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, 1997
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.)
1023 Cherry Road
Memphis, Tennessee 38117
(Address of principal executive offices)
(901) 762-8600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------- -------
At June 30, 1997, there were outstanding 100,937,295 shares of the
Company's Common Stock.
Page 1 of 113
Exhibit Index Page 41
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
----------------------------
The accompanying unaudited Consolidated Condensed Financial Statements of
Harrah's Entertainment, Inc. ("Harrah's" or the "Company"), 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) which 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 the Company's 1996 Annual Report to Stockholders.
-2-
HARRAH'S ENTERTAINMENT, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
(In thousands, except share amounts) June 30, Dec. 31,
1997 1996
---------- -----------
ASSETS
Current assets
Cash and cash equivalents $ 106,867 $ 105,594
Receivables, less allowance for doubtful
accounts of $15,537 and $14,064 38,008 41,203
Deferred income tax benefits 25,429 25,551
Prepayments and other 24,496 18,401
Inventories 11,397 10,838
---------- ----------
Total current assets 206,197 201,587
---------- ----------
Land, buildings, riverboats and equipment 2,112,841 1,977,960
Less: accumulated depreciation (630,992) (588,066)
---------- ----------
1,481,849 1,389,894
Investments in and advances to nonconsolidated
affiliates 242,413 215,539
Deferred costs and other 159,223 167,053
---------- ----------
$2,089,682 $1,974,073
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 40,179 $ 44,934
Construction payables 12,520 17,975
Accrued expenses 153,267 139,892
Current portion of long-term debt 1,838 1,841
---------- ----------
Total current liabilities 207,804 204,642
Long-term debt 1,012,565 889,538
Deferred credits and other 99,961 97,740
Deferred income taxes 40,950 45,443
---------- ----------
1,361,280 1,237,363
---------- ----------
Minority interests 16,710 16,964
---------- ----------
Commitments and contingencies (Notes 3, 5, 6 and 7)
Stockholders' equity
Common stock, $0.10 par value, authorized
360,000,000 shares, outstanding 100,937,295
and 102,969,699 shares (net of 2,950,977 and
771,571 shares held in treasury) 10,094 10,297
Capital surplus 386,075 385,941
Retained earnings 286,907 290,797
Unrealized gains on marketable equity securities 43,656 51,394
Deferred compensation related to restricted stock (15,040) (18,683)
---------- ----------
711,692 719,746
---------- ----------
$2,089,682 $1,974,073
========== ==========
See accompanying Notes to Consolidated Condensed Financial Statements.
-3-
HARRAH'S ENTERTAINMENT, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
(In thousands, except per share amounts)
Second Quarter Ended Six Months Ended
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
--------- -------- -------- -------
Revenues
Casino $336,924 $335,531 $650,749 $656,677
Food and beverage 48,751 46,921 94,442 90,835
Rooms 32,055 29,448 58,755 56,298
Management fees 7,259 4,501 12,865 8,110
Other 19,757 16,929 36,269 37,654
Less: casino promotional allowances (35,853) (32,264) (70,088) (65,625)
-------- -------- -------- --------
Total revenues 408,893 401,066 782,992 783,949
-------- -------- -------- --------
Operating expenses
Direct
Casino 172,024 169,168 337,176 328,101
Food and beverage 25,317 23,179 48,122 45,613
Rooms 10,203 8,917 18,757 17,403
Depreciation of buildings, riverboats
and equipment 26,079 23,572 50,661 43,643
Development costs 2,733 2,111 4,689 5,439
Preopening costs 549 4,802 8,015 5,016
Other 96,766 85,887 183,864 173,363
-------- -------- -------- --------
Total operating expenses 333,671 317,636 651,284 618,578
-------- -------- -------- --------
Operating profit 75,222 83,430 131,708 165,371
Corporate expense (8,085) (8,442) (15,677) (15,713)
Equity in income (losses) of
nonconsolidated affiliates (3,223) 73 (5,371) 234
Project reorganization costs (2,715) (6,099) (4,170) (8,500)
-------- -------- -------- --------
Income from operations 61,199 68,962 106,490 141,392
Interest expense, net of interest
capitalized (20,329) (17,016) (38,144) (33,595)
Other income, including interest income 3,121 831 6,227 1,360
-------- -------- -------- --------
Income before income taxes and minority
interests 43,991 52,777 74,573 109,157
Provision for income taxes (16,677) (20,400) (28,324) (41,783)
Minority interests (1,941) (2,400) (3,765) (5,987)
-------- -------- -------- --------
Income before extraordinary loss 25,373 29,977 42,484 61,387
Extraordinary loss on early
extinguishment of debt, net of
income tax benefit of $4,477 (8,134) - (8,134) -
-------- -------- -------- --------
Net income $ 17,239 $ 29,977 $ 34,350 $ 61,387
======== ======== ======== ========
Earnings per share before
extraordinary loss $ 0.25 $ 0.29 $ 0.42 $ 0.59
Extraordinary loss, net (0.08) - (0.08) -
-------- -------- -------- --------
Earnings per share $ 0.17 $ 0.29 $ 0.34 $ 0.59
======== ======== ======== ========
Average common shares outstanding 101,022 103,841 101,603 103,596
======== ======== ======== ========
See accompanying Notes to Consolidated Condensed Financial Statements.
-4-
HARRAH'S ENTERTAINMENT, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
Six Months Ended
June 30, June 30,
1997 1996
--------- ---------
Cash flows from operating activities
Net income $ 34,350 $ 61,387
Adjustments to reconcile net income
to cash flows from operating activities
Extraordinary loss, before income taxes 12,611 -
Depreciation and amortization 58,365 48,569
Other noncash items 7,554 17,884
Minority interests' share of net income 3,765 5,987
Equity in losses (income) of nonconsolidated
affiliates 2,740 (234)
Net gains from asset sales (943) -
Net change in long-term accounts (1,908) (1,081)
Net change in working capital accounts 5,238 (4,416)
--------- ---------
Cash flows provided by operating activities 121,772 128,096
--------- ---------
Cash flows from investing activities
Land, buildings, riverboats and equipment additions (144,647) (143,385)
(Decrease) increase in construction payables (5,455) 5,444
Proceeds from asset sales 2,923 908
Investments in and advances to nonconsolidated
affiliates (39,030) (42,066)
Other (4,382) (1,350)
--------- ---------
Cash flows used in investing activities (190,591) (180,449)
--------- ---------
Cash flows from financing activities
Net borrowings under Revolving Credit Facility 324,467 57,500
Early extinguishment of 10 7/8% Notes (200,000) -
Scheduled debt retirements (1,481) (1,409)
Premiums paid on early extinguishment of debt (9,666) -
Purchases of treasury stock (39,298) -
Minority interests' distributions, net of contributions (3,930) (6,837)
--------- ---------
Cash flows provided by financing activities 70,092 49,254
--------- ---------
Net increase (decrease) in cash and cash equivalents 1,273 (3,099)
Cash and cash equivalents, beginning of period 105,594 96,345
--------- ---------
Cash and cash equivalents, end of period $ 106,867 $ 93,246
========= =========
See accompanying Notes to Consolidated Condensed Financial Statements.
-5-
HARRAH'S ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
Note 1 - Basis of Presentation and Organization
- -----------------------------------------------
Harrah's Entertainment, Inc. ("Harrah's" or the "Company" and including
its subsidiaries where the context requires), a Delaware corporation, is one
of America's leading casino companies. Harrah's casino entertainment
facilities include casino hotels in all five major Nevada and New Jersey
gaming markets: Reno, Lake Tahoe, Las Vegas and Laughlin, Nevada; and Atlantic
City, New Jersey. Harrah's riverboat and dockside casinos are in Joliet,
Illinois; Shreveport, Louisiana; Tunica and Vicksburg, Mississippi; and North
Kansas City and St. Louis, Missouri. During second quarter, the Company
announced that it will sell its minority interest in and terminate the
management contract for a casino in Auckland, New Zealand (see note 7).
Harrah's manages casinos on Indian lands near Phoenix, Arizona and Seattle,
Washington. Harrah's discontinued managing two limited stakes casinos in
Colorado at the end of the first quarter 1997.
The Consolidated Condensed Financial Statements include the accounts of
Harrah's and its majority-owned subsidiaries after elimination of all
significant intercompany accounts and transactions. Investments in 20% to 50%
owned companies and joint ventures are accounted for using the equity method.
Harrah's reflects its share of net income of these nonconsolidated affiliates in
Equity in income (losses) of nonconsolidated affiliates (see Note 7).
Certain amounts for the prior year second quarter and first six months have
been reclassified to conform with the current year presentation.
Note 2 - Stockholders' Equity
- -----------------------------
In addition to its common stock, Harrah's has the following classes of
stock authorized but unissued:
Preferred stock, $100 par value, 150,000 shares authorized
Special stock, 2,000,000 shares authorized -
Series A, $1.125 par value
In October 1996, Harrah's Board of Directors approved a plan which
authorized the purchase in open market and other transactions of up to 10% of
Harrah's outstanding shares of common stock. As of June 30, 1997, 2,864,400
shares had been purchased at an average price of $17.97 per share. The
repurchased shares are being held in treasury and are reflected in the
Consolidated Condensed Balance Sheet as if they were retired.
-6-
HARRAH'S ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
(UNAUDITED)
Note 3 - Long-Term Debt
- -----------------------
Early Extinguishment of 10 7/8% Notes
- -------------------------------------
On May 27, 1997, Harrah's principal operating subsidiary, Harrah's
Operating Company, Inc. ("HOC"), redeemed its $200 million in 10 7/8% Senior
Subordinated Notes due 2002 (the "Notes"), using proceeds from its revolving
bank credit facility. As a result of the early extinguishment of this debt, the
Company recorded an $8.1 million extraordinary loss, net of tax, which includes
a premium paid to holders of the Notes and the write-off of related deferred
finance charges.
Interest Rate Agreements
- ------------------------
To manage the relative mix of its debt between fixed and variable rate
instruments, Harrah's enters into interest rate swap agreements to modify the
interest characteristics of its outstanding debt without an exchange of the
underlying principal amount. At June 30, 1997, Harrah's was a party to the
following interest rate swap agreements pursuant to which it pays a variable
interest rate in exchange for receiving a fixed interest rate. The average
variable rate paid by Harrah's was 5.9% at June 30, 1997, and the average fixed
interest rate received was 5.4%. The impact of these interest rate swap
agreements on the effective interest rates of the associated debt was as
follows:
Effective Next Semi-
Swap Rate at Annual Rate
Associated Rate June 30, Adjustment
Debt (LIBOR+) 1997 Date Swap Maturity
- -------------- ------ -------- ----------- -------------
8 3/4% Notes
$50 million 3.42% 9.64% November 15 May 1998
$50 million 3.22% 8.95% July 15 July 1998
In accordance with the terms of the interest rate swap agreements, the effective
interest rate on $50 million of these swaps was adjusted on July 15, 1997 to
9.19%.
Harrah's also maintains seven additional interest rate swap agreements to
effectively convert a total of $350 million in variable rate debt to a fixed
rate. Pursuant to the terms of these swaps, all of which reset
-7-
HARRAH'S ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
(UNAUDITED)
Note 3 - Long-Term Debt (Continued)
- ----------------------------------
quarterly, Harrah's receives variable payments tied to LIBOR in exchange for its
payments at a fixed interest rate. The fixed rates to be paid by Harrah's and
variable rates to be received by Harrah's are summarized in the following table:
Swap Rate
Swap Rate Received
Paid (Variable) at Swap
Notional Amount (Fixed) June 30, 1997 Maturity
- --------------- --------- -------------- ------------
$50 million 7.910% 5.840% January 1998
$50 million 6.985% 5.781% March 2000
$50 million 6.951% 5.781% March 2000
$50 million 6.945% 5.781% March 2000
$50 million 6.651% 5.844% May 2000
$50 million 5.788% 5.813% June 2000
$50 million 5.785% 5.813% June 2000
In accordance with the terms of the swap which matures in January 1998, the
variable interest rate was adjusted on July 8, 1997 to 5.719%.
The differences to be paid or received under the terms of the interest rate
swap agreements are accrued as interest rates change and recognized as an
adjustment to interest expense for the related debt. Changes in the variable
interest rates to be paid or received by Harrah's pursuant to the terms of its
interest rate agreements will have a corresponding effect on its future cash
flows. These agreements contain a credit risk that the counterparties may be
unable to meet the terms of the agreements. Harrah's minimizes that risk by
evaluating the creditworthiness of its counterparties, which are limited to
major banks and financial institutions, and does not anticipate nonperformance
by the counterparties.
-8-
HARRAH'S ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
(UNAUDITED)
Note 4 - Supplemental Disclosure of Cash Paid for Interest and Taxes
- --------------------------------------------------------------------
The following table reconciles Harrah's 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,
1997 1996
(In thousands) ------- -------
Interest expense, net of amount
capitalized $38,144 $33,595
Adjustments to reconcile to cash paid
for interest:
Net change in accruals (3,823) (5,009)
Amortization of deferred finance charges (1,545) (1,574)
Net amortization of discounts and premiums (6) (10)
------- -------
Cash paid for interest, net of amount
capitalized $32,770 $27,002
======= =======
Cash payments of income taxes, net of
refunds $15,066 $25,173
======= =======
Note 5 - Commitments and Contingent Liabilities
- -----------------------------------------------
Contractual Commitments
- -----------------------
Harrah's is pursuing additional casino development opportunities that may
require, individually and in the aggregate, significant commitments of capital,
up-front payments to third parties, guarantees by Harrah's of third party debt
and development completion guarantees. As of June 30, 1997, Harrah's had
guaranteed third party loans and leases of $100 million, which are secured by
certain assets, and had commitments of $80 million, primarily
construction-related. In addition, definitive loan documents were completed
subsequent to the end of the quarter pursuant to which Harrah's guarantees a $37
million third party loan for a new development.
The agreements under which Harrah's manages casinos on Indian lands contain
provisions required by law which provide that a minimum monthly payment be made
to the tribe. That obligation has priority over scheduled payments of borrowings
for development costs. In the event that insufficient cash flow is generated by
the operations to fund
-9-
HARRAH'S ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
(UNAUDITED)
Note 5 - Commitments and Contingent Liabilities (Continued)
- ----------------------------------------------------------
this payment, Harrah's must pay the shortfall to the tribe. Such advances, if
any, would be repaid to Harrah's 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, 1997, the aggregate monthly
commitment pursuant to these contracts, which extend for periods of up to 84
months from opening date, was $1.2 million, including commitments for two
projects with contracts approved by the National Indian Gaming Commission that
are under development but not yet open.
In addition to the amounts described above, as part of a transaction
whereby Harrah's effectively secured an option to a site for a potential casino,
Harrah's has extended its guarantee of a $22.9 million third party variable rate
bank loan pursuant to an agreement which expires February 28, 1998.
See Note 7 for discussion of the proposed completion guarantees issued by
Harrah's related to development of the New Orleans' casino.
Severance Agreements
- --------------------
Harrah's has severance agreements with 36 of its 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 or 2.99 times the average of the three highest
years of annual compensation of the last five calendar years preceding the
change in control, as well as for accelerated vesting of any compensation or
awards payable to the executive under any of Harrah's incentive plans. The
estimated amount, computed as of June 30, 1997, that would be payable under the
agreements to these executives based on earnings and stock options aggregated
approximately $26.2 million.
-10-
HARRAH'S ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
(UNAUDITED)
Note 5 - Commitments and Contingent Liabilities (Continued)
- ----------------------------------------------------------
Guarantee of Insurance Contract
- -------------------------------
Harrah's has guaranteed the value of a guaranteed investment contract with
an insurance company held by Harrah's defined contribution savings plan.
Harrah's has also agreed to provide non-interest-bearing loans to the plan to
fund, on an interim basis, withdrawals from this contract by retired or
terminated employees. Harrah's maximum exposure on this guarantee as of June 30,
1997, was $6.2 million.
Tax Sharing Agreements
- ----------------------
In connection with the 1995 spin-off of certain hotel operations (the "PHC
Spin-off") to Promus Hotel Corporation ("PHC"), Harrah's entered into a Tax
Sharing Agreement with PHC wherein each company is obligated for those taxes
associated with their respective businesses. Additionally, Harrah's is 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. Harrah's
obligations under this agreement are not expected to have a material adverse
effect on its consolidated financial position or results of operations.
Harrah's is self-insured for various levels of general liability, workers'
compensation and employee medical coverage. 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 6 - Litigation
- -------------------
Harrah's is 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, management believes that the final outcome of these matters will
not have a material adverse effect upon Harrah's consolidated financial position
or its results of operations.
-11-
HARRAH'S ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
(UNAUDITED)
Note 6 - Litigation (Continued)
- ------------------------------
In addition to the matters described above, Harrah's and certain of
its subsidiaries have been named as defendants in a number of lawsuits
arising from the suspension of development of a land-based casino, and
the closing of the temporary gaming facility, in New Orleans, Louisiana, by
Harrah's Jazz Company, a partnership in which the Company owns an approximate
47% interest and which has filed for protection under Chapter 11 of the U.S.
Bankruptcy Code (see Note 7). The ultimate outcomes of these lawsuits cannot
be predicted at this time, and no provisions for the claims are included in
the accompanying financial statements. The Company intends to defend these
actions vigorously. In the event a bankruptcy reorganization plan is not
consummated, the Company anticipates that such lawsuits, which are presently
inactive, would become active, and additional lawsuits would be filed.
Note 7 - Nonconsolidated Affiliates
- -----------------------------------
Harrah's Jazz Company
- ---------------------
A Harrah's subsidiary owns an approximate 47% interest in Harrah's Jazz
Company ("Harrah's Jazz"), a partnership formed for purposes of developing,
owning and operating the exclusive land-based casino entertainment facility (the
"Rivergate Casino") in New Orleans, Louisiana, on the site of the former
Rivergate Convention Center. On November 22, 1995, Harrah's Jazz and its
wholly-owned subsidiary, Harrah's Jazz Finance Corp., filed petitions for relief
under Chapter 11 of the Bankruptcy Code. Harrah's Jazz filed a plan of
reorganization with the Bankruptcy Court on April 3, 1996 and has filed several
subsequent amendments to the plan (the "Plan"). On April 28, 1997, the
Bankruptcy Court held a confirmation hearing and approved the Plan.
The confirmed Plan contemplated, among other things, that a newly formed
corporation, Jazz Casino Corporation ("JCC"), would be responsible for
completing construction of the Rivergate Casino, a subsidiary of the Company
would receive approximately 40% of the equity in JCC's parent, and Harrah's
would make a $75 million equity investment in the project (less any
debtor-in-possession financing provided to the project), guarantee $120 million
of a $180 million bank credit facility, guarantee completion and opening of the
Rivergate Casino and make an additional $20 million subordinated loan to JCC to
finance the Rivergate Casino.
-12-
HARRAH'S ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
(UNAUDITED)
Note 7 - Nonconsolidated Affiliates (Continued)
- ----------------------------------------------
However, the most recent session of the Louisiana State
Legislature concluded in June without legislative approval of a component
of the confirmed Plan - a modified casino operating contract with the
State's gaming board. As a consequence of this failure, it is likely the
confirmed Plan will not be consummated and Harrah's Jazz filed a modified
plan with the Bankruptcy Court on June 26, 1997. The modified plan
contemplates, among other things, the assumption of the existing casino
operating contract and relief from payment of any gaming taxes under the
casino operating contract. Harrah's Jazz is seeking confirmation of the
modified plan by the Bankruptcy Count despite significant objections to the
modified plan by the State of Louisiana. The Bankruptcy Court has scheduled
the confirmation hearing for late September. In light of the State's
failure to approve the confirmed Plan and its objections to the modified
plan, and other impediments, the prospects for the confirmation and
consummation of the modified plan, or any plan of reorganization of Harrah's
Jazz, are uncertain.
During the course of the bankruptcy of Harrah's Jazz, a subsidiary of the
Company has made debtor-in-possession loans to Harrah's Jazz, totaling
approximately $25.0 million as of June 30, 1997, to fund certain payments to
the City of New Orleans and other cash requirements of Harrah's Jazz. On
July 10, 1997, the Company notified Harrah's Jazz that, at such time, the
Company was not prepared to commit to provide debtor-in-possession financing
to Harrah's Jazz beyond the earlier of September 30, 1997 and the provision
of $30 million of debtor-in-possession financing. The debtor-in-possession
loans are super priority administrative claims in the bankruptcy, and are
secured by a first lien on most Harrah's Jazz assets. If a plan of
reorganization is consummated, it is expected that the principal amount of
the debtor-in-possession loans to Harrah's Jazz would be repaid or converted
into equity in the successor entity. However, if a plan of reorganization is
not consummated and, thus, the debtor-in-possession loans are not repaid in
full, it is likely that the value of the security will be inadequate to fund
the full recovery by the Company of the debtor-in-possession loans.
-13-
HARRAH'S ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
(UNAUDITED)
Note 7 - Nonconsolidated Affiliates (Continued)
- ----------------------------------------------
Other
- -----
Summarized balance sheet and income statement information of
nonconsolidated gaming affiliates, which Harrah's accounted for using the equity
method, as of June 30, 1997 and December 31, 1996, and for the second quarters
and six months ended June 30, 1997 and 1996 is included in the following tables.
