PROSPECTUS SUMMARY

The following summary contains information about Harrah’s Entertainment, Inc., Harrah’s Operating Company, Inc. and the notes. It does not contain all of the information that may be important to you in making a decision to participate in the offering. For a more complete understanding of Harrah’s Entertainment, Inc., Harrah’s Operating and the notes, we urge you to read this prospectus carefully, including the sections entitled “Risk Factors,” “Forward Looking Statements” and “Where You Can Find More Information.” Unless otherwise noted or indicated by the context, the terms “Harrah’s,” “HET” and “Harrah’s Entertainment” refer to Harrah’s Entertainment, Inc., and “we,” “us” and “our” refer to Harrah’s Entertainment, Inc. and its consolidated subsidiaries, and “Harrah’s Operating” or “HOC” refers to Harrah’s Operating Company, Inc.

As of September 30, 2009, Harrah’s Entertainment owned or managed 52 casinos through its subsidiaries. In connection with the financing of the Acquisition described under “The Acquisition Transactions,” six casinos were spun or transferred out of HOC to entities that are side-by-side with HOC. See “The Acquisition Transactions—CMBS Transactions.” In addition, in connection with the Acquisition Transactions, London Clubs and its subsidiaries became subsidiaries of HOC. See “The Acquisition Transactions—London Clubs Transfer.” HOC has remained a direct, wholly owned subsidiary of Harrah’s Entertainment and as of September 30, 2009 owned or managed 46 of our 52 casinos. Notwithstanding these spin-offs and transfers, management of Harrah’s Entertainment continues to manage all of the properties of HOC and those held by its sister subsidiaries as one company, but HOC is not entitled to receive any direct contribution or proceeds from its sister subsidiaries’ operations. Harrah’s Entertainment will guarantee the exchange notes; the CMBS Borrowers (as defined) will not. As a result, you should see the financial and pro forma financial information of Harrah’s Entertainment as well as pro forma financial information of HOC to give a meaningful and complete presentation of the CMBS Transactions and the London Clubs Transfer, among others.

Our Company

Harrah’s Entertainment, Inc., a Delaware corporation, is one of the largest casino entertainment providers in the world. As of September 30, 2009, we owned or managed, through various subsidiaries, 52 casinos in six countries, but primarily in the United States and the United Kingdom. HOC owned or managed 46 of these casinos. Our casino entertainment facilities operate primarily under the Harrah’s, Caesars and Horseshoe brand names in the United States. Our casino entertainment facilities include 33 land-based casinos, 12 riverboat or dockside casinos, three managed casinos on Indian lands in the United States, one managed casino in Canada, one combination greyhound racetrack and casino, one combination thoroughbred racetrack and casino and one harness racetrack and casino. Our 33 land-based casinos include one in Uruguay, eleven in the United Kingdom, two in Egypt and one in South Africa. As of September 30, 2009, our facilities have an aggregate of approximately three million square feet of gaming space and approximately 39,000 hotel rooms. We have a customer loyalty program, Total Rewards, which has over 40 million members, that we use for marketing promotions and to generate play by our customers when they travel among our markets in the United States and Canada. We also own and operate the World Series of Poker tournament and brand.

Our History

Harrah’s Entertainment commenced its casino operations in 1937 and became a publicly listed company in 1971. Two years later, it became the first gaming company to be listed on the New York Stock Exchange (“NYSE”). In 1980, Harrah’s Entertainment was acquired by Holiday Inns, Inc. and was delisted from the NYSE. In 1995, Harrah’s Entertainment again became a stand-alone company and resumed trading on the NYSE.

 

Harrah’s Entertainment has grown through a series of strategic acquisitions that have strengthened its scale, geographic diversity and leading market positions. In 1998, it completed its acquisition of Showboat, Inc. and in 1999, it purchased Rio Hotel & Casino, Inc. In 2000, it completed the purchase of Players International. During the next five years, Harrah’s Entertainment acquired Harveys Casino Resorts (2001), Horseshoe Gaming Holding Corp (2004), the rights to the World Series of Poker (2004) and the Imperial Palace Hotel & Casino in Las Vegas (2005). Harrah’s Entertainment also acquired Caesars Entertainment, Inc. in 2005, which, at $9.3 billion, was the largest merger in the history of the gaming industry and secured Harrah’s Entertainment’s position as the world’s largest casino company. Additionally, Harrah’s Entertainment has expanded internationally, completing the acquisitions of London Clubs International plc (“London Clubs”) in 2006 and Macau Orient Golf in 2007.

In order to generate same store gaming revenue growth (defined as annual gaming revenue growth for properties held by us throughout the year) and cross-market play (defined as play by a guest in a property outside the home market of their primary gaming property) among its casinos, in 1997, Harrah’s Entertainment launched the Total Rewards program, which allows customers to earn benefits by playing at most Harrah’s Entertainment casinos, as well as WINet (Winner’s Information Network), the industry’s first sophisticated nationwide customer database. Total Rewards was the first technology-based customer relationship management strategy implemented in the gaming industry and has been an effective tool used by management to enhance overall operating results.

The Acquisition

On December 19, 2006, Harrah’s Entertainment entered into a definitive merger agreement with Hamlet Holdings LLC, a Delaware limited liability company (“Hamlet Holdings”), and Hamlet Acquisition Inc., a Delaware corporation and a wholly owned subsidiary of Hamlet Holdings (“Merger Sub”). Hamlet Holdings and Merger Sub were formed and are controlled by affiliates of Apollo Global Management, LLC (“Apollo”) and TPG Capital, LP (“TPG” and, together with Apollo, the “Sponsors”). Pursuant to the merger agreement, on January 28, 2008, Merger Sub merged with and into Harrah’s Entertainment, and each share of Harrah’s Entertainment’s common stock issued and outstanding immediately prior to the effective time of the merger, was converted into the right to receive $90.00 in cash, which, when taken together with the net settlement of outstanding options, stock appreciation rights, restricted stock and restricted stock units, represents merger consideration of $17,375 million in the aggregate. We refer to the merger and payment of merger consideration as the “Acquisition.”

Upon completion of the Acquisition, Hamlet Holdings, funds affiliated with and controlled by the Sponsors, certain co-investors and certain members of management became the owners of all of the outstanding equity interests of Harrah’s Entertainment. Hamlet Holdings, the members of which are comprised of an equal number of individuals affiliated with each of the Sponsors, holds all of the voting common stock of Harrah’s Entertainment. The voting common stock does not have any economic rights. Funds affiliated with and controlled by the Sponsors, their co-investors and members of management each hold non-voting common stock and non-voting preferred stock.

For more information regarding the Acquisition, including the financing thereof, see “The Acquisition Transactions.”

 

Recent Events

Tender Offers and Incremental Loans

On October 22, 2009, HOC completed cash tender offers (the “2010/2011 Tender Offers”) for certain of its outstanding debt securities with maturities in 2010 and 2011. HOC purchased $4.5 million of its 5.500% senior notes due 2010, $17.2 million of its 7.875% senior subordinated notes due 2010, $19.6 million of its 8.000% senior notes due 2011 and $4.2 million of its 8.125% senior subordinated notes due 2011 for an aggregate consideration of approximately $44.5 million. In connection with the 2010/2011 Tender Offers, HOC borrowed $1 billion of new term loans under its senior secured credit facilities pursuant to an incremental amendment (the “Incremental Loans”). A portion of the net proceeds of the Incremental Loans was used to purchase the notes validly tendered and not validly withdrawn pursuant to the 2010/2011 Tender Offers.

CMBS Loan Purchases

On October 22, 2009, Harrah’s Entertainment entered into purchase and sale agreements with certain lenders to acquire mezzanine loans under its commercial mortgage-backed securities financing. Harrah’s Entertainment will purchase these loans using up to an aggregate amount of $250 million of cash, at a purchase price of between 25 and 30 cents per $1.00 principal amount of such loans, depending on certain circumstances. Any loan purchased by Harrah’s Entertainment in such purchases will be cancelled.

The Sponsors

Apollo

Apollo is a leading global alternative asset manager with offices in New York, Los Angeles, London, Singapore, Frankfurt, Luxembourg and Mumbai. As of September 30, 2009, Apollo has assets under management in excess of $41 billion in private equity, hedge funds, distressed debt and mezzanine funds invested across a core group of industries where Apollo has considerable knowledge and resources.

TPG

TPG manages one of the world’s leading private investment firms with approximately $45 billion of assets under management as of September 30, 2009. The firm was founded in 1992 and is led by David Bonderman and James G. Coulter. Through its global buyout platform, TPG Capital, the firm generally makes significant investments in companies through acquisitions and restructurings across a broad range of industries throughout North America, Europe, Asia and Australia.

