EXHIBIT 99

GAMING--NEVADA

    The ownership and operation of casino gaming facilities in Nevada are
subject to: (i) the Nevada Gaming Control Act and the regulations promulgated
thereunder (collectively, "Nevada Act"); and (ii) various local ordinances and
regulations. The Company's gaming operations are subject to the licensing and
regulatory control of the Nevada Gaming Commission ("Nevada Commission"), the
Nevada State Gaming Control Board ("Nevada Board"), the City of Las Vegas, the
Clark County Liquor and Gaming Licensing Board ("CCLGLB"), the City of Reno, and
the Douglas County Sheriff's Department ("Douglas County"). The Nevada
Commission, the Nevada Board, the City of Las Vegas, the CCLGLB, the City of
Reno, and Douglas County are collectively referred to as the "Nevada Gaming
Authorities."

    The laws, regulations and supervisory procedures of the Nevada Gaming
Authorities are based upon declarations of public policy that are concerned
with, among other things: (i) the prevention of unsavory or unsuitable persons
from having a direct or indirect involvement with gaming at any time or in any
capacity; (ii) the establishment and maintenance of responsible accounting
practices and procedures; (iii) the maintenance of effective controls over the
financial practices of licensees, including the establishment of minimum
procedures for internal fiscal affairs and the safeguarding of assets and
revenues, providing reliable record keeping and requiring the filing of periodic
reports with the Nevada Gaming Authorities; (iv) the prevention of cheating and
fraudulent practices; and (v) providing a source of state and local revenues
through taxation and licensing fees. Changes in such laws, regulations and
procedures could have an adverse effect on the Company's Nevada gaming
operations.

    Harrah's Entertainment is registered by the Nevada Commission as a publicly
traded corporation (a "Registered Corporation") and has been found suitable to
own the stock of HOC, which is also a Registered Corporation by virtue of its
outstanding debt securities. HOC has been found suitable to own the stock of
(i) Rio Hotel & Casino, Inc. ("Rio"), (ii) Harrah's Las Vegas, Inc. ("HLVI")
(iii) Harrah's Laughlin, Inc. ("HLI"), and (iv) Harveys Casino Resorts
("Harveys"). Harveys has been registered as an intermediary company and has been
found suitable to own the stock of Harveys Tahoe Management Company, Inc.
("HTM"). Rio has been registered as an intermediary company and found suitable
to own the stock of Rio Properties, Inc. ("RPI"). HOC, Rio, HLVI, HLI, Harveys,
HTM, and RPI (collectively, the "Gaming Subsidiaries") are required to be
registered or licensed by the Nevada Gaming Authorities to enable the Company to
conduct gaming operations at Harrah's Lake Tahoe, Bill's Lake Tahoe Casino,
Harrah's Reno, Harrah's Las Vegas, Harrah's Laughlin, Rio Suite Hotel & Casino,
and Harveys Resort Hotel and Casino and to engage in manufacturing and
distribution of gaming devices. The gaming licenses held by the Gaming
Subsidiaries require the periodic payment of fees and taxes and are not
transferable. HOC is also licensed as a manufacturer and distributor of gaming
devices. HLI and RLI are licensed as distributors of gaming devices. Such
manufacturer's and distributor's licenses also require the annual payment of
fees and are not transferable.

    As Registered Corporations, Harrah's Entertainment and HOC are required
periodically to submit detailed financial and operating reports and furnish any
other information which the Nevada Commission may require. No person may become
a stockholder of, or receive any percentage of profits from, the Gaming
Subsidiaries without first obtaining licenses and approvals from the Nevada
Gaming Authorities and Harrah's Entertainment may not sell or transfer
beneficial ownership of any of HOC's equity securities without the prior
approval of the Nevada Commission. Harrah's Entertainment and the Gaming
Subsidiaries have obtained from the Nevada Gaming Authorities the various
registrations, findings of suitability, approvals, permits and licenses required
in order to engage in gaming, manufacturing and distribution activities in
Nevada.

    The Nevada Gaming Authorities may investigate any individual who has a
material relationship to, or material involvement with, Harrah's Entertainment
or the Gaming Subsidiaries to determine whether

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such individual is suitable or should be licensed as a business associate of a
gaming licensee. Officers, directors and certain key employees of the Gaming
Subsidiaries must file applications with the Nevada Gaming Authorities and may
be required to be licensed or found suitable by the Nevada Gaming Authorities.
Officers, directors and key employees of Harrah's Entertainment, HOC, Harveys or
Rio who are actively and directly involved in gaming activities of the Gaming
Subsidiaries may be required to be licensed or found suitable by the Nevada
Gaming Authorities. The Nevada Gaming Authorities may deny an application for
licensing for any cause which they deem reasonable. A finding of suitability is
comparable to licensing, and both require submission of detailed personal and
financial information followed by a thorough investigation. The applicant for
licensing or a finding of suitability must pay all the costs of the
investigation. Changes in licensed positions must be reported to the Nevada
Gaming Authorities and in addition to their authority to deny an application for
a finding of suitability or licensure, the Nevada Gaming Authorities have
jurisdiction to disapprove a change in a corporate position.

    If the Nevada Gaming Authorities were to find an officer, director or key
employee unsuitable for licensing or unsuitable to continue having a
relationship with Harrah's Entertainment or the Gaming Subsidiaries, the
companies involved would have to sever all relationships with such person. In
addition, the Nevada Commission may require Harrah's Entertainment or the Gaming
Subsidiaries to terminate the employment of any person who refuses to file
appropriate applications. Determinations of suitability or of questions
pertaining to licensing are not subject to judicial review in Nevada.

    Harrah's Entertainment and the Gaming Subsidiaries are required to submit
detailed financial and operating reports to the Nevada Commission. Substantially
all material loans, leases, sales of securities and similar financing
transactions by the Gaming Subsidiaries must be reported to, or approved by, the
Nevada Commission.

    If it were determined that the Nevada Act was violated by the Gaming
Subsidiaries, the gaming licenses they hold could be limited, conditioned,
suspended or revoked, subject to compliance with certain statutory and
regulatory procedures. In addition, the Gaming Subsidiaries, Harrah's
Entertainment and the persons involved could be subject to substantial fines for
each separate violation of the Nevada Act at the discretion of the Nevada
Commission. Further, a supervisor could be appointed by the Nevada Commission to
operate Harrah's Entertainment's gaming properties and, under certain
circumstances, earnings generated during the supervisor's appointment (except
for the reasonable rental value of the gaming properties) could be forfeited to
the State of Nevada. Limitation, conditioning or suspension of any gaming
license or the appointment of a supervisor could (and revocation of any gaming
license would) materially adversely affect Harrah's Entertainment's gaming
operations.

    Any beneficial holder of Harrah's Entertainment voting securities,
regardless of the number of shares owned, may be required to file an
application, be investigated, and have his suitability as a beneficial holder of
Harrah's Entertainment voting securities determined if the Nevada Commission has
reason to believe that such ownership would otherwise be inconsistent with the
declared policies of the State of Nevada. The applicant must pay all costs of
investigation incurred by the Nevada Gaming Authorities in conducting any such
investigation.

    The Nevada Act requires any person who acquires beneficial ownership of more
than 5% of Harrah's Entertainment voting securities to report the acquisition to
the Nevada Commission. The Nevada Act requires that beneficial owners of more
than 10% of Harrah's Entertainment voting securities apply to the Nevada
Commission for a finding of suitability within thirty days after the Chairman of
the Nevada Board mails the written notice requiring such filing. Under certain
circumstances, an "institutional investor" (as defined in the Nevada Act), that
acquires more than 10%, but not more than 15%, of Harrah's Entertainment voting
securities may apply to the Nevada Commission for a waiver of such finding of
suitability if such institutional investor holds the voting

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securities for investment purposes only. An institutional investor shall not be
deemed to hold voting securities for investment purposes unless the voting
securities were acquired and are held in the ordinary course of business as an
institutional investor and not for the purpose of causing, directly or
indirectly, the election of a majority of the members of the board of directors
of Harrah's Entertainment, any change in the Company's corporate charter,
bylaws, management, policies or operations of Harrah's Entertainment, or any of
its gaming affiliates, or any other action which the Nevada Commission finds to
be inconsistent with holding Harrah's Entertainment voting securities for
investment purposes only. Activities which are not deemed to be inconsistent
with holding voting securities for investment purposes only include: (i) voting
on all matters voted on by stockholders; (ii) making financial and other
inquiries of management of the type normally made by securities analysts for
informational purposes and not to cause a change in its management, policies or
operations; and (iii) such other activities as the Nevada Commission may
determine to be consistent with such investment intent. If the beneficial holder
of voting securities who must be found suitable is a corporation, partnership or
trust, it must submit detailed business and financial information including a
list of beneficial owners. The applicant is required to pay all costs of
investigation.

    Any person who fails or refuses to apply for a finding of suitability or a
license within thirty days after being ordered to do so by the Nevada Commission
or the Chairman of the Nevada Board may be found unsuitable. The same
restrictions apply to a record owner if the record owner, after request, fails
to identify the beneficial owner. Any stockholder found unsuitable and who
holds, directly or indirectly, any beneficial ownership of the voting securities
of a Registered Corporation beyond such period of time as may be prescribed by
the Nevada Commission may be guilty of a criminal offense. Harrah's
Entertainment is subject to disciplinary action if, after it receives notice
that a person is unsuitable to be a stockholder or to have any other
relationship with Harrah's Entertainment or the Gaming Subsidiaries, it:
(i) pays that person any dividend or interest upon voting securities of Harrah's
Entertainment; (ii) allows that person to exercise, directly or indirectly, any
voting right conferred through securities held by that person; (iii) pays
remuneration in any form to that person for services rendered or otherwise; or
(iv) fails to pursue all lawful efforts to require such unsuitable person to
relinquish his voting securities including, if necessary, the immediate purchase
of said voting securities for cash at fair market value. Additionally, the
CCLGLB has the authority to approve all persons owning or controlling the stock
of any corporation controlling a gaming licensee.

    The Nevada Commission may, in its discretion, require the holder of any debt
security of a Registered Corporation to file applications, be investigated and
be found suitable to own the debt security of a Registered Corporation. If the
Nevada Commission determines that a person is unsuitable to own such security,
then pursuant to the Nevada Act, the Registered Corporation can be sanctioned,
including the loss of its approvals, if without the prior approval of the Nevada
Commission, it: (i) pays to the unsuitable person any dividend, interest, or any
distribution whatsoever; (ii) recognizes any voting right by such unsuitable
person in connection with such securities; (iii) pays the unsuitable person
remuneration in any form; or (iv) makes any payment to the unsuitable person by
way of principal, redemption, conversion, exchange, liquidation, or similar
transaction.

    Harrah's Entertainment is required to maintain a current stock ledger at its
corporate headquarters in Las Vegas, Nevada, which may be examined by the Nevada
Gaming Authorities at any time. If any securities are held in trust by an agent
or by a nominee, the record holder may be required to disclose the identity of
the beneficial owner to the Nevada Gaming Authorities. A failure to make such
disclosure may be grounds for finding the record holder unsuitable. Harrah's
Entertainment also is required to render maximum assistance in determining the
identity of the beneficial owner. The Nevada Commission has the power to require
Harrah's Entertainment's stock certificates to bear a legend indicating that the
securities are subject to the Nevada Act. However, to date, the Nevada
Commission has not imposed such a requirement on Harrah's Entertainment.

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    Harrah's Entertainment and HOC may not make a public offering of their
securities without the prior approval of the Nevada Commission if the securities
or the proceeds therefrom are intended to be used to construct, acquire or
finance gaming facilities in Nevada, or to retire or extend obligations incurred
for such purposes. On November 20, 2000, the Nevada Commission granted Harrah's
Entertainment and HOC prior approval to make public offerings for a period of
two years, subject to certain conditions ("Shelf Approval"). On July 26, 2001,
the Shelf Approval was amended in connection with the approval to acquire
Harveys. The Shelf Approval also applies to any affiliated company wholly owned
by Harrah's Entertainment (an "Affiliate") that is a publicly traded corporation
or would thereby become a publicly traded corporation pursuant to a public
offering. The Shelf Approval also includes approval for the Gaming Subsidiaries
to guarantee any security issued by, or to hypothecate their assets to secure
the payment or performance of any obligations evidenced by a security issued by
Harrah's Entertainment or an Affiliate in a public offering under the Shelf
Approval. The Shelf Approval also includes approval to place restrictions upon
the transfer of and entering into of agreements not to encumber the equity
securities of the Gaming Subsidiaries. The Shelf Approval, however, may be
rescinded for good cause without prior notice upon the issuance of an
interlocutory stop order by the Chairman of the Nevada Board. The Shelf Approval
does not constitute a finding, recommendation or approval by the Nevada
Commission or the Nevada Board as to the accuracy or adequacy of the prospectus
or the investment merits of the securities offered. Any representation to the
contrary is unlawful.

    Changes in control of Harrah's Entertainment through merger, consolidation,
stock or asset acquisitions, management or consulting agreements, or any act or
conduct by a person whereby he obtains control, may not occur without the prior
approval of the Nevada Commission. Entities seeking to acquire control of a
Registered Corporation must satisfy the Nevada Board and Nevada Commission in a
variety of stringent standards prior to assuming control of such Registered
Corporation. The Nevada Commission may also require controlling stockholders,
officers, directors and other persons having a material relationship or
involvement with the entity proposing to acquire control, to be investigated and
licensed as part of the approval process relating to the transaction.

    The Nevada legislature has declared that some corporate acquisitions opposed
by management, repurchases of voting securities and corporate defense tactics
affecting Nevada gaming licensees, and Registered Corporations that are
affiliated with those operations, may be injurious to stable and productive
corporate gaming. The Nevada Commission has established a regulatory scheme to
ameliorate the potentially adverse effects of these business practices upon
Nevada's gaming industry and to further Nevada's policy to: (i) assure the
financial stability of corporate gaming operators and their affiliates;
(ii) preserve the beneficial aspects of conducting business in the corporate
form; and (iii) promote a neutral environment for the orderly governance of
corporate affairs. Approvals are, in certain circumstances, required from the
Nevada Commission before the Registered Corporation can make exceptional
repurchases of voting securities above the current market price thereof and
before a corporate acquisition opposed by management can be consummated. The
Nevada Act also requires prior approval of a plan of recapitalization proposed
by the Registered Corporation's Board of Directors in response to a tender offer
made directly to the Registered Corporation's stockholders for the purposes of
acquiring control of the Registered Corporation.

    License fees and taxes, computed in various ways depending on the type of
gaming or activity involved, are payable to the State of Nevada and to the
counties and cities in which the Gaming Subsidiaries' respective operations are
conducted. Depending upon the particular fee or tax involved, these fees and
taxes are payable either monthly, quarterly or annually and are based upon
either: (i) a percentage of the gross revenues received; (ii) the number of
gaming devices operated; or (iii) the number of table games operated. A casino
entertainment tax is also paid by casino operations where entertainment is
furnished in connection with the selling or serving of food or refreshments or
the

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selling of merchandise. Nevada licensees that hold manufacturer's or
distributor's license also pay certain fees and taxes to the State of Nevada.