(In thousands) June 30, Dec. 31,
1997 1996
-------- --------
Combined Summarized Balance Sheet Information
Current assets $ 28,256 $ 33,516
Land, buildings, and equipment, net 383,497 391,133
Other assets 164,180 171,748
-------- --------
Total assets 575,933 596,397
-------- --------
Current liabilities 111,852 129,114
Long-term debt 458,969 486,740
-------- --------
Total liabilities 570,821 615,854
-------- --------
Net assets $ 5,112 $(19,457)
======== ========
Second Quarter Ended Six Months Ended
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
(In thousands) -------- ------- -------- -------
Combined Summarized Statements of
Operations
Revenues $ 4,710 $ 7,838 $ 12,414 $14,633
======== ======= ======== =======
Operating loss $ (9,016) $(4,675) $(17,030) $(7,594)
======== ======= ======== =======
Net loss $(14,366) $(5,843) $(20,748) $(8,967)
======== ======= ======== =======
-14-
HARRAH'S ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
(UNAUDITED)
Note 7 - Nonconsolidated Affiliates (Continued)
- ----------------------------------------------
Harrah's share of nonconsolidated affiliates' combined net operating
results are reflected in the accompanying Consolidated Condensed Statements of
Income as Equity in income (losses) of nonconsolidated affiliates. Harrah's
investments in and advances to nonconsolidated affiliates are reflected in the
accompanying Consolidated Condensed Balance Sheets as follows:
June 30, Dec. 31,
1997 1996
(In thousands) -------- --------
Harrah's investments in and advances to
nonconsolidated affiliates
Accounted for under the equity method $137,915 $ 98,356
Equity securities available-for-sale
and recorded at market value 104,498 117,183
-------- --------
$242,413 $215,539
======== ========
In accordance with the provisions of Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities", Harrah's adjusts the carrying value of certain marketable equity
securities to include unrealized gains. A corresponding adjustment is recorded
in the Company's stockholders' equity and deferred income tax accounts.
Condensed financial information relating to the Company's minority
ownership interest in a restaurant affiliate has not been presented since its
operating results and financial position are not material to Harrah's.
Harrah's New Zealand
- --------------------
Harrah's owns a 12.5% equity interest in Sky City Limited, a New Zealand
publicly-traded company which owns a casino entertainment facility in Auckland,
New Zealand. Harrah's also manages the facility for a fee. During second quarter
1997, Harrah's announced that it had agreed to sell, subject to regulatory
approvals, its equity interest in Sky City Limited for approximately NZ$84
million. It was also announced that Sky City Limited will buy out Harrah's
management contract. Harrah's will continue to manage the facility under its fee
agreement until June 1998.
-15-
HARRAH'S ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
(UNAUDITED)
Note 8 - Summarized Financial Information
- -----------------------------------------
HOC is a wholly owned subsidiary and the principal asset of Harrah's.
Summarized financial information of HOC as of June 30, 1997 and December 31,
1996 and for the second quarters ended June 30, 1997 and 1996 prepared on the
same basis as Harrah's was as follows:
June 30, Dec. 31,
1997 1996
(In thousands) ---------- ----------
Current assets $ 200,970 $ 199,838
Land, buildings, riverboats and
equipment, net 1,481,849 1,389,894
Other assets 401,554 382,516
---------- ----------
2,084,373 1,972,248
---------- ----------
Current liabilities 194,354 191,689
Long-term debt 1,012,565 889,538
Other liabilities 141,120 143,705
Minority interests 16,710 16,964
---------- ----------
1,364,749 1,241,896
---------- ----------
Net assets $ 719,624 $ 730,352
========== ==========
Second Quarter Ended Six Months Ended
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
(In thousands) -------- -------- -------- --------
Revenues $408,842 $401,176 $782,904 $784,238
======== ======== ======== ========
Income from operations $ 61,846 $ 68,183 $106,612 $140,013
======== ======== ======== ========
Income before extraordinary
loss $ 25,793 $ 29,471 $ 42,563 $ 60,491
======== ======== ======== ========
Net income $ 17,659 $ 29,471 $ 34,429 $ 60,491
======== ======== ======== ========
-16-
HARRAH'S ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
(UNAUDITED)
Note 8 - Summarized Financial Information (Continued)
- ----------------------------------------------------
The agreements governing the terms of the Company's debt contain certain
covenants which, among other things, place limitations on HOC's ability to pay
dividends and make other restricted payments, as defined, to Harrah's. The
amount of HOC's restricted net assets, as defined, computed in accordance with
the most restrictive of these covenants regarding restricted payments (other
than for repurchases of Harrah's common stock), was approximately $709.1 million
at June 30, 1997. With respect to any payments by HOC to Harrah's for the
purpose of providing funds to Harrah's for the repurchase of its common stock,
the amount of HOC's restricted net assets under such covenant was approximately
$571.1 million at June 30, 1997.
-17-
Item 2. Management's Discussion and Analysis of Financial
----------------------------------------------------------
Condition and Results of Operations
-----------------------------------
The following discussion and analysis of the financial position and
operating results of Harrah's Entertainment, Inc., (referred to in this
discussion, together with its consolidated subsidiaries where appropriate, as
"Harrah's" or the "Company,") for second quarter and the first six months of
1997 and 1996 updates, and should be read in conjunction with, Management's
Discussion and Analysis of Financial Position and Results of Operations
presented in Harrah's 1996 Annual Report.
RESULTS OF OPERATIONS
- ---------------------
Overall
- -------
Thus far in 1997, Harrah's financial results continue to reflect, as do the
results of many of its competitors, the impact of increased supply and
competition within the casino entertainment industry. Also impacting Harrah's
1997 financial results were construction disruptions during both quarters and
weather-related business interruptions during first quarter 1997 at several of
its properties. Though Harrah's revenues increased slightly for second quarter
and are essentially even for the first six months as compared to the prior year
periods, the impact of increased competition and business interruptions
significantly impacted Harrah's operating profit and margins, as noted in the
following table.
Second Quarter Percentage Six Months Ended Percentage
(in millions, except -------------- Increase/ ---------------- Increase/
earnings per share) 1997 1996 (Decrease) 1997 1996 (Decrease)
------ ------ ---------- ------ ------ ----------
Revenues $408.9 $401.1 1.9 % $783.0 $783.9 (0.1)%
Operating profit 75.2 83.4 (9.8)% 131.7 165.4 (20.4)%
Income from operations 61.2 69.0 (11.3)% 106.5 141.4 (24.7)%
Income before
extraordinary loss 25.4 30.0 (15.3)% 42.5 61.4 (30.8)%
Net income 17.2 30.0 (42.7)% 34.4 61.4 (44.0)%
Earnings per share
Before extraordinary loss 0.25 0.29 (13.8)% 0.42 0.59 (28.8)%
Net income 0.17 0.29 (41.4)% 0.34 0.59 (42.4)%
Operating margin 15.0% 17.2% (2.2)pts 13.6% 18.0% (4.4)pts
-18-
The impact on Harrah's operations of these factors can also be seen in the
following table, which summarizes contributions to operating profit (income from
operations before corporate expense, equity in income (losses) of
nonconsolidated affiliates and project reorganization costs) by major operating
division for the twelve month periods ended June 30, 1997, 1996 and 1995 in
millions of dollars and as a percent of the total for each of Harrah's
divisions:
Contribution for Twelve Months Ended June 30,
--------------------------------------------
In Millions of Dollars Percent of Total
---------------------- ----------------
1997 1996 1995 1997 1996 1995
---- ---- ---- ---- ---- ----
Riverboat $121 $168 $142 39% 45% 41%
Atlantic City 78 80 84 25 22 24
Southern Nevada 51 74 74 16 20 21
Northern Nevada 54 61 73 17 17 22
Indian/Limited Stakes 12 5 6 4 1 2
Development costs (12) (13) (24) (4) (4) (7)
Other operations 7 (4) (11) 3 (1) (3)
---- ---- ---- --- --- ---
Subtotal 311 371 344 100% 100% 100%
Project writedowns === === ===
and reserves (52) (93) -
Preopening costs (9) (6) (10)
---- ---- ----
Operating profit $250 $272 $334
==== ==== ====
DIVISION OPERATING RESULTS AND DEVELOPMENT PLANS
- ------------------------------------------------
Riverboat Division
- ------------------
Second Quarter Percentage Six Months Ended Percentage
-------------- Increase/ ---------------- Increase/
(in millions) 1997 1996 (Decrease) 1997 1996 (Decrease)
------ ------ ---------- ------ ------ ----------
Casino revenues $158.7 $157.9 0.5 % $306.7 $303.2 1.2 %
Total revenues 169.5 165.8 2.2 % 326.8 317.9 2.8 %
Operating profit 32.2 40.2 (19.9)% 61.3 81.2 (24.5)%
Operating margin 19.0% 24.2% (5.2)pts 18.8% 25.5% (6.7)pts
Despite increased revenues for the Division in second quarter and the first
six months of 1997 over the comparable prior year periods, operating profits and
margins declined in the face of new and increased competition in several
riverboat markets over the past year.
-19-
Revenues, operating profit and margin at Harrah's Joliet in Illinois
declined compared to the prior year due to the introduction of riverboat casinos
in neighboring Indiana which more than doubled regional supply since June 1996.
Gaming volume at Harrah's Joliet for second quarter and the first six months of
1997 declined 26.6% and 26.3%, respectively, from the prior year periods,
significantly impacting property revenues. Operating profit and margins were
further impacted by higher marketing and promotional expenses that resulted from
the increased competition. The Company has made certain operating adjustments,
including a modification of the cruising schedule, which have helped stabilize
operating results at Joliet and contributed to a 3.2% increase in operating
profit from first quarter 1997 to second quarter 1997. Though management
believes that the property's operating results have stabilized, revenues and
operating profit at Harrah's Joliet are not expected to return to the levels
achieved prior to the entrance of the Indiana riverboats into the regional
market. Subject to the receipt of necessary approvals, the Company plans to
begin construction during fourth quarter 1997 of an expansion at the Joliet
property. The $29.5 million project will include a 204-suite hotel and 9,000
square feet of meeting space. The project is scheduled to be completed in early
1999.
Combined second quarter performance by Harrah's Mississippi properties
improved over the prior year as operating income increased 66.0% to $1.7
million, primarily due to operating improvements in Tunica. The Tunica
improvement is due in part to the second quarter 1997 closure of Harrah's
original Tunica casino. The Company is now focusing all its efforts in the
Tunica market on the newer Tunica Mardi Gras property, which opened in April
1996. The Company is continuing to explore its options for the ultimate
disposition of the original Tunica property. A reserve for the impairment
of the original Tunica property was recorded in fourth quarter 1996 and
the Company believes such reserve remains adequate. However, the Company
will continue to periodically review the adequacy of this reserve until the
final disposition of the property. During second quarter 1997, the Company
acquired its minority partner's interest in both Tunica properties. The
cost of this acquisition was not material to Harrah's.
Harrah's North Kansas City achieved higher revenues in second quarter and
the first six months of 1997 over the 1996 periods, due primarily to the
Company's addition of a second riverboat casino in May 1996. However, operating
profit for the second quarter and year-to-date declined 14.1% and 17.1%,
respectively, from the comparable prior year periods due to increased marketing
and promotional costs as a result of additional competition, including a major
new property that opened in January 1997. Also contributing to the decline for
the first six months was the decision during first quarter 1996 to discontinue
the property's admission charge.
-20-
Harrah's Shreveport's operating profit declined 2.6% for second quarter 1997
compared to the prior year, reflecting the impact of the entrance in third
quarter 1996 of a new competitor into the market. Harrah's is continuing its
evaluation of various expansion opportunities for its Shreveport facility. Any
expansion project is subject to the receipt of necessary regulatory approvals
and reaching a definitive agreement with the City of Shreveport.
Harrah's St. Louis Riverport casinos reported an operating loss
of approximately $0.8 million for second quarter 1997. The St. Louis Riverport
casino entertainment complex in Maryland Heights, Missouri, a suburb of
St. Louis, opened on March 11, 1997. The facility includes four riverboat
casinos, two of which are owned and operated by Harrah's, and shoreside
facilities jointly-owned with another casino company. Harrah's pro-rata
share of the operating losses of the shoreside facilities joint venture are
reported separately from the results of its St. Louis casinos in the
Consolidated Condensed Statements of Income and included in Equity in losses
of nonconsolidated subsidiaries (see Other Factors Affecting Net Income).
Atlantic City
- -------------
Second Quarter Percentage Six Months Ended Percentage
-------------- Increase/ ---------------- Increase/
(in millions) 1997 1996 (Decrease) 1997 1996 (Decrease)
----- ----- ---------- ------ ------ ----------
Casino revenues $80.2 $74.4 7.8 % $156.2 $147.1 6.2 %
Total revenues 88.4 81.0 9.1 % 171.0 159.5 7.2 %
Operating profit 20.1 17.7 13.6 % 35.0 32.4 8.0 %
Operating margin 22.7% 21.9% 0.8 pts 20.5% 20.3% 0.2 pts
In Atlantic City, the property's financial results reflect the impact of
gaming volume increases of 2.3% and 4.5% for the second quarter and first six
months of 1997. These increases more than offset the higher than historical
complimentary and promotional expenses incurred in order to maintain its
relative competitive position in the market. A new 416-room hotel tower, the
final phase of an expansion and enhancement project started last year, was
opened in late second quarter 1997.
No decisions regarding whether or not to proceed with a possible second
phase of the Atlantic City expansion have been made. Such decisions are
dependent, in part, upon substantive progress on development of new casino hotel
projects in the Marina area of Atlantic City by other companies.
-21-
Southern Nevada Division
- ------------------------
Second Quarter Percentage Six Months Ended Percentage
-------------- Increase/ ---------------- Increase/
(in millions) 1997 1996 (Decrease) 1997 1996 (Decrease)
----- ----- ---------- ------ ------ ----------
Casino revenues $44.0 $48.1 (8.6)% $ 87.7 $ 98.4 (10.9)%
Total revenues 68.7 75.1 (8.5)% 133.3 150.7 (11.5)%
Operating profit 10.4 18.9 (45.0)% 21.3 38.4 (44.5)%
Operating margin 15.1% 25.2% (10.1)pts 16.0% 25.4% (9.5)pts
1997 second quarter results in Southern Nevada continued to be impacted by
construction disruptions at Harrah's Las Vegas, where a $200 million expansion
and renovation project continues. The construction activity has often impeded
access to the Las Vegas property, resulting in a 9.7% decrease in second quarter
gaming volume compared with the prior year period. Operating profits and margins
have been further impacted due to the difficulty in reducing certain fixed costs
proportionately with the revenue declines, along with higher operating costs
associated with the construction disruptions. Most of the facade and sidewalk
renovations along the Strip were completed early in the third quarter, with the
remainder to be finished before the end of the third quarter. The positive
impact of the opening of rooms in the new hotel tower has been offset by the
closing for major renovation of rooms in the original hotel tower. Renovation of
these rooms is expected to be completed by early fourth quarter and completion
of the property's overall renovation is expected to be virtually complete by
year-end. As of June 30, 1997, approximately $159 million had been spent on this
project.
Harrah's Laughlin continues to be affected by competition from neighboring
Arizona and California Indian casinos and from high profile new Las Vegas area
casino developments. For the first six months of 1997, gaming volume declined
5.2% from the prior year period, resulting in lower revenues, operating profit
and operating margin.
At the present time, no definitive plans have been completed related to
Harrah's previously announced interest in the construction or acquisition of a
second Las Vegas property, and there is no assurance the Company will construct
or acquire such a property.
-22-
Northern Nevada Division
- ------------------------
Second Quarter Percentage Six Months Ended Percentage
-------------- Increase/ ---------------- Increase/
(in millions) 1997 1996 (Decrease) 1997 1996 (Decrease)
----- ----- ---------- ------ ------ ----------
Casino revenues $53.8 $54.9 (2.0)% $ 99.9 $107.7 (7.3)%
Total revenues 71.7 71.9 (0.3)% 132.9 142.3 (6.6)%
Operating profit 11.7 12.5 (6.4)% 16.9 22.9 (26.3)%
Operating margin 16.3% 17.4% (1.1)pts 12.7% 16.1% (3.4)pts
In Northern Nevada, the second quarter operating profit decline is due
primarily to construction disruptions caused by an extensive casino renovation
at Harrah's Tahoe. The resulting operating profit decline of 30.1% at Tahoe for
the second quarter more than offset a 35.8% operating profit increase by
Harrah's Reno. The improvement in Reno was due in part to higher demand
generated by National Bowling Congress events. Operating results for the first
six months of 1997 were significantly impacted by weather conditions occurring
during first quarter 1997, when flooding in the region twice closed the primary
access road to Lake Tahoe for a combined total of forty-five days, and closed
Harrah's Reno for one day.
Indian and Limited Stakes
- -------------------------
Revenues and operating profit from Harrah's Indian and limited stakes
casinos increased in second quarter and the first six months of 1997 over the
1996 period, due primarily to higher management fees from Harrah's Phoenix
Ak-Chin casino.
On March 31, 1997, Harrah's discontinued its management of both Colorado
casinos. This action did not have a material impact on Harrah's first quarter
1997 financial statements.
Harrah's continues to pursue additional development opportunities for
casinos on Indian land and has received National Indian Gaming Commission
("NIGC") approval of development and management agreements with the Eastern Band
of Cherokees for a casino development at Cherokee, North Carolina. Construction
on this project is underway and the $82 million facility, which will contain
approximately 60,000 square feet of casino space, is expected to open during
fourth quarter 1997. Though Harrah's is not funding this development, it has
guaranteed the related bank financing, of which $33.5 million was outstanding at
June 30, 1997.
-23-
In early 1997, Harrah's received NIGC approval of development and management
agreements with the Prairie Band of Potawatomi Indians for a development near
Topeka, Kansas. Construction began during second quarter 1997 on a $37 million
casino facility that will include approximately 27,000 square feet of casino
space. This facility, which is expected to be completed during first quarter
1998, will be managed by a Harrah's subsidiary and is being financed by loans
which Harrah's has guaranteed.
Harrah's has also previously announced agreements with other Indian tribes,
which are in various stages of negotiation and are subject to certain
conditions, including approval from appropriate government agencies. If the
necessary approvals for these projects are received, Harrah's would likely
guarantee the related bank financing for the projects, which could be
significant.
The agreements under which Harrah's manages casinos on Indian lands contain
provisions required by law which provide that a minimum monthly payment be made
to the tribe. That obligation has priority over scheduled repayments of
borrowings for development costs. In the event that insufficient cash flow is
generated by the operations to fund this payment, Harrah's must pay the
shortfall to the tribe. Such advances, if any, would be repaid to Harrah's 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,
1997, the aggregate monthly commitment pursuant to these contracts which extend
for periods of up to 84 months from opening date, was $1.2 million, including
commitments for two projects with contracts approved by the National Indian
Gaming Commission that are under construction but not yet open.
See DEBT and LIQUIDITY section for further discussion of Harrah's guarantees
of debt related to Indian projects.
Other Operations
- ----------------
Other operations includes the management fees received by the Company from
Harrah's Sky City in Auckland, New Zealand. During second quarter 1997, Harrah's
announced that Sky City Limited, owner of the Sky City facility in Auckland, New
Zealand, will buy-out Harrah's management contract. Harrah's will continue to
manage the facility under its fee agreement until June 1998, when it will
receive an estimated fee of US$14 million to terminate the contract. Harrah's
has also agreed to sell, subject to regulatory approvals, its remaining equity
interest in Sky City Limited for approximately NZ$84 million. If the necessary
regulatory approvals are obtained, the sale of the equity interest is expected
to close during third quarter 1997.
-24-
Other operations for second quarter and the first six months of 1997
also includes $2.3 million in nonrecurring income received by Harrah's from
Interactive Entertainment Limited (IEL) in consideration for the termination of
Harrah's management contract which occurred in conjunction with IEL's
transformation into a publicly traded company.
Development costs have decreased from prior year levels due to lower levels
of development activity.
Other Factors Affecting Net Income
- ----------------------------------
Second Quarter Percentage Six Months Ended Percentage
(Income)/Expense -------------- Increase/ ---------------- Increase/
(in millions) 1997 1996 (Decrease) 1997 1996 (Decrease)
----- ----- ---------- ----- ----- ----------
Preopening costs $ 0.5 $ 4.8 N/M $ 8.0 $ 5.0 N/M
Equity in (income) losses of
nonconsolidated affiliates 3.2 (0.1) N/M 5.4 (0.2) N/M
Corporate expense 8.1 8.4 (3.6)% 15.7 15.7 -
Project reorganization costs 2.7 6.1 (55.7)% 4.2 8.5 (50.6)%
Interest expense, net 20.3 17.0 19.4 % 38.1 33.6 13.4
Other income (3.1) (0.8) N/M (6.2) (1.4) N/M
Effective tax rate 37.9% 38.7% (0.8)pts 38.0% 38.3% (0.3)pts
Minority interests $ 1.9 $ 2.4 (20.8)% $ 3.8 $ 6.0 (36.7)%
Extraordinary loss, net
of income taxes 8.1 - N/M 8.1 - N/M
Preopening costs for 1997 include costs incurred in connection with the
first quarter 1997 opening of Harrah's St. Louis Riverport casino property,
along with ongoing costs related to the expansion at Harrah's Las Vegas
property. 1996 preopening costs related to the second quarter opening of Tunica
Mardi Gras and an expansion at Harrah's North Kansas City property.
Equity in (income) losses of nonconsolidated affiliates for second quarter
and the first six months of 1997 consists primarily of losses from Harrah's
share of the joint venture portion of the St. Louis development, including its
$1.6 million share of the joint venture's preopening costs, partially offset by
Harrah's share of income from a restaurant affiliate. Harrah's previously
reported its share of joint venture pre-interest operating results in
Revenues-other, and its share of joint venture interest expense as Interest
expense, net, from nonconsolidated affiliates. Prior year amounts have been
restated to conform to the current year's presentation.
Corporate expense is essentially even with the prior year. Project
reorganization costs represent Harrah's costs, including legal fees, associated
with the on-going development of a reorganization plan
-25-
for the New Orleans casino (see Harrah's Jazz Company section). Interest expense
increased in 1997 over 1996, primarily as a result of higher debt levels
incurred to fund the stock repurchase program (see Equity Transactions section)
and expansion projects. Other income increased in 1997 due to higher interest
income earned by the Company on the cash surrender value of certain life
insurance policies, the inclusion in 1997 of dividend income from Harrah's New
Zealand investment and a gain on the sale of nonoperating property.