 

Organizational Structure

The chart below is a summary of the organizational structure of Harrah’s Entertainment and HOC and illustrates the long-term debt that will be outstanding following the exchange offers.

Corporate Structure

 

(1)

The members of Hamlet Holdings are Leon Black, Joshua Harris and Marc Rowan, each of whom is affiliated with Apollo, and David Bonderman, James Coulter and Jonathan Coslet, each of whom is affiliated with TPG. Each member holds approximately 17% of the limited liability company interests of Hamlet Holdings.

(2)

HET currently guarantees all of the debt securities set forth above and the senior secured credit facilities. In addition, it has provided a payment guarantee of the operating leases under the CMBS Facilities (as defined in “The Acquisition Transactions”). The guarantee by HET of the obligations under all of the debt of HOC set forth above and the notes is structurally subordinated to the CMBS Facilities.

(3)

Includes captive insurance subsidiaries and Harrah’s BC, Inc. (“HBC”).

(4)

Upon the closing of the Acquisition, we entered into the senior secured credit facilities, which include a $2,000 million revolving credit facility that was reduced to $1,630 million due to debt retirements subsequent to the closing of the Acquisition. At September 30, 2009, on an adjusted basis after giving effect to the Incremental Loans, $1,433 million of additional borrowing capacity is available under our revolving credit facility, with an additional $162 million committed to back letters of credit, all of which is secured on a first priority basis.

 

(5)

Excludes HOC’s 5.625% Senior Notes due 2015, 6.50% Senior Notes due 2016 and 5.75% Senior Notes due 2017 currently held by HBC.

(6)

The CMBS Borrowers and their respective subsidiaries do not guarantee, or pledge their assets as security for, the notes, the senior secured credit facilities or any other indebtedness of HOC and are not directly liable for any obligations thereunder.

(7)

Each of the wholly owned domestic subsidiaries of HOC that pledged its assets to secure the senior secured credit facilities has also pledged its assets to secure the notes. The equity interests of HOC and of HOC’s subsidiaries that have been pledged to secure HOC’s obligations under its senior secured credit facilities and the First Lien Notes have not been pledged to secure HOC’s obligations under the Second Lien Notes.

(8)

Includes $230 million senior secured term loan entered into in August 2009 by Chester Downs and Marina, LLC, which is not a Subsidiary Pledgor.

 

Summary of the Terms of the Exchange Offers

In connection with the issuance of the original notes, Harrah’s Operating entered into registration rights agreements with the dealer managers for the offerings of the Original Second Lien Notes and the initial purchasers of the Original First Lien Notes. Under those agreements, Harrah’s Operating agreed to deliver to you this prospectus and to consummate the exchange offers.

Original Notes

 

Original 2015 Second Lien Notes

$214,800,000 aggregate principal amount of 10.00% Second-Priority Senior Secured Notes due 2015 (the “Original 2015 Second Lien Notes”);

 

Original 2018(1) Second Lien Notes

$847,621,000 aggregate principal amount of 10.00% Second-Priority Senior Secured Notes due 2018 (the “Original 2018(1) Second Lien Notes”).

 

Original 2018(2) Second Lien Notes

$3,705,498,000 aggregate principal amount of 10.00% Second-Priority Senior Secured Notes due 2018 (the “Original 2018(2) Second Lien Notes”). We refer to the Original 2015 Second Lien Notes, the Original 2018(1) Second Lien Notes and the Original 2018(2) Second Lien Notes collectively as the “Original Second Lien Notes.”

 

Original First Lien Notes

$2,095,000,000 aggregate principal amount of 11.25% Senior Secured Notes due 2017 consisting of $1,375,000,000 11.25% Senior Secured Notes due 2017 issued on June 10, 2009 and $720,000,000 11.25% Senior Secured Notes due 2017 issued on September 11, 2009 (collectively, the “Original First Lien Notes”). We refer to the Original Second Lien Notes and the Original First Lien Notes collectively as the “original notes.”

Notes Offered

 

2015 Second Lien Exchange Notes

10.00% Second-Priority Senior Secured Notes due 2015 (the “2015 Second Lien Exchange Notes”). The terms of the 2015 Second Lien Exchange Notes are substantially identical to those terms of the Original 2015 Second Lien Notes, except that the transfer restrictions, registration rights and provisions for additional interest relating to the Original 2015 Second Lien Notes do not apply to the 2015 Second Lien Exchange Notes.

 

2018(1) Second Lien Exchange Notes

10.00% Second-Priority Senior Secured Notes due 2018 (the “2018 Second Lien Exchange Notes”). The terms of the 2018 Second Lien Exchange Notes are substantially identical to those terms of the Original 2018(1) Second Lien Notes, except that the transfer restrictions, registration rights and provisions for additional interest relating to the original notes do not apply to the exchange notes.

 

2018(2) Second Lien Exchange Notes

10.00% Second-Priority Senior Secured Notes due 2018 (the “2018 Second Lien Exchange Notes”). The terms of the 2018 Second Lien Exchange Notes are substantially identical to those terms of the

 

Original 2018(2) Second Lien Notes, except that the transfer restrictions, registration rights and provisions for additional interest relating to the original notes do not apply to the exchange notes. We refer to the 2015 Second Lien Exchange Notes, the 2018(1) Second Lien Exchange Notes and the 2018(2) Second Lien Exchange Notes collectively as the “Second Lien Exchange Notes.” We refer to the Original Second Lien Notes and the Second Lien Exchange Notes collectively as the “Second Lien Notes.”

 

First Lien Exchange Notes

11.25% Senior Secured Notes due 2017 (the “First Lien Exchange Notes”). The terms of the First Lien Exchange Notes are substantially identical to those terms of the Original First Lien Notes, except that the transfer restrictions, registration rights and provisions for additional interest relating to the Original First Lien Notes do not apply to the First Lien Exchange Notes. We refer to the Original First Lien Notes and the First Lien Exchange Notes collectively as the “First Lien Notes.” We refer to the 2015 Second Lien Exchange Notes, the 2018 Second Lien Exchange Notes and the First Lien Exchange Notes as the “exchange notes.”

 

Exchange Offers

Harrah’s Operating is offering to exchange:

 

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up to $214,800,000 aggregate principal amount of its 2015 Second Lien Exchange Notes, which have been registered under the Securities Act, for an equal amount of its Original 2015 Second Lien Notes;

 

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up to $847,621,000 aggregate principal amount of its 2018(1) Second Lien Exchange Notes, which have been registered under the Securities Act, for an equal amount of its Original 2018(1) Second Lien Notes;

 

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up to $3,705,498,000 aggregate principal amount of its 2018(2) Second Lien Exchange Notes, which have been registered under the Securities Act, for an equal amount of its Original 2018(2) Second Lien Notes; and

 

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up to $2,095,000,000 aggregate principal amount of its First Lien Exchange Notes, which have been registered under the Securities Act, for an equal amount of its Original First Lien Notes.

Harrah’s Operating is also offering to satisfy certain of its obligations under the registration rights agreements that Harrah’s Operating entered into when it issued the original notes in transactions exempt from registration under the Securities Act.

 

Expiration Date; Withdrawal of Tenders

The exchange offers will expire at 5:00 p.m., New York City time, on January 21, 2010, or such later date and time to which Harrah’s Operating extends it. Harrah’s Operating does not currently intend to extend the expiration date. A tender of original notes pursuant to the exchange offers may be withdrawn at any time prior to the expiration

 

date. Any original notes not accepted for exchange for any reason will be returned without expense to the tendering holder promptly after the expiration or termination of the exchange offers.

 

Conditions to the Exchange Offers

The exchange offers are subject to customary conditions, some of which Harrah’s Operating may waive. For more information, see “The Exchange Offers—Certain Conditions to the Exchange Offers.”

 

Procedures for Tendering Original Notes

If you wish to accept the exchange offers, you must complete, sign and date the accompanying letter of transmittal, or a copy of the letter of transmittal, according to the instructions contained in this prospectus and the letter of transmittal. You must also mail or otherwise deliver the letter of transmittal, or the copy, together with the original notes and any other required documents, to the exchange agent at the address set forth on the cover of the letter of transmittal. If you hold original notes through The Depository Trust Company (“DTC”) and wish to participate in the exchange offers, you must comply with the Automated Tender Offer Program procedures of DTC, by which you will agree to be bound by the letter of transmittal.

