-----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, UmuNiSvrOcDUV/zd71srZoiaWXfFmJP09LEMFXxXBwv9jcBY1x80JwSQbxkT3+Ws 0IY4xyJy43bNzKQACQbOAQ== 0000912057-01-514441.txt : 20010514 0000912057-01-514441.hdr.sgml : 20010514 ACCESSION NUMBER: 0000912057-01-514441 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010511 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HARRAHS ENTERTAINMENT INC CENTRAL INDEX KEY: 0000858339 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS AMUSEMENT & RECREATION [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: 1629207 BUSINESS ADDRESS: STREET 1: ONE HARRAHS COURT CITY: LAS VEGAS STATE: NV ZIP: 89119 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 a2048399z10-q.txt 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 MARCH 31, 2001
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.) ONE HARRAH'S COURT LAS VEGAS, NEVADA 89119 (Current address of principal executive offices) (702) 407-6000 (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 March 31, 2001, there were outstanding 117,218,433 shares of the Company's Common Stock. Page 1 of 24 Exhibit Index Page 25 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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. These Consolidated Condensed Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in our 2000 Annual Report to Stockholders. 2 HARRAH'S ENTERTAINMENT, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
MARCH 31, DEC. 31, 2001 2000 (IN THOUSANDS, EXCEPT SHARE AMOUNTS) ----------- ----------- ASSETS Current assets Cash and cash equivalents................................. $ 257,289 $ 299,202 Receivables, less allowance for doubtful accounts of $46,255 and $49,357..................................... 127,775 122,050 Deferred income taxes..................................... 35,138 35,126 Prepayments and other..................................... 59,063 104,239 Inventories............................................... 22,303 22,816 ----------- ----------- Total current assets.................................... 501,568 583,433 ----------- ----------- Land, buildings, riverboats and equipment................... 4,675,546 4,581,253 Less: accumulated depreciation.............................. (1,117,677) (1,084,884) ----------- ----------- 3,557,869 3,496,369 Goodwill, net of amortization of $77,297 and $72,465 (Note 2)........................................................ 702,571 685,393 Investments in and advances to nonconsolidated affiliates... 93,977 86,681 Deferred costs, trademarks and other........................ 302,807 314,209 ----------- ----------- $ 5,158,792 $ 5,166,085 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable.......................................... $ 78,926 $ 89,051 Accrued expenses.......................................... 356,080 343,524 Short-term debt........................................... 27,000 215,000 Current portion of long-term debt......................... 4,348 130,928 ----------- ----------- Total current liabilities............................... 466,354 778,503 Long-term debt.............................................. 3,059,031 2,835,846 Deferred credits and other.................................. 177,142 177,654 Deferred income taxes....................................... 91,655 85,650 ----------- ----------- 3,794,182 3,877,653 ----------- ----------- Minority interests.......................................... 19,845 18,714 ----------- ----------- Commitments and contingencies (Notes 2, 4, 6 and 7) Stockholders' equity Common stock, $0.10 par value, authorized--360,000,000 shares, outstanding--117,218,433 and 115,952,394 shares (net of 22,108,719 and 22,030,805 shares held in treasury)............................................... 11,722 11,595 Capital surplus........................................... 1,102,336 1,075,313 Retained earnings......................................... 268,332 224,251 Accumulated other comprehensive income.................... (704) (1,036) Deferred compensation related to restricted stock......... (36,921) (40,405) ----------- ----------- 1,344,765 1,269,718 ----------- ----------- $ 5,158,792 $ 5,166,085 =========== ===========
See accompanying Notes to Consolidated Condensed Financial Statements. 3 HARRAH'S ENTERTAINMENT, INC. CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
FIRST QUARTER ENDED --------------------- MARCH 31, MARCH 31, 2001 2000 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) --------- --------- Revenues Casino.................................................... $747,931 $633,757 Food and beverage......................................... 123,443 110,268 Rooms..................................................... 71,008 64,194 Management fees........................................... 15,680 17,221 Other..................................................... 32,798 33,561 Less: casino promotional allowances....................... (91,327) (78,741) -------- -------- Total revenues........................................ 899,533 780,260 -------- -------- Operating expenses Direct Casino.................................................. 384,043 331,079 Food and beverage....................................... 54,922 53,872 Rooms................................................... 17,666 16,675 Depreciation and amortization............................. 66,129 50,571 Development costs......................................... 1,808 2,159 Write-downs, reserves and recoveries: Reserves for New Orleans casino......................... 2,323 -- Other................................................... (233) 13 Project opening costs..................................... 2,159 292 Other..................................................... 205,738 184,449 -------- -------- Total operating expenses.............................. 734,555 639,110 -------- -------- Operating profit.................................... 164,978 141,150 Corporate expense......................................... (13,776) (11,021) Headquarters relocation and reorganization costs.......... -- (1,796) Equity in income (losses) of nonconsolidated affiliates... 426 (23,696) Venture restructuring costs............................... (1,500) -- Amortization of goodwill and trademarks................... (5,602) (4,537) -------- -------- Income from operations...................................... 144,526 100,100 Interest expense, net of interest capitalized............... (64,226) (50,459) Gain on equity interests in subsidiary...................... 370 -- Other (expense) income, including interest income........... (6,478) 3,616 -------- -------- Income before income taxes and minority interests........... 74,192 53,257 Provision for income taxes.................................. (26,811) (18,646) Minority interests.......................................... (3,170) (3,863) -------- -------- Income before extraordinary losses.......................... 44,211 30,748 Extraordinary losses, net of income tax benefit of $71...... (131) -- -------- -------- Net income.................................................. $ 44,080 $ 30,748 ======== ========
See accompanying Notes to Consolidated Condensed Financial Statements. 4 HARRAH'S ENTERTAINMENT, INC. CONSOLIDATED CONDENSED STATEMENTS OF INCOME (CONTINUED) (UNAUDITED)
FIRST QUARTER ENDED --------------------- MARCH 31, MARCH 31, 2001 2000 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) --------- --------- Earnings per share--basic Income before extraordinary losses........................ $ 0.38 $ 0.25 Extraordinary losses, net................................. -- -- ------- ------- Net income.............................................. $ 0.38 $ 0.25 ======= ======= Earnings per share--diluted Income before extraordinary losses........................ $ 0.38 $ 0.25 Extraordinary losses, net................................. -- -- ------- ------- Net income.............................................. $ 0.38 $ 0.25 ======= ======= Average common shares outstanding........................... 114,614 121,643 ======= ======= Average common and common equivalent shares outstanding..... 117,098 123,281 ======= =======
See accompanying Notes to Consolidated Condensed Financial Statements. 5 HARRAH'S ENTERTAINMENT, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
FIRST QUARTER ENDED --------------------- MARCH 31, MARCH 31, 2001 2000 (IN THOUSANDS) --------- --------- Cash flows from operating activities Net income................................................ $ 44,080 $ 30,748 Adjustments to reconcile net income to cash flows from operating activities Extraordinary losses, before income taxes............... 202 -- Depreciation and amortization........................... 83,867 56,811 Write-downs, reserves and recoveries.................... 2,090 -- Other noncash items..................................... 23,219 1,782 Minority interests' share of income..................... 3,170 3,863 Equity in (income) losses of nonconsolidated affiliates............................................ (426) 23,696 Realized loss (gain) from equity interest in nonconsolidated affiliates............................ (370) -- Net losses from asset sales............................. 604 336 Net change in long-term accounts........................ (35,242) 14,232 Net change in working capital accounts.................. 50,619 (10,316) --------- --------- Cash flows provided by operating activities......... 171,813 121,152 --------- --------- Cash flows from investing activities Land, buildings, riverboats and equipment additions....... (161,839) (76,735) (Decrease) increase in construction payables.............. (174) 689 Proceeds from other asset sales........................... 41,577 24,619 Investments in and advances to nonconsolidated affiliates.............................................. (13,695) (31,446) Proceeds from sales of equity interests in subsidiaries... 1,883 131,475 Payment for business acquired, net of cash acquired....... -- (244,001) Other..................................................... (5,377) (1,307) --------- --------- Cash flows used in investing activities............. (137,625) (196,706) --------- --------- Cash flows from financing activities Net (repayments) borrowings under lending agreements, net of financing costs of $17 and $7........................ (396,881) 61,000 Net short-term (repayments) borrowings.................... (38,000) 65,000 Early retirement of debt.................................. (150,000) -- Scheduled debt retirements................................ (2,263) (717) Minority interests' distributions, net of contributions... (2,038) (2,473) Proceeds from issuance of new debt, net of discount of $5,540 and issue costs of $3,738........................ 490,723 -- Proceeds from exercise of stock options................... 21,228 19,713 Other..................................................... 1,130 -- Purchases of treasury stock............................... -- (77,724) --------- --------- Cash flows (used in) provided by financing activities........................................ (76,101) 64,799 --------- --------- Net decrease in cash and cash equivalents................... (41,913) (10,755) Cash and cash equivalents, beginning of period.............. 299,202 233,581 --------- --------- Cash and cash equivalents, end of period.................... $ 257,289 $ 222,826 ========= =========
See accompanying Notes to Consolidated Condensed Financial Statements. 6 HARRAH'S ENTERTAINMENT, INC. CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
FIRST QUARTER ENDED --------------------- MARCH 31, MARCH 31, 2001 2000 (IN THOUSANDS) --------- --------- Net income.................................................. $44,080 $30,748 ------- ------- Other comprehensive income Foreign currency translation adjustments, net of tax provision of $56........................................ -- 90 Realization of foreign currency adjustments, net of tax provision of $148....................................... -- 191 Unrealized gains on available-for-sale securities, net of tax provision of $566 and $108................... 908 176 Realization of gain on available-for-sale securities, net of tax provision of $(123).......................... (226) -- Unrealized loss on natural gas contract, net of tax benefit of $190......................................... (350) -- ------- ------- Other comprehensive income................................ 332 457 ------- ------- Comprehensive income........................................ $44,412 $31,205 ======= =======
See accompanying notes to Consolidated Condensed Financial Statements. 7 HARRAH'S ENTERTAINMENT, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS MARCH 31, 2001 (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 have reclassified certain amounts for prior years to conform with our presentation for 2000. NOTE 2--ACQUISITIONS PLAYERS INTERNATIONAL, INC. On March 22, 2000, we completed our acquisition of Players International, Inc. ("Players"), paying $8.50 in cash for each outstanding share and assuming $150 million of Players 10 7/8% Senior Notes due 2005 (the "Players Notes"). 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 Maryland Heights properties were consolidated with the adjacent Harrah's operations in second quarter 2000, and the Lake Charles facility was converted to the Harrah's brand in fourth quarter 2000. The Metropolis facility is expected to be converted to the Harrah's brand name after integration of our systems and technology, including Total Rewards, which we anticipate will occur in the second half of 2001. The acquisition was funded by our revolving credit and letter of credit facilities and was accounted for as a purchase. The purchase price was allocated to the underlying assets and liabilities based upon their estimated fair values at the date of acquisition. We determined the estimated fair values based on independent appraisals, discounted cash flows, quoted market prices and estimates made by management. To the extent that the purchase price exceeded the fair value of the net identifiable tangible assets acquired, such excess was allocated to goodwill and is being amortized over 40 years. 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. HARVEYS CASINO RESORTS On April 24, 2001, we announced that we have reached an agreement to acquire Harveys Casino Resorts ("Harveys") for $625 million, including assumption of Harveys' outstanding debt. We will also assume a $50 million off-balance-sheet liability. We expect to finance the acquisition, including 8 HARRAH'S ENTERTAINMENT, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2001 (UNAUDITED) NOTE 2--ACQUISITIONS (CONTINUED) refinancing of Harveys existing debt, through issuance of public debt or bank credit facilities. The purchase includes the Harveys Resort & Casino in Lake Tahoe, Nevada, the Harveys Casino Hotel and the Bluffs Run Casino, both in Council Bluffs, Iowa, and the Harveys Wagon Wheel Hotel/Casino in Central City, Colorado. The acquisition is subject to receipt of regulatory approvals and is expected to be accounted for as a purchase. NOTE 3--STOCKHOLDERS' EQUITY In addition to its common stock, Harrah's Entertainment has the following classes of stock authorized but unissued: Preferred stock, $100 par value, 150,000 shares authorized Special stock, $1.125 par value, 5,000,000 shares authorized-- Series A Special Stock, 2,000,000 shares designated In April 2000, our Board of Directors authorized the repurchase of up to 12.5 million shares of our common stock in the open market and other transactions as market conditions warrant. This plan will expire on December 31, 2001. At March 31, 2001, we had purchased 8.0 million shares under this plan. NOTE 4--DEBT REVOLVING CREDIT FACILITIES The Company has revolving credit and letter of credit facilities (the "Bank Facility"), which provide us with borrowing capacity of $1.9 billion. The Bank Facility consists of a five-year $1.525 billion revolving credit and letter of credit facility maturing in 2004 and a separate $375 million revolving credit facility, which is renewable annually at the borrower's and lenders' options. On April 26, 2001, we renewed the 364-day facility and reduced the available borrowing capacity of that facility from $375 million to $328 million. Currently, the Bank Facility bears interest based upon 87.5 basis points over LIBOR for current borrowings under the five-year facility and 92.5 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. As of March 31, 2001, $1.15 billion in borrowings were outstanding under the Bank Facility with an additional $36 million committed to back letters of credit and $68 million committed to back Commercial Paper borrowings. After consideration of these borrowings and the impact of the reduced capacity available to us under the 364-day facility, $599 million of additional borrowing capacity was available to the Company as of March 31, 2001. ISSUANCE OF NEW DEBT In January 2001, Harrah's Operating Company, Inc. ("HOC"), a wholly-owned subsidiary of the Company, completed a private placement of $500.0 million principal amount 8% Senior Notes due 2011 (the "8% Notes"). The 8% Notes are unsecured and contain certain covenants that limit our ability to enter into certain sale and lease-back transactions, incur liens on our assets to secure debt, 9 HARRAH'S ENTERTAINMENT, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2001 (UNAUDITED) NOTE 4--DEBT (CONTINUED) merge or consolidate with another company and transfer or sell substantially all of our assets. Proceeds from the 8% Notes were used to pay off a $150 million credit agreement and to reduce indebtedness under our Bank Facility. On April 17, 2001, the Company commenced an exchange offer whereby the private placement notes would be exchanged for public notes. We expect to complete this exchange offer in second quarter 2001. SHORT-TERM BORROWINGS In a program designed for short-term borrowings at lower interest rates than the rates paid under our Bank Facility, we have uncommitted line of credit agreements with two lenders whereby we can borrow up to $50 million for periods of ninety days or less. At March 31, 2001, we had borrowed $27 million under these agreements. These agreements have no impact on our Bank Facility and do not decrease our borrowing capacity under those agreements. NOTE 5--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:
THREE MONTHS ENDED --------------------- MARCH 31, MARCH 31, 2001 2000 (IN THOUSANDS) --------- --------- Interest expense, net of interest capitalized............... $ 64,226 $50,459 Adjustments to reconcile to cash paid for interest: Net change in accruals.................................... (13,868) (10,410) Amortization of deferred finance charges.................. (1,106) (920) Net amortization of discounts and premiums................ (144) (14) -------- ------- Cash paid for interest, net of amount capitalized........... $ 49,108 $39,115 ======== ======= Cash refunds of income taxes, net of payments............... $(46,443) $ (861) ======== =======
