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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996).
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 333-0214
HORSESHOE GAMING, L.L.C.
(Exact name of registrant as specified in its charter)
Delaware 88-0343515
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
330 South Fourth Street
Las Vegas, Nevada 89101
(Address of principal executive offices)
Registrant's telephone number, including area code: (702) 383-8500
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
The aggregate market value of the equity of Horseshoe Gaming, L.L.C.
held by non-affiliates of Horseshoe Gaming, L.L.C. is inapplicable as the
equity of Horseshoe Gaming, L.L.C. is privately held.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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HORSESHOE GAMING, L.L.C.
INDEX TO ANNUAL REPORT ON FORM 10-K
For the fiscal year ended December 31, 1996
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PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . 10
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters . . . . . . . . . 11
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . 17
Item 9. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
PART III
Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . 18
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . 26
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . 27
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K . . . . . . . . . . . 28
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PART I
ITEM 1. BUSINESS.
As used in this Annual Report on Form 10-K ("Form 10-K"), unless the
context indicates otherwise, the terms "Company" and "Horseshoe Gaming" refer
to Horseshoe Gaming, L.L.C., a Delaware limited liability company, and its
subsidiaries, including predecessor companies.
GENERAL
Entities controlled by Mr. Jack B. Binion developed and opened the
Horseshoe Bossier City, which is owned by Horseshoe Entertainment, L.P. ("HE")
and developed and opened the Horseshoe Casino Center, which is owned by
Robinson Property Group L.P. ("RPG"). HE commenced operations on July 9, 1994
and RPG commenced operations on February 13, 1995. The ownership interests in
such entities were transferred to the Company by Mr. Binion and certain other
related and unrelated parties in exchange for ownership interests in the
Company. Mr. Binion, the largest equityholder of Horseshoe Gaming, is also the
majority shareholder, Chairman of the Board of Directors and Chief Executive
Officer of Horseshoe Gaming, Inc., a Delaware corporation ("HGI"). See
"Directors and Executive Officers of the Registrant." HGI became the Manager
of the Company as of October 1, 1995 as a result of the roll-up transaction
described below. The sole purpose of HGI is to be the Manager of the Company.
Pursuant to the Company's Limited Liability Company Agreement, HGI has
exclusive control over the business of the Company (subject to specified
exceptions), including the power to acquire and sell property, execute
documents, make all business management decisions, and raise equity capital on
behalf of the Company. The Company pays no compensation to HGI, but reimburses
HGI for all out-of-pocket expenses, including employment expenses. As of March
15, 1997, HGI had 26 employees.
Management selected the Bossier City/Shreveport, Louisiana and Tunica,
Mississippi markets for entry into emerging gaming jurisdictions because of the
respective strengths of these markets and the ability to secure what Management
feels are the best sites within those markets.
The principal executive offices of the Company and of HGI are located
at 330 South Fourth Street, Las Vegas, Nevada 89101 and their telephone number
is (702) 383-8500.
THE ROLL-UP TRANSACTION AND THE FINANCING
The Roll-Up Transaction was completed concurrently with the closing of
the Senior Notes and the Credit Facility Agreement discussed below, but it was
deemed effective as of October 1, 1995. The following discussion describes the
Roll-Up Transaction.
HE and RPG
The Company became the ninety-nine percent (99%) limited partner in
RPG and New Gaming Capital Partnership ("NGCP"), which is the general partner
of HE. The Company's wholly-owned subsidiary, Horseshoe GP, Inc. ("HGP")
became the one percent (1%) general partner of each of NGCP and RPG. As of
December 31, 1996, NGCP owned 91.92% of HE and the Company had entered into an
option agreement to acquire an additional 1% interest in HE expiring on
December 31, 1997.
Financing
Concurrently with the Roll-Up Transaction, on October 10, 1995 the
Company entered into, and borrowed $93,185,000 pursuant to, a Senior Secured
Credit Facility Note Purchase Agreement (the "Credit Facility Agreement") which
expires on September 30, 1999. On the same date, the Company entered into, and
borrowed $100,000,000 pursuant to, an Indenture (the "Indenture") governing its
12.75% Senior Secured Notes (the "Senior Notes"), which mature on September 30,
2000. The Credit Facility is secured by first liens, and the Senior Notes are
secured by second liens, on certain assets of the Company and its subsidiaries.
The proceeds were used to retire existing indebtedness in the amount of
$125,505,000, to reimburse certain development expenses in the amount of
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$6,858,000, to fund the acquisition or expansion of certain assets in the
amount of $17,395,000 and for debt issue costs and working capital in the
amount of $10,364,000. The balance, in the amount of $31,063,000 was placed in
an escrow (the "Escrow Proceeds Escrow Account"). On April 10, 1996, the
Company issued an additional $50,000,000 of Senior Notes upon the exercise of
warrants to purchase such additional Senior Notes. The net proceeds of the
additional Senior Notes, equal to $49,073,000, were also placed in the Excess
Proceeds Escrow Account.
In June, 1996, the Company consummated an offer to exchange (the
"Exchange Offer") $1,000 principal amount of its Senior Notes, Series B, which
were registered under the Securities Act of 1933, as amended, pursuant to a
Registration Statement on Form S-4, for each $1,000 principal amount of its
outstanding Senior Notes, Series A. Subsequent to the Exchange Offer and as of
March 15, 1997, $150.0 million principal amount of the Senior Notes was
outstanding.
THE HORSESHOE BOSSIER CITY
Overview
The Horseshoe Bossier City opened on July 9, 1994. According to
statistics published by the Louisiana State Gaming Authorities, the Bossier
City/Shreveport market is the largest market in the State of Louisiana, as
measured by gaming revenues.
Bossier City/Shreveport, Louisiana Gaming Market
The primary appeal of the Bossier City/Shreveport gaming market is its
local population base and its proximity to major population centers in
Louisiana, Texas, Oklahoma and Arkansas. Approximately 350,000 people are
full-time residents of Bossier City/Shreveport. This population includes the
Barksdale Air Force Base which directly employs over 7,000 people. The broad
market for the Horseshoe Bossier City consists of approximately 16.5 million
people residing within 250 miles (approximately four hours driving distance).
The broad market consists of local clientele, day trippers and multi-day
visitors.
Approximately 26% of the Horseshoe Bossier City's customers have been
residents of Bossier City/Shreveport. The Horseshoe's next largest markets are
the Dallas/Ft. Worth and Longview/Marshall areas of Texas, which have accounted
for approximately 13% and 10% of the casino's customers, respectively. In
addition, the casino attracts day-trippers flying in from a short air distance.
Bossier City/Shreveport Area Economy/Tourism
According to the Shreveport-Bossier Convention & Tourist Bureau, there
were approximately 1.8 million overnight visitor/days and approximately two to
three million day visitor/days in Bossier City/Shreveport in 1994, for a total
of approximately 3.8 to 4.8 million visitor/days for the year. Other amenities
and tourist attractions include Louisiana Downs Racetrack, the American Rose
Center (North America's largest rose garden), the Independence Bowl and the
Eighth Air Force Museum at Barksdale Air Force Base. With approximately 7,000
rooms at 52 area hotels and motels, Bossier City/Shreveport hosts 250
conventions per year with approximately 200,000 delegates. Over 30 annual
festivals, approximately 400 restaurants and 11 golf courses provide
entertainment for locals and visitors.
Louisiana Gaming Environment
In 1991, the State of Louisiana legalized casino gaming on the water
and in one land location in New Orleans. The State has granted preliminary
approval for all of the 15 legislatively authorized licenses, six of which have
been designated for the northern region of the State in Bossier
City/Shreveport. While the Louisiana gaming regulations state that riverboat
casinos must cruise, the Bossier City/Shreveport casinos were granted a
legislative exemption in June 1993 that allows them to operate as dockside
facilities.
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Louisiana permits most types of casino games (other than bingo and
sports betting) and has neither betting nor loss limits. Moreover, house
credit may be extended to qualified patrons. The only significant limitation
imposed by such regulations restricts gaming space on riverboats to no more
than 30,000 square feet. The State of Louisiana imposes a fee on gaming revenue
at the rate of 18.5%. The city of Bossier City also imposes a 3.2% tax
on gaming revenue plus an annual fee of $700,000.
In addition, Legislation was passed in 1996 authorizing the Bossier
Police Jury, the governing body of Bossier Parish, to impose a $.50 boarding
fee with respect to all of the patrons entering riverboat gaming facilities in
Bossier Parish. The passage of such legislation resulted in litigation being
commenced between the Horseshoe Casino and the Isle of Capri Casino in
Bossier City and the Bossier City Police Jury, as both Horseshoe and the Isle
of Capri Casino asserted that the Bossier Police Jury had previously contacted
away their right to impose such additional $.50 boarding fee. In January 1997,
Horseshoe Casino separately settled with the Bossier Police Jury, and such
lawsuit was dismissed as it relates to Horseshoe Casino (but not Isle of Capri
Casino) and the Bossier Police Jury. Such settlement resulted in Horseshoe
agreeing to pay an additional 1% tax on its gross gaming revenues to Bossier
Parish with a minimum annual payment of $1,500,000, regardless of actual
revenue. Under the terms of such agreement, Horseshoe has the right to receive
a credit against gross gaming tax for the amount of increased property taxes
assessed against its property in Bossier Parish resulting from increased
assessments attributable to its major expansion project to be completed later
this year. Such credit may be taken up to a maximum of 80% of the tax on
gaming revenues, and applies during the entire ten year term of the agreement.
Competition
The Horseshoe Bossier City competes directly with Harrah's in
Shreveport and the Isle of Capri and Casino Magic in Bossier City. These four
riverboats together currently comprise the Bossier City/Shreveport market.
The Louisiana Riverboat Gaming Commission has recently awarded two additional
licenses to operate riverboat casinos in the Bossier City/Shreveport market. As
only 15 Louisiana riverboats and one land-based casino in New Orleans are
presently authorized by law, potential competition in Louisiana is presently
limited. The Bossier City/Shreveport casinos capture the Dallas/Ft. Worth
market and share the Houston area market with four existing riverboats in Lake
Charles, a land-based casino owned by the Coushatta Indian Tribe located near
Lake Charles and two riverboats in Baton Rouge. If Texas or Arkansas were to
approve gaming, competition would increase and the value of the Horseshoe
Bossier City would be negatively affected.
Management believes that the Bossier City/Shreveport casinos have an
operational advantage as all Louisiana riverboats except the four in Bossier
City/Shreveport must cruise in three-hour increments. The cruising exemption
for the Bossier City/Shreveport market was included in the Louisiana Gaming
Statutes to account for the difficult navigational aspects of the Red River.
The Horseshoe Bossier City casino remains dockside, allowing passengers to
enter and exit as they please and enabling Management to conduct 24-hour a day
continuous gaming operations.
THE HORSESHOE CASINO CENTER
Overview
The Horseshoe Casino Center opened February 13, 1995 in Tunica County,
Mississippi at Casino Center, a 70-acre three-casino complex.
Tunica, Mississippi Gaming Market
The Tunica County gaming market consists entirely of dockside casino
operations located on the Mississippi River or its tributaries. Tunica County
benefits from its proximity to several major population centers and to the
popularity of the Memphis region as a vacation destination that offers numerous
attractions, ample hotel and entertainment facilities and excellent
transportation access. Over 2.5 million people live within 90 miles and over
10.7 million people live within 200 miles of the Horseshoe Casino Center.
Within 500 miles (eight hours by car or approximately one-hour flight time) the
total population base increases to approximately 54.9 million.
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Memphis Area Economy/Tourism
According to the Memphis Convention and Visitors Bureau, more than 3.5
million people visited Memphis and its surrounding areas (Shelby County) in
1994. The non-gaming attractions include the National Civil Rights Museum,
Graceland, Sun Recording Studios, the Memphis Zoo, the Great American Pyramid,
the Beale Street Historic District, Mud Island, the Liberty Bowl, the Kroger
St. Jude Tennis Classic, the FedEx St. Jude Golf Classic and a selection of
museums, art galleries and botanical gardens. Seasonal events such as the
Memphis in May International Festival and the Mid-South Fair make Memphis and
its surroundings a popular vacation area.
Mississippi Gaming Environment
The State of Mississippi legalized casino gaming on the waters of the
Mississippi River and the Mississippi Gulf Coast region in June 1990. The
Mississippi gaming laws were patterned after the gaming laws in Nevada. While
the Mississippi gaming regulations state that the casinos must be located on
the water, they need not cruise or have engines.
Other aspects of the Mississippi gaming regulations include: the
relatively low gaming tax rate (8.8% at the State level and approximately 3.2%
plus an annual $82,000 fee at the local level), the ability to offer 24-hour a
day continuous gaming, the ability to offer all types of casino games (other
than bingo and race sports betting), no betting or loss limits, and no space or
size restrictions. Moreover, house credit may be extended to qualified patrons.
While there are no legislative limitations on the number of licenses in Tunica
County, competition is limited by the availability of legal and accessible
sites on the Mississippi River.
In November 1996, the Mississippi County closest to Memphis (DeSoto
County) voted against gaming. There is current legislation that is
expected to be signed into law by the governor that would allow DeSoto County
to vote on this issue again in October 2004. If approved, or if gaming were
approved in Arkansas or Tennessee, numerous additional sites closer to Memphis
would be available for gaming. Thus, while Tunica County is currently the
closest legalized gaming jurisdiction to the Memphis metropolitan area, there
is no assurance that this situation will not change in the future.
Competition
The Tunica market is presently comprised of ten casinos, two of which
opened in 1996. One of the casinos which opened in 1996 is the largest casino
resort in Tunica County, and located approximately one mile closer than the
Horseshoe Casino Center to Memphis, currently the largest feeder market into
Tunica County.
DEVELOPMENT OPPORTUNITY IN ST. LOUIS, MISSOURI
Horseshoe Casinos (Missouri), L.L.C. ("HCM") was formed to pursue a
filing made on June 15, 1995 in response to a Solicitation of Interest for
Development and Operation of Riverboat Gaming Facility and Related Development
at Potential Riverfront Sites in Unincorporated North St. Louis County,
Missouri issued by the St. Louis County Port Authority.
HCM has proposed to develop an approximately $125 million facility on
a 141-acre site along the Missouri River in a commercial industrial complex
known as Earth City, located in an unincorporated area of St. Louis County.
The project will feature a riverboat with 30,000 square feet of gaming and
1,371 gaming positions, a dockside barge facility with 13,600 square feet of
gaming and 650 gaming positions, a 66,800 square foot land based pavilion with
restaurants, retail space, and ticketing/queuing area and a 200-room hotel.
HCM will be owned 70% by Horseshoe Ventures and 30% by Earth City
Joint Ventures (an entity owned by the present site owner and other related
investors). After HCM is in operation, Horseshoe Ventures will
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distribute 80% of its interest in HCM to the Company and 20% of its interest to
JBB. The Company will have the obligation, after HCM has been in operation for
a period of three (3) years, to acquire the remaining 20% interest in HCM from
JBB for cash or membership interest in the Company based upon an evaluation
formula. If the acquisition is for cash, the value of HCM will be deemed to be
equal to four times the annual EBITDA of HCM during the preceding two (2) year
period, less the amount of indebtedness to which HCM is then subject. If the
acquisition is for membership interest in the Company, then the amount to be
issued will be determined using the value of HCM described in the preceding
sentence and the value of the other holdings of the Company as determined by an
independent appraisal.
HCM has received the endorsement by St. Louis County of the Project
and HCM has submitted a Riverboat Gaming License Application to the Missouri
Gaming Commission, which must approve the Application.
HCM has been in litigation with the Missouri Coalition for the
Environment. The Coalition has claimed that HCM's intention to use certain
property extending from the existing levee to the Missouri River to build an
elevated walkway and its barge terminal facility violates a consent order
reflecting a 1976 settlement agreement between the Coalition and a predecessor
site-owner. On March 4, 1997, the United States District Court, Eastern
District of Missouri, Eastern division, determined that HCM's plans are
violative of the consent order. On March 18, 1997, HCM filed with the Court, a
Motion to Alter/Amend Judgment. In the event the Court determines not to alter
or amend its March 4, 1997 judgment or an appeal sustains such judgment, then
HCM would be unable to develop the Project in accordance with its submission to
St. Louis County and it is unclear what effect that would have on the
endorsement by St. Louis County of the Project.
While HCM has submitted an Application for a riverboat gaming license
to the Missouri Gaming Commission, the Missouri Gaming Commission has not been
processing such Applications as they are submitted, but rather has been
selecting only limited Applications to process. It is not certain that, in the
near future, the Commission will process HCM's Application.
Accordingly, the Company makes no representations as to the likelihood
that HCM will have the right to develop its proposed Earth City Project.
COMPETITIVE STRATEGY
The Company's objective is to develop a high volume of traffic through
its casinos and to attract middle income gamblers, tourists and local clientele
as its principal customers. These customers can be divided into the following
market segments: local clientele, day trippers and multi-day visitors. The
Company's strategy consists of offering favorable gaming odds and high limits,
treating every customer as an important player, having a comfortable atmosphere
where players are recognized and treated well by Horseshoe personnel, and
providing high quality food and beverages at reasonable prices. Management
believes that this strategy can be replicated in other emerging jurisdictions
with the right sites and appropriate facility designs.
While Management's marketing strategy primarily focuses on the middle
income customer, Management believes that the Horseshoe Casinos attract a
substantial number of high income customers with favorable odds and high
limits, and a substantial number of lower income customers with a wide variety
of low minimum table games and slot machines. The Company's competitive
strategy also involves locating the Company's casinos in the most favorable
locations available in favorable markets. The Bossier City/Shreveport market
is the largest market in the State of Louisiana as measured by gaming revenues,
according to statistics published by the Louisiana State Gaming Authorities.
Five federal highways and two interstate highways lead to the Horseshoe Bossier
City. Interstate 20, an east-west traffic artery connecting Bossier
City/Shreveport to Dallas/Fort Worth, is heavily traveled by locals and
extensively used by travelers. Bossier City/Shreveport is the closest and most
accessible gaming market to Dallas/Fort Worth (approximately 180 miles or three
hours drive time). The Horseshoe Bossier City is directly accessible and
visible from Interstate 20.
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The Horseshoe Casino Center is located in Tunica County, Mississippi,
which is currently the closest legalized gaming jurisdiction to the Memphis
metropolitan area and the largest gaming market in the State of Mississippi.
The Casino Center area is situated off U.S. Highway 61, approximately 30 miles
from downtown Memphis, Tennessee and 25 miles from the Memphis International
Airport. Major highway access to the area is provided by Interstates 40 and
55, and US Highways 51, 61, 64, 70, 72, 78 and 79. The Horseshoe Casino
Center's site is accessed via the Casino Center Drive turn-off from U.S.
Highway 61, the main artery from metropolitan Memphis. The Horseshoe Casino
Center's 100-foot high neon sign draws the attention of arriving customers to
the casino. In addition to the visual impact of the signage, the Horseshoe
Casino Center occupies the middle site of Casino Center. See "--The Horseshoe
Casino Center--Tunica, Mississippi Gaming Market," "--The Horseshoe Casino
Center--Memphis Area Economy/Tourism" and "--The Horseshoe Casino
Center--Mississippi Gaming Environment."
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REGULATORY MATTERS
The Company is subject to state and Federal laws which regulate
businesses generally and the gaming business specifically. Below is a brief
description of some of the more significant regulations to which the Company is
subject. All laws are subject to change and different interpretations. This
is especially true with respect to current laws regulating the gaming industry,
since in many cases these laws and the regulatory agencies that apply them are
new. Changes in laws or their interpretation may result in the imposition of
more stringent, burdensome or expensive requirements, or the outright
prohibition of an activity.
Louisiana Gaming Regulation
In July 1991, the Louisiana legislature adopted legislation permitting
certain types of gaming activity on certain rivers and waterways in Louisiana.
The legislation granted authority to supervise riverboat gaming activities to
the Louisiana Riverboat Gaming Commission and the Riverboat Gaming Enforcement
Division of the Louisiana State Police (the "Louisiana Enforcement Division").
The Louisiana Riverboat Gaming Commission was authorized to hear and determine
all appeals relative to the granting, suspension, revocation, condition or
renewal of all licenses, permits and applications. In addition, the Louisiana
Riverboat Gaming Commission was authorized to establish regulations concerning
authorized routes, duration of excursions, minimum levels of insurance,
construction of riverboats and periodic inspections. The Louisiana Enforcement
Division was authorized to investigate applicants and issue licenses,
investigate violations of the statute and conduct continuing reviews of gaming
activities.
In the 1996 special session of the Louisiana legislature, Louisiana
lawmakers passed a measure which established the Louisiana Gaming Control Board
and provides that the board is the successor to all such prior authorities with
regard to the regulation and supervision of gaming in Louisiana except for the
regulation of horse racing and offtrack betting and the conducting of
charitable gaming operations. Effective May 1, 1996, the powers, duties,
functions, and responsibilities with respect to riverboat gaming of the
Louisiana Riverboat Gaming Commission and the Louisiana Enforcement Division
are transferred to the Louisiana Gaming Control Board. The Louisiana
Enforcement Division continues to provide investigative and enforcement support
to the Louisiana Gaming Control Board.
The statute authorizes issuance of up to 15 licenses to conduct gaming
activities on a riverboat of new construction in accordance with applicable
law. However, no more than six licenses may be granted to riverboats operating
from any one parish.
In issuing a license, the Louisiana Gaming Control Board must find
that the applicant is a person of good character, honesty and integrity and a
person whose prior activities, criminal record, if any, reputation, habits, and
associations do not pose a threat to the public interest of the State of
Louisiana or to the effective regulation and control of gaming, or create or
enhance the dangers of unsuitable, unfair or illegal practices, methods and
activities in the conduct of gaming or the carrying on of business and
financial arrangements in connection therewith. The Louisiana Gaming Control
Board will not grant a license unless it finds that: (i) the applicant is
capable of conducting gaming operations, which means that the applicant can
demonstrate the capability, either through training, education, business
experience, or a combination of the above, to operate a gaming casino; (ii) the
proposed financing of the riverboat and the gaming operations is adequate for
the nature of the proposed operation and from a source suitable and acceptable
to the Louisiana Gaming Control Board; (iii) the applicant demonstrates a
proven ability to operate a vessel of comparable size, capacity and complexity
to a riverboat so as to ensure the safety of its passengers; (iv) the applicant
submits a detailed plan of design of the riverboat in its application for a
license; (v) the applicant designates the docking facilities to be used by the
riverboat; (vi) the applicant shows adequate financial ability to construct and
maintain a riverboat; and (vii) the applicant has a good faith plan to recruit,
train and upgrade minorities in all employment classifications.
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Certain persons affiliated with a riverboat gaming licensee, including
directors and officers of the licensee, directors and officers of any holding
company of the licensee involved in gaming operations, persons holding five
percent or greater interests in the licensee, and persons exercising influence
over a licensee ("Affiliated Gaming Persons"), are subject to the application
and suitability requirements of the Louisiana gaming law.
The Louisiana gaming law specifies certain restrictions and conditions
relating to the operation of riverboat gaming, including the following: (i)
gaming is not permitted while a riverboat is docked, other than the forty-five
minutes between excursions, and during times when dangerous weather or water
conditions exist, except that the three casinos operating in the Bossier
City/Shreveport area are permitted to operate exclusively at dockside pursuant
to a special exemption; (ii) each roundtrip riverboat cruise may not be less
than three nor more than eight hours in duration, subject to specified
exceptions; (iii) agents of the Louisiana Enforcement Division and the
Louisiana Gaming Control Board are permitted on board at any time during gaming
operations; (iv) gaming devices, equipment and supplies may only be purchased
or leased from permitted suppliers; (v) gaming may only take place in the
designated gaming area while the riverboat is upon a designated river or
waterway; (vi) gaming equipment may not be possessed, maintained or exhibited
by any person on a riverboat except in the specifically designated gaming area,
or a secure area used for inspection, repair or storage of such equipment;
(vii) wagers may be received only from a person present on a licensed
riverboat; (viii) persons under 21 are not permitted in designated gaming
areas; (ix) except for slot machine play, wagers may be made only with tokens,
chips or electronic cards purchased from the licensee aboard a riverboat; (x)
licensees may only use docking facilities and routes for which they are
licensed and may only board and discharge passengers at the riverboat's
licensed berth; (xi) licensees must have adequate protection and indemnity
insurance; (xii) licensees must have all necessary Federal and state licenses,
certificates and other regulatory approvals prior to operating a riverboat; and
(xiii) gaming may only be conducted in accordance with the terms of the license
and the rules and regulations adopted by the Louisiana Enforcement Division and
the Louisiana Gaming Control Board.
An initial license to conduct riverboat gaming operations is valid for
a term of five years. HE was issued an initial operator's license by the
Louisiana Enforcement Division on February 22, 1994. The Louisiana gaming law
provides that a renewal application for the period succeeding the initial five
year term of the operator's license must be made to the Louisiana Enforcement
Division. The application for renewal consists of a statement under oath of
any and all changes to the information, including financial information,
provided in the previous application.
The transfer of a license or permit or an interest in a license or
permit is prohibited except as permitted by the Louisiana gaming law. The
sale, purchase, assignment, transfer, pledge or other hypothecation, lease,
disposition or acquisition (a "Transfer") by any person of securities which
represent 5% or more of the total outstanding shares issued by a corporation
that holds a license is subject to Louisiana Gaming Control Board disapproval.
A security issued by a corporation that holds a license may generally disclose
these restrictions. Prior Louisiana Gaming Control Board approval is required
for the Transfer of any ownership interest of 5% or more in any non-corporate
licensee or for the Transfer of any "economic interest" of 5% or more in any
licensee or Affiliated Gaming Person. An "economic interest" is defined for
purposes of a Transfer as any interest whereby a person receives or is entitled
to receive, by agreement or otherwise, a profit, gain, thing of value, loan,
credit, security interest, ownership interest or other economic benefit.
Riverboat gaming licensees and their Affiliated Gaming Persons are
required to notify the Louisiana Enforcement Division within thirty days after
the receipt by any such persons of any loans or extensions of credit. The
Louisiana Gaming Control Board is required to investigate the reported loan or
extension of credit and to either approve or disapprove the transaction. If
disapproved, the loan or extension of credit must be rescinded by the licensee
or Affiliated Gaming Person. The Company is an Affiliated Gaming Person of HE.
HE and the Company submitted the required disclosure to the Louisiana
Enforcement Division within thirty days of the closing of the sale of the Old
Notes. Any other advances by the Company to HE in the form of loans or other
intercompany indebtedness are subject to the disapproval power of the Louisiana
Enforcement Division.
Fees to the State of Louisiana for conducting gaming activities on a
riverboat include (i) $50,000 per riverboat for the first year of operation and
$100,000 per year per riverboat thereafter plus (ii) 18-1/2% of net gaming
proceeds.
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<PAGE> 11
Mississippi Gaming Regulation
The ownership and operation of casino gaming facilities in Mississippi
are subject to extensive state and local regulation, but primarily the
licensing and regulatory control of the Mississippi Gaming Commission and the
Mississippi State Tax Commission. The Company must register and be licensed
under the Mississippi Gaming Control Act (the "Mississippi Act") and its gaming
operations are subject to the regulatory control of the Mississippi Gaming
Commission and various local, city and county regulatory agencies. The
Mississippi Act, which legalized dockside casino gaming in Mississippi, was
enacted on June 29, 1990. Although not identical, the Mississippi Act is
similar to the gaming laws of Nevada. Effective October 29, 1991, the
Mississippi Gaming Commission adopted regulations in furtherance of the
Mississippi Act which are also similar in many respects to the Nevada gaming
regulations.
The laws, regulations and supervisory procedures of Mississippi and
the Mississippi Gaming Commission seek to: (i) prevent unsavory or unsuitable
persons from having any direct or indirect involvement with gaming at any time
or in any capacity; (ii) establish and maintain responsible accounting
practices and procedures; (iii) maintain effective control over the financial
practices of licensees, including establishing minimum procedures for internal
fiscal affairs and safeguarding of assets and revenues, providing reliable
record keeping and making periodic reports to the Mississippi Commission; (iv)
prevent cheating and fraudulent practices; (v) provide a source of state and
local revenues through taxation and licensing fees; and (vi) ensure that gaming
licensees, to the extent practicable, employ Mississippi residents. The
regulations are subject to amendment and interpretation by the Mississippi
Gaming Commission.
The Mississippi Act provides for legalized dockside gaming at the
discretion of the 14 counties that either border the Gulf Coast or the
Mississippi River but only if the voters in such counties have not voted to
prohibit gaming in that county. As of April 24, 1995, dockside gaming was
permissible in nine of the 14 eligible counties in the State and gaming
operations had commenced in Adams, Coahoma, Hancock, Harrison, Tunica, Warren
and Washington counties. The law permits unlimited stakes gaming on permanently
moored vessels on a 24-hour basis and does not restrict the percentage of space
which may be utilized for gaming. There are no limitations on the number of
gaming licenses which may be issued in Mississippi. The legal age for gaming in
Mississippi is 21.
Under Mississippi law, gaming vessels in Tunica county must be located
on the Mississippi River or on navigable waters. On May 29, 1993, the
Mississippi Gaming Commission granted site approval to the site. On October
13, 1994, the Horseshoe Casino Center received a gaming operator's license from
the Mississippi Gaming Commission. At the same meeting, certain key principals
of RPG were found suitable. Said license and findings of suitability were
renewed on September 17, 1996 and will now expire on September 17, 1998.
The Company and RPG are required to submit detailed financial,
operating and other reports to the Mississippi Gaming Commission.
Substantially all loans, leases, sales of securities and similar financing
transactions entered into by the Company and RPG must be reported to or
approved by the Mississippi Gaming Commission. RPG is also required to
periodically submit detailed financial and operating reports to the Mississippi
Gaming Commission and to furnish any other information required thereby.
Each of the directors, officers and key employees of the Company who
are actively and directly engaged in the administration or supervision of
gaming, or who have any other significant involvement with the activities of
the Company, and each of the officers and directors and certain employees of
the general partner of RPG, must be found suitable therefor, and may be
required to be licensed, by the Mississippi Gaming Commission. The finding of
suitability is comparable to licensing, and both require submission of detailed
personal financial information followed by a thorough investigation. In
addition, any individual who is found to have a material relationship to, or
material involvement with, the Company or RPG may be required to be
investigated in order to be found suitable or to be licensed as a business
associate of the Company or RPG. Key employees, controlling persons or others
who exercise significant influence upon the management or affairs of the
Company or RPG may also be deemed to have such a relationship or involvement.
There can be no assurance that such persons will be found suitable by the
Mississippi Gaming Commission. An application for licensing may be denied for
any cause deemed reasonable by the Mississippi Gaming Commission. Changes in
licensed positions must be reported to the Mississippi Gaming Commission. In
addition to its authority to deny an application for a license, the Mississippi
11
<PAGE> 12
Gaming Commission has jurisdiction to disapprove a change in corporate
position. If the Mississippi Gaming Commission were to find a director,
officer or key employee unsuitable for licensing or unsuitable to continue
having a relationship with the Company or RPG, the Company or the general
partner of RPG would have to suspend, dismiss and sever all relationships with
such person. The Company or RPG would have similar obligations with regard to
any person who refuses to file appropriate applications. Each gaming employee
must obtain a work permit which may be revoked upon the occurrence of certain
specified events.
Mississippi statutes and regulations give the Mississippi Gaming
Commission the discretion to require a suitability finding with respect to
anyone who acquires any security of the Company or RPG, regardless of the
percentage of ownership. The current policy of the Mississippi Gaming
Commission is to require anyone acquiring 5% or more of any voting securities
of a public company with a licensed subsidiary or private company licensee to
be found suitable. If the owner of voting securities who is required to be
found suitable is a corporation, partnership or trust, it must submit detailed
business and financial information including a list of beneficial owners. The
applicant is required to pay all costs of investigation.
Any owner of voting securities found unsuitable and who holds,
directly or indirectly, any beneficial ownership of equity interests in the
Company or RPG beyond such period of time as may be prescribed by the
Mississippi Gaming Commission may be guilty of a misdemeanor. Any person who
fails or refuses to apply for a finding of suitability or a license within 30
days after being ordered to do so by the Mississippi Gaming Commission may be
found unsuitable. The Company is subject to disciplinary action if, after it
receives notice that a person is unsuitable to be an owner of or to have any
other relationship with it, the Company or RPG (i) pays the unsuitable persons
any dividends or interest upon any of its securities or any payments or
distribution of any kind whatsoever, (ii) recognizes the exercise, directly or
indirectly, of any voting rights of its securities by the unsuitable person, or
(iii) pays the unsuitable person any remuneration in any form for services
rendered or otherwise, except in certain limited and specific circumstances.
In addition, if the Mississippi Gaming Commission finds any owner of voting
securities unsuitable, such owner must immediately surrender all securities to
the Company or RPG, as applicable, and the Company or RPG must purchase the
security so offered for cash at fair market value within 10 days.
The Company and RPG will be required to maintain current ownership
ledgers in the State of Mississippi which may be examined by the Mississippi
Gaming Commission at any time. If any securities are held in trust by an agent
or by a nominee, the record holder may be required to disclose the identity of
the beneficial owner to the Mississippi Gaming Commission. A failure to make
such disclosure may be grounds for finding the record holder unsuitable. The
Company and RPG also are required to render maximum assistance in determining
the identity of the beneficial owner. The Company may be required to disclose
to the Mississippi Gaming Commission upon request the identities of the holders
of the Senior Notes. In addition, the Mississippi Gaming Commission under the
Mississippi Act may, in its discretion, (i) require holders of debt securities,
such as the Senior Notes, to file applications, (ii) investigate such holders,
and (iii) require such holders to be found suitable to own such debt
securities. Although the Mississippi Gaming Commission generally does not
require the individual holders of obligations such as notes to be investigated
and found suitable, the Mississippi Gaming Commission retains the discretion to
do so for any reason, including but not limited to a default, or where the
holder of the debt instrument exercises a material influence over the gaming
operations of the entity in question. Any holder of the debt securities
required to apply for a finding of suitability must pay all investigative fees
and costs of the Mississippi Gaming Commission in connection with such an
investigation.
The regulations provide that a change in control of the Company or RPG
may not occur without the prior approval of the Mississippi Gaming Commission.
A Mississippi gaming licensee may not make a public offering of its securities.
Mississippi law prohibits the Company from making a public offering or private
placement of its securities without the approval of or waiver of approval by
the Mississippi Gaming Commission if any part of the proceeds of the offering
is to be used to finance the construction, acquisition or operation of gaming
facilities in Mississippi, or to retire or extend obligations incurred for one
or more of such purposes. The Mississippi Gaming Commission has approved the
sale of the Senior Notes and certain other transactions to be consummated in
connection therewith.
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<PAGE> 13
The Mississippi Act requires that certificates representing securities
of the Company or RPG bear a legend to the general effect that the securities
are subject to the Mississippi Act and regulations of the Mississippi Gaming
Commission. The Mississippi Gaming Commission, through the power to regulate
licensees, has the power to impose additional restrictions on the holders of
the Company's or RPG's securities at any time.
Neither the Company nor RPG may engage in gaming activities in
Mississippi while also conducting gaming operations outside of Mississippi
without approval of the Mississippi Gaming Commission. Such approvals were
granted by the Mississippi Gaming Commission on October 13, 1994. The failure
to obtain or retain any such approval could have a material adverse effect on
the Company or RPG. See "Risk Factors -- Government Approvals; Gaming
Licensing and Regulation."
The licenses obtained by the Company and RPG are not transferable and
will need to be renewed every two years. There can be no assurance that any
renewal application will be approved. Each issuing agency may at any time
dissolve, suspend, condition, limit or restrict a license or approval to own
equity interests in the Company or RPG for any cause deemed reasonable by such
agency. Substantial fines for each violation of gaming laws or regulations may
be levied against the Company or RPG in Mississippi. A violation under any
gaming license held by the Company or RPG may be deemed a violation of all the
other licenses held by the Company or RPG. Suspension or revocation of any of
the foregoing licenses or of the approval of the Company or RPG would have a
material adverse effect upon the business of the Company.
License fees and taxes, computed in various ways depending on the type
of gaming involved, are payable to the State of Mississippi and to the counties
and cities in which RPG's operations will be conducted. Depending upon the
particular fee or tax involved, these fees and taxes are payable either
monthly, quarterly or annually and are based upon (i) the percentage of the
gross gaming revenues received by the casino operation, (ii) the number of slot
machines operated by the casino, (iii) the number of table games operated by
the casino or (iv) the number of casino patrons. The foregoing license fees
are allowed as a credit against RPG's Mississippi income tax liability for the
year paid.
In October 1994, the Mississippi Gaming Commission adopted a
regulation requiring, as a condition of licensure or license renewal, that a
gaming establishment's site development plan include an approved 500-car
parking facility in close proximity to the casino complex and infrastructure
facilities which will amount to at least 25% of the casino cost. Such
facilities may include any of the following: a 250-room hotel of at least a
two-star rating (as defined by the current edition of the Mobil Travel Guide) a
theme park, a golf course, marinas, a tennis complex, entertainment facilities
or any other such facility as approved by the Mississippi Gaming Commission as
infrastructure. Parking facilities, roads, sewage and water systems or
facilities normally provided by governmental entities are excluded. The
Mississippi Gaming Commission may, in its discretion, reduce the number of
hotel rooms required where it is shown, to the satisfaction of the Mississippi
Gaming Commission, that sufficient rooms are available to accommodate the
anticipated visitor load. Such reduction in the number of rooms does not
affect the 25% investment requirement imposed by the regulation. The Horseshoe
Casino Center and related facilities have complied with such requirements.