By signing or agreeing to be bound by the letter of transmittal, you will represent to us that, among other things:

 

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any exchange notes that you receive will be acquired in the ordinary course of your business;

 

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you have no arrangement or understanding with any person or entity, including any of our affiliates, to participate in the distribution of the exchange notes;

 

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if you are a broker-dealer that will receive exchange notes for your own account in exchange for original notes that were acquired as a result of market-making activities, that you will deliver a prospectus, as required by law, in connection with any resale of the exchange notes; and

 

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you are not our “affiliate” as defined in Rule 405 under the Securities Act, or, if you are an affiliate, you will comply with any applicable registration and prospectus delivery requirements of the Securities Act.

 

Guaranteed Delivery Procedures

If you wish to tender your original notes and your original notes are not immediately available or you cannot deliver your original notes, the letter of transmittal or any other documents required by the letter of transmittal or comply with the applicable procedures under DTC’s Automated Tender Offer Program prior to the expiration date, you must tender your original notes according to the guaranteed delivery procedures set forth in this prospectus under “The Exchange Offers—Guaranteed Delivery Procedures.”

 

Effect on Holders of Original Notes

As a result of the making of, and upon acceptance for exchange of all validly tendered original notes pursuant to the terms of, the exchange offers, Harrah’s Operating will have fulfilled a covenant contained in

 

each of the registration rights agreements for the original notes and, accordingly, Harrah’s Operating will not be obligated to pay additional interest as described in each of the registration rights agreements. If you are a holder of original notes and do not tender your original notes in the exchange offers, you will continue to hold such original notes and you will be entitled to all the rights and limitations applicable to the original notes in the indenture, except for any rights under the registration rights agreements that, by their terms, terminate upon the consummation of the exchange offers.

 

Consequences of Failure to Exchange

All untendered original notes will continue to be subject to the restrictions on transfer provided for in the original notes and in the indenture. In general, the original notes may not be offered or sold unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. Other than in connection with the exchange offers, Harrah’s Operating does not currently anticipate that it will register the original notes under the Securities Act.

 

Resale of the Exchange Notes

Based on an interpretation by the staff of the SEC set forth in no-action letters issued to third parties, we believe that the exchange notes issued pursuant to the exchange offers in exchange for original notes may be offered for resale, resold and otherwise transferred by you (unless you are our “affiliate” within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that you:

 

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are acquiring the exchange notes in the ordinary course of business; and

 

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have not engaged in, do not intend to engage in, and have no arrangement or understanding with any person or entity, including any of Harrah’s Entertainment’s affiliates, to participate in, a distribution of the exchange notes.

In addition, each participating broker-dealer that receives exchange notes for its own account pursuant to the exchange offers in exchange for original notes that were acquired as a result of market-making or other trading activity must also acknowledge that it will deliver a prospectus in connection with any resale of the exchange notes. For more information, see “Plan of Distribution.” Any holder of original notes, including any broker-dealer, who:

 

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is our affiliate,

 

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does not acquire the exchange notes in the ordinary course of its business, or

 

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tenders in the exchange offers with the intention to participate, or for the purpose of participating, in a distribution of exchange notes,

 

cannot rely on the position of the staff of the Commission expressed in Exxon Capital Holdings Corporation, Morgan Stanley & Co., Incorporated or similar no-action letters and, in the absence of an exemption, must comply with the registration and prospectus delivery requirements of the Securities Act in connection with the resale of the exchange notes.

 

Material Tax Consequences

The exchange of original notes for exchange notes in the exchange offers will not be a taxable event for U.S. federal income tax purposes. For more information, see “Certain U.S. Federal Tax Considerations.”

 

Use of Proceeds

We will not receive any cash proceeds from the issuance of the exchange notes in the exchange offers.

 

Exchange Agent

U.S. Bank National Association is the exchange agent for the exchange offers. The address and telephone number of the exchange agent are set forth in the section captioned “The Exchange Offers—Exchange Agent.”

 

Summary of the Terms of the Exchange Notes

The following summary highlights the material information regarding the exchange notes contained elsewhere in this prospectus. We urge you to read this entire prospectus, including the “Risk Factors” section and the consolidated financial statements and related notes.

 

Issuer

Harrah’s Operating Company, Inc.

 

2015 Second Lien Exchange Notes

$214,800,000 aggregate principal amount of our 10.00% Second-Priority Senior Secured Notes due 2015.

 

Maturity Date

The 2015 Second Lien Exchange Notes will mature on December 15, 2015.

 

Interest Rate

Interest on the 2015 Second Lien Exchange Notes will be payable in cash and will accrue from the issue date of the 2015 Second Lien Exchange Notes at a rate of 10.00% per annum.

 

Interest Payment Date

June 15 and December 15, commencing on June 15, 2009

 

Collateral

The 2015 Second Lien Exchange Notes will be secured by a second priority security interest in the collateral granted to the collateral agent for the benefit of the holders of the Second Lien Notes and other future parity lien debt that may be issued in compliance with the terms of the indenture governing the 2015 Second Lien Exchange Notes. These liens will be junior in priority to the liens on substantially the same collateral securing the senior secured credit facilities and the First Lien Notes and to all other permitted prior liens, including liens securing certain hedging obligations and cash management obligations. The liens securing first priority lien obligations will be held by the collateral agent under the senior secured credit facilities.

The collateral securing the 2015 Second Lien Exchange Notes will be substantially all of Harrah’s Operating’s and the Subsidiary Pledgor’s property and assets that secure the senior secured credit facilities, which excludes: (i) any property or assets owned by any foreign subsidiaries, (ii) certain real property and vessels, (iii) any vehicles, (iv) cash, deposit accounts and securities accounts (to the extent that a lien thereon must be perfected by any action other than the filing of customary financing statements), (v) subject to limited exceptions, any assets or any right, title or interest in any license, contract or agreement to the extent that taking a security interest in any of them would violate any applicable law or regulation (including gaming regulations) or any enforceable contractual obligation binding on the assets or would violate the terms of any such license, contract or agreement, and (vi) certain other limited exclusions. While the collateral securing the senior secured credit facilities and the First Lien Notes includes the equity interests of Harrah’s Operating and substantially all of Harrah’s Operating’s domestic subsidiaries and

 

“first-tier” foreign subsidiaries, the collateral securing the 2015 Second Lien Exchange Notes will not include securities and other equity interests of Harrah’s Operating or its subsidiaries. For more information, see “Description of 2015 Second Lien Exchange Notes and 2018(1) Second Lien Exchange Notes—Security for the Notes.”

 

Intercreditor Agreement

The trustee and the collateral agent under the indenture governing the 2015 Second Lien Exchange Notes and representatives of the first priority lien obligations are parties to an intercreditor agreement as to the relative priorities of their respective security interests in Harrah’s Operating’s and Subsidiary Pledgors’ assets securing the 2015 Second Lien Exchange Notes and first priority lien obligations and certain other matters relating to the administration of security interests. The terms of the intercreditor agreement are set forth under “Description of 2015 Second Lien Exchange Notes and 2018(1) Second Lien Exchange Notes—Security for the Notes.”

 

Ranking

The 2015 Second Lien Exchange Notes:

 

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will be senior indebtedness of Harrah’s Operating;

 

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will rank pari passu in right of payment with all existing and future senior indebtedness of Harrah’s Operating;

 

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will be senior in right of payment to all existing and future subordinated indebtedness of Harrah’s Operating; and

 

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will be effectively subordinated in right of payment to all existing and future indebtedness and liabilities of subsidiaries of Harrah’s Operating that are not Subsidiary Pledgors.

The 2015 Second Lien Exchange Notes will have the benefit of a security interest in the collateral that will be second in priority behind the senior secured credit facilities and the First Lien Notes, subject to permitted prior liens and exceptions described under “Description of 2015 Second Lien Exchange Notes and 2018(1) Second Lien Exchange Notes—Security for the Notes.” Although none of HOC’s subsidiaries will guarantee the Second Lien Exchange Notes, all of HOC’s domestic wholly owned subsidiaries that pledge their assets and property to secure the loans under the senior secured credit facilities, the First Lien Notes and other first priority lien obligations, if any, will become Subsidiary Pledgors with respect to the 2015 Second Lien Exchange Notes, and their assets and property will secure the 2015 Second Lien Exchange Notes to the extent described under “Description of 2015 Second Lien Exchange Notes and 2018(1) Second Lien Exchange Notes —Security for the Notes.”

 

Guarantee

The 2015 Second Lien Exchange Notes are irrevocably and unconditionally guaranteed by Harrah’s Entertainment.

 

Optional Redemption

Harrah’s Operating may redeem the 2015 Second Lien Exchange Notes, in whole or part, at any time prior to December 15, 2012 at a price equal to 100% of the principal amount of the 2015 Second Lien

 

Exchange Notes redeemed plus accrued and unpaid interest to the redemption date and a “make-whole premium,” as described in “Description of 2015 Second Lien Exchange Notes and 2018(1) Second Lien Exchange Notes—Optional Redemption.”