    Any person who is licensed, required to be licensed, registered, required to
be registered, or is under common control with such persons (collectively,
"Licensees") and who proposes to become involved in a gaming venture outside of
Nevada is required to deposit with the Nevada Board, and thereafter maintain, a
revolving fund in the amount of $10,000 to pay the expenses of investigation of
the Nevada Board of their participation in such foreign gaming. The revolving
fund is subject to increase or decrease in the discretion of the Nevada
Commission. Thereafter, Licensees are required to comply with certain reporting
requirements imposed by the Nevada Act. Licensees are also subject to
disciplinary action by the Nevada Commission if they knowingly violate any laws
of the foreign jurisdiction pertaining to the foreign gaming operation, fail to
conduct the foreign gaming operation in accordance with the standards of honesty
and integrity required of Nevada gaming operations, engage in activities or
enter into associations that are harmful to the State of Nevada or its ability
to collect gaming taxes and fees, or employ, contract with or associate with a
person in the foreign operation who has been denied a license or finding of
suitability in Nevada on the ground of unsuitability.

GAMING--NEW JERSEY

    As a holding company of Marina Associates ("Marina"), which holds a license
to operate Harrah's Atlantic City, and of Atlantic City Showboat, Inc.
("Showboat"), which holds a license to operate Showboat Casino Hotel, Harrah's
Entertainment is subject to the provisions of the New Jersey Casino Control Act
(the "New Jersey Act"). The ownership and operation of casino hotel facilities
in Atlantic City, New Jersey are the subject of pervasive state regulation
pursuant to the New Jersey Act and the regulations adopted thereunder by the New
Jersey Casino Control Commission (the "New Jersey Commission"). The New Jersey
Commission is empowered to regulate a wide spectrum of gaming and non-gaming
related activities and to approve the form of ownership and financial structure
of not only the casino licensees, Marina and Showboat, but also their
intermediary and ultimate holding companies, including Harrah's Entertainment
and HOC. In addition to taxes imposed by the State of New Jersey on all
businesses, the New Jersey Act imposes certain fees and taxes on casino
licensees, including an 8% gross gaming revenue tax, an investment alternative
obligation of 1.25% (or an investment alternative tax of 2.5%) of gross gaming
revenue (generally defined as gross receipts less payments to customers as
winnings) and various license fees.

    No casino hotel facility may operate unless the appropriate licenses and
approvals are obtained from the New Jersey Commission, which has broad
discretion with regard to the issuance, renewal and revocation or suspension of
the non-transferable casino licenses (which licenses are issued initially for a
one-year period and renewable for one-year periods for the first two renewals
and four-year periods thereafter), including the power to impose conditions
which are necessary to effectuate the purposes of the New Jersey Act. Each
applicant for a casino license must demonstrate, among other things, its
financial stability (including establishing ability to maintain adequate casino
bankroll, meet ongoing operating expenses, pay all local, state and federal
taxes, make necessary capital improvements and pay, exchange, refinance, or
extend all long and short term debt due and payable during the license term),
its financial integrity and responsibility, its reputation for good character,
honesty and integrity, the suitability of the casino and related facilities and
that it has sufficient business ability and casino experience to establish the
likelihood of creation or maintenance of a successful, efficient casino
operation. With the exception of licensed lending institutions and certain
"institutional investors" waived from the qualification requirements under the
New Jersey Act, each applicant is also required to establish the reputation of
its financial sources including, but not limited to, its financial backers,
investors, mortgagees and bond holders.

    The New Jersey Act requires that all officers, directors and principal
employees of the casino licensees be licensed. In addition, each person who
directly or indirectly holds any beneficial interest or

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ownership of the casino licensees and any person who in the opinion of the New
Jersey Commission has the ability to control the casino licensees must obtain
qualification approval. Each holding and intermediary company having an interest
in the casino licensees must also obtain qualification approval by meeting
essentially the same standards as that required of the casino licensees. All
directors, officers and persons who directly or indirectly hold any beneficial
interest, ownership or control in any of the intermediary or ultimate holding
companies of the casino licensees may have to seek qualification from the New
Jersey Commission. Lenders, underwriters, agents, employees and security holders
of both equity and debt of the intermediary and holding companies of the casino
licensees and any other person whom the New Jersey Commission deems appropriate
may also have to seek qualification from the New Jersey Commission. Because
Harrah's Entertainment and HOC are publicly-traded holding companies (as defined
by the New Jersey Act), however, the persons described in the two previous
sentences may be waived from compliance with the qualification process if the
New Jersey Commission, with the concurrence of the Director of the New Jersey
Division of Gaming Enforcement, determines that they are not significantly
involved in the activities of Marina and/or Showboat and, in the case of
security holders, that they do not have the ability to control Harrah's
Entertainment (or its subsidiaries) or elect one or more of its directors. Any
person holding 5% or more of a security in an intermediary or ultimate holding
company, or having the ability to elect one or more of the directors of a
company, is presumed to have the ability to control the company and thus may be
required to seek qualification unless the presumption is rebutted.
Notwithstanding this presumption of control, the New Jersey Act permits the
waiver of the qualification requirements for passive "institutional investors"
(as defined by the New Jersey Act), when such institutional holdings are for
investment purposes only and where such securities represent less than 10% of
the equity securities of a casino licensee's holding or intermediary companies
or debt securities of a casino licensee's holding or intermediary companies not
exceeding 20% of a company's total outstanding debt or 50% of an individual debt
issue. The waiver, which is subject to certain specified conditions including,
upon request, the filing of a certified statement that the investor has no
intention of influencing the affairs of the issuer, may be granted to an
"institutional investor" holding a higher percentage of such securities upon a
showing of good cause. If an "institutional investor" is granted a waiver of the
qualification requirements and subsequently changes its investment intent, the
New Jersey Act provides that no action other than divestiture may be taken by
the investor without compliance with the Interim Casino Authorization Act (the
"Interim Act") described below.

    In the event a security holder of either equity or debt is required to
qualify under the New Jersey Act, the provisions of the Interim Act may be
triggered requiring, among other things, either: (i) the filing of a completed
application for qualification within 30 days after being ordered to do so, which
application must include an approved Trust Agreement pursuant to which all
securities of Harrah's Entertainment (or its respective subsidiaries) held by
the security holder must be placed in trust with a trustee who has been approved
by the New Jersey Commission; or (ii) the divestiture of all securities of
Harrah's Entertainment (or its respective subsidiaries) within 120 days after
the New Jersey Commission determines that qualification is required or declines
to waive qualification, provided the security holder files a notice of intent to
divest within 30 days after the determination of qualification. If a security
holder files an application pursuant to the Interim Act, during the period the
Trust Agreement remains in place, such holder may, through the approved trustee,
continue to exercise all rights incident to the ownership of the securities with
the exception that: (i) the security holder may only receive a return on its
investment in an amount not to exceed the actual cost of the investment (as
defined by the New Jersey Act) until the New Jersey Commission finds such holder
qualified; and (ii) in the event the New Jersey Commission finds there is
reasonable cause to believe that the security holder may be found unqualified,
the Trust Agreement will become fully operative vesting the trustee with all
rights incident to ownership of the securities pending a determination on such
holder's qualifications; provided, however, that during the period the
securities remain in trust, the security holder may petition the New Jersey
Commission to: (a) direct the trustee to dispose of the trust

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property; and (b) direct the trustee to distribute proceeds thereof to the
security holder in an amount not to exceed the lower of the actual cost of the
investment or the value of the securities on the date the Trust became
operative. If the security holder is ultimately not found to be qualified, the
trustee is required to sell the securities and to distribute the proceeds of the
sale to the applicant in an amount not exceeding the lower of the actual cost of
the investment or the value of the securities on the date the Trust became
operative (if not already sold and distributed at the direction of the security
holder) and to distribute the remaining proceeds to the Casino Revenue Fund. If
the security holder is found qualified, the Trust Agreement will be terminated.

    The New Jersey Commission can find that any holder of the equity or debt
securities issued by Harrah's Entertainment or its subsidiaries is not qualified
to own such securities. If a security holder of Harrah's Entertainment or its
subsidiaries is found disqualified, the New Jersey Act provides that it is
unlawful for the security holder to: (i) receive any dividends or interest
payment on such securities; (ii) exercise, directly or indirectly, any rights
conferred by the securities; or (iii) receive any remuneration from the company
in which the security holder holds an interest. To implement these provisions,
the New Jersey Act requires, among other things, casino licensees and their
holding companies to adopt provisions in their certificate of incorporation
providing for certain remedial action in the event that a holder of any security
of such company is found disqualified. The required certificate of incorporation
provisions vary depending on whether such company is a publicly or privately
traded company as defined by the New Jersey Act. The Certificates of
Incorporation of Harrah's Entertainment and HOC (both "publicly-traded
companies" as defined by the New Jersey Act) contain provisions that provide
Harrah's Entertainment and HOC, respectively, with the right to redeem the
securities of disqualified holders, if necessary, to avoid any regulatory
sanctions, to prevent the loss or to secure the reinstatement of any license or
franchise held by Harrah's Entertainment or HOC or their affiliates, or if such
holder is determined by any gaming regulatory agency to be unsuitable, has an
application for a license or permit rejected, or has a previously issued license
or permit rescinded, suspended, revoked or not renewed. The Certificates of
Incorporation of Harrah's Entertainment and HOC also contain provisions defining
the redemption price and the rights of a disqualified security holder. In the
event a security holder is disqualified, the New Jersey Commission is empowered
to propose any necessary action to protect the public interest, including the
suspension or revocation of the casino license of Marina and/or Showboat. The
New Jersey Act provides, however, that the New Jersey Commission shall not take
action against a casino licensee or its parent companies with respect to the
continued ownership of the security interest by the disqualified holder, if the
New Jersey Commission finds that: (i) such company has a certificate of
incorporation provision providing for the disposition of such securities as
discussed above; (ii) such company has made a good faith effort to comply with
any order requiring the divestiture of the security interest held by the
disqualified holder; and (iii) the disqualified holder does not have the ability
to control the casino licensee or its parent companies or to elect one or more
members to the board of directors of such company. The Certificate of
Incorporation of HOC further provides that debt securities issued by HOC are
held subject to the condition that if a holder is found unsuitable by any
governmental agency the corporation shall have the right to redeem the
securities.

    If, at any time, it is determined that Marina, Showboat or their holding
companies have violated the New Jersey Act or regulations promulgated thereunder
or that such companies cannot meet the qualification requirements of the New
Jersey Act, Marina and/or Showboat could be subject to fines, or their licenses
could be suspended or revoked. If Marina's or Showboat's license is suspended or
revoked, the New Jersey Commission could appoint a Conservator to operate and
dispose of the casino hotel facilities of Marina and/or Showboat. A Conservator
would be vested with title to the assets of Marina and/or Showboat, subject to
valid liens, claims and encumbrances. The Conservator would be required to act
under the general supervision of the New Jersey Commission and would be charged
with the duty of conserving, preserving and, if permitted, continuing the
operation of the casino hotel. During the period of any such conservatorship,
the Conservator may not make any distributions of net

                                       7

earnings without the prior approval of the New Jersey Commission. The New Jersey
Commission may direct that all or part of such net earnings be paid to the
Casino Revenue Fund; provided, however, that a suspended or former licensee is
entitled to a fair rate of return.

    The New Jersey Commission granted Marina a plenary casino license in
connection with Harrah's Atlantic City in November 1981, and granted Showboat a
plenary casino license in connection with Showboat Casino Hotel in March 1987.
Each of Marina's and Showboat's licenses has been renewed since then. In
April 2000, the New Jersey Commission renewed Marina's license for a four-year
period and also found Harrah's Entertainment and HOC to be qualified as holding
companies of Marina. In January 2001, the New Jersey Commission renewed
Showboat's license until April 2004 to be co-terminous with Marina's license and
also found Harrah's Entertainment and HOC to be qualified as holding companies
of Showboat.

GAMING--ILLINOIS

    The ownership and operation of a gaming riverboat in Illinois is subject to
extensive regulation under the Illinois Riverboat Gambling Act (the "Act") and
the rules and regulations promulgated thereunder. A five-member Illinois Gaming
Board is charged with such regulatory authority, including the issuance of the
10 authorized riverboat gaming owner's licenses. The granting of an owner's
license involves a preliminary approval procedure in which the Illinois Gaming
Board issues a finding of preliminary suitability to a license applicant and
effectively reserves a gaming license for such applicant. An owner's license is
issued for an initial period of three years and may be renewed thereafter by the
Illinois Gaming Board for periods of up to four years. The Illinois Gaming Board
has issued all 10 licenses authorized by the Act. Des Plaines Development
Limited Partnership ("DPDLP"), of which 80% is owned by Harrah's Illinois
Corporation, an indirect subsidiary of the Company, received an owner's license
in 1993. DPDLP is licensed to operate two riverboats in Joliet, Illinois. In
September 2000, the Illinois Gaming Board renewed DPDLP's owner's license for a
period of four years. Southern Illinois Riverboat Casino Cruises, Inc. ("SIRCC")
is licensed to operate a riverboat in Metropolis, Illinois. SIRCC became an
indirect subsidiary of the Company in March of 2000 in connection with the
acquisition of Players International, Inc. SIRCC had been issued an owner's
license in February of 1993. In February 2001, the Illinois Gaming Board renewed
SIRCC's owners license for a period of four years.

    To obtain an owner's license (and a finding of preliminary suitability),
applicants must submit comprehensive application forms, be fingerprinted and
undergo an extensive background investigation by the Illinois Gaming Board. Each
license granted entitles a licensee to own and operate up to two riverboats
(with a combined maximum of 1,200 gaming positions) and equipment thereon from a
specific location.

    An applicant is ineligible to receive an owner's license if the applicant,
any of its officers, directors or managerial employees or any person who
participates in the management or operation of gaming operations: (i) has been
convicted of a felony; (ii) has been convicted of any violation under
Article 28 of the Illinois Criminal Code or any similar statutes in any other
jurisdiction; (iii) has submitted an application that contains false
information; or (iv) is a member of the Illinois Gaming Board. In addition, an
applicant is ineligible to receive an owner's license if a license of the
applicant issued under the Illinois Riverboat Gambling Act or a license to own
or operate gaming facilities in any other jurisdiction has been revoked.

    In determining whether to grant a license, the Illinois Gaming Board
considers: (i) the character, reputation, experience and financial integrity of
the applicant; (ii) the type of facilities (including riverboat and docking
facilities) proposed by the applicant; (iii) the highest prospective total
revenue to be derived by the State of Illinois from the conduct of riverboat
gaming; (iv) affirmative action plans of the applicant, including minority
training and employment; (v) the financial ability of the applicant to

                                       8

purchase and maintain adequate liability and casualty insurance; and
(vi) whether the applicant has adequate capitalization to provide and maintain,
for the duration of a license, a riverboat. Municipal (or county, if a gaming
riverboat is located outside of a municipality) approval of the docking of
riverboats in the municipality (or county, if a gaming riverboat is located
outside of a municipality) is required, and all documents, resolutions, and
letters of support must be submitted with the initial application.