The sale of alcoholic beverages, including beer and wine, at the
Horseshoe Casino Center is subject to licensing, control and regulation by the
Alcoholic Beverage Control Division (the "ABC") of the Mississippi State Tax
Commission. The ABC requires that all equity owners and managers file personal
record forms and fingerprint cards for their licensing process. In addition,
owners of more than 5% of RPG's equity and RPG's officers and managers must
submit detailed financial information to ABC for licensing. All such licenses
are revocable and are non-transferable. The ABC has full power to limit,
condition, suspend or revoke any such license, and any such disciplinary action
could (and revocation would) have a material adverse effect on the operations
of the Horseshoe Casino Center.
EMPLOYEES
As of December 31, 1996, the Company employed 3,691 persons of which
1,779 are employed at the Horseshoe Casino Center in Tunica, Mississippi, 1,886
are employed at the Horseshoe Bossier City in Bossier City,
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<PAGE> 14
Louisiana and 26 are employed by HGI. At such date, none of the Company's
employees were covered by collective bargaining agreements.
The Company believes that its relationship with its employees is
excellent and is not aware of any threatened labor activity affecting its
employees. The Company has never experienced a work stoppage due to a labor
dispute.
ITEM 2. PROPERTIES.
The Company owns and operates casinos in Bossier City,
Louisiana and Tunica County, Mississippi. All of the Company's real properties
are subject to first priority liens securing the Credit Facility Agreement and
second priority liens securing the Senior Notes. See "Item 1. Business--The
Roll-Up Transaction and the Financing."
The Horseshoe Bossier City
The Horseshoe Bossier City is located on an approximately 16-acre site
on the east side of the Red River, directly facing downtown Shreveport,
Louisiana. The property consists of an approximately 60,000-square foot,
five-deck riverboat with approximately 30,000 square feet of gaming area and an
approximately 43,000-square foot dockside pavilion surrounded by parking for
over 1,100 cars. The riverboat and pavilion are joined via an enclosed,
climate-controlled boarding ramp with handicap access. A 120-foot high marquis
sign and message board is visible from Interstate 20.
The main, second and third decks of the riverboat feature a total of
1,069 slot machines and 53 table games. The casino area includes a
deli/snack bar and three casino bars containing video poker machines. The top
deck of the riverboat opens to the riverside skyline and contains viewing areas
for a respite from gambling activity. The lowest level of the riverboat
contains the engine room, offices, count rooms, security and
surveillance offices and facilities for the Louisiana State Police.
Management believes that the dockside pavilion offers the largest and
most varied restaurant facilities in the market. The restaurants have been
designed to offer moderately priced, high quality food in order to attract
local and repeat patrons; this attraction is a hallmark of the marketing
strategy at the Horseshoe Casinos.
Although the Horseshoe Bossier City does not currently offer hotel
rooms on site, the property offers its customers accommodations at the
Horseshoe Hotel, a recently refurbished 201-room hotel located approximately
five miles east of the casino on Interstate-20. The Horseshoe Bossier City also
recently completed construction of an approximately 1100-space multidecked
parking structure.
HE is currently expanding its present facility through the substitution
of a new riverboat for the existing riverboat. The expansive new riverboat
will replace the existing structure and at the same time, increase casino space
by approximately 40%. The new facility will feature approximately 1,400
slots, 63 table games and 10 poker tables. In addition, the Company is
currently constructing a 606 room, all suite, 25 story hotel tower, which will
also include a health club and spa and approximately 4,000 square feet of
meeting space. A renovation and expansion of the existing dockside facilities
is also in progress. Which will include the addition of two specialty
restaurants, a coffee shop, the enlargement of the existing buffet restaurant
and the addition of over 60,000 square feet of administrative space.
Management expects to complete the development and construction project in the
fourth quarter of 1997.
The Horseshoe Casino Center
The Horseshoe Casino Center is an approximately 162,000-square foot
structure built on a barge, and contains 30,000-square feet of gaming area
containing 1,022 slot machines, 33 table games and 10 poker tables, two full
service restaurants, bars and retail facilities, all of which are located on
ground level. The Horseshoe Casino Center also has 200 hotel rooms situated
directly above the casino. The project is located in Tunica County, Mississippi
at Casino Center, a 70-acre three-casino complex. Approximately 4,000 lighted
and secured parking spaces are provided adjacent to the Casino Center.
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<PAGE> 15
Management is currently enlarging the existing casino and is
constructing 309 additional hotel suites, a 1,000 seat entertainment facility
and a 1,100-space parking facility. Construction of the additional casino,
restaurants, hotel rooms and entertainment facility are anticipated to be
completed during the fourth quarter of 1997.
ITEM 3. LEGAL PROCEEDINGS.
There are no material legal proceedings pending against the Company or
any of its properties.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
There is no established public trading market for the equity interests
in the Company. As of March 15, 1997, the number of record holders of equity
interests in the Company was 57.
The Company has paid dividends since October 10, 1995, in an aggregate
amount equal to $26,943,000, which were calculated in accordance with the
Credit Facility Agreement and the Indenture to enable the holders of equity
interests in the Company to pay state and federal income taxes on their
proportionate share of the Company's income. Except for these permitted tax
distributions, the Company has paid no dividends. The Company anticipates that
much of its earnings will be retained for the development and expansion of its
business. The Credit Facility Agreement and the Indenture contain provisions
which restrict the ability of the Company to make distributions to the holders
of equity interests, based on the Company's earnings, the ability of the
Company to meet certain restrictions on borrowing, and certain other criteria.
ITEM 6. SELECTED FINANCIAL DATA.
The following selected consolidated financial information has been
derived from the historical consolidated financial statements of the Company.
The information set forth below should be read in conjunction with
"Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Consolidated Financial Statements and notes
thereto included elsewhere in this Form 10-K.
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<PAGE> 16
SELECTED CONSOLIDATED FINANCIAL DATA
The following table summarizes certain selected consolidated financial
data, which should be read in connection with the Company's Consolidated
Financial Statements and Notes thereto included elsewhere herein and with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The selected consolidated financial data as of and for the years
ended December 31, 1996, 1995 and 1994 and for the period from inception
through December 31, 1993 have been derived from the Company's audited
consolidated financial statements included elsewhere herein.
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------------------------
1996 1995(c) 1994(b) 1993(a)
------------- ------------ ---------- ------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues:
Casino $ 317,479 $ 283,402 $ 59,230 $ --
Non-casino 14,252 14,983 4,173
--------- --------- -------- -------
331,731 298,385 63,403 --
OPERATING EXPENSES:
Casino 162,408 133,299 24,339
Non-casino 20,474 20,131 4,987
Other 62,156 57,706 26,637 1,742
Depreciation and 15,989 12,545 2,499
--------- --------- -------- -------
amortization
Operating income (loss) 70,704 74,704 4,941 (1,742)
Interest (expense) income, net (21,964) (18,735) (6,259) 221
Gain on sale of land 5,242
Other, Net 82
--------- --------- -------- -------
Net income (loss) before
extraordinary loss on
early retirement of debt and
minority interest 48,822 55,969 3,924 (1,521)
Extraordinary loss on early
retirement of debt (7,179)
Minority interest in (income)
loss of
subsidiaries(d) 1,861 (8,850) (5,691) 130
--------- --------- -------- -------
Net income (loss) $ 46,961 $ 39,940 $ (1,767) $(1,391)
========= ========= ======== =======
</TABLE>
<TABLE>
<CAPTION>
As of December 31
---------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents (f) $ 79,159 $ 65,541 $ 18,584
Total assets 377,597 300,088 145,535
Long-term debt, including
current maturities(e) 232,708 197,603 124,963
Total members' equity 79,782 52,747 3,633
</TABLE>
(a) Includes the consolidated results of the Company and its subsidiaries from
the date each entity was formed through December 31, 1993, including
subsidiaries involved in development activities only.
(b) The Horseshoe Bossier City opened on July 9, 1994.
(c) The Horseshoe Casino Center opened on February 13, 1995.
(d) Horseshoe Gaming owns less than 100% of certain subsidiaries. Minority
interest represents the share of each subsidiary's income attributable to
those interests not owned by Horseshoe Gaming as well as the 1994 gain on
sale of land by RPG of $5,242,000 distributed to some, but not all, of the
Company's members.
(e) Includes deferred interest payable on notes payable to affiliates of
$2,467,000 as of December 31, 1994.
(f) Excludes escrow funds, restricted for expansion of existing facilities,
development of New Projects or repayment of debt, amounting to
approximately $42,235,000 (1996) and $31,316,000 (1995).
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<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
GENERAL
The following discussion and analysis provides information which
Management believes is relevant to an assessment and understanding of the
Company's consolidated financial condition and results of operations. The
discussion should be read in conjunction with "Selected Consolidated Financial
Data" and the Consolidated Financial Statements and notes thereto.
INTRODUCTION
The formation of the Company culminated with the completion of the
Roll-Up Transaction (see "Business--The Roll-Up Transaction and the
Financing"), which was deemed effective October 1, 1995. The Roll-Up
Transaction resulted in the Company (a newly-formed holding company) owning 50%
or more of several entities that were previously owned by Mr. Binion, certain
related parties and certain unrelated parties. Mr. Binion now serves as the
Chairman of the Board of Directors and Chief Executive Officer of Horseshoe
Gaming, Inc. ("HGI"), the manager of the Company.
As a result of the Roll-Up Transaction, the Company owns 89% of HE, the
partnership that owns the Horseshoe Bossier City, 100% of RPG, the partnership
that owns the Horseshoe Casino Center, 50% of HIND, which unsuccessfully
pursued a casino development opportunity in Indiana, and 80% of Horseshoe
Ventures, L.L.C., a Delaware limited liability company ("Horseshoe Ventures"),
which was formed to pursue casino development opportunities in new
jurisdictions other than Indiana. As of December 31, 1995, the Company
acquired an additional 2.92% ownership interest in HE. During 1996, the Company
entered into an option agreement to acquire an additional 1% ownership interest
in HE. The consolidated financial statements of the Company include the
assets, liabilities, revenues and expenses for all entities included in the
Roll-Up Transaction, as if such entities were subsidiaries of the Company for
all periods presented. Further, prior to the Roll-Up Transaction, certain
expenses incurred pursuing development of casinos in new jurisdictions were
incurred by Mr. Binion. Mr. Binion was reimbursed for such expenses by
Horseshoe Ventures in October 1995. These expenses are included in the
consolidated financial statements of the Company, for all periods presented, as
if they had been incurred by Horseshoe Ventures.
RESULTS OF OPERATIONS
The Horseshoe Bossier City is one of four riverboat casinos currently
operating in the Bossier City/Shreveport, Louisiana market. Two additional
riverboat casinos are expected to be operating in the Bossier City/Shreveport
market, one by the end of 1997 and the other by the end of 1998. Management
believes that the Bossier City/Shreveport market is sufficiently large to allow
six riverboat casinos to operate profitably. The Horseshoe Bossier City has
begun expansion plans, including additional hotel rooms (see "Liquidity and
Capital Resources" section below for additional discussion of development
plans.) While management expects that this new competition will affect the
Horseshoe Bossier City's revenues and operating income, management also
believes its expansion plans and the addition of two riverboat casinos in the
Bossier City/Shreveport market will increase the size and scope of the overall
gaming market, mitigating the potential adverse impact on future operating
levels at the Horseshoe Bossier City. The impact on operating margins from the
overall increase in supply to this market is uncertain.
The Horseshoe Casino Center operates in the competitive Tunica County,
Mississippi, market, which currently consists of ten casinos. Several of the
existing Tunica casinos, including the Horseshoe Casino Center, have begun
expansion plans, including hotel rooms (see "Liquidity and Capital Resources"
section below for additional discussion of development plans.) While
management expects that this new competition will affect the Horseshoe Casino
Center's revenues and operating income, management also believes the project
will increase the size and scope of the overall Tunica gaming market,
mitigating the potential adverse impact on future operating levels at the
Horseshoe Casino Center. The impact on operating margins from the overall
increase in supply to this market is uncertain.
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<PAGE> 18
The Company has not experienced any significant seasonal trends;
however, the Company has a limited operating history and the Company may
determine in the future that its revenues and income may be seasonal in nature.
Year Ended December 31, 1996 and 1995
The significant improvement in the Company's net revenues for the year
ended December 31, 1996, compared with the prior year is related primarily to
improvements in revenue per day at the Horseshoe Bossier City and the Horseshoe
Casino Center operating for a full year in 1996 compared with a partial year
in 1995. Operating results for 1995 include operations for the Horseshoe
Casino Center commencing February 13, 1995.
The Horseshoe Bossier City
The Horseshoe Bossier City contributed net revenues and operating
income, respectively, of $174.9 million and $32.2 million for the year ended
December 31, 1996 and $160.8 million and $36.3 million for the year ended
December 31, 1995.
The Horseshoe Bossier City's net revenues include casino revenues and
non-casino revenues, respectively, of $166.8 million and $8.1 million for the
year ended December 31, 1996 and $151.2 million and $9.6 million for the year
ended December 31, 1995. The increase in net revenues for the year ended
December 31, 1996 compared to the prior year period is due to an increase in
total casino volume of 24.4%. The increase in total volume was offset by a
reduction in overall win percentage of 1.0 pt. Casino revenue per day
increased approximately 10.1% in 1996 to $456,000 from $414,000 for the year
ended December 31, 1995.
The Horseshoe Bossier City's operating margin for the year ended
December 31, 1996 was 18.4% compared with 22.6% for year ended December 31,
1995. The reduction in operating margin of 4.2 pts. was caused by an increase
in expenses associated with promotional programs and direct marketing programs
and an increase in general and administrative expenses. Depreciation and
amortization increased $2.7 million over the 1995 period due to amortization of
goodwill which began in October, 1995 and an increase in depreciation expense
due to property improvements.
The Horseshoe Casino Center
The Horseshoe Casino Center contributed net revenues and operating
income, respectively, of $156.9 million and $44.6 million for the year ended
December 31, 1996 and $137.6 million and $42.8 million for the year ended
December 31, 1995.
The Horseshoe Casino Center's net revenues include casino revenues and
non-casino revenues, respectively, of $150.7 million and $6.2 million for the
year ended December 31, 1996 and $132.2 million and $5.4 million for the year
ended December 31, 1995. The increase in net revenues for the year ended
December 31, 1996 compared to the prior year period is primarily due to the
increase in the number of days of operation. The year ended December 31, 1995
only includes 322 days of operations, whereas the 1996 period includes a full
twelve months. Casino revenue per day increased in 1996 to $412,000 from
$411,000 for the year ended December 31, 1995.
The Horseshoe Casino Center's operating margin for the year ended
December 31, 1996 was 28.4% compared with 36.2%, before the write-off of
pre-opening expenses, for the year ended December 31, 1995. The reduction in
operating margin of 7.8 pts. was caused by an increase in expenses associated
with promotional programs and direct marketing programs including, one-time
promotional charges which were incurred by the Company prior to the opening and
during the first month of operations of a new competing casino facility
which opened in the Tunica market. An increase in general and administrative
and bad debt expenses also contributed to the lower operating margins in 1996.
Other Factors Affecting Earnings
The increase in net interest expense of $3.2 million for the year ended
December 31, 1996, compared with the year ended December 31, 1995, is due to an
increase in the amount of debt outstanding. This was partially offset by a
reduction in the overall interest rate on the Company's long-term debt, which
resulted from the Company's
18
<PAGE> 19
refinancing of substantially all of its existing indebtedness in October 1995.
This refinancing resulted in an extraordinary loss on early retirement of debt
of $7.2 million in 1995.
Development expenses, which are included in operating income, were $6.6
million and $4.4 million for the years ended December 31, 1996 and 1995,
respectively. The increase in development expenses in 1996 over 1995 is due
to the Company's failure to obtain a license to conduct gaming in the state of
Indiana. Total expenses incurred by the Company pursuing its Indiana license
was $3.9 million and $1.7 million for the years ended December 31, 1996 and
1995, respectively.
Year Ended December 31, 1995 and 1994
The significant improvement in the Company's operating results for the
year ended December 31, 1995, compared with the year ended December 31, 1994 is
directly related to the timing of the opening of the Company's two operating
riverboat casinos. The Horseshoe Bossier City opened in Bossier City, Louisiana
on July 9, 1994, and the Horseshoe Casino Center opened in Tunica County,
Mississippi on February 13, 1995. Accordingly, 1994 operating results include
operations for the Horseshoe Bossier City only, commencing July 9, 1994.
The Horseshoe Bossier City
The Horseshoe Bossier City contributed net revenues and operating
income, respectively, of $160.8 million and $36.3 million for the year ended
December 31, 1995 and $63.4 million and $8.5 million for the year ended
December 31, 1994. The operating income amounts for 1994 include a $6.7
million charge for preopening expenses.
The Horseshoe Bossier City's net revenues include casino revenues and
non-casino revenues, respectively, of $151.2 million and $9.6 million for the
year ended December 31, 1995 and $59.2 million and $4.2 million for the year
ended December 31, 1994. Its operating margin for 1995 was 22.6% compared with
23.9% for the year ended December 31, 1994. The 1994 margin excludes the
effect of the charge for preopening expenses of approximately $6.7 million in
July, 1994. Casino revenue per day increased approximately 22.5% in 1995 to
$414,000 from $338,000 for the year ended December 31, 1994.
The Horseshoe Casino Center
The Horseshoe Casino Center was open for ten and one-half months in
1995 and contributed net revenues and operating income of $137.6 million and
$42.8 million, respectively. Included in operating income is a $7.0 million
charge for pre-opening expenses. The Horseshoe Casino Center's 1995 net
revenues include $132.2 million of casino revenues and $5.4 million of
non-casino revenues. The operating margin before the write-off of preopening
expenses was 36.2% Casino revenue per day was $411,000 for 1995.
Other Factors Affecting Earnings
The increase in net interest expense of $12.5 million for the year
ended December 31, 1995, compared with the year ended December 31, 1994, is due
to the time at which construction of the Company's two riverboat casinos was
completed. The Company borrowed the majority of the construction funds for the
two casinos in 1994. During the construction period of both casinos, most of
the related interest was capitalized into the cost of the facilities. The
capitalization of interest ceased when the construction of each riverboat
casino was completed. As discussed in the Liquidity and Capital Resources
section below, in October 1995, the Company completed a refinancing of
substantially all of its existing indebtedness. This refinancing, among other
things, reduced the overall interest rate on the Company's long-term debt, and
resulted in an extraordinary loss on early retirement of debt of $7.2 million
in 1995.
The primary item included in other income in 1994 is a $5.2 million
gain on the sale of land in Tunica County, Mississippi. This land was owned by
RPG; however RPG's partnership agreement required that any gain from the sale
of this land be distributed to certain, but not all, of the Company's members.
Since not all of the Company's members received the benefit of the gain on
sale, such gain is included in minority interest in (income) loss of
subsidiaries in the Company's 1994 consolidated statement of operations.
19
<PAGE> 20
Development expenses, which are included in operating income, were
$4.4 million and $2.1 million for the years ended December 31, 1995 and 1994,
respectively.
LIQUIDITY AND CAPITAL RESOURCES
In October 1995, the Company refinanced substantially all of its
exiting indebtedness with net proceeds from an initial draw of $93.2 million on
a $100 million credit facility (the "Initial Credit Facility") and from the
sale of $100 million of Series A Notes. The Series A Notes were sold with the
warrants to purchase an additional $50 million of Series A Notes on April 10,
1996, at a price of 98.15% of par value which, upon exercise, raised
approximately $49 million after fees and expenses. The Initial Credit Facility
bears interest at six-month LIBOR plus 3.0% and requires semi-annual principal
payments of 5% of the then outstanding balance with final maturity on September
30, 1999.
As of December 31, 1996, the Company had cash and cash equivalents of
approximately $121.4 million, including approximately $42.2 million in the
excess proceeds escrow account, which is restricted to the expansion of existing
facilities, pursuit and development of new projects and the repayment of debt.
On April 10, 1996, the Company received proceeds of approximately $48 million
upon the sale of Series A Notes pursuant to the exercise of the warrants, which
funds were also placed in the Excess Proceeds Escrow Account. The Company
expects to spend approximately $185 million for the expansion of the Bossier
City, Louisiana facility, and approximately $95 million for expansion of the
Tunica, Mississippi facility. As of December 31, 1996 the Company has already
expended $44.8 million for the expansion of its Bossier City and Tunica
facilities. The Company can borrow additional funds under its current credit
facility, of which $50 million has been committed. An additional $50 million is
available to be borrowed for furniture, fixtures and equipment and working
capital and general corporate purposes. The Company has been approached by
various lending agencies to provide the additional financing discussed above
with terms acceptable to the Company. Management believes that the Company's
cash and cash equivalents on hand and cash from operations will be adequate to
meet the Company's existing obligations when they become due. Additional
financing will be required to fund the Company's development plans discussed
above.
DEVELOPMENT
Bossier City, Louisiana
HE has begun its expansion of the entire casino facility at a cost of
approximately $185 million. The expansion plans include a 25 story hotel tower
with up to 606 suites, including a health club and spa, the renovation and
expansion of existing dockside facilities, including the addition of two
specialty restaurants, a coffee shop, the enlargement of the existing buffet,
and the recently completed 1,100 car parking garage, all connected to an
expanded dockside facility. Management estimates the project will be completed
during the fourth quarter of 1997.
In addition, on March 28, 1996, HE completed the purchase of the Le
Bossier Hotel, including furnishings and fixtures, for approximately $5.2
million. HE had previously leased this facility under a long-term operating
lease.
20
<PAGE> 21
Tunica, Mississippi
RPG has begun to further develop its casino site in Tunica,
Mississippi, for a total cost of approximately $95 million. Development plans
include an additional 15,000 square feet of gaming space for 440 slot machines
and 21 tables games, 309 additional hotel suites, a multi-level, 1,100 space
parking garage and an entertainment facility which will accommodate
approximately 1,000 customers and additional facilities, to include a health
club, two additional restaurants, convention facilities and other amenities.
Management expects the project will be completed during the fourth quarter of
1997.
OTHER ITEMS
The Company is required to repurchase ownership interests held by
employees, in the event of termination of their employment, based on an
independent appraisal. The total ownership interest held by employees subject
to buy-out provisions was 9.1% as of December 31, 1996. The value of these
ownership interests, amounting to $24.9 million, has been recorded as a
liability in the accompanying consolidated financial statements as Redeemable
Ownership Interests.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See the Index to Consolidated Financial Statements and the Index to
Financial Statement Schedules included at "Item 14. Exhibits, Financial
Statement Schedules, and Reports on Form 8-K."
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Section 6.2 of the Limited Liability Company Agreement of the Company
(the "Company Agreement") provides that the Company shall be managed by a
manager (the "Manager"). Pursuant to Section 6.1 of the Company Agreement, HGI
serves as the Manager of the Company until the occurrence of its "Withdrawal,"
which pursuant to Section 1 of the Company Agreement, means the occurrence of
the bankruptcy (as defined in the Company Agreement), dissolution or
liquidation of HGI, or the withdrawal, resignation or retirement of HGI from
the Company for any reason, and those situations when HGI may no longer
continue as a member of the Company by reason of any law or pursuant to any
terms of the Company Agreement. HGI has only one class of stock outstanding.
The outstanding shares of common stock of HGI are owned 68.52% by Mr. Binion,
15.74% by Peri Howard, 13.38% by Leslie Kenny, and 2.36% by Mr. Binion, as
Trustee of the 1995 Leslie Kenny Irrevocable Trust.
The current executive officers and directors of HGI and of HGP, and
contains officers of RPG and HE, are listed below, together with their ages and
all positions and offices held by them.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Jack B. Binion 60 Chairman of the Board of Directors and Chief Executive Officer of HGI,
and Sole Director and Chief Executive Officer of HGP.
Phyllis M. Cope 62 Director of HGI.
Peri Howard 36 Director of HGI.
Paul R. Alanis 48 President of HGI and of HGP.
Walter J. Haybert 54 Treasurer and Chief Financial Officer of HGI and of HGP.
John J. Schreiber 56 Senior Vice President - Governmental Relations of HGI and of HGP.
J. Michael Allen 49 Senior Vice President - Operations of HGI and of HGP.
</TABLE>
21
<PAGE> 22
<TABLE>
<S> <C> <C>
Loren S. Ostrow 45 Senior Vice President, Secretary and General Counsel of HGI and of HGP.
Gary Border 47 Senior Vice President - Marketing of HGI and of HGP.
J. Lawrence Lepinski 50 Senior Vice President and General Manager of Horseshoe Bossier City.
Bob McQueen 43 Senior Vice President and General Manager of Horseshoe Casino Center.
</TABLE>
Mr. Binion has served as Chief Executive Officer of HGI since its
inception (under the name New Gaming Capital Corporation) in December, 1992 and
as Chief Executive Officer of HGP since its inception immediately prior to the
Roll- Up Transaction. Mr. Binion served as the Chief Executive Officer of
Gaming Consulting, Inc., the general partner of the entity that was the general
partner of RPG, from its inception in May, 1993 until it merged into HGI in the
Roll-Up Transaction. Mr. Binion has also been the President and Chief
Executive Officer since 1964 of the Horseshoe Club Operating Company, which
owns and operates Binion's Horseshoe in Las Vegas, Nevada.
Ms. Cope is the wife of Jack Binion. She was elected director of
HGI in January 1997 and will serve until further notice.
Ms. Howard is the daughter of Phyllis Cope. She was elected
director of HGI in January 1997 and will serve until further notice.
Mr. Alanis has served as the President of HGI and of HGP since January
1, 1996. Mr. Alanis has served as the President of KII-Pasadena, Inc. since
December, 1988 and as President of Koar International, Inc. from 1991 until
1995. Prior to that, Mr. Alanis served as President of Koar, Inc.
Mr. Haybert became employed by an Affiliate of the Company in August,
1995, and became employed as the Treasurer and Chief Financial Officer of HGI
and of HGP upon the consummation of the Roll-Up Transaction. From April, 1992
until July, 1995, Mr. Haybert was the Vice President of Gaming Development of
Harrah's Entertainment, Inc. and from November, 1991 to March, 1992 Mr. Haybert
was the President of Haybert & Associates. Prior to that, Mr. Haybert served
in executive positions for the Resorts Casino Hotel in Atlantic City and the
Taj Mahal Casino.
Mr. Schreiber has served as Senior Vice President of HGI since the
Roll-Up Transaction and, prior to that, as Senior Vice President of Horseshoe
Club Operating Company since April, 1994. From May, 1992 through April, 1994,
Mr. Schreiber served as President of St. Charles Riverfront Station and as
Vice President of Governmental Affairs for Station Casinos, Inc. From August,
1989 through May, 1992, Mr. Schreiber served as Vice President and Director of
Corporate Security and the Washington Representative for Caesar's World, Inc.
Mr. Allen has served as Senior Vice President of Horseshoe Gaming,
Inc. since the Roll-up Transaction and prior to that as General Manager of the
Horseshoe Casino Center since May, 1994. Prior to that, Mr. Allen served as
Principal of Gaming Associates, Inc. from September, 1992. From April, 1991 to
September, 1992, Mr. Allen served as Vice President of Slot Operations - Player
Development of Carnival Cruise Lines and from April, 1989 to April, 1991 Mr.
Allen served as Vice President-Slot Operations - Marketing of the Trump Castle,
Casino Hotel.
Mr. Ostrow has served as Senior Vice President and General Counsel of
HGI and of HGP since January 1, 1996. Mr. Ostrow has served as Senior Vice
President of KII-Pasadena, Inc., since December, 1988, and as Senior Vice
President of Koar International, Inc. from 1991 until 1995. Prior to that, Mr.
Ostrow served as Vice President of Koar, Inc.
Mr. Border has served as Senior Vice President - Marketing of HGI
since July, 1996. Since 1987, Mr. Border served as President and founder of
Marketing Results, Inc.
Mr. Lepinski has served as Senior Vice President and General Manager
of the Horseshoe Bossier City since September, 1995. Prior to that, Mr.
Lepinski served as General Manager of Bally's Saloon and Gambling Hall in
Tunica, Mississippi since August, 1993. From May, 1991 to August, 1993, Mr.
Lepinski served as Vice President Casino Operations for Genting Highlands in
Malaysia, and from July, 1986 to May, 1991 as Vice President Operations for
Lucayan Beach Casino in the Grand Bahamas.
22
<PAGE> 23
Mr. McQueen has served as Senior Vice President and General Manager of
the Horseshoe Casino Center since July, 1996 and prior to that as Vice
President of Casino Operations for Horseshode Casino Center since June, 1994.
From April 1992 to June 1994 Mr. McQueen served as a Senior Level Executive
with Carnival Cruise Lines and from 1987 to 1992 Mr. McQueen served as General
Manager for Lucayan Beach Casino in the Grand Bahamas.
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth all compensation awarded to, earned by
or paid to the Chief Executive Officer and the other four most highly
compensated executive officers (the "Named Executive Officers") for their
services to the Company for the year ended December 31, 1996 and 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
------------------------------------------------
Name and Principal Other Annual Restricted All Other
Position Year Salary Bonus Compensation(1) Units(2) Compensation
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Jack B. Binion 1996 $ 0 $ 0 $ 0 $ 0 $ 0
1995 0 0 0 0 0
Paul R. Alanis(3) 1996 494,636 200,000 0 0 7,351(7)
1995 0 0 0 0 110,000(3)
Walter J. Haybert(4) 1996 351,792 0 0 0 6,785(7)
1995 94,231 35,138 342,098 1,026,296 4,681(7)
John J. Schreiber(5) 1996 351,792 50,000 0 0 6,752(7)
1995 94,231 0 978,993 427,624 4,960(7)
J. Michael Allen(6) 1996 367,713 0 0 0 1,792(7)
1995 90,192 67,000 251,052 1,117,342 5,653(8)
</TABLE>
(1) The Company has determined the value of the Units for purposes of this
Table based on the appraisal conducted by the investment banking firm
of Houlihan Lokey Howard and Zukin in connection with the Roll-Up
Transaction.
(2) The Company will make Permitted Tax Distributions to its members with
respect to the Units, including those Units that are restricted (see
"Description of New Notes").
(3) While Mr. Alanis performed policy making functions of HGI similar to
that of an officer, during fiscal year 1995, he was an employee of
KII-Pasadena, Inc., which was party to a consulting agreement with
HGI. The consulting agreement provided for payments to KII-Pasadena,
Inc. of $55,000 per month (See "Related Party Transactions"). Mr.
Alanis owns 67% of the stock of KII-Pasadena, Inc. The amount of
compensation to Mr. Alanis indicated is equal to Mr. Alanis' share of
the consulting payments to KII-Pasadena, Inc. for the three- month
period ended December 31, 1995.
(4) 250,245 of the 500,489 Units granted to Mr. Haybert in fiscal year
1995 have vested as of December 31, 1996, the remaining units vest
pursuant to the schedule in Mr. Haybert's employment agreement with
HGI. (See "- Employment Agreements.") Their value at December 31,
1996 is $686,170.
23
<PAGE> 24
(5) 483,191 of the 514,469 Units granted to Mr. Schreiber during fiscal
year 1995 have vested, the remaining units vest pursuant to the
schedule in Mr. Schreiber's employment agreement with HGI. (See "-
Employment Agreements.") Their value at December 31, 1996 is $85,764.
(6) 789,722 of the 1,316,203 Units granted to Mr. Allen have vested, the
remaining units vest pursuant to the schedule in Mr. Allen's
employment agreement with HGI. (See "- Employment Agreements.")
Their value at December 31, 1996 is $1,443,611.
(7) Premium on insurance policies.
(8) Housing and automobile allowance.
COMPENSATION OF DIRECTORS; COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION
The Bylaws of HGI provide for a six member board of directors. There
are currently three directors. Directors serve until the next annual meeting
of stockholders and until their successors have been elected and qualified.
Vacancies on the board of directors may be filled by a majority of the
remaining directors. The directors do not receive compensation for services on
the Board.
Officers serve at the discretion of the Board. The Board has no
Compensation Committee. Mr. Alanis has participated in discussions with Mr.
Binion regarding executive compensation.
EMPLOYMENT AGREEMENTS
Mr. Binion has provided services pursuing, developing and managing
gaming operations for the Company and its Subsidiaries. Mr. Binion has not
been compensated for his services in the past nor is there an existing
employment agreement providing for Mr. Binion to receive compensation for his
services in the future. It is anticipated, however, that Mr. Binion will enter
into an employment agreement with HGI, the Manager of the Company in 1997. Mr.
Binion is not currently compensated for his services to the Company.
Mr. Alanis is party to an employment agreement with HGI, which
agreement contains customary employment terms and provides for a current annual
base salary of $500,000, fringe benefits, participation in such health and
pension plans as HGI shall adopt for all HGI executives, and a bonus of
$200,000 payable in four equal installments on the last days of February, May,
August and November, 1996. The employment agreement provides that, if
warranted by his performance, it is HGI's intention to pay Mr. Alanis a bonus
of at least equal size in 1997 and 1998 should the Company in 1996 and 1997
sustain a level of activity and financial performance equal or greater to the
level of activity and financial performance of the Company during calendar year
1995. The employment agreement also contains a put/call provision whereby,
upon termination of Mr. Alanis' employment, the Company may, at its option, or
must, at Mr. Alanis' option (with either option exercisable within 30 days of
such termination), purchase Mr. Alanis' ownership interest for cash in an
amount equal to its then fair market value. The employment agreement provides
that Mr. Alanis' employment shall terminate on December 31, 1998, unless
earlier terminated as provided therein. HGI may terminate Mr. Alanis'
employment for cause (including upon Mr. Alanis' disability) or without cause.
If, as of December 31, 1996, the employment of Mr. Alanis had been terminated
for cause, $141,667 would have been payable to Mr. Alanis, and $1,400,000 would
have been payable if his employment had been terminated without cause. The
employment agreement also includes confidentiality provisions.
Mr. Haybert is party to an employment agreement with HGI, which
agreement contains customary employment terms and provides for a current annual
base salary of $350,000, fringe benefits, and participation in such health and
pension plans as HGI shall adopt for all HGI executives. The employment
agreement also provides Mr. Haybert with 500,489 Units in the Company, subject
to a specified divestiture schedule. Under such schedule, 75% of Mr. Haybert's
ownership interest is subject to divestiture upon Mr. Haybert's termination or
voluntary resignation prior to July 20, 1996, 50% is subject to divestiture
upon Mr. Haybert's termination or voluntary resignation prior to July 20, 1997,
and 25% is subject to divestiture upon Mr. Haybert's termination or voluntary
resignation prior to July 31, 1998. The employment agreement also provides
that all of Mr. Haybert's ownership
24
<PAGE> 25
interest shall become fully vested immediately upon the occurrence of any
transaction whereby Mr. Binion (including any entities through which he holds
his ownership interest in the Company), family members of Mr. Binion and/or
trusts established for the benefit of Mr. Binion's heirs transfer a controlling
interest in the Company to a third party in a transaction other than a public
offering. HGI also agreed to make available, within ten (10) days after a
request by Mr. Haybert, a personal loan of up to $200,000, bearing interest at
the rate of 10% per annum to be secured by the pledge of Mr. Haybert's Units in
the Company. The employment agreement also contains a put/call provision
whereby, upon termination of Mr. Haybert's employment, the Company may, at its
option, or must, at Mr. Haybert's option (with either option exercisable within
90 days of such termination), purchase that portion of Mr. Haybert's ownership
interest that is not subject to divestiture for cash in an amount equal to its
then fair market value. If Mr. Haybert is terminated without cause, an
additional 25% of his ownership interest shall no longer be subject to
divestiture. The employment agreement provides that Mr. Haybert's employment
shall terminate on July 31, 1998, unless earlier terminated as provided
therein. HGI may terminate Mr. Haybert's employment for cause (including upon
Mr. Haybert's disability) or without cause. If, as of December 31, 1996, the
employment of Mr. Haybert had been terminated for cause, $712,628 would have
been payable to Mr. Haybert, and $1,054,359 would have been payable if his
employment had been terminated without cause. The employment agreement also
includes confidentiality provisions. The assignment agreement whereby the
Company issued the ownership interest to Mr. Haybert provides that, for
purposes of determining the fair market value of Mr. Haybert's ownership
interest, prior to any Subsidiary's being granted a license to own and/or
operate a gaming business, the value of such Subsidiary shall be limited to the
amount of the Company's capital investment therein. Because it originally was
contemplated that Mr. Haybert would receive his ownership interest and the
share of Net Profits to which it would entitle him in July, 1995, and Mr.
Haybert did not in fact receive his ownership interest until the October 1,
1995 effective date of the Roll-Up Transaction, HGI paid Mr. Haybert a one time
bonus in an amount equal to the $35,138 in Net Profits to which he would have
been entitled.
Mr. Schreiber is party to an employment agreement with HGI, which
agreement contains customary employment terms and provides for a current annual
base salary of $350,000, fringe benefits, participation in such health and
pension plans as HGI shall adopt for all HGI executives, and a one time bonus
of $50,000 payable on or before January 15, 1996. Prior to execution of the
employment agreement, Mr. Schreiber owned 236,265 Units. The employment
agreement increased Mr. Schreiber's ownership interest in the Company by
514,469 Units, subject to a specified divestiture schedule. Under such
schedule, 75% of Mr. Schreiber's ownership interest was fully vested upon
execution of the employment agreement, and the remaining 25% vests in 18 equal
portions on the last day of each month commencing October 30, 1995 and ending
March 31, 1997. The employment agreement also provides that all of Mr.
