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<SEC-DOCUMENT>0000950112-96-000691.txt : 19960307

<SEC-HEADER>0000950112-96-000691.hdr.sgml : 19960307

ACCESSION NUMBER:     0000950112-96-000691

CONFORMED SUBMISSION TYPE:   10-K

PUBLIC DOCUMENT COUNT:       18

CONFORMED PERIOD OF REPORT:  19951231

FILED AS OF DATE:     19960306

SROS:         NYSE

 

FILER:

 

    COMPANY DATA:

       COMPANY CONFORMED NAME:          HARRAHS ENTERTAINMENT INC

       CENTRAL INDEX KEY:           0000858339

       STANDARD INDUSTRIAL CLASSIFICATION:    SERVICES-MISCELLANEOUS AMUSEMENT & RECREATION [7990]

       IRS NUMBER:              621411755

       STATE OF INCORPORATION:         DE

       FISCAL YEAR END:         1231

 

    FILING VALUES:

       FORM TYPE:    10-K

       SEC ACT:      1934 Act

       SEC FILE NUMBER:  001-10410

       FILM NUMBER:      96531537

 

    BUSINESS ADDRESS:

       STREET 1:     1023 CHERRY ROAD

       CITY:         MEMPHIS

       STATE:        TN

       ZIP:          38117

       BUSINESS PHONE:       9017628600

 

    MAIL ADDRESS:

       STREET 1:     1023 CHERRY ROAD

       CITY:         MEMPHIS

       STATE:        TN

       ZIP:          38117

 

    FORMER COMPANY:  

       FORMER CONFORMED NAME:   PROMUS COMPANIES INC

       DATE OF NAME CHANGE:  19920703

</SEC-HEADER>

<DOCUMENT>

<TYPE>10-K

<SEQUENCE>1

<DESCRIPTION>HARRAHS ENTERTAINMENT INC

<TEXT>

 

 

- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                              -------------------

                                   FORM 10-K

                              -------------------

 

(MARK ONE)

 

X FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995

 

                                       OR

 

/ / FOR THE TRANSITION PERIOD FROM                  TO                  .

 

                          COMMISSION FILE NO. 1-10410

                          HARRAH'S ENTERTAINMENT, INC.

             (Exact name of registrant as specified in its charter)

 

<TABLE>

<S>                                            <C>

                  DELAWARE                                 I.R.S. NO. 62-1411755

          (State of Incorporation)                 (I.R.S. Employer Identification No.)

</TABLE>

 

                                1023 CHERRY ROAD

                            MEMPHIS, TENNESSEE 38117

              (Address of principal executive offices) (zip code)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (901) 762-8600

                              -------------------

          SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

 

<TABLE>

<CAPTION>

TITLE OF EACH CLASS                                         NAME OF EACH EXCHANGE ON WHICH REGISTERED

- ---------------------------------------------------------   ------------------------------------------

<S>                                                         <C>

Common Capital Stock, Par Value $0.10 per share*            NEW YORK STOCK EXCHANGE

                                                            CHICAGO STOCK EXCHANGE

                                                            PACIFIC STOCK EXCHANGE

                                                            PHILADELPHIA STOCK EXCHANGE

10 7/8% Senior Subordinated Notes due 2002 of Harrah's      NEW YORK STOCK EXCHANGE

  Operating Company, Inc.**

</TABLE>

 

- ------------

 

 * Common Capital Stock also has special stock purchase rights listed on each of

   the same exchanges

 

** Securities guaranteed by Registrant

 

          SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

                                      None

 

    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 / /

 

    Indicate by check mark if disclosure of delinquent filers pursuant to Item

405 of Regulation S-K is not contained herein, and will not be contained, to the

best of registrant's knowledge, in definitive proxy or information statements

incorporated by reference in Part III of this Form 10-K or any amendment to this

Form 10-K.  X

 

    The aggregate market value of the voting stock held by non-affiliates of the

registrant based upon the closing price of $27.50 for the Common Stock as

reported on the New York Stock Exchange Composite Tape on January 31, 1996, is

$2,760,655,067.50.

 

    Indicate the number of shares outstanding of each of the issuer's classes of

common stock, as of January 31, 1996.

 

<TABLE>

<S>                                                       <C>

Common Stock...........................................   102,770,552 Shares

</TABLE>

 

                      DOCUMENTS INCORPORATED BY REFERENCE

 

    Portions of the definitive Proxy Statement for the 1996 Annual Meeting of

Stockholders, which will be filed within 120 days after the end of the fiscal

year, are incorporated by reference into Part III hereof and portions of the

Company's Annual Report to Stockholders for the year ended December 31, 1995 are

incorporated by reference into Parts I and II hereof.

- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------

<PAGE>

                                     PART I

 

ITEMS 1 AND 2. BUSINESS AND PROPERTIES.

 

    Harrah's Entertainment, Inc. (referred to herein, together with its

subsidiaries where the context requires, as the "Company" or "Harrah's") is one

of the leading casino entertainment companies in the United States. It currently

operates casino entertainment facilities in fourteen different markets.

 

    Harrah's, formerly named The Promus Companies Incorporated ("Promus"), was

incorporated on November 2, 1989 under Delaware law. On June 30, 1995, Promus

transferred its hotel business to a new entity, Promus Hotel Corporation

("PHC"), and spun-off PHC as a separate public corporation which is not

affiliated with the Company. Promus retained ownership of its casino

entertainment business and changed its name to Harrah's Entertainment, Inc.

 

    Harrah's conducts its business through its wholly-owned subsidiary, Harrah's

Operating Company, Inc. ("HOC") (formerly named Embassy Suites, Inc.

("Embassy")), and through HOC's subsidiaries. The principal asset of Harrah's is

the stock of HOC, which holds, directly or indirectly through subsidiaries,

substantially all of the assets of the Company's businesses. The principal

executive offices of Harrah's are located at 1023 Cherry Road, Memphis,

Tennessee 38117, telephone (901) 762-8600.

 

    Operating data for the three most recent fiscal years, together with

corporate expense, interest expense and other income, is set forth on page 35

of the Annual Report. Information regarding mortgages on properties of the

Company is set forth on pages 40 through 42 of the Annual Report. The

preceding pages of the Annual Report are incorporated herein by reference.

 

    For information on operating results and a discussion of those results, see

"Management's Discussion and Analysis--Results of Operations" on pages 25

through 28 of the Annual Report, which pages are incorporated herein by

reference.

 

                              CASINO ENTERTAINMENT

 

GENERAL

 

    Harrah's casino business commenced operations more than 58 years ago and is

unique among casino entertainment companies in its broad geographic

diversification. Harrah's operates casino hotels in the five traditional U.S.

gaming markets of Reno, Lake Tahoe, Las Vegas and Laughlin, Nevada and Atlantic

City, New Jersey. It also operates riverboat casinos in Joliet, Illinois;

dockside casinos in Vicksburg and Tunica, Mississippi, Shreveport, Louisiana and

North Kansas City, Missouri; limited stakes casinos in Central City and Black

Hawk, Colorado; and casinos on two Indian reservations, one near Phoenix,

Arizona and the other north of Seattle, Washington. On February 2, 1996, the

Company commenced operations of a land-based casino in Auckland, New Zealand.

 

    As of December 31, 1995, Harrah's operated a total of approximately 547,200

square feet of casino space, 15,335 slot machines, 801 table games, 5,736 hotel

rooms or suites, approximately 79,100 square feet of convention space, 56

restaurants, 5 showrooms and 4 cabarets. Harrah's marketing strategy is designed

to appeal primarily to the broad middle-market gaming customer segment. Harrah's

strategic direction is focused on establishing a well-defined brand identity

that communicates a consistent message of high quality and excellent service.

 

LAND BASED CASINOS

 

ATLANTIC CITY

 

    The Harrah's Atlantic City casino hotel ("Harrah's Atlantic City") is

situated on 21.4 acres in the Marina area of Atlantic City and has approximately

65,500 square feet of casino space with 2,012 slot

 

                                       1

<PAGE>

machines and 89 table games. It consists of dual 16-story hotel towers with 268

suites and 492 regular rooms and adjoining low rise buildings which house the

casino space and the 26,100 square foot convention center. The facilities

include eight restaurants, an 850-seat showroom, a pool, health club, teen

center with video games, child care facilities and parking for 2,341 cars. The

property also has a 76-slip marina.

 

    In August 1995, the Company announced a major expansion of the property,

with project costs estimated at $80.7 million. The expansion plans include

increasing the casino space by approximately 13,500 square feet, construction of

a new 416-room, 16-story hotel tower, increased parking and enhancement of the

facility's restaurant offerings. Construction on the casino expansion commenced

in October 1995, with completion expected in July 1996. Hotel tower construction

is expected to begin in April 1996 with a targeted completion in July 1997.

 

    In June 1995, the Company acquired approximately 8.45 acres of land adjacent

to Harrah's Atlantic City along with 170 acres of wetlands in the Marina area of

Atlantic City and received cash in exchange for approximately 4.5 acres of

undeveloped property on Atlantic City's Boardwalk.

 

    Most of the casino's customers arrive by car from within a 150-mile radius

which includes Philadelphia, New York and northern New Jersey, Harrah's Atlantic

City's primary feeder markets.

 

LAS VEGAS

 

    Harrah's Las Vegas is located on approximately 17.8 acres of the Strip in

Las Vegas and consists of a 15-floor hotel tower, a 23-floor hotel tower, a

35-story hotel tower, and adjacent low-rise buildings which house the 15,000

square foot convention center and the casino. The hotel has 1,641 regular rooms

and 56 suites. The Harrah's Las Vegas complex has approximately 73,800 square

feet of casino space, with 1,769 slot machines and 87 table games. Also included

are five restaurants, the 525-seat Commander's Theatre, a health club and a

heated pool. There are 2,863 parking spaces available, including a substantial

portion in a self-park garage.

 

    In August 1995, the Company announced plans for a $150 million expansion of

Harrah's Las Vegas, including a new 35-story hotel tower, with 660 standard

rooms and 28 suites, 17,000 square feet of additional casino space and new

restaurant facilities, as well as a renovation of the facade of the casino

located on the Las Vegas Strip. Construction is expected to begin in first

quarter 1996, with completion of the casino expansion expected in September 1996

and the hotel tower completion targeted for October 1997.

 

    The casino's primary feeder markets are the Midwest, California and Canada.

 

LAKE TAHOE

 

    Harrah's Lake Tahoe is situated on 22.9 acres near Lake Tahoe and consists

of an 18-story tower and adjoining low-rise building which house a 16,500 square

foot convention center and approximately 63,200 square feet of casino space,

with 1,872 slot machines and 126 table games. The casino hotel, with 79 suites

and 453 luxury rooms, has nine restaurants, the 800-seat South Shore Showroom, a

health club, retail shops, a heated pool and an arcade. The facility has

customer parking for 854 cars in a garage and 1,098 additional spaces in an

adjoining lot.

 

    Harrah's also operates Bill's Lake Tahoe Casino which is located on a 2.1

acre site adjacent to Harrah's Lake Tahoe casino hotel. The casino includes

approximately 18,000 square feet of casino space, with 653 slot machines and 29

table games and two casual on-premise restaurants, Bennigan's and McDonald's,

operated by non-affiliated restaurant companies.

 

    The primary feeder markets for both casinos are California and the Pacific

Northwest.

 

                                       2

<PAGE>

RENO

 

    Harrah's Reno, situated on approximately 3.7 acres, consists of a casino

hotel complex with a 24-story structure, a 14,500 square foot convention center

and 58,300 square feet of casino space, with 1,599 slot machines and 75 table

games. The hotel, with eight suites and 557 rooms, has seven restaurants,

including a Planet Hollywood restaurant and lounge operated by a non-affiliated

company, the 420-seat Sammy's Showroom, a pool, a health club and an arcade. The

complex can accommodate guest parking for 1,739 cars, including a valet parking

garage, a self-park garage and off-site valet parking.

 

    In October 1995, the Company opened a new 408-room 26-story Hampton Inn

hotel adjacent to Harrah's Reno. The hotel, which is operated by Harrah's

pursuant to a license agreement from Promus Hotels, Inc. (a subsidiary of PHC),

provides an additional supply of high-quality, moderately-priced guest rooms.

 

    The primary feeder markets for Harrah's Reno are northern California, the

Pacific Northwest and Canada.

 

LAUGHLIN

 

    Harrah's Laughlin is located in Laughlin, Nevada on a 44.9 acre site in a

natural cove on the Colorado River and features a hotel with 1,635 standard

rooms and 22 suites, a 90-seat cabaret and seven restaurants, including a

McDonald's and a Baskin Robbins which are operated by non-affiliated companies.

It is the only property in Laughlin with a developed beachfront on the river.

Harrah's Laughlin has approximately 47,000 square feet of casino space, with

1,396 slot machines and 44 table games, and approximately 7,000 square feet of

convention center space. The facility has customer parking for 2,789 cars,

including a covered parking garage, and a park for recreational vehicles.

 

    The casino's primary feeder markets are the Los Angeles and Phoenix

metropolitan areas where a combined total of more than 17 million people reside.

 

CENTRAL CITY AND BLACK HAWK

 

    The Company owns an approximate 21.7 percent interest in Eagle Gaming, L.P.

and its related entities ("Eagle"). Eagle owns casinos in Central City and Black

Hawk, Colorado that Harrah's manages for a fee. Both of the casinos are

approximately 45 minutes from downtown Denver.

 

    Harrah's Central City is located in four historic buildings decorated in

authentic 1800's Victorian furnishings. The casino, with approximately 8,000

square feet of casino space, 465 slot machines and 9 table games, features the

100 year old Glory Hole Bar and the Gilded Garter Cabaret, with live

entertainment, two restaurants and a gift shop.

 

    Harrah's Black Hawk is located in the historic mining town of Black Hawk and

is on three levels in buildings decorated in Victorian design reminiscent of the

gold rush days in the late 1800's. At year end, the casino had approximately

18,100 square feet of casino space, 659 slot machines, 14 table games, a

restaurant and a gift shop.

 

    In July 1995, Eagle purchased the Blazing Saddles Casino adjacent to

Harrah's Black Hawk and the remaining 50% interest in a remote parking lot. The

acquisition added approximately 2,000 square feet of casino space to Harrah's

Black Hawk. Eagle is constructing a valet parking staging area behind its Black

Hawk facility.

 

    Both of these casinos offer limited stakes gaming pursuant to Colorado law.

Complimentary shuttle service is available between Harrah's Black Hawk and

Harrah's Central City, a distance of approximately one mile. The primary feeder

market for both casinos is the Denver/Boulder metropolitan area.

 

                                       3

<PAGE>

    The Company has guaranteed repayment of $5 million of partnership bank

financing in connection with the Black Hawk and Central City facilities. The

Company has also committed to loan additional funds to Eagle in the approximate

amount of $2.1 million, to be funded on an as needed basis. Approximately

$900,000 of this commitment has been funded during 1996. The Company has fully

reserved its investments in Eagle except for the guarantee and commitments

described above.

 

NEW ZEALAND

 

    Harrah's Sky City, a casino entertainment facility in Auckland, New Zealand,

opened in February 1996, with approximately 45,000 square feet of casino space,

1,042 slot machines and 97 table games. The facility also features four

restaurants, several lounges, retail shopping outlets and underground garage

visitor parking for 1,950 cars as well as additional surface parking. Scheduled

to open later in 1996 will be a 344-room hotel, a 770-seat theater and

conference and meeting rooms. A special attraction of the facility is a

1,076-foot Sky Tower, which is scheduled to open by mid-1997.

 

    The project is owned and being developed by a New Zealand corporation in

which Harrah's ownership is 12.5%. Harrah's manages the facility for a fee under

a long-term management contract. Construction of the US$340 million facility was

funded through a combination of equity contributions and non-recourse debt. The

Company's investment in the partnership is approximately US$17 million.

 

NEW ORLEANS

 

    Harrah's New Orleans Investment Company, an indirect wholly-owned subsidiary

of the Company ("Harrah's Investment"), is the owner of an approximate 47%

interest in a partnership named Harrah's Jazz Company ("Harrah's Jazz"). The

other partners are Grand Palais Casino, Inc. and New Orleans/Louisiana

Development Corporation ("NOLDC").

 

    On November 22, 1995, Harrah's Jazz and its wholly-owned subsidiary,

Harrah's Jazz Finance Corp., filed for reorganization under Chapter 11 of the

Bankruptcy Code. Prior to the filing, Harrah's Jazz was operating a temporary

casino in the New Orleans, Louisiana Municipal Auditorium (the "Temporary

Casino") and constructing a new permanent casino facility on the site of the

former Rivergate Convention Center in downtown New Orleans (the "Permanent

Casino"). Harrah's Jazz ceased operation of the Temporary Casino and

construction of the Permanent Casino on November 22, 1995 prior to the

bankruptcy filings.

 

    On November 19, 1995, representatives of the Harrah's Jazz bank syndicate

informed Harrah's Jazz that the bank syndicate would not disburse funds to

Harrah's Jazz under the terms of Harrah's Jazz's $175 million bank credit

facility (the "Bank Credit Facility"). Faced with an absence of funding, on

November 21, 1995, Harrah's Jazz decided to cease Temporary Casino operations

and construction on the Permanent Casino, as well as to file for bankruptcy

protection. The Bank Credit Facility was accelerated and terminated by the bank

lenders on November 21, 1995. Thereafter, on November 22, 1995, the bankruptcy

filings were made.

 

    In connection with the closing in November 1994 of the 14.25% First Mortgage

Notes due 2001 of Harrah's Jazz (the "Public Debt") and the Bank Credit

Facility, the Company delivered completion guaranties to the trustee under the

Public Debt (under which the City of New Orleans (the "City") was an express

third party beneficiary), the bank lenders under the Bank Credit Facility and

the Louisiana Economic Development and Gaming Corporation (the state agency

regulating Harrah's Jazz ("LEDGC")). Each completion guaranty was subject to

certain conditions, exceptions and qualifications. The Company believes that the

failure of Harrah's Jazz to obtain the funds under the Bank Credit Facility and

the acceleration of the loan by the bank syndicate terminated the Company's

obligations under the completion guaranties.

 

                                       4

<PAGE>

    Harrah's Investment made total capital contributions to the project of

approximately $90 million, and Harrah's New Orleans Management Company has

outstanding advances to the project of approximately $25 million. In addition,

in December 1995, the Company acquired from a commercial bank a $16 million loan

to NOLDC in satisfaction of the Company's obligations under a preexisting

agreement with the bank. The Company has written off these investments and other

related costs in the project.

 

    Harrah's Investment currently owns approximately 47% of the general

partnership interests of Harrah's Jazz. The debt of Harrah's Jazz is not

consolidated with the Company's financial statements for accounting purposes.

 

    Harrah's Jazz has until March 21, 1996, which date may be extended by the

Bankruptcy Court, the exclusive right under the bankruptcy laws to submit a plan

of reorganization. Discussions concerning the reorganization plan have occurred

among certain interested parties, but a number of issues remain to be resolved

and there can be no assurance that such discussions will lead to an agreement

among all necessary parties.

 

    The Company has offered to invest an additional $75 million in the project

and deliver a new completion guaranty if a reorganization plan approved by the

Company is consummated. The Company has also offered to invest, prior to plan

consummation, up to $10 million in the form of debtor-in-possession financing

(such financing would be repaid or converted into equity (and count toward the

$75 million investment referred to above) upon consummation of a reorganization

plan approved by the Company) if the Company and other interested parties reach

an agreement in principle as to the key elements of the plan. There can be no

assurance that any agreements will be reached or a reorganization plan

consummated.

 

    On March 4, 1996, Harrah's Jazz entered into a preliminary agreement with

the City which provides for, among other things, an immediate $4.3 million cash

payment by Harrah's Jazz to the City, of which $2.5 million is being funded by

the Company as debtor-in-possession financing and the balance is being funded

from Harrah's Jazz's assets. Although the $2.5 million loan is an administrative

priority claim in the bankruptcy, there can be no assurance that the loan will

be repaid. In exchange for these agreements by Harrah's Jazz, the City agreed to

waive any requirements to reopen the Temporary Casino and negotiate in good

faith numerous specified issues relating to the lease of the Permanent Casino

site.

 

    In December 1995 Harrah's Investment filed a voluntary bankruptcy petition

under Chapter 11 of the Bankruptcy Code. The filing was made to facilitate

efforts to reorganize Harrah's Jazz.

 

    See "Legal Proceedings" herein for a discussion of legal actions filed in

connection with the New Orleans project. See "Management's Discussion and

Analysis--Harrah's Jazz Company" on pages 28 and 29 of the Annual Report for

further information regarding New Orleans.

 

RIVERBOAT CASINOS

 

JOLIET

 

    Harrah's Joliet, the Company's first riverboat casino operation, is located

in downtown Joliet, Illinois, on the Des Plaines River. The facilities include

two riverboats. The Harrah's Northern Star, a modern 210-foot mega-yacht, has

17,000 square feet of casino space with 30 table games and 477 slot machines.

This riverboat, which has three levels, has the capacity to accommodate

approximately 825 guests per cruise. It offers six cruises per day. The second

riverboat casino, the newly renovated Southern Star II (formerly the Shreveport

Rose), which replaced the Harrah's Southern Star vessel in November 1995, is a

210-foot long riverboat and contains approximately 20,200 square feet of casino

space. The riverboat features 495 slot machines, 28 table games, and can

accommodate up to 825 guests per cruise. It offers eight cruises per day. With

both riverboats in operation on a typical weekday, Harrah's can serve 11,550

customers based on a combined total of 14 excursions. Dockside facilities

 

                                       5

<PAGE>

include a 35,000 square foot pavilion with a buffet restaurant, one lounge and a

retail shop. Parking is available for 1,071 cars, including a 4-story parking

garage with 580 spaces. In September 1995, the Company commenced construction of

an expansion of and improvements to the shoreside pavilion at Harrah's Joliet

involving an approximate cost of $8 million. The expansion, which is expected to

be completed in second quarter 1996, will increase the pavilion by approximately

4,400 square feet, and will include new meeting room facilities, enhanced

restaurant facilities and improvements to the public area.

 

    A partnership, in which an indirect subsidiary of the Company is the 80

percent general partner, developed and owns the dockside facilities, the

Harrah's Northern Star and the Southern Star II vessels, and the riverboat

businesses. The businesses are operated by Harrah's for a fee under a long-term

management contract.

 

    The Chicago metropolitan area is the primary feeder market for Harrah's

Joliet, with Joliet being only 30 miles from downtown Chicago.

 

TUNICA

 

    Harrah's Tunica is a dockside riverboat casino located in Tunica,

Mississippi, approximately 30 miles south of downtown Memphis, Tennessee. The

stationary riverboat, with a classic antebellum design, has 27,000 square feet

of casino space on two levels, with 992 slot machines, 34 table games and an

entertainment lounge. On the third level there is approximately 3,000 square

feet for conventions, meetings and special events. Adjacent to the riverboat

casino is a 30,000 square foot pavilion that houses two restaurants, employee

facilities and executive offices. On-site parking is available for 1,336 cars

with valet parking available.

 

    A partnership, of which the Company is the 83% general partner, owns the

constructed facilities and the casino business. The underlying land, including

adjoining land used for a private access road and a sewage treatment facility,

is under long term lease to the partnership with options to purchase. The

riverboat casino business is operated by Harrah's for a fee under a long-term

management contract.

 

    The primary feeder market for Harrah's Tunica is the Memphis metropolitan

area.

 

    In July 1995, a partnership, of which the Company is the 83% general

partner, acquired at bankruptcy auction the leasehold and improvements

constituting the former Southern Belle casino entertainment property located

near the existing Harrah's casino in Tunica County, Mississippi. The Southern

Belle is currently under renovation, including the addition of a hotel with

approximately 200 rooms. The renovated facility, to be called Harrah's Tunica

Mardi Gras Casino, is expected to be completed during second quarter 1996 and

will feature approximately 50,000 square feet of casino space, with 1,189 slot

machines and 56 table games, three food outlets, a child care facility, retail

shop, a 15,400 square foot entertainment/ballroom area and customer parking for

2,712 cars. The total project cost for the Harrah's Tunica Mardi Gras Casino,

including the cost of acquisition, is estimated at $87.2 million. Under current

plans, the Company's existing Harrah's Tunica facility is expected to remain

open after the opening of the second facility. The opening of the second

facility is subject to receipt of necessary regulatory approvals.

 

VICKSBURG

 

    Harrah's Vicksburg is the Company's dockside casino entertainment complex in

Vicksburg, Mississippi. The complex, which is located in downtown Vicksburg on

the Yazoo Diversion Canal of the Mississippi River, includes a 297-foot long

stationary riverboat casino designed in the spirit of a traditional 1800's

riverboat with approximately 11,800 square feet of casino space, 574 slot

machines and 40 table games. The casino is docked next to the Company's

shoreside entertainment complex which features a buffet, a restaurant/lounge, a

child care facility, a retail outlet and meeting rooms/convention area. Adjacent

to the riverboat is a 117-room Harrah's hotel owned and operated by

 

                                       6

<PAGE>

the Company and two covered parking garages are across the street with combined

parking for 839 cars. The Company owns the riverboat and holds long-term rights

to all real property pertaining to the project.

 

    The casino's primary feeder markets are western and central Mississippi and

eastern Louisiana.

 

SHREVEPORT

 

    Harrah's Shreveport is the Company's dockside riverboat casino in downtown

Shreveport, Louisiana. In February 1995, the Company replaced its initial

riverboat in Shreveport with a 254-foot long 19th-century design paddlewheeler

riverboat. The new riverboat, the ShreveStar, has 30,000 square feet of gaming

space with 928 slot machines and 49 table games. A 42,000 square foot pavilion

adjoins the casino on the banks of the Red River and includes a 4,100 square

foot area for private parties and group functions and three restaurants.

 

    The casino and related facilities were developed by a partnership in which

an indirect subsidiary of the Company is the 99% general partner. In February

1996, a separate indirect subsidiary of the Company acquired the remaining one

percent interest in the partnership not owned by the Company and accordingly,

the Company now owns 100% of this casino and related facilities.

 

    The primary feeder markets for the casino are northeastern Louisiana and

east Texas, including the Dallas/Fort Worth metropolitan area.