    A holder of an owner's license is subject to the imposition of fines,
suspension or revocation of its license for any act that is injurious to the
public health, safety, morals, good order, and general welfare of the people of
the State of Illinois, or that would discredit or tend to discredit the Illinois
gaming industry or the State of Illinois, including, without limitation:
(i) failing to comply with or make provision for compliance with the Illinois
Riverboat Gambling Act, the rules promulgated thereunder, any federal, state or
local law or regulation or the licensee's internal control system; (ii) failing
to comply with any order or ruling of the Illinois Gaming Board or its agents
pertaining to gaming; (iii) receiving goods or services from a person or
business entity that does not hold a supplier's license issued by the Illinois
Gaming Board, but that is required to hold such license by the Illinois
Riverboat Gambling Act or the rules promulgated thereunder; (iv) being suspended
or ruled ineligible or having a license revoked or suspended in any state or
gaming jurisdiction; (v) associating with, either socially or in business
affairs, or employing persons of, notorious or unsavory reputation or who have
extensive police records, or who have failed to cooperate with any officially
constituted investigatory or administrative body and would adversely affect
public confidence and trust in gaming; and (vi) employing in any Illinois
riverboat's gaming operation any person known to have been found guilty of
cheating or using any improper device in connection with any game. Licensees may
be fined for each violation up to an amount equal to the gross receipts derived
from wagering on the day of the violation.

    An ownership interest in a license or in a licensee's business entity or
entities, other than a publicly held business entity that holds an owner's
license, may not be transferred without approval of the Illinois Gaming Board.
In addition, an ownership interest in a license or in a business entity, other
than a publicly held business entity, which holds either directly or indirectly
an owner's license, may not be pledged as collateral without approval of the
Illinois Gaming Board.

    A person employed at a riverboat gaming operation must hold an occupational
license that permits the holder to perform only those activities included within
such holder's level of occupational license or any lower level of occupational
license. In addition, the Illinois Gaming Board issues supplier's licenses,
which authorize the supplier licensee to sell or lease gaming equipment and
supplies to any licensee involved in the ownership and management of gaming
operations.

    Applicants for and holders of an owner's license are required to obtain
formal prior approval from the Illinois Gaming Board for changes proposed in the
following areas: (i) key persons; (ii) type of entity; (iii) equity and debt
capitalization of the entity; (iv) investors and/or debt holders; (v) source of
funds; (vi) economic development plans or proposals; (vii) riverboat capacity or
significant design change; (viii) gaming positions; (ix) anticipated economic
impact; or (x) agreements, oral or written, relating to the acquisition or
disposition of property (real or personal) of a value greater than $1 million.

    A holder of an owner's license is allowed to make distributions to its
partners, shareholders or itself only to the extent that such distribution would
not impair the financial viability of the gaming operation. Factors to be
considered by the licensee in making this determination include, but are not
limited to, the following: (i) cash flow, casino cash and working capital
requirements; (ii) debt service requirements and covenants associated with
financial instruments, (iii) requirements for repairs, maintenance and capital
improvements; (iv) employment or economic development requirements of the
Illinois Riverboat Gambling Act; and (v) a licensee's financial projections.

                                       9

    The Illinois Gaming Board will require a Business Entity or Personal
Disclosure Form and approval as a key person for any business entity or
individual with an ownership interest or voting rights of more than 5% in a
licensee, the trustee of any trust holding such ownership interest or voting
rights, the directors of the licensee and its chief executive officer, president
and chief operating officer, as well as any other individual or entities deemed
by the Illinois Gaming Board to hold a position or a level of ownership, control
or influence, that is material to the regulatory concerns and obligations of the
Illinois Gaming Board. Each key person must file, on an annual basis, a
disclosure affidavit, updated personal and background information, and updated
tax and financial information. Key persons are required to promptly disclose to
the Illinois Gaming Board any material changes in status or information
previously provided to the Illinois Gaming Board, and to maintain their
suitability as key persons. For the Illinois Gaming Board to identify potential
key persons, each holder of an owner's license is required to file a table of
organization, ownership and control with the Illinois Gaming Board to identify
the individuals or entities that through direct or indirect means manage, own or
control the interests and assets of the applicant or licensee. Based upon
findings from an investigation into the character, reputation, experience,
associations, business probity and financial integrity of a key person, the
Illinois Gaming Board may enter an order upon the licensee requiring economic
disassociation of a key person. Each licensee is required to provide a means for
the economic disassociation of a key person in the event such disassociation is
required.

    Minimum and maximum wagers on games are set by the licensee and wagering may
be conducted only with a cashless wagering system, whereby money is converted to
tokens, electronic cards or chips which can only be used for wagering. No person
under the age of 21 is permitted to wager, and wagers may only be taken from a
person present on a licensed riverboat. With respect to electronic gaming
devices, the payout percentage may not be less than 80% nor more than 100%.

    The Illinois Riverboat Gambling Act, as amended, imposes an annual graduated
wagering tax on adjusted gross receipts (generally defined as gross receipts
less payments to customers as winnings) from gambling games. The graduated tax
rate is as follows: up to $25 million--15%; $25 to $50 million--20%; $50 to
$75 million--25%; $75 to $100 million--30%; in excess of $100 million--35%. The
tax imposed is to be paid by the licensed owner to the Illinois Gaming Board on
the day after the day when the wagers were made. Of the proceeds of that tax, an
amount equal to 5% of the riverboat's adjusted gross receipts goes to the local
government where the home dock is located, a small portion goes to the Illinois
Gaming Board for administration and enforcement expenses, and the remainder goes
to State Education Assistance Fund.

    The Illinois Riverboat Gambling Act also requires that licensees pay a $2.00
admission tax for each person admitted to a riverboat. Of this admission tax,
the host municipality or county receives $1.00. The licensed owner is required
to maintain public books and records clearly showing amounts received from
admission fees, the total amount of gross receipts and the total amount of
adjusted gross receipts.

    All use, occupancy and excise taxes that apply to food and beverages and all
taxes imposed on the sale or use of tangible property apply to sales aboard
riverboats.

    In 1999, the Illinois Riverboat Gambling Act was amended by Illinois Public
Act 91-40 to, among other things, allow dockside gaming, the ownership of
multiple casino licenses, and the movement of a riverboat gaming license from
one location to another. Subsequently, a lawsuit was filed in a state circuit
court challenging the constitutionality of certain aspects of the amendment.
This lawsuit was dismissed on January 25, 2001. The plaintiffs are appealing the
decision dismissing the lawsuit. If the appeal is successful, such that the case
is reinstated and if the underlying lawsuit is ultimately successful, it may
result in a finding that the entire amendment is unconstitutional. Such a
finding could have a material adverse effect on the Company's ownership of
multiple casino licenses and the operating results of the Company's riverboats.

                                       10

    As a condition of approving the acquisition of Players International, Inc.,
the Illinois Gaming Board required the Company to enter into a Transfer of
Ownership Agreement. In 1999 the Illinois Riverboat Gambling Act was amended by
Illinois Public Act 91-40, which, among other amendments described above,
deleted the provision that prevented a person or entity from receiving an
owner's license if that person or entity owned more than a 10% ownership
interest in any entity holding an owner's license. Subsequently a lawsuit was
filed in a state circuit court challenging the constitutionality of certain
provisions of Public Act 91-40. In the event of a final, non-appealable judicial
ruling after the exhaustion of all available avenues of review resulting in
Public Act 91-40 being found invalid insofar as it relates to the provision
prohibiting an ownership interest of more than 10% in multiple owners licenses
and causing the reinstatement of that provision back into the Illinois Riverboat
Gambling Act, the Transfer of Ownership Agreement would require the Company to
place all of the shares of SIRCC into a trust. The Company has entered into a
Trust Agreement with Lasalle Bank National Association, as trustee. Should the
shares of SIRCC be placed into trust, the property would remain open and be
managed for a fee by a subsidiary of the Company. While the shares of SIRCC are
in trust, the Company would for a period of one year from the date the shares
were placed into the trust, pursue a sale of those shares at fair market value.
If such a sale does not occur during that period (or such period as extended by
the Illinois Gaming Board), SIRCC's owners license would be relinquished unless
the trust was otherwise extinguished pursuant to the terms of the Transfer of
Ownership Agreement because of a legislative amendment to the Illinois Riverboat
Gambling Act deleting the restriction on ownership interests in multiple owners
licenses or a restructuring consistent with any such restriction should it
remain. In the event SIRCC's owners license was relinquished, SIRCC would be
obligated to pay the Illinois Gaming Board an amount equal to ninety percent of
the operating profits earned during the time period the SIRCC shares were held
in trust. On January 25, 2001, the Illinois circuit court dismissed the
litigation challenging the validity of Public Act 91-40 on the grounds that the
plaintiffs lacked standing to challenge the law and had failed to exhaust their
administrative remedies. The court did not reach the merits of the plaintiffs'
constitutional challenges.

GAMING--MISSISSIPPI

    The ownership and operation of a gaming business in the State of Mississippi
is subject to extensive laws and regulations, including the Mississippi Gaming
Control Act (the "Mississippi Act") and the regulations (the "Mississippi
Regulations") promulgated thereunder by the Mississippi Gaming Commission (the
"Mississippi Commission"), which is empowered to oversee and enforce the
Mississippi Act. Gaming in Mississippi can be legally conducted only on vessels
of a certain minimum size in navigable waters within any county bordering the
Mississippi River or in waters of the State of Mississippi which lie adjacent
and to the south (principally in the Gulf of Mexico) of the Counties of Hancock,
Harrison and Jackson, provided that the county in question has not voted by
referendum not to permit gaming in that county. The underlying policy of the
Mississippi Act is to ensure that gaming operations in Mississippi are
conducted: (i) honestly and competitively; (ii) free of criminal and corruptive
influences; and (iii) in a manner which protects the rights of the creditors of
gaming operations.

    The Mississippi Act requires that a person (including any corporation or
other entity) be licensed to conduct gaming activities in the State of
Mississippi. A license will be issued only for a specified location which has
been approved in advance as a gaming site by the Mississippi Commission.
Harrah's Vicksburg Corporation, an indirect subsidiary of the Company, is
licensed to operate a casino in Vicksburg, Mississippi. Another indirect
subsidiary of the Company, Tunica Partners II L.P., is the licensed operator of
a casino in Tunica, Mississippi. Both Harrah's Vicksburg Corporation and Tunica
Partners II L.P. were re-licensed by the Mississippi Commission in September of
2001 for a three year period. In addition, a parent company of a company holding
a license must register under the Mississippi Act. The Company and HOC are
registered with the Mississippi Commission.

                                       11

    The Mississippi Act also requires that each officer or director of a gaming
licensee, or other person who exercises a material degree of control over the
licensee, either directly or indirectly, be found suitable by the Mississippi
Commission. In addition, any employee of a licensee who is directly involved in
gaming must obtain a key employee license or a work permit from the Mississippi
Commission. The Mississippi Commission will not issue a license or make a
finding of suitability unless it is satisfied, after an investigation paid for
by the applicant, that the persons associated with the gaming licensee or
applicant for a license are of good character, honesty and integrity, with no
relevant or material criminal record. In addition, the Mississippi Commission
will not issue a license unless it is satisfied that the licensee is adequately
financed or has a reasonable plan to finance its proposed operations from
acceptable sources, and that persons associated with the applicant have
sufficient business probity, competence and experience to engage in the proposed
gaming enterprise. The Mississippi Commission is prohibited from issuing a work
permit to a gaming employee who has committed a felony and may refuse to issue a
work permit to a gaming employee: (i) if the employee has committed larceny,
embezzlement or any crime of moral turpitude, or has knowingly violated the
Mississippi Act or Mississippi Regulations; or (ii) for any other reasonable
cause.

    There can be no assurance that such persons will be found suitable by the
Mississippi Commission. An application for licensing, finding of suitability or
registration may be denied for any cause deemed reasonable by the issuing
agency. Changes in licensed positions must be reported to the issuing agency. In
addition to its authority to deny an application for a license, finding of
suitability or registration, the Mississippi Commission has jurisdiction to
disapprove a change in corporate position. If the Mississippi Commission were to
find a director, officer or key employee unsuitable for licensing or unsuitable
to continue having a relationship with the licensee, such entity would be
required to suspend, dismiss and sever all relationships with such person. The
licensee would have similar obligations with regard to any person who refuses to
file appropriate applications. Each gaming employee must obtain a work permit,
which may be revoked upon the occurrence of certain specified events.

    Any individual who is found to have a material relationship to, or material
involvement with, Harrah's Entertainment may be required to submit to an
investigation in order to be found suitable or be licensed as a business
associate of any subsidiary holding a gaming license. Key employees, controlling
persons or others who exercise significant influence upon the management or
affairs of Harrah's Entertainment may be deemed to have such a relationship or
involvement.

    The Mississippi Commission has the power to deny, limit, condition, revoke
and suspend any license, finding of suitability or registration, or to fine any
person, as it deems reasonable and in the public interest, subject to an
opportunity for a hearing. The Mississippi Commission may fine any licensee or
person who was found suitable up to $100,000 for each violation of the
Mississippi Act or the Mississippi Regulations which is the subject of an
initial complaint, and up to $250,000 for each such violation which is the
subject of any subsequent complaint. The Mississippi Act provides for judicial
review of any final decision of the Mississippi Commission by petition to a
Mississippi Circuit Court, but the filing of such petition does not necessarily
stay any action taken by the Mississippi Commission pending a decision by the
Circuit Court.

    Each gaming licensee must pay a license fee to the State of Mississippi
based upon "gaming receipts" (generally defined as gross receipts less payouts
to customers as winnings). The license fee equals four percent of gaming
receipts of $50,000 or less per month, six percent of gaming receipts over
$50,000 and up to $134,000 per month, and eight percent of gaming receipts over
$134,000. The foregoing license fees are allowed as a credit against Mississippi
state income tax liability for the year paid. An additional license fee, based
upon the number of games conducted or planned to be conducted on the gaming
premises, is payable to the State of Mississippi annually in advance. Also, up
to a four percent additional tax on gaming revenues may be imposed at the local
level of government.

                                       12

    The Company also is subject to certain audit and record-keeping
requirements, primarily intended to ensure compliance with the Mississippi Act,
including compliance with the provisions relating to the payment of license
fees.

    Pursuant to the Mississippi Regulations, a person is prohibited from
acquiring control of Harrah's Entertainment without prior approval of the
Mississippi Commission. Harrah's Entertainment also is prohibited from
consummating a plan of recapitalization proposed by management in opposition to
an attempted acquisition of control of Harrah's Entertainment that involves the
issuance of a significant dividend to common stock holders, where such dividend
is financed by borrowings from financial institutions or the issuance of debt
securities. In addition, Harrah's Entertainment is prohibited from repurchasing
any of its voting securities under circumstances (subject to certain exemptions)
where the repurchase involves more than one percent of Harrah's Entertainment
outstanding common stock at a price in excess of 110 percent of the then-current
market value of Harrah's Entertainment common stock from a person who owns and
has for less than one year owned more than three percent of Harrah's
Entertainment outstanding common stock, unless the repurchase has been approved
by a majority of Harrah's Entertainment shareholders voting on the issue
(excluding the person from whom the repurchase is being made) or the offer is
made to all other shareholders of Harrah's.

    Harrah's Entertainment must obtain prior approval from the Mississippi
Commission for any subsequent public offering of the securities of Harrah's
Entertainment if any part of the proceeds from that offering are intended to be
used to pay for or reduce debt used to pay for the construction, acquisition or
operation of any gaming facility in Mississippi. In addition, to register with
the Mississippi Commission as a publicly held holding corporation, Harrah's
Entertainment must provide further documentation that is satisfactory to the
Mississippi Commission, which includes all documents filed with the Securities
and Exchange Commission.