Schreiber's ownership interest shall become fully vested immediately upon the
occurrence of any transaction whereby Mr. Binion (including any entities
through which he holds his ownership interest in the Company), family members
of Mr. Binion and/or trusts established for the benefit of Mr. Binion's heirs
transfer a controlling interest in the Company to a third party in a
transaction other than a public offering. The employment agreement also
contains a put/call provision whereby, upon termination of Mr. Schreiber's
employment, the Company may, at its option, or must, at Mr. Schreiber's option
(with either option exercisable within 30 days of such termination), purchase
that portion of Mr. Schreiber's ownership interest that is not subject to
divestiture for cash in an amount equal to its then fair market value. In the
event that Mr. Schreiber is terminated with or without cause, the minimum
appraisal value for his ownership interest shall be $1,320,369, regardless of
the amount thereof that is fully vested at such time. The employment
agreement provides that Mr. Schreiber's employment shall terminate on September
30, 1998, unless earlier terminated as provided therein. The employment
agreement also includes confidentiality provisions. The assignment agreement
whereby the Company issued the ownership interest to Mr. Schreiber provides
that, for purposes of determining the fair market value of Mr. Schreiber's
ownership interest, prior to any Subsidiary's being granted a license to own
and/or operate a gaming business, the value of such Subsidiary shall be limited
to the amount of the Company's capital investment therein.
25
<PAGE> 26
Mr. Allen is party to an employment agreement with HGI, which
agreement contains customary employment terms and provides for a current annual
base salary of $350,000, fringe benefits, participation in such health and
pension plans as HGI shall adopt for all HGI executives, and a one time bonus
of $67,000 payable on or before January 15, 1996. The employment agreement
also increased Mr. Allen's ownership interest in the Company by 500,489 Units,
subject to a specified divestiture schedule. Under such schedule, 45% of Mr.
Allen's ownership interest vested fully upon execution of the employment
agreement, and the remaining 55% vests as follows: an additional 15% vests and
shall not be subject to divestiture beginning on May 15, 1996; an additional
15% vests and shall not be subject to divestiture beginning on May 15, 1997; an
additional 15% vests and shall not be subject to divestiture beginning on May
15, 1998; and the remaining 10% vests and shall not be subject to divestiture
beginning on May 11, 1999. The employment agreement also provides that all of
the ownership interest shall become fully vested immediately upon the
occurrence of any transaction whereby Mr. Binion (including any entities
through which he holds his ownership interest in the Company), family members
of Mr. Binion and/or trusts established for the benefit of Mr. Binion's heirs
transfer a controlling interest in the Company to a third party in a
transaction other than a public offering. The employment agreement also
contains a put/call provision whereby, upon termination of Mr. Allen's
employment, the Company may, at its option, or must, at Mr. Allen's option
(with either option exercisable within 30 days of such termination), purchase
that portion of Mr. Allen's ownership interest that is not subject to
divestiture for cash in an amount equal to its then fair market value. The
employment agreement provides that Mr. Allen's employment shall terminate on
May 11, 1999, unless earlier terminated as provided therein. HGI may terminate
Mr. Allen's employment for cause (including upon Mr. Allen's disability) or
without cause. If, as of December 31, 1996, the employment of Mr. Allen had
been terminated for cause, $29,167 would have been payable to Mr. Allen, and
$29,167 would have been payable if his employment had been terminated without
cause. The employment agreement also includes confidentiality provisions. The
assignment agreement whereby the Company issued the ownership interest to Mr.
Allen provides that, for purposes of determining the fair market value of Mr.
Allen's ownership interest, prior to any Subsidiary's being granted a license
to own and/or operate a gaming business, the value of such Subsidiary shall be
limited to the amount of the Company's capital investment therein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth certain information regarding
beneficial ownership of membership interests in the Company ("Units"), as of
December 31, 1996, by each person who is known by the Company to own
beneficially more than 5% of the Units, by each director of the Company, each
of the executive officers and by all directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
Percentage of
Name(1) Number of Units Units
---------------------------------- --------------- ------------
<S> <C> <C>
Jack B. Binion . . . . . . . . . 80,999,065(2) 80.7%
Phyllis M. Cope . . . . . . . . . 6,555,882(3) 6.5%
Hanwa . . . . . . . . . . . . . . 7,017,220(4) 7.0%
HGI . . . . . . . . . . . . . . . 30,715,128(5) 30.6%
Peri Howard . . . . . . . . . . . 9,027,039(6) 9.0%
Paul Alanis . . . . . . . . . . . 3,155,935 3.1%
J. Michael Allen . . . . . . . . 1,316,203 1.3%
Walter J. Haybert . . . . . . . . 500,489 *
John Schreiber . . . . . . . . . 750,734 *
Directors and executive
officers as a group (5 persons) . 86,722,426 86.4%
- ----------------
</TABLE>
* Less than 1%.
26
<PAGE> 27
(1) The persons named in this table have sole voting power and investment
power with respect to all shares of capital stock shown as
beneficially owned by them, subject to community property laws where
applicable and the information contained in this table and these
notes.
(2) Includes (a) the 17,366,247 Units held by Mr. Binion as an individual;
(b) the 30,715,128 Units owned by HGI, of which Mr. Binion is
President, Chairman of the Board of Directors and the majority
shareholder; (c) the 6,555,882 Units owned by Phyllis M. Cope; (d) the
9,027,039 Units owned by Peri Howard; and (e) 17,334,769 Units held by
members of Mr. Binion's family or trusts for the benefit of members of
Mr. Binion's family. Mr. Binion expressly disclaims beneficial
ownership of the 63,632,818 Units which are held of record by HGI or
by members of Mr. Binion's family or by trusts established for the
benefit of certain members of the families of Mr. Binion or Phyllis
M. Cope, for purposes of Sections 13(d) and 13(g) of the Exchange Act.
(3) Includes 3,277,941 Units held by Phyllis M. Cope as Trustee of the Ted
J. Fechser Trust, and 3,277,941 Units held by Phyllis M. Cope, as
Trustee of the Fancy Ann Fechser Trust. Phyllis M. Cope expressly
disclaims beneficial ownership of any Units held by her as trustee of
such trusts, which are trusts established for the benefit of certain
members of the families of Mr. Binion or Phyllis M. Cope, for purposes
of Sections 13(d) and 13(g) of the Exchange Act.
(4) Issuable upon Hanwa's exercise of Company Warrants.
(5) Includes 7,017,220 Units to be surrendered by Mr. Binion upon Hanwa's
exercise of Company Warrants.
(6) Includes 945,059 Units held by Peri Howard, as Trustee of the Ted J.
Fechser Trust, 945,059 Units held by Peri Howard, as Trustee of the
Fancy Ann Fechser Trust, 945,059 Units held by Peri Howard, as Trustee
of the James Christopher Fechser Trust, 945,059 Units held by Peri
Howard, as Trustee of the Robert Daniel Fechser Trust, 945,059 Units
held by Peri Howard, as Trustee of the Katie O'Neill Trust, 945,059
Units held by Peri Howard, as Trustee of the Kellie O'Neill Trust,
945,059 Units held by Peri Howard, as Trustee of the Rachel Fechser
Trust, 945,059 Units held by Peri Howard, as Trustee of the Ben E.
Johnson Trust, 189,013 Units held by Peri Howard, as Trustee of the
Bonnie Binion Trust, and 189,013 Units held by Peri Howard, as Trustee
of the Benny Behnen Trust; 189,013 Units held by Peri Howard, as
Trustee of the Jack Behnen Trust, 231,779 Units held by Robinson
Property Group, Inc. (of which Peri Howard is the sole shareholder,
director and officer), 289,724 Units held by Jerry Howard, and 378,025
Units held by Peri Howard as an individual. Peri Howard expressly
disclaims beneficial ownership of any Units held by her as trustee of
such trusts, which are trusts established for the benefit of certain
members of the families of Mr. Binion or Phyllis M. Cope, for purposes
of Sections 13(d) and 13(g) of the Exchange Act.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
27
<PAGE> 28
In 1995 the Company engaged certain placement agents, including Onyx
Partners, Inc. ("Onyx") to offer the Senior Notes and Warrants and agreed to
pay the placement agents a fee equal to 2.0% of the gross proceeds. The
Company also engaged Onyx to arrange the Credit Facility and agreed to pay Onyx
an additional fee for those services. Onyx has in the past and may in the
future perform financial advisory services for the Company for a fee. The
Company has agreed to indemnify the placement agents and their controlling
persons against certain liabilities in connection with the offer and sale of
the Senior Notes and Warrants and the arrangement of the Credit Facility,
including liabilities under the Securities Act, and to contribute to payments
that the placement agents may be required to make in respect thereof.
Affiliates of Onyx, who were owners of limited partnership interests and
warrants for the purchase of limited partnership interests in NGCP and RPG,
exercised their warrants and rolled their ownership interests into the Company.
Certain affiliates of Onyx hold Senior Notes. Affiliates of Onyx are owners of
limited partnership interests in HCM.
The Company retained the services of KII-Pasadena, Inc. ("KII"), a
California corporation owned by Paul Alanis and Loren Ostrow, pursuant to a
consulting agreement (the "Consulting Agreement") that originally was entered
into between Koar International, Inc., a California corporation that was owned
by Messrs. Alanis and Ostrow, and Mr. Binion (who later assigned his rights and
obligations to HE and RPG). Pursuant to the Consulting Agreement, KII acted on
behalf of the Company as developer of the Horseshoe Bossier City and the
Horseshoe Casino Center and has provided consulting services to the Company
related to new gaming developments. The total amount paid pursuant to the
Consulting Agreement, which was cancelled December 31, 1995, since its
inception in March, 1993 was $1,255,000, as well as reimbursements for
out-of-pocket expenditures. Onyx has agreed to pay KII or its principals for
introducing to Onyx the opportunity of providing financing services to the
Company, a finder's fee equal to 30% of the net fees, commissions and other
compensation received by Onyx for its services in placing the Senior Notes and
arranging the Credit Facility after deduction for all relevant unreimbursed
expenses. The total fee paid to KII, or its principals, by Onyx, including the
amount payable with respect to the sale of Senior Notes upon the exercise of
the Warrants was approximately $1,151,000. In the Roll-Up Transaction, Messrs.
Alanis and Ostrow exchanged limited partnership interests in NGCP and RPG for
Units in the Company. On January 1, 1996, Paul Alanis and Loren Ostrow became
officers of the Company.
28
<PAGE> 29
The Company conducts a portion of its marketing through an entity that
is owned by the wife of an officer. Amounts paid to this company totaled
$1,633,000, $1,029,000 and $84,000 for the years ended December 31, 1996, 1995
and 1994 respectively.
The Company has made loans to various employees with ownership
interests in the company. The amount outstanding under these notes was
$1,715,000 as of December 31, 1996. The notes to employees are secured by
their ownership interests in the Company. The notes have various due dates
ranging from February 1998 through October 1999 and interest rates ranging from
7% to 10%.
29
<PAGE> 30
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K.
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
(A)(1) INDEX TO CONSOLIDATED FINANCIAL STATEMENTS:
HORSESHOE GAMING L.L.C. AND SUBSIDIARIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
NEW GAMING CAPITAL PARTNERSHIP AND SUBSIDIARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
ROBINSON PROPERTY GROUP, L.P. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
</TABLE>
(A)(2) INDEX TO FINANCIAL STATEMENT SCHEDULES:
All schedules are omitted as the required information is inapplicable
or not present in amounts sufficient to require submission of the schedule, or
because the information is presented in the consolidated financial statements
or related notes.
(A)(3) EXHIBITS:
The exhibits listed on the accompanying Exhibit Index are filed as
part of this Form 10-K.
(B) REPORTS ON FORM 8-K:
None.
(C) EXHIBITS:
The exhibits listed on the accompanying Exhibit Index are filed as
part of this Form 10-K.
30
<PAGE> 31
HORSESHOE GAMING, L.L.C. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Horseshoe Gaming, L.L.C. and Subsidiaries Page
- ----------------------------------------- ----
<S> <C>
Report of Independent Public Accountants F-3
Consolidated Financial Statements:
Balance sheets as of December 31, 1996 and 1995 F-4
Statements of operations for the years ended December 31, 1996, 1995 and 1994 F-5
Statements of members' equity (deficit) for the years ended December 31, 1996,
1995 and 1994 F-6
Statements of cash flows for the years ended December 31, 1996, 1995 and 1994 F-7
Notes to consolidated financial statements F-8
New Gaming Capital Partnership and Subsidiary
- ---------------------------------------------
Report of Independent Public Accountants F-23
Consolidated Financial Statements:
Balance sheets as of December 31, 1996 and 1995 F-24
Statements of operations for the years ended December 31, 1996, 1995 and 1994 F-25
Statements of partners' capital (deficit) for the years ended December 31,
1996, 1995 and 1994 F-26
Statements of cash flows for the years ended December 31, 1996, 1995 and 1994 F-27
Notes to consolidated financial statements F-28
</TABLE>
F-1
<PAGE> 32
HORSESHOE GAMING, L.L.C. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
(CONTINUED)
<TABLE>
<S> <C>
Robinson Property Group, L.P.
- -----------------------------
Report of Independent Public Accountants F-39
Financial Statements:
Balance sheets as of December 31, 1996 and 1995 F-40
Statements of operations for the years ended December 31, 1996, 1995 and 1994 F-41
Statements of partners' capital (deficit) for the years ended December 31,
1996, 1995 and 1994 F-42
Statements of cash flows for the years ended December 31, 1996, 1995 and 1994 F-43
Notes to financial statements F-44
</TABLE>
F-2
<PAGE> 33
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Horseshoe Gaming, L.L.C.:
We have audited the accompanying consolidated balance sheets of Horseshoe
Gaming, L.L.C. (a Delaware limited liability company) and subsidiaries as of
December 31, 1996 and 1995, and the related consolidated statements of
operations, members' equity (deficit) and cash flows for each of the three years
in the period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Horseshoe Gaming, L.L.C. and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada,
March 4, 1997.
F-3
<PAGE> 34
HORSESHOE GAMING, L.L.C. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
December 31,
1996 1995
--------- ---------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 79,159 $ 65,541
Accounts receivable, net of allowance for doubtful
accounts of $3,451 and $2,663 8,026 5,207
Inventories 1,435 1,481
Prepaid expenses and other 1,639 1,404
--------- ---------
Total current assets 90,259 73,633
--------- ---------
Property and Equipment:
Land 10,225 6,920
Buildings, boat, barge and improvements 121,807 100,849
Furniture, fixtures and equipment 41,572 35,568
Less: accumulated depreciation (26,493) (13,642)
--------- ---------
147,111 129,695
Construction in progress 38,644 9,187
--------- ---------
Net property and equipment 185,755 138,882
--------- ---------
Other Assets:
Escrow funds 42,235 31,316
Goodwill, net 39,226 40,640
Other 20,122 15,617
--------- ---------
$ 377,597 $ 300,088
========= =========
LIABILITIES AND MEMBERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 11,060 $ 10,747
Accounts payable 3,184 3,910
Construction payables 14,106 3,200
Accrued expenses and other 23,751 25,313
--------- ---------
Total current liabilities 52,101 43,170
Long-term Debt, less current maturities 221,648 186,856
Minority Interest (827) (1,128)
Commitments and Contingencies (Notes 8 and 9)
Redeemable Ownership Interests, net of deferred
compensation of $3,033 and $6,375 24,893 18,443
Members' Equity 79,782 52,747
--------- ---------
$ 377,597 $ 300,088
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE> 35
HORSESHOE GAMING, L.L.C. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1996 1995 1994
--------- --------- --------
<S> <C> <C> <C>
Revenues:
Casino $ 317,479 $ 283,402 $ 59,230
Food and beverage 26,947 24,299 5,879
Hotel 7,919 7,289 1,830
Other 4,419 4,092 881
--------- --------- --------
356,764 319,082 67,820
Promotional allowances (25,033) (20,697) (4,417)
--------- --------- --------
Net revenues 331,731 298,385 63,403
--------- --------- --------
Expenses:
Casino 162,408 133,299 24,339
Food and beverage 12,317 12,741 3,167
Hotel 6,798 5,662 1,144
Other 1,359 1,728 676
General and administrative 55,527 46,298 17,844
Development 6,629 4,387 2,128
Depreciation and amortization 15,989 12,545 2,499
Preopening -- 7,021 6,665
--------- --------- --------
Total expenses 261,027 223,681 58,462
--------- --------- --------
Operating Income 70,704 74,704 4,941
--------- --------- --------
Other Income (Expense):
Interest expense (28,090) (20,188) (6,797)
Interest and other income 6,126 1,453 538
Gain on sale of land -- -- 5,242
Other, net 82 -- --
Minority interest in income
of subsidiaries (1,861) (8,850) (5,691)
--------- --------- --------
Income (Loss) Before Extraordinary
Loss on Early Retirement of Debt 46,961 47,119 (1,767)
Extraordinary Loss on Early Retirement
of Debt -- (7,179) --
--------- --------- --------
Net Income (Loss) $ 46,961 $ 39,940 $ (1,767)
========= ========= ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE> 36
HORSESHOE GAMING, L.L.C. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
Members' Contributions
Equity Receivable Total
-------- ------------- --------
<S> <C> <C> <C>
Balance at December 31, 1993 $ 1,031 $(3,500) $ (2,469)
Contributions 4,164 --
4,164
Collections of contributions receivable -- 3,500 3,500
Distributions (4,169) -- (4,169)
Warrants and partnership interests
issued in conjunction with senior
and subordinated notes (Note 5) 4,374 -- 4,374
Net loss (1,767) -- (1,767)
-------- ------- --------
Balance at December 31, 1994 3,633 -- 3,633
Contributions 1,273 (1,150)
123
Distributions:
Cash (21,222) -- (21,222)
Payable (1,857) -- (1,857)
Increase in redeemable ownership interests (13,963) -- (13,963)
Capital accounts of minority interests purchased 4,543 -- 4,543
Step-up in basis of assets due to purchase
of minority interests 41,755 (205) 41,550
Net income 39,940 -- 39,940
-------- ------- --------
Balance at December 31, 1995 54,102 (1,355) 52,747
Collection of contributions receivable -- 1,355 1,355
Distributions (18,853) -- (18,853)
Increase in redeemable ownership interests (2,428) -- (2,428)
Net income 46,961 -- 46,961
-------- ------- --------
Balance at December 31, 1996 $ 79,782 $ -- $ 79,782
======== ======= ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<PAGE> 37
HORSESHOE GAMING, L.L.C. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1996 1995 1994
-------- --------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 46,961 $ 39,940 $ (1,767)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Minority interest in income of
subsidiaries 1,861 8,850 5,691
Depreciation and amortization 15,989 12,545 2,499
Amortization of debt discount,
deferred finance charges and other 3,032 2,849 1,682
(Gain) loss on disposal of land and other assets 1,011 -- (5,242)
Provision for doubtful accounts 4,388 2,186 477
Increase in redeemable ownership interests 4,546 6,003 1,414
Extraordinary loss on early
retirement of debt -- 7,179 --
Preopening expenses -- 7,021 6,665
Net change in assets and liabilities (8,390) 4,544 (1,484)
-------- --------- --------
Net cash provided by operating activities 69,398 91,117 9,935
-------- --------- --------
Cash flows from investing activities:
Purchases of property and equipment (58,824) (18,986) (65,675)
Increase (decrease) in construction payables 10,906 (84) 3,284
Proceeds from sale of land 1,400 -- 8,595
Deferred license fee -- -- (1,000)
Purchase of land held for sale -- (1,344) --
Net increase in escrow funds (10,919) (31,316) --
Net increase in other assets (8,024) (6,588) (1,565)
-------- --------- --------
Net cash used in investing activities (65,461) (58,318) (56,361)
-------- --------- --------
Cash flows from financing activities:
Proceeds from debt and warrants 49,073 200,772 80,954
Payments on debt (15,547) (149,879) (11,624)
Capital contributions -- 123 7,664
Capital distributions (20,710) (21,222) (4,169)
Contributions from minority holders -- 600 575
Distributions to minority holders (1,560) (6,069) (6,102)
Deferred interest payable -- (2,467) 2,101
Debt issue costs and commitment fees (1,575) (7,700) (4,399)
-------- --------- --------
Net cash provided by financing activities 9,681 14,158 65,000
-------- --------- --------
Net change in cash and cash equivalents 13,618 46,957 18,574
Cash and cash equivalents, beginning of period 65,541 18,584 10
-------- --------- --------
Cash and cash equivalents, end of period $ 79,159 $ 65,541 $ 18,584
======== ========= ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
<PAGE> 38
HORSESHOE GAMING, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
General
Horseshoe Gaming, L.L.C. (the "Company") was formed in Delaware in August 1995
to acquire, through a roll-up transaction effective October 1, 1995, four
entities under the control of Mr. Jack B. Binion ("Mr. Binion"), which conduct
gaming, hotel and other related operations in Bossier City, Louisiana, and
Tunica County, Mississippi, and are actively involved in efforts to develop
gaming operations in new jurisdictions. Because of the integrated nature of
these operations, the Company is considered to be engaged in one industry
segment. A description of each entity is as follows:
- - New Gaming Capital Partnership ("NGCP") is a Nevada limited partnership
which was formed on February 4, 1993. NGCP is 100% owned by the Company
and its subsidiary Horseshoe GP, Inc. As of December 31, 1996 and 1995,
NGCP owned 91.92% of Horseshoe Entertainment, L.P. ("HE"), a Louisiana
limited partnership which owns and operates the Horseshoe Bossier City
(see Note 9).
- - Robinson Property Group, L.P. ("RPG") is a Mississippi limited
partnership which was formed on June 7, 1993. RPG owns and operates the
Horseshoe Casino Center located in Tunica County, Mississippi, and is
100% owned by the Company and its subsidiary Horseshoe GP, Inc.
- - Horseshoe Casinos (Indiana), LLC ("HIND") is an Indiana limited
liability company which was formed in October 1994, to pursue a new
casino development in Indiana and is 50% owned and managed by the
Company.
- - Horseshoe Ventures, L.L.C. ("Horseshoe Ventures") is a Delaware limited
liability company which was formed in August 1995 to pursue the
development of casinos in new jurisdictions other than in Indiana and
is 80% owned and managed by the Company.
NGCP and RPG
The Company obtained its ownership interest in NGCP and RPG by exchanging
ownership interests in the Company for partnership interests in NGCP and RPG.
The exchange of ownership interests between the Company and Mr. Binion and
certain affiliates of Mr. Binion has been accounted for at historical cost
similar to that in pooling of interests accounting. On the effective date of the
roll-up transaction, Mr. Binion and certain affiliates of Mr. Binion owned 80.0%
and 82.7% of NGCP and RPG, respectively. The exchange for the remaining
partnership
F-8
<PAGE> 39
1. ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
interests of NGCP and RPG, other than ownership interests issued pursuant to
employee compensation arrangements (see Note 8), have been accounted for as a
purchase of minority interests based on fair value as determined by an
independent appraisal. The total cost of the minority interests in NGCP and RPG
acquired by the Company, based on the fair value of the ownership interests
exchanged, was $17,729,000 and $24,026,000, respectively, which has been
allocated as follows (in thousands):
<TABLE>
<CAPTION>
NGCP RPG Total
------- ------- -------
<S> <C> <C> <C>
Land $ 149 $ 2,231 $ 2,380
Gaming licenses 154 76 230
Goodwill 17,426 21,514 38,940
Contribution receivable -- 205 205
------- ------- -------
Total $17,729 $24,026 $41,755
======= ======= =======
</TABLE>
Gaming licenses are amortized over the remaining term of each license, which is
approximately two and one-half years for NGCP and approximately twelve months
for RPG. Goodwill is amortized on a straight-line basis over 25 years, which
management estimates is the related benefit period (see discussion of the
Company's accounting policy for long-lived assets below). Management regularly
evaluates whether or not the future undiscounted cash flows of NGCP and RPG are
sufficient to recover the carrying amount of the goodwill associated with each
entity. Additionally, management continually monitors such factors as the status
of new or proposed legislation, the competitive environment and the general
economic conditions of the markets in which it operates. If the estimated future
undiscounted cash flows are not sufficient to recover the carrying amount of
goodwill and, accordingly, an impairment has occurred, management intends to
write down the carrying amount of goodwill to its estimated fair value based on
discounted cash flows. The amount of amortization expense recorded for the year
ended December 31, 1996 and for the three months in 1995 following the roll-up
transaction was $1,647,000 and $418,000, respectively.
The financial statements for NGCP and RPG are consolidated for all periods
presented. Prior to the roll-up transaction, the ownership interests not owned
by Mr. Binion and certain affiliates of Mr. Binion, other than ownership
interests issued pursuant to employee compensation arrangements (see Note 8),
are included in minority interests in the accompanying consolidated financial
statements. Such minority interests represented 15.4% of NGCP and 15.1% of RPG
for all periods prior to the roll-up transaction. Subsequent to October 1, 1995,
minority interests represent the limited partners of HE, which owned 11% of HE
at the time of the roll-up transaction and 8.08% at December 31, 1996 and 1995
(see Note 9).
F-9
<PAGE> 40
1. ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
HIND
The Company is the manager of HIND and obtained its 50% ownership interest from
Mr. Binion in exchange for a promissory note of $500,000, which equaled 50% of
the total equity initially contributed to HIND by Mr. Binion and certain
affiliates of Mr. Binion. The note was paid in full on October 26, 1995, at
which time the Company also advanced HIND $1,689,000 to reimburse Mr. Binion for
costs and expenses incurred pursuing a new development in Indiana. The Company
also committed to provide all future financing to HIND for its development,
operation and maintenance of a casino gaming establishment and all related
facilities. The remaining 50% of HIND is owned by Mr. Binion and affiliates of
Mr. Binion.
The purchase of 50% of HIND has also been accounted for as a combination of
entities under common control. Prior to the roll-up transaction, HIND was
controlled by Mr. Binion. HIND is now controlled by the Company. The Company has
unilateral and perpetual control over the assets and operations of HIND by
virtue of legal contract. Accordingly, there exists a parent/subsidiary
relationship by means other than record ownership of majority voting stock.
Therefore, the financial statements of HIND are consolidated for all periods
presented.
The amount of HIND's net loss, which is included in development expenses in the
accompanying consolidated statements of operations, was $3,945,000, $1,724,000
and $427,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
In 1996, the state of Indiana announced its decision not to select HIND's
proposal for a riverboat casino license in Harrison County, Indiana. Minority
interest in HIND's losses is recognized only to the extent funded by Mr. Binion
and affiliates. The amount of minority interest included in the accompanying
consolidated statements of operations was $0, $286,000 and $214,000 for the
years ended December 31, 1996, 1995 and 1994, respectively. The Company is
obligated to fund 100% of the future losses of HIND.
Horseshoe Ventures
The Company and JBB Gaming Investments, L.L.C. ("JBB"), a Delaware limited
liability company owned by Mr. Binion and an affiliate of Mr. Binion, formed
Horseshoe Ventures to pursue the development of casinos in new jurisdictions
other than Indiana. The Company is the manager of Horseshoe Ventures and
contributed a note for $400,000, plus a commitment to provide future financing,
in exchange for an 80% membership interest. The note was paid in full on October
26, 1995. JBB contributed $100,000 in cash in exchange for a 20% membership
interest. Horseshoe Ventures reimbursed Mr. Binion for the total costs and
expenses incurred pursuing the development of casinos in new jurisdictions,
other than Indiana, in the form of a note for $4,269,000, which was paid in full
on October 26, 1995. Since these costs and expenses were reimbursed to Mr.
Binion, such amounts are included in the accompanying consolidated financial
statements as if they were incurred by the Company and its subsidiaries. The
amount of Horseshoe Ventures' net loss, which is included in development
expenses in the accompanying consolidated statements of operations, was
$2,183,000, $2,663,000 and $1,701,000 for the years ended December 31, 1996,
1995 and 1994, respectively. There is no minority interest in these losses
reflected in the accompanying consolidated statements of operations, because the
Company funded 100% of such losses and is obligated to fund 100% of future
losses.
F-10
<PAGE> 41
1. ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
Other
The Company is managed by Horseshoe Gaming, Inc. ("HGI"), which owns
approximately 30.6% of the Company and is owned by Mr. Binion and certain
affiliates of Mr. Binion. Mr. Binion is the Chief Executive Officer of HGI. The
Company reimburses HGI for expenses associated with the management of the
Company but does not compensate HGI for services as manager. HGI's sole purpose
is to manage the Company; accordingly, all expenses incurred by HGI are charged
to the Company and are reflected in the accompanying consolidated statements of
operations in the period such expenses are incurred by HGI.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
all of its subsidiaries (see Note 1), since the Company either holds more than a
50% ownership interest or has the ability to control such subsidiaries in its
capacity as manager. All significant intercompany accounts and transactions have
been eliminated.
Cash and Cash Equivalents
Cash and cash equivalents include commercial paper, amounts held in mutual
funds and other investments with original maturities of 90 days or less when
purchased.
Inventories
Inventories are stated at the lower of cost, as determined on a first-in,
first-out basis, or market value and consist primarily of food, beverage, retail
merchandise, kitchen smallwares and employee wardrobe.
Property and Equipment
Property and equipment are stated at cost. The costs of normal repairs and
maintenance are expensed as incurred while major expenditures that extend the
useful lives of assets are capitalized.
Depreciation is provided for on the straight-line basis over the estimated
useful lives of the assets as follows:
Buildings, boat, barge and improvements 15 to 30 years
Furniture, fixtures and equipment 3 to 10 years
F-11
<PAGE> 42
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Capitalized Interest
The Company capitalizes interest for associated borrowing costs of major
construction projects. Capitalization of interest ceases when the asset is
substantially complete and ready for its intended use. Interest capitalized
during the years ended December 31, 1996, 1995 and 1994 was $1,272,000, $651,000
and $3,595,000, respectively.
Casino Revenues
In accordance with industry practice, casino revenues represent the net win from
gaming activities, which is the difference between gaming wins and losses.
Casino Promotional Allowances
Casino promotional allowances consist primarily of the retail value of
complimentary food and beverage, rooms and other services furnished to guests
without charge. Such amounts are included in gross revenues and deducted as
promotional allowances. The estimated costs of providing such complimentary
services, which are substantially included in casino department expenses, are as
follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1996 1995 1994
------- ------- ------
<S> <C> <C> <C>
Food and beverage $22,055 $17,165 $2,998
Hotel 3,034 2,665 814
Other operating expenses 619 486 18
------- ------- ------
$25,708 $20,316 $3,830
======= ======= ======
</TABLE>
Development and Preopening Expenses
Until all necessary approvals to proceed with the development of a new casino
project are obtained from the appropriate regulatory authorities, the related
development costs are expensed as incurred. Preopening costs incurred after the
receipt of necessary approvals are deferred as incurred and expensed upon the
opening of the related casino. Preopening costs of $6,665,000 were expensed in
connection with the opening of Horseshoe Bossier City in July 1994, and
preopening costs of $7,021,000 were expensed in connection with the opening of
the Horseshoe Casino Center in February 1995.
F-12
<PAGE> 43
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Deferred Finance Charges
As of December 31, 1994, deferred finance charges, which are included in other
assets, consisted of fees and expenses incurred to issue the Old Notes discussed
in Note 5, including placement fees paid for by the issuance of ownership
interests and warrants to purchase ownership interests (the "Equity Warrants")
in RPG and NGCP. The value of such ownership interests and Equity Warrants,
based on independent appraisal, was recorded as deferred finance charges with a
corresponding credit to members' equity. These ownership interests and Equity
Warrants were subsequently exchanged for ownership interests and warrants to
purchase ownership interests in the Company.
The deferred finance charges related to the Old Notes were being amortized over
the period from the initial funding of the debt through the latest date of
repayment of the debt using the effective interest method. In October 1995, the
Company wrote off the balance of unamortized deferred finance charges of
approximately $3,182,000 which is included in the extraordinary loss on early
retirement of debt in the 1995 consolidated statement of operations.
The balance of deferred finance charges as of December 31, 1996 and 1995 was
$5,880,000 and $6,692,000, respectively, and consists of fees and expenses
incurred to issue the New Senior Notes and to obtain the Senior Secured Credit
Facility in October 1995, as discussed in Note 5. The deferred finance charges
related to the New Senior Notes and Senior Secured Credit Facility are being
amortized over the term of the debt using the effective interest method.
Income Taxes
The Company is organized as a limited liability company under Delaware laws. The
Internal Revenue Service will classify a limited liability company as a
partnership for federal income tax purposes if the limited liability company
lacks certain characteristics of corporations.
Management believes that the Company lacks the corporate characteristics and
will be classified as a partnership for federal income tax purposes.
Accordingly, no provision is made in the accounts of the Company for federal
income taxes, as such taxes are liabilities of the members. The Company's income
tax return and the amount of allocable taxable income are subject to examination
by federal taxing authorities. If an examination results in a change to taxable
income, the income tax reported by the members may also change. The tax bases in
the Company's assets and liabilities were in excess of the amounts reported in
the accompanying consolidated financial statements by $7,754,000 and $13,027,000
at December 31, 1996 and 1995, respectively. Taxable income was in excess of net
income reported in the accompanying consolidated statements of operations for
all periods presented.
F-13
<PAGE> 44
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Redeemable Ownership Interests
The Company is obligated to repurchase ownership interests held by certain
employees in the event of their termination at a price equal to the then fair
market value, based on an independent appraisal. The fair value of such
ownership interests is reported outside of members' equity in the accompanying
consolidated balance sheets for all periods presented. The ownership interests
issued to employees pursuant to employment contracts is recorded as deferred
compensation in the accompanying consolidated balance sheets and expensed at
fair market value over the vesting period (see Note 8).
In addition, certain individuals obtained ownership interests in the Company or
its subsidiaries prior to becoming employees of the Company. Upon becoming an
employee, each individual entered into an employment agreement which includes,
among other things, a put/call provision in the event of the employee's
termination at a price equal to the then fair market value, based on an
independent appraisal. These individuals became employees of the Company between
October 1, 1995, and January 1, 1996, and held ownership interests in the
Company totaling 5.1% as of December 31, 1996 and 1995. The fair value of these
ownership interests of $16,391,000 and $13,516,000 has also been classified
outside of members' equity in the accompanying consolidated balance sheets as of
December 31, 1996 and 1995, respectively.
Capital Distributions
The New Senior Notes and the Senior Secured Credit Facility contain covenants
that limit capital distributions to the members. Capital distributions to the
members are to be based upon taxable income and the federal and state corporate
statutory tax rates in effect. Such distributions are to be paid quarterly based
upon estimated taxable income. After filing by the Company and its subsidiaries
of their annual tax returns, each member is to reimburse the Company for
overpayments of capital distributions or the Company is to withhold such amounts
from future distributions to the members.
Impairment of Long-Lived Assets
In accordance with Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," management continually evaluates whether events or changes in
circumstances indicate that the carrying amount of long-lived assets may not be
recoverable. Based on management's evaluations, no significant impairments of
long-lived assets have occurred during the three years ended December 31, 1996.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, and disclosure of
contingent assets and liabilities, at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-14
<PAGE> 45
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Prior Year Reclassifications
Certain prior year balances have been reclassified to conform with the current
year presentation.
3. CONSOLIDATED STATEMENTS OF CASH FLOWS
Non-cash investing and financing activities consist of the following:
Purchases of property and equipment financed through payables totaled
$0, $17,833,000 and $31,115,000 for the years ended December 31, 1996,
1995 and 1994, respectively.
A capital contribution of $1,150,000 was made through the issuance of a
contribution receivable during the year ended December 31, 1995. The
Company received land in satisfaction of the receivable during 1996.
Distributions totaling $1,857,000, which were accrued at December 31,
1995, were paid during 1996. Additionally, in 1995, the Company
recorded a payable for the purchase of an employee's ownership in the
Company in the amount of $3,306,000 of which $1,653,000 is included in
current maturities of long-term debt and $1,653,000 is included in
long-term debt as of December 31, 1995.
The net change in assets and liabilities consists of the following (in
thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1996 1995 1994
------- -------- -------
<S> <C> <C> <C>
(Increase) decrease in assets:
Accounts receivable $(7,207) $ (6,327) $(1,543)
Inventories 46 (142) (1,339)
Prepaid expenses and other (281) (335) (1,069)
Preopening expenses -- (3,202) (8,879)
Increase (decrease) in liabilities:
Accounts payable (726) (24) 1,689
Accrued expenses and other (222) 14,574 9,657
------- -------- -------
$(8,390) $ 4,544 $(1,484)
======= ======== =======
</TABLE>
Cash payments made for interest, excluding amounts capitalized, totaled
$24,799,000, $19,848,000 and $3,619,000 for the years ended December 31, 1996,
1995 and 1994, respectively.
F-15
<PAGE> 46
4. ACCRUED EXPENSES AND OTHER
Accrued expenses and other consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------------
1996 1995
------- -------
<S> <C> <C>
Payroll and related tax liabilities $ 2,811 $ 2,056
Vacation and other employee benefits 3,969 3,060
Accrued interest 5,283 5,116
Gaming, sales, use and property taxes 2,400 3,417
Progressive slot and slot club liabilities 4,325 4,053
Other accrued expenses 4,963 7,611
------- -------
$23,751 $25,313
======= =======
</TABLE>
5. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
------------------------
1996 1995
-------- ---------
<S> <C> <C>
Senior Secured Credit Facility; variable interest at LIBOR
plus 3%; due in semi-annual installments
with remaining balance due September 30, 1999 $ 79,303 $ 93,185
12.75% Senior Notes (effective interest rate of
approximately 13.01%), due September 30, 2000,
net of unamortized discount of $2,272 and $1,900 147,728 98,100
Notes Payable, interest ranging from 6% to
9%, due in various installments through
January 1999 5,677 6,318
-------- ---------
232,708 197,603
Less: current maturities (11,060) (10,747)
-------- ---------
$221,648 $ 186,856
======== =========
</TABLE>
In April 1994, Horseshoe Riverboat Casinos, LLC ("HRC"), which was owned 50% by
HE and 50% by RPG, completed a private placement of debt securities which were
used for the construction of the Horseshoe Bossier City and the Horseshoe Casino
Center. The total amount of Senior Notes and Subordinated Notes (collectively,
the "Old Notes") issued by HRC was $38,000,000 and $32,000,000, respectively,
and was loaned to HE and RPG on identical terms. These notes were retired in
October 1995 with the proceeds from the New Senior Notes and Senior Secured
Credit Facility (see discussion below).
