SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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/ / Preliminary Proxy Statement
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BY RULE 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-12
HARRAH'S ENTERTAINMENT, INC.
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(Name of Registrant as Specified In Its Charter)
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Registrant)
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Harrah's
Entertainment, Inc.
One Harrah's Court
Las Vegas, Nevada 89119 USA
The Premier Name in Casino
Entertainment-Registered Trademark-
[LOGO]
March 8, 2002
Dear Fellow Stockholders:
We cordially invite you to attend our 2002 Annual Meeting of Stockholders,
which will be held on Thursday, May 2, 2002, at 11:00 a.m. in the Masquerade
Showroom, Rio All-Suite Hotel & Casino, 3700 West Flamingo Road, Las Vegas,
Nevada.
At the meeting, we will elect two directors and ratify the appointment of
Arthur Andersen LLP as our independent public accountants for 2002.
Whether or not you expect to attend the meeting, please promptly complete,
sign, date and return the enclosed proxy card, or grant your proxy
electronically over the Internet or by telephone, so that your shares will be
represented at the meeting. If you do attend, you may vote in person even if you
have sent in your proxy card or voted electronically or by telephone.
We look forward to seeing you at the meeting.
Sincerely,
/s/ Philip G. Satre
Philip G. Satre
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
TABLE OF CONTENTS
PAGE
--------
Notice of Meeting...........................................
Proxy Statement............................................. 1
Introduction.............................................. 1
Questions and Answers....................................... 2
Board of Directors.......................................... 5
General Information--Election of Directors................ 5
Nominees--Class III, Term Expires 2005.................... 5
Directors--Class I, Term Expires 2003..................... 6
Directors--Class II, Term Expires 2004.................... 7
Directors--Class III, Term Expires 2002................... 9
The Board of Directors and Committees of the Board........ 9
Compensation of Directors................................. 10
Ownership of Harrah's Entertainment Securities............ 12
Ratification of Appointment of Independent Public 13
Accountants...............................................
Report of the Audit Committee............................... 14
Executive Officer Compensation.............................. 15
Summary Compensation Table................................ 16
Option Grants in the Last Fiscal Year..................... 19
Aggregated Option Exercises in 2001; December 31, 2001 19
Option Values...........................................
Certain Employment Arrangements........................... 20
Report of the Human Resources Committee on Executive 25
Compensation............................................
Performance of Harrah's Entertainment Common Stock and 30
Dividends.................................................
Certain Relationships and Related Transactions.............. 31
Section 16(a) Beneficial Ownership Reporting Compliance..... 31
Other Information........................................... 32
Certain Stockholders...................................... 32
Cost of Solicitation...................................... 32
Stockholder Proposals for 2003 Annual Meeting............. 32
Annex A--Audit Committee Charter............................ A-1
HARRAH'S ENTERTAINMENT, INC.
NOTICE OF MEETING
The 2002 Annual Meeting of Stockholders of Harrah's Entertainment, Inc. will
be held in the Masquerade Showroom, Rio All-Suite Hotel & Casino, 3700 West
Flamingo Road, Las Vegas, Nevada on Thursday, May 2, 2002, at 11:00 a.m. for the
following purposes:
1. to elect two Class III directors to three-year terms;
2. to ratify the appointment of Arthur Andersen LLP as the Company's
independent public accountants for the 2002 calendar year; and
3. to transact any other business that properly comes before the meeting or
any adjournments or postponements of the meeting.
Stockholders of record owning Company shares at the close of business on
March 4, 2002, are entitled to vote at the meeting. A complete list of these
stockholders will be available for ten days prior to the meeting at the
Company's executive offices at One Harrah's Court, Las Vegas, Nevada 89119.
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE PROPOSALS.
[LOGO]
Brad L. Kerby
CORPORATE SECRETARY
March 8, 2002
PLEASE COMPLETE THE ACCOMPANYING PROXY AND RETURN IT IN THE ENCLOSED
ADDRESSED ENVELOPE, OR GRANT YOUR PROXY ELECTRONICALLY VIA THE INTERNET OR BY
TELEPHONE.
PROXY STATEMENT
INTRODUCTION
Our Board of Directors is soliciting proxies for the 2002 Annual Meeting of
Stockholders. This Proxy Statement contains important information for you to
consider when deciding how to vote on the matters brought before the meeting.
PLEASE READ IT CAREFULLY.
In this Proxy Statement:
- "we" and "the Company" mean Harrah's Entertainment, Inc. Our executive
offices are located at One Harrah's Court, Las Vegas, Nevada 89119;
- "Annual Meeting" means the 2002 Annual Meeting of Stockholders to be held
on May 2, 2002, at 11:00 a.m. in the Masquerade Showroom, Rio All-Suite
Hotel & Casino, 3700 West Flamingo Road, Las Vegas, Nevada, and any
adjournment or postponement thereof;
A copy of our 2001 Annual Report to Stockholders, this Proxy Statement and
accompanying proxy card are being mailed to our stockholders beginning on or
about March 13, 2002.
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QUESTIONS AND ANSWERS
WHAT IS THE PURPOSE OF THE ANNUAL MEETING? At the annual meeting,
stockholders will be asked to vote on the following proposals:
1. To elect two Class III directors for three-year terms; and
2. To ratify the appointment of Arthur Andersen LLP as our independent
public accountants for the 2002 calendar year.
The stockholders also will transact any other business that properly comes
before the meeting.
WHO IS ENTITLED TO VOTE? The record date for the meeting is March 4, 2002.
Only stockholders of record at the close of business on that date are entitled
to vote at and attend the Annual Meeting. The only class of stock that can be
voted at the meeting is our common stock. Each outstanding share of common stock
is entitled to one vote on all matters that come before the meeting. At the
close of business on the record date there were 114,090,336 shares of common
stock outstanding. You may also have another person attending the meeting
represent you by signing a proxy designating that person to act on your behalf.
WHAT IF MY SHARES ARE HELD IN "STREET NAME" BY A BROKER? If you are the
beneficial owner of shares held in "street name" by a broker, your broker, as
the record holder of the shares, must vote those shares in accordance with your
instructions. If you do not give instructions to your broker, your broker can
vote your shares with respect to "discretionary" items, but not with respect to
"non-discretionary" items. On non-discretionary items, for which you do not give
instructions, the shares will be treated as "broker non-votes." A discretionary
item is a proposal that is considered routine under the rules of the New York
Stock Exchange. Shares held in street name may be voted by your broker on
discretionary items in the absence of voting instructions given by you. The
proposals to be presented at the 2002 meeting are considered routine and
therefore may be voted upon by your broker if you do not give instructions for
the shares held by your broker.
WHAT IF I HOLD SHARES IN THE COMPANY STOCK FUND OF THE SAVINGS AND
RETIREMENT PLAN? If you are a participant in the Company Stock Fund of the
Savings and Retirement Plan, you have the right to vote the shares in your
account in each plan. To do this you must sign and timely return the proxy card
you received with this Proxy Statement, or grant your proxy electronically or
over the Internet by following the instructions on the proxy card. Your proxy
card or telephone or Internet instructions will be considered your confidential
voting instructions, and the plan trustee will direct your vote in the manner
you indicate on the proxy card or in your telephone or Internet instructions. In
order to do this, the plan trustee will receive overall vote tallies from our
proxy tabulator, The Bank of New York, for all participants in each plan. The
overall vote tallies will not show how individual participants voted. The
trustee will then register the vote tallies with the Inspector of Election at
the Annual Meeting. If a plan participant's voting instruction is not received
by The Bank of New York before the meeting, or if the proxy is revoked by the
participant before the meeting, the shares held by that participant will be
considered unvoted. All unvoted shares in the plan will be voted at the Annual
Meeting by the investment committee under the plan or a delegated member of such
committee.
HOW MANY SHARES MUST BE PRESENT TO HOLD THE MEETING? The holders of a
majority of the shares of our common stock outstanding on the record date, in
person or by a valid proxy, must be present at the meeting for any business to
be conducted. Proxies received but marked as
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abstentions or broker non-votes will be counted as shares that are present and
entitled to vote for purposes of determining the presence of a quorum.
WHAT IF A QUORUM IS NOT PRESENT AT THE MEETING? If a quorum is not present
at the scheduled time of the Annual Meeting, we may adjourn the Annual Meeting,
either with or without a vote of the stockholders. If we propose to have the
stockholders vote whether to adjourn the meeting, the people named in the
enclosed proxy will vote all shares of our common stock for which they have
voting authority in favor of the adjournment. We also may adjourn the meeting if
for any reason we believe that additional time should be allowed for the
solicitation of proxies. An adjournment will have no effect on the business that
may be conducted at the Annual Meeting.
HOW DO I VOTE?
1. YOU MAY VOTE BY MAIL. If you properly complete and sign the enclosed proxy
card and return it in the enclosed envelope, it will be voted in accordance
with your instructions. The enclosed envelope requires no additional postage
if mailed either in the United States or Canada.
2. YOU MAY VOTE BY TELEPHONE. If you are a registered stockholder (if you hold
your common stock in your own name), you may submit your voting instructions
by telephone by following the instructions printed on the proxy card. If you
submit your voting instructions by telephone, you do not have to mail in
your proxy card.
3. YOU MAY VOTE ON THE INTERNET. If you are a registered stockholder (if you
hold your common stock in your own name), you may vote on the Internet by
following the instructions printed on the proxy card. If you vote on the
Internet, you do not have to mail in your proxy card.
If you are a registered stockholder and attend the Annual Meeting, you may
deliver your completed proxy card in person or vote in person by ballot at the
meeting. If your shares are held in "street name" and you wish to vote at the
Annual Meeting, you will need to obtain a proxy form from the institution that
holds your shares.
CAN I VOTE BY TELEPHONE OR ON THE INTERNET IF I AM NOT A REGISTERED
STOCKHOLDER? If your shares are held in "street name" by a broker or other
nominee, you should check the voting form used by that firm to determine whether
you will be able to submit your proxy by telephone or on the Internet.
Participants in the Company Stock Fund of the Savings and Retirement Plan can
submit their proxy by telephone or on the Internet.
CAN I CHANGE MY VOTE AFTER I SUBMIT MY PROXY? Yes, you may revoke your proxy
at any time before it is voted at the Annual Meeting by:
- signing and returning another proxy card with a later date;
- submitting another proxy by telephone or on the Internet (your latest
telephone or Internet voting instructions are followed); or
- giving written notice of revocation to the Company's Secretary prior to or
at the Annual Meeting.
Your attendance at the meeting will not have the effect of revoking your proxy
unless you give written notice of revocation to the Corporate Secretary of the
Company before the polls are closed. Any written notice revoking a proxy should
be sent to our Corporate Secretary at One Harrah's Court, Las Vegas, Nevada
89119 and must be received before the polls are closed.
3
WHO WILL COUNT THE VOTES? The votes will be tabulated and certified by our
transfer agent, The Bank of New York. A representative of The Bank of New York
will serve as the inspector of election.
HOW DOES THE BOARD OF DIRECTORS RECOMMEND I VOTE ON THE PROPOSALS? Your
Board recommends that you vote:
- FOR election of the two nominees to the Board of Directors; and
- FOR ratification of the appointment of Arthur Andersen LLP as the
Company's independent public accountants for 2002.
WHAT IF I DO NOT SPECIFY HOW MY SHARES ARE TO BE VOTED? If you send in a
signed proxy but do not give any voting instructions, your shares will be voted
FOR all proposals listed on the proxy card.