NOTE 6--COMMITMENTS AND CONTINGENT LIABILITIES NEW ORLEANS CASINO JCC Holding Company and its subsidiary, Jazz Casino Company, LLC (collectively, "JCC"), own and operate a land-based casino in New Orleans, Louisiana (the "Casino"), in which the Company has an ownership interest and which is managed by a subsidiary of the Company. On January 4, 2001, JCC filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code in order to allow restructuring of their obligations to the State of Louisiana and the City of New Orleans, long-term debt, bank credit facilities and trade and other obligations. JCC's plan of reorganization was approved by the bankruptcy court on March 19, 2001, and was effective on March 29, 2001. 10 HARRAH'S ENTERTAINMENT, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2001 (UNAUDITED) NOTE 6--COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED) Pursuant to the reorganization plan, the Company is guaranteeing an annual payment obligation of JCC owed to the State of Louisiana of $50 million in the first year and $60 million for three subsequent years. We receive a fee for providing this guarantee. Also pursuant to the reorganization plan, we received 49% of the new common stock of JCC. We also hold approximately $51 million of the new debt of JCC and are providing a $35 million revolving credit facility to JCC at market terms. A subsidiary of the Company continues to manage the Casino pursuant to an amended management agreement, which, among other things, (i) changed the base management fee to an incentive management fee based on earnings of the business before interest expense, income taxes, depreciation, amortization and management fees, (ii) requires the Company to provide certain administrative services to JCC as part of its management fee without any reimbursement from JCC and (iii) provides for termination of management services if minimum performance thresholds are not met. Due to the filing of bankruptcy by JCC, in fourth quarter 2000, we recorded reserves of $220 million for receivables not expected to be recovered in JCC's reorganization plan. In first quarter 2001, an additional $2.3 million was recorded to reserve for additional advances made to JCC during first quarter 2001 and to adjust the reserves for modifications to the approved reorganization plan. NATIONAL AIRLINES, INC. We have an approximate 48% ownership interest in National Airlines, Inc. ("NAI"), which filed a voluntary petition for reorganization relief under Chapter 11 of the U.S. Bankruptcy Code in December 2000. We have provided $17.4 million in loans to NAI and funded letters of credit on their behalf of $8.6 million. In addition, we are exposed to up to $16 million of liability under other letters of credit which expire June 30, 2001. We have an agreement with another investor of NAI whereby that investor is obligated to reimburse us for approximately 56% of amounts that we pay in response to demands on the letters of credit. On April 23, 2001, a subsidiary of the Company filed a lawsuit against the other investor for breach of contract due to the investor's failure to reimburse the Company for his share of drafts we have paid against the letters of credit. In fourth quarter 2000, we recorded write-offs and reserves totaling $39.4 million for our investment in and loans to NAI and our estimated net exposure under the letters of credit. If we are required to fund under the remaining letters of credit and we are unsuccessful in collecting from the other investor, we would record additional losses of up to $16 million for NAI. 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 March 31, 2001, we had guaranteed third party loans and leases of $52.3 million, which are secured by certain assets, and had commitments of $449.5 million for construction-related and other obligations. 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 11 HARRAH'S ENTERTAINMENT, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) MARCH 31, 2001 (UNAUDITED) NOTE 6--COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED) 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 March 31, 2001, the aggregate monthly commitment pursuant to these contracts, which extend for periods of up to 45 months from March 31, 2001, was $1.1 million. Effective March 1, 2001, we entered into a fixed price agreement with a third party to stabilize our cost of natural gas. The agreement is for a 24-month term and fixes the commodity portion of our natural gas cost at $5.09 per decatherm. At March 31, 2001, the fair value of this contract was estimated to be a $0.5 million loss. This unrealized loss from this effective cash flow hedge is recorded as a component of comprehensive income. SEVERANCE AGREEMENTS As of March 31, 2001, we have severance agreements with 35 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 March 31, 2001, that would be payable under the agreements to these executives based on earnings and stock options aggregated approximately $95.6 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 7--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. 12 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 first quarter 2001 and 2000, updates, and should be read in conjunction with, Management's Discussion and Analysis of Financial Position and Results of Operations presented in our 2000 Annual Report. AGREEMENT TO ACQUIRE HARVEYS On April 24, 2001, we announced that we have reached an agreement to acquire Harveys Casino Resorts ("Harveys") for $625 million, including our assumption of Harveys' outstanding debt. We will also assume a $50 million off-balance-sheet liability. We expect to finance the acquisition, including refinancing of Harveys existing debt, through issuance of public debt or bank credit facilities. The purchase includes the Harveys Resort & Casino in Lake Tahoe, Nevada, the Harveys Casino Hotel and the Bluffs Run Casino, both in Council Bluffs, Iowa, and the Harveys Wagon Wheel Hotel/Casino in Central City, Colorado. The addition of the Harveys properties will expand our geographic distribution to 25 casinos in 12 states, increase our nationwide casino square footage by almost 15% and add 1,109 hotel rooms, 149 table games and 5,768 slot machines to serve the Company's customers. The transaction will introduce Harrah's and our Total Rewards customer-loyalty program to 1.7 million potential new customers within 150 miles of Council Bluffs and strengthen our relationships with customers throughout the Nevada-Northern California gaming market. The acquisition is subject to receipt of regulatory approvals. JCC HOLDING COMPANY JCC Holding Company and its subsidiary, Jazz Casino Company, LLC (collectively, "JCC"), own and operate a land-based casino in New Orleans, Louisiana (the "Casino"), in which the Company has an ownership interest and which is managed by a subsidiary of the Company. On January 4, 2001, JCC filed a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code in order to allow restructuring of their obligations to the State of Louisiana and the City of New Orleans, long-term debt, bank credit facilities and trade and other obligations. JCC's plan of reorganization was approved by the bankruptcy court on March 19, 2001, and was effective on March 29, 2001. Pursuant to the reorganization plan, the Company is guaranteeing an annual payment obligation of JCC owed to the State of Louisiana of $50 million in the first year and $60 million for three subsequent years. We receive a fee for providing this guarantee. Also pursuant to the reorganization plan, we received 49% of the new common stock of JCC. We also hold approximately $51 million of the new debt of JCC and are providing a $35 million revolving credit facility to JCC at market terms. A subsidiary of the Company continues to manage the Casino pursuant to an amended management agreement, which, among other things, (i) changed the base management fee to an incentive management fee based on earnings of the business before interest expense, income taxes, depreciation, amortization and management fees, (ii) requires the Company to provide certain administrative services to JCC as part of its management fee without any reimbursement from JCC and (iii) provides for termination of management services if minimum performance thresholds are not met. Due to the filing of bankruptcy by JCC, in fourth quarter 2000 we recorded reserves of $220 million for receivables not expected to be recovered in JCC's reorganization plan. In first quarter 2001, an additional $2.3 million was recorded to reserve for additional advances made to JCC during first quarter 2001 and to adjust the reserves for modifications to the approved reorganization plan. 13 OPERATING RESULTS AND DEVELOPMENT PLANS OVERALL
FIRST QUARTER PERCENTAGE ------------------- INCREASE/ 2001 2000 (DECREASE) (IN MILLIONS, EXCEPT EARNINGS PER SHARE) -------- -------- ---------- Casino revenues................................... $747.9 $633.8 18.0 % Total revenues.................................... 899.5 780.3 15.3 % Operating profit.................................. 165.0 141.2 16.9 % Income from operations............................ 144.5 100.1 44.4 % Income before extraordinary items................. 44.2 30.7 44.0 % Net income........................................ 44.1 30.7 43.6 % Earnings per share-diluted........................ 0.38 0.25 52.0 % Operating margin.................................. 16.1% 12.8% 3.3 pts
First quarter 2001 revenues increased 15.3% over first quarter 2000, and net income increased 43.6% from the same period last year. Record revenues in first quarter 2001 were driven primarily by the March 22, 2000, acquisition of Players International, Inc. ("Players"). The increase in net income also reflects the full quarter results of Players in 2001 compared to ten days in first quarter 2000, as well as improved results at the Rio Hotel & Casino ("Rio") in Las Vegas, Nevada, which experienced exceptionally low table hold in 2000. Net income for first quarter 2000 was also adversely affected by our pro rata share of operating losses of JCC and National Airlines, Inc. ("NAI") (see Other Factors Affecting Net Income). Although the Players acquisition was the primary reason for the increase in our first quarter revenues in 2001 over 2000, gaming revenues at our other owned properties continued to grow, reaffirming the success of our strategy to grow same store sales through customer loyalty programs. The following table compares first quarter 2001 gaming revenues to first quarter 2000 gaming revenues for our company-owned properties, including those acquired over the past three years.
FIRST QUARTER PERCENTAGE ------------------- INCREASE/ 2001 2000 (DECREASE) (IN MILLIONS) -------- -------- ---------- Casino revenues Harrah's........................................ $444.1 $428.9 3.5% Showboat acquisition............................ 145.3 143.7 1.1% Rio acquisition................................. 58.4 50.9 14.7% Players acquisition............................. 100.1 10.3 N/M ------ ------ Total......................................... $747.9 $633.8 18.0% ====== ======
14 WESTERN REGION
FIRST QUARTER PERCENTAGE ------------------- INCREASE/ 2001 2000 (DECREASE) (IN MILLIONS) -------- -------- ---------- Casino revenues................................... $182.7 $171.9 6.3% Total revenues.................................... 285.5 272.0 5.0% Operating profit.................................. 36.3 23.7 53.2% Operating margin.................................. 12.7% 8.7% 4.0pts
Increases in Western Region first quarter 2001 revenues and operating profit from the same period last year were primarily due to improved performance at the Rio and record revenues and operating profit at our Harrah's brand properties in southern Nevada. Rio's first quarter 2001 revenues were 6.7% above first quarter 2000 when that property experienced a well-below-average table games hold percentage. In addition to improved revenue, operating margin at the Rio improved due to successful cost management. Rio's operating margin in first quarter 2000 was affected by marketing and promotional costs incurred by the property in an effort to maintain its competitive position in the market following the opening of several competitors. First quarter revenues at our southern Nevada Harrah's properties increased 10.2%, operating profit increased 24.5% and operating margin increased 2.5 points over the same period last year. Our northern Nevada properties reported a decline in revenue from first quarter last year of 5.1%, and operating profit was 74.4% lower than in the same quarter last year. The declines are due to lower than normal business volumes in northern Nevada and casino renovations at our properties there. EASTERN REGION
FIRST QUARTER PERCENTAGE ------------------- INCREASE/ 2001 2000 (DECREASE) (IN MILLIONS) -------- -------- ---------- Casino revenues................................... $170.9 $174.3 (2.0)% Total revenues.................................... 181.0 185.4 (2.4)% Operating profit.................................. 37.3 38.1 (2.1)% Operating margin.................................. 20.6% 20.6% --
Harrah's Atlantic City reported record revenues in first quarter, a 0.2% increase over their first quarter record set last year. Operating profit increased 6.7% over the same period last year. At Showboat Atlantic City revenues were 5.3% lower than in first quarter last year and operating profit decreased 20.6% from the same period last year. The Showboat property, which is more reliant on bus customers, was impacted by poor weather during first quarter 2001 and also experienced construction disruptions related to reconfiguration of the casino floor. The reconfiguration of Showboat's casino floor is expected to be completed in the second quarter of 2001. Our tiered Total Rewards customer- loyalty program was recently implemented at the Showboat and is expected to result in increased play as well as build guest loyalty. Construction is underway on a 450-room expansion at Harrah's Atlantic City, which will increase the hotel's capacity to more than 1,600 rooms. The expansion is expected to cost approximately $113 million, $20.1 million of which has been spent at March 31, 2001. The expansion is scheduled to be completed in first quarter 2002. 15 CENTRAL REGION
FIRST QUARTER PERCENTAGE ------------------- INCREASE/ 2001 2000 (DECREASE) (IN MILLIONS) -------- -------- ---------- Casino revenues................................... $394.2 $287.6 37.1% Total revenues.................................... 415.0 301.5 37.6% Operating profit.................................. 88.3 68.9 28.2% Operating margin.................................. 21.3% 22.9% (1.6)pts
CHICAGOLAND/ILLINOIS--Revenues increased 3.2% at Harrah's Joliet compared to first quarter 2001, while operating profit declined slightly (1.7%) compared to the same period last year. Construction is underway at this property on the new casino barges that will replace the riverboats we operate later in 2001. Because the two riverboats will be removed from service, depreciation has been accelerated by $2.4 million each quarter to reflect the current estimates of the riverboats' useful lives and salvage values. Harrah's East Chicago reported record first quarter revenues, an increase of 8.0% over first quarter 2000, and operating profit increased 12.0%. We believe that these results reflect the continued success of the Company's loyalty strategy in East Chicago. Construction is underway at the East Chicago property on a 292-room hotel, which is anticipated to be completed near year-end 2001. The project is expected to cost approximately $47.0 million, $9.5 million of which had been spent through March 31, 2001. Players Metropolis contributed $30.5 million in revenues and $7.6 million in operating income in first quarter 2001. Contributions in first quarter last year from Metropolis were minimal due to our acquisition of Players in late first quarter of 2000. LOUISIANA--Harrah's Shreveport's revenues increased 12.0% over first quarter 2000, but operating profit declined due to increased promotional expenses and the costs of inefficiencies associated with the staggered opening of the new 514-room hotel and other amenities during first quarter 2000. The Lake Charles property, which was acquired in the Players acquisition in March 2000 and re-branded to the Harrah's brand in fourth quarter 2000, contributed $44.7 million in revenue and $9.8 million in operating profit. MISSISSIPPI--Combined first quarter revenues at our Mississippi properties decreased 6.9% from first quarter 2000, and operating profit decreased 96.9%. MISSOURI--First quarter revenues at our Missouri properties increased 41.3% and operating profit increased 43.5% over the same period in 2000. These increases are primarily attributable to our acquisition of Players and the integration of Players St. Louis and the Harrah's/Players jointly-owned shore-side facilities into our operations. Our St. Louis property reported first quarter revenues which were 72.1% higher than in first quarter last year. Operating profit at that property was 60.9% higher than in first quarter 2000. Harrah's North Kansas City increased revenues 15.0% and operating profit 27.1% over the same period last year due to effective marketing, cost management efforts and facilities enhancements at that property. Construction is scheduled to be completed in third quarter on the new casino space at North Kansas City. When the expansion is completed, the riverboat currently in use there will be relocated to another property. MANAGED AND OTHER CASINOS Our managed and other results were lower than in first quarter 2000 because no management fees were recognized from Harrah's New Orleans in first quarter 2001 due to the bankruptcy filing by JCC. With the implementation of JCC's plan of reorganization, we expect to resume recognizing management fees from the New Orleans casino in second quarter, but at a reduced level from those reported in 2000. Management fees from Indian-owned casinos increased from first quarter last year due primarily to strong performance at the casino owned by the Eastern Band of Cherokee Indians 16 ("Cherokee") in Cherokee, North Carolina. Construction has begun on a 252-room hotel and conference center at the Cherokee property and is slated for completion in first quarter 2002. During first quarter 2001, a temporary casino managed by the Rincon San Luiseno Band of Mission Indians in Southern California began operations near the site where a permanent casino, which we will manage, is scheduled to open in the second quarter of 2002. We are providing $29.2 million to finance the temporary casino, part of which will be transferable to the permanent facility. The remaining cost of the permanent facility is expected to be funded by a third party loan that we expect to guarantee. See Debt and Liquidity for further discussion of Harrah's guarantees of debt related to Indian projects. OTHER FACTORS AFFECTING NET INCOME
