made or deemed to be made herein or pursuant hereto shall survive the making of such representation and warranty, and the Lender shall not be deemed to have waived, by reason of making any Advance, any Default or Event of Default that may arise by reason of such representation or warranty proving to have been false or misleading. SECTION 7.10. Waiver of Jury Trial. EACH OF THE BORROWER AND THE LENDER HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. SECTION 7.11. No Fiduciary Relationship. The Borrower acknowledges that the Lender has no fiduciary relationship with, or fiduciary duty to, the Parent or the Borrower arising out of or in connection with this Agreement or the Note, and the relationship between the Lender and the Borrower is solely that of creditor and debtor. This Agreement does not create a joint venture among the parties. SECTION 7.12. Gaming Boards. The Lender agrees to cooperate with all Gaming Boards in connection with the administration of their regulatory jurisdiction over the Parent and its Subsidiaries, including the provision of such documents or other information as may be requested by any such Gaming Board relating to the Borrower or the Parent or any of their Subsidiaries or to this Agreement. SECTION 7.13. Gaming Regulations. Each party to this Agreement hereby acknowledges that the consummation of the transactions contemplated hereby is subject to applicable Gaming Laws (and the Borrower represents and warrants that all requisite approvals necessary thereunder to enter into the transactions contemplated hereby have been duly obtained). SECTION 7.14. Designated Senior Debt. The Parent and the Borrower hereby irrevocably designate this Agreement as "Designated Senior Indebtedness" and "Senior Indebtedness" within the meanings given to those terms in Section 1.1 of the Supplemental Indenture dated December 9, 1998 entered into with respect to the Existing Subordinated Debt among the Borrower, Parent and IBJ Schroeder Bank & Trust Company. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. HARRAH'S OPERATING COMPANY, INC., as Borrower By: /s/ CHARLES L. ATWOOD --------------------------- HARRAH'S ENTERTAINMENT, INC., as Guarantor By: /s/ CHARLES L. ATWOOD --------------------------- Address for notices to the Borrower: 5100 West Sahara Boulevard Suite 200 Las Vegas, Nevada 89146 Attention: General Counsel Telecopier: 702-579-2671 Telephone: 702-579-2610 with a copy to Harrah's Entertainment, Inc. 1023 Cherry Road Memphis, Tennessee 38117 Attention: Assistant Treasurer Telecopier: 901-537-3443 Telephone: 901-537-3439 CITIBANK, N.A. By: /s/ MARK K. WILSON ------------------------- Title: Managing Director Global Media & Communication Applicable Lending Office: 399 Park Avenue New York, NY 10043 Attention: Mark K. Wilson Telephone: (212) 559-7241 Facsimile: (212) 793-6873 EX-4.2 3 ex-4_2.txt EXHIBIT 4.2 Exhibit 4.2 GUARANTY This GUARANTY ("Guaranty"), dated as of June 26, 2000, is made by HARRAH'S ENTERTAINMENT, INC., a Delaware corporation ("Guarantor"), in favor of CITIBANK, N.A. ("Lender"). RECITALS A. Pursuant to the Credit Agreement dated as of June 26, 2000 by and among Harrah's Operating Company, Inc., a Delaware corporation, ("Borrower"), the Guarantor and Citibank, N.A. (the "Lender") (as such agreement may from time to time be extended, modified, renewed, restated, supplemented or amended, the "Credit Agreement"), the Lender is making certain credit facilities available to Borrower. B. As a condition to the availability of such credit facilities, Guarantor is required to enter into this Guaranty and to guaranty the Guaranteed Obligations as hereinafter provided. C. Guarantor expects to realize direct and indirect benefits as the result of the availability of the aforementioned credit facilities to Borrower. AGREEMENT NOW, THEREFORE, in order to induce Lender to extend the aforementioned credit facilities, and for other good and valuable consideration, the receipt and adequacy of which hereby are acknowledged, Guarantor hereby represents, warrants, covenants, agrees and guarantees as follows: 1. Definitions. This Guaranty is the Guaranty referred to in the Credit Agreement. Terms defined in the Credit Agreement and not otherwise defined in this Guaranty shall have the meanings given those terms in the Credit Agreement when used herein and such definitions are incorporated herein as though set forth in full. In addition, as used herein, the following terms shall have the meanings respectively set forth after each: "Guaranteed Obligations" means all Obligations of Borrower at any time and from time to time owed to the Lender under the Credit Agreement, whether due or to become due, matured or unmatured, liquidated or unliquidated, or contingent or noncontingent, including obligations of performance as well as obligations of payment, and including interest that accrues after the commencement of any bankruptcy or insolvency proceeding by or against Borrower. "Guaranty" means this Guaranty, and any extensions, modifications, F renewals, restatements, reaffirmations, supplements or amendments hereof. 2. Guaranty of Guaranteed Obligations. Guarantor hereby irrevocably, unconditionally guarantees and promises to pay and perform on demand upon the occurrence of any Event of Default the Guaranteed Obligations and each and every one of them, including all amendments, modifications, supplements, renewals or extensions of any of them, whether such amendments, modifications, supplements, renewals or extensions are evidenced by new or additional instruments, documents or agreements or change the rate of interest on any Guaranteed Obligation or the security therefor, or otherwise. 3. Nature of Guaranty. This Guaranty is irrevocable and continuing in nature and relates to any Guaranteed Obligations now existing or hereafter arising. This Guaranty is a guaranty of prompt and punctual payment and performance and is not merely a guaranty of collection. 4. Relationship to Other Agreements. Nothing herein shall in any way modify or limit the effect of terms or conditions set forth in any other document, instrument or agreement executed by Guarantor or in connection with the Guaranteed Obligations, but each and every term and condition hereof shall be in addition thereto. 5. Subordination of Indebtedness of Borrower to Guarantor to the Guaranteed Obligations. Guarantor agrees that: (a) Any indebtedness of Borrower now or hereafter owed to Guarantor hereby is subordinated to the Guaranteed Obligations. (b) If the Lender so requests, upon the occurrence and during the continuance of any Event of Default, any such indebtedness of Borrower now or hereafter owed to Guarantor shall be collected, enforced and received by Guarantor as trustee for the Lender and shall be paid over to the Lender in kind on account of the Guaranteed Obligations, but without reducing or affecting in any manner the obligations of Guarantor under the other provisions of this Guaranty. (c) Should Guarantor fail to collect or enforce any such indebtedness of Borrower now or hereafter owed to Guarantor and pay the proceeds thereof to the Lender in accordance with Section 5(b) hereof, Lender as Guarantor's attorney-in-fact may do such acts and sign such documents in Guarantor's name as Lender considers necessary or desirable to effect such collection, enforcement and/or payment. 6. Statutes of Limitations and Other Laws. Until the Guaranteed Obligations shall have been paid and performed in full, all the rights, privileges, powers and remedies granted to Lender hereunder shall continue to exist and may be exercised by Lender at any time and from time to time irrespective of the fact that any of the Guaranteed Obligations may have become barred by any statute of limitations. Guarantor expressly waives the benefit of any and all statutes of limitation, and any and all Laws providing for exemption of property from execution or for evaluation and appraisal upon foreclosure, to the maximum extent permitted by applicable Laws. 7. Waivers and Consents. Guarantor acknowledges that the obligations undertaken herein involve the guaranty of obligations of Persons other than Guarantor and, in full recognition of that fact, consents and agrees that Lender may, at any time and from time to time, without notice or demand, and without affecting the enforceability or continuing effectiveness hereof: (a) supplement, modify, amend, extend, renew, accelerate or otherwise change the time for payment or the terms of the Guaranteed Obligations or any part thereof, including any increase or decrease of the rate(s) of interest thereon; (b) supplement, modify, amend or waive, or enter into or give any agreement, approval or consent with respect to, the Guaranteed Obligations or any part thereof, or the Credit Agreement or any additional security or guarantees, or any condition, covenant, default, remedy, right, representation or term thereof or thereunder; (c) accept new or additional instruments, documents or agreements in exchange for or relative to the Credit Agreement or the Guaranteed Obligations or any part thereof; (d) accept partial payments on the Guaranteed Obligations; (e) receive and hold additional security or guarantees for the Guaranteed Obligations or any part thereof; (f) release, reconvey, terminate, waive, abandon, fail to perfect, subordinate, exchange, substitute, transfer and/or enforce any security or guarantees, and apply any security and direct the order or manner of sale thereof as Lender in its sole and absolute discretion may determine; (g) release any Person from any personal liability with respect to the Guaranteed Obligations or any part thereof; (h) settle, release on terms satisfactory to Lender or by operation of applicable Laws or otherwise liquidate or enforce any Guaranteed Obligations and any security or guaranty therefor in any manner, consent to the transfer of any security and bid and purchase at any sale; and/or (i) consent to the merger, change or any other restructuring or termination of the corporate existence of Borrower, Guarantor or any other Person, and correspondingly restructure the Guaranteed Obligations, and any such merger, change, restructuring or termination shall not affect the liability of Guarantor or the continuing effectiveness hereof, or the enforceability hereof with respect to all or any part of the Guaranteed Obligations; provided that nothing herein shall waive, alter, diminish or modify any rights of the Borrower under the Credit Agreement, including, without limitation, the rights of the Borrower to agree to any amendments or modifications of the Credit Agreement. Upon the occurrence and during the continuance of any Event of Default, Lender may enforce this Guaranty independently as to Guarantor and independently of any other remedy or security Lender at any time may have or hold in connection with the Guaranteed Obligations. Guarantor expressly waives any right to require Lender to marshal assets in favor of Guarantor, and agrees that Lender may proceed against Borrower, or upon or against any security or remedy, before proceeding to enforce this Guaranty, in such order as it shall determine in its sole and absolute discretion. Lender may file a separate action or actions against Borrower and/or Guarantor without respect to whether action is brought or prosecuted with respect to any security or against any other Person, or whether any other Person is joined in any such action or actions. Guarantor agrees that Lender, Borrower, and any Affiliates of Borrower may deal with each other in connection with the Guaranteed Obligations or otherwise, or alter any contracts or agreements now or hereafter existing between any of them, in any manner whatsoever, all without in any way altering or affecting the security of this Guaranty. Lender's rights hereunder shall be reinstated and revived, and the enforceability of this Guaranty shall continue, with respect to any amount at any time paid on account of the Guaranteed Obligations which thereafter shall be required to be restored or returned by Lender upon the bankruptcy, insolvency or reorganization of Borrower, or any other Person, or otherwise, all as though such amount had not been paid. The rights of Lender created or granted herein and the enforceability of this Guaranty with respect to Guarantor at all times shall remain effective to guaranty the full amount of all the Guaranteed Obligations even though the Guaranteed Obligations, or any part thereof, or any security or guaranty therefor, may be or hereafter may become invalid or otherwise unenforceable as against Borrower or any other guarantor or surety and whether or not Borrower shall have any personal liability with respect thereto. Guarantor expressly waives any and all defenses now or hereafter arising or asserted by reason of (a) any disability or other defense of Borrower, with respect to the Guaranteed Obligations, (b) the unenforceability or invalidity of any security or guaranty for the Guaranteed Obligations or the lack of perfection or continuing perfection or failure of priority of any security for the Guaranteed Obligations, (c) the cessation for any cause whatsoever of the liability of Borrower (other than by reason of the full payment and performance of all Guaranteed Obligations), (d) any failure of Lender to marshal assets in favor of Borrower or any other Person, (e) except as otherwise provided in this Guaranty, any failure of Lender to give notice of sale or other disposition of collateral to Guarantor or any other Person or any defect in any notice that may be given in connection with any sale or disposition of collateral, (f) any failure of Lender to comply with applicable Laws in connection with the sale or other disposition of any collateral or other security for any Guaranteed Obligation, including without limitation, any failure of Lender to conduct a commercially reasonable sale or other disposition of any collateral or other security for any Guaranteed Obligation, (g) any act or omission of Lender or others that directly or indirectly results in or aids the discharge or release of Borrower or the Guaranteed Obligations or any security or guaranty therefor by operation of law or otherwise, (h) any Law which provides that the obligation of a surety or guarantor must neither be larger in amount nor in other respects more burdensome than that of the principal or which reduces a surety's or guarantor's obligation in proportion to the principal obligation, (i) any failure of Lender to file or enforce a claim in any bankruptcy or other proceeding with respect to any Person, (j) the election by Lender, in any bankruptcy proceeding of any Person, of the application or non-application of Section 1111(b)(2) of the United States Bankruptcy Code, (k) any extension of credit or the grant of any Lien under Section 364 of the United States Bankruptcy Code, (1) any use of cash collateral under Section 363 of the United States Bankruptcy Code, (m) any agreement or stipulation with respect to the provision of adequate protection in any bankruptcy proceeding of any Person, (n) the avoidance of any Lien in favor of Lender for any reason, (o) any bankruptcy, insolvency, reorganization, arrangement, readjustment of debt, liquidation or dissolution proceeding commenced by or against any Person, including any discharge of, or bar or stay against collecting, all or any of the Guaranteed Obligations (or any interest thereon) in or as a result of any such proceeding, (p) to the extent permitted, the benefits of any form of one-action rule, or (q) any action taken by Lender that is authorized by this Section or any other provision of the Credit Agreement. Guarantor expressly waives all setoffs and counterclaims and all presentments, demands for payment or performance, notices of nonpayment or nonperformance, protests, notices of protest, notices of dishonor and all other notices or demands of any kind or nature whatsoever with respect to the Guaranteed Obligations, and all notices of acceptance of this Guaranty or of the existence, creation or incurrence of new or additional Guaranteed Obligations. 8. Condition of Borrower and Borrower's Subsidiaries. Guarantor represents and warrants to Lender that Guarantor has established adequate means of obtaining from Borrower's Subsidiaries, on a continuing basis, financial and other information pertaining to the businesses, operations and condition (financial and otherwise) of Borrower and Borrower's Subsidiaries and their Properties, and Guarantor now is and hereafter will be completely familiar with the businesses, operations and condition (financial and otherwise) of Borrower and Borrower's Subsidiaries and their Properties. Guarantor hereby expressly waives and relinquishes any duty on the part of Lender (should any such duty exist) to disclose to Guarantor any matter, fact or thing related to the businesses, operations or condition (financial or otherwise) of Borrower or Borrower's Subsidiaries or their Properties, whether now known or hereafter known by Lender during the life of this Guaranty. With respect to any of the Guaranteed Obligations, Lender need not inquire into the powers of Borrower or any of its Subsidiaries or the officers or employees acting or purporting to act on their behalf, and all Guaranteed Obligations made or created in good faith reliance upon the professed exercise of such powers shall be secured hereby. 9. Waiver of Rights of Subrogation. Notwithstanding anything to the contrary elsewhere contained herein or the Credit Agreement to which Guarantor is a party, Guarantor hereby expressly waives with respect to Borrower and its successors and assigns (including any surety) and any other Person which is directly or indirectly a creditor of Borrower or any surety for Borrower, any and all rights at Law or in equity to subrogation, to reimbursement, to exoneration, to contribution, to setoff or to any other rights that could accrue to a surety against a principal, to a guarantor against a maker or obligor, to an accommodation party against the party accommodated, or to a holder or transferee against a maker, and which Guarantor may have or hereafter acquire against Borrower or any other such Person in connection with or as a result of Guarantor's execution, delivery and/or performance of this Guaranty or the Credit Agreement. Guarantor agrees that it shall not have or assert any such rights against Borrower or its successors and assigns or any other Person (including any surety) which is directly or indirectly a creditor of any surety for Borrower, either directly or as an attempted setoff to any action commenced against Guarantor by Borrower (as borrower or in any other capacity), Lender or any other such Person. Guarantor hereby acknowledges and agrees that this waiver is intended to benefit Borrower and Lender and shall not limit or otherwise affect Guarantor's liability hereunder, or under the Credit Agreement or the enforceability hereof or thereof. 10. Understanding With Respect to Waivers and Consents. Guarantor warrants and agrees that each of the waivers and consents set forth herein are made with full knowledge of their significance and consequences, with the understanding that events giving rise to any defense or right waived may diminish, destroy or otherwise adversely affect rights which Guarantor otherwise may have against Borrower, Lender or others, or against any collateral, and that, under the circumstances, the waivers and consents herein given are reasonable and not contrary to public policy or Law. Guarantor acknowledges that it has either consulted with legal counsel regarding the effect of this Guaranty and the waivers and consents set forth herein, or has made an informed decision not to do so. If this Guaranty or any of the waivers or consents herein are determined to be unenforceable under or in violation of applicable Law, this Guaranty and such waivers and consents shall be effective to the maximum extent permitted by Law. 11. Representations and Warranties. Guarantor hereby makes each and every representation and warranty applicable to Guarantor set forth in Article IV of the Credit Agreement as if set forth in full herein. 12. Costs and Expenses. After an Event of Default, Guarantor agrees to pay to Lender all costs and expenses (including, without limitation, reasonable attorneys' fees and disbursements) incurred by Lender in the enforcement or attempted enforcement of this Guaranty, whether or not an action is filed in connection therewith, and in connection with any waiver or amendment of any term or provision hereof. All advances, charges, costs and expenses, including reasonable attorneys' fees and disbursements (including the reasonably allocated cost of legal counsel employed by Lender), incurred or paid by Lender in exercising any right, privilege, power or remedy conferred by this Guaranty, or in the enforcement or attempted enforcement thereof, shall be subject hereto and shall become a part of the Guaranteed Obligations and shall be paid to Lender by Guarantor, after an Event of Default and immediately upon demand, together with interest thereon at the rate(s) provided for under the Credit Agreement. 13. Construction of this Guaranty. This Guaranty is intended to give rise to absolute and unconditional obligations on the part of Guarantor; hence, in any construction hereof, notwithstanding any provision of the Credit Agreement to the contrary, this Guaranty shall be construed strictly in favor of Lender in order to accomplish its stated purpose. 14. Liability. Notwithstanding anything to the contrary elsewhere contained herein or in the Credit Agreement, the aggregate liability of Guarantor hereunder for payment and performance of the Guaranteed Obligations shall not exceed an amount which, in the aggregate, is $1.00 less than that amount which if so paid or performed would constitute or result in a "fraudulent transfer", "fraudulent conveyance", or terms of similar import, under applicable state or federal Law, including without limitation, Section 548 of the United States Bankruptcy Code. The liability of Guarantor hereunder is independent of any other guarantees at any time in effect with respect to all or any part of the Guaranteed Obligations, and Guarantor's liability hereunder may be enforced regardless of the existence of any such guarantees. Any termination by or release of any guarantor in whole or in part shall not affect the continuing liability of Guarantor hereunder, and no notice of any such termination or release shall be required. The execution hereof by Guarantor is not founded upon an expectation or understanding that there will be any other guarantor of the Guaranteed Obligations. 