Harrah’s Operating may redeem the 2015 Second Lien Exchange Notes, in whole or in part, on or after December 15, 2012 at the redemption prices set forth under “Description of 2015 Second Lien Exchange Notes and 2018(1) Second Lien Exchange Notes—Optional Redemption.”

 

Optional Redemption After Certain Equity Offerings

At any time (which may be more than once) before December 15, 2011, Harrah’s Operating may choose to redeem up to 35% of the principal amount of the 2015 Second Lien Exchange Notes at a redemption price equal to 110.00% of the face amount thereof with the net proceeds of one or more equity offerings to the extent such net cash proceeds are received by or contributed to Harrah’s Operating and so long as at least 50% of the aggregate principal amount of the 2015 Second Lien Exchange Notes issued remains outstanding afterwards. See “Description of 2015 Second Lien Exchange Notes and 2018(1) Second Lien Exchange Notes—Optional Redemption.”

 

Mandatory Redemption

If the 2015 Second Lien Exchange Notes would otherwise constitute “applicable high yield discount obligations” within the meaning of Section 163(i)(1) of the Internal Revenue Code of 1986, as amended (the “Code”), at the end of each accrual period ending after the fifth anniversary of the 2015 Second Lien Exchange Notes’ issuance (each an “AHYDO redemption date”), we will be required to redeem for cash a portion of each applicable 2015 Second Lien Exchange Note then outstanding equal to the “Mandatory Principal Redemption Amount” (such redemption, a “Mandatory Principal Redemption”). The redemption price for the portion of each 2015 Exchange Second Lien Note redeemed pursuant to a Mandatory Principal Redemption will be 100% of the principal amount of such portion plus any accrued interest thereon on the date of redemption. The “Mandatory Principal Redemption Amount” means the portion of a 2015 Second Lien Exchange Note that must be required to be redeemed to prevent such 2015 Second Lien Exchange Note from being treated as an “applicable high yield discount obligation” within the meaning of Section 163(i)(1) of the Code. No partial redemption or repurchase of the 2015 Second Lien Exchange Notes prior to the AHYDO redemption date pursuant to any other provision of the indenture will alter our obligation to make the Mandatory Principal Redemption with respect to any 2015 Second Lien Exchange Notes that remain outstanding on an AHYDO redemption date.

 

Change of Control

If Harrah’s Operating experiences a change of control (as defined in the indentures governing the exchange notes), Harrah’s Operating will be required to make an offer to repurchase the exchange notes at

 

a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of repurchase. See “Description of 2015 Second Lien Exchange Notes and 2018(1) Second Lien Exchange Notes—Change of Control.”

 

Certain Covenants

We issued the 2015 Second Lien Exchange Notes and the 2018(1) Second Lien Exchange Notes under a single indenture, which contains covenants limiting Harrah’s Operating’s ability and the ability of its subsidiaries to:

 

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incur additional debt or issue certain preferred shares;

 

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pay dividends on or make distributions in respect of its capital stock or make other restricted payments;

 

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make certain investments;

 

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sell certain assets;

 

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create liens on certain assets to secure debt;

 

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consolidate, merge, sell or otherwise dispose of all or substantially all of its assets;

 

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enter into certain transactions with its affiliates; and

 

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designate its subsidiaries as unrestricted subsidiaries.

The covenants are subject to a number of important limitations and exceptions. In addition, the restrictive covenants do not apply to Harrah’s Entertainment. See “Description of 2015 Second Lien Exchange Notes and 2018(1) Second Lien Exchange Notes.” Certain covenants will cease to apply to the 2015 Second Lien Exchange Notes for so long as such notes have investment grade ratings from both Moody’s Investors Service, Inc. and Standard & Poor’s.

 

2018(1) Second Lien Exchange Notes

$847,621,000 aggregate principal amount of 10.00% Second-Priority Senior Secured Notes due 2018.

 

Maturity Date

The 2018(1) Second Lien Exchange Notes will mature on December 15, 2018.

 

Interest Rate

Interest on the 2018(1) Second Lien Exchange Notes will be payable in cash and will accrue from the issue date of the 2018(1) Second Lien Exchange Notes at a rate of 10.00% per annum.

 

Interest Payment Date

June 15 and December 15, commencing on June 15, 2009.

 

Collateral

The 2018(1) Second Lien Exchange Notes will be secured by a second priority security interest in the collateral granted to the collateral agent for the benefit of the holders of the Second Lien Notes and other future parity lien debt that may be issued in compliance with the terms of the indenture governing the 2018(1)

 

Second Lien Exchange Notes. These liens will be junior in priority to the liens on substantially the same collateral securing the senior secured credit facilities and the First Lien Notes and to all other permitted prior liens, including liens securing certain hedging obligations and cash management obligations. The liens securing first priority lien obligations will be held by the collateral agent under the senior secured credit facilities.

The collateral securing the 2018(1) Second Lien Exchange Notes will be substantially all of Harrah’s Operating’s and the Subsidiary Pledgor’s property and assets that secure the senior secured credit facilities, which excludes: (i) any property or assets owned by any foreign subsidiaries, (ii) certain real property and vessels, (iii) any vehicles, (iv) cash, deposit accounts and securities accounts (to the extent that a lien thereon must be perfected by any action other than the filing of customary financing statements), (v) subject to limited exceptions, any assets or any right, title or interest in any license, contract or agreement to the extent that taking a security interest in any of them would violate any applicable law or regulation (including gaming regulations) or any enforceable contractual obligation binding on the assets or would violate the terms of any such license, contract or agreement, and (vi) certain other limited exclusions. While the collateral securing the senior secured credit facilities and the First Lien Notes includes the equity interests of Harrah’s Operating and substantially all of Harrah’s Operating’s domestic subsidiaries and “first-tier” foreign subsidiaries, the collateral securing the 2018(1) Second Lien Exchange Notes will not include securities and other equity interests of Harrah’s Operating or its subsidiaries. For more information, see “Description of 2015 Second Lien Exchange Notes and 2018(1) Second Lien Exchange Notes—Security for the Notes.”

 

Intercreditor Agreement

The trustee and the collateral agent under the indenture governing the 2015 Second Lien Exchange Notes and the representatives of the first priority lien obligations entered into an intercreditor agreement as to the relative priorities of their respective security interests in Harrah’s Operating’s and Subsidiary Pledgors’ assets securing the 2015 Second Lien Exchange Notes and the first priority lien obligations facilities and certain other matters relating to the administration of security interests. The terms of the intercreditor agreement are set forth under “Description of 2015 Second Lien Exchange Notes and 2018(1) Second Lien Exchange Notes—Security for the Notes.”

 

Ranking

The 2018(1) Second Lien Exchange Notes:

 

•

will be senior indebtedness of Harrah’s Operating;

 

•

will rank pari passu in right of payment with all existing and future senior indebtedness of Harrah’s Operating;

 

•

will be senior in right of payment to all existing and future subordinated indebtedness of Harrah’s Operating; and

 

•

will be effectively subordinated in right of payment to all existing and future indebtedness and liabilities of subsidiaries of Harrah’s Operating that are not Subsidiary Pledgors.

The 2018(1) Second Lien Exchange Notes will have the benefit of a security interest in the collateral that will be second in priority behind the senior secured credit facilities and the First Lien Notes, subject to permitted prior liens and exceptions described under “Description of 2015 Second Lien Exchange Notes and 2018(1) Second Lien Exchange Notes—Security for the Notes.” Although none of HOC’s subsidiaries will guarantee the Second Lien Exchange Notes, all of HOC’s domestic wholly owned subsidiaries that pledge their assets and property to secure the loans under the senior secured credit facilities, the First Lien Notes and other first priority lien obligations, if any, will become Subsidiary Pledgors with respect to the 2018(1) Second Lien Exchange Notes, and their assets and property will secure the 2018(1) Second Lien Exchange Notes to the extent described under “Description of 2015 Second Lien Exchange Notes and 2018(1) Second Lien Exchange Notes—Security for the Notes.”

 

Guarantee

The 2018(1) Second Lien Exchange Notes are irrevocably and unconditionally guaranteed by Harrah’s Entertainment.

 

Optional Redemption

Harrah’s Operating may redeem the 2018(1) Second Lien Exchange Notes, in whole or part, at any time prior to December 15, 2013 at a price equal to 100% of the principal amount of the 2018(1) Second Lien Exchange Notes redeemed plus accrued and unpaid interest to the redemption date and a “make-whole premium,” as described in “Description of 2015 Second Lien Exchange Notes and 2018(1) Second Lien Exchange Notes—Optional Redemption.”