FIRST QUARTER PERCENTAGE ------------------- INCREASE/ 2001 2000 (DECREASE) (IN MILLIONS) -------- -------- ---------- (Income)/expense Development costs......................................... $ 1.8 $ 2.2 (18.2)% Project opening costs..................................... 2.2 0.3 N/M Corporate expense......................................... 13.8 11.0 25.5% Headquarters relocation expense........................... -- 1.8 N/M Equity in (income) losses of nonconsolidated affiliates... (0.4) 23.7 N/M Write-downs, reserves and recoveries...................... 2.1 -- N/M Venture restructuring costs............................... 1.5 -- N/M Amortization of goodwill and trademarks................... 5.6 4.5 24.4% Interest expense, net..................................... 64.2 50.5 27.1% Other expense (income).................................... 6.5 (3.6) N/M Effective tax rate........................................ 36.1% 35.0% 1.1pts Minority interests........................................ $ 3.2 $ 3.9 (17.9)% Extraordinary losses, net of income taxes................. 0.1 -- N/M
Development costs for first quarter 2001 decreased 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 25.5% in first quarter 2001 from the prior year level due to timing of certain expenses and increases in other costs associated with the growth and positioning of our Company. Equity in losses of nonconsolidated affiliates for first quarter 2000 included our share of losses from Harrah's New Orleans and National Airlines, Inc. ("NAI"). As a result of the charges we recorded in fourth quarter 2000 following the voluntary bankruptcy petitions for reorganization relief filed by each of these entities, our first quarter 2001 results do not include any equity pick-up for either Harrah's New Orleans or NAI. With the implementation of JCC's reorganization plan, we will resume recording our share of JCC's results in second quarter, however, our ownership interest has increased to 49% compared to approximately 42% last year. First quarter 2000 Equity in losses of nonconsolidated affiliates also included our pro rata share of the losses from the St. Louis shore-side facilities through the date of the Players acquisition. Write-downs, reserves and recoveries in first quarter 2001 reflect a true-up to reserves recorded in fourth quarter 2000 in connection with the approval of JCC's reorganization plan. Venture restructuring costs represent fees to bankers and other consultants to represent our interest in JCC's plan of reorganization. 17 Amortization of goodwill and trademarks increased from the same period last year due to the acquisition of Players in late first quarter 2000. Interest expense increased in first quarter 2001 from 2000 due to the higher level of debt associated with the acquisition of Players, funding provided to JCC and the Company's stock repurchase program. Other expense (income) decreased in first quarter 2001 due primarily to lower net investment results for Company-owned life insurance policies. The effective tax rates for both periods are higher than the federal statutory rate due primarily to state income taxes and that portion of our goodwill amortization that is not deductible for tax purposes. Minority interests reflects joint venture partner's share of income which decreased in 2001 from the prior year as a result of lower earnings from those ventures due primarily to the accelerated depreciation on the riverboats that are to be removed from service. The extraordinary losses reported in 2001 were due to the early extinguishment of debt and the write-off of related unamortized deferred finance charges. (See Debt and Liquidity--Extinguishment of Debt.) CAPITAL SPENDING AND DEVELOPMENT In addition to the specific development and expansion projects discussed in the Operating Results and Development Plans section, we perform on-going refurbishment and maintenance at our casino entertainment facilities in order to maintain 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 three months of 2001 totaled approximately $167.3 million. Estimated total capital expenditures for 2001, excluding the acquisition of Harveys, are expected to be between $450 million and $525 million. DEBT AND LIQUIDITY BANK FACILITY The Company has revolving credit and letter of credit facilities (the "Bank Facility"), which provide us with borrowing capacity of $1.9 billion. The Bank Facility consists of a five-year $1.525 billion revolving credit and letter of credit facility maturing in 2004 and a separate $375 million revolving credit facility, which is renewable annually at the borrower's and lenders' options. On April 26, 2001, we renewed the 364-day facility and reduced the available borrowing capacity of that facility from $375 million to $328 million. Currently, the Bank Facility bears interest based upon 87.5 basis points over LIBOR for current borrowings under the five-year facility and 92.5 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 18 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. As of March 31, 2001, $1.15 billion in borrowings were outstanding under the Bank Facility with an additional $36 million committed to back letters of credit and $68 million committed to back Commercial Paper borrowings. After consideration of these borrowings and the impact of the reduced capacity available to us under the 364-day facility, $599 million of additional borrowing capacity was available to the Company as of March 31, 2001. ISSUANCE OF NEW DEBT In January 2001, Harrah's Operating Company, Inc. ("HOC"), a wholly-owned subsidiary of the Company, completed a private placement of $500.0 million principal amount 8% Senior Notes due 2011 (the "8% Notes"). The 8% Notes are unsecured and contain certain covenants that limit our ability to enter into certain sale and lease-back transactions, incur liens on our assets to secure debt, merge or consolidate with another company and transfer or sell substantially all of our assets. Proceeds from the 8% Notes were used to pay off a $150 million credit agreement scheduled to mature in June 2001 and to reduce indebtedness under our Bank Facility. On April 17, 2001, the Company commenced an exchange offer whereby the private placement notes would be exchanged for public notes. We expect to complete this exchange offer in second quarter 2001. SHORT-TERM BORROWINGS In a program designed for short-term borrowings at lower interest rates than the rates paid under our Bank Facility, we have uncommitted line of credit agreements with two lenders whereby we can borrow up to $50 million for periods of ninety days or less. At March 31, 2001, we had borrowed $27 million under these agreements. These agreements have no impact on, and do not decrease our borrowing capacity under, our Bank Facility. EQUITY REPURCHASE PROGRAM In April 2000, our Board of Directors approved a plan whereby we can purchase up to 12.5 million shares of the Company's stock in the open market. These repurchases are funded through available cash and borrowings from our Bank Facility. No repurchases were made during first quarter 2001, and 4.5 million additional shares may be repurchased under the plan, which expires December 31, 2001. GUARANTEES OF THIRD PARTY DEBT AND OTHER COMMITMENTS Pursuant to JCC's plan of reorganization, which was approved by the bankruptcy court on March 19, 2001, and was effective on March 29, 2001, the Company guarantees an annual payment obligation of JCC owned to the State of Louisiana of $50 million in the first year and $60 million for three subsequent years. Also pursuant to the reorganization plan, we hold approximately $51 million of the new debt of JCC and are providing a $35 million revolving credit facility to JCC. The agreements pursuant to 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. Our aggregate monthly commitment pursuant to the contracts for the three Indian-owned facilities now open, which extend for periods of up to 45 months from March 31, 2001, 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 19 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 March 31, 2001, was $49.2 million. We have an approximate 48% ownership interest in NAI, which filed a voluntary petition for reorganization relief under Chapter 11 of the U.S. Bankruptcy Code in December 2000. We have provided $17.4 million in loans to NAI and funded letters of credit on their behalf of $8.6 million. In addition, we are exposed to up to $16 million of liability under other letters of credit which expire on June 30, 2001. We have an agreement with another investor of NAI whereby that investor is obligated to reimburse us for approximately 56% of amounts that we pay in response to demands on the letters of credit. On April 23, 2001, a subsidiary of the Company filed a lawsuit against the other investor for breach of contract due to the investor's failure to reimburse the Company for his share of drafts we have paid against the letters of credit. In fourth quarter 2000, we recorded write-offs and reserves totaling $39.4 million for our investment in and loans to NAI and our estimated net exposure under the letters of credit. If we are required to fund under the remaining letters of credit and we are unsuccessful in collecting from the other investor, we would record additional losses of up to $16 million for NAI. Due to the rising cost of natural gas, particularly at our Nevada properties, we entered into a fixed price agreement with a third party effective March 1, 2001, to stabilize our cost of this resource. The agreement is for a 24-month term and fixes the commodity portion of our natural gas cost at $5.09 per decatherm. Our evaluation of the terms of this derivative contract applying the provisions of Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," concluded that it is an effective cash flow hedge. This results in any unrealized gain or loss from this derivative instrument being recorded as a component of comprehensive income (e.g. a component of stockholders' equity on the balance sheet) and not recorded in current income until realized. At March 31, 2001, the fair value of this contract was estimated to be a $0.5 million loss. EFFECTS OF CURRENT ECONOMIC AND POLITICAL CONDITIONS COMPETITIVE PRESSURES Due to the limited number of new markets opening for development, many casino operators are reinvesting in existing markets in an effort to attract new customers, thereby increasing competition in those markets. Our properties in the long-established gaming markets of Nevada and New Jersey have generally been less affected by the changing competitive conditions. With the exception of the additional supply in recent years in Las Vegas, the amount of supply change within these markets has represented a smaller percentage change than that experienced in some newer markets. In newer 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, five new "mega" facilities have opened since October 1998. 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 typically been negative, we are not able to determine the long-term impact, whether favorable or unfavorable, that these trends and events will have on current or future markets. We believe that the geographic diversity of our operations; our focus on multi-market customer relationships; our service training, measurements and rewards programs; and our continuing efforts to establish our brands as premier brands upon which we have built strong customer loyalty have well-positioned us to face the challenges present within our industry. We utilize the unique capabilities of WINet, a sophisticated nationwide 20 customer database, and our Total Rewards, a nationwide reward and recognition card that provides our customers with a simpler understanding of exactly how to earn cash, comps and other benefits they want, to reward customers for choosing Harrah's Entertainment casinos. We believe both these marketing tools provide us with competitive advantages, particularly with players who visit more than one market. All of our properties are integrated into WINet and, with the exception of Players Metropolis, into Total Rewards. Players Metropolis is expected to be integrated into Total Rewards during the second half of 2001. 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 recently announced agreement to acquire Harveys and our completed acquisitions of Showboat and Players and our merger with Rio, consolidation in the gaming industry continues. We believe we are well-positioned to, and may from time to time, pursue additional strategic acquisitions. POLITICAL UNCERTAINTIES The casino entertainment industry is subject to political and regulatory uncertainty. In 1996, the U.S. government formed a federal commission to study gambling in the United States, including the casino gaming industry. The commission issued its report in June 1999. In September 1999, the State of California and approximately 60 Indian tribes executed Class III Gaming Compacts, which other California tribes can join. The Compacts, 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 which could adversely impact our operations, and the likelihood or outcome of similar legislation and referendums in the future is difficult to predict. The casino entertainment industry represents a significant source of tax revenues to the various jurisdictions in which casinos operate. From time to time, various state and federal legislators and officials have proposed changes in tax laws, or in the administration of such laws, which would affect the industry. It is not possible to determine with certainty the scope or likelihood of possible future changes in tax laws or in the administration of such laws. If adopted, such changes could have a material adverse effect on our financial results. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS During first quarter 2001, the Emerging Issues Task Force reached a concensus on the portion of Issue 00-22, "Accounting for 'Points' and Certain Other Time-Based or Volume-Based Sales Incentive Offers, and Offers for Free Products or Services to be Delivered in the Future", which addresses the income statement classification of the value of the points redeemable for cash awarded under point programs like our Total Rewards program. Per the consensus, which for our Company was effective retroactively to January 1, 2001, with prior year restatement also required, the cost of these programs should be reported as a contra-revenue, rather than as an expense. Debate on a number of other facets of Issue 00-22 continues. We have historically reported the costs of such points as an expense, so we reclassified these costs to be contra-revenues in our first quarter income statement to comply with the consensus. The amount of expense reclassified for first quarter 2001 and first quarter 2000 was $2.3 million and $3.4 million, respectively. 21 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 the Company) contains statements that are forward-looking. These forward-looking statements generally can be identified by phrases such as the Company "believes," "expects," "anticipates," "foresees," "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 2001 and beyond; (D) the impact of the WINet and Total Rewards Programs; and (E) any future impact of the Rincon development or the planned acquisition of Harveys. 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 and, as such, speak only as of the date made, and are qualified in their entirety by this and other cautionary statements herein and in our filings with the SEC. 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 hold investments in various available-for-sale 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. We have entered into a fixed price agreement with a third party to stabilize our cost of natural gas. The agreement is for a 24-month term and fixes the commodity portion of our natural gas cost. Any unrealized gain or loss from this effective cash flow hedge is recorded as a component of comprehensive income. The estimated fair value of the contract as of March 31, 2001, was an unrealized loss of 0.5 million. 22 PART II--OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits *EX-10.1 Executive Supplemental Savings Plan dated February 21, 2001. *EX-10.2 Amendment dated as of February 21, 2001 to the Harrah's Entertainment, Inc. Executive Deferred Compensation Plan. *EX-10.3 Amendment dated as of February 21, 2001 to the Harrah's Entertainment, Inc. Deferred Compensation Plan. *EX-10.4 Amendment to Employment Agreement, dated February 21, 2001, between Harrah's Operating Company, Inc. and Gary W. Loveman. *EX-10.5 Form of Four Year Unconditional Minimum Payment Guaranty Agreement for Four Fiscal Year Period Beginning April 1, 2001 and Ending March 31, 2005, entered into as of March 31, 2001 by the Company in favor of the State of Louisiana. *EX-11 Computation of per share earnings.
- ------------------------ * Filed herewith. (b) The following reports on Form 8-K were filed by the Company during first quarter 2001. (i) Form 8-K filed January 2, 2001, announcing that the Company would not renew its guarantee of the $100 million annual payment obligation of JCC owed to the State of Louisiana. (ii) Form 8-K filed January 4, 2001, announcing that JCC Holding Company had filed a voluntary petition for reorganization relief under Chapter 11 in the Bankruptcy Court for the Eastern District of Louisiana. (iii) Form 8-K filed January 16, 2001, announcing that the Board of Directors had approved the Company's participation in the proposed bankruptcy reorganization plan filed by JCC Holding Company, owner of the Harrah's New Orleans Casino. (iv) Form 8-K filed January 19, 2001, announcing anticipated fourth-quarter loss. (v) Form 8-K filed January 29, 2001, announcing the completion of the sale of $500 million of the Company's 8.0 percent Senior Notes due 2011. (vi) Form 8-K filed February 7, 2001, regarding the Company's 2000 fourth-quarter and full-year results. 23 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. May 11, 2001 By: /s/ JUDY T. WORMSER ----------------------------------------- Judy T. Wormser Vice President and Controller (Chief Accounting Officer)
24 EXHIBIT INDEX
SEQUENTIAL EXHIBIT NO. DESCRIPTION PAGE NO. - ----------- ----------- ---------- EX-10.1 Executive Supplemental Savings Plan dated February 21, 2001........................................................ EX-10.2 Amendment dated as of February 21, 2001 to the Harrah's Entertainment, Inc. Executive Deferred Compensation Plan.... EX-10.3 Amendment dated as of February 21, 2001 to the Harrah's Entertainment, Inc. Deferred Compensation Plan.............. EX-10.4 Amendment to Employment Agreement, dated February 21, 2001, between Harrah's Operating Company, Inc. and Gary W. Loveman..................................................... EX-10.5 Form of Four Year Unconditional Minimum Payment Guaranty Agreement for Four Fiscal Year Period Beginning April 1, 2001 and Ending March 31, 2005, entered into as of March 31, 2001 by the Company in favor of the State of Louisiana................................................... EX-11 Computation of per share earnings...........................
