-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DfUyBeSO9ESzd6HyZzUX6iQP+BADJV+TukGBPLB3qfaR9qcTsES9ZCm+iOOxW931 6nhubxORHyMMl4S3gh/hyA== 0000912057-02-031582.txt : 20020813 0000912057-02-031582.hdr.sgml : 20020813 20020813163428 ACCESSION NUMBER: 0000912057-02-031582 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HARRAHS ENTERTAINMENT INC CENTRAL INDEX KEY: 0000858339 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS AMUSEMENT & RECREATION [7990] IRS NUMBER: 621411755 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-10410 FILM NUMBER: 02730133 BUSINESS ADDRESS: STREET 1: ONE HARRAHS COURT CITY: LAS VEGAS STATE: NV ZIP: 89119 BUSINESS PHONE: 9017628600 MAIL ADDRESS: STREET 1: 5100 W SAHARA BLVD CITY: LAS VEGAS STATE: NV ZIP: 89146 FORMER COMPANY: FORMER CONFORMED NAME: PROMUS COMPANIES INC DATE OF NAME CHANGE: 19920703 10-Q 1 a2085842z10-q.txt 10-Q - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-Q (MARK ONE) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________ COMMISSION FILE NO. 1-10410 ------------------------ HARRAH'S ENTERTAINMENT, INC. (Exact name of registrant as specified in its charter) DELAWARE I.R.S. NO. 62-1411755 (State of Incorporation) (I.R.S. Employer Identification No.)
ONE HARRAH'S COURT LAS VEGAS, NEVADA 89119 (Current address of principal executive offices) (702) 407-6000 (Registrant's telephone number, including area code) ------------------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / At July 31, 2002, there were 111,715,739 shares of the Company's Common Stock outstanding. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I--FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS The accompanying unaudited Consolidated Condensed Financial Statements of Harrah's Entertainment, Inc., a Delaware corporation, have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and notes necessary for complete financial statements in conformity with generally accepted accounting principles. The results for the periods indicated are unaudited, but reflect all adjustments (consisting only of normal recurring adjustments) that management considers necessary for a fair presentation of operating results. Results of operations for interim periods are not necessarily indicative of a full year of operations. These Consolidated Condensed Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in our 2001 Annual Report to Stockholders. 2 HARRAH'S ENTERTAINMENT, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
JUNE 30, DECEMBER 31, 2002 2001 ----------- ------------ (IN THOUSANDS, EXCEPT SHARE AMOUNTS) ASSETS Current assets Cash and cash equivalents................................. $ 399,549 $ 361,470 Receivables, less allowance for doubtful accounts of $64,617 and $61,150..................................... 80,824 110,781 Deferred income taxes..................................... 48,456 45,319 Income tax receivable..................................... 16,465 28,326 Prepayments and other..................................... 62,766 48,927 Inventories............................................... 22,787 22,875 ----------- ----------- Total current assets.................................... 630,847 617,698 ----------- ----------- Land, buildings, riverboats and equipment................... 5,659,587 5,339,894 Less: accumulated depreciation.............................. (1,450,373) (1,280,564) ----------- ----------- 4,209,214 4,059,330 Goodwill (Note 2)........................................... 791,720 947,678 Intangible assets (Note 2).................................. 278,626 212,962 Investments in and advances to nonconsolidated affiliates... 5,759 79,464 Deferred costs and other.................................... 248,577 211,450 ----------- ----------- $ 6,164,743 $ 6,128,582 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable.......................................... $ 87,715 $ 123,428 Accrued expenses.......................................... 496,875 412,897 Short-term debt........................................... 31,000 31,000 Current portion of long-term debt......................... 1,554 1,583 ----------- ----------- Total current liabilities............................... 617,144 568,908 Long-term debt.............................................. 3,617,991 3,719,443 Deferred credits and other.................................. 180,503 173,677 Deferred income taxes....................................... 257,757 261,119 ----------- ----------- 4,673,395 4,723,147 ----------- ----------- Minority interests.......................................... 65,988 31,322 ----------- ----------- Commitments and contingencies (Notes 3, 5, 7 and 8) Stockholders' equity (Note 3) Common stock, $0.10 par value, authorized--360,000,000 shares, outstanding--112,438,827 and 112,322,143 shares (net of 31,298,571 and 28,977,890 shares held in treasury)............................................... 11,244 11,232 Capital surplus........................................... 1,213,577 1,143,125 Retained earnings......................................... 225,129 248,098 Accumulated other comprehensive loss...................... (2,062) (1,449) Deferred compensation related to restricted stock......... (22,528) (26,893) ----------- ----------- 1,425,360 1,374,113 ----------- ----------- $ 6,164,743 $ 6,128,582 =========== ===========
See accompanying Notes to Consolidated Condensed Financial Statements. 3 HARRAH'S ENTERTAINMENT, INC. CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
SECOND QUARTER ENDED SIX MONTHS ENDED ---------------------- ----------------------- JUNE 30, JUNE 30, JUNE 30, JUNE 30, 2002 2001 2002 2001 ---------- --------- ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) REVENUES: Casino................................................ $ 920,850 $ 753,755 $1,791,250 $1,501,686 Food and beverage..................................... 151,035 127,790 297,439 251,233 Rooms................................................. 84,802 76,461 165,222 147,469 Management fees....................................... 13,876 15,442 30,734 31,122 Other................................................. 36,979 35,851 70,875 68,649 Less: casino promotional allowances................... (177,186) (135,854) (341,471) (259,538) ---------- --------- ---------- ---------- Total revenues.................................... 1,030,356 873,445 2,014,049 1,740,621 ---------- --------- ---------- ---------- OPERATING EXPENSES: Direct Casino.............................................. 446,285 373,685 861,695 744,900 Food and beverage................................... 61,743 58,230 121,797 113,152 Rooms............................................... 17,266 18,850 35,491 36,516 Depreciation and amortization......................... 76,998 68,331 153,033 134,460 Write-downs, reserves and recoveries: Reserves for New Orleans casino..................... - - - 2,322 Other............................................... 2,180 1,163 1,652 931 Project opening costs................................. 793 2,108 1,669 4,267 Corporate expense..................................... 11,997 13,632 22,681 27,408 Equity in losses (income) of nonconsolidated affiliates.......................................... 937 849 (4,808) 423 Venture restructuring costs........................... - 1,232 - 2,732 Amortization of intangible assets..................... 195 5,697 1,771 11,299 Other................................................. 208,309 187,936 417,136 375,953 ---------- --------- ---------- ---------- Total operating expenses.......................... 826,703 731,713 1,612,117 1,454,363 ---------- --------- ---------- ---------- Income from operations.................................. 203,653 141,732 401,932 286,258 Interest expense, net of interest capitalized........... (58,470) (63,189) (119,852) (127,415) Loss on interests in nonconsolidated affiliates......... - (5,410) - (5,040) Other (expense) income, including interest income....... (887) 6,173 1,035 (305) ---------- --------- ---------- ---------- Income before income taxes and minority interests....... 144,296 79,306 283,115 153,498 Provision for income taxes.............................. (54,607) (29,026) (104,088) (55,837) Minority interests...................................... (3,573) (2,417) (7,750) (5,587) ---------- --------- ---------- ---------- Income before extraordinary losses and cumulative effect of change in accounting principle..................... 86,116 47,863 171,277 92,074 Extraordinary losses, net of income tax benefit of $71................................................... - - - (131) Cumulative effect of change in accounting principle, net of income tax benefit of $2,831....................... - - (91,169) - ---------- --------- ---------- ---------- Net income.............................................. $ 86,116 $ 47,863 $ 80,108 $ 91,943 ========== ========= ========== ==========
4 HARRAH'S ENTERTAINMENT, INC. CONSOLIDATED CONDENSED STATEMENTS OF INCOME (CONTINUED) (UNAUDITED)
SECOND QUARTER ENDED SIX MONTHS ENDED ---------------------- ----------------------- JUNE 30, JUNE 30, JUNE 30, JUNE 30, 2002 2001 2002 2001 ---------- --------- ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Earnings per share-basic Income before extraordinary losses and cumulative effect of change in accounting principle............ $ 0.76 $ 0.41 $ 1.52 $ 0.80 Extraordinary losses, net............................. - - - - Cumulative effect of change in accounting principle, net................................................. - - (0.81) - ---------- --------- ---------- ---------- Net income.......................................... $ 0.76 $ 0.41 $ 0.71 $ 0.80 ========== ========= ========== ========== Earnings per share-diluted Income before extraordinary losses and cumulative effect of change in accounting principle............ $ 0.75 $ 0.40 $ 1.50 $ 0.78 Extraordinary losses, net............................. - - - - Cumulative effect of change in accounting principle, net................................................. - - (0.80) - ---------- --------- ---------- ---------- Net income.......................................... $ 0.75 $ 0.40 $ 0.70 $ 0.78 ========== ========= ========== ========== Average common shares outstanding....................... 112,688 116,124 112,281 115,382 ========== ========= ========== ========== Average common and common equivalent shares outstanding........................................... 115,148 119,026 114,631 117,892 ========== ========= ========== ==========
See accompanying Notes to Consolidated Condensed Financial Statements. 5 HARRAH'S ENTERTAINMENT, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED ----------------------- JUNE 30, JUNE 30, 2002 2001 --------- ----------- (IN THOUSANDS) Cash flows from operating activities Net income................................................ $ 80,108 $ 91,943 Adjustments to reconcile net income to cash flows from operating activities: Extraordinary losses, before income taxes............... - 202 Cumulative effect of change in accounting principle, before income taxes................................... 94,000 - Depreciation and amortization........................... 165,389 158,977 Write-downs, reserves and recoveries.................... 1,652 3,253 Other noncash items..................................... 5,868 18,938 Deferred income taxes................................... 957 19,319 Minority interests' share of income..................... 7,750 5,587 Equity in (income)/losses of nonconsolidated affiliates............................................ (4,808) 423 Realized loss from equity interests in nonconsolidated affiliates............................................ - 5,040 Net losses from asset sales............................. 1,441 900 Net change in long-term accounts........................ (15,667) (10,082) Net change in working capital accounts.................. 82,591 18,570 --------- ----------- Cash flows provided by operating activities........... 419,281 313,070 --------- ----------- Cash flows from investing activities Land, buildings, riverboats and equipment additions....... (204,771) (254,611) Payment for purchases of acquisitions, net of cash acquired................................................ (8,637) - (Decrease)/increase in construction payables.............. (6,312) 365 Investments in and advances to nonconsolidated affiliates.............................................. (39) (5,706) Proceeds from other asset sales........................... 33,161 13,435 Proceeds from sales of interests in nonconsolidated affiliates.............................................. - 1,883 Other..................................................... (2,811) (7,039) --------- ----------- Cash flows used in investing activities............... (189,409) (251,673) --------- ----------- Cash flows from financing activities Borrowings under lending agreements, net of deferred financing costs......................................... 856,189 949,156 Repayments under lending agreements....................... (981,834) (1,900,534) Net short-term repayments................................. - (18,000) Early retirement of debt.................................. - (150,000) Purchases of treasury stock............................... (103,300) - Minority interests' distributions, net of contributions... (7,461) (5,713) Scheduled debt retirements................................ (795) (1,852) Proceeds from issuance of new debt, net of discount and issue costs of $9,277................................... - 985,228 Proceeds from exercise of stock options................... 46,415 49,143 Other..................................................... (1,007) (917) --------- ----------- Cash flows used in financing activities............... (191,793) (93,489) --------- ----------- Net increase/(decrease) in cash and cash equivalents........ 38,079 (32,092) Cash and cash equivalents, beginning of period.............. 361,470 299,202 --------- ----------- Cash and cash equivalents, end of period.................... $ 399,549 $ 267,110 ========= ===========
See accompanying Notes to Consolidated Condensed Financial Statements. 6 HARRAH'S ENTERTAINMENT, INC. CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
SECOND QUARTER ENDED SIX MONTHS ENDED ------------------- ------------------- JUNE 30, JUNE 30, JUNE 30, JUNE 30, 2002 2001 2002 2001 -------- -------- -------- -------- (IN THOUSANDS) Net income.............................................. $86,116 $47,863 $80,108 $91,943 ------- ------- ------- ------- Other comprehensive income Unrealized (losses) gains on available-for-sale securities, net of tax (benefit) provision of $(64), $189, $(176) and $755............................... (116) 349 (324) 1,257 Realization of gain on available-for-sale securities, net of tax provision of $123........................ - - - (226) Other, net of tax benefit of $731, $156 and $921...... - (1,350) (288) (1,700) ------- ------- ------- ------- (116) (1,001) (612) (669) ------- ------- ------- ------- Comprehensive income.................................... $86,000 $46,862 $79,496 $91,274 ======= ======= ======= =======
See accompanying Notes to Consolidated Condensed Financial Statements. 7 HARRAH'S ENTERTAINMENT, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS JUNE 30, 2002 (UNAUDITED) NOTE 1--BASIS OF PRESENTATION AND ORGANIZATION Harrah's Entertainment, Inc. ("Harrah's Entertainment", the "Company", "we", "our" or "us", and including our subsidiaries where the context requires) is a Delaware corporation. Our casino entertainment facilities, operating under the Harrah's, Rio, Showboat, and Harveys brand names, include casino hotels in Reno, Lake Tahoe, Las Vegas and Laughlin, Nevada; two casino hotel properties in Atlantic City, New Jersey; a casino hotel in Central City, Colorado; a land-based casino in New Orleans, Louisiana; riverboat and dockside casinos in Joliet and Metropolis, Illinois; East Chicago, Indiana; Council Bluffs, Iowa; Shreveport and Lake Charles, Louisiana; Tunica and Vicksburg, Mississippi; and North Kansas City and St. Louis, Missouri; and a greyhound racetrack and land-based casino in Council Bluffs, Iowa. We also manage casinos on Indian lands near Phoenix, Arizona; Cherokee, North Carolina; and Topeka, Kansas. We have reclassified certain amounts for the prior year to conform with our presentation for 2002. NOTE 2--ADOPTION OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 142 We adopted Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets," effective January 1, 2002. SFAS No. 142 provides new guidance regarding the recognition and measurement of intangible assets, eliminates the amortization of certain intangibles and requires annual assessments for impairment of intangible assets that are not subject to amortization. We have completed our implementation review of the goodwill and other intangible assets arising from our prior acquisitions and determined that non-recurring impairment charges of $91.2 million, net of tax benefits of $2.8 million, were required. These charges, which are reported in our Consolidated Condensed Statements of Income as a change in accounting principle, relate to goodwill and the trademark acquired in our 1999 acquisition of Rio Hotel and Casino, Inc. ("Rio"). Since the acquisition of Rio, competition has intensified in the market and Rio has greatly reduced its emphasis on international high-end table games play, a significant component of its business at the time of the acquisition. We determine the fair value of an operating unit as a function, or multiple, of earnings before interest, taxes, depreciation and amortization ("EBITDA"), a common measure used to value and buy or sell cash intensive businesses such as casinos. The calculated multiple for Rio indicated that the fair value of the property, based on an EBITDA indicator, fell short of the carrying value, and recognition of an impairment of $86 million of goodwill was appropriate. The fair value of the Rio trademark was assessed by applying a "relief from royalty" methodology, which ascribed a value to the trademark derived as the present value of a percentage of forecasted future revenues. Because the Rio has not sustained the level of revenues assumed in the original computation to assign a value to the trademark, future revenue assumptions were reassessed and it was determined that the fair value of the trademark was $5.2 million, net of tax benefit of $2.8 million, less than the carrying value. Rio's tangible assets were assessed for impairment applying the provisions of SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," and our analysis indicated that the carrying value of the tangible assets was not impaired. 8 HARRAH'S ENTERTAINMENT, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2002 (UNAUDITED) NOTE 2--ADOPTION OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 142 (CONTINUED) The following tables set forth information concerning our goodwill and other intangible assets as of June 30, 2002:
BALANCE AT ADDITIONS OR IMPAIRMENT BALANCE AT 12/31/01 ADJUSTMENTS LOSSES 06/30/02 ---------- ------------ ---------- ---------- (IN THOUSANDS) Goodwill(a)....................................... $947,678 $(69,913) $(86,045) $791,720 ======== ======== ======== ======== Unamortized intangible assets:(a) Trademarks...................................... $137,579 $ 10,000 $ (7,955) $139,624 Gaming rights................................... 44,200 18,100 - 62,300 Development rights.............................. 5,000 - - 5,000 -------- -------- -------- -------- Total............................................. $186,779 $ 28,100 $ (7,955) $206,924 ======== ======== ======== ========
GROSS CARRYING ACCUMULATED BALANCE AT AMOUNT AMORTIZATION 06/30/02 -------------- ------------ ---------- (IN THOUSANDS) Amortizing intangible assets:(a) Contract rights........................................ $63,000 $(2,493) $60,507 Customer relationships................................. 13,100 (1,905) 11,195 ------- ------- ------- Total................................................ $76,100 $(4,398) $71,702 ======= ======= =======
- ------------------------ (a) Values of some intangible assets are preliminary subject to finalization of the purchase price allocation of the Harveys acquisition. The aggregate amortization expense for the quarter and six months ended June 30, 2002, for those assets that will continue to be amortized under the provisions of SFAS No. 142 was $0.2 million and $1.8 million, respectively. Estimated annual amortization expense for those assets for the years ending December 31, 2002, 2003, 2004, 2005 and 2006 is $4.2 million, $4.8 million, $4.8 million, $4.8 million and $4.5 million, respectively. With the adoption of SFAS No. 142, we ceased amortization of goodwill and other intangible assets that were determined to have an indefinite useful life. The information below depicts our results 9 HARRAH'S ENTERTAINMENT, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2002 (UNAUDITED) NOTE 2--ADOPTION OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 142 (CONTINUED) for the quarter and six months ended June 30, 2001, on a pro forma basis, as if SFAS No. 142 had been implemented at the beginning of that period.
SECOND QUARTER SIX MONTHS ENDED JUNE 30, 2001 ENDED JUNE 30, 2001 ------------------- ------------------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Reported income before extraordinary losses............... $47,863 $ 92,074 Add back: Goodwill amortization........................... 4,927 9,759 Add back: Trademark amortization.......................... 770 1,540 ------- -------- Adjusted income before extraordinary losses............. 53,560 103,373 Extraordinary losses, net of income tax benefit of $71................................................... - (131) ------- -------- Adjusted net income....................................... $53,560 $103,242 ======= ======== Basic earnings per share: Reported income before extraordinary losses............. $ 0.41 $ 0.80 Goodwill amortization................................... 0.04 0.08 Trademark amortization.................................. 0.01 0.01 ------- -------- Adjusted income before extraordinary losses........... 0.46 0.89 Extraordinary losses, net............................. - - ------- -------- Adjusted net income................................. $ 0.46 $ 0.89 ======= ======== Diluted earnings per share: Reported income before extraordinary losses............. $ 0.40 $ 0.78 Goodwill amortization................................... 0.04 0.09 Trademark amortization.................................. 0.01 0.01 ------- -------- Adjusted income before extraordinary losses........... 0.45 0.88 Extraordinary losses, net............................. - - ------- -------- Adjusted net income................................. $ 0.45 $ 0.88 ======= ========
NOTE 3--ACQUISITIONS On June 7, 2002, a subsidiary of the Company acquired additional common shares of JCC Holding Company, which, together with its subsidiary, Jazz Casino Company LLC (collectively, "JCC"), owns and operates the Harrah's New Orleans casino. This acquisition increased our ownership interest in JCC from 49% to 63% and required a change in our accounting treatment for our investment in JCC from the equity method to full consolidation of JCC in our financial statements. We began consolidating JCC in our financial results on June 7, 2002. We paid $18.3 million ($10.54 per share) for the additional ownership interest in JCC and we purchased approximately $45.8 million of JCC's Senior Notes. The terms of our agreement with the investor from which we purchased the equity interest of JCC require us to pay an additional amount to 10 HARRAH'S ENTERTAINMENT, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2002 (UNAUDITED) NOTE 3--ACQUISITIONS (CONTINUED) that former investor if we purchase any JCC shares from other shareholders at a price higher than $10.54 per share on or before December 31, 2002. The purchase price allocation arising from our acquisition of the additional 14% ownership of JCC is in the early stages and is expected to be completed by December 31, 2002. We expect to assign any difference between the purchase price and the fair value of the additional interest purchased to an intangible asset, which will be amortized over the remaining life of the business pursuant to the agreements with the city and state under which the casino is operated. On July 31, 2002, we announced an agreement with JCC whereby we will acquire the remaining shares of JCC common stock for $10.54 per share, or a total of approximately $54 million. We also agreed to assume or retire all of JCC's outstanding debt that we do not already own of approximately $29.3 million par value. The acquisition is subject to the approval of JCC stockholders, as well as gaming regulatory approvals and other customary conditions, and is expected to be completed during the fourth quarter of 2002. On July 31, 2001, we completed our acquisition of Harveys Casino Resorts ("Harveys"). We paid approximately $294 million for all of the equity interests in Harveys, assumed approximately $350 million in outstanding debt and paid approximately $17 million in acquisition costs. We also assumed a $50 million contingent liability. This liability is contingent on the results of a referendum to be decided by the voters in Pottawattamie County, Iowa, in November 2002. If the referendum passes, we will pay an additional $50 million in acquisition costs. If the referendum does not pass, the excursion gambling boat license may remain valid until January 26, 2004; however, the Bluffs Run Casino would have to cease gaming operations in a relatively short time after the referendum date. Management believes that the referendum will pass; however, in the event the referendum does not pass and gaming operations cease in Pottawattamie County, we would likely have a significant impairment related to the carrying value of our assets in Iowa. We financed our acquisition, and retired Harveys assumed debt, with borrowings under our bank credit facility (see Note 5). We are in the process of finalizing the valuations of certain intangible assets and of the Colorado assets; thus, the allocation of the purchase price, as presented in the Notes to the Consolidated Financial Statements in our 2001 Annual Report, is subject to refinement. The results of operations of the properties acquired in the acquisition of Harveys have been included in our consolidated financial statements since the July 31, 2001, date of acquisition. The following unaudited pro forma consolidated financial information for the Company has been prepared assuming that (1) the Harveys acquisition and the extinguishment of debt assumed in that acquisition and (2) the acquisition of the additional ownership interest in and the consolidation of JCC had both 11 HARRAH'S ENTERTAINMENT, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2002 (UNAUDITED) NOTE 3--ACQUISITIONS (CONTINUED) occurred on January 1, 2001. The information also assumes that SFAS No. 142 was effective for the acquisitions on January 1, 2001.
SECOND QUARTER ENDED SIX MONTHS ENDED ------------------------------------- ------------------------------------- JUNE 30, 2002 JUNE 30, 2001 JUNE 30, 2002 JUNE 30, 2001 ----------------- ----------------- ----------------- ----------------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Revenues........................ $1,078,503 $1,037,906 $2,130,615 $2,074,503 ========== ========== ========== ========== Income before extraordinary losses and cumulative effect of change in accounting principle..................... $ 86,380 $ 53,160 $ 171,019 $ 91,876 ========== ========== ========== ========== Net income...................... $ 86,380 $ 53,160 $ 79,850 $ 91,745 ========== ========== ========== ========== Earnings per share--diluted Income before extraordinary losses and cumulative effect of change in accounting principle................... $ 0.75 $ 0.45 $ 1.49 $ 0.78 ========== ========== ========== ========== Net income...................... $ 0.75 $ 0.45 $ 0.70 $ 0.78 ========== ========== ========== ==========
These unaudited pro forma results are presented for comparative purposes only. The pro forma results are not necessarily indicative of what our actual results would have been had the Harveys acquisition and the debt extinguishments and the JCC acquisition been completed as of the beginning of the period, or of future results. NOTE 4--STOCKHOLDERS' EQUITY In addition to its common stock, Harrah's Entertainment has the following classes of stock authorized but unissued: Preferred stock, $100 par value, 150,000 shares authorized Special stock, $1.125 par value, 5,000,000 shares authorized-- Series A Special Stock, 2,000,000 shares designated In July 2001, our Board of Directors authorized the purchase of up to 6 million shares of the Company's stock in the open market. These purchases are funded through available cash and borrowings from our bank credit facility (see Note 5). During the first six months of 2002, we purchased 2.3 million shares at an average price of $45.09 per share, leaving 1.6 million shares available for purchase pursuant to the authorization, which expires December 31, 2002. During July 2002, our Board of Directors authorized the purchase of up to 2 million additional shares pursuant to a program to expire on December 31, 2002. 12 HARRAH'S ENTERTAINMENT, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2002 (UNAUDITED) NOTE 5--DEBT REVOLVING CREDIT FACILITIES At January 1, 2002, the Company had revolving credit and letter of credit facilities (collectively, the "Bank Facility"), which provided us with borrowing capacity of $1.853 billion. The Bank Facility consisted of a five-year $1.525 billion revolving credit and letter of credit facility maturing in 2004 and a separate $328 million revolving credit facility, which is renewable annually at the borrower's and lenders' options. On April 25, 2002, the 364-day facility was renewed and the available borrowing capacity of that facility was increased from $328 million to $332 million, providing a total borrowing capacity of $1.857 billion pursuant to our Bank Facility. As of June 30, 2002, the Bank Facility bears interest based upon 80 basis points over LIBOR for current borrowings under the five-year facility and 85 basis points over LIBOR for the 364-day facility. In addition, there is a facility fee for borrowed and unborrowed amounts, which is currently 20 basis points on the five-year facility and 15 basis points on the 364-day facility. The interest rate and facility fee are based on our current debt ratings and leverage ratio and may change as our debt ratings or leverage ratio change. There are options on each facility to borrow based on the prime rate. As of June 30, 2002, $1.175 billion in borrowings were outstanding under the Bank Facility with an additional $88.8 million committed to back letters of credit. After consideration of these borrowings and the impact of the increased capacity available to us under the 364-day facility, $593.2 million of additional borrowing capacity was available to the Company as of June 30, 2002. COMMERCIAL PAPER To provide the Company with cost-effective borrowing flexibility, we have a $200 million Commercial Paper program that is used to borrow funds for general corporate purposes. Although the debt instruments are short-term in tenor, they are classified as long-term debt because the Commercial Paper is backed by our Bank Facility and we have committed to keep available capacity under our Bank Facility in an amount equal to or greater than amounts borrowed under this program. At June 30, 2002, $80 million was outstanding under this program. SHORT-TERM BORROWINGS In a program designed for short-term borrowings at lower interest rates than the rates paid under our Bank Facility, we have an uncommitted line of credit agreement with a lender pursuant to which we can borrow up to $31 million for periods of ninety days or less. Borrowings bear interest at current market rates. At June 30, 2002, we had borrowed $31 million under this agreement. This agreement does not decrease our borrowing capacity under our Bank Facility. JCC DEBT With the increase of our ownership interest in JCC to 63% and the subsequent consolidation of JCC into our financial statements, our long-term debt now includes $24.7 million, net of discounts, of JCC's Senior Notes due 2008 (the "JCC Notes"). The JCC Notes bear interest at LIBOR plus 2.75% per annum payable quarterly. Principal payments of 50% of JCC's free cash flow, as defined in JCC's Senior Note agreement, are due for the fiscal years ending March 31, 2003, through March 31, 2005, and payments of $6 million annually are due for the fiscal years ending March 31, 2006, through 13 HARRAH'S ENTERTAINMENT, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2002 (UNAUDITED) NOTE 5--DEBT (CONTINUED) March 31, 2008. JCC is subject to debt covenants under its Senior Note agreement, which restrict, among other things, certain payments, transactions with affiliates, dividend payments, liens, incurrence of additional indebtedness, asset sales, mergers and consolidations, payment of certain indebtedness, capital expenditures and investments or loans. NOTE 6--SUPPLEMENTAL CASH FLOW DISCLOSURES CASH PAID FOR INTEREST AND TAXES The following table reconciles our interest expense, net of interest capitalized, per the Consolidated Condensed Statements of Income, to cash paid for interest:
SIX MONTHS ENDED ------------------- JUNE 30, JUNE 30, 2002 2001 -------- -------- (IN THOUSANDS) Interest expense, net of amount capitalized................. $119,852 $127,415 Adjustments to reconcile to cash paid for interest: Net change in accruals.................................... (2,812) (25,095) Amortization of deferred finance charges.................. (2,543) (2,271) Net amortization of discounts and premiums................ (541) (353) -------- -------- Cash paid for interest, net of amount capitalized........... $113,956 $ 99,696 ======== ======== Cash refunds of income taxes, net of payments............... $ (9,759) $(50,328) ======== ========
NOTE 7--COMMITMENTS AND CONTINGENT LIABILITIES NEW ORLEANS CASINO JCC owns and operates a land-based casino in New Orleans, Louisiana, in which the Company has an ownership interest and which is managed by a subsidiary of the Company. The Company has guaranteed an annual payment obligation of JCC owed to the State of Louisiana of $50 million in the first year, which expired March 31, 2002, and $60 million for three subsequent years. We receive a fee of 2% of the average amount at risk for providing this guarantee. We also hold approximately $99 million aggregate principal amount of the debt of JCC and are providing a $35 million revolving credit facility to JCC at market terms. At June 30, 2002, no funds were outstanding from JCC under the revolving credit facility; however, the amount available under the credit facility was reduced by $0.7 million, which was committed to back letters of credit on behalf of JCC. JCC leases the site on which Harrah's New Orleans is located under the provisions of a long-term lease expiring in 2024. The lease agreement provides for a minimum lease payment of $12.5 million per year. Additional rents based on various percentages of gross gaming and non-gaming revenues are also payable under the terms of the lease lease. The lease contains three consecutive 10-year renewal options. 14 HARRAH'S ENTERTAINMENT, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2002 (UNAUDITED) NOTE 7--COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED) NATIONAL AIRLINES, INC. We are exposed to up to $12.25 million of liability under a letter of credit issued on behalf of National Airlines, Inc. ("NAI"), which expires August 30, 2002. We have an agreement with another investor of NAI whereby that investor is obligated to reimburse us for approximately 56% of amounts that we may pay under the letter of credit and amounts that we funded under another letter of credit. During second quarter 2001, a subsidiary of the Company filed a lawsuit against the other investor for breach of contract due to the investor's failure to reimburse the Company for his share of the $8.6 million we have paid against the second letter of credit. As contractually permitted, the guarantor elected to submit the issue to arbitration and the arbitrator has tentatively ruled in our favor. We expect this ruling to be finalized during third quarter 2002. If we are required to fund under the remaining letter of credit and are unsuccessful in collecting from the other investor, we would record additional losses of up to $10.8 million for NAI. CONTRACTUAL COMMITMENTS We continue to pursue additional casino development opportunities that may require, individually and in the aggregate, significant commitments of capital, up-front payments to third parties, guarantees by the Company of third party debt and development completion guarantees. Excluding guarantees and commitments for the New Orleans casino discussed above, as of June 30, 2002, we had guaranteed third party loans and leases of $204.1 million, which are secured by certain assets, and had commitments of $358.9 million for construction-related and other obligations. The agreements pursuant to which we manage casinos on Indian lands contain provisions required by law that provide that a minimum monthly payment be made to the tribe. These obligations have priority over scheduled payments of borrowings for development costs. In the event that insufficient cash flow is generated by the operations to fund this payment, we must pay the shortfall to the tribe. Such advances, if any, would be repaid to us in future periods in which operations generate cash flow in excess of the required minimum payment. These commitments will terminate upon the occurrence of certain defined events, including termination of the management contract. As of June 30, 2002, the aggregate monthly commitment pursuant to these contracts for the three managed Indian-owned facilities now open, which extend for periods of up to 67 months from June 30, 2002, is $1.1 million. SEVERANCE AGREEMENTS As of June 30, 2002, we have severance agreements with 36 of our senior executives, which provide for payments to the executives in the event of their termination after a change in control, as defined. These agreements provide, among other things, for a compensation payment of 1.5 to 3.0 times the executive's average annual compensation, as defined, as well as for accelerated payment or accelerated vesting of any compensation or awards payable to the executive under any of our incentive plans. The estimated amount, computed as of June 30, 2002, that would be payable under the agreements to these executives based on earnings and stock options aggregated approximately $125.2 million. 15 HARRAH'S ENTERTAINMENT, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 2002 (UNAUDITED) NOTE 7--COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED) TAX SHARING AGREEMENTS In connection with the 1995 spin-off of certain hotel operations (the "PHC Spin-off") to Promus Hotel Corporation ("PHC"), we entered into a Tax Sharing Agreement with PHC wherein each company is obligated for those taxes associated with their respective businesses. Additionally, we are obligated for all taxes for periods prior to the PHC Spin-off date which are not specifically related to PHC operations and/or PHC hotel locations. Our obligations under this agreement are not expected to have a material adverse effect on our consolidated financial position or results of operations. SELF-INSURANCE We are self-insured for various levels of general liability, workers' compensation and employee medical coverage. We also have stop loss coverage to protect against unexpected claims. Insurance claims and reserves include accruals of estimated settlements for known claims, as well as accruals of actuarial estimates of incurred but not reported claims. NOTE 8--LITIGATION We are involved in various inquiries, administrative proceedings and litigation relating to contracts, sales of property and other matters arising in the normal course of business. While any proceeding or litigation has an element of uncertainty, we believe that the final outcome of these matters will not have a material adverse effect upon our consolidated financial position or our results of operations. 16 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of the financial position and operating results of Harrah's Entertainment, Inc. (referred to in this discussion, together with its consolidated subsidiaries where appropriate, as "Harrah's Entertainment", the "Company", "we", "our" and "us") for the second quarter and the first six months of 2002 and 2001, updates, and should be read in conjunction with, Management's Discussion and Analysis of Financial Condition and Results of Operations presented in our 2001 Annual Report on Form 10-K. ADOPTION OF NEW ACCOUNTING STANDARD We adopted Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets," effective January 1, 2002. SFAS No. 142 provides new guidance regarding the recognition and measurement of intangible assets, eliminates the amortization of certain intangibles and requires annual assessments for impairment of intangible assets that are not subject to amortization. An initial impairment analysis is required as of the date of adoption and any resulting impairment loss is recognized as the effect of a change in accounting principle. Early adoption of Statement 142 was not allowed. During the first quarter of 2002, we completed our implementation review of the intangible assets arising from prior acquisitions and determined that non-recurring impairment charges of $91.2 million, net of tax benefits of $2.8 million, or $0.80 per share--diluted, were required. The charges relate to intangible assets acquired in the Company's 1999 acquisition of Rio Hotel and Casino, Inc. Adoption of SFAS No. 142 resulted in the cessation of amortization of most intangible assets as of January 1, 2002. The provisions of this new accounting standard cannot be applied retroactively and prior period results are not to be adjusted for this change in accounting principle. However, it does require that pro forma results be presented to depict what results would have been had the new rules been in force in the prior periods. The pro forma amounts for prior year presented in Note 2 of our Notes to Consolidated Condensed Financial Statements reflect the add-back of this amortization expense to the Company's previously reported results. CONSOLIDATION OF HARRAH'S NEW ORLEANS On June 7, 2002, a subsidiary of the Company acquired additional common shares of JCC Holding Company, which, together with its subsidiary, Jazz Casino Company LLC (collectively, "JCC"), owns and operates the Harrah's New Orleans casino. This acquisition increased our ownership interest in JCC from 49% to 63% and required a change in our accounting treatment for our investment in JCC from the equity method to full consolidation of JCC in our financial statements. We began consolidating JCC in our financial results on June 7, 2002. We paid $18.3 million ($10.54 per share) for the additional ownership interest in JCC and we purchased approximately $45.8 million of JCC's Senior Notes. The terms of our agreement with the investor from which we purchased the equity interest of JCC require us to pay an additional amount to that former investor if we purchase any JCC shares from other shareholders at a price higher than $10.54 per share on or before December 31, 2002. The purchase price allocation arising from our acquisition of the additional 14% ownership of JCC is in the early stages and is expected to be completed by December 31, 2002. We expect to assign any difference between the purchase price and the fair value of the additional interest purchased to an intangible asset, which will be amortized over the remaining life of the business pursuant to the agreements with the city and state under which the casino is operated. On July 31, 2002, we announced an agreement with JCC whereby we will acquire the remaining shares of JCC common stock for $10.54 per share, or a total of approximately $54 million. We also 17 agreed to assume or retire all of JCC's outstanding debt that we do not already own of approximately $29.3 million par value. The acquisition is subject to the approval of JCC stockholders, as well as gaming regulatory approvals and other customary conditions, and is expected to be completed during the fourth quarter of 2002. OPERATING RESULTS AND DEVELOPMENT PLANS OVERALL
SECOND QUARTER PERCENTAGE FIRST SIX MONTHS PERCENTAGE ------------------- INCREASE/ ------------------- INCREASE/ 2002 2001 (DECREASE) 2002 2001 (DECREASE) -------- -------- ---------- -------- -------- ---------- (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) Casino revenues..................... $ 920.9 $753.8 22.2% $1,791.3 $1,501.7 19.3% Total revenues...................... 1,030.3 873.4 18.0% 2,014.0 1,740.6 15.7% Income from operations.............. 203.7 141.7 43.8% 401.9 286.3 40.4% Income before extraordinary losses and cumulative effect of change in accounting principle.............. 86.1 47.9 79.7% 171.3 92.1 86.0% Net income.......................... 86.1 47.9 79.7% 80.1 91.9 (12.8)% Pro forma net income................ 86.1 53.6 60.6% 80.1 103.2 (22.4)% Earnings per share-diluted Before extraordinary losses and cumulative effect of change in accounting principle............ 0.75 0.40 87.5% 1.50 0.78 92.3% Extraordinary losses, net of tax............................. - - - - - - Cumulative effect of change in accounting principle, net of tax............................. - - - (0.80) - N/M Net income........................ 0.75 0.40 87.5% 0.70 0.78 (10.3)% Pro forma net income.............. 0.75 0.45 66.7% 0.70 0.88 (20.5)% Operating margin.................... 19.8% 16.2% 3.6pts 20.0% 16.4% 3.6pts
Second quarter 2002 revenues increased 18.0% over second quarter 2001, and net income increased 79.7% from the same period last year. These record results were driven by our acquisition of Harveys Casino Resorts ("Harveys") on July 31, 2001, the return on recent capital investments at targeted properties, same-store sales growth, our on-going emphasis on cost control strategies, reduced interest expense due to lower rates on our variable rate debt, the cessation of goodwill amortization and the consolidation of JCC into our financial results as of June 7, 2002. For the six months ended June 30, 2002, revenues were up 15.7% and income before extraordinary items and the cumulative effect of a change in accounting principle increased 86.0% from the same period last year. With the exception of the consolidation of JCC's results in our financial statements, year-over-year increases for the first six months were driven by the same factors that drove our second quarter increases. Although the Harveys acquisition was the primary reason for the increase in our second quarter revenues in 2002 over 2001, gaming revenues at our other owned properties continued to grow, reaffirming the success of our strategy to grow same store sales through customer loyalty programs. 18 The following table compares second quarter 2002 gaming revenues to second quarter 2001 gaming revenues for our Company-owned properties, including those acquired over the past three years.