    Under the Mississippi Act, any person who acquires more than five percent of
the equity securities of a publicly traded corporation registered with the
Mississippi Commission must report the acquisition to the Mississippi
Commission, and that person may be required to be found suitable. Also, any
person who becomes a beneficial owner of more than ten percent of any class of
voting securities of such a company must apply for a finding of suitability by
the Mississippi Commission and must pay the costs and fees that the Mississippi
Commission incurs in conducting the investigation. The Mississippi Commission
has generally exercised its discretion to require a finding of suitability of
any beneficial owner of more than five percent of a registered public company's
voting securities. However, the Mississippi Commission has adopted a policy that
may permit "institutional investors" (as defined in the policy), individually or
in association with others, to beneficially own up to fifteen percent of the
voting securities of a publicly traded corporation registered with the
Mississippi Commission without a finding of suitability. An institutional
investor acquiring beneficial ownership of more than fifteen percent of the
voting securities of such a company would be required to be found suitable by
the Mississippi Commission. Regardless of the amount of securities owned, any
person who has any beneficial ownership in the common stock of Harrah's
Entertainment may be required to be found suitable if the Mississippi Commission
has reason to believe that such ownership would be inconsistent with the
declared policies of the State of Mississippi. Any person who is required to be
found suitable must apply for a finding of suitability from the Mississippi
Commission within 30 days after being requested to do so, and must deposit a sum
of money which is adequate to pay the anticipated investigatory costs associated
with such finding. Any person who is found not to be suitable by the Mississippi
Commission shall not be permitted to have any direct or indirect ownership in
Harrah's Entertainment common stock. Any person who is required to apply for a
finding of suitability and fails to do so, or who fails to dispose of his or her
interest in the Company's common stock if found unsuitable, is guilty of a
misdemeanor. If a finding of suitability with respect to any person is not
applied for where required, or if it is denied or revoked by the Mississippi
Commission, the Company

                                       13

is not permitted to pay such person for services rendered, or to employ or enter
into any contract with such person.

    Although the Mississippi Commission generally does not require the
individual holders of obligations such as notes to be investigated and found
suitable, the Mississippi Commission retains the discretion to do so for any
reason, including, but not limited to, a default, or a situation in which the
holder of the debt instrument exercises a material influence over the gaming
operations of the entity in question. Any holder of debt or equity securities
required to apply for a finding of suitability must pay all investigative fees
and costs of the Mississippi Commission in connection with the investigation.

    The Company is required to maintain current stock ledgers in the State of
Mississippi, which may be examined by a representative of the Mississippi
Commission at any time. If any securities are held in trust by an agent or by a
nominee, the record holder may be required to disclose the identity of the
beneficial owner to the Mississippi Commission. A failure to make such
disclosure may be grounds for finding the record holder unsuitable. The Company
also is required to render maximum assistance in determining the identity of the
beneficial owner.

    The Mississippi Commission has adopted a regulation requiring as a condition
of licensure or license renewal that a gaming establishment plan include a 500
car parking facility in close proximity to the casino complex and infrastructure
facilities that will amount to at least twenty five percent of the casino cost.
The Company is in compliance with this requirement. The Mississippi Commission
adopted a regulation that increased the infrastructure requirement to one
hundred percent from the existing twenty five percent. However, the regulation
grandfathers existing licensees and applies only to new casino projects and
casinos that are not operating at the time of acquisition or purchase.

    Because the Company is licensed to conduct gaming in the State of
Mississippi, neither Harrah's Entertainment nor any subsidiary may engage in
gaming activities in Mississippi while also conducting gaming operations outside
of Mississippi without approval of the Mississippi Commission. The Mississippi
Commission has approved the conduct of gaming in all jurisdictions in which the
Company has ongoing operations or approved projects. There can be no assurance
that any future approvals will be obtained. The failure to obtain such approvals
could have a materially adverse effect on Harrah's.

GAMING--LOUISIANA

    LAND BASED CASINO

    On October 30, 1998, the plan of reorganization of Harrah's Jazz Company, a
partnership formed for the purposes of developing, owning and operating the
land-based casino in New Orleans, was consummated (the "Plan"). Pursuant to the
Plan, a newly formed entity, Jazz Casino Company, L.L.C. ("JAZZ"), assumed
responsibility for, among other things, operating the casino (the "New Orleans
Casino") in accordance with a casino operating contract (the "Casino Contract")
with the Louisiana Gaming Control Bord ("LGCB"). In exchange for an equity
investment, a subsidiary of the Company acquired, at the time of consummation of
the Plan, approximately a 43% equity interest in JCC Holding Company, which is
the sole owner of JAZZ. One of our subsidiaries, Harrah's New Orleans Management
Company ("HNOMC") manages the New Orleans Casino pursuant to a management
agreement with JAZZ. On January 4, 2001, JCC Holding Company, JAZZ and certain
affiliated entities that own the casino, filed a petition for reorganization
relief under Chapter 11 of the United States Bankruptcy Code. See "Casino
Entertainment-Managed Casinos-New Orleans." On January 12, 2001, JAZZ and its
affiliates filed a Plan of Reorganization that was confirmed by the Bankruptcy
Court on March 19, 2001, and became effective on March 29, 2001. Pursuant to
this plan, the Company now holds an approximate 49% beneficial interest in the
common stock of JCC Holding Company. The license to own and operate the casino
derives from the casino operating contract, as amended ("Casino Contract").
Subject to the terms and conditions of the Casino Contract, the term of the
authorization for gaming runs to July 2014, with a ten-year renewal period.

                                       14

    The ownership, management and operation of the New Orleans Casino are
subject to pervasive governmental regulation, including regulation by the
Louisiana Gaming Control Board ("LGCB") in accordance with the terms of the
Louisiana Economic Development and Gaming Act (the "Gaming Act"), the rules and
regulations promulgated thereunder from time to time ("the Rules and
Regulations"), and the Casino Contract. The LGCB is empowered to regulate a wide
spectrum of gaming and nongaming related activities.

    The Gaming Act and the Rules and Regulations, all of which are subject to
amendment or revision from time to time, establish significant regulatory
requirements with respect to gaming activities, including, without limitation,
suitability standards for direct and indirect investors, requirements with
respect to minimum accounting and financial practices, standards for gaming
devices and surveillance, licensure requirements for vendors and employees, and
permissible food services. Failure to comply with the Gaming Act and the Rules
and Regulations could result in disciplinary action, including fines and
suspension or revocation of a license or suitability. Certain regulatory
violations could also constitute an event of default under the Amended and
Renegotiated Casino Operating Contract.

    The Gaming Act and the Rules and Regulations require suitability findings
for, among others, HNOMC and the Company, anyone with a direct ownership
interest (regardless of percentage interest) or the ability to control JAZZ,
HNOMC and the Company as well as certain officers and directors of such
companies, certain employees and certain specified debt holders and lenders
loaning funds related to the Casino project. Suitability of an applicant
requires that the applicant demonstrate by clear and convincing evidence that,
among other things, (i) the applicant is a person of good character, honesty and
integrity; (ii) the applicant's prior activities, criminal record, if any,
reputation, habits and associations do not pose a threat to the public interest
of the State or the regulation and control of casino gaming or create or enhance
the dangers of unsuitable, unfair or illegal practices, methods and activities
in the conduct of gaming or the carrying on of the business and financial
arrangements incidental thereto; and (iii) the applicant is capable of and is
likely to conduct the activities for which a license or contract is sought. In
addition, to be found suitable for purposes of the Casino Contract, JAZZ must
demonstrate by clear and convincing evidence that: (i) it has or guarantees
acquisition of adequate business competence and experience in the operation of
casino gaming operations; (ii) the proposed financing is adequate for the
proposed operation and is from suitable sources; and (iii) it has or is capable
of and guarantees the obtaining of a bond or satisfactory financial guarantee of
a sufficient amount, as determined by the LGCB, to guarantee successful
completion of and compliance with the Casino Contract or such other projects
that are regulated by the LGCB.

    Pursuant to the Gaming Act and Rules and Regulations, any person holding or
controlling a direct or beneficial 5% or more equity interest (either alone or
in combination with others) in a direct or indirect holding company of JAZZ or
HNOMC is presumed to have the ability to control JAZZ or HNOMC (or their
holdings companies, as the case may be), requiring a finding of suitability,
unless, among other things: (i) the presumption is rebutted by clear and
convincing evidence; or (ii) the holder is one of several specified passive
institutional investors and, upon request, such institution files necessary
documentation demonstrating that it does not have the ability to control such
entity and that it does not intend to influence the affairs of JAZZ or HNOMC. To
the extent any holder of such securities fails to satisfy such requirement, such
holder may be required to obtain certain qualifications or approvals (including
a finding of suitability) from the LGCB to continue to hold such securities. Any
failure to obtain such qualifications or approvals may subject such security
holders to certain requirements, limitations or prohibitions, including a
requirement that such security holders liquidate their securities at a time or
at a cost that is otherwise unfavorable to such security holders.

    Pursuant to the Gaming Act and Rules and Regulations, the LGCB has the
authority to deny, revoke, suspend, limit, condition, or restrict any finding of
suitability. Under the Rules and Regulations, the LGCB also has the authority to
take further action against JAZZ or HNOMC on the grounds that a person found
suitable as required by the Gaming Act is associated with, or controls, or is
controlled

                                       15

by, or is under common control with, an unsuitable or disqualified person.
Pursuant to the Rules and Regulations and the Casino Contract, if at any time
the LGCB finds that any person required to be and remain suitable has failed to
demonstrate suitability, the LGCB may, consistent with the Gaming Act and the
Casino Contract, take any action that the LGCB deems necessary to protect the
public interest. Pursuant to the Rules and Regulations, however, if a person
associated with JAZZ, HNOMC or their affiliate, intermediary or holding
companies, as the case may be, has failed to be found or remain suitable, the
LGCB will not declare such companies unsuitable as a result if such companies
comply with the conditional licensing provisions, take immediate good faith
action and comply with any order of the LGCB to cause such person to dispose of
its interest, and, before such disposition, ensure that the disqualified person
does not receive any ownership benefits. The above safe harbor protections do
not apply if JAZZ, HNOMC or their affiliate, intermediary, or holding companies,
as the case may be: (i) fail to remain suitable, (ii) had actual or constructive
knowledge of the facts that are the basis of the LGCB regulatory action and
failed to take appropriate action, or (iii) are so tainted by such person that
it affects the suitability of such entity under the standards of the Gaming Act.

    Pursuant to the Gaming Act, the LGCB and its investigatory arm, the State
Police, are also required to issue licenses or permits to certain persons
associated with gaming operations, including: (i) certain employees of JAZZ and
HNOMC; (ii) certain manufacturers, distributors and suppliers of gaming devices;
(iii) certain suppliers of non-gaming goods or services; (iv) any person who
furnishes services or property to JAZZ pursuant to an arrangement pursuant to
which the person receives payments based on earnings, profits or receipts from
gaming operations; and (v) any other persons deemed necessary by the LGCB. The
securing of the requisite licenses and permits pursuant to the Gaming Act are a
prerequisite for conducting, operating or performing any activity regulated by
the LGCB or the Gaming Act. The Gaming Act provides that the LGCB has full and
absolute power to deny an application, or to limit, condition, restrict, revoke
or suspend any license, permit or approval, or to find unsuitable any person
licensed, permitted or approved for any cause specified in the Gaming Act or
rules promulgated by the LGCB. The Rules and Regulations provide that the LGCB
may take any of the foregoing actions with respect to any person licensed,
permitted, or approved, or any person registered, found suitable, or holding a
contract, for any cause deemed reasonable.

    The Gaming Act provides that it is the express intent, desire and policy of
the legislature that no holder of the Casino Contract, applicant for a license,
permit, contract or other thing existing, issued or let as a result of the
Gaming Act shall have any right or action to obtain any license, permit,
contract or the granting of the approval sought except as provided for and
authorized by the Gaming Act. Any license, permit, contract, approval or thing
obtained or issued pursuant to the provisions of the Gaming Act has been
expressly declared by the legislature to be a pure and absolute revocable
privilege and not a right, property or otherwise, under the constitutions of the
United States or of the State. The Gaming Act also provides that no holder
acquires any vested right therein or thereunder.

    Pursuant to the Gaming Act, the gaming activities that may be conducted at
the official gaming establishment, subject to the rule-making authority of the
LGCB, include any banking or percentage game that is played with cards, dice or
any electronic, electrical or mechanical device or machine for money, property
or any thing of value, but exclude lottery, bingo, charitable games, raffles,
electronic video bingo, pull tabs, cable television bingo, wagering on dog or
horse races, sports betting or wagering on any type of sports contest or event.

    The sale, transfer, assignment, or alienation of a casino operating
contract, or an interest therein, in violation of the Gaming Act is prohibited.
The LGCB may approve the sale, transfer, assignment, or may grant the approval
subject to conditions imposed by the LGCB. Further, pursuant to the Gaming Act,
the sale, transfer, assignment, pledge, alienation, disposition, public
offering, or acquisition of securities that results in one person's owning 5% or
more of the total outstanding shares issued by JAZZ is void as to such person
without prior approval of the LGCB. Failure to obtain prior approval by the of
LGCB of a person acquiring 5% or more of the total outstanding shares of a
licensee or 5%

                                       16

or more economic interest in JAZZ is grounds for cancellation of the Casino
Contract or license suspension or revocation.

    The Gaming Act obligates JAZZ to give preference and priority to Louisiana
residents, laborers, vendors and suppliers, except when not reasonably possible
to do so without added expense, substantial inconvenience or sacrifice in
operational efficiency. The Gaming Act further obligates JAZZ to give preference
and priority to Louisiana residents in considering applicants for employment and
requires that no less than 80% of the persons employed by JAZZ be Louisiana
residents for at least one year immediately prior to employment. The Gaming Act
provides that if any contract or other agreement to which the casino operator is
a party contains a provision or clause establishing a different percentage or
requiring more than 50% of the persons employed to be residents of any one
parish, any such provision or clause shall be null and void and unenforceable as
against public policy.

    The Gaming Act requires that JAZZ adopt written policies, procedures, and
regulations to allow the participation of businesses owned by minorities in all
design, engineering, and construction contracts and/or projects to the maximum
extent practicable. The Rules and Regulations provide that JAZZ and HNOMC must
take the foregoing actions with respect to all design, engineering,
construction, banking and maintenance contracts and any other projects initiated
by JAZZ and HNOMC. The Gaming Act further requires JAZZ, as nearly as
practicable, to employ minorities consistent with the population of the State.
The Rules and Regulations extend this obligation to HNOMC as well.

    Prior to March 22, 2001, the Gaming Act imposed significant restrictions on
the right of JAZZ to offer food to casino patrons at the casino, and to own or
operate a hotel and to sell retail goods. Pursuant to certain amendments to the
Gaming Act, effective March 22, 2001, JAZZ is authorized to: (i) expand the
limited cafeteria style seating from 250 to 400 seats; (ii) lease space to area
restaurant owners in a food court with seating limited to 100 seats;
(iii) directly own and operate a single restaurant with seating limited to 150
seats and (iv) cater certain functions within the casino facility. The
legislation further allows the following on the second floor of the casino:
(i) JAZZ may lease space to no more than two third party restaurant(s) which,
when calculated together, shall contain no more than 350 seats; (ii) JAZZ may
operate any business/entertainment facility on the second floor provided that
any food for such operation shall be purchased or catered by a third party
restaurateur or food preparer with purchases at fair market value; and
(iii) JAZZ may lease space to any other third parties to operate businesses
where the primary purpose of any such business is not a restaurant that requires
no more than 35% of the gross revenue of such business shall be derived from the
sale of food. The legislation also authorizes JAZZ to provide limited
complimentary and discounted food offerings to certain specified persons,
including a member of a customer reward system and other casino patrons based
upon observed play at the casino. JAZZ, however, may not offer or advertise
discounted or complimentary food offerings to the general public within a 50
mile radius of the casino and within Louisiana through any advertising media.