 

NORTH KANSAS CITY

 

    The Company owns and operates a riverboat casino in North Kansas City,

Missouri. The facilities include a 295-foot long classic sternwheeler designed

stationary riverboat with approximately 31,600 square feet of casino space, with

969 slot machines and 80 table games. Shoreside facilities include a 53,100

square foot pavilion that houses three restaurants, a meeting room, employee

facilities and administrative offices. On-site parking is available for 1,800

cars.

 

    In June 1995, the Company announced a $78 million expansion of Harrah's

North Kansas City, to include a second riverboat casino with approximately

30,000 square feet of casino space, 45 table games and 879 slot machines. Also

included in the expansion is a 200 room hotel, a 30,500 square feet addition to

the shoreside pavilion, enhanced restaurant facilities and additional parking

areas, including a three-story 1,060-space parking garage. Construction of the

expansion commenced in fourth quarter 1995, with completion expected in stages

as follows: the parking garage in March 1996, the second riverboat casino in

June 1996, the pavillion addition and enhanced restaurant facilities in October

1996 and the hotel in December 1996. The opening of the second riverboat is

subject to receipt of all necessary regulatory approvals.

 

    The casino's primary feeder market is the Kansas City metropolitan area.

 

UNDER DEVELOPMENT

 

ST. LOUIS-RIVERPORT

 

    The Company is currently constructing a riverboat casino project along the

Missouri River in Maryland Heights, Missouri, in northwest St. Louis County, 16

miles from downtown St. Louis, with Players International, Inc. ("Players"). The

partnership formed by Harrah's and Players will lease space to both Harrah's and

Players in which to operate their separately branded casinos and specialty

restaurants. Each company will operate two riverboat casinos. Each of the

Company's riverboats will include approximately 30,000 square feet of gaming

space.

 

    A 330,000 square foot shoreside pavilion will include a buffet restaurant,

lounge, retail space and conference facilities. Also included in the shoreside

facilities will be a 7-story 291-room Harrah's hotel, a 1,500-car parking garage

and surface parking for 3,600 cars. Harrah's will manage the shoreside pavilion,

hotel and parking areas for a fee.

 

                                       7

<PAGE>

    Approximately 74 acres of land being used for the development is owned by

the Company and leased to the partnership. Approximately 140 acres of additional

land to be used for the development was purchased by the partnership.

 

    The total estimated investment by the Company will be $166 million.

Construction on the project commenced in October 1995, with completion targeted

for first quarter 1997. Opening of the project is subject to various regulatory

and other necessary approvals.

 

INDIAN GAMING

 

AK-CHIN

 

    Harrah's Phoenix Ak-Chin casino is owned by the Ak-Chin Indian Community and

is located on the Community's reservation, approximately 25 miles south of

Phoenix, Arizona. The casino includes 32,000 square feet of casino space with

475 slot machines, 23 poker tables, bingo, keno, a restaurant, an entertainment

lounge, meeting rooms and a retail shop. The complex has customer parking for

approximately 1,000 cars and has valet parking available. Harrah's manages the

casino for a fee under a management contract that has a five year term, expiring

in December 1999. Renewal of the contract would require mutual agreement between

Harrah's and the Ak-Chin Community and approval by the NIGC.

 

    The Company has guaranteed repayment of a bank loan, the proceeds of which

were used to construct the Ak-Chin facility, and Sodak Gaming, Inc. ("Sodak")

has provided a guarantee to Harrah's for one-half of this financing.

Approximately $13.2 million of the loan was outstanding as of December 31, 1995.

 

    The primary feeder markets for the casino are Phoenix and Tucson.

 

UPPER SKAGIT

 

    Harrah's Skagit Valley casino opened in December 1995 and is located on the

Upper Skagit Indian Reservation, approximately 70 miles north of Seattle,

Washington. The casino includes 26,000 square feet of casino space with an

800-seat bingo parlor which also serves as a showroom, 44 gaming tables, poker,

keno and pull tabs. Non-gaming amenities include nightly live entertainment, two

restaurants as well as an arcade and gift shop. The complex has customer parking

for approximately 1,000 cars. Harrah's manages the casino for a fee under a

management contract that has a five year term, expiring in December 2000.

Renewal of the contract would require mutual agreement between Harrah's and the

Upper Skagit Indian Tribe and approval by the NIGC.

 

    The Company has guaranteed the Tribe's repayment of a bank loan of $22.8

million, the proceeds of which were used to construct the Upper Skagit facility.

At year end 1995, $18.7 million of the loan had been drawn and was outstanding.

 

    The primary feeder markets for the casino are northwestern Washington state

and southwestern Canada, including the Seattle and Bellingham, Washington and

Vancouver, British Columbia metropolitan areas.

 

SODAK GAMING, INC.

 

    The Company owns a 14.1% ownership interest in Sodak. Sodak is a leading

distributor of electronic gaming machines and gaming-related products and

systems. Under terms of an agreement with International Game Technology ("IGT")

expiring in May 1998, Sodak is the exclusive distributor for IGT of its gaming

equipment in the states of North Dakota, South Dakota and Wyoming, and on

 

                                       8

<PAGE>

Native American Reservations in the United States (except Nevada, New Jersey and

Hawaii). This distribution agreement continues from year to year after May 1998,

until it is cancelled. Sodak also has an international distributorship agreement

with IGT for gaming equipment.

 

    In addition, Sodak has also entered the business of financing, developing

and managing Native American and commercial casino businesses in the United

States and abroad.

 

PROPOSED DEVELOPMENTS

 

    The Company has entered into preliminary management and development

agreements with certain other Indian communities in connection with the proposed

development of casino entertainment facilities on lands owned by the respective

tribes. These agreements are subject to various conditions including approval by

the NIGC. Development of the casino facilities, which would be managed by the

Company for a fee, will not commence until NIGC approval and other required

approvals are received. The Company expects the proposed projects will be

financed by bank loans that would be guaranteed by

the Company.

 

                                     OTHER

 

    In addition to the above, the Company is actively pursuing numerous casino

entertainment opportunities in various jurisdictions both domestically and

abroad, including land-based, riverboat casino and Indian gaming projects in the

United States. A number of these projects, if they go forward, would require

significant capital investments by the Company.

 

                                   TRADEMARKS

 

    The following trademarks used herein are owned by the Company: Harrah's(R);

Bill's(R); Harrah's Northern Star(sm); Harrah's Southern Star(sm); Harrah's

Southern Star II(sm); ShreveStar(sm); Southern Belle(sm); Harrah's Tunica

Mardi Gras Casino(sm); and Harrah's Jazz Company(sm). The name "Harrah's" is

registered as a service mark in the United States and in certain foreign

countries, including New Zealand. The Company considers all of these marks,

and the associated name recognition, to be valuable to its business.

 

                                  COMPETITION

 

    Harrah's, which operates land-based, dockside, riverboat, Indian and limited

stakes casino facilities in all of the traditional, and many of the new, U.S.

casino entertainment jurisdictions, as well as a land based casino in New

Zealand, competes with numerous casinos and casino hotels of varying quality and

size in the market areas where its properties are located, with other resorts

and vacation areas, and with various other casino entertainment businesses. The

casino entertainment business is characterized by competitors which vary

considerably by their size, number of operations, growth strategies and

geographic diversity. In certain areas such as Las Vegas, Harrah's competes with

a wide range of casinos, some of which are significantly larger and newer and

offer substantially more non-gaming activities to attract customers.

 

    In most markets, Harrah's competes directly with other casino facilities

operating in the immediate and surrounding market areas. In major casino

destinations, such as Las Vegas and Atlantic City, Harrah's faces competition

from other markets in addition to direct competition in its market areas.

 

    Harrah's believes it is well positioned to take advantage of any new

jurisdictions which allow casino gaming, the trend of positive consumer

acceptance of casino gaming as an entertainment activity, and

 

                                       9

<PAGE>

increased visitation to casino facilities. However, the expansion of casino

entertainment presents competitive issues for Harrah's and as casino

entertainment properties increase, competition within markets and among

different markets could intensify. See "Management's Discussion and Analysis of

Financial Condition and Results of Operations--Effects of Current Economic and

Political Conditions" on pages 32 and 33 of the Annual Report, which

pages are incorporated herein by reference.

 

                            GOVERNMENTAL REGULATION

 

GAMING-NEVADA

 

    The ownership and operation of casino gaming facilities in Nevada are

subject to: (i) the Nevada Gaming Control Act and the regulations promulgated

thereunder (collectively, "Nevada Act"); and (ii) various local ordinances and

regulations. Harrah's gaming operations are subject to the licensing and

regulatory control of the Nevada Gaming Commission ("Nevada Commission"), the

Nevada State Gaming Control Board ("Nevada Board"), the Clark County Liquor and

Gaming Licensing Board ("CCLGLB"), the City of Reno ("Reno"), and the Douglas

County Sheriff's Department ("Douglas"). The Nevada Commission, the Nevada State

Gaming Control Board, the CCLGLB, Reno, and Douglas are collectively referred to

as the "Nevada Gaming Authorities."

 

    The laws, regulations and supervisory procedures of the Nevada Gaming

Authorities are based upon declarations of public policy which are concerned

with, among other things: (i) the prevention of unsavory or unsuitable persons

from having a direct or indirect involvement with gaming at any time or in any

capacity; (ii) the establishment and maintenance of responsible accounting

practices and procedures; (iii) the maintenance of effective controls over the

financial practices of licensees, including the establishment of minimum

procedures for internal fiscal affairs and the safeguarding of assets and

revenues, providing reliable record keeping and requiring the filing of periodic

reports with the Nevada Gaming Authorities; (iv) the prevention of cheating and

fraudulent practices; and (v) providing a source of state and local revenues

through taxation and licensing fees. Changes in such laws, regulations and

procedures could have an adverse effect on Harrah's Nevada gaming operations.

 

    Harrah's Operating Company, Inc. ("HOC"), a direct subsidiary of Harrah's,

and Harrah's Las Vegas, Inc. and Harrah's Laughlin, Inc., each an indirect

subsidiary of Harrah's (hereinafter collectively referred to as the "Gaming

Subsidiaries"), are required to be licensed by the Nevada Gaming Authorities to

enable Harrah's to operate casinos at Harrah's Lake Tahoe, Bill's Lake Tahoe

Casino, Harrah's Reno, Harrah's Las Vegas, and Harrah's Laughlin. The gaming

licenses require the periodic payment of fees and taxes and are not

transferable. Harrah's is registered with the Nevada Commission as a publicly

traded corporation ("Registered Corporation"), and as such, it is required

periodically to submit detailed financial and operating reports to the Nevada

Commission and furnish any other information which the Nevada Commission may

require. No person may become a stockholder of, or receive any percentage of

profits from, the Gaming Subsidiaries without first obtaining licenses and

approvals from the Nevada Gaming Authorities. Harrah's and the Gaming

Subsidiaries have obtained from the Nevada Gaming Authorities the various

registrations, approvals, permits and licenses required in order to engage in

gaming activities in Nevada.

 

    Harrah's has been found suitable to be the sole shareholder of HOC, which,

in addition to being a gaming licensee, is a Registered Corporation (by virtue

of being the obligor on certain outstanding debt securities) and has been found

suitable to be the sole shareholder of Harrah's Las Vegas, Inc. and Harrah's

Laughlin, Inc. HOC is also licensed as a manufacturer and distributor of gaming

devices. Harrah's may not sell or transfer beneficial ownership of any of HOC's

voting securities without prior approval of the Nevada Commission.

 

    The Nevada Gaming Authorities may investigate any individual who has a

material relationship to, or material involvement with, Harrah's or the Gaming

Subsidiaries in order to determine whether such individual is suitable or should

be licensed as a business associate of a gaming licensee. Officers,

 

                                       10

<PAGE>

directors and certain key employees of the Gaming Subsidiaries (except HOC) must

file applications with the Nevada Gaming Authorities and may be required to be

licensed or found suitable by the Nevada Gaming Authorities. Officers, directors

and key employees of Harrah's and HOC who are actively and directly involved in

gaming activities of the Gaming Subsidiaries may be required to be licensed or

found suitable by the Nevada Gaming Authorities. The Nevada Gaming Authorities

may deny an application for licensing for any cause which they deem reasonable.

A finding of suitability is comparable to licensing, and both require submission

of detailed personal and financial information followed by a thorough

investigation. The applicant for licensing or a finding of suitability must pay

all the costs of the investigation. Changes in licensed positions must be

reported to the Nevada Gaming Authorities and in addition to their authority to

deny an application for a finding of suitability or licensure, the Nevada Gaming

Authorities have jurisdiction to disapprove a change in a corporate position.

 

    If the Nevada Gaming Authorities were to find an officer, director or key

employee unsuitable for licensing or unsuitable to continue having a

relationship with Harrah's or the Gaming Subsidiaries, the companies involved

would have to sever all relationships with such person. In addition, the Nevada

Commission may require Harrah's or the Gaming Subsidiaries to terminate the

employment of any person who refuses to file appropriate applications. According

to the Nevada Act, determinations of suitability or of questions pertaining to

licensing are not subject to judicial review in Nevada.

 

    Harrah's and the Gaming Subsidiaries are required to submit detailed

financial and operating reports to the Nevada Commission. Substantially all

material loans, leases, sales of securities and similar financing transactions

by the Gaming Subsidiaries must be reported to, or approved by, the Nevada

Commission.

 

    If it were determined that the Nevada Act was violated by the Gaming

Subsidiaries, the gaming licenses they hold could be limited, conditioned,

suspended or revoked, subject to compliance with certain statutory and

regulatory procedures. In addition, the Gaming Subsidiaries, Harrah's and the

persons involved could be subject to substantial fines for each separate

violation of the Nevada Act at the discretion of the Nevada Commission. Further,

a supervisor could be appointed by the Nevada Commission to operate Harrah's

gaming properties and, under certain circumstances, earnings generated during

the supervisor's appointment (except for the reasonable rental value of the

Company's gaming properties) could be forfeited to the State of Nevada.

Limitation, conditioning or suspension of any gaming license or the appointment

of a supervisor could (and revocation of any gaming license would) materially

adversely affect Harrah's gaming operations.

 

    Any beneficial holder of Harrah's voting securities, regardless of the

number of shares owned, may be required to file an application, be investigated,

and have his suitability as a beneficial holder of Harrah's voting securities

determined if the Nevada Commission has reason to believe that such ownership

would otherwise be inconsistent with the declared policies of the state of

Nevada. The applicant must pay all costs of investigation incurred by the Nevada

Gaming Authorities in conducting any such investigation.

 

    The Nevada Act requires any person who acquires more than 5% of Harrah's

voting securities to report the acquisition to the Nevada Commission. The Nevada

Act requires that beneficial owners of more than 10% of Harrah's voting

securities apply to the Nevada Commission for a finding of suitability within

thirty days after the Chairman of the Nevada Board mails the written notice

requiring such filing. Under certain circumstances, an "institutional investor,"

as defined in the Nevada Act, which acquires more than 10%, but not more than

15%, of Harrah's voting securities may apply to the Nevada Commission for a

waiver of such finding of suitability if such institutional investor holds the

voting securities for investment purposes only. An institutional investor shall

not be deemed to hold voting securities for investment purposes unless the

voting securities were acquired and are held in the ordinary course of business

as an institutional investor and not for the purpose of causing, directly or

indirectly,

 

                                       11

<PAGE>

the election of a majority of the members of the board of directors of Harrah's,

any change in Harrah's corporate charter, bylaws, management, policies or

operations of Harrah's, or any of its gaming affiliates, or any other action

which the Nevada Commission finds to be inconsistent with holding Harrah's

voting securities for investment purposes only. Activities which are not deemed

to be inconsistent with holding voting securities for investment purposes only

include: (i) voting on all matters voted on by stockholders; (ii) making

financial and other inquiries of management of the type normally made by

securities analysts for informational purposes and not to cause a change in its

management, policies or operations; and (iii) such other activities as the

Nevada Commission may determine to be consistent with such investment intent. If

the beneficial holder of voting securities who must be found suitable is a

corporation, partnership or trust, it must submit detailed business and

financial information including a list of beneficial owners. The applicant is

required to pay all costs of investigation.

 

    Any person who fails or refuses to apply for a finding of suitability or a

license within thirty days after being ordered to do so by the Nevada Commission

or the Chairman of the Nevada Board may be found unsuitable. The same

restrictions apply to a record owner if the record owner, after request, fails

to identify the beneficial owner. Any stockholder found unsuitable and who

holds, directly or indirectly, any beneficial ownership of the common stock of a

Registered Corporation beyond such period of time as may be prescribed by the

Nevada Commission may be guilty of a criminal offense. Harrah's is subject to

disciplinary action if, after it receives notice that a person is unsuitable to

be a stockholder or to have any other relationship with Harrah's or the Gaming

Subsidiaries, it: (i) pays that person any dividend or interest upon voting

securities of Harrah's; (ii) allows that person to exercise, directly or

indirectly, any voting right conferred through securities held by that person;

(iii) pays remuneration in any form to that person for services rendered or

otherwise; or (iv) fails to pursue all lawful efforts to require such unsuitable

person to relinquish his voting securities for cash at fair market value.

Additionally, the CCLGLB requires that any person who is required to be licensed

or found suitable by the Nevada Commission must file a license application with

the CCLGLB.

 

    The Nevada Commission may, in its discretion, require the holder of any debt

security of a Registered Corporation to file applications, be investigated and

be found suitable to own the debt security of a Registered Corporation. If the

Nevada Commission determines that a person is unsuitable to own such security,

then pursuant to the Nevada Act, the Registered Corporation can be sanctioned,

including the loss of its approvals, if without the prior approval of the Nevada

Commission, it: (i) pays to the unsuitable person any dividend, interest, or any

distribution whatsoever; (ii) recognizes any voting right by such unsuitable

person in connection with such securities; (iii) pays the unsuitable person

remuneration in any form; or (iv) makes any payment to the unsuitable person by

way of principal, redemption, conversion, exchange, liquidation, or similar

transaction.

 

    Harrah's would normally be required to maintain a current stock ledger in

Nevada which may be examined by the Nevada Gaming Authorities at any time, but

instead, it has been required by the Nevada Commission to maintain its stock

ledgers in its executive offices in Memphis, Tennessee which may be examined by

the Nevada Board at any time. If any securities are held in trust by an agent or

by a nominee, the record holder may be required to disclose the identity of the

beneficial owner to the Nevada Gaming Authorities. A failure to make such

disclosure may be grounds for finding the record holder unsuitable. Harrah's

also is required to render maximum assistance in determining the identity of the

beneficial owner. The Nevada Commission has the power to require the Company's

stock certificates to bear a legend indicating that the securities are subject

to the Nevada Act. However, to date, the Nevada Commission has not imposed such

a requirement on Harrah's.

 

    Harrah's and HOC may not make a public offering of their securities without

the prior approval of the Nevada Commission if the securities or the proceeds

therefrom are intended to be used to construct, acquire or finance gaming

facilities in Nevada, or to retire or extend obligations incurred for such

purposes. On April 20, 1995, the Nevada Commission granted Harrah's and HOC

prior approval to make offerings for a period of one year, subject to certain

conditions ("Shelf Approval"). The Shelf

 

                                       12

<PAGE>

Approval does not constitute a finding, recommendation or approval by the Nevada

Commission or the Nevada Board as to the accuracy or adequacy of the prospectus

or the investment merits of the securities offered. Any representation to the

contrary is unlawful. Harrah's and HOC are in the process of seeking a one year

renewal of the Shelf Approval.

 

    Changes in control of Harrah's through merger, consolidation, stock or asset

acquisitions, management or consulting agreements, or any act or conduct by a

person whereby he obtains control, may not occur without the prior approval of

the Nevada Commission. Entities seeking to acquire control of a Registered

Corporation must satisfy the Nevada Board and Nevada Commission in a variety of

stringent standards prior to assuming control of such Registered Corporation.

The Nevada Commission may also require controlling stockholders, officers,

directors and other persons having a material relationship or involvement with

the entity proposing to acquire control, to be investigated and licensed as part

of the approval process relating to the transaction.

 

    The Nevada legislature has declared that some corporate acquisitions opposed

by management, repurchases of voting securities and corporate defense tactics

affecting Nevada gaming licensees, and Registered Corporations that are

affiliated with those operations, may be injurious to stable and productive

corporate gaming. The Nevada Commission has established a regulatory scheme to

ameliorate the potentially adverse effects of these business practices upon

Nevada's gaming industry and to further Nevada's policy to: (i) assure the

financial stability of corporate gaming operators and their affiliates; (ii)

preserve the beneficial aspects of conducting business in the corporate form;

and (iii) promote a neutral environmental for the orderly governance of

corporate affairs. Approvals are, in certain circumstances, required from the

Nevada Commission before the Registered Corporation can make exceptional

repurchases of voting securities above the current market price thereof and

before a corporate acquisition opposed by management can be consummated. The

Nevada Act also requires prior approval of a plan of recapitalization proposed

by the Registered Corporation's Board of Directors in response to a tender offer

made directly to the Registered Corporation's stockholders for the purposes of

acquiring control of the Registered Corporation.

 

    License fees and taxes, computed in various ways depending on the type of

gaming or activity involved, are payable to the State of Nevada and to the

counties and cities in which the Gaming Subsidiaries' respective operations are

conducted. Depending upon the particular fee or tax involved, these fees and

taxes are payable either monthly, quarterly or annually and are based upon

either: (i) a percentage of the gross revenues received; (ii) the number of

gaming devices operated; or (iii) the number of table games operated. A casino

entertainment tax is also paid by casino operations where entertainment is

furnished in connection with the selling of food or refreshments. Nevada

licensees that hold a license as an operator of a slot route, or a

manufacturer's or distributor's license, also pay certain fees and taxes to the

State of Nevada.

 

    Any person who is licensed, required to be licensed, registered, required to

be registered, or is under common control with such persons (collectively,

"Licensees") and who proposes to become involved in a gaming venture outside of

Nevada is required to deposit with the Nevada Board, and thereafter maintain, a

revolving fund in the amount of $10,000 to pay the expenses of investigation of

the Nevada Board of their participation in such foreign gaming. The revolving

fund is subject to increase or decrease in the discretion of the Nevada

Commission. Thereafter, Licensees are required to comply with certain reporting

requirements imposed by the Nevada Act. Licensees are also subject to

disciplinary action by the Nevada Commission if they knowingly violate any laws

of the foreign jurisdiction pertaining to the foreign gaming operation, fail to

conduct the foreign gaming operation in accordance with the standards of honesty

and integrity required of Nevada gaming operations, engage in activities that

are harmful to the State of Nevada or its ability to collect gaming taxes and

fees, or employ a person in the foreign operation who has been denied a license

or finding of suitability in Nevada on the ground of personal unsuitability.

 

                                       13

<PAGE>

    The Company is in present material compliance with all applicable gaming

laws, rules and regulations promulgated by the State of Nevada.

 

GAMING-NEW JERSEY

 

    As a holding company of Marina Associates ("Marina"), which holds a license

to operate Harrah's Atlantic City in New Jersey, Harrah's is subject to the

provisions of the New Jersey Casino Control Act (the "New Jersey Act"). The

ownership and operation of casino hotel facilities in Atlantic City, New Jersey,

are the subject of pervasive state regulation under the New Jersey Act and the

regulations adopted thereunder by the New Jersey Casino Control Commission (the

"New Jersey Commission"). The New Jersey Commission is empowered to regulate a

wide spectrum of gaming and non-gaming related activities and to approve the

form of ownership and financial structure of not only the casino licensee,

Marina, but also its intermediary and ultimate holding companies, including

Harrah's and HOC. In addition to taxes imposed by the State of New Jersey on all

businesses, the New Jersey Act imposes certain fees and taxes on casino

licensees, including an 8% gross gaming revenue tax, an investment alternative

obligation of 1.25% (or an investment alternative tax of 2.5%) of gross gaming

revenue (generally defined as gross receipts less payments to customers as

winnings) and various license fees.

 

    No casino hotel facility may operate unless the appropriate licenses and

approvals are obtained from the New Jersey Commission, which has broad

discretion with regard to the issuance, renewal and revocation or suspension of

the non-transferable casino license (which licenses are issued initially for a

one-year period and renewable for one-year periods for the first two renewals

and four-year periods thereafter), including the power to impose conditions

which are necessary to effectuate the purposes of the New Jersey Act. Each

applicant for a casino license must demonstrate, among other things, its

financial stability (including establishing ability to maintain adequate casino

bankroll, meet ongoing operating expenses, pay all local, state and federal

taxes, make necessary capital improvements and pay, exchange, refinance, or

extend all long and short term debt due and payable during the license term),

its financial integrity and responsibility, its reputation for good character,

honesty and integrity, the suitability of the casino and related facilities and

that it has sufficient business ability and casino experience to establish the

likelihood of creation or maintenance of a successful, efficient casino

operation. With the exception of licensed lending institutions and certain

"institutional investors" waived from the qualification requirements under the

New Jersey Act, each applicant is also required to establish the reputation of

its financial sources including, but not limited to, its financial backers,

investors, mortgagees and bond holders.

 

    The New Jersey Act requires that all officers, directors and principal

employees of the casino licensee be licensed. In addition, each person who

directly or indirectly holds any beneficial interest or ownership of the casino

licensee and any person who in the opinion of the New Jersey Commission has the

ability to control the casino licensee must obtain qualification approval. Each

holding and intermediary company having an interest in the casino licensee must

also obtain qualification approval by meeting essentially the same standards as

that required of the casino licensee. All directors, officers and persons who

directly or indirectly hold any beneficial interest, ownership or control in any

of the intermediary or ultimate holding companies of the casino licensee may

have to seek qualification from the New Jersey Commission. Lenders,

underwriters, agents, employees and security holders of both equity and debt of

the intermediary and holding companies of the casino licensee and any other

person whom the New Jersey Commission deems appropriate may also have to seek

qualification from the New Jersey Commission. Since Harrah's and HOC are

publicly-traded holding companies (as defined by the New Jersey Act), however,

the persons described in the two previous sentences may be waived from

compliance with the qualification process if the New Jersey Commission, with the

concurrence of the Director of the New Jersey Division of Gaming Enforcement,

determines that they are not significantly involved in the activities of Marina

and, in the case of security holders, that they do not have the ability

 

                                       14

<PAGE>

to control Harrah's (or its subsidiaries) or elect one or more of its directors.