The effective tax rates for all years are higher than the federal statutory
rate primarily due to state income taxes. Minority interests reflect joint
venture partners' shares of income at joint venture riverboat casinos and
decreased in 1997 from the prior year level as a result of lower Joliet
earnings.
The extraordinary loss reported in second quarter 1997 is due to the early
extinguishment of debt and includes the premium paid to holders of the debt
retired and the write-off of related unamortized deferred finance charges. (See
Debt and Liquidity Early Extinguishment of Debt.)
In fourth quarter 1997, Harrah's will adopt the provisions of Statement of
Financial Accounting Standards No. 128, "Earnings per Share", which establishes
new standards for computing and presenting earnings per share. The following
table presents actual earnings per share and pro forma earnings per share
computed as if the provisions SFAS No. 128 been in effect for the second quarter
and first six months:
Second Quarter First Six Months
-------------- ----------------
1997 1996 1997 1996
----- ----- ----- -----
Earnings per share
As reported $0.17 $0.29 $0.34 $0.59
Pro forma (basic) 0.17 0.29 0.34 0.60
Pro forma (diluted) 0.17 0.29 0.34 0.59
HARRAH'S JAZZ COMPANY
- ---------------------
For an update of the status of the efforts to reorganize Harrah's Jazz
Company, which filed a petition for relief under Chapter 11 of the Bankruptcy
Code on November 22, 1995, see Note 7 to the accompanying Consolidated Condensed
Financial Statements.
-26-
CAPITAL SPENDING AND DEVELOPMENT SUMMARY
- ----------------------------------------
In addition to the specific development and expansion projects discussed
above, Harrah's performs on-going refurbishment and maintenance at its casino
entertainment facilities in order to maintain the Company's quality standards.
Harrah's also continues to pursue development opportunities for additional
casino entertainment facilities that meet its 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. Preopening
costs incurred during the construction period are deferred and expensed at the
respective property's opening.
The Company's 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 being pursued by Harrah's are
expected to be made available from operating cash flows, the bank Facility (see
Debt and Liquidity section), Harrah's existing shelf registration (see Debt and
Liquidity section), joint venture partners, specific project financing,
guarantees by Harrah's of third party debt and, if necessary, additional
Harrah's debt and/or equity offerings. Harrah's capital spending for the first
six months of 1997 totaled approximately $188 million. Estimated total capital
expenditures for 1997 are expected to be $320 million to $340 million, including
the projects discussed in the Division Operating Results and Development Plans
section, the refurbishment of existing facilities and other projects, but
excluding the possible purchase or construction of a second Las Vegas property
and the possible second phase of Harrah's Atlantic City expansion.
DEBT AND LIQUIDITY
- ------------------
Early Extinguishment of Debt
- ----------------------------
On May 27, 1997, Harrah's principal operating subsidiary, Harrah's Operating
Company, Inc. ("HOC"), redeemed its $200 million in 10 7/8% Senior Subordinated
Notes due 2002 (the "Notes") at a call price of
-27-
104.833%, plus accrued and unpaid interest through the redemption date. The
Company retired the Notes using proceeds from its bank facility. An
extraordinary charge, net of tax, of approximately $8.1 million was recorded
during second quarter 1997 in conjunction with this early extinguishment of
debt.
In connection with the early extinguishment of the Notes, the Company
terminated certain interest rate swap agreements which had been associated with
the debt. The gain realized upon the termination of these swap agreements was
not material.
Bank Facility
- -------------
As of June 30, 1997, $805.5 million in borrowings, including the funds drawn
to retire the Notes, were outstanding under the Company's $1.1 billion revolving
credit facility (the "Bank Facility"), with an additional $18.6 million
committed to back letters of credit. After consideration of these borrowings,
$275.9 million of additional borrowing capacity was available to the Company as
of June 30, 1997.
Interest Rate Agreements
- ------------------------
As of June 30, 1997, Harrah's was a party to the following interest rate
swap agreements which effectively convert fixed rate debt to a variable rate:
Effective Next Semi-
Swap Rate at Annual Rate
Rate June 30, Adjustment
Associated Debt (LIBOR+) 1997 Date Swap Maturity
- --------------- ------ --------- ----------- -------------
8 3/4% Notes
$50 million 3.42% 9.64% November 15 May 1998
$50 million 3.22% 8.95% July 15 July 1998
In accordance with the terms of the interest rate swap agreements, the effective
interest rate on $50 million of these swaps was adjusted on July 15, 1997, to
9.19%.
-28-
Harrah's also maintains the following interest rate swap agreements which
effectively convert variable rate debt to a fixed rate:
Swap Rate
Received
Swap Rate (Variable) at Swap
Notional Amount Paid (Fixed) June 30, 1997 Maturity
- --------------- ----------- ------------- ------------
$50 million 7.910% 5.840% January 1998
$50 million 6.985% 5.781% March 2000
$50 million 6.951% 5.781% March 2000
$50 million 6.945% 5.781% March 2000
$50 million 6.651% 5.844% May 2000
$50 million 5.788% 5.813% June 2000
$50 million 5.785% 5.813% June 2000
All seven swap agreements reset on a quarterly basis. In accordance with the
terms of the swap which matures in January 1998, the variable interest rate was
adjusted on July 28, 1997, to 5.719%.
These agreements contain a credit risk that the counterparties may be unable
to meet the terms of the agreements. Harrah's minimizes that risk by evaluating
the creditworthiness of its counterparties, which are limited to major banks and
financial institutions, and does not anticipate nonperformance by the
counterparties.
Guarantees of Third Party Debt
- ------------------------------
As part of a transaction whereby Harrah's has retained an option to a site
for a potential casino, Harrah's has extended its guarantee of a third party's
$22.9 million variable rate bank loan through February 28, 1998. In connection
with this extension, Harrah's also agreed to fund the monthly interest payments
to the lender on behalf of the third party, and is to be repaid from the
proceeds from the sale of certain assets of the third party. The guaranty
contains an element of risk that, should the borrower be unable to perform, the
Company could become responsible for repayment of at least a portion of the
obligation. Harrah's has reduced this exposure by obtaining a security interest
in certain assets of the third party.
As described in the Division Operating Results and Development Plans --
Indian and Limited Stakes section, Harrah's may guarantee all or part of the
debt incurred by Indian tribes with which Harrah's has entered a management
contract to fund development of casinos on the Indian lands.
-29-
For all existing guarantees of Indian debt, Harrah's has obtained a first lien
on certain personal property (tangible and intangible) of the casino enterprise.
There can be no assurance, however, the value of such property would satisfy
Harrah's obligations in the event these guarantees were enforced. Additionally,
Harrah's has received limited waivers from the Indian tribes of their sovereign
immunity to allow Harrah's to pursue its rights under the contracts between the
parties and to enforce collection efforts as to any assets in which a security
interest is taken.
Shelf Registration
- ------------------
To provide for additional financing flexibility, Harrah's, together with its
wholly-owned subsidiary HOC, have available until October 1997 an effective
shelf registration statement with the Securities and Exchange Commission. The
statement allows the issuance of up to $200 million of Harrah's common stock or
HOC preferred stock or debt securities. The issue price of the Harrah's common
stock or the terms and conditions of the HOC preferred stock or debt securities,
which would be unconditionally guaranteed by Harrah's, would be determined by
market conditions at the time of issuance.
EQUITY TRANSACTIONS
- -------------------
In October 1996, Harrah's Board of Directors approved a plan which
authorizes the purchase in the open market of up to ten percent of Harrah's
outstanding shares of common stock. As of June 30, 1997, 2,864,400 shares had
been purchased at a cost of approximately $51.5 million and are being held in
treasury. The Company expects to acquire additional shares from time to time,
in open market or privately negotiated transactions, subject to market
conditions through the December 31, 1997 expiration of the approved plan.
EFFECTS OF CURRENT ECONOMIC AND POLITICAL CONDITIONS
- ----------------------------------------------------
Competitive Pressures
- ---------------------
As compared to the early 1990's, the number of new markets opening for
development in the past year has been much more limited and existing markets
have become much more competitive. The focus of many casino operators has
shifted to investing in existing markets, in an effort both to attract new
customers and to gain a greater market share of existing customers. As companies
have completed these expansion projects, supply has grown at a faster pace than
demand in some markets and competition
-30-
has increased significantly. Furthermore, several operators, including Harrah's,
have announced plans for additional developments or expansions in some markets.
The impact that these projects will have on Harrah's operations, if they are
completed, cannot be determined at this time.
Harrah's properties in the traditional gaming markets of Nevada and New
Jersey have generally reacted less significantly to the changing competitive
conditions, as the amount of supply change within these markets has represented
a smaller percentage change than that experienced in some riverboat markets. In
Las Vegas, several major developments have opened within the past few years and
numerous new developments and property expansions, including an expansion at
Harrah's Las Vegas, are underway. Historically, the Las Vegas market has grown
sufficiently to absorb these additions to its supply, but there can be no
assurance that such growth will continue. In the Atlantic City market,
additional casino space and hotel rooms have opened within the past year and
several major developments are proposed. This activity has intensified
competition during the last year, increasing promotional costs and reducing
margins.
In riverboat markets, the recent additions to supply have had a more
noticeable impact, due to the fact that competition was limited in the early
stages of many of these markets. In Joliet, the opening in late second quarter
1996 of Indiana riverboats, more than doubled the Chicago area capacity, has
resulted in a significant decline in Harrah's gaming volume from the 1996 first
half. In Tunica, a major new property opened in June 1996, and several existing
properties, including Harrah's, added hotel rooms and other amenities and more
are planned. In response to competitive pressures in this market and in order to
focus its efforts on Harrah's Tunica Mardi Gras Casino, Harrah's closed its
original Tunica property in May 1997 and continues to evaluate its plans for
that property's disposition. In October 1996, a fourth casino entered the
Shreveport market, and in January 1997, a major new development opened in the
Kansas City market. Thus far, the Shreveport development has not significantly
impacted Harrah's operating results. In Kansas City, Harrah's operating profit
declined 21% as a result of the increasing competition in that market.
Over the past several years, there has also been a significant increase in
the number of casinos on Indian lands, made possible by the Indian Gaming
Regulatory Act of 1988. Harrah's manages two such facilities and two additional
properties are currently under development. The future growth potential from
Indian casinos is also uncertain, however.
-31-
Although the short-term effect of these competitive developments on the
Company has been negative, Harrah's is not able to determine the long-term
impact, whether favorable or unfavorable, that these trends and events will have
on its current or future markets. Management believes that the geographic
diversity of Harrah's operations, its multi-market customer base and the
Company's continuing efforts to establish Harrah's as a premier brand name have
well-positioned Harrah's to face the challenges present within the industry.
Harrah's has recently introduced WINet, a sophisticated nationwide customer
database, and is scheduled to introduce later this year its national Gold Card,
a nationwide frequent-player card, both of which it believes will provide
competitive advantages, particularly with players who visit more than one
market.
Political Uncertainties
- -----------------------
The casino entertainment industry is subject to political and regulatory
uncertainty. In 1996, the U.S. government formed a federal commission to study
gambling in the United States, including the casino gaming industry. At this
time, the role of the commission and the ultimate impact that it will have on
the industry is uncertain. From time to time, individual jurisdictions have also
considered legislation which could adversely impact Harrah's operations, and the
likelihood or outcome of similar legislation in the future is difficult to
predict.
The casino entertainment industry represents a significant source of tax
revenues to the various jurisdictions in which casinos operate. From time to
time, various state and federal legislators and officials have proposed changes
in tax laws, or in the administration of such laws, which would affect the
industry. It is not possible to determine with certainty the scope or likelihood
of possible future changes in tax laws or in the administration of such laws. If
adopted, such changes could have a material adverse effect on Harrah's financial
results.
INTERCOMPANY DIVIDEND RESTRICTION
- ---------------------------------
Agreements governing the terms of its debt require Harrah's to abide by
covenants which, among other things, limit HOC's ability to pay dividends and
make other restricted payments, as defined, to Harrah's. The amount of HOC's
restricted net assets, as defined, computed in accordance with the most
restrictive of these covenants regarding restricted payments (other than for the
repurchase of Harrah's common stock) was approximately $709.1 million at June
30, 1997. With respect to any payments by HOC to Harrah's
-32-
for the purpose of providing funds to Harrah's for the repurchase of its common
stock, the amount of HOC's restricted net assets under such covenant was
approximately $571.1 million at June 30, 1997. Harrah's principal asset is the
stock of HOC, a wholly-owned subsidiary which holds, directly and through
subsidiaries, the principal assets of Harrah's businesses. Given this ownership
structure, these restrictions should not impair Harrah's ability to conduct its
business through its subsidiaries, to pursue its development plans or to
complete the stock repurchase program.
PRIVATE SECURITIES LITIGATION REFORM ACT
- ----------------------------------------
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward looking statements. Certain information included in this
Form 10-Q and other materials filed or to be filed by the Company with the
Securities and Exchange Commission ("SEC") (as well as information included in
oral statements or other written statements made or to be made by the Company)
contains statements that are forward looking. These include statements relating
to the following activities, among others: (A) operations and expansions of
existing properties, including future performance, anticipated scope and opening
dates of expansions, and exit plans with respect to certain properties; (B)
planned openings and development of Indian casinos that would be managed by the
Company; (C) the plan of reorganization and its various facets for New Orleans;
(D) implementation of the stock repurchase program and planned capital
expenditures for 1997; (E) the possible acquisition/construction of a second
property in Las Vegas, Nevada; and (F) the impact of the WINet and Gold Card
programs. These activities involve important factors that could cause actual
results to differ materially from those expressed in any forward looking
statements made by or on behalf of the Company. These include, but are not
limited to, the following factors as well as other factors described from time
to time in the Company's reports filed with the SEC: construction factors,
including zoning issues, environmental restrictions, soil conditions, weather
and other hazards, site access matters and building permit issues; access to
available and feasible financing; regulatory and licensing approvals, third
party consents and approvals, and relations with partners, owners and other
third parties; business and economic conditions; litigation, judicial actions
and political uncertainties, including gaming legislation and taxation; and the
effects of competition including locations of competitors and operating and
marketing competition. Any forward looking statements are made pursuant to the
Private Securities Litigation Reform Act of 1995 and, as such, speak only as of
the date made.
-33-
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings
--------------------------
On September 26, 1995, Harrah's New Orleans Investment Company ("HNOIC"),
an indirect subsidiary of the Company, filed in the United States District Court
for the Eastern District of Louisiana a suit styled Harrah's New Orleans
Investment Company v. New Orleans Louisiana Development Corporation, Civil No.
95-3166. At issue in the suit is the percentage of ownership that New
Orleans/Louisiana Development Corporation ("NOLDC") holds in Harrah's Jazz
Company ("HJC"), a Louisiana partnership whose general partners are HNOIC, NOLDC
and Grand Palais Casino, Inc. This declaratory judgment action seeks to confirm
that, as of September 26, 1995, NOLDC's percentage interest in the Harrah's Jazz
Company partnership was only 13.73% and, therefore, NOLDC is not a "Material
Partner" in HJC. This case was put on "administrative hold" after the filing by
NOLDC of a Chapter 11 bankruptcy petition on November 21, 1995. Should it be put
back on the active list, HNOIC or the appropriate post-bankruptcy entity would
vigorously prosecute it. At the time the case was put on "administrative hold,"
no discovery on the merits had been taken and no answer had been filed by NOLDC.
On September 28, 1995, NOLDC filed suit against the Company and various of
its corporate affiliates in New Orleans Louisiana Development Corporation v.
Harrah's Entertainment, formerly d/b/a The Promus Companies, Harrah's New
Orleans Investment Company, Harrah's New Orleans Management Company, Harrah's
Jazz Company, and Promus Hotels, formerly d/b/a Embassy Suites, Inc., Civil No.
95-14653, filed in the Civil District Court for the Parish of Orleans. The case
was subsequently removed by defendants to the United States District Court for
the Eastern District of Louisiana. In this suit, NOLDC seeks to realign
ownership interests in HJC among HNOIC and NOLDC. NOLDC also seeks an
unspecified dollar amount of damages sufficient to compensate it for the losses
it alleges it has suffered as a result of actions of defendants. NOLDC has
indicated that it intends to seek to remand the suit to the Civil District
Court. The case was also put on "administrative hold" by the District Court
Judge as a result of NOLDC's bankruptcy filing. The Company and other defendants
intend to vigorously defend the action should it be put back on the active case
list. At the time it was put on "administrative hold," no answer had been filed
by any defendant and no discovery had been taken.
-34-
Beginning on November 28, 1995, eight separate class action suits were
filed against the Company and various of its corporate affiliates, officers and
directors in the United States District Court for the Eastern District of
Louisiana. They are Ben F. D'Angelo, Trustee for Ben F. D'Angelo Revocable Trust
v. Harrah's Entertainment Corp., Michael D. Rose, Philip G. Satre and Ron
Lenczycki; Max Fenster v. Harrah's Entertainment, Inc., Harrah's New Orleans
Investment Company, Grand Palais Casino, Inc., Philip G. Satre, Colin V. Reed,
Michael N. Regan, Christopher B. Hemmeter, Donaldson, Lufkin & Jenrette
Securities Corporation, Salomon Brothers, Inc., and BT Securities Corp.; Goldie
Rosenbloom v. Harrah's Entertainment Corp., Michael D. Rose, Philip G. Satre and
Ron Lenczycki; Barry Ross v. Harrah's New Orleans Investment Company, Philip G.
Satre, Colin V. Reed, Lawrence L. Fowler, Michael N. Regan, Cezar M. Froelich,
Ulric Haynes, Jr., Wendell Gauthier, T. George Solomon, Jr., Duplain W. Rhodes,
III, Harrah's Entertainment, Inc., Donaldson, Lufkin & Jenrette Securities
Corporation, Salomon Brothers Inc., and BT Securities Corp.; Louis Silverman v.
Harrah's Entertainment, Inc., Harrah's New Orleans Investment Company, Grand
Palais Casino, Inc., Philip G. Satre, Colin V. Reed, Michael N. Regan,
Christopher B. Hemmeter, and Donaldson, Lufkin & Jenrette Securities
Corporation; Florence Kessler v. Philip G. Satre, Colin V. Reed, Charles A.
Ledsinger, Jr., Michael N. Regan, Lawrence L. Fowler, Christopher B. Hemmeter,
Cezar M. Froelich, Ulric Haynes, Jr., Wendell H. Gauthier, T. George Solomon,
Jr., Duplain W. Rhodes, III, Donaldson, Lufkin & Jenrette Securities
Corporation, Salomon Brothers Inc., and BT Securities Corporation; Warren
Zeiller and Judith M.R. Zeiller v. Harrah's Entertainment Corp., Michael D.
Rose, Philip G. Satre, and Ron Lenczycki; and Charles Zwerving and Helene
Zwerving v. Harrah's Entertainment Corp., Philip G. Satre, Colin V. Reed,
Christopher B. Hemmeter, and Donaldson, Lufkin & Jenrette Securities
Corporation. Per Court Order of January 26, 1996, the above plaintiffs filed a
consolidated complaint in the action numbered 95-3925 In Re Harrah's
Entertainment, Inc. Securities Litigation. The consolidated complaint alleges
that various misstatements and omissions were made in connection with the sale
of Harrah's Jazz Company 14.25% First Mortgage Notes and thereafter, and seeks
unspecified damages, as well as costs of legal proceedings. On April 25, 1997,
the United States District Court preliminarily approved a settlement of this
matter, which settlement is contingent upon the consummation of a Plan of
Reorganization for HJC. A final fairness hearing was held on June 26, 1997. On
July 31, 1997, the Court ruled that the settlement was fair to class members.
-35-
On December 6, 1995 Centex Landis, the general contractor for the permanent
casino being developed by HJC, filed suit against the Company, among others, in
the Civil District Court for The Parish of Orleans in Centex Landis Construction
Co., Inc. v. Harrah's Entertainment, Inc. formally d/b/a The Promus Companies,
Inc.; and Ronald A. Lenczycki, Civil No. 95-18101. Defendants removed the case
to the United States District Court for the Eastern District of Louisiana and it
was subsequently transferred to the Bankruptcy Court handling the HJC
bankruptcy. A motion for remand is pending. This suit seeks to collect more than
$40 million allegedly owed to Centex Landis by HJC from the Company under
guarantee, fraud, fraudulent advertising and unfair trade practice theories. The
Company and the other defendant intend to vigorously defend the action and have
filed an answer denying all of plaintiff's allegations. No discovery has been
taken in the action.
Russell M. Swody, et al. v. Harrah's New Orleans Management Company and
Harrah's Entertainment, Inc., Civil No. 95-4118, was filed against the Company
on December 13, 1995 in the United States District Court for the Eastern
District of Louisiana, and subsequently amended. Swody is a class action lawsuit
under the Worker Adjustment and Retraining Notification Act ("WARN Act") and
seeks damages for alleged failure to timely notify workers terminated by
Harrah's New Orleans Management Company at the time of the HJC bankruptcy.
Plaintiffs seek unspecified damages, as well as costs of legal proceedings, for
themselves and all members of the class. An answer has been filed denying all of
plaintiffs' allegations.
Swody was consolidated with Susan N. Poirier, Darlene A. Moss, et al. v.
Harrah's Entertainment, Inc., Harrah's New Orleans Management Company, and
Harrah's Operating Company, Civil No. 96-0215, which was filed in the United
States District Court for the Eastern District of Louisiana on January 17, 1996,
and subsequently amended. Poirier seeks not only damages under the WARN Act, but
also under the Employee Retirement Income Security Act ("ERISA") for the alleged
wrongful failure to provide severance to those terminated. Similar proofs of
claims were filed by Ms. Poirier in the Bankruptcy Court for the Eastern
District of Louisiana in the HJC, HNOIC and Harrah's Jazz Finance Corp.
bankruptcy cases.
A settlement has been reached with the Swody and Poirier plaintiffs, which
calls for a payment to be made by HJC in exchange for the dismissal of all
actions, which settlement is contingent on the consummation of the Plan of
Reorganization for HJC. That settlement has already been determined to be fair
to all class members by the Bankruptcy Court.