15. WAIVER OF JURY TRIAL. GUARANTOR AND LENDER EXPRESSLY WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS GUARANTY, THE CREDIT AGREEMENT, THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR PARTIES, WHETHER NOW EXISTING OR HEREAFTER ARISING AND WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. GUARANTOR AND LENDER AGREE THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS GUARANTY, THE LOAN AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS GUARANTY, THE LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS. ANY PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE SIGNATORIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. 16. THIS GUARANTY SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA. IN WITNESS WHEREOF, Guarantor has executed this Guaranty by its duly authorized officer as of the date first written above. "Guarantor" HARRAH'S ENTERTAINMENT, INC., a Delaware corporation By: /s/ CHARLES L. ATWOOD ----------------------------- Name: Charles L. Atwood Title: Vice President and Treasurer Address: Harrah's Entertainment Inc. 5100 West Sahara Avenue, #200 Las Vegas, NV 89146 Attn: Charles L. Atwood Telecopier: 702-579-2617 Telephone: 702-579-2674 EX-4.3 4 ex-4_3.txt EXHIBIT 4.3 Exhibit-4.3 AMENDMENT NO. 1 TO FIVE YEAR LOAN AGREEMENT This AMENDMENT NO. 1 TO FIVE YEAR LOAN AGREEMENT (this "Amendment") dated as of April 3, 2000 is executed with reference to the Five Year Loan Agreement (the "Loan Agreement") dated as of April 30, 1999, among Harrah's Operating Company, Inc., a Delaware corporation ("Company"), Marina Associates, a New Jersey general partnership ("Marina" and together with the Company and such other Subsidiaries that become Borrowers pursuant to Section 2.10 thereof "Borrowers"), as Borrowers, Harrah's Entertainment, Inc., a Delaware corporation (the "Parent"), as Guarantor, Bank of America National Trust and Savings Association and each lender from time to time a party thereto (collectively, the "Lenders" and individually, a "Lender"), Bankers Trust Company, as Syndication Agent, Canadian Imperial Bank of Commerce and Societe Generale, as Documentation Agents, Commerzbank AG, PNC Bank, National Association and Wells Fargo Bank, N.A., as Co-Documentation Agents, and Bank of America National Trust and Savings Association (now known as Bank of America, N.A.), as Administrative Agent. Terms defined in the Loan Agreement are used herein with the same meanings. The Borrowers, Guarantor and the Administrative Agent, acting on behalf of the Lenders under the Loan Agreement hereby amend the Loan Agreement as follows: 1. Section 2.7 - Voluntary Increase to the Commitment. Section 2.7(a) of the Loan Agreement is hereby amended in full to read as follows: "(a) Provided that no Default or Event of Default then exists, during the one year period following the Closing Date, Parent and the Borrowers may, upon at least 30 days notice to the Administrative Agent (which shall promptly provide a copy of such notice to the Lenders), propose to increase the aggregate amount of the Commitment and the Short Term Commitment by an aggregate amount not to exceed $300,000,000 (the amount of any such increase of the Commitment being referred to as the "Increased Commitment"). Each Lender party to this Agreement at such time shall have the right (but no obligation), for a period of 15 days following receipt of such notice, to elect by notice to Parent and the Borrowers and the Administrative Agent to increase its Commitment by a principal amount which bears the same ratio to the Increased Commitments as its then Commitment 1 bears to the aggregate Commitments then existing. Each Lender which fails to respond to any such request shall be conclusively deemed to have refused to consent to an increase in its Commitment." 2. Counterparts. This Amendment may be executed in counterparts in accordance with Section 11.7 of the Loan Agreement. 3. Confirmation. In all other respects, the Loan Agreement is confirmed. IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first written above by their duly authorized representatives. HARRAH'S ENTERTAINMENT, INC., as Guarantor By: /s/ CHARLES L. ATWOOD ---------------------------- Charles L. Atwood Vice President and Treasurer HARRAH'S OPERATING COMPANY, INC., as a Borrower By: /s/ CHARLES L. ATWOOD ---------------------------- Charles L. Atwood Vice President and Treasurer MARINA ASSOCIATES, as a Borrower By: Harrah's New Jersey, Inc., general partner By: /s/ CHARLES L. ATWOOD --------------------------- Charles L. Atwood, authorized signatory By: Harrah's Atlantic City, Inc., general partner 2 By: /s/ CHARLES L. ATWOOD --------------------------- Charles L. Atwood, authorized signatory BANK OF AMERICA, NATIONAL ASSOCIATION (successor in interest to Bank of America National Trust and Savings Association), as Administrative Agent By: /s/ JANICE HAMMOND ------------------------------- Janice Hammond, Vice President 3 EX-4.4 5 ex-4_4.txt EXHIBIT 4.4 Exhibit-4.4 AMENDMENT NO. 1 TO SHORT TERM LOAN AGREEMENT This AMENDMENT NO. 1 TO SHORT TERM LOAN AGREEMENT (this "Amendment") dated as of April 3, 2000 is executed with reference to the Short Term Year Loan Agreement (the "Loan Agreement") dated as of April 30, 1999, among Harrah's Operating Company, Inc., a Delaware corporation ("Company"), Marina Associates, a New Jersey general partnership ("Marina" and together with the Company and such other Subsidiaries that become Borrowers pursuant to Section 2.10 thereof "Borrowers"), as Borrowers, Harrah's Entertainment, Inc., a Delaware corporation (the "Parent"), as Guarantor, Bank of America, N.A. (under its former name, Bank of America National Trust and Savings Association) and each lender from time to time a party thereto (collectively, the "Lenders" and individually, a "Lender"), Bankers Trust Company, as Syndication Agent, Canadian Imperial Bank of Commerce and Societe Generale, as Documentation Agents, Commerzbank AG, PNC Bank, National Association and Wells Fargo Bank, N.A., as Co-Documentation Agents, and Bank of America N.A., as Administrative Agent. Terms defined in the Loan Agreement are used herein with the same meanings. The Borrowers, Guarantor and the Administrative Agent, acting on behalf of the Lenders under the Loan Agreement hereby amend the Loan Agreement as follows: 1. Section 2.7 - Voluntary Increase to the Commitment. Section 2.7(a) of the Loan Agreement is hereby amended in full to read as follows: "(a) Provided that no Default or Event of Default then exists, during the one year period following the Closing Date, Parent and the Borrowers may, upon at least 30 days notice to the Administrative Agent (which shall promptly provide a copy of such notice to the Lenders), propose to increase the aggregate amount of the Commitment and the Five Year Commitment by an aggregate amount not to exceed $300,000,000 (the amount of any such increase of the Commitment being referred to as the "Increased Commitment"). Each Lender party to this Agreement at such time shall have the right (but no obligation), for a period of 15 days following receipt of such notice, to elect by notice to Parent and the Borrowers and the Administrative Agent to increase its Commitment by a principal amount which bears the same ratio to the Increased Commitments as its then Commitment 1 bears to the aggregate Commitments then existing. Each Lender which fails to respond to any such request shall be conclusively deemed to have refused to consent to an increase in its Commitment." 2. Counterparts. This Amendment may be executed in counterparts in accordance with Section 11.7 of the Loan Agreement. 3. Confirmation. In all other respects, the Loan Agreement is confirmed. IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first written above by their duly authorized representatives. HARRAH'S ENTERTAINMENT, INC., as Guarantor By: /s/ CHARLES L. ATWOOD ---------------------------- Charles L. Atwood Vice President and Treasurer HARRAH'S OPERATING COMPANY, INC., as a Borrower By: /s/ CHARLES L. ATWOOD ---------------------------- Charles L. Atwood Vice President and Treasurer MARINA ASSOCIATES, as a Borrower By: Harrah's New Jersey, Inc., general partner By: /s/ CHARLES L. ATWOOD --------------------------- Charles L. Atwood, authorized signatory By: Harrah's Atlantic City, Inc., general partner 2 By: /s/ CHARLES L. ATWOOD --------------------------- Charles L. Atwood, authorized signatory BANK OF AMERICA, NATIONAL ASSOCIATION (successor in interest to Bank of America National Trust and Savings Association), as Administrative Agent By: /s/ JANICE HAMMOND ------------------------------- Janice Hammond, Vice President 3 REQUEST FOR EXTENSION This Request for Extension is submitted with reference to the Short Term Year Loan Agreement (the "Loan Agreement") dated as of April 30, 1999, among Harrah's Operating Company, Inc., a Delaware corporation ("Company"), Marina Associates, a New Jersey general partnership ("Marina" and together with the Company and such other Subsidiaries that become Borrowers pursuant to Section 2.10 thereof "Borrowers"), as Borrowers, Harrah's Entertainment, Inc., a Delaware corporation (the "Parent"), as Guarantor, Bank of America National Trust and Savings Association and each lender from time to time a party thereto (collectively, the "Lenders" and individually, a "Lender"), Bankers Trust Company, as Syndication Agent, Canadian Imperial Bank of Commerce and Societe Generale, as Documentation Agents, Commerzbank AG, PNC Bank, National Association and Wells Fargo Bank, N.A., as Co-Documentation Agents, and Bank of America National Trust and Savings Association (now known as Bank of America, N.A.), as Administrative Agent. Terms defined in the Loan Agreement are used herein with the same meanings. The Parent and the Borrowers hereby request a 364 day extension of the Maturity Date to April 26, 2001, and hereby certify by their Senior Officers that the representations and warranties contained in Article 4 (other than (i) representations and warranties which expressly speak as of a particular date or are no longer true and correct as a result of a change which is not a violation of the Loan Agreement, (ii) as otherwise disclosed by the Parent and the Borrowers and approved in writing by the Requisite Lenders and (iii) Sections 4.4(a), 4.6 (first sentence), and 4.15) are true and correct on and as of the date of this Request for Extension. HARRAH'S ENTERTAINMENT, INC. and HARRAH'S OPERATING COMPANY, INC. By: /s/ CHARLES L. ATWOOD - --------------------------------- Charles L. Atwood Vice President and Treasurer MARINA ASSOCIATES By: Harrah's New Jersey, Inc., general partner and By: Harrah's Atlantic City, Inc., general partner 4 By: /s/ CHARLES L. ATWOOD --------------------------------- Charles L. Atwood, authorized signatory for each 5 EX-4.5 6 ex-4_5.txt EXHIBIT 4.5 Exhibit-4.5 ISSUING AND PAYING AGENT AGREEMENT This Issuing and Paying Agency Agreement (the "Agreement"), dated as of May 19, 2000, between Harrah's Operating Company, Inc., a Delaware corporation (the "Issuer"), Harrah's Entertainment, Inc. (the "Guarantor"), and Bank One, National Association, a national banking association (the "IPA"), as issuing and paying agent, in connection with the issuance and payment, in book entry only form, of certain commercial paper master notes (collectively the "Notes"). The Issuer hereby appoints the IPA its agent to issue, deliver and pay such Notes as herein set forth. The Issuer hereby agrees with the IPA as follows: 1. Definitions. Terms capitalized shall have the meanings assigned them below. "Advance" means funds credited by the IPA to or on behalf of the Issuer for the purpose of either crediting Proceeds to the Note Account or remitting payment on Notes at their maturity. "Agreement" means this Issuing and Paying Agency Agreement as defined in the preamble, and includes the terms of the Exhibits. "Business Day" means any day that both the IPA and DTC are open for business. "Certificate Agreement" means the Commercial Paper Certificate Agreement dated May 17, 1994, between DTC and the IPA (formerly known as The First National Bank of Chicago), a copy of which is attached hereto as Exhibit C. "Dealer" means any person other than an Issuer Agent which has been authorized by the Issuer to deliver Issuance Instructions to the IPA and is listed on an Incumbency Certificate. "DTC" means The Depository Trust Company, a New York limited purpose trust company, and its successors and assigns. 1 "GAITIR License Agreement" means the nonexclusive, nontransferable license agreement to use certain software products and associated printed documentation pursuant to a separate license agreement attached as Exhibit E. "Incumbency Certificate" means the certificate of the Issuer, substantially in the form of Exhibit A, executed by its Secretary or any of its Assistant Secretaries, which identifies Issuer Agents from time to time. "Indemnified Persons" means the IPA and its officers, directors, employees, and agents. "Issuance Instructions" means the instructions as to issuance of Notes delivered to the IPA by an Issuer Agent or Dealer pursuant to Section 3.B. of the Agreement. "Issuer Agents" means those officers, employees, or agents of the Issuer identified on an Incumbency Certificate the Issuer has authorized to execute Notes, deliver Note Issuance Instructions, and deliver other notices hereunder to the IPA. "Manual" means the DTC Commercial Paper Issuing/Paying Agent Manual, as modified from time to time, including the rules of the DTC Same Day funds Settlement System, Money Market Instruments Program. "Maturity Date" means the date any Note is payable by its terms. "Note" or "Notes" means the commercial paper master notes of the Issuer issued pursuant to the Agreement substantially in the form set forth in Exhibit B. "Note Account" means the Issuer's demand deposit account number 10-42472 established at the IPA pursuant to Section 6.A. "Proceeds" means, with respect to any Note, funds representing the purchase price for its original issuance. "Representation Letter" means the agreement by and among the IPA, the Issuer and DTC with respect to the Notes substantially in the form set forth in Exhibit D. 2. Authorization. 2 The Issuer shall deliver to the IPA upon execution of this Agreement an Incumbency Certificate to designate the Issuer Agents and Dealers to IPA. Until the IPA receives a subsequent Incumbency Certificate from the Issuer, it may rely on the last such Incumbency Certificate delivered to it. Any Note bearing the signature of an Issuer Agent on the date such signature is affixed thereto shall bind the Issuer after the authentication and delivery of such Note even if such person shall have ceased to hold his or her office on the date such Note is authenticated and delivered. 3. Notes. A. The Notes shall be issued to DTC, or its nominee in substantially the form set forth in Exhibit B, as appropriate. In connection with the issuance of Notes, (i) the IPA and DTC have previously entered into the Certificate Agreement and (ii) the IPA, the Issuer and DTC shall jointly execute the Representation Letter. The Issuer understands and acknowledges that the execution of the Certificate Agreement and the Representation Letter by the IPA is a necessary condition precedent to the acceptance of the Notes by DTC and as such, the Issuer agrees, (x) to be bound by the provisions of the Certificate Agreement and Representation Letter and (y) that the Certificate Agreement and Representation Letter shall supplement the provisions of this Agreement. B. Prior to 12:00 noon (Chicago Time) on each issuance date, an Issuer Agent or Dealer shall provide the IPA with Issuance Instructions specifying the issue date, interest rate (if applicable), maturity date (which shall be no later than 270 days from the date of issuance thereof), proceeds amount, maturity amount, payee and payee's settlement bank (which bank must be a participant in the DTC book entry commercial paper program). C. Following receipt of Issuance Instructions, the IPA will process such Issuance Instructions in accordance with and subject to (i) this Agreement, (ii) the procedures set forth in the Manual, (iii) the terms and conditions of the Certificate Agreement and (iv) the terms and conditions of the Representation Letter. 3 Unless otherwise instructed by an Issuer Agent or Dealer, Notes delivered under this Agreement shall be made against payment as more fully set forth in Section 4 below. In the event of a conflict between the terms of this Agreement and the terms of the Manual, the Certificate Agreement, or the Representation Letter, the provisions of this Agreement shall control. 4. Proceeds of Sale of Notes. A. The Issuer understands that when the IPA is instructed to deliver against payment, the processing of Issuance Instructions may not be completed simultaneously against the receipt of payment. Accordingly, the IPA is authorized to initiate delivery and to receive payment from the purchaser in accordance with the provisions of the Manual. All such payments shall be credited upon receipt to the Note Account. The Issuer hereby agrees to bear the risk that the IPA fails to receive payment of the Proceeds of any Notes issued pursuant to Issuance Instructions. B. Funds received by the IPA as Proceeds will be credited to the Note Account. Prior to receipt of such Proceeds, the IPA may, but shall not be obligated to, credit such Proceeds to the Issuer by making an Advance. Upon telephonic, written (which may be in facsimile form), or electronic instructions received by the IPA from an Issuer Agent, an Advance may be (i) used in payment of Notes presented for payment upon maturity, (ii) deposited to an account of the Issuer at the IPA, or (iii) transferred to the account of the Issuer at another bank. If the IPA, in its sole discretion, makes an Advance, the Issuer agrees to apply the Proceeds to repay such Advance. If such Proceeds are insufficient to repay the Advance in full, the Issuer agrees to repay such Advance within 24 hours from the time such Advance was made. Interest on any Advance shall accrue from the day such Advance is made, and shall bear interest (i) in accordance with any separate agreement between the Issuer and the IPA in effect at the time, or (ii) if no such separate agreement is then in effect, then as described in the IPA's standard fee schedule. 4 5. Instructions. A. The Issuer hereby authorizes the IPA to act in accordance with Issuance Instructions received electronically or in writing from an Issuer Agent or the Dealer as provided in the following Sections 5.B and 5.C. B. The Issuer or the Dealer may initiate Issuance Instructions electronically pursuant to the GAITIR License Agreement or otherwise in accordance with the IPA's standard business practices. The IPA shall be entitled to rely on the Issuance Instructions received electronically hereunder and may assume conclusively that all such Issuance Instructions were transmitted by the Issuer or on the Issuer's behalf. C. Telephonic Issuance Instructions shall be given to the IPA by an Issuer Agent or the Dealer at the telephone number specified by the IPA from time to time for such purpose, and shall be expressed to be for the attention of any of its officers or employees whose name has been specified for such purpose. The telephone numbers initially authorized for such purpose are set forth in Exhibit F, which may be modified by notice to the Issuer and each Dealer. Telephonic Issuance Instructions to the IPA by an Issuer Agent or Dealer shall be confirmed in writing by an Issuer Agent or Dealer within 24 hours of the time such instruction is given; provided that, in the event a discrepancy exists between the Telephonic Issuance Instructions and the subsequent confirmation, or in the absence of receiving a written confirmation prior to the time specified in Sections 3.B. above, the Telephonic Issuance Instructions shall be deemed the proper and controlling Issuance Instructions. A written confirmation may be effected by any electronic means of communications, including transmission by telecopier or computer. 6. Note Account. A. For purposes of the transactions contemplated herein, the Issuer shall open and maintain the Note Account. B. Deposits will be made to the Note Account from time to time by or on behalf of the Issuer by delivery of 5 funds to be deposited therein. All proceeds shall be credited to the Note Account. Withdrawals or other uses of the funds from the Note account shall be made in accordance with instructions from an Issuer Agent or to repay amounts payable under Sections 4.B. or 7.D. hereof. Notwithstanding anything in this Agreement to the contrary, the IPA shall not be obligated (i) to permit any withdrawal or other use of funds from the Note Account, or (ii) to honor any instructions to those effects, if the IPA, in its sole discretion, shall determine that as a result there would be an overdraft or negative balance in respect of final credits (whether in the course of any day, overnight or otherwise) in the Note Account. 