SECOND QUARTER PERCENTAGE ------------------- INCREASE/ 2002 2001 (DECREASE) -------- -------- ---------- (IN MILLIONS) Casino revenues Harrah's.................................................. $500.4 $462.9 8.1% Showboat acquisition...................................... 160.7 156.7 2.6% Rio acquisition........................................... 46.0 40.1 14.7% Players acquisition....................................... 100.4 94.1 6.7% ------ ------ Total for properties owned in both periods.............. 807.5 753.8 7.1% Harveys acquisition....................................... 94.8 - N/M New Orleans consolidation................................. 18.6 - N/M ------ ------ Total................................................... $920.9 $753.8 22.2% ====== ======
To facilitate discussion of our operating results, our properties have been grouped as follows:
WESTERN REGION EASTERN REGION CENTRAL REGION MANAGED/OTHER - --------------------- --------------------- --------------------- --------------------- Harrah's Reno Harrah's Atlantic Harrah's Joliet Harrah's Ak-Chin Harrah's/Harveys Lake City Harrah's East Chicago Harrah's Cherokee Tahoe Showboat Atlantic Harrah's Metropolis Harrah's Prairie Band Bill's City Harrah's Council Harrah's New Orleans Harrah's Las Vegas Bluffs (prior to June 7, Rio Bluffs Run 2002) Harrah's Laughlin Harrah's Shreveport Harveys Colorado Harrah's Vicksburg Harrah's North Kansas City Harrah's St. Louis Harrah's Lake Charles Harrah's Tunica Harrah's New Orleans (June 7, 2002 and after)
In the following discussions of the operating results for our properties, we define operating profit as revenues less direct operating expenses and depreciation and amortization, excluding amortization of intangible assets. WESTERN REGION
SECOND QUARTER PERCENTAGE FIRST SIX MONTHS PERCENTAGE ------------------- INCREASE/ ------------------- INCREASE/ 2002 2001 (DECREASE) 2002 2001 (DECREASE) -------- -------- ---------- -------- -------- ---------- (IN MILLIONS) Casino revenues................. $222.9 $174.1 28.0% $430.1 $356.8 20.5% Net revenues.................... 328.1 283.3 15.8% 637.2 568.9 12.0% Operating profit................ 55.7 32.4 71.9% 98.6 68.7 43.5% Operating margin................ 17.0% 11.4% 5.6pts 15.5% 12.1% 3.4pts
19 The increases in Western Region revenues for the second quarter and first six months of 2002 from the comparable periods last year were due to the inclusion of results from the Harveys casinos in Lake Tahoe and Colorado. These two properties, which were acquired July 31, 2001, contributed $42.3 million and $82.0 million in combined revenues in second quarter and the first six months, respectively, of 2002. Revenues at our Las Vegas properties increased over the second quarter and first six months of 2001 levels, demonstrating the success of continued efforts of these properties to recover from the effects of the September 11, 2001, terrorist attacks on travel, which had a more severe impact on our Las Vegas properties, due to their status as fly-in, destination resorts, than on our other properties. Second quarter 2002 operating profit increased 71.9% over second quarter 2001, driven by improved performance at the Rio primarily due to cost-containment measures and the decision to exit the high-end international table games business in third quarter 2001 and by the addition of the Harveys casinos. Those same factors drove the increase in operating profit of 43.5% for the first six months of 2002 over the prior year period. The six-month year-over-year increase was partially offset by declines in operating profit at Harrah's Las Vegas during first quarter 2002 when room rates and walk-in traffic remained below prior year levels due to effects on travel of the September 11, 2001 terrorist attacks and at Harrah's Laughlin, where operating profit was impacted by costs associated with a motorcycle gang incident in April 2002. Laughlin's business returned to normal in May. EASTERN REGION
SECOND QUARTER PERCENTAGE FIRST SIX MONTHS PERCENTAGE ------------------- INCREASE/ ------------------- INCREASE/ 2002 2001 (DECREASE) 2002 2001 (DECREASE) -------- -------- ---------- -------- -------- ---------- (IN MILLIONS) Casino revenues.............................. $201.6 $191.6 5.2% $379.9 $362.5 4.8% Net revenues................................. 193.9 183.8 5.5% 366.0 349.7 4.7% Operating profit............................. 56.0 48.6 15.2% 97.4 85.9 13.4% Operating margin............................. 28.9% 26.4% 2.5pts 26.6% 24.6% 2.0pts
Our Eastern Region properties reported record revenues for the second quarter and the first six months of 2002. Harrah's Atlantic City revenues increased by 8.9% in the second quarter and by 5.0% in the first six months over the comparable periods in 2001. These increases were driven by the opening of the new hotel tower and the addition of 500 slot machines at this property in second quarter 2002. Showboat Atlantic City revenues increased 1.6% in the second quarter and 4.3% in the first six months over the comparable periods in 2001. These record revenues were achieved despite construction disruptions at both properties. Harrah's Atlantic City posted record operating profit for the second quarter and the first six months of 2002, with increases of 13.9% and 11.9%, respectively, over the second quarter and the first six months of 2001. Showboat Atlantic City's operating profit increased 17.6% over second quarter last year and increased 16.3% over the comparable six-month period in 2001. Property enhancements and effective cost containment drove the improved results at both properties. In May 2002, Harrah's Atlantic City opened its 452-room addition, which increased the hotel's capacity to more than 1,600 rooms, and completed a project that created an additional 28,000 square feet of casino floor space and expanded a buffet area. These capital improvements cost approximately $193 million, $159.8 million of which had been spent at June 30, 2002. 20 Construction is underway on a $90 million, 544-room hotel tower at Showboat Atlantic City, which is expected to open in the third quarter of 2003. As of June 30, 2002, $13.3 million had been spent on this project. CENTRAL REGION
SECOND QUARTER PERCENTAGE FIRST SIX MONTHS PERCENTAGE ------------------- INCREASE/ ------------------- INCREASE/ 2002 2001 (DECREASE) 2002 2001 (DECREASE) -------- -------- ---------- -------- -------- ---------- (IN MILLIONS) Casino revenues.............................. $496.2 $387.9 27.9% $981.0 $782.1 25.4% Net revenues................................. 492.3 388.5 26.7% 975.7 786.2 24.1% Operating profit............................. 101.1 81.9 23.4% 219.2 170.2 28.8% Operating margin............................. 20.5% 21.1% (0.6)pts 22.5% 21.6% 0.9pts
Illinois/Indiana--Combined second quarter 2002 revenues at Harrah's Joliet, Harrah's East Chicago and Harrah's Metropolis set new second quarter records, increasing 12.4% over combined revenues in second quarter last year. Harrah's Joliet continued to benefit from the conversion from riverboats to barges in September 2001. Harrah's Metropolis also benefited from capital improvements made at that property and from the conversion to the Harrah's brand in September of last year. In first quarter 2002, we completed the opening of the $47 million hotel at Harrah's East Chicago. Combined second quarter 2002 operating profit for these properties remained flat when compared to the prior year period despite approximately $12.4 million in net charges against profit in second quarter 2002 to adjust our year-to-date gaming tax accruals for estimated additional taxes due to recent gaming tax increases in Illinois and Indiana. For properties subject to a graduated tax rate, we accrue our gaming tax liability over the course of the year based on our estimate of the annual effective gaming tax rate for the property. The state legislatures in Illinois and Indiana passed legislation during second quarter 2002 raising the gaming tax rates in those states. In Illinois, the maximum graduated gaming tax rate was increased from 35% to 50% effective July 1, 2002. The Indiana legislation, also effective July 1, 2002, increased the base gaming tax rate from 20% to 22.5% and increased the admission tax from $2 to $3 per patron per cruise. The Indiana legislation also includes provisions that allow casinos to convert from cruising to dockside operations. If a casino elects to become a dockside operation, the gaming tax rate structure changes to a graduated scale with a maximum tax rate of 35%. The impact of the increase in the gaming tax rate will be partially mitigated by a change in the methodology for determining the amount of admission tax payable, which will be adjusted from charging the tax per patron per cruise to a charge per admission. We intend to convert our Harrah's East Chicago operation from cruising to dockside during third quarter 2002. Our estimate of the impact of these events on our accrual balances as of June 30, 2002, was an increase in accrued gaming taxes of $14.6 million, partially offset by an estimated $2.2 million reduction on admission tax exposure. For the first six months of 2002, combined revenues increased 11.8% over the same period last year. Operating profit increased 14.1% due to accelerated depreciation in 2001 on the boats that were taken out of service at Joliet due to that property's conversion from riverboats to barges. Louisiana--Combined second quarter 2002 revenues from our Shreveport and Lake Charles properties increased 4.4% over second quarter 2001 as Harrah's Shreveport's 13.5% increase more than offset the 5.9% decline at Harrah's Lake Charles. Combined operating profit for second quarter 2002 increased 2.5% over the year-ago quarter, with the 35.4% increase at Shreveport largely offset by the 37.0% decline at Lake Charles. Shreveport's year-over-year improvements were primarily attributable to the 514-room hotel and player amenities that opened in first quarter 2001. In second quarter 2001, Shreveport's operating profit was affected by higher costs driven by the competitive Shreveport market 21 and increased depreciation associated with the newly constructed assets. Our Lake Charles property has been affected by increased competition, including the addition of slot machines at a horse racing track located closer to one of our Texas feeder markets than our property and additional Indian casino offerings. Operating profits at both Louisiana properties were impacted by increases in gaming taxes that were effective in second quarter 2001. At Shreveport, gaming taxes increased one percentage point in 2001, increased another one percentage point on April 1, 2002, and will increase another one percentage point in 2003. At Lake Charles, gaming taxes increased from 18.5% to 21.5% of gaming revenues in 2001. For the six months ended June 30, 2002, combined Shreveport and Lake Charles revenues were 5.7% higher than in the first six months of 2001 and combined operating profit was 11.1% higher than in the year-ago period. Also contributing to results in Louisiana was the consolidation of JCC into our financial results effective June 7, 2002. Subsequent to its consolidation, JCC contributed $18.6 million in revenues and $2.7 million in operating profit to our second quarter and six months results. In first quarter 2002, the voters of Calcasieu Parish, Louisiana, approved a competitor's proposed riverboat casino in Lake Charles. This will be the fifteenth and final riverboat gaming license to be issued by the State of Louisiana under the legislation legalizing riverboat gaming in that State. We cannot predict the effect on our Company of another casino facility in the Lake Charles area. Mississippi--Combined second quarter 2002 revenues at our Mississippi properties increased 7.3% and operating profit increased by $1.4 million, or 77.1%, over second quarter 2001. The improved results are primarily due to cost containment measures implemented at both of our Mississippi properties. Missouri--Combined second quarter 2002 revenues at our Missouri properties increased 0.9% and operating profit was 11.6% higher than in second quarter last year. The improved results are primarily attributable to cost containment measures. For the first six months, revenues at our Missouri properties decreased 0.7% due to increased competition, but operating profit, aided by cost containment measures, was 8.6% higher than in the first six months of 2001. Iowa--On a combined basis, our two properties in Iowa, which were acquired in July 2001, contributed $58.6 million in total revenues and $11.5 million in operating profit to our second quarter 2002 results and $119.5 million in total revenues and $21.8 million in operating profit for the six months ended June 30, 2002. Pursuant to Iowa law, a county-wide referendum must be held every eight years to re-approve gambling activities both at racetracks and on riverboats. In November 2002, the voters of Pottawattamie County, Iowa, where our operations are located, will vote on a referendum to determine whether or not gaming will be allowed to continue in that county. If the referendum passes, we will pay an additional $50 million in acquisition costs related to our acquisition of Harveys in 2001. If the referendum does not pass, the excursion gambling boat license may remain valid until January 26, 2004; however, the Bluffs Run Casino would have to cease gaming operations in a relatively short time after the referendum date. We believe that the referendum will pass; however, we cannot provide any assurances in this regard. In the event the referendum does not pass and gaming operations cease in Pottawattamie County, we would likely have a significant impairment related to the carrying value of our assets in Iowa. The Iowa Supreme Court issued an opinion in June 2002 that reduced the gaming tax rate on gaming revenues earned by casinos at dog tracks operating in the state, including our Bluffs Run Casino. Casinos at dog tracks are taxed at a higher rate than the riverboat casinos operating in Iowa. 22 The Court ruled this disparity is unconstitutional and opined that the casinos at dog tracks should be taxed at the same rate as the riverboat casinos. This reduces the tax rate for Bluffs Run from 32% to 20%. The Iowa Supreme Court has denied the State's petition for rehearing and remanded the case to the Iowa District Court for determination of the appropriate relief. Further review of the Iowa Supreme Court's ruling on the constitutional issue is unlikely, however, the nature of the relief to be granted remains subject to both judicial and legislative determination. Given the uncertainty of this situation, we have continued to accrue gaming taxes at the 32% rate, and we will continue this practice until this matter is clarified and our ultimate tax exposure is known. Depending upon the relief ultimately granted by the Iowa courts and subject to future changes in the gaming tax rate imposed by the Iowa legislature, an additional payment based on a multiple of the calculated savings will be due Iowa West Racing Association ("Iowa West"), the entity holding the pari-mutuel and gaming license for the Bluffs Run Casino and with whom we have a management agreement to operate that property. Any additional payment that may be due to Iowa West would increase the value of certain intangible assets identified in our acquisition of Harveys. MANAGED CASINOS AND OTHER Our managed and other results were higher than in the second quarter and first six months of 2001 due primarily to management fees from the New Orleans casino. In first quarter 2001, no management fees were recognized from Harrah's New Orleans due to the bankruptcy filing by the owners and operators of the New Orleans casino, JCC. With the implementation of JCC's plan of reorganization, we resumed recognizing management fees from the New Orleans casino in second quarter 2001. With the acquisition of the additional ownership interest in JCC on June 7, 2002, we began consolidating JCC's results in our financial statements and ceased reporting their results as part of our managed casinos. Second quarter 2002 management fees from Indian-owned casinos were about even with second quarter last year as improved results at the casinos offset lower management fee structures. Construction was completed in second quarter 2002 on a 252-room hotel and a 30,000 square foot conference center at Harrah's Cherokee Smoky Mountains Casino in Cherokee, North Carolina. During first quarter 2001, a temporary casino managed by the Rincon San Luiseno Band of Mission Indians ("Rincon") in Southern California began operations near the site where a permanent casino, which we will manage, was being constructed. The permanent casino opened on August [8], 2002. Rincon has secured third-party financing, which we have guaranteed, for its permanent casino. See Debt and Liquidity for further discussion of Harrah's guarantees of debt related to Indian projects. 23 OTHER FACTORS AFFECTING NET INCOME
SECOND QUARTER PERCENTAGE FIRST SIX MONTHS PERCENTAGE ------------------- INCREASE/ ------------------- INCREASE/ 2002 2001 (DECREASE) 2002 2001 (DECREASE) -------- -------- ---------- -------- -------- ---------- (IN MILLIONS) (Income)/expense: Development costs......................... $ 2.1 $ 1.8 16.7% $ 3.8 $ 3.6 5.6% Project opening costs..................... 0.8 2.1 (61.9)% 1.7 4.3 (60.5)% Corporate expense......................... 12.0 13.6 (11.8)% 22.7 27.4 (17.2)% Equity in losses (income) of nonconsolidated affiliates.............. 0.9 0.8 12.5% (4.8) 0.4 N/M Write-downs, reserves and recoveries...... 2.2 1.2 83.3% 1.7 3.3 (48.5)% Venture restructuring costs............... - 1.2 N/M - 2.7 N/M Amortization of intangible assets......... 0.2 5.7 (96.5)% 1.8 11.3 (84.1)% Interest expense, net..................... 58.5 63.2 (7.4)% 119.9 127.4 (5.9)% Loss on equity interests in subsidiaries............................ - 5.4 N/M - 5.0 N/M Other (income) expense.................... 0.9 (6.2) N/M (1.0) 0.3 N/M Effective income tax rate................. 37.8% 36.6% 1.2pts 36.8% 36.4% 0.4pts Minority interests........................ $ 3.6 $ 2.4 50.0% $ 7.8 $ 5.6 39.3% Extraordinary losses, net of income taxes................................... - - - - 0.1 N/M Cumulative effect of change in accounting principle, net of income taxes.......... - - - 91.2 - N/M
Project opening costs in both years included costs incurred in connection with expansion and renovation projects at various properties. Corporate expense decreased 11.8% in second quarter 2002 and 17.2% in the first six months of 2002 from the prior year periods due to cost savings and timing of the incurrence of certain expenses. Equity in losses of nonconsolidated affiliates for second quarter 2002 included our $2.1 million share of an impairment charge taken by a nonconsolidated subsidiary, partially offset by our share of earnings from JCC until June 7, 2002, when we began consolidating JCC's results due to our increased ownership. No equity pick-up from JCC was recorded in first quarter 2001 due to its bankruptcy filing. With the implementation of JCC's reorganization plan, we resumed recording our share of its results in second quarter 2001. Write-downs, reserves and recoveries in second quarter 2002 includes legal costs incurred related to certain lawsuits and write-downs of non-operating assets. The six months ended June 30, 2002, also reflects partial recoveries of previously recorded reserves. Second quarter 2001 Write-downs, reserves and recoveries reflected costs incurred in connection with the closure of our reservations center in Memphis, Tennessee. The six months ended June 30, 2001, also included a true-up to reserves recorded in fourth quarter 2000 in connection with the approval of JCC's reorganization plan. First quarter 2001 Venture restructuring costs represent fees to bankers and other consultants to represent our interest in JCC's plan of reorganization. Amortization of intangible assets is less than in second quarter and the first six months of 2001 due to the implementation of SFAS No. 142 in first quarter 2002. Although the Company's average debt balance was higher in second quarter and first six months of 2002 than in the same periods last year due to the Harveys acquisition and our share repurchase program, interest expense decreased in first quarter 2002 from 2001 due to lower interest rates on variable-rate debt. The average interest rate on our variable-rate debt was 2.9% at June 30, 2002, compared to 5.5% at June 30, 2001. An increase in interest rates could have a material effect on our 24 financial results. For example, assuming a constant outstanding balance for our variable-rate debt for the next twelve months, a hypothetical 1% increase in interest rates would increase interest expense for the next twelve months by approximately $13.2 million, or $3.3 million per quarter. Our variable-rate debt represents approximately 35% of our total debt, while our fixed-rate debt is approximately 65% of our total debt. Other (income) expense for second quarter 2002 was unfavorable compared to second quarter last year due primarily to favorable net investment results in 2001 for company-owned life insurance policies. Second quarter 2002 also included a loss on the sale of a corporate airplane. The first six months of 2002 also included net proceeds from litigation settlements, while the first six months of 2001 also included losses from the sale of non-operating assets. The effective tax rates for both periods are higher than the federal statutory rate due primarily to state income taxes. The 2001 effective tax rate was also affected by that portion of our goodwill amortization that is not deductible for tax purposes. With the cessation of goodwill amortization in first quarter 2002 as a result of the implementation of SFAS No. 142, our effective tax rate declined from the rate at first quarter last year. However, our effective tax rate increased in second quarter 2002 due to increased exposure to state income taxes in 2002. Minority interests reflects minority owners' share of income, which increased in second quarter 2002 from the prior year second quarter due to the consolidation of JCC and recognition of the minority ownership in that entity. The first six months of 2002 also reflect higher earnings from a venture due in part to the accelerated depreciation in 2001 on the riverboats that were removed from service in September 2001. CAPITAL SPENDING AND DEVELOPMENT In addition to the specific development and expansion projects discussed in the Operating Results and Development Plans section, we perform on-going refurbishment and maintenance at our casino entertainment facilities to maintain the Company's quality standards. We also continue to pursue development and acquisition opportunities for additional casino entertainment facilities that meet our strategic and return on investment criteria. Prior to the receipt of necessary regulatory approvals, the costs of pursuing development projects are expensed as incurred. Construction-related costs incurred after the receipt of necessary approvals are capitalized and depreciated over the estimated useful life of the resulting asset. Project opening costs are expensed as incurred. Our planned development projects, if they go forward, will require, individually and in the aggregate, significant capital commitments and, if completed, may result in significant additional revenues. The commitment of capital, the timing of completion and the commencement of operations of casino entertainment development projects are contingent upon, among other things, negotiation of final agreements and receipt of approvals from the appropriate political and regulatory bodies. Cash needed to finance projects currently under development as well as additional projects pursued is expected to be made available from operating cash flows, bank borrowings (see Debt and Liquidity), joint venture partners, specific project financing, guarantees of third party debt and, if necessary, additional debt and/or equity offerings. Our capital spending for the first six months of 2002 totaled approximately $272.2 million. Estimated total capital expenditures for 2002, including amounts spent to date, are expected to be between $400 million and $450 million. 25 DEBT AND LIQUIDITY The majority of our debt is due in the year 2004 and beyond. Payments of short-term obligations and other commitments are expected to be made from operating cash flows. Long-term obligations are expected to be paid through operating cash flows, refinancing of debt, joint venture partners or, if necessary, additional debt and/or equity. BANK FACILITY At January 1, 2002, the Company had revolving credit and letter of credit facilities (collectively, the "Bank Facility"), which provided us with borrowing capacity of $1.853 billion. The Bank Facility consisted of a five-year $1.525 billion revolving credit and letter of credit facility maturing in 2004 and a separate $328 million revolving credit facility, which is renewable annually at the borrower's and lenders' options. On April 25, 2002, the 364-day facility was renewed and the available borrowing capacity of that facility was increased from $328 million to $332 million, providing a total borrowing capacity of $1.857 billion pursuant to our Bank Facility. As of June 30, 2002, the Bank Facility bears interest based upon 80 basis points over LIBOR for current borrowings under the five-year facility and 85 basis points over LIBOR for the 364-day facility. In addition, there is a facility fee for borrowed and unborrowed amounts, which is currently 20 basis points on the five-year facility and 15 basis points on the 364-day facility. The interest rate and facility fee are based on our current debt ratings and leverage ratio and may change as our debt ratings or leverage ratio change. There are options on each facility to borrow based on the prime rate. As of June 30, 2002, $1.175 billion in borrowings were outstanding under the Bank Facility with an additional $88.8 million committed to back letters of credit. After consideration of these borrowings and the impact of the increased capacity available to us under the 364-day facility, $593.2 million of additional borrowing capacity was available to the Company as of June 30, 2002. COMMERCIAL PAPER To provide the Company with cost-effective borrowing flexibility, we have a $200 million Commercial Paper program that is used to borrow funds for general corporate purposes. Although the debt instruments are short-term in tenor, they are classified as long-term debt because the Commercial Paper is backed by our Bank Facility and we have committed to keep available capacity under our Bank Facility in an amount equal to or greater than amounts borrowed under this program. At June 30, 2002, $80 million was outstanding under this program. SHORT-TERM BORROWINGS In a program designed for short-term borrowings at lower interest rates than the rates paid under our Bank Facility, we have an uncommitted line of credit agreement with a lender pursuant to which we can borrow up to $31 million for periods of ninety days or less. Borrowings bear interest at current market rates. At June 30, 2002, we had borrowed $31 million under this agreement. This agreement does not decrease our borrowing capacity under our Bank Facility. JCC DEBT With the increase of our ownership interest in JCC to 63% and the subsequent consolidation of JCC into our financial statements, our long-term debt now includes $24.7 million, net of discounts, of JCC's Senior Notes due 2008 (the "JCC Notes"). The JCC Notes bear interest at LIBOR plus 2.75% per annum payable quarterly. Principal payments of 50% of JCC's free cash flow, as defined in JCC's Senior Note agreement, are due for the fiscal years ending March 31, 2003, through March 31, 2005, and payments of $6 million annually are due for the fiscal years ending March 31, 2006, through March 31, 2008. JCC is subject to debt covenants under its Senior Note agreement, which restrict, 26 among other things, certain payments, transactions with affiliates, dividend payments, liens, incurrence of additional indebtedness, asset sales, mergers and consolidations, payment of certain indebtedness, capital expenditures and investments or loans. EQUITY REPURCHASE PROGRAM In July 2001, our Board of Directors authorized the purchase of up to 6 million shares of the Company's stock in the open market. These repurchases are funded through available cash and borrowings from our Bank Facility. During the first six months of 2002, we purchased 2.3 million shares at an average price of $45.09 per share, leaving 1.6 million shares available for purchase pursuant to the authorization, which expires December 31, 2002. During July 2002, our Board of Directors authorized the purchase of up to 2 million additional shares pursuant to a program to expire on December 31, 2002. GUARANTEES OF THIRD PARTY DEBT AND OTHER COMMITMENTS The Company has guaranteed an annual payment obligation of JCC owed to the State of Louisiana of $50 million in the first year, which expired March 31, 2002, and $60 million for three subsequent years. During the first year of the guarantee, JCC made its annual payment to the State; therefore, the Company did not make any payments under this guarantee. We are also providing a $35 million revolving credit facility to JCC at market terms. At June 30, 2002, no funds were outstanding from JCC under the revolving credit facility; however, the amount available under the credit facility was reduced by $0.7 million, which was committed to back letters of credit on behalf of JCC. JCC leases the site on which Harrah's New Orleans is located under the provisions of a long-term lease expiring in 2024. The lease agreement provides for a minimum lease payment of $12.5 million per year. Additional rents based on various percentages of gross gaming and non-gaming revenues are also payable under the terms of the lease lease. The lease contains three consecutive 10-year renewal options. We are exposed to up to $12.25 million of liability under a letter of credit issued on behalf of National Airlines, Inc. ("NAI"), which expires on August 30, 2002. We have an agreement with another investor of NAI whereby that investor is obligated to reimburse us for approximately 56% of amounts that we may pay under the letter of credit and amounts that we funded under another letter of credit. During second quarter 2001, a subsidiary of the Company filed a lawsuit against the other investor for breach of contract due to the investor's failure to reimburse the Company for his share of the $8.6 million we have paid against the second letter of credit. As contractually permitted, the guarantor elected to submit the issue to arbitration and the arbitrator has tentatively ruled in our favor. We expect this ruling to be finalized during third quarter 2002. If we are required to fund under the remaining letter of credit and are unsuccessful in collecting from the other investor, we would record additional losses of up to $10.8 million for NAI. In addition to guarantees and commitments related to JCC and NAI, the agreements pursuant to which we manage casinos on Indian lands contain provisions required by law that provide for a minimum monthly payment to be made to the tribe. That obligation has priority over scheduled repayments of borrowings for development costs. In the event that insufficient cash flow is generated by the operations to fund this payment, we must pay the shortfall to the tribe. Such advances, if any, would be repaid to us in future periods in which operations generate cash flow in excess of the required minimum payment. These commitments will terminate upon the occurrence of certain defined events, including termination of the management contract. As of June 30, 2002, the aggregate monthly commitment pursuant to these contracts for the three managed Indian-owned facilities now open, which extend for periods of up to 67 months from June 30, 2002, is $1.1 million. 27 We may guarantee all or part of the debt incurred by Indian tribes with which we have entered a management contract to fund development of casinos on the Indian lands. For all existing guarantees of Indian debt, we have obtained a first lien on certain personal property (tangible and intangible) of the casino enterprise. There can be no assurance, however, that the value of such property would satisfy our obligations in the event these guarantees were enforced. Additionally, we have received limited waivers from the Indian tribes of their sovereign immunity to allow us to pursue our rights under the contracts between the parties and to enforce collection efforts as to any assets in which a security interest is taken. The aggregate outstanding balance of such debt as of June 30, 2002, was $191.3 million. With the Harveys acquisition in July 2001, we assumed a $50 million contingent liability that may become due as part of the consideration paid for the net assets of Harveys. The contingent payment depends on the results of a referendum to be decided by the voters of Pottawattamie County, Iowa, in November 2002. (See the discussion in our Operating Results and Development Plans--Central Region--Iowa.) EFFECTS OF CURRENT ECONOMIC AND POLITICAL CONDITIONS COMPETITIVE PRESSURES Due to the limited number of new markets opening for development, many casino operators are reinvesting in existing markets in an effort to attract new customers, thereby increasing competition in those markets. As companies have completed expansion projects, supply has typically grown at a faster pace than demand in some markets and competition has increased significantly. Furthermore, several operators, including Harrah's, have announced plans for additional developments or expansions in some markets. The Louisiana legislature has authorized the use of slot machines at horse racing tracks in three parishes in Louisiana. We operate riverboat casinos in two of these parishes. The voters in these two parishes have approved the use of slot machines at racetracks located in those parishes, and the fees and taxes to be imposed on the slot machines have received legislative approval. We anticipate the installation of slot machines at a horse racing facility near our Shreveport property in the near future. We cannot predict the effect that this new competition in the Shreveport area would have on our operations there. In first quarter 2002, approval was given to a horse racing facility near our property in Lake Charles, Louisiana, to install slot machines and that facility opened in mid-February with approximately 1,500 machines. The horse racing facility is approximately 25 miles closer to the Texas border and one of our major feeder markets in Texas than our property. As discussed above, revenues and operating profit at our Lake Charles property have been negatively impacted by the addition of this new competitor. In the third quarter of 2001, the State of Louisiana selected a competitor to receive the fifteenth and final riverboat gaming license to be issued by the State, under the legislation legalizing riverboat gaming in that State. The competitor's project is for a riverboat casino in Lake Charles. Construction of that facility has not yet begun. We cannot predict the effect that the new riverboat competition in the Lake Charles area will have on our operations there. In Atlantic City, a competitor is constructing a 2,000-room hotel and casino that is expected to open in the summer of 2003. A competitor in Missouri is expected to complete a large casino expansion later this year. The impacts of increased competition in these markets on our Company are uncertain. In October 2001, the legislature of the State of New York approved a bill authorizing six new tribal casinos in that state and video lottery terminals at tracks. The measure allows the governor of New 28 York to negotiate gaming compacts with American Indian tribes to operate three casinos in the Catskills and three casinos in western New York. In September 1999, the State of California and approximately 60 Indian tribes executed Class III Gaming Compacts, which other California tribes can join. The Compacts, when effective, will allow each tribe to operate, on tribal trust lands, two casinos with up to 2,000 slot machines per tribe and unlimited house-banked card games. Our agreements with the Rincon Tribe are a result of these events (see Operating Results and Development Plans, Managed Casinos and Other). At this time, the ultimate impacts that the New York Compacts or the California Compacts may have on the industry or on our Company are uncertain. Other states are also considering legislation enabling the development and operation of casinos or casino-like operations. Although, historically, the short-term effect of such competitive developments on our Company has been both positive and negative, we are not able to determine the long-term impact, whether favorable or unfavorable, that these trends and events will have on current or future markets. We believe that the geographic diversity of our operations; our focus on multi-market customer relationships; our service training, measurements and rewards programs; and our continuing efforts to establish our brands as premier brands upon which we have built strong customer loyalty have well-positioned us to face the challenges present within our industry. We utilize the unique capabilities of WINet, a sophisticated nationwide customer database, and Total Rewards, a nationwide reward and recognition program. Total Rewards provides our customers with a simple understanding of how to earn cash, comps and other benefits for playing at Harrah's Entertainment casinos. We believe both of these marketing tools provide us with competitive advantages, particularly with players who visit more than one market. All of our properties, with the exception of the Colorado property acquired in the Harveys acquisition, are integrated into both WINet and Total Rewards. POLITICAL UNCERTAINTIES The casino entertainment industry is subject to political and regulatory uncertainty. From time to time, individual jurisdictions have also considered legislation or referendums that could adversely impact our operations. The likelihood or outcome of similar legislation and referendums in the future is difficult to predict. The casino entertainment industry represents a significant source of tax revenues to the various jurisdictions in which casinos operate. From time to time, and as was the case in second quarter 2002 in Illinois and Indiana, various state and federal legislators and officials have proposed changes in tax laws, or in the administration of such laws that would affect the industry. It is not possible to determine with certainty the scope or likelihood of possible future changes in tax laws or in the administration of such laws. If adopted, such changes could have a material adverse effect on our financial results. SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES We prepare our Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States. Certain of our accounting policies, including the estimated lives assigned to our assets, the determination of bad debt, asset impairment and self insurance reserves, the purchase price allocations made in connection with our acquisitions and the calculation of our income tax liabilities, require that we apply significant judgment in defining the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. Our judgments are based on our historical experience, terms of existing contracts, our observance of trends in the industry, information provided by our customers and information available from other outside sources, as appropriate. There can be no assurance that actual results will not differ from our estimates. To provide an understanding of the methodology we apply, 29 our significant accounting policies are discussed where appropriate in this discussion and analysis and in the Notes to Consolidated Condensed Financial Statements. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS During first quarter 2001, the Emerging Issues Task Force reached a consensus on the portion of Issue 00-22, "Accounting for 'Points' and Certain Other Time-Based or Volume-Based Sales Incentive Offers, and Offers for Free Products or Services to be Delivered in the Future," which addresses the income statement classification of the value of the points redeemable for cash awarded under point programs such as our Total Rewards program. Per the consensus, which for our Company was effective retroactively to January 1, 2001, with reclassification of prior year costs also required, the cost of these programs should be reported as a contra-revenue, rather than as an expense. Debate continues on a number of other facets of Issue 00-22 that could have an impact on our financial statements. We historically reported the costs of such points as an expense, so we have reclassified these costs to be contra-revenues in our Consolidated Condensed Statements of Income to comply with the consensus. The amounts of expense reclassified for the second quarter and the first six months of 2001 were $40.6 million and $73.0 million, respectively. These reclassifications had no impact on our Income from operations, Net income or Earnings per share. During second quarter 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 143, "Accounting for Asset Retirement Obligations". SFAS No. 143 establishes accounting standards for the recognition and measurement of an asset retirement obligation and its associated asset retirement cost. It also provides accounting guidance for legal obligations associated with the retirement of tangible long-lived assets. For our Company, SFAS No. 143 will be effective in 2003. We are currently evaluating the provisions of this recently issued accounting pronouncement and have not yet determined the impact that its adoption will have on our results of operations or financial position. During third quarter 2001 the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", which we implemented on January 1, 2002. SFAS No. 144 establishes a single accounting model for the impairment or disposal of long-lived assets, including discontinued operations. SFAS No. 144 had no impact on our financial statements. In second quarter 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB No. 13, and Technical Corrections," which all but eliminates the presentation in income statements of debt extinguishments as extraordinary items. Statement No. 145 is effective for fiscal years beginning after May 15, 2002. We plan to implement Statement No. 145 upon the earlier of a 2002 debt extinguishment giving rise to a gain or loss or in our 2002 Form 10-K. In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," which requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to exit or disposal plan. Statement No. 146 is to be applied prospectively to exit or disposal activities initiated after December 31, 2002. PRIVATE SECURITIES LITIGATION REFORM ACT This quarterly report on Form 10-Q contains "forward-looking statements" intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. You can identify these statements by the fact that they do not relate strictly to historical or current facts. These statements contain words such as "may," "will," "project," "might," "expect," "believe," "anticipate," "intend," "could," "would," "estimate," "continue" or "pursue," or the negative or other variations thereof or comparable terminology. In particular, they include statements relating to, among other things, future actions, new projects, strategies, future performance, the outcome of contingencies 30 such as legal proceedings and future financial results. We have based these forward-looking statements on our current expectations and projections about future events. We caution the reader that forward-looking statements involve risks and uncertainties that cannot be predicted or quantified and, consequently, actual results may differ materially from those expressed or implied by such forward-looking statements. Such risks and uncertainties include, but are not limited to, the following factors as well as other factors described from time to time in our reports filed with the Securities and Exchange Commission: - the effect of economic, credit and capital market conditions on the economy in general, and on gaming and hotel companies in particular; - construction factors, including delays, zoning issues, environmental restrictions, soil and water conditions, weather and other hazards, site access matters and building permit issues; - our ability to timely and cost effectively integrate into our operations the companies that we acquire; - access to available and feasible financing; - changes in laws (including increased tax rates), regulations or accounting standards, third party relations and approvals, and decisions of courts, regulators and governmental bodies; - litigation outcomes and judicial actions, including gaming legislative action, referenda and taxation; - ability of our customer tracking/monitoring and yield management programs to continue to increase customer loyalty; - our ability to recoup costs of capital investments through higher revenues; - acts of war or terrorist incidents; - abnormal gaming holds; and - the effects of competition, including locations of competitors and operating and market competition. Any forward-looking statements are made pursuant to the Private Securities Litigation Reform Act of 1995 and, as such, speak only as of the date made. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. 31 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices. Our primary exposure to market risk is interest rate risk associated with our debt. We attempt to limit our exposure to interest rate risk by managing the mix of our debt between fixed rate and variable rate obligations. Of our approximately $3.7 billion total debt at June 30, 2002, $1.3 billion is subject to variable interest rates, which averaged 2.9% at June 30, 2002. Assuming a constant outstanding balance for our variable rate debt for the next twelve months, a hypothetical 1% increase in interest rates would increase interest expense for the next twelve months by approximately $13.2 million. We do not currently utilize derivative transactions to hedge our exposure to interest rate changes. We do not hold or issue derivative financial instruments for trading purposes and do not enter into derivative transactions that would be considered speculative positions. We hold investments in various available-for-sale equity securities; however, our exposure to price risk arising from the ownership of these investments is not material to our consolidated financial position, results of operations or cash flows. 32 PART II--OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits *EX-10.1 Second Amended and Restated 364-Day Loan Agreement dated April 25, 2002 among Harrah's Entertainment, Inc. as Guarantor, Harrah's Operating Company, Inc. as initial Borrower, The Lenders, Syndication Agent, Documentation Agents and Co-Documentation Agents and Bank of America, N.A. as Administrative Agent. *EX-11 Computation of per share earnings.