25 EX-10.1 2 a2048399zex-10_1.txt EXHIBIT 10.1 Exhibit 10.1 HARRAH'S ENTERTAINMENT, INC. EXECUTIVE SUPPLEMENTAL SAVINGS PLAN TABLE OF CONTENTS PAGE ARTICLE One PREAMBLE.........................................1 ARTICLE Two DEFINITIONS......................................1 2.1 "Account" or "Accounts"..........................1 2.2 "Affiliate"......................................1 2.3 "Beneficiary"....................................1 2.4 "Board"..........................................1 2.5 "Bonus"..........................................1 2.6 "Change of Control"..............................2 2.7 "Code"..........................................4 2.8 "Company"........................................4 2.9 "Compensation"...................................4 2.10 "DCP"............................................4 2.11 "Deferral Contribution"..........................4 2.12 "Deferral Contribution Account"..................4 2.13 "Deferral Period"................................4 2.14 "Disability" or "Disabled" ......................5 2.15 "EDCP"...........................................5 2.16 "EDCP Committee".................................5 2.17 "Effective Date" ................................5 2.18 "Employee".......................................5 2.19 "Employer".......................................5 2.20 "ERISA".........................................5 2.21 "HRC"...........................................5 2.22 "Investment Fund"...............................5 2.23 "Matching Contribution"..........................6 2.24 "Matching Contribution Account"..................6 2.25 "Participant"....................................6 2.26 "Participation Agreement"........................6 2.27 "Plan"...........................................6 2.28 "Salary".........................................6 2.29 "Savings and Retirement Plan"....................6 -i- PAGE 2.30 "Trust Agreement"................................6 2.31 "Trustee"........................................7 2.32 "Trust Fund".....................................7 2.33 "Valuation Date".................................7 2.34 "Years of Vesting Service".......................7 ARTICLE Three ELIGIBILITY......................................7 3.1 Selection Of Participants........................7 3.2 Participation Agreement..........................8 3.3 Revised Participation Agreement..................9 3.4 Discontinuance Of Participation..................10 3.5 Reemployment.....................................10 3.6 Adoption By Affiliates...........................10 ARTICLE Four CONTRIBUTIONS....................................11 4.1 Participant Contributions........................11 4.2 Matching Contributions...........................12 4.3 Change In Contributions..........................12 4.4 Suspension Of Contributions......................13 4.5 Transferred Contributions........................13 ARTICLE Five WITHDRAWALS......................................14 5.1 Acceleration Of Benefits.........................14 5.2 Account Adjustments..............................15 5.3 Limitation On Distributions......................15 ARTICLE Six CREDITING OF CONTRIBUTIONS AND INCOME............16 6.1 Account Allocations..............................16 6.2 Subaccounts......................................16 6.3 Hypothetical Investment Funds....................16 6.4 Investment Direction.............................16 6.5 Rate of Return...................................17 ARTICLE Seven VESTING..........................................17 7.1 Vesting Of Benefits..............................17 7.2 Changes In Vesting Schedule......................18 -ii- PAGE ARTICLE Eight PAYMENT OF BENEFITS..............................18 8.1 Time Of Payment..................................18 8.2 Method Of Payment................................19 8.3 Beneficiary Designations.........................20 8.4 Limitation On Distributions......................20 8.5 Withholding and Payroll Taxes....................21 ARTICLE Nine ADMINISTRATION OF THE PLAN.......................21 9.1 Adoption Of Trust................................21 9.2 Powers Of The EDCP Committee.....................21 9.3 Creation Of Committee............................22 9.4 Chairman And Secretary...........................22 9.5 Appointment Of Agents............................22 9.6 Majority Vote And Execution Of Instruments.......23 9.7 Allocation Of Responsibilities...................23 9.8 Conflict Of Interest.............................23 9.9 Indemnification of Committee.....................23 9.10 Action Taken By Employer.........................23 9.11 Fiduciary Authority..............................23 9.12 Participant Statements...........................24 ARTICLE Ten CLAIM REVIEW PROCEDURE...........................24 10.1 General..........................................24 10.2 Appeals..........................................25 10.3 Notice Of Denials................................25 ARTICLE Eleven LIMITATION ON ASSIGNMENT; PAYMENTS TO LEGALLY INCOMPETENT DISTRIBUTEE................26 11.1 Anti-Alienation Clause...........................26 11.2 Permitted Arrangements...........................26 11.3 Payment To Minor Or Incompetent..................26 ARTICLE Twelve AMENDMENT, MERGER AND TERMINATION................26 12.1 Amendment........................................26 12.2 Merger Or Consolidation Of Company...............27 -iii- 12.3 Termination Of Plan Or Discontinuance Of Contributions..............................27 12.4 Continuation of Plan Following A Change of Control....................................27 12.5 Limitation Of Company's Liability................28 ARTICLE Thirteen GENERAL PROVISIONS...............................28 13.1 Limitation Of Rights.............................28 13.2 Construction.....................................28 13.3 Status Of Participants As Unsecured Creditors....28 13.4 Status Of Trust Fund.............................29 13.5 Funding Upon A Change Of Control.................29 13.6 No Liability For Acceleration Of Payments........29 13.7 Uniform Administration...........................30 13.8 Heirs And Successors.............................30 -iv- HARRAH'S ENTERTAINMENT, INC. EXECUTIVE SUPPLEMENTAL SAVINGS PLAN ARTICLE ONE PREAMBLE HARRAH'S ENTERTAINMENT, INC., a corporation organized and existing under the laws of the State of Delaware (the "Company"), hereby adopts the Harrah's Entertainment, Inc. Executive Supplemental Savings Plan (the "Plan") in order to provide its key executives with an opportunity and incentive to save for retirement and other purposes. The purpose of this Plan is to provide a select group of management or highly compensated employees of the Company and certain of its affiliates with the opportunity to defer a portion of their compensation and to receive related contributions from their employers. As a result, the Plan shall be considered a "top hat plan", exempt from many of the requirements of the Employee Retirement Income Security Act of 1974 ("ERISA"). This Plan is not intended to "qualify" for favorable tax treatment pursuant to Section 401(a) of the Internal Revenue Code of 1986 (the "Code") or any successor section or statute. ARTICLE TWO DEFINITIONS When a word or phrase appears in this Plan with the initial letter capitalized, and the word or phrase does not begin a sentence, the word or phrase shall generally be a term defined in this Article Two or in the Preamble. The following words and phrases used in the Plan with the initial letter capitalized shall have the meanings set forth in this Article Two, unless a clearly different meaning is required by the context in which the word or phrase is used: 2.1 "Account" or "Accounts" means the accounts which may be maintained by the EDCP Committee to reflect the interest of a Participant under the Plan. 2.2 "Affiliate" means (a) a corporation which is a member of the same controlled group of corporations (within the meaning of Section 414(b) of the Code) as is the Company, (b) any other trade or business (whether or not incorporated) controlling, -1- controlled by, or under common control (within the meaning of Section 414(c) of the Code) with the Company, and (c) any other corporation, partnership, or other organization which is a member of an affiliated service group (within the meaning of Section 414(m) of the Code) with the Company or which is otherwise required to be aggregated with the Company pursuant to Section 414(o) of the Code. 2.3 "Beneficiary" means the person or trust that a Participant, in his most recent written designation filed with the EDCP Committee, shall have designated to receive his benefit under the Plan in the event of his death or, if applicable, the person or entity determined in accordance with Section 8.3 (Beneficiary Designations). 2.4 "Board" means the Board of Directors of the Company. 2.5 "Bonus" means the incentive payment or payments earned by a Participant during a Deferral Period pursuant to the Company's Annual Management Bonus Plan, the Company's Senior Executive Incentive Plan and/or the Company's Player Development Bonus Program, as such plans may be amended from time to time. 2.6 "Change of Control" means and includes each of the following: (a) 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 (b) 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 -2- nomination for election by the Company's stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the two year period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or (c) The holders of securities of the Company entitled to vote thereon approve the following: (i) 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 (ii) 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. (d) Notwithstanding the definition of a "Change of Control" of the Company as set forth in this Section 2.6, the HRC shall have full and final authority, which shall be exercised in its discretion, to determine conclusively whether a Change of Control of the Company has occurred, and the date of the occurrence of such Change of 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 HRC in its sole -3- discretion which determination as to whether a substantial portion is involved shall be final and conclusive) being held by a corporation at least 80% of whose voting securities are held, immediately following such transaction or series of transactions, by holders of the voting securities of the Company (as determined by the HRC 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 HRC 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 2.6. 2.7 "Code" means the Internal Revenue Code of 1986, as amended. 2.8 "Company" means Harrah's Entertainment, Inc. 2.9 "Compensation" means, for each Deferral Period, the total Salary paid to the Participant and the Bonus earned by the Participant. 2.10 "DCP" means Harrah's Entertainment, Inc. Deferred Compensation Plan, as it may be amended from time to time. 2.11 "Deferral Contribution" means a contribution by a Participant pursuant to Section 4.1 (Participant Contributions) of this Plan. 2.12 "Deferral Contribution Account" means the Account maintained to record the Deferral Contributions made by a Participant pursuant to Section 4.1 (Participant Contributions), as adjusted to reflect the rate of return on the hypothetical Investment Funds selected by the Participant in accordance with Section 6.4 (Investment Direction) and other credits or charges called for by this Plan. 2.13 "Deferral Period" means, generally, the 12 month period beginning on each January 1 and ending on the next following December 31. The initial Deferral Period shall commence as soon as administratively feasible after the Effective Date and shall end on the next following December 31. With respect to Participants who enter the Plan after the Effective Date, the initial Deferral Period shall commence on the date the Participant is notified of his or her eligibility to participate in the Plan in accordance with Section 3.1 (Selection of Participants) and shall end on the next following December 31. -4- 2.14 "Disability" or "Disabled" means, for purposes of this Plan, that the Participant qualifies to receive long term disability payments under the Employer's long term disability insurance program, as it may be amended from time to time. 2.15 "EDCP" means the Harrah's Entertainment, Inc. Executive Deferred Compensation Plan, as it may be amended from time to time. 2.16 "EDCP Committee" means the committee designated by the Company in accordance with Section 9.3 (Creation of Committee) to carry out the administrative responsibilities under the Plan. 2.17 "Effective Date" means April 1, 2001. With respect to each Affiliate that adopts this Plan after April 1, 2001, the term "Effective Date" means the date designated by the adopting Affiliate. 2.18 "Employee" means any individual classified by an Employer as a common law employee of the Employer. For this purpose, the classification that is relevant is the classification in which such individual is placed by the Employer for purposes of this Plan and the classification of such individual for any other purpose (e.g., employment tax or withholding purposes) shall be irrelevant. If an individual is characterized as a common law employee of the Employer by a governmental agency or court but not by the Employer, such individual shall be treated as an employee who has not been designated for participation in this Plan. 2.19 "Employer" means the Company and any Affiliate that has adopted this Plan pursuant to Section 3.6 (Adoption by Affiliates). 2.20 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. 2.21 "HRC" means the Human Resources Committee of the Board. 2.22 "Investment Fund" means the hypothetical investment fund or funds established by the EDCP Committee pursuant to Section 6.4 (Investment Direction). -5- 2.23 "Matching Contribution" means an Employer contribution calculated in accordance with Section 4.2 (Matching Contributions) of this Plan, which may, in the discretion of the Employer, be transferred to the Trust. 2.24 "Matching Contribution Account" means the Account maintained to record the Matching Contributions calculated in accordance with Section 4.2 (Matching Contributions) on behalf of a Participant, as adjusted to reflect the rate of return on the hypothetical Investment Funds selected by the Participant in accordance with Section 6.4 (Investment Direction) and other credits or charges called for by this Plan. 2.25 "Participant" means any Employee who has been selected for participation in the Plan. The term "Participant" also shall include former Participants whose benefits under the Plan have not been fully distributed pursuant to the provisions of the Plan. 2.26 "Participation Agreement" means the written agreement to defer Salary and/or Bonus submitted by a Participant to the EDCP Committee in accordance with Section 3.2 (Participation Agreement) or Section 3.3 (Revised Participation Agreement). 2.27 "Plan" means the Harrah's Entertainment, Inc. Executive Supplemental Savings Plan, as it may be amended from time to time. 2.28 "Salary" means the annual base salary paid to the Participant by the Employer during the Deferral Period, before reduction for amounts deferred pursuant to this Plan, the Savings and Retirement Plan, any plan maintained under Section 125 of the Code or any other plan maintained by the Company or an Employer. Salary does not include expense reimbursements, or any form of non-cash compensation and benefits. 2.29 "Savings and Retirement Plan" means the Harrah's Entertainment, Inc. Savings and Retirement Plan, as it may be amended from time to time. 2.30 "Trust Agreement" means that certain trust agreement established pursuant to the Plan between the Company and the Trustee or any trust agreement hereafter established, the provisions of which are incorporated herein by reference. -6- 2.31 "Trustee" means the Trustee under the Trust Agreement. 2.32 "Trust Fund" means all assets of whatsoever kind or nature held from time to time by the Trustee pursuant to the Trust Agreement and forming a part of this Plan, without distinction as to income and principal and without regard to source, i.e., Employer or Participant contributions or earnings. 2.33 "Valuation Date" means the date for valuing the hypothetical Investment Funds maintained under the Plan, which shall be each business day of the Deferral Period. 2.34 "Years of Vesting Service" means the years of service credited to an individual for vesting purposes under the Savings and Retirement Plan, determined in accordance will all applicable provisions of the Savings and Retirement Plan. ARTICLE THREE ELIGIBILITY 3.1 Selection Of Participants (a) General. For purposes of Title I of ERISA, the Plan is intended to be an unfunded plan of deferred compensation covering a select group of management or highly compensated employees. As a result, participation in the Plan shall be limited to Employees employed in a position classified by the Company as a Director-level position or above, and any other Employees employed by an Employer who are selected for participation in the Plan by the EDCP Committee. To further ensure compliance with the ERISA participation requirements applicable to this Plan, the Company, in the exercise of its discretion, may exclude from participation in the Plan an individual who otherwise meets the requirements this Section 3.1(a) for any reason, or for no reason, as the Company deems to be appropriate. (b) Entry into Plan. Employees who are eligible to participate in the Plan as of the initial Effective Date shall enter the Plan as soon as administratively feasible following such Effective Date. Employees who become eligible to participate in the Plan after the initial Effective Date shall enter the Plan as of the first day of the first payroll period commencing in the Deferral Period next following the Employee's notification of his or her eligibility to participate in the -7- Plan. Notwithstanding the foregoing, the EDCP Committee may, in its discretion, waive the Plan entry provision set forth in the preceding sentence and permit an Employee to enter the Plan as of the first day of any payroll period commencing during a particular Deferral Period. (c) No Waiting Periods. A Participant need not complete any particular period of service in order to be eligible to make Deferral Contributions. In order to receive Matching Contributions for a Deferral Period, however, a Participant also must be eligible to receive matching contributions under the Savings and Retirement Plan for that Deferral Period, as determined in accordance with the provisions of the Savings and Retirement Plan. 3.2 Participation Agreement. (a) Content of Participation Agreement. Each Participant shall execute a Participation Agreement evidencing his or her election to participate in the Plan in the manner and at such time as the EDCP Committee shall require. In the Participation Agreement, the Participant shall select the amount or rate of Deferral Contributions and authorize the reduction of the Participant's Compensation in an amount equal to his Deferral Contributions. The Participant also shall select in the Participation Agreement the form in which distributions are to be made from the Participant's Deferral Contribution and Matching Contribution Accounts (i.e., lump sums, installment payments). The Participation Agreement also may set forth such other information as the EDCP Committee shall require. The Participation Agreement made by the Participant shall remain in full force and effect until such time as it is amended or replaced, or the Participant's participation in this Plan terminates. (b) Timing Requirements. (1) Entry on Initial Effective Date. If a Participant is eligible to participate in the Plan as of the initial Effective Date and the Participant's initial Participation Agreement is completed and delivered within 30 days of the Effective Date, the Participant's Deferral Contributions may be determined with reference to Compensation earned on or after the first day of the first full payroll period next following receipt of the Participation Agreement by -8- the EDCP Committee or as of such other uniform date (not earlier than the first day of the next full payroll period) as may be designated by the EDCP Committee. (2) Entry after Initial Effective Date. If the Participant does not execute and deliver a Participation Agreement within the initial 30 day period, or the Participant is notified that he is eligible to participate in the Plan as of the beginning of any Deferral Period commencing after the Effective Date, the Participant's Deferral Contributions may be determined with reference to Compensation earned on or after the first day of the first full payroll period in any later Deferral Period if the Participant executes and delivers a Participation Agreement to the EDCP Committee at least 30 days (or such other period specified by the EDCP Committee pursuant to rules of uniform application) prior to the first day of such Deferral Period. (3) Exceptions. If a Participant is permitted to enter the Plan during a Deferral Period, his Participation Agreement must be completed and delivered in accordance with the rules and procedures adopted by the EDCP Committee for such purpose. Such Participation Agreement shall be effective with reference to Compensation earned on or after the effective date of the Participation Agreement, as determined by the EDCP Committee. (c) Electronic Administration. The EDCP Committee shall have the authority to employ alternative means (including, but not limited to, electronic, internet, intranet, voice response or telephonic) by which Participants may submit participation elections, directions, and forms required for participation in, and the administration of, this Plan. If the EDCP Committee chooses to use these alternative means, any elections, directions or forms submitted in accordance with the rules and procedures promulgated by the EDCP Committee will be deemed to satisfy any provision of this Plan calling for the submission of a written election, direction or form. 3.3 Revised Participation Agreement. A Participant may file a new Participation Agreement to change a previously filed election. If the Participant changes the amount of his Deferral Contributions, the new amount will become effective in accordance with Section 4.3 (Change in Contributions). If the new Participation Agreement changes the form of payment, the -9- benefit payment provisions of the new Participation Agreement will be honored only if payments commence at least thirteen months after the date on which the new Participation Agreement is completed and delivered. In the exercise of its discretion, the EDCP Committee may allow a Participant to make a modified election in any manner prescribed by the EDCP Committee for that purpose. 