7. Payment of Notes. A. The IPA hereby agrees to serve as paying agent of the Issuer with respect to each of the Notes presented for payment pursuant to this Agreement. The Issuer shall on the Maturity Date of such Notes, deposit or cause to be deposited in the Note Account by 10:00 a.m. Chicago time an amount in immediately available funds equal to the maturity amount of such Notes, or if applicable, the principal plus interest payable thereon. B. The IPA is hereby authorized and instructed by the Issuer, to the extent that funds sufficient to effect such payment are available in the Note Account, to pay, and shall pay, each of the Notes upon presentation thereof. The IPA is further hereby authorized and instructed by the Issuer to debit the Note Account in the amount of each such payment. C. If at any time funds in the Note Account are insufficient to cover payment of any matured Notes presented prior to 2:00 p.m. (Chicago time) on the Maturity Date of such Notes, the IPA may, but shall not be obligated to, pay the Notes thus creating an overdraft for the account of the Issuer, which overdraft shall be charged to the Note Account. D. The amount of any resulting overdraft shall represent an Advance by the IPA to the Issuer to be promptly repaid by the Issuer together with any applicable overdraft charges and interest on such advance for 6 each day such Advance remains outstanding in accordance with Section 4.B. 8. Representations and Warranties. Each day on which an Issuance Instruction is given to the IPA, the Issuer shall be deemed to represent and warrant to the IPA that (a) the issuance and delivery of the designated Notes will not violate any state or federal securities law, (b) the Notes have been duly and validly authorized by the Issuer and (c) the Notes, when issued and delivered pursuant hereto, will constitute the legal, valid, and binding obligations of the Issuer. 9. Concerning the IPA. A. In acting with respect to the Notes, and generally in acting under the provisions hereof, the IPA acts only as agent of the Issuer to perform only such duties as are specifically set forth herein and this Agreement shall not be construed to subject the IPA to any implied covenants or obligations. No provision of this Agreement shall be construed to impose upon the IPA any trust, agency of, or fiduciary duty to DTC or any beneficial owner of the Notes. The IPA may execute any of the powers hereunder or perform any duties hereunder either directly or by or through agents or affiliates. The IPA may consult with legal counsel regarding matters arising under this Agreement and shall not be liable for any action taken in good faith in reliance upon the advice of such counsel. The IPA or its affiliates in their individual or any other capacity may become the owner or pledgee of Notes and may transact business with the Issuer or its affiliates with the same rights they would have if the IPA were not acting hereunder. The IPA shall be under no liability for interest on any moneys received by it hereunder and need not segregate such moneys except as may be required by law. Except in the case of the IPA's gross negligence or willful misconduct, it shall not be liable to the Issuer for any action taken or omitted and reasonably believed by the IPA to be authorized or within the powers conferred upon it hereby. In no event shall the IPA be liable for consequential, indirect or special damages, even if it has been advised of the possibility of such damages. The IPA shall also not be liable for any action taken, 7 or any failure to take any action in connection with this Agreement or the services provided hereunder or otherwise to fulfill its obligations in connection with this Agreement, in the event and to the extent that the taking of such action or such failure arises out of or is caused by mechanical breakdown, computer or system failure or other failure of equipment, failure or malfunctioning of any communications media for whatever reason, or any other cause outside of the control of the IPA, provided that it undertakes to use commercially reasonable efforts to cure any such failure or breakdown of its equipment. It is understood by the Issuer that provision of services under this Agreement is dependent upon the availability to the IPA and the Issuer of telecommunication facilities provided by third party vendors and that the IPA does not warrant or guarantee such availability. B. The Issuer shall indemnify and hold the Indemnified Persons harmless from and against any and all costs, expenses, claims or liabilities (including, without limitation, reasonable legal fees and expenses) arising out of or connected with the performance of each Indemnified Person's duties hereunder, except for costs, expenses, claims or liabilities arising out of the gross negligence or willful misconduct of an Indemnified Person. Each Indemnified Person may rely and shall be protected in acting upon any resolution, certificate, opinion, instructions (whether oral or otherwise), receipt, or other document reasonably believed by such Indemnified Person to be (i) genuine and (ii) to have been signed or given by the proper party or parities. C. Fees for the IPA's services, and reimbursement of its expenses hereunder shall be as mutually agreed upon in writing between the IPA and the Issuer, which are initially set forth as Exhibit G, and shall be payable by the Issuer in accordance with such agreement. D. Except as otherwise expressly provided herein, whenever, in the administration of this Agreement, the IPA shall deem it necessary that a matter be proved or established prior to taking, suffering or omitting any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) 8 may be deemed to be conclusively proved and established by a certificate or written instructions of an Issuer Agent and such certificate or written instructions shall be full warranty to the IPA for any action taken, suffered, or omitted under the provisions of this Agreement in reliance upon such certificate or written instructions. E. Any banking association or corporation into which the IPA may be merged, converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which it shall be a party, shall succeed to all its rights, obligations and immunities hereunder without the execution or filing of any paper or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding. F. The IPA's countersignature of a Note shall be for authentication purposes only. The IPA shall have no liability on any Notes. Except with respect to the IPA's own actions in issuing and delivering Notes pursuant to Issuance Instructions, it shall not be liable for the authorization, validity or legality of any Notes delivered by it in accordance with Issuance Instructions. G. Nothing in this Agreement constitutes a commitment or obligation of the IPA or its affiliates to extend any credit to the Issuer, nor shall any course of dealing between the Issuer and the IPA be deemed to be, or constitute, any such commitment or obligation. 10. Miscellaneous. A. The IPA or the Issuer may terminate this Agreement upon ten (10) days' prior written notice to the other party; provided, however, that to the extent there are then outstanding any Notes, notwithstanding such termination they shall remain valid obligations of the Issuer and shall continue to be subject to the provisions of this Agreement. No termination of this Agreement shall affect the rights and obligations of the parties hereto with respect to transactions initiated prior to such termination. In the event that the IPA shall give the Issuer notice of termination, the Issuer shall not issue on or after 9 the date of such notice any Notes having a maturity in excess of thirty (30) days. B. No amendment or modification of this Agreement shall be effective unless the same shall be in writing and signed by both of the parties hereto. No waiver of, nor any consent to any departure from, any provision of this Agreement shall be effective unless signed by the party intended to be bound. No such amendment, modification, waiver or consent shall adversely affect the rights of any holder of Notes outstanding at the time of such amendment, modification, waiver or consent. C. Any obligation under this Agreement or the Notes that falls on a day that is not a Business Day shall be performed on the next succeeding Business Day. D. Neither party hereto may assign any of its rights or obligations hereunder without the consent of the other party hereto. E. This Agreement may be executed in any number of counterparts and by each party hereto on separate counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original and all of which counterparts taken together shall constitute one and the same Agreement. 11. Notices. Any notices, demands, instructions and other communications required or permitted to be given or made upon either party shall be in writing and shall be personally delivered or sent by first class mail, postage prepaid (or telecopier, as permitted hereunder), and shall be effective for purposes of this Agreement upon receipt by the intended recipient thereof at the address designated by such recipient, or on the next succeeding Business Day if received on other than a Business Day. Unless otherwise specified in a notice sent or delivered in accordance with the foregoing provisions of this paragraph (or with respect to Issuance Instructions, as permitted hereunder), notices, demands, instructions and other communications in writing shall be addressed as indicated below: If to the IPA: Bank One, National Association 10 1 Bank One Plaza Suite IL1-0439, 1NS-9 Chicago, IL 60670-0439 Attn: Commercial Paper Customer Service Telephone: (312) 407-8711 Telecopier: (312) 407-4154 If to the Issuer: Harrah's Operating Company, Inc. 1023 Cherry Road Memphis, TN 38117 Attn: Mr. James T. Evans Telephone: (901) 537-3439 Telecopier: (901) 537-3449 Harrah's Operating Company, Inc. 5100 West Sahara Blvd. Las Vegas, NV 89146 Attn: General Counsel Telephone: (702) 579-2610 Telecopier: (702) 579-2671 12. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAW OF THE STATE OF NEW YORK (EXCLUDING ITS CONFLICTS OF LAWS RULES). 13. Entire Agreement. This Agreement together with the Exhibits, constitute the entire agreement between the IPA and the Issuer relating to the subject matter hereof, and supersedes all proposals and all other communications between the parties relating hereto. 14. Guarantee. All fees, indemnities and obligations of the Issuer hereunder shall be fully guaranteed by Harrah's Entertainment, Inc. as Guarantor. Harrah's Operating Company, Inc., as Issuer 11 By: /s/ James T. Evans --------------------------- Name: James T. Evans Title: Assistant Treasurer Harrah's Entertainment, Inc., as Guarantor By: /s/ James T. Evans --------------------------- Name: James T. Evans Title: Assistant Treasurer BANK ONE, National Association, as Issuing and Paying Agent By: /s/ Kathleen M. Casey --------------------------- Name: Kathleen M. Casey Title: Account Representative 12 CORPORATE COMMERICAL PAPER - MASTER NOTE HARRAH'S OPERATING COMPANY, INC. ("Issuer"), for value received, hereby promises to pay to Cede & Co., as nominee of The Depository Trust Company, or to registered assigns: (i) the principal amount, together with unpaid accrued interest thereon, if any, on the maturity date of each obligation identified on the records of Issuer (the "Underlying Records") as being evidenced by this Master Note, which Underlying Records are maintained by BANK ONE, NA ("Paying Agent"); (ii) interest on the principal amount of each such obligation that is payable in installments, if any, on the due date of each installment, as specified on the Underlying Records; and (iii) the principal amount of each such obligation that is payable in installments, if any, on the due date of each installment, as specified on the Underlying Records. Interest shall be calculated at the rate and according to the calculation convention specified on the Underlying Records. Payments shall be made by wire transfer to the registered owner from Paying Agent without the necessity of presentation and surrender of this Master Note. REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS MASTER NOTE SET FORTH ON THE REVERSE HEREOF. This Master Note is a valid and binding obligation of Issuer. Not Valid Unless Countersigned for Authentication by Paying Agent. BANK ONE, NA, HARRAH'S OPERATING COMPANY, INC., Paying Agent Issuer By: /s/ KATHLEEN M. CASEY By: /s/ JAMES T. EVANS ---------------------- ------------------------------- Kathleen M. Casey, James T. Evans, Asst. Treasurer Account Representative HARRAH'S ENTERTAINMENT, INC., Guarantor By: /s/ JAMES T. EVANS ------------------------------- James T. Evans, Asst. Treasurer 13 At the request of the registered owner, Issuer shall promptly issue and deliver one or more separate note certificates evidencing each obligation evidenced by this Master Note. As of the date any such note certificate or certificates are issued, the obligations which are evidenced thereby shall no longer be evidenced by this Master Note. FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers unto the Master Note and all rights thereunder, hereby irrevocably - ---------- constituting and appointing attorney to transfer said -------------- Master Note on the books of Issuer with full power of substitution in the premises. Dated: ---------------------------- (Signature) Signature(s) Guaranteed: Notice: The signature on this assignment must correspond with the name as written upon the face of this Master Note, in every particular, without alteration or enlargement or any change whatsoever. Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC"), to Issuer or its agent for registration of transfer, exchange, or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein. 14 EX-4.6 7 ex-4_6.txt EXHIBIT 4.6 Exhibit-4.6 COMMERCIAL PAPER DEALER AGREEMENT Between: HARRAH'S OPERATING COMPANY, INC., as Issuer, HARRAH'S ENTERTAINMENT, INC., as Guarantor, and BANC OF AMERICA SECURITIES LLC, as Dealer Concerning Notes to be issued pursuant to an Issuing and Paying Agency Agreement dated as of May 19, 2000 between the Issuer and Bank One, National Association, as Issuing and Paying Agent. Dated As of May 3, 2000 COMMERCIAL PAPER DEALER AGREEMENT 3(a)(3) Program This agreement("Agreement") sets forth the understandings between the Issuer, the Guarantor and the Dealer, each named above, in connection with the issuance and sale by the Issuer of its short-term commercial paper promissory notes through the Dealer (the "Notes") with the guarantee of the Guarantor in the form attached hereto. Certain terms used in this Agreement are defined in Section 6 hereof. The Addendum to this Agreement, and any Annexes or Exhibits described in this Agreement or such Addendum, are hereby incorporated into this Agreement and made fully a part hereof. Section 1. Issuance and Sale of Notes. 1.1 While (i) the Issuer has and shall have no obligation to sell the Notes to the Dealer or to permit the Dealer to arrange any sale of the Notes for the account of the Issuer, and (ii) the Dealer has and shall have no obligation to purchase the Notes from the Issuer or to arrange any sale of the 1 Notes for the account of the Issuer, the parties hereto agree that in any case where the Dealer purchases Notes from the Issuer, or arranges for the sale of Notes by the Issuer, such Notes will be purchased or sold by the Dealer in reliance on the representations, warranties, covenants and agreements of the Issuer and the Guarantor contained herein or made pursuant hereto and on the terms and conditions and in the manner provided herein. 1.2 So long as this Agreement shall remain in effect, the Issuer shall not, without the consent of the Dealer, offer, solicit or accept offers to purchase, or sell, any Notes or notes substantially similar to the Notes in reliance upon the exemption from registration under the Securities Act contained in Section 3(a)(3) thereof, except (a) in transactions with one or more dealers which may from time to time after the date hereof become dealers with respect to the Notes by executing with the Issuer one or more agreements substantially similar to this Agreement, of which the Issuer hereby undertakes to provide the Dealer prompt notice, (b) in transactions with the other dealers listed on the Addendum hereto, which are executing agreements with the Issuer substantially similar to this Agreement contemporaneously herewith or (c) directly on its own behalf in transactions with persons other than broker-dealers with respect to which no commission is payable. 1.3 The Notes shall be in a minimum denomination or minimum amount, whichever is applicable, of $100,000 or integral multiples of $1,000 in excess thereof, will bear such interest rates, if interest bearing, or will be sold at such discount from their face amounts, as shall be agreed upon by the Dealer and the Issuer; shall have a maturity not exceeding 270 days from the date of issuance (exclusive of days of grace); and shall not contain any provision for extension, renewal or automatic "rollover." The 2 Notes shall be issued in the ordinary course of the Issuer's business. 1.4 The authentication, delivery and payment of the Notes shall be effected in accordance with the Issuing and Paying Agency Agreement and the Notes shall be either individual bearer physical certificates or represented by book-entry Notes registered in the name of DTC or its nominee in the form or forms annexed to the Issuing and Paying Agency Agreement. 1.5 If the Issuer and the Dealer shall agree on the terms of the purchase of any Note by the Dealer or the sale of any Note arranged by the Dealer (including, but not limited to, agreement with respect to the date of issue, purchase price, principal amount, maturity and interest rate (in the case of interest-bearing Notes) or discount thereof (in the case of Notes issued on a discount basis), and appropriate compensation for the Dealer's services hereunder) pursuant to this Agreement, the Issuer shall cause such Note to be issued and delivered in accordance with the terms of the Issuing and Paying Agency Agreement and payment for such Note shall be made by the purchaser thereof, either directly or through the Dealer, to the Issuer. Except as otherwise agreed, in the event that the Dealer is acting as an agent and a customer shall either fail to accept delivery of or make payment for a Note on the date fixed for settlement, the Dealer shall promptly notify the Issuer, and if the Dealer has theretofore paid the Issuer for the Note, the Issuer will promptly return such funds to the Dealer against its return of the Note to the Issuer, in the case of a certificated Note, and upon notice of such failure in the case of a book-entry Note. If such failure occurred for any reason other than default by the Dealer, the Issuer shall reimburse the Dealer on an equitable basis for the Dealer's loss of the use of such funds for the period such funds were credited to the Issuer's account. Section 2. Representations and Warranties of Issuer and the Guarantor. 3 The Issuer and the Guarantor jointly and severally represent and warrant that: 2.1 The Issuer is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all the requisite power and authority to execute, deliver and perform its obligations under the Notes, this Agreement and the Issuing and Paying Agency Agreement. 2.2 The Guarantor is a corporation or limited liability company duly organized, and validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization and has all the requisite power and authority to execute, deliver and perform its obligations under the Guarantee, this Agreement and the Issuing and Paying Agency Agreement. 2.3 This Agreement, the Guarantee and the Issuing and Paying Agency Agreement have been duly authorized, executed and delivered by the Issuer and the Guarantor and constitute legal, valid and binding obligations of the Issuer and the Guarantor enforceable against the Issuer and the Guarantor in accordance with their terms subject to applicable bankruptcy, insolvency and similar laws affecting creditors' rights generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law). 2.4 The Notes and the Guarantee have been duly authorized, and when issued and delivered as provided in the Issuing and Paying Agency Agreement, will be duly and validly issued and delivered and will constitute legal, valid and binding obligations of the Issuer and the Guarantor enforceable against the Issuer and the Guarantor in accordance with their terms subject to applicable bankruptcy, insolvency and similar laws affecting creditors' rights generally, and subject, as to enforceability, to general principles of equity (regardless of whether 4 enforcement is sought in a proceeding in equity or at law). 2.5 The Notes are not required to be registered under the Securities Act, pursuant to the exemption from registration contained in Section 3(a)(3) thereof, and no indenture in respect of the Notes is required to be qualified under the Trust Indenture Act of 1939, as amended; and the Notes are and will be rated as "prime quality" commercial paper by at least one nationally recognized statistical rating organization and will rank at least pari passu with all other unsecured and unsubordinated indebtedness of the Issuer. 2.6 No consent or action of, or filing or registration with, any governmental or public regulatory body or authority, including the SEC, is required to authorize, or is otherwise required in connection with the execution, delivery or performance of, this Agreement, the Guarantee, the Notes or the Issuing and Paying Agency Agreement, except as may be required by the securities or Blue Sky laws of the various states in connection with the offer and sale of the Notes. 2.7 Neither the execution and delivery of this Agreement, the Guarantee and the Issuing and Paying Agency Agreement, nor the issuance and delivery of the Notes in accordance with the Issuing and Paying Agency Agreement, nor the fulfillment of or compliance with the terms and provisions hereof or thereof by the Issuer and the Guarantor, will (i) result in the creation or imposition of any mortgage, lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of the Issuer and the Guarantor, or (ii) violate or result in a breach or an event of default under any of the terms of the Issuer's charter documents or by-laws, any contract or instrument to which the Issuer and the Guarantor is a party or by which it or its property is bound, or any law or regulation, or any order, writ, injunction or decree of any court or government instrumentality, to which the 5 Issuer and the Guarantor is subject or by which it or its property is bound, which breach or event of default might have a material adverse effect on the condition (financial or otherwise), operations or business prospects of the Issuer and the Guarantor or the ability of the Issuer and the Guarantor to perform its obligations under this Agreement, the Guarantee, the Notes or the Issuing and Paying Agency Agreement. 