WILL ANY OTHER BUSINESS BE CONDUCTED AT THE MEETING? Our Board of Directors
does not know of any other business that will be presented at the meeting. If
any other proposal properly comes up for a vote at the meeting, however, the
proxy holders will vote your shares in accordance with their best judgment.
WHAT ARE MY VOTING OPTIONS ON EACH PROPOSAL? You have three choices on each
of the matters to be voted upon at the Annual Meeting. On the election of
directors, by checking the appropriate box on your proxy card, you may:
(a) vote for all of the director nominees as a group; (b) withhold authority to
vote for all director nominees as a group; or (c) vote for all director nominees
as a group except those nominees you identify on the appropriate line. On the
appointment of auditors, by checking the appropriate box, you may: (a) vote
"For" the proposal; (b) vote "Against" the proposal; or (c) "Abstain" from
voting on the proposal.
HOW MANY VOTES ARE REQUIRED TO APPROVE THE PROPOSALS? Pursuant to our
bylaws, an affirmative vote of a majority of shares of Stock represented and
entitled to vote at the meeting, excluding abstentions, is required to approve
the proposals before the Annual Meeting.
HOW WILL ABSTENTIONS BE TREATED? If you abstain from voting on one or more
proposals, we will still include your shares for purposes of determining whether
a quorum is present. Pursuant to our bylaws, the affirmative vote of a majority
of the shares present at the meeting, excluding abstentions, is required for
approval of the remaining proposals, so we will not treat abstentions as votes
for or against a proposal.
WHAT HAPPENS IF A NOMINEE FOR DIRECTOR IS UNABLE TO STAND FOR ELECTION? If a
nominee is unable to stand for election, our Board of Directors may either
reduce the number of directors to be elected or select a substitute nominee. If
a substitute nominee is selected, the proxy holders will vote your shares for
the substitute nominee, unless you have withheld authority.
4
BOARD OF DIRECTORS
GENERAL INFORMATION--ELECTION OF DIRECTORS
Our Certificate of Incorporation provides for a Board of Directors of not
less than three nor more than seventeen directors and authorizes the Board
periodically to set the number of directors within that range by a majority
vote. The number of directors currently set by the Board is twelve.
Our Certificate of Incorporation also divides our Board of Directors into
three classes with staggered terms. Each class of directors is elected for a
term of three years. Two Class III directors are to be elected at the 2002
Annual Meeting for a three-year term ending in 2005.
Our Board has nominated the following individuals for election to Class III
positions with their term in office expiring in 2005: Barbara T. Alexander,
subject to gaming regulatory approval, and Robert G. Miller.
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR EACH OF THESE
NOMINEES.
In the event that either of these nominees becomes unable or decides not to
serve as a director at the time of the Annual Meeting, our Board will either
reduce the number of directors to be elected or select a substitute nominee, and
the proxy will be voted for the substitute. We presently have no reason to
believe that the nominees listed above will be unable or will decide not to
serve if elected, and each nominee has informed us that he or she consents to
serve and will serve if elected.
NOMINEES: CLASS III, TERM EXPIRES 2005
BARBARA T. ALEXANDER
[ALEXANDER PHOTO] Ms. Alexander, 53, has been Senior Advisor for UBS Warburg,
an investment banking firm, since October 1999. She was a
Managing Director of Dillon Read & Co, Inc., an investment
banking firm, and successor companies from January 1992
until October 1999. She is also a director of Centex
Corporation, a building and related services company, CRH
plc, a building and construction industry supplier, and
Homestore.com Inc., a supplier of online media and
technology to the real estate industry. Ms. Alexander has
been a director of the Company since February 2002 when she
was appointed by the Board to fill a vacancy in Class III,
subject to gaiming regulatory approval. She is a member of
the Audit Committee of the Board.
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ROBERT G. MILLER
[MILLER PHOTO] Mr. Miller, 57, is Chairman of the Board and Chief Executive
Officer of Rite-Aid, Inc., a retail pharmacy chain, a
position he has held since December 1999. He was Vice
Chairman and Chief Operating Officer of The Kroger Co., a
grocery supermarket company, from May 1999 until
December 1999, Vice Chairman of the Board and Chief
Executive Officer of Fred Meyer, Inc. a grocery supermarket
company, from July 1998 to May 1999, and Chairman of the
Board and Chief Executive Officer of Fred Meyer, Inc. from
1991 to July 1998. He is also a director of Advance P.C.S.,
a healthcare company, and Pathmark Stores, a supermarket
chain. He has been a director of the Company since
May 1999, when he was appointed by the Board to fill a
vacancy in Class III, and is the Chairman of the Human
Resources Committee of the Board.
DIRECTORS: CLASS I, TERM EXPIRES 2003
JOE M. HENSON
[HENSON PHOTO] Mr. Henson, 68, a private investor, was a director and
Chairman of the Board of LEGENT Corporation, a computer
systems software and services company, from October 1989
until February 1995 and was a director of that company and
Chairman of its Executive Committee from January 1995 to
May 1995. He was Chief Executive Officer of LEGENT
Corporation from October 1989 to April 1992. He has been a
director of the Company since April 1991. He is a member of
the Audit Committee of the Board.
R. BRAD MARTIN
[MARTIN PHOTO] Mr. Martin, 50, has been Chairman of the Board and Chief
Executive Officer of Saks Incorporated (formerly
Proffitt's, Inc.), a retail department store company, since
1989. He is also a director of First Tennessee National
Corporation, a banking corporation. Mr. Martin has been a
director of the Company since July 1996. He is a member of
the Executive and Human Resources Committees of the Board.
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GARY G. MICHAEL
[MICHAEL PHOTO] Mr. Michael, 61, a private investor, was Chairman of the
Board of and Chief Executive Officer of Albertsons, Inc., a
grocery supermarket company, from February 1991 to
April 2001. He is also a director of Questar, Inc., an
energy development company, Boise Cascade Corporation, a
forest products company, IDACORP, Inc., an energy company,
and The Clorox Company, a household products manufacturing
company. Mr. Michael has been a director of the Company
since November 2001 when he was appointed by the Board to
fill a vacancy in Class I. He is a member of the Audit
Committee of the Board.
EDDIE N. WILLIAMS
[WILLIAMS PHOTO] Mr. Williams, 69, has been President and Chief Executive
Officer of the Joint Center for Political and Economic
Studies in Washington, D.C., a nonprofit public policy
research institution, since 1972. He is also a director of
Riggs National Corporation, a bank holding company, and of
JCC Holding Company, a casino entertainment company.
Mr. Williams has been a director of the Company since
October 1992. He is a member of the Human Resources
Committee of the Board.
DIRECTORS: CLASS II, TERM EXPIRES 2004
RALPH HORN
[HORN PHOTO] Mr. Horn, 61, has been Chairman of the Board of First
Tennessee National Corporation, a banking corporation, since
January 1996 and Chief Executive Officer since April 1994.
He has been a director of that company and its President
since July 1991 and was its Chief Operating Officer from
1991 to 1994. He has been a director of the Company since
July 1995. He is also a director of Gaylord Entertainment
Company, a hospitality and entertainment company, and
Mid-America Apartment Communities, Inc., an umbrella
partnership real estate investment trust. He is the Chairman
of the Audit Committee and a member of the Executive
Committee of the Board.
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GARY W. LOVEMAN
[LOVEMAN PHOTO] Mr. Loveman, 41, has been a director of the Company since
February 2000. He has been the Company's President since
April 2001 and Chief Operating Officer since May 1998. He
was a member of the three-executive Office of the President
from May 1999 to April 2001 and was Executive Vice President
from May 1998 to May 1999. Mr. Loveman was Associate
Professor of Business Administration, Harvard University
Graduate School of Business Administration from 1994 to
1998, where his responsibilities included teaching MBA and
executive education students, research and publishing in the
field of service management, and consulting and advising
large service companies. He is also a director of
Coach, Inc., a designer and marketer of high quality
handbags and women's and men's accessories, and
Ventas, Inc., a healthcare real estate investment trust. He
is a member of the Executive Committee of the Board.
PHILIP G. SATRE
[SATRE PHOTO] Mr. Satre, 52, has been Chairman of the Board of the Company
since January 1997 and Chief Executive Officer since
April 1994. He was a member of the three-executive Office of
the President from May 1999 to April 2001, and was President
from April 1991 to May 1999. He was President of the
Company's Gaming Group from 1984 to August 1995. He has been
a director of the Company since February 1990. He is also a
director of JCC Holding Company, a casino entertainment
company, JDN Realty Corporation, a real estate development
and asset management company, and TABCORP Holdings Limited,
an Australia public company in the leisure and entertainment
business. He is the Chairman of the Executive Committee of
the Board.
BOAKE A. SELLS
[SELLS PHOTO] Mr. Sells, 64, a private investor, was Chairman of the Board
and Chief Executive Officer of Revco D.S., Inc., a retail
pharmacy chain, from September 1987 to October 1992 and was
President of that company from April 1988 to June 1992. He
is also a director of NCS Healthcare, a provider of pharmacy
and related services. He has been a director of the Company
since February 1990. He is a member of the Executive and
Human Resources Committees of the Board.
8
DIRECTORS: CLASS III, TERM EXPIRES 2002
JAMES B. FARLEY
[FARLEY PHOTO] Mr. Farley, 71, is a director of The MONY Group (formerly
Mutual Of New York), a financial services company, a
position he has held since October 1988. He was Chairman of
the Board of Mutual Of New York from April 1989 to
July 1993, and was Chief Executive Officer of that company
from April 1989 to January 1993. Mr. Farley is also a
director of Ashland, Inc. Mr. Farley has been a director of
the Company since February 1990. He is a member of the
Executive and Audit Committees of the Board. Mr. Farley is
retiring from the Board in accordance with the Board's
policy on retirement and, therefore, is not standing for
re-election at the 2002 Annual Meeting of Stockholders
WALTER J. SALMON
[SALMON PHOTO] Mr. Salmon, 71, is Professor of Retailing, Emeritus, at
Harvard University. He was the Stanley Roth, Sr. Professor
of Retailing, Harvard University from 1980 to June 1997.
Mr. Salmon is also a director of Luby's Cafeterias, Inc., a
restaurant company, The Neiman Marcus Group, a retail
department store company, Cole National Corporation, a
vision care and personalized gift company, PetsMart, Inc., a
retail pet supply company, Party City Corp, a retail party
goods company, and Stage Stores, Inc., a retail department
store chain. He has been a director of the Company since
February 1990. He is a member of the Audit Committee of the
Board. Mr. Salmon is retiring from the Board in accordance
with the Board's policy on retirement and, therefore, is not
standing for re-election at the 2002 Annual Meeting of
Stockholders.
THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
Our Board of Directors met six times during 2001. During the year, overall
attendance by incumbent directors averaged 95% at Board meetings and 86.3% at
Committee meetings.
Our Board has three standing committees: (i) Executive, (ii) Audit, and
(iii) Human Resources.
The Executive Committee, comprised of six members, has the delegated
authority to act on behalf of the Board, subject to certain limitations, during
the intervals between Board meetings. The Executive Committee reports any action
taken to the Board at its next meeting. Without specific delegated authority,
the Executive Committee may not declare dividends except current quarterly
dividends not in excess of those last declared by the Board of Directors and may
not increase or decrease the number of directors or appoint new directors. Any
action taken by the Executive Committee to approve a transaction in excess of
$75 million may be revised or rescinded by the Board at its next meeting unless
the transaction is part of an overall plan previously approved by the Board. The
Executive Committee did not meet during 2001.