- ------------------------ * Filed herewith. (b) The following reports on Form 8-K were filed by the Company during second quarter 2002. (i) Form 8-K filed April 17, 2002, regarding earnings for first quarter 2002. (ii) Form 8-K filed May 3, 2002, regarding the dismissal of Arthur Andersen LLP and the engagement of Deloitte & Touche LLP as independent auditors. (iii) Form 8-K filed May 3, 2002, regarding the election of Frank J. Biondi, Jr. to the Company's Board of Directors. 33 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. HARRAH'S ENTERTAINMENT, INC. August 13, 2002 By: /s/ ANTHONY D. MCDUFFIE ----------------------------------------- Anthony D. McDuffie VICE PRESIDENT, CONTROLLER AND CHIEF ACCOUNTING OFFICER
34 EXHIBIT INDEX
EXHIBIT SEQUENTIAL NO. DESCRIPTION PAGE NO. - ------- ------------------------------------------------------------ ---------- EX-10.1 Second Amended and Restated 364-Day Loan Agreement dated April 25, 2002 among Harrah's Entertainment, Inc. as Guarantor, Harrah's Operating Company, Inc. as initial Borrower, The Lenders, Syndication Agent, Documentation Agents and Co-Documentation Agents and Bank of America, N.A. as Administrative Agent. EX-11 Computation of per share earnings.
EX-10.1 3 a2085842zex-10_1.txt EXHIBIT 10-1 EXHIBIT 10.1 ================================================================================ SECOND AMENDED AND RESTATED 364-DAY LOAN AGREEMENT Dated as of April 25, 2002 among HARRAH'S ENTERTAINMENT, INC. as Guarantor HARRAH'S OPERATING COMPANY, INC. as initial Borrower The Lenders, Syndication Agent, Documentation Agents And Co-Documentation Agents referred to herein and BANK OF AMERICA, N.A., as Administrative Agent BANC OF AMERICA SECURITIES LLC Lead Arranger and Sole Book Manager ================================================================================ TABLE OF CONTENTS
Page Article 1 DEFINITIONS AND ACCOUNTING TERMS.....................................1 1.1 Defined Terms...........................................................1 1.2 Use of Defined Terms...................................................22 1.3 Accounting Terms.......................................................22 1.4 Rounding...............................................................23 1.5 Exhibits and Schedules.................................................23 1.6 Miscellaneous Terms....................................................23 Article 2 LOANS AND LETTERS OF CREDIT.........................................24 2.1 Loans-General..........................................................24 2.2 Base Rate Loans........................................................25 2.3 Eurodollar Rate Loans..................................................25 2.4 Voluntary Reduction of Commitment......................................26 2.5 Optional Termination of Commitment.....................................26 2.6 Additional Borrowers...................................................26 2.7 Administrative Agent's Right to Assume Funds Available for Advances....27 2.8 Extension of the Maturity Date.........................................27 Article 3 PAYMENTS AND FEES...................................................29 3.1 Principal and Interest.................................................29 3.2 Arrangement Fee........................................................30 3.3 Upfront Fees...........................................................30 3.4 Facility Fees..........................................................30 3.5 Agency Fees............................................................30 3.6 Increased Commitment Costs.............................................30 3.7 Eurodollar Costs and Related Matters...................................31 3.8 Default Rate...........................................................34 3.9 Computation of Interest and Fees.......................................34 3.10 Non-Business Days......................................................35 3.11 Manner and Treatment of Payments.......................................35 3.12 Funding Sources........................................................36 3.13 Failure to Charge Not Subsequent Waiver................................36 3.14 Administrative Agent's Right to Assume Payments Will be Made by Borrowers...................................................36 3.15 Fee Determination Detail...............................................36 3.16 Survivability..........................................................36 Article 4 REPRESENTATIONS AND WARRANTIES......................................37 4.1 Existence and Qualification; Power; Compliance With Laws...............37 4.2 Authority; Compliance With Other Agreements and Instruments and Government Regulations.............................................37
-i- 4.3 No Governmental Approvals Required.....................................38 4.4 Significant Subsidiaries...............................................38 4.5 Financial Statements...................................................39 4.6 No Other Liabilities; No Material Adverse Effect.......................39 4.7 Title to Property......................................................39 4.8 Litigation.............................................................39 4.9 Binding Obligations....................................................39 4.10 No Default.............................................................39 4.11 ERISA..................................................................39 4.12 Regulations T, U and X; Investment Company Act.........................40 4.13 Disclosure.............................................................40 4.14 Tax Liability..........................................................40 4.15 Projections............................................................40 4.16 Hazardous Materials....................................................41 4.17 Gaming Laws............................................................41 4.18 Solvency...............................................................41 Article 5 AFFIRMATIVE COVENANTS...............................................42 5.1 Preservation of Existence..............................................42 5.2 Maintenance of Properties..............................................42 5.3 Maintenance of Insurance...............................................42 5.4 Compliance With Laws...................................................42 5.5 Inspection Rights......................................................42 5.6 Keeping of Records and Books of Account................................43 5.7 Use of Proceeds........................................................43 Article 6 NEGATIVE COVENANTS..................................................44 6.1 Consolidations, Mergers and Sales of Assets............................44 6.2 Hostile Tender Offers..................................................44 6.3 Change in Nature of Business...........................................44 6.4 Liens, Negative Pledges, Sale Leasebacks and Rights of Others..........44 6.5 Total Debt Ratio.......................................................46 6.6 Interest Coverage Ratio................................................46 6.7 Subsidiary Indebtedness................................................46 Article 7 INFORMATION AND REPORTING REQUIREMENTS..............................47 7.1 Financial and Business Information.....................................47 7.2 Compliance Certificates................................................48 Article 8 CONDITIONS..........................................................50 8.1 Initial Advances, Etc..................................................50 8.2 Any Increasing Advance, Etc............................................51 Article 9 EVENTS OF DEFAULT AND REMEDIES UPON EVENT OF DEFAULT................53 9.1 Events of Default......................................................53 9.2 Remedies Upon Event of Default.........................................55 Article 10 THE ADMINISTRATIVE AGENT............................................57
-ii- 10.1 Appointment and Authorization..........................................57 10.2 Administrative Agent and Affiliates....................................57 10.3 Proportionate Interest in any Collateral...............................57 10.4 Lenders' Credit Decisions..............................................57 10.5 Action by Administrative Agent.........................................58 10.6 Liability of Administrative Agent......................................58 10.7 Indemnification........................................................59 10.8 Successor Administrative Agent.........................................60 10.9 No Obligations of Parent or Borrowers..................................60 Article 11 MISCELLANEOUS.......................................................61 11.1 Cumulative Remedies; No Waiver.........................................61 11.2 Amendments; Consents...................................................61 11.3 Costs, Expenses and Taxes..............................................62 11.4 Nature of Lenders' Obligations.........................................63 11.5 Survival of Representations and Warranties.............................63 11.6 Notices................................................................63 11.7 Execution of Loan Documents............................................63 11.8 Binding Effect; Assignment.............................................64 11.9 Sharing of Setoffs.....................................................66 11.10 Indemnity by Parent and Borrowers......................................67 11.11 Nonliability of the Lenders............................................68 11.12 No Third Parties Benefited.............................................69 11.13 Confidentiality........................................................69 11.14 Removal of a Lender....................................................69 11.15 Further Assurances.....................................................70 11.16 Integration............................................................70 11.17 Governing Law..........................................................71 11.18 Severability of Provisions.............................................71 11.19 Headings...............................................................71 11.20 Time of the Essence....................................................71 11.21 Foreign Lenders and Participants.......................................71 11.22 Gaming Boards..........................................................71 11.23 Nature of the Borrowers' Obligations...................................72 11.24 Designated Senior Debt.................................................72 11.25 Gaming Regulations.....................................................72 11.26 Waiver of Right to Trial by Jury.......................................72 11.27 Purported Oral Amendments..............................................72
-iii- EXHIBITS A - Assignment Agreement B - Compliance Certificate C - Note D - Opinion of Counsel E - Parent Guaranty F - Request for Loan G - Election to Become a Borrower SCHEDULES 4.3 Governmental Approvals 4.4 Significant Subsidiaries 4.7 Existing Liens, Negative Pledges and Rights of Others -iv- SECOND AMENDED AND RESTATED 364-DAY LOAN AGREEMENT Dated as of April 25, 2002 This SECOND AMENDED AND RESTATED 364-DAY LOAN AGREEMENT ("Agreement") is entered into among Harrah's Operating Company, Inc., a Delaware corporation (the "Company" and the initial "Borrower" hereunder), Harrah's Entertainment, Inc., a Delaware corporation (the "Parent"), as Guarantor, Bank of America, N.A. and each lender whose name is set forth on the signature pages of this Agreement and each other lender which may hereafter become a party to this Agreement pursuant to Section 11.8 (collectively, the "Lenders" and individually, a "Lender"), Deutsche Bank Americas Trust Company, as Syndication Agent, CIBC World Markets Corp. and Societe Generale, as Documentation Agents, Commerzbank AG and Wells Fargo Bank, N.A., as Co-Documentation Agents and Bank of America, N.A., as Administrative Agent. While not party to this Agreement, Banc of America Securities LLC has served as Lead Arranger and Sole Book Manager. RECITALS A. Parent, the Company and Marina Associates ("Marina") have heretofore entered into a 364-Day Loan Agreement dated as of April 30, 1999, pursuant to which a $300,000,000 credit facility was extended to the Company and Marina, as borrowers. The credit facilities under such 364-Day Loan Agreement have heretofore been increased to $328,000,000 and the maturity thereof extended to April 25, 2002 (such 364-Day Loan Agreement, as amended and restated, the "Existing Loan Agreement"). B. Marina's status as a Borrower under the Existing Loan Agreement has heretofore been terminated. C. Parent and the Company have requested that the Lenders amend and restate the Existing Loan Agreement in its entirety in the manner set forth herein and to extend the maturity of the Existing Loan Agreement for an additional 364 day period. D. From time to time, Parent and the Company may designate additional Wholly-Owned Subsidiaries to be additional Borrowers hereunder pursuant to Section 2.6 hereof, each with an Aggregate Sub-Limit determined as set forth in that Section. NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the parties hereto covenant and agree as follows: Article 1 DEFINITIONS AND ACCOUNTING TERMS 1.1 DEFINED TERMS. As used in this Agreement, the following terms shall have the meanings set forth below: -1- "ADMINISTRATIVE AGENT" means Bank of America, N.A., when acting in its capacity as the Administrative Agent under any of the Loan Documents, or any successor Administrative Agent. "ADMINISTRATIVE AGENT'S OFFICE" means the Administrative Agent's address as set forth on the signature pages of this Agreement, or such other address as the Administrative Agent hereafter may designate by written notice to Borrowers and the Lenders. "ADVANCE" means any Advance made to a Borrower by any Lender in accordance with its Pro Rata Share pursuant to Section 2.1. "AFFILIATE" means, as to any Person, any other Person which directly or indirectly controls, or is under common control with, or is controlled by, such Person. As used in this definition, "control" (and the correlative terms, "controlled by" and "under common control with") shall mean possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise); PROVIDED that, in any event, any Person that owns, directly or indirectly, 5% or more of the securities having ordinary voting power for the election of directors or other governing body of a corporation that has more than 100 record holders of such securities, or 5% or more of the partnership or other ownership interests of any other Person that has more than 100 record holders of such interests, will be deemed to control such corporation or other Person. "AGGREGATE SUBLIMIT" means with respect to any Subsidiary of Parent which hereafter becomes a Borrower, such aggregate amount as shall be established in accordance with Section 2.6. "AGREEMENT" means this Second Amended and Restated 364-Day Loan Agreement, either as originally executed or as it may from time to time be supplemented, modified, amended, restated or extended. "ASSIGNMENT AGREEMENT" means an Assignment Agreement substantially in the form of Exhibit A. "BANK OF AMERICA" means Bank of America, N.A., its successors and assigns. "BASE RATE" means, as of any date of determination, the rate per annum (rounded upwards, if necessary, to the next 1/100 of 1%) equal to the HIGHER OF (a) the Reference Rate in effect on such date (calculated on the basis of a year of 365 or 366 days and the actual number of days elapsed) and (b) the Federal Funds Rate in effect on such date (calculated on the basis of a year of 360 days and the actual number of days elapsed) PLUS 1/2 of 1% (50 basis points). -2- "BASE RATE ADVANCE" and "BASE RATE LOAN" mean, respectively, an Advance or a Loan made hereunder and specified to be a Base Rate Advance or Loan in accordance with Article 2. "BORROWERS" means, collectively, Company and each other Wholly-Owned Subsidiary which is hereafter designated as a Borrower in accordance with Section 2.6, and their respective successors and permitted assigns. At such times as no other Person has been so designated as a Borrower, each reference to the plural, "Borrowers" shall be a reference to the Company. "BUSINESS DAY" means any Monday, Tuesday, Wednesday, Thursday or Friday, OTHER THAN a day on which commercial banks are authorized or required to be closed in California or New York. "CAPITAL LEASE OBLIGATIONS" means all monetary obligations of a Person under any leasing or similar arrangement which, in accordance with Generally Accepted Accounting Principles, is classified as a capital lease. "CASH" means, when used in connection with any Person, all monetary and non-monetary items owned by that Person that are treated as cash in accordance with Generally Accepted Accounting Principles, consistently applied. "CERTIFICATE OF A RESPONSIBLE OFFICIAL" means a certificate signed by a Responsible Official of the Person providing the certificate. "CHANGE IN CONTROL" means the occurrence of a Rating Decline in connection with any of the following events (or, if either of the Debt Ratings have then declined to below Investment Grade, the occurrence of any of the following events without the requirement of any further decline in the Debt Ratings): (i) upon any merger or consolidation of Parent with or into any person or any sale, transfer or other conveyance, whether direct or indirect, of all or substantially all of the assets of Parent, on a consolidated basis, in one transaction or a series of related transactions, if, immediately after giving effect to such transaction, any person or group of persons (within the meaning of Section 13 or 14 of the Securities Exchange Act of 1934, as amended) is or becomes the beneficial owner (within the meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission under said Act) of securities representing a majority of the total voting power of the aggregate outstanding securities of the transferee or surviving entity normally entitled to vote in the election of directors, managers, or trustees, as applicable, of the transferee or surviving entity, (ii) when any person or group of persons (within the meaning of Section 13 or 14 of the Securities Exchange Act of 1934, as amended) is or becomes the beneficial owner (within the meaning of Rule 13d-3 promulgated by The Securities and-Exchange Commission under said Act) of securities representing a majority of total voting power of the aggregate outstanding securities of Parent normally entitled to vote in the election of directors of Parent, (iii) when, during any period of 12 consecutive calendar months, individuals who were directors of -3- Parent on the first day of such period (together with any new directors whose election by the board of directors of Parent or whose nomination for election by the stockholders of Parent was approved by a vote of a majority of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the board of directors of Parent, or (iv) the sale or disposition, whether directly or indirectly, by Parent of all or substantially all of its assets. "CLOSING DATE" means the time and Business Day on which the conditions set forth in Section 8.1 are satisfied or waived. The Administrative Agent shall notify the Company and the Lenders of the date that is the Closing Date. "CO-DOCUMENTATION AGENTS" means those Lenders listed in the preamble of this Agreement as such. No Co-Documentation Agent shall have any additional rights, duties or obligations under this Agreement or the other Loan Documents by reason of its being a Co-Documentation Agent. "CODE" means the Internal Revenue Code of 1986, as amended or replaced and as in effect from time to time. "COMMITMENT" means, subject to Sections 2.4, 2.5, 2.8 and 11.14, $332,000,000. As of the Closing Date, each Lender has a Pro Rata Share equal to the amount of the Note issued to that Lender, which amount is as set forth in a written advice from the Lead Arranger to such Lender. "COMPANY" means Harrah's Operating Company, Inc., its successors and permitted assigns. "COMPLIANCE CERTIFICATE" means a certificate substantially in the form of Exhibit B, properly completed and signed on behalf of Borrowers by a Senior Officer of each Borrower. "CONFIDENTIAL INFORMATION MEMORANDUM" means the Confidential Information Memorandum dated April, 2002, distributed to the Lenders in connection with the credit facilities provided herein. "CONTINGENT OBLIGATION" means, as to any Person, any (a) guarantee by that Person of Indebtedness of, or other obligation performable by, any other Person or (b) assurance given by that Person to an obligee of any other Person with respect to the performance of an obligation by, or the financial condition of, such other Person, whether direct, indirect or contingent, INCLUDING any purchase or repurchase agreement covering such obligation or any collateral security therefor, any agreement to provide funds (by means of loans, capital contributions or otherwise) to such other Person, any agreement to support the solvency or level of any balance sheet item of such other Person or any "keep-well", "make-well" or other arrangement of whatever nature given for the purpose of assuring or holding harmless such obligee against loss with respect to any obligation of such other Person; PROVIDED, HOWEVER, that the term -4- Contingent Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. "CONTRACTUAL OBLIGATION" means, as to any Person, any provision of any outstanding security issued by that Person or of any material agreement, instrument or undertaking to which that Person is a party or by which it or any of its Property is bound. "CREDITORS" means, collectively, the Administrative Agent, each Lender, the Syndication Agent, the Documentation Agents, the Co-Documentation Agents, the Lead Arranger and, where the context requires, any one or more of them. "DEBT RATING" means, as of each date of determination, the most creditworthy credit rating, actual or implicit, assigned to senior unsecured Indebtedness of Company by S&P or Moody's, whichever is higher. "DEBTOR RELIEF LAWS" means the Bankruptcy Code of the United States of America, as amended from time to time, and all other applicable liquidation, conservatorship, bankruptcy, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws from time to time in effect affecting the rights of creditors generally. "DEFAULT" means any event that, with the giving of any applicable notice or passage of time specified in Section 9.1, or both, would be an Event of Default. "DEFAULT RATE" means the interest rate prescribed in Section 3.8. "DEFEASED DEBT" means (a) the $58,300,000 aggregate principal amount of Showboat's First Mortgage Bonds due 2008, (b) the $2,400,000 aggregate outstanding principal amount of Showboat's Senior Subordinated Notes due 2009, and (c) any other Indebtedness of Parent and its Subsidiaries which, at any relevant time, is subject to legal or covenant defeasance in a manner which is reasonably acceptable to the Administrative Agent. "DESIGNATED DEPOSIT ACCOUNT" means a deposit account to be maintained by Borrowers with Bank of America, as from time to time designated by Borrowers by written notification to the Administrative Agent. "DESIGNATED EURODOLLAR MARKET" means, with respect to any Eurodollar Rate Loan, (a) the London Eurodollar Market, or (b) if prime banks in the London Eurodollar Market are at the relevant time not accepting deposits of Dollars or if the Administrative Agent determines that the London Eurodollar Market does not represent at the relevant time the effective pricing to the Lenders for deposits of Dollars in the London Eurodollar Market, the Cayman Islands Eurodollar Market or (c) if prime banks in the Cayman Islands Eurodollar Market are at the relevant time not accepting deposits of Dollars or if the Administrative Agent determines that the Cayman Islands Eurodollar Market does not represent at the relevant time the effective -5- pricing to the Lenders for deposits of Dollars in the Cayman Islands Eurodollar Market, such other Eurodollar Market as may from time to time be selected by the Administrative Agent with the approval of Borrowers and the Requisite Lenders. "DISQUALIFICATION" means, with respect to any Lender: (a) the failure of that Person timely to file pursuant to applicable Gaming Laws (i) any application requested of that Person by any Gaming Board in connection with any licensing required of that Person as a lender to Borrowers or (ii) any required application or other papers in connection with determination of the suitability of that Person as a lender to Borrowers; (b) the withdrawal by that Person (EXCEPT where requested or permitted by the Gaming Board) of any such application or other required papers; or (c) any final determination by a Gaming Board pursuant to applicable Gaming Laws (i) that such Person is "unsuitable" as a lender to Borrowers, (ii) that such Person shall be "disqualified" as a lender to Borrowers or (iii) denying the issuance to that Person of any license required under applicable Gaming Laws to be held by all lenders to Borrowers. "DOCUMENTATION AGENTS" means those Lenders listed in the preamble of this Agreement as such. No Documentation Agent shall have any additional rights, duties or obligations under this Agreement or the other Loan Documents by reason of its being a Documentation Agent. "DOLLARS" or "$" means United States dollars. "EBITDA" means, for any period, Net Income for such period before (i) income taxes, (ii) interest expense, (iii) depreciation and amortization, (iv) minority interest, (v) extraordinary losses or gains, (vi) Pre-Opening Expenses, and (vii) nonrecurring non-cash charges, PROVIDED that, in calculating "EBITDA": (a) the operating results of each New Project which commences operations and records not less than one full fiscal quarter's operations during the relevant period shall be annualized; and (b) EBITDA shall be adjusted, on a pro forma basis, to include the operating results of each resort or casino property acquired by Parent and its Consolidated Subsidiaries during the relevant period and to exclude the operating results of each resort or casino property sold or otherwise disposed of by Parent and its Subsidiaries, or whose operations are discontinued during the relevant period. "ELECTION TO BECOME A BORROWER" means an Election to Become a Borrower, substantially in the form of Exhibit G to this Agreement, properly completed and duly executed by each required party thereto. -6- "ELIGIBLE ASSIGNEE" means (a) another Lender, (b) with respect to any Lender, any Affiliate of that Lender, (c) any commercial bank having a combined capital and surplus of $100,000,000 or more which is (i) organized under the laws of the United States or any state thereof, or (ii) the domestic branch or agency of any such commercial bank organized under the laws of a country which is a member of the Organization for Economic Cooperation and Development, (d) any (i) savings bank, savings and loan association or similar financial institution or (ii) insurance company engaged in the business of writing insurance which, in either case (A) has a net worth of $200,000,000 or more, (B) is engaged in the business of lending money and extending credit under credit facilities substantially similar to those extended under this Agreement and (C) is operationally and procedurally able to meet the obligations of a Lender hereunder to the same degree as a commercial bank and (e) any other financial institution (INCLUDING a mutual fund or other fund) having total assets of $250,000,000 or more which meets the requirements set forth in subclauses (B) and (C) of clause (d) above; PROVIDED that each Eligible Assignee must either (a) be organized under the Laws of the United States of America, any State thereof or the District of Columbia or (b) be organized under the Laws of the Cayman Islands or any country which is a member of the Organization for Economic Cooperation and Development, or a political subdivision of such a country, and (i) act hereunder through a branch, agency or funding office located in the United States of America and (ii) otherwise be exempt from withholding of tax on interest and delivers Form W-8BEN pursuant to Section 11.21 at the time of any assignment pursuant to Section 11.8. "ERISA" means the Employee Retirement Income Security Act of 1974, and any regulations issued pursuant thereto, as amended or replaced and as in effect from time to time. "EURODOLLAR BUSINESS DAY" means any Business Day on which dealings in Dollar deposits are conducted by and among banks in the Designated Eurodollar Market. "EURODOLLAR LENDING OFFICE" means, as to each Lender, its office or branch so designated by written notice to Borrowers and the Administrative Agent as its Eurodollar Lending Office. If no Eurodollar Lending Office is designated by a Lender, its Eurodollar Lending Office shall be its office at its address for purposes of notices hereunder. "EURODOLLAR MARGIN" means, for each Pricing Period, the interest rate margin set forth below (expressed in basis points) opposite the Pricing Level for that Pricing Period PLUS or MINUS any then Pricing Adjustment applicable during that Pricing Period:
Pricing Level Eurodollar Margin ------------- ----------------- I 52.00 II 65.00
-7- III 75.00 IV 85.00 V 105.00 VI 137.50
"EURODOLLAR MARKET" means a regular established market located outside the United States of America by and among banks for the solicitation, offer and acceptance of Dollar deposits in such banks. "EURODOLLAR OBLIGATIONS" means eurocurrency liabilities, as defined in Regulation D. "EURODOLLAR PERIOD" means, as to each Eurodollar Rate Loan, the period commencing on the date specified by any Borrower pursuant to Section 2.1(b) and ending 1, 2, 3 or 6 months thereafter (or, with the written consent of all of the Lenders, any other period), as specified by that Borrower in the applicable Request for Loan; PROVIDED that (a) The first day of any Eurodollar Period shall be a Eurodollar Business Day; (b) Any Eurodollar Period that would otherwise end on a day that is not a Eurodollar Business Day shall be extended to the next succeeding Eurodollar Business Day unless such Eurodollar Business Day falls in another calendar month, in which case such Eurodollar Period shall end on the next preceding Eurodollar Business Day; and (c) No Eurodollar Period shall extend beyond the Maturity Date. "EURODOLLAR QUOTED RATE" means, with respect to any Eurodollar Rate Loan, the average of the interest rates per annum (rounded upward, if necessary, to the next 1/16 of 1%) at which deposits in Dollars are offered by Bank of America to prime banks in the Designated Eurodollar Market at or about 11:00 a.m. local time in the Designated Eurodollar Market, two Eurodollar Business Days before the first day of the applicable Eurodollar Period in an aggregate amount approximately equal to the amount of the Advances made by Bank of America with respect to such Eurodollar Rate Loan and for a period of time comparable to the number of days in the applicable Eurodollar Period. The determination of the Eurodollar Quoted Rate by the Administrative Agent shall be conclusive in the absence of manifest error. "EURODOLLAR RATE" means, with respect to any Eurodollar Rate Loan based on a margin over the Eurodollar Rate, an interest rate per annum (rounded upward, if necessary, to the nearest 1/16 of one percent) determined pursuant to the following formula: -8- Eurodollar Eurodollar Quoted Rate Rate = -------------------------- 1.00 - Eurodollar Reserve Percentage "EURODOLLAR RATE ADVANCE" and "EURODOLLAR RATE LOAN" mean, respectively, a Advance made hereunder and specified to be a Eurodollar Rate Advance or Loan in accordance with Article 2. "EURODOLLAR RESERVE PERCENTAGE" means, with respect to any Eurodollar Rate Loan, the maximum reserve percentage (expressed as a decimal, rounded upward to the nearest 1/100th of 1%) in effect on the date the Eurodollar Quoted Rate for that Eurodollar Rate Loan is determined (whether or not applicable to any Lender) under regulations issued from time to time by the Federal Reserve Board for determining the maximum reserve requirement (including any emergency, supplemental or other marginal reserve requirement) with respect to eurocurrency funding (currently referred to as "eurocurrency liabilities") having a term comparable to the Eurodollar Period for such Eurodollar Rate Loan. The determination by the Administrative Agent of any applicable Eurodollar Reserve Percentage shall be conclusive in the absence of manifest error. "EVENT OF DEFAULT" shall have the meaning provided in Section 9.1. "EXISTING SENIOR NOTES" means the Company's $500,000,000 in 7.5% Senior Unsecured Notes due 2009 issued pursuant to the Indenture dated December 18, 1998 between the Company and IBJ Schroeder Bank and Trust Company, as Trustee and the First Supplemental Indenture with respect thereto dated as of January 20, 1999 among the Company, the Parent and IBJ Whitehall Bank & Trust Company, as Trustee. "EXISTING SUBORDINATED DEBT" means the Company's $750,000,000 7.875% Senior Subordinated Notes due 2005 issued pursuant to the Indenture dated December 9, 1998 among the Company and IBJ Schroeder Bank and Trust Company, as Trustee and the First Supplemental Indenture with respect thereto dated as of December 9, 1998 among the Company, the Parent and the Trustee. "FACILITY FEE RATE" means, for each Pricing Period, the rate set forth below (expressed in basis points) opposite the Pricing Level for that Pricing Period:
Pricing Level Facility Fee Rate ------------- ----------------- I 8.00 II 10.00 III 12.50 IV 15.00 V 20.00 VI 25.00