Any person holding 5% or more of a security in an intermediary or ultimate

holding company, or having the ability to elect one or more of the directors of

a company, is presumed to have the ability to control the company and thus may

be required to seek qualification unless the presumption is rebutted.

Notwithstanding this presumption of control, the New Jersey Act permits the

waiver of the qualification requirements for passive "institutional investors"

(as defined by the New Jersey Act), when such institutional holdings are for

investment purposes only and where such securities represent less than 10% of

the equity securities of a casino licensee's holding or intermediary companies

or debt securities of a casino licensee's holding or intermediary companies not

exceeding 20% of a company's total outstanding debt or 50% of an individual debt

issue. The waiver, which is subject to certain specified conditions including,

upon request, the filing of a certified statement that the investor has no

intention of influencing the affairs of the issuer, may be granted to an

"institutional investor" holding a higher percentage of such securities upon a

showing of good cause. If an "institutional investor" is granted a waiver of the

qualification requirements and subsequently changes its investment intent, the

New Jersey Act provides that no action other than divestiture may be taken by

the investor without compliance with the Interim Casino Authorization Act (the

"Interim Act") described below.

 

    In the event a security holder of either equity or debt is required to

qualify under the New Jersey Act, the provisions of the Interim Act may be

triggered requiring, among other things, either: (i) the filing of a completed

application for qualification within 30 days after being ordered to do so, which

application must include an approved Trust Agreement pursuant to which all

securities of Harrah's (or its respective subsidiaries) held by the security

holder must be placed in trust with a trustee who has been approved by the New

Jersey Commission; or (ii) the divestiture of all securities of Harrah's (or its

respective subsidiaries) within 120 days after the New Jersey Commission

determines that qualification is required or declines to waive qualification,

provided the security holder files a notice of intent to divest within 30 days

after the determination of qualification. If a security holder files an

application under the Interim Act, during the period the Trust Agreement remains

in place, such holder may, through the approved trustee, continue to exercise

all rights incident to the ownership of the securities with the exception that:

(i) the security holder may only receive a return on its investment in an amount

not to exceed the actual cost of the investment (as defined by the New Jersey

Act) until the New Jersey Commission finds such holder qualified; and (ii) in

the event the New Jersey Commission finds there is reasonable cause to believe

that the security holder may be found unqualified, the Trust Agreement will

become fully operative vesting the trustee with all rights incident to ownership

of the securities pending a determination on such holder's qualifications;

provided, however, that during the period the securities remain in trust, the

security holder may petition the New Jersey Commission to: (a) direct the

trustee to dispose of the trust property; and (b) direct the trustee to

distribute proceeds thereof to the security holder in an amount not to exceed

the lower of the actual cost of the investment or the value of the securities on

the date the Trust became operative. If the security holder is ultimately not

found to be qualified, the trustee is required to sell the securities and to

distribute the proceeds of the sale to the applicant in an amount not exceeding

the lower of the actual cost of the investment or the value of the securities on

the date the Trust became operative (if not already sold and distributed at the

direction of the security holder) and to distribute the remaining proceeds to

the Casino Revenue Fund. If the security holder is found qualified, the Trust

Agreement will be terminated.

 

    The New Jersey Commission can find that any holder of the equity or debt

securities issued by Harrah's or its subsidiaries is not qualified to own such

securities. If a security holder of Harrah's or its subsidiaries is found

disqualified, the New Jersey Act provides that it is unlawful for the security

holder to: (i) receive any dividends or interest payment on such securities;

(ii) exercise, directly or indirectly, any rights conferred by the securities;

or (iii) receive any remuneration from the company in which the security holder

holds an interest. To implement these provisions, the New Jersey Act requires,

among other things, casino licensees and their holding companies to adopt

provisions in their certificate of incorporation providing for certain remedial

action in the event that a holder of any security of such

 

                                       15

<PAGE>

company is found disqualified. The required certificate of incorporation

provisions vary depending on whether such company is a publicly or privately

traded company as defined by the New Jersey Act. The Certificates of

Incorporation of Harrah's and HOC (both "publicly-traded companies" as defined

by the New Jersey Act) contain provisions which provide Harrah's and HOC,

respectively, with the right to redeem the securities of disqualified holders,

if necessary, to avoid any regulatory sanctions, to prevent the loss or to

secure the reinstatement of any license or franchise held by Harrah's or HOC or

their affiliates, or if such holder is determined by any gaming regulatory

agency to be unsuitable, has an application for a license or permit rejected, or

has a previously issued license or permit rescinded, suspended, revoked or not

renewed. The Certificates of Incorporation of Harrah's and HOC also contain

provisions defining the redemption price and the rights of a disqualified

security holder. In the event a security holder is disqualified, the New Jersey

Commission is empowered to propose any necessary action to protect the public

interest, including the suspension or revocation of the casino license of

Marina. The New Jersey Act provides, however, that the New Jersey Commission

shall not take action against a casino licensee or its parent companies with

respect to the continued ownership of the security interest by the disqualified

holder, if the New Jersey Commission finds that: (i) such company has a

certificate of incorporation provision providing for the disposition of such

securities as discussed above; (ii) such company has made a good faith effort to

comply with any order requiring the divestiture of the security interest held by

the disqualified holder; and (iii) the disqualified holder does not have the

ability to control the casino licensee or its parent companies or to elect one

or more members to the board of directors of such company. The Certificate of

Incorporation of HOC further provides that debt securities issued by HOC are

held subject to the condition that if a holder is found unsuitable by any

governmental agency the corporation shall have the right to redeem the

securities.

 

    If, at any time, it is determined that Marina or its holding companies have

violated the New Jersey Act or regulations promulgated thereunder or that such

companies cannot meet the qualification requirements of the New Jersey Act,

Marina could be subject to fines or its license could be suspended or revoked.

If Marina's license is suspended or revoked, the New Jersey Commission could

appoint a Conservator to operate and dispose of the casino hotel facilities of

Marina. A Conservator would be vested with title to the assets of Marina,

subject to valid liens, claims and encumbrances. The Conservator would be

required to act under the general supervision of the New Jersey Commission and

would be charged with the duty of conserving, preserving and, if permitted,

continuing the operation of the casino hotel. During the period of any such

conservatorship, the Conservator may not make any distributions of net earnings

without the prior approval of the New Jersey Commission. The New Jersey

Commission may direct that all or part of such net earnings be paid to the

Casino Revenue Fund, provided, however, that a suspended or former licensee is

entitled to a fair rate of return.

 

    The New Jersey Commission granted Marina a plenary casino license in

connection with Harrah's Atlantic City in November 1981, and it has been renewed

since then. In April 1994, the New Jersey Commission renewed the license for a

two-year period and also found Harrah's and HOC to be qualified as holding

companies of Marina. Harrah's is in the process of completing its renewal

application for a four-year license commencing April 1996.

 

    The Company is in present material compliance with all applicable gaming

laws, rules and regulations promulgated by the State of New Jersey.

 

GAMING-COLORADO

 

    The ownership and operation of limited gaming facilities in the State of

Colorado are subject to extensive state and local regulation. In Colorado, the

two casinos managed and partially owned by subsidiaries of Harrah's (Harrah's

Central City and Harrah's Black Hawk) are subject to licensing by and regulatory

control of both the State of Colorado Limited Gaming Control Commission and the

State of Colorado Division of Gaming (hereinafter collectively referred to as

the "Colorado Gaming

 

                                       16

<PAGE>

Authorities"). As Harrah's is a public company, the casinos must comply with

specific rules relating to public companies involved in limited gaming. The

Colorado Gaming Authorities examine and decide upon the suitability of persons

owning any interest in a limited gaming establishment, as well as those persons

associated with such owners. Persons employed in connection with gaming

operations must also be licensed as either "key employees" or "support

employees." The State of Colorado Limited Gaming Control Commission also has the

power to levy substantial taxes with respect to gaming revenues, and with

respect to gaming devices. The licenses held by Harrah's Central City and

Harrah's Black Hawk are not transferable, and must be renewed on an annual

basis. A Colorado constitutional amendment passed in November 1990, legalized

limited stakes gaming ($5.00 or less per bet) in three Colorado cities: Central

City, Black Hawk, and Cripple Creek. The constitutional amendment restricts

limited gaming to the commercially zoned districts of each respective city. At

each limited gaming location, no more than thirty-five percent (35%) of the

total square footage of a building, and no more than fifty percent (50%) of the

square footage of any single floor may be used for limited gaming purposes. The

Colorado Gaming Authorities have broad power to insure compliance with the

statute and regulations currently in force in the State of Colorado. The

Colorado Gaming Authorities may inspect, without notice, any premises where

gaming is being conducted, and may seize, impound, or remove any gaming device.

The statute and regulations require licensees to maintain certain minimum

operating, security and payoff procedures, as well as books and records that are

audited on an annual basis.

 

    There are specific reporting procedures and approval requirements for

transfers of interests and other involvement with publicly traded corporations

directly or indirectly involved in limited gaming in the State of Colorado. In

addition to the reporting requirements, certain provisions must be included in

the Articles of Organization or other similar chartering documents of any entity

licensed as either an operator or retailer in the State of Colorado. The State

of Colorado Limited Gaming Control Commission may require that any individual

who has a material relationship to or a material involvement with a licensee, or

otherwise, must apply for a finding of suitability by the Commission, or apply

for a key employee license. If an individual or person has been deemed to be

unsuitable by the State of Colorado Limited Gaming Control Commission, the

Commission may require a licensee to pursue all lawful efforts to require that

the unsuitable person relinquish all voting securities in addition to certain

other powers granted to the Commission.

 

    The Colorado Gaming Authorities have full and complete access to any records

of a licensee, as well as individuals associated with licensees, investigate the

background and conduct of licensees and their employees, and are empowered to

bring disciplinary actions against licensees. The Colorado Gaming Authorities

have the power to investigate the background of creditors of licensees as well.

No interest in a licensee, once approved by the Commission, may be alienated in

any fashion without the prior approval of the State of Colorado Limited Gaming

Control Commission. Any person or entity may not have an interest in more than

three retail gaming licenses.

 

    All persons, places or practices connected with limited gaming must be

"suitable" as determined by the Colorado Gaming Authorities. In this regard, the

burden is always on any applicant to prove by clear and convincing evidence that

the applicant is qualified for the licenses applied for. Thus, licensees must be

able to demonstrate that any equity holder, or any person providing financing in

connection with the establishment or operation of a licensee, must be: (i) of

good moral character; (ii) a person whose prior activities, criminal record,

reputation, habits and associations do not pose a threat to the public interests

of the State of Colorado; (iii) a person who has not served a sentence upon a

conviction of a felony or been under the supervision of a probation department

within ten years prior to the date of application; (iv) and, a person who has

not seriously or repeatedly violated the provisions of the "Limited Gaming Act

of 1991" in Colorado. At the request of the Colorado Gaming Authorities, any

person connected with limited gaming must disclose personal background and

financial information, including criminal records, and any and all other

information requested by the Colorado Gaming Authorities.

 

                                       17

<PAGE>

    The constitutional amendment gave the State of Colorado Limited Gaming

Control Commission the power to tax up to forty percent (40%) of the adjusted

gross proceeds (generally defined as gross receipts less payments to customers

as winnings) received by a licensee from limited gaming. Effective October 1,

1994, the tax schedule for the gaming year (October 1 to September 30) is as

follows:

 

<TABLE>

<CAPTION>

                                                                    PERCENTAGE

ADJUSTED GROSS PROCEEDS                                                TAX

- -----------------------------------------------------------------   ----------

<S>                                                                 <C>

Up to $2,000,000.................................................        2%

$2,000,001 to $4,000,000.........................................        8%

$4,000,001 to $5,000,000.........................................       15%

$5,000,001 and over..............................................       18%

</TABLE>

 

For the same gaming year, the State gaming device fee is Seventy-Five Dollars

($75) per gaming device. In addition, local device fees are assessed by both

Central City and Black Hawk. In Central City the current device fee is One

Thousand Two Hundred Sixty-Five Dollars ($1,265) per device per year. In Black

Hawk, Seven Hundred Fifty Dollars ($750) per device per year is the current

device fee.

 

    Changes in this regulatory scheme could adversely affect the operation of

the Colorado properties.

 

    The Company is in present material compliance with all applicable gaming

laws, rules and regulations promulgated by the State of Colorado.

 

GAMING-LOUISIANA (NEW ORLEANS)

 

    On November 22, 1995, Harrah's Jazz Company (the "Casino Operator"), the

partnership in which an indirect subsidiary of Harrah's owns an approximate 47%

interest, and which has the contract (the "Casino Operating Contract") with the

LEDGC to operate the sole land-based casino (the "Gaming Facilities") in New

Orleans, Louisiana, filed for protection under Chapter 11 of the Bankruptcy Code

and ceased operation of the Temporary Casino.

 

    See "New Orleans" and "Legal Proceedings" herein for further discussions of

the New Orleans project and the legal proceedings filed in connection with the

New Orleans project.

 

    Under the Casino Operating Contract, the Casino Operator has the authority

to engage a separate indirect subsidiary of Harrah's, Harrah's New Orleans

Management Company (the "Casino Manager"), to manage the Gaming Facilities. The

ownership and operation of the Gaming Facilities are subject to pervasive

governmental regulation, including regulation by the LEDGC in accordance with

the terms of the Louisiana Economic Development and Gaming Corporation Law (the

"Gaming Act"), the rules and regulations promulgated thereunder from time to

time, and the Casino Operating Contract.

 

    Since the Casino Operator is presently in bankruptcy, enforcement of the

Casino Operating Contract and the rules and regulations promulgated under the

Gaming Act, including, without limitation, the restrictions imposed by the

Casino Operating Contract and the LEDGC's rules and regulations on the

transferability of the Casino Operating Contract or interests in the Casino

Operator, is subject to, and limited by, the bankruptcy laws. In addition, if a

plan of reorganization of the Casino Operator is consummated in the bankruptcy,

it is uncertain whether the Casino Operating Contract and such rules and

regulations will remain in their present form. Any changes to the Casino

Operating Contract or such rules and regulations may be material.

 

    In addition, under the bankruptcy laws, the Casino Operating Contract is

considered an executory contract which, subject to bankruptcy court approval,

may be rejected or assumed by the Casino Operator. In order to assume or

assume and assign the Casino Operating Contract, the Casino Operator

must satisfy

 

                                       18

<PAGE>

certain requirements under the bankruptcy laws, including, without limitation,

the curing, or providing adequate assurance of the prompt curing of, defaults

under the Casino Operating Contract except for certain types of defaults. Unless

the bankruptcy court otherwise orders, the Casino Operator may assume or reject

the Casino Operating Contract at any time prior to or simultaneously with the

confirmation of its plan of reorganization.

 

    The Governor of the State of Louisiana has stated his intent to call a

special legislative session beginning March 17, 1996 to consider legislation

relating to all forms of gaming in Louisiana (including the Gaming Facilities).

The Governor and various legislative leaders have expressed their support for

legislation which would provide for a public referendum on such gaming

(including the Gaming Facilities). The nature and scope of any referendum and

any effect it could have on the Gaming Facilities is uncertain at this time.

 

    There could be other legislation relating to the Gaming Facilities

introduced at this session or the Legislature's next regular session beginning

April 29, 1996. There can be no assurance that legislation will not be enacted

or a public referendum not called and held which in either case could have a

material adverse effect on the Gaming Facilities.

 

    The LEDGC. The Gaming Act established the LEDGC as a special public purpose

corporation to regulate land-based gaming in Louisiana. The Gaming Act provides

that the LEDGC is not a state agency except as specifically provided therein,

and none of its obligations is subject to or backed by the full faith and credit

of the State of Louisiana. The affairs of the LEDGC are supervised by a nine

member board of directors appointed by the governor and confirmed by the

Louisiana Senate.

 

    On December 4, 1995, the Attorney General of the State of Louisiana assumed

control of the business and staff functions of the LEDGC, terminating all but a

few employees. The stated reason for the action was that the LEDGC was without

funds to operate in light of the shutdown of the Temporary Casino, which had

provided such funds. The future existence and extent of operation of the LEDGC

is unknown at this time.

 

    LEDGC's Authority to Enter Into Casino Operating Contract. The Casino

Operating Contract was entered into by the LEDGC pursuant to authority granted

under the Gaming Act. Under the Casino Operating Contract, the Casino Operator

can conduct gaming operations at a single official land-based gaming

establishment located at the site of the Rivergate Convention Center. The term

of the Casino Operating Contract is 20 years with one 10-year renewal option.

Under the Casino Operating Contract, the Casino Operator was required to pay the

LEDGC an initial payment of $125 million (the "Initial Payment") in

installments, and the entirety of the Initial Payment was paid timely. In

addition to the Initial Payment, the Casino Operating Contract requires the

Casino Operator to pay to the LEDGC a share of annual gross gaming revenues

(generally defined as gross receipts less payments to customers as winnings)

from the Permanent Casino equal to the greater of (a) $100 million or (b) a

percentage of annual gross gaming revenue as follows:

 

       (i) 19% of gross gaming revenue up to and including $600 million; plus

 

       (ii) 20% of gross gaming revenue in excess of $600 million up to and

            including $700 million; plus

 

       (iii) 22% of gross gaming revenue in excess of $700 million up to and

             including $800 million; plus

 

       (iv) 24% of gross gaming revenue in excess of $800 million up to and

            including $900 million; plus

 

                                       19

<PAGE>

       (v) 25% of gross gaming revenue in excess of $900 million.

 

    Under the Gaming Act, the gaming activities that may be conducted, subject

to the rule-making authority of the LEDGC, include any banking or percentage

game that is played with cards, dice or any electronic, electrical or mechanical

device or machine for money, property or any thing of value, but exclude

lottery, bingo, charitable games, raffles, electronic video bingo, pull tabs,

cable television bingo, wagering on dog or horse races, sports betting or

wagering on any type of sports contest or event. The Gaming Act provides that

the LEDGC shall adopt rules for the conduct of specific games and gaming

operations, including the types of games to be conducted and the granting of

credit to a patron.

 

    The Gaming Act provides that the LEDGC is authorized to permit the casino

operator to conduct limited temporary gaming operations in Orleans Parish at a

location designated by the casino operator and approved by the LEDGC. The

compensation payable to the LEDGC from gaming operations at the Temporary Casino

is 25% of gross gaming revenues with the remainder to the Casino Operator, the

net proceeds therefrom after deducting operating expenses to be used to perform

and complete the obligations of the Casino Operator as contained in the Casino

Operating Contract. The Gaming Act requires that gaming operations at the

Temporary Casino cease upon the commencement of gaming operations at the

Permanent Casino.

 

    The Gaming Act requires the casino operator to agree to maintain its

suitability at all times during the existence of the casino operating contract.

The Gaming Act provides that the LEDGC has the right but is not required to set

aside or renegotiate the provisions of the casino operating contract if the

casino operator is voluntarily or involuntarily placed in bankruptcy,

receivership, conservatorship or similar status.

 

    Regulations. Under the Gaming Act, the LEDGC has broad discretionary

authority to regulate all aspects of the casino operator's operations, and it

has exercised that authority by adopting wide-ranging administrative rules and

regulations governing all aspects of licensing, suitability, transfers of

interest and other financial transactions and the conduct of gaming operations.

The Gaming Act gives the LEDGC the power, among other things, to (i) investigate

the qualifications of the gaming operator and each applicant for a license or

permit, (ii) investigate violations of the Gaming Act and any rules and

regulations promulgated thereunder, and any other incidents or transactions

which it deems appropriate, (iii) conduct hearings and proceedings concerning,

and review and inspections of, gaming operations and related activities, (iv)

inspect and examine all premises, and all equipment or supplies thereon, where

gaming activities are conducted or gaming devices or equipment are manufactured,

sold, or distributed, and summarily seize and remove from such premises and

impound any equipment or supplies for the purpose of examination and inspection,

(v) audit the records of applicants and gaming operators respecting all revenues

produced by any gaming operations, (vi) issue interrogatories and subpoenas, and

(vii) monitor the conduct of all casino operators, licensees, permittees and

other persons having a material involvement directly or indirectly with a casino

operator.

 

    Issuance of Licenses and Permits. Under the Gaming Act, the LEDGC is

required to issue licenses or permits to certain persons associated with gaming

operations, including: (i) certain employees of the casino operator, (ii)

certain manufacturers, distributors and suppliers of gaming devices; (iii)

certain suppliers of goods or services; (iv) any person who furnishes services

or property to the casino operator under an arrangement pursuant to which the

person receives payments based on earnings, profits or receipts from gaming

operations; and (v) any other persons deemed necessary by the LEDGC.

 

    The securing of the requisite licenses and permits under the Gaming Act is a

prerequisite for conducting, operating or performing any activity regulated by

the LEDGC or the Gaming Act. The Gaming Act provides that the LEDGC has full and

absolute power to deny an application, or to limit, condition, restrict, revoke

or suspend any license, permit or approval, or to fine any person licensed,

permitted or approved for any cause specified in the Gaming Act or rules

promulgated by the LEDGC.

 

                                       20

<PAGE>

The Rules and Regulations provide that the LEDGC may take any of the foregoing

actions with respect to any person licensed, permitted, or approved, or any

person registered, found suitable, or holding a contract, for any cause deemed

reasonable.

 

    The Gaming Act provides that it is the express intent, desire and policy of

the legislature that no holder of the casino operating contract, applicant for a

license, permit, contract or other thing existing, issue or let as a result of

the Gaming Act shall have any right or action to obtain any license, permit,

contract or the granting of the approval sought except as provided for and

authorized by the Gaming Act. Any license, permit, contract, approval or thing

obtained or issued pursuant to the provisions of the Gaming Act has been

expressly declared by the legislature to be a pure and absolute revocable

privilege and not a right, property or otherwise, under the constitutions of the

United States or of the State of Louisiana. The Gaming Act also provides that no

holder acquires any vested right therein or thereunder.

 

    Suitability. Under the Gaming Act, no person is eligible to receive a

license or enter into a contract to conduct casino gaming operations unless,

among other things, the LEDGC is satisfied the applicant is suitable.

Suitability requires a demonstration by each applicant, by clear and convincing

evidence, that, among other things, (i) the applicant is a person of good

character, honesty and integrity; (ii) the applicant's prior activities,

criminal record, if any, reputation, habits and associations do not pose a

threat to the public interest of the State or the regulation and control of

casino gaming or create or enhance the dangers of unsuitable, unfair or illegal

practices, methods and activities in the conduct of gaming or the carrying on of

the business and financial arrangements incidental thereto; and (iii) the

applicant is capable of and is likely to conduct the activities for which a

license or contract is sought. In addition, to be found suitable for purposes of

the casino operating contract, the casino operator must demonstrate by clear and

convincing evidence that: (a) it has or guarantees acquisition of adequate

business competence and experience in the operation of casino gaming operations;

(b) the proposed financing is adequate for the proposed operation and is from

suitable sources; and (c) it has or is capable of and guarantees the obtaining

of a bond or satisfactory financial guarantee of sufficient amount, as

determined by the LEDGC, to guarantee successful completion of and compliance

with the casino operating contract or such other projects which are regulated by

the LEDGC. The Rules and Regulations provide that an applicant shall release all

claims and accept any risk of adverse publicity, embarrassment, criticism, or

other action, or financial loss which may result or occur from action with

respect to an application and expressly waive any claim for damages as a result

thereof.

 

    Under the Gaming Act, the LEDGC may not award the casino operating contract

or a license to a person disqualified on the basis of any of the following

criteria: (i) failures of the applicant to prove suitability in accordance with

the provisions of the Gaming Act; (ii) failure of the applicant to provide

information and documentation material to a suitability determination, or

providing untrue or misleading material information pertaining to the

qualification criteria; (iii) conviction of, or plea of guilty or nolo

contendere by, or current prosecution of, or pending charges in any jurisdiction

against, the applicant, or of any person required to be qualified under the

Gaming Act as a condition for a contract, for an offense punishable by

imprisonment for more than one year; (iv) if the applicant is a corporation that

is owned by a parent or other corporation or person, then the applicant shall be

disqualified if any person owning more than 5% of the common stock of the parent

corporation has been convicted of, or pled guilty or nolo contendere to, a

felony offense; or (v) if the applicant is a corporation or other entity of

which any individual holding 5% or more interest in the profits or loss has been

convicted of, or pled guilty or nolo contendere to, an offense that at the time

of conviction is punishable as a felony. The Rules and Regulations further

provide that a license or contract shall not be granted to an applicant that has

been found unsuitable or has been denied a gaming license or permit or has had a

gaming license or permit suspended or revoked in another gaming jurisdiction,

unless the LEDGC determines that such action is not contrary to the interest of

the State. The Rules and Regulations provide that no person shall knowingly be

or remain employed by the casino operator, nor shall they be licensed or receive

a permit, if they are not current in filing all applicable tax returns and in

the payment of all taxes, interest and penalties owed to the State of Louisiana

and the Internal Revenue Service, with certain exceptions.

 

                                       21

<PAGE>

    The Rules and Regulations provide that the LEDGC may deny, revoke, suspend,

limit, condition, or restrict any finding of suitability or application therefor

upon the same grounds as it may take such action with respect to licensees and

permittees, without exclusion of any other grounds. The Rules and Regulations

provide that the LEDGC may further take such action on the grounds that the

registrant or person found suitable is associated with, or is controlled by, or

is under common control with, an unsuitable or disqualified person. The Rules

and Regulations also provide that the LEDGC has full and absolute authority to

deny the application, or to limit, condition or restrict any license, contract

or finding of suitability.

 

    The LEDGC can find that the holder of any equity interest in, or debt

securities issued by, the casino operator or its affiliated companies, must be

found suitable to own such interest or securities. The Gaming Act provides that

every person that has or controls more than a 5% ownership, income or profit

interest in an entity that has or applies for a contract in accordance with the

provisions of the Gaming Act or has the ability, in the opinion of the LEDGC, to

exercise significant influence over the activities of the casino operator, must

meet all suitability requirements and qualifications for licensees. The Gaming

Act provides that the LEDGC may also issue, under penalty of revocation of a

license, a condition of disqualification naming the person or persons and

declaring that such person or persons may not: (i) receive dividends or interest

on securities of the casino operator; (ii) exercise directly or indirectly,

including through a trustee or nominee, a right conferred by securities of the

casino operator; (iii) receive remuneration from the casino operator; (iv)

receive any economic benefit from the casino operator; or (v) continue in an

ownership or economic interest in a casino gaming operation contract or remain

as a manager, officer, director or partner of the casino operator (collectively,

"Ownership Benefits").