9
The Audit Committee is comprised of six members, all of whom are independent
as that term is defined by the listing requirements of the New York Stock
Exchange. The responsibilities of the Audit Committee are outlined in a written
charter, which is included as Annex 1 to this Proxy Statement. The Audit
Committee's responsibilities include:
(1) recommending to the Board the independent public accountants appointed
each year for the Company and its subsidiaries;
(2) meeting with the independent public accountants concerning their audit,
their evaluation of the Company's financial statements, accounting
developments that may affect the Company, and their nonaudit services;
(3) meeting with management and internal auditors concerning similar
matters;
(4) reviewing the Company's compliance policies and performance; and
(5) making recommendations to the Company's independent public accountants
and management as it deems appropriate.
The Audit Committee met six times during 2001.
The Human Resources Committee, comprised of four members, met five times
during 2001. The Human Resources Committee acts as the nominating committee of
the Board. It considers and makes recommendations concerning the Board's size
and composition, the number of non-management directors, the qualifications of
members and potential nominees for membership, the compensation of directors,
membership of committees of the Board and certain administrative matters. The
Human Resources Committee also considers nominees recommended by stockholders.
The Human Resources Committee also approves the annual compensation of
corporate officers who are members of the Board and administers the Company's
bonus and other incentive compensation plans.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company or of our subsidiaries earn a
monthly fee of $3,167 plus $1,600 for each Board meeting and $1,300 for each
committee meeting they attend. Committee chairpersons are paid an additional
$900 for each committee meeting attended. Directors are reimbursed for expenses
reasonably incurred in connection with their service on the Board.
Pursuant to the provisions of the Company's Non-Management Directors Stock
Incentive Plan, a director automatically receives 50% of his or her director
fees in all common stock in lieu of cash fees. Each director had the right to
make a one-time election to receive the remaining 50% of his or her director
fees in all common stock in lieu of cash fees for the duration of the plan
(which initially had a five year term and has been extended for an additional
five years expiring April 26, 2006). Seven current directors made this election.
10
Grants of our common stock pursuant to the plan are made every three months
for an amount of our common stock, based on the market value on the grant date,
equal in value to 50% of the fees that the director earned during the previous
three-month grant period (or 100% of the fees if the director elected to receive
the remaining 50% of fees in our common stock). Shares that are granted cannot
be disposed of for six months after the grant. A director may make an annual
election to defer, until retirement, the grant of shares to be made the ensuing
plan year. Deferred shares are then granted upon the director's retirement in a
lump sum or in up to ten annual installments, as he may elect. These elections
are made prior to each plan year. However, a director may request the
modification of his or her choice as to a lump sum or installments by submitting
a request to change the election at least one full fiscal year before
retirement. This request is subject to approval of the Human Resources
Committee. The Company has created a trust to assure the payment of benefits
pursuant to the Non-Management Directors Stock Incentive Plan.
Until March 31, 2001, directors could defer all or part of their cash fees
pursuant to the Company's Deferred Compensation Plan. Six current non-management
directors deferred part of their fees pursuant to this plan and currently have
account balances in this plan. Deferred amounts are paid in a lump sum or in
installments as selected by the director when the deferral election was made.
Amounts deferred pursuant to this plan earn interest at a calculated average
prime interest rate.
Until May 1, 1996, directors were eligible to participate in another
unfunded compensation deferral program, the Executive Deferred Compensation
Plan. Six current non-management directors deferred part of their cash fees
pursuant to the Executive Deferred Compensation Plan prior to May 1, 1996 and
currently have account balances in the Plan. See "Certain Employment
Arrangements" for more information about the Executive Deferred Compensation
Plan.
Each non-management director is also provided with travel accident insurance
of $500,000 while traveling on behalf of the Company. Incumbent non-management
directors who served on the Board as of February 21, 2001, are entitled to
participate in the Company's standard group health insurance plans while serving
as a director (This program is not available to directors elected or appointed
after February 21, 2001). The Company pays the premium cost for this insurance.
During 2001, the total premium cost for these insurance benefits was
approximately $4,823 per director participating in the plans. Each director
receiving these benefits incurred taxable income equal to the premium cost of
the group insurance.
Non-management directors elected prior to February 21, 2001 received a grant
of 1,000 shares of restricted stock vesting in ten annual installments over ten
years. (Directors who served a full ten years under this program received
another ten-year grant of 1,000 shares.) Current directors who have these grants
are Messrs. Farley, Henson, Horn, Martin, Miller, Salmon, Sells and Williams.
This program was terminated on February 21, 2001, with respect to further grants
to new directors.
In February 2001, the Board approved a new stock option program for
non-management directors (the "Director Stock Option Program"), to provide an
incentive for continuing tenure with the Company. Pursuant to this program,
which replaced the prior restricted stock program for directors, each new
non-management director who is initially elected or appointed to the Board of
Directors on or after February 21, 2001, will receive a nonqualified stock
option grant of 5,000 shares upon being elected or appointed to the Board.
Director Stock Option Program options are granted pursuant to and governed by
the 2001 Executive Stock Incentive Plan.
11
The terms of a stock option grant pursuant to the Director Stock Program are
as follows: (a) it will vest in annual installments on each April 1 over ten
years at 500 shares per year based on continued Board service through the
vesting dates, with the first installment vesting on the April 1 following the
director's election or appointment; and (b) the exercise price is the average of
the high and low prices of the Company's common stock on the NYSE on the date of
the director's election or appointment or if such date is not a business day,
the preceding business day.
Pursuant to the Director Stock Option Program, each non-management director,
including those now serving on the Board, will receive an annual nonqualified
stock option grant of 2,000 shares, with grants to be made when annual grants to
employees are normally made. In 2001, the Human Resources Committee determined
that annual grants to employees will be made in July of each year commencing in
2002. The annual grants previously scheduled for November 2001 were deferred by
action of the Human Resources Committee to July 2002. The grant date, vesting
and other terms and conditions of this grant will be approved by the
Non-Employee Directors of the Human Resources Committee (as Non-Employee
Director is defined under SEC Rule 16b-3).
Except as provided in the governing plan document and any administrative
regulations thereunder governing the options, or unless otherwise approved by
the Non-Employee Directors of the Human Resources Committee, all unvested
options granted pursuant to the Director Stock Option Program will be forfeited
and returned to the plan when a non-management director leaves the Board.
OWNERSHIP OF HARRAH'S ENTERTAINMENT SECURITIES
The following table lists the beneficial ownership of our Stock as of
January 31, 2002, for all current directors, including the nominees to the
Board, our five executive officers named in the Summary Compensation Table and
all directors and executive officers as a group.
SHARES OF COMMON % OF SHARES OUTSTANDING (NET
STOCK BENEFICIALLY OWNED ON OF TREASURY SHARES) AS OF
NAME JANUARY 31, 2002(A)(B) JANUARY 31, 2002
---- --------------------------- ----------------------------
Barbara T. Alexander.......................... 1,000 *
Charles L. Atwood............................. 168,960 *
John M. Boushy................................ 278,113 *
James B. Farley............................... 31,891 *
Joe M. Henson................................. 127,410 *
Ralph Horn.................................... 33,319 *
Gary W. Loveman............................... 431,568 *
R. Brad Martin................................ 21,321 *
Gary G. Michael............................... 2,000 *
Robert G. Miller.............................. 8,451 *
Richard E. Mirman............................. 141,194 *
Walter J. Salmon.............................. 28,167 *
Philip G. Satre............................... 1,260,238 1.1%
Boake A. Sells................................ 31,853 *
Eddie N. Williams............................. 20,445 *
All directors and executive officers as a
group....................................... 2,983,896 2.6%
------------------------
* Indicates less than 1%
12
(a) Shares listed in the table include shares allocated to accounts under our
Savings and Retirement Plan as of December 31, 2001. The amounts shown also
include the following shares that may be acquired within 60 days pursuant to
outstanding stock options: Mr. Atwood, 101,692 shares; Mr. Boushy, 182,392
shares; Mr. Loveman, 425,000 shares; Mr. Mirman, 72,393 shares; Mr. Satre,
782,514 shares; all directors and executive officers as a group, 1,718,925
shares.
(b) The amounts shown include the following rights to shares pursuant to our
Non-Management Directors Stock Incentive Plan (including shares that may be
acquired within 60 days pursuant to outstanding stock options) and deferred
at the election of the directors: Mr. Farley, 13,073 shares; Mr. Henson,
13,810 shares; Mr. Horn, 13,219 shares; Mr. Martin, 12,121 shares;
Mr. Salmon, 12,566 shares; Mr. Sells, 12,853 shares; Mr. Williams, 6,395
shares.
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors, acting on the recommendation of its Audit Committee,
has appointed Arthur Andersen LLP, a firm of independent public accountants, as
our independent public accountants to examine and report to stockholders on the
consolidated financial statements of our Company and its subsidiaries for the
year 2002. Representatives of Arthur Andersen LLP will be present at the Annual
Meeting and will be given an opportunity to make a statement. They also will be
available to respond to appropriate questions.
The action of the Board of Directors in appointing Arthur Andersen LLP as
the Company's independent public accountants for the year 2002 will be ratified
upon an affirmative vote of the holders of a majority of shares of our common
stock present in person or represented by proxy at the Annual Meeting, excluding
abstentions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE RATIFICATION OF
THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS THE COMPANY'S INDEPENDENT PUBLIC
ACCOUNTANTS FOR THE YEAR 2002.
Stockholder ratification of the selection of Arthur Andersen LLP as the
Company's independent public accountants is not required by the Company's Bylaws
or otherwise. However, the Board of Directors is submitting the selection of
Arthur Andersen LLP to the stockholders for ratification as a matter of
corporate practice. If the stockholders fail to ratify the selection, the Board
of Directors will reconsider the retention of that firm. Even if the selection
is ratified, the Board of Directors, in its discretion, may direct the
appointment of a different independent public accounting firm at any time during
the year if the Board of Directors determines that such a change would be in the
best interests of the Company and its stockholders.
OTHER MATTERS AT THE MEETING
The Board of Directors does not know of any matters to be presented at the
meeting other than those mentioned in this Proxy Statement. If any other matters
are properly brought before the meeting, it is intended that the proxies will be
voted in accordance with the best judgment of the person or persons voting the
proxies.
13
REPORT OF THE AUDIT COMMITTEE
To the Board of Directors of Harrah's Entertainment, Inc.:
Our role is to assist the Board of Directors in its oversight of the
Company's financial reporting process. As set forth in our charter, the
Company's management is responsible for the preparation, presentation and
integrity of our financial statements, and for maintaining appropriate
accounting and financial reporting principles and policies and internal controls
and procedures designed to assure compliance with accounting standards and
applicable laws and regulations. The independent auditors are responsible for
auditing our financial statements and expressing an opinion as to their
conformity with generally accepted accounting principles.
We have reviewed and discussed with management the Company's audited
financial statements as of and for the year ended December 31, 2001.
We have discussed with the independent auditors the matters required to be
discussed by Statement on Auditing Standards No. 61, COMMUNICATION WITH AUDIT
COMMITTEES, as amended, by the Auditing Standards Board of the American
Institute of Certified Public Accountants.