2.8 Neither the Issuer nor the Guarantor will not be in default of any of its obligations hereunder, under the Notes, the Guarantee or under the Issuing and Paying Agency Agreement, at any time that any of the Notes are outstanding. 2.9 There is no litigation or governmental proceeding pending, or to the knowledge of the Issuer and the Guarantor threatened, against or affecting the Issuer or the Guarantor or any of its subsidiaries which might result in a material adverse change in the condition (financial or otherwise), operations or business prospects of the Issuer and the Guarantor or the ability of the Issuer and the Guarantor to perform its obligations under this Agreement, the Guarantee, the Notes or the Issuing and Paying Agency Agreement. 2.10 Neither the Issuer nor the Guarantor is an "investment company" or an entity "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. 2.11 Neither the Offering Materials nor the Company Information contains any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. 2.12 Each (a) issuance of Notes by the Issuer hereunder and (b) amendment or supplement of the Offering Materials shall be deemed a representation and warranty by the Issuer and the Guarantor to the Dealer, as of the date thereof, 6 that, both before and after giving effect to such issuance, and after giving effect to such amendment or supplement, (i) the representations and warranties given by the Issuer and the Guarantor set forth above in this Section 2 remain true and correct on and as of such date as if made on and as of such date, (ii) in the case of an issuance of Notes with the Guarantee, the Notes being issued on such date have been duly and validly issued and constitute legal, valid and binding obligations of the Issuer and the Guarantor, enforceable against the Issuer and the Guarantor in accordance with their terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors' rights generally and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law), (iii) in the case of an issuance of Notes, since the date of the most recent Offering Materials, there has been no material adverse change in the condition (financial or otherwise), operations or business prospects of the Issuer and the Guarantor which has not been disclosed to the Dealer in writing, and (iv) the Issuer is not in default of any of its obligations hereunder, under the Notes or under the Issuing and Paying Agency Agreement. Section 3. Covenants and Agreements of Issuer and the Guarantor. Each of the Issuer and the Guarantor covenants and agrees that: 3.1 They will give the Dealer prompt notice (but in any event prior to any subsequent issuance of Notes hereunder) of any amendment to, modification of, or waiver with respect to, the Notes, the Guarantee or the Issuing and Paying Agency Agreement, including a complete copy of any such amendment, modification or waiver. 3.2 They shall, whenever there shall occur any change in the Issuer's or the Guarantor's condition (financial or otherwise), operations or business prospects or any development or occurrence in relation to the Issuer and the Guarantor that would be material to holders of the Notes or 7 potential holders of the Notes (including any formal ratings action (downgrading or otherwise) accorded any of the Issuer's or the Guarantor's securities by any nationally recognized statistical rating organization which has published a rating of the Notes), promptly, and in any event prior to any subsequent issuance of Notes hereunder, notify the Dealer (by telephone, confirmed in writing) of such change, development, or occurrence. 3.3 They shall from time to time furnish to the Dealer such information as the Dealer may reasonably request including, without limitation, any press releases or material provided by the Issuer and the Guarantor to any national securities exchange or rating agency, regarding (i) the Issuer's and the Guarantor's operations and financial condition, (ii) the due authorization and execution of the Notes, and (iii) the Issuer's and the Guarantor's ability to pay the Notes as they mature. 3.4 They will take all such action as the Dealer may reasonably request to ensure that each offer and each sale of the Notes will comply with any applicable state Blue Sky laws; provided, that neither the Issuer nor the Guarantor shall be obligated to file any general consent to service of process or to qualify as a foreign corporation in any jurisdiction in which it is not so qualified or subject itself to taxation in respect of doing business in any jurisdiction in which it is not otherwise so subject. 3.5 The Issuer will use the proceeds of each sale of the Notes for "current transactions" within the meaning of Section 3(a)(3) of the Securities Act. 3.6 The Issuer shall not issue Notes hereunder until the Dealer shall have received (a) an opinion of counsel to the Issuer, addressed to the Dealer, satisfactory in form and substance to 8 the Dealer, (b) a copy of the executed Issuing and Paying Agency Agreement as then in effect, (c) a copy of resolutions adopted by the Board of Directors of the Issuer, satisfactory in form and substance to the Dealer and certified by the Secretary or similar officer of the Issuer authorizing the execution and delivery by the Issuer of this Agreement, the Notes and the Issuing and Paying Agency Agreement and consummation by the Issuer of the transactions contemplated hereby and thereby, (d) prior to the issuance of any Notes represented by a book-entry Note registered in the name of DTC or its nominee, a copy of the executed Letter of Representations among the Issuer, the Issuing and Paying Agent and DTC, (e) a copy of the Guarantee, as is then in effect, (f) a copy of the Guarantor's resolutions adopted by the Guarantor's Board of Directors authorizing such Guarantee, (g) an opinion of counsel for the Guarantor, and, (h) such other certificates, letters, opinions and documents as the Dealer shall have reasonably requested. 3.7 The Issuer shall reimburse the Dealer for all of the Dealer's reasonable out-of-pocket expenses related to this Agreement, including expenses incurred in connection with its preparation and negotiation, and the transactions contemplated hereby (including, but not limited to, the printing and distribution of the Offering Materials and any advertising expense), and, if applicable, for the reasonable attorney fees and out-of-pocket expenses of the Dealer's counsel. Section 4. Disclosure. 4.1 Offering Materials which may be provided to purchasers and prospective purchasers of the Notes shall be prepared for use in connection with the transactions contemplated by this Agreement. The Offering Materials and their contents (other than the Dealer Information) shall be the sole responsibility of the Issuer or the Guarantor. The Issuer of the Guarantor authorizes the Dealer to distribute the Offering Materials as the Dealer shall see fit. 4.2 The Issuer agrees promptly to furnish the Dealer the Company Information as it becomes available and the Guarantor agrees to promptly furnish to 9 the Dealer Guarantor information as it becomes available. 4.3 (a) The Issuer and the Guarantor further agree to notify the Dealer promptly upon the occurrence of any event relating to or affecting the Issuer or the Guarantee that would cause the Offering Materials then in existence to include an untrue statement of material fact or to omit to state a material fact necessary in order to make the statements contained therein, in light of the circumstances under which they are made, not misleading. (b) In the event that the Dealer notifies the Issuer or the Guarantor that it has Notes it is holding in inventory, the Issuer or the Guarantor agree promptly to supplement or amend the Offering Materials so that such Offering Materials, as amended or supplemented, shall not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, and the Issuer or the Guarantor shall make such supplement or amendment available to the Dealer and prospective holders of Notes. (c) In the event that (i) the Dealer does not notify the Issuer or the Guarantor that it is then holding Notes in inventory and (ii) the Issuer or the Guarantor chooses not to promptly amend or supplement the Offering Materials in the manner described in clause (b) above, then all solicitations and sales of Notes shall be suspended until such time as the Issuer or the Guarantor has so amended or supplemented the Offering Materials, and made such amendment or supplement available to the Dealer and prospective holders of Notes. Section 5. Indemnification and Contribution. 5.1 The Issuer and the Guarantor will indemnify and hold harmless the Dealer, each individual, corporation, partnership, trust, association or other entity controlling the Dealer, any 10 affiliate of the Dealer or any such controlling entity and their respective directors, officers, employees, partners, incorporators, shareholders, servants, trustees and agents (hereinafter the "Indemnitees") against any and all liabilities, penalties, suits, causes of action, losses, damages, claims, costs and expenses (including, without limitation, fees and disbursements of counsel) or judgments of whatever kind or nature (each a "Claim"), imposed upon, incurred by or asserted against the Indemnitees arising out of or based upon (i) any allegation that the Offering Materials, the Company Information, the Guarantor Information or any information provided by the Issuer and the Guarantor to the Dealer includes an untrue statement of a material fact or omits to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading or (ii) arising out of or based upon the breach by the Issuer or the Guarantor of any agreement, covenant or representation made in or pursuant to this Agreement. This indemnification shall not apply to the extent that the Claim arises out of or is based upon Dealer Information. 5.2 Provisions relating to claims made for indemnification under this Section 5 are set forth on Exhibit A to this Agreement. 5.3 In order to provide for just and equitable contribution in circumstances in which the indemnification provided for in this Section 5 is held to be unavailable or insufficient to hold harmless the Indemnitees, although applicable in accordance with the terms of this Section 5, the Issuer and the Guarantor shall contribute to the aggregate costs incurred by the Dealer in connection with any Claim in the proportion of the respective economic interests of the Issuer, the Guarantor and the Dealer; provided, however, such contribution by the Issuer shall be in an amount such that the aggregate costs incurred by the Dealer do not exceed the aggregate of the commissions and fees earned by the Dealer hereunder with respect to the issue or issues of 11 Notes to which such Claim relates. The respective economic interests shall be calculated by reference to the aggregate proceeds to the Issuer of the Notes issued hereunder and the aggregate commissions and fees earned by the Dealer hereunder. Section 6. Definitions. 6.1 "Claim" shall have the meaning set forth in Section 5.1. 6.2 "Company Information" at any given time shall mean the Offering Materials together with, to the extent applicable, (i) the Issuer's most recent report on Form 10-K filed with the SEC and each report on Form 10-Q or 8-K filed by the Issuer with the SEC since the most recent Form 10-K, (ii) the Issuer's most recent annual audited financial statements and each interim financial statement or report prepared subsequent thereto, if not included in item (i) above, (iii) the Issuer's and its affiliates' other publicly available recent reports, including, but not limited to, any publicly available filings or reports provided to their respective shareholders, (iv) any other information or disclosure prepared pursuant to Section 4.3 hereof and (v) any information prepared or approved by the Issuer for dissemination to investors or potential investors in the Notes. 6.3 "Dealer Information" shall mean material concerning the Dealer and provided by the Dealer in writing expressly for inclusion in the Offering Materials. 6.4 "DTC" shall mean The Depository Trust Company. 6.5 "Indemnitee" shall have the meaning set forth in Section 5.1. 6.6 "Issuing and Paying Agency Agreement" shall mean the issuing and paying agency agreement described on the cover page of this Agreement, as such agreement may be amended or supplemented from time to time. 12 6.7 "Issuing and Paying Agent" shall mean the party designated as such on the cover page of this Agreement, as issuing and paying agent under the Issuing and Paying Agency Agreement. 6.8 "Offering Materials" shall mean offering materials prepared in accordance with Section 4, which may be provided to purchasers and prospective purchasers of the Notes, and shall include amendments and supplements thereto which may be prepared from time to time in accordance with this Agreement. 6.9 "SEC" shall mean the U.S. Securities and Exchange Commission. 6.10 "Securities Act" shall mean the U.S. Securities Act of 1933, as amended. 6.11 "Guarantor Information" at any given time shall mean the Offering Materials together with, to the extent applicable, (i) the Guarantors' most recent report of Form 10-K filed with the SEC and each report on Form 10-Q or 8-K filed by the Issuer with the SEC since the most recent Form 10-K, (ii) the Guarantors' most recent annual audited financial statements and each interim financial statement or report prepared subsequent thereto, if not included in item (i) above, (iii) the Guarantors' other publicly available recent reports, including, but not limited to, any publicly available filings or reports provided to their respective shareholders, (iv) any other information or disclosure prepared pursuant to Section 4.3 hereof and (v) any other information prepared or approved by the Guarantors for dissemination to investors or potential investors in the Notes. 6.12 "Guarantee" shall have the meaning set forth in the first paragraph of this Agreement. Section 7. General. 7.1 Unless otherwise expressly provided herein, all notices under this Agreement to parties hereto 13 shall be in writing and shall be effective when received at the address of the respective party set forth in the Addendum to this Agreement. 7.2 This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to its conflict of laws provisions. 7.3 Each of the Issuer and the Guarantor agrees that any suit, action or proceeding brought by the Issuer or the Guarantor against the Dealer in connection with or arising out of this Agreement or the Notes or the offer and sale of the Notes shall be brought solely in the United States federal courts located in the borough of Manhattan or the courts of the State of New York located in the Borough of Manhattan. EACH OF THE ISSUER AND THE GUARANTOR WAIVES ITS RIGHT TO TRIAL BY JURY IN ANY SUIT, ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. 7.4 This Agreement may be terminated, at any time, by the Issuer or the Guarantor, upon one business day's prior notice to such effect to the Dealer, or by the Dealer upon one business day's prior notice to such effect to the Issuer. Any such termination, however, shall not affect the obligations of the Issuer under Sections 3.7, 5 and 7.3 hereof or the respective representations, warranties, agreements, covenants, rights or responsibilities of the parties made or arising prior to the termination of this Agreement. 7.5 This Agreement is not assignable by either party hereto without the written consent of the other party; provided however, that the Dealer may assign its rights and obligations under this Agreement to any wholly-owned subsidiary of the ultimate parent company of the Dealer. 7.6 This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 14 7.7 This Agreement is for the exclusive benefit of the parties hereto, and their respective permitted successors and assigns hereunder, and shall not be deemed to give any legal or equitable right, remedy or claim to any other person whatsoever. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date and year first above written. Harrah's Operating Company, Inc., as Issuer By: /s/ James T. Evans ---------------------------------- Name: James T. Evans Title: Assistant Treasurer Harrah's Entertainment, Inc., as Guarantor By: /s/ James T. Evans ---------------------------------- Name: James T. Evans Title: Assistant Treasurer Banc of America Securities LLC, as Dealer By: /s/ Christopher M. Piron ---------------------------------- Name: Christopher M. Piron Title: Managing Director 15 ADDENDUM The following additional clauses shall apply to the Agreement and be deemed a part thereof when the respective parties have placed their initials in the left margin beside the respective paragraph number. 1. The other dealer referred to in clause (b) of Section 1.2 of the Agreement is : Credit Suisse First Boston Corp. 2. The addresses of the respective parties for purposes of notices under Section 7.1 are as follows: For the Issuer: Harrah's Operating Company, Inc. Address: 1023 Cherry Road Memphis, TN 38117 Attention: Tom Evans, Assistant Treasurer Telephone Number: (901) 537-3439 Fax Number: (901) 537-3443 With a copy to: Harrah's Operating Company, Inc. Address: 5100 West Sahara Boulevard Suite 200 Las Vegas, NV 89146 Attention: General Counsel Telephone: (702) 579-2610 Fax Number: (702) 579-2671 For the Guarantor: Harrah's Entertainment, Inc. Address: 1023 Cherry Road Memphis, TN 38117 Attention: Tom Evans, Assistant Treasurer Telephone Number: (901) 537-3439 Fax Number: (901) 537-3443 For the Dealer: Banc of America Securities LLC Address: 1455 Market Street, 13th Floor, CA5-701-13-03 San Francisco, California 94103 Attention: Manager, Money Market Origination Telephone Number: (415) 953-7881 Fax Number: (415) 622-3429 16 EXHIBIT A FURTHER PROVISIONS RELATING TO INDEMNIFICAION (a) The Issuer and the Guarantor jointly and severally agree to reimburse each Indemnitee for all expenses (including reasonable fees and disbursements of internal and external counsel) as they are incurred by it in connection with investigating or defending any loss, claim, damage, liability or action in respect of which indemnification may be sought under Section 5 of the Agreement (whether or not it is a party to any such proceedings). (b) Promptly after receipt by an Indemnitee of notice of the existence of a Claim, such Indemnitee will, if a claim in respect thereof is to be made against the Issuer or the Guarantor, notify the Issuer and the Guarantor in writing of the existence thereof; provided that (i) the omission so to notify the Issuer and the Guarantor will not relieve it from any liability which it may have hereunder unless and except to the extent it did not otherwise learn of such Claim and such failure results in the forfeiture by the Issuer or the Guarantor of substantial rights and defenses, and (ii) the omission so to notify the Issuer and the Guarantor will not relieve it from liability which it may have to an Indemnitee otherwise than on account of this indemnity agreement. In case any such Claim is made against any Indemnitee and it notifies the Issuer and the Guarantor of the existence thereof, the Issuer and the Guarantor will be entitled to participate therein, and to the extent that it may elect by written notice delivered to the Indemnitee, to assume the defense thereof, with counsel reasonably satisfactory to such Indemnitee; provided that if the defendants in any such Claim include both the Indemnitee and the Issuer and the Guarantor and the Indemnitee shall have concluded that there may be legal defenses available to it which are different from or additional to those available to the Issuer or the Guarantor, the Issuer and the Guarantor shall not have the right to direct the defense of such Claim on behalf of such Indemnitee, and the Indemnitee shall have the right to select separate counsel to assert such legal defenses on behalf of such Indemnitee. Upon receipt of notice from the Issuer or the Guarantor to such Indemnitee of the Issuer's election so to assume the defense of such Claim and approval by the Indemnitee of counsel, the Issuer or the Guarantor will not be liable to such Indemnitee for expenses incurred thereafter by the Indemnitee in connection with the defense thereof (other than reasonable costs of 17 investigation) unless (i) the Indemnitee shall have employed separate counsel in connection with the assertion of legal defenses in accordance with the provision to the next preceding sentence (it being understood, however, that the Issuer and the Guarantor shall not be liable for the expenses of more than one separate counsel (in addition to any local counsel in the jurisdiction in which any Claim is brought), approved by the Dealer, representing the Indemnitee who is party to such Claim), (ii) the Issuer and the Guarantor shall not have employed counsel reasonably satisfactory to the Indemnitee to represent the Indemnitee within a reasonable time after notice of existence of the Claim or (iii) the Issuer and the Guarantor has authorized in writing the employment of counsel for the Indemnitee. The indemnity, reimbursement and contribution obligations of the Issuer hereunder shall be in addition to any other liability the Issuer may otherwise have to an Indemnitee and shall be binding upon and inure to the benefit of any successors, assigns, heirs and personal representatives of the Issuer and the Guarantor and any Indemnitee. The Issuer and the Guarantor agree that without the Dealer's prior written consent, they will not settle, compromise or consent to the entry of any judgment in any Claim in respect of which indemnification may be sought under the indemnification provision of the Agreement (whether or not the Dealer or any other Indemnitee is an actual or potential party to such Claim), unless such settlement, compromise or consent includes an unconditional release of each Indemnitee from all liability arising out of such Claim. 