-9- "FEDERAL FUNDS RATE" means, as of any date of determination, the rate set forth in the weekly statistical release designated as H.15(519), or any successor publication, published by the Federal Reserve Board (including any such successor, "H.15(519)") for such date opposite the caption "Federal Funds (Effective)". If for any relevant date such rate is not yet published in H.15(519), the rate for such date will be the rate set forth in the daily statistical release designated as the Composite 3:30 p.m. Quotations for U.S. government securities, or any successor publication, published by the Federal Reserve Bank of New York (including any such successor, the "Composite 3:30 p.m. Quotation") for such date under the caption "Federal Funds Effective Rate". If on any relevant date the appropriate rate for such date is not yet published in either H.15(519) or the Composite 3:30 p.m. Quotations, the rate for such date will be the arithmetic mean of the rates for the last transaction in overnight Federal funds arranged prior to 9:00 a.m. (New York City time) on that date by each of three leading brokers of Federal funds transactions in New York City selected by the Administrative Agent. For purposes of this Agreement, any change in the Base Rate due to a change in the Federal Funds Rate shall be effective as of the opening of business on the effective date of such change. "FISCAL QUARTER" means the fiscal quarter of Parent consisting of a three month fiscal period ending on each March 31, June 30, September 30, December 31. "FISCAL YEAR" means the fiscal year of Parent consisting of a twelve month fiscal period ending on each December 31. "FIVE YEAR COMMITMENTS" means the lending commitment of the lenders under the Five Year Loan Agreement. "FIVE YEAR LOAN AGREEMENT" means the Five Year Loan Agreement dated as of April 20, 1999, among the Lenders party to this Agreement on the Effective Date and Bank of America, as Administrative Agent, as amended as of April 3, 2000 by an Amendment No. 1 thereto, as amended as of April 26, 2001 by an Amendment No. 2 thereto, or hereafter amended. "GAMING BOARD" means any Governmental Agency that holds regulatory, licensing or permit authority over gambling, gaming or casino activities conducted by Parent and its Subsidiaries within its jurisdiction, or before which an application for licensing to conduct such activities is pending. "GAMING LAWS" means all Laws pursuant to which any Gaming Board possesses regulatory, licensing or permit authority over gambling, gaming or casino activities conducted by Parent and its Subsidiaries within its jurisdiction. "GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" means, as of any date of determination, accounting principles (a) set forth as generally accepted in then currently effective Opinions of the Accounting Principles Board of the American Institute of Certified Public Accountants, (b) set forth as generally accepted in then currently effective Statements of the Financial Accounting Standards Board or (c) that -10- are then approved by such other entity as may be approved by a significant segment of the accounting profession in the United States of America. The term "CONSISTENTLY APPLIED," as used in connection therewith, means that the accounting principles applied are consistent in all material respects to those applied at prior dates or for prior periods. "GOVERNMENTAL AGENCY" means (a) any international, foreign, federal, state, county or municipal government, or political subdivision thereof, (b) any governmental or quasi-governmental agency, authority, board, bureau, commission, department, instrumentality or public body, or (c) any court or administrative tribunal. "HAZARDOUS MATERIALS" means substances defined as hazardous substances pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. Section 9601 et seq., or as hazardous, toxic or pollutant pursuant to the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901, et seq., the Hazardous Waste Control Law, California Health & Safety Code Section 25100, et seq., or in any other applicable Hazardous Materials Law, in each case as such Laws are amended from time to time. "HAZARDOUS MATERIALS LAWS" means all federal, state or local laws, ordinances, rules or regulations governing the disposal of Hazardous Materials applicable to any of the Real Property. "INDEBTEDNESS" means, as to any Person and as of each date of determination, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable arising in the ordinary course of business, (iv) all obligations of such Person as lessee which are capitalized in accordance with Generally Accepted Accounting Principles, (v) all indebtedness or other obligations secured by a contractual Lien on any asset of such Person, whether or not such indebtedness or other obligations are otherwise an obligation of such Person, and (vi) all Contingent Obligations made by such Person (including by way of provision of letters of credit or other contingent obligations) with respect to indebtedness or other obligations of any other Person which constitute "Indebtedness" of a type or class described in clauses (i) through (v) of this definition. "INTANGIBLE ASSETS" means assets that are considered intangible assets under Generally Accepted Accounting Principles, INCLUDING customer lists, goodwill, computer software, copyrights, trade names, trademarks and patents. "INTERCOMPANY DEBT" means any Indebtedness owed by a Subsidiary of Parent to a Borrower. -11- "INTEREST COVERAGE RATIO" means, as of the last day of any Fiscal Quarter, the RATIO OF (a) EBITDA for the four Fiscal Quarter period ending on that date to (b) Interest Expense for the same period. "INTEREST DIFFERENTIAL" means, with respect to any prepayment of a Eurodollar Rate Loan on a day prior to the last day of the applicable Eurodollar Period and with respect to any failure to borrow a Eurodollar Rate Loan on the date or in the amount specified in any Request for Loan, (a) the per annum interest rate payable pursuant to Section 3.1(c) with respect to the Eurodollar Rate Loan MINUS (b) the Eurodollar Rate on, or as near as practicable to the date of the prepayment or failure to borrow for, a Eurodollar Rate Loan commencing on such date and ending on the last day of the Eurodollar Period of the Eurodollar Rate Loan so prepaid or which would have been borrowed on such date. "INTEREST EXPENSE" means, as of the last day of any fiscal period, the SUM OF (a) all interest, fees, charges and related expenses paid or payable (without duplication) for that fiscal period to a lender in connection with borrowed money or the deferred purchase price of assets that are considered "interest expense" under Generally Accepted Accounting Principles, PLUS (b) the portion of rent paid or payable (without duplication) for that fiscal period under Capital Lease Obligations that should be treated as interest in accordance with Financial Accounting Standards Board Statement No. 13. "INVESTMENT" means, when used in connection with any Person, any investment by or of that Person, whether by means of purchase or other acquisition of stock or other securities of any other Person or by means of a loan, advance creating a debt, capital contribution, guaranty or other debt or equity participation or interest in any other Person, INCLUDING any partnership and joint venture interests of such Person. The amount of any Investment shall be the amount actually invested, without adjustment for subsequent increases or decreases in the value of such Investment. "INVESTMENT GRADE" means (i) with respect to S&P, a rating of BBB- or higher, and (ii) with respect to Moody's, a rating of Baa3 or higher. "JOINT VENTURE HOLDING COMPANY" means any Subsidiary of Parent which has no substantial assets other than equity securities, securities convertible into equity securities and warrants, options or similar rights to purchase such equity securities or convertible securities (and any dividends, cash, instruments or other property received in respect of or in exchange for any of the foregoing), in each case issued by Persons which are not Subsidiaries of Parent. "LAWS" means, collectively, all international, foreign, federal, state and local statutes, treaties, rules, regulations, ordinances, codes and administrative or judicial precedents. -12- "LEAD ARRANGER" means Banc of America Securities, LLC. The Lead Arranger shall have no duties or obligations under this Agreement or the other Loan Documents. "LICENSE REVOCATION" means the revocation, failure to renew or suspension of, or the appointment of a receiver, supervisor or similar official with respect to, any casino, gambling or gaming license issued by any Gaming Board covering any casino or gaming facility of Parent or any of its Subsidiaries. "LIEN" means any mortgage, deed of trust, pledge, hypothecation, assignment for security, security interest, encumbrance, lien or charge of any kind, whether voluntarily incurred or arising by operation of Law or otherwise, affecting any Property, INCLUDING any agreement to grant any of the foregoing, any conditional sale or other title retention agreement, any lease in the nature of a security interest, and/or the filing of or agreement to give any financing statement (OTHER THAN a precautionary financing statement with respect to a lease or other agreement that is not in the nature of a security interest) under the Uniform Commercial Code or comparable Law of any jurisdiction with respect to any Property. "LOAN" means the aggregate of the Advances made at any one time by the Lenders pursuant to Article 2. "LOAN DOCUMENTS" means, collectively, this Agreement, the Notes, the Parent Guaranty, any Request for Loan, any Compliance Certificate and any other instruments, documents or agreements of any type or nature hereafter executed and delivered by Parent or any of its Subsidiaries or Affiliates to the Administrative Agent or any other Creditor in any way relating to or in furtherance of this Agreement, in each case either as originally executed or as the same may from time to time be supplemented, modified, amended, restated, extended or supplanted. "MANAGEMENT COMPANY" means any Subsidiary of Parent which has no substantial assets other than contractual rights to receive fees under management agreements, development agreements or similar instruments. "MARGIN STOCK" means "margin stock" as such term is defined in Regulation U. "MATERIAL ADVERSE EFFECT" means any set of circumstances or events which (a) has or could reasonably be expected to have any material adverse effect whatsoever upon the validity or enforceability of any Loan Document, (b) is or could reasonably be expected to be material and adverse to the condition (financial or otherwise), assets, business or operations of Parent and its Subsidiaries, taken as a whole, or (c) materially impairs or could reasonably be expected to materially impair the ability of Parent and its Subsidiaries, taken as a whole, to perform the Obligations. "MATURITY DATE" means April 24, 2003, or such later anniversary thereof as may be established pursuant to Section 2.8. -13- "MOODY'S" means Moody's Investor Service, Inc., its successors and assigns. "MULTIEMPLOYER PLAN" means any employee benefit plan of the type described in Section 4001(a)(3) of ERISA. "NEGATIVE PLEDGE" means a Contractual Obligation that contains a covenant binding on Parent or any of its Subsidiaries that prohibits Liens on any of its or their Property, OTHER THAN (a) any such covenant contained in a Contractual Obligation granting a Lien permitted under Section 6.4 which affects only the Property that is the subject of such permitted Lien and (b) any such covenant that does not apply to Liens securing the Obligations. "NET INCOME" means, with respect to any fiscal period, the consolidated net income of Parent and its Subsidiaries for that period, determined in accordance with Generally Accepted Accounting Principles, consistently applied. "NET TANGIBLE ASSETS" means, as of each date of determination, the total amount of assets of Parent its Subsidiaries as of the last day of the most recent Fiscal Quarter for which financial statements have been delivered in accordance with Section 7.1, after deducting therefrom (a) all current liabilities of Parent and its Subsidiaries (excluding (i) the current portion of long term Indebtedness, (ii) inter-company liabilities, and (iii) any liabilities which are by their terms renewable or extendable at the option of the obligor thereon to a time more than twelve months from the time as of which the amount thereof is being computed), and (b) all goodwill, trade names, trademarks, patents, unamortized debt discount and expense and other like intangibles, all as set forth on the latest consolidated balance sheet of Parent prepared in accordance with Generally Accepted Accounting Principles. "NEW PROJECT" means each new hotel - casino, casino or resort project (as opposed to any project which consists of an extension or redevelopment of an operating hotel, casino or resort) owned by Parent or its Subsidiaries having a development and construction budget in excess of $25,000,000 which hereafter receives a certificate of completion or occupancy and all relevant gaming and other licenses, and in fact commences operations. "NOTE" means the promissory note made by each Borrower to a Lender evidencing the Advances under that Lender's Pro Rata Share to that Borrower, substantially in the form of Exhibit C, either as originally executed or as the same may from time to time be supplemented, modified, amended, renewed, extended or supplanted. "OBLIGATIONS" means all present and future obligations of every kind or nature of Parent, Borrowers or any Party at any time and from time to time owed to the Creditors or any one or more of them, under any one or more of the Loan Documents, whether due or to become due, matured or unmatured, liquidated or unliquidated, or contingent or noncontingent, INCLUDING obligations of performance as well as obligations of payment, and INCLUDING interest that accrues after the commencement of -14- any proceeding under any Debtor Relief Law by or against Parent, any Borrower or any Subsidiary of Parent. "OPINION OF COUNSEL" means (a) the favorable written legal opinion of Parent's and Borrower's corporate counsel, Brad L. Kerby, substantially in the form of Exhibit D, together with copies of all factual certificates and legal opinions upon which such counsel has relied. "PARENT" means Harrah's Entertainment, Inc., a Delaware corporation, and its permitted successors and assigns. "PARENT GUARANTY" means the Guaranty executed by Parent on the Closing Date with respect to the Obligations, substantially in the form of Exhibit E, either as originally executed or as it may from time to time be supplemented, modified, amended, restated or extended. "PARTY" means any Person other than Creditors which now or hereafter is a party to any of the Loan Documents. "PBGC" means the Pension Benefit Guaranty Corporation or any successor thereof established under ERISA. "PENSION PLAN" means any "employee pension benefit plan" (as such term is defined in Section 3(2) of ERISA), OTHER THAN a Multiemployer Plan, which is subject to Title IV of ERISA and is maintained by Parent or any of its Subsidiaries or to which Parent or any of its Subsidiaries contributes or has an obligation to contribute. "PERMITTED ENCUMBRANCES" means: (a) inchoate Liens incident to construction or maintenance of Real Property; or Liens incident to construction or maintenance of Real Property now or hereafter filed of record for which adequate reserves have been set aside (or deposits made pursuant to applicable Law) and which are being contested in good faith by appropriate proceedings and have not proceeded to judgment, PROVIDED that, by reason of nonpayment of the obligations secured by such Liens, no such Real Property is subject to a material risk of loss or forfeiture; (b) Liens for taxes and assessments on and similar charges with respect to Real Property which are not yet past due; or Liens for taxes and assessments on Real Property for which adequate reserves have been set aside and are being contested in good faith by appropriate proceedings and have not proceeded to judgment, PROVIDED that, by reason of nonpayment of the obligations secured by such Liens, no material Real Property is subject to a material risk of loss or forfeiture; (c) defects and irregularities in title to any Real Property which in the aggregate do not materially impair the fair market value or use of the Real Property for the purposes for which it is or may reasonably be expected to be held; -15- (d) easements, exceptions, reservations, or other agreements for the purpose of pipelines, conduits, cables, wire communication lines, power lines and substations, streets, trails, walkways, driveways, drainage, irrigation, water, and sewerage purposes, dikes, canals, ditches, the removal of oil, gas, coal, or other minerals, and other like purposes affecting Real Property, facilities, or equipment which in the aggregate do not materially burden or impair the fair market value or use of such Real Property for the purposes for which it is or may reasonably be expected to be held; (e) easements, exceptions, reservations, or other agreements for the purpose of facilitating the joint or common use of property which in the aggregate do not materially burden or impair the fair market value or use of such property for the purposes for which it is or may reasonably be expected to be held; (f) rights reserved to or vested in any Governmental Agency to control or regulate, or obligations or duties to any Governmental Agency with respect to, the use of any Real Property; (g) rights reserved to or vested in any Governmental Agency to control or regulate, or obligations or duties to any Governmental Agency with respect to, any right, power, franchise, grant, license, or permit; (h) present or future zoning laws, building codes and ordinances, zoning restrictions, or other laws and ordinances restricting the occupancy, use, or enjoyment of Real Property; (i) statutory Liens, other than those described in clauses (a) or (b) above, arising in the ordinary course of business with respect to obligations which are not delinquent or are being contested in good faith, PROVIDED that, if delinquent, adequate reserves have been set aside with respect thereto and, by reason of nonpayment, no property is subject to a material risk of loss or forfeiture; (j) covenants, conditions, and restrictions affecting the use of Real Property which in the aggregate do not materially impair the fair market value or use of the Real Property for the purposes for which it is or may reasonably be expected to be held; (k) rights of tenants under leases and rental agreements covering Real Property entered into in the ordinary course of business of the Person owning such Real Property; (l) Liens consisting of pledges or deposits to secure obligations under workers' compensation laws or similar legislation, including Liens of judgments thereunder which are not currently dischargeable; (m) Liens consisting of pledges or deposits of property to secure performance in connection with operating leases made in the ordinary course of -16- business to which Parent or any of its Subsidiaries is a party as lessee, PROVIDED the aggregate value of all such pledges and deposits in connection with any such lease does not at any time exceed 20% of the annual fixed rentals payable under such lease; (n) Liens consisting of deposits of property to secure bids made with respect to, or performance of, contracts (OTHER THAN contracts creating or evidencing an extension of credit to the depositor) in the ordinary course of business; (o) Liens consisting of any right of offset, or statutory bankers' lien, on bank deposit accounts maintained in the ordinary course of business so long as such bank deposit accounts are not established or maintained for the purpose of providing such right of offset or bankers' lien; (p) Liens consisting of deposits of property to secure statutory obligations of Parent or any of its Subsidiaries in the ordinary course of its business; (q) Liens consisting of deposits of property to secure (or in lieu of) surety, appeal or customs bonds in proceedings to which Parent or any of its Subsidiaries is a party in the ordinary course of business; (r) Liens created by or resulting from any litigation or legal proceeding involving Parent or any of its Subsidiaries in the ordinary course of its business which is currently being contested in good faith by appropriate proceedings, PROVIDED that adequate reserves have been set aside and no material property is subject to a material risk of loss or forfeiture; (s) precautionary UCC financing statement filings made in connection with operating leases and not constituting Liens; and (t) other non-consensual Liens incurred in the ordinary course of business but not in connection with an extension of credit, which do not in the aggregate, when taken together with all other Liens, materially impair the value or use of the Property of Parent and its Subsidiaries, taken as a whole. "PERMITTED RIGHT OF OTHERS" means a Right of Others consisting of (i) an interest (other than a legal or equitable co-ownership interest, an option or right to acquire a legal or equitable co-ownership interest and any interest of a ground lessor under a ground lease), that does not materially impair the value or use of Property for the purposes for which it is or may reasonably be expected to be held, (ii) an option or right to acquire a Lien that would be a Permitted Encumbrance, (iii) the subordination of a lease or sublease in favor of a financing entity and (iv) a license, or similar right, of or to Intangible Assets granted in the ordinary course of business. "PERSON" means any entity, whether an individual, trustee, corporation, general partnership, limited partnership, joint stock company, trust, estate, unincorporated organization, business association, firm, joint venture, Governmental Agency, or otherwise. -17- "PRE-OPENING EXPENSES" means, with respect to any fiscal period, the amount of expenses (OTHER THAN Interest Expense) incurred with respect to capital projects which are classified as "pre-opening expenses" on the applicable financial statements of Parent and its Subsidiaries for such period, prepared in accordance with Generally Accepted Accounting Principles. "PRICING ADJUSTMENT" means, during any Pricing Period, (a) if the Total Debt Ratio as of the last day of the Fiscal Quarter ending immediately prior to the commencement of such Pricing Period was greater than 3.75 to 1.00 but less than or equal to 4.25:1.00, an increase to the Eurodollar Margin of 7.5 basis points, (b) if the Total Debt Ratio as of the last day of the Fiscal Quarter ending immediately prior to the commencement of such Pricing Period was greater than 4.25:1.00, an increase to the Eurodollar Margin of 15.0 basis points, and (c) if the Total Debt Ratio as of the last day of the Fiscal Quarter ending immediately prior to the commencement of such Pricing Period was less than 2.00:1.00, a decrease to the Eurodollar Margin of 7.5 basis points. "PRICING LEVEL" means, for each Pricing Period, the pricing level set forth below opposite the Debt Ratings as of the first day of that Pricing Period:
Moody's/S&P Rating Applicable Pricing Level ------------------ ------------------------ A-/A3 or higher Pricing Level I BBB+/Baa1 Pricing Level II BBB/Baa2 Pricing Level III BBB-/Baa3 Pricing Level IV BB+/Ba1 Pricing Level V BB/Ba2 or lower Pricing Level VI
PROVIDED that if Moody's and S&P each assign Debt Ratings which are associated with different Pricing Levels in the matrix set forth above, then the applicable Pricing Level shall be the Pricing Level which is one Pricing Level higher than that associated with the lower of the two Debt Ratings. "PRICING PERIOD" means (a) the period commencing on the Closing Date and ending on May 31, 2002, (b) each subsequent three month period commencing on each June 1, September 1, December 1 and March 1, and (c) any shorter period ending on the date upon which the Commitment is terminated. "PROJECTIONS" means the financial projections contained in the Confidential Information Memorandum. "PROPERTY" means any interest in any kind of property or asset, whether real, personal or mixed, or tangible or intangible. "PRO RATA SHARE" means, with respect to each Lender, the percentage of the Commitment held by that Lender. -18- "QUARTERLY PAYMENT DATE" means each March 31, June 30, September 30 and December 31. "RATING DECLINE" means the occurrence of a decrease in the Debt Rating by either Moody's or S&P to below Investment Grade on any date on or within 90 days after the date of the first public notice of (a) the occurrence of an event described in clauses (i)-(iv) of the definition of "Change in Control" or (b) the intention by any of the Parent or Borrowers to effect such an event (which 90-day period shall be extended so long as the Debt Rating is under publicly announced consideration for possible downgrade by Moody's or S&P). "REAL PROPERTY" means, as of any date of determination, all real property then or theretofore owned, leased or occupied by Parent or any of its Subsidiaries. "REFERENCE RATE" means the rate of interest publicly announced from time to time by Bank of America as its "reference rate" or the similar prime rate or reference rate announced by any successor Administrative Agent. Bank of America's reference rate is a rate set by Bank of America based upon various factors including Bank of America's costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate. Any change in the Reference Rate announced by Bank of America or any successor Administrative Agent shall take effect at the opening of business on the day specified in the public announcement of such change. "REGULATIONS D, T, U AND X" means Regulations D, T, U and X, as at any time amended, of the Board of Governors of the Federal Reserve System, or any other regulations in substance substituted therefor. "REQUEST FOR LOAN" means a written request for a Loan substantially in the form of Exhibit F, signed by a Responsible Official of a Borrower, on behalf of that Borrower, and properly completed to provide all information required to be included therein. "REQUIREMENT OF LAW" means, as to any Person, the articles or certificate of incorporation and by-laws or other organizational or governing documents of such Person, and any Law, or judgment, award, decree, writ or determination of a Governmental Agency, in each case applicable to or binding upon such Person or any of its Property or to which such Person or any of its Property is subject. "REQUISITE LENDERS" means (a) as of any date of determination if the Commitment is then in effect, Lenders having in the aggregate 51% or more of the Commitment then in effect and (b) as of any date of determination if the Commitment has then been terminated, Lenders holding 51% of the aggregate principal amount of the outstanding Loans. "RESPONSIBLE OFFICIAL" means when used with reference to a Person other than an individual, any corporate officer of such Person, general partner of such Person, -19- corporate officer of a corporate general partner of such Person, or corporate officer of a corporate general partner of a partnership that is a general partner of such Person, or any other responsible official thereof duly acting on behalf thereof. Any document or certificate hereunder that is signed or executed by a Responsible Official of another Person shall be conclusively presumed to have been authorized by all necessary corporate, partnership and/or other action on the part of such other Person. "RIGHT OF OTHERS" means, as to any Property in which a Person has an interest, any legal or equitable ownership right, title or other interest (other than a Lien) held by any other Person in that Property, and any option or right held by any other Person to acquire any such right, title or other interest in that Property, INCLUDING any option or right to acquire a Lien; PROVIDED, however, that (a) any covenant restricting the use or disposition of Property of such Person contained in any Contractual Obligation of such Person, (b) any provision contained in a contract creating a right of payment or performance in favor of a Person that conditions, limits, restricts, diminishes, transfers or terminates such right, and (c) any residual rights held by a lessor or vendor of Property, shall not be deemed to constitute a Right of Others. "S&P" means Standard & Poor's Ratings Group, a division of McGraw Hill, Inc., its successors and assigns. "SALE AND LEASEBACK" means, with respect to any Person, the sale of Property owned by that Person (the "Seller") to another Person (the "Buyer"), together with the substantially concurrent leasing of such Property (or any portion thereof) by the Buyer to the Seller. "SALE AND LEASEBACK OBLIGATION" means, with respect to any Sale and Leaseback and as of any date of determination, the present value of the aggregate monetary obligations of the lessee under the lease of the Property which is the subject of such Sale and Leaseback (discounted at the interest rate implicit in such lease, compounded annually) for the then remaining term of such lease (treating all extension options exercisable by the lessor as having been exercised, but deeming the lease terminated as of the earliest date upon which the lessee has the option to do so); PROVIDED that such monetary obligations shall exclude amounts payable in respect of maintenance, repairs, insurance, taxes, assessments, utilities and similar charges. "SENIOR OFFICER" means Parent's and each Borrower's (a) chief executive officer, (b) president, (c) chief financial officer, (d) treasurer, (e) vice presidents or (f) secretaries. "SHOWBOAT" means Showboat, Inc., a Nevada corporation. "SIGNIFICANT SUBSIDIARY" means, as of any date of determination, each Subsidiary of Parent that had on the last day of the Fiscal Quarter then most recently ended total assets (determined in accordance with Generally Accepted Accounting Principles) of $50,000,000 or more. -20- "SPECIAL EURODOLLAR CIRCUMSTANCE" means the application or adoption after the date hereof of any Law or interpretation, or any change therein or thereof, or any change in the interpretation or administration thereof by any Governmental Agency, central bank or comparable authority charged with the interpretation or administration thereof, or compliance by any Lender or its Eurodollar Lending Office with any request or directive (whether or not having the force of Law) of any such Governmental Agency, central bank or comparable authority, or the existence or occurrence of circumstances affecting the Designated Eurodollar Market generally that are beyond the reasonable control of the Lenders. "SOLVENT" as to any Person shall mean that (a) the sum of the assets of such Person, both at a fair valuation and at present fair saleable value, exceeds its liabilities, including its probable liability in respect of contingent liabilities, (b) such Person will have sufficient capital with which to conduct its business as presently conducted and as proposed to be conducted and (c) such Person has not incurred debts, and does not intend to incur debts, beyond its ability to pay such debts as they mature. For purposes of this definition, "debt" means any liability on a claim, and "claim" means (x) a right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured, or (y) a right to an equitable remedy for breach of performance if such breach gives rise to a payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured or unsecured. With respect to any such contingent liabilities, such liabilities shall be computed at the amount which, in light of all the facts and circumstances existing at the time, represents the amount which can reasonably be expected to become an actual or matured liability. "SUBORDINATED DEBT" means (a) the Existing Subordinated Debt and (b) any other Indebtedness of Parent or the Company which is subordinated in right of payment to the Obligations pursuant to subordination provisions which are either (i) substantively no less favorable to the Lenders than the subordination provisions of the Existing Subordinated Debt, or (ii) otherwise are acceptable to the Requisite Lenders in the exercise of their sole discretion. "SUBSIDIARY" means, as of any date of determination and with respect to any Person, any corporation or partnership (whether or not, in either case, characterized as such or as a "joint venture"), whether now existing or hereafter organized or acquired: (a) in the case of a corporation, of which a majority of the securities having ordinary voting power for the election of directors or other governing body (other than securities having such power only by reason of the happening of a contingency) are at the time beneficially owned by such Person and/or one or more Subsidiaries of such Person, or (b) in the case of a partnership, of which a majority of the partnership or other ownership interests having ordinary management power are at the time beneficially owned by such Person and/or one or more of its Subsidiaries. -21- "SYNDICATION AGENT" means Deutsche Bank Trust Companys America, which shall not have any additional rights, duties or obligations under this Agreement or the other Loan Documents by reason of its being a Syndication Agent. "TOTAL DEBT" means, as of any date of determination, the SUM (without duplication) of (a) the outstanding principal Indebtedness of Parent and its Subsidiaries for borrowed money (INCLUDING debt securities issued by Parent or any of its Subsidiaries) on that date, PLUS (b) the aggregate amount of all Capital Lease Obligations of Parent and its Subsidiaries on that date, PLUS (c) all obligations in respect of letters of credit or other similar instruments for which Parent or any of its Subsidiaries are account parties or are otherwise obligated, PLUS (d) the aggregate amount of all Contingent Obligations and other similar contingent obligations of Parent and its Subsidiaries with respect to any of the foregoing, and PLUS (e) any obligations of Parent or any of its Subsidiaries to the extent that the same are secured by a Lien on any of the assets of Parent or its Subsidiaries. In computing "Total Debt," the amount of any Contingent Obligation or letter of credit shall be deemed to be zero unless and until (1) in the case of obligations in respect of letters of credit, a drawing is made with respect thereto, (2) in the case of any other Contingent Obligations, demand for payment is made with respect thereto, or (3) Parent's independent auditors have quantified the amount of Parent's and its Subsidiaries with respect to letters of credit and Contingent Obligations as liabilities on Parent's consolidated balance sheet in accordance with Generally Accepted Accounting Principles (as opposed to merely noted in the footnotes to any such balance sheet) and the amount of any such individual liability is in excess of $50,000,000, in which case the amount thereof shall be deemed to be the amount so quantified from time to time. "TOTAL DEBT RATIO" means, as of the last day of any Fiscal Quarter, the RATIO OF (a) Total Debt on that date, to (b) EBITDA for the four Fiscal Quarter period ending on that date. "TYPE", when used with respect to any Loan or Advance, means the designation of whether such Loan or Advance is a Base Rate Loan or Advance, or a Eurodollar Rate Loan or Advance. "WHOLLY-OWNED SUBSIDIARY" means, as to any Person any other Person, 100% of whose capital stock, partnership interests, membership interests or other forms of equity ownership interest (other than directors qualifying shares and similar interests) is at the time owned, directly or indirectly, by such Person. 1.2 USE OF DEFINED TERMS. Any defined term used in the plural shall refer to all members of the relevant class, and any defined term used in the singular shall refer to any one or more of the members of the relevant class. 1.3 ACCOUNTING TERMS. All accounting terms not specifically defined in this Agreement shall be construed in conformity with, and all financial data required to be submitted by this Agreement shall be prepared in conformity with, Generally Accepted Accounting Principles applied on a consistent basis, EXCEPT as otherwise specifically -22- prescribed herein. In the event that Generally Accepted Accounting Principles change during the term of this Agreement such that the covenants contained in Sections 6.5 and 6.6 would then be calculated in a different manner or with different components, (a) Parent, Borrowers and the Lenders agree to amend this Agreement in such respects as are necessary to conform those covenants as criteria for evaluating Parent's consolidated financial condition to substantially the same criteria as were effective prior to such change in Generally Accepted Accounting Principles and (b) Parent and Borrowers shall be deemed to be in compliance with the covenants contained in the aforesaid Sections during the 90 day period following any such change in Generally Accepted Accounting Principles if and to the extent that Parent and Borrowers would have been in compliance therewith under Generally Accepted Accounting Principles as in effect immediately prior to such change. 1.4 ROUNDING. Any financial ratios required to be maintained by Parent and Borrowers pursuant to this Agreement shall be calculated by dividing the appropriate component by the other component, carrying the result to one place more than the number of places by which such ratio is expressed in this Agreement and rounding the result up or down to the nearest number (with a round-up if there is no nearest number) to the number of places by which such ratio is expressed in this Agreement. 1.5 EXHIBITS AND SCHEDULES. All Exhibits and Schedules to this Agreement, either as originally existing or as the same may from time to time be supplemented, modified or amended, are incorporated herein by this reference. A matter disclosed on any Schedule shall be deemed disclosed on all Schedules. 1.6 MISCELLANEOUS TERMS. The term "or" is disjunctive; the term "and" is conjunctive. The term "shall" is mandatory; the term "may" is permissive. Masculine terms also apply to females; feminine terms also apply to males. The term "including" is by way of example and not limitation. -23- Article 2 LOANS AND LETTERS OF CREDIT 2.1 LOANS-GENERAL. (a) Subject to the terms and conditions set forth in this Agreement, at any time and from time to time from the Closing Date through and including the Maturity Date, each Lender shall, pro rata according to that Lender's Pro Rata Share of the then applicable Commitment, make Advances in Dollars to Borrowers in such amounts as any Borrower may request PROVIDED that (a) giving effect to such Advances, the aggregate principal amount of the outstanding Loans shall not exceed the Commitment at any time and (b) without the consent of all of the Lenders, the aggregate principal amount of the outstanding Loans to each Borrower hereafter designated as such pursuant to Section 2.6 plus the outstanding principal amount of the loans outstanding to such Borrower under the Five Year Commitment shall not exceed that Borrower's Aggregate Sublimit at any time. Subject to the limitations set forth herein, each of the Borrowers may borrow, repay and reborrow under the Commitment without premium or penalty. (b) Subject to the next sentence, each Loan shall be made pursuant to a Request for Loan executed by the relevant Borrower which shall specify the requested (i) date of such Loan, (ii) type of Loan, (iii) amount of such Loan, and (iv) in the case of a Eurodollar Rate Loan, the Eurodollar Period for such Loan. Unless the Administrative Agent has notified, in its sole and absolute discretion, Borrowers to the contrary, a Loan may be requested by telephone by a Responsible Official of any Borrower, in which case that Borrower shall confirm such request by promptly delivering a Request for Loan in person or by telecopier conforming to the preceding sentence to the Administrative Agent. The Administrative Agent shall incur no liability whatsoever hereunder in acting upon any telephonic request for loan purportedly made by a Responsible Official of a Borrower, and each Borrower hereby jointly and severally (but as between Borrowers, ratably) agrees to indemnify the Administrative Agent from any loss, cost, expense or liability as a result of so acting. (c) Promptly following receipt of a Request for Loan, the Administrative Agent shall notify each Lender by telephone or telecopier (and if by telephone, promptly confirmed by telecopier) of the identity of the relevant Borrower, the date and type of the Loan, the applicable Eurodollar Period, and that Lender's Pro Rata Share of the Loan. Not later than 11:00 a.m., California local time, on the date specified for any Loan (which must be a Business Day), each Lender shall make its Pro Rata Share of the Loan in immediately available funds available to the Administrative Agent at the Administrative Agent's Office. Upon satisfaction or waiver of the applicable conditions set forth in Article 8, all Advances shall be credited on that date in immediately available funds to the Designated Deposit Account. (d) Unless the Requisite Lenders otherwise consent, each Loan shall be an integral multiple of $1,000,000 and shall be not less than $10,000,000. -24- (e) The Advances made by each Lender to each Borrower shall be evidenced by a Note issued by that Borrower and made payable to that Lender. (f) A Request for Loan shall be irrevocable upon the Administrative Agent's first notification thereof. (g) If no Request for Loan (or telephonic request for loan referred to in the second sentence of Section 2.1(b), if applicable) has been made within the requisite notice periods set forth in Sections 2.2 or 2.3 in connection with a Loan which, if made and giving effect to the application of the proceeds thereof, would not increase the outstanding principal Indebtedness evidenced by the Notes of the relevant Borrower, then that Borrower shall be deemed to have requested, as of the date upon which the related then outstanding Loan is due pursuant to Section 3.1(e)(i), a Base Rate Loan in an amount equal to the amount necessary to cause the outstanding principal Indebtedness evidenced by its Notes to remain the same and the Lenders shall make the Advances necessary to make such Loan notwithstanding Sections 2.1(b), 2.2 and 2.3. 2.2 BASE RATE LOANS. Each request by a Borrower for a Base Rate Loan shall be made pursuant to a Request for Loan (or telephonic or other request for loan referred to in the second sentence of Section 2.1(b), if applicable) received by the Administrative Agent, at the Administrative Agent's Office, not later than 9:00 a.m. California local time, on the date (which must be a Business Day) of the requested Base Rate Loan. All Loans shall constitute Base Rate Loans unless properly designated as a Eurodollar Rate Loan pursuant to Section 2.3. 2.3 EURODOLLAR RATE LOANS. (a) Each request by a Borrower for a Eurodollar Rate Loan shall be made pursuant to a Request for Loan (or telephonic or other request for loan referred to in the second sentence of Section 2.1(b), if applicable) received by the Administrative Agent, at the Administrative Agent's Office, not later than 9:00 a.m., California local time, at least three Eurodollar Business Days before the first day of the applicable Eurodollar Period. (b) On the date which is two Eurodollar Business Days before the first day of the applicable Eurodollar Period, the Administrative Agent shall confirm its determination of the applicable Eurodollar Rate (which determination shall be conclusive in the absence of manifest error) and promptly shall give notice of the same to Borrowers and the Lenders by telephone or telecopier (and if by telephone, promptly confirmed by telecopier). (c) Unless the Administrative Agent and the Requisite Lenders otherwise consent, no more than twenty Eurodollar Rate Loans shall be outstanding at any one time. (d) No Eurodollar Rate Loan may be requested during the existence of a Default or Event of Default. -25- (e) No Lender shall be required to obtain the funds necessary to fund its Eurodollar Rate Advances in the Designated Eurodollar Market or from any other particular source of funds, rather each Lender shall be free to obtain such funds from any legal source. 