Harrah’s Operating may redeem the 2018(1) Second Lien Exchange Notes, in whole or in part, on or after December 15, 2013 at the redemption prices set forth under “Description of 2015 Second Lien Exchange Notes and 2018(1) Second Lien Exchange Notes—Optional Redemption.”

 

Optional Redemption After Certain Equity Offerings

At any time (which may be more than once) before December 15, 2011, Harrah’s Operating may choose to redeem up to 35% of the principal amount of the 2018(1) Second Lien Exchange Notes at a redemption price equal to 110.00% of the face amount thereof with the net proceeds of one or more equity offerings to the extent such net cash proceeds are received by or contributed to Harrah’s Operating and so long as at least 50% of the aggregate principal amount of the 2018(1) Second Lien Exchange Notes issued remains outstanding afterwards. See “Description of 2015 Second Lien Exchange Notes and 2018(1) Second Lien Exchange Notes—Optional Redemption.”

 

Mandatory Redemption

If the 2018(1) Second Lien Exchange Notes would otherwise constitute “applicable high yield discount obligations” within the meaning of Section 163(i)(1) of the Internal Revenue Code of 1986, as amended (the “Code”), at the end of each accrual period ending after the fifth anniversary of the 2018(1) Second Lien Exchange Notes’ issuance (each an “AHYDO redemption date”), we will be required to redeem for cash a portion of each applicable 2018(1) Second Lien Exchange Note then outstanding equal to the “Mandatory Principal Redemption Amount” (such redemption, a “Mandatory Principal Redemption”). The redemption price for the portion of each 2018(1) Exchange Second Lien Note redeemed pursuant to a Mandatory Principal Redemption will be 100% of the principal amount of such portion plus any accrued interest thereon on the date of redemption. The “Mandatory Principal Redemption Amount” means the portion of a 2018(1) Second Lien Exchange Note that must be required to be redeemed to prevent such 2018(1) Second Lien Exchange Note from being treated as an “applicable high yield discount obligation” within the meaning of Section 163(i)(1) of the Code. No partial redemption or repurchase of the 2018(1) Second Lien Exchange Notes prior to the AHYDO redemption date pursuant to any other provision of the indenture will alter our obligation to make the Mandatory Principal Redemption with respect to any 2018(1) Second Lien Exchange Notes that remain outstanding on an AHYDO redemption date.

 

Change of Control

If Harrah’s Operating experiences a change of control (as defined in the indentures governing the exchange notes), Harrah’s Operating will be required to make an offer to repurchase the exchange notes at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of repurchase. See “Description of 2015 Second Lien Exchange Notes and 2018(1) Second Lien Exchange Notes—Change of Control.”

 

Certain Covenants

We issued the 2015 Second Lien Exchange Notes and the 2018(1) Second Lien Exchange Notes under a single indenture, which contains covenants limiting Harrah’s Operating ability and the ability of its subsidiaries to:

 

•

incur additional debt or issue certain preferred shares;

 

•

pay dividends on or make distributions in respect of its capital stock or make other restricted payments;

 

•

make certain investments;

 

•

sell certain assets;

 

•

create liens on certain assets to secure debt;

 

•

consolidate, merge, sell or otherwise dispose of all or substantially all of its assets;

 

•

enter into certain transactions with its affiliates; and

 

•

designate its subsidiaries as unrestricted subsidiaries.

 

The covenants are subject to a number of important limitations and exceptions. In addition, the restrictive covenants do not apply to Harrah’s Entertainment. See “Description of 2015 Second Lien Exchange Notes and 2018(1) Second Lien Exchange Notes.” Certain covenants will cease to apply to the 2015 Second Lien Exchange Notes for so long as such notes have investment grade ratings from both Moody’s Investors Service, Inc. and Standard & Poor’s.

 

2018(2) Second Lien Exchange Notes

$3,705,498,000 aggregate principal amount of 10.00% Second-Priority Senior Secured Notes due 2018.

 

Maturity Date

The 2018(2) Second Lien Exchange Notes will mature on December 15, 2018.

 

Interest Rate

Interest on the 2018(2) Second Lien Exchange Notes will be payable in cash and will accrue from the issue date of the 2018(2) Second Lien Exchange Notes at a rate of 10.00% per annum.

 

Interest Payment Date

June 15 and December 15, commencing on June 15, 2009.

 

Collateral

The 2018(2) Second Lien Exchange Notes will be secured by a second priority security interest in the collateral granted to the collateral agent for the benefit of the holders of the Second Lien Notes and other future parity lien debt that may be issued in compliance with the terms of the indenture governing the 2018(2) Second Lien Exchange Notes. These liens will be junior in priority to the liens on substantially the same collateral securing the senior secured credit facilities and the First Lien Notes and to all other permitted prior liens, including liens securing certain hedging obligations and cash management obligations. The liens securing first priority lien obligations will be held by the collateral agent under the senior secured credit facilities.

The collateral securing the 2018(2) Second Lien Exchange Notes will be substantially all of Harrah’s Operating’s and the Subsidiary Pledgor’s property and assets that secure the senior secured credit facilities, which excludes: (i) any property or assets owned by any foreign subsidiaries, (ii) certain real property and vessels, (iii) any vehicles, (iv) cash, deposit accounts and securities accounts (to the extent that a lien thereon must be perfected by any action other than the filing of customary financing statements), (v) subject to limited exceptions, any assets or any right, title or interest in any license, contract or agreement to the extent that taking a security interest in any of them would violate any applicable law or regulation (including gaming regulations) or any enforceable contractual obligation binding on the assets or would violate the terms of any such license, contract or agreement, and (vi) certain other limited exclusions. While the collateral securing the senior secured credit facilities and the First Lien Notes includes the equity interests of Harrah’s Operating and

 

substantially all of Harrah’s Operating’s domestic subsidiaries and “first-tier” foreign subsidiaries, the collateral securing the 2018(2) Second Lien Exchange Notes will not include securities and other equity interests of Harrah’s Operating or its subsidiaries. For more information, see “Description of 2018(2) Second Lien Exchange Notes—Security for the Notes.”

 

Intercreditor Agreement

The trustee and the collateral agent under the indenture governing the 2018(2) Second Lien Exchange Notes and representatives of the first priority lien obligations entered into a joinder to the intercreditor agreement, dated as of December 24, 2008, as to the relative priorities of their respective security interests in Harrah’s Operating’s and Subsidiary Pledgors’ assets securing the 2018(2) Second Lien Exchange Notes and the first priority lien obligations and certain other matters relating to the administration of security interests. The terms of the intercreditor agreement are set forth under “Description of 2018(2) Second Lien Exchange Notes—Security Documents and Intercreditor Agreement.”

 

Ranking

The 2018(2) Second Lien Exchange Notes:

 

•

will be senior indebtedness of Harrah’s Operating;

 

•

will rank pari passu in right of payment with all existing and future senior indebtedness of Harrah’s Operating;

 

•

will be senior in right of payment to all existing and future subordinated indebtedness of Harrah’s Operating; and

 

•

will be effectively subordinated in right of payment to all existing and future indebtedness and liabilities of subsidiaries of Harrah’s Operating that are not Subsidiary Pledgors.

The 2018(2) Second Lien Exchange Notes will have the benefit of a security interest in the collateral that will be second in priority behind the senior secured credit facilities and the First Lien Notes, subject to permitted prior liens and exceptions described under “Description of 2018(2) Second Lien Exchange Notes—Security for the Notes.” Although none of HOC’s subsidiaries will guarantee the Second Lien Exchange Notes, all of HOC’s domestic wholly owned subsidiaries that pledge their assets and property to secure the loans under the senior secured credit facilities, the First Lien Notes and other first priority lien obligations, if any, will become Subsidiary Pledgors with respect to the 2018(2) Second Lien Exchange Notes, and their assets and property will secure the 2018(2) Second Lien Exchange Notes to the extent described under “Description of 2018(2) Second Lien Exchange Notes—Security for the Notes.”

 

Guarantee

The 2018(2) Second Lien Exchange Notes are irrevocably and unconditionally guaranteed by Harrah’s Entertainment, subject to certain limitations. See “Description of 2018(2) Second Lien Exchange Notes—Parent Guarantee.”