F-16
<PAGE> 47
5. LONG-TERM DEBT (CONTINUED)
The Old Notes carried warrants to purchase partnership interests in RPG and
NGCP. The value of these warrants on the date of issue, based on independent
appraisal, was recorded as a discount against the face value of the Old Notes
with a corresponding credit to members' equity. Certain of the warrant holders
exercised such warrants and exchanged their newly issued partnership interests
for membership interests in the Company. The remaining warrants were exchanged
for warrants to purchase an approximate aggregate 7.01% membership interest in
the Company. Upon exercise of the warrants, the Company shall distribute to HGI
the amounts received with respect thereto. HGI shall reduce its membership
interest in the Company by an amount equal to the membership interest in the
Company acquired by the warrant holders upon exercise thereof.
The Old Notes were secured by HE and RPG's land, buildings and certain personal
property. Mr. Binion personally guaranteed the repayment of $10,000,000 of the
Senior Notes payable. All of the partners in RPG and all of the partners of NGCP
pledged their individual partnership interests as guarantees for payment of the
Old Notes.
On October 10, 1995, the Company retired the Old Notes, the senior vessel
financing and certain notes payable to affiliates with a portion of the proceeds
from a $150,000,000 Senior Secured Credit Facility due September 30, 1999 (the
"Credit Facility") and a private placement of $100,000,000 of 12.75% senior
notes (with an effective interest rate of approximately 13.01%) due September
30, 2000 (the "New Senior Notes"). The senior equipment financing was retired in
December 1995. An extraordinary loss on early retirement of debt of $7,179,000
was recognized in 1995 for prepayment penalties and the write-off of the
unamortized discounts and deferred finance charges.
The commitment fee for the Credit Facility was $1,200,000, and at closing the
Company issued notes totaling $93,185,000. The Company may issue additional
notes under the Credit Facility of up to $6,815,000 through September 30, 1999.
Notes issued under the first $100,000,000 of the Credit Facility bear interest
at six-month LIBOR plus 3.0% and require 5% of the outstanding principal balance
to be repaid semi-annually.
The Credit Facility and the related interest are guaranteed unconditionally by
RPG and are secured by a first pledge of the Company's ownership interest in all
present and future subsidiaries with the exception of NGCP's ownership interest
in HE. The Credit Facility is also secured by (i) a first lien position on
substantially all of the assets of Horseshoe Casino Center other than certain
gaming equipment; (ii) a first lien position on all intercompany notes received
by the Company from its subsidiaries, in each case secured by a first lien on
the casino and real property of each subsidiary; (iii) a first lien on
substantially all of the assets of HIND, excluding equipment; and (iv) a first
pledge of the minority interest in all present and future subsidiaries owned by
Mr. Binion and certain affiliates of Mr. Binion. In addition, Mr. Binion
personally guaranteed the repayment of $8,250,000 of the Credit Facility.
F-17
<PAGE> 48
5. LONG-TERM DEBT (CONTINUED)
The New Senior Notes were issued at 98% of par value and included warrants to
purchase an additional $50,000,000 of New Senior Notes at a price of 98.15% of
par value. These warrants were exercised on April 10, 1996, and the Company
received proceeds of $49,073,000. The New Senior Notes and the related
interest are guaranteed unconditionally by RPG and are secured by a second
pledge of the Company's ownership interest in all present and future
subsidiaries with the exception of NGCP's ownership interest in HE. The New
Senior Notes are also secured by (i) a second lien position on substantially all
of the assets of Horseshoe Casino Center other than certain gaming equipment;
(ii) a second lien position on all intercompany notes received by the Company
from its subsidiaries, in each case secured by a second lien on the casino and
real property of each subsidiary; and (iii) a second pledge of the minority
interest in all present and future subsidiaries owned by Mr. Binion and certain
affiliates of Mr. Binion.
The New Senior Notes and the Credit Facility contain covenants that, among other
things, (i) limit the amount of additional indebtedness which may be incurred by
the Company and its subsidiaries; (ii) prohibit any consolidation or merger of
the Company or its subsidiaries with an affiliate or third party, any sale of
substantially all of the Company or its subsidiaries' assets, or any payment of
subordinated indebtedness prior to its scheduled maturity; and (iii) require the
Company and its subsidiaries to invest excess funds in cash equivalents, as
defined, and government securities with a maturity of one year or less.
The New Senior Notes are not redeemable prior to September 30, 1999, except
prior to September 30, 1998, the Company may redeem up to 35% of the aggregate
principal amount at 110% of the par value with the net cash proceeds of a public
offering of the Company's stock. In addition, the Credit Facility may be repaid
at 101% of par value prior to September 30, 1998.
The excess proceeds from the New Senior Notes and the Credit Facility of
approximately $31,100,000, as well as the $49,073,000 of proceeds received
on April 10, 1996, were placed in an escrow account to be used solely for the
expansion of the Company's existing facilities, development of new casinos and
retirement of debt.
As of December 31, 1996, the five year maturities for long-term debt are as
follows (in thousands):
<TABLE>
<S> <C>
1997 $ 11,060
1998 8,153
1999 65,767
2000 150,000
2001 --
--------
234,980
Less unamortized discount (2,272)
--------
$232,708
========
</TABLE>
As of December 31, 1996 and 1995, the fair market value of the New Senior Notes,
based on quoted market prices was $162,750,000 and $99,125,000, respectively.
The fair market value of the Company's other long-term debt approximated its
carrying value as of December 31, 1996 and 1995, based on the borrowing rates
currently available for debt with similar terms.
F-18
<PAGE> 49
6. TRANSACTIONS WITH RELATED PARTIES
On the inception date of NGCP and RPG (February 4, 1993, and June 7, 1993,
respectively), the partners were required to make capital contributions of
$4,000,000 and $3,000,000, respectively. Such contributions were not paid in
cash until 1994; therefore, a contributions receivable was recorded for the
required contributions. The contributions receivable earned interest at an
annual rate of 10% until paid. The related interest receivable balance was $0
and $305,000 as of December 31, 1996 and 1995, respectively.
Mr. Binion has provided services pursuing, developing and managing gaming
operations for the Company and its subsidiaries. Mr. Binion has not been
compensated for his services in the past nor is there an existing employment
agreement providing for Mr. Binion to receive compensation for his services in
the future; however, the Company and Mr. Binion may enter into such an
employment agreement during 1997.
KII-Pasadena, Inc., which is owned by two individuals that became executive
officers of HGI on January 1, 1996, has acted on behalf of the Company as
developer for the Horseshoe Bossier City and the Horseshoe Casino Center and has
provided consulting services to the Company related to pursuing new gaming
developments. Total fees paid to KII-Pasadena, Inc. for such services were $0,
$660,000 and $460,000 for the years ended December 31, 1996, 1995 and 1994,
respectively. Additionally, one of the placement agents for the New Senior Notes
and Credit Facility discussed in Note 5 agreed to pay the principals of
KII-Pasadena, Inc. a finders' fee equal to 30% of the net fees, commissions and
other compensation received, or to be received, by the placement agent for its
services related to these financing transactions. The total fees paid to
KII-Pasadena, Inc., or its principals, by the placement agent was $260,000 and
$891,000 during the years ended December 31, 1996 and 1995, respectively.
The principals of the placement agent referred to above own approximately 3.9%
of the Company and are expected to own interests in certain of the Company's
proposed casino developments in new jurisdictions. In connection with the sale
of the New Senior Notes and the arrangement of the Credit Facility, the Company
paid fees to the placement agent of $3,210,000 and indemnified the placement
agent and its principals against certain liabilities, including liabilities
under the Securities Act of 1933. In connection with the exercise of the
warrants to purchase an additional $50,000,000 of New Senior Notes, the Company
paid fees to the placement agent of $981,000. These fees were recorded as
deferred finance charges in the accompanying financial statements. Additional
fees were paid to the placement agent during 1996 for various financial advisory
services totaling $510,000.
Included in other assets in the accompanying consolidated balance sheets are
notes receivable from employees with ownership interests in the Company and
limited partners of HE totaling $3,734,000 and $1,175,000 as of December 31,
1996 and 1995, respectively. The notes to employees are secured by their
ownership interests in the Company, and the notes to the limited partners are
secured by their ownership interests in HE. The notes have various due dates
ranging from February 1998 through October 1999 and interest rates ranging from
7% to 10%.
F-19
<PAGE> 50
6. TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
In November 1995, HE canceled a legal service retainer agreement it had entered
into in 1993 with an individual for a one-time fee of $600,000, which is
included in general and administrative expenses in 1995. Two relatives of such
individual are limited partners in HE, holding an aggregate ownership interest
of 5.08%. The original agreement covered legal services for a period of five
years commencing December 1, 1993, and ending November 30, 1998, and required
sixty monthly payments of $16,667. The amounts paid under this contract for
legal services amounted to $0, $167,000 and $200,000 for the years ended
December 31, 1996, 1995 and 1994. HE has no further obligations under the legal
service retainer agreement.
During the years ended December 31, 1996, 1995 and 1994, there were numerous
transactions with parties affiliated with the Company. These transactions
included, but are not limited to, payments for consulting fees, various
operating expenses and other items. The total amount of such expenditures for
the years ended December 31, 1996, 1995 and 1994 were $3,267,000, $9,133,000
and $2,338,000, respectively.
7. GAIN ON SALE OF LAND
The Company, through its subsidiary RPG, acquired land for the development of
the Horseshoe Casino Center in 1993 for approximately $4,696,000. The funds to
purchase the land were loaned to the Company directly and indirectly by Mr.
Binion. RPG's partnership agreement required that any gain from the sale of this
land be distributed to certain of the original limited partners of RPG. Such
limited partners are affiliates of Mr. Binion and have subsequently exchanged
their partnership interests in RPG for ownership interests in the Company in
connection with the roll-up transaction discussed in Note 1.
In June 1994, RPG sold a portion of the land and recognized a gain of
$5,242,000. Of this gain, $3,155,000 was distributed to the original limited
partners of RPG in cash, and $2,087,000 was distributed in the form of a note.
Since not all of the Company's members received the benefit of the gain on sale,
such gain is included in minority interest in (income) loss of subsidiaries in
the accompanying consolidated statements of operations for the year ended
December 31, 1994. The remaining land, which had a net book value of $1,058,000,
was transferred to RPG's original limited partners on October 20, 1995.
8. EMPLOYEE COMPENSATION AND BENEFITS
Employment Agreements
During 1994, HE and RPG entered into employment agreements with certain key
employees that provide certain benefits in the event such employees are
terminated. These employees also received ownership interests in NGCP and RPG,
which were subsequently exchanged for membership interests in the Company and
vest over the terms specified in the various employment agreements, which is
generally five years. These employment agreements include a put/call provision
which if exercised by the employee would require the Company to repurchase these
ownership interests in the event of termination at the then fair market value
based on an independent appraisal. Accordingly, these compensation agreements
are accounted for asvariable stock purchase plans. Compensation expense is
recorded each period equal to the change in the fair market value of ownership
interests issued pursuant to these agreements.
F-20
<PAGE> 51
8. EMPLOYEE COMPENSATION AND BENEFITS (CONTINUED)
During the fourth quarter of 1995, certain employees of HGI received ownership
interests in the Company, vesting generally over three years, pursuant to
similar employment agreements which also include put/call provisions in the
event of termination. As stated in Note 1, the Company is required to reimburse
HGI for all expenses incurred related to the operations of the Company and would
be required to fund any repurchase of HGI employees' ownership interests in the
Company, pursuant to these employment agreements. Accordingly, the deferred
compensation and related compensation expense associated with the HGI employees
are included in the accompanying consolidated financial statements of the
Company.
The total ownership interest in the Company issued to employees pursuant to such
employment agreements was 4.0% and 3.8% as of December 31, 1996 and 1995,
respectively, of which 2.4% and 1.5% was vested as of December 31, 1996 and
1995, respectively. The amount of compensation expense recorded in the
accompanying consolidated statements of operations related to these ownership
interests was $4,340,000, $6,272,000 and $1,514,000 for the years ended December
31, 1996, 1995 and 1994, respectively.
During September 1995, one of the HE employees who had entered into an
employment agreement during 1993 resigned from HE. Pursuant to a settlement
agreement with the employee, HE agreed to pay severance benefits of $230,000
which was expensed in 1995. In addition, the Company agreed to acquire the
employee's vested ownership interest in the Company of .95% for $3,306,000 based
on an independent appraisal, which is included in the 1995 compensation expense
amount discussed above. Such amount is payable in two equal installments on
April 1, 1996 and 1997, and bears interest at 9%.
401(k) Savings Plan
Effective January 1, 1995, a 401(k) savings plan was established at RPG whereby
eligible employees may contribute up to 15% of their salary. An identical 401(k)
savings plan was established on January 1, 1996 for employees of the Company and
its subsidiaries other than RPG. The Company matches 50% of the employees'
contributions up to a maximum of 6% of their salary, and the employees vest in
the matching contribution over six years. Employees are eligible to participate
in the plan on the first day of the next calendar quarter following six months
of service. The Company's matching contributions were $667,000 and $158,000 for
the year ended December 31, 1996 and 1995, respectively.
9. COMMITMENTS AND CONTINGENCIES
Litigation
The Company and its subsidiaries, during the normal course of operating its
business, become engaged in various litigation. In the opinion of the Company's
management, the ultimate disposition of such litigation will not have a material
impact on the Company's operations.
F-21
<PAGE> 52
9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Minority Interest Purchase Commitments
In February 1996, NGCP entered into an option agreement to purchase an
additional 1% limited partnership interest in HE for $1,541,000, of which
approximately $514,000 was paid at closing. The option expires on December 31,
1997. In September 1996, NGCP loaned the limited partner $900,000, which is
included in other assets in the accompanying consolidated balance sheet as of
December 31, 1996. The note, including interest at 7%, is due December 31, 1998.
Effective December 31, 1995, NGCP purchased a 2.92% limited partnership interest
in HE for $4,473,000, of which $1,473,000 was paid at closing during January
1996, with the remaining $3,000,000 evidenced by a 6% per annum promissory note,
payable in three annual installments of $1,000,000, plus accrued interest,
beginning January 2, 1997. The limited partner agreed to remit to HE
approximately $123,000, which was equal to his negative capital balance at the
time of closing. The purchase agreement allocated $2,384,000 of the purchase
price to a non-compete agreement with the remaining $2,089,000 allocated to the
purchase of the limited partner's interest. The asset related to the non-compete
agreement is being amortized over the life of the agreement (three years). The
purchase price of the limited partnership interest is included in goodwill and
is being amortized over an estimated benefit period of approximately 25 years.
The Company has agreed to pay additional consideration of up to $500,000 a year
for three years based on certain earnings criteria which will be added to the
purchase price and amortized accordingly. At December 31, 1996, the earnings
criteria were met and additional consideration of $500,000 was recorded.
$267,000 of the additional consideration was allocated to the non-compete
agreement, and the remaining $233,000 was allocated to goodwill. The unamortized
balance of the non-compete agreement is included in other assets in the
accompanying consolidated balance sheets and was $2,384,000 and $1,584,000 as of
December 31, 1996 and 1995, respectively.
The Company is also required to purchase the minority ownership interests in any
new projects developed by Horseshoe Ventures following 36 months of operations.
The purchase price is to be based on earnings during the 36-month period and is
payable in cash or ownership interests in the Company.
Construction Commitments
The Company is currently expanding both of its existing casino properties, which
are expected to be completed during the fourth quarter of 1997 at a total
estimated cost of $280,000,000. As of December 31, 1996, the total amount
incurred was $59,603,000, of which $20,959,000 had been placed in service as of
December 31, 1996.
F-22
<PAGE> 53
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of New Gaming Capital Partnership:
We have audited the accompanying consolidated balance sheets of New Gaming
Capital Partnership (a Nevada partnership) and subsidiary as of December 31,
1996 and 1995, and the related consolidated statements of operations, partners'
capital (deficit) and cash flows for each of the three years in the period ended
December 31, 1996. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of New Gaming Capital Partnership
and subsidiary as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada,
March 4, 1997.
F-23
<PAGE> 54
NEW GAMING CAPITAL PARTNERSHIP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
December 31,
----------------------
1996 1995
--------- ---------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 14,913 $ 27,025
Accounts receivable, net of allowance for doubtful
accounts of $803 and $1,407 1,901 1,825
Inventories 957 1,063
Prepaid expenses and other 1,102 1,225
--------- ---------
Total current assets 18,873 31,138
--------- ---------
Property and Equipment:
Land 6,115 4,215
Buildings, boat and improvements 71,554 50,678
Furniture, fixtures and equipment 24,125 19,403
Less: accumulated depreciation (15,028) (8,247)
--------- ---------
86,766 66,049
Construction in progress 18,482 8,889
--------- ---------
Net property and equipment 105,248 74,938
--------- ---------
Other Assets:
Goodwill, net 18,788 19,341
Other 11,269 8,314
--------- ---------
$ 154,178 $ 133,731
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities:
Current maturities of long-term debt $ 11,854 $ 7,320
Accounts payable 1,882 1,239
Due to affiliates 2,536 5,596
Construction payables 7,161 3,200
Accrued expenses and other 8,373 12,398
--------- ---------
Total current liabilities 31,806 29,753
Long-term Debt, less current maturities 97,837 70,692
Minority Interest (827) (1,128)
Commitments and Contingencies (Notes 7 and 8)
Partners' Capital 25,362 34,414
--------- ---------
$ 154,178 $ 133,731
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-24
<PAGE> 55
NEW GAMING CAPITAL PARTNERSHIP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------
1996 1995 1994
--------- --------- --------
<S> <C> <C> <C>
Revenues:
Casino $ 166,768 $ 151,210 $ 59,230
Food and beverage 15,573 14,618 5,879
Hotel 4,431 4,197 1,830
Other 1,650 1,863 881
--------- --------- --------
188,422 171,888 67,820
Promotional allowances (13,559) (11,106) (4,417)
--------- --------- --------
Net revenues 174,863 160,782 63,403
--------- --------- --------
Expenses:
Casino 89,713 78,071 24,339
Food and beverage 8,484 9,246 3,167
Hotel 3,429 3,600 1,144
Other 597 1,035 676
General and administrative 31,090 26,402 16,468
Development 500 -- --
Depreciation and amortization 8,855 6,162 2,433
Preopening -- -- 6,665
--------- --------- --------
Total 142,668 124,516 54,892
--------- --------- --------
Operating Income 32,195 36,266 8,511
--------- --------- --------
Other Income (Expense):
Interest expense (11,436) (10,235) (4,939)
Interest income 867 664 142
Other, net 418 -- --
Minority interest in income of subsidiary (1,861) (2,580) (442)
--------- --------- --------
Income Before Extraordinary Loss
on Early Retirement of Debt 20,183 24,115 3,272
Extraordinary Loss on Early Retirement
of Debt -- (4,081) --
--------- --------- --------
Net Income $ 20,183 $ 20,034 $ 3,272
========= ========= ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-25
<PAGE> 56
NEW GAMING CAPITAL PARTNERSHIP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
Partners' Contributions
Capital Receivable Total
-------- ------------- --------
<S> <C> <C> <C>
Balance at December 31, 1993 $ 13 $(500) $ (487)
Net income 3,272 -- 3,272
Collection of contributions receivable -- 500 500
Contributions 4,739 -- 4,739
Distributions (4,369) -- (4,369)
Warrants and partnership interests
issued in conjunction with senior
and subordinated notes (Note 5) 2,867 -- 2,867
-------- ----- --------
Balance at December 31, 1994 6,522 -- 6,522
Net income 20,034 -- 20,034
Contributions 123 -- 123
Distributions:
Cash (8,137) -- (8,137)
Payable (Note 2) (1,857) -- (1,857)
Step-up in basis of assets due to purchase
of minority interest 17,729 -- 17,729
-------- ----- --------
Balance at December 31, 1995 34,414 -- 34,414
Net income 20,183 -- 20,183
Distributions (29,235) -- (29,235)
-------- ----- --------
Balance at December 31, 1996 $ 25,362 $ -- $ 25,362
======== ===== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-26
<PAGE> 57
NEW GAMING CAPITAL PARTNERSHIP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 20,183 $ 20,034 $ 3,272
Adjustments to reconcile net income
to net cash provided by operating activities:
Minority interest in income of subsidiary 1,861 2,580 442
Depreciation and amortization 8,855 6,162 2,433
Provision for doubtful accounts 987 930 477
Amortization of debt discounts,
deferred finance costs and other 708 3,171 2,364
Gain on land held for sale (96) -- --
Extraordinary loss on early retirement of debt -- 4,081 --
Preopening expenses -- -- 6,665
Change in assets and liabilities (2,359) 2,144 (516)
-------- -------- --------
Net cash provided by operating activities 30,139 39,102 15,137
-------- -------- --------
Cash flows from investing activities:
Purchase of property and equipment (37,326) (13,788) (43,154)
Increase (decrease) in construction payables 3,961 (84) 3,284
Deferred license fee -- -- (1,000)
Sale of land held for sale 1,440 -- --
Purchase of land held for sale -- (1,344) --
Increase in other assets (4,379) (4,895) (662)
-------- -------- --------
Net cash used in investing activities (36,304) (20,111) (41,532)
-------- -------- --------
Cash flows from financing activities:
Proceeds from debt and warrants 40,000 81,600 49,597
Payments on debt (8,821) (70,925) (11,821)
Capital contributions -- 123 5,239
Capital distributions (31,092) (8,137) (4,369)
Distributions to minority interests (1,560) (3,460) (660)
Increase (decrease) in due to affiliates (3,128) (259) 2,214
Debt issue costs (1,346) (2,524) (2,189)
-------- -------- --------
Net cash (used in) provided by
financing activities (5,947) (3,582) 38,011
-------- -------- --------
Net change in cash and cash equivalents (12,112) 15,409 11,616
Cash and cash equivalents, beginning of period 27,025 11,616 --
-------- -------- --------
Cash and cash equivalents, end of period $ 14,913 $ 27,025 $ 11,616
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-27
<PAGE> 58
NEW GAMING CAPITAL PARTNERSHIP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
New Gaming Capital Partnership (the "Partnership") was formed as a Nevada
limited partnership on February 4, 1993. The Partnership is 100% owned, directly
and indirectly, by Horseshoe Gaming, L.L.C. ("Gaming"), and is the 89% general
partner of Horseshoe Entertainment, L.P. ("HE"), a Louisiana limited
partnership, which owns and operates the Horseshoe Bossier City (the "Casino"),
a dockside riverboat casino located in Bossier City, Louisiana. The minority
interest amounts in the accompanying consolidated financial statements represent
the 11% of HE owned by limited partners. Effective December 31, 1995, the
Partnership purchased a 2.92% limited partnership interest from one of the
minority owners (see Note 8). HE also leased and operated the Le Bossier Hotel
(the "Le Bossier"), a 201 room hotel located approximately five miles from the
Casino in Bossier City, before purchasing it in March 1996. HE was formed on
February 4, 1993, the Le Bossier opened in May 1994 and the Casino opened on
July 9, 1994. Consistent with Louisiana state law, the gaming license granted to
HE is for a five year period, after which it may be renewed.
On October 1, 1995, Gaming completed a roll-up transaction which resulted in the
acquisition by Gaming of approximately 15% of the Partnership's ownership
interests (the "Roll-up"). The total cost of the Partnership interests purchased
by Gaming , based on the fair value of the ownership interests in Gaming
exchanged, was $17,729,000, of which $149,000 was allocated to land, $154,000
was allocated to gaming licenses and $17,426,000 was allocated to goodwill. The
purchase price allocation was based on an independent appraisal of the
individual assets, and these amounts were pushed down to the accompanying
financial statements of the Partnership.
The gaming license will be amortized over its remaining term, which is
approximately two and one-half years. Goodwill, which represents various
intangibles with indeterminate values, will be amortized on a straight-line
basis over 25 years, which management estimates is the related benefit period
(see discussion of the Company's accounting policy for long-lived assets below).
Management intends to regularly evaluate whether or not the future undiscounted
cash flows of the Partnership are sufficient to recover the carrying amount of
the goodwill associated with each entity. Additionally, management continually
monitors such factors as the status of new or proposed legislation, the
competitive environment and the general economic conditions of the market in
which it operates. If the undiscounted cash flows are not sufficient to recover
the carrying amount of goodwill and, accordingly, an impairment has occurred,
management intends to write down the carrying amount of goodwill to its
estimated fair value based on discounted cash flows. The amount of amortization
expense recorded in the year ended December 31, 1996, and for the three months
in 1995 following the roll-up transaction was $748,000 and $187,000,
respectively.
F-28
<PAGE> 59
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Partnership
and HE. All significant intercompany accounts and transactions have been
eliminated.
Casino Revenues
In accordance with industry practice, casino revenues represent the net win from
gaming activities, which is the difference between gaming wins and losses.
Casino Promotional Allowances
Casino promotional allowances consist primarily of the retail value of
complimentary food and beverage, rooms and other services furnished to guests
without charge. Such amounts are included in gross revenues and deducted as
promotional allowances. The estimated costs of providing such complimentary
services are substantially included in casino department expenses as follows (in
thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1996 1995 1994
------- ------ ------
<S> <C> <C> <C>
Food and beverage $10,276 $6,921 $2,998
Hotel 1,631 1,663 814
Other operating expenses 112 85 18
------- ------ ------
$12,019 $8,669 $3,830
======= ====== ======
</TABLE>
Inventories
Inventories are stated at the lower of cost, as determined on a first-in,
first-out basis, or market value and consist primarily of food, beverage, retail
merchandise, kitchen smallwares and employee wardrobe.
Property and Equipment
Property and equipment are stated at cost. The costs of normal repairs and
maintenance are expensed as incurred while major expenditures that extend the
useful lives of assets are capitalized.
Depreciation is provided for on the straight-line basis over the estimated
useful lives or of the assets, as follows:
Buildings, boat and improvements 15 to 30 years
Furniture, fixtures and equipment 3 to 10 years
F-29
<PAGE> 60
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Capitalized Interest
The Partnership capitalizes interest for associated borrowing costs of major
construction projects. Capitalization of interest ceases when the asset is
substantially complete and ready for its intended use. Interest capitalized
during the years ended December 31, 1996, 1995 and 1994, was $667,000, $0 and
$1,709,000, respectively.
Development and Preopening Expenses
Until all necessary approvals to proceed with the development of a new casino
project are obtained from the appropriate regulatory authorities, the related
development costs are expensed as incurred. Preopening costs incurred after the
receipt of necessary approvals are deferred as incurred and expensed upon the
opening of the related casino. Preopening costs of $6,665,000 were expensed in
connection with the opening of the Casino in July 1994.
Deferred Finance Charges
As of December 31, 1994, deferred finance charges, which are included in other
assets, consisted of fees and expenses incurred to issue the Old Notes discussed
in Note 5, including placement fees paid for by the issuance of ownership
interests and warrants to purchase ownership interests (the "Equity Warrants")
in the Partnership and Robinson Property Group, L.P. ("RPG"), an affiliate which
owns and operates the Horseshoe Casino Center in Tunica County, Mississippi. The
value of such ownership interests and Equity Warrants, based on independent
appraisal, was recorded as deferred finance charges with a corresponding credit
to partners' capital. These ownership interests and Equity Warrants were
subsequently exchanged for ownership interests and warrants to purchase
ownership interests in Gaming. These deferred finance charges were being
amortized over the period from the initial funding of the debt through the
latest date for repayment using the effective interest method. In October 1995,
the Partnership wrote off the balance of unamortized deferred finance charges of
$1,727,000 which is included in the extraordinary loss on early retirement of
debt in the 1995 consolidated statement of operations.
The balance of deferred finance charges as of December 31, 1996 and 1995, was
$3,005,000 and $2,367,000, respectively, and consists of fees and expenses
incurred by Gaming to issue the New Senior Notes and to obtain the Senior
Secured Credit Facility of which $75,000,000 was loaned to HE in 1995 as
discussed in Note 5 and an additional $40,000,000 was loaned in 1996 for
construction of a new hotel and completion of the parking garage. Accordingly,
Gaming has charged HE a portion of the related finance charges. These deferred
finance charges are being amortized from the initial funding date through the
latest repayment date of September 30, 2000, using the effective interest
method.
F-30
<PAGE> 61
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cash and Cash Equivalents
Cash and cash equivalents include commercial paper, amounts held in mutual
funds and other investments with original maturities of 90
days or less when purchased.
Advertising Costs
The Partnership expenses all costs associated with advertising as incurred, and
such amounts are included in general and administrative expenses in the
accompanying statements of operations.
Income Taxes
No provision is made in the accounts of the Partnership for federal and state
income taxes, as such taxes are liabilities of the members of Gaming. The
Partnership's income tax return and the amount of allocable taxable income are
subject to examination by federal and state taxing authorities. If an
examination results in a change to Partnership income, the income tax reported
by the members of Gaming may also change. The tax bases in the Partnership's
assets and liabilities were in excess of the amounts reported in the
accompanying consolidated financial statements by $4,677,000 and $3,887,000 at
December 31, 1996 and 1995, respectively. Taxable income was in excess of net
income reported in the accompanying consolidated statements of operations for
all periods presented.
Capital Distributions
The New Senior Notes and the Senior Secured Credit Facility contain covenants
that limit capital distributions to the limited partners of HE equal to the
limited partners' share of taxable income for each period. Such distributions
are to be paid quarterly based upon estimated taxable income. Promptly after
filing by HE of its annual tax returns, each limited partner of HE is to
reimburse HE for overpayments of capital distributions or HE is to withhold such
amounts from future distributions to the limited partners. Distributions to
limited partners are a component of minority interest in the accompanying
consolidated balance sheets. All required distributions to the limited partners
for 1996, 1995 and 1994 were made in full prior to the end of each year.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-31
<PAGE> 62
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Reclassifications
Certain prior year balances have been reclassified to conform with the current
year presentation.
Impairment of Long-Lived Assets
In accordance with Statement of Financial Accounting Standards No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," management continually evaluates whether events or changes in
circumstances indicate that the carrying amount of long-lived assets may not be
recoverable. Based on management's evaluations, no significant impairments of
long-lived assets have occurred during the three years in the period ended
December 31, 1996.
3. CONSOLIDATED STATEMENTS OF CASH FLOWS
Non-cash financing and investing activities consist of the following:
Ownership interests in HE valued at $378,000 were issued for payment of
certain deferred offering costs as of December 31, 1994.
Property and equipment was acquired through the issuance of debt
totaling $0, $16,000 and $19,089,000 for the years ended December 31,
1996, 1995 and 1994, respectively.
The net change in assets and liabilities consists of the following (in
thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
(Increase) decrease in assets:
Accounts receivable $(1,063) $(1,849) $(1,383)
Inventories 106 187 (1,250)
Prepaid expenses and other 123 (653) (572)
Preopening expenses -- -- (5,674)
Increase (decrease) in liabilities:
Accounts payable 643 (1,828) 2,457
Accrued expenses and other (2,168) 7,957 4,602
Deferred interest payable -- (1,670) 1,304
------- ------- -------
$(2,359) $ 2,144 $ (516)
======= ======= =======
</TABLE>
Cash payments made for interest, excluding amounts capitalized, totaled
$10,530,000, $12,999,000 and $2,941,000 for the three years ended December 31,
1996, 1995 and 1994.
F-32
<PAGE> 63
4. ACCRUED EXPENSES AND OTHER
Accrued expenses and other consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------
1996 1995
------- -------
<S> <C> <C>
Payroll and related tax liabilities $ 1,479 $ 974
Vacation and other employee benefits 2,173 2,202
Accrued interest 181 --
Gaming, sales, use and property taxes 1,349 2,414
Outstanding chip and token liabilities 614 429
Distributions payable -- 1,857
Progressive slot and slot club liabilities 1,896 1,853
Other accrued expenses 681 2,669
------- -------
$ 8,373 $12,398
======= =======
</TABLE>
5. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
------------------
1996 1995
-------- -------
<S> <C> <C>
13.31% Intercompany Note Payable, due in semi-annual
installments of 5% of the outstanding balance with
remaining balance due in full on September 30, 2000 $106,191 $75,000
6% Promissory Note Payable, due in annual installments
through January 1999 (see Note 8) 3,500 3,000
Other -- 12
-------- -------
109,691 78,012
Less: current maturities (11,854) (7,320)
-------- -------
$ 97,837 $70,692
======== =======
</TABLE>
In April 1994, Horseshoe Riverboat Casinos, LLC ("HRC"), which was owned 50% by
HE and 50% by RPG, completed a private placement of debt securities which were
used for the construction of the Horseshoe Bossier City and the Horseshoe Casino
Center. The total amount of Senior Notes and Subordinated Notes (collectively,
the "Old Notes") issued by HRC was $38,000,000 and $32,000,000, respectively,
and was loaned to HE and RPG on identical terms. The Old Notes were retired in
October 1995 with the proceeds from the New Senior Notes and Senior Secured
Credit Facility (see discussion below).
F-33
<PAGE> 64
5. LONG-TERM DEBT (CONTINUED)
The Old Notes carried warrants to purchase partnership interests in RPG and the
Partnership. The value of these warrants on the date of issue, based on
independent appraisal, was recorded as a discount against the face value of the
Old Notes with a corresponding credit to partners' capital. Certain of the
warrant holders exercised such warrants and exchanged their newly issued
partnership interests for membership interests in Gaming. The remaining warrants
were exchanged for new warrants to purchase an approximate aggregate membership
interest in Gaming of 7.01%.
The Old Notes were secured by HE's land, buildings and certain personal
property. Mr. Jack B. Binion ("Mr. Binion"), the Chief Executive Officer of
Gaming, personally guaranteed the repayment of $10,000,000 of the Senior Notes
payable.
On October 10, 1995, Gaming loaned HE $75,000,000 from a portion of the proceeds
of a $150,000,000 Senior Secured Credit Facility due September 30, 1999 (the
"Credit Facility") and a private placement of $100,000,000 of 12.75% Senior
Notes due September 30, 2000 (the "New Senior Notes"), to retire substantially
all of HE's existing debt. An extraordinary loss on early retirement of debt of
$4,081,000 was recognized in 1995 for prepayment penalties and the write-off of
the unamortized discounts and deferred finance charges.
The Credit Facility and the related interest are guaranteed unconditionally by
RPG and are secured by a first pledge of Gaming's ownership interest in all
present and future subsidiaries with the exception of the Partnership's
ownership interest in HE. The Credit Facility is also secured by (i) a first
lien position on substantially all of the assets of Horseshoe Casino Center
other than certain gaming equipment; (ii) a first lien position on all
intercompany notes received by Gaming from its subsidiaries, in each case
secured by a first lien on the casino and real property of each subsidiary;
(iii) a first lien on substantially all of the assets of Horseshoe Casinos
(Indiana), LLC, excluding equipment; and (iv) a first pledge of the minority
interests in all present and future subsidiaries owned by Mr. Binion and certain
affiliates of Mr. Binion. In addition, Mr. Binion personally guaranteed the
repayment of $8,250,000 of the Credit Facility.
The New Senior Notes and the related interest are guaranteed unconditionally by
RPG and are secured by a second pledge of Gaming's ownership interest in all
present and future subsidiaries with the exception of the Partnership's
ownership interest in HE. The New Senior Notes are also secured by (i) a second
lien position on substantially all of the assets of Horseshoe Casino Center
other than certain gaming equipment; (ii) a second lien position on all
intercompany notes received by Gaming from its subsidiaries, in each case
secured by a second lien on the casino and real property of each subsidiary; and
(iii) a second pledge of the minority interests in all present and future
subsidiaries owned by Mr. Binion and certain affiliates of Mr. Binion.
F-34
<PAGE> 65
5. LONG-TERM DEBT (CONTINUED)
The New Senior Notes and the Credit Facility contain covenants that, among other
things, (i) limit the amount of additional indebtedness which may be incurred by
Gaming and its subsidiaries; (ii) prohibit any consolidation or merger of Gaming
or its subsidiaries with an affiliate or third party, any sale of substantially
all of Gaming or its subsidiaries' assets, or any payment of subordinated
indebtedness prior to its scheduled maturity; and (iii) require Gaming and its
subsidiaries to invest excess funds in cash equivalents and government
securities with a maturity of one year or less.
HE's new note with Gaming is $150,000,000, bears interest at 13.31% and requires
that HE repay 5% of the outstanding balance of the note on a semi-annual basis.
The new note can not be repaid prior to maturity, which is September 30, 2000.
In January 1997 an additional $10,000,000 was loaned by Gaming to HE.
As of December 31, 1996, the maturities for long-term debt are $11,854,000
(1997), $10,344,000 (1998), $9,433,000 (1999) and $78,060,000 (2000).
6. TRANSACTIONS WITH AFFILIATES
During 1994, HRC advanced $2,214,000 in excess of HE's pre-established Senior
and Subordinated Note payable borrowings which was repaid in early 1995. At
December 31, 1996 and 1995, the due to affiliates balance relates primarily to
costs and expenses of the Partnership and HE paid for by Gaming.
Initial funding to HE was provided by loans from affiliates of the Partnership.
Such notes payable to affiliates accrued interest at 10% and had a scheduled
maturity of April 15, 2004. The notes payable to affiliates, and the related
deferred interest payable balances, were repaid in October 1995 with proceeds
from the intercompany loan from Gaming discussed in Note 5.