2.4 VOLUNTARY REDUCTION OF COMMITMENT. Borrowers shall have the right, at any time and from time to time, without penalty or charge, upon at least three Business Days prior written notice to the Administrative Agent, voluntarily to reduce or to terminate, permanently and irrevocably, in aggregate principal amounts in an integral multiple of $1,000,000 but not less than $10,000,000, all or a portion of the then undisbursed portion of the Commitment, PROVIDED that any such reduction or termination shall be accompanied by payment of all accrued and unpaid commitment fees with respect to the portion of the Commitment being reduced or terminated. The Administrative Agent shall promptly notify the Lenders of any reduction of the Commitment under this Section. 2.5 OPTIONAL TERMINATION OF COMMITMENT. Following the occurrence of a Change in Control, the Requisite Lenders may in their sole and absolute discretion elect, during the sixty day period immediately subsequent to the LATER OF (a) such occurrence and (b) the EARLIER of (i) receipt of Borrowers' written notice to the Administrative Agent of such occurrence and (ii) if no such notice has been received by the Administrative Agent, the date upon which the Administrative Agent and the Lenders have actual knowledge thereof, to terminate the Commitment. In any such case the Commitment shall be terminated effective on the date which is sixty days subsequent to the date of written notice from the Administrative Agent to Borrowers thereof, and to the extent that there are then any Obligations outstanding, the same shall be immediately due and payable. 2.6 ADDITIONAL BORROWERS. From time to time following the Closing Date and when no Default or Event of Default exists, Parent and Company (and each other Borrower then a party to this Agreement) may jointly designate one or more additional Wholly-Owned Subsidiaries as additional co-borrowers under this Agreement in accordance with the provisions of this Section. Prior to the effectiveness of any such designation each such additional Borrower shall have duly authorized, executed and delivered to the Administrative Agent each of the following: (a) an Election to Become a Borrower, setting forth the proposed Aggregate Sublimit for that Borrower, together with such other documents, certificates, resolutions, opinions and other assurances as the Administrative Agent may reasonably require in connection therewith; and (b) Notes; Promptly following the submission of the foregoing documents, the Administrative Agent shall inform the Lenders of the proposed designation and the proposed Aggregate Sublimit. Unless the Requisite Lenders have objected in writing to the proposed designee or Aggregate Sublimit within ten Business Days following such notice from the Administrative Agent (which objection may be in the sole discretion of each Lender), the Administrative Agent shall notify the Borrowers that the appointment is accepted, whereupon the proposed new -26- Borrower shall be a Borrower for all purposes of this Agreement, with the Aggregate Sublimit set forth in its Election to Become a Borrower. 2.7 ADMINISTRATIVE AGENT'S RIGHT TO ASSUME FUNDS AVAILABLE FOR ADVANCES. Unless the Administrative Agent shall have been notified by any Lender no later than the Business Day prior to the funding by the Administrative Agent of any Loan that such Lender does not intend to make available to the Administrative Agent such Lender's portion of the total amount of such Loan, the Administrative Agent may assume that such Lender has made such amount available to the Administrative Agent on the date of the Loan and the Administrative Agent may, in reliance upon such assumption, make available to the relevant Borrower a corresponding amount. If the Administrative Agent has made funds available to a Borrower based on such assumption and such corresponding amount is not in fact made available to the Administrative Agent by such Lender, the Administrative Agent shall be entitled to recover such corresponding amount on demand from such Lender. If such Lender does not pay such corresponding amount forthwith upon the Administrative Agent's demand therefor, the Administrative Agent promptly shall notify Borrowers and the relevant Borrower shall pay such corresponding amount to the Administrative Agent. The Administrative Agent also shall be entitled to recover from such Lender interest on such corresponding amount in respect of each day from the date such corresponding amount was made available by the Administrative Agent to that Borrower to the date such corresponding amount is recovered by the Administrative Agent, at a rate per annum equal to the daily Federal Funds Rate. Nothing herein shall be deemed to relieve any Lender from its obligation to fulfill its share of the Commitment or to prejudice any rights which the Administrative Agent or Borrowers may have against any Lender as a result of any default by such Lender hereunder. 2.8 EXTENSION OF THE MATURITY DATE. The Maturity Date may be extended for 364 day periods at the request of the Parent and with the written consent of all of the Lenders (which may be withheld in the sole and absolute discretion of each Lender) pursuant to this Section. Not earlier than sixty days prior to the then effective Maturity Date occurs, but not later than March 15 of each year, the Parent and the Borrowers may deliver to the Administrative Agent and the Lenders a written request for a 364 day extension of the Maturity Date together with a Certificate of a Responsible Official signed by a Senior Officer on behalf of Parent and each Borrower stating that the representations and warranties contained in Article 4 (OTHER THAN (i) representations and warranties which expressly speak as of a particular date or are no longer true and correct as a result of a change which is not a violation of this Agreement, (ii) as otherwise disclosed by the Parent and the Borrowers and approved in writing by the Requisite Lenders and (iii) Sections 4.4(a), 4.6 (first sentence), and 4.15) shall be true and correct on and as of the date of such Certificate. Each Lender shall notify the Administrative Agent within thirty days (but not sooner than 45 days prior to the Maturity Date) following its receipt of such a Certificate whether (in its sole and absolute discretion) it consents to such request and the Administrative Agent shall, after receiving the notifications from all of the Lenders or the expiration of such period, whichever is earlier, notify Parent and the Borrowers and the Lenders of the results thereof. If all of the Lenders have consented, then the Maturity Date shall, effective on the then-current Maturity Date be extended for 364 days from the then current Maturity Date. -27- If Lenders holding at least 66 2/3% of the Commitment consent to the request for extension, but one or more Lenders (each a "Non-Consenting Lender") notify the Administrative Agent that it will not consent to the request for extension (or fail to notify the Managing Agent in writing of its consent within the required period), Parent and the Borrowers may (i) cause such Non-Consenting Lender to be removed as a Lender under this Agreement pursuant to Section 11.14(a), (ii) voluntarily terminate the Pro Rata Share of Non-Consenting Lender in accordance with Section 11.14(b), or (iii) utilize a combination of the procedures described in clauses (i) and (ii) of this Section. If such removal is accomplished by assignment to an Eligible Assignee which has consented to the requested extension, then the request for extension shall be granted with the effect as set forth above. If such removal is accomplished by a voluntary reduction of the Commitment, then the Administrative Agent shall notify all of the Lenders in writing thereof. -28- Article 3 PAYMENTS AND FEES 3.1 PRINCIPAL AND INTEREST. (a) Interest shall be payable on the outstanding daily unpaid principal amount of each Advance from the date thereof until payment in full is made and shall accrue and be payable at the rates set forth or provided for herein before and after default, before and after maturity, before and after judgment, and before and after the commencement of any proceeding under any Debtor Relief Law, with interest on overdue interest to bear interest at the Default Rate to the fullest extent permitted by applicable Laws. (b) Interest accrued on each Base Rate Loan on each Quarterly Payment Date, and on the date of any prepayment of the Notes pursuant to Section 3.1(f), shall be due and payable on that day. EXCEPT as otherwise provided in Section 3.8, the unpaid principal amount of any Base Rate Loan shall bear interest at a fluctuating rate per annum equal to the Base Rate. Each change in the interest rate under this Section 3.1(b) due to a change in the Base Rate shall take effect simultaneously with the corresponding change in the Base Rate. (c) Interest accrued on each Eurodollar Rate Loan having a Eurodollar Period of three months or less shall be due and payable on the last day of the related Eurodollar Period. Interest accrued on each other Eurodollar Rate Loan shall be due and payable on the date which is three months after the date such Eurodollar Rate Loan was made (and, in the event that all of the Lenders have approved a Eurodollar Period of longer than 6 months, every three months thereafter through the last day of the Eurodollar Period) and on the last day of the related Eurodollar Period. EXCEPT as otherwise provided in Sections 3.1(d) and 3.8, the unpaid principal amount of any Eurodollar Rate Loan shall bear interest at a rate per annum equal to the Eurodollar Rate for that Eurodollar Rate Loan PLUS the Eurodollar Margin. (d) During the existence of a Default or Event of Default, the Requisite Lenders may determine that any or all then outstanding Eurodollar Rate Loans shall be converted to Base Rate Loans. Such conversion shall be effective upon notice to Borrowers from the Requisite Lenders (or from the Administrative Agent on behalf of the Requisite Lenders) and shall continue so long as such Default or Event of Default continues to exist. (e) If not sooner paid, the principal Indebtedness evidenced by the Notes shall be payable as follows: (i) the principal amount of each Eurodollar Rate Loan shall be payable on the last day of the Eurodollar Period for such Loan; (ii) the amount, if any, by which the aggregate principal amount of the outstanding Loans at any time exceed the Commitment shall be payable immediately, and shall be applied to the Notes; and -29- (iii) the principal Indebtedness evidenced by the Notes shall in any event be payable on the Maturity Date. (f) The Notes may, at any time and from time to time, voluntarily be paid or prepaid in whole or in part without premium or penalty, EXCEPT that with respect to any voluntary prepayment under this Section 3.1(f), (i) any partial prepayment shall be in an integral multiple of $1,000,000 but not less than $10,000,000, (ii) the Administrative Agent shall have received written notice of any prepayment by 9:00 a.m., California local time on a Business Day on the date of prepayment in the case of a Base Rate Loan, and three Business Days, in the case of a Eurodollar Rate Loan, before the date of prepayment, which notice shall identify the date and amount of the prepayment and the Loan(s) being prepaid, (iii) each prepayment of principal shall be accompanied by payment of interest accrued to the date of payment on the amount of principal paid and (iv) any payment or prepayment of all or any part of any Eurodollar Rate Loan on a day other than the last day of the applicable Eurodollar Period shall be subject to Section 3.7(d). 3.2 ARRANGEMENT FEE. On the Closing Date, Parent and the Borrowers shall pay to the Administrative Agent, for the sole account of the Arranger, an arrangement fee in the amount heretofore agreed upon by letter agreement among Parent, the Borrowers and the Arranger. Such arrangement fee is for the services of the Arranger in arranging the credit facilities under this Agreement and is fully earned when paid. The arrangement fee is earned as of the date hereof and is nonrefundable. 3.3 UPFRONT FEES. On the Closing Date, Parent and the Borrowers shall pay to the Administrative Agent, for the respective accounts of the Lenders, upfront fees in the amount described in a letter agreement between the Company and the Lead Arranger. The amount of such fees have been the subject of a written advice from the Lead Arranger to each Lender. Such fees are for the credit facility committed by each Lender under this Agreement and are fully earned when paid. The upfront fees paid to each Lender are solely for its own account and are nonrefundable. 3.4 FACILITY FEES. On the last day of each Pricing Period, Borrowers shall pay to the Administrative Agent, for the respective accounts of the Lenders, pro rata according to their Pro Rata Share, a facility fee equal to (a) the Facility Fee Rate per annum for that Pricing Period TIMES (b) the average daily amount by of the Commitment (whether drawn or undrawn) during that Pricing Period. 3.5 AGENCY FEES. Borrowers shall pay to the Administrative Agent an agency fee in such amounts and at such times as heretofore agreed upon by letter agreement among Parent, the Borrowers and the Administrative Agent. The agency fee is for the services to be performed by the Administrative Agent in acting as Administrative Agent and is fully earned on the date paid. The agency fee paid to the Administrative Agent is solely for its own account and is nonrefundable. 3.6 INCREASED COMMITMENT COSTS. If any Lender shall determine that the introduction after the Closing Date of any applicable law, rule, regulation or guideline regarding capital adequacy, or any change therein or any change in the interpretation or -30- administration thereof by any central bank or other Governmental Agency charged with the interpretation or administration thereof, or compliance by such Lender (or its Eurodollar Lending Office) or any corporation controlling the Lender, with any request, guidelines or directive regarding capital adequacy (whether or not having the force of law) of any such central bank or other authority, affects or would affect the amount of capital required or expected to be maintained by such Lender or any corporation controlling such Lender and (taking into consideration such Lender's or such corporation's policies with respect to capital adequacy and such Lender's desired return on capital) determines that the amount of such capital is increased, or the rate of return on capital is reduced, as a consequence of its obligations under this Agreement, then such Lender shall promptly give notice to the Borrowers and the Agent of such determination. Thereafter, the Borrowers shall pay to such Lender, within five Business Days following written demand therefor (setting forth the additional amounts owed to such Lender and the basis of the calculation thereof in reasonable detail), additional amounts sufficient to compensate such Lender in light of such circumstances, to the extent reasonably allocable to such obligations under this Agreement. Each Lender shall afford treatment to Borrowers under this Section which is substantially similar to that which such Lender affords to its other similarly situated customers. 3.7 EURODOLLAR COSTS AND RELATED MATTERS. (a) If, after the date hereof, the existence or occurrence of any Special Eurodollar Circumstance shall: (1) subject any Lender or its Eurodollar Lending Office to any tax, duty or other charge or cost with respect to any Eurodollar Rate Advance, its Notes or its obligation to make Eurodollar Rate Advances, or shall change the basis of taxation of payments to any Lender of the principal of or interest on any Eurodollar Rate Advance or any other amounts due under this Agreement in respect of any Eurodollar Rate Advance, its Notes or its obligation to make Eurodollar Rate Advances, EXCLUDING, with respect to each Creditor, and any Affiliate or Eurodollar Lending Office thereof, (i) taxes imposed on or measured in whole or in part by its net income or capital and franchise taxes imposed on it, (ii) any withholding taxes or other taxes based on net income (other than withholding taxes and taxes based on net income resulting from or attributable to any change in any law, rule or regulation or any change in the interpretation or administration of any law, rule or regulation by any Governmental Agency) or (iii) any withholding taxes or other taxes based on net income for any period with respect to which it has failed to provide Borrowers with the appropriate form or forms required by Section 11.21, to the extent such forms are then required by applicable Laws; (2) impose, modify or deem applicable any reserve not applicable or deemed applicable on the date hereof (INCLUDING, without limitation, any reserve imposed by the Board of Governors of the Federal Reserve System, BUT EXCLUDING the Eurodollar Reserve Percentage taken into account in calculating the Eurodollar Rate), special deposit, capital or similar -31- requirements against assets of, deposits with or for the account of, or credit extended by, any Lender or its Eurodollar Lending Office; or (3) impose on any Lender or its Eurodollar Lending Office or the Designated Eurodollar Market any other condition materially affecting any Eurodollar Rate Advance, its Notes, its obligation to make Eurodollar Rate Advances or this Agreement, or shall otherwise materially affect any of the same; and the result of any of the foregoing, as determined by such Lender, increases the cost to such Lender or its Eurodollar Lending Office of making or maintaining any Eurodollar Rate Advance or in respect of any Eurodollar Rate Advance, its Notes or its obligation to make Eurodollar Rate Advances or reduces the amount of any sum received or receivable by such Lender or its Eurodollar Lending Office with respect to any Eurodollar Rate Advance, its Notes or its obligation to make Eurodollar Rate Advances (assuming such Lender's Eurodollar Lending Office had funded 100% of its Eurodollar Rate Advance in the Designated Eurodollar Market), then, PROVIDED THAT such Lender makes demand upon Borrowers (with a copy to the Administrative Agent) within 90 days following the date upon which it becomes aware of any such event or circumstance, Borrowers shall within five Business Days pay to such Lender such additional amount or amounts as will compensate such Lender for such increased cost or reduction (determined as though such Lender's Eurodollar Lending Office had funded 100% of its Eurodollar Rate Advance in the Designated Eurodollar Market). Each of the Borrowers hereby jointly and severally (but as between Borrowers, ratably) indemnifies each Lender against, and agrees to hold each Lender harmless from and reimburse such Lender within five Business Days after demand for (without duplication) all costs, expenses, claims, penalties, liabilities, losses, legal fees and damages incurred or sustained by each Lender in connection with this Agreement, or any of the rights, obligations or transactions provided for or contemplated herein, as a result of the existence or occurrence of any Special Eurodollar Circumstance. A statement of any Lender claiming compensation under this clause and setting forth the additional amount or amounts to be paid to it hereunder shall be conclusive in the absence of manifest error. Each Lender agrees to endeavor promptly to notify Borrowers of any event of which it has actual knowledge, occurring after the Closing Date, which will entitle such Lender to compensation pursuant to this Section and agrees to designate a different Eurodollar Lending Office if such designation will avoid the need for or reduce the amount of such compensation and will not, in the judgment of such Lender, otherwise be materially disadvantageous to such Lender. If any Lender claims compensation under this Section, Borrowers may at any time, upon at least four Eurodollar Business Days' prior notice to the Administrative Agent and such Lender and upon payment in full of the amounts provided for in this Section through the date of such payment PLUS any prepayment fee required by Section 3.7(d), pay in full the affected Eurodollar Rate Advances of such Lender or request that such Eurodollar Rate Advances be converted to Base Rate Advances. To the extent that any Lender which receives any payment from Borrowers under this Section later receives any funds which are identifiable as a reimbursement or rebate of such amount from any other Person, such Lender shall promptly refund such amount to Borrowers. (b) If the existence or occurrence of any Special Eurodollar Circumstance shall, in the opinion of any Lender, make it unlawful, impossible or impracticable for such -32- Lender or its Eurodollar Lending Office to make, maintain or fund its portion of any Eurodollar Rate Loan, or materially restrict the authority of such Lender to purchase or sell, or to take deposits of, Dollars in the Designated Eurodollar Market, or to determine or charge interest rates based upon the Eurodollar Rate, and such Lender shall so notify the Administrative Agent, then such Lender's obligation to make Eurodollar Rate Advances shall be suspended for the duration of such illegality, impossibility or impracticability and the Administrative Agent forthwith shall give notice thereof to the other Lenders and Borrowers. Upon receipt of such notice, the outstanding principal amount of such Lender's Eurodollar Rate Advances, together with accrued interest thereon, automatically shall be converted to Base Rate Advances on either (1) the last day of the Eurodollar Period(s) applicable to such Eurodollar Rate Advances if such Lender may lawfully continue to maintain and fund such Eurodollar Rate Advances to such day(s) or (2) immediately if such Lender may not lawfully continue to fund and maintain such Eurodollar Rate Advances to such day(s), PROVIDED that in such event the conversion shall not be subject to payment of a prepayment fee under Section 3.7(d). Each Lender agrees to endeavor promptly to notify Borrowers of any event of which it has actual knowledge, occurring after the Closing Date, which will cause that Lender to notify the Administrative Agent under this Section 3.7(b), and agrees to designate a different Eurodollar Lending Office if such designation will avoid the need for such notice and will not, in the judgment of such Lender, otherwise be disadvantageous to such Lender. In the event that any Lender is unable, for the reasons set forth above, to make, maintain or fund its portion of any Eurodollar Rate Loan, such Lender shall fund such amount as a Base Rate Advance for the same period of time, and such amount shall be treated in all respects as a Base Rate Advance. Any Lender whose obligation to make Eurodollar Rate Advances has been suspended under this Section 3.7(b) shall promptly notify the Administrative Agent and Borrowers of the cessation of the Special Eurodollar Circumstance which gave rise to such suspension. (c) If, with respect to any proposed Eurodollar Rate Loan: (1) the Administrative Agent reasonably determines that, by reason of circumstances affecting the Designated Eurodollar Market generally that are beyond the reasonable control of the Lenders, deposits in Dollars (in the applicable amounts) are not being offered to any Lender in the Designated Eurodollar Market for the applicable Eurodollar Period; or (2) the Requisite Lenders advise the Administrative Agent that the Eurodollar Rate as determined by the Administrative Agent (i) does not represent the effective pricing to such Lenders for deposits in Dollars in the Designated Eurodollar Market in the relevant amount for the applicable Eurodollar Period, or (ii) will not adequately and fairly reflect the cost to such Lenders of making the applicable Eurodollar Rate Advances; then the Administrative Agent forthwith shall give notice thereof to Borrowers and the Lenders, whereupon until the Administrative Agent notifies Borrowers that the circumstances giving rise to such suspension no longer exist, the obligation of the Lenders to make any future Eurodollar Rate Advances shall be suspended. If at the time of such notice there is -33- then pending a Request for Loan that specifies a Eurodollar Rate Loan, such Request for Loan shall be deemed to specify a Base Rate Loan. (d) Upon payment or prepayment of any Eurodollar Rate Advance, (OTHER than as the result of a conversion required under Section 3.1(d) or 3.7(b)), on a day other than the last day in the applicable Eurodollar Period (whether voluntarily, involuntarily, by reason of acceleration, or otherwise), or upon the failure of any Borrower (for a reason other than the failure of a Lender to make an Advance) to borrow on the date or in the amount specified for a Eurodollar Rate Loan in any Request for Loan, Borrowers shall pay to the appropriate Lender within five Business Days after demand a prepayment fee or failure to borrow fee, as the case may be, (determined as though 100% of the Eurodollar Rate Advance had been funded in the Designated Eurodollar Market) equal to the SUM of: (1) principal amount of the Eurodollar Rate Advance prepaid or not borrowed, as the case may be, TIMES the quotient of (A) the number of days between the date of prepayment or failure to borrow, as applicable, and the last day in the applicable Eurodollar Period, DIVIDED BY (B) 360, times the applicable Interest Differential (PROVIDED that the product of the foregoing formula must be a positive number); PLUS (2) all out-of-pocket expenses incurred by the Lender reasonably attributable to such payment, prepayment or failure to borrow. Each Lender's determination of the amount of any prepayment fee payable under this Section 3.7(d) shall be conclusive in the absence of manifest error. 3.8 DEFAULT RATE. If (a) any installment of principal or interest or any fee or cost or other amount payable under any Loan Document to any Creditor is not paid when due, then such overdue Obligations shall, or (b) if any Event of Default has occurred and remains continuing, then at the option of the Requisite Lenders, all of the Obligations shall, thereafter bear interest at a fluctuating interest rate per annum at all times equal to the sum of the Base Rate PLUS 2%, to the fullest extent permitted by applicable Laws. Accrued and unpaid interest on past due amounts (INCLUDING, without limitation, interest on past due interest) shall be compounded monthly, on the last day of each calendar month, to the fullest extent permitted by applicable Laws. 3.9 COMPUTATION OF INTEREST AND FEES. Computation of interest on Base Rate Loans calculated with reference to the Reference Rate shall be calculated on the basis of a year of 365 or 366 days, as the case may be, and the actual number of days elapsed; computation of interest on Base Rate Loans calculated by reference to the Federal Funds Rate, and on Eurodollar Rate Loans and all fees under this Agreement shall be calculated on the basis of a year of 360 days and the actual number of days elapsed. Each Borrower acknowledges that such latter calculation method will result in a higher yield to the Lenders than a method based on a year of 365 or 366 days. Interest shall accrue on each Loan for the day on which the Loan is made; interest shall not accrue on a Loan, or any portion thereof, for the day on which the Loan or such portion is paid. Any Loan that is repaid on the same day on which it is made shall bear interest for one day. -34- 3.10 NON-BUSINESS DAYS. Subject to clause (b) of the definition of "Eurodollar Period," if any payment to be made by Borrowers or any other Party under any Loan Document shall come due on a day other than a Business Day, payment shall instead be considered due on the next succeeding Business Day and the extension of time shall be reflected in computing interest and fees. 3.11 MANNER AND TREATMENT OF PAYMENTS. (a) Each payment hereunder (EXCEPT payments pursuant to Sections 3.6, 3.7, 11.3, and 11.10) or on the Notes or under any other Loan Document shall be made without setoff, counterclaim, recoupment or other deduction of any kind to the Administrative Agent, at the Administrative Agent's Office, for the account of each of the Lenders or the Administrative Agent, as the case may be, in immediately available funds not later than 11:00 a.m., California local time, on the day of payment (which must be a Business Day). All payments received after these deadlines shall be deemed received on the next succeeding Business Day. The amount of all payments received by the Administrative Agent for the account of each Lender shall be immediately paid by the Administrative Agent to the applicable Lender in immediately available funds and, if such payment was received by the Administrative Agent by 11:00 a.m., California local time, on a Business Day and not so made available to the account of a Lender on that Business Day, the Administrative Agent shall reimburse that Lender for the cost to such Lender of funding the amount of such payment at the Federal Funds Rate. All payments shall be made in lawful money of the United States of America. (b) Each payment or prepayment on account of any Loan shall be applied pro rata according to the outstanding Advances made by each Lender comprising such Loan. (c) Each Lender shall use its best efforts to keep a record of Advances made by it and payments received by it with respect to each of its Notes and, subject to Section 10.6(g), such record shall, as against Borrowers, be presumptive evidence absent manifest error of the amounts owing. Notwithstanding the foregoing sentence, no Lender shall be liable to any Party for any failure to keep such a record. (d) Each payment of any amount payable by Borrowers or any other Party under this Agreement or any other Loan Document shall be made free and clear of, and without reduction by reason of, any taxes, assessments or other charges imposed by any Governmental Agency, central bank or comparable authority, EXCLUDING, in the case of each Creditor, and any Affiliate or Eurodollar Lending Office thereof, (i) taxes imposed on or measured in whole or in part by its net income and franchise taxes imposed on it, (ii) any withholding taxes or other taxes based on net income (other than withholding taxes and taxes based on net income resulting from or attributable to any change in any law, rule or regulation or any change in the interpretation or administration of any law, rule or regulation by any Governmental Agency) or (iii) any withholding taxes or other taxes based on net income for any period with respect to which it has failed to provide Borrowers with the appropriate form or forms required by Section 11.21, to the extent such forms are then required by applicable Laws, (all such non-excluded taxes, assessments or other charges being hereinafter referred to as "Taxes"). To the extent that Parent or any Borrower is obligated by applicable Laws to -35- make any deduction or withholding on account of Taxes from any amount payable to any Lender under this Agreement, Parent or that Borrower shall (i) make such deduction or withholding and pay the same to the relevant Governmental Agency and (ii) pay such additional amount to that Lender as is necessary to result in that Lender's receiving a net after-Tax amount equal to the amount to which that Lender would have been entitled under this Agreement absent such deduction or withholding. If and when receipt of such payment results in an excess payment or credit to that Lender on account of such Taxes, that Lender shall promptly refund such excess to Parent or the appropriate Borrower. 3.12 FUNDING SOURCES. Nothing in this Agreement shall be deemed to obligate any Lender to obtain the funds for any Loan or Advance in any particular place or manner or to constitute a representation by any Lender that it has obtained or will obtain the funds for any Loan or Advance in any particular place or manner. 3.13 FAILURE TO CHARGE NOT SUBSEQUENT WAIVER. Any decision by the Creditors not to require payment of any interest (INCLUDING interest arising under Section 3.8), fee, cost or other amount payable under any Loan Document, or to calculate any amount payable by a particular method, on any occasion shall in no way limit or be deemed a waiver of the Creditor's right to require full payment of any interest (INCLUDING interest arising under Section 3.8), fee, cost or other amount payable under any Loan Document on any other or subsequent occasion. 3.14 ADMINISTRATIVE AGENT'S RIGHT TO ASSUME PAYMENTS WILL BE MADE BY BORROWERS. Unless the Administrative Agent shall have been notified by Borrowers prior to the date on which any payment to be made by Borrowers hereunder is due that Borrowers do not intend to remit such payment, the Administrative Agent may, in its discretion, assume that the appropriate Borrower has remitted such payment when so due and the Administrative Agent may, in its discretion and in reliance upon such assumption, make available to each Lender on such payment date an amount equal to such Lender's share of such assumed payment. If that Borrower has not in fact remitted such payment to the Administrative Agent, each Lender shall forthwith on demand repay to the Administrative Agent the amount of such assumed payment made available to such Lender, together with interest thereon in respect of each day from and including the date such amount was made available by the Administrative Agent to such Lender to the date such amount is repaid to the Administrative Agent at the Federal Funds Rate. 3.15 FEE DETERMINATION DETAIL. Each Creditor shall provide reasonable detail to Parent and the Borrowers regarding the manner in which the amount of any payment to that Creditor under Article 3 has been determined, concurrently with demand for such payment. 3.16 SURVIVABILITY. All of the Parent's and the Borrowers' obligations under Sections 3.6 and 3.7 shall survive for ninety days following the date on which the Commitment is terminated and all Loans hereunder are fully paid. -36- Article 4 REPRESENTATIONS AND WARRANTIES Parent and each Borrower represents and warrants to the Creditors, as of the date hereof, as of the Closing Date, and as of the date of the making of each Advance that: 4.1 EXISTENCE AND QUALIFICATION; POWER; COMPLIANCE WITH LAWS. Parent and each of the Borrowers are duly formed, validly existing and in good standing under the Laws of its jurisdiction of formation. Parent and each of the Borrowers are duly qualified or registered to transact business and is in good standing in each other jurisdiction in which the conduct of its business or the ownership or leasing of its Properties makes such qualification or registration necessary, EXCEPT where the failure so to qualify or register and to be in good standing would not constitute a Material Adverse Effect. Parent and each of the Borrowers have all requisite corporate or partnership power (as applicable) and authority to conduct their respective business, to own and lease their respective Properties and to execute and deliver each Loan Document to which it is a Party and to perform its Obligations. All outstanding shares of capital stock of Parent and each of the Borrowers are duly authorized, validly issued, fully paid, and non-assessable and no holder thereof has any enforceable right of rescission under any applicable state or federal securities Laws. Parent and each of the Borrowers are in compliance with all Laws and other legal requirements applicable to their respective business, have obtained all authorizations, consents, approvals, orders, licenses and permits from, and have accomplished all filings, registrations and qualifications with, or obtained exemptions from any of the foregoing from, any Governmental Agency that are necessary for the transaction of their business, EXCEPT where the failure so to comply, file, register, qualify or obtain exemptions does not constitute a Material Adverse Effect. 4.2 AUTHORITY; COMPLIANCE WITH OTHER AGREEMENTS AND INSTRUMENTS AND GOVERNMENT REGULATIONS. The execution, delivery and performance by Parent and each Borrower of the Loan Documents to which it is a Party have been duly authorized by all necessary corporate or partnership action, as applicable, and do not and will not: (a) Require any consent or approval not heretofore obtained of any partner, director, stockholder, security holder or creditor of such Party; (b) Violate or conflict with any provision of such Party's charter, articles of incorporation or bylaws, as applicable; (c) Result in or require the creation or imposition of any Lien or Right of Others upon or with respect to any Property now owned or leased or hereafter acquired by such Party; (d) Violate any Requirement of Law applicable to such Party, subject to obtaining the authorizations from, or filings with, the Governmental Agencies described in Schedule 4.3; (e) Result in a breach by such Party of or constitute a default by such Party under, or cause or permit the acceleration of any obligation owed under, any indenture or loan -37- or credit agreement or any other Contractual Obligation to which such Party is a party or by which such Party or any of its Property is bound or affected; and neither Parent, Borrowers nor any of their Significant Subsidiaries is in violation of, or default under, any Requirement of Law or Contractual Obligation, or any indenture, loan or credit agreement described in Section 4.2(e), in any respect that constitutes a Material Adverse Effect. 4.3 NO GOVERNMENTAL APPROVALS REQUIRED. Except as set forth in Schedule 4.3 or previously obtained or made, no authorization, consent, approval, order, license or permit from, or filing, registration or qualification with, any Governmental Agency is or will be required to authorize or permit under applicable Laws the execution, delivery and performance by Parent, Borrowers of the Loan Documents to which any of them is a Party. All authorizations from, or filings with, any Governmental Agency described in Schedule 4.3 will be accomplished as of the Closing Date or such other date as is specified in Schedule 4.3. 