 

    Under the Rules and Regulations, if at any time the LEDGC finds that any

person required to be and remain suitable has failed to demonstrate suitability,

the LEDGC may, consistent with the Gaming Act and the casino operating contract,

take any action that the LEDGC deems necessary to protect the public interest.

The Rules and Regulations provide, however, that if a person associated with the

casino operator or an affiliate, intermediary, or holding company thereof has

failed to be found or remain suitable, the LEDGC shall not declare the casino

operator or its affiliate, intermediary, or holding company, as the case may be,

unsuitable as a result if such companies comply with the conditional licensing

provisions, take immediate good faith action and comply with any order of the

LEDGC to cause such person to dispose of its interest, and, before such

disposition, ensure that the disqualified person does not receive any Ownership

Benefits. The above safe harbor protections do not apply if: (i) the casino

manager has failed to remain suitable, (ii) the casino operator engaged in a

relationship with the unsuitable person and had actual or constructive knowledge

of the wrongdoing causing the LEDGC's action, (iii) the casino operator is so

tainted by such person that it affects the suitability standards contained in

the Gaming Act and the Rules and Regulations.

 

    The Gaming Act provides that every person who is required to be found

suitable has a continuing duty to maintain such person's suitability. The casino

operator and all licensees, permittees, registrants and persons required to be

qualified under the Gaming Act have a continuing duty to inform the LEDGC of any

action that they believe would constitute a violation of the Gaming Act.

 

    Transfers. The sale, transfer, assignment, or alienation of a casino

operating contract, or an interest therein, without the approval of the LEDGC,

is prohibited. Also, the sale, transfer, assignment, pledge, alienation,

disposition, public offering, or acquisition of securities that results in one

person's owning 5% or more of the total outstanding shares issued by the casino

operator is void as to such person without prior approval of the LEDGC. Failure

to obtain prior approval by the LEDGC of a person acquiring 5% or more of the

total outstanding shares of a licensee or 5% or more economic interest in the

casino operator is grounds for cancellation of the casino operating contract or

license suspension or revocation.

 

                                       22

<PAGE>

    Exclusive Contract. The Gaming Act provides that the casino operating

contract is exclusive and no other official gaming establishment shall be

contracted or licensed in Orleans Parish during the term of the casino operating

contract. The Gaming Act also provides that, in the event that, at any time

while the casino operating contract is in effect, one or more land-based casino

gaming establishments in addition to the single casino gaming operation provided

for by the Gaming Act is authorized to operate in Orleans Parish, the casino

operator shall be relieved of the obligation to remit to the LEDGC the

compensation required under the casino operating contract. Gaming operations

upon riverboats in accordance with the Louisiana Riverboat Economic Development

and Gaming Control Act, video poker operations authorized pursuant to the Video

Draw Poker Devices Control Law, authorized charitable gaming activities, lottery

games conducted pursuant to the provisions of the Louisiana Lottery Corporation

Law and pari-mutuel wagering as authorized by the provisions of Chapter 4 of

Title 4 of the Louisiana Revised Statutes of 1950 do not constitute the

authorization of additional land-based casino gaming operations, which relieves

the casino operator of payment of compensation to the LEDGC. The Company and the

LEDGC dispute the effect of dockside riverboat gaming operations on the

Company's payment obligations under the Gaming Act and the Casino Operating

Contract. The Casino Operating Contract contains a detailed agreement on this

issue.

 

    Priority to Louisiana Residents and Business; Minority Employment. The

Gaming Act obligates the casino operator to give preference and priority to

Louisiana residents, laborers, vendors and suppliers, except when not reasonably

possible to do so without added expense, substantial inconvenience or sacrifice

in operational efficiency. The Gaming Act further obligates the casino operator

to give preference and priority to Louisiana residents in considering applicants

for employment and requires (without respect to added expense, substantial

inconvenience or sacrifice in operational efficiency) that no less than 80% of

the persons employed by the casino operator be Louisiana residents for at least

one year immediately prior to employment. The Company believes that the impact

on labor costs of such 80% residency requirement will not be material.

 

    The Gaming Act requires that the casino operator and/or LEDGC adopt written

policies, procedures, and regulations to allow the participation of businesses

owned by minorities in all design, engineering, and construction contracts

and/or projects to the maximum extent practicable. The Rules and Regulations

provide that the casino operator and the casino manager must take the foregoing

actions with respect to all design, engineering, construction, banking and

maintenance contracts and any other projects initiated by the casino operator or

casino manager. The Gaming Act further requires the casino operator, as nearly

as practicable, to employ minorities consistent with the population of the

State. The Rules and Regulations extend this obligation to the casino manager as

well. The Rules and Regulations provide that if at any time the LEDGC shall

conclude that the casino operator or the casino manager is conducting itself in

a manner inconsistent with the requirements of Louisiana law or the Rules and

Regulations, the LEDGC may take enforcement action, including fines and the

imposition of a plan that the LEDGC determines meets the objectives of the

Gaming Act and the Rules and Regulations.

 

    Limits on Restaurant, Lodging, Retail Operations. The Gaming Act provides

that the casino operator shall not: (i) offer seated restaurant facilities with

table food service for patrons, but may offer limited cafeteria style food

services for employees and patrons as provided by rule of the LEDGC, provided,

however, that no food may be given away or subsidized within the official gaming

establishment by the casino operator or any licensee, and no facility for food

service shall exceed seating for 250 persons; (ii) offer lodging in the official

gaming establishment, nor engage in any practice or enter into any business

relationships to give any hotel, whether or not affiliated with the casino

operator, any advantage or preference not available to all similarly situated

hotels; (iii) engage in such activities as are prohibited by the casino

operating contract; (iv) engage in the sale of products that are not directly

related to gaming; or (v) cash or accept in exchange for the purchase of tokens,

chips or electronic cards an identifiable employee payroll check. Any contract

between the casino operator and any hotel or lodging facilities must be

submitted to the LEDGC for approval prior to entering into the contract.

 

                                       23

<PAGE>

    Rights of Holders of Security Interest. The Gaming Act authorizes the LEDGC

to provide for the protection of the rights of holders of security interests in

both immovable property and movable property used in or related to casino gaming

operations ("Gaming Collateral") and to provide for the continued operation of

the official gaming establishment during the period of time that a lender, as a

holder of a security interest, seeks to enforce its security interest in such

property. In connection therewith, the Gaming Act provides that the holder of a

security interest in Gaming Collateral may receive payments from the owner or

lessee of such property out of the proceeds of casino gaming operations received

by the owner or lessee, and, the holder of the security interest may be exempt

from the licensing requirements of the Gaming Act with respect to such payments

if the transaction(s) giving rise to such payments have been approved in advance

by the LEDGC and complies with all rules and regulations of the LEDGC and the

LEDGC determines the holder to be suitable.

 

    Under the Gaming Act, a holder of a security interest in a gaming device who

asserts the right to ownership or possession of the encumbered property may be

granted a one-time, nonrenewable, provisional contract for a maximum of 90 days

for the sole purpose of acquiring ownership or possession for resale to a

licensed or approved person, all in accordance with rules and regulations to be

promulgated by the LEDGC. The license or contract shall not authorize the holder

to operate the gaming device or to utilize the property in gaming activities.

 

    If the holder of a security interest in immovable property comprising the

official gaming establishment wishes to continue the operation of the official

gaming establishment during and after the filing of a suit to enforce the

security interest, the Gaming Act provides that the holder of the security

interest must name the LEDGC as a nominal defendant in such suit and request the

appointment of a receiver from among the persons on a list maintained by the

LEDGC. Upon proof of the debtor's default under the security instrument and the

holder's right to enforce the security interest, the court shall appoint a

person from the LEDGC's list as a receiver of the official gaming establishment.

Upon appointment of the receiver, the Gaming Act requires the receiver to

furnish a fidelity bond in favor of the security interest holder, the owner or

lessee of the official gaming establishment and the LEDGC in an amount to be set

by the court after consultation with the LEDGC and all parties. The Gaming Act

requires the LEDGC to issue to the receiver a one-time, nonrenewable,

provisional contract to continue gaming operations until the receivership is

terminated. The receiver is considered to have all the rights and obligations of

the casino operator under the casino operating contract. The holder of the

security interest provoking the appointment of a receiver under the Gaming Act

is required to pay the cost of the receiver's bond and the cost of operating the

official gaming establishment or gaming operator during the term of receivership

to the extent that such costs exceed available revenues, in accordance with the

rules and regulations of the LEDGC. The Gaming Act further provides that the

fees of the receiver and the authority for expenditures of the receiver are to

be established by rules and regulations of the LEDGC.

 

    The Gaming Act provides that a receivership must terminate upon: (i) the

sale of the property subject to receivership to a duly approved or authorized

person; (ii) the payment in full of all obligations due to the holder of the

security interest in the property subject to the receivership; (iii) an

agreement for termination of the receivership signed by the holder of the

security interest and the debtor, and approved by the LEDGC and the court; or

(iv) the lapse of five years from the date of the initial appointment of the

receiver. Under the Gaming Act, a receivership may also be terminated by notice

from the holder of the security interest who provoked the receivership addressed

to the court and the LEDGC of its intention to withdraw its financial support of

the receivership at a specified time not less than 90 days from the date of the

notice. In the event of such notice, the Gaming Act provides that the holder of

the security interest giving the notice will not be responsible for any costs or

expenses of the receivership after the date specified in the notice; except for

reasonable costs and fees of the receiver in concluding the receivership, and

the costs of a final accounting.

 

                                       24

<PAGE>

GAMING-ILLINOIS

 

    The ownership and operation of a gaming riverboat in Illinois is subject to

extensive regulation under Illinois gaming laws and regulations. A five-member

Illinois Gaming Board is charged with such regulatory authority, including the

issuance of riverboat gaming licenses not to exceed 10 in number. The granting

of an owner's license involves a preliminary approval procedure in which the

Illinois Gaming Board issues a finding of preliminary suitability to a license

applicant and effectively reserves a gaming license for such applicant. The

Board has issued all 10 licenses. Des Plaines Development Limited Partnership,

of which 80% is owned by Harrah's Illinois Corporation, received an owner's

license in 1993. Harrah's Illinois Corporation also holds a supplier's license,

which entitles it to manage the Joliet riverboats for the partnership for a fee.

 

    To obtain an owner's license (and a finding of preliminary suitability),

applicants must submit comprehensive application forms, be fingerprinted and

undergo an extensive background investigation by the Illinois Gaming Board.

 

    Each license granted entitles a licensee to own and operate up to two

riverboats (with a combined maximum of 1,200 gaming positions) and equipment

thereon from a specific location. The duration of the license initially runs for

a period of three years (with a fee of $25,000 for the first year and $5,000 for

the following two years). Thereafter, the license is subject to renewal on an

annual basis upon payments of a fee of $5,000 and a determination by the

Illinois Gaming Board that the licensee continues to be eligible for an owner's

license pursuant to the Illinois legislation and the Illinois Gaming Board's

rules.

 

    An applicant is ineligible to receive an owner's license if the applicant,

any of its officers, directors or managerial employees or any person who

participates in the management or operation of gaming operations: (i) has been

convicted of a felony; (ii) has been convicted of any violation under Article 28

of the Illinois Criminal Code or any similar statutes in any other jurisdiction;

(iii) has submitted an application which contains false information; or (iv) is

a member of the Illinois Gaming Board. In addition, an applicant is ineligible

to receive an owners' license if the applicant owns more than a 10% ownership

interest in an entity holding another Illinois owner's license, or if a license

of the applicant issued under the Illinois legislation or a license to own or

operate gaming facilities in any other jurisdiction has been revoked.

 

    In determining whether to grant a license, the Illinois Gaming Board

considers: (i) the character, reputation, experience and financial integrity of

the applicants; (ii) the type of facilities (including riverboat and docking

facilities) proposed by the applicant; (iii) the highest prospective total

revenue to be derived by the state from the conduct of riverboat gaming; (iv)

affirmative action plans of the applicant, including minority training and

employment; and (v) the financial ability of the applicant to purchase and

maintain adequate liability and casualty insurance. Municipal (or county, if an

operation is located outside of a municipality) approval of a proposed applicant

is required, and all documents, resolutions, and letters of support must be

submitted with the initial application.

 

    A holder of a license is subject to the imposition of fines, suspension or

revocation of its license for any act that is injurious to the public health,

safety, morals, good order, and general welfare of the people of the state of

Illinois, or that would discredit or tend to discredit the Illinois gaming

industry or the state of Illinois, including without limitation: (i) failing to

comply with or make provision for compliance with the legislation, the rules

promulgated thereunder or any federal, state or local law or regulation; (ii)

failing to comply with any rule, order or ruling of the Illinois Gaming Board or

its agents pertaining to gaming; (iii) receiving goods or services from a person

or business entity who does not hold a supplier's license but who is required to

hold such license by the rules; (iv) being suspended or ruled ineligible or

having a license revoked or suspended in any state or gaming jurisdiction; (v)

associating with, either socially or in business affairs, or employing persons

of, notorious or unsavory reputation or who have extensive police records, or

who have failed to cooperate with any official constituted investigatory or

administrative body and would adversely affect public confidence and trust in

gaming;

 

                                       25

<PAGE>

and (vi) employing in any Illinois riverboat's gaming operation any person known

to have been found guilty of cheating or using any improper device in connection

with any game. Fines may be made of up to $5,000 against individuals and up to

the greater of $10,000 or an amount equal to the daily gross receipts against

licensees for each violation.

 

    An ownership interest in a license or in a business entity, other than a

publicly held business entity which holds an owner's license, may not be

transferred without approval of the Illinois Gaming Board. In addition, an

ownership interest in a license or in a business entity, other than a publicly

held business entity, which holds either directly or indirectly an owner's

license, may not be pledged as collateral without approval of the Illinois

Gaming Board.

 

    A person employed at a riverboat gaming operation must hold an occupational

license which permits the holder to perform only activities included within such

holder's level of occupation license or any lower level of occupation license.

In addition, the Illinois Gaming Board issues suppliers licenses which authorize

the supplier licensee to sell or lease gaming equipment and supplies to any

licensee involved in the ownership and management of gaming operations.

 

    Riverboat cruises are limited to a duration of four hours, and no gaming may

be conducted while the boat is docked, with the exceptions: (i) of 30-minute

time periods at the beginning of and at the end of a cruise while the passengers

are embarking and debarking (total gaming time is limited to four hours,

however, including the pre- and post-docking periods); and (ii) when weather or

mechanical problems prevent the boat from cruising. Minimum and maximum wagers

on games are set by the licensee and wagering may be conducted only with a

cashless wagering system, whereby money is converted to tokens, electronic cards

or chips which can only be used for wagering. No person under the age of 21 is

permitted to wager, and wagers may only be taken from a person present on a

licensed riverboat. With respect to electronic gaming devices, the payout

percentage may not be less than 80% nor more than 100%.

 

    The legislation imposes a 20% wagering tax on adjusted receipts (generally

defined as gross receipts less payments to customers as winnings) from gambling

games. The tax imposed is to be paid by the licensed owner to the Illinois

Gaming Board on the day after the day when the wagers were made. Of the proceeds

of that tax, 25% goes to the local government where the home dock is located, a

small portion goes to the Illinois Gaming Board for administration and

enforcement expenses, and the remainder goes to the state education assistance

fund.

 

    The legislation also requires that licensees pay a $2.00 admission tax for

each person admitted to a gaming cruise. Of this admission tax, the host

municipality or county receives $1.00. The licensed owner is required to

maintain public books and records clearly showing amounts received from

admission fees, the total amount of gross receipts and the total amount of

adjusted gross receipts.

 

    All use, occupancy and excise taxes which apply to food and beverages and

all taxes imposed on the sale or use of tangible property apply to sales aboard

riverboats.

 

    The Company is in present material compliance with all applicable gaming

laws, rules and regulations promulgated by the State of Illinois.

 

    Bills have been introduced in the Illinois legislature proposing graduated

gaming taxes that would be in excess of the taxes currently imposed. There has

also been discussion of increasing the number of riverboat gaming licenses.

There can be no assurance that these bills will not become law, or that similar

legislation, legislation increasing the number of licenses or other legislation

will not be introduced in the future, any of which could have a material adverse

effect on the operations of the Company's riverboats.

 

GAMING-MISSISSIPPI

 

    The ownership and operation of a gaming business in the State of Mississippi

is subject to extensive laws and regulations, including the Mississippi Gaming

Control Act (the "Mississippi Act") and the

 

                                       26

<PAGE>

regulations (the "Mississippi Regulations") promulgated thereunder by the

Mississippi Gaming Commission (the "Mississippi Commission"), which is empowered

to oversee and enforce the Mississippi Act. Gaming in Mississippi can be legally

conducted only on vessels of a certain minimum size in navigable waters within

any county bordering the Mississippi River or in waters of the State of

Mississippi which lie adjacent and to the south (principally in the Gulf of

Mexico) of the Counties of Hancock, Harrison and Jackson, provided that the

county in question has not voted by referendum not to permit gaming in that

county. The underlying policy of the Mississippi Act is to ensure that gaming

operations in Mississippi are conducted: (i) honestly and competitively; (ii)

free of criminal and corruptive influences; and (iii) in a manner which protects

the rights of the creditors of gaming operations.

 

    The Mississippi Act requires that a person (including any corporation or

other entity) be licensed to conduct gaming activities in the State of

Mississippi. A license will be issued only for a specified location which has

been approved in advance as a gaming site by the Mississippi Commission.

Harrah's Vicksburg Corporation, an indirect subsidiary of Harrah's, is licensed

to operate a riverboat casino in Vicksburg, Mississippi. Harrah's Tunica

Corporation, another indirect subsidiary, is the general partner of Tunica

Partners L.P., the licensed operator of a riverboat casino in Tunica,

Mississippi. In addition, a parent company of a company holding a license must

register under the Mississippi Act. Harrah's and HOC are registered with the

Mississippi Commission.

 

    The Mississippi Act also requires that each officer or director of a gaming

licensee, or other person who exercises a material degree of control over the

licensee, either directly or indirectly, be found suitable by the Mississippi

Commission. In addition, any employee of a licensee who is directly involved in

gaming must obtain a work permit from the Mississippi Commission. The

Mississippi Commission will not issue a license or make a finding of suitability

unless it is satisfied, after an investigation paid for by the applicant, that

the persons associated with the gaming licensee or applicant for a license are

of good character, honesty and integrity, with no relevant or material criminal

record. In addition, the Mississippi Commission will not issue a license unless

it is satisfied that the licensee is adequately financed or has a reasonable

plan to finance its proposed operations from acceptable sources, and that

persons associated with the applicant have sufficient business probity,

competence and experience to engage in the proposed gaming enterprise. The

Mississippi Commission may refuse to issue a work permit to a gaming employee:

(i) if the employee has committed larceny, embezzlement or any crime of moral

turpitude, or has knowingly violated the Mississippi Act or Mississippi

Regulations; or (ii) for any other reasonable cause.

 

    There can be no assurance that such persons will be found suitable by the

Mississippi Commission. An application for licensing, finding of suitability or

registration may be denied for any cause deemed reasonable by the issuing

agency. Changes in licensed positions must be reported to the issuing agency. In

addition to its authority to deny an application for a license, finding of

suitability or registration, the Mississippi Commission has jurisdiction to

disapprove a change in corporate position. If the Mississippi Commission were to

find a director, officer or key employee unsuitable for licensing or unsuitable

to continue having a relationship with the licensee, such entity would be

required to suspend, dismiss and sever all relationships with such person. The

licensee would have similar obligations with regard to any person who refuses to

file appropriate applications. Each gaming employee must obtain a work permit

which may be revoked upon the occurrence of certain specified events.

 

    Any individual who is found to have a material relationship to, or material

involvement with, Harrah's may be required to submit to an investigation in

order to be found suitable or be licensed as a business associate of any

subsidiary holding a gaming license. Key employees, controlling persons or

others who exercise significant influence upon the management or affairs of

Harrah's may be deemed to have such a relationship or involvement.

 

    The Mississippi Commission has the power to deny, limit, condition, revoke

and suspend any license, finding of suitability or registration, or to fine any

person, as it deems reasonable and in the public interest, subject to an

opportunity for a hearing. The Mississippi Commission may fine any

 

                                       27

<PAGE>

licensee or person who was found suitable up to $100,000 for each violation of

the Mississippi Act or the Mississippi Regulations which is the subject of an

initial complaint, and up to $250,000 for each such violation which is the

subject of any subsequent complaint. The Mississippi Act provides for judicial

review of any final decision of the Mississippi Commission by petition to a

Mississippi Circuit Court, but the filing of such petition does not necessarily

stay any action taken by the Mississippi Commission pending a decision by the

Circuit Court.

 

    Each gaming licensee must pay a license fee to the State of Mississippi

based upon "gaming receipts" (generally defined as gross receipts less payouts

to customers as winnings). The license fee equals four percent of gaming

receipts of $50,000 or less per month, six percent of gaming receipts over

$50,000 and up to $134,000 per month, and eight percent of gaming receipts over

$134,000. The foregoing license fees are allowed as a credit against Mississippi

State income tax liability for the year paid. An additional license fee, based

upon the number of games conducted or planned to be conducted on the gaming

premises, is payable to the State of Mississippi annually in advance. Also, up

to a four percent additional tax on gaming revenues may be imposed at the local

level of government.

 

    The Company also is subject to certain audit and record-keeping

requirements, primarily intended to ensure compliance with the Mississippi Act,

including compliance with the provisions relating to the payment of license

fees.

 

    Under the Mississippi Regulations, a person is prohibited from acquiring

control of Harrah's without prior approval of the Mississippi Commission.

Harrah's also is prohibited from consummating a plan of recapitalization

proposed by management in opposition to an attempted acquisition of control of

Harrah's and which involves the issuance of a significant dividend to Common

Stock holders, where such dividend is financed by borrowings from financial

institutions or the issuance of debt securities. In addition, Harrah's is

prohibited from repurchasing any of its voting securities under circumstances

(subject to certain exemptions) where the repurchase involves more than one

percent of Harrah's outstanding Common Stock at a price in excess of 110 percent

of the then-current market value of Harrah's Common Stock from a person who owns

and has for less than one year owned more than three percent of Harrah's

outstanding Common Stock, unless the repurchase has been approved by a majority

of Harrah's shareholders voting on the issue (excluding the person from whom the

repurchase is being made) or the offer is made to all other shareholders of

Harrah's.

 

    Under the Mississippi Regulations, a gaming license may not be held by a

publicly held corporation, although an affiliated corporation, such as Harrah's,

may be publicly held so long as Harrah's registers with and gets the approval of

the Mississippi Commission. Harrah's must obtain prior approval from the

Mississippi Commission for any subsequent public offering of the securities of

Harrah's if any part of the proceeds from that offering are intended to be used

to pay for or reduce debt used to pay for the construction, acquisition or

operation of any gaming facility in Mississippi. In addition, in order to

register with the Mississippi Commission as a publicly held holding corporation,

Harrah's must provide further documentation which is satisfactory to the

Mississippi Commission, which includes all documents filed with the Securities

and Exchange Commission.

 

    Any person who, directly or indirectly, or in association with others,

acquires beneficial ownership of more than five percent of the Common Stock of

Harrah's must notify the Mississippi Commission of this acquisition. Regardless

of the amount of securities owned, any person who has any beneficial ownership

in the Common Stock of Harrah's may be required to be found suitable if the

Mississippi Commission has reason to believe that such ownership would be

inconsistent with the declared policies of the State of Mississippi. Any person

who is required to be found suitable must apply for a finding of suitability

from the Mississippi Commission within 30 days after being requested to do so,

and must deposit a sum of money which is adequate to pay the anticipated

investigatory costs associated with such finding. Any person who is found not to

be suitable by the Mississippi Commission shall not be permitted to have any

direct or indirect ownership in Harrah's Common Stock. Any person who is

required to apply for a finding of suitability and fails to do so, or who fails

to dispose of his or her interest in Harrah's Common Stock if found unsuitable,

is guilty of a misdemeanor. If a finding of

 

                                       28

<PAGE>

suitability with respect to any person is not applied for where required, or if

it is denied or revoked by the Mississippi Commission, Harrah's is not permitted

to pay such person for services rendered, or to employ or enter into any

contract with such person.

 

    Harrah's is required to maintain current stock ledgers in the State of

Mississippi which may be examined by a representative of the Mississippi

Commission at any time. If any securities are held in trust by an agent or by a

nominee, the record holder may be required to disclose the identity of the

beneficial owner to the Mississippi Commission. A failure to make such

disclosure may be grounds for finding the record holder unsuitable. Harrah's

also is required to render maximum assistance in determining the identity of the

beneficial owner.

 

    Because Harrah's is licensed to conduct gaming in the State of Mississippi,

neither Harrah's nor any subsidiary may engage in gaming activities in

Mississippi while also conducting gaming operations outside of Mississippi

without approval of the Mississippi Commission. The Mississippi Commission has

approved the conduct of gaming in all jurisdictions in which Harrah's has

ongoing operations or approved projects. There can be no assurance that any

future approvals will be obtained. The failure to obtain such approvals could

have a materially adverse effect on Harrah's.

 

    The Company is in present material compliance with all applicable gaming

laws, rules and regulations promulgated by the State of Mississippi.

 

GAMING-LOUISIANA (RIVERBOAT)

 

    The ownership and operation of a gaming riverboat in Louisiana is subject to

extensive regulation under Louisiana gaming laws and regulations. A seven-member

Riverboat Gaming Commission ("Commission") and the Riverboat Gaming Enforcement

Division ("Division"), a part of the Louisiana State Police, are charged with

such regulatory authority, including the issuance of riverboat gaming licenses.