We have received the written disclosures and the letter from the independent
auditors required by Independence Standard No. 1, INDEPENDENCE DISCUSSIONS WITH
AUDIT COMMITTEES, as amended, by the Independence Standards Board, and have
discussed with the independent auditors their firm's independence.
Based on the review and discussion referred to above, we recommend to the
Board of Directors that the financial statements referred to above be included
in the Company's Annual Report on Form 10-K for the year ended December 31,
2001.
Ralph Horn, Chairperson
James B. Farley
Joe M. Henson
Gary G. Michael
Walter J. Salmon
FEES PAID TO ARTHUR ANDERSEN LLP
The following table shows the fees paid or accrued by the Company for audit
and other services provided by Arthur Andersen LLP during 2001.
Audit Fees.................................................. $1,898,223
==========
Financial information systems design and implementation
fees...................................................... $ --
==========
All other fees:
Other audit-related fees and tax matters.................. $ 816,761
Other..................................................... 539,014
----------
Total all other fees.................................... $1,355,775
==========
14
"Audit Fees" includes the aggregate fees billed by Arthur Andersen LLP for
professional services rendered for the reviews of the financial statements
included our Quarterly Reports on Form 10-Q and for the audit of our
consolidated financial statements for the year ended December 31, 2001.
Arthur Andersen LLP was not engaged during 2001 to perform, and thus no fees
were paid for, any services related to financial information system design or
implementation.
"All Other Fees" is the aggregate fees paid for all other services for which
Arthur Andersen LLP was engaged in 2001. "Other audit-related fees and tax
matters" includes fees for the audits of employee benefit plans and other
entities and includes fees for tax compliance and tax examination assistance.
"Other" includes the fees for other services provided to the Company by Arthur
Andersen LLP that are not includable in any of the prior captions.
The Audit Committee has reviewed the non-audit services provided to the
Company by Arthur Andersen LLP and has concluded that such services are
compatible with the maintenance of that firm's independence in the conduct of
its auditing functions for the Company.
15
EXECUTIVE OFFICER COMPENSATION
The Summary Compensation Table below sets forth certain compensation
information concerning the Company's Chief Executive Officer and our four
additional most highly compensated executive officers.
SUMMARY COMPENSATION TABLE
LONG TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
-------------------------------------- -----------------------
($)(1) ($)(2) (#) ($)(3)
OTHER RESTRICTED SECURITIES ALL
ANNUAL STOCK UNDERLYING OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION AWARD(S) OPTIONS COMPENSATION
--------------------------- -------- ---------- ---------- ------------ ---------- ---------- ------------
Philip G. Satre........... 2001 $1,200,000 $ 900,000 $106,325 $ -- 350,000 $526,186
Chairman and Chief 2000 1,108,846 360,000 114,189 -- 350,000 450,699
Executive Officer 1999 902,615 1,083,138 181,636 -- 350,000 367,823
Charles L. Atwood(4)...... 2001 345,400 146,880 167 697,800 -- 11,904
Senior Vice President, 2000 235,673 65,000 399 720,939 31,584 11,250
Chief Financial Officer 1999 205,384 185,000 282 201,745 35,545 9,600
and Treasurer
John M. Boushy............ 2001 374,154 225,000 -- -- -- 395,600
Senior Vice President, 2000 359,981 110,000 52,430 1,201,565 54,143 37,468
Operations Products and 1999 317,500 318,000 111,335 250,031 50,652 31,995
Services, Chief
Information Officer
Gary W. Loveman........... 2001 1,000,000 780,000 72,549 -- 150,000 112,155
President and Chief 2000 895,192 279,500 71,162 -- 350,000 25,490
Operating Officer 1999 607,668 729,202 6,803 -- 325,000 --
Richard E. Mirman......... 2001 311,145 159,500 -- -- -- 96,779
Senior Vice President, 2000 260,577 120,000 44,620 1,201,565 40,607 14,843
Marketing 1999 192,471 77,000 47,435 326,939 75,971 4,346
------------------------
(1) Other Annual Compensation includes the amounts in the following table:
16
EARNINGS IN EXCESS OF
MARKET RATES ON
DEFERRED
COMPENSATION REIMBURSEMENT OF
PAID DURING THE RELOCATION
CURRENT YEAR COMPANY MATCH ON EXPENSES
BUT DEFERRED AT DEFERRED AND THE
THE ELECTION COMPENSATION ALLOCATED AMOUNT FOR ASSOCIATED
NAME YEAR OF THE EXECUTIVE CONTRIBUTIONS AIRCRAFT USAGE TAXES
---- -------- --------------------- ---------------- -------------------- ----------------
Philip G. Satre...... 2001 $ 3,678 $61,500 $14,512 $17,825
2000 1,110 56,031 22,020 19,702
1999 15,770 53,820 9,548 97,274
Charles L. Atwood.... 2001 167 -- -- --
2000 399 -- -- --
1999 282 -- -- --
John M. Boushy....... 2001 -- -- -- --
2000 7,717 13,497 -- 19,491
1999 2,283 9,300 -- 94,393
Gary W. Loveman...... 2001 -- 35,354 -- --
2000 780 43,212 -- --
1999 6,803 -- -- --
Richard E. Mirman.... 2001 -- -- -- --
2000 4,271 -- -- 35,057
1999 2,944 -- -- 42,624
REIMBURSEMENT OF
MEDICAL BENEFITS AND
NAME THE ASSOCIATED TAXES
---- --------------------
Philip G. Satre...... $ --
--
--
Charles L. Atwood.... --
--
--
John M. Boushy....... --
--
--
Gary W. Loveman...... 27,464
15,748
--
Richard E. Mirman.... --
--
--
Other Annual Compensation for perquisites for Mr. Atwood in 2001, 2000 and
1999, Mr. Boushy and Mr. Mirman in 2001 and Mr. Loveman in 1999 aggregated
less than (a) 10% of the total annual salary or (b) $50,000, whichever is
lower. Accordingly, no such amounts are included in the table. The Company
does not provide a fixed benefit pension plan for its executives. The
amounts set forth above for deferred compensation earnings are a function of
deferred income voluntarily contributed by the executives.
(2) Awards of restricted stock were granted to the executives in 2001, 2000 and
1999 pursuant to a Time Accelerated Restricted Stock Award Program
("TARSAP"). The number of shares awarded to Mr. Atwood in 2001 was 20,000
shares. The number of shares awarded to Mr. Atwood, Mr. Boushy and
Mr. Mirman in 2000 was 30,000, 50,000 and 50,000, respectively. The number
of shares awarded to Mr. Boushy in 1999 was 10,500. Early vesting
performance targets were achieved for 1999 and early vesting of a portion of
the shares granted in 1999 occurred on March 1, 2000. The remaining shares
vested on January 1, 2002. The shares awarded in 2000 and 2001, which will
vest on January 1, 2007, provided the executive remains in active employment
with the Company, are eligible for earlier annual vesting beginning
March 1, 2003 based on the Company's achievement of certain financial
performance targets. Mr. Atwood and Mr. Mirman also received awards of
restricted stock in 1999 in the amount of 7,395 and 11,984 shares,
respectively. These awards vest in equal installments over the period 2000
to 2004. See "Report of the Human Resources Committee on Executive
Compensation." The number of unvested shares held by Messrs. Satre, Atwood,
Boushy, Loveman, and Mirman as of December 31, 2001 was 30,000, 61,938,
72,266, 22,500 and 60,666, respectively. The market value of the unvested
restricted stock awards granted to Messrs. Satre, Atwood, Boushy, Loveman,
and Mirman as of December 31, 2001 was $1,110,300, $2,292,325, $2,674,565,
$832,725 and $2,245,249, respectively. Dividends are payable when declared
on restricted stock in the same manner and to the same extent as dividends
are payable on other shares of common stock.
17
(3) All Other Compensation consists of the amounts in the following table:
EARNINGS IN EXCESS OF MATCHING CONTRIBUTIONS EARNINGS IN EXCESS OF
MARKET RATES ON TO THE COMPANY'S MARKET RATES ON
RETIREMENT BENEFITS SAVING AND RETIREMENT BENEFITS
YEAR UNDER THE DCP RETIREMENT PLAN UNDER THE ESSP
-------- --------------------- ---------------------- ---------------------
Philip G. Satre....................... 2001 $515,986 $10,200 $ --
2000 440,199 10,500 --
1999 358,223 9,600 --
Charles L. Atwood..................... 2001 1,704 10,200 --
2000 750 10,500 --
1999 -- 9,600 --
John M. Boushy........................ 2001 -- 8,999 386,601
2000 28,331 9,137 --
1999 22,395 9,600 --
Gary W. Loveman....................... 2001 -- 10,200 101,955
2000 14,990 10,500 --
1999 -- -- --
Richard E. Mirman..................... 2001 73 10,200 86,506
2000 4,343 10,500 --
1999 -- 4,346 --
As stated in note (1) above, the Company does not provide a fixed benefit
pension plan for its executives but maintains deferred compensation plans
(collectively, "DCP") and an Executive Supplemental Savings Plan ("ESSP")
under which the executives may defer a portion of their compensation.
Amounts deposited into DCP earn interest at rates approved by the Human
Resources Committee. The ESSP is a variable investment plan that allows the
executives to direct their investments by choosing among several investment
alternatives. In 2001, Mr. Boushy, Mr. Loveman and Mr. Mirman received an
interest enhancement to convert their retirement benefits from the DCP to
the ESSP.
(4) Mr. Atwood was appointed Senior Vice President and Chief Financial Officer
in April 2001.
The following table gives information regarding grants of stock options made
during 2001 to our executive officers named in the Summary Compensation Table,
including information concerning the potential value of such options based on
assumed annual rates of stock price appreciation for the ten-year option terms.
In 2001, the Human Resources Committee determined that annual grants to
employees will be made in July of each year commencing in 2002. The annual
grants previously scheduled for November 2001 were deferred by action of the
Human Resources Committee to July 2002. The Committee has authority to change
the annual grant date and to make option grants at other times.
18
OPTION GRANTS IN THE LAST FISCAL YEAR
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
RATES OF STOCK PRICE
APPRECIATION FOR OPTION
INDIVIDUAL GRANTS TERM(1)
--------------------------------------------------------- -------------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES IN OR BASE EXPIRATION
NAME GRANTED(#)(2) FISCAL YEAR PRICE($/SH.) DATE 5% 10%
---- ------------- ------------- ------------ ---------- -------------- --------------
Philip G. Satre............ 350,000 45.2% $25.625 01/03/2011 $ 5,640,399 $ 14,293,878
Charles L. Atwood.......... -- -- -- -- -- --
John M. Boushy............. -- -- -- -- -- --
Gary W. Loveman............ 150,000 19.4% 25.625 01/03/2011 2,417,314 6,125,948
Richard E. Mirman.......... -- -- -- -- -- --
------------------------------
(1) The dollar amounts under these columns are the result of calculations at
zero percent, and at five percent and ten percent rates set by the
Securities and Exchange Commission and therefore are not intended to
forecast possible future appreciation, if any, of the Company's stock price.
In the above table, we did not use an alternative formula for a grant date
valuation, as we are not aware of any formula which will determine with
reasonable accuracy a present value based on future unknown or volatile
factors. There is no assurance that the value realized by an officer will be
at or near the value estimated above.
(2) Employees vest in the right to exercise these options over a three to
four-year period depending upon the terms of the individual grant. Options
are subject to certain conditions, including compliance with terms and
conditions of the options as approved by the Human Resources Committee.