4.4 SIGNIFICANT SUBSIDIARIES. (a) Schedule 4.4 hereto correctly sets forth the names, form of legal entity, percentage of shares of each class of capital stock issued and outstanding, percentage of shares owned by Parent or a Significant Subsidiary (specifying such owner) and jurisdictions of organization of each of the Significant Subsidiaries of Parent. Unless otherwise indicated in Schedule 4.4, as of the Closing Date all of the outstanding shares of capital stock, or all of the units of equity interest, as the case may be, of each such Significant Subsidiary are owned of record and beneficially by the Persons described therein, there are no outstanding options, warrants or other rights to purchase capital stock of any such Significant Subsidiary, and all such shares or equity interests so owned are duly authorized, validly issued, fully paid, non-assessable, and were issued in compliance with all applicable state and federal securities and other Laws, and are free and clear of all Liens and Rights of Others, except for Permitted Encumbrances and Permitted Rights of Others. (b) Each Significant Subsidiary of Parent is duly formed, validly existing and in good standing under the Laws of its jurisdiction of organization, is duly qualified to do business as a foreign organization and is in good standing as such in each jurisdiction in which the conduct of its business or the ownership or leasing of its properties makes such qualification necessary (EXCEPT where the failure to be so duly qualified and in good standing does not constitute a Material Adverse Effect), and has all requisite power and authority to conduct its business and to own and lease its Properties. (c) Each Subsidiary of Parent is in compliance with all Laws and other requirements applicable to its business and has obtained all authorizations, consents, approvals, orders, licenses, and permits from, and each such Subsidiary has accomplished all filings, registrations, and qualifications with, or obtained exemptions from any of the foregoing from, any Governmental Agency that are necessary for the transaction of its business, EXCEPT where the failure to be in such compliance, obtain such authorizations, consents, approvals, orders, licenses, and permits, accomplish such filings, registrations, and qualifications, or obtain such exemptions, does not constitute a Material Adverse Effect. -38- 4.5 FINANCIAL STATEMENTS. Parent and Borrowers have furnished to the Lenders the audited consolidated financial statements of Parent and its Subsidiaries for the Fiscal Year ended December 31, 2001. The financial statements described above fairly present in all material respects the financial condition, results of operations and changes in financial position of Parent and its Subsidiaries as of such dates and for such periods, in conformity with Generally Accepted Accounting Principles, consistently applied. 4.6 NO OTHER LIABILITIES; NO MATERIAL ADVERSE EFFECT. As of the Closing Date, Parent and its Subsidiaries do not have any material liability or material contingent liability not reflected or disclosed in the financial statements described in Section 4.5, other than liabilities and contingent liabilities arising in the ordinary course of business since the date of such financial statements. As of the Closing Date, no circumstance or event has occurred that constitutes a Material Adverse Effect since December 31, 2001. 4.7 TITLE TO PROPERTY. Parent and its Subsidiaries have valid title (which may consist of easements or leasehold estates) to the Property reflected in the financial statements described in Section 4.5, other than immaterial items of Property and Property subsequently sold or disposed of in the ordinary course of business, free and clear of all Liens and Rights of Others, OTHER THAN Liens or Rights of Others described in Schedule 4.7, as permitted by Section 6.4, and any other matters which do not have a Material Adverse Effect. 4.8 LITIGATION. There are no actions, suits, proceedings or investigations pending as to which Parent or any of its Subsidiaries have been served or have received notice or, to the knowledge of Parent and the Borrowers, threatened against or affecting Parent or any of its Subsidiaries or any Property of any of them before any Governmental Agency in which there is any reasonable possibility of an adverse decision which could materially adversely affect the business, consolidated financial position or results of operations of Parent and its Subsidiaries, taken as a whole, or which in any manner draws into question the validity or enforceability of the Loan Documents. 4.9 BINDING OBLIGATIONS. Each of the Loan Documents will, when executed and delivered by Parent and the Borrowers party thereto, constitute the legal, valid and binding obligation of such Party, enforceable against such Party in accordance with its terms, EXCEPT as enforcement may be limited by Debtor Relief Laws or equitable principles relating to the granting of specific performance and other equitable remedies as a matter of judicial discretion. 4.10 NO DEFAULT. No event has occurred and is continuing that is a Default or Event of Default. 4.11 ERISA. (a) With respect to each Pension Plan: (i) such Pension Plan complies in all material respects with ERISA and any other applicable Laws to the extent that noncompliance could reasonably be expected to have a Material Adverse Effect; -39- (ii) such Pension Plan has not incurred any "accumulated funding deficiency" (as defined in Section 302 of ERISA) that could reasonably be expected to have a Material Adverse Effect; (iii) no "reportable event" (as defined in Section 4043 of ERISA) has occurred that could reasonably be expected to have a Material Adverse Effect; and (iv) neither Parent nor any of its Subsidiaries has engaged in any non-exempt "prohibited transaction" (as defined in Section 4975 of the Code) that could reasonably be expected to have a Material Adverse Effect. (b) Neither Parent nor any of its Subsidiaries has incurred or expects to incur any withdrawal liability to any Multiemployer Plan that could reasonably be expected to have a Material Adverse Effect. 4.12 REGULATIONS T, U AND X; INVESTMENT COMPANY ACT. No part of the proceeds of any Loan hereunder will be used to purchase or carry, or to extend credit to others for the purpose of purchasing or carrying, any Margin Stock in violation of Regulations T, U or X. Neither Parent nor any of its Subsidiaries is or is required to be registered as an "investment company" under the Investment Company Act of 1940. 4.13 DISCLOSURE. No written statement made by a Senior Officer of Parent or any Borrower to any Creditor in connection with this Agreement, including without limitation the statements made in the Confidential Offering Memorandum, or in connection with any Loan, Advance as of the date thereof contained any untrue statement of a material fact or omitted a material fact necessary to make the statement made not misleading in light of all the circumstances existing at the date the statement was made. 4.14 TAX LIABILITY. Parent and its Subsidiaries have filed all tax returns which are required to be filed, and have paid, or made provision for the payment of, all taxes with respect to the periods, Property or transactions covered by said returns, or pursuant to any assessment received by Parent or any of its Subsidiaries, EXCEPT (a) such taxes, if any, as are being contested in good faith by appropriate proceedings and as to which adequate reserves have been established and maintained and (b) immaterial taxes and tax returns so long as no material item or portion of Property of Parent or any of its Subsidiaries is in jeopardy of being seized, levied upon or forfeited. 4.15 PROJECTIONS. As of the Closing Date, to the best knowledge of Parent and the Borrowers, the assumptions set forth in the Projections are reasonable and consistent with each other and with all facts known to Parent and the Borrowers, and the Projections are (a) reasonably based on such assumptions and (b) although a range of possible different assumptions and estimates might also be reasonable, neither Parent nor the Borrowers are aware of any facts which would lead them to believe that the assumptions and estimates on which the Projections were based are not reasonable; provided that no representation or warranty can be given that the projected results will be realized or with respect to the ability of Parent and its Subsidiaries to achieve the projected results and, while the Projections are -40- necessarily presented with numerical specificity, the actual results achieved during the periods presented may differ from the projected results, and such differences may be material. 4.16 HAZARDOUS MATERIALS. Parent and the Borrowers have reasonably concluded that Hazardous Materials Laws are unlikely to have a material adverse effect on the business, financial position, results of operations or prospects of the Parent and its Subsidiaries, considered as a whole. 4.17 GAMING LAWS. Parent and each of its Subsidiaries are in compliance in all material respects with all Gaming Laws that are applicable to them and their businesses. 4.18 SOLVENCY. As of the Closing Date, and giving effect to the transactions contemplated to occur on the Closing Date, Parent and each of its Subsidiaries are Solvent. -41- Article 5 AFFIRMATIVE COVENANTS So long as any Advance remains unpaid, or any other Obligation remains unpaid or unperformed, or any portion of the Commitment remains in force, Parent and each Borrower shall, and shall cause their respective Subsidiaries to, unless the Administrative Agent (with the written approval of the Requisite Lenders) otherwise consents: 5.1 PRESERVATION OF EXISTENCE. Preserve and maintain their respective existences in the jurisdiction of their formation and all material authorizations, rights, franchises, privileges, consents, approvals, orders, licenses, permits, or registrations from any Governmental Agency that are necessary for the transaction of their respective business, EXCEPT where the failure to so preserve and maintain the existence of any Subsidiary and such authorizations would not constitute a Material Adverse Effect and EXCEPT that a merger permitted by Section 6.1 shall not constitute a violation of this covenant; and qualify and remain qualified to transact business in each jurisdiction in which such qualification is necessary in view of their respective business or the ownership or leasing of their respective Properties EXCEPT where the failure to so qualify or remain qualified would not constitute a Material Adverse Effect. 5.2 MAINTENANCE OF PROPERTIES. Maintain, preserve and protect all of their respective depreciable Properties in good order and condition, subject to wear and tear in the ordinary course of business, and not permit any waste of their respective Properties, EXCEPT where the failure to maintain, preserve and protect a particular item of depreciable Property would not have a Material Adverse Effect. 5.3 MAINTENANCE OF INSURANCE. Maintain liability, casualty and other insurance (subject to customary deductibles and retentions) with financially sound and responsible insurance companies in such amounts and against such risks as is carried by responsible companies engaged in similar businesses and owning similar assets in the general areas in which Parent and its Subsidiaries operate, and will furnish to the Administrative Agent upon request information in reasonable detail as to the insurance so carried. Notwithstanding the foregoing, Parent and its Subsidiaries may self-insure with respect to such risks with respect to which companies of established reputation engaged in the same general line of business in the same general area usually self-insure. 5.4 COMPLIANCE WITH LAWS. Comply in all material respects and within the time period, if any, given for such compliance by the relevant Governmental Agency or Agencies with enforcement authority, with all Laws and Requirements of Law, including without limitation Hazardous Materials Laws, ERISA and all Gaming Laws, EXCEPT that Parent and its Subsidiaries need not comply with a Requirement of Law then being contested by any of them in good faith by appropriate proceedings. 5.5 INSPECTION RIGHTS. Upon reasonable notice, at any time during regular business hours and as often as requested (but not so as to materially interfere with the business of the Parent or any of its Subsidiaries), permit the Administrative Agent or any Lender, or any authorized employee, agent or representative thereof, to examine, audit and -42- make copies and abstracts from the records and books of account of, and to visit and inspect the Properties of, the Parent and its Subsidiaries and to discuss the affairs, finances and accounts of the Parent and its Subsidiaries with any of their officers, key employees or accountants and, upon request, furnish promptly to the Administrative Agent or any Lender true copies of all financial information made available to the senior management of the Parent. 5.6 KEEPING OF RECORDS AND BOOKS OF ACCOUNT. Keep adequate records and books of account reflecting all financial transactions in conformity with Generally Accepted Accounting Principles, consistently applied, and in material conformity with all applicable requirements of any Governmental Agency having regulatory jurisdiction over Parent or any of its Subsidiaries. 5.7 USE OF PROCEEDS. Use the proceeds of Loans for working capital and general corporate purposes of Parent and its Subsidiaries. -43- Article 6 NEGATIVE COVENANTS So long as any Advance remains unpaid, or any other Obligation remains unpaid or unperformed, or any portion of the Commitment remains in force, Parent and each Borrower shall not, and shall not permit any of their respective Subsidiaries to, unless the Administrative Agent (with the written approval of the Requisite Lenders) otherwise consents: 6.1 CONSOLIDATIONS, MERGERS AND SALES OF ASSETS. Merge or consolidate with or into any Person, or sell, lease or otherwise transfer all or any substantial part of the assets of Parent and its Subsidiaries, taken as a whole, to any Person, EXCEPT: (a) mergers and consolidations of a Subsidiary of a Borrower into that Borrower or a Subsidiary thereof (with that Borrower or the Subsidiary as the surviving entity) or of Subsidiaries of the Borrowers with each other; (b) a merger or consolidation of a Borrower or any Subsidiary thereof with any other Person, PROVIDED that (i) either (A) the Borrower or the Subsidiary is the surviving entity, or (B) the surviving entity is a corporation organized under the Laws of a State of the United States of America and, as of the date of such merger or consolidation, expressly assumes, by an instrument satisfactory in form and substance to the Requisite Lenders, the Obligations of the relevant Borrower or the Subsidiary, as the case may be, (ii) giving effect thereto, no Default or Event of Default exists or would result therefrom, and (iii) giving pro forma effect thereto, Borrowers are in compliance with the covenants set forth in Sections 6.5 and 6.6. 6.2 HOSTILE TENDER OFFERS. Make any offer to purchase or acquire, or consummate a purchase or acquisition of, 5% or more of the capital stock of any corporation or other equity securities of any business entity if the board of directors or management of such corporation or business entity has notified Parent or any of its Subsidiaries in writing that it opposes such offer or purchase and such notice has not been withdrawn or superseded. 6.3 CHANGE IN NATURE OF BUSINESS. Make any material change in the nature of the business of Parent and its Subsidiaries, taken as a whole, or acquire more than 49% of the capital stock or other equity securities of any Person which is engaged in a line of business other than the lines of business reasonably related to or incidental to the business engaged in by Parent and its Subsidiaries. 6.4 LIENS, NEGATIVE PLEDGES, SALE LEASEBACKS AND RIGHTS OF OTHERS. Create, incur, assume or suffer to exist any Lien, Negative Pledge or Right of Others of any nature upon or with respect to any of their respective Properties, whether now owned or hereafter acquired, or enter into any Sale and Leaseback with respect to any such Properties EXCEPT: (a) Permitted Encumbrances and Permitted Rights of Others; -44- (b) Liens and Negative Pledges under the Loan Documents and under the Five Year Loan Agreement; (c) other existing Liens, Negative Pledges and Rights of Others existing on the Closing Date and disclosed in Schedule 4.7 (or not required to be disclosed therein under Section 4.7) and any renewals or extensions thereof; PROVIDED that the obligations secured or benefited thereby are not increased; (d) Until the date which is ninety days following the Closing Date, any Lien, Negative Pledge or Right of Others on shares of any equity security or any warrant or option to purchase an equity security or any security which is convertible into an equity security issued by any Subsidiary of Parent that holds, directly or indirectly through a holding company or otherwise, a license to conduct gaming under any Gaming Law, and in the proceeds thereof; PROVIDED that this clause shall apply only so long as the Gaming Laws of the relevant jurisdiction provide that the creation of any restriction on the disposition of any of such securities shall not be effective and, if such Gaming Laws at any time cease to so provide, then this clause shall be of no further effect; and PROVIDED FURTHER that if at any time Parent or any of its Subsidiaries creates or suffers to exist a Lien or Negative Pledge covering such securities in favor of the holder of any other Indebtedness, it will (subject to any approval required under such Gaming Laws) concurrently grant a pari-passu Lien or Negative Pledge likewise covering such securities in favor of the Administrative Agent for the benefit of the Lenders; (e) Liens on Property acquired or constructed by Parent or any of its Subsidiaries, and in the proceeds thereof, that (i) were in existence at the time of the acquisition or construction of such Property or were created at or within 90 days after such acquisition or construction, and (ii) secure (in the case of Liens not in existence at the time of acquisition of the Property) only the unpaid portion of the acquisition or construction price for such Property, or monies borrowed that were used to pay such acquisition or construction price; (f) Liens securing Indebtedness (INCLUDING Capital Lease Obligations) that replaces or refinances Indebtedness secured by Liens permitted under clause (e); PROVIDED that such Liens cover only the same Property as the Liens securing the Indebtedness replaced or refinanced; (g) Liens, Negative Pledges and Rights of Others held by joint venture partners and any assignees thereof, and lenders thereto and any assignees thereof, with respect to the interests of Parent and its Subsidiaries in (i) that joint venture and the proceeds thereof or (ii) the capital stock or other equity ownership interests held by any Joint Venture Holding Company in that joint venture and the proceeds thereof, PROVIDED, in each case, that such Liens, Negative Pledges and Rights of Others shall secure and relate only the obligations of such joint venture or Contingent Obligations permitted by Section 6.7(g); (h) Liens, Negative Pledges and Rights of Others in favor of counterparties to agreements, and assignees thereof, entered into by Parent and its Subsidiaries in the ordinary course of business on the interests of Parent and its Subsidiaries under such -45- agreements and the proceeds thereof, PROVIDED that such Liens, Negative Pledges and Rights of Others shall secure and relate only to restrictions on transfer of the rights of Parent and its Subsidiaries to the holders thereof under the relevant agreement; (i) Liens on Cash securing only Defeased Debt; (j) Liens not otherwise permitted by the foregoing clauses of this Section encumbering assets of the Parent and its Subsidiaries having an aggregate fair market value which is not in excess of 10% of Net Tangible Assets at any time; and 6.5 TOTAL DEBT RATIO. Permit the Total Debt Ratio to exceed 4.50:1.00 as of the last day of any Fiscal Quarter. 6.6 INTEREST COVERAGE RATIO. Permit the Interest Coverage Ratio to be less than 3.00:1.00 as of the last day of any Fiscal Quarter. 6.7 SUBSIDIARY INDEBTEDNESS. Permit any Subsidiary of Parent which is not a Borrower hereunder to create, assume, incur or suffer to exist any Indebtedness or Contingent Obligations with respect to Indebtedness OTHER THAN: (a) Defeased Debt; (b) secured Indebtedness (including Capital Lease Obligations) and Contingent Obligations which are permitted by Sections 6.4(e) or 6.4(f); (c) unsecured Indebtedness and Contingent Obligations which were created, assumed or incurred by such Subsidiary prior to its acquisition by Parent and its Subsidiaries (and not in anticipation of such acquisition) but not any refinancings, renewals or extensions thereof; (d) letters of credit, surety bonds and other similar forms of credit enhancement for such Subsidiaries incurred in the ordinary course of their business; and (e) Intercompany Debt, PROVIDED such Indebtedness is not subject to any Lien (other than Liens in favor of the Administrative Agent and the Lenders); (f) Contingent Obligations of Management Companies consisting of guarantees of Indebtedness of Persons which are the counterparties to any management agreement, development agreement or other similar instruments to which such Management Companies are also party, PROVIDED that (i) the assets of each Management Company issuing any such guarantees shall not exceed 1.0% of Net Tangible Assets at any time, and (ii) the aggregate amount of assets of all Subsidiaries issuing guarantees permitted by this Section 6.7(f) shall not exceed 5% of Net Tangible Assets at any time; and (g) Contingent Obligations of Joint Venture Holding Companies consisting of guarantees of Indebtedness of Persons in which such Joint Venture Holding Companies own equity securities, PROVIDED that the other Persons owning such equity securities have also ratably guaranteed such Indebtedness. -46- Article 7 INFORMATION AND REPORTING REQUIREMENTS 7.1 FINANCIAL AND BUSINESS INFORMATION. So long as any Advance remains unpaid, or any other Obligation remains unpaid or unperformed, or any portion of the Commitment remains in force, Parent and the Borrowers shall, unless the Administrative Agent (with the written approval of the Requisite Lenders) otherwise consents, deliver to the Administrative Agent and the Lenders, at Parent's and Borrowers' sole expense: (a) As soon as practicable, and in any event within 45 days after the end of each Fiscal Quarter (other than the fourth Fiscal Quarter in any Fiscal Year), the consolidated balance sheet of Parent and its Subsidiaries as at the end of such Fiscal Quarter and the consolidated statement of operations for each Fiscal Quarter, and its statement of cash flows for the portion of the Fiscal Year ended with such Fiscal Quarter and as at and for the portion of the Fiscal Year ended with such Fiscal Quarter, all in reasonable detail. Such financial statements shall be certified by a Senior Officer of Parent as fairly presenting the financial condition, results of operations and cash flows of Parent and its Subsidiaries in accordance with Generally Accepted Accounting Principles (other than footnote disclosures), consistently applied, as at such date and for such periods, subject only to normal year-end accruals and audit adjustments; (b) As soon as practicable, and in any event prior to the penultimate Business Day of February in each Fiscal Year, a Certificate of a Responsible Official setting forth the Total Debt Ratio as of the last day of the fourth Fiscal Quarter of the preceding year, and providing reasonable detail as to the calculation thereof, which calculations shall be based on the preliminary unaudited financial statements of Parent and its Subsidiaries for such Fiscal Quarter; (c) As soon as practicable, and in any event within 120 days after the end of each Fiscal Year, the consolidated balance sheet of Parent and its Subsidiaries as at the end of such Fiscal Year and the consolidated statements of operations, shareholders' equity and cash flows, in each case of Parent and its Subsidiaries for such Fiscal Year as at and for the Fiscal Year, all in reasonable detail. Such financial statements shall be prepared in accordance with Generally Accepted Accounting Principles, consistently applied, and such consolidated balance sheet and consolidated statements shall be accompanied by a report and opinion of independent public accountants of recognized standing selected by Parent and reasonably satisfactory to the Requisite Lenders, which report and opinion shall be prepared in accordance with generally accepted auditing standards as at such date, and shall not be subject to any qualifications or exceptions. Such accountants' report and opinion shall be accompanied by a certificate stating that, in making the examination pursuant to generally accepted auditing standards necessary for the certification of such financial statements and such report, such accountants have obtained no knowledge of any Default or, if, in the opinion of such accountants, any such Default shall exist, stating the nature and status of such Default, and stating that such accountants have reviewed Parent's and Borrowers' financial calculations as at the end of such Fiscal Year (which shall accompany such certificate) under Section 6.5 and 6.6, have read such Sections (including the definitions of all defined terms used therein) and that nothing has come to the attention of such accountants in the course of such -47- examination that would cause them to believe that the same were not calculated by Parent and the Borrowers in the manner prescribed by this Agreement; (d) As soon as practicable, and in any event within 90 days after the commencement of each Fiscal Year, a budget and projection by Fiscal Quarter for that Fiscal Year and by Fiscal Year for the next four succeeding Fiscal Years, INCLUDING for the first such Fiscal Year, projected quarterly consolidated balance sheets, statement of operations and statements of cash flow and, for the remaining four Fiscal Years, projected annual consolidated condensed balance sheets and statements of operations and cash flow, of Parent and its Subsidiaries, all in reasonable detail; (e) Promptly after the same are available, copies of each annual report, proxy or financial statement or other report or communication sent to the shareholders of Parent, and copies of all annual, regular, periodic and special reports and registration statements which Parent may file or be required to file with the Securities and Exchange Commission under Sections 13 or 15(d) of the Securities Exchange Act of 1934 and not otherwise required to be delivered to the Lenders pursuant to other provisions of this Section; (f) Promptly after the same are available, copies of the Nevada "Regulation 6.090 Report" and "6-A Report" and copies of any written communication to Parent or any of its Subsidiaries from any Gaming Board advising it of a violation of or non-compliance with, any Gaming Law by Parent or any of its Subsidiaries; (g) Promptly after request by any Creditor, copies of any other report or other document that was filed by Parent or any of its Subsidiaries with any Governmental Agency; (h) As soon as practicable, and in any event within three Business Days after a Senior Officer becomes aware of the existence of any condition or event which constitutes a Default, telephonic notice specifying the nature and period of existence thereof, and, no more than three Business Days after such telephonic notice, written notice again specifying the nature and period of existence thereof and specifying what action Parent or any of its Subsidiaries are taking or propose to take with respect thereto; (i) Promptly upon a Senior Officer becoming aware of any litigation, governmental investigation or any proceeding, including any litigation or proceeding by or subject to decision by any Gaming Board) pending (i) against Parent or any of its Subsidiaries which could reasonably be expected to have a Material Adverse Effect, (ii) with respect to any material Indebtedness of Parent or any of its Subsidiaries, or (iii) with respect to the Loan Documents, notice of the existence of the same; and (j) Such other data and information as from time to time may be reasonably requested by any Creditor through the Administrative Agent. 7.2 COMPLIANCE CERTIFICATES. So long as any Advance remains unpaid, or any other Obligation remains unpaid or unperformed, or any portion of the Commitment remains outstanding, Parent and Borrowers shall deliver to the Administrative Agent and the -48- Lenders, at Parent's and Borrowers' sole expense, concurrently with the financial statements required pursuant to Sections 7.1(a) and 7.1(c), a Compliance Certificate signed on Parent's and Borrowers' behalf by a Senior Officer. -49- Article 8 CONDITIONS 8.1 INITIAL ADVANCES, ETC. The obligation of each Lender to make the initial Advance to be made by it is subject to the following conditions precedent, each of which shall be satisfied prior to the making of the initial Advances (unless all of the Lenders, in their sole and absolute discretion, shall agree otherwise): (a) The Administrative Agent shall have received all of the following, each of which shall be originals unless otherwise specified, each properly executed by a Responsible Official of each party thereto, each dated as of the Closing Date and each in form and substance satisfactory to the Administrative Agent and its legal counsel (unless otherwise specified or, in the case of the date of any of the following, unless the Administrative Agent otherwise agrees or directs): (1) at least one executed counterpart of this Agreement, together with arrangements satisfactory to the Administrative Agent for additional executed counterparts, sufficient in number for distribution to the Lenders, Parent and each Borrower; (2) Notes executed by each Borrower in favor of each Lender, each in a principal amount equal to that Lender's Pro Rata Share; (3) the Parent Guaranty executed by Parent; (4) with respect to the Parent and each other Borrower, such documentation as the Administrative Agent may require to establish the due organization, valid existence and good standing of Parent and each Borrower, its authority to execute, deliver and perform any Loan Documents to which it is a Party, the identity, authority and capacity of each Responsible Official thereof authorized to act on its behalf, INCLUDING certified copies of articles of incorporation and amendments thereto, bylaws and amendments thereto, certificates of good standing, certificates of corporate resolutions, incumbency certificates and Certificates of Responsible Officials; (5) the Opinion of Counsel; (6) such assurances as the Administrative Agent deems appropriate that the relevant Gaming Boards have approved the transactions contemplated by the Loan Documents to the extent that such approval is required by applicable Gaming Laws; (7) a Certificate of a Responsible Official signed on Parent's and the Borrowers' behalf by a Senior Officer setting forth the Total Debt Ratio as of March 31, 2002 and the Debt Rating as of the Closing Date; -50- (8) a Certificate of a Responsible Official signed on Parent's and the Borrowers' behalf by a Senior Officer certifying that the conditions specified in Sections 8.1(e) and 8.1(f) have been satisfied; (9) a copy of the Parent's and its Subsidiaries' audited consolidated annual financial statements for the Fiscal Year ended December 31, 2001; and (10) such other assurances, certificates, documents, consents or opinions as the Administrative Agent reasonably may require. (b) The initial Loans shall have been used or shall concurrently be used to refinance the obligations of the Borrowers under the Existing Loan Agreement. (c) The arrangement fee, upfront fees and agency fees payable pursuant to Sections 3.2, 3.3 and 3.5 shall have been paid. (d) The reasonable costs and expenses of the Administrative Agent and the Lead Arranger in connection with the preparation of the Loan Documents payable pursuant to Section 11.3, and invoiced to the Parent prior to the Closing Date, shall have been paid. (e) The representations and warranties of Parent and the Borrowers contained in Article 4 shall be true and correct. (f) Parent, Borrowers and any other Parties shall be in compliance with all the terms and provisions of the Loan Documents, and after giving effect to the initial Advance no Default or Event of Default shall have occurred and be continuing. 8.2 ANY INCREASING ADVANCE, ETC. The obligation of each Lender to make any Advance which would increase the aggregate principal amount of the outstanding Advances is subject to the following conditions precedent: (a) EXCEPT (i) for representations and warranties which expressly speak as of a particular date or are no longer true and correct as a result of a change which is not a violation of the Loan Documents and (ii) as disclosed by Parent and Borrowers and approved in writing by the Requisite Lenders, the representations and warranties contained in Article 4 (OTHER THAN Sections 4.4(a), 4.6 (first sentence) and 4.15) shall be true and correct on and as of the date of the Advance as though made on that date; (b) there shall not be then pending or threatened any action, suit, proceeding or investigation against or affecting Parent or any of its Subsidiaries or any Property of any of them before any Governmental Agency that constitutes a Material Adverse Effect; (c) the Administrative Agent shall have timely received a Request for Loan in compliance with Article 2 (or telephonic or other request for loan referred to in the second sentence of Section 2.1(b), if applicable) in compliance with Article 2; and -51- (d) the Administrative Agent shall have received, in form and substance satisfactory to the Administrative Agent, such other assurances, certificates, documents or consents related to the foregoing as the Administrative Agent or Requisite Lenders reasonably may require. -52- Article 9 EVENTS OF DEFAULT AND REMEDIES UPON EVENT OF DEFAULT 9.1 EVENTS OF DEFAULT. The existence or occurrence of any one or more of the following events, whatever the reason therefor and under any circumstances whatsoever, shall constitute an Event of Default: (a) Any Borrower fails to pay any principal on any Note, or any portion thereof, on the date when due; or (b) Parent or any Borrower fails to pay any interest on any of the Notes, or any fees under Sections 3.4 or 3.5, or any portion thereof, within five Business Days after the date when due; or fails to pay any other fee or amount payable to the Lenders under any Loan Document, or any portion thereof, within five Business Days after demand therefor; or (c) Parent or any Borrower fails, immediately upon notice from the Administrative Agent, to comply with any of the covenants contained in Article 6 (other than the covenant contained in Section 6.3); or (d) Parent or any Borrower fails to comply with Section 7.1(h) in any respect that is materially adverse to the interests of the Lenders; or (e) Parent, any Borrower or any other Party fails to perform or observe any other covenant or agreement (not specified in clauses (a), (b), (c) or (d) above) contained in any Loan Document on its part to be performed or observed within thirty Business Days after the giving of notice by the Administrative Agent on behalf of the Requisite Lenders of such Default; or (f) Any representation or warranty of Parent or any Borrower made in any Loan Document, or in any certificate or other writing delivered by Parent or any Borrower pursuant to any Loan Document, proves to have been incorrect when made or reaffirmed; or (g) Parent or any of its Significant Subsidiaries (i) fails to pay the principal, or any principal installment, of any present or future indebtedness for borrowed money of $100,000,000 or more including without limitation the Five Year Loan Agreement, or any guaranty of present or future indebtedness for borrowed money of $100,000,000 or more, on its part to be paid, when due (or within any stated grace period), whether at the stated maturity, upon acceleration, by reason of required prepayment or otherwise or (ii) fails to perform or observe any other term, covenant or agreement on its part to be performed or observed, or suffers any event to occur, in connection with any present or future indebtedness for borrowed money of $100,000,000 or more, or of any guaranty of present or future indebtedness for borrowed money of $100,000,000 or more, if as a result of such failure or sufferance any holder or holders thereof (or an agent or trustee on its or their behalf) has the right to declare such indebtedness due before the date on which it otherwise would become due; or -53- (h) Any event occurs which gives the holder or holders of any Subordinated Debt (or an agent or trustee on its or their behalf) the right to declare such indebtedness due before the date on which it otherwise would become due, or the right to require the issuer thereof to redeem or purchase, or offer to redeem or purchase, all or any portion of any Subordinated Debt; or (i) Any Loan Document, at any time after its execution and delivery and for any reason other than the agreement of the Lenders or satisfaction in full of all the Obligations ceases to be in full force and effect or is declared by a court of competent jurisdiction to be null and void, invalid or unenforceable in any respect which, in any such event in the reasonable opinion of the Requisite Lenders, is materially adverse to the interests of the Lenders; or any Party thereto denies in writing that it has any or further liability or obligation under any Loan Document, or purports in writing to revoke, terminate or rescind same; or (j) A final judgment against the Parent or any of its Significant Subsidiaries is entered for the payment of money in excess of $25,000,000 and, absent procurement of a stay of execution, such judgment remains unsatisfied for thirty calendar days after the date of entry of judgment, or in any event later than five days prior to the date of any proposed sale thereunder; or any writ or warrant of attachment or execution or similar process is issued or levied against all or any material part of the Property of any such Person and is not released, vacated or fully bonded within thirty calendar days after its issue or levy; or (k) The Parent or any of its Significant Subsidiaries institutes or consents to the institution of any proceeding under a Debtor Relief Law relating to it or to all or any part of its Property, or is unable or admits in writing its inability to pay its debts as they mature, or makes an assignment for the benefit of creditors; or applies for or consents