The number of licenses to conduct gaming on a riverboat is limited by statute to

15. No more than six licenses may be granted for the operation of gaming

activities on riverboats in any one parish (county). In general, riverboat

gaming in Louisiana can be conducted legally only on approved riverboats that

cruise with certain exceptions including exceptions for certain portions of the

Red River where riverboats can be continuously docked. Harrah's Shreveport

Investment Company, Inc. an indirect subsidiary of Harrah's, is the general

partner of, and owns 99% of, Red River Entertainment of Shreveport Partnership

in Commendam, a Louisiana partnership which was granted a gaming license in

April, 1994, to operate a continuously docked gaming riverboat. Harrah's

Shreveport Management Company, Inc., another subsidiary, owns the remaining one

percent of the Partnership and manages the riverboat pursuant to an agreement

with the Partnership.

 

    To obtain a gaming license, applicants must obtain certain Certificates of

Approval from the Commission and submit comprehensive application forms, be

fingerprinted and undergo an extensive background investigation by the Division.

An applicant is ineligible to receive a gaming license if the applicant has not

established good character, honesty and integrity. Each license granted entitles

a licensee to operate a riverboat and equipment thereon from a specific

location. The duration of the license initially runs for five years; renewals

are for one year terms. In determining whether to grant a license, the Division

considers: (i) the good character, honesty and integrity of the applicant; (ii)

the applicant's ability to conduct gaming operations; (iii) the adequacy and

source of the applicant's financing; (iv) the adequacy of the design documents

submitted; (v) the docking facilities to be used; (vi) applicant's plan to

recruit, train, and upgrade minorities in employment and to provide for

minority-owned business participation.

 

    A holder of a license is subject to the imposition of penalties, suspension

or revocation of its license for any act that is injurious to the public health,

safety, morals, good order, and general welfare of the people of the state of

Louisiana, or that violates the gaming laws and regulations.

 

                                       29

<PAGE>

    The transfer of a license or an interest in a license is prohibited. In

addition, an ownership interest of five percent or more in a business entity

which holds a gaming license may not be sold, assigned, transferred or pledged

without the Division's approval.

 

    No person may be employed as a gaming employee unless such person holds a

gaming employee permit issued by the Division. In addition, the Division issues

suppliers licenses which authorize the supplier licensee to sell or lease gaming

equipment and supplies to any licensee.

 

    Minimum and maximum wagers on games are set by the licensee and wagering may

be conducted only with a cashless wagering system, whereby all money is

converted to tokens, electronic cards, or chips used only for wagering in the

gaming establishment. No person under the age of 21 is permitted to wager, and

wagers may only be taken from a person present on a licensed riverboat.

 

    The legislation imposes a franchise fee for the right to operate on

Louisiana waterways of 15% of net gaming proceeds and a license fee of $50,000

(first year) and $100,000 (subsequent years) plus three and one-half percent of

net gaming proceeds. All fees are paid to the Division. In addition, the

legislation authorizes local governing authorities the power to levy an

admission fee for each person boarding the riverboat. Currently that amount is

paid by the license holder. The Company's operation is currently paying an

admission fee of $3.00 per person.

 

    The Company is in present material compliance with all applicable gaming

laws, rules and regulations promulgated by the State of Louisiana with respect

to riverboat casinos.

 

    The Governor of the State of Louisiana has stated his intent to call a

special legislative session beginning March 17, 1996 to consider legislation

relating to all forms of gaming in Louisiana (including riverboat gaming). The

Governor and various legislative leaders have expressed their support for

legislation which would provide for a public referendum on such gaming

(including riverboat gaming). The nature and scope of any referendum and any

effect it could have on the riverboat's operations is uncertain at this time.

 

    There could be other legislation relating to riverboat gaming introduced at

this session or the Legislature's next regular session beginning April 29, 1996.

There can be no assurance that legislation will not be enacted or a public

referendum not called and held which in either case could have a material

adverse effect on the riverboat operations.

 

GAMING-MISSOURI

 

    The ownership and operation of a gaming riverboat in Missouri is subject to

extensive regulation under Missouri gaming laws and regulations. A five-member

Missouri Gaming Commission ("Commission") is charged with such regulatory

authority, including the issuance of riverboat gaming licenses. Harrah's North

Kansas City Corporation, an indirect subsidiary of Harrah's, has been issued a

license to conduct riverboat gaming by the Commission and has an application

pending for a second excursion gambling boat. Gaming in Missouri can be

conducted legally only on either excursion gambling boats or floating facilities

approved by the Commission on the Mississippi and Missouri Rivers. Unless

permitted to be continuously docked by the Commission for certain stated

reasons, including safety, excursion gambling boats must cruise. The Commission

has approved dockside gaming for the Company's riverboat in North Kansas City.

An application for dockside gaming for the second excursion gambling boat is

also pending.

 

    To obtain a gaming license, applicants must submit comprehensive application

forms, be fingerprinted and undergo an extensive background investigation by the

Commission. An applicant is ineligible to receive an owner's license if the

applicant has not established good reputation and moral character or if the

applicant, any of its officers, directors or managerial employees or any person

who participates in the management or operation of gaming operations has been

convicted of a felony. There are separate licenses for owners and operators of

riverboat gambling operations, which can be applied for and held concurrently.

Each license granted entitles a licensee to own and/or operate an excursion

gambling boat and equipment thereon from a specific location. The duration of

the license initially runs

 

                                       30

<PAGE>

for two one-year terms followed by two-year terms. The Commission also licenses

the serving of alcoholic beverages on riverboats and adjacent facilities. All

local income, earnings, use, property and sales taxes are applicable to

licensees.

 

    In determining whether to grant a license, the Commission considers: (i) the

integrity of the applicants; (ii) the types and variety of games to be offered;

(iii) the quality of the physical facility, together with improvements and

equipment, and how soon the project will be completed; (iv) the financial

ability of the applicant to develop and operate the facility successfully; (v)

the status of governmental actions required for the facility; (vi) management

ability of the applicant; (vii) compliance with applicable laws, rules,

charters, and ordinances; (viii) the economic, ecological and social impact of

the facility as well as the cost of public improvements; (ix) the extent of

public support or opposition; (x) the plan adopted by the home dock city or

county; and (xi) effects on competition.

 

    A holder of a license is subject to the imposition of penalties, suspension

or revocation of its license for any act that is injurious to the public health,

safety, morals, good order, and general welfare of the people of the state of

Missouri, or that would discredit or tend to discredit the Missouri gaming

industry or the state of Missouri, including without limitation: (i) failing to

comply with or make provision for compliance with the legislation, the rules

promulgated thereunder or any federal, state or local law or regulation; (ii)

failing to comply with any rules, order or ruling of the Commission or its

agents pertaining to gaming; (iii) receiving goods or services from a person or

business entity who does not hold a supplier's license but who is required to

hold such license by the legislation or the rules; (iv) being suspended or ruled

ineligible or having a license revoked or suspended in any state or gaming

jurisdiction; (v) associating with, either socially or in business affairs, or

employing persons of notorious or unsavory reputation or who have extensive

police records, or who have failed to cooperate with any official constituted

investigatory or administrative body and would adversely affect public

confidence and trust in gaming; (vi) employing in any Missouri gaming operation

any person known to have been found guilty of cheating or using any improper

device in connection with any game; (vii) use of fraud, deception,

misrepresentation or bribery in securing any license or permit issued pursuant

to the legislation; (viii) obtaining any fee, charge, or other compensation by

fraud, deception or misrepresentation; and (ix) incompetence, misconduct, gross

negligence, fraud, misrepresentation or dishonesty in the performance of the

functions or duties regulated by the legislation.

 

    An ownership interest in a license or in a business entity, other than a

publicly held business entity which holds an owner's license, may not be

transferred without the approval of the Commission. In addition, an ownership

interest in a license or in a business entity, other than a publicly held

business entity, which holds either directly or indirectly an owner's license,

may not be pledged as collateral to other than a regulated bank or saving and

loan association without the Commission's approval.

 

    Every employee participating in a riverboat gaming operation must hold an

occupational license which permits the holder to perform only activities

included within such holder's level of occupation license or any lower level of

occupation license. In addition, the Commission will issue suppliers licenses

which authorize the supplier licensee to sell or lease gaming equipment and

supplies to any licensee involved in the ownership and management of gaming

operations.

 

    Even if continuously docked, licensed riverboats must establish and abide by

a cruise schedule. Riverboat cruises are required to be a minimum of two hours

and a maximum of four hours. For the Company's riverboat in North Kansas City,

Missouri, which is continuously docked, passengers may board the riverboat for a

45-minute period at the beginning of a cruise. They may disembark at any time.

There is a maximum loss per person per cruise of $500. Minimum and maximum

wagers on games are set by the licensee and wagering may be conducted only with

a cashless wagering system, whereby money is converted to tokens, electronic

cards or chips which can only be used for wagering. No person under the age of

21 is permitted to wager, and wagers may only be taken from a person present on

a licensed excursion gambling boat.

 

                                       31

<PAGE>

    The legislation imposes a 20% wagering tax on adjusted gross receipts

(generally defined as gross receipts less payments to customers as winnings)

from gambling games. The tax imposed is to be paid by the licensed owner to the

Commissioner on the day after the day when the wagers were made. Of the proceeds

of that tax, 10% goes to the local government where the home dock is located,

and the remainder goes to the state education assistance fund.

 

    The legislation also requires that licensees pay a $2.00 admission tax for

each person admitted to a gaming cruise. The licensed owner is required to

maintain public books and records clearly showing amounts received from

admission fees, the total amount of gross receipts and the total amount of

adjusted gross receipts.

 

    The Company is presently in material compliance with all applicable gaming

laws, rules and regulations promulgated by the State of Missouri.

 

INDIAN GAMING

 

    The terms and conditions of management contracts and the operation of

casinos and all gaming on Indian land in the United States are subject to the

Indian Gaming Regulatory Act of 1988 ("IGRA"), which is administered by the

National Indian Gaming Commission ("NIGC"). IGRA is subject to interpretation by

the Secretary and NIGC and may be subject to judicial and legislative

clarification or amendment.

 

    IGRA requires NIGC approval of management contracts for Class II and Class

III gaming as well as the review of all agreements collateral to the management

contracts. All contracts relating to Harrah's Phoenix Ak-Chin and Harrah's

Skagit Valley casinos were approved by the NIGC. The NIGC will not approve a

management contract if a director or a 10% shareholder of the management

company: (i) is an elected member of the Indian tribal government which owns the

facility purchasing or leasing the games; (ii) has been or is convicted of a

felony gaming offense; (iii) has knowingly and willfully provided materially

false information to the NIGC or the tribe; (iv) has refused to respond to

questions from the NIGC; or (v) is a person whose prior history, reputation and

associations pose a threat to the public interest or to effective gaming

regulation and control, or create or enhance the chance of unsuitable activities

in gaming or the business and financial arrangements incidental thereto. In

addition, the NIGC will not approve a management contract if the management

company or any of its agents have attempted to unduly influence any decision or

process of tribal government relating to gaming, or if the management company

has materially breached the terms of the management contract or the tribe's

gaming ordinance, or a trustee, exercising due diligence, would not approve such

management contract. A management contract can be approved only after NIGC

determines that the contract provides, among other things, for: (i) adequate

accounting procedures and verifiable financial reports, which must be furnished

to the tribe; (ii) tribal access to the daily operations of the gaming

enterprise, including the right to verify daily gross revenues and income; (iii)

minimum guaranteed payments to the tribe, which must have priority over the

retirement of development and construction costs; (iv) a ceiling on the

repayment of such development and construction costs and (v) a contract term not

exceeding five years and a management fee not exceeding 30% of net revenues (as

determined by the NIGC); provided that the NIGC may approve up to a seven year

term and a management fee not to exceed 40% of net revenues if NIGC is satisfied

that the capital investment required, and the income projections for the

particular gaming activity justify the larger fee and longer term.

 

    There is no periodic or ongoing review of approved contracts by the NIGC.

The only post-approval action which could result in possible modification or

cancellation of a contract would be as the result of an enforcement action taken

by the NIGC based on a violation of the law or an issue affecting suitability.

 

    IGRA established three separate classes of tribal gaming--Class I, Class II

and Class III. Class I includes all traditional or social games solely for

prizes of minimal value played by a tribe in connection

 

                                       32

<PAGE>

with celebrations or ceremonies. Class II gaming includes games such as bingo,

pulltabs, punchboards, instant bingo and non-banked card games (those that are

not played against the house), such as poker. Class III gaming is casino-style

gaming and includes banked table games such as blackjack, craps and roulette,

and gaming machines such as slots, video poker, lotteries and parimutuel

wagering. Harrah's Phoenix Ak-Chin provides Class II gaming and as limited by

the Tribal-State compact, Class III gaming.

 

    IGRA prohibits all forms of Class III gaming unless the tribe has entered

into a written agreement with the state that specifically authorizes the types

of Class III gaming the tribe may offer (a "tribal-state compact"). IGRA

requires states to negotiate in good faith with tribes that seek tribal-state

compacts and grants Indian tribes the right to seek a federal court order to

compel such negotiations. Some states have refused to enter into such

negotiations. Tribes in several states have sought federal court orders to

compel such negotiations. The issue of whether this provision of IGRA is

unconstitutional as a violation of the Eleventh Amendment to the United States

Constitution which immunizes states from suit without the state's consent is

presently pending before the U. S. Supreme Court in the case of Seminole v.

State of Florida and Lawton Chiles. If Indian tribes are unable to compel states

to negotiate tribal-state compacts, the Company will not be able to develop and

manage casinos offering Class III games in states that refuse to enter into

tribal-state compacts.

 

    If the decision of the U. S. Supreme Court in the Seminole case has the

effect of voiding IGRA in its entirety, this would end the exemption provided by

IGRA to the Johnson Act (15 USC 1171) concerning prohibition of gambling devices

on Indian land. Such outcome could have a material adverse effect on the

operations of the Harrah's Phoenix Ak-Chin casino.

 

    These compacts provide among other things the manner and extent to which

each state will conduct background investigations and certify the suitability of

the manager, its officers, directors, and key employees to conduct gaming on

tribal lands. The Company received temporary certification pending completion of

its background check from the Arizona gaming authorities prior to opening the

Phoenix Ak-Chin casino and certification from the Washington gaming authorities

prior to the opening of the Upper Skagit casino.

 

    Title 25, Section 81 of the United States Code states that "no agreement

shall be made by any person with any tribe of Indians, or individual Indians not

citizens of the United States, for the payment or delivery of any money or other

thing of value . . . in consideration of services for said Indians relative to

their lands . . . unless such contract or agreement be executed and approved" by

the Secretary of the Interior (the "Secretary") or his or her designee. An

agreement or contract for services relative to Indian lands which fails to

conform with the requirements of Section 81 is void and unenforceable. All money

or other thing of value paid to any person by any Indian or tribe for or on his

or their behalf, on account of such services, in excess of any amount approved

by the Secretary or his or her authorized representative will be subject to

forfeiture. The Company believes that it has complied with the requirements of

section 81 with respect to its management contracts for Harrah's Phoenix Ak-Chin

and Harrah's Skagit Valley and intends to comply with Section 81 with respect to

any other contract to manage casinos located on Indian land in the United

States.

 

    Indian tribes are sovereign with their own governmental systems, which have

primary regulatory authority over gaming on land within the tribes'

jurisdiction. Therefore, persons engaged in gaming activities, including the

Company, are subject to the provisions of tribal ordinances and regulations on

gaming. These ordinances are subject to review by NIGC under certain standards

established by IGRA. NIGC may determine that some or all of the ordinances

require amendment, and that additional requirements, including additional

licensing requirements, may be imposed on the Company. The Company has received

no such notification regarding the Ak-Chin and Upper Skagit casinos. The

possession of valid licenses from the Ak-Chin Indian Community and the Upper

Skagit Indian Tribe are ongoing conditions of the Ak-Chin and Upper Skagit

Agreements.

 

                                       33

<PAGE>

    The Company is in present material compliance with the IGRA and all

applicable rules and regulations promulgated by the NIGC.

 

GAMING-NEW ZEALAND

 

    The ownership and operation of casino gaming facilities in New Zealand are

subject to the Casino Control Act of 1990 ("Casino Act") and the regulations

promulgated thereunder. The gaming operations of Harrah's Sky City are subject

to the licensing and regulatory control of the Casino Control Authority

("Authority").

 

    Pursuant to the Casino Act: (1) the predecessor of Harrah's Sky City applied

for and was granted a Casino Premises License by the Authority; (2) Harrah's New

Zealand, Inc., a subsidiary of the Company, applied for and was granted a Casino

Operator's License by the Authority; and (3) Harrah's Sky City entered into a

Casino Agreement ("Management Agreement") with Harrah's New Zealand, which was

approved by the Authority. Prior to granting the Licenses and approving the

Management Agreement, the Authority conducted the relevant inquiries required by

the Casino Act, including a thorough investigation into the honesty, financial

stability, business skills and management structure of Harrah's Sky City,

Harrah's New Zealand and their respective associated persons and entities, and

found both companies suitable for licensure.

 

    The Casino Premises License has a term of 25 years from the commencement of

casino operations and is renewable. The Casino Operator's License has no stated

term, but it can be used only in a facility with a Casino Premises License and

pursuant to an approved Management Agreement. No additional casino premises

licenses can be granted by the Authority for sites on the North Island of New

Zealand (where Auckland is located) for a period of two years after the opening

of Harrah's Sky City Casino. In addition, no further casino premises licenses

can be granted within a radius of 100 kilometers of the site of Harrah's Sky

City Casino for a period of five years from the commencement of casino

operations. Neither the Casino Premises License, the Casino Operator's License

nor the Management Agreement may be amended, mortgaged, assigned or transferred

without the prior approval of the Authority.

 

    The Casino Act requires that all persons and/or entities which: (1) own a

share of, and are entitled to receive income from, the casino business; (2)

occupy the position of director, manager or other executive position and

secretary of the casino business; or (3) exercise directorial, managerial or

executive power over the casino business (all "Associated Persons"), must be

found suitable by the Authority. No person can become an Associated Person

without prior approval of the Authority. In addition all employees who are to be

employed in a casino in any capacity related to the conduct of gaming, the

movement of money or chips, cashiering, the operation, maintenance, construction

or repair of gaming equipment and the supervision or management of any such

activities must obtain a Certificate of Approval from the Authority prior to

employment.

 

    Under the Casino Act, the day-to-day regulatory oversight at a casino is

performed by persons designated as inspectors, who may be members of the police,

and who report to the Authority. The inspectors have broad authority to

supervise gaming activities, inspect gaming equipment, supervise casino counts

and investigate customer complaints regarding the conduct of gaming. In the

exercise of their authority, inspectors have the power to enter and remain in

any part of a casino and require the production of documents, information and

gaming equipment or chips to ensure compliance with the Casino Act.

 

    The Casino Act gives the Authority the power to cancel, suspend or vary or

add conditions to a Casino Premises License, a Casino Operator's License or a

Certificate of Approval after appropriate notice and hearing, which actions are

appealable to New Zealand's judicial system. The Authority also can levy fines

for various gaming-related offenses, allowing minors (under 20 years of age) in

the casino, obstructing inspectors and other specified offenses. The costs of

the Authority and the costs of administering and enforcing the Casino Act are

borne by the holders of casino premises licenses.

 

                                       34

<PAGE>

    The Company is in present material compliance with the Casino Act and all

regulations promulgated thereunder.

 

OTHER REGULATIONS

 

    The Company's businesses are subject to various federal, state and local

laws and regulations in addition to gaming laws. These laws and regulations

include but are not limited to restrictions and conditions concerning alcoholic

beverages, environmental matters, employees, currency transactions, taxation,

zoning and building codes, and marketing and advertising. Such laws and

regulations could change or could be interpreted differently in the future, or

new laws and regulations could be enacted. Material changes, new laws or

regulations, or material differences in interpretations by courts or

governmental authorities could adversely affect the Company.

 

                       FUEL SHORTAGES AND COSTS; WEATHER

 

    Although gasoline supplies are now in relative abundance, gasoline shortages

and price increases may have adverse effects on the casino business of Harrah's.

Access to several Harrah's casino entertainment facilities, including the Lake

Tahoe and Reno areas of northern Nevada, Atlantic City, New Jersey and the

Colorado properties may be restricted from time to time during the winter months

by adverse weather conditions which can cause road closures. Such closures have

at times adversely affected operating results at Harrah's Lake Tahoe, Harrah's

Reno, Bill's Lake Tahoe Casino and Harrah's Atlantic City.

 

                               EMPLOYEE RELATIONS

 

    Harrah's, through its subsidiaries, has approximately 22,000 employees.

Labor relations with employees are good.

 

    Harrah's subsidiaries have collective bargaining agreements covering

approximately 3,000 employees. These agreements relate to certain casino, hotel

and restaurant employees at Harrah's Atlantic City and Harrah's Las Vegas.

Approximately 2,500 of these 3,000 employees are covered by collective

bargaining agreements expiring in 1997.

 

ITEM 3. 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

 

                                       35

<PAGE>

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.

 

    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, plaintiffs have been directed

to file a consolidated complaint in the action numbered 95-3925. Each of the

suits 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. Each of the eight class actions sought unspecified damages, as well

as costs of legal proceedings. No class has been certified, no answer has been

filed by any defendant and no discovery on the merits has been taken. The

Company and the other defendants intend to vigorously defend the suits.

 

    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 withdrawal of the Bankruptcy Court reference and for

remand had been filed by Centex Landis. 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

 

                                       36

<PAGE>

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. No class has been certified and the Company and the

other defendant intend to vigorously defend the action.

 

    Swody was recently consolidated with Susan N. Poirer, 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. Similar complaints were filed by Ms. Poirer in the

Bankruptcy Court for the Eastern District of Louisiana in the HJC, HNOIC and

Harrah's Jazz Finance Corp. bankruptcy cases. Adversary Nos. 96-1015, 96-1014,

and 96-1013. No answer has yet been filed in the federal District Court case, or

the bankruptcy adversary actions. The Poirer action purports to be class

actions, state claims under the WARN Act and ERISA, and seek damages for alleged

failure to timely notify workers terminated by Harrah's New Orleans Management

Company at the time of the Harrah's Jazz Company bankruptcy and for ERISA

severance pay benefits allegedly due. No class has been certified and the

Company intends to vigorously defend the actions.

 

    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 withdrawal of the Bankruptcy Court reference and for

remand has been filed by the City. The Company and the other defendants have

filed an answer denying all of plaintiffs' allegations and intend to vigorously

defend the action. Pursuant to a preliminary agreement dated March 4, 1996

between the City and HJC, all discovery and pending litigation between the City

and HJC or any of its partners (which would include this action) will be stayed

until June 30, 1996, and the City will not commence further litigation against

any such entities until that time.

 

    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. 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. No discovery has been

taken in the action and no answer has been filed. The defendants intend to

vigorously defend the action.

 

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

 

    Not Applicable.

 

                                       37

<PAGE>

                      EXECUTIVE OFFICERS OF THE REGISTRANT

 

<TABLE>

<CAPTION>

                                         POSITIONS AND OFFICES HELD AND PRINCIPAL

        NAME AND AGE                  OCCUPATIONS OR EMPLOYMENT DURING PAST 5 YEARS

- -----------------------------  ------------------------------------------------------------

<S>                            <C>

Michael D. Rose (54).........  Chairman of the Board of Harrah's since November 1989. Chief

                                 Executive Officer (1989-1994) and President (1989-1991) of

                                 Harrah's. Mr. Rose also is a director of Ashland, Inc.,

                                 First Tennessee National Corporation, General Mills, Inc.

                                 and Darden Restaurants, Inc. and Chairman of the Board and

                                 a director of Promus Hotel Corporation.

Philip G. Satre (46).........  Director since 1989, President since April 1991 and Chief

                                 Executive Officer since April 1994 of Harrah's. Chief

                                 Operating Officer (1991-1994) and Senior Vice President

                                 (1989-1991) of Harrah's. President (1984-1995) and Chief

                                 Executive Officer (1984-1991) of Harrah's Gaming Group. He

                                 is a member of the Executive Committee of Harrah's Jazz

                                 Company and a director and President of Harrah's Jazz

                                 Finance Corp., both of which filed petitions under Chapter

                                 11 of the United States Bankruptcy Code in November 1995.

                                 He is also a director and President of Harrah's New

                                 Orleans Investment Company which filed a petition under

                                 Chapter 11 of the United States Bankruptcy Code in

                                 December 1995.

Colin V. Reed (48)...........  Executive Vice President of Harrah's since September 1995.

                                 Senior Vice President, Corporate Development of Harrah's

                                 from May 1992 to September 1995. Vice President, Corporate

                                 Development of Harrah's from November 1989 to May 1992. He

                                 also is a director of Sodak Gaming, Inc. He is also a

                                 member of the Executive Committee of Harrah's Jazz Company

                                 and a director and a Senior Vice President of Harrah's

                                 Jazz Finance Corp., both of which filed petitions under

                                 Chapter 11 of the United States Bankruptcy Code in

                                 November 1995. He is also a director and Senior Vice

                                 President of Harrah's New Orleans Investment Company which

                                 filed a petition under Chapter 11 of the United States

                                 Bankruptcy Code in December 1995.

John M. Boushy (41)..........  Senior Vice President, Information Technology and Corporate

                                 Marketing Services of Harrah's since June 1993. Vice

                                 President, Strategic Marketing of Harrah's from April 1989

                                 to June 1993.

Charles A. Ledsinger, Jr.

  (46).......................  Senior Vice President and Chief Financial Officer of

                                 Harrah's since August 1990. Treasurer of Harrah's from

                                 November 1989 to February 1991. He also is a director of

                                 Perkins Management Company, Inc., a privately-held general

                                 partner of Perkins Family Restaurants, L.P., a

                                 publicly-traded limited partnership. He is a Senior Vice

                                 President of Harrah's Jazz Finance Corp. which filed a

                                 petition under Chapter 11 of the United States Bankruptcy

                                 Code in November 1995.

Bradford W. Morgan (50)......  Senior Vice President, Marketing of Harrah's since May 1995.

                                 Executive Vice President, Marketing of the Company's

                                 Gaming Group from June 1994 to May 1995. Executive Vice

                                 President, Marketing & Sales of Visa U.S.A. from July 1988

                                 to June 1994.