On the inception date of HE (February 4, 1993), the partners were required to
make capital contributions of $4,000,000. Such contributions were not paid in
cash until 1994; therefore, a contributions receivable was recorded for the
required contributions. The contributions receivable earned interest at an
annual rate of 10% until paid. The related interest receivable balance as of
December 31, 1994, was $478,000, which was repaid during 1995.
Included in other assets in the accompanying consolidated balance sheets are
notes receivable from limited partners of HE totaling $1,969,000 and $527,000
as of December 31, 1996 and 1995, respectively. The notes are secured by their
ownership interests in HE and are due in December 1998 with interest at 10%.
F-35
<PAGE> 66
6. TRANSACTIONS WITH AFFILIATES (CONTINUED)
In November 1995, HE canceled a legal service retainer agreement it had entered
into in 1993 with an individual for a one-time fee of $600,000 which is included
in general and administrative expenses in 1995. Two relatives of such individual
are limited partners in HE holding an aggregate ownership interest of 5.08%. The
original agreement covered legal services for a period of five years commencing
December 1, 1993, and ending November 30, 1998, and required sixty monthly
payments of $16,667. The amounts paid under this contract for legal services
amounted to $167,000 and $200,000 for the years ended December 31, 1995 and
1994, respectively. HE has no further obligations under the legal service
retainer agreement.
During the years ended December 31, 1996, 1995 and 1994, there were numerous
transactions with limited partners of HE, parties affiliated with the general
and limited partners and other affiliates. These transactions included, but are
not limited to, payments for consulting fees, expense reimbursements, various
operating expenses and other items. The total amount of such expenditures for
the years ended December 31, 1996, 1995 and 1994, were $7,848,000, $4,717,000
and $1,972,000, respectively.
7. EMPLOYEE COMPENSATION AND BENEFITS
Employment Agreements
During 1994, HE entered into employment agreements with certain key employees
that provide certain benefits in the event such employees are terminated. These
employees also received ownership interests in the Partnership, which were
subsequently exchanged for membership interests in Gaming and vest over terms
specified in the various employment agreements, which is generally five years.
These employment agreements include a put/call provision which if exercised by
the employee would require Gaming to repurchase these ownership interests in the
event of termination at the then fair market value based on an independent
appraisal. Accordingly, these compensation agreements are accounted for as
variable stock purchase plans. Compensation expense is recorded each period
equal to the change in the fair market value of ownership interests issued
pursuant to these agreements. NGCP reimburses Gaming for the expense related to
these ownership interests; therefore, there is no deferred compensation reported
in the accompanying balance sheet at December 31, 1996.
The amount of compensation expense recorded in the accompanying consolidated
statements of operations related to these ownership interests was $1,720,000,
$3,547,000 and $1,477,000 for the years ended December 31, 1996, 1995 and 1994,
respectively.
During September 1995, one of the Partnership's employees who had entered into
an employment agreement during 1993 resigned from the Partnership. Pursuant to a
settlement agreement with the employee, the Partnership agreed to pay severance
benefits of $230,000 which was expensed in 1995. In addition, Gaming agreed to
acquire the employee's vested ownership interest in the Partnership for
$3,306,000 based on an independent appraisal which is included in the 1995
compensation expense amount discussed above. Such amount is payable in two equal
installments on April 1, 1996 and 1997, and bears interest at 9%.
F-36
<PAGE> 67
7. EMPLOYEE COMPENSATION AND BENEFITS (CONTINUED)
401(k) Savings Plan
Effective January 1, 1996, a 401(k) savings plan was established whereby
eligible employees of HE may contribute up to 15% of their salary. HE will match
50% of the employees' contributions up to a maximum of 6% of their salary.
Employees vest in HE's matching contribution over six years. Employees are
eligible to participate in the Plan on the first day of the next calendar
quarter following six months of service. HE's matching contributions were
$368,000 for the year ended December 31, 1996.
8. COMMITMENTS AND CONTINGENCIES
Litigation
The Partnership and its subsidiary, during the normal course of operating its
business, become engaged in various litigation. In the opinion of the
Partnership's management, the ultimate disposition of such litigation will not
have a material impact on the Partnership's operations.
Minority Interest Purchase Commitment
In February 1996, the Partnership entered into an option agreement to purchase
an additional 1% limited partnership interest in HE for $1,541,000, of which
approximately $514,000 was paid at closing. The option expires on December 31,
1997. In September 1996, the Partnership loaned the limited partner $900,000,
which is included in other assets in the accompanying consolidated balance sheet
as of December 31, 1996. The note, including interest at 7%, is due on December
31, 1998.
Effective December 31, 1995, the Partnership purchased a 2.92% limited
partnership interest in HE for $4,473,000, of which $1,473,000 was paid at
closing during January 1996, with the remaining $3,000,000 evidenced by a 6% per
annum promissory note, payable in three annual installments of $1,000,000, plus
accrued interest, beginning January 2, 1997. The limited partner agreed to remit
to the partnership approximately $123,000, which was equal to his negative
capital balance at the time of closing. The purchase agreement allocated
$2,384,000 of the purchase price to a non-compete agreement with the remaining
$2,089,000 allocated to the purchase of the limited partner's interest. The
asset related to the non-compete agreement is being amortized over the life of
the agreement (three years). The purchase price of the limited partnership
interest is included in goodwill and is being amortized over an estimated
benefit period of approximately 25 years. The Partnership has agreed to pay
additional consideration of up to $500,000 a year for three years based on
certain earnings criteria. At December 31, 1996, the earnings criteria were met
and additional consideration of $500,000 was recorded. $267,000 of the
additional consideration was allocated to the non-compete agreement, and the
remaining $233,000 was allocated to goodwill. The unamortized balance of the
non-compete agreement is included in other assets in the accompanying
consolidated balance sheets and was $2,384,000 and $1,584,000 as of December 31,
1996 and 1995, respectively.
F-37
<PAGE> 68
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Construction Commitments
The Partnership is currently expanding its casino and hotel facilities, which
are expected to be completed during the fourth quarter of 1997 at a total
estimated cost of $185,000,000. As of December 31, 1996, the total amount
incurred was $39,441,000, of which $20,959,000 had been placed in service as of
December 31, 1996.
F-38
<PAGE> 69
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of Robinson Property Group, L.P.:
We have audited the accompanying balance sheets of Robinson Property Group, L.P.
(a Mississippi limited partnership) as of December 31, 1996 and 1995, and the
related statements of operations, partners' capital (deficit) and cash flows for
each of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Robinson Property Group, L.P.
as of December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada,
March 4, 1997.
F-39
<PAGE> 70
ROBINSON PROPERTY GROUP, L.P.
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
December 31,
----------------------
1996 1995
--------- ---------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 22,858 $ 32,706
Accounts receivable, net of allowance for doubtful
accounts of $2,649 and $1,256 5,883 3,144
Inventories 478 418
Prepaid expenses and other 275 166
--------- ---------
Total current assets 29,494 36,434
--------- ---------
Property and Equipment:
Land 4,110 2,505
Buildings, barge and improvements 50,253 50,171
Furniture, fixtures and equipment 16,933 16,142
Less: accumulated depreciation (11,370) (5,390)
--------- ---------
59,926 63,428
Construction in progress 20,162 298
--------- ---------
Net property and equipment 80,088 63,726
--------- ---------
Other Assets:
Goodwill, net 20,438 21,299
Other 3,857 4,403
--------- ---------
$ 133,877 $ 125,862
========= =========
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities:
Accounts payable $ 1,274 $ 2,671
Construction payables 6,945 --
Due to affiliates 1,736 4,710
Accrued expenses and other 8,503 8,404
--------- ---------
Total current liabilities 18,458 15,785
Long-term Debt 43,000 70,000
Commitments and Contingencies (Notes 8 and 9)
Partners' Capital 72,419 40,077
--------- ---------
$ 133,877 $ 125,862
========= =========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-40
<PAGE> 71
ROBINSON PROPERTY GROUP, L.P.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1996 1995 1994
--------- --------- -------
<S> <C> <C> <C>
Revenues:
Casino $ 150,711 $ 132,192 $ --
Food and beverage 11,374 9,681 --
Hotel 3,488 3,092 --
Other 2,769 2,229 --
--------- --------- -------
168,342 147,194 --
Promotional allowances (11,474) (9,591) --
--------- --------- -------
Net revenues 156,868 137,603 --
--------- --------- -------
Expenses:
Casino 72,695 55,228 --
Food and beverage 3,833 3,495 --
Hotel 3,369 2,062 --
Other 762 693 --
General and administrative 24,515 19,898 1,376
Depreciation and amortization 7,114 6,376 66
Preopening expenses -- 7,021 --
--------- --------- -------
Total 112,288 94,773 1,442
--------- --------- -------
Operating Income (Loss) 44,580 42,830 (1,442)
--------- --------- -------
Other Income (Expense):
Interest expense (6,190) (8,381) (1,770)
Interest and other income 797 445 302
Gain on sale of land -- -- 5,242
--------- --------- -------
Income Before Extraordinary Loss on
Early Retirement of Debt 39,187 34,894 2,332
Extraordinary Loss on Early Retirement
of Debt -- (3,098) --
--------- --------- -------
Net Income $ 39,187 $ 31,796 $ 2,332
========= ========= =======
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-41
<PAGE> 72
ROBINSON PROPERTY GROUP, L.P.
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
Partners' Contributions
Capital Receivable Total
-------- ------- --------
<S> <C> <C> <C>
Balance at December 31, 1993 $ 2,816 $(3,000) $ (184)
Net income 2,332 -- 2,332
Collection of contributions receivable -- 3,000 3,000
Distributions:
Cash (3,155) -- (3,155)
Payable (2,087) -- (2,087)
Warrants and partnership interests
issued in conjunction with senior
and subordinated notes (Note 5) 1,507 -- 1,507
-------- ------- --------
Balance at December 31, 1994 1,413 -- 1,413
Net income 31,796 -- 31,796
Contributions 1,150 (1,150) --
Distributions (16,953) -- (16,953)
Step-up in basis of assets due to purchase
of minority interest 24,026 (205) 23,821
-------- ------- --------
Balance at December 31, 1995 41,432 (1,355) 40,077
Net income 39,187 -- 39,187
Collection of contributions receivable -- 1,355 1,355
Distributions (8,200) -- (8,200)
-------- ------- --------
Balance at December 31, 1996 $ 72,419 $ -- $ 72,419
======== ======= ========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-42
<PAGE> 73
ROBINSON PROPERTY GROUP, L.P.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 39,187 $ 31,796 $ 2,332
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 7,114 6,376 66
Amortization of debt discount,
deferred finance charges and other 482 2,931 651
Gain on sale of land -- -- (5,242)
Provision for doubtful accounts 3,401 1,256 --
Preopening expenses -- 7,021 --
Extraordinary loss on early retirement of debt -- 3,098 --
Change in assets and liabilities (7,302) (1,722) (1,433)
-------- -------- --------
Net cash provided by (used in)
operating activities 42,882 50,756 (3,626)
-------- -------- --------
Cash flows from investing activities:
Purchases of property and equipment (21,007) (1,690) (25,813)
Increase (decrease) in construction payables 6,945 (3,284) 3,284
Proceeds from sale of land -- -- 8,595
Increase in other assets (257) (1,411) (252)
-------- -------- --------
Net cash used in investing activities (14,319) (6,385) (14,186)
-------- -------- --------
Cash flows from financing activities:
Proceeds from long-term debt 5,000 72,987 35,856
Payments on long-term debt (32,000) (75,592) (9,080)
Capital contributions -- -- 3,000
Capital distributions (8,200) (15,875) (3,155)
Increase (decrease) in due to affiliates (3,042) 2,204 --
Debt issue costs (169) (2,355) (1,843)
-------- -------- --------
Net cash (used in) provided by
financing activities (38,411) (18,631) 24,778
-------- -------- --------
Net change in cash and cash equivalents (9,848) 25,740 6,966
Cash and cash equivalents, beginning of period 32,706 6,966 --
-------- -------- --------
Cash and cash equivalents, end of period $ 22,858 $ 32,706 $ 6,966
======== ======== ========
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-43
<PAGE> 74
ROBINSON PROPERTY GROUP, L.P.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
Robinson Property Group, L.P. (the "Partnership") was formed as a Mississippi
limited partnership on June 7, 1993 and is 100% owned, directly and indirectly,
by Horseshoe Gaming, L.L.C. ("Gaming"). The Partnership owns and operates the
Horseshoe Casino Center (the "Casino"), a permanently moored vessel consisting
of a casino and hotel located in Tunica County, Mississippi, which opened on
February 13, 1995. Consistent with state law, the gaming license granted to the
Partnership in the State of Mississippi is for a two year period and must be
renewed. In February 1997, the Partnership renewed its license for an additional
two year period.
On October 1, 1995, Gaming completed a roll-up transaction which resulted in the
acquisition by Gaming of approximately 15% of the Partnership's ownership
interest held by minority interests (the "Roll-up"). The total cost of the
Partnership interests purchased by Gaming, based on the fair value of the
ownership interests in Gaming exchanged, was $24,026,000, of which $2,231,000
was allocated to land, $76,000 was allocated to gaming licenses, $205,000 was
allocated to contribution receivable and $21,514,000 was allocated to goodwill.
The purchase price allocation was based on an independent appraisal of the
individual assets, and these amounts were pushed down to the accompanying
financial statements of the Partnership.
The gaming license was amortized over its initial remaining term, and at
December 31, 1996 was fully amortized. Goodwill is amortized on a straight-line
basis over 25 years, which management estimates is the related benefit period
(see discussion of the Partnership's accounting policy for long-lived assets
below). Management regularly evaluates whether or not the future undiscounted
cash flows of the Partnership are sufficient to recover the carrying amount of
the goodwill. Additionally, management continually monitors such factors as the
status of new or proposed legislation, the competitive environment and the
general economic conditions of the market in which it operates. If the estimated
future undiscounted cash flows are not sufficient to recover the carrying amount
of goodwill and accordingly, an impairment has occurred, management intends to
write down the carrying amount of goodwill to its estimated fair value based on
discounted cash flows. The amount of amortization expense for goodwill recorded
in 1996 and for the three months in 1995 following the roll-up transaction was
$861,000 and $215,000, respectively.
F-44
<PAGE> 75
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Casino Revenues
In accordance with industry practice, casino revenues represent the net win from
gaming activities, which is the difference between gaming wins and losses.
Casino Promotional Allowances
Casino promotional allowances consist primarily of the retail value of
complimentary food and beverage, rooms and other services furnished to guests
without charge. Such amounts are included in gross revenues and deducted as
promotional allowances. The estimated costs of providing such complimentary
services, which are substantially included in casino department expenses, are as
follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1996 1995 1994
------- ------- -----
<S> <C> <C> <C>
Food and beverage $11,779 $10,244 $ --
Hotel 1,403 1,002 --
Other operating expenses 507 401 --
------- ------- -----
$13,689 $11,647 $ --
======= ======= =====
</TABLE>
Inventories
Inventories are stated at the lower of cost, as determined on a first-in,
first-out basis, or market value and consist primarily of food, beverage and
retail merchandise.
Property and Equipment
Property and equipment are stated at cost. The costs of normal repairs and
maintenance are expensed as incurred while major expenditures that extend the
useful lives of assets are capitalized.
Depreciation is provided for on a straight-line basis over the estimated useful
lives as follows:
Buildings, barge and improvements 15 to 30 years
Furniture, fixtures and equipment 3 to 10 years
Capitalized Interest
The Partnership capitalizes interest for associated borrowing costs of major
construction projects. Capitalization of interest ceases when the asset is
substantially complete and ready for its intended use. Interest capitalized
during the years ended December 31, 1996, 1995 and 1994 was $620,000, $651,000
and $1,886,000, respectively.
F-45
<PAGE> 76
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Development and Preopening Expenses
Until all necessary approvals to proceed with the development of a new casino
project are obtained from the appropriate regulatory authorities, the related
development costs are expensed as incurred. Preopening costs incurred after the
receipt of necessary approvals are deferred as incurred and expensed upon the
opening of the related casino. Preopening costs of $7,021,000 were expensed in
connection with the opening of the Casino in February 1995.
Deferred Finance Charges
As of December 31, 1994, deferred finance charges, which are included in other
assets, consisted of fees and expenses incurred to issue the Old Notes discussed
in Note 5, including placement fees paid for by the issuance of ownership
interests and warrants to purchase ownership interests (the "Equity Warrants")
in the Partnership and New Gaming Capital Partnership ("NGCP"), an affiliate
which owns 91.92% of Horseshoe Entertainment, L.P. ("HE"), which owns and
operates the Horseshoe Bossier City in Bossier City, Louisiana. The value of
such ownership interests and Equity Warrants, based on independent appraisal,
was recorded as deferred finance charges with a corresponding credit to
partners' capital. These ownership interests and Equity Warrants were
subsequently exchanged for ownership interests and warrants to purchase
ownership interests in Gaming. These deferred finance charges were being
amortized over the period from the initial funding of the debt through the
latest date for repayment using the effective interest method. In October 1995,
the Partnership wrote off the balance of unamortized deferred finance charges of
$1,455,000 which is included in the extraordinary loss on early retirement of
debt in the 1995 statements of operations.
The balance of deferred finance charges as of December 31, 1996 and 1995, was
$1,924,000 and $2,237,000, respectively, and consists of fees and expenses
incurred by Gaming to issue the New Senior Notes and to obtain the Senior
Secured Credit Facility of which $70,000,000 was loaned to the Partnership as
discussed in Note 5. Accordingly, Gaming has charged the Partnership a portion
of the related finance charges. These deferred finance charges are being
amortized from the initial funding date through the required repayment date of
September 30, 2000, using the straight-line method.
Cash and Cash Equivalents
Cash and cash equivalents include commercial paper, amounts held in mutual
funds and other investments with original maturities of 90 days or less when
purchased.
F-46
<PAGE> 77
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Advertising Costs
The Partnership expenses all costs associated with advertising as incurred, and
such amounts are included in general and administrative expenses in the
accompanying statements of operations.
Income Taxes
No provision is made in the accounts of the Partnership for federal and state
income taxes, as such taxes are liabilities of the individual partners. The
Partnership's income tax return and the amount of allocable taxable income are
subject to examination by federal and state taxing authorities. If an
examination results in a change to Partnership income, the income tax reported
by the individual partners may also change. The tax bases in the Partnership's
assets and liabilities were greater than the amounts reported in the
accompanying financial statements by $3,077,000 and $9,140,000 at December 31,
1996 and 1995, respectively. In 1996, taxable income was less than net income
reported in the accompanying statements of operations, and in 1995 and 1994,
taxable income was in excess of net income reported in the accompanying
statements of operations.
Impairment of Long-Lived Assets
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," management continually evaluates whether events or changes in
circumstances indicate that the carrying amount of long-lived assets may not be
recoverable. Based on management's evaluations, no significant impairments of
long-lived assets have occurred during the three years ended December 31, 1996.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Reclassifications
Certain prior year balances have been reclassified to conform with the current
year presentation.
F-47
<PAGE> 78
3. STATEMENTS OF CASH FLOWS
Non-cash financing and investing activities consist of the following:
Ownership interests in the partnership valued at $317,000 were issued
for payment of certain deferred offering costs as of December 31, 1994.
Property and equipment was acquired through the issuance of debt
totaling $0, $17,817,000 and $17,183,000 for the years ended December
31, 1996, 1995 and 1994, respectively.
A capital contribution of $1,150,000 was made through the issuance of a
contribution receivable during the year ended December 31, 1995. The
Partnership received land in satisfaction of the receivable during
1996.
The net change in assets and liabilities consists of the following (in
thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
(Increase) decrease in assets:
Accounts receivable $(6,140) $(4,400) $ --
Due from affiliates -- 2,214 --
Interest receivable - related party 305 32 (151)
Inventories (60) (329) (89)
Prepaid expenses and other (109) 215 (2,595)
Preopening expenses -- (3,202) (3,205)
Increase (decrease) in liabilities:
Accounts payable (1,397) 2,100 (1,064)
Accrued expenses and other 99 2,445 4,874
Deferred interest payable - related party -- (797) 797
------- ------- -------
$(7,302) $(1,722) $(1,433)
======= ======= =======
</TABLE>
Cash payments for interest, excluding amounts capitalized, totaled $8,436,000,
$8,271,000 and $678,000 for the years ended December 31, 1996, 1995 and 1994,
respectively.
F-48
<PAGE> 79
4. ACCRUED EXPENSES AND OTHER
Accrued expenses and other consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
-----------------
1996 1995
------ ------
<S> <C> <C>
Payroll and related tax liabilities $1,225 $1,082
Vacation and other employee benefits 1,793 858
Accrued interest -- 2,122
Gaming, sales, use and property taxes 1,051 1,003
Outstanding chip and token liabilities 939 734
Progressive slot and slot club liabilities 2,429 2,200
Other accrued expenses 1,066 405
------ ------
$8,503 $8,404
====== ======
</TABLE>
5. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
------------------
1996 1995
------- -------
<S> <C> <C>
13.31% Intercompany Note Payable, requiring the Partnership to apply
100% of its available cash flow, as defined in the agreement, towards
the outstanding principal balance with the balance due in full on
September 30, 2000 $43,000 $70,000
Less: current maturities -- --
------- -------
$43,000 $70,000
------- -------
</TABLE>
In April 1994, Horseshoe Riverboat Casinos, LLC ("HRC"), which was owned 50% by
the Partnership and 50% by HE, completed a private placement of debt securities
which were used for the construction of the Horseshoe Bossier City and the
Casino. The total amount of senior notes and subordinated notes (collectively,
the "Old Notes") issued by HRC was $38,000,000 and $32,000,000, respectively,
and was loaned to HE and the Partnership on identical terms. These notes were
retired in October 1995 with the proceeds from the New Senior Notes and Senior
Secured Credit Facility (see discussion following).
F-49
<PAGE> 80
5. LONG-TERM DEBT (CONTINUED)
The Old Notes carried warrants to purchase partnership interests in the
Partnership and NGCP. The value of these warrants on the date of issue, based on
independent appraisal, was recorded as a discount against the face value of the
Old Notes with a corresponding credit to partners' capital. Certain of the
warrant holders exercised such warrants and exchanged their newly issued
partnership interests for membership interests in Gaming. The remaining warrants
were exchanged for new warrants to purchase an approximate aggregate membership
interest in Gaming of 7.01%.
The Old Notes were secured by the Partnership's land, buildings and certain
personal property. Mr. Jack B. Binion ("Mr. Binion"), the Chief Executive
Officer of Gaming, personally guaranteed the repayment of $10,000,000 of the
Senior Notes Payable.
On October 10, 1995, Gaming loaned the Partnership $70,000,000 from a portion of
the proceeds of a $150,000,000 Senior Secured Credit Facility due September 30,
1999 (the "Credit Facility") and a private placement of $100,000,000 of 12.75%
senior notes due September 30, 2000 (the "New Senior Notes"), to retire
substantially all of the Partnership's existing debt. An extraordinary loss on
early retirement of debt of $3,098,000 was recognized in 1995 for prepayment
penalties and the write-off of the unamortized discounts and deferred finance
charges.
The Credit Facility and the related interest are guaranteed unconditionally by
the Partnership and are secured by a first pledge of Gaming's ownership interest
in all present and future subsidiaries with the exception of NGCP's ownership
interest in HE. The Credit Facility is also secured by (i) a first lien position
on substantially all of the assets of the Casino other than certain gaming
equipment; (ii) a first lien position on all intercompany notes received by
Gaming from its subsidiaries, in each case secured by a first lien on the casino
and real property of each subsidiary; (iii) a first lien on substantially all of
the assets of Horseshoe Casinos (Indiana), LLC, excluding equipment; and (iv) a
first pledge of the minority interests in all present and future subsidiaries
owned by Mr. Binion and certain affiliates of Mr. Binion. In addition, Mr.
Binion personally guaranteed the repayment of $8,250,000 of the Credit Facility.
The New Senior Notes and the related interest are guaranteed unconditionally by
the Partnership and are secured by a second pledge of Gaming's ownership
interest in all present and future subsidiaries with the exception of NGCP's
ownership interest in HE. The New Senior Notes are also secured by (i) a second
lien position on substantially all of the assets of the Casino other than
certain gaming equipment; (ii) a second lien position on all intercompany notes
received by Gaming from its subsidiaries, in each case secured by a second lien
on the Casino and real property of each subsidiary; and (iii) a second pledge of
the minority interests in all present and future subsidiaries owned by Mr.
Binion and certain affiliates of Mr. Binion.
F-50
<PAGE> 81
5. LONG-TERM DEBT (CONTINUED)
The New Senior Notes and the Credit Facility contain covenants that, among other
things, (i) limit the amount of additional indebtedness which may be incurred by
Gaming and its subsidiaries; (ii) prohibit any consolidation or merger of Gaming
or its subsidiaries with an affiliate or third party, any sale of substantially
all of Gaming or its subsidiaries' assets or any payment of subordinated
indebtedness prior to its scheduled maturity; and (iii) require Gaming and its
subsidiaries to invest excess funds in cash equivalents and government
securities with a maturity of one year or less.
The Partnership's new intercompany note with Gaming bears interest at 13.31% and
requires the Partnership to apply 100% of its available cash flow, as defined,
towards the outstanding principal balance with the balance due in full on
September 30, 2000. There are no material restrictions on the amount of cash or
other assets which the Partnership may distribute to Gaming, and the Partnership
may prepay the outstanding balance of the intercompany note at any time prior to
maturity without premium or penalty. During 1996, the Partnership repaid
$32,000,000 of the outstanding intercompany note and borrowed an additional
$5,000,000. Management of the Partnership intends to reborrow additional amounts
during 1997 for future capital expenditures; accordingly, as of December 31,
1996, no amounts have been classified as a current obligation. As of December
31, 1995, the balance of accrued interest payable to Gaming was $2,122,000 and
was included in accrued expenses and other in the accompanying balance sheet.
The Partnership had paid all accrued interest due to Gaming as of December 31,
1996.
6. GAIN ON SALE OF LAND
The Partnership acquired land for the development of the Casino in 1993 for
$4,696,000. The funds to purchase the land were loaned to the Partnership
directly and indirectly by Mr. Binion. The partnership agreement required that
any gain from the sale of this land be distributed to certain of the original
limited partners of the Partnership. Such limited partners are affiliates of Mr.
Binion and have subsequently exchanged their partnership interests in the
Partnership for ownership interests in Gaming.
In June 1994, the Partnership sold a portion of the land and recognized a gain
of $5,242,000. Of this gain, $3,155,000 was distributed to the original limited
partners of the Partnership in cash and $2,087,000 was distributed in the form
of a note. The remaining land, which had a net book value of $1,078,000, was
distributed to the original limited partners on October 20, 1995.
7. TRANSACTIONS WITH AFFILIATES
During 1994, HRC advanced HE $2,214,000 of the Partnership's pre-established
Senior and Subordinated Note Payable borrowings, which was repaid in early 1995.
F-51
<PAGE> 82
7. TRANSACTIONS WITH AFFILIATES (CONTINUED)
Initial funding to the Partnership was provided by loans from affiliates of the
Partnership. Such notes payable to affiliates accrued interest at 10% and were
due April 15, 2004. The notes had an outstanding balance of $5,605,000 as of
December 31, 1994. These notes payable to affiliates, and the related deferred
interest payable balance, were repaid in October 1995 with proceeds from the
intercompany loan from Gaming discussed in Note 5.
On the inception date of the Partnership (June 7, 1993), the partners were
required to make capital contributions of $3,000,000. Such contributions were
not paid in cash until 1994; therefore, a contributions receivable was recorded
for the required contributions. The contributions receivable earned interest at
an annual rate of 10% until paid. The related interest receivable balance as of
December 31, 1995 and 1994, was $305,000 and $337,000, respectively, and was
repaid during the first quarter of 1996.
During the years ended December 31, 1996, 1995 and 1994, there were numerous
transactions with the original partners of the Partnership, parties affiliated
with the partners and other affiliates. These transactions included, but are
not limited to, payments for consulting fees, expense reimbursements, various
operating expenses and other items. The total amount of such expenditures for
the years ended December 31, 1996, 1995 and 1994, were $736,000, $972,000 and
$366,000, respectively.
At December 31, 1996 and 1995, the due to affiliates balance relates primarily
to costs and expenses of the Partnership paid for by Gaming.
8. EMPLOYEE COMPENSATION AND BENEFITS
Employment Agreements
During 1994, the Partnership entered into employment agreements with certain key
employees that provide certain benefits in the event such employees are
terminated. These employees also received ownership interests in the
Partnership, which were subsequently exchanged for membership interests in
Gaming, and vest over terms specified in the various employment agreements,
which is generally five years. These employment agreements include a put/call
provision which, if exercised by the employee, would require Gaming to
repurchase these ownership interests in the event of termination at the then
fair market value based on an independent appraisal. Accordingly, these
compensation arrangements are accounted for as variable stock purchase plans.
Compensation expense is recorded each period equal to the change in the fair
market value of ownership interests issued pursuant to these agreements. The
Partnership reimburses Gaming for the expense related to these ownership
interests; therefore, there is no deferred compensation reported in the
accompanying balance sheet as of December 31, 1996.
The amount of compensation expense recorded in the accompanying consolidated
statements of operations related to these ownership interests was $2,620,000,
$2,456,000 and $37,000 for the years ended December 31, 1996, 1995 and 1994,
respectively.
F-52
<PAGE> 83
8. EMPLOYEE COMPENSATION AND BENEFITS (CONTINUED)
401(k) Savings Plan
Effective January 1, 1995, a 401(k) savings plan was established by the
Partnership whereby eligible employees can contribute up to 15% of their salary.
RPG matches 50% of the employees' contributions up to a maximum of 6% of their
salary. Employees vest in the Partnership's matching contribution over six
years. Employees of the Partnership are eligible to participate in the plan on
the first day of the next calendar quarter following six months of service. The
Partnership's matching contributions were $299,000 and $158,000 for the years
ended December 31, 1996 and 1995, respectively.
9. COMMITMENTS AND CONTINGENCIES
Litigation
The Partnership, during the normal course of operating its business, becomes
engaged in various litigation. In the opinion of the Partnership's management,
the ultimate disposition of such litigation will not have a material impact on
the Partnership's operations.
Construction Commitments
The Partnership is currently expanding its casino and hotel facilities, which
are expected to be completed during the fourth quarter of 1997 at a total
estimated cost of $95,000,000. As of December 31, 1996, the total amount
incurred was $20,162,000.
F-53
<PAGE> 84
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Las Vegas, State of Nevada, on March __, 1997.
Horseshoe Gaming, L.L.C.,
a Delaware limited liability company
By: Horseshoe Gaming, Inc.,
a Nevada corporation
Its: Manager
By: /s/ Jack B. Binion
------------------------
Jack B. Binion
Its: Chief Executive Officer and
Chairman of the Board of Directors
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Jack B. Binion March __, 1997
- --------------------------------- Chief Executive Officer and
Jack B. Binion Chairman of the Board of Directors
(Principal Executive Officer) of Horseshoe
Gaming, Inc.
/s/ Walter J. Haybert Chief Financial Officer and Treasurer March __, 1997
- --------------------------------- (Principal Financial and Accounting
Walter J. Haybert
Officer) of Horseshoe Gaming, Inc.
</TABLE>
31
<PAGE> 85
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
------ ----------- ----
<S> <C>
3.1* Certificate of Formation of Horseshoe Gaming, L.L.C.
3.2** Limited Liability Company Agreement of Horseshoe Gaming, L.L.C., as amended to date.
3.3* Articles of Incorporation of Horseshoe Gaming, Inc. (formerly New Gaming Capital Corporation),
as amended to date.
3.4* Bylaws of Horseshoe Gaming, Inc. (formerly New Gaming Capital Corporation).
3.5* Certificate of Limited Partnership of Robinson Property Group Limited Partnership, as amended
to date.
3.6* Second Amended and Restated Limited Partnership Agreement of Robinson Property Group Limited
Partnership, as amended to date.
3.7* Articles of Incorporation of Horseshoe GP, Inc., as amended to date.
3.8* Bylaws of Horseshoe GP, Inc.
4.1* Senior Secured Credit Facility Note Purchase Agreement, dated as of October 10, 1995, by and
among Horseshoe Gaming, L.L.C., Robinson Property Group Limited Partnership and the Purchasers
as defined therein.
4.2* Form of Promissory Note for Senior Secured Credit Facility.
4.3* Exchange Offer Letters dated October 10, 1995 by and between Horseshoe Gaming, L.L.C.,
Horseshoe Riverboat Casinos, LLC, Horseshoe Entertainment and Robinson Property Group Limited
Partnership, on the one hand, and each of the holders of 14.00% Senior Secured Notes due April
15, 2000 and/or 14.00% Subordinated Notes due April 15, 2001 issued by Horseshoe Riverboat
Casinos, LLC on the other hand.
4.4* Guarantee and Security Agreement, dated as of October 10, 1995, from Robinson Property Group
Limited Partnership, as Note Guarantor, in favor of the holders of Senior Secured Credit
Facility Notes due September 30, 1999.
4.5* Pledge Agreement, dated as of October 10, 1995, from Jack Binion, B&O Development Limited
Partnership and JBB Gaming Investments, L.L.C. (formerly Worldwide Gaming Investments, L.L.C.)
in favor of the holders of Senior Secured Credit Facility Notes due September 30, 1999.
4.6* Pledge Agreement, dated as of October 10, 1995, from Horseshoe Gaming, L.L.C. in favor of the
holders of Senior Secured Credit Facility Notes due September 30, 1999.
4.7* Mortgage, Security Agreement and Assignment of Leases and Rents executed by Horseshoe
Entertainment, as Mortgagor, in favor of Horseshoe Gaming, L.L.C., as Mortgagee.
4.8* First Preferred Ship Mortgage on the whole of the Queen of the Red executed by Horseshoe
Entertainment, as Owner and Mortgagor, in favor of Horseshoe Gaming, L.L.C., as Mortgagee.
4.9* Bossier City Security Agreement and Assignment thereof.
</TABLE>
1
<PAGE> 86
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
------ ----------- ----
<S> <C>
4.10* Deed of Trust Security Agreement and Assignment of Leases and Rents from
Robinson Property Group Limited Partnership, as Grantor, to Rowan H. Taylor, Jr., an
individual, as Trustee for the benefit of Horseshoe Gaming, L.L.C., and Hanwa American Corp.,
Yewdale Holdings Limited and debis Financial Services, Inc., as Beneficiaries.
4.11* First Preferred Ship Mortgage on the whole of the Horseshoe Casino and Hotel, Tunica executed
by Robinson Property Group Limited Partnership, as Owner and Mortgagor, in favor of Horseshoe
Gaming, L.L.C. and Chemical Trust Company of California, as Mortgagee.
4.12* Tunica County Security Agreement and Assignment thereof.
4.13* Master Vessel Trust Agreement, dated as of October 10, 1995, between debis Financial Services,
Inc., Hanwa American Corp., and Yewdale Holdings Limited, as Lenders, and Chemical Trust
Company of California, as Trustee.
4.14* Note Assignment, dated as of October 10, 1995, from Horseshoe Gaming, L.L.C., in favor of the
Holders of Senior Secured Credit Facility Notes due September 30, 1999, issued by Horseshoe
Gaming, L.L.C. and United States Trust Company of New York for the ratable benefit of the
Holders of 12.75% Senior Notes due September 30, 2000 issued by Horseshoe Gaming, L.L.C.
4.15* Intercompany Senior Secured Note due September 30, 2000, executed by Horseshoe Entertainment in
favor of Horseshoe Gaming, L.L.C.
4.16* Intercompany Senior Secured Note due September 30, 2000, executed by Robinson Property Group
Limited Partnership in favor of Horseshoe Gaming, L.L.C.
4.17* Binion Partners Escrow Agreement, dated as of October 10, 1995, by and among Horseshoe Gaming,
L.L.C., Robinson Property Group Limited Partnership, Jack Binion, B&O Development Limited
Partnership, JBB Gaming Investments, L.L.C. (formerly Worldwide Gaming Investments, L.L.C.),
the Purchasers named in the Senior Secured Credit Facility Note Purchase Agreement, U.S. Trust
Company of California, N.A., as Trustee, and Bank of America Nevada, as Escrow Agent.
4.18* Excess Proceeds Escrow Agreement, dated as of October 10, 1995, by and among Horseshoe Gaming,
L.L.C., Robinson Property Group Limited Partnership, the Purchasers named in the Senior Secured
Credit Facility Note Purchase Agreement, U.S. Trust Company of California, N.A., as Trustee
under the Indenture, and Bank of America Nevada, as Escrow Agent.
4.19* Intercreditor Agreement, dated as of October 10, 1995, among debis Financial Services, Inc.,
Yewdale Holdings Limited and Hanwa American Corp.
4.20* 12.75% Senior Notes due 2000 Senior Note Purchase Agreement by and among Horseshoe Gaming,
L.L.C., Robinson Property Group Limited Partnership, as Guarantor, and the Purchasers thereof.
4.21* Form of Senior Note of Horseshoe Gaming, L.L.C. 12.75% Senior Notes due 2000.
</TABLE>
2
<PAGE> 87
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
------ ----------- ----
<S> <C>
4.22* Indenture, dated as of October 10, 1995, by and among Horseshoe Gaming, L.L.C., U.S. Trust
Company of California, N.A., as Trustee, and Robinson Property Group Limited Partnership, as
Guarantor, with respect to the 12.75% Senior Notes due 2000.
4.23* Collateral Agency Agreement, dated as of October 6, 1995, by and among Horseshoe Gaming,
L.L.C., Robinson Property Group Limited Partnership, B&O Development Limited Partnership, JBB
Gaming Investments, L.L.C. (formerly Worldwide Gaming Investments, L.L.C.), and Jack Binion, as
Grantors, the Purchasers of the 12.75% Senior Notes due 2000, and United States Trust Company
of New York, as Collateral Agent.