18 EX-4.7 8 ex-4_7.txt EXHIBIT 4.7 Exhibit-4.7 COMMERCIAL PAPER DEALER AGREEMENT Between: HARRAH'S OPERATING COMPANY, INC., as Issuer, HARRAH'S ENTERTAINMENT, INC., as Guarantor, and CREDIT SUISSE FIRST BOSTON CORPORATION, as Dealer Concerning Notes to be issued pursuant to an Issuing and Paying Agency Agreement dated as of May 19, 2000 between the Issuer and Bank One, National Association, as Issuing and Paying Agent. Dated As of May 3, 2000 COMMERCIAL PAPER DEALER AGREEMENT 3(a)(3) Program This agreement("Agreement") sets forth the understandings between the Issuer, the Guarantor and the Dealer, each named above, in connection with the issuance and sale by the Issuer of its short-term commercial paper promissory notes through the Dealer (the "Notes") with the guarantee of the Guarantor in the form attached hereto. Certain terms used in this Agreement are defined in Section 6 hereof. The Addendum to this Agreement, and any Annexes or Exhibits described in this Agreement or such Addendum, are hereby incorporated into this Agreement and made fully a part hereof. Section 1. Issuance and Sale of Notes. 1.1 While (i) the Issuer has and shall have no obligation to sell the Notes to the Dealer or to permit the Dealer to arrange any sale of the Notes for the account of the Issuer, and (ii) the Dealer has and shall have no obligation to purchase the Notes from the Issuer or to arrange any sale of the 1 Notes for the account of the Issuer, the parties hereto agree that in any case where the Dealer purchases Notes from the Issuer, or arranges for the sale of Notes by the Issuer, such Notes will be purchased or sold by the Dealer in reliance on the representations, warranties, covenants and agreements of the Issuer and the Guarantor contained herein or made pursuant hereto and on the terms and conditions and in the manner provided herein. 1.2 So long as this Agreement shall remain in effect, the Issuer shall not, without the consent of the Dealer, offer, solicit or accept offers to purchase, or sell, any Notes or notes substantially similar to the Notes in reliance upon the exemption from registration under the Securities Act contained in Section 3(a)(3) thereof, except (a) in transactions with one or more dealers which may from time to time after the date hereof become dealers with respect to the Notes by executing with the Issuer one or more agreements substantially similar to this Agreement, of which the Issuer hereby undertakes to provide the Dealer prompt notice, (b) in transactions with the other dealers listed on the Addendum hereto, which are executing agreements with the Issuer substantially similar to this Agreement contemporaneously herewith or (c) directly on its own behalf in transactions with persons other than broker-dealers with respect to which no commission is payable. 1.3 The Notes shall be in a minimum denomination or minimum amount, whichever is applicable, of $100,000 or integral multiples of $1,000 in excess thereof, will bear such interest rates, if interest bearing, or will be sold at such discount from their face amounts, as shall be agreed upon by the Dealer and the Issuer; shall have a maturity not exceeding 270 days from the date of issuance (exclusive of days of grace); and shall not contain any provision for extension, renewal or automatic "rollover." The 2 Notes shall be issued in the ordinary course of the Issuer's business. 1.4 The authentication, delivery and payment of the Notes shall be effected in accordance with the Issuing and Paying Agency Agreement and the Notes shall be either individual bearer physical certificates or represented by book-entry Notes registered in the name of DTC or its nominee in the form or forms annexed to the Issuing and Paying Agency Agreement. 1.5 If the Issuer and the Dealer shall agree on the terms of the purchase of any Note by the Dealer or the sale of any Note arranged by the Dealer (including, but not limited to, agreement with respect to the date of issue, purchase price, principal amount, maturity and interest rate (in the case of interest-bearing Notes) or discount thereof (in the case of Notes issued on a discount basis), and appropriate compensation for the Dealer's services hereunder) pursuant to this Agreement, the Issuer shall cause such Note to be issued and delivered in accordance with the terms of the Issuing and Paying Agency Agreement and payment for such Note shall be made by the purchaser thereof, either directly or through the Dealer, to the Issuer. Except as otherwise agreed, in the event that the Dealer is acting as an agent and a customer shall either fail to accept delivery of or make payment for a Note on the date fixed for settlement, the Dealer shall promptly notify the Issuer, and if the Dealer has theretofore paid the Issuer for the Note, the Issuer will promptly return such funds to the Dealer against its return of the Note to the Issuer, in the case of a certificated Note, and upon notice of such failure in the case of a book-entry Note. If such failure occurred for any reason other than default by the Dealer, the Issuer shall reimburse the Dealer on an equitable basis for the Dealer's loss of the use of such funds for the period such funds were credited to the Issuer's account. Section 2. Representations and Warranties of Issuer and the Guarantor. 3 The Issuer and the Guarantor jointly and severally represent and warrant that: 2.1 The Issuer is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all the requisite power and authority to execute, deliver and perform its obligations under the Notes, this Agreement and the Issuing and Paying Agency Agreement. 2.2 The Guarantor is a corporation or limited liability company duly organized, and validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization and has all the requisite power and authority to execute, deliver and perform its obligations under the Guarantee, this Agreement and the Issuing and Paying Agency Agreement. 2.3 This Agreement, the Guarantee and the Issuing and Paying Agency Agreement have been duly authorized, executed and delivered by the Issuer and the Guarantor and constitute legal, valid and binding obligations of the Issuer and the Guarantor enforceable against the Issuer and the Guarantor in accordance with their terms subject to applicable bankruptcy, insolvency and similar laws affecting creditors' rights generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law). 2.4 The Notes and the Guarantee have been duly authorized, and when issued and delivered as provided in the Issuing and Paying Agency Agreement, will be duly and validly issued and delivered and will constitute legal, valid and binding obligations of the Issuer and the Guarantor enforceable against the Issuer and the Guarantor in accordance with their terms subject to applicable bankruptcy, insolvency and similar laws affecting creditors' rights generally, and subject, as to enforceability, to general principles of equity (regardless of whether 4 enforcement is sought in a proceeding in equity or at law). 2.5 The Notes are not required to be registered under the Securities Act, pursuant to the exemption from registration contained in Section 3(a)(3) thereof, and no indenture in respect of the Notes is required to be qualified under the Trust Indenture Act of 1939, as amended; and the Notes are and will be rated as "prime quality" commercial paper by at least one nationally recognized statistical rating organization and will rank at least pari passu with all other unsecured and unsubordinated indebtedness of the Issuer. 2.6 No consent or action of, or filing or registration with, any governmental or public regulatory body or authority, including the SEC, is required to authorize, or is otherwise required in connection with the execution, delivery or performance of, this Agreement, the Guarantee, the Notes or the Issuing and Paying Agency Agreement, except as may be required by the securities or Blue Sky laws of the various states in connection with the offer and sale of the Notes. 2.7 Neither the execution and delivery of this Agreement, the Guarantee and the Issuing and Paying Agency Agreement, nor the issuance and delivery of the Notes in accordance with the Issuing and Paying Agency Agreement, nor the fulfillment of or compliance with the terms and provisions hereof or thereof by the Issuer and the Guarantor, will (i) result in the creation or imposition of any mortgage, lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of the Issuer and the Guarantor, or (ii) violate or result in a breach or an event of default under any of the terms of the Issuer's charter documents or by-laws, any contract or instrument to which the Issuer and the Guarantor is a party or by which it or its property is bound, or any law or regulation, or any order, writ, injunction or decree of any court or government instrumentality, to which the 5 Issuer and the Guarantor is subject or by which it or its property is bound, which breach or event of default might have a material adverse effect on the condition (financial or otherwise), operations or business prospects of the Issuer and the Guarantor or the ability of the Issuer and the Guarantor to perform its obligations under this Agreement, the Guarantee, the Notes or the Issuing and Paying Agency Agreement. 2.8 Neither the Issuer nor the Guarantor will not be in default of any of its obligations hereunder, under the Notes, the Guarantee or under the Issuing and Paying Agency Agreement, at any time that any of the Notes are outstanding. 2.9 There is no litigation or governmental proceeding pending, or to the knowledge of the Issuer and the Guarantor threatened, against or affecting the Issuer or the Guarantor or any of its subsidiaries which might result in a material adverse change in the condition (financial or otherwise), operations or business prospects of the Issuer and the Guarantor or the ability of the Issuer and the Guarantor to perform its obligations under this Agreement, the Guarantee, the Notes or the Issuing and Paying Agency Agreement. 2.10 Neither the Issuer nor the Guarantor is an "investment company" or an entity "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. 2.11 Neither the Offering Materials nor the Company Information contains any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. 2.12 Each (a) issuance of Notes by the Issuer hereunder and (b) amendment or supplement of the Offering Materials shall be deemed a representation and warranty by the Issuer and the Guarantor to the Dealer, as of the date thereof, 6 that, both before and after giving effect to such issuance, and after giving effect to such amendment or supplement, (i) the representations and warranties given by the Issuer and the Guarantor set forth above in this Section 2 remain true and correct on and as of such date as if made on and as of such date, (ii) in the case of an issuance of Notes with the Guarantee, the Notes being issued on such date have been duly and validly issued and constitute legal, valid and binding obligations of the Issuer and the Guarantor, enforceable against the Issuer and the Guarantor in accordance with their terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors' rights generally and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law), (iii) in the case of an issuance of Notes, since the date of the most recent Offering Materials, there has been no material adverse change in the condition (financial or otherwise), operations or business prospects of the Issuer and the Guarantor which has not been disclosed to the Dealer in writing, and (iv) the Issuer is not in default of any of its obligations hereunder, under the Notes or under the Issuing and Paying Agency Agreement. Section 3. Covenants and Agreements of Issuer and the Guarantor. Each of the Issuer and the Guarantor covenants and agrees that: 3.1 They will give the Dealer prompt notice (but in any event prior to any subsequent issuance of Notes hereunder) of any amendment to, modification of, or waiver with respect to, the Notes, the Guarantee or the Issuing and Paying Agency Agreement, including a complete copy of any such amendment, modification or waiver. 3.2 They shall, whenever there shall occur any change in the Issuer's or the Guarantor's condition (financial or otherwise), operations or business prospects or any development or occurrence in relation to the Issuer and the Guarantor that would be material to holders of the Notes or 7 potential holders of the Notes (including any formal ratings action (downgrading or otherwise) accorded any of the Issuer's or the Guarantor's securities by any nationally recognized statistical rating organization which has published a rating of the Notes), promptly, and in any event prior to any subsequent issuance of Notes hereunder, notify the Dealer (by telephone, confirmed in writing) of such change, development, or occurrence. 3.3 They shall from time to time furnish to the Dealer such information as the Dealer may reasonably request including, without limitation, any press releases or material provided by the Issuer and the Guarantor to any national securities exchange or rating agency, regarding (i) the Issuer's and the Guarantor's operations and financial condition, (ii) the due authorization and execution of the Notes, and (iii) the Issuer's and the Guarantor's ability to pay the Notes as they mature. 3.4 They will take all such action as the Dealer may reasonably request to ensure that each offer and each sale of the Notes will comply with any applicable state Blue Sky laws; provided, that neither the Issuer nor the Guarantor shall be obligated to file any general consent to service of process or to qualify as a foreign corporation in any jurisdiction in which it is not so qualified or subject itself to taxation in respect of doing business in any jurisdiction in which it is not otherwise so subject. 3.5 The Issuer will use the proceeds of each sale of the Notes for "current transactions" within the meaning of Section 3(a)(3) of the Securities Act. 3.6 The Issuer shall not issue Notes hereunder until the Dealer shall have received (a) an opinion of counsel to the Issuer, addressed to the Dealer, satisfactory in form and substance to the Dealer, (b) a copy of the executed Issuing and Paying Agency Agreement as then in effect, (c) a copy of resolutions adopted by the Board of Directors of the Issuer, satisfactory in form and substance to 8 the Dealer and certified by the Secretary or similar officer of the Issuer authorizing the execution and delivery by the Issuer of this Agreement, the Notes and the Issuing and Paying Agency Agreement and consummation by the Issuer of the transactions contemplated hereby and thereby, (d) prior to the issuance of any Notes represented by a book-entry Note registered in the name of DTC or its nominee, a copy of the executed Letter of Representations among the Issuer, the Issuing and Paying Agent and DTC, (e) a copy of the Guarantee, as is then in effect, (f) a copy of the Guarantor's resolutions adopted by the Guarantor's Board of Directors authorizing such Guarantee, (g) an opinion of counsel for the Guarantor, and, (h) such other certificates, letters, opinions and documents as the Dealer shall have reasonably requested. 3.7 The Issuer shall reimburse the Dealer for all of the Dealer's reasonable out-of-pocket expenses related to this Agreement, including expenses incurred in connection with its preparation and negotiation, and the transactions contemplated hereby (including, but not limited to, the printing and distribution of the Offering Materials and any advertising expense), and, if applicable, for the reasonable attorney fees and out-of-pocket expenses of the Dealer's counsel. Section 4. Disclosure. 4.1 Offering Materials which may be provided to purchasers and prospective purchasers of the Notes shall be prepared for use in connection with the transactions contemplated by this Agreement. The Offering Materials and their contents (other than the Dealer Information) shall be the sole responsibility of the Issuer or the Guarantor. The Issuer of the Guarantor authorizes the Dealer to distribute the Offering Materials as the Dealer shall see fit. 4.2 The Issuer agrees promptly to furnish the Dealer the Company Information as it becomes available and the Guarantor agrees to promptly furnish to 9 the Dealer Guarantor information as it becomes available. 4.3 (a) The Issuer and the Guarantor further agree to notify the Dealer promptly upon the occurrence of any event relating to or affecting the Issuer or the Guarantee that would cause the Offering Materials then in existence to include an untrue statement of material fact or to omit to state a material fact necessary in order to make the statements contained therein, in light of the circumstances under which they are made, not misleading. (b) In the event that the Dealer notifies the Issuer or the Guarantor that it has Notes it is holding in inventory, the Issuer or the Guarantor agree promptly to supplement or amend the Offering Materials so that such Offering Materials, as amended or supplemented, shall not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, and the Issuer or the Guarantor shall make such supplement or amendment available to the Dealer and prospective holders of Notes. (c) In the event that (i) the Dealer does not notify the Issuer or the Guarantor that it is then holding Notes in inventory and (ii) the Issuer or the Guarantor chooses not to promptly amend or supplement the Offering Materials in the manner described in clause (b) above, then all solicitations and sales of Notes shall be suspended until such time as the Issuer or the Guarantor has so amended or supplemented the Offering Materials, and made such amendment or supplement available to the Dealer and prospective holders of Notes. Section 5. Indemnification and Contribution. 5.1 The Issuer and the Guarantor will indemnify and hold harmless the Dealer, each individual, corporation, partnership, trust, association or other entity controlling the Dealer, any 10 affiliate of the Dealer or any such controlling entity and their respective directors, officers, employees, partners, incorporators, shareholders, servants, trustees and agents (hereinafter the "Indemnitees") against any and all liabilities, penalties, suits, causes of action, losses, damages, claims, costs and expenses (including, without limitation, fees and disbursements of counsel) or judgments of whatever kind or nature (each a "Claim"), imposed upon, incurred by or asserted against the Indemnitees arising out of or based upon (i) any allegation that the Offering Materials, the Company Information, the Guarantor Information or any information provided by the Issuer and the Guarantor to the Dealer includes an untrue statement of a material fact or omits to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading or (ii) arising out of or based upon the breach by the Issuer or the Guarantor of any agreement, covenant or representation made in or pursuant to this Agreement. This indemnification shall not apply to the extent that the Claim arises out of or is based upon Dealer Information. 5.2 Provisions relating to claims made for indemnification under this Section 5 are set forth on Exhibit A to this Agreement. 5.3 In order to provide for just and equitable contribution in circumstances in which the indemnification provided for in this Section 5 is held to be unavailable or insufficient to hold harmless the Indemnitees, although applicable in accordance with the terms of this Section 5, the Issuer and the Guarantor shall contribute to the aggregate costs incurred by the Dealer in connection with any Claim in the proportion of the respective economic interests of the Issuer, the Guarantor and the Dealer; provided, however, such contribution by the Issuer shall be in an amount such that the aggregate costs incurred by the Dealer do not exceed the aggregate of the commissions and fees earned by the Dealer hereunder with respect to the issue or issues of 11 Notes to which such Claim relates. The respective economic interests shall be calculated by reference to the aggregate proceeds to the Issuer of the Notes issued hereunder and the aggregate commissions and fees earned by the Dealer hereunder. Section 6. Definitions. 6.1 "Claim" shall have the meaning set forth in Section 5.1. 6.2 "Company Information" at any given time shall mean the Offering Materials together with, to the extent applicable, (i) the Issuer's most recent report on Form 10-K filed with the SEC and each report on Form 10-Q or 8-K filed by the Issuer with the SEC since the most recent Form 10-K, (ii) the Issuer's most recent annual audited financial statements and each interim financial statement or report prepared subsequent thereto, if not included in item (i) above, (iii) the Issuer's and its affiliates' other publicly available recent reports, including, but not limited to, any publicly available filings or reports provided to their respective shareholders, (iv) any other information or disclosure prepared pursuant to Section 4.3 hereof and (v) any information prepared or approved by the Issuer for dissemination to investors or potential investors in the Notes. 6.3 "Dealer Information" shall mean material concerning the Dealer and provided by the Dealer in writing expressly for inclusion in the Offering Materials. 6.4 "DTC" shall mean The Depository Trust Company. 6.5 "Indemnitee" shall have the meaning set forth in Section 5.1. 6.6 "Issuing and Paying Agency Agreement" shall mean the issuing and paying agency agreement described on the cover page of this Agreement, as such agreement may be amended or supplemented from time to time. 12 6.7 "Issuing and Paying Agent" shall mean the party designated as such on the cover page of this Agreement, as issuing and paying agent under the Issuing and Paying Agency Agreement. 6.8 "Offering Materials" shall mean offering materials prepared in accordance with Section 4, which may be provided to purchasers and prospective purchasers of the Notes, and shall include amendments and supplements thereto which may be prepared from time to time in accordance with this Agreement. 6.9 "SEC" shall mean the U.S. Securities and Exchange Commission. 6.10 "Securities Act" shall mean the U.S. Securities Act of 1933, as amended. 