-36-
On December 29, 1995 in the Civil District Court for The Parish of Orleans,
the City of New Orleans filed suit against the Company and others in City of New
Orleans and Rivergate Development Corporation v. Harrah's Entertainment, Inc.
(f/k/a The Promus Companies, Inc.), Grand Palais Casino, Inc., Embassy Suites,
Inc., First National Bank of Commerce and Ronald A. Lenczycki, Civil No.
95-19285. This suit seeks to require the Company, among others, to complete
construction of the permanent casino being developed by HJC under theories of
breach of completion guarantee contract, breach of implied duty of good faith,
detrimental reliance, misrepresentation, and false advertising. Plaintiff seeks
unspecified damages, as well as costs of legal proceedings. Defendants have
removed the suit to the United States District Court for the Eastern District of
Louisiana and it was then transferred to the Bankruptcy Court handling the HJC
bankruptcy. A motion for remand is pending. The Company and the other defendants
have filed an answer denying all of plaintiffs' allegations and intend to
vigorously defend the action.
Louisiana Economic Development and Gaming Corporation v. Harrah's
Entertainment, Inc. and Harrah's Operating Company, Inc., Civil No. 424328, was
filed on January 23, 1996 in the Nineteenth Judicial Court of the State of
Louisiana, Parish of East Baton Rouge. On February 21, 1996, the Company and the
other defendants removed the case to the Federal District Court for the Middle
District of Louisiana and asked that it be transferred to the Bankruptcy Court
handling the HJC bankruptcy. The case has been transferred. A motion for
reconsideration has been filed by LEDGC. In this suit LEDGC seeks to require the
Company and Harrah's Operating Company to complete construction of the permanent
casino being developed by HJC under theories of breach of completion guarantee
contract, breach of implied duty of good faith, detrimental reliance,
misrepresentation and, in the alternative, seeks damages. The Company has filed
an answer and counterclaim against LEDGC. LEDGC has moved to have that
counterclaim dismissed and/or for summary judgment. No ruling has yet been made
by the court. The defendants intend to vigorously defend the action and
prosecute their counterclaim.
-37-
Item 6. Exhibits and Reports on Form 8-K
------------------------------------------
(a) Exhibits
*EX-3.(ii)Bylaws of Harrah's Entertainment, Inc., amended July 25,
1997.
*EX-4.1 Termination of Swap Agreement dated May 28, 1997 between The
Sumitomo Bank, Limited and Harrah's Operating Company, Inc.
*EX-4.2 Termination of Swap Agreement dated May 28, 1997 between The
Bank of Nova Scotia and Harrah's Operating Company, Inc.
*EX-4.3 Termination of Swap Agreement dated May 27, 1997 between The
Nippon Credit Bank, Ltd. and Harrah's Operating Company,
Inc.
*EX-4.4 Consent to Credit Agreements dated as of April 11, 1997,
among Harrah's Entertainment, Inc., Harrah's Operating
Company, Inc., Marina Associates, various lending
institutions, and Bankers Trust Company, The Bank of New
York, CIBC Inc., Credit Lyonnais, Atlanta Agency, Wells Fargo
Bank, N.A., The Long-Term Credit Bank of Japan, Limited, New
York Branch, NationsBank, N.A. (South), Societe Generale,
The Sumitomo Bank, Limited, New York Branch, as Agents, and
Bankers Trust Company, as Administrative Agent.
*EX-4.5 Consent dated April 10, 1997 to Credit Agreement dated June
9, 1995, among Harrah's Entertainment, Inc., Harrah's
Operating Company, Inc., Marina Associates, various lenders,
and Bankers Trust Company, The Bank of New York, CIBC Inc.,
Credit Lyonnais, Atlanta Agency, Wells Fargo Bank, N.A., The
Long-Term Credit Bank of Japan, Limited, New York Branch,
NationsBank, N.A. (South), Societe Generale, The Sumitomo
Bank, Limited, New York Branch, as Agents, and Bankers Trust
Company, as Administrative Agent.
*EX-4.6 Letter to Stockholders dated July 23, 1997 regarding Summary
of Rights To Purchase Special Shares As Amended Through
April 25, 1997.
-38-
*EX-10.1 Severance Agreement dated February 21, 1997 between Thomas
J. Carr, Jr. and Harrah's Entertainment, Inc.
*EX-10.2 Form of Amendment to Severance Agreement dated April 25,
1997 between Harrah's Entertainment, Inc. and John M.
Boushy, Bradford W. Morgan, Ben C. Peternell, Colin V. Reed,
E. O. Robinson, Jr. and Philip G. Satre.
*EX-10.3 Amendment dated April 24, 1997, to Harrah's Entertainment,
Inc.'s Deferred Compensation Plan.
*EX-10.4 Amendment dated April 24, 1997 to Harrah's Entertainment,
Inc.'s Executive Deferred Compensation Plan.
*EX-11 Computation of per share earnings.
*EX-27 Financial Data Schedule.
*Filed herewith.
No reports on Form 8-K were filed during the quarter ended June 30, 1997.
-39-
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, 1997 BY: COLIN V. REED
-----------------------
Colin V. Reed
Executive Vice President and
Chief Financial Officer
(Chief Accounting Officer)
-40-
Exhibit Index
-------------
Sequential
Exhibit No. Description Page No.
- ----------- ------------ ----------
EX-3.(ii) Bylaws of Harrah's Entertainment, 43
Inc., amended July 25, 1997.
EX-4.1 Termination of Swap Agreement 56
dated May 28, 1997 between The
Sumitomo Bank, Limited and
Harrah's Operating Company, Inc.
EX-4.2 Termination of Swap Agreement 63
dated May 28, 1997 between The
Bank of Nova Scotia and Harrah's
Operating Company, Inc.
EX-4.3 Termination of Swap Agreement 65
dated May 27, 1997 between The
Nippon Credit Bank, Ltd. and
Harrah's Operating Company, Inc.
EX-4.4 Consent to Credit Agreements dated 66
as of April 11, 1997, among Harrah's
Entertainment, Inc., Harrah's
Operating Company, Inc., Marina
Associates, various lending
institutions, and Bankers Trust
Company, The Bank of New York,
CIBC Inc., Credit Lyonnais,
Atlanta Agency, Wells Fargo
Bank, N.A., The Long-Term Credit
Bank of Japan, Limited, New York
Branch, NationsBank, N.A. (South),
Societe Generale, The Sumitomo
Bank, Limited, New York Branch,
as Agents, and Bankers Trust
Company, as Administrative Agent.
-41-
EX-4.5 Consent dated April 10, 1997 to 76
Credit Agreement dated June 9,
1995, among Harrah's Entertainment,
Inc., Harrah's Operating Company,
Inc., Marina Associates, various
lenders, and Bankers Trust Company,
The Bank of New York, CIBC Inc.,
Credit Lyonnais, Atlanta Agency,
Wells Fargo Bank, N.A., The Long-
Term Credit Bank of Japan, Limited,
New York Branch, NationsBank, N.A.
(South), Societe Generale, The
Sumitomo Bank, Limited, New York
Branch, as Agents, and Bankers Trust
Company, as Administrative Agent.
EX-4.6 Letter to Stockholders dated July 23, 83
1997 regarding Summary of Rights to
Purchase Special Shares as Amended
Through April 25, 1997.
EX-10.1 Severance Agreement dated February 90
21, 1997 between Thomas J. Carr, Jr.
and Harrah's Entertainment, Inc.
EX-10.2 Form of Amendment to Severance Agreement 107
dated April 25, 1997 between Harrah's
Entertainment, Inc. and John M. Boushy,
Bradford W. Morgan, Ben C. Peternell,
Colin V. Reed, E. O. Robinson, Jr.
and Philip G. Satre.
EX-10-3 Amendment dated April 24, 1997 to 109
Harrah's Entertainment, Inc.'s
Deferred Compensation Plan.
EX-10-4 Amendment dated April 24, 1997 to 111
Harrah's Entertainment, Inc.'s
Executive Deferred Compensation Plan.
EX-11 Computation of per share earnings. 113
EX-27 Financial Data Schedule
-42-
EX-3.(ii)
BYLAWS
OF
HARRAH'S ENTERTAINMENT, INC.
(Amended July 25, 1997)
ARTICLE I
OFFICES
SECTION 1. Registered Office. The registered office of Harrah's
Entertainment, Inc. (the "Corporation") shall be at 1013 Centre Road, in the
City of Wilmington, County of New Castle, State of Delaware.
SECTION 2. Other Offices. The Corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors of the Corporation (the "Board of Directors") may from time to time
determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. Place of Meetings. Meetings of the stockholders for the
election of directors or for any other purpose shall be held at such time and
place, either within or without the State of Delaware as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
SECTION 2. Annual Meetings. The annual meeting of stockholders shall be
held on the first Friday in May in each year or on such other date and at such
time as may be fixed by the Board of Directors and stated in the notice of the
meeting, for the purpose of electing directors and for the transaction of only
such other business as is properly brought before the meeting in accordance with
these Bylaws.
-43-
Written notice of an annual meeting stating the place, date and hour of
the meeting, shall be given to each stockholder entitled to vote at such meeting
not less than ten nor more than sixty days before the date of the meeting.
To be properly brought before the annual meeting, business must be either
(i) specified in the notice of annual meeting (or any supplement or amendment
thereto) given by or at the direction of the Board of Directors, (ii) otherwise
brought before the annual meeting by or at the direction of the Board of
Directors, or (iii) otherwise properly brought before the annual meeting by a
stockholder. In addition to any other applicable requirements, for business to
be properly brought before an annual meeting by a stockholder, the stockholder
must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice must be delivered to or mailed
and received at the principal executive offices of the Corporation not less than
sixty (60) days nor more than ninety (90) days prior to the meeting, provided,
however, that in the event that less than seventy (70) days notice or prior
public disclosure of the date of the annual meeting is given or made to
stockholders, notice by a stockholder, to be timely, must be received no later
than the close of business on the tenth (10th) day following the day on which
such notice of the date of the annual meeting was mailed or such public
disclosure was made, whichever first occurs. A stockholder's notice to the
Secretary shall set forth (a) as to each matter the stockholder proposes to
bring before the annual meeting (i) a brief description of the business desired
to be brought before the annual meeting and the reasons for conducting such
business at the annual meeting, and (ii) any material interest of the
stockholder in such business, and (b) as to the stockholder giving the notice
(i) the name and record address of the stockholder and (ii) the class, series
and number of shares of capital stock of the Corporation which are beneficially
owned by the stockholder. Notwithstanding anything in these Bylaws to the
contrary, no business shall be conducted at the annual meeting except in
accordance with the procedures set forth in this Article II, Section 2. The
officer of the Corporation presiding at an annual meeting shall, if the facts
warrant, determine and declare to the annual meeting that business was not
properly brought before the annual meeting in accordance with the provisions of
this Article II, Section 2, and if such officer should so determine, such
officer shall so declare to the annual meeting and any such business not
properly brought before the meeting shall not be transacted.
SECTION 3. Special Meetings. Unless otherwise prescribed by law or by the
Certificate of Incorporation, special meetings of stockholders, for any purpose
or purposes, may only be called by a majority of the entire Board of Directors
or by the Chairman or the President.
-44-
Written notice of a special meeting stating the place, date and hour of
the meeting, shall be given to each stockholder entitled to vote at such meeting
not less than ten nor more than sixty days before the date of the meeting.
SECTION 4. Quorum. Except as otherwise provided by law or by the
Certificate of Incorporation, the holders of a majority of the capital stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at all meetings of the
stockholders for the transaction of business. If, however, such quorum shall not
be present or represented at any meeting of the stockholders, the holders of a
majority of the votes entitled to be cast by the stockholders entitled to vote
thereat, present in person or represented by proxy may adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present or represented by proxy. At such adjourned meeting at
which a quorum shall be present or represented, any business may be transacted
which might have been transacted at the meeting as originally noticed. If the
adjournment is for more than thirty days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder entitled to vote at the meeting.
SECTION 5. Voting. Unless otherwise required by law, the Certificate of
Incorporation or these Bylaws, any question brought before any meeting of
stockholders shall be decided by the vote of the holders of a majority of the
stock represented and entitled to vote thereat. Each stockholder represented at
a meeting of stockholders shall be entitled to cast one vote for each share of
the capital stock entitled to vote thereat held by such stockholder, unless
otherwise provided by the Certificate of Incorporation. Such votes may be cast
in person or by proxy but no proxy shall be voted after three years from its
date, unless such proxy provides for a longer period. The Board of Directors, in
its discretion, or the officer of the Corporation presiding at a meeting of
stockholders, in his discretion, may require that any votes cast at such meeting
shall be cast by written ballot.
SECTION 6. List of Stockholders Entitled to Vote. The officer of the
Corporation who has charge of the stock ledger of the Corporation shall prepare
and make, at least ten days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at
-45-
least ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder of the
Corporation who is present.
SECTION 7. Stock Ledger. The stock ledger of the Corporation shall be the
only evidence as to who are the stockholders entitled to examine the stock
ledger, the list required by Section 6 of this Article II or the books of the
Corporation, or to vote in person or by proxy at any meeting of stockholders.
ARTICLE III
DIRECTORS
SECTION 1. Nomination of Directors. Nominations of persons for election to
the Board of Directors of the Corporation at the annual meeting may be made at
such meeting by or at the direction of the Board of Directors, by any committee
or persons appointed by the Board of Directors or by any stockholder of the
Corporation entitled to vote for the election of directors at the meeting who
complies with the notice procedures set forth in this Article III, Section 1.
Such nominations by any stockholder shall be made pursuant to timely notice in
writing to the Secretary of the Corporation. To be timely, a stockholder's
notice shall be delivered to or mailed and received at the principal executive
offices of the Corporation not less than sixty (60) days nor more than ninety
(90) days prior to the meeting; provided, however, that in the event that less
than seventy (70) days notice or prior public disclosure of the date of the
meeting is given or made to stockholders, notice by the stockholder, to be
timely, must be received no later than the close of business on the tenth (10th)
day following the day on which such notice of the date of the meeting was mailed
or such public disclosure was made, whichever first occurs. Such stockholder's
notice to the Secretary shall set forth (i) as to each person whom the
stockholder proposes to nominate for election or reelection as a director, (a)
the name, age, business address and residence address of the person, (b) the
principal occupation or employment of the person, (c) the class and number of
shares of capital stock of the Corporation which are beneficially owned by the
person, and (d) any other information relating to the person that is required to
be disclosed in solicitations for proxies for election of directors pursuant to
the Rules and Regulations of the Securities and Exchange Commission under
Section 14 of the Securities Exchange Act of 1934, as amended; and (ii) as to
the stockholder giving the
-46-
notice (a) the name and record address of the stockholder and (b) the class and
number of shares of capital stock of the Corporation which are beneficially
owned by the stockholder. The Corporation may require any proposed nominee to
furnish such other information as may reasonably be required by the Corporation
to determine the eligibility of such proposed nominee to serve as a director of
the Corporation. No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set forth herein.
The officer of the Corporation presiding at an annual meeting shall, if the
facts warrant, determine and declare to the meeting that a nomination was not
made in accordance with the foregoing procedure, and if he should so determine,
he shall so declare to the meeting and the defective nomination shall be
disregarded. The directors shall be elected at the annual meeting of the
stockholders, except as provided in the Certificate of Incorporation, and each
director elected shall hold office until his successor is elected and qualified;
provided, however, that unless otherwise restricted by the Certificate of
Incorporation or by law, any director or the entire Board of Directors may be
removed, either with or without cause, from the Board of Directors at any
meeting of stockholders by a majority of the stock represented and entitled to
vote thereat.
SECTION 2. Meetings. The Board of Directors of the Corporation may hold
meetings, both regular and special, either within or without the State of
Delaware. Regular meetings of the Board of Directors may be held without notice
at such time and at such place as may from time to time be determined by the
Board of Directors. Special meetings of the Board of Directors may be called by
the Chairman of the Board or the President or a majority of the entire Board of
Directors. Notice thereof stating the place, date and hour of the meeting shall
be given to each director either by mail not less than forty-eight (48) hours
before the date of the meeting, by telephone or telegram on twenty-four (24)
hours' notice, or on such shorter notice as the person or persons calling such
meeting may deem necessary or appropriate in the circumstances.
SECTION 3. Quorum. Except as may be otherwise specifically provided by
law, the Certificate of Incorporation or these Bylaws, at all meetings of the
Board of Directors, a majority of the entire Board of Directors shall constitute
a quorum for the transaction of business and the act of a majority of the
directors present at any meeting at which there is a quorum shall be the act of
the Board of Directors. If a quorum shall not be present at any meeting of the
Board of Directors, a majority of the directors present thereat may adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present.
-47-
SECTION 4. Actions of Board of Directors. Unless otherwise provided by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all the members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
SECTION 5. Meetings by Means of Conference Telephone. Unless otherwise
provided by the Certificate of Incorporation or these Bylaws, members of the
Board of Directors of the Corporation, or any committee designated by the Board
of Directors, may participate in a meeting of the Board of Directors or such
committee by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting pursuant to this Section 5 of Article III shall
constitute presence in person at such meeting.
SECTION 6. Committees. The Board of Directors may, by resolution passed by
a majority of the entire Board of Directors, designate one or more committees,
each committee to consist of one or more of the directors of the Corporation.
The Board of Directors may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of any such committee. In the absence or disqualification of a member of
a committee, and in the absence of a designation by the Board of Directors of an
alternate member to replace the absent or disqualified member, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not he or they constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any absent or
disqualified member. Any committee, to the extent allowed by law and provided in
the resolution establishing such committee, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the Corporation. Each committee shall keep regular minutes and
report to the Board of Directors when required.
SECTION 7. Compensation. The directors may be paid their expenses, if any,
of attendance at each meeting of the Board of Directors and may be paid a fixed
sum for attendance at each meeting of the Board of Directors or a stated salary
as director. No such payment shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
-48-
SECTION 8. Interested Directors. No contract or transaction between the
Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or their votes are
counted for such purpose if (i) the material facts as to his or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board of Directors
or committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or (ii) the material facts as to
his or their relationship or interest and as to the contract or transaction are
disclosed or are known to the shareholder entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
shareholders; or (iii) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof or the shareholders. Common or interested
directors may be counted in determining the presence of a quorum at a meeting of
the Board of Directors or of a committee which authorizes the contract or
transaction.
ARTICLE IV
OFFICERS
SECTION 1. General. The officers of the Corporation shall be chosen by the
Board of Directors and shall be a President, a Secretary and a Treasurer. The
Board of Directors, in its discretion, may also choose a Chairman of the Board
of Directors (who must be a director) and one or more Vice Presidents, Assistant
Secretaries, Assistant Treasurers and other officers. Any number of offices may
be held by the same person, unless otherwise prohibited by law, the Certificate
of Incorporation or these Bylaws. The officers of the Corporation need not be
stockholders of the Corporation nor, except in the case of the Chairman of the
Board of Directors, need such officers be directors of the Corporation.
SECTION 2. Election. The Board of Directors at its first meeting held
after each annual meeting of stockholders shall elect the officers of the
Corporation who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time by the
Board of Directors; and all officers of the Corporation
-49-
shall hold office until their successors are chosen and qualified, or until
their earlier resignation or removal. Any officer elected by the Board of
Directors may be removed at any time by the affirmative vote of a majority of
the Board of Directors. Any vacancy occurring in any office of the Corporation
shall be filled by the Board of Directors. The salaries of all officers who are
directors of the Corporation shall be fixed by the Board of Directors.
SECTION 3. Voting Securities Owned by the Corporation. Powers of attorney,
proxies, waivers of notice of meeting, consents and other instruments relating
to securities owned by the Corporation may be executed in the name of and on
behalf of the Corporation by the President or any Vice President and any such
officer may, in the name and on behalf of the Corporation, take all such action
as any such officer may deem advisable to vote in person or by proxy at any
meeting of security holders of any corporation in which the Corporation may own
securities and at any such meeting shall possess and may exercise any and all
rights and power incident to the ownership of such securities and which, as the
owner thereof, the Corporation might have exercised and possessed if present.
The Board of Directors may, by resolution, from time to time confer like powers
upon any other person or persons.
SECTION 4. Chairman of the Board of Directors. The Chairman of the Board
of Directors, if there be one, shall preside at all meetings of the stockholders
and of the Board of Directors. Except where by law the signature of the
President is required, the Chairman of the Board of Directors shall possess the
same power as the President to sign all contracts, certificates and other
instruments of the Corporation which may be authorized by the Board of
Directors. During the absence or disability of the President, the Chairman of
the Board of Directors shall exercise all the powers and discharge all the
duties of the President. The Chairman of the Board of Directors shall also
perform such other duties and may exercise such other powers as from time to
time may be assigned to him by these Bylaws or by the Board of Directors.
SECTION 5. President. The President shall, subject to the control of the
Board of Directors and, if there be one, the Chairman of the Board of Directors,
have general supervision of the business of the Corporation and shall see that
all orders and resolutions of the Board of Directors are carried into effect. He
shall execute all bonds, mortgages, contracts and other instruments of the
Corporation requiring a seal, under the seal of the Corporation, except where
required or permitted by law to be otherwise signed and executed and except that
the other officers of the Corporation may sign and execute documents when so
authorized by these Bylaws, the
-50-
Board of Directors or the President. In the absence or disability of the
Chairman of the Board of Directors, or if there be none, the President shall
preside at all meetings of the stockholders and the Board of Directors. The
President shall also perform such other duties and may exercise such other
powers as from time to time may be assigned to him by these Bylaws or by the
Board of Directors.
SECTION 6. Vice Presidents. At the request of the President or in his
absence or in the event of his inability or refusal to act (and if there be no
Chairman of the Board of Directors), the Vice President or the Vice Presidents
if there is more than one (in the order designated by the Board of Directors)
shall perform the duties of the President, and when so acting, shall have all
the powers of and be subject to all the restrictions upon the President. Each
Vice President shall perform such other duties and have such other powers as the
Board of Directors from time to time may prescribe. If there be no Chairman of
the Board of Directors and no Vice President, the Board of Directors shall
designate the officer of the Corporation who, in the absence of the President or
in the event of the inability or refusal of the President to act, shall perform
the duties of the President, and when so acting, shall have all the powers of
and be subject to all the restrictions upon the President.