3.4 Discontinuance Of Participation. Once an Employee is designated as a Participant, he will continue as such for all future Deferral Periods unless and until (a) the Participant terminates from employment with the Employer and all Affiliates and receives a full distribution of his Accounts, (b) is no longer categorized as an individual entitled to participate in the Plan pursuant to Section 3.1 (Selection of Participants) above, or (c) the HRC specifically acts to discontinue the Participant's participation. The HRC may discontinue a Participant's participation in the Plan at any time for any or no reason. If a Participant's participation is discontinued, the Participant will no longer be eligible to make Deferral Contributions. The Participant will not be entitled to receive a distribution, however, until the occurrence of one of the events listed in Article Five (Withdrawals) or Article Eight (Payment of Benefits), unless the HRC, in the exercise of its discretion, directs that a distribution be made as of an earlier date in which case the Participant's Accounts shall be distributed on the same basis as if the Participant's employment had been terminated. 3.5 Reemployment. If a former Participant is rehired by an Employer and is eligible to participate in the Plan, he shall reenter the Plan on the same basis as a newly eligible Employee in accordance with the provisions of Section 3.1 (Selection of Participants). Such Employee's reentry into the Plan shall have no impact on any distributions that have been made or are being made in accordance with Article Eight (Payment of Benefits). Any amounts previously forfeited from the Participant's Accounts pursuant to Section 7.1 (Vesting of Benefits) shall not be restored or reinstated upon the Participant's subsequent reentry into the Plan. 3.6 Adoption By Affiliates. Any Affiliate of the Company may adopt this Plan with the approval of the EDCP Committee. Any Affiliate that permits an individual to make Deferral Contributions pursuant to Section 4.1 (Participant -10- Contributions) shall be deemed to have adopted the Plan without any further action. The EDCP Committee's acceptance of such Deferral Contributions shall evidence the consent of the EDCP Committee to the adoption of the Plan by the Affiliate. Notwithstanding the foregoing, at the request of the EDCP Committee, the Affiliate shall evidence its adoption of the Plan by an appropriate resolution of its Board of Directors or in such other manner as may be authorized by the EDCP Committee. By adopting this Plan, the Affiliate shall be deemed to have agreed to make the contributions called for by Article Four (Contributions), agreed to comply with all of the other terms and provisions of this Plan, delegated to the EDCP Committee the power and responsibility to administer this Plan with respect to the Affiliate's employees, and delegated to the Company the full power to amend or terminate this Plan with respect to the Affiliate's employees. ARTICLE FOUR CONTRIBUTIONS 4.1 Participant Contributions. A Participant may elect to defer a maximum of 16% of the Salary otherwise payable to him during the Deferral Period, or such other maximum amount as may be prescribed by the EDCP Committee as the Salary Deferral Contribution limit for all Participants. A Participant also may elect to defer a maximum of 90% of any Bonus earned by him during the Deferral Period (which may be paid during the applicable Deferral Period or after the close of the applicable Deferral Period), or such other maximum amount as may be prescribed by the EDCP Committee as the Bonus Deferral Contribution limit for all Participants. Notwithstanding the foregoing, for purposes of calculating the maximum Bonus Deferral Contributions for the initial Deferral Period beginning on the Effective Date, the Bonus earned by the Participant during the entire 2001 calendar year shall be taken into account. The EDCP Committee may, in its discretion, permit an individual Participant to make Deferral Contributions in excess of the limitations set forth in or established in accordance with this Section 4.1 or place additional restrictions on an individual Participant's Deferral Contributions. All Deferral Contributions under this Plan shall be made in accordance with such rules and procedures regarding Participant deferrals as may be promulgated by the EDCP Committee from time to time. All Participant elections are subject to the timing requirements set forth in Section 3.2(b) (Participation Agreement - Timing -11- Requirements) and shall remain in effect until replaced or revised in accordance with Section 3.3 (Revised Participation Agreement). 4.2 Matching Contributions. Each Employer shall make a Matching Contribution on behalf of each of its Participants who has elected to make Salary Deferral Contributions during the Deferral Period under Section 4.1 (Participant Contributions) and is eligible to receive a matching contribution under the Savings and Retirement Plan. The Matching Contribution for each eligible Participant shall equal the difference between (i) 100% of the Participant's Salary Deferral Contributions, up to a maximum of 6% of the Participant's Salary and (ii) the Employer's matching contribution for such eligible participant under the Savings and Retirement Plan. No Matching Contributions shall be made with respect to Bonus Deferral Contributions. The Matching Contribution shall be credited to each eligible Participant's Matching Contribution Account as of the year-end Valuation Date. 4.3 Change In Contributions. A Participant may change the amount or percentage of Salary Deferral Contributions under Section 4.1 (Participant Contributions) prior to the beginning of any Deferral Period, with such change to be effective with reference to Salary earned on or after the first day of the first full payroll period of the next following Deferral Period. Any change in the amount or percentage of the Deferral Contribution to be made from any Bonus shall be effective for Bonuses earned in the first Deferral Period immediately following the EDCP Committee's receipt of such revised Participation Agreement. A Participant's election to make no Deferral Contributions to the Plan during one or more Deferral Periods shall not affect his continued participation in the Plan or his ability to resume his Deferral Contributions to the Plan in the future. The EDCP Committee may, in its discretion, determine that special circumstances exist and permit a Participant to change the amount of his Bonus Deferral Contributions during the Deferral Period, but in no event shall the change in the Bonus Deferral Contributions be made later than the last day of the Deferral Period. Any and all changes in Deferral Contributions made pursuant to this Section 4.3 shall be made in accordance with uniform rules promulgated by the EDCP Committee. -12- 4.4 Suspension Of Contributions. (a) Suspension. A Participant may suspend his contributions under Section 4.1 as of the first day of any full payroll period in the Deferral Period, by giving appropriate notice to the EDCP Committee at least 30 days (or such other period specified by the EDCP Committee pursuant to rules of uniform application) prior to the date on which the suspension shall become effective. Any such suspension shall remain in effect for the remainder of the Deferral Period during which the suspension begins and the entire next following Deferral Period. (b) Resumption Of Contributions. A Participant who has suspended his contributions pursuant to paragraph (a) above and who applies to the EDCP Committee in a timely manner shall be entitled to resume his contributions with respect to Compensation earned beginning on the first day of the first full payroll period in the Deferral Period next following the expiration of the suspension as set forth in paragraph (a) above. Any application to resume contributions shall be made in the form of a revised Participation Agreement and shall comply with all procedures promulgated by the EDCP Committee pursuant to Section 3.3 (Revised Participation Agreement). 4.5 Transferred Contributions. A Participant may make an irrevocable election, with the consent of the EDCP Committee and in accordance with the procedures promulgated by the EDCP Committee for such purpose, to transfer all or a portion of his accumulated account balance under the EDCP or the DCP to this Plan. Any account balance transfers to this Plan from either the EDCP or the DCP shall include the vested and non-vested portions of the Participant's account under such Plan. All amounts transferred to this Plan from the EDCP or the DCP shall be subject to all of the terms and provisions of this Plan, including, specifically, the vesting, earnings crediting and payment provisions of this Plan. The elective deferral account balance and the employer matching contribution account balance which are transferred from the EDCP and DCP pursuant to this Section 4.5 shall be allocated among the affected Participant's Deferral Contribution Account and Matching Contribution Account, respectively. Amounts transferred from the EDCP or the DCP to this Plan pursuant to this Section 4.5 may not be transferred from this Plan to the EDCP or DCP. -13- ARTICLE FIVE WITHDRAWALS 5.1 Acceleration Of Benefits. (a) General. A Participant may elect to receive an accelerated withdrawal by filing an election with the EDCP Committee in accordance with the uniform procedures promulgated by the EDCP Committee. The Participant may request an accelerated withdrawal equal to 25%, 50%, 75% or 100% of the sum of the Participant's Deferral Contribution Account balance plus the Participant's vested interest in his Matching Contribution Account. If a Participant requests an accelerated withdrawal of less than 100% of his vested Accounts, the Participant may instruct the EDCP Committee to allocate the requested withdrawal amount between his Deferral Contribution Account and Matching Contribution Account in the manner set forth by the Participant in his accelerated withdrawal request. If a Participant makes an accelerated withdrawal election, the Participant shall receive a single lump sum payment equal to 90% of the accelerated withdrawal amount. For purposes of determining the amount to be distributed, the Participant's Accounts shall be valued as of the Valuation Date immediately preceding the date of the withdrawal. The Participant's vested interest in his Matching Contribution Account shall be determined as of the Valuation Date immediately preceding the date of the withdrawal. The accelerated withdrawal shall be paid as soon as reasonably possible following the filing of the election by the Participant. If a Participant is married at the time an accelerated withdrawal is requested, the request will not be given effect unless the Participant's spouse consents to such request in a manner prescribed by the EDCP Committee for that purpose. (b) Forfeiture. The Participant shall forfeit the remaining 10% of the accelerated withdrawal amount as of the day on which the accelerated withdrawal is distributed to the Participant. (c) Suspension Of Participation. If a Participant elects to receive an accelerated withdrawal, the Participant's right to make Deferral Contributions to the Plan shall be suspended for the remainder of the Deferral Period during which the accelerated withdrawal is distributed to the Participant and for the entire next following Deferral Period. Upon expiration -14- of the suspension period described in the preceding sentence, the Participant shall be permitted to submit a new Participation Agreement in accordance with Section 3.3 (Revised Participation Agreement) and to begin making Deferral Contributions with respect to Compensation earned on or after the first day of the first payroll period of the next following Deferral Period. 5.2 Account Adjustments. Withdrawals shall be charged to the Participant's Accounts in accordance with the allocation instructions set forth in the Participant's request for an accelerated withdrawal. In the absence of such allocation instructions, the withdrawal shall be charged pro rata to the Participant's Accounts. 5.3 Limitation On Distributions. To the extent that any payment under this Section, when combined with all other payments received during the year that are subject to the limitations on deductibility under Section 162(m) of the Code, exceeds the limitations on deductibility under Section 162(m) of the Code, such payment shall, in the discretion of the EDCP Committee, be deferred to a later calendar year. Such deferred amounts shall be paid in the next succeeding calendar year, provided that such payment, when combined with any other payments subject to the Section 162(m) limitations received during the year, does not exceed the limitations on deductibility under Section 162(m) of the Code. Any payment that is deferred in accordance with this Section 5.3 shall be credited with hypothetical investment earnings and losses in accordance with Article Six (Crediting of Contributions and Income). -15- ARTICLE SIX CREDITING OF CONTRIBUTIONS AND INCOME 6.1 Account Allocations. All Deferral Contributions and Matching Contributions shall be credited to the Participants' Deferral Contribution Account and the Matching Contribution Account, respectively, in accordance with the uniform policies and procedures of the EDCP Committee. All transfers to, payments from and charges against an Account shall be charged against the Account as of the Valuation Date on which the transaction occurs. The Accounts are bookkeeping accounts only and the EDCP Committee is not in any way obligated to segregate assets for the benefit of any Participant. 6.2 Subaccounts. The EDCP Committee may divide any Account into such subaccounts as it deems necessary and desirable. 6.3 Hypothetical Investment Funds. The EDCP Committee shall establish a series of hypothetical Investment Funds for use pursuant to this Article Six. 6.4 Investment Direction. A Participant shall complete a portfolio allocation form directing the hypothetical investment of his Deferral Contributions and Matching Contributions among the Investment Funds. The Participant's Deferral Contributions and Matching Contributions shall not be invested in the Investment Funds, but the value of the Participant's Accounts shall be measured by the performance of the Investment Funds selected. A Participant may change his Investment Fund allocations by executing a portfolio allocation form and delivering such form to the EDCP Committee at least 5 days prior to the Valuation Date on which it is to be effective. Any and all changes to a Participant's Investment Fund allocation shall be made in accordance with the uniform procedures of the EDCP Committee, which shall permit changes in Investment Fund allocations on a quarterly or more frequent basis. If a Participant fails to file a portfolio allocation form with the EDCP Committee, the Participant will be deemed to have selected the default hypothetical Investment Fund(s) selected by the EDCP Committee for such purpose, in its discretion and in accordance with its uniform policies and procedures. -16- 6.5 Rate of Return. Participant Accounts shall be adjusted on each Valuation Date to reflect investment gains and losses as if the Accounts were invested in the hypothetical Investment Funds selected by the Participants in accordance with Section 6.4 (Investment Direction) and charged with any and all reasonable expenses related to the administration of the Plan including, but not limited to, the reasonable expenses of carrying out the hypothetical investment directions related to each Account. The earnings and losses allocated to any Account shall be allocated among the subaccounts of that Account in the same manner. The earnings and losses determined by the EDCP Committee in good faith and in its discretion pursuant to this Article Six shall be binding and conclusive on the Participant, the Participant's Beneficiary and all parties claiming through them. ARTICLE SEVEN VESTING 7.1 Vesting Of Benefits. (a) Deferral Contributions. Each Participant shall at all times have a fully vested interest in his Deferral Contribution Account, and a Participant's rights and interest therein shall not be forfeitable for any reason. (b) Matching Contributions. (1) Full Vesting. Each Participant shall have a fully vested interest in his Matching Contribution Account on and after the first to occur of the following events: (A) The Participant's attainment of age 60; (B) The date of death of the Participant; (C) The Participant's Disability; (D) A Change of Control; (E) Termination of the Plan; or (F) The completion of five Years of Vesting Service. -17- (2) Vesting Schedule. If a Participant terminates service with an Employer at a time when the Participant does not have a fully vested interest in his Matching Contribution Account, the Participant's vested interest shall be determined in accordance with the following schedule: Completed Years of Vesting Service Percentage Vested Less than 1 Year 0% 1 but less than 2 20% 2 but less than 3 40% 3 but less than 4 60% 4 but less than 5 80% 5 or more 100% A Participant's vested interest in his Matching Contribution Account shall be determined as of the Valuation Date immediately preceding the first distribution to the Participant from his Matching Contribution Account following his termination of employment. Any portion of a Participant's Accounts which is not vested shall be forfeited in the first Deferral Period in which the Participant receives a distribution from this Plan. 7.2 Changes In Vesting Schedule. In the event that an amendment to this Plan or the Savings and Retirement Plan directly or indirectly changes the vesting provisions of Section 7.1 (Vesting of Benefits), the vested percentage for each Participant in his benefit accumulated to the date when the amendment is adopted shall not be reduced as a result of the amendment. ARTICLE EIGHT PAYMENT OF BENEFITS 8.1 Time Of Payment. With the exception of the withdrawal of amounts pursuant to Article Five (Withdrawals), no distributions will be made to a Participant prior to the Participant's death or termination of employment with the Company and all Affiliates. A Disabled Participant shall continue to participate in the Plan until such time as the Participant terminates or retires from employment with the Company and all Affiliates or the Participant dies. Following the Participant's termination of employment, distributions normally will be made as soon as possible and in any event shall commence within 60 days following the end of the month in which -18- the Participant terminates employment. If benefits are being paid pursuant to this Plan following the death of a Participant, distributions will be made or commence as of the January 1 next following the date of the Participant's death. 