Ben C. Peternell (50)........  Senior Vice President, Corporate Human Resources and

                                 Communications of Harrah's since November 1989. Mr.

                                 Peternell is also a director of Promus Hotel Corporation.

E. O. Robinson, Jr. (56).....  Senior Vice President and General Counsel of Harrah's since

                                 April 1993 and Secretary of Harrah's from November 1989 to

                                 October 1995. Vice President and Associate General Counsel

                                 of Harrah's from November 1989 to April 1993.

</TABLE>

 

                                       38

<PAGE>

                                    PART II

 

ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.

 

    The Company's Common Stock is listed on the New York Stock Exchange and

traded under the ticker symbol "HET" (formerly "PRI"). The stock is also listed

on the Chicago Stock Exchange, the Pacific Stock Exchange and the Philadelphia

Stock Exchange.

 

    The following table sets forth the high and low price per share of the

Company's Common Stock for the last two years:

 

<TABLE>

<CAPTION>

                                                                     HIGH             LOW

                                                                --------------   --------------

<S>                                                             <C> <C>          <C> <C>

1994

  First Quarter*.............................................     55 1/4           36 1/2

  Second Quarter*............................................     41               27 1/8

  Third Quarter*.............................................     38               27 3/4

  Fourth Quarter*............................................     34 1/8           25 7/8

1995

  First Quarter*.............................................     37 7/8           30

  Second Quarter*............................................     45 7/8           37

  Third Quarter..............................................     33 1/8           25

  Fourth Quarter.............................................     29 3/8           22 1/8

</TABLE>

 

- ------------

 

* Prior to July 3, 1995, prices include the value of shares of Promus Hotel

  Corporation ("PRH") which was spun off to stockholders on June 30, 1995, in

  the form of a special dividend, on a basis of one share of PRH stock for each

  two shares of Harrah's. The average of the high and low share prices of PRH on

  July 3, 1995, its first day of trading, was $22.625 or $11.31 per Harrah's

  share.

 

    The approximate number of holders of record of the Company's Common Stock as

of January 31, 1996, is as follows:

 

<TABLE>

<CAPTION>

                                                            APPROXIMATE NUMBER

                                                              OF HOLDERS OF

    TITLE OF CLASS                                                RECORD

- ---------------------------------------------------------   ------------------

<S>                                                         <C>

Common Stock, Par Value $0.10 per share..................          15,258

</TABLE>

 

    The Company does not presently intend to declare cash dividends. The terms

of the Company's Bank Facility substantially limit the Company's ability to pay

cash dividends on Common Stock and limitations are also contained in agreements

covering other debt of the Company. See "Management's Discussion and

Analysis--Intercompany Dividend Restriction" on page 33 of the Annual Report

and Note 16 to the consolidated financial statements on page 47 of the

Annual Report, which pages are incorporated herein by reference. When permitted

under the terms of the Bank Facility and the other debt, the declaration and

payment of dividends is at the discretion of the Board of Directors of the

Company. The Board of Directors of the Company intends to reevaluate its

dividend policy in the future in light of the Company's results of operations,

financial condition, cash requirements, future prospects and other factors

deemed relevant by the Board of Directors.

 

ITEM 6. SELECTED FINANCIAL DATA.

 

    See the information for the years 1991 through 1995 set forth under

"Financial and Statistical Highlights" on pages 2 and 3 of the Annual Report,

which pages are incorporated herein by reference.

 

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS

OF OPERATIONS.

 

    See the information set forth on pages 25 through 33 of the Annual

Report, which pages are incorporated herein by reference.

 

                                       39

<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

 

    See the information set forth on pages 34 through 49 of the Annual

Report, which pages are incorporated herein by reference.

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND

FINANCIAL DISCLOSURE.

 

    Not Applicable

 

                                    PART III

 

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS.

 

DIRECTORS

 

    See the information regarding the names, ages, positions and prior business

experience of the directors of the Company set forth in the section entitled

"Board of Directors" of the Proxy Statement, which information is incorporated

herein by reference.

 

EXECUTIVE OFFICERS

 

    See "Executive Officers of the Registrant" on page in Part I hereof.

 

ITEM 11. EXECUTIVE COMPENSATION.

 

    See the information set forth in the sections of the Proxy Statement

entitled "Compensation of Directors," "Summary Compensation Table," "Option

Grants in the Last Fiscal Year," "Aggregated Option Exercises in 1995 and

December 31, 1995 Option Values," "Ten-year Option/SAR Repricings"

and "Certain Employment Arrangements" which sections are incorporated herein

by reference.

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

 

    See the information set forth in the sections of the Proxy Statement

entitled "Ownership of Harrah's Entertainment Securities" and "Certain

Stockholders," which sections are incorporated herein by reference.

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

 

    See the information set forth in the section of the Proxy Statement entitled

"Certain Transactions," which section is incorporated herein by reference.

 

                                    PART IV

 

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

 

    (a) 1. Financial statements (including related notes to consolidated

financial statements)* filed as part of this report are listed below:

 

       Report of Independent Public Accountants

 

       Consolidated Balance Sheets as of December 31, 1995 and 1994.

 

       Consolidated Statements of Income for the Years Ended December 31, 1995,

        1994 and 1993.

 

- -----------

* Incorporated by reference from pages 34 through 48 of the Annual Report.

 

 

                                       40

<PAGE>

       Consolidated Statements of Stockholders' Equity for the Years Ended

        December 31, 1995, 1994 and 1993.

 

       Consolidated Statements of Cash Flows for the Years Ended December 31,

        1995, 1994 and 1993.

 

    2. Schedules for the years ended December 31, 1995, 1994 and 1993, are as

follows:

 

 

 

 NO.

- ----

 

   I-Condensed financial information of registrant

   II-Consolidated valuation and qualifying accounts

 

 

 Schedules III, IV, and V are not applicable and have therefore been omitted.

 

    3. Exhibits (footnotes appear on pages 47 and 48):

 

<TABLE><CAPTION>

  NO.

- ----------

<C>         <S>

  **3(1)    -Certificate of Incorporation of The Promus Companies Incorporated; Certificate

             of Amendment of Certificate of Incorporation of The Promus Companies

             Incorporated dated April 29, 1994; Certificate of Amendment of Certificate of

             Incorporation of The Promus Companies Incorporated dated May 26, 1995; and

             Certificate of Amendment of Certificate of Incorporation of The Promus Companies

             Incorporated dated June 30, 1995, changing its name to Harrah's Entertainment,

             Inc.

    3(2)    -Bylaws of the Company, as amended April 5, 1995. (5)

    4(1)    -Rights Agreement dated as of February 7, 1990, between The Promus Companies

             Incorporated and The Bank of New York as Rights Agent. (12)

    4(2)    -Letter to Bank of New York dated March 18, 1993 constituting Certificate under

             Section 12 of the Rights Agreement dated as of February 7, 1990. (11)

    4(3)    -First Supplemental Indenture dated as of July 15, 1987, among Irving Trust

             Company, as resigning trustee with respect to the 1999 Notes, Indiana National

             Bank as successor trustee with respect to the 1999 Notes and Holiday Inns, Inc.

             ; Second Supplemental Indenture dated as of January 8, 1988, under Indenture

             dated as of January 15, 1984, between Holiday Inns, Inc., and Irving Trust

             Company, as trustee with respect to 8 3/8% Notes due 1996; Third Supplemental

             Indenture dated as of January 8, 1988, under Indenture dated as of January 15,

             1984, among Holiday Inns, Inc., Irving Trust Company, as resigning trustee with

             respect to the 8 3/8% Notes due 1996, and LaSalle National Bank as successor

             trustee with respect to the 8 3/8% Notes due 1996; Fourth Supplemental Indenture

             dated as of February 23, 1988, under Indenture dated as of January 15, 1984,

             between Holiday Inns, Inc. and LaSalle National Bank, as trustee with respect to

             the 8 3/8% Notes due 1996. (3)

    4(4)    -Fifth Supplemental Indenture dated as of January 23, 1990, with respect to the 8

             3/8% Notes due 1996, among LaSalle National Bank, as trustee, The Promus

             Companies Incorporated and Holiday Inns, Inc., as issuer; Sixth Supplemental

             Indenture dated as of February 7, 1990, with respect to the 8 3/8% Notes due

             1996, among Holiday Inns, Inc., Embassy Suites, Inc., The Promus Companies

             Incorporated and LaSalle National Bank; Form of Note for 8 3/8% Notes due 1996.

             (12)

    4(5)    -Indenture dated as of April 1, 1992, with respect to the 10 7/8% Senior

             Subordinated Notes due 2002, among The Bank of New York, as trustee, The Promus

             Companies Incorporated, as guarantor, and Embassy Suites, Inc., as issuer; Form

             of Note for 10 7/8% Senior Subordinated Notes due 2002. (18)

    4(6)    -First Supplemental Indenture dated as of June 2, 1995, with respect to the 10

             7/8% Senior Subordinated Notes due 2002, among Embassy Suites, Inc., as issuer,

             The Promus Companies Incorporated, as guarantor, and The Bank of New York, as

             trustee. (2)

</TABLE>

 

- ------------

** Filed herewith

 

                                       41

<PAGE>

<TABLE><CAPTION>

  NO.

- ----------

<C>         <S>

    4(7)    -Indenture dated as of August 1, 1993, with respect to the 8 3/4% Senior

             Subordinated Notes due 2000, among The Bank of New York, as trustee, The Promus

             Companies Incorporated, as guarantor, and Embassy Suites, Inc., as issuer; Form

             of Note for 8 3/4% Senior Subordinated Notes due 2000. (6)

    4(8)    -First Supplemental Indenture dated as of June 2, 1995, with respect to the 8

             3/4% Senior Subordinated Notes due 2000, among Embassy Suites, Inc., as issuer,

             The Promus Companies Incorporated, as guarantor, and The Bank of New York, as

             trustee. (2)

    4(9)    -Interest Swap Agreement between The Sumitomo Bank, Limited and Embassy Suites,

             Inc. dated October 22, 1992; Interest Swap Agreement between The Bank of Nova

             Scotia and Embassy Suites, Inc. dated October 22, 1992; Interest Swap Agreement

             between The Nippon Credit Bank and Embassy Suites, Inc. dated October 22, 1992.

             (18)

    4(10)   -Interest Swap Agreement between Bank of America National Trust and Savings

             Association and Embassy Suites, Inc. dated May 14, 1993. (6)

    4(11)   -Interest Swap Agreement between NationsBank of North Carolina, N. A. and Embassy

             Suites, Inc. dated May 18, 1993. (6)

  **4(12)   -Interest Swap Agreement between Bank of America National Trust and Savings

             Association and Harrah's Operating Company, Inc. dated December 21, 1995.

  **4(13)   -Interest Swap Agreement between NationsBank, N. A. (Carolinas) and Harrah's

             Entertainment, Inc. dated December 21, 1995.

    4(14)   -Interest Swap Agreement between The Bank of Nova Scotia and Embassy Suites, Inc.

             dated January 25, 1995 and amended February 2, 1995. (7)

    4(15)   -Interest Swap Agreement between The Bank of Nova Scotia and Embassy Suites, Inc.

             dated March 16, 1995. (7)

    4(16)   -Interest Swap Agreement between Bankers Trust Company and Embassy Suites, Inc.

             dated May 16, 1995. (10)

    4(17)   -Interest Swap Agreement between The Sumitomo Bank, Limited and Embassy Suites,

             Inc. dated June 5, 1995. (10)

    4(18)   -Interest Swap Agreement between Bankers Trust Company and Embassy Suites, Inc.

             dated June 6, 1995. (10)

   10(1)    -Credit Agreement, dated as of July 22, 1993 and amended and restated as of June

             9, 1995, among The Promus Companies Incorporated, Embassy Suites, Inc., certain

             subsidiaries of Embassy Suites, Inc., various banks, Bankers Trust Company, The

             Bank of New York, CIBC, Inc., Credit Lyonnais, Atlanta Agency, First Interstate

             Bank of California, The Long-Term Credit Bank of Japan, Limited, New York

             Branch, NationsBank of Georgia, N.A., Societe Generale and Sumitomo Bank,

             Limited, New York Branch, as Agents, and Bankers Trust Company, as

             Administrative Agent. (2)

   10(2)    -Credit Agreement, dated as of June 9, 1995, among The Promus Companies

             Incorporated, Embassy Suites, Inc., certain subsidiaries of Embassy Suites,

             Inc., various banks, Bankers Trust Company, The Bank of New York, CIBC, Inc.,

             Credit Lyonnais, Atlanta Agency, First Interstate Bank of California, The

             Long-Term Credit Bank of Japan, Limited, New York Branch, NationsBank of

             Georgia, N.A., Societe Generale and The Sumitomo Bank, Limited, New York Branch,

             as Agents, and Bankers Trust Company, as Administrative Agent. (2)

   10(3)    -Amended and Restated Reimbursement Agreement, dated as of July 22, 1993, among

             Embassy Suites, Inc., The Promus Companies Incorporated, Marina Associates and

             The Sumitomo Bank, Limited, New York Branch. (19)

   10(4)    -Master Collateral Agreement, dated as of July 22, 1993, among The Promus

             Companies Incorporated, Embassy Suites, Inc., the other Collateral Grantors

             parties thereto, Bankers Trust Company, as Administrative Agent, and Bankers

             Trust Company as Collateral Agent. (19)

</TABLE>

 

- ------------

** Filed herewith

 

                                       42

<PAGE>

<TABLE>

<CAPTION>

  NO.

- ----------

<C>         <S>

   10(5)    -First Amendment to Master Collateral Agreement, dated as of June 30, 1995, among

             The Promus Companies Incorporated, Embassy Suites, Inc., the other Collateral

             Grantors parties thereto, Bankers Trust Company, as Administrative Agent, and

             Bankers Trust Company as Collateral Agent amending the Master Collateral

             Agreement, dated as of July 22, 1993, among The Promus Companies Incorporated,

             Embassy Suites, Inc., the other Collateral Grantors parties thereto, Bankers

             Trust Company, as Administrative Agent, and Bankers Trust Company as Collateral

             Agent. (10)

   10(6)    -Security Agreement dated as of July 22, 1993, among Embassy Suites, Inc., the

             Collateral Grantors parties thereto and Bankers Trust Company, as Collateral

             Agent. (19)

   10(7)    -First Amendment to Security Agreement, dated as of June 30, 1995, among Embassy

             Suites, Inc., the Collateral Grantors parties thereto and Bankers Trust Company,

             as Collateral Agent, amending the Security Agreement dated as of July 22, 1993,

             among Embassy Suites, Inc., the Collateral Grantors parties thereto and Bankers

             Trust Company, as Collateral Agent. (10)

   10(8)    -Deed of Trust, Leasehold Deed of Trust, Assignment, Assignment of Leases and

             Rents, Security Agreement and Financing Statement, dated as of July 22, 1993,

             from Embassy Suites, Inc., Harrah's Laughlin, Inc., and Harrah's Reno Holding

             Company, Inc., the Grantors, to First American Title Company of Nevada, as

             Trustee, for the benefit of Bankers Trust Company, as Beneficiary. (19)

   10(9)    -First Amendment to Deed of Trust, Leasehold Deed of Trust, Assignment,

             Assignment of Leases and Rents, Security Agreement and Financing Statement,

             dated as of June 30, 1995, among Embassy Suites, Inc., Harrah's Laughlin, Inc.,

             Harrah's Reno Holding Company, Inc., Harrah's, Harrah's Club and Harrah's Las

             Vegas, Inc., the Collateral Grantors, and Bankers Trust Company as Collateral

             Agent and Beneficiary, amending the Deed of Trust, Leasehold Deed of Trust,

             Assignment, Assignment of Leases and Rents, Security Agreement and Financing

             Statement, dated as of July 22, 1993, from Embassy Suites, Inc., Harrah's

             Laughlin, Inc., and Harrah's Reno Holding Company, Inc., the Grantors, to First

             American Title Company of Nevada, as Trustee, for the benefit of Bankers Trust

             Company, as Beneficiary. (10)

   10(10)   -Mortgage, Leasehold Mortgage, Assignment, Assignment of Leases and Rents and

             Security Agreement, dated as of July 22, 1993, from Marina Associates and

             Embassy Suites, Inc., the Mortgagors, to Bankers Trust Company, as Collateral

             Agent and the Mortgagee. (19)

   10(11)   -First Amendment to Mortgage, Leasehold Mortgage, Assignment, Assignment of

             Leases and Rents and Security Agreement, dated as of June 30, 1995, among

             Embassy Suites, Inc., Marina Associates, the Mortgagors, to Bankers Trust

             Company, as Collateral Agent and the Mortgagee, amending the Mortgage, Leasehold

             Mortgage, Assignment, Assignment of Leases and Rents and Security Agreement,

             dated as of July 22, 1993, from Marina Associates and Embassy Suites, Inc., the

             Mortgagors, to Bankers Trust Company, as Collateral Agent and the Mortgagee.

             (10)

   10(12)   -Pledge Agreement, dated as of July 22, 1993, between The Promus Companies

             Incorporated and Bankers Trust Company, as Collateral Agent. (19)

   10(13)   -First Amendment to Parent Pledge Agreement, dated as of June 30, 1995, among The

             Promus Companies Incorporated and Bankers Trust Company, as Collateral Agent,

             amending the Pledge Agreement, dated as of July 22, 1993, between The Promus

             Companies Incorporated and Bankers Trust Company, as Collateral Agent. (10)

   10(14)   -Pledge Agreement, dated as of July 22, 1993, among Embassy Suites, Inc., ESI

             Equity Development Corporation, Harrah's, Harrah's Club, Casino Holding Company,

             and Bankers Trust Company, as the General Collateral Agent, and Bank of America

             Nevada as the Nevada Collateral Agent. (19)

</TABLE>

 

                                       43

<PAGE>

<TABLE>

<CAPTION>

  NO.

- ----------

<C>         <S>

   10(15)   -First Amendment to Company/Sub Pledge Agreement, dated as of June 30, 1995,

             among Embassy Suites, Inc., Harrah's, Harrah's Club, and Bankers Trust Company,

             as the General Collateral Agent, and Bank of America Nevada as the Nevada

             Collateral Agent, amending the Pledge Agreement, dated as of July 22, 1993,

             among Embassy Suites, Inc., ESI Equity Development Corporation, Harrah's,

             Harrah's Club, Casino Holding Company, and Bankers Trust Company, as the General

             Collateral Agent, and Bank of America Nevada as the Nevada Collateral Agent.

             (10)

   10(16)   -Consent dated as of October 7, 1994, among The Promus Companies Incorporated,

             Embassy Suites, Inc., the Banks and Agents parties thereto, Marina Associates

             and Bankers Trust Company, as Administrative Agent. (17)

   10(17)   -Plan of Reorganization and Distribution Agreement, dated June 30, 1995, between

             The Promus Companies Incorporated and Promus Hotel Corporation. (10)

   10(18)   -Employee Benefits and Other Employment Matters Allocation Agreement, dated June

             30, 1995, between The Promus Companies Incorporated and Promus Hotel

             Corporation. (10)

   10(19)   -Risk Management Allocation Agreement, dated June 30, 1995, between The Promus

             Companies Incorporated and Promus Hotel Corporation. (10)

   10(20)   -Tax Sharing Agreement, dated June 30, 1995, between The Promus Companies

             Incorporated and Promus Hotel Corporation. (10)

  +10(21)   -Form of Indemnification Agreement entered into by The Promus Companies

             Incorporated and each of its directors and executive officers. (1)

**+10(22)   -Financial Counseling Plan of Harrah's Entertainment, Inc. as amended January

             1996.

  +10(23)   -The Promus Companies Incorporated 1996 Non-Management Director's Stock Incentive

             Plan dated April 5, 1995. (9)

  +10(24)   -The Promus Companies Incorporated Key Executive Officer Annual Incentive Plan

             dated February 24, 1995. (10)

  +10(25)   -Summary Plan Description of Executive Term Life Insurance Plan. (18)

**+10(26)   -Form of Harrah's Entertainment, Inc.'s Annual Management Bonus Plan, as amended

             1995.

  +10(27)   -Form of Severance Agreement dated July 30, 1993, entered into with E. O.

             Robinson, Jr. and John M. Boushy. (22)

  +10(28)   -Severance Agreement, dated June 30, 1995, with Bradford W. Morgan. (10)

  +10(29)   -Amended and Restated Severance Agreement dated as of May 1, 1992 between The

             Promus Companies Incorporated and Michael D. Rose. (18)

  +10(30)   -Form of Amended and Restated Severance Agreement dated November 5, 1992, entered

             into with Charles A. Ledsinger, Jr., Ben C. Peternell, Philip G. Satre and Colin

             V. Reed. (18)

  +10(31)   -Amendment, dated February 25, 1994 and effective April 29, 1994, to Amended and

             Restated Severance Agreement dated November 5, 1992, between The Promus

             Companies Incorporated and Philip G. Satre. (21)

  +10(32)   -Amended and Restated Employment Agreement, dated June 30, 1995, between Michael

             D. Rose and Harrah's Entertainment, Inc. (10)

**+10(33)   -Amendment dated as of December 19, 1995, to Amended and Restated Employment

             Agreement between Michael D. Rose and Harrah's Entertainment, Inc.

  +10(34)   -Agreement, dated April 28, 1995, between Michael D. Rose and The Promus

             Companies Incorporated concerning treatment of stock options in spin-off. (10)

</TABLE>

 

- ------------

** Filed herewith

 

 + Management contract or compensatory plan or arrangement required to be filed

   as an exhibit to this form pursuant to Item 14(c) of Form 10-K.

 

                                       44

<PAGE>

<TABLE>

<CAPTION>

  NO.

- ----------

<C>         <S>

  +10(35)   -Agreement, dated May 1, 1995, between Michael D. Rose and The Promus Companies

             Incorporated concerning treatment of Executive Deferred Compensation Plan

             account in spin-off. (10)

  +10(36)   -Employment Agreement dated as of February 25, 1994, and effective April 29,

             1994, between The Promus Companies Incorporated and Philip G. Satre including

             exhibits thereto. (17)

  +10(37)   -The Promus Companies Incorporated 1990 Stock Option Plan. (12)

  +10(38)   -The Promus Companies Incorporated 1990 Stock Option Plan (as amended as of April

             30, 1993). (20)

  +10(39)   -The Promus Companies Incorporated 1990 Stock Option Plan, as amended April 29,

             1994. (8)

  +10(40)   -The Promus Companies Incorporated 1990 Stock Option Plan, as amended July 29,

             1994. (21)

  +10(41)   -Amendment, dated April 5, 1995, to The Promus Companies Incorporated 1990 Stock

             Option Plan. (9)

**+10(42)   -Revised Form of Stock Option (1990 Stock Option Plan).

  +10(43)   -Form of memorandum agreement dated July 2, 1991, eliminating stock appreciation

             rights under stock options held by Charles A. Ledsinger, Jr., Ben C. Peternell

             and Philip G. Satre. (14)

  +10(44)   -Form of Agreement to Cancel Options dated as of December 16, 1994 entered into

             with Michael D. Rose, Philip G. Satre, Charles A. Ledsinger, Jr., Ben C.

             Peternell, Colin V. Reed, E. O. Robinson, Jr. and John M. Boushy. (7)

  +10(45)   -The Promus Companies Incorporated 1990 Restricted Stock Plan. (12)

  +10(46)   -Amendment, dated April 5, 1995, to The Promus Companies Incorporated 1990

             Restricted Stock Plan. (9)

**+10(47)   -Revised Forms of Restricted Stock Award (1990 Restricted Stock Plan).

**+10(48)   -Administrative Regulations, Long Term Compensation Plan (Restricted Stock Plan

             and Stock Option Plan) dated October 27, 1995.

  +10(49)   -Deferred Compensation Plan dated October 16, 1991. (15)

  +10(50)   -Amendment, dated May 26, 1995, to The Promus Companies Incorporated Deferred

             Compensation Plan. (2)

**+10(51)   -Forms of Deferred Compensation Agreement.

**+10(52)   -Amended and Restated Executive Deferred Compensation Plan dated as of October

             27, 1995.

**+10(53)   -Forms of Executive Deferred Compensation Agreement.

  +10(54)   -Escrow Agreement dated February 6, 1990 between The Promus Companies

             Incorporated, certain subsidiaries thereof, and Sovran Bank, as escrow agent.

             (12)

  +10(55)   -First Amendment to Escrow Agreement dated January 31, 1990 among Holiday

             Corporation, certain subsidiaries thereof and Sovran Bank, as escrow agent. (12)

  +10(56)   -Amendment to Escrow Agreement dated as of October 29, 1993 among The Promus

             Companies Incorporated, certain subsidiaries thereof, and NationsBank, formerly

             Sovran Bank. (24)

  +10(57)   -Amendment, dated as of June 7, 1995, to Escrow Agreement among The Promus

             Companies Incorporated, certain subsidiaries thereof and NationsBank. (2)

</TABLE>

 

- ------------

** Filed herewith

 

 + Management contract or compensatory plan or arrangement required to be filed

   as an exhibit to this form pursuant to Item 14(c) of Form 10-K.

 

                                       45

<PAGE>

<TABLE>

<CAPTION>

  NO.

- ----------

<C>         <S>

   10(58)   -Amended and Restated Partnership Agreement of Harrah's Jazz Company, dated as of

             March 15, 1994, among Harrah's New Orleans Investment Company, New

             Orleans/Louisiana Development Corporation and Grand Palais Casino, Inc.; First

             Amendment to the Amended and Restated Partnership Agreement of Harrah's Jazz

             Company, effective as of March 15, 1994. (24)

   10(59)   -Second Amendment dated March 31, 1994 to the Amended and Restated Partnership

             Agreement of Harrah's Jazz Company. (8)

   10(60)   -Amended and Restated Third Amendment to the Amended and Restated Partnership

             Agreement of Harrah's Jazz Company. (16)

   10(61)   -Fourth Amendment to the Amended and Restated Partnership Agreement of Harrah's

             Jazz Company. (16)

   10(62)   -Indenture dated as of November 15, 1994 between Harrah's Jazz Company, Harrah's

             Jazz Finance Corp. and First National Bank of Commerce as Trustee for the First

             Mortgage Notes including form of First Mortgage Note. (16)

   10(63)   -Cash Collateral and Disbursement Agreement among First National Bank of Commerce

             as Trustee, First National Bank of Commerce as Collateral Agent, Harrah's Jazz

             Company and Harrah's Jazz Finance Corp., dated November 16, 1994. (16)

   10(64)   -Collateral Mortgage Note by Harrah's Jazz Company dated November 15, 1994. (16)

   10(65)   -Act of Collateral Mortgage and Collateral Assignment of Proceeds by Harrah's

             Jazz Company dated November 15, 1994. (16)

   10(66)   -Act of Collateral Assignment of Leases and Rents between Harrah's Jazz Company

             and First National Bank of Commerce as Collateral Agent dated November 15, 1994.