    Pursuant to certain amendments to the Gaming Act, effective March 22, 2001,
JAZZ is also authorized to own, construct or lease 450 hotel rooms that are not
at the casino site, but that may be physically connected to the casino, subject
to certain limitations on the amount of meeting space within such hotel. The
amendments to the Gaming Act provide that after March 31, 2005, additional hotel
rooms may be owned or operated by JAZZ if the Greater New Orleans Hotel
Association agrees to such increase. Except for the limited exception for casino
customers, under the amendments to the Gaming Act, JAZZ shall not advertise
hotel rooms to the general public at rates below market rates. JAZZ is required
to base room rates on a formula derived from average seasonal rates for the
preceding year in the locality of the casino. The legislation also authorizes
JAZZ to provide limited complimentary and discounted hotel offerings to certain
specified persons, including a member of a customer reward system and other
patrons based upon observed play at the casino, provided, however,

                                       17

JAZZ shall pay room taxes on all such hotel rooms based upon prevailing tax
schedules and rates as determined by the formula described above.

    Pursuant to certain amendments to the Gaming Act, effective March 22, 2001,
JAZZ is no longer subject to state imposed restrictions on the sale of retail
goods within the casino.

    The Gaming Act provides that the LGCB shall annually enter into a casino
support services contract with the City of New Orleans in order to compensate it
for the cost to it for providing support services resulting from the operation
of the official gaming establishment and the activities therein. The amount of
the contract is to be determined by negotiation and agreement on an annual basis
between the LGCB and the City of New Orleans, subject to approval by the State
legislature.

    The Gaming Act, the Casino Contract and the Rules and Regulations have
extensive prior approval requirements relating to certain borrowings and
security interests related to the casino project. The Gaming Act authorizes the
LGCB to provide for the protection of the rights of holders of security
interests in both immovable property and movable property used in or related to
casino gaming operations ("Gaming Collateral") and to provide for the continued
operation of the New Orleans Casino during the period of time that a lender, as
a holder of a security interest, seeks to enforce its security interest in such
property. In connection therewith, the Gaming Act provides that the holder of a
security interest in Gaming Collateral may receive payments from the owner or
lessee of such property out of the proceeds of casino gaming operations received
by the owner or lessee, and, the holder of the security interest may be exempt
from the licensing requirements of the Gaming Act with respect to such payments
if the transaction(s) giving rise to such payments have been approved in advance
by the LGCB and complies with all rules and regulations of the LGCB and the LGCB
determines the holder to be suitable.

    Pursuant to the Gaming Act, a holder of a security interest in a gaming
device who asserts the right to ownership or possession of the encumbered
property may be granted a one-time, nonrenewable, provisional contract for a
maximum of 90 days for the sole purpose of acquiring ownership or possession for
resale to a licensed or approved person, all in accordance with rules and
regulations to be promulgated by the LGCB. The Rules and Regulations do not yet
include a rule and regulation on this provision.

    If the holder of a security interest in immovable property comprising the
New Orleans Casino wished to continue the operation during and after the filing
of a suit to enforce the security interest, the Gaming Act provides that the
holder of the security interest must name the LGCB as a nominal defendant in
such suit and request the appointment of a receiver from among the persons on a
list maintained by the LGCB. Upon proof of the debtor's default under the
security instrument and the holder's right to enforce the security interest, the
court shall appoint a person from the LGCB's list as a receiver of the official
gaming establishment. Upon appointment of the receiver, the Gaming Act requires
the receiver to furnish a fidelity bond in favor of the security interest
holder, the owner or lessee of the official gaming establishment and the LGCB in
an amount to be set by the court after consultation with the LGCB and all
parties. The Gaming Act requires the LGCB to issue to the receiver a one-time,
nonrenewable, provisional contact to continue gaming operations until the
receivership is terminated. The receiver is considered to have all the rights
and obligations of the casino operator under the casino operating contract. The
holder of the security interest provoking the appointment of a receiver under
the Gaming Act is required to pay the cost of the receiver's bond and the cost
of operating the official gaming establishment or gaming operator during the
term of the receivership to the extent that such costs exceed available
revenues, in accordance with the rules and regulations of the LGCB. The Gaming
Act further provides that the fees of the receiver and the authority for
expenditures of the receiver are to be established by rules and regulations of
the LGCB.

    The Gaming Act provides that a receivership must terminate upon: (i) the
sale of the property subject to receivership to a duly approved or authorized
person; (ii) the payment in full of all

                                       18

obligations due to the holder of the security interest in the property subject
to the receivership; (iii) an agreement for termination of the receivership
signed by the holder of the security interest and the debtor, and approved by
the LGCB and the court; or (iv) the lapse of five years from the date of the
initial appointment of the receiver. Pursuant to the Gaming Act, a receivership
may also be terminated by notice from the holder of the security interest who
provoked the receivership addressed to the court and the LGCB of its intention
to withdraw its financial support of the receivership at a specified time not
less than 90 days from the date of the notice. In the event of such notice, the
Gaming Act provides that the holder of the security interest giving the notice
will not be responsible for any costs or expenses of the receivership after the
date specified in the notice; except for reasonable costs and fees of the
receiver in concluding the receivership, and the costs of a final accounting.

    The Gaming Act provides that LGCB, the Governor by Executive Order, subject
to legislative approval or the State legislature by act or resolution, may set
aside or renegotiate the provisions of Casino operating contract when the casino
operator is either voluntarily or involuntarily placed in bankruptcy,
receivership or similar status.

    The Gaming Act provides that no rule or regulation and no provision in a
contract executed by the LGCB pursuant to its authority to protect the holders
of security interests in Gaming Collateral shall be the basis for any cause of
action in contract or in tort against the State or the LGCB, its board of
directors or its agents, attorneys or employees.

    Because legalized gaming is a relatively new industry in the State, there
has been significant attention by the Louisiana legislature over the past few
years to gaming related bills dealing with a wide range of subjects that could
impact the New Orleans Casino project. At various times, bills have been
introduced to, among other things, constitutionally and/or legislatively repeal
all forms of gaming (including the land-based casino), increase taxes on
casinos, limit credit that may be extended by casinos, limit days and hours of
operation and alter the regulatory oversight structure. There can be no
assurances that legislation having a material detrimental impact on the New
Orleans Casino will not be enacted.

    RIVERBOAT CASINOS

    The ownership and operation of a gaming riverboat in Louisiana is subject to
extensive regulation pursuant to the Louisiana Riverboat Economic Development
and Gaming Control Act (the "Act") and the rules and regulations promulgated
thereunder. The LGCB and the Casino Gaming Division ("Division"), a part of the
Louisiana State Police, are charged with such regulatory authority, including
the issuance of riverboat gaming licenses. The number of licenses to conduct
gaming on a riverboat is limited by statute to fifteen. No more than six
licenses may be granted for the operation of gaming activities on riverboats in
any one parish (county). In general, riverboat gaming in Louisiana can be
conducted legally only on approved riverboats and, as of April 1, 2001, all such
riverboats can be continuously docked.

                                       19

    To obtain a gaming license, applicants must obtain certain Certificates of
Approval from the LGCB and submit comprehensive application forms, be
fingerprinted and undergo an extensive background investigation by the Division.
An applicant is ineligible to receive a gaming license if the applicant has not
established good character, honesty and integrity. Each license granted entitles
the holder to operate a riverboat and equipment thereon from a specific
location. The duration of the license and subsequent renewals runs for five
years. Red River received a five-year renewal in April of 2000. In
September 1999, the LGCB re-licensed the Star for a five year period. Harrah's
LC was relicensed by the LGCB for a five year period in December 1999. In
determining whether to grant a license, the Division considers: (i) the good
character, honesty and integrity of the applicant; (ii) the applicant's ability
to conduct gaming operations; (iii) the adequacy and source of the applicant's
financing; (iv) the adequacy of the design documents submitted; (v) the docking
facilities to be used; and (vi) applicant's plan to recruit, train, and upgrade
minorities in employment and to provide for minority-owned business
participation.

    A holder of a license is subject to the imposition of penalties, suspension
or revocation of its license for any act that is injurious to the public health,
safety, morals, good order, and general welfare of the people of the state of
Louisiana, or that violates the gaming laws and regulations.

    The transfer of a license or an interest in a license is prohibited. In
addition, an ownership or economic interest of five percent or more in a
business entity which holds a gaming license may not be sold, assigned,
transferred or pledged without the Division's prior approval. In addition, an
"institutional investor" (as definied in the Act) otherwise required to be found
suitable or qualified pursuant to the Act or the rules adopted pursuant thereto
is presumed suitable or qualified upon submitting documentation sufficient to
establish its qualification as an institutional investor and providing a
certification that it holds the publicly traded securities for investment
purposes only, does not exercise influence over the affairs of the issuer, and
does not intend to exercise influence over the issuer. The exercise of voting
privileges of any publicly traded securities is not considered to constitute the
exercise of influence over the affairs of the issuer.

    No person may be employed as a gaming employee unless such person holds a
gaming employee permit issued by the Division. In addition, the Division issues
various supplier's permits, which authorize the supplier to sell or lease gaming
and non-gaming equipment and supplies to any licensee.

    Minimum and maximum wagers on games are set by the licensee and wagering may
be conducted only with a cashless wagering system, whereby all money is
converted to tokens, electronic cards, or chips used only for wagering in the
gaming establishment. No person under the age of 21 is permitted to wager, and
wagers may only be taken from a person present on a licensed riverboat.

    The Act imposes a franchise fee for the right to operate on Louisiana
waterways of 15% of net gaming proceeds and a license fee of $50,000 (first
year) and $100,000 (subsequent years) plus three and one-half percent of net
gaming proceeds. Effective April 1, 2001, the franchise fee will be increased
for the Harrah's Lake Charles riverboats from 15% to 18%, with such riverboats
authorized to remain continuously docked effective on that date. The franchise
fee for Harrah's Shreveport will increase from 15% to 16% effective April 1,
2001, from 16% to 17% effective April 1, 2002, and from 17% to 18% effective
April 1, 2003. All fees are paid to the Division. In addition, the Act
authorizes local governing authorities the power to levy a limited admission fee
for each person boarding the riverboat. Currently that amount is paid by the
license holder. Red River is currently making a payment in lieu of such
admission fee of 4.75% of net gaming proceeds. Commencing March 1, 1998,
pursuant to an agreement with the City of Lake Charles, the admission fee on the
Harrah's LC and Star riverboats began to be calculated as percentage of gaming
revenue. In addition, the agreement calls for the annual payment of $544,000 for
a period of ten years.

                                       20

GAMING--INDIANA

    In 1993, the State of Indiana passed a Riverboat Gambling Act, which created
the Indiana Gaming Commission ("Indiana Commission"). The Indiana Commission is
given extensive powers and duties for the purposes of administering, regulating
and enforcing the system of riverboat gaming. It is authorized to award no more
than 11 gaming licenses (five to counties contiguous to Lake Michigan, five to
counties contiguous to the Ohio River and one to a county contiguous to Patoka
Lake). The Indiana Commission has issued ten of these eleven licenses--four in
Lake County Indiana; one in LaPorte County; one in Vanderburgh County; one in
Ohio County; one in Dearborn County; one in Harrison County; and one in
Switzerland County. Additionally, the Indiana Commission has not considered
applicants for the eleventh license because the Patoka Lake site has been
determined by the U.S. Army Corp. of Engineers as an unsuitable site for
development of a casino vessel project.

    The Indiana Commission has jurisdiction and supervision over all riverboat
gaming operations in Indiana and all persons on riverboats where gaming
operations are conducted. These powers and duties include authority to:
(1) investigate all applicants for riverboat gaming licenses; (2) select among
competing applicants those that promote the most economic development in a home
dock area and that best serve the interest of the citizens of Indiana;
(3) establish fees for licenses; and (4) prescribe all forms used by applicants.
The Indiana Commission adopts rules pursuant to statute for administering the
gaming statute and the conditions under which riverboat gaming in Indiana may be
conducted. The Indiana Commission has promulgated certain final rules and has
proposed additional rules governing all aspects of riverboat gaming in Indiana.
The Indiana Commission may suspend or revoke the license of a licensee or a
certificate of suitability or impose civil penalties, in some cases without
notice or hearing, for any act in violation of the Riverboat Gambling Act or for
any other fraudulent act or if the licensee or holder of such certificate of
suitability has not begun regular riverboat excursions prior to the end of the
twelve month period following the Indiana Commission's approval of the
application for an owner's license. In addition, the Indiana Commission may
revoke an owner's license if it is determined by the Indiana Commission that
revocation is in the best interests of the state of Indiana. The Indiana
Commission will: (1) authorize the route of the riverboat and stops that the
riverboat may make; (2) establish minimum amounts of insurance; and (3) after
consulting with the Corps of Engineers, determine which waterways are navigable
waterways for purposes of the Riverboat Gambling Act and determine which
navigable waterways are suitable for the operation of riverboats.

    The Riverboat Gambling Act requires an extensive disclosure of records and
other information concerning an applicant, including disclosure of all
directors, officers and persons holding one percent (1%) or more direct or
indirect beneficial interest.

    In determining whether to grant an owner's license to an applicant, the
Indiana Commission considers: (1) the character, reputation, experience and
financial integrity of the applicant and any person who (a) directly or
indirectly controls the applicant, or (b) is directly or indirectly controlled
by either the applicant or a person who directly or indirectly controls the
applicant; (2) the facilities or proposed facilities for the conduct of
riverboat gaming; (3) the highest total prospective revenue to be collected by
the state from the conduct of riverboat gaming; (4) the good faith affirmative
action plan to recruit, train and upgrade minorities in all employment
classifications; (5) the financial ability of the applicant to purchase and
maintain adequate liability and casualty insurance; (6) whether the applicant
has adequate capitalization to provide and maintain the riverboat for the
duration of the license; and (7) the extent to which the applicant meets or
exceeds other standards adopted by the Indiana Commission. The Indiana
Commission may also give favorable consideration to applicants for economically
depressed areas and applicants who provide for significant development of a
large geographic area. Each applicant must pay an application fee of $50,000 and
additional fees may be assessed for the background investigation. If the
applicant is selected, the applicant must pay an initial license fee of $25,000
and post a bond, and thereafter, pay an annual license renewal fee of $5,000.

                                       21

    A person holding an owner's gaming license issued by the Indiana Commission
may not own more than a 10% interest in another such license. An owner's license
initially expires five years after the effective date of the license then must
be renewed annually; however, after three years the holder of an owner's license
will undergo a reinvestigation to ensure continued suitability for licensure.
Unless the license has been terminated, expired or revoked, the gaming license
may be renewed if the Indiana Commission determines that the licensee has
satisfied all statutory and regulatory requirements. In connection with the
issuance of the license to Showboat Marina Casino Partnership ("SMCP"), Showboat
Marina Partnership, an Indiana general partnership ("SMP"), Waterfront
Entertainment and Development, Inc. ("Waterfront") and Showboat, Inc. and its
affiliates declared to the Indiana Commission that if SMCP received a riverboat
owner's license, they shall not commence more than one other casino gaming
operation within a fifty-mile radius of Harrah's East Chicago Casino for a
period of five years beginning on the date of issuance of an owner's license by
the Indiana Commission to SMCP. Harrah's Joliet is within this fifty-mile
radius. Adherence to the non-competition declaration is a condition of the
owner's license. The non-competition declaration expires April 15, 2002. A
gaming license is a revocable privilege and is not a property right.