8.2 Method Of Payment. (a) General. The general method of payment under this Plan shall be a cash lump sum payment. (b) Installment Payments. Notwithstanding the provisions of paragraph (a) above, an "eligible Participant" may receive distributions from his Account in the form of substantially equal monthly cash installment payments over a period certain not exceeding 15 years, provided that such method of payment has been elected by the Participant in his initial Participation Agreement or in any revised Participation Agreement that has been in effect for the requisite period of time specified in Section 3.3 (Revised Participation Agreement). For purposes of this Section 8.2, the term "eligible Participant" includes each Participant who (1) attains the age of 55 and completes 10 Years of Vesting Service prior to his termination of employment, (2) attains the age of 60 prior his termination of employment or (3) terminates or is terminated from employment with the Employer within two years of a Change of Control. The term "eligible Participant" also shall include the Beneficiary of a Participant who dies prior to his termination of employment but after satisfying the age and service criteria set forth in clause (1) or (2) above. If installment payments are made, the provisions of Sections 6.3 (Hypothetical Investment Funds), 6.4 (Investment Direction) and 6.5 (Rate of Return) shall continue to apply to the unpaid balance. Unless a Participant has affirmatively elected to receive payments in installments over a period of 15 years or less, the Participant's Accounts shall be distributed in one lump sum. If a Participant is married at the time a Participation Agreement or a revised Participation Agreement is filed, an election to receive payments in installments shall be ineffective unless the Participant's spouse consents to such election in a manner prescribed by the EDCP Committee for that purpose. -19- 8.3 Beneficiary Designations. (a) General. In the event of the death of the Participant, the Participant's vested interest in his Accounts shall be paid to the Participant's Beneficiary. Each Participant shall have the right to designate, in the manner specified by the EDCP Committee, a Beneficiary or Beneficiaries to receive his benefits hereunder in the event of the Participant's death. (b) Spousal Consent Requirements. If the Participant is married at the time the Beneficiary designation is filed, the Participant must designate his spouse as the Beneficiary of at least 50% of the Participant's Account or provide the spouse's consent to the designation of a Beneficiary other than the Spouse. If a Participant marries or divorces after a Beneficiary designation is filed, the designation will no longer be effective. (c) Revised Designations. Subject to the spousal consent requirements noted above, each Participant may change his Beneficiary designation from time to time in the manner described above. Upon receipt of such designation by the EDCP Committee, such designation or change of designation shall become effective as of the date of the notice, whether or not the Participant is living at the time the notice is received. There shall be no liability on the part of the Employer, the EDCP Committee or the Trustee with respect to any payment authorized by the EDCP Committee in accordance with the most recent Beneficiary designation of the Participant in the possession of the EDCP Committee before the EDCP Committee receives a more recent Beneficiary designation. (d) Deemed Beneficiary Designations. If no designated Beneficiary is living when benefits become payable, or if there is no designated Beneficiary, the Beneficiary shall be the Participant's spouse or, if there is no living spouse, the Beneficiary shall be the Participant's estate. If the designated Beneficiary dies after the payment of benefits begin, then the Beneficiary for the remainder of the benefits payable shall be the estate of the Beneficiary. 8.4 Limitation On Distributions. Distributions made under this Article 8 shall be subject to the same limitations set forth in Section 5.3 (Limitation on Distributions) of the Plan. -20- 8.5 Withholding and Payroll Taxes. The Employer shall withhold from Plan payments any taxes required to be withheld from such payments under federal, state or local law. Any withholding of taxes or other amounts required by federal, state or local law with respect to amounts credited to Participant Accounts including, but not limited to, tax due under the Federal Insurance Contributions Act, shall be withheld, to the maximum extent possible, from the portion of the Participant's Salary or Bonus that is not contributed to this Plan. Any withholding amounts that cannot be withheld in accordance with the preceding sentence shall be withheld from the Participant's Deferral Contributions. ARTICLE NINE ADMINISTRATION OF THE PLAN 9.1 Adoption Of Trust. The Company shall enter into a Trust Agreement with the Trustee, which Trust Agreement shall form a part of this Plan and is hereby incorporated herein by reference. 9.2 Powers Of The EDCP Committee. (a) Named Fiduciary. The EDCP Committee is the named fiduciary with respect to the administration of the Plan. (b) General Powers of the EDCP Committee. The EDCP Committee shall have the power and discretion to perform the administrative duties described in this Plan or required for proper administration of the Plan and shall have all powers necessary to enable it to properly carry out such duties. Without limiting the generality of the foregoing, the EDCP Committee shall have the power and discretion to construe and interpret this Plan, to hear and resolve claims relating to this Plan, and to decide all questions and disputes arising under this Plan. The EDCP Committee shall determine, in its discretion, the service credited to the Participants, the status and rights of a Participant, and the identity of the Beneficiary or Beneficiaries entitled to receive any benefits payable hereunder on account of the death of a Participant. (c) Distributions. Except as is otherwise provided hereunder, the EDCP Committee shall determine the manner and time of payment of benefits under this Plan. All benefit -21- disbursements by the Trustee shall be made upon the instructions of the EDCP Committee. (d) Decisions Conclusive. The decision of the EDCP Committee upon all matters within the scope of its authority shall be binding and conclusive upon all persons. (e) Reporting. The EDCP Committee shall file all reports and forms lawfully required to be filed by the EDCP Committee and shall distribute any forms, reports or statements to be distributed to Participants and others. (f) Trust Fund. The EDCP Committee shall keep itself advised with respect to the funded status and investment of the Trust Fund. 9.3 Creation Of Committee. The EDCP Committee shall be appointed by the Company by action of the HRC. The EDCP Committee must consist of at least three members, and they shall hold office during the pleasure of the HRC. The EDCP Committee members shall serve without compensation but shall be reimbursed for all expenses by the Company. The EDCP Committee shall conduct itself in accordance with the provisions of this Article Nine. The members of the EDCP Committee may resign with thirty (30) days notice in writing to the Company and may be removed immediately at any time by written notice from the Company or the HRC. 9.4 Chairman And Secretary. The EDCP Committee shall elect a chairman from among its members and shall select a secretary who is not required to be a member of the EDCP Committee and who may be authorized to execute any document or documents on behalf of the EDCP Committee. The secretary of the EDCP Committee or his designee shall record all acts and determinations of the EDCP Committee and shall preserve and retain custody of all such records, together with such other documents as may be necessary for the administration of this Plan or as may be required by law. 9.5 Appointment Of Agents. The EDCP Committee may appoint such other agents, who need not be members of the EDCP Committee, as it may deem necessary for the effective performance of its duties, whether ministerial or discretionary, as the EDCP Committee may deem expedient or appropriate. The compensation of any agents who are not employees of the Company -22- shall be fixed by the committee within any limitations set by the HRC. 9.6 Majority Vote And Execution Of Instruments. In all matters, questions and decisions, the action of the EDCP Committee shall be determined by a majority vote of its members. They may meet informally or take any ordinary action without the necessity of meeting as a group. All instruments executed by the EDCP Committee shall be executed by a majority of its members or by any member of the EDCP Committee designated to act on its behalf. 9.7 Allocation Of Responsibilities. The EDCP Committee may allocate responsibilities among its members or designate other persons to act on its behalf. Any allocation or designation, however, must be set forth in writing and must be retained in the permanent records of the EDCP Committee. 9.8 Conflict Of Interest. No member of the EDCP Committee who is a Participant shall take any part in any action in connection with his participation as an individual. Such action shall be voted or decided by the remaining members of the EDCP Committee. 9.9 Indemnification of Committee. The Company shall indemnify and hold harmless the members of the EDCP Committee against any and all claims, loss, damage, expense or liability arising from any action or failure to act with respect to this Plan on account of such member's service on the EDCP Committee, except in the case of gross negligence or willful misconduct. 9.10 Action Taken By Employer. Any action to be taken by an Employer shall be taken by resolution adopted by its board of directors or appropriate board committee; provided, however, that by resolution, the board of directors or appropriate board committee may delegate to any committee of the board or any officer of the Employer the authority to take any actions under this Plan, other than the power to determine the basis of Employer contributions. 9.11 Fiduciary Authority. All delegations of fiduciary responsibility set forth in this document regarding the determination of benefits and the interpretation of the terms of the Plan confer discretionary authority upon the named fiduciary. -23- 9.12 Participant Statements. The EDCP Committee shall provide a statement of Plan Accounts to each Participant and Beneficiary on a quarterly or more frequent basis, as determined by the EDCP Committee in its discretion. Such statement of Plan Accounts shall reflect the amounts allocated to each Account maintained for the Participant, the Participant's vested interest in his Accounts, any distributions, withdrawals or expenses charged against the Participant's Account, the hypothetical investment earnings and losses on the Participant's Account, and any other information deemed appropriate by the EDCP Committee. ARTICLE TEN CLAIM REVIEW PROCEDURE 10.1 General. In the event that a Participant or Beneficiary (the "claimant") is denied a claim for benefits under this Plan, the EDCP Committee shall provide to the claimant written notice of the denial which shall set forth: (a) The specific reason or reasons for the denial; (b) Specific references to pertinent Plan provisions on which the EDCP Committee based its denial; (c) A description of any additional material or information needed for the claimant to perfect the claim and an explanation of why the material or information is needed; (d) A statement that the claimant may: (1) Request a review upon written application to the EDCP Committee; (2) Review pertinent Plan documents; and (3) Submit issues and comments in writing; and (e) That any appeal the claimant wishes to make of the adverse determination must be in writing to the EDCP Committee within 60 days after receipt of the EDCP Committee's notice of denial of benefits. The EDCP Committee's notice must further advise the claimant that his failure to appeal the action to the EDCP Committee in writing within the 60 day period -24- will render the EDCP Committee's determination final, binding, and conclusive. 10.2 Appeals. (a) If the claimant should appeal to the EDCP Committee, he, or his duly authorized representative, may submit, in writing, whatever issues and comments he, or his duly authorized representative, feels are pertinent. The EDCP Committee shall re-examine all facts related to the appeal and make a final determination as to whether the denial of benefits is justified under the circumstances. The EDCP Committee shall advise the claimant in writing of its decision on his appeal, the specific reasons for the decision, and the specific Plan provisions on which the decision is based. The notice of the decision shall be given within 60 days of the claimant's written request for review, unless special circumstances (such as a hearing) would make the rendering of a decision within the 60 day period infeasible, but in no event shall the EDCP Committee render a decision regarding the denial of a claim for benefits later than 120 days after its receipt of a request for review. If an extension of time for review is required because of special circumstances, written notice of the extension shall be furnished to the claimant prior to the date the extension period commences. (b) If, upon appeal, the EDCP Committee shall grant the relief requested by the claimant, then, in addition, the EDCP Committee shall award to the claimant reasonable fees and expenses of counsel, or any other duly authorized representative of claimant, which shall be paid by the Company. The determination as to whether such fees and expenses are reasonable shall be made by the Company in its sole and absolute discretion and such determination shall be binding and conclusive on all parties. 10.3 Notice Of Denials. The EDCP Committee's notice of denial of benefits shall identify the address to which the claimant may forward his appeal. -25- ARTICLE ELEVEN LIMITATION ON ASSIGNMENT; PAYMENTS TO LEGALLY INCOMPETENT DISTRIBUTEE 11.1 Anti-Alienation Clause. No benefit which shall be payable under the Plan to any person shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any attempt to anticipate, alienate, sell, transfer, assign, pledge, encumber, charge or otherwise dispose of the same shall be void. No benefit shall in any manner be subject to the debts, contracts, liabilities, engagements or torts of any person, nor shall it be subject to attachment or legal process for or against any person, except to the extent as may be required by law. The benefits provided by this Plan are not subject to the qualified domestic relations order provisions of ERISA or the Code. 11.2 Permitted Arrangements. Section 11.1 (Anti-Alienation Clause) shall not preclude arrangements for the withholding of taxes from benefit payments, arrangements for the recovery of benefit overpayments, arrangements for the transfer of benefit rights to another plan, or arrangements for direct deposit of benefit payments to an account in a bank, savings and loan association or credit union (provided that such arrangement is not part of an arrangement constituting an assignment or alienation). 11.3 Payment To Minor Or Incompetent. Whenever any benefit which shall be payable under the Plan is to be paid to or for the benefit of any person who is then a minor or determined by the EDCP Committee to be incompetent, the EDCP Committee need not require the appointment of a guardian or custodian, but shall be authorized to cause the same to be paid over to the person having custody of the minor or incompetent, or to cause the same to be paid to the minor or incompetent without the intervention of a guardian or custodian, or to cause the same to be paid to a legal guardian or custodian of the minor or incompetent if one has been appointed or to cause the same to be used for the benefit of the minor or incompetent. ARTICLE TWELVE AMENDMENT, MERGER AND TERMINATION 12.1 Amendment. The Company shall have the right at any time, by an instrument in writing duly executed, acknowledged and delivered to the EDCP Committee, to modify, alter or amend this Plan, in whole or in part, prospectively or retroactively; provided, however, that the duties and liabilities of the EDCP Committee and the Trustee hereunder shall not be substantially -26- increased without its written consent; and provided further that the amendment shall not reduce any Participant's vested interest in the Plan, calculated as of the date on which the amendment is adopted. If the Plan is amended by the Company after it is adopted by an Affiliate, unless otherwise expressly provided, it shall be treated as so amended by such Affiliate without the necessity of any action on the part of the Affiliate. Any Affiliate or other corporation adopting this Plan hereby delegates the authority to amend the Plan to the Company. An Affiliate or other corporation that has adopted this Plan may terminate its future participation in the Plan at any time. 12.2 Merger Or Consolidation Of Company. The Plan shall not be automatically terminated by the Company's acquisition by or merger into any other employer, but the Plan shall be continued after such acquisition or merger if the successor employer elects and agrees to continue the Plan. Except as provided in Section 12.4 (Continuation of Plan Following Change of Control), all rights to amend, modify, suspend, or terminate the Plan shall be transferred to the successor employer, effective as of the date of the merger. 12.3 Termination Of Plan Or Discontinuance Of Contributions. It is the expectation of the Company that this Plan and the payment of contributions hereunder will be continued indefinitely. However, continuance of the Plan is not assumed as a contractual obligation of the Company. Except as provided in Section 12.4 (Continuation of Plan Following Change of Control), the right is reserved at any time to terminate this Plan or to reduce, temporarily suspend or discontinue contributions hereunder. If this Plan is terminated, the HRC may, in its discretion, direct that all Plan benefits be distributed to current and former Participants in cash lump sum payments as soon as practicable following the termination of the Plan. Any distributions made pursuant to this Section 12.3 shall be made in accordance with Section 8.3 (Beneficiary Designations), Section 8.4 (Limitation on Distributions) and Section 8.5 (Withholding and Payroll Taxes). 12.4 Continuation of Plan Following A Change of Control. Notwithstanding any provision of this Plan to the contrary, if a Change of Control occurs following the Effective Date of this Plan, a successor employer shall have the power to (a) terminate this Plan, (b) amend Section 13.5 (Funding Upon A Change of Control) of the Plan, or (c) amend any provision of the Plan -27- that affects a Participant's entitlement to or the timing of a distribution from the Plan, only if 80% of the individuals who are Participants in the Plan as of the date of the Change of Control consent to such an amendment or termination. The provisions of this Section 12.4 shall not limit a successor employer's authority to take other actions with respect to the Plan, including the authority to discontinue contributions to the Plan. 12.5 Limitation Of Company's Liability. The adoption of this Plan is strictly a voluntary undertaking on the part of the Company and shall not be deemed to constitute a contract between the Company and any employee or Participant or to be consideration for, an inducement to, or a condition of the employment of any employee. A Participant, employee, or Beneficiary shall not have any right to retirement or other benefits except to the extent provided herein. ARTICLE THIRTEEN GENERAL PROVISIONS 13.1 Limitation Of Rights. Neither this Plan, the Trust nor membership in the Plan shall give any employee or other person any right except to the extent that the right is specifically fixed under the terms of the Plan. The establishment of the Plan shall not be construed to give any individual a right to be continued in the service of a Employer or as interfering with the right of a Employer to terminate the service of any individual at any time. 13.2 Construction. The masculine gender, where appearing in the Plan, shall include the feminine gender (and vice versa), and the singular shall include the plural, unless the context clearly indicates to the contrary. Headings and subheadings are for the purpose of reference only and are not to be considered in the construction of this Plan. If any provision of this Plan is determined to be for any reason invalid or unenforceable, the remaining provisions shall continue in full force and effect. All of the provisions of this Plan shall be construed and enforced in accordance with the laws of the State of Delaware. 13.3 Status Of Participants As Unsecured Creditors. All benefits under the Plan shall be the unsecured obligations of the Company and each Employer, as applicable, and, except for those assets which will be placed in the Trust established in -28- connection with this Plan, no assets will be placed in trust or otherwise segregated from the general assets of the Company or each Employer, as applicable, for the payment of obligations hereunder. To the extent that any person acquires a right to receive payments hereunder, such right shall be no greater than the right of any unsecured general creditor of the Company and each Employer, as applicable. 