6.11 "Guarantor Information" at any given time shall mean the Offering Materials together with, to the extent applicable, (i) the Guarantors' most recent report of Form 10-K filed with the SEC and each report on Form 10-Q or 8-K filed by the Issuer with the SEC since the most recent Form 10-K, (ii) the Guarantors' most recent annual audited financial statements and each interim financial statement or report prepared subsequent thereto, if not included in item (i) above, (iii) the Guarantors' other publicly available recent reports, including, but not limited to, any publicly available filings or reports provided to their respective shareholders, (iv) any other information or disclosure prepared pursuant to Section 4.3 hereof and (v) any other information prepared or approved by the Guarantors for dissemination to investors or potential investors in the Notes. 6.12 "Guarantee" shall have the meaning set forth in the first paragraph of this Agreement. Section 7. General. 7.1 Unless otherwise expressly provided herein, all notices under this Agreement to parties hereto 13 shall be in writing and shall be effective when received at the address of the respective party set forth in the Addendum to this Agreement. 7.2 This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to its conflict of laws provisions. 7.3 Each of the Issuer and the Guarantor agrees that any suit, action or proceeding brought by the Issuer or the Guarantor against the Dealer in connection with or arising out of this Agreement or the Notes or the offer and sale of the Notes shall be brought solely in the United States federal courts located in the borough of Manhattan or the courts of the State of New York located in the Borough of Manhattan. EACH OF THE ISSUER AND THE GUARANTOR WAIVES ITS RIGHT TO TRIAL BY JURY IN ANY SUIT, ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. 7.4 This Agreement may be terminated, at any time, by the Issuer or the Guarantor, upon one business day's prior notice to such effect to the Dealer, or by the Dealer upon one business day's prior notice to such effect to the Issuer. Any such termination, however, shall not affect the obligations of the Issuer under Sections 3.7, 5 and 7.3 hereof or the respective representations, warranties, agreements, covenants, rights or responsibilities of the parties made or arising prior to the termination of this Agreement. 7.5 This Agreement is not assignable by either party hereto without the written consent of the other party; provided however, that the Dealer may assign its rights and obligations under this Agreement to any wholly-owned subsidiary of the ultimate parent company of the Dealer. 7.6 This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. 14 7.7 This Agreement is for the exclusive benefit of the parties hereto, and their respective permitted successors and assigns hereunder, and shall not be deemed to give any legal or equitable right, remedy or claim to any other person whatsoever. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date and year first above written. Harrah's Operating Company, Inc., as Issuer By: /s/ James T. Evans ---------------------------------- Name: James T. Evans Title: Assistant Treasurer Harrah's Entertainment, Inc., as Guarantor By: /s/ James T. Evans ---------------------------------- Name: James T. Evans Title: Assistant Treasurer Credit Suisse First Boston Corporation, as Dealer By: /s/ Helena Willner ---------------------------------- Name: Helena Willner Title: Director 15 ADDENDUM The following additional clauses shall apply to the Agreement and be deemed a part thereof when the respective parties have placed their initials in the left margin beside the respective paragraph number. 1. The other dealer referred to in clause (b) of Section 1.2 of the Agreement is : Banc of America Securities, LLC. 2. The addresses of the respective parties for purposes of notices under Section 7.1 are as follows: For the Issuer: Harrah's Operating Company, Inc. Address: 1023 Cherry Road Memphis, TN 38117 Attention: Tom Evans, Assistant Treasurer Telephone Number: (901) 537-3439 Fax Number: (901) 537-3443 With a copy to: Harrah's Operating Company, Inc. Address: 5100 West Sahara Boulevard Suite 200 Las Vegas, NV 89146 Attention: General Counsel Telephone: (702) 579-2610 Fax Number: (702) 579-2671 For the Guarantor:Harrah's Entertainment, Inc. Address: 1023 Cherry Road Memphis, TN 38117 Attention: Tom Evans, Assistant Treasurer Telephone Number: (901) 537-3439 Fax Number: (901) 537-3443 For the Dealer: Credit Suisse First Boston Corporation Address: 11 Madison Avenue New York, NY 10010 Attention: Short Term Products Group Telephone Number: (212) 325-7198 Fax Number: (212) 325-8183 16 EXHIBIT A FURTHER PROVISIONS RELATING TO INDEMNIFICAION (a) The Issuer and the Guarantor jointly and severally agree to reimburse each Indemnitee for all expenses (including reasonable fees and disbursements of internal and external counsel) as they are incurred by it in connection with investigating or defending any loss, claim, damage, liability or action in respect of which indemnification may be sought under Section 5 of the Agreement (whether or not it is a party to any such proceedings). (b) Promptly after receipt by an Indemnitee of notice of the existence of a Claim, such Indemnitee will, if a claim in respect thereof is to be made against the Issuer or the Guarantor, notify the Issuer and the Guarantor in writing of the existence thereof; provided that (i) the omission so to notify the Issuer and the Guarantor will not relieve it from any liability which it may have hereunder unless and except to the extent it did not otherwise learn of such Claim and such failure results in the forfeiture by the Issuer or the Guarantor of substantial rights and defenses, and (ii) the omission so to notify the Issuer and the Guarantor will not relieve it from liability which it may have to an Indemnitee otherwise than on account of this indemnity agreement. In case any such Claim is made against any Indemnitee and it notifies the Issuer and the Guarantor of the existence thereof, the Issuer and the Guarantor will be entitled to participate therein, and to the extent that it may elect by written notice delivered to the Indemnitee, to assume the defense thereof, with counsel reasonably satisfactory to such Indemnitee; provided that if the defendants in any such Claim include both the Indemnitee and the Issuer and the Guarantor and the Indemnitee shall have concluded that there may be legal defenses available to it which are different from or additional to those available to the Issuer or the Guarantor, the Issuer and the Guarantor shall not have the right to direct the defense of such Claim on behalf of such Indemnitee, and the Indemnitee shall have the right to select separate counsel to assert such legal defenses on behalf of such Indemnitee. Upon receipt of notice from the Issuer or the Guarantor to such Indemnitee of the Issuer's election so to assume the defense of such Claim and approval by the Indemnitee of counsel, the Issuer or the Guarantor will not be liable to such Indemnitee for expenses incurred thereafter by the Indemnitee in connection with the defense thereof (other than reasonable costs of 17 investigation) unless (i) the Indemnitee shall have employed separate counsel in connection with the assertion of legal defenses in accordance with the provision to the next preceding sentence (it being understood, however, that the Issuer and the Guarantor shall not be liable for the expenses of more than one separate counsel (in addition to any local counsel in the jurisdiction in which any Claim is brought), approved by the Dealer, representing the Indemnitee who is party to such Claim), (ii) the Issuer and the Guarantor shall not have employed counsel reasonably satisfactory to the Indemnitee to represent the Indemnitee within a reasonable time after notice of existence of the Claim or (iii) the Issuer and the Guarantor has authorized in writing the employment of counsel for the Indemnitee. The indemnity, reimbursement and contribution obligations of the Issuer hereunder shall be in addition to any other liability the Issuer may otherwise have to an Indemnitee and shall be binding upon and inure to the benefit of any successors, assigns, heirs and personal representatives of the Issuer and the Guarantor and any Indemnitee. The Issuer and the Guarantor agree that without the Dealer's prior written consent, they will not settle, compromise or consent to the entry of any judgment in any Claim in respect of which indemnification may be sought under the indemnification provision of the Agreement (whether or not the Dealer or any other Indemnitee is an actual or potential party to such Claim), unless such settlement, compromise or consent includes an unconditional release of each Indemnitee from all liability arising out of such Claim. 18 EX-10.1 9 ex-10_1.txt EXHIBIT 10.1 Exhibit-10.1 HARRAH'S ENTERTAINMENT, INC. SENIOR EXECUTIVE INCENTIVE PLAN 1. PURPOSE 1.1 This plan is an amendment and restatement of the Key Executive Officer Incentive Plan originally adopted and approved in 1995. It is renamed the Senior Executive Incentive Plan (the "Incentive Plan"). It is intended to provide an incentive for superior work and to motivate eligible executives of Harrah's Entertainment, Inc. (the "Company") toward even higher achievement and business results, to tie their goals and interest to those of the Company and its stockholders and to enable the Company to attract and retain highly qualified executives. The Incentive Plan is for the benefit of covered executives (as defined below). It is designed to ensure the bonuses paid under the Plan to covered executives are deductible without limit under Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), and the regulations and interpretations promulgated thereunder. 2. COVERED EXECUTIVES 2.1 From time to time, the Bonus Committee (as described below) may select certain key executives who are or who at some future date may be "covered employees" as defined in Section 162(m)(3) of the Code (the "covered executives") to be eligible to receive bonuses hereunder. A person's status as a covered executive for a plan year may be cancelled by the Bonus Committee if the person is not a "covered employee" (as defined by regulations under Code Section 162(m)) on the last day of the plan year. 3. THE BONUS COMMITTEE 3.1 The "Bonus Committee" shall be appointed by the Company's Board of Directors (the "Board") and shall consist of at least two members of the Board. The members of the Bonus Committee shall qualify as "outside directors" under Section 162(m) of the Code. The Bonus Committee shall have the sole discretion and authority to administer and interpret the Incentive Plan pursuant to the requirements of Section 162(m). 4. BONUS DETERMINATIONS 4.1 A covered executive may receive a bonus payment under the Incentive Plan for a plan year based upon the attainment of performance objectives which are established by the Bonus Committee and relate to one or more of the following corporate business criteria (the "Performance Goals"): the Company's pre-tax income, operating income, cash flow, earnings per share, return on equity, return on invested capital or assets, market share, funds from operations, appreciation in the fair market value of the Company's stock, cost reductions or savings, or earnings before any one or more of the following items: interest, taxes, depreciation, amortization or extraordinary items. 4.2 Any bonuses paid to covered executives under the Incentive Plan shall be based upon objectively determinable bonus formulas that tie such bonuses to one or more objective performance objectives relating to the Performance Goals. Bonus formulas for covered executives shall be adopted in each performance period by the Bonus Committee no later than the latest time permitted by Section 162(m) of the Code (for performance periods of one year, no later than 90 days after the commencement of the plan year). No bonuses will be paid to covered executives unless and until the Bonus Committee makes a certification in writing with respect to the attainment of the performance objectives as required by Section 162(m) of the Code. Although the Bonus Committee may in its sole discretion reduce a bonus payable to a covered executive pursuant to the applicable bonus formula, the Bonus Committee shall have no discretion to increase the amount of a covered executive's bonus as determined under the applicable bonus formula. 4.3 The maximum bonus payable to a covered executive under the Incentive Plan shall not exceed $5,000,000 with respect to any plan year. Bonuses will be payable by March 15 of the year following the plan year. 4.4 The payment of a bonus to a covered executive with respect to a performance period shall be conditioned upon the covered executive's employment by the Company on the last day of the performance period, provided, however, the Bonus Committee may make exceptions to this requirement, in its sole discretion, in the case of a covered executive's retirement, death or disability. 5. AMENDMENT AND TERMINATION 5.1 The Bonus Committee reserves the right to amend or terminate the Incentive Plan at any time in its sole discretion. Any amendments to the Incentive Plan shall require stockholder approval only to the extent required by Section 162(m) of the Code. 6. STOCKHOLDER APPROVAL 6.1 No bonuses shall be paid under the Incentive Plan unless and until the Company's stockholders have approved the Incentive Plan and the Performance Goals as required by Section 162(m) of the Code. So long as the Incentive Plan shall not have been previously terminated by the Company, it shall be resubmitted for approval by the Company's stockholders in the fifth year after it shall have first been approved by the Company's stockholders, and every fifth year thereafter. In addition, the Incentive Plan shall be resubmitted to the Company's stockholders for approval as required by Section 162(m) of the Code if it is amended in any way which changes the material terms of the Plan's Performance Goals, including by materially modifying the Performance Goals, increasing the maximum bonus payable under the Incentive Plan or changing the Plan's eligibility requirements. 7. LEGAL REQUIREMENTS 7.1 The Incentive Plan is intended to comply with Section 162(m) of the Code, as amended from time to time, and any required provisions of Section 162(m) and the regulations thereunder shall govern the Incentive Plan. EX-10.2 10 ex-10_2.txt EXHIBIT 10.2 Exhibit-10.2 AMENDMENT TO THE HARRAH'S ENTERTAINMENT, INC. 1990 STOCK OPTION PLAN Harrah's Entertainment, Inc. (the "Company") hereby adopts this Amendment to the Harrah's Entertainment, Inc. 1990 Stock Option Plan (the "Plan"), subject to stockholder approval, which approval is expected to occur on April 27, 2000: The following language is added at the end of Section D.2 of the Plan: "Effective February 23, 2000, the number of authorized common shares that may be issued pursuant to the options and stock appreciation rights granted by the Committee under the Plan is increased by an additional 1,800,000 shares. No options or stock appreciation rights may be granted under this Pan with respect to such 1,800,000 shares after February 28, 2008, and options utilizing these shares will be subject to the same repricing restrictions contained in the provisions of the first sentence of Section B.3 of the Plan that apply to the 3,500,000 shares authorized by the Plan Amendment dated February 26, 1998"; This Amendment was duly approved by the Human Resources Committee of the Board of Directors on February 23,2000. By: /s/ STEPHEN H. BRAMMELL ------------------------ Stephen H. Brammell Secretary of Harrah's Entertainment, Inc. EX-10.3 11 ex-10_3.txt EXHIBIT 10.3 Exhibt-10.3 TARSAP II RESOLVED, that in order to motivate and retain the Company's key executives in view of the Company's competitive environment, the following program (the "TARSAP II Program") be, and it hereby is, approved by the Human Resources Committee (the "Committee"): (1) Grant. Each of the executives listed on Exhibit A is granted a restricted stock award for the number of shares specified on Exhibit A (the "Restricted Shares"). The Restricted Shares are granted pursuant to the Company's 1990 Restricted Stock Plan, as amended, and the administrative regulations thereunder, subject to the terms of the TARSAP Program as specified herein. (2) Longevity Vesting. The Restricted Shares for each executive will vest 100% on January 1, 2008 provided the executive continues in active employment with the Company or its direct or indirect subsidiaries until January 1, 2008. Unless otherwise approved by the Committee, all unvested Restricted Shares will be forfeited and returned to the Plan if active employment terminates prior to January 1 of the year of the vesting date (whether longevity vesting or performance vesting) including termination due to death, retirement or voluntary or involuntary termination. (3) Performance Vesting. The Restricted Shares will be eligible for earlier annual vesting starting March 1, 2003 based on the Company achieving financial performance targets as recommended by the Committee and approved by the Board of Directors. The performance vesting schedule will have the following basic format, which is subject to modification upon recommendation by the Committee and approval of the Board.
Performance Vesting Schedule Plan Financial Potential Vesting Vest Year Targets* (Non-Cumulative) Date 2002 20% 3/1/03 2003 20% 3/1/04 2004 20% 3/1/05 2005 20% 3/1/06 2006 20% 3/1/07 All unvested 1/1/08
*To be established at a later date for each year. (5) Change in Control. Vesting of Restricted Shares in the event of a Change in Control (as defined in and subject to the Plan's administrative regulations) will be as follows: Upon a Change in Control prior to January 1, 2003, 50% of the Restricted Shares will vest if the Participant is actively employed with the Company or its direct or indirect subsidiaries on the date of the Change in control and 50% will be forfeited. Thereafter, 100% of the Restricted Shares will vest similar to other restricted stock upon a Change in Control if the Participant is actively employed with the Company or its direct or indirect subsidiaries on the date of the Change in Control. (6) Amendments. The Human Resources Committee will have broad authority to oversee and amend the TARSAP Program including but not limited to the following: (a) Subject to Board approval, authority to modify or adjust performance criteria and financial targets. (b) Authority to amend TARSAP II, make exceptions, and modify or adjust vesting requirements of individual participants including the requirement of active employment for vesting based on the recommendation of the Chief Executive Officer. (c) Authority to add participants and to approve new or additional TARSAP II awards based on the recommendation of the Chief Executive Officer. The longevity vesting date of January 1, 2008 cannot be extended. (7) Administration. The Company's Senior Vice President, Human Resources, will have authority to administer and interpret the TARSAP Program for purposes of program administration. 2 (8) Deferral Program. The TARSAP Deferral Program previously approved by the Committee will be available for TARSAP II. RESOLVED, that each of the officers of the Company (the "Officers"), or their designees appointed in writing, be, and each of them hereby is, authorized to take any action to execute and deliver, on behalf of the Company, and to perform the Company's obligations under, any and all documents, agreements, contracts and other instruments that any one or more of the Officers deem necessary or desirable to evidence or give resolution, all upon such terms and conditions, not inconsistent with the aforesaid resolution, as any one or more of the Officers or their designees may approve; and RESOLVED, that this Committee hereby adopts the form and content of any resolutions that any one or more of the Officers, or their designees, deem necessary to evidence the approval by the Company of, or carry into effect, the actions contemplated by the foregoing resolutions if (1) in the opinion of such Officer, or such Officer's designee, so acting, the adoption of such resolutions is necessary or advisable, and (2) the Secretary of the Company evidences such adoption by filing with the minutes of this meeting copies of such resolutions which shall thereupon be deemed to be adopted by this Committee and incorporated in the minutes as a part of this resolution with the same force and effect as if presented and approved at this meeting. 3 EX-10.4 12 ex-10_4.txt EXHIBIT 10.4 Exhibit-10.4 Amendment to Employment Agreement Pursuant to the approval of the Company's Human Resources Committee and in consideration of the mutual covenants herein, the Employment Agreement of Gary W. Loveman dated May 4, 1998, is amended as follows: 1. Paragraph 5 is amended to read: "5. Term. The term of this Agreement shall be four (4) years, beginning May 4, 1998 and ending May 3, 2002." 