 

Optional Redemption

Harrah’s Operating may redeem the 2018(2) Second Lien Exchange Notes, in whole or part, at any time prior to December 15, 2013 at a price equal to 100% of the principal amount of the Second Lien Exchange Notes redeemed plus accrued and unpaid interest to the redemption date and a “make-whole premium,” as described in “Description of 2018(2) Second Lien Exchange Notes—Optional Redemption.” Harrah’s Operating may redeem the 2018(2) Second Lien Exchange Notes, in whole or in part, on or after December 15, 2013 at the redemption prices set forth under “Description of 2018(2) Second Lien Exchange Notes—Optional Redemption.”

 

Optional Redemption after Certain Equity Offerings and Mandatory Redemption

At any time (which may be more than once) before December 15, 2011, Harrah’s Operating may choose to redeem up to 35% of the principal amount of 2018(2) Second Lien Exchange Notes at a redemption price equal to 110.00% of the face amount thereof with the net proceeds of one or more equity offerings to the extent such net cash proceeds are received by or contributed to Harrah’s Operating and so long as at least 50% of the aggregate principal amount of the 2018(2) Second Lien Exchange Notes s outstanding afterwards. See “Description of 2018(2) Second Lien Exchange Notes—Optional Redemption.”

 

Change of Control

If Harrah’s Operating experiences a change of control (as defined in the indentures governing the exchange notes), Harrah’s Operating will be required to make an offer to repurchase the exchange notes at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of repurchase. See “Description of 2018(2) Second Lien Exchange Notes—Change of Control.”

 

Certain Covenants

We issued the 2018(2) Second Lien Exchange Notes under an indenture that contains covenants limiting Harrah’s Operating’s ability and the ability of its subsidiaries to:

 

•

incur additional debt or issue certain preferred shares;

 

•

pay dividends on or make distributions in respect of its capital stock or make other restricted payments;

 

•

make certain investments;

 

•

sell certain assets;

 

•

create liens on certain assets to secure debt;

 

•

consolidate, merge, sell or otherwise dispose of all or substantially all of its assets;

 

•

enter into certain transactions with its affiliates; and

 

•

designate its subsidiaries as unrestricted subsidiaries.

 

The covenants are subject to a number of important limitations and exceptions. In addition, the restrictive covenants do not apply to Harrah’s Entertainment. See “Description of 2018(2) Second Lien Exchange Notes.” Certain covenants will cease to apply to 2018(2) Second Lien Exchange Notes for so long as such notes have investment grade ratings from both Moody’s Investors Service, Inc. and Standard & Poor’s.

 

First Lien Exchange Notes

$2,095,000,000 aggregate principal amount 11.25% notes due 2017.

 

Maturity Date

The First Lien Exchange Notes will mature on June 1, 2017.

 

Interest Rate

Interest on the First Lien Exchange Notes will be payable in cash and will accrue from the issue date of the First Lien Exchange Notes at a rate of 11.25% per annum.

 

Interest Payment Date

June 1 and December 1 of each year after the date of issuance of the First Lien Exchange Notes commencing December 1, 2009

 

Ranking

The First Lien Exchange Notes:

 

•

will be senior indebtedness of Harrah’s Operating;

 

•

will rank pari passu in right of payment with all existing and future senior indebtedness of Harrah’s Operating;

 

•

will be senior in right of payment to all existing and future subordinated indebtedness of Harrah’s Operating; and

 

•

will be effectively subordinated in right of payment to all existing and future indebtedness and liabilities of subsidiaries of Harrah’s Operating that are not Subsidiary Pledgors.

The First Lien Exchange Notes will have the benefit of a security interest in the collateral that will be first in priority and pari passu with the senior secured credit facilities, subject to permitted liens and exceptions described under “Description of First Lien Exchange Notes—Security for the Notes.” While the First Lien Exchange Notes will initially be secured by the pledge of HOC’s capital stock and the capital stock of the Subsidiary Pledgors, these pledges will be released to the extent that separate financial statements pursuant to Rule 3-16 of Regulation S-X would be required in connection with the filing of a registration statement related to the First Lien Exchange Notes. See “Description of First Lien Exchange Notes—Security for the Notes.” All of HOC’s domestic wholly owned subsidiaries that pledge their assets and property to secure the loans under the senior secured credit facilities and other first priority lien obligations, if any, will become Subsidiary Pledgors with respect to the First Lien Exchange Notes, and their assets and property will secure the notes to the extent described under “Description of First Lien Exchange Notes—Security for the Notes.”

 

Collateral

The First Lien Exchange Notes will be secured by a first priority security interest in the collateral granted to the collateral agent for the benefit of the holders of the notes and other future parity lien debt that may be issued in compliance with the terms of the indenture governing the First Lien Exchange Notes. The collateral securing the First Lien Exchange Notes is the same as the collateral securing the senior secured credit facilities. The liens securing the First Lien Exchange Notes are pari passu in priority to the liens on the collateral securing the senior secured credit facilities. The liens securing the First Lien Exchange Notes and other first priority lien obligations will be held by the collateral agent under the senior secured credit facilities.

While the First Lien Exchange Notes will initially be secured by the pledge of HOC’s capital stock and the capital stock of the Subsidiary Pledgors, these pledges will be released to the extent that separate financial statements pursuant to Rule 3-16 of Regulation S-X would be required in connection with the filing of a registration statement related to the First Lien Exchange Notes. See “Description of First Lien Exchange Notes—Security for the Notes.”

Except as set forth above, the collateral securing the First Lien Exchange Notes will be substantially all of HOC’s and the Subsidiary Pledgor’s property and assets that secure the senior secured credit facilities, which excludes: (i) any property or assets owned by any foreign subsidiaries, (ii) certain real property and vessels, (iii) any vehicles, (iv) cash, deposit accounts and securities accounts (to the extent that a lien thereon must be perfected by any action other than the filing of customary financing statements), (v) subject to limited exceptions, any assets or any right, title or interest in any license, contract or agreement to the extent that taking a security interest in any of them would violate any applicable law or regulation (including gaming regulations) or any enforceable contractual obligation binding on the assets or would violate the terms of any such license, contract or agreement, and (vi) certain other limited exclusions. For more information, see “Description of First Lien Exchange Notes—Security for the Notes.”

 

Guarantee

The notes are irrevocably and unconditionally guaranteed by Harrah’s Entertainment, subject to certain limitations. See “Description of First Lien Exchange Notes—Parent Guarantee.”

 

Optional Redemption

HOC may redeem the First Lien Exchange Notes, in whole or in part, at any time prior to June 1, 2013, at a price equal to 100% of the principal amount of the First Lien Exchange Notes plus accrued and unpaid interest and an applicable make-whole premium. Thereafter, the First Lien Exchange Notes may be redeemed at the option of HOC on the redemption dates and at the redemption prices specified under “Description of First Lien Exchange Notes—Optional Redemption.”

 

Optional Redemption After Certain Equity Offerings

On or prior to June 1, 2012, HOC may redeem up to 35% of the aggregate principal amount of First Lien Exchange Notes with the net cash proceeds of one or more equity offerings at the redemption prices specified under “Description of First Lien Exchange Notes—Optional Redemption.”

 

Change of Control

If Harrah’s Operating experiences a change of control (as defined in the indenture governing the exchange notes), Harrah’s Operating will be required to make an offer to repurchase the First Lien Exchange Notes at a price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of repurchase. See “Description of First Lien Exchange Notes—Change of Control.”

 

Certain Covenants

We issued the First Lien Exchange Notes under an indenture that contains covenants limiting Harrah’s Operating’s ability and the ability of its subsidiaries to:

 

•

incur additional debt or issue certain preferred shares;

 

•

pay dividends on or make distributions in respect of its capital stock or make other restricted payments;

 

•

make certain investments;

 

•

sell certain assets;

 

•

create liens on certain assets to secure debt;

 

•

consolidate, merge, sell or otherwise dispose of all or substantially all of its assets;

 

•

enter into certain transactions with its affiliates; and

 

•

designate its subsidiaries as unrestricted subsidiaries.

The covenants are subject to a number of important limitations and exceptions. In addition, the restrictive covenants do not apply to Harrah’s Entertainment. See “Description of First Lien Exchange Notes.” Certain covenants will cease to apply to the First Lien Exchange Notes for so long as such notes have investment grade ratings from both Moody’s Investors Service, Inc. and Standard & Poor’s.

Risk Factors

See “Risk Factors” and the other information in this prospectus for a discussion of the factors you should carefully consider before deciding to invest in the notes.

Additional Information

Our principal executive offices are located at One Caesars Palace Drive, Las Vegas, Nevada 89109, and our telephone number is (702) 407-6000. The address of our internet site is http://www.harrahs.com. This internet address is provided for informational purposes only and is not intended to be a hyperlink. Accordingly, no information in this internet address is included or incorporated herein.