4.24* Exchange and Registration Rights Agreement, dated as of October 10, 1995, by and among
Horseshoe Gaming, L.L.C., Robinson Property Group Limited Partnership, as Guarantor, and the
Purchasers of the 12.75% Notes due 2000 issued under the Indenture.
4.25* Second Pledge Agreement, dated as of October 10, 1995, from Jack Binion, B&O Development
Limited Partnership, and JBB Gaming Investments, L.L.C. (formerly Worldwide Gaming Investments,
L.L.C.) in favor of United States Trust Company of New York, as Collateral Agent for the
benefit of the Holders of 12.75% Senior Notes due September 30, 2100 issued by Horseshoe
Gaming, L.L.C.
4.26* Second Pledge Agreement, dated as of October 10, 1995, from Horseshoe Gaming, L.L.C. in favor
of United States Trust Company of New York, for the ratable benefit of the Holders of 12.75%
Senior Notes due September 30, 2000 issued by Horseshoe Gaming, L.L.C.
4.27* Second Ship Mortgage on the whole of the Queen of the Red by Horseshoe Entertainment owner and
mortgagor in favor of Horseshoe Gaming, L.L.C., as Mortgagee.
4.28* Bossier City Second Security Agreement and Assignment thereof.
4.29* Second Deed of Trust, Security Agreement and Assignment of Leases and Rents from Robinson
Property Group Limited Partnership, as Grantor, to Rowan H. Taylor, Jr., an individual, as
Trustee for the benefit of Horseshoe Gaming, L.L.C. and United States Trust Company of New
York, as Collateral Agent for the Senior Note Holders, as beneficiaries.
4.30* Second Ship Mortgage on the whole of the Horseshoe Casino and Hotel, Tunica executed by
Robinson Property Group Limited Partnership, as Owner and Mortgagor, in favor of Horseshoe
Gaming, L.L.C. and United States Trust Company of New York, as Collateral Agent for the ratable
benefit of the Senior Note Holders.
4.31* Tunica County Second Security Agreement and Assignment thereof.
4.32* Intercreditor Agreement, dated as of October 10, 1995, among debis Financial Services, Inc.,
Yewdale Holdings Limited, Hanwa American Corp. and Chemical Trust Company of California, as
Trustee, as Lien Holders, and U.S. Trust Company of California, N.A., as Trustee for the
Holders of Horseshoe Gaming, L.L.C. 12.75% Senior Notes due 2000 and Horseshoe Gaming, L.L.C.
12.75% Exchange Senior Notes due 2000, and United States Trust Company of New York, as
Collateral Agent, as Junior Lien Holders.
4.33* Limited Guaranty by Jack B. Binion in favor of debis Financial Services, Inc., as amended to
date.
4.34* Intercompany Senior Secured Note Due September 30, 2000 dated October 20, 1995 by Horseshoe
Ventures, L.L.C. in favor of Horseshoe Gaming, L.L.C.
</TABLE>
3
<PAGE> 88
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
------ ----------- ----
<S> <C>
4.36** Amendment to Excess Proceeds Agreement, dated as of February 9, 1996, by and among Horseshoe
Gaming, L.L.C., Robinson Property Group Limited Partnership, the Purchasers named in the Senior
Secured Credit Facility Note Purchase Agreement, U.S. Trust Company of California, N.A., as
Trustee under the Indenture, and Bank of America Nevada, as Escrow Agent.
4.37+++ Amendment No. 1 to Indenture, dated as of July 19, 1996, by and among Horseshoe Gaming, L.L.C.,
Robinson Property Group Limited Partnership and U.S. Trust Company of California, N.A., as
Trustee under the Indenture.
4.38*** Amendment to Senior Secured Credit Facility Note Purchase Agreement dated as of October 1, 1996
by and among Horseshoe Gaming, L.L.C., Robinson Property Group Limited Partnership, Yewdale
Holdings Limited, Hanwa American Corp. and debis Financial Services, Inc.
4.39*** Second Amendment to Excess Proceeds Escrow Agreement dated as of October 1, 1996, by and among
Horseshoe Gaming, L.L.C., Robinson Property Group Limited Partnership, Yewdale Holdings
Limited, Hanwa American Corp., debis Financial Services, Inc., U.S. Trust Company of
California, N.A. as trustee under the Indenture and Bank of America Nevada.
10.1* Employment Agreement dated January 1, 1996 by and between Horseshoe Gaming, Inc. and Paul
Alanis.
10.2** Employment Agreement dated as of October 1, 1995 by and between Horseshoe Gaming, Inc. and
Walter J. Haybert.
10.3** Assignment Agreement dated as of October 1, 1995 by and between Horseshoe Gaming, L.L.C. and
Walter J. Haybert.
10.4** Employment Agreement dated as of October 1, 1995 by and between Horseshoe Gaming, Inc. and John
J. Schreiber.
10.5** Assignment Agreement dated as of October 1, 1995 by and between Horseshoe Gaming, L.L.C. and
John J. Schreiber.
10.6** Employment Agreement dated as of October 1, 1995 by and between Horseshoe Gaming, Inc. and John
Michael Allen.
10.7** Assignment Agreement dated as of October 1, 1995 by and between Horseshoe Gaming, L.L.C. and
John Michael Allen.
10.8* Consulting Agreement dated March 10, 1993 by and between Jack Binion and Koar International,
Inc. (ultimately assigned to Horseshoe Gaming, Inc. and KII-Pasadena, Inc.)
10.9* Warrant to purchase 1,941,981 Horseshoe Gaming Units, dated as of October 10, 1995, issued to
Hanwa American Corp.
10.10* Warrant to purchase 1,941,980 Horseshoe Gaming Units, dated as of October 10, 1995, issued to
Yewdale Holdings Limited.
10.11* Warrant to purchase 1,566,629 Horseshoe Gaming Units, dated as of October 10, 1995, issued to
Hanwa American Corp.
10.12* Warrant to purchase 1,566,630 Horseshoe Gaming Units, dated as of October 10, 1995, issued to
Yewdale Holdings Limited.
</TABLE>
4
<PAGE> 89
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
------ ----------- ----
<S> <C>
10.13** Registration Rights Agreement dated as of October 10, 1995 by and between Horseshoe Gaming,
L.L.C., on the one hand, and Yewdale Holdings Limited, Post Balanced Fund, L.P., Capital Fund
Foundation, Raymond Zimmerman, as Trustee for the Charles N. Mathewson Charitable Remainder Uni
Trust, Hanwa American Corp., Onyx Partners, Inc., Alpine Associates, Janless Corp., Andrew
Astrachan, and Donald Schupak, on the other hand.
10.14* Assignment and Purchase Agreement dated as of October 1, 1995 between Jack Binion and Horseshoe
Gaming, L.L.C.
10.15* Promissory Note dated October 10, 1995 by Horseshoe Gaming, L.L.C. in favor of Jack B. Binion
in the principal amount of $500,000.
10.16* Purchase Agreement dated as of October 1, 1995 between B&O Development Limited Partnership and
Horseshoe Gaming, L.L.C.
10.17* Assignment Agreement dated as of October 1, 1995 between KR, Inc. and Horseshoe Ventures,
L.L.C.
10.18* Promissory Note dated October 10, 1995 by Horseshoe Ventures, L.L.C., in favor of KR, Inc. in
the principal amount of $4,769,016.47.
10.19* Option Agreement dated as of October 10, 1995 between Horseshoe Gaming, L.L.C., on the one
hand, and Hanwa American Corp. and Yewdale Holdings Limited, on the other hand.
10.20* Letter Agreement dated as of October 10, 1995 between Horseshoe Gaming, L.L.C. and Hanwa
American Corp.
10.21* Letter Agreement dated as of October 10, 1995 between Horseshoe Gaming, L.L.C. and Yewdale
Holdings Limited.
10.22** Purchase and Sale Agreement dated as of November 15, 1995 by and between Frank Pernici and New
Gaming Capital Partnership, with Horseshoe Gaming, L.L.C., as Guarantor.
10.23* Employment Agreement dated January 1, 1996 by and between Horseshoe Gaming, L.L.C. and Loren S.
Ostrow.
10.24* 401(k) Plan of Robinson Property Group Limited Partnership.
10.25** Limited Partnership Agreement of Horseshoe Entertainment, a Louisiana limited partnership,
dated April 20th, 1993.
10.26** Second and Amended and Restated Limited Partnership Agreement of New Gaming Capital
Partnership, a Nevada limited partnership, dated as of October 1, 1995.
10.27** Limited Liability Company Agreement of Horseshoe Ventures, L.L.C., a Delaware limited liability
company, dated as of October 1, 1995.
10.28+ Second Amended and Restated Operating Agreement of Horseshoe Casinos (Indiana), LLC, an Indiana
limited liability company, dated as of April 26, 1996.
10.29** Hanwa Co., Ltd. Commitment Letter, dated April 18, 1996, for Senior Secured Financing for the
Proposed Horseshoe Indiana Riverboat Gaming Facility.
</TABLE>
5
<PAGE> 90
<TABLE>
<CAPTION>
Sequentially
Exhibit Numbered
Number Description Page
------ ----------- ----
<S> <C>
10.30** Amendment No. 1 to Option Agreement, dated as of April 15, 1996, between Horseshoe Gaming,
L.L.C., on the one hand, and Hanwa American Corp. and Yewdale Holdings Limited, on the other
hand.
10.31** Purchase Agreement, dated March 26, 1996, by and between Kehl River Boats, Inc. and Horseshoe
Gaming, L.L.C.
10.32** Agreement to Purchase and Sell Real Estate, dated March 13, 1996, by and between Le Bossier,
L.L.C., as Seller, and Horseshoe Entertainment, as Buyer.
10.33*** Amended Employment Agreement dated October 1, 1995 by and between Horseshoe Gaming, Inc. and
John Michael Allen.
10.34*** Employment Agreement dated July 1, 1996 by and between Horseshoe Gaming, Inc. and Gary Border.
10.35*** Amended Employment Agreement dated October 1, 1995 by and between Horseshoe Gaming, Inc. and
Walter J. Haybert.
10.36*** Amended Employment Agreement dated October 1, 1995 by and between Horseshoe Gaming, Inc. and
John J. Schreiber.
21.1*** Subsidiaries of Horseshoe Gaming, L.L.C.
27.1 Financial Data Schedule - Horseshoe Gaming L.L.C and Subsidiaries.
- -----------
</TABLE>
* Filed as an Exhibit to Registration Statement on Form S-4 (No.
333-0214) filed on January 8, 1996.
** Filed as an Exhibit to Amendment No. 1 to Registration Statement filed
on April 26, 1996.
*** Filed herewith.
+ Filed as an Exhibit to Amendment No. 2 to Registration Statement filed
on May 9, 1996.
++ Filed as an Exhibit to Amendment No. 3 to Registration Statement filed
on May 13, 1996.
+++ Filed as an Exhibit to Form 10-Q for the Quarter Ended June 30, 1996,
filed on August 13, 1996.
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT
TO SECTION 12 OF THE ACT.
No annual report or proxy material has been sent to security holders
during the fiscal year ended December 31, 1996.
6
<PAGE> 1
EXHIBIT 4.38
AMENDMENT TO SENIOR SECURED CREDIT FACILITY NOTE PURCHASE AGREEMENT
This AMENDMENT TO SENIOR SECURED CREDIT FACILITY NOTE PURCHASE
AGREEMENT (the "Amendment") is entered into as of October 1, 1996 by and among
Horseshoe Gaming, L.L.C., a Delaware limited liability company (the "Company")
Robinson Property Group Limited Partnership, a Mississippi limited partnership
("RPG"), Yewdale Holdings Limited ("Yewdale"), Hanwa American Corp. ("Hanwa")
and debis Financial Services, Inc. ("debis" and, together with Yewdale and
Hanwa, the "Holders").
R E C I T A L S
WHEREAS, the Company, RPG and the Holders have entered into that
certain Senior Secured Credit Facility Note Purchase Agreement dated as of
October 10, 1995 (the "Note Purchase Agreement"; all capitalized terms defined
in the Note Purchase Agreement and not otherwise defined herein shall have the
meaning given them in the Note Purchase Agreement);
WHEREAS, the Note Purchase Agreement provides for the purchase by and
issuance to debis of Additional Notes, subject to the satisfaction of specified
conditions precedent;
WHEREAS, the Note Purchase Agreement establishes the rate of interest
to be paid on the Notes (including the Additional Notes);
WHEREAS, the parties desire to amend the Note Purchase Agreement (and,
to the extent appropriate, the other Operative Documents) to modify the
provisions with respect to the purchase and issuance of the Additional Notes,
to alter the rate of interest to be paid on the Notes as of and from the date
of this Amendment, and to revise the Note Purchase Agreement in certain other
respects;
NOW THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the parties hereby agree as follows:
1. The Note Purchase Agreement is hereby amended by deleting
Section 1.2(b) in its entirety and substituting therefor the following Section
1.2(b):
(b) Subject to the conditions set forth in this
paragraph, debis agrees to purchase, at the Company's election, up to
an additional aggregate $50 million principal amount of Notes (the
"Additional Notes") on one or more, but not to exceed four, Additional
Closing Dates (the
<PAGE> 2
"Additional Closing Commitment"). The closing of debis' purchase of
the Additional Notes, or any portion thereof if less than the entire
amount is purchased at one closing (each, an "Additional Closing" or
an "Additional Closing Date") shall be held at the offices of Richards
& O'Neill, LLP, at 885 Third Avenue, New York, New York, or at such
other place as the parties hereto mutually may agree, on such dates
from April 1, 1997 through August 31, 1997, inclusive, as are selected
by the Company, subject to the following conditions in respect of each
Additional Closing Date:
(i) The Company shall have given debis
written notice not less than ten (10) Business Days in advance of the
Additional Closing Date.
(ii) The representations and warranties
of the Company set forth in this Agreement shall be true and correct
on and as of such Additional Closing Date except to the extent that
such representations and warranties by their terms speak as of an
earlier date, in which case such representations and warranties shall
be true and correct as of such earlier date, and no Default or Event
of Default shall have occurred hereunder and no Default or Event of
Default would occur hereunder upon the issuance of the Notes on such
Additional Closing Date.
(iii) There shall not have occurred and be
continuing any Material Adverse Change.
(iv) All the conditions of closing set
forth in Section 3 shall have been satisfied on such Additional
Closing Date in respect of the Company and its Subsidiaries (provided,
however, that the conditions set forth in Sections 3.2, 3.14(b),
3.14(d) and 3.14(e) shall be deemed to have been satisfied on such
Additional Closing Date if such condition shall have been satisfied
not more than one year prior to such Additional Closing Date).
(v) To the extent that the Company makes
an HE Intercompany Senior Loan and/or an RPG Intercompany Senior Loan
from the proceeds of the issuance of Additional Notes at such
Additional Closing, HE and/or RPG, as the case may be, shall have
issued to the Company an HE Intercompany Senior Note or an RPG
Intercompany Senior Note, respectively, evidencing such loan; the sum
of the amounts of any such HE Intercompany Senior Loan, any such RPG
Intercompany Senior Loan and the amount of any proceeds of such
Additional Notes deposited by the Company in the Excess Proceeds
Escrow Account on such
-2-
<PAGE> 3
Additional Closing Date shall be at least equal to the principal
amount of the Additional Notes purchased by debis on such Additional
Closing Date.
(vi) The Intercompany Notes issued on
such Additional Closing Date shall have been secured as provided in
Section 1.3.
(vii) An update of the title policies on
the real properties securing the HE Intercompany Senior Loan and/or
the RPG Intercompany Senior Loan, as the case may be, and referred to
in Section 3.5 hereof shall have been obtained not more than one year
prior to such Additional Closing Date and shall have shown no
encumbrances or liens other than Permitted Liens.
2. The Note Purchase Agreement is hereby amended by deleting
Section 1.2(d) in its entirety and substituting therefor the following:
(d) [INTENTIONALLY OMITTED]
3. The Note Purchase Agreement is hereby amended by deleting the
second sentence of Section 1.3(c) in its entirety.
4. The Note Purchase Agreement is hereby amended by deleting
Section 1.3(g) in its entirety and substituting therefor the following:
(g) [INTENTIONALLY OMITTED]
5. The Note Purchase Agreement is hereby amended by deleting
Section 1.4 (a) in its entirety and substituting therefor the following Section
1.4(a):
(a) On the Initial Closing Date, the Company
shall make a loan of up to $82 million to HE and thereafter the Company may
from time to time make additional loans to HE (each such loan being an "HE
Intercompany Senior Loan"). The HE Intercompany Senior Loans shall be
evidenced by one or more HE Intercompany Senior Notes substantially in the form
attached hereto as Exhibit L. HE will use the entire proceeds of the HE
Intercompany Senior Loan made on the Initial Closing Date to repay Indebtedness
incurred by it pursuant to the Previous Senior Secured Note Purchase Agreement,
the Subordinated Note Purchase Agreement, the HE Partner Loans and the HE/debis
Loan Agreement, to pay debt issuance costs and to fund the expansion of
existing facilities.
6. The Note Purchase Agreement is hereby amended by deleting
Section 1.4(b) in its entirety and substituting therefor the following Section
1.4(b):
-3-
<PAGE> 4
(b) On the Initial Closing Date, the Company
shall make a loan of up to $74.5 million to RPG and thereafter the Company may
from time to time make additional loans to RPG (each such loan being an "RPG
Intercompany Senior Loan"). The RPG Intercompany Senior Loans shall be
evidenced by one or more RPG Intercompany Senior Notes substantially in the
form attached hereto as Exhibit M. RPG will use the entire proceeds of the RPG
Intercompany Senior Loan made on the Initial Closing Date to repay Indebtedness
incurred by it pursuant to the Previous Senior Secured Note Purchase Agreement,
the Subordinated Note Purchase Agreement, the RPG Partner Loans and the
RPG/debis Loan Agreement, to pay debt issuance costs, to repay an intercompany
loan from HE and to fund the expansion of existing facilities.
7. The Note Purchase Agreement is hereby amended by deleting
Section 1.4(c) in its entirety and substituting therefor the following Section
1.4(c):
(c) On each Additional Closing Date, the Company
shall use the entire proceeds from the sale of Additional Notes on
such Additional Closing Date as follows: (i) to make a loan or loans
to HE and/or RPG; and (ii) to deposit the balance of such proceeds in
the Excess Proceeds Escrow Account, provided that the Company shall
withdraw the proceeds of Additional Notes from the Excess Proceeds
Escrow Account only to make one or more loans to HE and/or to RPG.
8. The Note Purchase Agreement is hereby amended by deleting
Section 3.A in its entirety and substituting therefor the following Section
3.A:
A. Your obligation to purchase and pay for the
Notes to be purchased by you on the Closing Date (or any Additional
Closing Date) shall be subject to the satisfaction on or before the
Closing Date (or the Additional Closing Date) of the conditions
hereinafter set forth. For purposes of determining whether the
conditions of this Section 3 have been satisfied with respect to such
Additional Closing, references herein to the "Closing Date" and the
"Closing" shall be deemed references to an "Additional Closing Date"
and an "Additional Closing," and reference to "you" shall be deemed
references to "debis," provided that (i) the originals of all
Intercompany Notes shall be delivered to the person designated by the
Majority Noteholders as described in Section 3.8(3), and copies
thereof shall be delivered to each Noteholder; (2) originals of all
insurance certificates and all Operative Documents (other than the
Additional Notes, the Intercompany Notes, the Harrison County
Mortgage, the Assignment of Harrison County Mortgage, and the HIND
Intercompany Senior Note) shall have been delivered to each
Noteholder; and (3) copies of all other documents required to be
delivered in connection with such Additional Closing shall be
delivered to each Noteholder.
-4-
<PAGE> 5
9. The Note Purchase Agreement is hereby amended by deleting
Section 3.8(2) in its entirety and substituting therefor the following Section
3.8(2):
(2) On each Additional Closing Date, the HG
Pledge Agreement shall be in full force and effect. On each
Additional Closing Date you shall have received Intercompany Notes
from HE and/or RPG which in the aggregate evidence the excess of the
amount of Notes purchased by debis on such Additional Closing Date
over the amount of proceeds deposited in the Excess Proceeds Escrow
Account by the Company on such Additional Closing Date.
10. The Note Purchase Agreement is hereby amended by deleting
Section 3.8(3) in its entirety and substituting therefor the following Section
3.8(3):
(3) The Majority Noteholders shall determine who
shall hold the HE Intercompany Senior Note, the RPG Intercompany
Senior Note and the other Intercompany Notes as secured party on
behalf of all of the Purchasers.
11. The Note Purchase Agreement is hereby amended by deleting
Section 3.10 in its entirety and substituting therefor the following Section
3.10:
Section 3.10 Insurance. You shall have received
certificates evidencing the insurance required by this Agreement in
respect of the real estate underlying the Bossier City Mortgage and
real estate underlying the Tunica County Deed of Trust together with
loss payable endorsements in your favor under all such insurance
policies.
12. The Note Purchase Agreement is hereby amended by deleting
Section 3.13(2) in its entirety and substituting therefor the following Section
3.13(2):
(2) On each Additional Closing Date, the Company
and each Subsidiary that receives proceeds from the issuance of
Additional Notes on such Additional Closing Date shall have obtained
all required consents, approvals and authorizations, and you shall
have received a certificate of the Company and each such Subsidiary,
as applicable, signed by an executive officer, dated the Additional
Closing Date, to such effect.
13. The Note Purchase Agreement is hereby amended by deleting
Section 3.14(i) in its entirety and substituting therefor the following Section
3.14(i):
(i) On each Additional Closing Date similar
documents, as appropriate, shall have been delivered to debis with
regard to the
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<PAGE> 6
Company and HE and/or RPG, if applicable, in respect of the sale of
Additional Notes on such Additional Closing Date.
14. The Note Purchase Agreement is hereby amended by deleting
Section 4.1 in its entirety and substituting therefor the following Section
4.1:
Section 4.1. Interest. The Notes shall bear interest from
the Initial Closing Date (or, if later, the date of their issuance) to
and including September 30, 1996, at the rate per annum equal to the
greater of (a) 10.00% or (b) three-month LIBOR plus 2.50%. The Notes
shall bear interest on and after October 1, 1996, at a rate per annum
equal to the sum of six-month LIBOR plus 3.00%. Such interest rate
for each quarterly or semi-annual period shall be set on the first day
of such period and shall be applicable to that period. Interest will
be payable quarterly on each March 31, June 30, September 30 and
December 31 to the registered Holders of the Notes at the close of
business on March 15, June 15, September 15 and December 15,
respectively, immediately preceding the next payment date. Such
interest payments shall commence on December 31, 1995, with respect to
Notes other than Additional Notes, and with respect to Additional
Notes shall commence on the last day of the fiscal quarter following
the fiscal quarter in which the sale of such Additional Notes to debis
shall have occurred. Interest shall be computed on the basis of a
360-day year of twelve 30-day months. The Company shall pay principal
and interest to each registered Holder of the Notes in the manner
provided in Schedule I hereto under the name of such Holder.
15. The Note Purchase Agreement is hereby amended by deleting from
Section 4.7(a) the word "Senior" the one time that such word appears therein.
16. The Note Purchase Agreement is hereby amended by deleting
Section 6.21 in its entirety and substituting therefor the following Section
6.21:
Section 6.21. Escrow Agreement. As of the Initial Closing
Date, the Company shall place in the Excess Proceeds Escrow Account,
to be administered by an independent escrow agent pursuant to the
Excess Proceeds Escrow Agreement, an amount equal to the remainder of
(a) the aggregate proceeds of the sale of the Notes (other than the
Additional Notes) and the Senior Notes (other than the Senior Notes
sold upon exercise of the Warrants), less (b) the amount of such
proceeds being loaned to RPG and HE on the Initial Closing Date less
(c) without duplication, amounts used to repay certain indebtedness of
RPG and HE and certain transaction fees and less (d) $5 million to be
retained by the Company for working capital (such remainder is
estimated to be
-6-
<PAGE> 7
approximately $31 million and is herein referred to as the "Initial
Excess Proceeds"). The proceeds from the sale of Senior Notes upon
exercise of the Warrants (the "Warrant Proceeds") shall also be placed
in the Excess Proceeds Escrow Account. The remainder of (a) the
proceeds from the sale of Additional Notes, less (b) the amount of
such proceeds loaned to HE or RPG on the respective Additional Closing
Date (the "Additional Excess Proceeds") shall also be placed in the
Excess Proceeds Escrow Account. (The Initial Excess Proceeds, the
Warrant Proceeds and the Additional Excess Proceeds are herein
referred to together as the "Excess Proceeds"). The Excess Proceeds
Escrow Agreement will restrict the use of the Excess Proceeds to the
development by the Company of New Projects and the repayment of
Indebtedness of the Company and its Subsidiaries. Notwithstanding the
foregoing, the Additional Excess Proceeds shall only be used by the
Company to make Intercompany Loans to HE and/or to RPG for the
expansion and renovation of, and construction of additional facilities
in connection with, the Horseshoe Bossier City Casino and/or the
Horseshoe Tunica Casino, respectively. The Company and RPG shall
comply in all material respects with the terms of the Excess Proceeds
Escrow Agreement.
17. The Note Purchase Agreement is hereby amended by deleting from
Section 7.1 the following terms and their respective definitions: "Additional
Closing Commitment Period" and "Additional Commitment Notice."
18. The Note Purchase Agreement is hereby amended by deleting from
Section 7.1 the term "LIBOR" and its definition and substituting therefor the
following:
"LIBOR" shall mean: (a) with respect to each period described
in Section 4.1 and ending prior to October 1, 1996, the offered rate
per annum on such date of determination in the London Interbank market
for deposits in U.S. dollars of amounts equal or comparable to the
then outstanding aggregate principal amount of the Notes for a
three-month term; and (b) with respect to each period described in
Section 4.1 and ending after September 30, 1996, the offered rate per
annum in the London Interbank market for deposits in U.S. dollars of
amounts equal or comparable to the then outstanding aggregate
principal amount of the Notes for a period of six months appearing on
the Telerate Page 3750 as of 11:00 a.m. London time two London banking
days prior to the first day of such period.
19. The Note Purchase Agreement is hereby amended by deleting from
Section 7.1 the term "New Project Subsidiary" and its definition and
substituting therefor the following:
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<PAGE> 8
"New Project Subsidiary" shall mean the Subsidiary of the
Company, including without limitation HE and RPG, that owns the Company's
interest in any New Project.
20. The Note Purchase Agreement is hereby amended by deleting from
Section 7.1 the term "Notes" and its definition and substituting therefor the
following:
"Notes" shall have the meaning ascribed thereto in Section 1.1
and shall include the Additional Notes and all other Notes sold
pursuant to Section 1.2(e) or Section 6.9(g).
21. The Note Purchase Agreement is hereby amended by deleting from
Section 8.1J the four phrases "the Harrison County Mortgage, if applicable,"
"the Assignment of Harrison County Mortgage, if applicable," "or the mortgaged
property of HIND, as described in the Harrison County Mortgage," and "the
Harrison County Preferred Ship Mortgage" the one time that each such phrase
appears therein.
22. The Note Purchase Agreement is hereby amended by replacing,
effective as of the date of this Amendment, Schedule II and Schedule 2(u) to
the Note Purchase Agreement with Schedule II and Schedule 2(u), respectively,
to this Amendment. The Company may hereafter replace, revise or supplement
each Schedule to the Note Purchase Agreement by delivering notice to the
Holders of such replacement, revision or supplement in accordance with Section
14.4.
23. In accordance with the action heretofore taken by Worldwide
Gaming L.L.C. to change its name to JBB Gaming Investments, L.L.C, each
reference to Worldwide Gaming L.L.C. in the Note Purchase Agreement or the
other Operative Documents shall be deemed to be references to JBB Gaming
Investments, L.L.C.
24. The Senior Secured Credit Facility Notes due September 30,
1999 heretofore issued to the Holders, and the form of the Senior Secured
Credit Facility Notes due September 30, 1999 to be issued hereafter pursuant to
the Note Purchase Agreement are each hereby amended by deleting from the first
paragraph thereof (immediately following the capitalized legends thereon) the
last seventy-four (74) words of the first sentence (commencing with the words
"at the rate per annum...") and the second sentence in its entirety (concluding
with the words "... applicable to that quarterly period.") and substituting
therefor the following:
from October 10, 1995 (or, if later, the date of their issuance) to
and including September 30, 1996 at the rate per annum equal to the
greater of (a) 10.00% or (b) three month LIBOR (as defined in the Note
Purchase Agreement) plus 2.50%, and from and after October 1, 1996
(or, if later, the date of their issuance), at a rate per annum equal
to the sum of six
-8-
<PAGE> 9
month LIBOR plus 3.00%, payable quarterly in arrears on each March 31,
June 30, September 30 and December 31 of each year, commencing
December 31, 1995, until said principal amounts shall have become due
and payable, plus additional interest payable as and when set forth in
the Note Purchase Agreement. The interest rate for each quarterly or
semi-annual period shall be set on the first day of each such period
and shall be applicable to such period.
25. Upon the execution and delivery of this Amendment by each of
the parties hereto, the Company shall pay to each Holder a restructuring fee
equal to six-tenths of one percent (0.6%) of the outstanding principal balance
as of October 1, 1996, of the Notes held by such Holder plus the Additional
Closing Commitment of such Holder, equal to $133,673.14 in the case of Hanwa,
equal to $125,318.57 in the case of Yewdale and equal to $516,826.55 in the
case of debis.
26. Except as specifically provided in this Amendment, the Note
Purchase Agreement shall remain in full force and effect, without modification.
To the extent that any terms or provisions of this Amendment conflict with the
terms or provisions of the Note Purchase Agreement, the terms and provisions of
this Amendment shall control. This Amendment is effective, upon the execution
hereof by each of the parties hereto, as of October 1, 1996.
27. This Amendment shall be governed by and construed and
interpreted in accordance with the laws of the State of New York.
28. This Amendment may be executed in any number of counterparts
by the parties hereto, each of which counterparts when so executed shall be an
original, but all such counterparts taken together shall constitute one and the
same instrument.
-9-
<PAGE> 10
IN WITNESS WHEREOF, the parties have duly executed and delivered this
Amendment as of the date first above written.
HORSESHOE GAMING, L.L.C.
By: Horseshoe Gaming, Inc.,
its sole manager
By:
---------------------------------------------
Name: Walter J. Haybert
Title: Treasurer
ROBINSON PROPERTY GROUP
LIMITED PARTNERSHIP
By: Horseshoe G.P., Inc., its general partner
By:
---------------------------------------------
Name: Walter J. Haybert
Title: Treasurer
YEWDALE HOLDINGS LIMITED
By:
---------------------------------------------
Name:
Title:
HANWA AMERICAN CORP.
By:
----------------------------------------------
Name:
Title:
-10-
<PAGE> 11
DEBIS FINANCIAL SERVICES, INC.
By:
----------------------------------
Name:
Title:
11
<PAGE> 12
SCHEDULE II
OWNERSHIP OF THE COMPANY AND ITS SUBSIDIARIES
I. Ownership of the Company
See Exhibit A attached to this Schedule II.
II. Ownership of Horseshoe GP, Inc.
The Company owns 100% of Horseshoe GP, Inc. ("HGP")
III. Ownership of NGCP
The Company owns 99% of NGCP as a limited partner and HGP owns 1%
of NGCP as a general partner.
IV. Ownership of HE
NGCP owns 89% of HE as the sole general partner and 2.92% of HE as
a limited partner, August Robin owns 3% of HE as a limited partner,
Cassandra Piper owns 4.58% of HE as a limited partner and Wendell
Piper owns 0.50% of HE as a limited partner. NGCP has entered
into an option agreement to acquire an additional 1% interest in HE
as a limited partner.
V. Ownership of RPG
The Company owns 99% of RPG as a limited partner and HGP owns 1% of
RPG as a general partner.
VI. Ownership of HIND
The Company owns 50% of the membership interests of HIND and Jack
Binion and B&O own the remainder of the membership interests of
HIND (subject to the Company's option to acquire such membership
interests). The Company is the manager of HIND. Thirty percent of
the membership interests of HIND are available for issuance to
local partners and senior management of HIND. Upon issuance, the
Company's percentage ownership of HIND will be diluted on a ratable
basis with the interests of Jack Binion and B&O.
VII. Ownership of Horseshoe Ventures
JBB Gaming Investments, L.L.C. owns 20% of the membership interests
of Horseshoe Ventures and the Company owns 80% of the membership
interests of Horseshoe Ventures and is the manager thereof.
-12-
<PAGE> 13
VIII. Ownership of Red Oak Insurance Company Ltd.
The Company owns 100% of Red Oak Insurance Company Ltd.
Convertible Securities, Warrants, Options, Rights to Purchase,
Calls, etc.
Warrants
Yewdale Holdings Limited ("Yewdale") holds warrants to
purchase membership interests in the Company. Upon exercise
of such warrants and the payment of the exercise price to the
Company, the Company shall distribute such payment to HGI in
consideration for HGI's agreement to reduce its membership
interest by the amount purchased under such warrants.
Employment Agreements
1. HGI and John Michael Allen have entered into a put/call option
pursuant to an employment agreement dated October 1, 1995 by and
among HGI and John Michael Allen.
2. Gary Anderson and RPG have entered into a put/call option pursuant
to an employment agreement dated October 31, 1993 by and among RPG
and Gary Anderson.
3. Rick Cook and HE have entered into a put/call option pursuant to an
employment agreement dated October 31, 1994 by and among HE and
Rick Cook.
4. Walter J. Haybert and the Company have entered into a put/call
option pursuant to an employment agreement dated July 20, 1995 by
and among the Company and Walter J. Haybert.
5. Robert McQueen and RPG have entered into a put/call option pursuant
to an employment agreement dated June 7, 1994 by and among RPG and
Robert McQueen.
6. John Schreiber and HGI have entered into a put/call option pursuant
to an employment agreement dated October 1, 1995 by and among HGI
and John Schreiber.
7. Richard Waters and HE have entered into a put/call option pursuant
to an employment agreement dated February 1, 1994 by and among HE
and Richard Waters.
-13-
<PAGE> 14
8. HGI and Gary Border have entered into a put/call option pursuant to
an employment agreement dated July 1, 1996 by and between HGI and
Gary Border.
-14-
<PAGE> 15
EXHIBIT A to Schedule II
HORSESHOE GAMING, L.L.C. MEMBERS
<TABLE>
<CAPTION>
PERCENTAGE
NAME UNITS INTEREST
---- ----- ------------
<S> <C> <C>
HORSESHOE GAMING, INC 30,715,128 30.531675%
JACK B. BINION 17,366,247 17.262523%
G.A. ROBINSON, III 1,158,897 1.151975%
ROBINSON PROPERTY GROUP, INC 231,779 0.230395%
TED J. FECHSER TRUST
Becky Behnen, Trustee 3,277,941 3.258363%
FANCY ANN FECHSER TRUST
Becky Behnen, Trustee 3,277,941 3.258363%
JAMES CHRISTOPHER FECHSER TRUST,
Becky Behnen, Trustee 3,277,941 3.258363%
ROBERT DANIEL FECHSER TRUST,
Becky Behnen, Trustee 3,277,941 3.258363%
BEN EVAN JOHNSON TRUST,
Becky Behnen Trustee 3,277,941 3.258363%
KATIE O'NEILL TRUST,
Wanda Parsons, Trustee 3,277,941 3.258363%
KELLIE O'NEILL TRUST,
Wanda Parsons, Trustee 3,277,941 3.258363%
JERRY HOWARD 289,724 0.287994%
ROBERT MCQUEEN 144,862 0.143997%
GARY ANDERSON 434,586 0.431990%
LOREN S. OSTROW LIVING TRUST,
Loren S. Ostrow, Trustee 1,577,967 1.568542%
</TABLE>
-15-
<PAGE> 16
<TABLE>
<CAPTION>
PERCENTAGE
NAME UNITS INTEREST
---- --------- ---------
<S> <C> <C>
THE ALANIS FAMILY PARTNERSHIP 3,155,935 3.137085%
ONYX PARTNERS, INC 97,461 0.096879%
JOHN MICHAEL ALLEN 1,316,203 1.308342%
DOYLE BRUNSON 525,989 0.522847%
LOUISE BRUNSON 525,989 0.522847%
TODD BRUNSON 525,989 0.522847%
PAM BRUNSON 525,989 0.522847%
RICK COOK 131,497 0.130712%
DAVID REESE 2,103,957 2.091391%
KATHLEEN ROSE 631,986 0.628212%
TED J. FECHSER TRUST,
Peri Cope Howard, Trustee 945,059 0.939414%
FANCY ANN FECHSER TRUST,
Peri Cope Howard, Trustee 945,059 0.939414%
JAMES CHRISTOPHER FECHSER TRUST,
Peri Cope Howard, Trustee 945,059 0.939414%
ROBERT DANIEL FECHSER TRUST,
Peri Cope Howard, Trustee 945,059 0.939414%
KATIE O'NEILL TRUST,
Peri Cope Howard, Trustee 945,059 0.939414%
KELLIE O'NEILL TRUST,
Peri Cope Howard, Trustee 945,059 0.939414%
BEN EVAN JOHNSON TRUST,
Peri Cope Howard, Trustee 945,059 0.939414%
RACHEL FECHSER TRUST,
Peri Cope Howard, Trustee 945,059 0.939414%
</TABLE>
-16-
<PAGE> 17
<TABLE>
<CAPTION>
PERCENTAGE
NAME UNITS INTEREST
---- ----- ------------
<S> <C> <C>
BONNIE BINION TRUST,
Peri Cope Howard, Trustee 189,013 0.187884%
BENNY BEHNEN TRUST,
Peri Cope Howard, Trustee 189,013 0.187884%
JACK BEHNEN TRUST,
Peri Cope Howard, Trustee 189,013 0.187884%
KEY FECHSER 189,013 0.187884%
BOBBY FECHSER 189,013 0.187884%
MINDY JOHNSON 189,013 0.187884%
LESLIE KENNY 378,025 0.375767%
PERI COPE HOWARD 378,025 0.375767%
JOHN SCHREIBER 750,734 0.746250%
RICHARD WATERS 236,265 0.234854%
POST BALANCED FUND, L.P. 350,861 0.348765%
CAPITAL FUND FOUNDATION 87,715 0.087191%
CHARLES N. MATHEWSON CHARITABLE REMAINDER
UNITRUST, Raymond Zimmerman, Trustee 29,238 0.029063%
JANLESS CORP 389,846 0.387518%
ALPINE ASSOCIATES, A LIMITED PARTNERSHIP 97,461 0.096879%
ANDREW ASTRACHAN 2,513,093 2.498083%
DONALD SCHUPAK 1,285,784 1.278104%
WALT HAYBERT 500,489 0.497500%
GARY BORDER 503,004 0.500000%
TOTAL: 100,600,862 100.000000%
</TABLE>
-17-
<PAGE> 18
SCHEDULE 2(u)
Employee Benefit Plans
1. RPG, HE and Horseshoe Gaming, Inc., as the Manager of the Company
(collectively, the "Entities") each maintain several welfare employee
benefit plans. Such plans provide health insurance, life insurance,
dental insurance, and vision insurance. The employees have the option
to purchase additional insurance life, cancer, and disability. Based
on certain contractual agreements with executives, the Entities
provide bonuses based on profitability. The Entities are also
obligated to provide severance benefits pursuant to certain employment
contracts. Certain of those individuals are also entitled to deferred
compensation benefits.