13.4 Status Of Trust Fund. The Trust Fund is being established to assist the Company and the Employers in meeting their obligations to the Participants and to provide the Participants with a measure of protection in certain limited instances. In certain circumstances described in the Trust Agreement, the assets of the Trust Fund may be used for the benefit of the Company's or an Affiliate's creditors and, as a result, the Trust Fund is considered to be part of the Company's and Employer's general assets. Benefit payments due under this Plan shall either be paid from the Trust Fund or from the Company's or Affiliate's general assets as directed by the EDCP Committee. Despite the establishment of the Trust Fund, it is intended that the Plan be considered to be "unfunded" for purposes of the ERISA and the Code. 13.5 Funding Upon A Change Of Control. Upon a Change of Control, and in no event later than 90 days following the date of a Change of Control, the Company shall determine whether, for any reason, the assets of the Trust Fund are less than the aggregate Account balances of all Participants (determined without regard to the vested interest of each Participant) and transfer an amount equal to the deficiency to the Trustee of the Trust. If it is discovered at any time that the amount initially transferred is less than the total amount called for by the preceding sentence, the shortfall, including any accrued interest on the shortfall, shall be transferred to the Trustee immediately upon the discovery of such error. 13.6 No Liability For Acceleration Of Payments. Under the Plan, Participants are allowed, to a certain extent, to designate the dates on which distributions are to be made to them. The EDCP Committee, however, also has the right, in the exercise of its discretion, to accelerate payments. By accepting the benefits offered by the Plan, each Participant (and each Beneficiary claiming through a Participant) acknowledges that the EDCP Committee may override the Participant's elections and agrees that neither the Participant nor -29- any Beneficiary shall have may claim against the EDCP Committee, the Trustee, or any Employer if distributions are made earlier than anticipated by the Participant due to the EDCP Committee's exercise of its discretion to accelerate payments. 13.7 Uniform Administration. Whenever in the administration of the Plan any action is required by the EDCP Committee, such action shall be uniform in nature as applied to all persons similarly situated, except as otherwise provided to the contrary in this Plan document or the Trust Agreement. 13.8 Heirs And Successors. All of the provisions of this Plan shall be binding upon all persons who shall be entitled to any benefits hereunder, and their heirs and legal representatives. * * * * To signify its adoption of this Executive Supplemental Savings Plan, the Company has caused this Plan document to be executed by a duly authorized officer of the Company on this 21st day of February, 2001. Harrah's Entertainment, Inc. By /s/ Marilyn G. Winn -------------------------- Marilyn G. Winn Senior Vice President -30- EX-10.2 3 a2048399zex-10_2.txt EXHIBIT 10.2 Exhibit 10.2 Amendment dated as of February 21, 2001, to the Harrah's Entertainment, Inc. ("the Company") Executive Deferred Compensation Plan (the "Plan") Pursuant to approval granted by the Human Resources Committee of the Company's Board of Directors on February 21, 2001, Section 10.3 of the Plan is amended to add the following provision at the end of that Section: "Notwithstanding the above, the Company acting by the EDCP Committee or its designates may authorize a Participant or Beneficiary to transfer part or all of any Account balance under this Plan to the Company's Executive Supplemental Savings Plan. Such transfer must be specified as a percentage in increments of 1% and a transfer percentage will apply to each deferral year's balance as of the transfer date including being applied to deferred amounts, accrued interest and vested and unvested accrued matching contributions. For the period from the preceding January 1 to the date of the transfer, interest will accrue based on the interest rate applicable or approved for that accrual period (not the interest rate for the previous year). The times and other administrative terms and conditions of any such transfer and the interpretation of this Section 10.3 will be determined by the EDCP Committee or its designates. Upon the transfer by a Participant of any percentage of a Termination Account (for a participant not vested in the Retirement Account), the transfer will only apply to the Termination Account and an equal percentage of the Retirement Account (including the applicable percentages of deferred amounts, accrued interest and vested and unvested accrued matching contributions for each deferral year) will be eliminated and will be deemed null and void under this Plan and all rights thereto will be waived. Upon any transfer of any part or all of any Account to the Executive Supplemental Savings Plan, the Participant or Beneficiary will have no further rights under this Plan as to the amounts transferred including no further rights under this Plan to vesting, death benefits or any other rights to the Retirement Account or Termination Account under this Plan regarding such transferred amount. Amounts not transferred will continue to be governed by this Plan." 1 IN WITNESS WHEREOF, this amendment has been executed as of the 21st day of February, 2001. Harrah's Entertainment, Inc. By:/s/ ELAINE LO -------------- Elaine Lo, Vice President Compensation and Benefits 2 EX-10.3 4 a2048399zex-10_3.txt EXHIBIT 10.3 Exhibit 10.3 Amendment dated as of February 21, 2001 to the Harrah's Entertainment, Inc. ("the Company") Deferred Compensation Plan (the "Plan") Pursuant to approval granted by the Human Resources Committee of the Company's Board of Directors on February 21, 2001, Section 7 of the Plan is amended by adding the following Section 7.2: "7.2 Notwithstanding the above, the Company acting by the DCP Committee or its designates may authorize a Participant or Beneficiary to transfer part or all of their Account under this Plan to the Company's Executive Supplemental Savings Plan. Such transfer must be specified as a percentage in increments of 1% and a transfer percentage will apply to each deferral year's balance as of the transfer date including being applied to deferred amounts, accrued interest and vested and unvested accrued matching contributions. For the period from the preceding January 1 to the date of the transfer, interest will accrue based on the interest rate applicable or approved for that accrual period (not the interest rate for the previous year). The times and other administrative terms and conditions of any such transfers and the interpretation of this Section 7.2 shall be determined by the DCP Committee or its designates. Upon any such transfer, the Participant or Beneficiary will have no further rights under this Plan as to the amount transferred to the Executive Supplemental Savings Plan. Amounts not transferred will continue to be governed by this Plan." IN WITNESS WHEREOF, this amendment has been executed as of the 21st day of February, 2001. Harrah's Entertainment, Inc. By:/s/ ELAINE LO ---------------- Elaine Lo, Vice President Compensation and Benefits EX-10.4 5 a2048399zex-10_4.txt EXHIBIT 10.4 Exhibit 10.4 AMENDMENT TO EMPLOYMENT AGREEMENT Pursuant to the approval of the Company's Human Resources Committee on February 21, 2001, 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 begin May 4, 1998 and end December 31, 2002." IN WITNESS WHEREOF, the parties have executed this Amendment as of the 21st day of February, 2001. Executive: Harrah's Operating Company, Inc. /s/ GARY W. LOVEMAN - ------------------- Gary W. Loveman By:/s/ MARILYN G. WINN -------------------- Title: Sr. Vice President Human Resources EX-10.5 6 a2048399zex-10_5.txt EXHIBIT 10.5 Exhibit 10.5 FOUR YEAR UNCONDITIONAL MINIMUM PAYMENT GUARANTY AGREEMENT FOR FOUR FISCAL YEAR PERIOD BEGINNING APRIL 1, 2001 AND ENDING MARCH 31, 2005 THIS UNCONDITIONAL MINIMUM PAYMENT GUARANTY AGREEMENT covering the four Fiscal Years beginning April 1, 2001 and ending March 31, 2005 (the "Guaranty") is entered into as of March 31, 2001, by HARRAH'S ENTERTAINMENT, INC., a Delaware corporation, and HARRAH'S OPERATING COMPANY, INC., a Delaware corporation (each a "Guarantor" and collectively the "Guarantors") in favor of the STATE OF LOUISIANA by and through the LOUISIANA GAMING CONTROL BOARD (the "LGCB"). RECITALS A. That certain Casino Operating Contract between Jazz Casino Company, L.L.C., a Louisiana limited liability company (the "Company"), and the LGCB, dated as of October 30, 1998, as amended by the First Amendment effective as of October 19, 1999 and the Second Amendment ("COC Second Amendment") effective as of March 31, 2001 sets forth the conditions, covenants, obligations, requirements and terms pursuant to which the Company has the -1- authority to conduct gaming operations at the Casino (collectively referred to as the "COC"). B. As used in this Guaranty, all capitalized terms used herein but not defined herein shall be used herein as defined in the COC. C. The Company has caused this Guaranty to be provided to the LGCB for the four Fiscal Years beginning on April 1, 2001 and ending March 31, 2005, the first Fiscal Year beginning on April 1, 2001 and ending March 31, 2002, the second Fiscal Year beginning on April 1, 2002 and ending March 31, 2003,the third Fiscal Year beginning on April 1, 2003 and ending March 31, 2004 and the fourth Fiscal Year beginning on April 1, 2004 and ending March 31, 2004 (each a "Covered Fiscal Year" and collectively the "Four Covered Fiscal Years"), as required by the COC. AGREEMENT NOW, THEREFORE, in consideration of the foregoing and other benefits accruing to the Guarantors, the receipt and sufficiency of which are hereby acknowledged, the Guarantors hereby solidarily make the following representations and warranties to the LGCB, and -2- hereby solidarily covenant and agree for the benefit of the LGCB as follows: 1. OBLIGATIONS GUARANTEED AND METHOD OF DRAWING. 1.1 The Guarantors hereby irrevocably, unconditionally, and in solido with each other and with the Company, guarantee for each of the Four Covered Fiscal Years: (a) the full, complete and timely payment and performance of all of the Minimum Payment obligations of the Company to the LGCB under and in accordance with the provisions of the COC; and (b) the full, complete and timely payment to the LGCB of all of the Daily Payments, Required Payments and Minimum Payment in accordance with the provisions of the COC. 1.2 If there is any delay in timely paying to the LGCB any and/or all of the Daily Payments, Required Payments and/or Minimum Payment as and when required under the COC for each of the Four Covered Fiscal Years, the Guarantors shall also pay to the LGCB interest on such payments due at the Default Interest Rate (as -3- provided in Section 6.7 of the COC) from the date each payment was due, until paid to the LGCB. 1.3 In no event shall the aggregate total of Daily Payments, Required Payments and the Minimum Payment to the LGCB under this Guaranty for the Fiscal Year beginning on April 1, 2001 and ending March 31, 2002 exceed FIFTY MILLION DOLLARS ($50,000,000.00), plus, and in addition thereto, any interest and attorneys' fees applicable to the Guaranty Obligation provided for in the COC or in this Guaranty . Further, in no event shall the aggregate total of Daily Payments, Required Payments and the Minimum Payment to the LGCB under this Guaranty for the three Fiscal Years beginning on April 1, 2002, April 1, 2003 and April 1, 2004 exceed SIXTY MILLION DOLLARS ($60,000,000.00) for each of the three Fiscal Years, plus, and in addition thereto, any interest and attorneys' fees applicable to the Guaranty Obligation provided for in the COC or in this Guaranty. 1.4 If the LGCB has not been timely paid any one or more of the required Daily Payments for any of the Four Covered Fiscal Years, then (a) the LGCB may make drawings under this Guaranty by providing written notice to the Guarantors that one or more of the required Daily Payments have not been timely paid and the principal -4- amount of such Daily Payments then due (the "Notice of Drawing"), and (b) the Guarantors shall pay to the LGCB all required but unpaid Daily Payments, plus interest at the Default Interest Rate, upon receipt of the Notice of Drawing. Guarantors shall make payment by wire or other electronic transfer as provided in the Notice of Drawing, on or before the time the Daily Payments are due under Section 6.5 - "Daily Deposits" of the COC. 1.5 The Guarantors shall not be obligated to make any Daily Payments due for any day which is twenty (20) days or more prior to the LGCB giving the Notice of Drawing; provided however, that any payments which are suspended pursuant to Section 6.3(a) of the COC shall not be due and payable until the period of the suspension has expired. 1.6 Once a Minimum Payment Default has occurred and a Notice of Drawing has been provided to the Guarantors during any of the Four Covered Fiscal Years of this Guaranty, the Guarantors shall be obligated without any further notice by the LGCB to pay, and will pay, to the LGCB any required Daily Payments for the Fiscal Year in which the Minimum Payment Default has occurred on a daily basis for the remainder of the Fiscal Year (in which a Minimum Payment -5- Default occurs) to the extent such Daily Payments have not been timely paid. 1.7 In no event shall the Guarantors be liable to the LGCB under this Guaranty for any amount in excess of the difference between the Minimum Payment for each Covered Fiscal Year and the total of the Louisiana Gross Gaming Revenue Share Payments which have been paid to the LGCB for said Covered Fiscal Year or liable for any Daily Payments due for and in any Fiscal Year following the Four Covered Fiscal Years. 1.8 All of the obligations undertaken hereinabove by the Guarantors in this Section 1 and any amounts which may be due under Section 6.2 are hereinafter collectively referred to as the "Guaranty Obligation." 1.9 Notwithstanding the suspension, under the provisions of Section 6.3(a) of the COC, of the payment of any of the amounts included within the Guaranty Obligation, it is agreed that the Guaranty Obligation covers all payments which would have been due and payable during the Four Covered Fiscal Years except for the fact that such payments were suspended pursuant to Section 6.3(a) of the COC. Any such suspended payments shall be paid in the -6- manner and within the time provided in the COC, together with Late Payment Interest from the time the suspended payments become due under the COC, and the Guarantors guarantee the payment thereof, even after the expiration of the Four Covered Fiscal Years. 2. GUARANTORS' ADDITIONAL AGREEMENTS. 2.1 The Guarantors, in solido with each other and the Company, agree to perform and comply with their Guaranty Obligation, whether or not the Company is liable therefor individually or jointly or in solido with others, and whether or not recovery against the Company is or may become barred by any statute of limitations or prescriptive or preemptive period or is or may become unenforceable or discharged, whether in whole or in part, for any reason other than payment thereof in full. The Guarantors agree that this Guaranty is a guaranty of payment and not of collection, and that their obligation under this Guaranty shall be primary, absolute and unconditional, irrespective of, and unaffected by: (a) the absence of any action to enforce this Guaranty or any other document or the waiver or consent by the LGCB with respect to any of the provisions thereof; -7- (b) any release or discharge of the other Guarantor, the Company or any other party of the Guaranty Obligation; or (c) any other action or circumstances which might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor. Each Guarantor shall be regarded, and shall be in the same position, as principal debtor with respect to the Guaranty Obligation. 2.2 Each Guarantor expressly waives all rights it may have now or in the future under any statute, or at common law, or at law or in equity, or otherwise, to compel the LGCB to proceed in respect of the Guaranty Obligation against the Company or any other party or against any security for the payment of the Guaranty Obligation before proceeding against, or as a condition to proceeding against, any Guarantor; and without limiting the above, each Guarantor waives all pleas of division and discussion. Each Guarantor agrees that any notice or directive given at any time to the LGCB which is inconsistent with the waiver in the immediately preceding sentence shall be null and void and may be ignored by the -8- LGCB, and in addition, may not be pleaded or introduced as evidence in any litigation relating to this Guaranty for the reason that such pleading or introduction would be at variance with the written terms of this Guaranty, unless the LGCB has specifically agreed otherwise in writing. 2.3 Each Guarantor acknowledges that it has received a copy of and is familiar with the COC, which to the extent of the Guaranty Obligation is incorporated herein by reference. 2.4 Except as expressly provided for in this Guaranty, in no event shall the Guarantors, as a result of this Guaranty, incur, directly or indirectly, any obligation, contingent or otherwise, under the COC ("incur" meaning to create, incur, assume, guaranty or otherwise become liable for). 3. ALTERATION OF THE GUARANTY OBLIGATION. 3.1 No exercise or non-exercise of any right hereby given to the LGCB, no dealing by the LGCB with the Guarantors or any other guarantor or any other person, and no change, impairment or release of all or any portion of the Company's COC obligations, or suspension of any right or remedy of the LGCB against any person, including without limitation the Company or any other such -9- guarantor or other person, shall in any way affect any part of the Guaranty Obligation or any security furnished by the Guarantors or give the Guarantors any recourse against the LGCB. 3.2 This Guaranty is provided on the express condition that, should the LGCB and the Company amend or modify the COC so as to increase the Guaranty Obligation or adversely affect the Guarantors without the prior written agreement of the Guarantors, any such amendment or modification entered into without the prior written agreement of the Guarantors shall not increase the Guaranty Obligation or adversely affect the Guarantors. 4. WAIVER. 