SECTION 7. Secretary. The Secretary shall attend all meetings of the Board
of Directors and all meetings of stockholders and record all the proceedings
thereat in a book or books to be kept for that purpose; the Secretary shall also
perform like duties for the standing committees when required. The Secretary
shall give, or cause to be given, notice of all meetings of the stockholders and
special meetings of the Board of Directors, and shall perform such other duties
as may be prescribed by the Board of Directors or President, under whose
supervision he shall be. If the Secretary shall be unable or shall refuse to
cause to be given notice of all meetings of the stockholders and special
meetings of the Board of Directors, and if there be no Assistant Secretary, then
either the Board of Directors or the President may choose another officer to
cause such notice to be given. The Secretary shall have custody of the seal of
the Corporation and the Secretary or any Assistant Secretary, if there be one,
shall have authority to affix the same to any instrument requiring it and when
so affixed, it may be attested by the signature of the Secretary or by the
signature of any such Assistant Secretary. The Board of Directors may give
general authority to any other officer to affix the seal of the Corporation and
to attest the affixing by his signature. The Secretary shall see that all books,
reports, statements, certificates and other documents and records required by
law to be kept or filed are properly kept or filed, as the case may be.
-51-
SECTION 8. Treasurer. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as Treasurer and of the financial condition of the
Corporation. If required by the Board of Directors, the Treasurer shall give the
Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the Corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the Corporation.
SECTION 9. Assistant Secretaries. Except as may be otherwise provided in
these Bylaws, Assistant Secretaries, if there be any, shall perform such duties
and have such powers as from time to time may be assigned to them by the Board
of Directors, the President, any Vice President, if there be one, or the
Secretary, and in the absence of the Secretary or in the event of his disability
or refusal to act, shall perform the duties of the Secretary, and when so
acting, shall have all the powers of and be subject to all the restrictions upon
the Secretary.
SECTION 10. Assistant Treasurers. Assistant Treasurers, if there be any,
shall perform such duties and have such powers as from time to time may be
assigned to them by the Board of Directors, the President, any Vice President,
if there be one, or the Treasurer, and in the absence of the Treasurer or in the
event of his disability or refusal to act, shall perform the duties of the
Treasurer, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the Treasurer. If required by the Board of Directors,
an Assistant Treasurer shall give the Corporation a bond in such sum and with
such surety or sureties as shall be satisfactory to the Board of Directors for
the faithful performance of the duties of his office and for the restoration to
the Corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the Corporation.
-52-
SECTION 11. Controller. The Controller shall establish and maintain the
accounting records of the Corporation in accordance with generally accepted
accounting principles applied on a consistent basis, maintain proper internal
control of the assets of the Corporation and shall perform such other duties as
the Board of Directors, the President or any Vice President of the Corporation
may prescribe.
SECTION 12. Other Officers. Such other officers as the Board of Directors
may choose shall perform such duties and have such powers as from time to time
may be assigned to them by the Board of Directors. The Board of Directors may
delegate to any other officer of the Corporation the power to choose such other
officers and to prescribe their respective duties and powers.
ARTICLE V
STOCK
SECTION 1. Form of Certificates. Every holder of stock in the Corporation
shall be entitled to have a certificate signed, in the name of the Corporation
(i) by the Chairman of the Board of Directors, the President or a Vice President
and (ii) by the Treasurer or an Assistant Treasurer, or the Secretary or an
Assistant Secretary of the Corporation, certifying the number of shares owned by
him in the Corporation.
SECTION 2. Signatures. Any or all of the signatures on the certificate may
be a facsimile, including, but not limited to, signatures of officers of the
Corporation and countersignatures of a transfer agent or registrar. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the Corporation with the same effect as if he were such officer, transfer
agent or registrar at the date of issue.
SECTION 3. Lost Certificates. The Board of Directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new certificate, the
Board of Directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or his legal representative, to advertise
-53-
the same in such manner as the Board of Directors shall require and/or to give
the Corporation a bond in such sum as it may direct as indemnity against any
claim that may be made against the Corporation with respect to the certificate
alleged to have been lost, stolen or destroyed.
SECTION 4. Transfers. Stock of the Corporation shall be transferable in
the manner prescribed by law and in these Bylaws. Transfers of stock shall be
made on the books of the Corporation only by the person named in the certificate
or by his attorney lawfully constituted in writing and upon the surrender of the
certificate therefor, which shall be cancelled before a new certificate shall be
issued.
SECTION 5. Record Date. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or entitled to express consent to corporate action in
writing without a meeting, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock, or for the
purpose of any other lawful action, the Board of Directors may fix, in advance,
a record date, which shall not be more than sixty days nor less than ten days
before the date of such meeting, nor more than sixty days prior to any other
action. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
SECTION 6. Beneficial Owners. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise provided by
law.
ARTICLE VI
NOTICES
SECTION 1. Notices. Whenever written notice is required by law, the
Certificate of Incorporation or these Bylaws, to be given to any director,
member of a committee or stockholder, such notice may be given by mail,
-54-
addressed to such director, member of a committee or stockholder, at his address
as it appears on the records of the Corporation, with postage thereon prepaid,
and such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail. Written notice may also be given personally
or by telegram, telex or cable.
SECTION 2. Waivers of Notice. Whenever any notice is required by law, the
Certificate of Incorporation or these Bylaws, to be given to any director,
member of a committee or stockholder, a waiver thereof in writing, signed, by
the person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.
ARTICLE VII
GENERAL PROVISIONS
SECTION 1. Dividends. Dividends upon the capital stock of the Corporation,
subject to the provisions of the Certificate of Incorporation, if any, may be
declared by the Board of Directors at any regular or special meeting, and may be
paid in cash, in property, or in shares of the capital stock. Before payment of
any dividend, there may be set aside out of any funds of the Corporation
available for dividends such sum or sums as the Board of Directors from time to
time, in its absolute discretion, deems proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the Corporation, or for any proper purpose, and the Board of
Directors may modify or abolish any such reserve.
SECTION 2. Disbursements. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
SECTION 3. Fiscal Year. The fiscal year of the Corporation shall end on
December 31 and the following fiscal year shall commence on January 1, unless
the fiscal year is otherwise fixed by affirmative resolution of the entire Board
of Directors.
SECTION 4. Corporate Seal. The corporate seal shall have inscribed thereon
the name of the Corporation and the words "Corporate Seal, Delaware". The seal
may be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
-55-
EX-4.1
THE SUMITOMO BANK, LIMITED
NEW YORK BRANCH
277 PARK AVENUE
NEW YORK, N.Y. 10172
-------
(212) 224-4000
May 28, 1997
Ms. Katherine M. Weien,
Director of Finance
Embassy Suites, Inc.
(Harrah's Entertainment, Inc.)
1023 Cherry Road
Memphis, TN 38117-5423
Telephone: 901-762-8838
Telefax: 901-762-8998
Re: Termination Agreement dated as of May 28, 1997 between The Sumitomo Bank,
Limited, acting through its New York Branch (`SBL-NY') and Harrah's Operating
Company, Inc., formerly known as Embassy Suites, Inc.("Harrah's") (SBL-NY Ref.
No 100513)
Dear Ms. Weien:
This letter agreement confirms the termination of the Swap Transaction between
SBL-NY and Harrah's having a Trade Date of October 22, 1992 with a Notional
Amount of USD 50,000,000.00 and an original Termination Date of October 15, 1997
(the "Original Swap"). A copy of the Confirmation evidencing the Original Swap
is annexed hereto as Exhibit A. This letter agreement constitutes a Confirmation
under the Interest Rate and Currency Exchange Agreement dated as of October 22,
1992 between The Sumitomo Bank, Limited, New York Branch and Embassy Suites,
Inc. (the "Agreement"), and it supplements, forms a part of, and is subject to
such Agreement. Capitalized terms used herein and not otherwise defined herein
shall have their respective meanings as set forth in the Agreement.
1. Termination of Original Swap. The Original Swap and the rights and
obligations of SBL-NY and Harrah's in respect thereof arising after May
28, 1997 (the "Effective Termination Date") are terminated. The
Agreement and all other Swap Transactions between SBL-NY and Harrah's
shall remain in full force and effect, except as set forth therein.
-56-
2. Payments. In consideration of the parties agreement to terminate the
Original Swap, SBL-NY shall pay USD 7,060.56 to Harrah's on May 29,
1997 in immediately available funds as follows:
Payments to Harrah's of USD amounts:
Depository: First Tennessee Bank
Address: Memphis, TN ABA 084000026
In Favor Of: Embassy Suites, Inc.
Account No. 841900
3. Representations and Warranties. Each party, with respect to itself,
represents and warrants to the other party that: (i) it has the
authority to enter into and perform this Termination Agreement; (ii)
it has performed all actions and obtained all consents necessary to be
performed and obtained by it in respect hereof; (iii) the officer who
signed this Termination Agreement is a duly elected or appointed
officer of the party, authorized to act on behalf of such party in
respect hereof; (iv) it has not transferred or assigned (outright or
as collateral security) any or all of its interests or obligations in
respect of the Original Swap; and (v) no Event of Default or Potential
Event of Default with respect to it or any of its Specified Entities
has occurred and is continuing as of the date hereof or will have
occurred and be continuing as of the Effective Termination Date.
4. Governing Law. This Termination Agreement is governed by and shall be
construed in accordance with the laws of the State of New York without
reference to choice of law doctrine.
5. Counterparts. This Termination Agreement may be executed in
counterparts, each of which shall be deemed to be an original, and
signatures evidenced by facsimile transmission shall be deemed
effective as an original.
6. Complete Agreement. This Termination Agreement constitutes the entire
agreement and understanding of the parties in respect of the
termination of the Original Swap as of the Effective Date.
-57-
Please acknowledge receipt of this Termination Agreement and your acceptance of
the terms, stated herein by returning (i) a signed, facsimile copy hereof to
SBL-NY at facsimile number (212) 593-9522, and (ii) one originally executed copy
of the Termination Agreement which is being sent to you in duplicate via regular
mail.
Very truly yours,
The Sumitomo Bank, Limited,
New York Branch
By: /s/Suresh S. Tata
---------------------
Name: Suresh S. Tata
Title: Senior Vice President
ACCEPTED AND CONFIRMED:
Harrah's Operating Company, Inc.
By: /s/Charles L. Atwood
-----------------------
Name:
Title:
-58-
EXHIBIT A
CONFIRMATION
Date: October 22, 1992
To: Embassy Suites, Inc.
Carol Champion
1023 Cherry Road
Memphis, TN 38117
From: Mr. Tokuhiko Ieki
The Sumitomo Bank, Limited,
New York Branch
One World Trade Center
Suite 9651
New York, NY 10048
Telephone: 212-323-0346
Telefax: 212-524-0612
Re: USD 50,000,000.00 Swap Transaction, dated as of October 22, 1992
between The Sumitomo Bank, Limited, acting through its New York
Branch ("Party A") and Embassy Suites, Inc. ("Party B").
Sumitomo Bank, Limited, New York Branch Reference Number: 100513
The purpose of this letter agreement is to set forth the terms and conditions of
the Swap Transaction entered into between The Sumitomo Bank, Limited, New York
Branch and Embassy Suites, Inc. on the Trade Date specified below (the "Swap
Transaction"). This letter agreement constitutes a "Confirmation" as referred to
in the Interest Rate and Currency Exchange Agreement specified below. This
document supersedes all previous confirmations and amendments with respect to
the above referenced transaction.
The definitions and provisions contained in the 1991 ISDA Definitions (as
published by the International Swap Dealers Association, Inc.), without regard
to any revision or subsequent edition thereof, are incorporated into this
Confirmation. In the event of any inconsistency between those definitions and
provisions and this Confirmation, this Confirmation will govern.
1. ISDA AGREEMENT:
This Confirmation supplements, forms a part of, and is subject to, the Interest
Rate and Currency Exchange Agreement dated as of October 22, 1992 and the
accompanying schedule dated as of October 22, 1992 (the "Agreement"), between
The Sumitomo Bank, Limited, New York Branch and Embassy Suites, Inc.. All
provisions contained in the Agreement shall govern this Confirmation except as
expressly modified below.
-59-
2. TERMS OF SWAP TRANSACTION:
The terms of the particular Swap Transaction to which this Confirmation relates
are as follows:
Notional Amount: USD 50,000,000.00
Trade Date: October 22, 1992
Effective Date: October 26, 1992
Termination Date: October 15, 1997
FIXED AMOUNTS: (PARTY A)
Fixed Rate Payer: Sumitomo Bank, Limited,
New York Branch
Fixed Rate Payer Payment Dates: April 15, October 15, in
each year from and including
April 15, 1993 to and
including October 15, 1997;
subject to adjustment in
accordance with the
Modified Following Business
Day Convention with No
Adjustment for Period End
Dates
Fixed Rate: 6.13% (percent) per annum
Fixed Rate Day Count Fraction: 30/360
FLOATING AMOUNTS: (PARTY B)
Floating Rate Payer: Embassy Suites, Inc.
Floating Rate Payer Payment Dates: April 15, October 15, in each
year from and including April
15, 1993 to and including
October 15, 1997; subject to
adjustment in accordance with
the Modified Following
Business Day Convention
Floating Rate for Initial 3.5625% (percent) per annum
Calculation Period:
-60-
Floating Rate Option: USD-LIBOR-BBA
Designated Maturity: 6 Months
Spread: Inapplicable
Floating Rate Day Count Fraction: Actual/360
Reset Dates: First day of each Calculation
Period
Compounding: Inapplicable
Business Days For Payments By New York and London
Both Parties:
3. CREDIT SUPPORT DOCUMENTS Inapplicable
4. PAYMENT INSTRUCTIONS:
Payments to Sumitomo Bank, Limited, New York Branch of USD amounts:
Depository: Morgan Guaranty Trust Co.
of New York Branch
Address: New York, NY
In Favor Of: Sumitomo Bank, Limited
New York
Account No.: 631-28-256
Payments to Embassy Suites Inc. of USD amounts:
Depository: First Tennessee Bank
Address: Memphis, TN ABA 084000026
In Favor Of: Embassy Suites, Inc.
Account No.: 841900
Attention: Josh Hirsberg
Please confirm that the foregoing correctly sets forth the terms of the
agreement between you and us by executing this Confirmation and returning it to
the documentation contact above.
Yours Sincerely,
Sumitomo Bank, Limited, New York Branch
By: /s/Eiji Sumino
------------------------
-61-
Confirmed as of the date first written above:
Embassy Suites, Inc.
By: /s/William S. McCalmont
-------------------------
William S. McCalmont
Vice President and Treasurer
-62-
EX-4.2
Scotiabank
The Bank of Nova Scotia
International Banking Division
Derivative Products
44 King Street West, 14th Floor,
Toronto, Ontario, Canada M5H 1H1
DATE: May 28, 1997
TELECOPY NO: (901) 762-8998
NAME OF COMPANY: HARRAH'S OPERATING COMPANY INC.
RE: USD 100MM Interest Rate Swap Transaction
Unwind dated May 28, 1997
Our Ref: S08781 (Previously SW3372)
ATTENTION: Katie Weien
FROM: Kathryn J. Iozzo - Swap Documentation Officer
DERIVATIVE PRODUCTS
(416) 866-5415 FAX# 866-6865/4975
- ----------------------------------------------------------------
Notice of Confidentiality
This message is intended only for the use of the individual or entity to which
it is addressed and may contain information that is privileged, confidential and
exempt from disclosure. If you are not the intended recipient or the employee
responsible for delivering the message to the intended recipient, you are
notified that any dissemination, distribution or copying of this communication
is strictly prohibited. If you have received this communication in error, kindly
notify us immediately by telephone (collect if necessary), and return the
original message to us by mail or alternatively destroy this message.
Thank you
- ----------------------------------------------------------------
TOTAL NUMBER OF PAGES INCLUDING THIS COVERING PAGE: 1
COMMENTS:
This transaction was effected through Scotia Capital Markets (USA)
Inc., a U.S. Broker-dealer subsidiary of The Bank of Nova Scotia (BNS),
who acted as agent in the transaction.
-63-
This is to confirm that THE BANK OF NOVA SCOTIA, (the "Bank") did on or about
the October 22, 1992 enter into a Swap Transaction having a Notional Principal
Amount of USD 100,000,000.00 with HARRAH'S OPERATING COMPANY INC. whereby
HARRAH'S OPERATING COMPANY INC. would make Floating Payments to THE BANK OF NOVA
SCOTIA, in exchange for a series of Fixed Payments from THE BANK OF NOVA SCOTIA.
It is now the intention of both parties hereto to settle their respective
obligations under the Swap Transaction and to terminate the Swap Transaction
(Ref: S08781 - Previously SW3372) and to that end, it is agreed that in
consideration of a payment of USD 25,150.00 for value May 29, 1997 from THE BANK
OF NOVA SCOTIA to HARRAH'S OPERATING COMPANY INC., each party does hereby
discharge and release the other party from all of its obligations under the Swap
Transaction (Ref: S08781 - Previously SW3372). The Swap Transaction (Ref. S08781
- - Previously SW3372) shall be considered to be terminated as of May 28, 1997.
We request that HARRAH'S OPERATING COMPANY INC. confirm their agreement to the
foregoing by return fax or telex. Please send your confirmation to the
attention of Kathryn J. Iozzo - Swap Documentation Officer, Derivative
Products, Fax No: (416) 866-6865/4975,
Regards,
/s/Kathryn J. Iozzo
Kathryn J. Iozzo
Senior Assistant Manager HARRAH'S OPERATING COMPANY INC.
By: /s/Charles L. Atwood
/s/Ben Dunne -----------------------
Ben Dunne Name:
Senior Manager Title:
Derivative Products
-64-
EX-4.3
The Nippon Credit Bank, Ltd.
Los Angeles Agency
550 South Hope Street, Suite 2500
Los Angeles, CA 90071
Phone 215-243-5555
May 27, 1997
Ms. Katherine Weien
Director of Finance
Harrah's Entertainment, Inc.
1023 Cherry Road
Memphis, TN 38117-5423
Ref: Cancellation of $50,000,000 swap your receiving 6.14% and
paying float (6 month Libor), trade date 10/22/92, Maturity
date 10/15/97 (Ref IRS09002600001)
Dear Ms. Weien,
This is to inform you of the cancellation of our swap with you as of today. The
market value of your swap is $9,774.71. Payment will take place two business
days from today. Therefore, we will credit USD 9,774.71 to your account with
First Tennessee Bank N.A., Memphis on May 29, 1997.
Thank you for your cooperation regarding this matter. If you have any questions
and would like to discuss the cancellation, please contact me at 213-243-5561.
Sincerely,
/s/Carol S. Ito
Carol S. Ito
A.V.P. and Manager
Nippon Credit Bank, Ltd., Los Angeles
-65-
EX-4.4
CONSENT TO CREDIT AGREEMENTS
CONSENT TO CREDIT AGREEMENTS (this "Consent"), dated as of
April 11, 1997, among HARRAH'S ENTERTAINMENT, INC. ("Parent"), HARRAH'S
OPERATING COMPANY, INC. (the "Company"), MARINA ASSOCIATES ("Marina"), the
various lending institutions party to the Credit Agreements referred to below
(the "Banks"), BANKERS TRUST COMPANY, THE BANK OF NEW YORK, CIBC INC., CREDIT
LYONNAIS, ATLANTA AGENCY, WELLS FARGO BANK, N.A., THE LONG-TERM CREDIT BANK OF
JAPAN, LIMITED, NEW YORK BRANCH, NATIONSBANK, N.A. (SOUTH), SOCIETE GENERALE and
THE SUMITOMO BANK, LIMITED, NEW YORK BRANCH, as Agents (the "Agents"), and
BANKERS TRUST COMPANY, as Administrative Agent (the "Administrative Agent").
Unless otherwise defined herein, all capitalized terms used herein shall have
the respective meanings provided such terms in the 5-Year Credit Agreement or
the 364-Day Credit Agreement, as the case may be, referred to below.
W I T N E S S E T H :
WHEREAS, Parent, the Company, Marina, the Banks, the Agents
and the Administrative Agent are parties to an Amended and Restated Credit
Agreement, dated as of July 22, 1993 and amended and restated as of June 9, 1995
(as amended, modified or supplemented through the date hereof, the "5-Year
Credit Agreement");
WHEREAS, Parent, the Company, Marina, the Banks, the Agents
and the Administrative Agent are parties to a Credit Agreement, dated as of June
9, 1995 (as amended, modified or supplemented through the date hereof, the
"364-Day Credit Agreement," and together with the 5-Year Credit Agreement, the
"Credit Agreements"); and
WHEREAS, the parties hereto wish to consent to certain actions
to be taken under the Credit Agreements as herein provided;
NOW, THEREFORE, it is agreed:
1. Notwithstanding anything to the contrary contained in
Section 9.10 of the 5-Year Credit Agreement or in Section 8.10 of the 364-Day
Credit Agreement, the Banks hereby agree that the Company also may use the
proceeds of Loans incurred under each Credit Agreement to repurchase, redeem or
otherwise retire outstanding 10-7/8% Senior Subordinated Notes.
-66-
2. Notwithstanding anything to the contrary contained in
Section 9.04(xi)(v) of the 5-Year Credit Agreement or in Section 8.04(xi)(v) of
the 364-Day Credit Agreement, the Banks hereby agree that the Company also may
concurrently use the proceeds of any Additional Unsecured Senior Debt issued in
accordance with the terms of such Sections to repay any outstanding Loans the
proceeds of which were used to repurchase, redeem or otherwise retire
outstanding 10-7/8% Senior Subordinated Notes as permitted by Section 1 of this
Consent.