2. Each of the Entities maintains a Section 125 Cafeteria Plan.
3. Each of the Entities has established a Section 401(k) plan in which
its employees may participate. These plans are IRS-approved prototype
plans maintained by Scudder.
4. The Entities provide vacation benefits.
-18-
<PAGE> 1
EXHIBIT 4.39
SECOND AMENDMENT TO EXCESS PROCEEDS ESCROW AGREEMENT
This SECOND AMENDMENT TO EXCESS PROCEEDS ESCROW AGREEMENT (the
"Amendment") dated as of October 1, 1996, is entered into by and among
Horseshoe Gaming, L.L.C., a Delaware limited liability company (the "Company")
Robinson Property Group Limited Partnership, a Mississippi limited partnership
("RPG"), Yewdale Holdings Limited ("Yewdale"), Hanwa American Corp. ("Hanwa"),
debis Financial Services, Inc. ("debis" and, together with Yewdale and Hanwa,
the "Credit Facility Purchasers"), U.S. Trust Company of California, N.A. (the
"Trustee", which term shall include any successor Trustee) as trustee under the
Indenture (as defined below) and Bank of America Nevada, a Nevada banking
corporation (the "Escrow Agent").
R E C I T A L S
WHEREAS, the Company, RPG, the Credit Facility Purchasers, the Trustee
and the Escrow Agent have entered into that certain Excess Proceeds Escrow
Agreement dated as of October 10, 1995 and have entered into that certain
Amendment to Excess Proceeds Escrow Agreement dated as of February 9, 1996 (as
so amended, the "Escrow Agreement"; all capitalized terms defined in the Escrow
Agreement and not otherwise defined herein shall have the meaning given them in
the Escrow Agreement);
WHEREAS, the Escrow Agreement provides that the Escrow Agent shall
hold in the Escrow Account the Initial Excess Proceeds and the Warrant
Proceeds;
WHEREAS, the Company, RPG and the Credit Facility Purchasers are
entering into that certain Amendment to Senior Secured Credit Facility Note
Purchase Agreement effective as of the date hereof, pursuant to which the
Company would be permitted to place certain proceeds of the Additional Notes
into the Escrow Account; and
WHEREAS, it is desired that the Escrow Agreement be amended to enable
the Escrow Agent to receive, hold and disburse the proceeds of the Additional
Notes in accordance with the provisions of the Escrow Agreement;
NOW THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and adequacy of which is hereby
acknowledged, the parties hereby agree as follows:
1. The Escrow Agreement is hereby amended by deleting Recital D
in its entirety and substituting therefor the following Recital D:
D. The Company, RPG, the Senior Secured Credit Facility
Note Purchasers and the Senior Note Purchasers have agreed that the
proceeds from the exercise of the Warrants (the "Warrant Proceeds")
would be
<PAGE> 2
placed in escrow together with the Initial Excess Proceeds, and the
Company, RPG and the Senior Secured Credit Facility Note Purchasers
have agreed that the proceeds from the sale and issuance of Additional
Notes, less the amount of such proceeds that are loaned to a
Subsidiary (the "Additional Excess Proceeds") shall also be placed in
escrow together with the Initial Excess Proceeds and the Warrant
Proceeds; the Initial Excess Proceeds, the Warrant Proceeds and the
Additional Excess Proceeds are herein referred to together as the
"Excess Proceeds."
2. The Escrow Agreement is hereby amended by deleting Section 1
in its entirety and substituting therefor the following Section 1:
1. Establishment of Escrow
Simultaneously with the execution of this Agreement,
the Company shall deposit with the Escrow Agent the Initial Excess Proceeds by
wire transfer. Upon the exercise of the Warrants, the Warrant Proceeds shall
also be deposited with the Escrow Agent by wire transfer. On each Additional
Closing Date, the Additional Excess Proceeds, if any, shall also be deposited
with the Escrow Agent by wire transfer. The Initial Excess Proceeds, the
Warrant Proceeds and the Additional Excess Proceeds, if any, shall be held in
escrow by the Escrow Agent, in an interest bearing account or other investments
permitted by Section 3(j) (the "Escrow Account"), in accordance with the terms
and provisions of this Agreement. All interest earned on the Escrow Account
shall be held by the Escrow Agent under the terms of this Agreement and shall
be paid by the Escrow Agent in accordance with the terms of this Agreement.
The balance at anytime remaining in the Escrow Account is herein referred to as
the "Escrow Fund." The parties hereto agree and it is the specific intention
that the Escrow Fund held under this Agreement shall not be deemed to be
property of the estate of any debtor or debtor-in-possession under Section 541
of the United States Bankruptcy Code, 11 U.S.C. 100 et seq. or otherwise in the
event of any bankruptcy or other insolvency proceeding of the Company.
3. Except as specifically provided in this Amendment, the Escrow
Agreement shall remain in full force and effect, without modification. To the
extent that any terms or provisions of this Amendment conflict with the terms
or provisions of the Escrow Agreement, the terms and provisions of this
Amendment shall control. This Amendment is effective as of October 1, 1996.
4. This Amendment shall be governed by and construed and
interpreted in accordance with the laws of the State of Nevada.
5. This Amendment may be executed in any number of counterparts
by the parties hereto, each of which counterparts when so executed shall be an
original, but all
-2-
<PAGE> 3
such counterparts taken together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have duly executed and delivered this
Amendment as of the date first above written.
HORSESHOE GAMING, L.L.C.
By: Horseshoe Gaming, Inc.,
its sole manager
By:
----------------------------------
Name: Walter J. Haybert
Title: Treasurer
ROBINSON PROPERTY GROUP
LIMITED PARTNERSHIP
By: Horseshoe G.P., Inc., its general
partner
By:
----------------------------------
Name: Walter J. Haybert
Title: Treasurer
YEWDALE HOLDINGS LIMITED
By:
----------------------------------
Name:
Title:
HANWA AMERICAN CORP.
By:
----------------------------------
Name:
Title:
-3-
<PAGE> 4
DEBIS FINANCIAL SERVICES, INC.
By:
--------------------------------
Name:
Title:
U.S. TRUST COMPANY OF CALIFORNIA, N.A.
By:
--------------------------------
Name:
Title:
BANK OF AMERICA NEVADA
By:
--------------------------------
Name:
Title:
-4-
<PAGE> 1
EXHIBIT 10.33
1.
<PAGE> 2
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into as of the 1st day of October, 1995 by ad
between HORSESHOE GAMING, INC., a Nevada corporation ("Employer" or "Company")
and Mr. JOHN MICHAEL ALLEN ("Employee"), and is made with reference to the
following recitals of fact:
RECITALS
WHEREAS, Employer is the Manger of Horseshoe Gaming LLC, a Delaware limited
liability company (the "LLC"), whose subsidiaries and affiliates have developed
and are currently operating casino facilities in Tunica County, Mississippi (the
"Tunica Facility") and in Bossier City, Louisiana (the "Bossier City Facility"),
and intends to develop numerous other casino facilities in emerging gaming
jurisdictions;
WHEREAS, Employee has heretofore served as the General Manager of the
Tunica Facility pursuant to an Employment Agreement dated May 11, 1994 by and
between Robinson Property Group Limited Partnership and Employee (the "Prior
Employment Agreement"), which Prior Employment Agreement is being terminated
concurrent with the effectiveness of this Agreement;
WHEREAS, Employee has extensive experience in the gaming industry, and
based upon his knowledge, experience and skill is capable of performing each and
all of the duties and responsibilities to be assigned to Employee pursuant to
the terms of this Agreement; and
WHEREAS, Employer wishes to hire and employ Employee, and Employee desires
to accept such employment pursuant to the terms of this Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, and in consideration of the mutual
covenants, promises and agreements herein contained, the parties hereto agree as
follows:
AGREEMENT
1. Definitions. All capitalized words referenced or used in this Agreement
and not specifically defined herein shall have the meaning set forth on Exhibit
"A", attached hereto and made a part hereof.
2. Term. This Agreement shall become effective and Employee's term of
employment with Employer shall commence, for all purposes, on October 1, 1995
(the "Commencement Date") and shall terminate on May 11, 1999, unless terminated
sooner by
2.
<PAGE> 3
Employer or Employee pursuant to the terms set forth herein.
3. Position to be Held by Employee. Employee is hereby employed and hired b
Employer to serve and act as the Senior Vice President-Operations of Employer
and shall perform each and all of the duties and shall have all of the
responsibilities described herein. Employee shall at all times report directly
to and take directives from the Chief Executive Officer ("CEO") of the Company,
which presently is Mr. Jack B. Binion.
4. Duties and Responsibilities.
A. General Duties. In his capacity as Senior Vice President-Operations
of the Company, Employee shall have responsibility for overseeing the operations
of the Tunica Facility and assisting in the opening of any to-be-developed
casino and hotel facilities owned by subsidiaries or affiliates of Horseshoe
Gaming, LLC (the "LLC") for which Employer is the Manager (individually, a
"Facility" and collectively, the "Facilities") in a manner so as to maximize, to
the best of his ability, the profitability of each Facility, for and on behalf
of the LLC in accordance with applicable laws and regulations. The authority of
Employee to bind Employer shall be as broad or as limited as may be determined
from time to time by the Board of Directors of the Company. Within salary and
policy guidelines established by the CEO and/or the Board and with the
reasonable concurrence of the CEO, Employee, while performing as General Manager
of a Facility, shall have the authority to hire and fire employees of each
Facility at all levels below departmental head positions, and with the
concurrence of the CEO, departmental heads as well.
B. Specific Duties.
(i) Employee shall continue to serve and act as the General manager
and Chief Operating Officer of the casino and hotel owned by Robinson Property
Group Limited Partnership in Tunica, Mississippi (the "Tunica Facility"), having
responsibility for supervising and directing the day-to-day activities and
affairs of the Tunica Facility, including, without limitation, customer
relations, marketing, employee relations, service and quality of the casino and
hotel operation, service and quality of all food and beverage facilities, cash
management, compliance with all Governmental Requirements, and all other similar
functions typically performed by a general manager of a major casino and hotel
facility. In all instances, Employee shall coordinate with and oversee the
various department heads charged with direct responsibility for various facets
of the casino and hotel operations, and assure that all such employees are
performing their respective assignments and such departments are consequently
being run in a thorough, competent, efficient and professional manner.
3.
<PAGE> 4
(ii) Employer understands and agrees that it is intended that Employee
will not remain the General Manager of the Tunica Facility, but rather, as the
operations of the Tunica Facility become stabilized and companies or
partnerships owned or controlled by the LLC continue to expand into other new
gaming jurisdictions, Employee shall be involved actively in assisting in the
acquisition, development and opening of such new facility, including, if
determined necessary by the CEO of the Company, serving as General manager of a
new facility until such time as the operations of the new facility become
stabilized. Accordingly, Employee may be relocated to different cities (other
than the city in which the Company's headquarters are located) and assigned
significantly different responsibilities from those set forth herein.
C. Fiduciary Duty. In every instance, Employee shall carry out his
various duties and responsibilities in a fiduciary capacity on behalf of
Employer, in an effort to maximize the profitability of the Facilities. In no
event whatsoever shall Employee enter into any commitments or obligations,
written or verbal, or take any other action or omit to take any action, the
result of which would be to create a conflict of interest between Employer and
Employee, or the result of which would benefit Employee, or any person
associated with or affiliated with Employee, to the detriment of Employer.
D. Full Time Effort. Employee acknowledges and agrees that the duties
and responsibilities to be discharged by Employee require a full time effort on
the part of Employee, and accordingly, Employee agrees to devote his full time
effort and resources for and on behalf of Employer, and agrees that he will not,
during the term hereof, enter into any other business activities or ventures,
other than those which are passive in nature and which will not require the
active participation of Employee.
E. Directives from CEO. In all instances, Employee agrees to carry out
all of his duties and responsibilities as set forth herein pursuant to the
guidance, reasonable and lawful directives and instructions of the CEO of the
Company, Mr. Jack B. Binion, or his successor, and agrees that at all times his
authority shall be subordinate to such CEO. Any decisions as to which there is a
disagreement between Employee and the CEO, the wishes and directives of the CEO
shall prevail in all instances, and Employee shall carry out any and all
reasonable and lawful directives from the CEO to the best of his ability.
5. Compensation. As compensation for the services to be rendered by
Employee pursuant to the terms of this Agreement, Employee shall be entitled to
receive the following:
4.
<PAGE> 5
(a) a base salary of Three Hundred and Fifty Thousand Dollars
($350,000) per year (the "Base Compensation"), payable semi-monthly; plus
(b) a one time bonus of Sixty-Seven Thousand Dollars ($67,000),
payable on or before January 15, 1996;
(c) Employer and Employee acknowledge that Employee has held a one
percent (1%) partnership interest in Robinson Property Group Limited Partnership
and a one-half percent (.5%) partnership interest in New Gaming Capital
Partnership pursuant to the terms of the prior Employment Agreement, and that
such interests have been contributed to the LLC pursuant to the terms of that
certain Assignment Agreement dated effective September 1, 1995, executed by
Employee in favor of the LLC in exchange for a .805506% interest in the LLC or
815,714 Units in the LLC (the "Old Units"). Subject to the provisions of Section
11 hereof, Employee's interest in the LLC shall increase to 1.293423% by the
grant, as of the date hereof, of 500,849 Units in the LLC (the "New Units"; the
Old Units and the New Units constitute the "Ownership Interest"). Such Ownership
Interest shall entitle Employee to receive an interest in the Net Profits
generated by the LLC, in accordance with the Limited Liability Agreement of the
LLC to which Employee is a party, including those Net Profits generated as a
result of the LLC's Ownership Interest in the Bossier City, Louisiana and
Tunica, Mississippi casinos presently in operation as well as all other future
operating subsidiaries to be owned in whole or in part by the LLC.
The Ownership Interest in the Old Units granted hereunder to
Employee shall include for all purposes hereunder and under the terms of the
Operating Agreement for the LLC, a right to distributions based upon a share of
Net Profits from and after the date of grant of the Old Units(the "Old Units
Grant Date"), including appreciation in the assets of the LLC over their fair
market value as of the Old Units Grant Date, but not including a share of the
then capital of the LLC, including any appreciation in the assets of the LLC up
to the Old Units Grant Date.
The Ownership Interest in the New Units granted hereunder to
Employee shall including for all purposes hereunder and under the terms of the
Operating Agreement for the LLC, a right to distributions based upon a share of
Net Profits from and after the date of grant of the New Units(the "New Units
Grant Date"), including appreciation in the assets of the LLC over their fair
market value as of the New Units Grant Date, but not including a share of the
then capital of the LLC, including any appreciation in the assets of the LLC up
to the New Units Grant Date.
5.
<PAGE> 6
6. Fringe Benefits. Employee shall be entitled to participate in such
health and pension plans as Employer shall adopt for all of the executives of
the company; it being understood and agreed that the only retirement plan that
Employer anticipates adopting at this time is a Section 401(k) form of
retirement plan. In addition, it is understood and agreed that the Base
Compensation to be received by Employee is to be all-inclusive of other typical
fringe benefits provided to executives in a similar position as Employee;
provided, however, that Employee shall be entitled to the following benefits at
no cost to Employee and/or entitled to reimbursement for all reasonable
out-of-pocket expenses incurred in connection with the following:
(a) to the extent Employer establishes (a) bonus plan(s) offering cash
and/or equity ownership in the LLC, Employee shall be eligible to be considered
for a bonus under such plan(s). Employee understands that the grant of any
bonus, however, shall be in the sole discretion of the Board of Directors of
Horseshoe Gaming, Inc.;
(b) reasonable rental housing expenses, air transportation expenses
and other similar expense, incurred by Employee and/or Employee's spouse during
Employee's temporary relocations as General Manager of any new Facility;
(c) on an ongoing basis, all reasonable entertainment, traveling and
other similar expenses incurred in the performance of his duties and
responsibilities as Senior Vice President-Operations and as General Manager of a
Facility, such expenses to be subject to budgets established for such purpose;
(d) participation in Employer's health coverage plan for Employee and
all members of his immediate family, with such policy to be on terms and
conditions typically provided by major gaming companies, and subject to the
maximum benefit limitations typically included in such plans, such insurance
coverage shall include insurance for disability in an amount and upon terms to
be reasonably agreed upon and determined by Employer and Employee within sixty
(60) days from and after the date hereof. Employer and Employee agree that
Employer shall be obligated to continue the payment of Employee's base salary
during any short term disability, i.e. one continuing for a period of 180 days
or less, provided that such payments and obligations shall be reduced by the
amount of any disability insurance payments Employee is entitled to receive
during such period of time; and
(e) paid vacation of three (3) weeks per year; provided that Employee
may not accumulate more than six (6) of vacation, regardless of the amount of
vacation actually taken by Employee during the course of his employment.
6.
<PAGE> 7
7. Gaming License. Employer and Employee understand that it may be
necessary for Employee to apply for and obtain, and maintain in full force and
effect at all times, a gaming license in various jurisdictions in which
subsidiaries or affiliates of the LLC are conducting gaming operations for
persons serving in a similar capacity as Employee. Accordingly, Employee agrees,
promptly after the date hereof, to make application for any and all of such
required gaming licenses, to fully cooperate in the investigation or
investigations to be conducted in connection therewith, and otherwise use his
best efforts to obtain such gaming licenses in a timely fashion. Employer agrees
to fully cooperate with Employee in such regard and provide all necessary
information required in connection therewith and otherwise use his best efforts
to obtain such gaming licenses in a timely fashion. Employer agrees to fully
cooperate with Employee in such regard and provide all necessary information
required in connection therewith, and to pay for all costs associated with
Employee obtaining such gaming licenses, including application fees,
investigation fees, or any other similar expenses such as attorneys' fees,
reasonably approved by Employer and incurred in connection therewith. In the
event that Employee should fail to obtain any such license due to his lack of
suitability or failure to submit information in a timely manner (the "License
Denial"), and such License Denial prevents Employee from being able to carry
out, in a reasonable manner, his duties and responsibilities set forth herein,
then this Agreement may be immediately terminated by Employer, in which event
Employee shall have no right to any further compensation hereunder and the
divestiture provisions set forth in Section 11 hereof shall become effective.
During the course of his employment, Employee agrees to fully comply with all
requirements of applicable Gaming Authorities and Governmental Authorities.
8. Termination.
A. Termination for Cause. Employee may be terminated by Employer for
"cause" in which event the provisions of Section 8A(i) through (iv) below shall
apply.
For purposes or this agreement "cause" is herein defined as one or more of
the following events:
(a) the failure of Employee to initially obtain a gaming license or the
revocation, or suspension for a period in excess of ninety (90) days, of any of
Employee's gaming licenses due to an act or omission of Employee, which was not
caused by Employer or any of its representatives;
7.
<PAGE> 8
(b) failure or refusal by Employee to observe or perform any of the
material provisions of this Agreement or any other written agreement with
Employer, or to perform in a reasonably satisfactory manner all of the material
duties required of Employee under this agreement or any other written agreement
with Employer;
(c) commission of fraud, misappropriation, embezzlement or other acts of
dishonesty, alcoholism, drug addition or dependency or conviction for any crime
punishable as a felony or a gross misdemeanor involving dishonesty or moral
turpitude, or the commission of any act or acts which have a material adverse
effect upon Employee's ability to perform the duties which are assumed or
assigned to him pursuant to this Agreement, or which actions or occurrences are
materially adverse to the interests of Employer;
(d) failure or refusal by Employee to comply with the reasonable and lawful
directives of and/or procedures established by the CEO, Jack B. Binion, or his
successor, or the Board of Directors: or
(e) the death of Employee or the "long-term" mental or physical disability
of Employee to such a degree that Employee, in the reasonable judgment of
responsible physicians retained by Employer, is unable to carry out all of his
obligations, duties and responsibilities set forth herein. For purposes of this
Agreement, "long-term" shall be defined as exceeding a period of one hundred and
eighty (180) days.
Termination of Employee's employment for cause under Subsections 8A(c) or
(e) above shall be effective upon notice. Termination of Employee's employment
for cause under subsections 8A(a), (b) or (d) above shall be effective upon
thirty (30) days prior written notice to Employee; provided that prior to the
giving of such notice of termination, Employer shall notify Employee that a
factual basis for termination for cause exists, specifying such basis.
Upon any termination of Employee's employment with Employer, the following
shall apply:
i) Employee shall be paid his use Compensation through the effective
date of such termination;
ii) Employee shall be entitled to retain his Fully Vested Ownership
Interest in the LLC (as hereinafter defined in Section 12;
iii) The covenant not to compete and confidentiality agreement set
forth in Sections 9 and 10
8.
<PAGE> 9
herein below shall apply in the manner and to the extent set forth herein; and
iv) The put/call option described in Section 12 hereinbelow shall
become effective for all purposes.
B. Additional Benefit. Upon the termination of Employee from his employment
with Employer for whatever reason (including a failure to renew this Employment
Agreement or to enter into a new Employment Agreement with Employer), Employee
shall also be paid the following amounts (the "Severance Benefits");
(a) (i) $0, if Employee is terminated before May 15, 1997; (ii)
$486,630, if Employee is terminated on or after May 15, 1997, but before May 15,
1998; (iii) $1,025,606, if Employee is terminated on or after May 15, 1998, but
before May 11, 1999 and (iv) $1,366,923, if Employee is terminated after May 11,
1999.
(b) Notwithstanding the foregoing, within ninety (90) days of the
occurrence of a Binion Disposition Event (defined in Section 11 below), unless
Employee has been previously paid a Severance Benefit, Employee shall be paid
$1,366,923 and Employee shall have no further right to receive a Severance
Benefit.
9. Covenant Not to Compete.
A. Covenant. Upon any resignation by Employee or germination of the
employment of Employee with cause, Employee agrees that for a period not to deed
one year from and after the date of such termination he will not serve in any
capacity, whether as an officer, director, employee or consultant, to any other
casino company which is either, (i) competing directly against the LLC, the
Company or any of their subsidiaries or affiliates at the time of such
termination; or (ii) in any "REP" process or any other similar competitive
process in which a limited number of gaming licenses are available for issuance
to one or more gaming companies selected out a group of competing companies,
such as the competitive licensing process which one of the LLC's subsidiaries is
presently engaged in Harrison County, Indiana. Employer and Employee agree that
such covenant not to compete has been given by Employee to Employer for full and
adequate consideration, including, without limitation, Employee's Ownership
Interest described in section 5(c) hereinabove, and that such covenant not to
compete will expire on the earlier to occur of: (i) one year; or (ii) the date
upon which the competitive licensing process was completed and a specific
company was selected for award of such license.
B. Modification. In the event that any court of competent jurisdiction
determines that the term or the business or geographic scope of the covenant
contained in Subsection 9A
9.
<PAGE> 10
above is impermissible due to the extent thereof, said covenant shall be
modified to reduce its term, business scope or geographic scope, as the case may
be, to the extent necessary to make such covenant valid, and said covenant shall
be enforced as modified.
C. Injunctive Relief. Employee understands and agrees that it would be
difficult or impossible to ascertain the measure of damages to Employer
resulting from any breach of this covenant not to compete and that injury to
Employer from any such breach may be irreparable, and that money damages
therefor may be an inadequate remedy. Accordingly, in the event of a breach or
threatened breach by Employee of the provisions of this Section 9, Employer
shall be entitled to seek and obtain, in addition to monetary damages,
injunctive relief against Employee, in a court of competent jurisdiction,
restraining Employee from engaging in such competitive situation with Employer.
10. Disclosure of Confidential Information.
A. Definition of Confidential Information. For purposes of this
Agreement, "Confidential Information" means any information that is not
generally known to the public that relates to the existing or reasonably
foreseeable business of Employer and/or the LLC which has been expressly or
implicitly protected by Employer and/or the LLC or which, from all of the
circumstances, Employee knows or has reason to know that Employer or the LLC
intend or expect the secrecy of such information to be maintained. Confidential
Information includes, but is not limited to, information contained in or
relating to the customer lists, account lists, price lists, product designs,
marketing plans or proposals, customer information, merchandising, selling,
accounting, finances, knowhow, trademarks, trade names, trade practices, trade
secrets and other proprietary information of Employer.
B. Employee Shall Not Disclose Confidential Information. Employee will
not, during the term of Employee's employment and for two (2) years following
the termination of Employee's employment with Employer, use, show, display,
release, discuss, communicate, divulge or otherwise disclose Confidential
Information to any unauthorized person, firm, corporation, association or other
entity for any reason or purpose whatsoever, without the prior written consent
or authorization of Employer. Nothing contained herein shall be interpreted or
construed as restraining or preventing Employee from using Confidential
Information in the proper conduct of services to be rendered by Employee on
behalf of Employer pursuant to this Agreement.
C. Scope. Employee's covenant in Subsection 10B above to not disclose
Confidential Information shall not apply to information which, at the time of
such disclosure, may be obtained from sources outside of Employer, or from its
agents, lawyers or accountants, so long as those sources did not receive
10.
<PAGE> 11
the information in an improper manner or against the wishes of Employer.
D. Title. All documents and other tangible or intangible property
(including business opportunities which Employer and/or the LLC is pursuing)
relating in any way to the business of Employer and/or the LLC which are
conceived or generated by Employee or come into Employee's possession or
knowledge during the employment period shall be and remain the exclusive
property of Employer and/or the LLC, and Employee agrees to return immediately
to Employer and/or the LLC, upon their request, all such documents and tangible
and intangible property, including, but not limited to, all records, manuals,
books, blank forms, documents, letters, memoranda, notes, notebooks, reports,
data, tables, magnetic tapes, computer disks, calculations or copies thereof,
which are the property of Employer and/or the and which relate in anyway to the
business, customers, products, practices or techniques of Employer and/or the
LLC, as well as all other property of Employer and/or the LLC, including but not
limited to, all documents which in whole or in part contain any confidential
information of Employer and/or the LLC which in any of these cases are in
Employee's possession or under Employee's control.
E. Compelled Disclosure. In the event a third party seed to compel
disclosure of confidential information by Employee by judicial or administrative
process, Employee shall promptly notify Employer of such occurrence and furnish
to Employer a copy of the demand, summons, subpoena or other process served upon
Employee to compel such disclosure, and will permit Employer to assume, at its
expense, but with Employee's cooperation, defense of such disclosure demand. In
the event that Employer refuses to contest such a third party disclosure demand
under judicial or administrative process, or a final judicial judgment is issued
compelling disclosure of Confidential Information by the Employee, Employee
shall be entitled to disclose such information in compliance with the terms of
such administrative or judicial process or order.
F. Injunctive Relief. Employee understands and agrees that the
disclosure, use or usurpation of Confidential Information would cause
significant economic detriment to the business of Employer and/or the LLC which
may be irreparable and for which monetary damages may be an inadequate remedy.
Accordingly, Employee understands and agrees that Employer shall be entitled to
seek and obtain, in addition to monetary damages, injunctive relief against
Employee, in a court of competent jurisdiction restraining Employee from the
disclosure, use or usurpation in any manner of any confidential Information.
11. Possible Divestiture of Partnership Interest in Employer. Employee's
Ownership Interest in the LLC, which Employee is entitled to receive in
accordance with the terms of this Agreement shall be conveyed in its entirety to
and held by
11.
<PAGE> 12
Employee within thirty (30) days after the date of execution of this
Agreement, subject to the approval of applicable Gaming Authorities and
compliance with Governmental requirements. A portion of the ownership Interest
of Employee shall, nevertheless, be subject to divestiture based upon the
following terms and conditions.
(a) Forty-five percent (45%) of such Ownership Interest, represented
by 592,453 Old Units, shall not be subject to divestiture and shall be deemed
fully vested for all purposes upon execution of this Agreement; provided that
the remaining fifty-five percent (55%) shall be subject to possible divestiture
and shall only become fully vested based upon the following provisions;
(b) Fifteen percent (15%) of such Ownership Interest of Employee
represented by 197,485 Old Units in the LLC shall be subject to divestiture in
the event that Employee is terminated or voluntarily resigns prior to May 15,
1996;
(c) Fifteen percent (15%) of such Ownership Interest of Employee,
represented by 25,776 Old Units and 171,484 New Units in the LLC shall be
subject to divestiture in the event at Employee is terminated or voluntarily
resigns prior to May 15, 1997;
(d) Fifteen percent (15%) of Such Ownership Interest of Employee,
represented by 197,484 New Units, in the LLC shall be subject to divestiture in
the event that Employee is terminated or voluntarily resigns prior to May 15,
1998;
(e) The final ten percent (10%) of such Ownership Interest of Employee
represented by 131,656 New Units in the shall be subject to divestiture in the
event that Employee is terminated or voluntarily resigns prior to May 11, 1999.
The Ownership Interest of Employee in the LLC which is not subject to
divestiture pursuant to the provisions set forth above is referred to herein as
the "Fully Vested Ownership Interest".
Such divestiture of Employee's Ownership Interest in the shall be automatic
upon the occurrence of the event giving rise to such divestiture, and shall not
require the consent, acknowledgement or concurrence of Employee. Upon any such
event causing divestiture of all or a portion of Employee's Ownership Interest
in the LLC, Employer shall send a written notice to Employee specifying the
amount of Ownership Interest that has been divested and the reason for such
divestiture. Employee agrees to execute any and all documents reasonably
requested by counsel for Employer to evidence such divestiture. Such divestiture
shall be made without payment of any type whatsoever to Employee, and shall be
effective for all purposes from the date of the event giving rise to such
divestiture. In no event
12.
<PAGE> 13
shall such divestiture be deemed a "forfeiture", but rather the possibility of
such divestiture is part of the bargained for consideration to Employer in
entering into this Agreement; it being clearly understood and agreed that
Employee's performance of services in a manner satisfactory to Employer for the
entire term of this Agreement is the consideration to be provided by Employee to
Employer for the Ownership Interest to be conveyed to Employee pursuant to this
Agreement.
Notwithstanding the provisions of Section 11(b)-(e) hereof, in the event
Jack B. Binion (including any entities through which Jack B. Binion holds his
ownership interest in the family members of Jack B. Binion and/or trusts
established for the benefit of his heirs) transfers controlling interest in the
to a third party in a transaction other than a public offering (a "Binion
Disposition Event"), the entire Ownership Interest of Employee shall immediately
become a Fully Vested Ownership Interest and no longer subject to divestiture.
12. Put/Call Option Upon Termination. In the event of termination of
Employee's employment with Employer, for whatever reason, and with or without
cause, then the shall have the right to purchase the Fully Vested Ownership
Interest of Employee at the fair market value or such Ownership Interest as
determined pursuant to the terms of this Agreement (the "call Option"). In a
similar fashion, Employee shall have an option to require the LLC to purchase
back his entire Fully Vested Ownership Interest in the LLC at the fair market
value of such Ownership Interest as determined pursuant to the terms of this
Agreement (the "Put Option"). The LLC or Employee; as the case may be, exercise
their respective options provided for in this Section 12, by tendering written
notice to the other party of its exercise of such option within thirty (30) days
after the date of the termination of this Agreement.
In the event that either option described herein should be exercised by
Employee or the LLC, then Employee and the LLC agree to promptly convene and
attempt in good faith to determine the fair market value of the Ownership
Interest to be purchased by the LLC from Employee. Such fair market value of the
Fully Vested Ownership Interest shall take into account that such Interest has
an interest only in future profits and asset appreciation, and not capital, all
as provided in Section 5(b) hereof. In the event that the LLC and Employee are
unable to agree upon such fair market value, then the parties hereto agree to
submit such matter to an independent appraisal to be conducted in Las Vegas,
Nevada in accordance with the terms set forth below. Either party may initiate
such appraisal process by delivery of written notice to the other party to such
effect, designating the name of an appraiser that is to represent it in such
appraisal process. Thereafter, within ten (10) days of receipt of such notice,
the other party shall designate an appraiser to represent it in such process.
Within ten (10) days after designation of the second appraiser, the two
appraisers
13.
<PAGE> 14
shall convene and agree upon a third appraiser. In the event that said two
appraisers are unable to agree upon a third appraiser, then the third appraiser
shall be selected by lottery, with each appraiser to submit the name of another
reputable appraiser, and with the appraiser whose name is drawn in such lottery
being designated for all purposes as the third appraiser.
Within ten (10) days after selection of the third appraiser, the three
appraisers shall convene and attempt to agree upon the fair market value of the
Ownership Interest to be Purchased the LLC. If unable to agree, then each
appraiser shall within thirty (30) days thereafter prepare his own independent
appraisal report and such reports shall be submitted to the LLC and Employee.
Provided that the middle appraisal is within ten percent, (10%) of either the
high or low appraisal, then the middle appraisal (the highest and lowest
appraisals being disregarded) shall be deemed to be the fair market value and
thus the valuation to be used for purposes of the LLC's acquisition of
Employee's Fully vested Ownership Interest.
In the event that the middle appraisal is not within ten percent (10%) of
either the high or low appraisal, then the determination of the fair market
value of Employee's Ownership Interest shall be submitted to arbitration in
accordance with the provisions of Section 17 hereinbelow, and in such
arbitration, each of the appraisers shall be entitled to submit their appraisal
report and testify on behalf of the LLC or Employee. The arbitration panel,
after hearing all evidence desired to be submitted by the LLC and Employee,
shall determine said fair market value, and such decision by said arbitration
panel shall be binding upon the LLC and Employee.
The Purchase Price to be paid by the LLC as determined by agreement or
appraisal as described herein, shall be paid in three (3) equal annual principal
installments, with the first payment being due on the first anniversary date of
termination. Such obligation shall bear interest at the prime rate of interest
as quoted from time to time by the largest commercial bank (in terms of assets)
in the State of Nevada, and accrued but unpaid interest shall be due and payable
together with each annual principal payment. Notwithstanding the foregoing, in
the event any of the LLC's lenders prohibit payment of the Purchase Price to be
made over as short as a three (3) year period, then Employee agrees that the
Purchase Price shall be paid in equal principal installments over the time
period permitted by such lender but in no event over a period in excess of five
(5) years.
The LLC and Employee agree that any persons chosen to represent them as
appraisers shall be qualified and competent MAI appraisers or a certified public
accountant with one of the "Big Six" accounting firms, experienced in valuing
closely held partnerships or corporations. In the event that the LLC is a
publicly traded company at the time of termination, then the provisions of this
Section 12 shall be inapplicable, and
14.
<PAGE> 15
accordingly, the Put and Call Option described herein shall terminate for all
purposes.
In the event that the LLC exercises its call option, then the LLC agrees to
pay for all of the reasonable expenses incurred in connection with such
appraisal process, including the cost associated with the appraiser selected by
Employee, provided that the amount charged by such appraiser is a fair and
reasonable fee. In the event that Employee exercises its Put Option, then
Employer shall bear the cost of its appraiser, Employee shall bear the cost of
its appraiser and the LLC and Employee shall each bear one-half (1/2) of the
cost of the third appraiser.
13. Distributions; Public Offering. Employee shall become an equity owner
in the LLC subject to all rights, conditions and other provisions of any
member's agreement which shall apply equitably to and govern the relationship
among all of the equity owners of the LLC. Accordingly, Employee shall be
entitled to receive distributions from the LLC with respect to Employee's
Ownership Interest in the same manner and at the same time as other members of
the LLC are entitled to do so under the terms of any member's agreement among
the equity owners of the or the terms of any credit agreement or other financing
to which the LLC, or any of its subsidiaries or affiliates is a party. Employer
and Employee understand and agree that one of the credit agreements currently in
effect restricts the equity owners of the from receiving distributions in an
amount in excess of that intended to be sufficient to discharge federal and
state income taxes that may be levied against the income allocated to each of
such equity owners pursuant to the provisions of applicable law.
In addition, in the event that the LLC is at some point in the future
involved in a public offering, which public offering involves all or
substantially all of the gaming
15.