4.1 The Guarantors, in solido with each other, represent, warrant and agree that, as of the date of this Guaranty, the Guaranty Obligation is not subject to any recoupment, counterclaims, offsets or defenses against the LGCB or the Company of any kind. The Guarantors further in solido with each other agree that the Guaranty Obligation shall not be subject to any recoupment, counterclaims, offsets or defenses against the LGCB or against the Company of any kind which may arise in the future. Each Guarantor hereby expressly waives and relinquishes all rights, -10- defenses and remedies accorded by applicable law to sureties or guarantors and agrees not to assert or take advantage of any such rights, defenses or remedies, including without limitation: (a) any right to require the LGCB to proceed against the Company or any other person or to proceed against or exhaust any security held by the LGCB at any time or to pursue any other remedy in the power of the LGCB before proceeding against either or both of the Guarantors, including but not limited to any defense of failure to join or non-joinder of the Company or any other person whatsoever in any litigation instituted by the LGCB against either or both of the Guarantors; (b) the defense of any statute of limitation, prescription and preemption in any action hereunder or in any action for the collection of any of the Guaranty Obligation; (c) any defense that may arise by reason of the discharge in bankruptcy, incapacity, lack of authority (subject to the provisions of section 13.11 of the Guaranty), death or disability of any other person (including the Company) or the failure of the LGCB to file or enforce a claim against the estate -11- (in administration, bankruptcy or any other proceeding) of any other person (including the Company); (d) diligence, demand, presentment, protest and notice of any kind other than notices expressly required in this Guaranty (whether for nonpayment or protest or of acceptance, maturity, extension of time, change in nature or form of the Company's obligations under the COC, acceptance of further security, release of further security, composition or agreement arrived at as to the amount of, or the terms of, the Company's obligations under the COC, notice of adverse change in the Company's financial condition or any other fact which might materially increase the risk to the Guarantors), including without limitation notice of the existence, creation or incurring of any new or additional indebtedness or obligation or of any action or non-action on the part of the Company, the LGCB, any endorser or creditor of the Company or either Guarantor or on the part of any other person under this or any other instrument in connection with any obligation or evidence of indebtedness held by the LGCB in connection with any of the obligations of the Company under the COC; (e) any defense based upon an election of remedies by the LGCB which destroys or otherwise impairs the subrogation rights -12- of the Guarantors, the right of the Guarantors to proceed against the Company for reimbursement, or both, or any defense that the LGCB's claims against the Guarantors are barred or diminished or premature to the extent that the LGCB has or may have remedies available against the Company; (f) any defense based upon any statute or rule of law which provides that the obligation of a surety must be neither larger in amount nor in other respects more burdensome than that of the principal; (g) any duty on the part of the LGCB to disclose to the Guarantors any facts the LGCB may now or hereafter know about the Company, regardless of whether the LGCB has reason to believe that any such facts materially increase the risk beyond that which the Guarantors intend to assume, or has reason to believe that such facts are unknown to either Guarantor, or has a reasonable opportunity to communicate such facts to either Guarantor, since each Guarantor acknowledges that it is fully responsible for being and keeping informed of the financial condition of the Company and of all circumstances bearing on the risk of nonpayment of any of the obligations of the Company under the COC; -13- (h) waiver or estoppel or any alleged lack of reasonable or justifiable reliance on the part of the LGCB as to the Guarantors' representations; (i) lack, failure or insufficiency of consideration; (j) subject to the notice requirements of Sections 1.4 and 1.5 hereof, any alleged failure of the LGCB to mitigate injuries, losses or damages or any plea that the LGCB has any duty to mitigate injuries, losses, or damages prior to seeking recovery under this Guaranty; and (k) any defense that the LGCB's claims hereunder are or may be barred because any adequate remedy at law exists. 4.2 Following any default by either Guarantor under this Guaranty, each Guarantor agrees to forbear from exercise of any rights of subrogation, indemnity, or contribution against each other, the Company or any other person who may be liable for satisfaction of the Guaranty Obligation until the Guaranty Obligation has been fully satisfied as to the LGCB. 5. BANKRUPTCY. -14- 5.1 In the event of the commencement of a bankruptcy case by or against any Guarantor, each Guarantor agrees to waive the automatic stay under the Bankruptcy Code and further agrees to the entry of an immediate order from the Bankruptcy Court, on the LGCB's ex parte motion granting to the LGCB a modification of the automatic stay (and/or recognition that the automatic stay is not applicable) allowing it to fully enforce the provisions of this Guaranty, the Guarantors hereby agreeing that in such case, "cause," as defined by the Bankruptcy Code, would exist for the immediate entry by the Bankruptcy Court of such an order modifying the automatic stay. 5.2 The Guaranty Obligation shall not be altered, limited or affected by any proceeding, voluntary or involuntary, involving the bankruptcy, reorganization, insolvency, receivership, liquidation or arrangement of the Company, or by any defense which the Company may have by reason of any order, decree or decision of any court or administrative body resulting from any such proceeding. 5.3 This Guaranty shall remain in full force and effect and continue to be effective should any petition be filed by or against the Company or any Guarantor for liquidation or reorganization, should the Company or any Guarantor become insolvent or make an -15- assignment for the benefit of creditors or should a receiver or trustee be appointed for all or any significant part of the Company's or any Guarantor's assets, and shall continue to be effective or be reinstated, as the case may be, if at any time payment of the Guaranty Obligation, or any part thereof, is, pursuant to applicable law, rescinded or reduced in amount or must otherwise be restored or returned by the LGCB, whether as a "voidable preference," "fraudulent conveyance," or otherwise, all as though such payment had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Guaranty Obligation shall be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned. 6. INTEREST, COSTS AND ATTORNEYS' FEES. 6.1 If the Guarantors fail to timely pay all or any portion of the Guaranty Obligation in accordance with the provisions of Section 1 of this Guaranty, such amount shall bear interest as provided in Section 1.2 of this Guaranty. 6.2 If the LGCB refers this Guaranty to an attorney to enforce, construe, or defend any provision hereof, or as a -16- consequence of any default hereunder by the Guarantors in connection with: (a) any litigation, contest, dispute, suit, proceeding or action (whether instituted by the LGCB, the Company, the Guarantors or any other person) in any way relating to the enforcement of rights or remedies under this Guaranty; (b) any attempt to enforce any rights of the LGCB hereunder against the Guarantors or any other person; or (c) any attempt to defend any provision hereof; then, and in any such event, the attorneys' fees arising from such services, including those of any appellate proceedings, and all expenses, costs, charges and other fees incurred by such counsel and others in any way or respect arising in connection with or relating to any of the events or actions described herein shall be payable, on demand, by the Guarantors to the LGCB or the Guarantors shall cause the Company to make such payment, and if not so paid, shall be a part of the Guaranty Obligation. The reference to "attorneys' fees" in this Section 6.2 and in all other places in this Guaranty shall also include, without limitation, such -17- reasonable amounts as may then be charged for legal services furnished by attorneys retained or employed by the State or the LGCB. Such attorneys' fees, costs and expenses shall include, without limitation, those incurred in connection with any bankruptcy, reorganization, insolvency, receivership, liquidation, arrangement, lawsuits in state or federal court, or other similar proceedings involving either Guarantor which in any way affect the exercise by the LGCB of its rights and remedies hereunder. 7. CUMULATIVE RIGHTS. All rights, powers and remedies of the LGCB hereunder and under any other written agreement now or at any time hereafter in force between the LGCB and the Guarantors, including without limitation any other guaranty executed by either Guarantor relating to any indebtedness of the Company, shall be cumulative and not alternative, and such rights, powers and remedies shall be in addition to all rights, powers and remedies given to the LGCB by law and shall not be deemed in any way to extinguish or diminish the LGCB's rights and remedies. This Guaranty is in addition to and independent of the guaranty of any guarantor of any other obligations of the Company under the COC or other indebtedness of the Company. -18- 8. APPLICATION OF PAYMENTS AND RECOVERIES. After a Minimum Payment Default has occurred, as to any payments received directly from a Guarantor, the LGCB shall apply such payments to amounts due under the Guaranty Obligation. Daily Payments, Required Payments or Minimum Payments paid by the Company during any of the Four Covered Fiscal Years shall be applied to the Minimum Payment for the Fiscal Year in which it is due during any of the Four Covered Fiscal Years. Any other payments or recoveries received by the LGCB after a Minimum Payment Default shall be applied, as directed by the LGCB at its sole option, (a) first, to amounts due for any Additional Charges, and (b) second, to any Daily Payments, Required Payments, or Minimum Payment due for any prior Fiscal Year other than the Fiscal Year in which the Minimum Payment Default has occurred (collectively, the "Other Fiscal Year Payments"). Only when such Additional Charges and all Other Fiscal Year Payments are paid current will any payments or recoveries be applied to the Guaranty Obligation under this Guaranty Agreement. 9. INDEPENDENT OBLIGATIONS. -19- The Guaranty obligation is independent of the obligations of the Company under the COC, and, in the event of any default hereunder, a separate action or actions may be brought and prosecuted against either Guarantor, whether or not the Company is joined therein or a separate action or actions are brought against the Company. The LGCB's rights hereunder shall not be exhausted by its exercise of any of its rights or remedies or by any such action or by any number of successive actions unless and until all Guaranty Obligations have been satisfied and fully performed. 10. FINANCIAL STATEMENTS. The Guarantors hereby represent and warranty that the information pertaining to the Guarantors set forth in their most recent filings with the Securities and Exchange Commission is true and correct in all material respects, and fairly presents the financial condition of the Guarantors as of the respective dates indicated therein and for the periods covered thereby, and that no material adverse change has occurred in the financial condition or prospects of the Guarantors since the date of the latest information provided therein. 11. NOTICES. -20- Whenever the Guarantors or the LGCB shall desire to give or serve any notice, demand, request or other communication with respect to this Guaranty, each such notice shall be in writing and shall be effective only if the same is delivered by personal service, overnight courier service, or mailed by certified mail, postage prepaid, return receipt requested, addressed as follows: (a) if to either Guarantor (or both Guarantors): HET and Harrah's Operating c/o Harrah's Entertainment, Inc. 5100 West Sahara Ave. Las Vegas, Nevada 89146 Attention: General Counsel (b) if to the LGCB, as provided in the COC; or at such other address as shall have been furnished in writing by any person described above to the party required to give notice hereunder. Any such notice shall be deemed to have been received upon delivery. Any of the Guarantors or the LGCB may change its -21- address by giving the others written notice of the new address as herein provided. 12. SUCCESSORS AND ASSIGNS. This Guaranty shall inure to the benefit of the LGCB, its successors and assigns, and shall bind the successors and assigns of each Guarantor. Neither Guarantor may assign or transfer any of its rights, obligations or interest hereunder without the prior written consent of the LGCB. 13. MISCELLANEOUS PROVISIONS. 13.1 This Guaranty shall be governed, interpreted and enforced in accordance with Louisiana law. Each Guarantor hereby submits to the jurisdiction of the State and the courts thereof and to the jurisdiction of the Nineteenth Judicial District Court in and for East Baton Rouge Parish ("19th JDC") for purposes of any suit, action or other proceeding arising out of or relating to this Guaranty and agrees not to assert by way of motion as a defense or otherwise that such suit, action or other proceeding is brought in an inconvenient forum or that the venue of -22- such suit, action or other proceeding is improper or that the subject matter thereof may not be enforced in or by such court or assert that any suit or action filed in the 19th JDC may be removed to the Federal Court, and each Guarantor agrees that the 19th JDC shall have the exclusive jurisdiction for purposes of any suit, action or other proceeding brought by either of them relating to or arising out of this Guaranty. If at any time during the Term, either Guarantor is not a resident of the State and has not formally designated or does not continuously maintain an agent for service of process in Louisiana or has not notified LGCB of the full name and current street address in Louisiana of such agent for service of process, such Guarantor hereby designates the Secretary of State of Louisiana as its agent for service of process in any suit, action or proceeding involving the LGCB or the State or arising out of or relating to this Guaranty, and such service shall be made as provided by Louisiana law for service on an insurance company through the Secretary of State. 13.2 This Guaranty shall constitute the entire agreement of the Guarantors with the LGCB with respect to the subject matter hereof, and no representation, understanding, promise or condition -23- concerning the subject matter hereof shall be binding upon the LGCB or the Guarantors unless expressed herein. 13.3 Should any term, covenant, condition or provision of this Guaranty be determined to be illegal or unenforceable, it is the intent of the parties that all other terms, covenants, conditions and provisions hereof shall nevertheless remain in full force and effect. 13.4 Time is of the essence to this Guaranty and each of its provisions. 13.5 When the context and construction so require, all words used in the singular herein shall be deemed to include the plural, the masculine shall include the feminine and neuter, and vice versa. 13.6 The word "person" as used herein shall include any individual, company, firm, association, partnership, limited liability company, joint venture, corporation, trust or other legal entity of any kind whatsoever. -24- 13.7 No provision of this Guaranty or right granted to the LGCB hereunder can be waived in whole or in part, nor can either Guarantor be released from the Guaranty Obligation, except by an express and specific writing to that effect duly executed by an authorized officer of the LGCB. No provision of this Guaranty may be amended without the prior written consent of the Guarantors and the LGCB and the consent of any additional beneficiaries hereof, if any, shall not be required. 13.8 The LGCB need not inquire into the power of the Guarantors or the authority of their officers, shareholders or agents acting or purporting to act on their behalf. 13.9 The headings of this Guaranty are inserted for convenience only and shall have no effect upon the construction or interpretation thereof. 13.10 All of the representations, warranties, agreements, obligations and covenants of each Guarantor are in solido with the other Guarantor. This Guaranty shall be for the sole benefit of the State of Louisiana acting by and through the LGCB, its successors and assigns. The provisions of this Guaranty shall not -25- inure to the benefit of any other person, including, without limitation, the Company. 13.11 Notwithstanding any provision of this Guaranty to the contrary, if, subsequent to the execution and effectiveness of the Guaranty, the COC or the COC Second Amendment are declared by a final, definitive and nonappealable judgment1 of a Louisiana state court of competent jurisdiction as being in violation of Louisiana law and therefore null, void and/or unenforceable and/or that the Gaming Board lacked legal authority to enter into the Second Amendment (a "Definitive Judgment"), and (i) such Definitive Judgment terminates all rights of the Company to operate the Casino, (ii) pursuant to such Definitive Judgment the Casino is closed and Gaming activities cease, and (iii) the Guarantors and all of their direct and indirect subsidiaries and all of their affiliates controlled by the Guarantors waive and renounce any claims against the State and the LGCB related to the COC and/or the COC Second Amendment and/or this Guaranty, in form and substance subject to the approval of the LGCB, which approval will not be unreasonably withheld, then, except as provided below, this - ---------- (1) A final, definitive and nonappealable judgment is a judgment in which all appeal rights and all other rights of review, by the same or any other court of competent jurisdiction, have expired and terminated. -26- Guaranty shall thereupon, without further action, be deemed terminated and not enforceable against the Minimum Payment Guarantors and such Minimum Payment Guarantors hereunder shall have no further liability hereunder. It is further acknowledged that if there is a judgment by a Louisiana state court of competent jurisdiction which is not yet a final, definitive and nonappealable judgment which declares the COC and/or the COC Second Amendment to be null and void and therefore unenforceable as being in violation of Louisiana law and/or that the Gaming Board had no legal authority to enter into the Second Amendment (an "Interim Judgment"), and (i) such Interim Judgment terminates all rights of the Company to operate the Casino and (ii) pursuant to said Interim Judgment the Casino is closed and Gaming activities cease, then the Minimum Payment Guarantors' obligations hereunder will be suspended, unless and until (1) said Interim Judgment is reversed or otherwise modified to again authorize the Company to operate the Casino and resume Gaming activities (an "Authorizing Judgment"); and (2) the Casino has a reasonable period of time to reopen the Casino, but in no event will the period of suspension exceed 180 days afer the Authorizing Judgment is rendered, unless such period needs to be extended for pre-opening regulatory matters. It is further agreed that any obligations which are suspended as provided above, will also be -27- excused for the suspension period and will not be due or payable under this Guaranty. It is expressly agreed that the release of the Minimum Payment Guarantors and/or the suspension of the Minimum Payment Guarantors obligations provided in this Section 13.11 shall be applicable only if the Definitive Judgment and/or Interim Judgment, as applicable, was rendered in (1) litigation which was not instituted, fomented, assisted or encouraged by any one or more of the Company, JCC Holding, HET, Harrah's Operating and/or the Casino Manager, or any of their respective successors or any of their respective affiliates (collectively the "Jazz Group") and (2) litigation in which the Company actively and in good faith opposes the claims of the plaintiff(s) and actively and in good faith attempts to uphold the validity and enforceability of the COC and the COC Second Amendment. It is further expressly agreed that the release of the Minimum Payment Guarantors shall not release or excuse any obligations for Daily Payments which were not suspended as provided in this section 13.11 that were due or payable, but not paid, as of the effective date of the termination of this Guaranty. 13.12 The effectiveness and enforceability of this Guaranty is conditional upon and subject to the fulfillment and -28- satisfaction by March 31, 2001 of each of the suspensive conditions set forth in Paragraph IV of the Second Amendment. IN WITNESS HEREOF, the undersigned have executed this Guaranty as of the _____ day of March, 2001. GUARANTORS: HARRAH'S ENTERTAINMENT, INC. By:________________________________ Duly Authorized Officer HARRAH'S OPERATING COMPANY, INC. By:________________________________ Duly Authorized Officer Approved and consented to: JAZZ CASINO COMPANY, L.L.C. By:_________________________________ Duly Authorized Officer Approved and consented to: JCC HOLDING COMPANY By:_________________________________ Duly Authorized Officer -29- Accepted and agreed to: LOUISIANA GAMING CONTROL BOARD By:_________________________________ Name:_______________________________ Title:______________________________ -30- EX-11 7 a2048399zex-11.txt EXHIBIT 11 Exhibit 11 HARRAH'S ENTERTAINMENT, INC. COMPUTATIONS OF PER SHARE EARNINGS
First Quarter Ended March 31, March 31, 2001 2000 ------------- ------------- Income before extraordinary losses $ 44,211,000 $ 30,748,000 Extraordinary losses, net (131,000) -- ------------- ------------- Net income $ 44,080,000 $ 30,748,000 ============= ============= BASIC EARNINGS PER SHARE Weighted average number of common shares outstanding 114,614,364 121,642,638 ============= ============= BASIC EARNINGS PER COMMON SHARE Income before extraordinary losses $ 0.38 $ 0.25 Extraordinary losses, net -- -- ------------- ------------- Net income $ 0.38 $ 0.25 ============= ============= DILUTED EARNINGS PER SHARE Weighted average number of common shares outstanding 114,614,364 121,642,638 Additional shares based on average market price for period applicable to: Restricted stock 653,279 398,614 Stock options 1,829,931 1,239,903 ------------- ------------- Average number of common and common equivalent shares outstanding 117,097,574 123,281,155 ============= ============= DILUTED EARNINGS PER COMMON AND COMMON EQUIVALENT SHARES Income before extraordinary losses $ 0.38 $ 0.25 Extraordinary losses, net -- -- ------------- ------------- Net income $ 0.38 $ 0.25 ============= =============
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