2. The Salary Continuation Period referred to in paragraph 6 is changed to 18 months. IN WITNESS WHEREOF, the parties have executed this Amendment this 26th day of April 2000. Executive: Harrah's Entertainment, Inc. /s/ GARY W. LOVEMAN By: /s/ MARILYN G. WINN - -------------------- -------------------------- Gary W. Loveman Title: Senior Vice President, Human Resources EX-10.5 13 ex-10_5.txt EXHIBIT 10.5 Exhibit-10.5 Amendment to Severance Agreement Pursuant to the approval of the Company's Human Resources Committee and as further consideration for Executive to remain in the employ of the Company, the parties amend the Severance Agreement of Gary W. Loveman dated October 29, 1998, as follows: The reference to "1.5" in Section 4(c)(ii) of the Severance Agreement is changed to "3.0." IN WITNESS WHEREOF, the parties have executed this Amendment this 26th day of April 2000. Executive: Harrah's Entertainment, Inc. /s/ GARY W. LOVEMAN By: /s/ MARILYN G. WINN - -------------------- -------------------------- Gary W. Loveman Title: Senior Vice President, Human Resources EX-10.6 14 ex-10_6.txt EXHIBIT 10.6 Exhibit-10.6 HARRAH'S ENTERTAINMENT, INC April 27, 2000 Mr. Richard Mirman c/o Harrah's Entertainment, Inc. 5100 W. Sahara Blvd. Suite 200 Las Vegas, NV 89146 Re: Severance Agreement Dear Rich: Harrah's Entertainment, Inc. (the "Company") considers it essential to the best interest of its stockholders to foster the continuous employment of key management personnel. In this connection, the Board of Directors of the Company (the "Board") recognizes that, as is the case with many publicly held corporations, the possibility of a change in control may exist and that such possibility, and the uncertainty and questions which it may raise among management, may result in the departure or distraction of management personnel to the detriment of the Company and its stockholders. The Board has determined that appropriate steps should be taken to reinforce and encourage the continued attention and dedication of members of the Company's management, including yourself, to their assigned duties without distraction in the face of potentially disturbing circumstances arising from the possibility of a change in control of the Company, although no such change is now contemplated. In order to induce you to remain in the employ of the Company or its subsidiaries and in consideration of your agreements set forth in Subsection 2(b) hereof, the Company agrees that you shall receive the severance benefits set forth in this letter agreement ("this Agreement") in the event your employment with the Company or its subsidiaries terminates subsequent to a "Change in Control of the Company" (as defined in Section 2 hereof) under the circumstances described below. Richard Mirman April 27, 2000 page 2 1. Term of Agreement. This Agreement shall commence on April 27, 2000, and shall continue in effect through December 31, 2000; provided, however, that commencing on January 1, 2001 and each January 1 thereafter, the term of this Agreement shall automatically be extended for one additional year unless, not later than January 1 of the preceding year, the Company with the approval of the Board of Directors shall have given you written notice that it does not wish to extend this Agreement; provided, further, if a Change in Control of the Company shall have occurred during the original or extended term of this Agreement, this Agreement shall automatically continue in effect for a period of twenty-four months beyond the month in which such Change in Control occurred. 2. Change in Control. (a) No benefit shall be payable to you hereunder unless there shall have been a Change in Control of the Company, as set forth below. For purposes of this Agreement, a "Change in Control of the Company" shall be deemed to have occurred, subject to subparagraph (iv) hereof, if any of the events in subparagraphs (i), (ii) or (iii) occur: (i) Any "person" (as such term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), other than an employee benefit plan of the Company, or a trustee or other fiduciary holding securities under an employee benefit plan of the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of 25% or more of the Company's then outstanding voting securities carrying the right to vote in elections of persons to the Board, regardless of comparative voting power of such voting securities, and regardless of whether or not the Board shall have approved the acquisition of such securities by the acquiring person; or (ii) During any period of two consecutive years, individuals who, at the beginning of such period, constitute the Board together with any new director(s) (other than a director designated by a person who shall have entered into an agreement with the Company to effect a transaction described in clauses (i) or (iii) of this Subsection) whose election by the Board or nomination for election by the Richard Mirman April 27, 2000 page 3 Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the two year period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or (iii) The holders of securities of the Company entitled to vote thereon approve the following: (A) A merger or consolidation of the Company with any other corporation regardless of which entity is the surviving company, other than a merger or consolidation which would result in the voting securities of the Company carrying the right to vote in elections of persons to the Board outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least 80% of (a) the Company's then outstanding voting securities carrying the right to vote in elections of persons to the Board, or (b) the voting securities of such surviving entity outstanding immediately after such merger or consolidation, or (B) A plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets. (iv) Notwithstanding the definition of a "Change in Control" of the Company as set forth in this Section 2(a), the Human Resources Committee of the Board (the "Committee") shall have full and final authority, which shall be exercised in its discretion, to determine conclusively whether a Change in Control of the Company has occurred, and the date of the occurrence of such Change in Control and any incidental matters relating thereto, with respect to a transaction or series of transactions which have resulted or will result in a substantial portion of the assets or business of the Company (as determined, prior to the transaction or series of transactions, by the Committee in its sole discretion which determination as to whether a substantial portion is involved shall be final and conclusive) being held by a corporation at least 80% of Richard Mirman April 27, 2000 page 4 whose voting securities are held, immediately following such transaction or series of transactions, by holders of the voting securities of the Company (as determined by the Committee in its sole discretion prior to such transaction or series of transactions which determination as to whether the 80% amount will be satisfied shall be final and conclusive). The Committee may exercise any such discretionary authority without regard to whether one or more of the transactions in such series of transactions would otherwise constitute a Change in Control of the Company under the definition set forth in this Section 2(a). (b) For purposes of this Agreement, a "Potential Change in Control of the Company" shall be deemed to have occurred if the following occur: (i) The Company enters into a written agreement or letter of intent, the consummation of which would result in the occurrence of a Change in Control of the Company; (ii) Any person (including the Company) publicly announces an intention to take or to consider taking actions which if consummated would constitute a Change in Control of the Company; (iii) Any person (other than an employee benefit plan of the Company, or a trustee or other fiduciary holding securities under an employee benefit plan of the Company) who is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing 9.5% or more of the Company's then outstanding voting securities carrying the right to vote in elections of persons to the Board increases such beneficial ownership of such securities by an additional five percentage points or more thereby beneficially owning 14.5% or more of such securities; or (iv) The Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control of the Company has occurred. You agree that, subject to the terms and conditions of this Agreement, in the event of a Potential Change in Control of the Company, you will remain in the employ of the Company (or the subsidiary thereof by which you are employed at the date such Potential Change in Control occurs) until the earliest of (x) a Richard Mirman April 27, 2000 page 5 date which is six months from the occurrence of such Potential Change in Control of the Company, (y) the termination by you of your employment by reasons of Disability or Retirement (at your normal retirement age), as defined in Subsection 3(a), or (z) the occurrence of a Change in Control of the Company. (c) Good Reason. For purposes of this Agreement, "Good Reason" shall mean, without your express written consent, the occurrence after a Change in Control of the Company, of any of the following circumstances unless, in the case of paragraphs (i), (v), (vi), (vii) or (viii), such circumstances are fully corrected prior to the Date of Termination specified in the Notice of Termination, as such terms are defined in Subsections 3(e) and 3(d), respectively, given in respect thereof: (i) The assignment to you of any duties inconsistent with your status as an executive officer of the Company (or your status in the position held by you immediately prior to the Change in Control) or a substantial adverse alteration in the nature or status of your responsibilities from those in effect immediately prior to the Change in Control of the Company; (ii) A reduction by the Company in your annual base salary as in effect on the date hereof or as the same may be increased from time to time except for an across-the-board salary reduction of a specific percentage applied to all individuals at grade levels 26 and above and all individuals in similar grade levels of any person in control of the Company; (iii) The relocation of the Company's principal executive offices where you are working immediately prior to the Change in Control of the Company to a location more than 50 miles from the location of such offices immediately prior to the Change in Control of the Company or the Company's requiring you to be based anywhere other than the location of the Company's principal executive offices where you were working immediately prior to the Change in Control of the Company except for required travel on the Company's business to an extent substantially consistent with your business travel obligations during the year prior to the Change in Control; Richard Mirman April 27, 2000 page 6 (iv) The failure by the Company, without your consent, to pay to you any portion of your current compensation except pursuant to an across-the-board compensation deferral of a specific percentage applied to all individuals in grade levels 26 or above and all individuals in similar grades of any person in control of the Company, or to pay to you any portion of an installment of deferred compensation under any deferred compensation program of the Company, within thirty days of the date such compensation is due; (v) The failure by the Company to continue in effect any compensation plan in which you are participating immediately prior to the Change in Control of the Company which is material to your total compensation, including but not limited to, the Company's Bonus Plan, Executive Deferred Compensation Plan, Deferred Compensation Plan, Restricted Stock Plan, Stock Option Plan, or any substitute plans adopted prior to the Change in Control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue your participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amount of benefits provided and the level of your participation relative to other participants, as existed immediately prior to the Change in Control of the Company; (vi) The failure by the Company to continue to provide you with benefits substantially similar to those enjoyed by you under any of the Company's pension, savings and retirement plan, life insurance, medical, health and accident, or disability plans in which you were participating at the time of the Change in Control of the Company, the taking of any action by the Company which would directly or indirectly materially reduce any of such benefits or deprive you of any material fringe benefit enjoyed by you at the time of the Change in Control of the Company, or the failure by the Company to provide you with the number of paid vacation or PTO days to which you are entitled on the basis of years of service with the Company in accordance with the Company's normal vacation policy and/or PTO policy in effect at the time of the Change in Control of the Company; Richard Mirman April 27, 2000 page 7 (vii) The failure of the Company to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement, as contemplated in Section 5 hereof; or (viii) Any purported termination of your employment by the Company which is not effected pursuant to a Notice of Termination satisfying the requirements of Subsection 3(d) hereof and the requirements of Subsection 3(b) below; for purposes of this Agreement, no such purported termination shall be effective. Your right to terminate your employment pursuant to this Agreement for Good Reason shall not be affected by your incapacity due to physical or mental illness. Your continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstance constituting Good Reason hereunder. 3. Termination Following Change in Control (or Prior to a Change in Control in Specific Circumstances). If any of the events described in Subsection 2(a) hereof constituting a Change in Control of the Company shall have occurred, then following such Change in Control, you shall be entitled to the benefits provided in Subsection 4(c) hereof: (1) if your employment was terminated within six months prior to the Change of Control under the circumstances described in Section 4.(2) below, or (2) if your employment is terminated during the term of this Agreement after such Change in Control if such termination is (y) by the Company, other than for Cause or (z) by you for Good Reason as provided in Subsection 3(c)(i) hereof or by your Voluntary Termination as provided in Subsection 3(c)(ii) hereof. (a) Disability; Retirement. If, as a result of your incapacity due to physical or mental illness, you shall have been absent from the full-time performance of your duties with the Company for six consecutive months, and within thirty days after written notice of termination is given you shall not have returned to the full-time performance of your duties, your employment may be terminated for "Disability". Termination by the Company or you of your employment based on "Retirement" shall mean termination at age 65 (or later) with ten years of service or retirement in accordance with any retirement contract between the Company and you. Richard Mirman April 27, 2000 page 8 (b) Cause. Termination by the Company of your employment for "Cause" shall mean termination upon your engaging in willful and continued misconduct, or your willful and continued failure to substantially perform your duties with the Company (other than due to physical or mental illness), if such failure or misconduct is materially damaging or materially detrimental to the business and operations of the Company, provided that you shall have received written notice of such failure or misconduct and shall have continued to engage in such failure or misconduct after 30 days following receipt of such notice from the Board, which notice specifically identifies the manner in which the Board believes that you have engaged in such failure or misconduct. For purposes of this Subsection, no act, or failure to act, on your part shall be deemed "willful" unless done, or omitted to be done, by you not in good faith and without your reasonable belief that your action or omission was in the best interest of the Company. Notwithstanding the foregoing, you shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to you a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Board), finding that in the good faith opinion of the Board you were guilty of failure to substantially perform your duties or of misconduct in accordance with the first sentence of this Subsection, and of continuing such failure to substantially perform your duties or misconduct as aforesaid after notice from the Board, and specifying the particulars thereof in detail. (c) Voluntary Resignation. After a Change in Control of the Company and for purposes of receiving the benefits provided in Subsection 4(c) hereof, you shall be entitled to terminate your employment by voluntary resignation given at any time during the two years following the occurrence of a Change in Control of the Company hereunder, provided such resignation is (i) by you for Good Reason or (ii) by you voluntarily without the necessity of asserting or establishing Good Reason and regardless of your age or any disability and regardless of any grounds that may exist for the termination of your employment if such voluntary termination occurs by written notice given by you to the Company during the thirty days immediately following the one year anniversary of the Change in Control (your "Voluntary Termination"), provided, however, for purposes of this Subsection 3(c)(ii) only, the language "25% or more" in Subsection 2(a)(i) Richard Mirman April 27, 2000 page 9 hereof is changed to "a majority". Such resignation shall not be deemed a breach of any employment contract between you and the Company. (d) Notice of Termination. Any purported termination of your employment by the Company or by you shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 6 hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. (e) Date of Termination, Etc. "Date of Termination" shall mean: (i) If your employment is terminated for Disability, thirty days after Notice of Termination is given (provided that you shall not have returned to the full-time performance of your duties during such thirty day period), and (ii) If your employment is terminated pursuant to Subsection (b) or (c) above or for any other reason (other than Disability), the date specified in the Notice of Termination (which, in the case of a termination pursuant to Subsection (b) above shall not be less than thirty days, and in the case of a termination pursuant to Subsection (c) above shall not be less than fifteen nor more than sixty days (thirty days in case of your Voluntary Termination), respectively, from the date such Notice of Termination is given); provided that if within fifteen days after any Notice of Termination is given, or, if later, prior to the Date of Termination (as determined without regard to this provision), the party receiving such Notice of Termination notifies the other party that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined, either by mutual written agreement of the parties, by a binding arbitration award, or by a final judgment, order or decree of a court of competent jurisdiction (which is not appealable or with respect to which the time for appeal therefrom has expired and no appeal has been perfected); provided further Richard Mirman April 27, 2000 page 10 that the Date of Termination shall be extended by a notice of dispute only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence. Notwithstanding the pendency of any such dispute, the Company will continue to pay you your full compensation in effect when the notice giving rise to the dispute was given (including, but not limited to, base salary) and continue you as a participant in all compensation, bonus, benefit and insurance plans in which you were participating when the notice giving rise to the dispute was given, until the dispute is finally resolved in accordance with this Subsection. Amounts paid under this Subsection are in addition to all other amounts due under this Agreement and shall not be offset against or reduce any other amounts due under this Agreement. 4. Compensation Upon Termination Following a Change of Control (or if Termination Occurs Prior to a Change in Control in Specific Circumstances). Following a Change in Control of the Company as defined in Subsection 2(a), then: (1) upon termination of your employment after such Change in Control, or (2) notwithstanding anything in this Agreement to the contrary, if termination of your employment occurred within six months prior to the Change in Control if such termination was by the Company without Cause by reason of the request of the person or persons (or their representatives) who subsequently acquire control of the Company in the Change of Control transaction, you shall be entitled to the following benefits: (a) Deleted. (b) If your employment shall be terminated by the Company for Cause, the Company shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus the Company shall pay all other amounts and honor all rights to which you are entitled under any compensation plan of the Company at the time such payments are due, and the Company shall have no other obligations to you under this Agreement. (c) If your employment shall be terminated (y) after a Change of Control, by the Company other than for Cause or (z) after a Change of Control, by you for Good Reason or by your Voluntary Termination as provided in Subsection 3(c)(ii), or (yy) Richard Mirman April 27, 2000 page 11 within six months prior to a Change of Control, by the Company under the circumstances described in Section 4.