Options are nontransferable except by will or the laws of descent and
distribution. See "Report of the Human Resources Committee on Executive
Compensation" for more information concerning stock option awards.
The following table gives certain information concerning stock option
exercises during 2001 by our executive officers named in the Summary
Compensation Table. It also gives information concerning option values.
AGGREGATED OPTION EXERCISES IN 2001 AND
DECEMBER 31, 2001 OPTION VALUES
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED,
OPTIONS HELD AT IN-THE-MONEY OPTIONS
DECEMBER 31, 2001(#) AT DECEMBER 31, 2001($)(1)
SHARES --------------------------- ----------------------------
ACQUIRED VALUE
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------------- ----------- ----------- ------------- ------------ -------------
Philip G. Satre............ 201,451 $5,114,137 971,285 1,100,000 $18,589,831 $15,400,835
Charles L. Atwood.......... -- -- 72,702 74,075 1,338,764 917,693
John M. Boushy............. 52,623 890,712 131,956 128,108 2,344,848 1,572,174
Gary W. Loveman............ 125,000 1,745,948 258,500 791,500 4,167,370 10,428,860
Richard E. Mirman.......... 23,280 444,972 33,743 97,581 328,276 1,050,668
------------------------
(1) Amount represents the difference between the aggregated option price of
unexercised in-the-money options and a $37.01 market price on December 31,
2001, which was the closing price of our common stock on the last trading
day of 2001.
19
CERTAIN EMPLOYMENT ARRANGEMENTS
Mr. Satre's current employment agreement extends from January 1, 1999 until
December 31, 2002. The agreement provides that Mr. Satre will serve as Chairman
of the Board and Chief Executive Officer at a current annual salary of
$1,200,000, subject to annual merit reviews by the Human Resources Committee.
Pursuant to his employment agreement, Mr. Satre is entitled to participate
in the incentive compensation programs and other benefits accorded to our senior
officers, including eligibility to receive bonus compensation and long-term
incentive compensation (stock options and restricted stock awards) as approved
by the Human Resources Committee. Our Board can terminate the employment
agreement with or without cause, and Mr. Satre can resign.
If the Company terminates the agreement without cause, or if Mr. Satre
resigns for good reason (as defined in the agreement):
- Mr. Satre will continue in employee status as a consultant and will
receive salary continuation for two years;
- His stock options and restricted stock will continue to vest during this
time (including 100% vesting upon a change in control); and
- He will receive any bonus accrued up to the point of termination without
cause or resignation for good reason.
If the Company terminates the agreement for cause, Mr. Satre's unvested
options and any shares of unvested restricted stock will be cancelled and his
salary will end.
Mr. Satre will be entitled to the retirement rate on his account under the
Executive Deferred Compensation Plan if his employment is terminated without
cause, if he resigns for good reason, or when his employment terminates after
the expiration of the agreement.
After his employment with the Company terminates, Mr. Satre will be entitled
to receive group insurance benefits for his lifetime similar to the benefits
provided to our other retired management directors. He will incur annual imputed
taxable income equal to the premium cost of this benefit.
If a change in control were to occur during his employment agreement and his
employment terminated voluntarily or involuntarily within two years after the
change in control, Mr. Satre would be entitled to receive the severance benefits
under his severance agreement (if then in force) in lieu of the salary and
rights under his employment agreement except that any right to lifetime health
insurance coverage earned under his employment agreement would continue in
force.
The agreement provides that Mr. Satre will not compete with the Company for
a period of two years after termination of his active full time employment
(which for this purpose does not include employee status as a consultant).
We also have employment agreements with our other executive officers named
in the Summary Compensation Table, which provide that they are employed at the
salaries described in the Table for 2001 subject to merit increases as we may
approve. Mr. Loveman's agreement expires December 31, 2002. Mr. Boushy's and
Mr. Mirman's agreements expire March 1, 2003, and April 25, 2004, respectively.
Mr. Atwood's agreement expires June 21, 2005. During the term of the employment
agreement, each
20
executive is entitled to participate in the incentive compensation programs and
other benefits accorded to our senior officers, including eligibility to receive
bonus compensation and long-term incentive compensation (stock options and
restricted stock awards) as approved by the Human Resources Committee. The
Company can terminate the employment agreement immediately with cause, or
without cause upon 30 days prior written notice. The executive can voluntarily
resign upon 30 days prior written notice, or upon six months prior written
notice if he or she is going to work or act in competition with the Company.
If the Company terminates the agreement without cause or does not renew it
when it expires, the executive will receive eighteen months' salary continuation
and will not compete with the Company during that time. Stock options granted
after April 1, 1998 will generally continue to be exercisable and to vest during
the salary continuation, including 100% vesting upon a change in control. See
"Report of the Human Resources Committee on Executive Compensation." Annual
vesting of restricted stock during the salary continuation and noncompete period
would be at the Company's discretion. TARSAP shares would not vest during the
salary continuation unless the performance targets were achieved and the Human
Resources Committee, in its discretion, were to approve an exception based on
the recommendation of our Chief Executive Officer.
If there were a change in control during the salary continuation and
noncompete period, any unvested stock options and restricted stock, including
TARSAP shares, would vest, except that, for TARSAP awards granted on or after
July 26, 2000, only the next scheduled vesting installment would vest.
If the executive attains specified age and service requirements and his or
her employment then terminates other than for cause, he or she will be entitled
to lifetime coverage under our group health insurance plan. The executive will
be required to pay 20% of the premium for this coverage. We will pay the
remaining premium, which will be imputed taxable income to the executive. This
insurance coverage terminates if the executive competes with the Company.
For executives in the EDCP, the executive will earn the retirement rate
under the EDCP if he or she attains specified age and service requirements and
if his or her employment is terminated without cause or if we elect not to renew
the agreement when it expires. The executive receives service credit under the
EDCP for any salary continuation and noncompete period.
If the Company terminates the agreement for cause or if the executive
voluntarily resigns, the executive's unvested options and any shares of unvested
restricted stock, including TARSAP shares, will be cancelled, and all salary and
benefits will end.
If a change in control were to occur during the executive's active
employment and if the executive's severance agreement (described below) is in
force at that time, then the severance agreement would supersede the employment
agreement, except that any right to lifetime health insurance coverage earned by
the executive under the employment agreement would continue in force.
We have entered into severance agreements with each of the executive
officers named in the Summary Compensation Table above. Each severance agreement
provides for:
- a compensation payment (the "Compensation Payment") of three times the
executive's "annual compensation" (as defined in the severance
agreements); and
21
- an accelerated payment in cash of the value of all stock options and
payment of any compensation or awards payable to such executive under any
incentive plan of the Company (the "Accelerated Payments"), if the
executive's employment is terminated subsequent to a change in control or
within six months before the change in control under defined circumstances
(collectively, the "Severance Payments"), with certain exceptions
described below.
Any unvested restricted stock and stock options will vest automatically upon
a change in control regardless of whether an employee is terminated.
The "annual compensation" for purposes of determining the Compensation
Payment under the severance agreement includes salary and bonus amounts but
excludes restricted stock vestings and compensation or dividends related to
restricted stock or stock options. A change in control is defined to occur
whenever:
(i) any person becomes the beneficial owner of 25% or more of our then
outstanding voting securities, regardless of comparative voting power of
such securities,
(ii) within a two-year period, members of the Board of Directors at the
beginning of such period and their approved successors no longer
constitute a majority of the Board, or
(iii) holders of securities entitled to vote thereon approve a merger or
consolidation (with certain exceptions) or a plan of complete
liquidation.
Mr. Satre is entitled to the Compensation Payments if, within two years
after a change in control of the Company, his employment terminates voluntarily
or involuntarily or if his employment is terminated without cause within six
months before a change in control (under defined circumstances). The other
executives are entitled to the Compensation Payments after a change in control
if, within two years of the change in control, their employment is terminated
involuntarily, or they resign with good reason (as defined), or if their
employment is terminated without cause within six months before a change in
control (under defined circumstances). Additionally, the executives are entitled
to the Compensation Payments if their employment terminates voluntarily during a
30 day period following the first anniversary of the change in control. For the
purpose of such voluntary termination, a change in control is defined to occur
whenever:
(i) any person becomes the beneficial owner of a majority of the Company's
then outstanding voting securities (rather than 25% or more) regardless
of comparative voting power of such securities,
(ii) within a two-year period, members of the Board of Directors at the
beginning of such period and their approved successors no longer
constitute a majority of the Board, or
(iii) holders of securities entitled to vote thereon approve a merger or
consolidation (with certain exceptions) or a plan of complete
liquidation.
The executives are not entitled to the Compensation Payments after a change
in control if their termination is: (i) by the Company for cause (as defined),
or, (ii) except for Mr. Satre, voluntary and not for good reason (as defined)
other than as described in the preceding paragraph.
If an executive becomes entitled to Severance Payments which are subject to
a federal excise tax imposed on the executive (the "Excise Tax"), the severance
agreements require the Company to pay the executive an additional amount (the
"Gross-Up Payment") so that the net amount retained by the
22
executive after deduction of any Excise Tax on the Severance Payments and all
Excise Taxes and other taxes on the Gross-Up Payment, will equal the initial
Severance Payments less normal taxes.
In addition, the severance agreements each provide that in the event of a
potential change in control of the Company (as defined below):
(i) we will deposit in escrow a sum of money sufficient to fund the
Severance Payments in the event a change in control occurs, and
(ii) each executive will agree to remain in the employ of the Company for a
certain period of time.
The agreements define a potential change in control of the Company as
(i) when we enter into an agreement that will result in a change in control of
the Company, (ii) a person publicly announces an intention to take action which
would result in change of control of the Company, (iii) a person (other than a
trustee of one of our employee benefit plans) who is or becomes a beneficial
owner of 9.5% of the combined voting power of our then outstanding securities,
increases his beneficial ownership by 5% or more, resulting in 14.5% or more
ownership, or (iv) the Board of Directors adopts a resolution to the effect that
a potential change in control of the Company has occurred.
Each severance agreement has a term of one calendar year and is renewed
automatically each year starting January 1 unless we give at least one year
prior written notice of non-renewal. Each severance agreement provides that if a
change in control occurs during the original or extended term of the agreement,
then the agreement will automatically continue in effect for a period of
24 months beyond the month in which the change in control occurred.
The Compensation Payments and Accelerated Payments, respectively, that would
have been payable to our executive officers named in the Summary Compensation
Table for the Company on January 1, 2002, if a change in control occurred and if
such executives had been terminated as of that date, would have been
approximately: Mr. Satre, $5,363,072 and $35,820,966; Mr. Atwood, $1,740,300 and
$3,851,034; Mr. Boushy, $1,668,000 and $5,856,336; Mr. Loveman, $4,158,702 and
$16,028,955; and Mr. Mirman, $1,209,716 and $2,861,442. The Accelerated Payments
include the value of any unvested restricted stock and unexercised stock options
that would accelerate upon a change in control, based on the market price of our
common stock on December 31, 2001.
Two of the executive officers named in the Compensation Table, Mr. Satre and
Mr. Atwood, have accounts in the Executive Deferred Compensation Plan ("EDCP").