3. Notwithstanding anything to the contrary contained in the
definition of "Permitted Designated Indebtedness" appearing in Section 11.01 of
the 5-Year Credit Agreement and in Section 10.01 of the 364-Day Credit
Agreement, the Banks hereby agree that the proceeds of any Subordinated Debt
which are used to repay any outstanding Loans the proceeds of which were used to
repurchase, redeem or otherwise retire outstanding 10-7/8% Senior Subordinated
Notes as permitted by Section 1 of this Consent also shall not constitute
Permitted Designated Indebtedness.
4. The Banks hereby consent to, and direct and authorize the
Collateral Agent to effect, the release of all of the Collateral under all of
the Collateral Documents, and authorize the Collateral Agent to execute and
deliver such documentation (including UCC-3 termination statements and the like)
deemed necessary or desirable by it in connection therewith.
5. In order to induce the Banks to enter into this Consent,
Parent and each Borrower hereby represent and warrant that:
(x) as of the date hereof and as of the Consent Effective Date
(as hereinafter defined), the Company's Indebtedness is, and shall be,
rated at least BBB- Senior Implied by S&P or Baa3 Senior Implied by
Moody's;
(y) no Default or Event of Default exists on the Consent
Effective Date, both before and after giving effect to this Consent;
and
(z) all of the representations and warranties contained in
each Credit Agreement shall be true and correct in all material
respects on and as of the Consent Effective Date, both before and after
giving effect to this Consent, with the same effect as though such
representations and warranties had been made on and as of the Consent
Effective Date (it being understood that any representation or warranty
made as of a specified date shall be required to be true and correct in
all material respects only as of such specific date).
-67-
6. This Consent is limited as specified and shall not
constitute a modification, acceptance or waiver of any other provision of the
Credit Agreements or any other Credit Document.
7. This Consent may be executed in any number of counterparts
and by the different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A complete set of
counterparts shall be lodged with Parent, the Company and the Administrative
Agent.
8. This Consent and the rights and obligations of the parties
hereunder shall be construed in accordance with and governed by the law of
the State of New York.
9. This Consent shall become effective on the date (the
"Consent Effective Date") when Parent, the Borrowers, each other Credit Party,
the Collateral Agent and the Required Banks under, and as defined in, each
Credit Agreement shall have signed a counterpart hereof (whether the same or
different counterparts) and shall have delivered (including by way of
telecopier) the same to the Administrative Agent at the Notice Office.
10. From and after the Consent Effective Date, all references
in the Credit Agreements and the other Credit Documents to each Credit Agreement
shall be deemed to be references to each such Credit Agreement as modified
hereby.
* * *
IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Consent to be duly executed and delivered as of the date
first above written.
HARRAH'S ENTERTAINMENT, INC.
By /s/Charles L. Atwood
-------------------------
Title: Vice President
HARRAH'S OPERATING COMPANY, INC.
By /s/Charles L. Atwood
-------------------------
Title: Vice President
-68-
MARINA ASSOCIATES
By: HARRAH'S ATLANTIC CITY, INC.,
a general partner
By /s/Stephen H. Brammell
-------------------------
Title: Assistant Secretary
By: HARRAH'S NEW JERSEY, INC.,
a general partner
By /s/Stephen H. Brammell
-------------------------
Title: Assistant Secretary
HARRAH'S RENO HOLDING COMPANY, INC.
By /s/Michael N. Regan
-------------------------
Title: VP, Treasurer
HARRAH'S LAS VEGAS, INC.
By /s/Michael N. Regan
-------------------------
Title: Treasurer
HARRAH'S LAUGHLIN, INC.
By /s/Michael N. Regan
-------------------------
Title: Treasurer
HARRAH'S ATLANTIC CITY, INC.
By /s/Stephen H. Brammell
-------------------------
Title: Assistant Secretary
-69-
HARRAH'S NEW JERSEY, INC.
By /s/Stephen H. Brammell
-------------------------
Title: Assistant Secretary
BANKERS TRUST COMPANY,
Individually,
as Administrative Agent,
as Collateral Agent
and as an Agent
By /s/Mary Kay Coyle
-------------------------
Title:
THE BANK OF NEW YORK,
Individually and as an
Agent
By /s/Gregory L. Batson
-------------------------
Title: Vice President
CIBC INC., Individually and
as an Agent
By /s/Paul J. Chakmak
-------------------------
Title: Managing Director, CIBC
Wood Gundy Securities
Corp., AS AGENT
CREDIT LYONNAIS, ATLANTA AGENCY,
Individually and as an Agent
By /s/David M. Cawrse
-------------------------
Title: First Vice President
& Manager
-70-
CREDIT LYONNAIS CAYMAN ISLAND
BRANCH
By /s/David M. Cawrse
-------------------------
Title: Authorized Signature
THE LONG-TERM CREDIT BANK OF JAPAN,
LIMITED, NEW YORK BRANCH,
Individually and as an Agent
By /s/John J. Sullivan
-------------------------
Title: Joint General Manager
NATIONSBANK, N.A. (SOUTH),
Individually and as an Agent,
By /s/Kimberly R. Dupuy
-------------------------
Title: Vice President
SOCIETE GENERALE, Individually and
as an Agent
By /s/Donald L. Schubert
-------------------------
Title: Vice President
THE SUMITOMO BANK, LIMITED,
ATLANTA AGENCY, Individually
and as an Agent
By /s/Gary Franke
-------------------------
Title: VP
-71-
WELLS FARGO BANK, N.A.,
Individually and as Agent
By /s/Maureen Klippenstein
-------------------------
Title: V.P.
ABN AMRO BANK N.V., SAN FRANCISCO
BRANCH
By /s/L. T. Osborne
-------------------------
Title: Group Vice President
By /s/Joseph M. Vitale
-------------------------
Title: Portfolio Officer
BANK OF AMERICA NATIONAL TRUST
AND SAVING ASSOCIATION
By /s/Scott Faber
-------------------------
Title: Vice President
THE BOATMEN'S NATIONAL BANK
OF ST. LOUIS
By /s/Kimberly R. Dupuy
-------------------------
Title: VP
COMMERZBANK AG, LOS ANGELES BRANCH
By /s/W. Schmidbauer
-------------------------
Title: Vice President
By /s/Karla Wirth
-------------------------
Title: Asst. Treasurer
-72-
DEPOSIT GUARANTY NATIONAL BANK
By /s/Larry C. Ratzlaff
-------------------------
Title: Vice President
FIRST AMERICAN NATIONAL BANK
By /s/Elizabeth H. Vaughn
-------------------------
Title: Senior Vice President
FIRST NATIONAL BANK OF COMMERCE
By /s/Stephen M. Valdes
-------------------------
Title: Vice President
FLEET BANK, N.A.
By /s/John Cullinan
-------------------------
Title: SVP
GIROCREDIT BANK A.G. DER
SPARKASSEN, GRAND CAYMAN
ISLAND BRANCH
By /s/John Redding
-------------------------
Title:
By /s/Richard Stone
-------------------------
Title:
-73-
HIBERNIA NATIONAL BANK
By /s/S. John Castellano
-------------------------
Title: Vice President
THE INDUSTRIAL BANK OF JAPAN,
LIMITED
By /s/Kazuo Iida
-------------------------
Title: General Manager
THE MITSUBISHI TRUST & BANKING
CORP.
By /s/Patricia Lorete DeMola
-------------------------
Title: Senior Vice President
THE NIPPON CREDIT BANK, LTD.,
LOS ANGELES AGENCY
By /s/Jay Schwartz
-------------------------
Title: Vice President &
Manager
THE SANWA BANK, LIMITED,
ATLANTA AGENCY
By /s/Dennis S. Losin
-------------------------
Title: Vice President
-74-
SUNTRUST BANK, NASHVILLE, N.A.
By /s/Renee D. Drake
-------------------------
Title: Vice President
THE TOKAI BANK, LIMITED,
NEW YORK BRANCH
By /s/Kaoru Oda
-------------------------
Title: Assistant General
Manager
UNITED STATES NATIONAL BANK
OF OREGON
By /s/Dale Parshall
-------------------------
Title: Assistant Vice
President
WESTDEUTSCHE LANDESBANK
GIROZENTRALE, NEW YORK BRANCH
By /s/Ralph White
-------------------------
Title: Vice President
By /s/James Vineau
-------------------------
Title: Senior Analyst
-75-
EX-4.5
CONSENT
April 10, 1997
Reference is hereby made to the Credit Agreement, dated as of
June 9, 1995, among Harrah's Entertainment, Inc. ("Parent"), Harrah's Operating
Company, Inc. (the "Company"), Marina Associates ("Marina"), the lenders from
time to time party thereto (the "Banks"), Bankers Trust Company, The Bank of New
York, CIBC Inc., Credit Lyonnais, Atlanta Agency, Wells Fargo Bank, N.A., The
Long-Term Credit Bank of Japan, Limited, New York Branch, NationsBank, N.A.
(South), Societe Generale and The Sumitomo Bank, Limited, New York Branch, as
Agents (the "Agents"), and Bankers Trust Company, as Administrative Agent (the
"Administrative Agent") (as amended, modified or supplemented from time to time,
the "364-Day Credit Agreement"). Unless otherwise defined herein, capitalized
terms used herein shall have the respective meanings provided in the 364-Day
Credit Agreement.
Pursuant to Section 2.04(a) of the 364-Day Credit Agreement,
the Company has submitted to the Administrative Agent the attached written
request (and accompanied officer's certificate) to extend the Final Maturity
Date of the 364-Day Credit Agreement to May 27, 1998. In connection therewith,
each of the undersigned Banks hereby agrees to extend its Maturity Date (and the
Final Maturity Date) to May 27, 1998.
This Consent may be executed in any number of counterparts and
by the different parties hereto on separate counterparts, each of which
counterparts when executed shall be an original, but all of which shall together
constitute one and the same instrument. A complete set of counterparts shall be
lodged with Parent and the Administrative Agent.
IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Consent to be duly executed and delivered.
HARRAH'S ENTERTAINMENT, INC.
By /s/Charles L. Atwood
-------------------------
Title: Vice President
-76-
HARRAH'S OPERATING COMPANY, INC.
By /s/Charles L. Atwood
--------------------------
Title: Vice President
MARINA ASSOCIATES
By: HARRAH'S ATLANTIC CITY, INC.,
a general partner
By /s/Stephen H. Brammell
--------------------------
Title: Assistant Secretary
By: HARRAH'S NEW JERSEY, INC.,
a general partner
By /s/Stephen H. Brammell
--------------------------
Title: Assistant Secretary
BANKERS TRUST COMPANY,
Individually and as
Administrative Agent
and as an Agent
By /s/Mary Kay Coyle
--------------------------
Title:
THE BANK OF NEW YORK,
Individually and as an
Agent
By /s/Gregory L. Batson
--------------------------
Title: Vice President
-77-
CIBC INC., Individually and
as an Agent
By /s/Paul J. Chakmak
--------------------------
Title: Managing Director, CIBC
Wood Gundy Securities
Corp., AS AGENT
CREDIT LYONNAIS, ATLANTA AGENCY,
Individually and as an Agent
By /s/David M. Cawrse
--------------------------
Title: First Vice President
& Manager
CREDIT LYONNAIS CAYMAN ISLAND
BRANCH
By /s/David M. Cawrse
--------------------------
Title: Authorized Signature
WELLS FARGO BANK, N.A.,
Individually and as Agent
By /s/Maureen Klippenstein
--------------------------
Title: V.P.
THE LONG-TERM CREDIT BANK OF JAPAN,
LIMITED, NEW YORK BRANCH,
Individually and as an Agent
By /s/John J. Sullivan
--------------------------
Title: Joint General Manager
-78-
NATIONSBANK, N.A. (SOUTH),
Individually and as an Agent,
By /s/Kimberly R. Dupuy
--------------------------
Title: Vice President
SOCIETE GENERALE, Individually and
as an Agent
By /s/J. Blaine Shaum
------------------------------
Title: Regional Manager
THE SUMITOMO BANK, LIMITED,
ATLANTA AGENCY, Individually
and as an Agent
By /s/Masayuki Fukushima
--------------------------
Title: Joint General Manager
BANK OF AMERICA NATIONAL TRUST
AND SAVING ASSOCIATION
By /s/Scott Faber
--------------------------
Title: Vice President
THE BANK OF NOVA SCOTIA
By /s/A. S. Norsworthy
--------------------------
Title: Sr. Team Leader-
Loan Operations
-79-
GIROCREDIT BANK A.G. DER
SPARKASSEN, GRAND CAYMAN
ISLAND BRANCH
By /s/John Redding
--------------------------
Title:
By /s/Richard Stone
--------------------------
Title:
THE TOKAI BANK, LIMITED,
NEW YORK BRANCH
By /s/Stuart M. Schulman
--------------------------
Title: Deputy General Manager
THE BOATMEN'S NATIONAL BANK
OF ST. LOUIS
By /s/Kimberly R. Dupuy
--------------------------
Title: VP
FIRST AMERICAN NATIONAL BANK
By /s/Elizabeth H. Vaughn
--------------------------
Title: Senior Vice President
FIRST TENNESSEE BANK NATIONAL
ASSOCIATION
By /s/James G. Moore, Jr.
--------------------------
Title: Vice President
-80-
THE INDUSTRIAL BANK OF JAPAN,
LIMITED
By /s/Kazuo Iida
--------------------------
Title: General Manager
PNC BANK, NATIONAL ASSOCIATION
(success by merger to Midlantic
Bank, N.A.)
By /s/Denise D. Killen
--------------------------
Title: Vice President
THE SANWA BANK, LIMITED,
ATLANTA AGENCY
By /s/Dennis S. Losin
--------------------------
Title: Vice President
UNITED STATES NATIONAL BANK
OF OREGON
By /s/Dale Parshall
--------------------------
Title: Assistant Vice
President
DEPOSIT GUARANTY NATIONAL BANK
By /s/Larry C. Ratzlaff
--------------------------
Title: Senior Vice President
THE MITSUBISHI TRUST & BANKING
CORP.
By /s/Patricia Lorete DeMola
--------------------------
Title: Senior Vice President
-81-
WESTDEUTSCHE LANDESBANK
GIROZENTRALE, NEW YORK BRANCH
By /s/Ralph White
--------------------------
Title: Vice President
By /s/James Vineau
--------------------------
Title: Senior Analyst
ABN AMRO BANK N.V., SAN FRANCISCO
BRANCH
By /s/Jan-Paul Kranendonk
--------------------------
Title: Vice President
By /s/Joseph M. Vitale
--------------------------
Title: Portfolio Officer
SUNTRUST BANK, NASHVILLE, N.A.
By /s/Renee D. Drake
--------------------------
Title: Vice President
FIRST NATIONAL BANK OF COMMERCE
By /s/Louis Ballero
--------------------------
Title: Sr. Vice President
FLEET BANK N.A.
By /s/John Cullinan
--------------------------
Title: SVP
-82-
EX-4.6
Philip G. Satre Telephone
Chairman, President and 901/762-8600
Chief Executive Officer
HARRAH'S ENTERTAINMENT, INC.
The Premier Name In Casino Entertainment
July 23, 1997
To Our Stockholders:
On April 25, 1997, Harrah's Entertainment, Inc. held its Annual Meeting
of Stockholders. At the meeting, in addition to the election of three Class I
directors and the appointment of the Company's independent public accountants,
stockholders were asked to vote on a proposal sponsored by the HERE Union to
amend the Company's bylaws to eliminate the Company's Stockholder Rights Plan.
The proposal was opposed by the Board of Directors.
On behalf of the Board of Directors, I want to thank you for your
participation in the proxy process and advise you of the final voting results
from the 1997 stockholders meeting.
o All Class I Directors were elected by over 98% of votes cast.
o The appointment of Arthur Andersen LLP as the Company's independent
public accounts for the 1997 calendar year was ratified.
o The stockholder proposal to amend the bylaws to eliminate the
Stockholder Rights Plan failed to pass. It received the affirmative
vote of only 32.7% of outstanding shares rather than the affirmative
vote of 75% of outstanding shares as required by the Company's
Certificate of Incorporation.
As you know from the Company's proxy materials, the Board of Directors
opposed the stockholder proposal because the Board believes the Rights Plan
protects the interests of all stockholders and preserves the long-term value of
their investments in the Company, and because we believe the proposed bylaw
amendment was legally invalid under Delaware law.
I am taking this opportunity to enclose the current summary description
that outlines the principal features of the Stockholder Rights Plan. The Board
considers these Rights to be a valuable means of protecting both your right to
retain your equity investment in the Company and the full value of that
investment, while not foreclosing
-83-
a fair acquisition bid for the Company. The summary is for your information
only, and no action by stockholders is required at this time. The Rights will be
exercisable only if a person or group acquires 15% or more of the Company's
common stock or announces a tender offer for 15% or more of the common stock.
We believe the overwhelming vote of the stockholders to elect the
Company's directors reflects confidence in the Board of Directors to make
decisions regarding the Company's future, and we thank you for that support. Our
overriding objective is to build value for Harrah's stockholders.
Sincerely,
/s/Philip G. Satre
Philip G. Satre
Chairman, President &
Chief Executive Officer
-84-
As described in the Rights Agreement, Rights which are held by or have been
held by Acquiring Persons or Associates or Affiliates thereof (as defined in the
Rights Agreement) shall become null and void.
SUMMARY OF RIGHTS TO PURCHASE
SPECIAL SHARES
AS AMENDED THROUGH APRIL 25, 1997
On July 19, 1996 the Board of Directors of Harrah's
Entertainment, Inc. (the "Company") declared a dividend of one Right for each
share of common stock, $0.10 par value (the "Common Shares"), of the Company
outstanding at the close of business on October 5, 1996 (the "Record Date"). As
long as the Rights are attached to the Common Shares, the Company will issue one
Right (subject to adjustment) with each new Common Share so that all such shares
will have attached Rights. When exercisable, each Right will entitle the
registered holder to purchase from the Company one two-hundredth of a share of
Series A Special Stock (the "Special Shares") at a price of $130 per one
two-hundredth of a Special Share, subject to adjustment (the "Purchase Price").
The description and terms of the Rights are set forth in a Rights Agreement,
dated as of October 5, 1996, as the same may be amended from time to time (the
"Rights Agreement"), between the Company and The Bank of New York, as Rights
Agent (the "Rights Agent").
Until the earlier to occur of (i) ten (10) days following a
public announcement that a person or group of affiliated or associated persons
(an "Acquiring Person") has acquired, or obtained the right to acquire,
beneficial ownership of 15% or more of the Common Shares or (ii) ten (10) days
(or such later date as may be determined by action of at least a majority of
Continuing Directors (as defined below) prior to such time as any Person becomes
an Acquiring Person) following the commencement or announcement of an intention
to make a tender offer or exchange offer the consummation of which would result
in the beneficial ownership by a person or group of 15% or more of the Common
Shares (the earlier of (i) and (ii) being called the "Distribution Date,"
whether or not either such date occurs prior to the Record Date), the Rights
will be evidenced, with respect to any of the Common Share certificates
outstanding as of the Record Date, by such Common Share certificate together
with a copy of this Summary of Rights.
The Rights Agreement provides that, until the Distribution
Date, the Rights will be transferred with and only with the Common Shares. Until
the Distribution Date (or earlier redemption, exchange, termination or
expiration of the Rights), new Common Share certificates
-85-
issued after the close of business on the Record Date upon transfer or new
issuance of the Common Shares will contain a notation incorporating the Rights
Agreement by reference. Until the Distribution Date (or earlier redemption,
exchange, termination or expiration of the Rights), the surrender for transfer
of any certificates for Common Shares, with or without a copy of this Summary of
Rights, will also constitute the transfer of the Rights associated with the
Common Shares represented by such certificate. As soon as practicable following
the Distribution Date, separate certificates evidencing the Rights ("Right
Certificates") will be mailed to holders of record of the Common Shares as of
the close of business on the Distribution Date and, thereafter, such separate
Right Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date.
The Rights will expire on October 5, 2006, subject to the Company's right to
extend such date (the "Final Expiration Date"), unless earlier redeemed or
exchanged by the Company or terminated.
Each Special Share purchasable upon exercise of the Rights
will be entitled to a minimum preferential quarterly dividend payment of $1.00
per share but will be entitled to an aggregate dividend of 200 times the
dividend, if any, declared per Common Share. In the event of liquidation, the
holders of the Special Shares will be entitled to a minimum preferential
liquidation payment of $200 per share but will be entitled to an aggregate
payment of 200 times the payment made per Common Share. Each Special Share will
have 200 votes and will vote together with the Common Shares. Finally, in the
event of any merger, consolidation or other transaction in which Common Shares
are exchanged, each Special Share will be entitled to receive 200 times the
amount received per Common Share. These rights are protected by customary
antidilution provisions. Because of the nature of the Special Share's dividend,
liquidation and voting rights, the value of one two-hundredth of a Special Share
purchasable upon exercise of each Right should approximate the value of one
Common Share.
The Purchase Price payable, and the number of Special Shares
or other securities or property issuable, upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the event of
a stock dividend on, or a subdivision, combination or reclassification of the
Special Shares, (ii) upon the grant to holders of the Special Shares of certain
rights or warrants to subscribe for or purchase Special Shares or convertible
securities at less than the current market price of the Special Shares or (iii)
upon the distribution to holders of the Special Shares of evidences of
indebtedness, cash, securities or assets (excluding regular periodic cash
dividends at a rate not in excess of 125% of the rate of the last regular
periodic cash dividend theretofore paid or, in case regular
-86-
periodic cash dividends have not theretofore been paid, at a rate not in excess
of 50% of the average net income per share of the Company for the four quarters
ended immediately prior to the payment of such dividend, or dividends payable in
Special Shares (which dividends will be subject to the adjustment described in
clause (i) above)) or of subscription rights or warrants (other than those
referred to above).