             (16)

   10(67)   -Act of Security Agreement and Pledge between Harrah's Jazz Company and First

             National Bank of Commerce as Collateral Agent dated November 15, 1994. (16)

   10(68)   -Pledge Agreement between Harrah's Jazz Company, Harrah's Jazz Finance Corp. and

             First National Bank of Commerce as Collateral Agent dated as of November 16,

             1994. (16)

   10(69)   -Security Agreement among Harrah's Jazz Company, Harrah's Jazz Finance Corp. and

             First National Bank of Commerce as Collateral Agent dated as of November 16,

             1994. (16)

   10(70)   -Security Agreement (Cash Collateral) among Harrah's Jazz Company, Harrah's Jazz

             Finance Corp. and First National Bank of Commerce as Trustee dated November 16,

             1994. (16)

   10(71)   -Manager Subordination Agreement (First Mortgage Notes) among Harrah's Jazz

             Company, Harrah's New Orleans Management Company and First National Bank of

             Commerce as Trustee dated as of November 16, 1994. (16)

   10(72)   -Consultant Subordination Agreement (First Mortgage Notes) among Harrah's Jazz

             Company, Grand Palais Management Company, New Orleans/Louisiana Development

             Corporation and First National Bank of Commerce as Trustee dated as of November

             16,1994. (16)

   10(73)   -Amended Lease Agreement between the Rivergate Development Corporation, as

             Landlord and Harrah's Jazz Company, as Tenant and City of New Orleans, as

             Intervenor dated March 15, 1994. (13)

   10(74)   -Amended General Development Agreement between Rivergate Development Corporation

             and Harrah's Jazz Company and City of New Orleans, as Intervenor dated March 15,

             1994. (4)

   10(75)   -Temporary Casino Lease between Rivergate Development Corporation, as Landlord

             and Harrah's Jazz Company, as Tenant and City of New Orleans, as Intervenor

             dated March 15, 1994. (4)

</TABLE>

 

                                       46

<PAGE>

<TABLE>

<CAPTION>

  NO.

- ----------

<C>         <S>

   10(76)   -Amendment to Amended Lease Agreement between Rivergate Development Corporation,

             as Landlord and Harrah's Jazz Company, as Tenant and City of New Orleans, as

             Intervenor dated October 5, 1994. (13)

   10(77)   -Agreement between the City of New Orleans and Harrah's Jazz Company, dated

             October 5, 1994 (the "Separate City Agreement"). (13)

   10(78)   -Agreement among the Rivergate Development Corporation, the City of New Orleans

             and Embassy Suites, Inc. and Harrah's Jazz Company, as intervenor, dated October

             5, 1994 (the "Embassy Access Agreement"). (13)

   10(79)   -Casino Operating Contract between the Louisiana Economic Development and Gaming

             Corporation and Harrah's Jazz Company dated July 15, 1994. (4)

   10(80)   -First Amendment to Casino Operating Contract between the Louisiana Economic

             Development and Gaming Corporation and Harrah's Jazz Company dated August 31,

             1994. (13)

   10(81)   -Amended and Restated Management Agreement between Harrah's New Orleans

             Management Company and Harrah's Jazz Company dated March 14, 1994. (4)

   10(82)   -Construction Agreement between Harrah's Jazz Company and Centex Landis

             Construction Co., Inc. dated October 10, 1994, for the construction of the

             Permanent Casino. (13)

   10(83)   -Design and Construction Agreement between Harrah's Jazz Company and Broadmoor

             dated October 10, 1994, for the construction of the parking structure. (13)

   10(84)   -Owner's Policy issued March 16, 1994 by First American Title Insurance Company

             to Harrah's Jazz Company with attachments. (16)

   10(85)   -Lender's Title Insurance Policy issued November 16, 1994 by First American Title

             Insurance Company together with reinsurance agreements. (16)

   10(86)   -Construction Lien Indemnity Obligation Agreement between Harrah's Jazz Company

             and Embassy Suites, Inc. dated October 12, 1994. (23)

   10(87)   -First Amendment to the Construction Lien Indemnity Obligation Agreement. (16)

   10(88)   -Specimen form of 14 1/4% First Mortgage Note Due 2001 of Harrah's Jazz Company

             and Harrah's Jazz Finance Corp. (16)

   10(89)   -Limited Partnership Agreement of Des Plaines Limited Partnership between

             Harrah's Illinois Corporation and John Q. Hammons, dated February 28, 1992;

             First Amendment to Limited Partnership Agreement of Des Plaines Limited

             Partnership dated as of October 5, 1992. (24)

 **11       -Computations of per share earnings.

 **12       -Computations of ratios.

 **13       -Portions of Annual Report to Stockholders for the year ended December 31, 1995.

             (25)

 **21       -List of subsidiaries of Harrah's Entertainment, Inc.

 **27       -Financial Data Schedule

</TABLE>

 

- ------------

 

** Filed herewith

 

FOOTNOTES

 

 (1) Incorporated by reference from the Company's Registration Statement on Form

     10, File No. 1-10410, filed on December 13, 1989.

 

 (2) Incorporated by reference from the Company's Current Report on Form 8-K

     filed June 15, 1995, File No. 1-10410.

 

 (3) Incorporated by reference from Holiday Corporation's Annual Report on Form

     10-K for the fiscal year ended January 1, 1988, filed March 31, 1988, File

     No. 1-8900.

 

                                       47

<PAGE>

 (4) Incorporated by reference from Amendment No. 3 to Form S-1 Registration

     Statement of Harrah's Jazz Company and Harrah's Jazz Finance Corp., File

     No. 33-73370, filed August 4, 1994.

 

 (5) Incorporated by reference from the Company's Quarterly Report on Form 10-Q

     for the quarter ended March 31, 1995, filed May 15, 1995, File No. 1-10410.

 

 (6) Incorporated by reference from the Company's and Embassy Suites, Inc.'s

     Amendment No. 2 to Form S-4 Registration Statement, File No. 33-49509-01,

     filed July 16, 1993.

 

 (7) Incorporated by reference from the Company's Annual Report on Form 10-K for

     the fiscal year ended December 31, 1994, filed March 21, 1995, File No.

     1-10410.

 

 (8) Incorporated by reference from the Company's Quarterly Report on Form 10-Q

     for the quarter ended March 31, 1994, filed May 12, 1994, File No. 1-10410.

 

 (9) Incorporated by reference from the Company's Proxy Statement for the May

     26, 1995 Annual Meeting of Stockholders, filed April 25, 1995.

 

(10) Incorporated by reference from the Company's Quarterly Report on Form 10-Q

     for the quarter ended June 30, 1995, filed August 14, 1995, File No.

     1-10410.

 

(11) Incorporated by reference from the Company's Quarterly Report on Form 10-Q

     for the quarter ended March 31, 1993, filed May 13, 1993, File No. 1-10410.

 

(12) Incorporated by reference from the Company's Annual Report on Form 10-K for

     the fiscal year ended December 29, 1989, filed March 28, 1990, File No.

     1-10410.

 

(13) Incorporated by reference from Amendment No. 4 to Form S-1 Registration

     Statement of Harrah's Jazz Company and Harrah's Jazz Finance Corp., File

     No. 33-73370, filed October 12, 1994.

 

(14) Incorporated by reference from the Company's Quarterly Report on Form 10-Q

     for the quarter ended September 27, 1991, filed November 8, 1991, File No.

     1-10410.

 

(15) Incorporated by reference from Amendment No. 2 to the Company's and

     Embassy's Registration Statement on Form S-1, File No. 33-43748, filed

     March 18, 1992.

 

(16) Incorporated by reference from Harrah's Jazz Company's Quarterly Report on

     Form 10-Q for the quarter ended September 30, 1994, filed December 21,

     1994, File No.       .

 

(17) Incorporated by reference from the Company's Quarterly Report on Form 10-Q

     for the quarter ended September 30, 1994, filed November 14, 1994, File No.

     1-10410.

 

(18) Incorporated by reference from the Company's Annual Report on Form 10-K for

     the fiscal year ended December 31, 1992, filed March 12, 1993, File No.

     1-10410.

 

(19) Incorporated by reference from the Company's Current Report on Form 8-K

     filed August 6, 1993, File No. 1-10410.

 

(20) Incorporated by reference from Post-Effective Amendment No. 1 to the

     Company's Form S-8 Registration Statement, File No. 33-32864-01, filed July

     22, 1993.

 

(21) Incorporated by reference from the Company's Quarterly Report on Form 10-Q

     for the quarter ended June 30, 1994, filed August 11, 1994, File No.

     1-10410.

 

(22) Incorporated by reference from the Company's Quarterly Report on Form 10-Q

     for the quarter ended September 30, 1993, filed November 12, 1993, File No.

     1-10410.

 

(23) Incorporated by reference from Amendment No. 5 to Form S-1 Registration

     Statement of Harrah's Jazz Company and Harrah's Jazz Finance Corp., File

     No. 33-73370, filed October 26, 1994.

 

(24) Incorporated by reference from the Company's Annual Report on Form 10-K for

     the fiscal year ended December 31, 1993, filed March 28, 1994, File No.

     1-10410.

 

(25) Filed herewith to the extent portions of such report are specifically

     included herein by reference.

 

    (b) No Reports on Form 8-K were filed during the fourth quarter of 1995 and

thereafter through February 29, 1996.

 

    (d) The financial statements of Harrah's Jazz Company will be filed as an

amendment to this Form 10-K.

 

                                       48

<PAGE>

                                   SIGNATURES

 

    PURSUANT TO THE REQUIREMENTS OF SECTION 13 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.

 

Dated: March 6, 1996

                                            By

                                                 /s/ MICHAEL D.  ROSE

                                               ---------------------------------

                                                  (Michael D. Rose, Chairman)

 

 

    PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS

REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE

REGISTRANT IN THE CAPACITIES AND ON THE DATES INDICATED.

 

<TABLE>

<CAPTION>

             Signature                               Title                        Date

- ------------------------------------  ------------------------------------   ---------------

<S>                                   <C>                                    <C>

 

    /s/  JAMES L. BARKSDALE           Director                                March 6, 1996

 ....................................

        (James L. Barksdale)

 

   /s/  SUSAN CLARK-JOHNSON           Director                                March 6, 1996

 ....................................

       (Susan Clark-Johnson)

 

   /s/    JAMES B. FARLEY             Director                                March 6, 1996

 ....................................

         (James B. Farley)

 

   /s/     JOE M. HENSON              Director                                March 6, 1996

 ....................................

          (Joe M. Henson)

 

   /s/       RALPH HORN               Director                                March 6, 1996

 ....................................

            (Ralph Horn)

 

   /s/    MICHAEL D. ROSE             Director and Chairman                   March 6, 1996

 ....................................

         (Michael D. Rose)

 

   /s/    WALTER J. SALMON            Director                                March 6, 1996

 ....................................

         (Walter J. Salmon)

 

   /s/    PHILIP G. SATRE             Director, President and Chief           March 6, 1996

 ....................................    Executive Officer

         (Philip G. Satre)

 

   /s/     BOAKE A. SELLS             Director                                March 6, 1996

 ....................................

          (Boake A. Sells)

 

   /s/   EDDIE N. WILLIAMS            Director                                March 6, 1996

 ....................................

        (Eddie N. Williams)

 

   /s/     SHIRLEY YOUNG              Director                                March 6, 1996

 ....................................

          (Shirley Young)

 

 /s/ CHARLES A. LEDSINGER, JR.        Chief Financial Officer                 March 6, 1996

 ....................................

    (Charles A. Ledsinger, Jr.)

 

  /s/     MICHAEL N. REGAN            Controller and Principal Accounting     March 6, 1996

 ....................................    Officer

         (Michael N. Regan)

</TABLE>

 

                                       49

<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

 

To Harrah's Entertainment, Inc.:

 

    We have audited in accordance with generally accepted auditing standards,

the financial statements included in Harrah's Entertainment, Inc. 1995 annual

report to stockholders, incorporated by reference in this Form 10-K, and have

issued our report thereon dated March 5, 1996. Our audits were made for the

purpose of forming an opinion on those statements taken as a whole. The

schedules listed under Item 14(a)2 on page 41 are the responsibility of the

Company's management and are presented for purposes of complying with the

Securities and Exchange Commission's rules and are not part of the basic

financial statements. These schedules have been subjected to the auditing

procedures applied in the audit of the basic financial statements, and in our

opinion, fairly state in all material respects the financial data required to be

set forth therein in relation to the basic financial statements taken as a

whole.

 

                                          ARTHUR ANDERSEN LLP

 

Memphis, Tennessee,

March 5, 1996.

<PAGE>

                                                                      SCHEDULE I

 

                          HARRAH'S ENTERTAINMENT, INC.

                 CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                                 BALANCE SHEETS

                                 (IN THOUSANDS)

 

<TABLE><CAPTION>

                                                                              DECEMBER 31,

                                                                          --------------------

                                                                              1995        1994

                                                                          --------    --------

                                ASSETS

 

<S>                                                                       <C>         <C>

Cash...................................................................   $      -    $      -

Investments in and advances to subsidiaries (eliminated in

  consolidation).......................................................    585,624     480,520

Net assets of discontinued hotel operations............................          -     143,008

Organizational costs...................................................          -          31

                                                                          --------    --------

                                                                          $585,624    $623,559

                                                                          --------    --------

                                                                          --------    --------

                 LIABILITIES AND STOCKHOLDERS' EQUITY

Accrued taxes, including federal income taxes..........................   $     75    $    122

                                                                          --------    --------

Commitments and contingencies (Notes 4, 8 and 9)

Stockholders' equity (Note 5)

  Common stock, $0.10 par value, authorized-360,000,000 shares,

    outstanding-102,673,828 and 102,402,619 shares (net of 19,026 and

    37,172 shares held in treasury)....................................     10,267      10,240

  Capital surplus......................................................    362,783     350,196

  Unrealized gain on marketable equity securities held by a

    subsidiary.........................................................     10,552           -

  Retained earnings....................................................    204,838     265,574

  Deferred compensation related to restricted stock....................     (2,891)     (2,573)

                                                                          --------    --------

                                                                           585,549     623,437

                                                                          --------    --------

                                                                          $585,624    $623,559

                                                                          --------    --------

                                                                          --------    --------

</TABLE>

 

                 The accompanying Notes to Financial Statements

                 are an integral part of these balance sheets.

 

                                      S-1

<PAGE>

                                                          SCHEDULE I (CONTINUED)

 

                          HARRAH'S ENTERTAINMENT, INC.

                 CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                              STATEMENTS OF INCOME

                                 (IN THOUSANDS)

 

<TABLE><CAPTION>

                                                                    YEAR ENDED DECEMBER 31,

                                                                 ------------------------------

                                                                     1995       1994       1993

                                                                 --------    -------    -------

 

<S>                                                              <C>         <C>        <C>

Revenues......................................................   $      -    $     -    $     -

Costs and expenses............................................        182        466        319

                                                                 --------    -------    -------

Loss before income taxes and equity in subsidiaries'

  continuing earnings.........................................       (182)      (466)      (319)

Income tax benefit............................................         64        163        112

                                                                 --------    -------    -------

Loss before equity in subsidiaries' continuing earnings.......       (118)      (303)      (207)

Equity in subsidiaries' continuing earnings...................     78,928     50,287     75,074

                                                                 --------    -------    -------

Income from continuing operations.............................     78,810     49,984     74,867

Discontinued operations (Note 1)

  Equity in subsidiaries' income from discontinued

    operations................................................     21,230     36,319     16,926

  Spin-off transaction expenses, net of tax benefit of

    $5,134....................................................    (21,194)         -          -

                                                                 --------    -------    -------

Income before extraordinary loss and cumulative effect of

  change in accounting policy.................................     78,846     86,303     91,793

Extraordinary loss on early extinguishment of debt by a

  subsidiary, net of tax benefit of $3,415....................          -          -     (5,447)

Cumulative effect of change in accounting policy, net of tax

  benefit of $4,317 (Note 7)..................................          -     (7,932)         -

                                                                 --------    -------    -------

Net income....................................................   $ 78,846    $78,371    $86,346

                                                                 --------    -------    -------

                                                                 --------    -------    -------

</TABLE>

 

                 The accompanying Notes to Financial Statements

                   are an integral part of these statements.

 

                                      S-2

<PAGE>

                                                          SCHEDULE I (CONTINUED)

 

                          HARRAH'S ENTERTAINMENT, INC.

                 CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                            STATEMENTS OF CASH FLOWS

                                 (IN THOUSANDS)

 

<TABLE><CAPTION>

                                                                    YEAR ENDED DECEMBER 31,

                                                                --------------------------------

                                                                    1995        1994        1993

                                                                --------    --------    --------

 

<S>                                                             <C>         <C>         <C>

Cash flows from operating activities

  Net income.................................................   $ 78,846    $ 78,371    $ 86,346

  Adjustment to reconcile net income to cash flows from

    operating activities

    Discontinued operations

      Equity in subsidiaries' income from discontinued

        operations...........................................    (21,230)    (36,319)    (16,926)

      Spin-off transaction expenses, before income taxes.....     26,328           -           -

    Extraordinary loss.......................................          -           -       8,862

    Cumulative effect of change in accounting policy, before

      income taxes...........................................          -      13,924           -

    Amortization.............................................         31         271         271

    Equity in undistributed continuing earnings of

      subsidiaries...........................................    (78,928)    (50,287)    (75,074)

    Net change in working capital accounts...................     (5,047)     (5,960)     (3,479)

                                                                --------    --------    --------

Net change in cash...........................................          -           -

Cash, beginning of period....................................          -           -           -

                                                                --------    --------    --------

Cash, end of period..........................................   $      -    $      -    $      -

                                                                --------    --------    --------

                                                                --------    --------    --------

</TABLE>

 

                 The accompanying Notes to Financial Statements

                   are an integral part of these statements.

 

                                      S-3

<PAGE>

                                                          SCHEDULE I (CONTINUED)

 

                          HARRAH'S ENTERTAINMENT, INC.

                 CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                         NOTES TO FINANCIAL STATEMENTS

 

NOTE 1--BASIS OF ORGANIZATION

 

    Harrah's Entertainment, Inc. (Harrah's or the Company), a Delaware

corporation, is a holding company, the principal assets of which are the capital

stock of two subsidiaries, Harrah's Operating Company, Inc. (HOC) and Aster

Insurance Ltd. (Aster). These condensed financial statements should be read in

conjunction with the consolidated financial statements of Harrah's and

subsidiaries.

 

    On June 30, 1995, the Company completed a spin-off of its hotel business

(the PHC Spin-off) with the distribution to its stockholders on a one-for-two

basis of the stock of a new entity, Promus Hotel Corporation (PHC). The Company

had transferred its hotel operations to PHC prior to the PHC Spin-off. Through

its subsidiaries, Harrah's, formerly The Promus Companies Incorporated, retained

ownership of the casino entertainment business. As a result of the PHC Spin-off,

Harrah's financial statements reflect the hotel business as discontinued

operations.

 

NOTE 2--ORGANIZATIONAL COSTS

 

    Organizational costs were amortized on a straight-line basis over a five

year period.

 

NOTE 3--INVESTMENT IN ASTER

 

    The value of Harrah's investment in Aster has been reduced below zero.

Harrah's negative investment in Aster at December 31, 1995 and 1994 was $12.7

million and $13.4 million, respectively, and is included in investments in and

advances to subsidiaries on the balance sheet. In addition, Harrah's has

guaranteed the future payment by Aster of certain insurance-related liabilities.

 

NOTE 4--LONG-TERM DEBT

 

    Harrah's has no long-term debt obligations. Harrah's has guaranteed certain

long-term debt obligations of HOC.

 

NOTE 5--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, 5,000,000 shares authorized-

             Series B, $1.125 par value

 

    On June 30, 1995, the PHC Spin-off was completed and the Company distributed

to its stockholders the stock of PHC as a dividend. To reflect this distribution

the $139.6 million book value of the net assets of discontinued operations as of

the spin-off date has been charged against the Company's retained earnings (see

Note 1).

 

                                      S-4

<PAGE>

                                                          SCHEDULE I (CONTINUED)

 

                          HARRAH'S ENTERTAINMENT, INC.

                 CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                         NOTES TO FINANCIAL STATEMENTS

 

NOTE 5--STOCKHOLDERS' EQUITY (CONTINUED)

    Due to continued appreciation in the market value of the stock of an equity

investee of HOC, during 1995 the carrying value of the investment was adjusted

by HOC to include the unrealized gain in accordance with the provisions of

Statement of Financial Accounting Standards No. 115, "Accounting for Certain

Investments in Debt and Equity Securities." A corresponding increase, net of

the related income tax provision, was recorded in stockholders' equity. The

amount of such unrealized gain in prior years was not material.

 

NOTE 6--INCOME TAXES

 

    Harrah's files a consolidated tax return with its subsidiaries.

 

NOTE 7--CHANGE IN ACCOUNTING POLICY

 

    Effective January 1, 1994, Harrah's changed its accounting policy for its

consolidated casinos relating to preopening costs. As a result of this change,

operating results for the year ended December 31, 1994, reflect the cumulative

charge against earnings, net of income taxes, of $7.9 million, or $0.08 per

share, to write off the unamortized preopening costs balances related to

projects opened in prior years.

 

NOTE 8--COMMITMENTS AND CONTINGENCIES

 

     A Harrah's subsidiary owns an approximate 47% interest in a partnership

named Harrah's Jazz Company (Harrah's Jazz). On November 22, 1995, Harrah's Jazz

and its wholly-owned subsidiary, Harrah's Jazz Finance Corp., filed for Chapter

11 bankruptcy. Prior to the filing, Harrah's Jazz was operating a temporary

casino in the New Orleans, Louisiana Municipal Auditorium (the Temporary Casino)

and constructing a new permanent casino facility on the site of the former

Rivergate Convention Center in downtown New Orleans (the Permanent Casino).

Harrah's Jazz ceased operation of the Temporary Casino and construction of the

Permanent Casino on November 22, 1995 prior to the bankruptcy filings.

 

    Prior to these events, Harrah's delivered completion guaranties to the

trustee of Harrah's Jazz's $435 million of 14.25% First Mortgage Notes, the bank

lenders under a Harrah's Jazz $175 million bank credit facility and the

Louisiana Economic Development and Gaming Corporation (the state agency

regulating Harrah's Jazz). Each completion guaranty was subject to certain

conditions, exceptions and qualifications. The Company believes that its

obligations under these guaranties have been terminated by the recent events.

 

NOTE 9--LITIGATION

 

    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. The ultimate outcomes of these lawsuits

 

                                      S-5

<PAGE>

                                                          SCHEDULE I (CONTINUED)

 

                          HARRAH'S ENTERTAINMENT, INC.

                 CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                         NOTES TO FINANCIAL STATEMENTS

 

NOTE 9--LITIGATION (CONTINUED)

cannot be predicted at this time, and no provisions for the claims are included

in the accompanying consolidated financial statements. The Company intends to

defend these actions vigorously.

 

    In March 1995, the Company entered into a settlement agreement (the

Settlement) with Bass PLC (Bass) of all claims related to the Merger Agreement

and Tax Sharing Agreement arising from the 1990 Spin-off of Promus and

acquisition of the Holiday Inn hotel business by Bass. As a result of the

Settlement, a charge of $49.2 million was recorded in 1994 on the books of HOC

to accrue the estimated cost of the settlement, the related legal fees and other

associated expenses.

 

                                      S-6

<PAGE>

                                                                     SCHEDULE II

                          HARRAH'S ENTERTAINMENT, INC.

                 CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS

 

<TABLE><CAPTION>

                                            (IN THOUSANDS)

- -------------------------------------------------------------------------------------------------------

              COLUMN A                  COLUMN B             COLUMN C             COLUMN D     COLUMN E

- -------------------------------------------------------------------------------------------------------

                                                            ADDITIONS

                                                     ------------------------

                                                                                               BALANCE

                                       BALANCE AT      CHARGED       CHARGED     DEDUCTIONS    AT CLOSE

                                       BEGINNING       TO COSTS      TO OTHER       FROM          OF

            DESCRIPTION                OF PERIOD     AND EXPENSES    ACCOUNTS     RESERVES      PERIOD

- -------------------------------------------------------------------------------------------------------

YEAR ENDED DECEMBER 31, 1995

 

<S>                                    <C>           <C>             <C>         <C>           <C>

  Allowance for doubtful accounts

    Current.........................    $  9,551       $  5,910      $     -      $  (4,551)(A) $10,910

                                       ----------    ------------    --------    ----------    --------

                                       ----------    ------------    --------    ----------    --------

    Long-term.......................    $     75       $      -      $     -      $       -    $     75

                                       ----------    ------------    --------    ----------    --------

                                       ----------    ------------    --------    ----------    --------

  Allowance for losses on property

    dispositions....................    $ 11,231       $      -      $     -      $ (11,231)(B) $     -

                                       ----------    ------------    --------    ----------    --------

                                       ----------    ------------    --------    ----------    --------

  Insurance allowances and

    reserves........................    $ 49,448       $ 22,865      $     -      $ (22,492)    $49,821

                                       ----------    ------------    --------    ----------    --------

                                       ----------    ------------    --------    ----------    --------

YEAR ENDED DECEMBER 31, 1994

  Allowance for doubtful accounts

    Current.........................    $  9,252       $  5,731      $     -      $   5,432(A)  $ 9,551

                                       ----------    ------------    --------    ----------    --------

                                       ----------    ------------    --------    ----------    --------

    Long-term.......................    $      -       $     75      $     -      $       -     $    75

                                       ----------    ------------    --------    ----------    --------

                                       ----------    ------------    --------    ----------    --------

  Allowance for losses on property

    dispositions....................    $ 11,000       $    231      $     -      $       -     $11,231

                                       ----------    ------------    --------    ----------    --------

                                       ----------    ------------    --------    ----------    --------

  Insurance allowances and

    reserves........................    $ 39,859       $ 52,908      $     -      $  43,319     $49,448

                                       ----------    ------------    --------    ----------    --------

                                       ----------    ------------    --------    ----------    --------

FISCAL YEAR ENDED DECEMBER 31, 1993

  Allowance for doubtful accounts,

    current.........................    $  9,617       $  4,673      $     -      $   5,038(A)  $ 9,252

                                       ----------    ------------    --------    ----------    --------

                                       ----------    ------------    --------    ----------    --------

  Allowance for losses on property

    dispositions....................    $ 11,000       $      -      $     -      $       -     $11,000

                                       ----------    ------------    --------    ----------    --------

                                       ----------    ------------    --------    ----------    --------

  Insurance allowances and

    reserves........................    $ 31,371       $ 46,333      $     -      $  37,845     $39,859

                                       ----------    ------------    --------    ----------    --------

                                       ----------    ------------    --------    ----------    --------

</TABLE>

 

- ------------

 (A)  Uncollectible accounts written off, net of amounts recovered.