Pursuant to the EDCP, deferred amounts earn interest at a termination rate
(which cannot be lower than the Citibank prime rate) or at a retirement rate
(which cannot be lower than a specified formula rate), both of which are
approved annually by the Human Resources Committee. The termination rate on
deferrals made during 2001 was 7.44%, and the retirement rate was 12%. In
October 1995, the Human Resources Committee approved a fixed retirement rate of
15.5% and a fixed termination rate of 8.5% for all account balances under the
EDCP as of December 31, 1995 (subject to plan minimum rates contained in the
EDCP). The interest rates on post-1995 deferrals continue to be approved each
year by the Committee. The termination rate during 2002 for post-1995 deferrals
has been approved at Citibank Prime Rate, and the retirement rate has been
approved at the Plan's minimum retirement rate (approximately 11%).
The retirement rate is established as an incentive to encourage long-term
service. Therefore, only those participants meeting the Plan's service
requirements will receive interest at the retirement rate.
23
If there is a change in control, as defined in the EDCP, a participant who
is not yet entitled to the retirement rate will receive that rate if his or her
employment terminates within a 24-month period after the change in control.
Messrs. Satre and Atwood are not yet entitled to the retirement rate.
Consequently, if a change in control (as defined in the EDCP) were to occur,
these executive officers would be entitled to the retirement rate on their
account balances if their employment were to terminate within 24 months after
the change in control.
We have established an escrow fund and have deposited into it insurance
policies and cash proceeds received from insurance policies. This escrow fund
assures the payment of benefits, as they accrue, to participants in the EDCP and
in another deferred compensation plan, including, among others, our executive
officers and non-management directors. If a potential change in control of the
Company occurs, we also will, upon the request of an executive, place into this
escrow fund the severance payments that will become payable to the executive
following a change in control. If a change in control were to occur, we would
increase the escrow fund as deemed necessary to assure payment of future
deferrals, and we also have the right to increase the escrow fund to pay
premiums on the insurance policies and interest on policy loans. The escrow fund
is subject to the claims of our creditors in the case of our insolvency or
bankruptcy.
Further deferrals into the EDCP were terminated effective March 31, 2001. In
February 2001, the Human Resources Committee approved a new deferral program,
the Executive Supplemental Savings Plan ("ESSP"), which commenced April 1, 2001,
which permits certain key employees, including executive officers, to make
deferrals of specified percentages of salary and bonus. The new program allows
participants to choose from a selection of varied investment alternatives and
the results of these investments will be reflected in their deferral accounts.
To assure payment of these deferrals, a new escrow fund has been established
similar to the escrow fund for the EDCP. The new escrow fund is funded to match
the various types of investments selected by participants for their deferrals.
The ESSP does not provide a fixed interest rate as does the EDCP and
therefore the market risk of plan investments is borne by participants rather
than the Company. To encourage EDCP participants to transfer their account
balances to the ESSP thereby reducing the Company's market risk, the Company
approved a program in 2001 that provided incentives to a limited number of
participants to transfer their EDCP account balances to the ESSP. Under this
program, a currently employed EDCP participant who was five or more years away
from becoming vested in the EDCP retirement rate, including any executive
officers who were in this group, received an enhancement in his or her account
balance if the participant elected to transfer the account balance to the ESSP.
The initial enhancement was the greater of (a) twice the difference between the
participant's termination account balance and retirement account balance,
(b) 40% of the termination account balance, not to exceed $100,000, or (c) four
times the termination account balance not to exceed $10,000. Upon achieving
eligibility for the EDCP retirement rate (age 55 and 10 years of service), the
participant electing this program will receive an additional enhancement equal
to 50% of the initial enhancement. Three of the executive officers named in the
Compensation Table, Messrs. Boushy, Mirman, and Loveman elected to participate
in the Enhancement Program. As a result, these executive officers no longer have
accounts in the EDCP.
While further deferrals into the EDCP were terminated, and while most EDCP
participants transferred their EDCP account balance to the ESSP, amounts
deferred pursuant to the EDCP prior to its termination and not transferred to
the ESSP remain subject to the terms and conditions of the EDCP and will
continue to earn interest as described above.
24
REPORT OF THE HUMAN RESOURCES COMMITTEE ON EXECUTIVE COMPENSATION
The Human Resources Committee is composed entirely of non-management
directors. The Committee is responsible for approving the compensation of our
management directors, reviewing the compensation of other executive officers,
including the executive officers named in the Summary Compensation Table, and
approving stock awards, including stock options and restricted stock, for each
executive officer.
EXECUTIVE COMPENSATION POLICY. The Company's executive compensation policy
is designed to attract and retain high caliber executives and motivate them to
superior performance for the benefit of the Company's stockholders. Pursuant to
this policy:
(i) salaries are linked to competitive factors and salary increases are
based primarily on merit,
(ii) the annual bonus program is competitively-based and provides incentive
compensation based on our financial performance, and
(iii) long-term compensation is tied to enhancing shareholder value and to
our financial performance.
In summary, our executive compensation policy is primarily based on
performance, with a large portion of potential executive compensation at risk.
This policy not only extends to executive officers but also to key managers and
professional staff. Approximately 410 key employees participate in the Company's
long-term incentive plans.
The following discussion describes the basic components of our executive
compensation policy described in further detail.
TOTAL CASH COMPENSATION COMPETITIVELY-BASED. Total cash compensation for
executive officers (salary and annual bonus) has previously been targeted to be
approximately comparable to the median ranges for amounts paid to executives
employed in similar positions in public gaming companies. In recognition of the
Company's relative size and performance standards, this target has been changed
to the 50th percentile. The comparison group is the three largest U.S. gaming
companies.
SALARY. Salaries are reviewed each year and increases are based primarily
on (i) an executive's accomplishment of various performance objectives and
(ii) competitive salaries of executives holding similar positions with other
public gaming companies. Specific weights for each factor may be established in
some circumstances. In addition, salary can be substantially increased if an
executive officer is promoted to a higher position or is given greater
responsibilities.
In general, the objectives of executive officers (other than the Chief
Executive Officer) are approved by the Chief Executive Officer. These objectives
generally relate to achieving functional goals and financial objectives within
the officer's assigned area of responsibility. For example, an objective could
relate to completion of a project assigned to that executive's area of
responsibility. The Chief Executive Officer's assessment of the performance of
the other executive officers is based on a subjective review of each officer's
performance. Specific weights may be given to each objective in this assessment
in the discretion of the Chief Executive Officer.
The Committee approves merit salary increases for the Chief Executive
Officer, the President and Chief Operating Officer, and the Chief Financial
Officer. The Chief Executive Officer approves merit
25
salary increases for the other executive officers and the Committee reviews
them. Merit salary increases were approved for the other executive officers
during 2001.
SENIOR EXECUTIVE INCENTIVE PLAN. The Senior Executive Incentive Plan has
been approved by the stockholders to provide participating executives with
incentive compensation based upon the achievement of pre-established performance
goals. The Plan is designed to comply with Section 162(m) of the Internal
Revenue Code, which limits the tax deductibility by the Company of compensation
paid to officers named in the compensation tables of the Proxy Statement to
$1 million. The Committee approves the specific executive officers who will
participate each calendar year prior to, or at the time, the performance
objectives for a calendar year are established. In 2001, Messrs. Satre, Loveman,
Boushy and Mirman participated in the Plan. The plan's objective for 2001 was
earnings per share and this same objective is being utilized for 2002. Bonus
amounts are based on a matrix related to the targeted objective. Target bonuses
range from 144% to 164% of base salary depending on the grade level of the
executive. There is no maximum bonus but the Committee has discretion to
decrease theoretically-achieved bonuses under this plan. It has been the
Committee's practice to decrease the bonuses to the level that would have been
paid under the annual management bonus plan discussed below if the executives
were in that plan. The bonuses for 2001 performance were below target and the
Committee approved bonuses at reduced levels. The Committee has determined that
the five currently-employed executives named in the Summary Compensation Table
will participate in the Plan in 2002. Members of the Committee who are not
"outside directors" pursuant to Section 162(m) of the Code abstain from voting
on matters related to the Senior Executive Incentive Plan. The Committee has
authority to approve bonuses outside of this plan to reward executives for
special personal achievement.
ANNUAL MANAGEMENT BONUS PLAN. Pursuant to our annual management bonus plan
(referred to in this subsection as the "plan"), at or near the beginning of each
calendar year (a "plan year"), the Committee approves a corporate bonus
objective for the Company's executive officers (other than those participating
in the Senior Executive Incentive Plan) and other participants in the plan. This
objective can pertain to operating income, pretax earnings, return on sales,
earnings per share, a combination of objectives, or another objective approved
by the Committee. The objective may change annually to support our business
mission. For the 2001 plan year, the Committee approved the objective of
earnings per share for the Company's executive officers. This objective is also
being utilized for 2002.
A Bonus Matrix, which has been approved by the Committee, has been
established for the grade levels of participating executive officers and other
plan participants that will result in the payment of a specified percentage of
the participant's salary if the target objective is achieved. This percentage of
salary increases or decreases on the Bonus Matrix in relation to the level of
achievement of financial objectives. No bonus is awarded if less than a
specified percentage of target is achieved unless an exception is approved by
the Committee. If the target objective is achieved, bonuses ranging from 50% to
75% of salary, depending on the executive, will be earned. The bonus amounts as
a percentage of salary increase pursuant to a formula that is related to
performance over the target objective, with a specified maximum bonus amount of
two hundred percent of target for the executive officers who participate in this
Plan. The Chief Executive Officer and the President and Chief Operating Officer
do not participate in this Plan.
Because the Human Resources Committee and Chief Executive Officer have
discretion to review an executive officer's personal performance, the actual
bonus awarded pursuant to the plan may not follow
26
the Bonus Matrix exactly. This involves a subjective decision by the Committee
and the Chief Executive Officer pursuant to the plan.
The Committee has authority under the plan to adjust any objective or bonus
points with respect to executive officers. These decisions are subjective and
based generally on a review of the circumstances affecting results to determine
if any events were unusual or unforeseen. The executive officers received
bonuses for 2001 performance at below target level.
STOCK AWARDS. Awards of stock options and restricted stock are specifically
approved by the Committee for each executive officer and other plan participants
and are granted in the sole discretion of the Committee. Awards granted after
2001 are expected to have a vesting period extending three years from the
initial grant date and stock options are expected to have a term of seven years,
with the Committee having authority to set different periods of time for vesting
and the term of the options. The Committee may grant a combination of restricted
stock and/or stock options to officers and other key employees although the
Committee's current policy is to grant primarily stock options. The vesting of
awards is generally accelerated upon a change in control (as defined).
Each executive officer is normally granted a stock option award that will
give such officer an estimated dollar value of stock compensation targeted to
equal a percentage of salary. This percentage increases with the higher grade
level of the officer. Percentages are determined by an assessment of competitive
stock awards. The Committee determines an actual award that is suitable for
providing an adequate incentive for both performance and retention purposes. The
dollar value of the award is determined by applying conventional methods for
valuing stock options.
The Committee has authority to oversee all aspects of stock option and
restricted stock awards and can modify the terms of grants, including change in
control provisions. The Committee also has authority to amend the plans,
including authorizing additional shares to be reserved for awards under the
plans. Members of the Committee who are not "non-employee directors" pursuant to
Section 16 of the Exchange Act abstain from voting on matters affected by the
Section 16 statutes and regulations.