In the event that a Person becomes an Acquiring Person (except
pursuant to certain cash offers for all outstanding Common Shares approved by
the Board) or if the Company were the surviving corporation in a merger with an
Acquiring Person or any affiliate or associate of an Acquiring Person and the
Common Shares were not changed or exchanged, each holder of a Right, other than
Rights that are or were acquired or beneficially owned by the 15% stockholder
(which Rights will thereafter be void), will thereafter have the right to
receive upon exercise that number of Common Shares (or, in certain
circumstances, cash, property or other securities of the Company) having a
market value of two times the then current Purchase Price of the Right. With
certain exceptions, in the event that (i) the Company is acquired in a merger or
other business combination transaction in which the Company is not the surviving
corporation or its Common Shares are changed or exchanged (other than a merger
which follows certain cash offers for all outstanding Common Shares approved by
the Board) or (ii) more than 50% of the Company's assets or earning power is
sold, proper provision shall be made so that each holder of a Right (except
Rights which previously have been voided as set forth above) shall thereafter
have the right to receive, upon the exercise thereof at the then current
Purchase Price of the Right, that number of shares of common stock of the
acquiring company which at the time of such transaction would have a market
value of two times the then current Purchase Price of the Right.
At any time after a Person becomes an Acquiring Person and
prior to the acquisition by such Acquiring Person of 50% or more of the
outstanding Common Shares, the Board of Directors may cause the Company to
acquire the Rights (other than Rights owned by an Acquiring Person which have
become void), in whole or in part, in exchange for that number of Common Shares
having an aggregate value equal to the Spread (the excess of the value of the
Common Shares issuable upon exercise of a Right after a Person becomes an
Acquiring Person over the Purchase Price) per Right (subject to adjustment).
No adjustment in the Purchase Price will be required until
cumulative adjustments require an adjustment of at least 1% in such Purchase
Price. No fractional shares will be issued and in lieu thereof, a payment in
cash will be made based on the market price of the Special Shares on the last
trading date prior to the date of exercise.
-87-
The Rights may be redeemed in whole, but not in part, at a
price of $0.01 per Right (the "Redemption Price") by the Board of Directors at
any time prior to the earlier of (i) the first date of public announcement that
a Person has become an Acquiring Person or (ii) the Final Expiration Date. In
the event that, pursuant to the last sentence of Section 1.1 of the Rights
Agreement, the Board of Directors determines that a Person has become an
Acquiring Person inadvertently, and such Person divests Common Shares in
accordance with such sentence, then the Company's right of redemption shall be
deemed to have not expired as a result of such inadvertent acquisition.
Immediately upon the action of the Board of Directors of the Company electing to
redeem the Rights, the Company shall make an announcement thereof, and upon such
election, the right to exercise the Rights will terminate and the only right of
the holders of Rights will be to receive the Redemption Price.
The term "Continuing Directors" means any member of the Board
of Directors of the Company who was a member of the Board prior to the time that
any Person becomes an Acquiring Person, and any person who is subsequently
elected to the Board if such person is recommended or approved by a majority of
the Continuing Directors. Continuing Directors do not include an Acquiring
Person, or an affiliate or associate of an Acquiring Person, or any
representative of the foregoing.
Until a Right is exercised, the holder thereof, as such, will
have no rights as a stockholder of the Company beyond those as an existing
stockholder, including, without limitation, the right to vote or to receive
dividends.
Any of the provisions of the Rights Agreement may be amended
by the Board of Directors of the Company prior to the Distribution Date. After
the Distribution Date, the Company and the Rights Agent shall, if the Company so
directs, amend or supplement the Rights Agreement without the approval of any
holders of Right Certificates to cure any ambiguity, to correct or supplement
any provision contained therein which may be defective or inconsistent with any
other provisions therein, to shorten or lengthen any time period under the
Rights Agreement (so long as, under certain circumstances, a majority of
Continuing Directors approve such shortening or lengthening) or, so long as the
interests of the holders of Right Certificates (other than an Acquiring Person
or an affiliate or associate of an Acquiring Person) are not adversely affected
thereby, to make any other provisions in regard to matters or questions arising
thereunder which the Company and the Rights Agent may deem necessary or
desirable, including but not limited to extending the Final Expiration Date. The
Company may at any time prior to such time as any Person becomes an Acquiring
Person amend the Rights Agreement to lower the thresholds
-88-
described above to not less than the greater of (i) any percentage greater than
the largest percentage of the outstanding Common Shares then known by the
Company to be beneficially owned by any person or group of affiliated or
associated persons and (ii) 10%.
A copy of the Rights Agreement has been filed with the
Securities and Exchange Commission as an Exhibit to a Registration Statement on
Form 8-A. A copy of the Rights Agreement is available free of charge from the
Company. This summary description of the Rights does not purport to be complete
and is qualified in its entirety by reference to the Rights Agreement, which is
incorporated herein by reference.
-89-
EX-10.1
HARRAH'S ENTERTAINMENT, INC.
February 21, 1997
Mr. Thomas J. Carr, Jr.
Harrah's Entertainment, Inc.
1023 Cherry Road
Memphis, Tennessee 38117
Re: Severance Agreement
Dear Mr. Carr:
Harrah's Entertainment, Inc. (the "Company") considers it essential to
the best interest of its stockholders to foster the continuous employment of key
management personnel. In this connection, the Board of Directors of the Company
(the "Board") recognizes that, as is the case with many publicly held
corporations, the possibility of a change in control may exist and that such
possibility, and the uncertainty and questions which it may raise among
management, may result in the departure or distraction of management personnel
to the detriment of the Company and its stockholders.
The Board has determined that appropriate steps should be taken to
reinforce and encourage the continued attention and dedication of members of the
Company's management, including yourself, to their assigned duties without
distraction in the face of potentially disturbing circumstances arising from the
possibility of a change in control of the Company, although no such change is
now contemplated.
In order to induce you to remain in the employ of the Company and in
consideration of your agreements set forth in Subsection 2(b) hereof, the
Company agrees that you shall receive the severance benefits set forth in this
letter agreement ("this Agreement") in the event your employment with the
Company terminates subsequent to a "Change in Control of the Company" (as
defined in Section 2 hereof) under the circumstances described below.
1. Term of Agreement. This Agreement shall commence on February 21,
1997 and shall continue in effect through December 31, 1997; provided, however,
that commencing on January 1, 1998 and each January 1 thereafter, the term of
this Agreement shall automatically be extended for one
-90-
additional year unless, not later than September 30 of the preceding year, the
Company shall have given notice that it does not wish to extend this Agreement;
provided, further, if a Change in Control of the Company shall have occurred
during the original or extended term of this Agreement, this Agreement shall
automatically continue in effect for a period of twenty-four months beyond the
month in which such Change in Control occurred.
2. Change in Control.
(a) No benefit shall be payable to you hereunder unless there shall
have been a Change in Control of the Company, as set forth below. For purposes
of this Agreement, a "Change in Control of the Company" shall be deemed to have
occurred, subject to subparagraph (iv) hereof, if any of the events in
subparagraphs (i), (ii) or (iii) occur:
(i) Any "person" (as such term is used in Section 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), other than an employee benefit plan of the Company, or a
trustee or other fiduciary holding securities under an employee benefit
plan of the Company, is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of 25%
or more of the Company's then outstanding voting securities carrying
the right to vote in elections of persons to the Board, regardless of
comparative voting power of such voting securities, and regardless of
whether or not the Board shall have approved such Change in Control; or
(ii) During any period of two consecutive years (not
including any period prior to the execution of this Agreement),
individuals who at the beginning of such period constitute the Board
and any new director (other than a director designated by a person who
shall have entered into an agreement with the Company to effect a
transaction described in clauses (i) or (iii) of this Subsection) whose
election by the Board or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the
beginning of the period or whose election or nomination for election
was previously so approved, cease for any reason to constitute a
majority thereof; or
(iii) The holders of securities of the Company entitled to
vote thereon approve the following:
-91-
(A) A merger or consolidation of the Company with any
other corporation regardless of which entity is the surviving
company, other than a merger or consolidation which would
result in the voting securities of the Company carrying the
right to vote in elections of persons to the Board outstanding
immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting
securities of the surviving entity) at least 80% of the
Company's then outstanding voting securities carrying the
right to vote in elections of persons to the Board, or such
securities of such surviving entity outstanding immediately
after such merger or consolidation, or
(B) A plan of complete liquidation of the Company or
an agreement for the sale or disposition by the Company of all
or substantially all of the Company's assets.
(iv) Notwithstanding the definition of a "Change in
Control" of the Company as set forth in this Section 2(a), the Human
Resources Committee of the Board (the "Committee") shall have full and
final authority, which shall be exercised in its discretion, to
determine conclusively whether a Change in Control of the Company has
occurred, and the date of the occurrence of such Change in Control and
any incidental matters relating thereto, with respect to a transaction
or series of transactions which have resulted or will result in a
substantial portion of the assets or business of the Company (as
determined immediately prior to the transaction or series of
transactions by the Committee in its sole discretion which
determination shall be final and conclusive) being held by a
corporation at least 80% of whose voting securities are held,
immediately following such transaction or series of transactions, by
holders of the voting securities of the Company (determined immediately
prior to such transaction or series of transactions). The Committee may
exercise such discretionary authority without regard to whether one or
more of the transactions in such series of transactions would otherwise
constitute a Change in Control of the Company under the definition set
forth in this Section 2(a).
(b) For purposes of this Agreement, a "Potential Change in Control of
the Company" shall be deemed to have occurred if the following occur:
(i) The Company enters into an agreement or letter of intent,
the consummation of which would result in the occurrence of a Change
in Control of the Company;
-92-
(ii) Any person (including the Company) publicly announces an
intention to take or to consider taking actions which if consummated
would constitute a Change in Control of the Company;
(iii) Any person, other than an employee benefit plan of the
Company, or a trustee or other fiduciary holding securities under an
employee benefit plan of the Company, who is or becomes the beneficial
owner, directly or indirectly, of securities of the Company
representing 9.5% or more of the Company's then outstanding voting
securities carrying the right to vote in elections of persons to the
Board increases his beneficial ownership of such securities by 5% or
more over the percentage so owned by such person on the date hereof; or
(iv) The Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control of the
Company has occurred.
You agree that, subject to the terms and conditions of this Agreement,
in the event of a Potential Change in Control of the Company, you will remain in
the employ of the Company (or the subsidiary thereof by which you are employed
at the date such Potential Change in Control occurs) until the earliest of (x) a
date which is six months from the occurrence of such Potential Change in Control
of the Company, (y) the termination by you of your employment by reasons of
Disability or Retirement (at your normal retirement age), as defined in
Subsection 3(a), or (z) the occurrence of a Change in Control of the Company.
(c) Good Reason. For purposes of this Agreement, "Good Reason" shall
mean, without your express written consent, the occurrence after a Change in
Control of the Company of any of the following circumstances unless, in the case
of paragraphs (i), (v), (vi), (vii) or (viii), such circumstances are fully
corrected prior to the Date of Termination specified in the Notice of
Termination, as defined in Subsections 3(e) and 3(d), respectively, given in
respect thereof:
(i) The assignment to you of any duties inconsistent with your
status as an executive officer of the Company or a substantial adverse
alteration in the nature or status of your responsibilities from those
in effect immediately prior to the Change in Control of the Company;
(ii) A reduction by the Company in your annual base salary as
in effect on the date hereof or as the same may be increased from time
to time except for across-the-board salary reductions similarly
affecting all executives of the Company and all executives of any
person in control of the Company;
-93-
(iii) The relocation of the Company's principal executive
offices where you are working immediately prior to the Change in
Control of the Company to a location more than 50 miles from the
location of such offices immediately prior to the Change in Control of
the Company or the Company's requiring you to be based anywhere other
than the location of the Company's principal executive offices where
you were working immediately prior to the Change in Control of the
Company except for required travel on the Company's business to an
extent substantially consistent with your present business travel
obligations;
(iv) The failure by the Company, without your consent, to pay
to you any portion of your current compensation except pursuant to an
across-the-board compensation deferral similarly affecting all
executives of the Company and all executives of any person in control
of the Company, or to pay to you any portion of an installment of
deferred compensation under any deferred compensation program of the
Company, within thirty days of the date such compensation is due;
(v) The failure by the Company to continue in effect any
compensation plan in which you are participating immediately prior to
the Change in Control of the Company which is material to your total
compensation, including but not limited to, the Company's Bonus Plan,
Executive Deferred Compensation Plan, Restricted Stock Plan, or any
substitute plans adopted prior to the Change in Control, unless an
equitable arrangement (embodied in an ongoing substitute or alternative
plan) has been made with respect to such plan, or the failure by the
Company to continue your participation therein (or in such substitute
or alternative plan) on a basis not materially less favorable, both in
terms of the amount of benefits provided and the level of your
participation relative to other participants, as existed immediately
prior to the Change in Control of the Company;
(vi) The failure by the Company to continue to provide you
with benefits substantially similar to those enjoyed by you under any
of the Company's pension, savings and retirement plan, life insurance,
medical, health and accident, or disability plans in which you were
participating at the time of the Change in Control of the Company, the
taking of any action by the Company which would directly or indirectly
materially reduce any of such benefits or deprive you of any material
fringe benefit enjoyed by you at the time of the Change in Control of
the Company, or the failure by the Company to provide you with the
number of paid vacation days to which you are entitled on the basis of
years of service with the Company in accordance with the Company's
normal vacation policy in effect at the time of the Change in Control
of the Company;
-94-
(vii) The failure of the Company to obtain a satisfactory
agreement from any successor to assume and agree to perform this
Agreement, as contemplated in Section 5 hereof; or
(viii) Any purported termination of your employment by the
Company which is not effected pursuant to a Notice of Termination
satisfying the requirements of Subsection 3(d) hereof and the
requirements of Subsection 3(b) above; for purposes of this Agreement,
no such purported termination shall be effective.
Your right to terminate your employment pursuant to this Agreement for
Good Reason shall not be affected by your incapacity due to physical or mental
illness. Your continued employment shall not constitute consent to, or a waiver
of rights with respect to, any circumstance constituting Good Reason hereunder.
3. Termination Following Change in Control. If any of the events
described in Subsection 2(a) hereof constituting a Change in Control of the
Company shall have occurred, you shall be entitled to the benefits provided in
Subsection 4(c) hereof upon the subsequent termination of your employment if
such termination is (y) by the Company other than for Cause, or (z) by you for
Good Reason, or by your Voluntary Termination as provided in Subsection 3(c)(ii)
hereof.
(a) Disability; Retirement. If, as a result of your incapacity due to
physical or mental illness, you shall have been absent from the full-time
performance of your duties with the Company for six consecutive months, and
within thirty days after written notice of termination is given you shall not
have returned to the full-time performance of your duties, your employment may
be terminated for "Disability". Termination by the Company or you of your
employment based on "Retirement" shall mean termination at age 65 (or later)
with ten years of service or retirement in accordance with any retirement
contract between the Company and you.
(b) Cause. Termination by the Company of your employment for "Cause"
shall mean termination upon your engaging in willful and continued misconduct,
or your willful and continued failure to substantially perform your duties with
the Company (other than due to physical or mental illness), if such failure or
misconduct is materially damaging or materially detrimental to the business and
operations of the Company, provided that you shall have received written notice
of such failure or misconduct and shall have continued to engage in such failure
or misconduct after 30 days following receipt of such notice from the Board,
which notice specifically identifies the manner in which the Board believes that
you
-95-
have engaged in such failure or misconduct. For purposes of this Subsection, no
act, or failure to act, on your part shall be deemed "willful" unless done, or
omitted to be done, by you not in good faith and without reasonable belief that
your action or omission was in the best interest of the Company. Notwithstanding
the foregoing, you shall not be deemed to have been terminated for Cause unless
and until there shall have been delivered to you a copy of a resolution duly
adopted by the affirmative vote of not less than three-quarters of the entire
membership of the Board at a meeting of the Board called and held for such
purpose (after reasonable notice to you and an opportunity for you, together
with your counsel, to be heard before the Board), finding that in the good faith
opinion of the Board you were guilty of failure to substantially perform your
duties or of misconduct in accordance with the first sentence of this
Subsection, and of continuing such failure to substantially perform your duties
or misconduct as aforesaid after notice from the Board, and specifying the
particulars thereof in detail.
(c) Voluntary Resignation. After a Change in Control of the Company and
for purposes of receiving the benefits provided in Subsection 4(c) hereof, you
shall be entitled to terminate your employment by voluntary resignation given at
any time during the two years following the occurrence of a Change in Control of
the Company hereunder, provided such resignation is (i) by you for Good Reason
or (ii) by you voluntarily without Good Reason if such voluntary termination
occurs by written notice given by you to the Company during the thirty days
immediately following the one year anniversary of the Change in Control (your
"Voluntary Termination"), provided, however, for purposes of this Subsection
3(c)(ii) only, the language "25% or more" in Subsection 2(a)(i) hereof is
changed to "a majority". Such resignation shall not be deemed a breach of any
employment contract between you and the Company.
(d) Notice of Termination. Any purported termination of your employment
by the Company or by you shall be communicated by written Notice of Termination
to the other party hereto in accordance with Section 6 hereof. For purposes of
this Agreement, a "Notice of Termination" shall mean a notice which shall
indicate the specific termination provision in this Agreement relied upon and
shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of your employment under the provision so
indicated.
(e) Date of Termination, Etc. "Date of Termination" shall mean:
-96-
(i) If your employment is terminated for Disability, thirty
days after Notice of Termination is given (provided that you shall not
have returned to the full-time performance of your duties during such
thirty day period), and
(ii) If your employment is terminated pursuant to Subsection
(b) or (c) above or for any other reason (other than Disability), the
date specified in the Notice of Termination (which, in the case of a
termination pursuant to Subsection (b) above shall not be less than
thirty days, and in the case of a termination pursuant to Subsection
(c) above shall not be less than fifteen nor more than sixty days
(thirty days in case of your Voluntary Termination), respectively, from
the date such Notice of Termination is given);
provided that if within fifteen days after any Notice of Termination is given,
or, if later, prior to the Date of Termination (as determined without regard to
this provision), the party receiving such Notice of Termination notifies the
other party that a dispute exists concerning the termination, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent jurisdiction (which
is not appealable or with respect to which the time for appeal therefrom has
expired and no appeal has been perfected); provided further that the Date of
Termination shall be extended by a notice of dispute only if such notice is
given in good faith and the party giving such notice pursues the resolution of
such dispute with reasonable diligence. Notwithstanding the pendency of any such
dispute, the Company will continue to pay you your full compensation in effect
when the notice giving rise to the dispute was given (including, but not limited
to, base salary) and continue you as a participant in all compensation, bonus,
benefit and insurance plans in which you were participating when the notice
giving rise to the dispute was given, until the dispute is finally resolved in
accordance with this Subsection. Amounts paid under this Subsection are in
addition to all other amounts due under this Agreement and shall not be offset
against or reduce any other amounts due under this Agreement.
4. Compensation Upon Termination Following a Change of Control. Following
a Change in Control of the Company, as defined in Subsection 2(a),
upon termination of your employment, you shall be entitled to the following
benefits:
(a) Deleted.
-97-
(b) If your employment shall be terminated by the Company for Cause,
the Company shall pay you your full base salary through the Date of Termination
at the rate in effect at the time Notice of Termination is given, plus all other
amounts to which you are entitled under any compensation plan of the Company at
the time such payments are due, and the Company shall have no further
obligations to you under this Agreement.
(c) If your employment by the Company shall be terminated (y) by the
Company other than for Cause or (z) by you for Good Reason, or by your Voluntary
Termination as provided in Subsection 3(c)(ii), then you shall be entitled to
the benefits provided below:
(i) The Company shall pay you your full base salary through
the Date of Termination at the rate in effect at the time Notice of
Termination is given, plus all other amounts to which you are entitled
under any compensation or benefit plan of the Company, at the time such
payments are due;
(ii) In lieu of any further salary payments to you for periods
subsequent to the Date of Termination, the Company shall pay as
severance pay to you a lump sum severance payment (the "Severance
Payment") equal to 2.99 times the average of the Annual Compensation
(as defined below) which was payable to you by the Company or any
corporation affiliated with the Company within the meaning of Section
1504 of the Internal Revenue Code of 1986, as amended (the "Code"), for
the three highest calendar years in terms of Annual Compensation during
the five calendar years preceding the calendar year in which the Change
in Control occurred. If you were not employed by the Company or its
affiliates during the entire five calendar years preceding the calendar
year in which the Change in Control occurred, then such average shall
be an average of the three highest years in terms of Annual
Compensation during the complete calendar years (if any) and partial
calendar year (if any) during which you were so employed provided that
the amount for any such partial calendar year shall be an annualized
amount based on the amount of Annual Compensation paid to you during
the partial calendar year. If you were not employed by the Company or
its affiliates for three complete or partial calendar years, the amount
will be an average of your Annual Compensation during the complete
calendar year(s) (if any) and partial calendar year(s) (if any)
(annualized) you were so employed. If you were not employed by the
Company or its affiliates during such preceding calendar year, then
such average shall be an annualized amount based on the amount of
Annual Compensation paid to you during the calendar year in which the
Change of Control occurred. Annual
-98-
Compensation is your base salary and your annual bonus under the Annual
Management Bonus Plan of the Company that was payable to you by the
Company or any of its affiliates during a calendar year determined
without any reduction for any deferrals of such salary or such bonus
under any deferred compensation plan (qualified or unqualified) and
without any reduction for any salary reductions used for making
contributions to any group insurance plan of the Company or its
affiliates.
(iii) The Company shall also pay to you the amounts
of any compensation or awards payable to you or due to you in respect
of any period preceding the Date of Termination under any incentive
compensation plan of the Company (including, without limitation, the
Company's Restricted Stock Plan and Stock Option Plan (the "Option
Plan") and under any agreements with you in connection therewith, and
shall make any other payments and take any other actions provided for
in such plans and agreements.