to the appointment of any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer for it or for all or any part of its Property; or any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer is appointed without the application or consent of that Person and the appointment continues undischarged or unstayed for 60 calendar days; or any proceeding under a Debtor Relief Law relating to any such Person or to all or any part of its Property is instituted without the consent of that Person and continues undismissed or unstayed for 60 calendar days; or (l) The occurrence of an Event of Default (as such term is or may hereafter be specifically defined in any other Loan Document) under any other Loan Document; or (m) Any determination is made by a court of competent jurisdiction that any Subordinated Debt is not subordinated in accordance with its terms to the Obligations, PROVIDED THAT for so long as such determination is effectively stayed during any pending appeal the same shall not constitute an Event of Default; or (n) Any Pension Plan maintained by the Parent or any of its Subsidiaries is determined to have a material "accumulated funding deficiency" as that term is defined in Section 302 of ERISA and the result is a Material Adverse Effect; or -54- (o) The occurrence of a License Revocation with respect to a license issued to Parent or any of its Subsidiaries by any Gaming Board of the States of New Jersey or Nevada with respect to gaming operations at any gaming facility accounting for 5% or more of the consolidated gross revenues of Parent and its Subsidiaries that continues for thirty calendar days. 9.2 REMEDIES UPON EVENT OF DEFAULT. Without limiting any other rights or remedies of the Creditors provided for elsewhere in this Agreement, or the Loan Documents, or by applicable Law, or in equity, or otherwise: (a) Upon the occurrence, and during the continuance, of any Event of Default OTHER than an Event of Default described in Section 9.1(k): (1) the commitment to make Advances and all other obligations of the Creditors and all rights of Parent, Borrowers and any other Parties under the Loan Documents shall be suspended without notice to or demand upon Parent or the Borrowers, which are expressly waived by Parent and the Borrowers, EXCEPT that all of the Lenders or the Requisite Lenders (as the case may be, in accordance with Section 11.2) may waive an Event of Default or, without waiving, determine, upon terms and conditions satisfactory to the Lenders or Requisite Lenders, as the case may be, to reinstate the Commitment and make further Advances, which waiver or determination shall apply equally to, and shall be binding upon, all the Lenders; and (2) the Requisite Lenders may request the Administrative Agent to, and the Administrative Agent thereupon shall, terminate the Commitment and/or declare all or any part of the unpaid principal of all Notes, all interest accrued and unpaid thereon and all other amounts payable under the Loan Documents to be forthwith due and payable, whereupon the same shall become and be forthwith due and payable, without protest, presentment, notice of dishonor, demand or further notice of any kind, all of which are expressly waived by Parent and the Borrowers. (b) Upon the occurrence of any Event of Default described in Section 9.1(k): (1) the commitment to make Advances and all other obligations of the Creditors and all rights of Parent, Borrowers and any other Parties under the Loan Documents shall terminate without notice to or demand upon Parent or Borrowers, which are expressly waived by Parent and Borrowers, EXCEPT that all the Lenders may waive the Event of Default or, without waiving, determine, upon terms and conditions satisfactory to all the Lenders, to reinstate the Commitment and make further Advances, which determination shall apply equally to, and shall be binding upon, all the Lenders; and -55- (2) the unpaid principal of all Notes, all interest accrued and unpaid thereon and all other amounts payable under the Loan Documents shall be forthwith due and payable, without protest, presentment, notice of dishonor, demand or further notice of any kind, all of which are expressly waived by Parent and Borrowers. (c) Upon the occurrence of any Event of Default, the Creditors, or any of them, without notice to (EXCEPT as expressly provided for in any Loan Document) or demand upon Parent or Borrowers, which are expressly waived by Borrowers (EXCEPT as to notices expressly provided for in any Loan Document), may proceed (but only with the consent of the Requisite Lenders) to protect, exercise and enforce their rights and remedies under the Loan Documents against Parent and the Borrowers and any other Parties and such other rights and remedies as are provided by Law or equity. (d) The order and manner in which the Lenders' rights and remedies are to be exercised shall be determined by the Requisite Lenders in their sole discretion, and all payments received by the Creditors, shall be applied first to the costs and expenses (including attorneys' fees and disbursements and the allocated costs of attorneys employed by the Administrative Agent) of the Creditors, and thereafter paid pro rata to the Lenders in the same proportions that the aggregate Obligations owed to each Lender under the Loan Documents bear to the aggregate Obligations owed under the Loan Documents to all the Lenders, without priority or preference among the Lenders. Regardless of how each Lender may treat payments for the purpose of its own accounting, for the purpose of computing the Obligations hereunder and under the Notes, payments shall be applied FIRST, to the costs and expenses of the Creditors, as set forth above, SECOND, to the payment of accrued and unpaid interest due under any Loan Documents to and including the date of such application (ratably, and without duplication, according to the accrued and unpaid interest due under each of the Loan Documents), and THIRD, to the payment of all other amounts (including principal and fees) then owing to the Creditors under the Loan Documents. No application of payments will cure any Event of Default, or prevent acceleration, or continued acceleration, of amounts payable under the Loan Documents, or prevent the exercise, or continued exercise, of rights or remedies of the Lenders hereunder or thereunder or at Law or in equity. -56- Article 10 THE ADMINISTRATIVE AGENT 10.1 APPOINTMENT AND AUTHORIZATION. Each Creditor hereby irrevocably appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under the Loan Documents as are delegated to the Administrative Agent by the terms thereof or are reasonably incidental, as determined by the Administrative Agent, thereto. This appointment and authorization is intended solely for the purpose of facilitating the servicing of the Obligations and does not constitute appointment of the Administrative Agent as trustee for any Lender or as representative of any Lender for any other purpose and, EXCEPT as specifically set forth in the Loan Documents to the contrary, the Administrative Agent shall take such action and exercise such powers only in an administrative and ministerial capacity. 10.2 ADMINISTRATIVE AGENT AND AFFILIATES. Bank of America (and each successor Administrative Agent) has the same rights and powers under the Loan Documents as any other Lender and may exercise the same as though it was not the Administrative Agent, and the term "Lender" or "Lenders" includes Bank of America in its individual capacity. Bank of America (and each successor Administrative Agent) and its Affiliates may accept deposits from, lend money to and generally engage in any kind of banking, trust or other business with Parent, any Subsidiary thereof, or any Affiliate of Parent, as if it was not the Administrative Agent and without any duty to account therefor to the Lenders. Bank of America (and each successor Administrative Agent) need not account to any other Bank for any monies received by it for reimbursement of its costs and expenses as Administrative Agent hereunder, or for any monies received by it in its capacity as a Lender hereunder. The Administrative Agent shall not be deemed to hold a fiduciary relationship with any Lender and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or otherwise exist against the Administrative Agent. 10.3 PROPORTIONATE INTEREST IN ANY COLLATERAL. The Administrative Agent, on behalf of all the Lenders, shall hold in accordance with the Loan Documents all items of any collateral or interests therein hereafter received or held by the Administrative Agent. Subject to the Administrative Agent's and the Lenders' rights to reimbursement for their costs and expenses hereunder (INCLUDING attorneys' fees and disbursements and other professional services and the allocated costs of attorneys employed by the Administrative Agent or a Lender), each Lender shall have an interest in the Lenders' interest in any collateral or interests therein in the same proportions that the aggregate Obligations owed such Lender under the Loan Documents bear to the aggregate Obligations owed under the Loan Documents to all the Lenders, without priority or preference among the Lenders. 10.4 LENDERS' CREDIT DECISIONS. Each Creditor agrees that it has, independently and without reliance upon the Administrative Agent, any other Creditor or the directors, officers, agents, employees or attorneys of any other Creditor, and instead in reliance upon information supplied to it by or on behalf of Parent and Borrowers and upon such other information as it has deemed appropriate, made its own independent credit analysis and decision to enter into this Agreement. Each Creditor also agrees that it shall, independently and without reliance upon any other Creditor or the directors, officers, agents, -57- employees or attorneys of any other Creditor, continue to make its own independent credit analyses and decisions in acting or not acting under the Loan Documents. 10.5 ACTION BY ADMINISTRATIVE AGENT. (a) The Administrative Agent may assume that no Default or Event of Default has occurred and is continuing, unless they have received notice from a Parent or any Borrower stating the nature of the Default or Event of Default or have received notice from a Lender stating the nature of the Default or Event of Default and that such Lender considers the Default or Event of Default to have occurred and to be continuing. (b) The Administrative Agent has only those obligations under the Loan Documents as are expressly set forth therein. (c) EXCEPT for any obligation expressly set forth in the Loan Documents and as long as the Administrative Agent may assume that no Event of Default has occurred and is continuing, the Administrative Agent may, but shall not be required to, exercise its discretion to act or not act, EXCEPT that the Administrative Agent shall be required to act or not act upon the instructions of the Requisite Lenders (or of all the Lenders, to the extent required by Section 11.2) and those instructions shall be binding upon the Administrative Agent and all the Lenders, PROVIDED that the Administrative Agent shall not be required to act or not act if to do so would be contrary to any Loan Document or to applicable Law or would result, in the reasonable judgment of the Administrative Agent, in substantial risk of liability to the Administrative Agent. (d) If the Administrative Agent has received a notice specified in clause (a), the Administrative Agent shall immediately give notice thereof to the Lenders and shall act or not act upon the instructions of the Requisite Lenders (or of all the Lenders, to the extent required by Section 11.2), PROVIDED that the Administrative Agent shall not be required to act or not act if to do so would be contrary to any Loan Document or to applicable Law or would result, in the reasonable judgment of the Administrative Agent, in substantial risk of liability to the Administrative Agent, and EXCEPT that if the Requisite Lenders (or all the Lenders, if required under Section 11.2) fail, for five Business Days after the receipt of notice from the Administrative Agent, to instruct the Administrative Agent, then the Administrative Agent, in its sole discretion, may act or not act as it deems advisable for the protection of the interests of the Creditors. (e) The Administrative Agent shall have no liability to any Creditor for acting, or not acting, as instructed by the Requisite Lenders (or all the Lenders, if required under Section 11.2), notwithstanding any other provision hereof. 10.6 LIABILITY OF ADMINISTRATIVE AGENT. Neither the Administrative Agent nor any of its directors, officers, agents, employees or attorneys shall be liable for any action taken or not taken by them under or in connection with the Loan Documents, EXCEPT for their own gross negligence or willful misconduct. Without limitation on the foregoing, the Administrative Agent and its directors, officers, agents, employees and attorneys: -58- (a) May treat the payee of any Note as the holder thereof until the Administrative Agent receives notice of the assignment or transfer thereof, in form satisfactory to the Administrative Agent, signed by the payee, and may treat each Lender as the owner of that Lender's interest in the Obligations for all purposes of this Agreement until the Administrative Agent receives notice of the assignment or transfer thereof, in form satisfactory to the Administrative Agent, signed by that Lender. (b) May consult with legal counsel (INCLUDING in-house legal counsel), accountants (including in-house accountants) and other professionals or experts selected by it, or with legal counsel, accountants or other professionals or experts for Parent and/or its Subsidiaries or the Lenders, and shall not be liable for any action taken or not taken by it in good faith in accordance with any advice of such legal counsel, accountants or other professionals or experts. (c) Shall not be responsible to any Lender for any statement, warranty or representation made in any of the Loan Documents or in any notice, certificate, report, request or other statement (written or oral) given or made in connection with any of the Loan Documents. (d) EXCEPT to the extent expressly set forth in the Loan Documents, shall have no duty to ask or inquire as to the performance or observance by Parent or its Subsidiaries of any of the terms, conditions or covenants of any of the Loan Documents or to inspect any collateral or the Property, books or records of Parent or its Subsidiaries. (e) Will not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, effectiveness, sufficiency or value of any Loan Document, any other instrument or writing furnished pursuant thereto or in connection therewith, or any collateral. (f) Will not incur any liability by acting or not acting in reliance upon any Loan Document, notice, consent, certificate, statement, request or other instrument or writing believed by it to be genuine and signed or sent by the proper party or parties. (g) Will not incur any liability for any arithmetical error in computing any amount paid or payable by Parent, Borrowers or any Subsidiary thereof or paid or payable to or received or receivable from any Lender under any Loan Document, INCLUDING, without limitation, principal, interest, commitment fees, Advances and other amounts; PROVIDED that, promptly upon discovery of such an error in computation, the Creditors (and, to the extent applicable, Parent and Borrowers) shall make such adjustments as are necessary to correct such error and to restore the parties to the position that they would have occupied had the error not occurred. 10.7 INDEMNIFICATION. Each Lender shall, ratably in accordance with its Pro Rata Share, indemnify and hold the Administrative Agent, the Lead Arranger and their respective directors, officers, agents, employees and attorneys harmless against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever (INCLUDING, without limitation, attorneys' fees -59- and disbursements and allocated costs of attorneys employed by the Administrative Agent or the Lead Arranger) that may be imposed on, incurred by or asserted against it or them in any way relating to or arising out of the Loan Documents (other than losses incurred by reason of the failure of Parent or Borrowers to pay and perform the Obligations) or any action taken or not taken by it as Administrative Agent and the Lead Arranger thereunder, EXCEPT such as result from their own gross negligence or willful misconduct. Without limitation on the foregoing, each Lender shall reimburse the Administrative Agent and the Lead Arranger upon demand for that Lender's Pro Rata Share of any out-of-pocket cost or expense incurred by the Administrative Agent or the Lead Arranger in connection with the negotiation, preparation, execution, delivery, amendment, waiver, restructuring, reorganization (INCLUDING a bankruptcy reorganization), enforcement or attempted enforcement of the Loan Documents, to the extent that Parent, Borrowers or any other Party fails to do so upon demand. 10.8 SUCCESSOR ADMINISTRATIVE AGENT. The Administrative Agent may, and at the request of the Requisite Lenders shall, resign as Administrative Agent upon thirty days notice to the Lenders, Parent and the Borrowers. If the Administrative Agent resigns as Administrative Agent under this Agreement, the Requisite Lenders shall appoint from among the Lenders a successor administrative agent for the Lenders, which successor administrative agent shall be approved by Parent and Borrowers (and such approval shall not be unreasonably withheld). If no successor administrative agent is appointed prior to the effective date of the resignation of the Administrative Agent, the Administrative Agent may appoint, after consulting with the Lenders, Parent and Borrowers, a successor administrative agent from among the Lenders. Upon the acceptance of its appointment as successor administrative agent hereunder, such successor administrative agent shall succeed to all the rights, powers and duties of the retiring Administrative Agent and the term "Administrative Agent" shall mean such successor administrative agent and the retiring Administrative Agent's appointment, powers and duties as Administrative Agent shall be terminated (except for any liabilities incurred prior to such termination). After any retiring Administrative Agent's resignation hereunder as Administrative Agent, the provisions of this Article 10, and Sections 11.3, and 11.10, shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement. If no successor administrative agent has accepted appointment as Administrative Agent by the date which is thirty days following a retiring Administrative Agent's notice of resignation, the retiring Administrative Agent's resignation shall nevertheless thereupon become effective and the Lenders shall perform all of the duties of the Administrative Agent hereunder until such time, if any, as the Requisite Lenders appoint a successor administrative agent as provided for above. 10.9 NO OBLIGATIONS OF PARENT OR BORROWERS. Nothing contained in this Article 10 shall be deemed to impose upon Parent or Borrowers any obligation in respect of the due and punctual performance by the Administrative Agent of its obligations to the Lenders under any provision of this Agreement, and Parent and Borrowers shall have no liability to any Creditor in respect of any failure by any Creditor to perform any of its obligations to any other Creditor under this Agreement. -60- Article 11 MISCELLANEOUS 11.1 CUMULATIVE REMEDIES; NO WAIVER. The rights, powers, privileges and remedies of the Creditors provided herein or in any Note or other Loan Document are cumulative and not exclusive of any right, power, privilege or remedy provided by Law or equity. No failure or delay on the part of any Creditor in exercising any right, power, privilege or remedy may be, or may be deemed to be, a waiver thereof; nor may any single or partial exercise of any right, power, privilege or remedy preclude any other or further exercise of the same or any other right, power, privilege or remedy. The terms and conditions of Article 8 hereof are inserted for the sole benefit of the Creditors; the same may be waived in whole or in part, with or without terms or conditions, in respect of any Loan without prejudicing the Creditors rights to assert them in whole or in part in respect of any other Loan. 11.2 AMENDMENTS; CONSENTS. No amendment, modification, supplement, extension, termination or waiver of any provision of this Agreement or any other Loan Document, no approval or consent thereunder, and no consent to any departure by Parent, Borrowers or any other Party therefrom, may in any event be effective unless in writing signed by the Requisite Lenders (and, in the case of any amendment, modification or supplement of or to any Loan Document to which Parent or any Borrower is a party, signed by Parent and that Borrower and, in the case of any amendment, modification or supplement to Article 10, signed by the Administrative Agent), and then only in the specific instance and for the specific purpose given; and, without the approval in writing of all the Lenders, no amendment, modification, supplement, termination, waiver or consent may be effective: (a) To forgive any principal Obligation, defer any required payment of any Obligation, reduce the amount or rate of interest payable on any Loan or Advance without the consent of the affected Lender, increase the amount of the Commitment or the Pro Rata Share of any Lender or decrease the amount of any facility fee payable to any Lender, or reduce any other fee or amount payable to the Creditors under the Loan Documents or to waive an Event of Default consisting of the failure of any Borrower to pay when due principal, interest or any facility fee; (b) To postpone any date fixed for any payment of principal of, prepayment of principal of or any installment of interest on, any Note or any installment of any facility fee, or to extend the term of the Commitment (except as set forth in Section 2.8); (c) To amend the provisions of the definition of "Requisite Lenders" or this Section 11.2 or to amend or waive Section 6.2; (d) to release or subordinate the Parent Guaranty; or (e) To amend any provision of this Agreement that expressly requires the consent or approval of all the Lenders. Any amendment, modification, supplement, termination, waiver or consent pursuant to this Section 11.2 shall apply equally to, and shall be binding upon, all of the Creditors. -61- If, in connection with any proposed amendment, modification, supplement, termination, waiver or consent to any of the provisions hereof as contemplated by clauses (a) through (d), inclusive, of this Section 11.2, the consent of the Required Lenders is obtained, but the consent of one or more of the other Lenders is required and is not obtained, then the Borrowers shall have the right to (i) replace such non-consenting Lender with one or more Eligible Assignees in accordance with Section 11.14(a) if such Eligible Assignee consents to the proposed amendment, modification, supplement, termination, waiver or consent, or (ii) reduce the Commitment in accordance with Section 11.14(b) or any combination of the foregoing, provided that each such non-consenting Lender shall be either replaced as set forth in clause (i) or eliminated as set forth in clause (ii). 11.3 COSTS, EXPENSES AND TAXES. Each Borrower shall pay within two Business Days after demand, accompanied by an invoice therefor, the reasonable costs and expenses of the Administrative Agent and the Lead Arranger in connection with the negotiation, preparation, syndication, execution and delivery of the Loan Documents and any amendment thereto or waiver thereof which is requested by Borrowers or is entered into when any Default or Event of Default exists. Following any Event of Default, each Borrower shall pay on demand, accompanied by an invoice therefor, the reasonable costs and expenses of the Administrative Agent and each of the other Creditors in connection with the restructuring, reorganization (INCLUDING a bankruptcy reorganization) and enforcement or attempted enforcement of the Loan Documents, and any matter related thereto. The foregoing costs and expenses shall include filing fees, recording fees, title insurance fees, appraisal fees, search fees, and other out-of-pocket expenses and the reasonable fees and out-of-pocket expenses of any legal counsel (INCLUDING allocated costs of legal counsel employed by any Creditor), independent public accountants and other outside experts retained by any of the Creditors, whether or not such costs and expenses are incurred or suffered by the Creditors in connection with or during the course of any bankruptcy or insolvency proceedings of the Parent or any Subsidiary thereof. Such costs and expenses shall also include, in the case of any amendment or waiver of any Loan Document requested by the Parent or the Borrowers, the administrative costs of the Administrative Agent reasonably attributable thereto. Each Borrower shall pay any and all documentary and other taxes, EXCLUDING, in the case of each Creditor and its Eurodollar Lending Office thereof, (i) taxes imposed on or measured in whole or in part by its net income or capital and franchise taxes imposed on it, (ii) any withholding taxes or other taxes based on net income (other than withholding taxes and taxes based on net income resulting from or attributable to any change following the Closing Date in any law, rule or regulation or any change following the Closing Date in the interpretation or administration of any law, rule or regulation by any governmental authority) or (iii) any withholding taxes or other taxes based on net income for any period with respect to which it has failed to provide the Parent with the appropriate form or forms required by Section 11.21, to the extent such forms are then required by applicable Laws, and all costs, expenses, fees and charges payable or determined to be payable in connection with the filing or recording of this Agreement, any other Loan Document or any other instrument or writing to be delivered hereunder or thereunder, or in connection with any transaction pursuant hereto or thereto, and shall reimburse, hold harmless and indemnify the Creditors from and against any and all loss, liability or legal or other expense with respect to or resulting from any delay in paying or failure to pay any such tax, cost, expense, fee or charge or that any of them may suffer or -62- incur by reason of the failure of any Party to perform any of its Obligations. Any amount payable to the Creditors under this Section 11.3 shall bear interest from the second Business Day following the date of demand for payment at the Default Rate. 11.4 NATURE OF LENDERS' OBLIGATIONS. The obligations of the Lenders hereunder are several and not joint or joint and several. Nothing contained in this Agreement or any other Loan Document and no action taken by the Creditors or any of them pursuant hereto or thereto may, or may be deemed to, make the Creditors a partnership, an association, a joint venture or other entity, either among themselves or with Parent, any Borrower or any Affiliate thereof. Each Lender's obligation to make any Advance pursuant hereto is several and not joint or joint and several, and in the case of the initial Advance only is conditioned upon the performance by all other Lenders of their obligations to make initial Advances. A default by any Lender will not increase the Pro Rata Share attributable to any other Lender. Any Lender not in default may, if it desires, assume in such proportion as a majority in interest of the nondefaulting Lenders agree the obligations of any Lender in default, but is not obligated to do so. 11.5 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and warranties contained herein or in any other Loan Document, or in any certificate or other writing delivered by or on behalf of any one or more of the Parties to any Loan Document, will survive the making of the Loans hereunder and the execution and delivery of the Notes, and have been or will be relied upon by the Creditors, notwithstanding any investigation made by the Creditors or on their behalf. 11.6 NOTICES. EXCEPT as otherwise expressly provided in the Loan Documents, all notices, requests, demands, directions and other communications provided for hereunder or under any other Loan Document must be in writing and must be mailed, telecopied or delivered by overnight courier or otherwise to the appropriate party at the address set forth on the signature pages of this Agreement or other applicable Loan Document or, as to any party to any Loan Document, at any other address as may be designated by it in a written notice sent to all other parties to such Loan Document in accordance with this Section. EXCEPT as otherwise expressly provided in any Loan Document, if any notice, request, demand, direction or other communication required or permitted by any Loan Document is given by mail it will be effective on the earlier of receipt or the third calendar day after deposit in the United States mail with first class or airmail postage prepaid; if given by telecopier, when sent; or if given by personal delivery, when delivered. 11.7 EXECUTION OF LOAN DOCUMENTS. Unless the Administrative Agent otherwise specifies with respect to any Loan Document, (a) this Agreement and any other Loan Document may be executed in any number of counterparts and any party hereto or thereto may execute any counterpart, each of which when executed and delivered will be deemed to be an original and all of which counterparts of this Agreement or any other Loan Document, as the case may be, when taken together will be deemed to be but one and the same instrument and (b) execution of any such counterpart may be evidenced by a telecopier transmission of the signature of such party. The execution of this Agreement or any other Loan Document by any party hereto or thereto will not become effective until counterparts hereof or thereof, as the case may be, have been executed by all the parties hereto or thereto. -63- 11.8 BINDING EFFECT; ASSIGNMENT. (a) This Agreement and the other Loan Documents will be binding upon and inure to the benefit of Parent, Borrowers, the Creditors, and their respective successors and assigns, EXCEPT that Parent and Borrowers may not assign their rights hereunder or thereunder or any interest herein or therein without the prior written consent of all the Lenders (any purported assignment by Parent or any Borrower in violation of this Section being VOID AB INITIO). Each Lender represents that it is not acquiring its Notes with a view to the distribution thereof within the meaning of the Securities Act of 1933, as amended (subject to any requirement that disposition of such Notes must be within the control of such Lender). Any Lender may at any time pledge its Notes or any other instrument evidencing its rights as a Lender under this Agreement to a Federal Reserve Bank, but no such pledge shall release that Lender from its obligations hereunder or grant to such Federal Reserve Bank the rights of a Lender hereunder absent foreclosure of such pledge. (b) From time to time following the Closing Date, each Lender may assign to one or more Eligible Assignees all or any portion of its Pro Rata Share and its Notes; PROVIDED that (i) such Eligible Assignee, if not then a Lender or an Affiliate of the assigning Lender having a combined capital and surplus in excess of $100,000,000, shall be approved by each of the Administrative Agent (which approval shall not be unreasonably withheld) and the Parent and the Borrowers (which approval shall not be unreasonably withheld and will not be required if an Event of Default has occurred and remains continuing), (ii) such assignment shall be evidenced by an Assignment Agreement, a copy of which shall be furnished to the Administrative Agent, (iii) EXCEPT in the case of an assignment to an Affiliate of the assigning Lender, to another Lender or of the entire remaining Commitment of the assigning Lender, the assignment shall not assign a Pro Rata Share which is less than $5,000,000, and (iv) the effective date of any such assignment shall be as specified in the Assignment Agreement, but not earlier than the date which is five Business Days after the date the Administrative Agent has received the Assignment Agreement. Upon the effective date of such Assignment Agreement, the Eligible Assignee named therein shall be a Lender for all purposes of this Agreement, with the Pro Rata Share therein set forth and, to the extent of such Pro Rata Share, the assigning Lender shall be released from its further obligations under this Agreement and the other Loan Documents. Each Borrower agrees that it shall execute and deliver (against delivery by the assigning Lender to the Borrowers of its Notes) to such assignee Lender, Notes evidencing that assignee Lender's Pro Rata Share, and to the assigning Lender, Notes evidencing the remaining balance Pro Rata Share retained by the assigning Lender. (c) By executing and delivering an Assignment Agreement, the Eligible Assignee thereunder acknowledges and agrees that: (i) other than the representation and warranty that it is the legal and beneficial owner of the Pro Rata Share being assigned thereby free and clear of any adverse claim, the assigning Lender has made no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness or sufficiency of this Agreement or any other Loan Document; (ii) the assigning Lender has made no representation or warranty and assumes no responsibility with respect to the financial condition of the Parent or its Subsidiaries or the -64- performance by the Parent or its Subsidiaries of the Obligations; (iii) it has received a copy of this Agreement and the other Loan Documents, together with copies of the most recent financial statements delivered pursuant to Section 7.1 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment Agreement; (iv) it will, independently and without reliance upon any other Creditor and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) it appoints and authorizes the Administrative Agent to take such action and to exercise such powers under this Agreement and the Loan Documents as are delegated to the Administrative Agent by this Agreement; and (vi) it will perform in accordance with their terms all of the obligations which by the terms of this Agreement are required to be performed by it as a Lender. (d) The Administrative Agent shall maintain a copy of each Assignment Agreement delivered to it. After receipt of a completed Assignment Agreement executed by any Lender and an Eligible Assignee, and receipt (except in the case of the assignment to an Affiliate of the Assignor) of an assignment fee of $3,500 from such Eligible Assignee, the Administrative Agent shall confirm the effectiveness of the assignment to the parties thereto, Parent and Borrowers. (e) Each Lender may from time to time grant participations in a portion of its Pro Rata Share, in each case to one or more banks or other financial institutions (INCLUDING another Lender); PROVIDED, HOWEVER, that (i) such Lender's obligations under the Loan Documents shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) the participating banks or other financial institutions shall not be a Lender hereunder for any purpose EXCEPT, if the participation agreement so provides, for the purposes of Sections 3.6, 3.7 and 11.10, but only to the extent that the cost of such benefits to Parent and Borrowers does not exceed the cost which Parent and the Borrowers would have incurred in respect of such Lender absent the participation, (iv) Parent, the Borrowers and the other Creditors shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement, (v) the participation interest shall not restrict an increase in the Commitment, or in the granting Lender's Pro Rata Share, so long as the amount of the participation interest is not affected thereby, and (vi) the consent of the holder of such participation interest shall not be required for amendments or waivers of provisions of the Loan Documents OTHER THAN those which (A) extend the Maturity Date or any other date upon which any payment of money is due to the Lender granting the participation, (B) reduce the rate of interest on the Notes of such Lender, any fee or any other monetary amount payable to that Lender, or (C) reduce the amount of any installment of principal due under the Notes of that Lender. (f) Notwithstanding anything in this Section to the contrary, the rights of the Lenders to make assignment of, and grant participations in, their Pro Rata Share of the Commitment shall be subject to the approval of any Gaming Board, to the extent required by applicable Gaming Laws. (g) Notwithstanding anything to the contrary contained herein, any Lender (a "Granting Lender") may grant to a special purpose funding vehicle (an "SPC") of such -65- Granting Lender, identified as such in writing from time to time by the Granting Lender to the Administrative Agent, Parent and the Borrowers, the option to provide to the Borrowers all or any part of any Loan that such Granting Lender would otherwise be obligated to make to the Borrowers pursuant to Sections 2.1, 2.2 or 2.3, provided that (i) nothing herein shall constitute a commitment to make any Loan by any SPC and (ii) if an SPC elects not to exercise such option or otherwise fails to provide all or any part of such Loan, the Granting Lender shall be obligated to make such Loan pursuant to the terms hereof. The making of a Loan by an SPC hereunder shall utilize the Commitment of the Granting Lender to the same extent, and as if, such Loan were made by the Granting Lender. Each party hereto hereby agrees that no SPC shall be liable for any indemnity or similar payment obligation under this Agreement (all liability for which shall remain with the related Granting Lender). In furtherance of the foregoing, each party hereto hereby agrees (which agreement shall survive the termination of this Agreement) that, prior to the date that is one year and one day after the payment in full of all outstanding senior indebtedness of any SPC, it will not institute against, or join any other person in instituting against, such SPC any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings or similar proceedings under the laws of the United States or any State thereof, PROVIDED THAT the Granting Lender for each SPC hereby agrees to indemnify, save, and hold harmless each other party hereto for any loss, cost, damage and expense arising out of their inability to institute any such proceeding against its SPC. In addition, notwithstanding anything to the contrary contained in this Section 11.8, any SPC may (i) with notice to, but without the prior written consent of, Parent, the Borrowers or the Administrative Agent and without paying any processing fee therefor, assign all or a portion of its interests in any Loans to its Granting Lender or to any financial institutions providing liquidity and/or credit facilities to or for the account of such SPC to fund the Loans made by such SPC or to support the securities (if any) issued by such SPC to fund such Loans (but nothing contained herein shall be construed in derogation of the obligation of the Granting Lender to make Loans hereunder), PROVIDED THAT neither the consent of the SPC or of any such assignee shall be required for amendments or waivers of provisions of the Loan Documents except for those amendments or waivers for which the consent of participants is required under Section 11.8(e)(vi), and (ii) disclose on a confidential basis (in the same manner described in Section 11.13) any non-public information relating to its Loans to any rating agency, commercial paper dealer or provider of a surety, guarantee or credit or liquidity enhancement to such SPC. 11.9 SHARING OF SETOFFS. Each Lender severally agrees that if it, through the exercise of any right of setoff, banker's lien or counterclaim against Parent, any Borrower, or otherwise, receives payment of the Obligations held by it that is ratably more than any other Lender, through any means, receives in payment of the Obligations held by that Lender, then, subject to applicable Laws: (a) The Lender exercising the right of setoff, banker's lien or counterclaim or otherwise receiving such payment shall purchase, and shall be deemed to have simultaneously purchased, from the other Lender a participation in the Obligations held by the other Lender and shall pay to the other Lender a purchase price in an amount so that the share of the Obligations held by each Lender after the exercise of the right of setoff, banker's lien or counterclaim or receipt of payment shall be in the same proportion that existed prior to the exercise of the right of setoff, banker's lien or counterclaim or receipt of payment; and (b) Such other adjustments and purchases of participations shall be made from -66- time to time as shall be equitable to ensure that all of the Lenders share any payment obtained in respect of the Obligations ratably in accordance with each Lender's share of the Obligations immediately prior to, and without taking into account, the payment; provided that, if all or any portion of a disproportionate payment obtained as a result of the exercise of the right of setoff, banker's lien, counterclaim or otherwise is thereafter recovered from the purchasing Lender by Parent, Borrowers or any Person claiming through or succeeding to the rights of Parent or Borrowers, the purchase of a participation shall be rescinded and the purchase price thereof shall be restored to the extent of the recovery, but without interest. Each Lender that purchases a participation in the Obligations pursuant to this Section shall from and after the purchase have the right to give all notices, requests, demands, directions and other communications under this Agreement with respect to the portion of the Obligations purchased to the same extent as though the purchasing Lender were the original owner of the Obligations purchased. Parent and each Borrower expressly consents to the foregoing arrangements and agrees that any Lender holding a participation in an Obligation so purchased may exercise any and all rights of setoff, banker's lien or counterclaim with respect to the participation as fully as if the Lender were the original owner of the Obligation purchased. 