Our executive officers participate in a Time Accelerated Restricted Stock
Award Plan (the "TARSAP Program") designed to motivate and retain the Company's
key executives in the Company's current competitive environment and with a view
to enhancing shareholder value. Pursuant to the TARSAP Program, certain key
executives, including all executive officers, have been granted restricted stock
awards (the "Restricted Shares") pursuant to the Company's Restricted Stock
Plan. The first phase of the TARSAP Program has been completed, with final
vesting occurring on January 1, 2002.
During the year 2000, the Committee approved the TARSAP II Program ("TARSAP
II") and executive officers other than Messrs. Satre and Loveman received awards
under TARSAP II. These awards vest on January 1, 2007, if the participating
executive continues in active employment with the Company until that date. A
portion of the TARSAP II Restricted Shares are eligible for earlier annual
performance vesting beginning March 1, 2003, at the rate of 20% non-cumulative
annual installments each year over five years based on the Company's financial
performance in each of the years 2002 through 2005. The performance targets for
TARSAP II are recommended by the Committee and approved by the Board and can be
modified in the same manner.
If a change in control occurs (as defined), 50% of the unvested TARSAP II
shares will vest if the change in control occurs before January 1, 2003 and 100%
vesting occurs if the change in control occurs on
27
or after January 1, 2003. If a participant is on salary continuation and a
change in control occurs, the participant would only be entitled to the next 20%
vesting installment of TARSAP II shares not otherwise earned.
The Committee has broad flexibility to oversee and amend TARSAP II and, with
Board approval, can modify performance criteria and specific financial targets.
The Committee also has the right to make exceptions based on unusual factors or
events. To help alleviate the tax burden of the TARSAP program on participants
and to provide an incentive for executives to continue in employment, the
Committee has approved a program whereby participants can defer the receipt of
their vested TARSAP shares. The shares can be deferred to a specified date in
the future or to the participant's termination of employment date, whichever
occurs first. The participant can elect a lump sum distribution of shares on the
deferral date (or one year after that date) or can elect annual installments of
shares over ten years. See the Summary Compensation Table for more information
on grants under the TARSAP II to named executive officers.
The amount of a stock option or restricted stock award is not dependent on
past corporate performance or on the amount of options or restricted stock
previously granted to an executive officer. The actual value of the stock
compensation vesting each year depends on the market value of our common stock.
We have no other long-term incentive plans for executive officers.
POLICY CONCERNING TAX DEDUCTIBILITY. The Committee's policy with respect to
qualifying compensation paid to its executive officers for tax deductibility
purposes is that executive compensation plans will generally be designed and
implemented to maximize tax deductibility. However, non-deductible compensation
may be paid to executive officers when necessary for competitive reasons or to
attract or retain a key executive, or where achieving maximum tax deductibility
would be considered disadvantageous to the best interests of the Company. For
2001, Messrs. Satre and Loveman received total compensation over the $1 million
deductibility limit so that $221,573 and $200,259 of Messrs. Satre and Loveman's
total compensation, respectively, will not be deductible by the Company for the
year 2001. The Company's Senior Executive Incentive Plan is intended to comply
with Section 162(m) of the Code so that annual bonuses paid under that plan will
be eligible for deduction by the Company. See "Senior Executive Incentive Plan"
above.
CHIEF EXECUTIVE OFFICER'S COMPENSATION. The objectives of our Chief
Executive Officer are approved annually by the Committee and the full Board.
These objectives vary from year to year, but in general relate to such matters
as:
- ensuring that we are competitively positioned and organized to provide a
high quality experience for our guests;
- continuing to build Harrah's Entertainment, strategically and
operationally, as a leading company in the casino entertainment industry;
- achieving our annual business plan and our various financial goals; and
- increasing total long-term shareholder value.
The Committee's assessment of the Chief Executive Officer's performance is based
on a subjective review of performance against these objectives. Specific weights
may be assigned to particular objectives in the discretion of the Committee.
28
Mr. Satre's base salary is based on his performance, his responsibilities
and the compensation levels for comparable positions in other companies in the
casino entertainment industry. His base salary and bonus opportunity in total
are targeted to be approximately at the 65th percentile of the cash compensation
levels of chief executive officers at comparably sized gaming companies. Merit
increases in his salary are a subjective determination by the Committee, which
bases its decision upon his prior year's performance versus his objectives as
well as upon an analysis of competitive salaries. The Committee sets objectives
for the Chief Executive Officer each year. These are approved by the Board and
are reviewed from time to time during the year by the Committee. These
objectives are discussed earlier in this report.
Regarding annual bonus, the Committee uses the Senior Executive Incentive
Plan discussed earlier in this report to determine the Chief Executive Officer's
bonus. Under this plan, bonus is based on the Company achieving a specific
financial objective. For 2001 the objective was earnings per share and will also
be earnings per share for 2002. For 2001, the target bonus under this plan for
the Chief Executive Officer was 164% of his base salary. For 2002, it is 164%.
The bonus amount can increase or decrease based on the Company's performance.
There is no maximum bonus, but as discussed previously under the Senior
Executive Incentive plan, the Company has discretion to reduce bonuses (as
permitted by Section 162(m) of the Internal Revenue Code), and it is the normal
practice of the Committee to reduce the Chief Executive's bonus to what would
have been approximately paid under the annual management bonus plan. Under that
plan, the Chief Executive's target for his 2001 bonus was 60% of salary and for
2002 it is 75% of salary. The bonus amounts approved for the Chief Executive
Officer's 1999, 2000 and 2001 performance are set forth in the Summary
Compensation Table.
Regarding long term incentive compensation, it is the Committee's policy to
grant significant stock option awards to the Chief Executive Officer that are
deemed highly competitive in the gaming industry for companies of comparable
size. These grants have been made in two to three year intervals. Previous
grants have vested in 25% increments over a four period based on continued
service, with a ten-year term from date of grant. It is expected that future
grants will vest in one-third increments over a three year period, with a seven
year term from date of grant. Option grants to the Chief Executive Officer are
detailed in the Summary Compensation Table. The Committee has discretion to
grant restricted stock awards to the Chief Executive Officer, but has not done
so in the past three years as it is the Committee's current policy to utilize
solely stock options for his long term incentive compensation.
Robert G. Miller, Chairman
R. Brad Martin
Boake A. Sells
Eddie N. Williams
29
PERFORMANCE OF HARRAH'S ENTERTAINMENT COMMON STOCK AND DIVIDENDS
The line graph below compares the total cumulative return of our common
stock to (a) the Standard & Poor's 500 Stock Index (the "S&P 500 Index"), and
(b) the Dow Jones Casinos Index. The graph assumes reinvestment of dividends.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN*
AMONG HARRAH'S ENTERTAINMENT, INC., THE S&P 500 INDEX, AND
THE DOW JONES CASINOS INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
12/96 12/97 12/98 12/99 12/00 12/01
HARRAH'S ENTERTAINMENT, INC. 100.00 94.97 78.93 133.02 132.70 186.21
S & P 500 100.00 133.36 171.47 207.56 188.66 166.24
DOW JONES CASINOS 100.00 90.94 65.07 100.16 109.51 120.68
------------------------
* $100 INVESTED ON DECEMBER 31, 1996 IN STOCK OR INDEX--INCLUDING
REINVESTMENT OF DIVIDENDS. FISCAL YEAR ENDED DECEMBER 31.
30
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Ralph Horn, one of our directors, is Chairman, Chief Executive Officer and
President of First Tennessee National Corporation, the parent company of First
Tennessee Bank National Association ("First Tennessee"). First Tennessee is one
of the lending banks under a loan agreement that we have with several banks (the
"Bank Facility"). Pursuant to the Bank Facility, First Tennessee has committed
to loan to our subsidiary, Harrah's Operating Company, Inc., $15,000,000,
representing a 0.9375% share of the total commitment covered by the Bank
Facility. As of December 31, 2001, $12,294,332 of this amount was outstanding in
loans and in unfunded standby letters of credit. In connection with this
commitment, First Tennessee received interest and fees of $553,305 during 2001.
Some of our direct and indirect subsidiaries maintained deposit accounts
with First Tennessee during 2001. The average ledger balance during 2001 was
$2,701,561. Deposit account service fees paid to First Tennessee in excess of
the earning credit assigned to these accounts were approximately $102,634 during
2001.
First Tennessee provides ATM services to our Tunica, Mississippi casino and
received net revenues of $88,489 during 2001.
First Tennessee also provided Stock Option Plan custodial services to
Harrah's in 2001 and received fees in 2001 of $1,157 for its services.
R. Brad Martin, one of our directors, indirectly owns a company which
purchased our former Memphis corporate headquarters in October 1999, and leases
a portion of it back to the Company. The property includes approximately 25.5
acres of real estate, a three-story building containing 59,159 usable square
feet, a two-story building containing 54,397 usable square feet, a former
residence converted to use as an office building, a pool house/cafeteria
building, a facility/security building, parking structures containing 167
parking spaces, surface parking for 228 cars, and all furniture, fixtures, and
equipment used in connection with the maintenance or operation of the buildings,
with the exception of specifically designated items. The Company leases the
three-story building and the two-story building from Mr. Martin's company for
terms of 17.5 years and 12.5 years, respectively, at a rental of $20.00 per
usable square foot in years one through five (approximately $2,271,220 per
year), increasing to $22.10 and then $23.90 in subsequent periods. We are also
responsible for annual operating expenses related to the leased property in
excess of $7.10 per usable square foot.
On June 14, 2000, the Company made a loan to Gary W. Loveman, director,
President and Chief Operating Officer of the Company. Interest accrued on this
loan at the 30-day LIBOR rate plus 100 basis points. On May 6, 2001, this loan
was paid.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires our directors and officers to
file with the SEC initial reports of ownership and reports of changes in
ownership of our common stock and to furnish us with copies of all forms filed.
To our knowledge, based solely on review of the copies of such reports furnished
to us and written representations that no other reports were required, during
the past fiscal year all Section 16(a) filing requirements applicable to our
officers and directors were met except with respect to Ms. Winn and Mr. Martin.
A Form 4 reporting a transaction by Ms. Winn in September 2000, due
31
October 10, 2000, was filed via an amended Form 4 on July 20, 2001. A Form 4
reporting a transaction by Mr. Martin's son in April 2001, due May 10, 2001, was
filed via an amended Form 4 on August 8, 2001.
OTHER INFORMATION
CERTAIN STOCKHOLDERS
The table below sets forth, to the best of our knowledge, information
regarding the beneficial owners of more than 5% of the Company's common stock as
of December 31, 2001. The sources of this information are Schedules 13G filed by
the listed beneficial owners with the Securities and Exchange Commission.
NUMBER OF SHARES
BENEFICIALLY PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED CLASS
------------------------------------ ---------------- ----------
FMR Corp. .................................................. 16,442,527 14.653
82 Devonshire Street
Boston, MA 02109
Goldman Sachs Asset Management ............................. 9,978,696 8.9
32 Old Slip
New York, NY 10005
Invesco Funds Group, Inc. .................................. 7,362,964 6.199
4350 South Monaco Street
Denver, CO 80237
State Street Bank and Trust Company, Trustee ............... 6,160,701 5.5
225 Franklin Street
Boston, MA 02110
COST OF SOLICITATION
The expense of soliciting proxies and the cost of preparing, assembling and
mailing material in connection with the solicitation of proxies will be paid by
the Company. In addition to the use of mails, some of our directors, officers or
employees, who receive no compensation for their services other than their
regular salaries, may solicit and tabulate proxies. We have retained D.F.