    Minimum and maximum wagers on games are not established by regulation, but
are left to the discretion of the licensee. Wagering may not be conducted with
money or other negotiable currency. Riverboat gaming excursions must be at least
two hours, but not more than four hours in duration unless expressly approved by
the Indiana Commission. No gaming may be conducted while the boat is docked
except: (1) for 30-minute time periods at the beginning and end of a cruise
while the passengers are embarking and disembarking; (2) if the master of the
riverboat reasonably determines that specific weather or water conditions
present a danger to the riverboat; (3) if either the vessel or the docking
facility is undergoing mechanical or structural repair; (4) if water traffic
conditions present a danger to (A) the riverboat, riverboat passengers, and
crew, or (B) other vessels on the water; or (5) if the master has been notified
that a condition exists that would cause a violation of federal law if the
riverboat were to cruise. The Indiana Commission has adopted rules governing
cruising on Lake Michigan by a riverboat casino. The period of time during which
passengers embark and disembark constitutes a portion of the gambling excursion
if gambling is allowed. At the conclusion of the thirty-minute embarkation
period, the gangway or its equivalent must be closed. However, a riverboat
licensee must allow patrons to disembark at anytime the riverboat remains at the
dock and gambling continues. A standard excursion schedule for a casino vessel
on Lake Michigan must include at least one full excursion (a cruise into the
open water on Lake Michigan, not more than three statute miles from the dock
site July through September and not more than one statute mile October through
June) and one intermediate excursion during which the vessel cruises in
protected navigable water on or accessible to Lake Michigan. An intermediate
excursion is to be conducted if the statutory conditions that permit dockside
gaming are not present and if sea conditions or weather conditions, or both, do
not permit a full excursion. If a casino vessel remains dockside because of
statutory conditions, the embarkation and disembarkation rules still apply.

    An admission tax of $3.00 for each person admitted to the gaming excursion
is imposed upon the license owner. The admissions tax is paid by the riverboat
licensee for each excursion or part of an excursion the patron remains on board.
An additional 20% tax is imposed on the adjusted gross receipts received from
gaming operations, which is defined as the total of all cash and property
(including checks received by the licensee whether collected or not) received,
less the total of all cash paid out as winnings to patrons and uncollectible
gaming receivables (not to exceed 2%). The gaming license owner must remit the
admission and wagering taxes before the close of business on the day following
the day on which the taxes were incurred. Riverboats are assessed for property
tax purposes as real property and are taxed at rates to be determined by local
taxing authorities of the jurisdiction in which a riverboat operates. The
Riverboat Gambling Act requires a riverboat owner licensee to directly reimburse
the Indiana Commission for the costs of inspectors and agents required to be
present during the conduct of gaming operations. Pursuant to agreements with the
City, and as reflected in the

                                       22

owner's license, SMCP has agreed to: (1) provide certain fixed incentives of
approximately $16.4 million to the City of East Chicago and its agencies for
transportation, job training, home buyer assistance and discrete economic
development initiatives; (2) pay 3% of adjusted gross receipts divided equally
among the City and two not-for-profit foundations for infrastructure
improvements, education and community development; and (3) pay 0.75% of adjusted
gross receipts for community development projects to East Chicago Second
Century, Inc. ("Second Century"), a for-profit corporation owned by former
owners of Waterfront but, in terms of expenditures, controlled by the City.
Funding for the projects will be derived from contributions to Second Century
from SMCP as well as funds from other third-party sources.

    The Indiana Commission is authorized to license suppliers and certain
occupations related to riverboat gaming. Gaming equipment and supplies
customarily used in conducting riverboat gaming may be purchased or leased only
from licensed suppliers. The Indiana Commission has adopted a rule requiring
employees working on the riverboat to have a valid merchant marine document
issued by the United States Coast Guard.

    The Indiana Riverboat Gambling Act places special emphasis upon minority and
women's business enterprise participation in the riverboat industry. Any person
issued a riverboat owner's license must establish goals of expending at least
10% of the total dollar value of the licensee's contracts for goods and services
with minority business enterprises and 5% of the total dollar value of the
licensee's contracts for goods and services with women's business enterprises.
The Indiana Commission may suspend, limit or revoke the gaming owner's license
or impose a fine for failure to comply with statutory requirements.

    An institutional investor (as defined in the Rules of the Indiana
Commission) that acquires between 5% and 15% of any class of voting securities
of a holding company of a licensee is required to notify the Indiana Commission
and to provide additional information, and may be subject to a finding of
suitability. Ownership of 15% or more of any class of voting securities of a
holding company of a licensee requires that an application be submitted for a
finding of suitability within forty-five (45) days after acquiring the
securities.

    A riverboat owner licensee may not enter into or perform any contract or
transaction in which it transfers or receives consideration which is not
commercially reasonable or which does not reflect the fair market value of the
goods or services rendered or received. All contracts are subject to disapproval
by the Indiana Commission.

    A riverboat owner licensee or an affiliate may not enter into a debt
transaction of $1 million or more without the prior approval of the Indiana
Commission. A riverboat owner licensee or any other person may not lease,
hypothecate, borrow money against or loan money against a riverboat owner's
license.

    The Indiana Commission has a rule requiring the reporting of certain
currency transactions which is similar to that required by federal authorities.

    The Riverboat Gambling Act prohibits contributions to a candidate for a
state, legislative, or local office, or to a candidate's committee or to a
regular party committee by the holder of a riverboat owner's license or a
supplier's license, by an officer of a licensee, and by an officer of a person
holding at least a 1% interest in the licensee. The Indiana Commission has
promulgated a rule requiring quarterly reporting by the holder of a riverboat
owner's license or a supplier's license of officers of the licensee, officers of
persons that hold at least a 1% interest in the licensee, and of persons who
directly or indirectly own a 1% interest in the licensee.

    The Indiana Commission adopted a rule that prohibits a distribution by a
riverboat licensee to its partners, shareholders, itself, or any affiliated
entity, if the distribution would impair the financial viability of the
riverboat gambling operation. The Indiana Commission has proposed another rule,

                                       23

which would, if adopted, require riverboat licensees to maintain on a quarterly
basis a cash reserve in the amount of the actual payout for three days, and the
cash reserve would include cash in the casino cage, cash in a bank account in
Indiana, or cash equivalents not committed or obligated.

GAMING--MISSOURI

    The ownership and operation of a gaming riverboat in Missouri is subject to
extensive regulation pursuant to the Missouri Riverboat Gambling Act and the
rules and regulations promulgated thereunder. A five-member Missouri Gaming
Commission ("Commission") is charged with such regulatory authority, including
the issuance of riverboat gaming licenses. Harrah's North Kansas City LLC, an
indirect subsidiary of Harrah's, has been issued two licenses by the Commission
to conduct riverboat gaming at its North Kansas City location. One of those
licenses ("Mardi Gras") was renewed for a two year period in May 2000. The other
license ("North Star") was renewed for a two year period in September 2000. The
Company has increased the gaming space on the Mardi Gras riverboat.

    Harrah's Maryland Heights LLC, also an indirect subsidiary of the Company,
has been issued two licenses by the Commission to conduct riverboat gaming at
its Maryland Heights location. Upon the acquisition of Players
International, Inc., the Company acquired two additional permanently moored
riverboat gaming vessels in Maryland Heights, Missouri. These riverboats were
located at a facility where Harrah's Maryland Heights, LLC also owned and
operated two permanently moored riverboat gaming vessels. The Harrah's
riverboats were moored adjacent to each other on one side of the facility and
the Players' riverboats were moored adjacent to each other on the other side of
the facility. The Commission approved a reorganization of the licensed entities
as well as a reconfiguration of the riverboats wherein the common walls between
adjacent riverboats were removed creating two larger riverboats. The number of
riverboat licenses was reduced from four to two. The Commission approved the
renewal of these licenses in February 2000.

    Gaming in Missouri can be conducted legally only on either excursion
gambling boats or floating facilities approved by the Commission on the
Mississippi and Missouri Rivers. Unless permitted to be continuously docked by
the Commission for certain stated reasons, including safety, excursion gambling
boats must cruise. The Commission has approved continuous dockside gaming for
the Company's riverboats in North Kansas City and Maryland Heights.

    To obtain a gaming license, applicants must submit comprehensive application
forms, be fingerprinted and undergo an extensive background investigation by the
Commission. An applicant is ineligible to receive an owner's license if the
applicant has not established good reputation and moral character or if the
applicant, any of its officers, directors or managerial employees or any person
who participates in the management or operation of gaming operations has been
convicted of a felony. Each license granted entitles a licensee to own and/or
operate an excursion gambling boat and equipment thereon from a specific
location. The duration of the license initially runs for two one-year terms
followed by two-year terms. The Commission also licenses the serving of
alcoholic beverages on riverboats and adjacent facilities. All local income,
earnings, use, property and sales taxes are applicable to licensees. Local
jurisdictions, however, may not impose any taxes leveled solely on holders of a
gaming license.

    In determining whether to grant a license, the Commission considers:
(i) the integrity of the applicants; (ii) the types and variety of games to be
offered; (iii) the quality of the physical facility, together with improvements
and equipment, and how soon the project will be completed; (iv) the financial
ability of the applicant to develop and operate the facility successfully;
(v) the status of governmental actions required for the facility;
(vi) management ability of the applicant; (vii) compliance with applicable laws,
rules, charters, and ordinances; (viii) the economic, ecological and social
impact of the facility as well as the cost of public improvements; (ix) the
extent of public support or opposition; (x) the plan adopted by the home dock
city or county; and (xi) effects on competition.

                                       24

    A holder of a license is subject to the imposition of penalties, suspension
or revocation of its license for any act that is injurious to the public health,
safety, morals, good order, and general welfare of the people of the State of
Missouri, or that would discredit or tend to discredit the Missouri gaming
industry or the state of Missouri, including without limitation: (i) failing to
comply with or make provision for compliance with the legislation, the rules
promulgated thereunder or any federal, state or local law or regulation;
(ii) failing to comply with any rules, order or ruling of the Commission or its
agents pertaining to gaming; (iii) receiving goods or services from a person or
business entity who does not hold a supplier's license but who is required to
hold such license by the legislation or the rules; (iv) being suspended or ruled
ineligible or having a license revoked or suspended in any state or gaming
jurisdiction; (v) associating with, either socially or in business affairs, or
employing persons of notorious or unsavory reputation or who have extensive
police records, or who have failed to cooperate with any official constituted
investigatory or administrative body and would adversely affect public
confidence and trust in gaming; (vi) employing in any Missouri gaming operation
any person known to have been found guilty of cheating or using any improper
device in connection with any game; (vii) use of fraud, deception,
misrepresentation or bribery in securing any license or permit issued pursuant
to the legislation; (viii) obtaining any fee, charge, or other compensation by
fraud, deception or misrepresentation; and (ix) incompetence, misconduct, gross
negligence, fraud, misrepresentation or dishonesty in the performance of the
functions or duties regulated by the legislation.

    An ownership interest in a license or in a business entity, other than a
publicly held business entity that holds a license, may not be transferred
without the approval of the Commission. In addition, an ownership interest in a
license or in a business entity, other than a publicly held business entity,
which holds either directly or indirectly a license, may not be pledged as
collateral to other than a regulated bank or saving and loan association without
the Commission's approval.

    Every employee participating in a riverboat gaming operation must hold an
occupational license which permits the holder to perform only activities
included within such holder's level of occupation license or any lower level of
occupation license. In addition, the Commission will issue suppliers licenses
which authorize the supplier licensee to sell or lease gaming equipment and
supplies to any licensee involved in the ownership and management of gaming
operations.

    Even if continuously docked, licensed riverboats must establish and abide by
an excursion schedule. Riverboat excursions are required to be a minimum of two
hours and a maximum of four hours. For the Company's riverboats in North Kansas
City and Maryland Heights, which are continuously docked, passengers may board
the riverboats for a 45-minute period at the beginning of an excursion. They may
disembark at any time. There is a maximum loss per person per excursion of $500.
Minimum and maximum wagers on games are set by the licensee and wagering may be
conducted only with a cashless wagering system, whereby money is converted to
tokens, electronic cards or chips which can only be used for wagering. No person
under the age of 21 is permitted to wager, and wagers may only be taken from a
person present on a licensed excursion gambling boat.

    The legislation imposes a 20% wagering tax on adjusted gross receipts
(generally defined as gross receipts less payments to customers as winnings)
from gambling games. The tax imposed is to be paid by the licensed owner to the
Commission on the day after the day when the wagers were made. Of the proceeds
of that tax, 10% goes to the local government where the home dock is located,
and the remainder goes to the state education assistance fund.

    The legislation also requires that licensees pay a $2.00 admission tax for
each person admitted to a gaming excursion. The licensed owner is required to
maintain public books and records clearly showing amounts received from
admission fees, the total amount of gross receipts and the total amount of
adjusted gross receipts.

                                       25

GAMING--IOWA

    References in this section to "we", "the Company", "Harveys", or to other
Harveys companies refers to Harveys Casino Resorts and/or its subsidiaries,
which Harrah's Entertainment, Inc. acquired on July 31, 2001.

    The State of Iowa first authorized excursion gambling boat activities in
1989 and authorized slot machines at racetrack enclosures in 1994. The Iowa
Racing and Gaming Commission (the "Iowa Commission") has the authority to grant
and review licenses to owners and operators of excursion gambling boats and
pari-mutuel racetracks, and has the further authority to adopt and enforce rules
governing a broad range of subjects dealing with excursion gambling boat
facilities and racetrack enclosures and operations. The Iowa Commission consists
of five members appointed by the governor and confirmed by the state senate.
Members serve a term not to exceed three years at the pleasure of the governor.

    Pursuant to Iowa law relating to excursion gambling boats, a non-profit
organization and a for-profit organization may receive a joint license to
operate an excursion gambling boat. The Company, together with Iowa West Racing
Association, a qualified sponsoring organization, have been granted the
necessary licenses to own and operate the current gambling facilities and
activities on the riverboat casino at Harrah's Casino & Hotel (f/k/a "Harveys
Casino Hotel") each year since 1995. The excursion boat gambling license, which
is subject to annual renewal, currently expires March 31, 2002.

    Pursuant to Iowa law relating to racetracks, only a non-profit organization,
an operator of fairs or a state agency or political subdivision may hold a track
license. No one can obtain a racetrack slot casino license today, unless they
held a license to operate a pari-mutuel racetrack operation on January 1, 1994.
Iowa West Racing Association, a qualified non-profit organization, holds the
pari-mutuel license to operate the dog track and the gaming racetrack enclosure
license to operate the slot machine casino all at Bluffs Run Casino. The Bluffs
Run pari-mutuel dogtrack license and the Bluffs Run gambling license for a
racetrack enclosure expire December 31, 2002, and are subject to annual renewal.

    All licenses are granted upon the condition that the license holders accept,
observe and enforce all applicable laws, regulations, ordinances, rules and
orders applicable to them. Any violation by a license holder, including its
employees or agents, may result in disciplinary action, including the suspension
or revocation of any license previously granted.