 

Summary Historical Consolidated

and Unaudited Pro Forma Consolidated Financial Data

of Harrah’s Entertainment, Inc.

The following table presents our summary historical and pro forma financial information as of and for the periods presented. The summary historical financial information as of December 31, 2006, 2007 and 2008 and for each of the years in the two-year period ended December 31, 2007, and the periods from January 1, 2008 through January 27, 2008 and from January 28, 2008 through December 31, 2008, have been derived from, and should be read in conjunction with, our audited consolidated financial statements included elsewhere in this prospectus. The summary historical financial information as of September 30, 2009 and for the nine months ended September 30, 2009 and the period from January 28, 2008 through September 30, 2008 are derived from, and should be read in conjunction with, our unaudited condensed consolidated financial statements included elsewhere in this prospectus, and, except as otherwise described herein, have been prepared on a basis consistent with our annual audited financial statements and, in the opinion of management, include all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation of such data.

The summary unaudited pro forma consolidated financial data for the year ended December 31, 2008 is based on our audited financial statements appearing elsewhere in this prospectus and gives effect to the Transactions as if they had occurred on January 1, 2008. See “—The Acquisition Transactions.” The pro forma adjustments are based upon available information and certain assumptions that are factually supportable and that we believe are reasonable. The summary unaudited pro forma consolidated financial data are for informational purposes only and do not purport to represent what the actual consolidated results of operations or the consolidated financial position of Harrah’s Operating or Harrah’s Entertainment actually would have been if the CMBS Transactions, the London Clubs Transfer or the other Transactions had occurred at any given date, nor are they necessarily indicative of future consolidated results of operations or consolidated financial position.

Please refer to “Unaudited Pro Forma Condensed Consolidated Financial Information of Harrah’s Entertainment, Inc.,” “Selected Historical Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and notes thereto included elsewhere in this prospectus. The audited consolidated financial statements as of December 31, 2008 and 2007 and for each of the years in the two-year period ended December 31, 2007, and the periods from January 1, 2008 through January 27, 2008, and from January 28, 2008 through December 31, 2008, have been audited by Deloitte & Touche LLP, an independent registered public accounting firm.

Effective January 1, 2009, we adopted Accounting Standards Codification (“ASC”) 810-10-65-1 (formerly Statement of Financial Accounting Standards (“SFAS”) No. 160), “Non-controlling Interests in Consolidated Financial Statements—an amendment of ARB No. 51.” The adoption of ASC 810-10-65-1 did not have a material impact on our financial condition, results of operations or cash flows. However, it did impact the presentation and disclosure of non-controlling (minority) interests in our consolidated financial statements. As a result of the presentation and disclosure requirements of ASC 810-10-65-1, we are required to reflect the change in presentation and disclosure for all periods presented within future filings.

 

Harrah’s Entertainment, Inc.

Summary Historical Consolidated Financial Information

 

		Historical																										Pro Forma(1)
		Predecessor														Successor												Year Ended Dec. 31, 2008
(Dollars in millions)		2006				2007				Jan. 1, 2008 through Jan. 27, 2008						Jan. 28, 2008 through Sept. 30, 2008				Jan. 28, 2008 through Dec. 31, 2008				Nine Months Ended Sept. 30, 2009
Revenues
Casino		$	7,868.6			$	8,831.0			$	614.6					$	5,653.2			$	7,476.9			$	5,444.8			$	8,091.5
Food and beverage			1,577.7				1,698.8				118.4						1,160.2				1,530.2				1,129.3				1,648.6
Rooms			1,240.7				1,353.6				96.4						894.2				1,174.5				817.8				1,270.9
Management fees			89.1				81.5				5.0						45.8				59.1				43.5				64.1
Other			611.0				695.9				42.7						462.4				624.8				447.9				667.5
Less: casino promotional allowances			(1,713.2	)			(1,835.6	)			(117.0	)					(1,127.3	)			(1,498.6	)			(1,075.0	)			(1,615.6	)
Net revenues			9,673.9				10,825.2				760.1						7,088.5				9,366.9				6,808.3				10,127.0
Operating Expenses
Direct
Casino			3,902.6				4,595.2				340.6						3,037.1				4,102.8				2,968.0				4,443.4
Food and beverage			697.6				716.5				50.5						486.1				639.5				451.1				690.0
Rooms			256.6				266.3				19.6						179.4				236.7				160.4				256.3
Property general and administrative and other			2,206.8				2,421.7				178.2						1,619.0				2,143.0				1,518.3				2,321.2
Depreciation and amortization			667.9				817.2				63.5						452.4				626.9				516.8				679.5
Project opening costs			20.9				25.5				0.7						26.3				28.9				2.9				29.6
Write-downs, reserves and recoveries			62.6				(59.9	)			4.7						(61.8	)			16.2				78.6				20.9
Impairment of intangible assets			20.7				169.6				—						—				5,489.6				1,625.7				5,489.6
(Income)/loss in non-consolidated affiliates			(3.6	)			(3.9	)			(0.5	)					1.3				2.1				1.3				1.6
Corporate expense			177.5				138.1				8.5						95.9				131.8				111.7				139.2
Merger and integration costs			37.0				13.4				125.6						23.1				24.0				0.3				149.6
Amortization of intangible assets			70.7				73.5				5.5						119.2				162.9				131.7				184.0
Total operating expenses			8,117.3				9,173.2				796.9						5,978.0				13,604.4				7,566.8				14,404.9
Income/(loss) from operations			1,556.6				1,652.0				(36.8	)					1,110.5				(4,237.5	)			(758.5	)			(4,277.9	)
Interest expense, net of interest capitalized			(670.5	)			(800.8	)			(89.7	)					(1,469.4	)			(2,074.9	)			(1,404.7	)			(2,277.5	)
(Losses)/gains on early extinguishments of debt			(62.0	)			(2.0	)			—						(203.9	)			742.1				4,279.2				742.1
Other income, including interest income			10.7				43.3				1.1						18.7				35.2				23.2				36.3
Income/(loss) from continuing operations before income taxes			834.8				892.5				(125.4	)					(544.1	)			(5,535.1	)			2,139.2				(5,777.0	)
(Provision)/benefit for income taxes			(295.6	)			(350.1	)			26.0						147.7				360.4				(1,590.8	)			427.3
Income/(loss) from continuing operations, net of tax		$	539.2			$	542.4			$	(99.4	)				$	(396.4	)		$	(5,174.7	)		$	548.4			$	(5,349.7	)
Other Financial Data
Capital expenditures		$	2,548.3			$	1,462.2			$	120.1					$	1,001.2			$	1,204.2			$	411.9			$	1,324.3
Ratio of earnings to fixed charges(2)			2.2x				2.1x				—						—				—				2.5x				—
Balance Sheet Data
Cash and cash equivalents		$	799.6			$	710.0									$	1,005.9			$	650.5			$	948.2			$	650.5
Working capital			(610.2	)			(126.1	)									(167.9	)			(536.4	)			(118.9	)			(536.4	)
Total assets			22,284.9				23,357.7										37,012.3				31,048.6				29,230.5				31,048.6
Total debt			12,089.9				12,440.4										24,214.2				23,208.9				19,342.4				23,208.9
Total stockholders’ equity/(deficit)			6,123.5				6,679.1										3,666.2				(1,360.8	)			(1,080.7	)			(1,360.8	)

 

(1)

Includes pro forma adjustments for (i) the Acquisition; and (ii) the Financing.

(2)

For purposes of computing the ratio of earnings to fixed charges, earnings consist of income before income taxes plus fixed charges and non-controlling interests, excluding equity in undistributed earnings of less-than-50%-owned investments. Fixed charges include interest, amortization of debt expense, discount or premium related to indebtedness and such portion of rental expense we deem to be representative of interest. Our earnings were insufficient to cover our fixed charges by $122.5 million, $501.0 million and $5.5 billion for the Predecessor period from January 1, 2008 through January 27, 2008, the Successor period from January 28, 2008 through September 30, 2008 and the Successor period from January 28, 2008 through December 31, 2008, respectively. On a pro forma basis, after giving effect to the pro forma adjustments for (i) the Acquisition; and (ii) the Financing, our earnings were insufficient to cover our fixed charges by $5.7 billion for the year ended December 31, 2008.

 

Summary Pro Forma Consolidated Financial Data

of Harrah’s Operating Company, Inc.

The following unaudited pro forma condensed consolidated financial data has been developed by applying pro forma adjustments to the historical audited consolidated financial statements of Harrah’s Entertainment and subsidiaries. Set forth below is summary unaudited pro forma consolidated financial data of Harrah’s Operating and its consolidated subsidiaries for the fiscal years ended December 31, 2006 and 2007, for the periods from January 1, 2008 through January 27, 2008, January 28 through September 30, 2008 and January 28, 2008 through December 31, 2008, and for the nine months ended September 30, 2009.