11.10 INDEMNITY BY PARENT AND BORROWERS. Parent and each Borrower jointly and severally (but as between Parent and Borrowers, ratably) agrees to indemnify, save and hold harmless each of the Creditors and the Arranger and their Affiliates, directors, officers, agents, attorneys and employees (collectively the "INDEMNITEES") from and against: (a) Any and all claims, demands, actions or causes of action (EXCEPT a claim, demand, action, or cause of action for any amount excluded from the definition of "Taxes" in Section 3.11(d)) arising out of or in connection with this Agreement, the transactions contemplated hereby or, the use or contemplated use of proceeds of any Loan, or the relationship of Parent, Borrowers and the Creditors under this Agreement; (b) Any administrative or investigative proceeding by any Governmental Agency arising out of or related to a claim, demand, action or cause of action described in clause (a) above; and (c) Any and all liabilities, losses, costs or expenses (INCLUDING attorneys' fees and the allocated costs of attorneys employed by any Indemnitee and disbursements of such attorneys and other professional services) that any Indemnitee suffers or incurs as a result of the assertion of any foregoing claim, demand, action or cause of action; PROVIDED that no Indemnitee shall be entitled to indemnification for any loss caused by its own gross negligence or willful misconduct or for any loss asserted against it by another Indemnitee. If any claim, demand, action or cause of action is asserted against any Indemnitee, such Indemnitee shall promptly notify Parent and Borrowers, but the failure to so promptly notify Parent or Borrowers shall not affect Parent's and Borrowers' obligations under this Section unless such failure materially prejudices Parent's or Borrowers' right to participate in the contest of such claim, demand, action or cause of action, as hereinafter provided. Such Indemnitee may (and shall, if requested by Parent and the Borrowers in writing) contest the validity, applicability and amount of such claim, demand, action or cause of action and shall permit Parent and the Borrowers to participate in such contest. Any Indemnitee that proposes to settle or compromise any claim or proceeding for which Parent or the Borrowers may be liable for payment of indemnity hereunder shall give Parent and the Borrowers written notice of the terms of such proposed settlement or compromise reasonably in advance of settling or compromising such claim or proceeding and shall obtain Parent's and the Borrowers' prior -67- consent (which shall not be unreasonably withheld). In connection with any claim, demand, action or cause of action covered by this Section against more than one Indemnitee, all such Indemnitees shall be represented by the same legal counsel (which may be a law firm engaged by the Indemnitees or attorneys employed by an Indemnitee or a combination of the foregoing) selected by the Indemnitees; PROVIDED, that if such legal counsel determines in good faith that representing all such Indemnitees would or could result in a conflict of interest under Laws or ethical principles applicable to such legal counsel or that a defense or counterclaim is available to an Indemnitee that is not available to all such Indemnitees, then to the extent reasonably necessary to avoid such a conflict of interest or to permit unqualified assertion of such a defense or counterclaim, each Indemnitee shall be entitled to separate representation, with all such legal counsel using reasonable efforts to avoid unnecessary duplication of effort by counsel for all Indemnitees; and FURTHER PROVIDED that the Administrative Agent (as an Indemnitee) shall at all times be entitled to representation by separate legal counsel (which may be a law firm or attorneys employed by the Administrative Agent or a combination of the foregoing). Any obligation or liability of the Parent and the Borrowers to any Indemnitee under this Section shall survive the expiration or termination of this Agreement and the repayment of all Loans and the payment and performance of all other Obligations owed to the Lenders. 11.11 NONLIABILITY OF THE LENDERS. Parent and each Borrower acknowledges and agrees that: (a) Any inspections of any Property of Parent or its Subsidiaries made by or through the Creditors are solely for purposes of administration of this Agreement and Parent and the Borrowers are not entitled to rely upon the same (whether or not such inspections are at the expense of Parent and the Borrowers); (b) By accepting, furnishing or approving anything required to be observed, performed, fulfilled or given to the Creditors pursuant to the Loan Documents, none of the Creditors shall be deemed to have warranted or represented the sufficiency, legality, effectiveness or legal effect of the same, or of any term, provision or condition thereof, and such acceptance, furnishing or approval thereof shall not constitute a warranty or representation to anyone with respect thereto by the Creditors; (c) The relationship among Parent, the Borrowers and the Creditors is, and shall at all times remain, solely that of borrowers, guarantors and lenders; none of the Creditors shall under any circumstance be construed to be partners or joint venturers of Parent, Borrowers or their Affiliates; none of the Creditors shall under any circumstance be deemed to be in a relationship of confidence or trust or a fiduciary relationship with Parent or its Affiliates, or to owe any fiduciary duty to Parent or its Affiliates; none of the Creditors undertakes or assumes any responsibility or duty to Parent or its Affiliates to select, review, inspect, supervise, pass judgment upon or inform Parent or its Affiliates of any matter in connection with their Property or the operations of Parent or its Affiliates; Parent and its Affiliates shall rely entirely upon their own judgment with respect to such matters; and any review, inspection, supervision, exercise of judgment or supply of information undertaken or assumed by the Creditors in connection with such matters is solely for the protection of the -68- Creditors and neither Parent, the Borrowers nor any other Person is entitled to rely thereon; and (d) The Creditors shall not be responsible or liable to any Person for any loss, damage, liability or claim of any kind relating to injury or death to Persons or damage to Property caused by the actions, inaction or negligence of Parent and/or its Affiliates and Parent and each Borrower hereby indemnifies and holds the Creditors harmless from any such loss, damage, liability or claim. 11.12 NO THIRD PARTIES BENEFITED. This Agreement is made for the purpose of defining and setting forth certain obligations, rights and duties of Parent, the Borrowers and the Creditors in connection with the Loans, and is made for the sole benefit of Parent, the Borrowers, the Creditors, and the Creditors' successors and assigns, and, subject to Section 6.1 successors to Borrowers by permitted merger. EXCEPT as provided in Sections 11.8 and 11.10, no other Person shall have any rights of any nature hereunder or by reason hereof. 11.13 CONFIDENTIALITY. Each Creditor agrees to hold any confidential information that it may receive from Parent and its Subsidiaries pursuant to this Agreement in confidence, EXCEPT for disclosure: (a) To Affiliates of that Creditor and to other Creditors; (b) To legal counsel and accountants for Parent and its Subsidiaries or any Creditor; (c) To other professional advisors to Parent and its Subsidiaries or any Creditor, provided that the recipient has accepted such information subject to a confidentiality agreement substantially similar to this Section 11.13 or has notified such professional advisors of the confidentiality of such information; (d) To regulatory officials having jurisdiction over that Creditor; (e) To any Gaming Board having regulatory jurisdiction over Parent or its Subsidiaries, provided that each Lender agrees to use its best efforts to notify Parent and the Borrowers of any such disclosure unless prohibited by applicable Laws; (f) As required by Law or legal process (PROVIDED THAT the relevant Creditor shall endeavor, to the extent it may do so under applicable Law, to give Parent and the Borrowers reasonable prior notice thereof to allow Parent and the Borrowers to seek a protective order) or in connection with any legal proceeding to which that Creditor, Parent and any Borrower are adverse parties; and (g) To another financial institution in connection with a disposition or proposed disposition to that financial institution of all or part of that Creditor's interests hereunder or a participation interest in its Notes, provided that the recipient has accepted such information subject to a confidentiality agreement substantially similar to this Section. For purposes of the foregoing, "confidential information" shall mean any information respecting Parent or its Subsidiaries reasonably considered by Parent and the Borrowers to be confidential, OTHER THAN (i) information previously filed with any Governmental Agency and available to the public, (ii) information previously published in any public medium from a source other than, directly or indirectly, that Lender, and (iii) information previously disclosed to any Person not associated with Parent or its Affiliates without a confidentiality agreement substantially similar to this Section. Nothing in this Section shall be construed to create or give rise to any fiduciary duty on the part of any Creditor to Parent or the Borrowers. 11.14 REMOVAL OF A LENDER. Parent and the Borrowers shall have the right to remove a Lender as a party to this Agreement pursuant to this Section in the event that such -69- Lender (a) refuses to consent to an extension of the Maturity Date requested by Parent and the Borrowers in accordance with Section 2.8 which has been consented to by Lenders holding Pro Rata Share equal to or greater than 66 2/3% of the Commitment, or (b) requests compensation under Section 3.6 or Section 3.7 which has not been requested by all other Lenders, in each case by written notice to the Administrative Agent and such Lender within 60 days following any such refusal or request or (c) refuses to consent to certain proposed changes, waivers, modifications, supplements, terminations, waivers or consents with respect to this Agreement which have been approved by the Required Lenders as provided in Section 11.2, PROVIDED that no Default or Event of Default then exists, or (d) is the subject of a Disqualification. If Parent and the Borrowers are entitled to remove a Lender pursuant to this Section either: (a) The Lender being removed shall within five Business Days after such notice execute and deliver an Assignment Agreement covering that Lender's Pro Rata Share in favor of one or more Eligible Assignees designated by Parent and the Borrowers and reasonably acceptable to the Administrative Agent, subject to payment of a purchase price by such Eligible Assignee equal to all principal and accrued interest, fees and other amounts payable to such Lender under this Agreement through the date of the Assignment Agreement; or (b) Parent and the Borrowers may reduce the Commitment pursuant to Section 2.4 (and, for this purpose, the numerical requirements of such Section shall not apply) by an amount equal to that Lender's Pro Rata Share, pay and provide to such Lender the amount required by clause (a) above and release such Lender from its Pro Rata Share (subject, however, to the requirement that all conditions set forth in Section 8.2 are met as of the date of such reduction), in which case the percentage Pro Rata Shares of the remaining Lenders shall be ratably increased (but without any increase in the Dollar amount of the Pro Rata Shares of such Lenders). 11.15 FURTHER ASSURANCES. Parent and its Subsidiaries shall, at their expense and without expense to the Creditors, do, execute and deliver such further acts and documents as any Creditor from time to time reasonably requires for the assuring and confirming unto the Creditors of the rights hereby created or intended now or hereafter so to be, or for carrying out the intention or facilitating the performance of the terms of any Loan Document. 11.16 INTEGRATION. This Agreement, together with the other Loan Documents, comprises the complete and integrated agreement of the parties on the subject matter hereof and supersedes all prior agreements, written or oral, on the subject matter hereof. In the event of any conflict between the provisions of this Agreement and those of any other Loan Document, the provisions of this Agreement shall control and govern; PROVIDED that the inclusion of supplemental rights or remedies in favor of the Creditors in any other Loan Document shall not be deemed a conflict with this Agreement. Each Loan Document was drafted with the joint participation of the respective parties thereto and shall be construed neither against nor in favor of any party, but rather in accordance with the fair meaning thereof. -70- 11.17 GOVERNING LAW. Except to the extent otherwise provided therein, each Loan Document shall be governed by, and construed and enforced in accordance with, the local Laws of California, without regard to the choice of laws or conflicts of laws principles thereof. 11.18 SEVERABILITY OF PROVISIONS. Any provision in any Loan Document that is held to be inoperative, unenforceable or invalid as to any party or in any jurisdiction shall, as to that party or jurisdiction, be inoperative, unenforceable or invalid without affecting the remaining provisions or the operation, enforceability or validity of that provision as to any other party or in any other jurisdiction, and to this end the provisions of all Loan Documents are declared to be severable. 11.19 HEADINGS. Article and Section headings in this Agreement and the other Loan Documents are included for convenience of reference only and are not part of this Agreement or the other Loan Documents for any other purpose. 11.20 TIME OF THE ESSENCE. Time is of the essence of the Loan Documents. 11.21 FOREIGN LENDERS AND PARTICIPANTS. Each Lender, and each holder of a participation interest herein, that is incorporated under the Laws of a jurisdiction other than the United States of America or any state thereof shall deliver to Parent (with a copy to the Administrative Agent), within twenty days after the Closing Date (or after accepting an Assignment Agreement or receiving a participation interest herein pursuant to Section 11.8, if applicable) two duly completed copies, signed by a Responsible Official, of either Form 1001 (relating to such Person and entitling it to a complete exemption from withholding on all payments to be made to such Person by Parent and the Borrowers pursuant to this Agreement) or Forms W8-ECI or W8-BEN (relating to all payments to be made to such Person by Parent and the Borrowers pursuant to this Agreement) of the United States Internal Revenue Service or such other evidence (INCLUDING, if reasonably necessary, Form W-9) satisfactory to Parent and the Borrowers and the Administrative Agent that no withholding under the federal income tax laws is required with respect to such Person. Thereafter and from time to time, each such Person shall (a) promptly submit to Parent (with a copy to the Administrative Agent), such additional duly completed and signed copies of one of such forms (or such successor forms as shall be adopted from time to time by the relevant United States taxing authorities) as may then be available under then current United States laws and regulations to avoid, or such evidence as is satisfactory to Parent and the Borrowers and the Administrative Agent of any available exemption from, United States withholding taxes in respect of all payments to be made to such Person by Parent and the Borrowers pursuant to this Agreement and (b) take such steps as shall not be materially disadvantageous to it, in the reasonable judgment of such Lender, and as may be reasonably necessary (including the re-designation of its Eurodollar Lending Office, if any) to avoid any requirement of applicable laws that Parent or the Borrowers make any deduction or withholding for taxes from amounts payable to such Person. 11.22 GAMING BOARDS. The Creditors agree to cooperate with all Gaming Boards in connection with the administration of their regulatory jurisdiction over Parent and its Subsidiaries, INCLUDING the provision of such documents or other information as may be -71- requested by any such Gaming Board relating to Parent or any of its Subsidiaries or to the Loan Documents. 11.23 NATURE OF THE BORROWERS' OBLIGATIONS. The Company hereby agrees that it shall be liable for all of the Obligations on a joint and several basis, notwithstanding which of the Borrowers may have directly received the proceeds of any particular Loan or Advance. Notwithstanding anything to the contrary set forth herein, the principal liability of each Borrower hereafter designated under Section 2.6 for Loans shall be limited to Loans made to that Borrower under the Aggregate Sublimit of that Borrower. Each of the Borrowers acknowledges and agrees that, for purposes of the Loan Documents, Parent and its Subsidiaries constitute a single integrated financial enterprise and that each receives a benefit from the availability of credit under this Agreement. Borrowers each waive all defenses arising under the Laws of suretyship, to the extent such Laws are applicable, in connection with their obligations under this Agreement. 11.24 DESIGNATED SENIOR DEBT. Parent and each Borrower hereby irrevocably designate the Obligations and this Agreement as "Designated Senior Indebtedness" and "Senior Indebtedness" within the meanings given to those terms in Section 1.1 of the Supplemental Indenture dated December 9, 1998 entered into with respect to the Existing Subordinated Debt among the Company, Parent and IBJ Schroeder Bank & Trust Company. 11.25 GAMING REGULATIONS. Each party to this Agreement hereby acknowledges that the consummation of the transactions contemplated by the Loan Documents is subject to applicable Gaming Laws (and Parent and Borrower represent and warrant that all requisite approvals necessary thereunder to enter into the transactions contemplated hereby have been duly obtained). 11.26 WAIVER OF RIGHT TO TRIAL BY JURY. EACH SIGNATORY TO THIS AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER ANY LOAN DOCUMENT OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE SIGNATORIES HERETO OR ANY OF THEM WITH RESPECT TO ANY LOAN DOCUMENT, OR THE TRANSACTIONS RELATED THERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND EACH SIGNATORY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY SIGNATORY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE SIGNATORIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. 11.27 PURPORTED ORAL AMENDMENTS. PARENT AND EACH BORROWER EXPRESSLY ACKNOWLEDGE THAT THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS MAY ONLY BE AMENDED OR MODIFIED, OR THE PROVISIONS HEREOF OR THEREOF WAIVED OR SUPPLEMENTED, BY AN INSTRUMENT IN WRITING THAT COMPLIES WITH SECTION 11.2. PARENT AND EACH BORROWER -72- AGREES THAT IT WILL NOT RELY ON ANY COURSE OF DEALING, COURSE OF PERFORMANCE, OR ORAL OR WRITTEN STATEMENTS BY ANY REPRESENTATIVE OF ANY OF THE CREDITORS THAT DOES NOT COMPLY WITH SECTION 11.2 TO EFFECT AN AMENDMENT, MODIFICATION, WAIVER OR SUPPLEMENT TO THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS. -73- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. HARRAH'S ENTERTAINMENT, INC. By: Charles L. Atwood /s/ -------------------------------------- Charles L. Atwood, Senior Vice President, Chief Financial Officer and Treasurer HARRAH'S OPERATING COMPANY, INC. By: Charles L. Atwood /s/ -------------------------------------- Charles L. Atwood, Senior Vice President, Chief Financial Officer and Treasurer Address for notices for Parent and Borrower: 1 Harrah's Court Las Vegas NV 89119-4312 Attn: Charles L. Atwood, Vice President and Treasurer Telecopier: (702) 407-6405 Telephone: (702) 407-6406 BANK OF AMERICA, N.A., as Administrative Agent By: Janice Hammond /s/ -------------------------------------- Janice Hammond, Vice President Address: Bank of America, N.A. CA9-706-17-54 555 South Flower Street, 17th Floor Los Angeles, California 90071 Attn: Janice Hammond Telecopier: (213) 345-1213 Telephone: (213) 345-1210 BANK OF AMERICA, N.A. as a Lender By: Scott Faber /s/ -------------------------------------- Scott Faber, Managing Director Address: Bank of America, N.A. CA9-706-17-54 555 South Flower Street, 17th Floor Los Angeles, California 90071 Attn: Scott Faber, Managing Director Telecopier: (213) 345-1215 Telephone: (213) 345-1196 With a copy to: Bank of America, N.A. CA9-706-17-54 555 South Flower Street, 17th Floor Los Angeles, California 90071 Attn: William Newby, Managing Director Telecopier: (213) 345-1215 Telephone: (213) 345-1194 THE BANK OF NEW YORK By: Mehrasa Raygani /s/ -------------------------------------- Title: Mehrasa Raygani, Vice President ----------------------------------- Address for notices: The Bank of New York One Wall Street, 22nd Floor New York, New York 10005 Attn.: Dawn Hertling Facsimile: (212) 635-6399 or 6877 Telephone: (212) 635-6742 THE BANK OF NOVA SCOTIA By: Jea Richardson /s/ -------------------------------------- Title: Director ----------------------------------- Address for notices: The Bank of Nova Scotia Atlanta Agency Suite 2700 600 Peachtree Street, N.E. Atlanta, Georgia 30308 Attn.: Arnetta Wilford Facsimile: (404) 888-8998 Telephone: (404) 877-1574 DEUTSCHE BANK TRUST COMPANY AMERICAS By: Mary Kay Coyle /s/ -------------------------------------- Title: Managing Director ----------------------------------- By: -------------------------------------- Title: ----------------------------------- Address for notices: Deutsche Bank Trust Company Americas 31 West 52nd Street New York, New York 10019 Attn.: Mary Kay Coyle Facsimile: (646) 324-2196 Telephone: (646) 324-2203 CIBC INC. By: Paul J. Chakmak /s/ -------------------------------------- Paul J. Chakmak Managing Director CIBC World Markets Corp., AS AGENT Address for notices: CIBC World Markets Corp. Two Paces West 2727 Paces Ferry Road, Suite 1200 Atlanta, Georgia 30339 Attn.: Sherry Hanamean Facsimile: (770) 319-4955 Telephone: (770) 319-4856 With a copy to: CIBC World Markets Corp. 10880 Wilshire Boulevard, 17th Floor Los Angeles, California 90024 Attention: Leonardo Fernandez Facsimile: (310) 446-3549 Telephone: (310) 446-3610 CITICORP USA, INC. By: Jeffrey Rothman /s/ -------------------------------------- Title: Director ----------------------------------- Address for notices: Citicorp USA, Inc. 1 Sansome Street, 25th Floor San Francisco, CA 94104 Attn.: Jeffrey Rothman, Director Facsimile: (415) 433-0307 Telephone: (415) 627-6348 COMERICA WEST INCORPORATED By: Mei Ling Chua -------------------------------------- Title: Corporate Banking Representative ----------------------------------- Address for notices: Comerica West Incorporated 3980 Howard Hughes Parkway, Suite 350 Las Vegas, Nevada 89109 Attn.: Mei Ling Chua Facsimile: (702) 791-2371 Telephone: (702) 791-4803 COMMERZBANK AG, NEW YORK AND GRAND CAYMAN BRANCHES By: Christian Jagenberg /s/ --------------------------------------------- Title: Christian Jagenberg, SVP and Manager ------------------------------------------ By: Karla Wirth /s/ --------------------------------------------- Title: Karla Wirth, AVP ------------------------------------------ Address for notices: Commerzbank AG - Los Angeles Branch 633 West Fifth Street, Suite 6600 Los Angeles, California 90071 Attn.: Werner Schmidbauer Facsimile: (213) 623-0039 Telephone: (213) 623-8223 WHITNEY NATIONAL BANK By: Robert L. Browning /s/ -------------------------------------- Title: Senior Vice President ----------------------------------- By: -------------------------------------- Title: ----------------------------------- Address for notices: Whitney National Bank 228 St. Charles Avenue New Orleans, LA 70130 Attn.: Robert Browning Facsimile: (504) 552-4622 Telephone: (504) 586-7163 JPMORGAN CHASE BANK By: John F. Mix /s/ -------------------------------------- Title: Vice-President ----------------------------------- Address for notices: JPMorgan Chase Bank 270 Park Avenue, 31st Floor New York, NY 10017-2070 Attn.: John G. Mix Facsimile: (212) 270-3513 Telephone: (212) 270-9562 LANDESBANK SCLESWIG-HOLSTEIN GIROZENTRALE KIEL By: Norbert Siegel /s/ Frank Drews /s/ ----------------------------------------- Title: Assessor Vice President -------------------------------------- Address for notices: Landesbank Scleswig-Holstein Girozentrale Kiel Martensdamm 6, 24103 Kiel, Germany Dept. 733 Attn.: Sibylle Gerbers Facsimile: (____) 49 431 900 2751___________ Telephone: (____) 49 431 900 1101___________ FIRST TENNESSEE BANK NATIONAL ASSOCIATION By: James H. Moore, Jr. /s/ ----------------------------------------- Title: SVP -------------------------------------- Address for notices: First Tennessee Bank National Association 165 Madison Avenue, 9th Floor Memphis, Tennessee 38103-2723 Attn.: James H. Moore, Jr., Senior Vice President Facsimile: (901) 523-4267 Telephone: (901) 523-4108 WACHOVIA BANK, NATIONAL ASSOCIATION By: Laura B. Smith /s/ ----------------------------------------- Title: Vice President -------------------------------------- Address for notices: Wachovia Bank, National Association 301 South College Street - NC-0760 Charlotte, NC 28288 Attn.: Laura Smith, Vice President Facsimile: (704) 383-7611 Telephone: (704) 383-9832 HIBERNIA NATIONAL BANK By: Ross S. Wales /s/ ----------------------------------------- Title: Vice President -------------------------------------- Address for notices: Hibernia National Bank Hibernia National Bank 313 Carondelet Street New Orleans, LA 70130-3178 Attn.: Ross S. Wales, Vice President Facsimile: (504) 533-2060 Telephone: (504) 533-5719 KEYBANK NATIONAL ASSOCIATION By: Cheryl L. Ebner /s/ ----------------------------------------- Title: Senior Vice President -------------------------------------- Address for notices: KeyBank National Association 601 108th Avenue N.E., Fifth Floor, MC: WA-31-18-0512 Bellevue, WA 98004 Attn.: Michael J. Vegh Facsimile: (425) 709-4587 Telephone: (425) 709-4578 SOCIETE GENERALE By: Thomas K. Day /s/ ----------------------------------------- Title: Thomas K. Day, Managing Director -------------------------------------- Address for notices: Societe Generale Four Embarcadero Center, Suite 1200 San Francisco, California 94111 Attn.: Mary D. Brickley Facsimile: (415) 989-9922 Telephone: (415) 646-7328 WELLS FARGO BANK, N.A. By: Sue Fuller /s/ ----------------------------------------- Title: Vice President -------------------------------------- By: ----------------------------------------- Title: -------------------------------------- Address for notices: Wells Fargo Bank, N.A. 5340 Kietzke Lane, Suite 201 Reno, Nevada 89501 Attn.: Sue Fuller, Vice President Facsimile: (775) 689-6026 Telephone: (775) 689-6005 BNP PARIBAS By: Janice Ho /s/ ----------------------------------------- Title: Director -------------------------------------- By: Tjalling Terpstra /s/ ----------------------------------------- Title: Director -------------------------------------- Address for notices: BNP PARIBAS 725 South Figueroa Street, Suite 2090 Los Angeles, CA 90017-5420 Attn.: Janice S. H. Ho, Director Facsimile: (213) 488-9602 Telephone: (213) 488-9120 SCHEDULE 4.3 GOVERNMENTAL APPROVALS Approval by the Nevada Gaming Commission upon the recommendation of the Nevada State Gaming Control Board of all restrictions on the transfer of and agreements not to encumber the stock or other equity securities of Harrah's Las Vegas, Inc. and Harrah's Laughlin, Inc. SCHEDULE 4.4 SIGNIFICANT SUBSIDIARIES
NAME ENTITY TYPE JURISDICTION OWNERSHIP - ---------------------------------------- --------------------------- ------------ ---------------------------------------- Harrah's Operating Company, Inc.(1) Corporation DE Harrah's Entertainment, Inc./100% Harrah's Las Vegas, Inc. Corporation NV Harrah's Operating Company, Inc./100% Players International, Inc. Corporation NV Harrah's Operating Company, Inc./100% Players Resources, Inc. Corporation NV Players International, Inc./100% Harrah's Lake Charles, LLC Limited Liability Company NV Players Lake Charles Riverboat, Inc./10%; Players LC, Inc./90% Harrah's Laughlin, Inc. Corporation NV Harrah's Operating Company, Inc./100% Harrah's Illinois Corporation Corporation NV Harrah's Operating Company, Inc./100% Rio Properties, Inc. Corporation NV Rio Hotel & Casino, Inc./100% Rio Hotel & Casino, Inc. Corporation NV Harrah's Operating Company, Inc./100% Cinderlane, Inc. Corporation NV Rio Properties, Inc./100% Harrah's Operating Company Memphis, Inc. Corporation DE Harrah's Operating Company, Inc./100% Showboat, Inc. Corporation NV Harrah's Operating Company, Inc./100% Showboat Operating Company Corporation NV Showboat, Inc./100%
- ---------- (1) This includes the divisions Harrah's North Kansas City LLC, Harrah's Shreveport Investment Company, LLC, Red River Entertainment of Shreveport Partnership in Commendam, Reno, and Tahoe.
NAME ENTITY TYPE JURISDICTION OWNERSHIP - ---------------------------------------- --------------------------- ------------ ------------------------------------------ Atlantic City Showboat, Inc. Corporation NJ Ocean Showboat, Inc. Southern Illinois Riverboat/Casino Corporation IL Players Holding, Inc./100% Cruises, Inc. Harrah's Atlantic City, Inc. Corporation NJ Harrah's Operating Company, Inc./100% Harrah's New Jersey, Inc. Corporation NJ Harrah's Operating Company, Inc./100% Harveys Casino Resorts Corporation NV Harrah's Operating Company, Inc./100% Harveys Iowa Management Company, Inc. Corporation NV Harveys Casino Resorts/100% Harveys Tahoe Management Company, Inc. Corporation NV Harveys Casino Resorts/100% Marina Associates General Partnership NJ Harrah's Atlantic City, Inc./48.65%; Harrah's New Jersey, Inc./51.34% Harrah's Maryland Heights LLC Limited Liability Company DE Harrah's Operating Company, Inc./54.45%; Harrah's Maryland Heights Operating Company/0.55%; Players Maryland Heights, Inc./4.5%; Players Maryland Heights Nevada, Inc./40.50% Tunica Partners II LP Limited Partnership MS Harrah's Tunica Corporation/83%; Harrah's Vicksburg Corporation/17% Des Plaines Development Limited Limited Partnership IL Harrah's Illinois Corporation/80%; Partnership Des Plaines Development Corporation/20% Showboat Marina Casino Partnership Partnership IN Showboat Marina Partnership/99%; Showboat Marina Investment
NAME ENTITY TYPE JURISDICTION OWNERSHIP - ---------------------------------------- --------------------------- ------------ ------------------------------------------ Partnership/1% Showboat Indiana Investment Limited Limited Partnership NV Showboat Indiana, Inc./1%; Partnership Showboat Operating Company/99%
SCHEDULE 4.7 LIENS AND RIGHTS OF OTHERS Mortgage and Security Agreement dated January 29, 1998 securing $100,000,000 loan to Showboat Land LLC in favor of Column Financial, Inc. Rights of countersigning partners to acquire partnership interests granted in Limited Partnership Agreement of Des Plaines Development Limited Partnership dated February 28, 1992, between Harrah's Illinois Corporation and John Q. Hammons; First Amendment to Limited Partnership Agreement of Des Plaines Limited Partnership dated as of October 5, 1992, and as further amended. Right granted to George Novogroder to purchase 8.140% of Waterfront Entertainment and Development, Inc. (and 1.5% of any of Borrower's or its Affiliate's interest in a gaming venture in Cook County, Illinois) as set forth in the Repurchase Agreement dated as of February 26, 1999, between Harrah's Operating Company, Inc., and George Novogroder. Right granted to Barry Porter to purchase 5.430% of Waterfront Entertainment and Development, Inc. (and 1.0005% of any of Borrower's or its Affiliate's interest in a gaming venture in Cook County, Illinois) as set forth in the Repurchase Agreement dated as of February 26, 1999, between Harrah's Operating Company, Inc., and Bary Porter. Right granted to the Estate of Nikos Kefalidis to purchase 5.430% of Waterfront Entertainment and Development, Inc. (and 1.0005% of any Borrower's or its Affiliate's interest in a gaming venture in Cook County, Illinois) as set forth in the Repurchase Agreement dated as of February 26, 1999, between Harrah's Operating Company, Inc., and the Estate of Nikos Kefalidis, deceased. Matters excepted from coverage under title insurance policies or that would be shown by a current survey. EX-11 4 a2085842zex-11.txt EXHIBIT 11 EXHIBIT 11 HARRAH'S ENTERTAINMENT, INC. COMPUTATIONS OF PER SHARE EARNINGS
SECOND QUARTER ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, JUNE 30, JUNE 30, 2002 2001 2002 2001 ---------------- ---------------- ---------------- ---------------- Income before extraordinary losses and cumulative effect of change in accounting principle............................. $ 86,116,000 $ 47,863,000 $ 171,277,000 $ 92,074,000 Extraordinary losses, net................................... - - - (131,000) Cumulative effect of change in accounting principle, net.... - - (91,169,000) - ---------------- ---------------- ---------------- ---------------- Net income......................................... $ 86,116,000 $ 47,863,000 $ 80,108,000 $ 91,943,00 ================ ================ ================ ================ Weighted average number of common shares outstanding........ 112,687,622 116,123,691 112,280,833 115,381,532 ================ ================ ================ ================ Basic earnings per share Income before extraordinary losses and cumulative effect of change in accounting principle........................ $ 0.76 $ 0.41 $ 1.52 $ 0.80 Extraordinary losses, net.................................. - - - - Cumulative effect of change in accounting principle, net... - - (0.81) - ---------------- ---------------- ---------------- ---------------- Net income......................................... $ 0.76 $ 0.41 $ 0.71 $ 0.80 ================ ================ ================ ================ Weighted average number of common shares outstanding........ 112,687,622 116,123,691 112,280,833 115,381,532 Additional shares based on average market price for period applicable to: Restricted stock...................................... 575,270 692,434 617,196 657,389 Stock options......................................... 1,885,128 2,209,961 1,732,929 1,853,480 ---------------- ---------------- ---------------- ---------------- Average number of common and common equivalent shares outstanding......................................... 115,148,020 119,026,086 114,630,958 117,892,401 ================ ================ ================ ================ Diluted earnings per share Income before extraordinary losses and cumulative effect of change in accounting principle................. $ 0.75 $ 0.40 $ 1.50 $ 0.78 Extraordinary losses, net.................................. - - - - Cumulative effect of change in accounting principle, net... - - (0.80) - ---------------- ---------------- ---------------- ---------------- Net income......................................... $ 0.75 $ 0.40 $ 0.70 $ 0.78 ================ ================ ================ ================
-----END PRIVACY-ENHANCED MESSAGE-----