    On October 6, 1999, Harveys completed the purchase of Bluffs Run Casino from
Iowa West Racing Association and paid the seller approximately $115.0 million.
Harveys is obligated to pay additional consideration to the seller of up to
$50.0 million, pending the results of a required referendum on the continuation
of gaming at pari-mutuel racetracks to be decided in 2002 by the voters of
Pottawattamie County, Iowa. Harveys generally is obligated to pay to the seller
$45.0 million of additional consideration plus a $5.0 million bonus unless
either the referendum is not approved or a slots casino cannot continue to be
operated at Bluffs Run Casino under then-applicable law. If Harveys is not
obligated to pay the additional consideration because the referendum was not
approved or a challenge to the referendum exists, but the operation of a slots
casino at Bluffs Run Casino can continue through December 31, 2003, without
being interrupted as a result of the referendum or any referendum challenge,
then Harveys is obligated to pay to the seller $10.0 million on December 31,
2003, and $2.5 million on the last day of each complete calendar quarter
thereafter for the shorter of (i) the period during which Harveys can continue
to operate a slots casino at Bluffs Run Casino and (ii) a period of eight
quarters if referendum approval was not obtained and 16 quarters if Harveys is
not obligated to pay the additional consideration because of a referendum
challenge.

    At the closing of the acquisition of Bluffs Run Casino, Harveys Iowa
Management Company, Inc. and Iowa West Racing Association entered into an
amended and restated excursion gambling boat

                                       26

sponsorship and operating agreement relating to Harveys' operation of its
excursion gambling boat casino. The operating agreement's term continues through
December 31, 2010, and during the agreement, Harveys is to pay Iowa West Racing
Association a fee equal to a percentage of the adjusted gross gaming receipts
generated from the boat operation and further agreed to pay and hold Iowa West
Racing Association harmless from the admissions fee payable to the Iowa
Commission and the local municipality and state wagering tax imposed by Iowa
law. Following the expiration of the term of the operating agreement, such
agreement may be extended for five successive three-year periods.

    Also, on October 6, 1999, Harveys BR Management Company and Iowa West Racing
Association entered into a management agreement whereby Harveys BR Management
Company is to manage the pari-mutuel racetrack facility and casino operations
including simulcast of greyhound or horse racing and the slot machines for a
minimum of 25 years, during which Harveys is to receive a management fee equal
to a percentage of the cash flow as that term is defined in the management
agreement. On the same day, October 6, 1999, HBR Realty Company, a Harveys
subsidiary, purchased the Bluffs Run Casino assets, except for the slot
machines, from Iowa West Racing Association and leased the same back to Iowa
West Racing Association for an initial term ending October 5, 2024, which lease
is renewable for additional terms by the mutual agreement of the parties.
Harveys is to receive rent payments equal to a percentage of cash flow as that
term is defined in the lease agreement, except that Iowa West Racing Association
is entitled to $1,350,000 of cash flow payable every six months in arrears
following the acquisition until the fifth business day following the date that
the results of the required referendum on the continuation of gaming at
pari-mutuel racetracks, as described above, are certified to the County Auditor
of Pottawattamine County. Pursuant to the terms of the management and lease
agreements, Harveys receives management fees and lease income generally equal to
the ongoing cash flow from the operations of Bluffs Run Casino. All of the
agreements outlined here were approved by the Iowa Commission in
September 1999.

    Pursuant to Iowa law, gambling licenses may only be granted by the Iowa
Commission in those counties that have approved the conduct of gambling games in
a county-wide referendum. Gambling games, both at a racetrack enclosure and on
riverboats, have been approved by the county electorate in Pottawattamie County,
Iowa, the location of both Harrah's Casino & Hotel and Bluffs Run Casino.
However, a referendum can be requested at any time by a petition of the voters
and must be reapproved by the county electorate for both types of gambling
activities at the general election in 2002 and each eight years thereafter.
There can be no assurance that either type of gambling activities will be
approved at the next referendum to be held in November 2002, in subsequent
referenda held every eight years thereafter, or in the event of a petition
referendum. If the gambling referenda do not pass in the county where the
licenses are held, the excursion gambling boat licenses may remain valid, as
described below, for a total of nine years from the date of original issue,
which, in the case of Harveys, would be nine years from January 27, 1995, or
January 26, 2004. Currently, the excursion gambling boat license with respect to
Harrah's Casino & Hotel is renewed annually in March for a one year term
commencing April 1. The license that may be issued effective April 1, 2002,
under current law, could remain valid following a referendum defeat in
November 2002, and the Iowa Commission could renew the license effective
April 1, 2003, so that such license would be valid until January 26, 2004.

    Racetracks do not have a similar original license concept allowing them to
operate via renewals by the Iowa Commission until the expiration of nine years
from the date they were first licensed. In the event a negative referendum vote
occurred in 2002, Bluffs Run Casino would likely have to cease casino gaming
operations in a relatively short time following the referendum defeat, probably
pursuant to an order of the Iowa Commission.

    Following the issuance of a gaming license, the Iowa Commission monitors and
supervises the activities of the licensee. Material contracts to be entered into
by the licensee, changes in ownership of the licensee, management contracts, and
acquisitions of interest in other gambling activities by the

                                       27

licensee or its owners must all be reported to, and approved by, the Iowa
Commission. Further, the Iowa Commission has the authority to:

        (1) determine the payouts from the gambling games;

        (2) determine race schedules;

        (3) set the payout rate for all slot machines;

        (4) establish an admission fee to excursion gambling boats payable to
    the Iowa Commission;

        (5) define the excursion season and the duration of an excursion; and

        (6) define the race season and total number of races to be held.

    For excursion gambling boats, Iowa law authorizes the imposition of an
admission fee, set by and payable to the Iowa Commission, on each person
embarking on an excursion gambling boat. An additional admission fee may be
imposed by the municipality in which the gambling operation is located. In
practice, the Iowa Commission has not imposed a per-person admission fee, but
rather has imposed a fee on each excursion gambling boat based upon the
estimated costs of supervision and enforcement to be incurred by the Iowa
Commission for the ensuing fiscal year. For the 2002-2003 fiscal year, beginning
July 5, 2002, the fee is $8,667 per week. A $0.50 per person admission fee is
also payable to the City of Council Bluffs, Iowa. Further, Iowa law imposes an
annual wagering tax ranging from 5% on the first $1.0 million of adjusted gross
receipts from gambling games to 20% on adjusted gross receipts in excess of
$3.0 million.

    For dog tracks, Iowa law requires the payment of a licensing fee of $200 for
each racing day. In addition, a licensee is required to pay the State of Iowa
the sum of $.50 for each person entering the racetrack grounds or enclosure.
There is also a wagering tax imposed on the gross sum wagered at the dog track
at the following rate:

        (1) 6% if the gross sum wagered in the racing season is $55.0 million or
    more;

        (2) 5% if the gross sum wagered in the racing season is $30.0 million or
    more, but less that $55.0 million;

        (3) 4% if the gross sum wagered in the racing season is less than
    $30.0 million.

    For pari-mutuel slot casinos there is an escalating wagering tax, which is
currently 32% of the gross receipts from the slot machine casino, which rate
goes up two percent per year every January 1 until it reaches a maximum of 36%
on January 1, 2004.

    The Racing Association of Central Iowa, which operates the horse track in
Altoona (Des Moines), Iowa, brought an action on June 25, 1998, in the Iowa
District Court, in and for Polk County, alleging that the escalating racetrack
casino tax violates the United States and Iowa Constitutions. The Dubuque Racing
Association (licensee of the Dubuque dog track), the Iowa West Racing
Association (licensee of the Bluffs Run Casino), and the Iowa Greyhound
Association also joined as plaintiffs in the case. In December 2000, the Iowa
District Court rejected the plaintiffs constitutional challenge. The plaintiffs
have appealed to the Iowa Supreme Court. Briefs to the Iowa Supreme Court have
been submitted and it is anticipated that the case will be argued before the
Court in 2002 and that a decision will be rendered later in 2002 or early 2003.

    Excursion gambling boat activities are also subject to safety and inspection
requirements of the State of Iowa and the U.S. Coast Guard. These requirements:

        (1) set limits on the operation of the vessel;

        (2) mandate that it must be operated by a minimum complement of licensed
    personnel;

                                       28

        (3) establish periodic inspections, including the physical inspection of
    the outside hull; and

        (4) establish other mechanical and operations rules.

GAMING--COLORADO

    References in this section to "we", "us", "our", "Harveys", "Harveys Wagon
Wheel" or to other Harveys companies refers to Harveys Casino Resorts and/or its
subsidiaries, which the Company acquired on July 21, 2001.

    The State of Colorado created the Division of Gaming (the "Colorado
Division") within the Department of Revenue to license, implement, regulate and
supervise the conduct of limited gaming under the Colorado Limited Gaming Act.
The Director of the Colorado Division (the "Colorado Director"), pursuant to
regulations promulgated by, and subject to the review of, a five-member Colorado
Limited Gaming Control Commission (the "Colorado Commission"), has been granted
broad power to ensure compliance with the Colorado gaming laws and regulations
(the "Colorado Regulations"). The Colorado Director may inspect, without notice,
impound or remove any gaming device. The Colorado Director may examine and copy
any licensee's records, may investigate the background and conduct of licensees
and their employees, and may bring disciplinary actions against licensees and
their employees. The Colorado Director may also conduct detailed background
investigations of persons who loan money to, or otherwise provide financing to,
a licensee.

    The Colorado Commission is empowered to issue five types of gaming and
gaming-related licenses, and has delegated authority to the Colorado Director to
issue certain types of licenses. The licenses are revocable and
non-transferable. Harveys Wagon Wheel's failure or inability, or the failure or
inability of others associated with Harveys Wagon Wheel to maintain necessary
gaming licenses or approvals would have a material adverse effect on Harveys
operations. All persons employed by Harveys Wagon Wheel and involved, directly
or indirectly, in gaming operations in Colorado also are required to obtain a
Colorado gaming license. All licenses must be renewed annually, except those
held by key and support employees, which must be renewed every two years.

    As a general rule, pursuant to the Colorado Regulations, no person may have
an ownership interest in more than three retail gaming licenses in Colorado. The
Colorado Commission has ruled that a person does not have an ownership interest
in a retail licensee for purposes of the multiple license prohibition if:

        (1) that person has less than a 5% ownership interest in an
    institutional investor which has an ownership interest in a publicly traded
    licensee or publicly traded company affiliated with a licensee;

        (2) a person has a 5% or more ownership interest in an institutional
    investor, but the institutional investor has less than a 5% ownership
    interest in a publicly traded licensee or publicly traded company affiliated
    with a licensee;

        (3) an institutional investor has less than a 5% ownership interest in a
    publicly traded licensee or publicly traded company affiliated with a
    licensee;

        (4) an institutional investor possesses voting securities in a fiduciary
    capacity for another person and does not exercise voting control over 5% or
    more of the outstanding voting securities of a publicly traded licensee or
    publicly traded company affiliated with a licensee;

        (5) a registered broker or dealer retains possession of voting
    securities of a publicly traded licensee or publicly traded company
    affiliated with a licensee for its customers in street name or otherwise,
    and exercises voting rights for less than 5% of the outstanding voting
    securities of the publicly traded licensee or publicly traded company
    affiliated with a licensee;

                                       29

        (6) a registered broker or dealer acts as a market maker for the stock
    of a publicly traded licensee or publicly traded company affiliated with a
    licensee and possesses a voting interest in less than 5% of the outstanding
    voting securities of the publicly traded licensee or publicly traded company
    affiliated with a licensee;

        (7) an underwriter is holding securities of a publicly traded licensee
    or publicly traded company affiliated with a licensee as part of an
    underwriting for no more than 90 days after the beginning of such
    underwriting if it exercises voting rights of less than 5% of the
    outstanding voting securities of a publicly traded licensee or publicly
    traded company affiliated with a licensee;

        (8) a book entry transfer facility holds voting securities for third
    parties, if it exercises voting rights with respect to less than 5% of the
    outstanding voting securities of a publicly traded licensee or of a publicly
    traded company affiliated with a licensee; or

        (9) a person owns less than 5% of the outstanding voting securities of
    the publicly traded licensee or publicly traded company affiliated with a
    licensee.

    Hence, our business opportunities in Colorado and those of persons with an
ownership interest in us, are limited to interests that comply with the Colorado
Regulations and the Colorado Commission's ruling.

    In addition, pursuant to the Colorado Regulations, no manufacturer or
distributor of slot machines or associated equipment may, without notification
being provided to the Colorado Division within 10 days, knowingly have an
interest in any casino operator, allow any of its officers or any other person
with a substantial interest in such business to have such an interest, employ
any person if that person is employed by a casino operator, or allow any casino
operator or person with a substantial interest therein to have an interest in a
manufacturer's or distributor's business. A substantial interest means the
lesser of (i) as large an interest in an entity as any other person or (ii) any
financial or equity interest equal to or greater than 5 percent. The Colorado
Commission has ruled that a person does not have a substantial interest if such
person's sole ownership interest in such licensee is through the ownership of
less than 5% of the outstanding voting securities of a publicly traded licensee
or publicly traded affiliated company of a licensee.

    Counsel for the Colorado Division has informed counsel for Harveys that, for
purposes of the manufacturer/operator vertical integration rule and the
horizontal three-license rule described above, the Colorado Division has taken
the position that only a person deemed to have beneficial ownership (as defined
in Section 13(d) of the Exchange Act and the rules and regulations thereunder)
of shares of the publicly traded licensee or publicly traded company affiliated
with the licensee will be deemed to have an interest under the vertical
integrating rule or an ownership interest under the horizontal three-license
rule. However, neither the Colorado Commission nor the Colorado Legislature has
addressed these issues. As a result there is no assurance that the Colorado
Division, the Colorado Commission or the Colorado Legislature will not apply a
more restrictive interpretation.

    Pursuant to the Colorado Regulations, any person or entity having any direct
or indirect interest in a gaming licensee or an applicant for a gaming license,
including, but not limited to, us and our security holders, may be required to
supply the Colorado Commission with substantial information, including, but not
limited to, background information, source of funding information, a sworn
statement that the person or entity is not holding his or her interest for any
other party, and fingerprints. Such information, investigation and licensing (or
finding or suitability) as an associated person automatically will be required
of all persons (other than certain institutional investors discussed below) who
directly or indirectly beneficially own 10% or more of a direct or indirect
beneficial ownership or interest in Harveys Wagon Wheel, through their
beneficial ownership of any class of voting securities of the Company. Those
persons must report their interest within 10 days and file appropriate
applications within 45 days after acquiring that interest. Persons who directly
or indirectly beneficially own 5% or

                                       30

more (but less than 10%) of a direct or indirect beneficial ownership or
interest in Harveys Wagon Wheel, through their beneficial ownership of any class
of voting securities of the Company, must report their interest to the Colorado
Commission within 10 days after acquiring that interest and may be required to
provide additional information and to be found suitable. (It is the current
practice of the gaming regulators to require findings of suitability for persons
beneficially owning 5% or more of a direct or indirect beneficial ownership or
interest, other than certain institutional investors discussed below.) If
certain institutional investors provide specified information to the Colorado
Commission and are holding for investment purposes only, those investors, at the
Colorado Commission's discretion, may be permitted to own up to 14.99% of
Harveys Wagon Wheel, through their beneficial ownership of any class of voting
securities of the Company before being required to be found suitable. All
licensing and investigation fees will have to be paid by the person in question.