(2) above, then you shall be entitled to the benefits provided below: (i) The Company shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which you are entitled under any compensation or benefit plan of the Company, at the time such payments are due; (ii) In lieu of any further salary payments to you for periods subsequent to the Date of Termination, the Company shall pay as severance pay to you a lump sum severance payment (the "Severance Payment") equal to 3.0 times the average of the Annual Compensation (as defined below) payable to you by the Company or any corporation affiliated with the Company within the meaning of Section 1504 of the Internal Revenue Code of 1986, as amended (the "Code"). Annual Compensation is defined to consist of two components: (a) Your annual salary in effect immediately prior to the Change in Control or in effect as of the Date of Termination, whichever annual salary is higher. Your annual salary for this purpose will be determined without any reduction for deferrals of such salary under any deferred compensation plan (qualified or unqualified) and without any reduction for any salary reductions used for making contributions to any group insurance plan of the Company or its affiliates and also without reduction for any other deductions from salary for any reason; plus (b) The average of your annual bonuses under the Company's Annual Management Bonus Plan, or any substitute or successor plan including the Key Executive Officer Annual Incentive Plan, for the three highest calendar years, in terms of annual bonus paid to you in such years, during the five calendar years preceding the calendar year in which the Change in Control occurred. Your annual bonuses for this purpose will be determined without any reduction for deferrals under any deferred compensation plan (qualified or unqualified) and without any reduction for salary reductions used for making contributions to any group insurance plan of the Company or its affiliates and also without reduction for any other deductions from bonus for any reason. If you were not employed by the Company or its affiliates for a sufficient period of time to receive annual bonuses during each of the five calendar years before the Change in Control occurred, Richard Mirman April 27, 2000 page 12 then the average bonus will be measured using the three highest calendar years, in terms of annual bonus paid to you, in all the consecutive calendar years immediately preceding the date the Change in Control occurred. If you were not eligible for three years of bonuses paid during the calendar years immediately preceding the date the Change in Control occurred, then the average bonus will be the average of the annual bonuses that were paid to you during such time under such Plan. If you were not eligible for any bonus during such time because of not being employed by the Company for a sufficient period of time to qualify for a previous bonus payment, then Annual Compensation will only consist of the salary component as provided above and will not include a bonus component. (iii) The Company shall also pay to you a pro rata amount of your target bonus (the bonus amount for your grade level assuming 100 bonus points are earned) as shown on the matrix for the Annual Management Bonus Plan (or any substitute or successor plan) attributable to the bonus plan year which contains your Date of Termination, regardless of whether or not any bonus is determined to be actually earned for such year, provided that the target bonus for calculating this pro rata payment will not be less than the target bonus under such Plan for the Plan year that contains the day immediately prior to the Change in Control (which target bonus will be the one that applies to your grade level at that time) regardless of whether or not any bonus was payable for such year. The pro-rata amount will be based on the percentage of days of your employment in the calendar year of the Date of Termination. For example, if the Date of Termination is October 1 in a year with 365 days, with October 1 counted as the last day of employment for a total of 274 days of employment that year, then the pro-rata amount will be 75.06849% of target bonus (274 days DIVIDED BY 365 days). In addition, the Company shall pay to you the amounts of any compensation or awards payable to you or due to you under any incentive compensation plan of the Company including, without limitation, the Company's Restricted Stock Plan, Stock Option Plan (the "Option Plan") and Annual Management Bonus Plan (or any substitute or successor plan including the Key Executive Officer Annual Incentive Plan) and under any agreements with you in connection therewith, and shall make any other payments and take any other actions and honor such rights you may have accrued under such plans Richard Mirman April 27, 2000 page 13 and agreements including any rights you may have to payments after the Date of Termination, which will include the payment to you of any bonus earned during the bonus year fully completed prior to the Date of Termination if such Date of Termination occurs prior to the payment date for such bonus, it being understood, however, that the pro-rata payment provided for in the first sentence of this paragraph 4(c)(iii) is in lieu of any bonus earned for the bonus plan year during which occurred the Date of Termination. (iv) In lieu of shares of common stock of the Company or any securities of a successor company which shall have replaced such common stock ("Company Shares") issuable upon exercise of outstanding and unexercised options (whether or not they are fully exerciseable or "vested"), if any, granted to you under the Option Plan including options granted under the plan of any successor company that replaced or assumed the options under said Option Plan ("Options") (which Options shall be cancelled upon the making of the payment referred to below), you shall receive an amount in cash equal to the product of (y) the excess of the higher of the closing price of Company Shares as reported on the New York Stock Exchange on or nearest the Date of Termination (or, if not listed on such exchange, on a nationally recognized exchange or quotation system on which trading volume in Company Shares is highest) or the highest per share price (including cash, securities and any other consideration) for Company Shares actually paid in connection with any change in control of the Company, over the per share exercise price of each Option held by you (whether or not then fully exercisable or "vested"), times (z) the number of Company Shares covered by each such option. (v) The Company shall also pay to you all legal fees and expenses incurred by you as a result of such termination (including all such fees and expenses, if any, incurred in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of Section 4999 of the Code to any payment or benefit provided hereunder). Richard Mirman April 27, 2000 page 14 (vi) In the event that you become entitled to the payments (the "Severance Payments") provided under paragraphs (ii), (iii), and (iv), above (and Subsections (d) and (e), below), and if any of the Severance Payments will be subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code, the Company shall pay to you at the time specified in paragraph (vii), below, an additional amount (the "Gross-Up Payment") such that the net amount retained by you (such net amount to be the amount remaining after deducting any Excise Tax on the Severance Payments and any federal, state and local income tax and Excise Tax payable on the payment provided for by this paragraph), shall be equal to the amount of the Severance Payments after deducting normal and ordinary taxes but not deducting (a) the Excise Tax and (b) any federal, state and local income tax and Excise tax payable on the payment provided for by this paragraph. For example, if the Severance Payments are $1,000,000 and if you are subject to the Excise Tax, then the Gross-Up Payment will be such that you will retain an amount of $1,000,000 less only any normal and ordinary taxes on such amount. (The Excise Tax and federal, state and local taxes and any Excise Tax on the payment provided by this paragraph will not be deemed normal and ordinary taxes). For purposes of determining whether any of the Severance Payments will be subject to the Excise Tax and the amount of such Excise Tax, the following will apply: (A) Any other payments or benefits received or to be received by you in connection with a Change in Control of the Company or your termination of employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any person whose actions result in a Change in Control of the Company or any person affiliated with the Company or such person) shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) shall be treated as subject to the Excise Tax, unless in the opinion of tax counsel selected by the Company's independent auditors and acceptable to you such other payments or benefits (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually Richard Mirman April 27, 2000 page 15 rendered within the meaning of Section 280G(b)(4) of the Code in excess of the base amount within the meaning of Section 280G(b)(3) of the Code, or are otherwise not subject to the Excise Tax; (B) The amount of the Severance Payments which shall be treated as subject to the Excise Tax shall be equal to the lesser of (y) the total amount of the Severance Payments or (z) the amount of excess parachute payments within the meaning of Section 280G(b)(1) (after applying clause (A), above); and (C) The value of any non-cash benefits or any deferred payment or benefit shall be determined by the Company's independent auditors in accordance with proposed, temporary or final regulations under Sections 280G(d)(3) and (4) of the Code or, in the absence of such regulations, in accordance with the principles of Section 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, you shall be deemed to pay Federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of your residence on the Date of Termination, net of the maximum reduction in Federal income taxes which could be obtained from deduction of such state and local taxes. In the event that the amount of Excise Tax attributable to Severance Payments is subsequently determined to be less than the amount taken into account hereunder at the time of termination of your employment, you shall repay to the Company, at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax and Federal (and state and local) income tax imposed on the Gross-Up Payment being repaid by you if such repayment results in a reduction in Excise Tax and/or a Federal (and state and local) income tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax Richard Mirman April 27, 2000 page 16 attributable to Severance Payments is determined to exceed the amount taken into account hereunder at the time of the termination of your employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional gross-up payment to you in respect of such excess (plus any interest payable with respect to such excess) at the time that the amount of such excess is finally determined. (vii) The payments provided for in paragraphs (ii), (iii), (iv) and (vi) above, shall be made not later than the fifth day following the Date of Termination (or following the date of the Change in Control if your employment is terminated under the circumstances described in Section 4.(2) above), provided, however, that if the amounts of such payments cannot be finally determined on or before such day, the Company shall pay to you on such day an estimate, as determined in good faith by the Company, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth day after the Date of Termination (or following the date of the Change in Control if your employment is terminated under the circumstances described in Section 4.(2) above). In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to you payable on the fifth day after demand by the Company (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code). (d) If your employment shall be terminated (y) by the Company other than for Cause, or (z) by you voluntarily for Good Reason or by your Voluntary Termination, or by the Company within six months prior to a Change in Control under the circumstances described in Section 4.(2) hereof, then for a twenty-four month period after such termination, the Company shall arrange to provide you with life, disability, accident and health insurance benefits substantially similar to those which you are receiving immediately prior to the Notice of Termination. Benefits otherwise receivable by you pursuant to this Subsection 4(d) shall be reduced to the extent comparable benefits are actually Richard Mirman April 27, 2000 page 17 received by you during the twenty-four month period following your termination, and any such benefits actually received by you shall be reported to the Company. (e) In the event a Change in Control of the Company occurs while you are employed with the Company or its affiliates but after you and the Company have executed an agreement that expressly provides for your subsequent retirement including an agreement that expressly provides for your early retirement, then the present value, computed using a discount rate of 8% per annum, of (i) the total amount of all unpaid deferred payments as payable to you in accordance with the payment schedule that you elected when the deferral was agreed to and using the plan interest rate applicable to your situation, including, without limitation, any unpaid deferred payments to be paid to you under the Company's Executive Deferred Compensation Plan and the Company's other deferred compensation plans, and (ii) the total amount of all other payments payable or to become payable to you or your estate or beneficiary under such retirement agreement (other than payments payable pursuant to a plan qualified under Section 401(a) of the Internal Revenue Code) shall be accelerated and paid to you (or your estate or beneficiary if applicable) in a lump sum cash payment within five business days after the occurrence of the Change in Control of the Company. In addition, if you and the Company or its affiliates have executed such a retirement agreement and if the Change in Control of the Company occurs before the effective date of your retirement, then you shall receive the Severance Payment payable under Subsection 4(c)(ii) herein in addition to the lump sum cash payment of the present value of your total unpaid deferred payments and other payments under the retirement agreement as aforesaid. All benefits (other than the payments accelerated and paid out to you in a lump sum as provided above) to which you or your estate or any beneficiary are entitled under such retirement agreement shall continue in effect notwithstanding the Change in Control of the Company. This Subsection 4(e) shall survive your retirement. (f) Notwithstanding that a Change in Control shall not have yet occurred, if you so elect, by written notice to the Company given at any time after the date hereof and prior to the time such amounts are otherwise payable to you: (i) The Company shall deposit with an escrow agent, pursuant to an escrow agreement between the Company and such escrow agent, a sum of money, or other property permitted by Richard Mirman April 27, 2000 page 18 such escrow agreement, which are substantially sufficient in the opinion of the Company's management to fund payment of the following amounts to you, as such amounts become payable (provided such deposit will not be necessary to the extent the escrow already contains funds or other assets which are substantially sufficient in the opinion of the Company's management to fund such payments) : (A) Amounts payable, or to become payable, to you or to your beneficiaries or your estate under the Company's Executive Deferred Compensation Plan and under any agreements related thereto in existence at the time of your election to make the deposit into escrow. (B) Amounts payable, or to become payable, to you or to your beneficiaries or your estate by reason of your deferral of payments payable to you prior to the date of your election to make the deposit into escrow under any other deferred compensation agreements between you and the Company in existence at the time of your election to make the deposit into escrow, including but not limited to deferred compensation agreements relating to the deferral of salary or bonuses. (C) Amounts payable, or to become payable, to you or to your beneficiaries or your estate under any executed agreement that expressly provides for your retirement from the Company (including payments described under Subsection 4(e) above) which agreement is in existence at the time of your election to make the deposit into escrow, other than amounts payable by a plan qualified under Section 401(a) of the Code. (D) Subject to the approval of the Committee, amounts then due and payable to you, but not yet paid, under any other benefit plan or incentive compensation plan of the Company (whether such amounts are stock or cash) other than amounts payable to you under a plan qualified under Section 401(a) of the Code. (ii) Within 5 days after the occurrence of a Potential Change of Control, the Company shall deposit with an escrow agent (which shall be the same escrow agent, if one exists, Richard Mirman April 27, 2000 page 19 acting pursuant to clause (i) of this Subsection 4(f)), pursuant to an escrow agreement between the Company and such escrow agent, a sum of money, or other property permitted by such escrow agreement, substantially sufficient in the opinion of Company management to fund the payment to you of the amounts specified in Subsection 4(c) of this Agreement. (iii) It is intended that any amounts deposited in escrow pursuant to the provisions of clause (i) or (ii) of this Subsection 4(f), shall be subject to the claims of the Company's creditors, as set forth in the form of such escrow agreement. (g) You shall not be required to mitigate the amount of any payment provided for in this Section 4 by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Section 4 be reduced by any compensation earned by you as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by you to the Company, or otherwise (except as specifically provided in this Section 4). (h) In addition to all other amounts payable to you under this Section 4, you shall be entitled to receive all benefits payable to you under any benefit plan of the Company in which you participate to the extent such benefits are not paid under this Agreement. 5. Successors; Binding Agreement. (a) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle you to compensation from the Company in the same amount and on the same terms as you would be entitled to hereunder if you terminate your employment voluntarily for Good Reason following a Change in Control of the Company, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this Agreement, Richard Mirman April 27, 2000 page 20 "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. (b) This Agreement shall inure to the benefit of and be enforceable by your personal or legal representatives, executors, administrators, successors, heirs, distributees, devises and legatees. If you should die while any amount would still be payable to you hereunder if you had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to your devisee, legatee or other designee or, if there is no such designee, to your estate. 6. Notices. For the purpose of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered or certified mail, return receipt requested, postage prepaid, by FAX if available, or by overnight courier service, addressed as follows: To the Company: Secretary Harrah's Entertainment, Inc. 5100 W. Sahara Avenue Suite 200 Las Vegas, Nevada 89146 FAX: 702-579-2671 To you: Addressed to your name at your office address (or FAX number) with the Company or its affiliates (or any successor thereto) at the time the notice is sent and your home address at that time; and if you are not employed by the Company at the time of the notice, your home address as shown on the records of the Company or its affiliates (or any successor thereto) on the date of the notice. To such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. Richard Mirman April 27, 2000 page 21 7. Miscellaneous. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by you and such officer as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. No agreement or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of Delaware. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law. The obligations of the Company under Section 4 shall survive the expiration of the term of this Agreement. 8. Validity. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 9. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 10. Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Las Vegas, Nevada in accordance with the rules of the American Arbitration Association then in effect. Judgment may be entered on the arbitrator's award in any court having jurisdiction; provided, however, that you shall be entitled to seek specific performance of your right to be paid until the Date of Termination during the pendency of any dispute or controversy arising under or in connection with this Agreement. 11. Similar Provisions in Other Agreement. The Severance Payment under this Agreement supersedes and replaces any previous Richard Mirman April 27, 2000 page 22 severance agreement and any other severance payment to which you may be entitled under any previous agreement between you and the Company or its affiliates. If this letter sets forth our agreement on the subject matter hereof, kindly sign and return to the Company the enclosed copy of this letter which will then constitute our binding agreement on this subject. Very truly yours, HARRAH'S ENTERTAINMENT, INC. By: /s/ STEPHEN H. BRAMMELL -------------------------- Stephen H. Brammell Senior Vice President Agreed: /s/ RICHARD MIRMAN - --------------------- Richard Mirman EX-11 15 ex-11.txt EXHIBIT 11 Exhibit 11 HARRAH'S ENTERTAINMENT, INC. COMPUTATIONS OF PER SHARE EARNINGS
Second Quarter Ended Six Months Ended June 30, June 30, June 30, June 30, 2000 1999 2000 1999 ------------- ------------- ------------- ------------- Income before extraordinary losses $ 47,214,000 $ 47,923,000 $ 77,962,000 $ 85,268,000 Extraordinary losses, net (716,000) (7,375,000) (716,000) (10,623,000) ------------- ------------- ------------- ------------- Net income $ 46,498,000 $ 40,548,000 $ 77,246,000 $ 74,645,000 ============= ============= ============= ============= BASIC EARNINGS PER SHARE Weighted average number of common shares outstanding 118,625,181 126,202,689 119,947,456 125,864,055 ============= ============= ============= ============= BASIC EARNINGS PER COMMON SHARE Income before extraordinary losses $ 0.40 $ 0.38 $ 0.65 $ 0.67 Extraordinary losses, net (0.01) (0.06) (0.01) (0.08) ------------- ------------- ------------- ------------- Net income $ 0.39 $ 0.32 $ 0.64 $ 0.59 ============= ============= ============= ============= DILUTED EARNINGS PER SHARE Weighted average number of common shares outstanding 118,625,181 126,202,689 119,947,456 125,864,055 Additional shares based on average market price for period applicable to: Restricted stock 245,749 684,726 345,715 580,310 Stock options 1,122,442 2,096,989 1,135,898 1,422,001 ------------- ------------- ------------- ------------- Average number of common and common equivalent shares outstanding 119,993,372 128,984,404 121,429,069 127,866,366 ============= ============= ============= ============= DILUTED EARNINGS PER COMMON AND COMMON EQUIVALENT SHARES Income before extraordinary losses $ 0.40 $ 0.37 $ 0.65 $ 0.66 Extraordinary losses, net (0.01) (0.06) (0.01) (0.08) ------------- ------------- ------------- ------------- Net income $ 0.39 $ 0.31 $ 0.64 $ 0.58 ============= ============= ============= =============
EX-27 16 ex-27.txt EXHIBIT 27
5 1,000 6-MOS DEC-31-2000 JUN-30-2000 226,624 0 154,104 45,659 28,708 483,896 4,490,244 1,002,461 5,075,353 593,772 2,707,466 0 0 11,667 1,391,347 5,075,353 0 1,662,795 0 1,353,881 72,476 0 108,585 132,647 47,278 77,962 0 716 0 77,246 0.64 0.64
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