King & Co. to assist in the solicitation of proxies with respect to our common
stock held of record by brokers, nominees and institutions. The estimated cost
of the services of D.F. King & Co. is $9,000, plus expenses.
STOCKHOLDER PROPOSALS FOR 2003 ANNUAL MEETING
For any proposal to be considered for inclusion in our proxy statement and
form of proxy for submission to the stockholders at our 2003 Annual Meeting, it
must comply with the requirements of Rule 14a-8 under the Securities Exchange
Act of 1934 and be submitted in writing by notice delivered or mailed by
first-class United States mail, postage prepaid, to the Corporate Secretary,
Harrah's Entertainment, Inc., One Harrah's Court, Las Vegas, Nevada 89119, and
must be received no later than November 15, 2002. In addition, our Bylaws
provide for notice procedures to recommend a person for nomination as a director
and to propose business to be considered by stockholders at a meeting. The
Company will have discretionary authority to vote shares under proxies we
solicit concerning matters of which we did not have notice by a certain date,
and, to the extent permitted by law, on any other business
32
that may properly come before the Annual Meeting and any adjournments. Pursuant
to our bylaws, that notice date for our Company's 2003 Annual Meeting of
Stockholders is currently March 2, 2003. The chairman of the meeting may refuse
to acknowledge the introduction of any stockholder proposal not made in
compliance with the foregoing procedures.
By Direction of the Board of Directors
[LOGO]
Brad L. Kerby
CORPORATE SECRETARY
Las Vegas, Nevada
March 8, 2002
33
ANNEX A
AUDIT COMMITTEE CHARTER
COMPOSITION
The Audit Committee shall be composed of not less than three Directors, each
of whom, in the judgement of the Board of Directors, is independent and
financially literate and at least one of whom has accounting or related
financial management expertise. Furthermore, the Audit Committee may not include
a Director if a member of Harrah's management sits on the Compensation Committee
or similar committee of the Director's company.
FUNCTIONS
The functions of the Audit Committee are to:
1. Review the adequacy of the outside and inside auditing and control systems
and procedures.
2. Review the Company's financial and accounting policies and disclosures and
approve changes therein.
3. Review the year-end financial statements to be included in the Annual Report
on Form 10-K with management and the independent public accountants.
3. Discuss the effects of significant events, transactions and changes in
accounting estimates, which were considered by the independent public
accountants in performing the quarterly reviews and have affected the
quality of Harrah's financial reporting.
4. Review the financial reports published.
DUTIES
1. As related to the Company's independent public accountants, who are
ultimately accountable to the Board of Directors and the Audit Committee:
Evaluate the independent public accountants and make recommendations to the
Board to nominate the independent public accountants for proposal for
shareholder approval in the annual proxy statement and, when appropriate,
make recommendations to the Board to replace the independent public
accountants.
Approve the key engagement partners of the independent public accountants.
Approve the overall scope of the independent public accountants' audit.
Review the results of the audit with emphasis on the following:
- The independent public accountants' opinion of the Company's internal
controls.
- The independent public accountants' opinion as to the qualifications of
financial and control personnel.
Discuss the independent public accountants' judgments about the quality, not
just acceptability, of the application of accounting principles used and
significant judgments affecting the financial statements.
Ensure that the independent public accountants prepare and deliver, at least
annually, a written statement delineating all relationships between them and
the Company, consistent with Independence Standards Board Standard 1.
A-1
Actively engage in a dialogue with the independent public accountants with
respect to any disclosed relationships or services that, in the view of the
Audit Committee, may impact the objectivity and independence of the
independent public accountant.
Review the independent public accountants' fees.
Meet periodically with the independent public accountants without management
present.
2. As related to the internal auditors:
Approve overall scope of the internal audit program.
Review the internal auditors' annual and interim reports to the Committee.
Review internal controls.
Meet periodically with the internal auditor without management present.
3. Other duties:
Provide a report of the Audit Committee's findings that result from its
financial reporting oversight responsibilities. This report is to be
included in the Company's proxy statement each year.
Meet with the financial and control officers of the Company or any other
persons it deems necessary or appropriate in discharging its duties. The
Committee shall have direct access to all such persons, including the
internal auditors, with and without management present.
Review the Audit Committee Charter on an annual basis.
Report findings to the full Board of Directors.
LIMITATION OF DUTIES
The Audit Committee's responsibility is oversight. Management of the Company
has the responsibility for the Company's financial statements as well as the
Company's financial reporting process, principles and internal controls. The
independent public accountants are responsible for performing an audit of the
Company's annual financial statements, expressing an opinion as to the
conformity of such annual financial statements with generally accepted
accounting principles, reviewing the Company's quarterly financial statements
and other procedures. It is recognized that it is not the duty of the Audit
Committee to plan or conduct audits or to determine that the Company's financial
statements fairly present the Company's financial position and results of
operation and are in accordance with generally accepted accounting principles
and applicable laws and regulations. Each member of the Audit Committee shall be
entitled to rely on (i) the integrity of those persons within the Company and of
the professionals and experts (such as the independent public accountants) from
which it receives information, (ii) the accuracy of the financial and other
information provided to the Audit Committee by such persons, professionals or
experts absent actual knowledge to the contrary and (iii) representations made
by management or the external auditor as to any information technology services
of the type described in Rule 2-01(c)(4)(ii) of Regulation S-X and other
non-audit services provided by the Company's independent public accountants. In
carrying out its responsibilities, the Audit Committee believes its policies and
procedures should remain flexible to best react to a changing environment.
A-2
[LOGO]
[HARRAH'S ENTERTAINMENT, INC. LOGO]
Harrah's Entertainment, Inc.
Annual Meeting of Stockholders
May 2, 2002 at 11:00 a.m.
Masquerade Showroom
Rio All-Suite Hotel & Casino
3700 West Flamingo Road
Las Vegas, Nevada
A limited number of rooms have been reserved at the Rio
for our stockholders attending the 2002 Annual Meeting.
These rooms may be reserved through
April 30, subject to availability.
For reservations call (888) 746-7153
If you have chosen to view our proxy statements and annual reports
over the Internet instead of receiving paper copies in the mail, you can
access our proxy statement and 2001 annual report electronically at
our web site, http://investor.harrahs.com/annual.cfm
--------------------------------------------------------------------------------
HARRAH'S ENTERTAINMENT, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR ANNUAL MEETING
OF STOCKHOLDERS TO BE HELD MAY 2, 2002
The undersigned hereby appoints Philip G. Satre, Gary W. Loveman, and Brad
L. Kerby, and each of them, and his or her attorneys and agents, with full power
of substitution, to vote as proxy for the undersigned at the Annual Meeting of
Stockholders of Harrah's Entertainment, Inc. (the "Company") to be held on May
2, 2002 at 11:00 a.m. in the Masquerade Showroom, Rio All-Suite Hotel & Casino,
3700 West Flamingo Road, Las Vegas, Nevada, and at any adjournment or
postponement thereof, according to the number of votes the undersigned would be
entitled to vote if personally present on the proposals set forth on the reverse
side of this card (and as more particularly set forth in the Notice of Meeting
enclosed herewith) and in accordance with their discretion on any other matters
that may properly come before the meeting or any adjournment or postponement
thereof. This proxy also constitutes confidential voting instructions for the
use of participants in the Company's Stock Fund of the Company's Savings and
Retirement Plan.
All shares of the Company's Common Stock that are represented at the
Annual Meeting by properly executed proxies received prior to or at the Annual
Meeting and not revoked will be voted at the Annual Meeting in accordance with
the instructions indicated on the reverse side of this card. If no instructions
for a proposal are indicated on an executed Proxy Card, such proxies will be
voted in accordance with the recommendation of the Board of Directors as set
forth herein with respect to such proposal.
To ensure timely receipt of your
vote and to help the Company reduce
costs, you are encouraged to submit your
voting instruction over the Internet or
by telephone - simply follow the HARRAH'S ENTERTAINMENT, INC.
instruction on the reverse side of this P.O. BOX 11025
card. If you choose to submit your voting NEW YORK, N.Y. 10203-0025
instruction by mail, just mark, sign
and date this proxy card on the reverse
side and return it in the envelope provided.
PLEASE SIGN AND DATE ON REVERSE SIDE
--------------------------------------------------------------------------------
HARRAH'S
ENTERTAINMENT 3 EASY WAYS TO VOTE YOUR PROXY
INC.
INTERNET TELEPHONE MAIL
-------- --------- ----
https://www.proxyvotenow.com/het 1-866-358-4701
Enter the Control Number printed in the Enter the Control Number printed in Just mark, sign and date the attached
box below and proceed as directed the box below and proceed as directed proxy card and return it in the
OR (Note: You must use a touch-tone OR envelope provided.
telephone. There is NO CHARGE for
this call.)
NOTE: IF YOU VOTE BY INTERNET OR TELEPHONE, YOU
DO NOT NEED TO MAIL IN YOUR PROXYCARD. INTERNET
AND TELEPHONE VOTING ARE AVAILABLE 24 HOURS A
DAY, 7 DAYS A WEEK.
-----------------------------------------------
CONTROL NUMBER FOR
TELEPHONE OR INTERNET VOTING
-----------------------------------------------
1-866-358-4701
CALL TOLL-FREE TO VOTE
DETACH PROXY CARD HERE IF YOU ARE NOT VOTING BY TELEPHONE OR INTERNET
------------------------------------------------------------------------------------------------------------------------------------
/ / PLEASE SIGN, DATE AND /X/
MAIL THIS PROXY CARD VOTES MUST BE INDICATED
PROMPTLY USING THE (X) IN BLACK OR BLUE INK.
ENCLOSED ENVELOPE.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR:
1. Election of Class III directors for three-year terms expiring at the
2005 Annual Meeting.
FOR WITHHOLD
ALL / / FOR ALL / / EXCEPTIONS / /
Nominees: 01 - Barbara T. Alexander and 02 - Robert G. Miller
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
MARK THE "EXCEPTIONS" BOX AND WRITE THAT NOMINEE'S NAME IN THE SPACE
PROVIDED BELOW. IF AUTHORITY TO VOTE FOR ANY NOMINEE IS NOT WITHHELD, THIS
SIGNED PROXY WILL BE DEEMED TO GRANT AUTHORITY TO VOTE FOR THE NOMINEE.)
*Exceptions _______________________________________________________________________________________
FOR AGAINST ABSTAIN
2. Ratification of the appointment of Arthur / / / / / /
Andersen LLP as independent public accountants
for the Company for the 2002 calendar year.
IF YOU PLAN TO ATTEND THE ANNUAL MEETING OF STOCKHOLDERS, PLEASE
MARK THE FOLLOWING BOX AND PROMPTLY RETURN THIS PROXY CARD. / /
IF YOU REQUEST TO ACCESS FUTURE PROXY STATEMENTS AND ANNUAL REPORTS
ELECTRONICALLY, AND AGREE TO DO SO, PLEASE MARK THIS BOX. / /
To change your address, please mark this box / /
-----------------------------------------
S C A N L I N E
-----------------------------------------
Signatures of stockholders should correspond exactly with the names shown on the
Proxy Card. Attorneys, trustees, executors, administrators, guardians and others
signing in a representative capacity should designate their full titles. If a
corporation, please sign in full corporate name by President or other authorized
officer. If a partnership, please sign in partnership name by authorized person.
Joint owners should both sign.
Date Share Owner sign here Co-Owner sign here
--------------- --------------------------------- ----------------------------