    The Colorado Regulations define a voting security to be a security, the
holder of which is entitled to vote generally for the election of a member or
members of the board of directors or board of trustees of a corporation or a
comparable person or persons of another form of business organization.

    The Colorado Commission also has the right to request information from any
person directly or indirectly interested in, or employed by, a licensee, and to
investigate the moral character, honesty, integrity, prior activities, criminal
record, reputation, habits and associations of:

        (1) all persons licensed pursuant to the Colorado Limited Gaming Act,

        (2) all officers, directors and stockholders of a licensed privately
    held corporation,

        (3) all officers, directors and stockholders holding either a 5% or
    greater interest or a controlling interest in a licensed publicly traded
    corporation,

        (4) all general partners and all limited partners of a licensed
    partnership,

        (5) all persons which have a relationship similar to that of an officer,
    director or stockholder of a corporation (such as members and managers of a
    limited liability company),

        (6) all persons supplying financing or loaning money to any licensee
    connected with the establishment or operations of limited gaming,

        (7) all persons having a contract, lease or ongoing financial or
    business arrangement with any licensee, where such contract, lease or
    arrangement relates to limited gaming operations, equipment, devices or
    premises, and

        (8) all persons contracting with or supplying any goods and services to
    the gaming regulators.

    Certain public officials and employees are prohibited from having any direct
or indirect interest in a license or limited gaming.

    In addition, pursuant to the Colorado Regulations, every person who is a
party to a gaming contract or lease with an applicant for a license, or with a
licensee, upon the request of the Colorado Commission or the Colorado Director,
must promptly provide to the Colorado Commission or Colorado Director all
information that may be requested concerning financial history, financial
holdings, real and personal property ownership, interests in other companies,
criminal history, personal history and associations, character, reputation in
the community, and all other information which might be relevant to a
determination of whether a person would be suitable to be licensed by the
Colorado Commission. Failure to provide all information requested constitutes
sufficient grounds for the Colorado Commission or the Colorado Director to
require a licensee or applicant to terminate its gaming contract (as defined
below) or lease with any person who failed to provide the information requested.
In addition, the Colorado Commission or the Colorado Director may require
changes in gaming contracts before an application is approved or participation
in the contract is allowed. A

                                       31

gaming contract is defined as an agreement in which a person does business with
or on the premises of a licensed entity.

    Except under limited circumstances relating to slot machine manufacturers
and distributors, every person supplying goods, equipment, devices or services
to any licensee in return for payment of a percentage, or calculated upon a
percentage, of limited gaming activity or income must obtain an operator's
license or be listed on the retailer's license where such limited gaming will
take place. With respect to the foregoing requirement, it is the current
practice of the Colorado Division to require manufacturers and distributors to
obtain an operator's license if the limited exceptions do not apply to them and
to require other persons to be listed as associated persons on the license of
the applicable retailer.

    An application for licensure or suitability may be denied for any cause
deemed reasonable by the Colorado Commission or the Colorado Director, as
appropriate. Specifically, the Colorado Commission and the Colorado Director
must deny a license to any applicant who among other things:

        (1) fails to prove by clear and convincing evidence that the applicant
    is qualified;

        (2) fails to provide information and documentation requested;

        (3) fails to reveal any fact material to qualification, or supplies
    information which is untrue or misleading as to a material fact pertaining
    to qualification;

        (4) has been convicted of, or has a director, officer, general partner,
    stockholder, limited partner or other person who has a financial or equity
    interest in the applicant who has been convicted of, specified crimes,
    including the service of a sentence upon conviction of a felony in a
    correctional facility, city or county jail, or community correctional
    facility or under the state board of parole or any probation department
    within ten years prior to the date of the application, gambling-related
    offenses, theft by deception or crimes involving fraud or misrepresentation,
    is under current prosecution for such crimes (during the pendency of which
    license determination may be deferred), is a career offender or a member or
    associate of a career offender cartel, or is a professional gambler; or

        (5) has refused to cooperate with any state or federal body
    investigating organized crime, official corruption or gaming offenses.

    If the Colorado Commission determines that a person or entity is unsuitable
to directly or indirectly own interests in the Company then we may be
sanctioned, which may include the loss of our approvals and licenses.

    The Colorado Commission does not need to approve in advance a public
offering of securities but rather requires a filing of notice and additional
documents with regard to a public offering of voting securities prior to such
public offering. The Colorado Commission may, in its discretion, require
additional information and prior approval of such public offering.

    In addition, the Colorado Regulations prohibit a licensee or affiliated
company thereof, such as the Company, from paying any unsuitable person any
dividend or interest upon any voting securities or any payments of distributions
of any kind (except as set forth below), or paying any unsuitable person any
remuneration for services, or recognizing the exercise of any voting rights by
any unsuitable person. Further, pursuant to the Colorado Regulations, Harveys
Wagon Wheel may repurchase its voting securities from anyone found unsuitable at
the lesser of the cash equivalent to the original investment in Harveys Wagon
Wheel or the current market price as of the date of the finding of unsuitability
unless such voting securities are transferred to a suitable person (as
determined by the Colorado Commission) within 60 days after the finding of
unsuitability. A licensee or affiliated company must pursue all lawful efforts
to require an unsuitable person to relinquish all voting securities, including
by purchasing such voting securities. The Staff for the Colorado Division has
taken the position that a

                                       32

licensee or affiliated company may not pay any unsuitable person any interest,
dividend or other payments with respect to non-voting securities, other than
with respect to pursuing all lawful efforts to require such unsuitable person to
relinquish such non-voting securities, including by purchasing or redeeming such
securities. Further, the regulations require anyone with a material involvement
with a licensee, including a director or officer of a holding company, such as
the Company, to file for a finding of suitability if required by the Colorado
Commission.

    Because of their authority to deny an application for a license or
suitability, the Colorado Commission and the Colorado Director effectively can
disapprove a change in corporate structure of a licensee and with respect to any
entity which is required to be found suitable, or indirectly can cause us to
suspend or dismiss managers, officers, directors and other key employees or
sever relationships with other persons who refuse to file appropriate
applications or whom the authorities find unsuitable to act in such capacities.

    The sale, lease, purchase, conveyance or acquisition of a controlling
interest in Harveys Wagon Wheel is subject to the approval of the Colorado
Commission. Under some circumstances, we may not sell any interest in our
Colorado gaming operations without the prior approval of the Colorado
Commission.

    Harveys Wagon Wheel must meet specified architectural requirements, fire
safety standards and standards for access for disabled persons. Harveys Wagon
Wheel also must not exceed specified gaming square footage limits as a total of
each floor and the full building. The casino at Harveys Wagon Wheel may operate
only between 8:00 a.m. and 2:00 a.m. and may permit only individuals 21 years or
older to gamble in the casino. It may permit only slot machines, blackjack and
poker, with a maximum single bet of $5.00. Harveys Wagon Wheel may not provide
credit to its gaming patrons.

    A licensee is required to provide information and file periodic reports with
the Colorado regulators, including identifying those who have 5% or greater
ownership, financial or equity interest in the licensee, or who have the ability
to control the licensee, or who have the ability to exercise significant
influence over the licensee, or who loan money or other things of value to a
licensee, or who have a right to share in revenues of limited gaming, or to whom
any interest or share in profits of limited gaming has been pledged as security
for a debt or performance of an act. A licensee, and any parent company or
subsidiary company of a licensee, who has applied to a foreign jurisdiction for
licensure or permission to conduct gaming, or who possesses a license to conduct
foreign gaming, is required to notify the Colorado regulators. Any person
licensed by the Colorado Commission and any associated person of a licensee must
report criminal convictions and criminal charges to the Colorado regulators.

    The Colorado regulators have broad authority to sanction, fine, suspend and
revoke licenses for violations of the Colorado Regulations. Violations of many
provisions of the Colorado Regulations also can result in criminal penalties.

    The Colorado Constitution currently permits gaming only in a limited number
of cities and some commercial districts.

    The Colorado Constitution permits a gaming tax of up to 40% on adjusted
gross gaming proceeds, and authorizes the Colorado Commission to change the rate
annually. The current gaming tax rate is 0.25% on adjusted gross gaming proceeds
of up to and including $2.0 million, 2% over $2.0 million up to and including
$4.0 million, 4% over $4.0 million up to and including $5.0 million, 11% over
$5.0 million up to and including $10.0 million, 16% over $10.0 million up to and
including $15.0 million and 20% on adjusted gross gaming proceeds in excess of
$15.0 million. Central City has imposed an annual device fee of $1,265 per
gaming device and may revise such fee from time to time.

    The sale of alcoholic beverages is subject to licensing, control and
regulation by the State of Colorado and Central City ("Colorado Liquor
Agencies"). All persons who directly or indirectly hold a

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10% or more interest in, or 10% or more of the issued and outstanding capital
stock of Harveys Wagon Wheel, through their ownership of Harveys, must file
applications and possibly be investigated by the Colorado Liquor Agencies. The
Colorado Liquor Agencies also may investigate those persons who, directly or
indirectly, loan money to or have any financial interest in liquor licensees. In
addition, there are restrictions on stockholders, directors and officers of
liquor licensees from being a stockholder, director, officer or otherwise
interested in some persons lending money to liquor licensees or from making
loans to other liquor licensees. All licenses are revocable and transferable
only in accordance with all applicable laws. The Colorado Liquor Agencies have
the full power to limit, condition, suspend or revoke any liquor license and any
disciplinary action could (and revocation would) have a material adverse effect
upon the operations of Harveys Wagon Wheel. Harveys Wagon Wheel holds a hotel
and restaurant liquor license for its casino hotel and restaurant operations,
rather than a gaming tavern license. Accordingly, no person directly or
indirectly interested in Harveys Wagon Wheel may be directly or indirectly
interested in most other types of liquor licenses, and specifically cannot be
directly or indirectly interested in an entity that holds a gaming tavern
license.

INDIAN GAMING

    The terms and conditions of management contracts and the operation of
casinos and all gaming on Indian land in the United States are subject to the
Indian Gaming Regulatory Act of 1988 ("IGRA"), which is administered by the NIGC
and the gaming regulatory agencies of tribal governments. IGRA is subject to
interpretation by the NIGC and may be subject to judicial and legislative
clarification or amendment.

    IGRA requires NIGC approval of management contracts for Class II and
Class III gaming as well as the review of all agreements collateral to the
management contracts. The management contracts relating to the Harrah's managed
casinos for the Ak-Chin Indian Community, the Eastern Band of Cherokee Indians,
the Prairie Band Potawatomi Nation, and the Rincon San Luiseno Band of Mission
Indians were approved by the NIGC. The NIGC will not approve a management
contract if a director or a 10% shareholder of the management company: (i) is an
elected member of the Indian tribal government which owns the facility
purchasing or leasing the games; (ii) has been or is convicted of a felony
gaming offense; (iii) has knowingly and willfully provided materially false
information to the NIGC or the tribe; (iv) has refused to respond to questions
from the NIGC; or (v) is a person whose prior history, reputation and
associations pose a threat to the public interest or to effective gaming
regulation and control, or create or enhance the chance of unsuitable activities
in gaming or the business and financial arrangements incidental thereto. In
addition, the NIGC will not approve a management contract if the management
company or any of its agents have attempted to unduly influence any decision or
process of tribal government relating to gaming, or if the management company
has materially breached the terms of the management contract or the tribe's
gaming ordinance, or a trustee, exercising due diligence, would not approve such
management contract. A management contract can be approved only after NIGC
determines that the contract provides, among other things, for: (i) adequate
accounting procedures and verifiable financial reports, which must be furnished
to the tribe; (ii) tribal access to the daily operations of the gaming
enterprise, including the right to verify daily gross revenues and income;
(iii) minimum guaranteed payments to the tribe, which must have priority over
the retirement of development and construction costs; (iv) a ceiling on the
repayment of such development and construction costs and (v) a contract term not
exceeding five years and a management fee not exceeding 30% of net revenues (as
determined by the NIGC); provided that the NIGC may approve up to a seven year
term and a management fee not to exceed 40% of net revenues if NIGC is satisfied
that the capital investment required, and the income projections for the
particular gaming activity require the larger fee and longer term. There is no
periodic or ongoing review of approved contracts by the NIGC. The only
post-approval action that could result in possible modification or cancellation
of a contract would be as the result of an enforcement action taken by the NIGC
based on a violation of the law or an issue affecting suitability.

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    IGRA established three separate classes of tribal gaming--Class I, Class II
and Class III. Class I includes all traditional or social games solely for
prizes of minimal value played by a tribe in connection with celebrations or
ceremonies. Class II gaming includes games such as bingo, pulltabs, punchboards,
instant bingo and non-banked card games (those that are not played against the
house), such as poker. Class III gaming is casino-style gaming and includes
banked table games such as blackjack, craps and roulette, and gaming machines
such as slots, video poker, lotteries and pari-mutuel wagering. Harrah's Phoenix
Ak-Chin provides Class II gaming and, as limited by the tribal-state compact,
Class III gaming. The Cherokee and Prairie Band casinos provide only Class III
gaming.

    IGRA prohibits all forms of Class III gaming unless the tribe has entered
into a written agreement with the state that specifically authorizes the types
of Class III gaming the tribe may offer (a "tribal-state compact"). These
compacts provide, among other things, the manner and extent to which each state
will conduct background investigations and certify the suitability of the
manager, its officers, directors, and key employees to conduct gaming on tribal
lands. The Company has received its permanent certification from the Arizona
Department of Gaming as management contractor for the Ak-Chin Indian Community's
casino and has been licensed by the relevant tribal gaming authorities to manage
the Prairie Band Potawatomi Nation's casino, the Eastern Band of Cherokee
Indians' casino, and the Rincon San Luiseno Band of Mission Indians,
respectively.

    Title 25, Section 81 of the United States Code states that "no agreement
shall be made by any person with any tribe of Indians, or individual Indians not
citizens of the United States, for the payment or delivery of any money or other
thing of value... in consideration of services for said Indians relative to
their lands... unless such contract or agreement be executed and approved" by
the Secretary or his or her designee. An agreement or contract for services
relative to Indian lands which fails to conform with the requirements of
Section 81 is void and unenforceable. All money or other thing of value paid to
any person by any Indian or tribe for or on his or their behalf, on account of
such services, in excess of any amount approved by the Secretary or his or her
authorized representative will be subject to forfeiture. We believe that we have
complied with the requirements of section 81 with respect to our management
contracts for Harrah's Phoenix Ak-Chin, Harrah's Cherokee and Harrah's Prairie
Band and Harrah's Rincon, and intend to comply with Section 81 with respect to
any other contract to manage casinos located on Indian land in the United
States.

    Indian tribes are sovereign with their own governmental systems, which have
primary regulatory authority over gaming on land within the tribes'
jurisdiction. Therefore, persons engaged in gaming activities, including the
Company, are subject to the provisions of tribal ordinances and regulations on
gaming. These ordinances are subject to review by the NIGC under certain
standards established by IGRA. The NIGC may determine that some or all of the
ordinances require amendment, and that additional requirements, including
additional licensing requirements, may be imposed on us. We have received no
such notification regarding the Ak-Chin, Cherokee and/or Prairie Band casinos.
The possession of valid licenses from the Ak-Chin Indian Community, the Eastern
Band of Cherokee Indians, the Prairie Band of Potawatomi Nation, and the Rincon
San Luiseno Band of Mission Indians, are ongoing conditions of our agreements
with these tribes.

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