Note that we have presented pro forma financial information for both Harrah’s Entertainment, Inc., as parent guarantor, and Harrah’s Operating, the issuer of the exchange notes. We believe that the additional unaudited pro forma financial information for Harrah’s Operating (which has been derived from Harrah’s Entertainment audited historical financial statements) as the issuer of the exchange notes provides a meaningful presentation for investors to consider given other operations and activities of Harrah’s Entertainment that are not included in the credit of Harrah’s Operating, including the separate real estate financing by other subsidiaries of Harrah’s Entertainment. The CMBS Financing described herein is not a direct obligation of Harrah’s Operating.

The summary unaudited pro forma condensed consolidated financial data for the fiscal years ended December 31, 2006 and 2007, the periods from January 1, 2008 through January 27, 2008, from January 28, 2008 through September 30, 2008, from January 28, 2008 through December 31, 2008, and for the nine months ended September 30, 2009, have been prepared to give effect to the CMBS Transactions as if they had occurred on January 1, 2006. The summary unaudited pro forma consolidated financial data for the fiscal year ended December 31, 2008 have been prepared to give effect to the London Clubs Transfer from December 2006 (when the acquisition of London Clubs by Harrah’s Entertainment was completed) and the remaining Transactions (including the CMBS Transactions) as if they had occurred on January 1, 2007, in the case of the summary unaudited pro forma consolidated statement of operations data. The pro forma adjustments are based upon available information and certain assumptions that are factually supportable and that we believe are reasonable. The summary unaudited pro forma consolidated financial data are for informational purposes only and do not purport to represent what the actual consolidated results of operations or the consolidated financial position of Harrah’s Operating or Harrah’s Entertainment actually would have been if the CMBS Transactions, the London Clubs Transfer or the other Transactions had occurred at any given date, nor are they necessarily indicative of future consolidated results of operations or consolidated financial position.

Harrah’s Operating has not historically reported financial information on a stand-alone basis. Accordingly, the financial information presented herein for Harrah’s Operating has been prepared on an unaudited pro forma basis. The pro forma financial information has been derived from Harrah’s Entertainment financial statements for the relevant periods, as adjusted to remove the historical financial information of all subsidiaries of and account balances at Harrah’s Entertainment that are not components of Harrah’s Operating.

The summary unaudited pro forma consolidated financial data should be read in conjunction with “The Acquisition Transactions,” “Unaudited Pro Forma Condensed Consolidated Financial Information of Harrah’s Operating Company, Inc.,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and notes thereto included elsewhere in this prospectus.

Effective January 1, 2009, we adopted ASC 810-10-65-1. The adoption of ASC 810-10-65-1 did not have a material impact on our financial condition, results of operations or cash flows. However, it did impact the presentation and disclosure of non-controlling (minority) interests in our consolidated financial statements. As a result of the presentation and disclosure requirements of ASC 810-10-65-1, we are required to reflect the change in presentation and disclosure for all periods presented within future filings.

 

Harrah’s Operating Company, Inc.

Summary Pro Forma Consolidated Financial Information

Pro Forma for the CMBS Transactions and London Clubs Transfer⁽¹⁾

 

		Predecessor														Successor												Pro Forma(1)
(Dollars in millions)		2006				2007				Jan. 1, 2008 through Jan. 27, 2008						Jan. 28, 2008 through Sept. 30, 2008				Jan. 28, 2008 through Dec. 31, 2008				Nine Months Ended Sept. 30, 2009				Year Ended Dec. 31, 2008
Revenues
Casino		$	6,194.7			$	7,082.8				498.2					$	4,501.1			$	5,962.6			$	4,397.1			$	6,460.8
Food and beverage			978.6				1,076.9				77.3						733.4				971.6				716.8				1,048.9
Rooms			719.4				791.7				56.0						518.8				684.2				485.8				740.2
Management fees			89.1				81.5				5.0						45.8				59.1				43.5				64.1
Other			406.0				453.1				28.0						380.0				520.9				367.0				548.9
Less: casino promotional allowances			(1,249.9	)			(1,342.2	)			(87.0	)					(814.2	)			(1,080.7	)			(768.5	)			(1,167.7	)
Net revenues			7,137.9				8,143.8				577.5						5,364.9				7,117.7				5,241.7				7,695.2
Operating Expenses
Direct
Casino			3,147.6				3,780.7				285.2						2,494.3				3,376.3				2,469.8				3,661.5
Food and beverage			394.2				415.4				30.3						282.2				371.4				259.5				401.7
Rooms			142.3				146.3				10.7						97.7				128.7				88.5				139.4
Property general and administrative and other			1,672.2				1,812.5				141.7						1,246.4				1,650.9				1,159.4				1,792.6
Depreciation and amortization			492.3				612.4				47.5						340.4				473.6				396.3				521.1
Project opening costs			20.7				23.6				0.7						25.0				27.6				2.7				28.3
Write-downs, reserves and recoveries			77.3				(82.4	)			0.2						(108.9	)			(60.1	)			50.3				(59.9	)
Impairment of intangible assets			—				169.6				—						—				3,745.2				1,166.6				3,745.2
(Income)/loss on interests in non-consolidated affiliates			(3.6	)			(4.0	)			(0.5	)					1.2				2.0				(0.9	)			1.5
Corporate expense			89.1				99.1				(26.2	)					88.5				106.3				56.3				80.1
Merger and integration costs			37.0				13.4				125.6						23.1				24.0				0.3				149.6
Amortization of intangible assets			70.2				73.0				5.5						79.4				108.2				87.0				113.7
Total operating expenses			6,139.3				7,059.6				620.7						4,569.3				9,954.1				5,735.8				10,574.8
Income/(loss) from operations			998.6				1,084.2				(43.2	)					795.6				(2,836.4	)			(494.1	)			(2,879.6	)
Interest expense, net of interest capitalized			(670.5	)			(800.8	)			(89.7	)					(1,208.2	)			(1,704.3	)			(1,245.0	)			(1,794.0	)
(Losses)/gains on early extinguishments of debt			(62.0	)			(2.0	)			—						(203.9	)			742.1				3,931.4				742.1
Other income, including interest income			14.1				47.3				5.1						15.5				29.6				22.4				34.7
Income/(loss) from continuing operations before income taxes			280.2				328.7				(127.8	)					(601.0	)			(3,769.0	)			2,214.7				(3,896.8	)
(Provision)/benefit for income taxes			(99.9	)			(152.6	)			21.6						186.7				378.5				(1,480.8	)			400.1
Income/(loss) from continuing operations, net of tax		$	180.3			$	176.1			$	(106.2	)				$	(414.3	)		$	(3,390.5	)		$	733.9			$	(3,496.7	)
Other Financial Data
Capital expenditures		$	2,250.2			$	1,072.6			$	93.0					$	864.2			$	1,051.7			$	389.6			$	1,144.7
Ratio of earnings to fixed charges(2)			1.4x				1.4x				—						—				—				2.8x				—
Balance Sheet Data
Cash and cash equivalents																$	782.9			$	447.4			$	599.8			$	447.4
Working capital																	(179.5	)			(539.6	)			(248.7	)			(539.6	)
Total assets																	25,996.5				21,932.3				20,603.8				21,932.3
Total debt																	17,713.8				16,708.5				13,417.8				16,708.5
Total stockholders’ equity/(deficit)																	3,135.9				(95.4	)			605.4				(95.4	)

 

(1)

Includes pro forma adjustments only for the CMBS Transactions and the London Clubs Transfer. Does not reflect any adjustments for the Acquisition, the Financing, or any of the other Acquisition Transactions, or the 2010/2011 Tender Offers or Incremental Loans.

(2)

For the purpose of computing the pro forma ratio of earnings to fixed charges, earnings consist of income before income taxes plus fixed charges and non-controlling interests, excluding equity in undistributed earnings of less-than-50%-owned investments. Fixed charges include interest, amortization of debt expense, discount or premium related to indebtedness and such portion of rental expense we deem to be representative of interest. Our earnings were insufficient to cover our fixed charges by $125.0 million, $558.5 million and $3.7 billion for the Predecessor period from January 1, 2008 through January 27, 2008 and the Successor period from January 28, 2008 through September 30, 2008 and the Successor period from January 28, 2008 through December 31, 2008, respectively. On a pro forma basis, after giving effect to the Transactions, our earnings were insufficient to cover our fixed charges by $3.8 billion for the year ended December 31, 2008.