 (B)  Reduction of reserve due to disposition of subject property.

 

 

                                      S-7

 

<PAGE>

                   CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

 

    As independent public accountants, we hereby consent to the incorporation of

our report dated March 5, 1996, included in this Form 10-K for the year ended

December 31, 1995, into the Company's previously filed Registration Statements

File Nos. 33-32863, 33-32864, 33-32865, 33-59991, 33-59969, 33-59975, 33-59971

and 33-62783.

 

                                          ARTHUR ANDERSEN LLP

 

Memphis, Tennessee,

March 5, 1996.

 

 

 

 

 

 

</TEXT>

</DOCUMENT>

<DOCUMENT>

<TYPE>EX-3.(1)

<SEQUENCE>2

<TEXT>

 

 

 

 

 

                                                       Exhibit 3(1)

 

 

 

                        CERTIFICATE OF INCORPORATION

 

                                     OF

 

                     THE PROMUS COMPANIES INCORPORATED

 

 

 

     FIRST:  The name of the Corporation is The Promus Companies

Incorporated.

 

     SECOND:  The address of the registered office of the Corporation in

the State of Delaware is The Corporation Trust Center, 1209 Orange Street,

in the City of Wilmington, County of New Castle.  The name of its

registered agent at that address is The Corporation Trust Company.

 

     THIRD:  The purpose of the Corporation is to engage in any lawful act

or activity for which a corporation may be organized under the General

Corporation Law of Delaware as set forth in Title 8 of the Delaware Code

(the "GCL").

 

     FOURTH:  A.  The total number of shares of stock which the Corporation

shall have authority to issue is 125,150,000, consisting of 120,000,000

shares of Common Stock, par value $1.50 per share (the "Common Stock"),

150,000 shares of Preferred Stock, par value of $100.00 per share (the

"Preferred Stock"), and 5,000,000 shares of Special Stock, par value $1.12 1/2

per share (the "Special Stock").

 

     B.   Shares of Preferred Stock may be issued from time to time in one

or more series, as provided for herein or as provided for by the Board of

Directors as permitted hereby. All shares of Preferred Stock shall be of

equal rank and shall be identical, except in respect of the terms fixed

herein for the series provided for herein or fixed by the Board of

Directors for series provided for by the Board of Directors as permitted

hereby.  All shares of any one series shall be identical in all respects

with all the other shares of such series, except the shares of any one

series issued at different times may differ as to the dates from which

dividends thereon may be cumulative.

 

     The Board of Directors is hereby authorized, by resolution or

resolutions, to establish, out of the unissued shares of Preferred Stock

not then allocated to any series of Preferred Stock, additional series of

Preferred Stock.  Before any shares of any such additional series are

issued, the Board of Directors shall fix and determine, and is hereby

expressly empowered to fix and determine, by resolution or resolutions, the

distinguishing characteristics and the relative rights, preferences,

privileges and immunities of the shares thereof, so far as not inconsistent

with the provisions of this Article

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

<PAGE>

 

 

 

FOURTH. Without limiting the generality of the foregoing, the Board of

Directors may fix and determine:

 

          1.   The designation of such series, the number of shares which

     shall constitute such series and the par value, if any, of such

     shares;

 

          2.   The rate of dividend, if any, payable on shares of such

     series;

 

          3.   Whether the shares of such series shall be cumulative,

     non-cumulative or partially cumulative as to dividends, and the dates

     from which any cumulative dividends are to accumulate;

 

          4.   Whether the shares of such series may be redeemed, and, if

     so, the price or prices at which and the terms and conditions on which

     shares of such series may be redeemed;

 

          5.   The amount payable upon shares of such series in the event

     of the voluntary or involuntary dissolution, liquidation on winding up

     of the affairs of the Corporation;

 

          6.   The sinking fund provisions, if any, for the redemption of

     shares of such series;

 

          7.   The voting rights, if any, of the shares of such series;

 

          8.   The terms and conditions, if any, on which shares of such

     series may be converted into shares of capital stock of the

     Corporation of any other class or series;

 

          9.   Whether the shares of such series are to be preferred over

     shares of capital stock of the Corporation of any other class or

     series as to dividends, or upon the voluntary or involuntary

     dissolution, liquidation, or winding up of the affairs of the

     Corporation, or otherwise; and

 

          10.   Any other characteristics, preferences, limitations,

     rights, privileges, immunities or terms not inconsistent with the

     provisions of this Article FOURTH.

 

     C.   Shares of Special Stock may be issued from time to time in one or

more classes or series as provided in this Section C of Article FOURTH.

 

     Subpart I of this Section C sets forth provisions respecting the

Special Stock as a class. Subpart II vests in the Board of Directors

authority to designate series of Special

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                     2

 

 

 

<PAGE>

 

 

 

Stock and to determine and fix the distinguishing characteristics and

rights, privileges and immunities thereof.

 

SUBPART I.  The Special Stock as a Class

            ----------------------------

 

     1.   General.  Shares of Special Stock may be issued from time to time

          -------

in one or more series, as provided for by the Board of Directors as

permitted hereby.  All shares of Special Stock shall be of equal rank and

shall be identical, except in respect of the terms fixed by the Board of

Directors for series provided for by the Board of Directors as permitted

hereby. All shares of any one series shall be identical in all respects

with all the other shares of such series, except the shares of any one

series issued at different times may differ as to the dates from which

dividends thereon may be cumulative.

 

     2.   Status of Reacquired Shares.  Shares of any series of Special

          ---------------------------

Stock which have been redeemed, purchased or otherwise acquired by the

Corporation, or which are no longer deemed to be outstanding by virtue of

funds or securities necessary for redemption or payment having been set

aside or deposited in trust or otherwise, or which, if convertible, have

been converted into shares of stock of the Corporation of any other class

or series, shall, upon appropriate filing and recording to the extent

required by law, have the status of authorized and unissued shares of

Special Stock and may be reissued as part of any series of Special Stock

provided for by the Board of Directors as permitted hereby.

 

SUBPART II.  Series of Special Stock

             -----------------------

 

     The Board of Directors is hereby authorized, by resolution or

resolutions, to establish, out of the unissued shares of Special Stock not

then allocated to any series of Special Stock, additional series of Special

Stock.  Before any shares of any such additional series are issued, the

Board of Directors shall fix and determine, and is hereby expressly

empowered to fix and determine, by resolution or resolutions, the

distinguishing characteristics and the relative rights, preferences,

privileges and immunities of the shares thereof, so far as not inconsistent

with the provisions of this Article FOURTH.  Without limiting the

generality of the foregoing, the Board of Directors may fix and determine:

 

          1.   The designation of such series, the number of shares which

     shall constitute such series and the par value, if any, of such

     shares;

 

          2.   The rate of dividend, if any, payable on shares of such

     series;

 

          3.   Whether the shares of such series shall be cumulative,

     non-cumulative or partially cumulative as to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                     3

 

 

 

<PAGE>

 

 

 

     dividends, and the dates from which any cumulative dividends are to

     accumulate;

 

          4.   Whether the shares of such series may be redeemed, and, if

     so, the price or prices at which and the terms and conditions on which

     shares of such series may be redeemed;

 

          5.   The amount payable upon shares of such series in the event

     of the voluntary or involuntary dissolution, liquidation or winding up

     of the affairs of the Corporation;

 

          6.   The sinking fund provisions, if any, for the redemption of

     shares of such series;

 

          7.   The voting rights, if any, of the shares of such series;

 

          8.   The terms and conditions, if any, on which shares of such

     series may be converted into shares of capital stock of the

     Corporation of any other class or series;

 

          9.   Whether the shares of such series are to be preferred over

     shares of capital stock of the Corporation of any other class or

     series as to dividends, or upon the voluntary or involuntary

     dissolution, liquidation, or winding up of the affairs of the

     Corporation, or otherwise; and

 

          10.   Any other characteristics, preferences, limitations,

     rights, privileges, immunities or terms not inconsistent with the

     provisions of this Article FOURTH.

 

     D.   Except as otherwise provided in this Certificate of Incorporation

(including this Section D of Article FOURTH and including the resolutions

adopted by the Board of Directors pursuant to Section B or C of this

Article FOURTH), each holder of Common Stock shall be entitled to one vote

for each share of Common Stock held by him on all matters submitted to

stockholders for a vote and each holder of Preferred Stock or Special Stock

of any series that is Voting Stock shall be entitled to such number of

votes for each share held by him as may be specified in the resolutions

providing for the issuance of such series.

 

     (a)  Definitions.  The following definitions shall apply to this

          -----------

Section D of Article FOURTH:

 

          "Affiliate" and "Associate" shall have the meanings given to such

     terms in Article NINTH.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                     4

 

 

 

<PAGE>

 

 

 

 

     A person shall be deemed the "Beneficial Owner" of, and shall be

deemed to "Beneficially Own," shares of Capital Stock:

 

          (i)  which such person or any of such person's Affiliates or

     Associates, directly or indirectly, has the sole or shared right to

     vote or dispose of or has "beneficial ownership" of (as determined

     pursuant to Rule 13d-3 of the General Rules and Regulations under the

     Exchange Act), including pursuant to any agreement, arrangement or

     understanding, whether or not in writing; provided that a person shall

                                               --------

     not be deemed the "Beneficial Owner" of, or to "Beneficially Own," any

     security under this subparagraph (i) as a result of an agreement,

     arrangement or understanding to vote such security that: (A) arises

     solely from a revocable proxy given in response to a public proxy or

     consent solicitation made pursuant to, and in accordance with, the

     applicable provisions of the General Rules and Regulations under the

     Exchange Act, and (B) is not reportable by such person on Schedule 13D

     under the Exchange Act (or any comparable or successor report) without

     giving effect to any applicable waiting period; or

 

          (ii)  which are Beneficially Owned, directly or indirectly, by

     any other person (or any Affiliate or Associate thereof) with which

     such person (or any of such person's Affiliates or Associates) has any

     agreement, arrangement or understanding (whether or not in writing),

     for the purpose of acquiring, holding, voting (except pursuant to a

     revocable proxy as described in the proviso to subparagraph (i) above)

     or disposing of any Capital Stock;

 

provided further that:  (x) no director or officer of the Corporation (nor

- -------- -------

any Affiliate or Associate of any such director or officer) shall, solely

by reason of any or all of such directors or officers acting in their

capacities as such, be deemed the "Beneficial Owner" of or to "Beneficially

Own" any shares of Capital Stock that are Beneficially Owned by any other

such director or officer; (y) in the case of any employee stock ownership

or similar plan of the Corporation or of any Subsidiary in which the

beneficiaries thereof possess the right to vote the shares of Voting Stock

held by such plan, no such plan nor any trustee with respect thereto (nor

any Affiliate or Associate of such trustee), solely by reason of such

capacity of such trustee, shall be deemed the "Beneficial Owner" of or to

"Beneficially Own" the shares of Voting Stock held under such plan; and (z)

no person shall be deemed the "Beneficial Owner" of or to "Beneficially

Own" any shares of Voting Stock held in any voting trust, employee stock

ownership plan or any similar plan or trust

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                     5

 

 

 

<PAGE>

 

 

 

if such person does not possess the right to vote such shares.

 

     "Capital Stock" shall have the meaning given to such term in Article

NINTH.

 

     "Exchange Act" means the Securities Exchange Act of 1934, as amended

from time to time.

 

     The term "person" shall mean any individual, firm, company or other

entity.

 

     "Subsidiary" shall have the meaning given to such term in Article

NINTH.

 

     "Substantial Stockholder" shall mean any person (other than any

Subsidiary, any employee benefit plan of the Corporation or any Subsidiary,

or any person organized, appointed or established by the Corporation or any

Subsidiary for or pursuant to the terms of any such plan) who Beneficially

Owns shares of Voting Stock that would, before giving effect to the

reduction in votes prescribed in paragraph (b), represent more than the

Threshold Percentage of the total number of votes entitled to be cast by

the holders of all outstanding shares of Voting Stock.

 

     "Threshold Percentage" for any person shall equal 10%, except that it

shall be adjusted as follows:

 

          (i)  If the percentage of the votes entitled to be cast in

     respect of all outstanding shares of Voting Stock represented by the

     votes entitled to be cast in respect of the shares of Voting Stock

     that are Beneficially Owned by any person, before giving effect to the

     reduction in votes prescribed in paragraph (b), is increased above the

     Threshold Percentage previously applicable to such person solely as a

     result of any decrease in the number of outstanding shares of Voting

     Stock, then the Threshold Percentage for such person shall be adjusted

     upward to reflect the percentage increase in the votes that may be

     cast in respect of the shares of Voting Stock that are Beneficially

     owned by such person, before giving effect to the reduction in votes

     prescribed in paragraph (b), caused by such decrease in the number of

     outstanding shares of Voting Stock.

 

          (ii)  If the Threshold Percentage for any person is greater than

     10% and the percentage of the votes entitled to be cast in respect of

     all shares of Voting Stock represented by the votes entitled to be

     cast in respect of the shares of Voting Stock that

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                     6

 

 

 

<PAGE>

 

 

 

     are Beneficially Owned by such person, before giving effect to the

     reduction in votes prescribed in paragraph (b), decreases for any

     reason (including as a result of a sale or other disposition by such

     person of any shares of Voting Stock or any increase in the number of

     outstanding shares of Voting Stock), then such person's Threshold

     Percentage shall be adjusted downward so as to equal the greater of:

     (x) 10%; or (y) the percentage of the votes entitled to be cast in

     respect of all outstanding shares of Voting Stock represented by the

     votes entitled to be cast in respect of the shares of Voting Stock

     that are Beneficially Owned by such person before giving effect to the

     reduction in votes prescribed in paragraph (b).

 

     "Voting Stock" shall have the meaning given to such term in Article

NINTH.

 

     (b)  Limitation of Votinq Riqhts.

          ---------------------------

 

     (i)  So long as a Substantial Stockholder Beneficially Owns shares of

Voting Stock that would, before giving effect to the reduction of votes

prescribed by this paragraph (b), carry votes in excess of his Threshold

Percentage of the votes entitled to be cast in respect of all outstanding

shares of Voting Stock, and any other provision of this Certificate of

Incorporation notwithstanding, the record holders of the shares of Voting

Stock that are Beneficially Owned by the Substantial Stockholder shall have

limited voting rights on any matter requiring their vote or consent as set

forth in this paragraph (b).  As to any shares of Voting Stock Beneficially

Owned by a Substantial Stockholder that would, before giving effect to the

reduction of votes prescribed by this paragraph (b), carry votes in excess

of his Threshold Percentage of the votes entitled to be cast in respect of

all outstanding shares of Voting Stock, the record holders thereof shall be

entitled to cast one one-hundredth (1/100) of the votes which the holders

of such shares would, but for the provisions of this paragraph (b), be

entitled to cast.  The aggregate voting power, so limited, of the record

holders of the shares of Voting Stock that are Beneficially Owned by the

Substantial Stockholder shall be allocated proportionately among such

record holding as follows:  Each such record holder shall be entitled, with

respect to the shares of Voting Stock that are Beneficially Owned by the

Substantial Stockholder and held of record by such record holder, to a

number of votes equal to the product of (x) the aggregate number of votes

that would have been carried by such shares before giving effect to the

reduction in votes prescribed by this paragraph (b), multiplied by (y) the

fraction obtained by dividing (A) the number of votes carried by the shares

of Voting Stock that are Beneficially Owned by the Substantial Stockholder

after giving effect to the reduction in votes prescribed by this paragraph

(b), by (B) the

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                     7

 

 

 

<PAGE>

 

 

 

number of votes carried by the shares of Voting Stock that are Beneficially

Owned by the Substantial Stockholder before giving effect to the reduction

in votes prescribed by this paragraph (b).

 

     (ii)  Notwithstanding the foregoing subparagraph (b)(i), so long as

there are seven or more persons who Beneficially Own shares of Voting

Stock, the record holders of the shares of Voting Stock that are

Beneficially Owned by a Substantial Stockholder collectively shall not be

entitled to cast in respect of such shares, on any matter submitted to

stockholders for vote or consent, a number of votes in excess of the sum of

(x) the applicable Threshold Percentage plus (y) 5%, of the number of votes

entitled to be cast in respect of all outstanding shares of Voting Stock

(with the number of votes being determined in each case after giving effect

to the reduction in votes prescribed by paragraph (b)).  If the preceding

sentence reduces the total number of votes that the record holders of the

shares of Voting Stock that are Beneficially Owned by a Substantial

Stockholder are entitled to cast in respect of such shares, such reduction

shall be effected, and the number of votes that each such record holder is

entitled to cast in respect of such shares shall be determined, in

accordance with the allocation provisions of subparagraph (b)(i).

 

     (c)  Factual Determinations.

          ----------------------

 

     (i)  The Board of Directors shall have the power and duty to construe

and apply the provisions of this Section D of Article FOURTH and to make

all determinations necessary or desirable to implement such provisions,

including but not limited to determining:  (v) the number of shares of

Voting Stock that are Beneficially Owned by any person; (w) whether a

person is an Affiliate or Associate of another person; (x) whether a person

has an agreement, arrangement, or understanding with another person as to

the matters referred to in the definition of Beneficial Ownership; (y) the

application of any other definition of operative provision of this Section

D of Article FOURTH to the given facts; and (z) any other matter relating

to the applicability or effect of this Section D of Article FOURTH.

 

     (ii)  The Board of Directors shall have the right to demand that any

person who it believes is or may be a Substantial Stockholder (or who holds

of record shares of Capital Stock that are Beneficially Owned by any person

that the Board of Directors believes is or may be a Substantial

Stockholder) supply the Corporation with complete information as to:  (x)

the record holders of all shares of Capital Stock that are Beneficially

Owned by such person; (y) the number of shares of each class or series of

Capital Stock that are Beneficially Owned by such person and held of record

by each such record holder and the numbers of the stock certificates

evidencing

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                     8

 

 

 

<PAGE>

 

 

 

such shares; and (z) any other matter relating to the applicability or

effect of this Section D of Article FOURTH as the Board of Directors may

reasonably request.  Each such person shall furnish such information within

10 days after the receipt of such demand.

 

     (iii)   Any construction, application or determination made by the

Board of Directors pursuant to this Section D of Article FOURTH in good

faith and on the basis of such information and assistance as was then

reasonably available for such purpose shall be conclusive and binding upon

the Corporation and its stockholders, including any Substantial

Stockholder.

 

     (d)  Ouorum.  Except as otherwise provided by law, the presence, in

          ------

person or by proxy, of the holders of record of shares of Capital Stock

entitling the holders thereof to cast a majority of the votes entitled to

be cast by the holders of shares of Capital Stock entitled to vote (after

giving effect to the reduction in votes prescribed in paragraph (b)) shall

constitute a quorum at all meetings of the stockholders, and any quorum

requirement or any requirement for stockholder consent or approval shall be

determined after giving effect to the reduction in votes prescribed in

paragraph (b).

 

     (e)  No Derogation of Fiduciary Obliqations.  Nothing contained in

          --------------------------------------

this Section D of Article FOURTH shall be construed to relieve any

Substantial Stockholder from any fiduciary obligation imposed by law.

 

     (f)  Severability.  If any provision of this Section D of Article

          ------------

FOURTH is determined to be invalid, void, illegal or unenforceable, the

remaining provisions of this Section D of Article FOURTH shall continue to

be valid and enforceable and shall in no way be affected, impaired or

invalidated.

 

     (g)  Termination.  The limitation on voting rights prescribed by this

          -----------

Section D of Article FOURTH shall terminate and be of no force and effect

as of the earliest to occur of

 

            (i)  the close of business on April 16, 1992; or

 

           (ii)  the date that any person other than Holiday Inns, Inc. or

     Holiday Corporation becomes the Beneficial Owner of shares of Voting

     Stock representing at least 75% of the total number of votes entitled

     to be cast in respect of all outstanding shares of Voting Stock,

     before giving effect to the reduction in votes prescribed by paragraph

     (b); or

 

          (iii)  the date (the "Reference Date") one day prior to the date

     on which, as a result of such limitation of voting rights, the Common

     Stock will be delisted from (including by ceasing to be temporarily or

     provisionally authorized for listing with) the New York Stock Exchange

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                     9

 

 

 

<PAGE>

 

 

 

     (the "NYSE") or the American Stock Exchange (the "AMEX"), or be no

     longer authorized for inclusion (including by ceasing to be

     provisionally or temporarily authorized for inclusion) on the National

     Association of Securities Dealers, Inc. Automated Quotation

     System/National Market System ("NASDAQ/NMS"); provided, however, that

                                                   --------  -------

     (a) such termination shall not occur until the earlier of (x) the 90th

     day after the Reference Date or (y) the first day on or after a

     Reference Date that there is not pending a proceeding under the rules

     of the NYSE, the AMEX or the NASDAQ/NMS or any other administrative or

     judicial proceeding challenging such delisting or removal of

     authorization of the Common Stock, an application for listing of the

     Common Stock with the NYSE or the AMEX or for authorization for the

     Common Stock to be included on the NASDAQ/NMS, or an appeal with

     respect to any such application, and (b) such termination shall not

     occur by virtue of such delisting or lack of authorization if on or

     prior to the earlier of the 90th day after the Reference Date or the

     day on which no proceeding, application or appeal of the type

     described in (y) above is pending, the Common Stock is approved for

     listing or continued listing on the NYSE or the AMEX or authorized for

     inclusion or continued inclusion on the NASDAQ/NMS (including any such

     approval or authorization which is temporary or provisional).  Nothing

     contained herein shall be construed so as to prevent the Common Stock

     from continuing to be listed with the NYSE or AMEX or continuing to be

     authorized for inclusion on the NASDAQ/NMS in the event that the NYSE,

     AMEX or NASDAQ/NMS, as the case may be, adopts a rule or is governed

     by an order, decree, ruling or regulation of the Securities and

     Exchange Commission which provides in whole or in part that companies

     having common stock with differential voting rights listed on the NYSE

     or the AMEX or authorized for inclusion on the NASDAQ/NMS may continue

     to be so listed or included.

 

     E.   Notwithstanding any other provision of this Certificate of

Incorporation to the contrary, but subject to the provisions of any

resolutions of the Board of Directors adopted pursuant to this Article

FOURTH creating any series of Preferred Stock, Special Stock or any other

class or series of stock having a preference over the Common Stock as to

dividends or upon liquidation, outstanding shares of Common Stock,

Preferred Stock, Special Stock or any other class or series of stock of the

Corporation shall always be subject to redemption by the Corporation, by

action of the Board of Directors, if in the judgment of the Board of

Directors such action should be taken, pursuant to Section 151(b) of the

GCL or any other applicable provision of law, to the extent necessary to

prevent the loss or secure the reinstatement of any license or franchise

from any governmental agency held by the Corporation or any Subsidiary to

conduct any portion of the business of the Corporation or any Subsidiary,

which license or franchise is

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                     10

 

 

 

<PAGE>

 

 

 

conditioned upon some or all of the holders of the Corporation's stock of

any class or series possessing prescribed qualifications.  The terms and

conditions of such redemption shall be as follows:

 

          (a)  the redemption price of the shares to be redeemed pursuant

     to this Section E of Article FOURTH shall be equal to the Fair Market

     Value of such shares or such other redemption price as required by

     pertinent state or federal law pursuant to which the redemption is

     required;

 

          (b)  the redemption price of such shares may be paid in cash,

     Redemption Securities or any combination thereof;

 

          (c)  if less than all the shares held by Disqualified Holders are

     to be redeemed, the shares to be redeemed shall be selected in such

     manner as shall be determined by the Board of Directors, which may

     include selection first of the most recently purchased shares thereof,

     selection by lot or selection in any other manner determined by the

     Board of Directors;

 

          (d)  at least 30 days' written notice of the Redemption Date

     shall be given to the record holders of the shares selected to be

     redeemed (unless waived in writing by any such holder), provided that

     the Redemption Date may be the date on which written notice shall be

     given to record holders if the cash or Redemption Securities necessary

     to effect the redemption shall have been deposited in trust for the

     benefit of such record holders and subject to immediate withdrawal by

     them upon surrender of the stock certificates for their shares to be

     redeemed;

 

          (e)  from and after the Redemption Date or such earlier date as

     mandated by pertinent state or federal law, any and all rights of

     whatever nature, which may be held by the owners of shares selected

     for redemption (including without limitation any rights to vote or

     participate in dividends declared on stock of the same class or series

     as such shares), shall cease and terminate and they shall thenceforth

     be entitled only to receive the cash or Redemption Securities payable

     upon redemption; and

 

          (f)  such other terms and conditions as the Board of Directors

     shall determine.

 

For purposes of this Section E of Article FOURTH:

 

     (i)  "Disqualified Holder" shall mean any holder of shares of stock of

the Corporation of any class (or classes) or series whose holding of such

stock, either individually or when taken together with the holding of

shares of stock of the

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                     11

 

 

 

<PAGE>

 

 

 

Corporation of any class (or classes) or series by any other holders, may

result, in the judgment of the Board of Directors, in the loss of, or the