(iv) In lieu of shares of common stock of the Company
("Company Shares") issuable upon exercise of outstanding options, if
any ("Options") granted to you under the Option Plan (which Options
shall be cancelled upon the making of the payment referred to below),
you shall receive an amount in cash equal to the product of (y) the
excess of, the higher of the closing price of Company Shares as
reported on the New York Stock Exchange on or nearest the Date of
Termination (or, if not listed on such exchange, on a nationally
recognized exchange or quotation system on which trading volume in
Company Shares is highest) or the highest per share price for Company
Shares actually paid in connection with any change in control of the
Company, over the per share exercise price of each Option held by you
(whether or not then fully exercisable), times (z) the number of
Company Shares covered by each such option.
(v) The Company shall also pay to you all legal fees and
expenses incurred by you as a result of such termination (including all
such fees and expenses, if any, incurred in contesting or disputing any
such termination or in seeking to obtain or enforce any right or
benefit provided by this Agreement or in connection with any tax audit
or proceeding to the extent attributable to the application of Section
4999 of the Code to any payment or benefit provided hereunder).
-99-
(vi) In the event that you become entitled to the
payments (the "Severance Payments") provided under paragraphs (ii),
(iii), and (iv), above (and Subsections (d) and (e), below), and if any
of the Severance Payments will be subject to the tax (the "Excise Tax")
imposed by Section 4999 of the Code, the Company shall pay to you at
the time specified in paragraph (vii), below, an additional amount (the
"Gross-Up Payment") such that the net amount retained by you, after
deduction of any Excise Tax on the Severance Payments and any federal
(and state and local) income tax and Excise Tax upon the payment
provided for by this paragraph, shall be equal to the amount of the
Severance Payments. For purposes of determining whether any of the
Severance Payments will be subject to the Excise Tax and the amount of
such Excise Tax the following will apply:
(A) Any other payments or benefits received or to be
received by you in connection with a Change in Control of the
Company or your termination of employment (whether pursuant to
the terms of this Agreement or any other plan, arrangement or
agreement with the Company, any person whose actions result in
a Change in Control of the Company or any person affiliated
with the Company or such person) shall be treated as
"parachute payments" within the meaning of Section 280G(b)(2)
of the Code, and all "excess parachute payments" within the
meaning of Section 280G(b)(1) shall be treated as subject to
the Excise Tax, unless in the opinion of tax counsel selected
by the Company's independent auditors and acceptable to you
such other payments or benefits (in whole or in part) do not
constitute parachute payments, or such excess parachute
payments (in whole or in part) represent reasonable
compensation for services actually rendered within the meaning
of Section 280G(b)(4) of the Code in excess of the base amount
within the meaning of Section 280G(b)(3) of the Code, or are
otherwise not subject to the Excise Tax;
(B) The amount of the Severance Payments which shall
be treated as subject to the Excise Tax shall be equal to the
lesser of (y) the total amount of the Severance Payments or
(z) the amount of excess parachute payments within the meaning
of Section 280G(b)(1) (after applying clause (A), above); and
(C) The value of any non-cash benefits or any
deferred payment or benefit shall be determined by the
Company's independent auditors in accordance with proposed,
temporary or final regulations under Sections 280G(d)(3) and
(4) of the Code or, in the absence of such regulations, in
accordance with the
-100-
principles of Section 280G(d)(3) and (4) of the Code. For
purposes of determining the amount of the Gross-Up Payment,
you shall be deemed to pay Federal income taxes at the highest
marginal rate of federal income taxation in the calendar year
in which the Gross-Up Payment is to be made and state and
local income taxes at the highest marginal rate of taxation in
the state and locality of your residence on the Date of
Termination, net of the maximum reduction in Federal income
taxes which could be obtained from deduction of such state and
local taxes. In the event that the amount of Excise Tax
attributable to Severance Payments is subsequently determined
to be less than the amount taken into account hereunder at the
time of termination of your employment, you shall repay to the
Company at the time that the amount of such reduction in
Excise Tax is finally determined the portion of the Gross-Up
Payment attributable to such reduction (plus the portion of
the Gross-Up Payment attributable to the Excise Tax and
Federal (and state and local) income tax imposed on the
Gross-Up Payment being repaid by you if such repayment results
in a reduction in Excise Tax and/or a Federal (and state and
local) income tax deduction) plus interest on the amount of
such repayment at the rate provided in Section 1274(b)(2)(B)
of the Code. In the event that the Excise Tax attributable to
Severance Payments is determined to exceed the amount taken
into account hereunder at the time of the termination of your
employment (including by reason of any payment the existence
or amount of which cannot be determined at the time of the
Gross-Up Payment), the Company shall make an additional
gross-up payment in respect of such excess (plus any interest
payable with respect to such excess) at the time that the
amount of such excess is finally determined.
(vii) The payments provided for in paragraphs (ii),
(iii), (iv) and (vi) above, shall be made not later than the fifth day
following the Date of Termination, provided, however, that if the
amounts of such payments cannot be finally determined on or before such
day, the Company shall pay to you on such day an estimate, as
determined in good faith by the Company, of the minimum amount of such
payments and shall pay the remainder of such payments (together with
interest at the rate provided in Section 1274(b)(2)(B) of the Code) as
soon as the amount thereof can be determined but in no event later than
the thirtieth day after the Date of Termination. In the event that the
amount of the estimated payments exceeds the amount
-101-
subsequently determined to have been due, such excess shall constitute
a loan by the Company to you payable on the fifth day after demand by
the Company (together with interest at the rate provided in Section
1274(b)(2)(B) of the Code).
(d) If your employment shall be terminated (y) by the Company other
than for Cause, or (z) by you voluntarily for Good Reason or by your Voluntary
Termination, then for a twenty-four month period after such termination, the
Company shall arrange to provide you with life, disability, accident and health
insurance benefits substantially similar to those which you are receiving
immediately prior to the Notice of Termination. Benefits otherwise receivable by
you pursuant to this Subsection 4(d) shall be reduced to the extent comparable
benefits are actually received by you during the twenty-four month period
following your termination, and any such benefits actually received by you shall
be reported to the Company.
(e) In the event a Change in Control of the Company occurs after you
and the Company have entered into any retirement agreement including an
agreement providing for early retirement, then the present value, computed using
a discount rate of 8% per annum, of the total amount of all unpaid deferred
payments as payable to you in accordance with the payment schedule that you
elected when the deferral was agreed to and using the plan interest rate
applicable to your situation, or other payments payable or to become payable to
you or your estate or beneficiary under such retirement agreement (other than
payments payable pursuant to a plan qualified under Section 401(a) of the
Internal Revenue Code) including, without limitation, any unpaid deferred
payments under the Company's Executive Deferred Compensation Plan and the
Company's other deferred compensation plans shall be paid to you (or your estate
or beneficiary if applicable) in cash within five business days after the
occurrence of the Change in Control of the Company. If you and the Company or
its affiliates have executed a retirement agreement and if the Change in Control
of the Company occurs before the effective date of your retirement, then you
shall receive the Severance Payment payable under Subsection 4(c)(ii) herein in
addition to the present value of your unpaid deferred retirement payments and
other payments under the retirement agreement as aforesaid. All other benefits
to which you or your estate or any beneficiary are entitled under such
retirement agreement shall continue in effect notwithstanding the Change in
Control of the Company. This Subsection 4(e) shall survive your retirement.
(f) Notwithstanding that a Change in Control shall not have yet
occurred, if you so elect, by written notice to the Company given at any time
after the date hereof and prior to the time such amounts are otherwise payable
to you:
-102-
(i) The Company shall deposit with an escrow agent, pursuant
to an escrow agreement between the Company and such escrow agent, a sum
of money, or other property permitted by such escrow agreement,
sufficient in the opinion of the Company's management to fund payment
of the following amounts to you, as such amounts become payable:
(A) Amounts payable, or to become payable, to you or
to your beneficiaries or your estate under the Company's
Executive Deferred Compensation Plan and under any agreements
related thereto in existence at the time of your election to
make the deposit into escrow.
(B) Amounts payable, or to become payable, to you or
to your beneficiaries or your estate by reason of your
deferral of payments payable to you prior to the date of your
election to make the deposit into escrow under any other
deferred compensation agreements between you and the Company
in existence at the time of your election to make the deposit
into escrow, including but not limited to deferred
compensation agreements relating to the deferral of salary or
bonuses.
(C) Amounts payable, or to become payable, to you or
to your beneficiaries or your estate under any agreement
relating to your retirement from the Company (including
payments described under Subsection 4(e) above) which
agreement is in existence at the time of your election to make
the deposit into escrow, other than amounts payable by a plan
qualified under Section 401(a) of the Code.
(D) Subject to the approval of the Committee, amounts
then due and payable to you, but not yet paid, under any other
benefit plan or incentive compensation plan of the Company
(whether such amounts are stock or cash) other than amounts
payable to you under a plan qualified under Section 401(a) of
the Code.
(ii) Upon the occurrence of a Potential Change of Control, the
Company shall deposit with an escrow agent (which shall be the same
escrow agent, if one exists, acting pursuant to clause (i) of this
Subsection 4(f)), pursuant to an escrow agreement between the Company
and such escrow agent, a sum of money, or other property permitted
-103-
by such escrow agreement, sufficient in the opinion of Company
management to fund the payment to you of the amounts specified in
Subsection 4(c) of this Agreement.
(iii) It is intended that any amounts deposited in escrow
pursuant to the provisions of clause (i) or (ii) of this Subsection
4(f), be subject to the claims of the Company's creditors, as set forth
in the form of such escrow agreement.
(g) You shall not be required to mitigate the amount of any payment
provided for in this Section 4 by seeking other employment or otherwise, nor
shall the amount of any payment or benefit provided for in this Section 4 be
reduced by any compensation earned by you as the result of employment by another
employer, by retirement benefits, by offset against any amount claimed to be
owed by you to the Company, or otherwise (except as specifically provided in
this Section 4).
(h) In addition to all other amounts payable to you under this Section
4, you shall be entitled to receive all benefits payable to you under any
benefit plan of the Company in which you participate to the extent such benefits
are not paid under this Agreement.
5. Successors; Binding Agreement.
(a) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
Failure of the Company to obtain such assumption and agreement prior to the
effectiveness of any such succession shall be a breach of this Agreement and
shall entitle you to compensation from the Company in the same amount and on the
same terms as you would be entitled to hereunder if you terminate your
employment voluntarily for Good Reason following a Change in Control of the
Company, except that for purposes of implementing the foregoing, the date on
which any such succession becomes effective shall be deemed the Date of
Termination. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
-104-
(b) This Agreement shall inure to the benefit of and be enforceable by
your personal or legal representatives, executors, administrators, successors,
heirs, distributees, devises and legatees. If you should die while any amount
would still be payable to you hereunder if you had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to your devisee, legatee or other designee or, if there
is no such designee, to your estate.
6. Notice. For the purpose of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered or certified mail, return receipt requested, postage prepaid,
addressed to the respective addresses set forth on the first page of this
Agreement, provided that all notices to the Company shall be directed to the
Secretary of the Company, or to such other address as either party may have
furnished to the other in writing in accordance herewith, except that notice of
change of address shall be effective only upon receipt.
7. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing and signed by you and such officer as may be specifically designated
by the Board. No waiver by either party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time. No agreement or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not expressly set forth in this Agreement. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Delaware. All references to sections of the Exchange
Act or the Code shall be deemed also to refer to any successor provisions to
such sections. Any payments provided for hereunder shall be paid net of any
applicable withholding required under federal, state or local law. The
obligations of the Company under Section 4 shall survive the expiration of the
term of this Agreement.
8. Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
-105-
9. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
10. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Memphis, Tennessee in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the arbitrator's award in
any court having jurisdiction; provided, however, that you shall be entitled to
seek specific performance of your right to be paid until the Date of Termination
during the pendency of any dispute or controversy arising under or in connection
with this Agreement.
11. Similar Provisions in Other Agreement. The Severance Payment
under this Agreement supersedes and replaces any other severance payment to
which you may be entitled under any previous agreement between you and the
Company or its affiliates.
If this letter sets forth our agreement on the subject matter hereof,
kindly sign and return to the Company the enclosed copy of this letter which
will then constitute our binding agreement on this subject.
Very truly yours,
HARRAH'S ENTERTAINMENT, INC.
By: /s/E.O. Robinson, Jr.
-------------------------
E. O. Robinson, Jr.
Senior Vice President
Agreed:
/s/Thomas J. Carr, Jr.
- ----------------------------
Thomas J. Carr, Jr.
-106-
EX-10.2
HARRAH'S ENTERTAINMENT, INC.
April 25, 1997
[Name of Executive Officer]
Harrah's Entertainment, Inc.
1023 Cherry Road
Memphis, Tennessee 38117
Re: Amendment to Severance Agreement
Dear [Name]:
This letter agreement ('this Amendment") will amend the Severance
Agreement dated [Date] (the "Agreement") between you and Harrah's Entertainment,
Inc.
In consideration of the mutual covenants herein contained and for other
good and valuable consideration, receipt of which is hereby acknowledged, it is
agreed as follows:
1. Effective Date. This Amendment is effective April 25, 1997.
2. Amendment of Section 3, "Termination Following Change in
Control".
(a) Subsection (y) of the first paragraph of Section 3 is
amended to read as follows:
"(y) by the Company other than for Cause, or"
3. Amendment of Section 4, "Compensation Upon Termination or During
Disability Following a Change in Control".
(a) The caption of Section 4 is amended to read as follows:
"Compensation Upon Termination Following a Change in
Control".
-107-
(b) The first three lines of Section 4 ending in the word
"benefits" is amended to read as follows:
"Following a Change in Control of the Company, as defined in
Subsection 2(a), upon termination of your employment, you
shall be entitled to the following benefits:"
(c) The language of subsection (a) of section 4 is deleted and
the word "Deleted" is inserted in lieu thereof.
(d) Subsection (y) in subsection (c) of Section 4 is amended to
read as follows:
"(y) by the Company other than for Cause or"
(e) Subsection (y) in subsection (d) of Section 4 is amended to
read as follows:
"(y) by the Company other than for Cause, or"
4. Defined Terms. Unless otherwise defined herein, all terms used in
this Amendment that are defined in the Agreement will have the meanings
given to such terms in the Agreement.
5. No Other Modifications. Except as specifically modified herein,
all terms and conditions of the Agreement will remain unchanged and in full
force and effect.
If this letter sets forth our agreement on the subject matter hereof,
please sign and return to the Company the enclosed copy of this letter which
will then constitute our binding agreement on this subject.
Very truly yours,
HARRAH'S ENTERTAINMENT, INC.
By:
--------------------------
Agreed to:
- ---------------------------
[Name of Executive Officer]
-108-
EX-10.3
Amendment dated April 24, 1997 to the
Harrah's Entertainment, Inc.
Deferred Compensation Plan ("Plan")
Pursuant to approval by the Human Resources Committee of the Harrah's
Entertainment, Inc. Board of Directors, the following paragraph 5.3A is added to
the Plan after paragraph 5.3:
5.3A Amendment of Form of Payment. Each Participant in the Plan as of
April 25, 1997 (referred to in this paragraph 5.3A as "Active
Participants" and excluding Participants who are not active employees
of the Company or its direct or indirect subsidiaries on April 25,
1997, and excluding director Participants who are not actively serving
on the Company's Board of Directors on April 25, 1997) will be offered
a one-time opportunity (the "Amendment Opportunity") to amend his/her
previously made elections as to the form of payment of benefits
permitted under paragraphs 5.1 and 5.3 of the Plan, subject to the
following terms and conditions:
(a) The Amendment Opportunity will be offered on or before May
31, 1997 to Active Participants by sending them an election
form which they must complete in order to revise any or all of
their previous distribution elections (the "Revised
Elections").
(b) To be effective, a completed Revised Elections form must
be received by the Company within a reasonable time period but
not later than June 30, 1997.
(c) Revised Elections will only apply to distributions that
will occur due to leaving the payroll on or after July 1, 1998
(or, in the case of director Participants, due to leaving
active service on the Board of Directors on or after July 1,
1998). Accordingly, if an Active Participant leaves the
payroll (or leaves active service on the Board of Directors)
on or before June 30, 1998, any Revised Elections submitted by
that individual will not be effective. In such case, the
original elections for
-109-
that individual shall govern. For example, if an employee
stops active employment on December 31, 1997 and is placed on
salary continuation which lasts until June 30, 1998, then this
individual's Revised Elections will not have any effect and
his/her distributions will be governed by his/her original
elections. However, if employment or salary continuation went
through July 1, 1998 or later, the Revised Elections would be
effective. If an Active Participant leaves the payroll or
leaves active service on the Board before notice of the
Amendment Opportunity is mailed, the Amendment Opportunity
will not be offered to such individual.
(d) Pursuant to this paragraph 5.3A, an Active Participant
will only be permitted to change a lump sum to annual
installments or extend existing annual installments to a
longer period, provided installments cannot be extended beyond
a period of ten years from the commencement of payments. A
participant will not be permitted to compress installments to
a shorter period or to change installments to a lump sum.
IN WITNESS WHEREOF, this Amendment has been executed as of this 24th
day of April, 1997.
Harrah's Entertainment, Inc.
By: /s/Neil F. Barnhart
------------------------
Title: Vice President
---------------
-110-
EX-10.4
Amendment dated April 24, 1997 to the
Harrah's Entertainment, Inc.
Executive Deferred Compensation Plan ("Plan")
Pursuant to approval by the Human Resources Committee of the Harrah's
Entertainment, Inc. Board of Directors, the following paragraph 5.7A is added to
the Plan after paragraph 5.7:
5.7A Amendment of Form of Payment. Each Participant in the Plan as of
April 25, 1997 (referred to in this paragraph 5.7A as "Active
Participants" and excluding Participants who are not active employees
of the Company or its direct or indirect subsidiaries on April 25,
1997, and excluding director Participants who are not actively serving
on the Company's Board of Directors on April 25, 1997) will be offered
a one-time opportunity (the "Amendment Opportunity") to amend his/her
previously made elections as to the form of payment of benefits
permitted under paragraph 5.7 of the Plan, subject to the following
terms and conditions:
(a) The Amendment Opportunity will be offered on or before May
31, 1997 to Active Participants by sending them an election
form which they must complete in order to revise any or all of
their previous distribution elections (the "Revised
Elections").
(b) To be effective, a completed Revised Elections form must
be received by the Company within a reasonable time period but
not later than June 30, 1997.
(c) Revised Elections will only apply to distributions that
will occur due to leaving the payroll on or after July 1, 1998
(or, in the case of director Participants, due to leaving
active service on the Board of Directors on or after July 1,
1998). Accordingly, if an Active Participant leaves the
payroll (or leaves active service on the Board of Directors)
on or before June 30, 1998, any Revised Elections submitted by
that individual will not be effective. In such case, the
original elections for
-111-
that individual shall govern. For example, if an employee
stops active employment on December 31, 1997 and is placed on
salary continuation which lasts until June 30, 1998, then this
individual's Revised Elections will not have any effect and
his/her distributions will be governed by his/her original
elections. However, if employment or salary continuation went
through July 1, 1998 or later, the Revised Elections would be
effective. If an Active Participant leaves the payroll or
leaves active service on the Board before notice of the
Amendment Opportunity is mailed, the Amendment Opportunity
will not be offered to such individual.
(d) Pursuant to this paragraph 5.7A, an Active Participant
will only be permitted to change a lump sum to installments or
extend existing installments to a longer period, provided
installments cannot be extended beyond a period of fifteen
years from the commencement of payments. A participant will
not be permitted to compress installments to a shorter period
or to change installments to a lump sum.
IN WITNESS WHEREOF, this Amendment has been executed as of this 24th
day of April, 1997.
Harrah's Entertainment, Inc.
By: /s/Neil F. Barnhart
-----------------------
Title: Vice President
--------------
-112-
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,
1997 1996 1997 1996
----------- ----------- ----------- -----------
Income before extraordinary
loss $25,373,000 $29,977,000 $42,484,000 $61,387,000
Extraordinary loss, net (8,134,000) - (8,134,000) -
----------- ----------- ----------- -----------
Net income $17,239,000 $29,977,000 $34,350,000 $61,387,000
=========== =========== =========== ===========
Primary Earnings Per Share
Weighted average number of
common shares outstanding 100,549,789 102,720,947 101,125,128 102,656,047
Common stock equivalents
Additional shares based on
average market price for
period applicable to:
Restricted stock 19,902 47,349 964 52,981
Stock options 452,258 1,072,222 476,844 886,961
----------- ----------- ----------- -----------
Average number of primary
common and common equivalent
shares outstanding 101,021,949 103,840,518 101,602,936 103,595,989
=========== =========== =========== ===========
Primary earnings per common
and common equivalent share
Income before extraordinary
loss $ 0.25 $ 0.29 $ 0.42 $ 0.59
Extraordinary loss, net (0.08) - (0.08) -
------ ------ ------ ------
Net income $ 0.17 $ 0.29 $ 0.34 $ 0.59
====== ====== ====== ======
Fully Diluted Earnings Per
Share
Average number of primary
common and common equivalent
shares outstanding 101,021,949 103,840,518 101,602,936 103,595,989
Additional shares based
on period-end price
applicable to:
Restricted stock 2,940 - - -
Stock options - - - -
----------- ----------- ----------- -----------
Average number of fully
diluted common and common
equivalent shares outstanding 101,024,889 103,840,518 101,602,936 103,595,989
=========== =========== =========== ===========
Fully diluted earnings per
common and common equivalent
share
Income before extraordinary
loss $ 0.25 $ 0.29 $ 0.42 $ 0.59
Extraordinary loss, net (0.08) - (0.08) -
------ ------ ------ ------
Net income $ 0.17 $ 0.29 $ 0.34 $ 0.59
====== ====== ====== ======
-113-
5
1,000
6-MOS
DEC-31-1997
JUN-30-1997
106,867
0
53,545
15,537
11,397
206,197
2,112,841
630,992
2,089,682
207,804
1,012,565
0
0
10,094
701,598
2,089,682
0
782,992
0
676,502
0
0
38,144
74,573
28,324
42,484
0
8,134
0
34,350
0.34
0.34