<PAGE> 16
interests or ventures owned or controlled by Jack B. Binion, then in such event,
Employee agrees that the valuation to be placed upon the LLC shall be that which
is determined in good faith by the investment banking firm acting as the lead
underwriter in such public offering, and based upon such firm's fair market
appraisal of the value of the LLC in comparison to the other assets to be
included in such public offering. In such event, Employee shall receive an
amount of stock in such public offering equal to the percentage that the value
of the Employee's Ownership Interest (as determined taking into account that
such Interest has an interest only in future profits and asset appreciation, and
not capital, all as provided in Section 5(b) hereof) bears to the value of the
LLC (subject to dilution as a result of such offering) times the amount
determined by dividing the value of the LLC, as determined by such independent
appraisal, by the value of all assets (including the LLC) included in and cash
raised in such public offering. By way of example, if Employee's Ownership
Interest was valued at one-half of one percent (.5%) of the LLC's value and the
cumulative value of the LLC was $400,000, 000 and the value of the other assets
included in the public offering, including cash raised, was $200,000,000, then
the ownership or stock interest of Employee in the public company after the
public offering would be equal to one-third of one percent (.333%) (subject to
dilution as a result of such offering).
In the event that the should become a publicly traded company at any time
during the term of this Agreement, then that portion of the stock of LLC that
Employee is entitled to receive, but which is still not fully vested and thus
subject to divestiture pursuant to the terms of this Agreement, shall be
escrowed in the custody of Employer and shall not be released to Employee until
such time as such stock becomes free from potential divestiture. Accordingly,
during the time that such stock is escrowed with the LLC, Employee shall not
margin, pledge, sell, transfer or otherwise attempt to encumber or dispose of
such stock, except to the LLC. At the time that such stock is no longer subject
to divestiture, then it shall be immediately released by the LLC to Employee.
14. Representations and Warranties. Employer, as the following relate to
Employer, and the LLC, as the following relate to the LLC, hereby represent and
warrant to Employee as follows:
(a) The LLC is a limited liability company, duly organized and validly
existing under the laws of the State of Delaware. Employer is a Nevada
corporation, duly organized and validly existing under the laws of the State of
Nevada;
16.
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(b) This Agreement, when executed by Jack B. Binion, as President and
CEO of the Company, will constitute a legal, valid, and binding agreement on the
part of Employer and the LLC, having been duly authorized by all requisite
corporate and company resolutions or authorizations; and
(c) This Agreement, when executed by Employer and the LLC, will not
conflict with, violate the terms of or create a default under any other
agreement, contract or other obligation Employer and/or the LLC is a party to or
by which Employer or the is bound.
Employee hereby represents and warrants to Employer as follows:
i) this Agreement, when executed by Employee, will not conflict with,
violate the terms of or create a default under Employee's present employment
arrangements and/or agreement, whether oral or written;
ii) Employee has never been denied a gaming application by any Gaming
Authority and Employee currently knows of no reason why Employee would not be
qualified to receive a gaming license from any jurisdiction in which the LLC
and/or any of its affiliates or subsidiaries conducts gaming operations; and
iii) Employee is unaware of any mental, physical or emotional condition,
including, without limitation, substance or alcohol abuse problems, which
currently affects Employee, and which might result in Employee's being unable to
carry out all of his duties, obligations and responsibilities set forth herein.
Employer, the LLC and Employee understand and agree that each is entering
into this Agreement in strict reliance upon the representations and warranties
set forth herein, and that a breach of any of said representations and
warranties by any of the parties hereto with respect to the subject matter set
forth herein.
15. Entire Agreement. This Agreement constitutes the entire agreement of
the parties hereto with respect to the subject matter set forth herein, and
supersedes any and all previous oral or written agreements, understandings or
discussions between the parties hereto with respect to the subject matter set
forth herein.
16. All Amendments in Writing. This Agreement may not be amended orally,
but only pursuant to a written instrument executed by Employer, the LLC and
Employee.
17. Arbitration. In the event of any dispute or controversy between
Employer or Employee with respect to any of the matters set forth herein, then
both Employer and Employee agree to submit such dispute or controversy to
binding
17.
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arbitration, to be conducted in Las Vegas, Nevada pursuant to the then
prevailing rules and regulations of the American Arbitration Association. In
such arbitration, the prevailing party shall be entitled, in addition to any
award made in such proceeding, to recover all of its costs and expenses incurred
in connection therewith, including, without limitation, attorneys' fees.
18. Governing Laws. This agreement shall be governed and construed in
accordance with the laws of the State of Nevada.
19. Notices. Any notice required or permitted to be given in connection
with this Agreement shall be given by either: (a) depositing the same in the
United States Mail, postage prepaid, registered or certified, return receipt
requested; or (b) by depositing it with a recognized overnight courier service
for delivery the following day to the other party; or (c) by facsimile
transmission, provided the other party acknowledges receipt of such
transmission.
All such notices shall be deemed received as of the date of acknowledgment
of receipt by the other party. All such notices shall be addressed to the
parties at the following addresses, or to such other address as may be provided
from time to time by one party to the other:
If to the LLC: Horseshoe Gaming, LLC
330 S. Fourth Street
Las Vegas, Nevada 89101
Attn: Jack B. Binion
If to Employer: Horseshoe Gaming, Inc.
330 S. Fourth Street
Las Vegas, Nevada 89101
Attn: Jack B. Binion
If to Employee: Mr. J. Michael Allen
5111 Breakers Lane
Las Vegas, Nevada 89113
20. Assignment. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, successors,
administrators and assigns. Notwithstanding the foregoing, Employee understands
and agrees that the nature of this Agreement is a personal services agreement,
and that Employer is entering into this Agreement based upon the specific
services to be rendered personally by Employee hereunder; and accordingly,
Employee shall not assign, transfer or delegate in any manner any of his duties,
responsibilities or obligations hereunder.
21. Waiver. No waiver of any term, condition or covenant of this Agreement
by a Party shall be deemed to be a waiver of any subsequent breaches of the same
or other terms, covenants or conditions hereof by such party.
18.
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22. Construction. Whenever possible, each provision of this Agreement shall
be interpreted in such manner as to be effective or valid under applicable law,
but if any provision of this Agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective only to the best of such
prohibition or invalidity without invalidating the remainder of such provision
or the remaining provisions of this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
day and year first above written.
HORSESHOE GAMING, INC.
a Nevada corporation,
By: _\s\ Paul Alanis______________
Paul Alanis, President
"EMPLOYEE" _\s\ J. Michael Allen______________
J. MICHAEL ALLEN
AGREED AND ACCEPTED as of the 1st
day of October, 1995
HORSESHOE GAMING, LLC,
a Delaware Limited Liability Company
By: HORSESHOE GAMING, INC.
a Nevada corporation
Manager
By: _\s\ Paul Alanis_________
Paul Alanis, President
19.
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EXHIBIT A
DEFINITIONS
All capitalized terms referenced or used in this Agreement and not
specifically defined therein shall have the meaning set forth below in this
Exhibit A, which is attached to and made a part of this Agreement for all
purposes.
Gaming Authorities. The term "Gaming Authorities" or "Authority" shall mean
all agencies, authorities and instrumentalities of any state, nation or other
governmental entity or any subdivision thereof, regulating gaming or related
activities in the United States or any State.
Governmental Authority. The term "Governmental Authority" means the
Government of the United States, and any other state, county or political
subdivision in which the any of the company's casino facilities are located, and
any court or political subdivision, agency, commission, board or instrumentality
or officer thereof, whether federal, state or local, having or exercising
jurisdiction over Employer or any of the Company's gaming facilities, including,
without limitation, any Game Authority.
Governmental Requirements. The term "Governmental Requirements" means all
laws and agreements with any Governmental Authority that are applicable to the
acquisition development, construction and/or operation of any of the Company's
gaming facilities including, without limitation, all required permits, approvals
and any rules, guidelines or restrictions created or imposed by Governmental
Authorities (including, without limitation, any Gaming Authority).
Net Profits. The term "Net Profits" shall have the same meaning as the term
"Profits" has in the Limited Liability Company Agreement of the LLC.
20.
<PAGE> 1
EXHIBIT 10.34
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<PAGE> 2
EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into as of this 1st day of July, 1996 by and
between HORSESHOE GAMING, INC., a Nevada corporation ("Employer" or "Company")
and MR. GARY BORDER ("Employee"), and is made with reference to the following
recitals of fact:
RECITALS
WHEREAS, Employer is the Manager of Horseshoe Gaming LLC, a Delaware
limited liability company (the "LLC"), whose subsidiaries and affiliates have
developed and are currently operating casino facilities in Tunica County,
Mississippi (the "Tunica Facility") and in Bossier City, Louisiana (the "Bossier
City Facility"), and intend to develop numerous other casino facilities in
emerging gaming jurisdictions;
WHEREAS, Employee, through his wholly owned companies, Marketing Results
Nevada Corporation and Marketing Results, Inc. (collectively "Marketing
Results") has heretofore served as a consultant to the LLC pursuant to a
Consulting Agreement dated December 1, 1995, between the LLC and Marketing
Results (the "Consulting Agreement"), which Consulting Agreement shall continue
in full force and effect subject to the provisions of Paragraph 4(d) hereof;
WHEREAS, Employee has extensive experience in marketing and advertising for
the casino gaming business, and based upon his knowledge, experience and skill
is capable of performing each and all of the duties and responsibilities to be
assigned to Employee pursuant to the terms of this Agreement; and
WHEREAS, Employer wishes to hire and employ Employee, and Employee desires
to accept such employment pursuant to the terms of this Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, and in consideration of the mutual
covenants, promises and agreements herein contained, the parties hereto agree as
follows:
AGREEMENT
1. Definitions. All capitalized words referenced or used in this Agreement
and not specifically defined herein shall have the meaning set forth on Exhibit
"A", attached hereto and made a part hereof.
2. Term. This Agreement shall become effective and Employee's term of
employment with Employer shall commence, for all purposes, on July 1, 1996 (the
"Commencement Date") and shall terminate on June 30, 1999, unless terminated
sooner by Employer or Employee pursuant to the terms set forth herein.
3. Position to be Held by Employee. Employee is hereby employed and hired
by Employer to serve and act as the Senior Vice President-Marketing of Employer
and shall perform each and all of the duties and shall have all of the
responsibilities described herein. Employee shall at all times report directly
to and take directives from the Chief Executive Officer ("CEO") of the Company
and the President of the
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Company.
4. Duties and Responsibilities.
(a) General Duties. In his capacity as Senior Vice President-Marketing
of the Company, Employee shall have responsibility for overseeing the
development and execution of the marketing strategy for the Company, the
existing Tunica and Bossier City Facilities and for any to-be-developed casino
and hotel facilities owned by subsidiaries or affiliates of the LLC for which
Employer is the Manager (individually, a "Facility" and collectively, the
"Facilities") in a manner so as to maximize, to the best of his ability, the
profitability of each Facility, for and on behalf of the LLC in accordance with
applicable laws and regulations. The authority of Employee to bind Employer
shall be as broad or as limited as may be determined from time to time by the
Board of Directors of the Company. Within salary and policy guidelines
established by the CEO, President and/or the Board and with the reasonable
concurrence of the CEO and the President, Employee, while performing as Senior
Vice President-Marketing, shall have the authority to hire and fire employees of
the Company who are assigned to perform duties and functions in the various
marketing departments and who are under the direct or indirect supervision of
Employee.
(b) Specific Duties. Employee shall have responsibility for supervising
and directing the day-to-day activities and affairs of the marketing departments
of the Company, as well as the Facilities. In connection therewith, Employee
shall develop and submit to the CEO and President marketing strategies, creative
strategies, planning and support for all national local markets and shall
provide all database marketing and direct marketing services for the Company in
all of its markets. In addition, Employee shall assist the general managers of
the various properties owned by subsidiaries or affiliates of the Company in
marketing management, including, without limitation, recommending appropriate
marketing staffing. In all instances, Employee shall coordinate with and oversee
the various department heads charged with direct responsibility for various
facets of the casino and hotel marketing, and assure that all such employees are
performing their respective assignments and such departments are consequently
being run in a thorough, competent, efficient and professional manner.
(c) Fiduciary Duty. In every instance, Employee shall carry out his
various duties and responsibilities in a fiduciary capacity on behalf of
Employer, in an effort to maximize the profitability of the Facilities. In no
event whatsoever shall Employee enter into any commitments or obligations,
written or verbal, or take any other action or omit to take any action, the
result of which would be to create a conflict of interest between Employer and
Employee, or the result of which would benefit Employee, or any person
associated with or affiliated with Employee, to the detriment of Employer.
(d) Full Time Effort. Employee acknowledges and agrees that the duties
and responsibilities to be discharged by Employee require a full time effort on
the part of Employee, and accordingly, Employee agrees to devote his full time
effort and resources for and on behalf of Employer, and agrees that he will not,
during the term hereof, enter into any other business activities or ventures,
other than those which are passive in nature and which will not require the
active participation of Employee. Accordingly, Employer shall, as of the date
hereof, resign as President of Marketing Results, and shall devote no further
time or efforts in executing his duties and responsibilities as President of
Marketing Results. Notwithstanding the foregoing, Employer acknowledges that (i)
Employee shall continue to own 100% of the stock of Marketing Results, (ii)
Employee's spouse will continue to operate the day-to-day activities of
Marketing Results, provided that Employee shall remain Chairman of Marketing
Results and attend periodic board meetings, and (iii) waives any conflict that
may result therefrom. Marketing Results will continue to provide services to the
LLC pursuant to the Consulting Agreement but shall not longer be entitled to the
fee provided for in Paragraph 4(a) hereof; in all other respects the Consulting
Agreement shall remain in full force and effect.
(e) Directives from CEO and President. In all instances, Employee agrees
to carry out all of his duties and responsibilities as set forth herein pursuant
to the guidance, reasonable and lawful
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directives and instructions of the CEO and President of the Company, or their
successors, and agrees that at all times his authority shall be subordinate to
such CEO and President. Any decisions as to which there is a disagreement
between Employee and the CEO and President, the wishes and directives of the CEO
and President shall prevail in all instances, and Employee shall carry out any
and all reasonable and lawful directives from the CEO to the best of his
ability.
5. Compensation. As compensation for the services to be rendered by
Employee pursuant to the terms of this Agreement, Employee shall be entitled to
receive the following:
(a) a base salary of Three Hundred and Fifty Thousand Dollars ($350,000)
per year (the "Base Compensation"), payable semi-monthly; plus
(b) Subject to the divestiture provisions of Section 11 hereof, an
ownership interest of 503,004 units in the LLC (the "Ownership Interest"), which
currently represents a one half of one percent (1/2%) interest in the Net
Profits (as defined in the limited liability agreement of the LLC to which
Employee shall become a party as of the date hereof) generated by the LLC from
and after the date hereof, in accordance with such limited liability agreement
of the LLC, including those Net Profits generated as a result of the LLC's
Ownership Interest in the Bossier City, Louisiana and Tunica, Mississippi
casinos presently in operation as well as all other future operating
subsidiaries to be owned in whole or in part by the LLC. Such Ownership Interest
shall also entitle Employee to his pro rata share of the aggregate fair market
value [net of indebtedness of the LLC and/or its subsidiaries] of the operating
assets of the LLC and its subsidiaries to the extent such fair market value is
in excess of Three Hundred and Fifty Million Dollars ($350,000,000).
6. Fringe Benefits. It is understood and agreed that the Base Compensation
to be received by Employee is to be all-inclusive of other typical fringe
benefits provided to executives in a similar position as Employee; provided,
however, that Employee shall be entitled to the following benefits:
(a) participation in such pension plans as Employer shall adopt for all
of the employees of Employer; it being understood and agreed that the only
pension plan that Employer has adopted at this time is a Section 401(k) form of
pension
(b) to the extent Employer establishes a bonus plan or plans offering
cash, stock options, stock grants or other equity ownership in the LLC, Employee
shall be eligible for inclusion in such plan(s) on a fair and equitable basis in
comparison to other participants in such plan(s) and on a basis generally
consistent with industry standards and practices. Employee understands that the
grant of any cash or stock bonus, however, shall be in the sole discretion of
the Board of Directors of Horseshoe Gaming, Inc.
(c) on an on-going basis, all reasonable entertainment, traveling and
other similar expenses incurred in the performance of his duties and
responsibilities hereunder, such expenses to be subject to budgets established
for such purpose;
(d) participation in Employer's health coverage plan for Employee and
all members of his immediate family, with such policy to be on terms and
conditions typically provided by major gaming companies, and subject to the
maximum benefit limitations in such plan as determined solely by Employer. Such
insurance coverage shall include insurance for disability in an amount and upon
terms to be determined solely by Employer. Employer and Employee agree that
Employer shall be obligated to continue the payment of Employee's base salary
during any short term disability, i.e., one continuing for a period of 180 days
or less, provided that such payments and obligations shall be reduced by the
amount of any disability insurance payments Employee is entitled to receive
during such period of time;
(e) paid vacation of three (3) weeks per year; provided that Employee
may not accumulate more than four (4) weeks of vacation, regardless of the
amount of vacation time actually taken by Employee during the course of his
employment
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7. Gaming License. Employer and Employee understand that it may be
necessary for Employee to apply for and obtain, and maintain in full force and
effect at all times, a gaming license in various jurisdictions in which
subsidiaries or affiliates of the LLC are conducting gaming operations for
persons serving in a similar capacity as Employee. Accordingly, Employee agrees,
promptly after the date hereof, to make application for any and all of such
required gaming licenses, to fully cooperate in the investigation or
investigations to be conducted in connection therewith, and otherwise use his
best efforts to obtain such gaming licenses in a timely fashion. Employer agrees
to fully cooperate with Employee in such regard and provide all necessary
information required in connection therewith, and to pay for all costs
associated with Employee obtaining such gaming licenses, including application
fees, investigation fees, or any other similar expenses such as attorneys' fees,
reasonably approved by Employer and incurred in connection therewith. In the
event that Employee should fail to obtain any such license due to his lack of
suitability or failure to submit information in a timely manner (the "License
Denial)", and such License Denial prevents Employee from being able to carry
out, in a reasonable manner, his duties and responsibilities set forth herein,
then this Agreement may be immediately terminated by Employer, in which event
Employee shall have no right to any further compensation hereunder and the
divestiture provisions set forth in Section 11 hereof shall become effective.
During the course of his employment, Employee agrees to fully comply with all
requirements of applicable Gaming Authorities and Governmental Authorities.
8. Termination:
(a) Employee may be terminated by Employer for "cause" in which event
the provisions of Section 8(b) shall apply. For purposes of this Agreement
"cause" is herein defined as one or more of the following events:
(i) the revocation or suspension for a period in excess of ninety
(90) days, of any gaming license required to be held by Employee due to an act
or omission of Employee, which was not caused by Employer or any of its
representatives, or the failure of Employee to initially obtain any required
gaming license in any jurisdiction in which Employer or its parent company
operates;
(ii) failure or refusal by Employee to observe or perform any of
the material provisions of this Agreement or any other written agreement with
Employer, or to perform in a reasonably satisfactory manner all of the material
duties required of Employee under this Agreement or any other written agreement
with Employer;
(iii) commission of fraud, misrepresentation, embezzlement or
other acts of dishonesty, alcoholism, drug addiction or dependency or conviction
for any crime punishable as a felony or a gross misdemeanor involving dishonesty
or moral turpitude, or the commission of any act or acts which have a material
adverse effect upon Employee's ability to perform the duties which are assumed
or assigned to him pursuant to this Agreement, or which actions or occurrences
are materially adverse to the interests of Employer;
(iv) failure or refusal by Employee to comply with the reasonable
and lawful directives of and/or procedures established by the CEO, Jack B.
Binion, or his successor, or the Board of Directors; or
(v) the death of Employee or the "long-term" mental or physical
disability of Employee to such a degree that Employee, in the reasonable
judgment of responsible physicians retained by Employer, is unable to carry out
all of his obligations, duties and responsibilities set forth herein. For
purposes of this Agreement, "long-term" shall be defined as exceeding a period
of one hundred and eighty (180) days.
Termination of Employee's employment for cause under Subsections 8(a)(iii),
(v) or (vabove shall be effective upon notice. Termination of Employee's
employment for cause under Subsections 8(a) (i) , (ii) or (iv) above shall be
effective upon thirty (30) days prior written notice to Employee; provided
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<PAGE> 6
that prior to the giving of such notice of termination, Employer shall notify
Employee that a factual basis for termination for cause exists, specifying such
basis.
(b) Upon termination of Employee's employment with Employer with or
without cause, the following shall apply:
(i) Employee shall be paid his Base Compensation through the
effective date of such termination; and
(ii) Employee shall be entitled to retain his Fully Vested Ownership
Interest in the LLC (as hereinafter defined in Section 11;
(iii) The covenant not to compete and confidentiality agreement set
forth in Sections 9 and 10 hereinbelow shall apply in the manner and to the
extent set forth herein; and
(iv) The put/call option described in Section 12 hereinbelow shall
become effective for all purposes.
9. Covenant Not to Compete.
(a) Covenant. Upon any resignation by Employee or termination of the
employment of Employee with cause, Employee agrees that for a period not to
exceed one year from and after the date of such termination he will not serve in
any capacity, whether as an officer, director, employee or consultant, to any
other casino company which is either, (i) competing directly against the LLC,
the Company or any of their subsidiaries or affiliates at the time of such
termination; or (ii) in any "RFP" process or any other similar competitive
process in which a limited number of gaming licenses are available for issuance
to one or more gaming companies selected out a group of competing companies,
such as the competitive licensing process which one of the LLC's subsidiaries is
presently engaged in in Harrison County, Indiana. Employer and Employee agree
that such covenant not to compete has been given by Employee to Employer for
full and adequate consideration, including, without limitation, Employee's
Ownership Interest described in Section 5(c) hereinabove, and that such covenant
not to compete will expire on the earlier to occur of: (i) one year; or (ii) the
date upon which the competitive licensing process was completed and a specific
company was selected for award of such license.
(b) Modification. In the event that any court of competent jurisdiction
determines that the term or the business or geographic scope of the covenant
contained in Subsection 9A above is impermissible due to the extent thereof,
said covenant shall be modified to reduce its term, business scope or geographic
scope, as the case may be, to the extent necessary to make such covenant valid,
and said covenant shall be enforced as modified.
(c) Injunctive Relief. Employee understands and agrees that it would be
difficult or impossible to ascertain the measure of damages to Employer
resulting from any breach of this covenant not to compete and that injury to
Employer from any such breach may be irreparable, and that money damages
therefor may be an inadequate remedy. Accordingly, in the event of a breach or
threatened breach by Employee of the provisions of this Section 9, Employer
shall be entitled to seek and obtain, in addition to monetary damages,
injunctive relief against Employee, in a court of competent jurisdiction,
restraining Employee from engaging in such competitive situation with Employer.
10. Disclosure of Confidential Information.
(a) Definition of Confidential Information. For purposes of this
Agreement, "Confidential Information" means any information that is not
generally known to the public that relates to the existing or reasonably
foreseeable business of Employer and/or the LLC which has been expressly or
implicitly protected by Employer and/or the LLC or which, from all of the
circumstances, Employee knows
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or has reason to know that Employer or the LLC intend or expect the secrecy of
such information to be maintained. Confidential Information includes, but is not
limited to, information contained in or relating to the customer lists, account
lists, price lists, product designs, marketing plans or proposals, customer
information, merchandising, selling, accounting, finances, knowhow, trademarks,
trade names, trade practices, trade secrets and other proprietary information of
Employer.
(b) Employee Shall Not Disclose Confidential Information. Employee will
not, during the term of Employee's employment and for two (2) years following
the termination of Employee's employment with Employer, use, show, display,
release, discuss, communicate, divulge or otherwise disclose Confidential
Information to any unauthorized person, firm, corporation, association or other
entity for any reason or purpose whatsoever, without the prior written consent
or authorization of Employer. Nothing contained herein shall be interpreted or
construed as restraining or preventing Employee from using Confidential
Information in the proper conduct of services to be rendered by Employee on
behalf of Employer pursuant to this Agreement.
(c) Scope. Employee's covenant in Subsection 10B above to not disclose
Confidential Information shall not apply to information which, at the time of
such disclosure, may be obtained from sources outside of Employer, or from its
agents, lawyers or accountants, so long as those sources did not receive the
information in an improper manner or against the wishes of Employer.
(d) Title. All documents and other tangible or intangible property
(including business opportunities which Employer and/or the LLC is pursuing)
relating in any way to the business of Employer and/or the LLC which are
conceived or generated by Employee or come into Employee's possession or
knowledge during the employment period shall be and remain the exclusive
property of Employer and/or the LLC, and Employee agrees to return immediately
to Employer and/or the LLC, upon their request, all such documents and tangible
and intangible property, including, but not limited to, all records, manuals,
books, blank forms, documents, letters, memoranda, notes, notebooks, reports,
data, tables, magnetic tapes, computer disks, calculations or copies thereof,
which are the property of Employer and/or the LLC and which relate in anyway to
the business, customers, products, practices or techniques of Employer and/or
the LLC, as well as all other property of Employer and/or the LLC, including but
not limited to, all documents which in whole or in part contain any Confidential
Information of Employer and/or the LLC which in any of these cases are in
Employee's possession or under Employee's control.
(e) Compelled Disclosure. In the event a third party seeks to compel
disclosure of Confidential Information by Employee by judicial or administrative
process, Employee shall promptly notify Employer of such occurrence and furnish
to Employer a copy of the demand, summons, subpoena or other process served upon
Employee to compel such disclosure, and will permit Employer to assume, at its
expense, but with Employee's cooperation, defense of such disclosure demand. In
the event that Employer refuses to contest such a third party disclosure demand
under judicial or administrative process, or a final judicial judgment is issued
compelling disclosure of Confidential Information by the Employee, Employee
shall be entitled to disclose such information in compliance with the terms of
such administrative or judicial process or order.
(f) Injunctive Relief. Employee understands and agrees that the
disclosure, use or usurpation of Confidential Information would cause
significant economic detriment to the business of Employer and/or the LLC which
may be irreparable and for which monetary damages may be an inadequate remedy.
Accordingly, Employee understands and agrees that Employer shall be entitled to
seek and obtain, in addition to monetary damages, injunctive relief against
Employee, in a court of competent jurisdiction, restraining Employee from the
disclosure, use or usurpation in any manner of any Confidential Information.
11. Possible Divestiture of Partnership Interest in Employer. Employee's
Ownership Interest in the LLC, which Employee is entitled to receive in
accordance with the terms of this Agreement, shall be conveyed in its entirety
to and held by Employee within thirty (30) days after the date of execution of
this Agreement, subject to the approval of applicable Gaming Authorities and
compliance with Governmental
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Requirements. A portion of the Ownership Interest of Employee shall,
nevertheless, be subject to divestiture based upon the following terms and
conditions.
(a) One hundred percent (100%) of such Ownership Interest of Employee
in the LLC shall be subject to divestiture in the event that Employee is
terminated or voluntarily resigns prior to January 1, 1997;
(b) Eighty percent (80%) of such Ownership Interest of Employee in the
LLC shall be subject to divestiture in the event that Employee is terminated or
voluntarily resigns prior to July 1, 1997;
(c) Sixty percent (60%) of such Ownership Interest of Employee in the
LLC shall be subject to divestiture in the event that Employee is terminated or
voluntarily resigns prior to January 1, 1998;
(d) Forty percent (40%) of such Ownership Interest of Employee in the
LLC shall be subject to divestiture in the event that Employee is terminated or
voluntarily resigns prior to July 1, 1998.
(e) Twenty (20%) of such Ownership Interest of Employee in the LLC
shall be subject to divestiture in the event that Employee is terminated or
voluntarily resigns prior to January 1, 1999.
The Ownership Interest of Employee in the LLC which is not subject to
divestiture pursuant to the provisions set forth above is referred to herein as
the "Fully Vested Ownership Interest".
Such divestiture of Employee's Ownership Interest in the LLC shall be
automatic upon the occurrence of the event giving rise to such divestiture, and
shall not require the consent, acknowledgment or concurrence of Employee. Upon
any such event causing divestiture of all or a portion of Employee's Ownership
Interest in the LLC, Employer shall send a written notice to Employee specifying
the amount of Ownership Interest that has been divested and the reason for such
divestiture. Employee agrees to execute any and all documents reasonably
requested by counsel for Employer to evidence such divestiture. Such divestiture
shall be made without payment of any type whatsoever to Employee, and shall be
effective for all purposes from the date of the event giving rise to such
divestiture. In no event shall such divestiture be deemed a "forfeiture", but
rather the possibility of such divestiture is part of the bargained for
consideration to Employer in entering into this Agreement; it being clearly
understood and agreed that Employee's performance of services in a manner
satisfactory to Employer for the entire term of this Agreement is the
consideration to be provided by Employee to Employer for the Ownership Interest
to be conveyed to Employee pursuant to this Agreement.
Notwithstanding the provisions of Section 11(b)-(e) hereof, in the event
Jack B. Binion (including any entities through which Jack B. Binion holds his
ownership interest in the LLC), family members of Jack B. Binion and/or trusts
established for the benefit of his heirs transfer controlling interest in the
LLC to a third party in a transaction other than a public offering, the entire
Ownership Interest of Employee shall immediately become a Fully Vested Ownership
Interest and no longer subject to divestiture.
12. Put/Call Option Upon Termination. In the event of the termination of
Employee's employment with Employer, for whatever reason, then the LLC shall
have the right to purchase the Fully Vested Ownership Interest of Employee at
the fair market value of such Ownership Interest as determined pursuant to the
terms of this Agreement (the "Call Option"). In a similar fashion, Employee
shall have an option to require the LLC to purchase back his entire Fully Vested
Ownership Interest in the LLC at the fair market value of such Ownership
Interest as determined pursuant to the terms of this Agreement (the "Put
Option"). The LLC or Employee, as the case may be, may exercise their respective
options provided for in this Section 12, by tendering written notice to the
other party of its exercise of such option within thirty (30) days after the
date of the termination of this Agreement.
In the event that either option described herein should be exercised by
Employee or the LLC, then Employee and the LLC agree to promptly convene and
attempt in good faith to determine the fair
8
<PAGE> 9
market value of the Ownership Interest to be purchased by the LLC from Employee.
In the event that the LLC and Employee are unable to agree upon such fair market
value, then the parties hereto agree to submit such matter to an independent
appraisal to be conducted in Las Vegas, Nevada in accordance with the terms set
forth below. Either party may initiate such appraisal process by delivery of
written notice to the other party to such effect, designating the name of an
appraiser that is to represent it in such appraisal process. Thereafter, within
ten (10) days of receipt of such notice, the other party shall designate an
appraiser to represent it in such process. Within ten (10) days after
designation of the second appraiser, the two appraisers shall convene and agree
upon a third appraiser. In the event that said two appraisers are unable to
agree upon a third appraiser, then the third appraiser shall be selected by
lottery, with each appraiser to submit the name of another reputable appraiser,
and with the appraiser whose name is drawn in such lottery being designated for
all purposes as the third appraiser.
Within ten (10) days after selection of the third appraiser, the three
appraisers shall convene and attempt to agree upon the fair market value of the
Ownership Interest to be purchased by the LLC. If unable to agree, then each
appraiser shall within thirty (30) days thereafter prepare his own independent
appraisal report and such reports shall be submitted to the LLC and Employee.
Provided that the middle appraisal is within ten percent (10%) of either the
high or low appraisal, then the middle appraisal (the highest and lowest
appraisals being disregarded) shall be deemed to be the fair market value and
thus the valuation to be used for purposes of the LLC's acquisition of
Employee's Fully Vested Ownership Interest.
In the event that the middle appraisal is not within ten percent (10%) of
either the high or low appraisal, then the determination of the fair market
value of Employee's Ownership Interest shall be submitted to arbitration in
accordance with the provisions of Section 17 hereinbelow, and in such
arbitration, each of the appraisers shall be entitled to submit their appraisal
report and testify on behalf of the LLC or Employee. The arbitration panel,
after hearing all evidence desired to be submitted by the LLC and Employee,
shall determine said fair market value, and such decision by said arbitration
panel shall be binding upon the LLC and Employee.
The Purchase Price to be paid by the LLC as determined by agreement or
appraisal as described herein, shall be paid in three (3) equal annual principal
installments, with the first payment being due on the first anniversary date of
termination. Such obligation shall bear interest at the prime rate of interest
as quoted from time to time by the largest commercial bank (in terms of assets)
in the State of Nevada, and accrued but unpaid interest shall be due and payable
together with each annual principal payment. Notwithstanding the foregoing, in
the event any of the LLC's lenders prohibit payment of the Purchase Price to be
made over as short as a three (3) year period, then Employee agrees that the
Purchase Price shall be paid in equal principal installments over the time
period permitted by such lender but in no event over a period in excess of five
(5) years.
The LLC and Employee agree that any persons chosen to represent them as
appraisers shall be qualified and competent MAI appraisers or a certified public
accountant with one of the "Big Six" accounting firms, experienced in valuing
closely held partnerships or corporations. In the event that the LLC is a
publicly traded company at the time of termination, then the provisions of this
Section 12 shall be inapplicable, and accordingly, the Put and Call Option
described herein shall terminate for all purposes.
In the event that the LLC exercises its Call Option, then the LLC agrees to
pay for all of the reasonable expenses incurred in connection with such
appraisal process, including the cost associated with the appraiser selected by
Employee, provided that the amount charged by such appraiser is a fair and
reasonable fee. In the event that Employee exercises its Put Option, then
Employer shall bear the cost of its appraiser, Employee shall bear the cost of
its appraiser and the LLC and Employee shall each bear one-half (1/2) of the
cost of the third appraiser.
13. Distributions; Public Offering. Employee shall become an equity owner
in the LLC subject to all rights, conditions and other provisions of any
member's agreement which shall apply equitably to and govern the relationship
among all of the equity owners of the LLC. Accordingly, Employee shall be
entitled
9
<PAGE> 10
to receive distributions from the LLC with respect to Employee's Ownership
Interest in the same manner and at the same time as other members of the LLC are
entitled to do so under the terms of any member's agreement among the equity
owners of the LLC or the terms of any credit agreement or other financing to
which the LLC, or any of its subsidiaries or affiliates is a party. Employer and
Employee understand and agree that the credit agreements currently in effect
restrict the equity owners of the LLC from receiving distributions in an amount
in excess of that intended to be sufficient to discharge federal and state
income taxes that may be levied against the income allocated to each of such
equity owners pursuant to the provisions of applicable law.
In addition, in the event that the LLC is at some point in the future
involved in a public offering, which public offering involves all or
substantially all of the gaming interests or ventures owned or controlled by
Jack B. Binion, then in such event, Employee agrees that the valuation to be
placed upon the LLC shall be that which is determined in good faith by the
investment banking firm acting as the lead underwriter in such public offering,
and based upon such firm's fair market appraisal of the value of the LLC in
comparison to the other assets to be included in such public offering. In such
event, Employee shall receive an amount of stock in such public offering equal
to his Ownership percentage (subject to dilution as a result of such offering)
times the amount determined by dividing the value of the LLC in excess of
$350,000,000, as determined by such independent appraisal, by the value of all
assets (including the LLC) included in and cash raised in such public offering.
By way of example, if Employee's Ownership percentage was one-half of one
percent (.5%) and the cumulative value of the LLC was $400,000,000 and the value
of the other assets included in the public offering, including cash raised, was
$200,000,000, then the ownership or stock interest of Employee in the public
company after the public offering would be equal to .0417 of one percent
(.000417%) (subject to dilution as a result of such offering).
In the event that the LLC should become a publicly traded company at
any time during the term of this Agreement, then that portion of the stock of
LLC that Employee is entitled to receive, but which is still not fully vested
and thus subject to divestiture pursuant to the terms of this Agreement, shall
be escrowed in the custody of Employer and shall not be released to Employee
until such time as such stock becomes free from potential divestiture.
Accordingly, during the time that such stock is escrowed with the LLC, Employee
shall not margin, pledge, sell, transfer or otherwise attempt to encumber or
dispose of such stock, except to the LLC. At the time that such stock is no
longer subject to divestiture, then it shall be immediately released by the LLC
to Employee.
14. Representations and Warranties. Employer, as the following relate to
Employer, and the LLC, as the following relate to the LLC, hereby represent and
warrant to Employee as follows:
(a) The LLC is a limited liability company, duly organized and validly
existing under the laws of the State of Delaware. Employer is a Nevada
corporation, duly organized and validly existing under the laws of the State of
Nevada;
(b) This Agreement, when executed by Jack B. Binion, CEO of the
Company, will constitute a legal, valid and binding agreement on the part of
Employer and the LLC, having been duly authorized by all requisite corporate and
company resolutions or authorizations; and
(c) This Agreement, when executed by Employer and the LLC, will not
conflict with, violate the terms of or create a default under any other
agreement, contract or other obligation Employer and/or the LLC is a party to or
by which Employer or the LLC is bound.
Employee hereby represents and warrants to Employer as follows:
(a) this Agreement, when executed by Employee, will not conflict with,
violate the terms of or create a default under Employee's present employment
arrangements and/or agreement, whether oral or written;
(b) Employee has never been denied a gaming application by any Gaming
Authority
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<PAGE> 11
and Employee currently knows of no reason why Employee would not be
qualified to receive a gaming license from any jurisdiction in which the LLC
and/or any of its affiliates or subsidiaries conducts gaming operations; and
(c) Employee is unaware of any mental, physical or emotional condition,
including, without limitation, substance or alcohol abuse problems, which
currently affects Employee, and which might result in Employee's being unable to
carry out all of his duties, obligations and responsibilities set forth herein.
Employer, the LLC and Employee understand and agree that each is entering
into this Agreement in strict reliance upon the representations and warranties
set forth herein, and that a breach of any of said representations and
warranties by any of the parties hereto would constitute a default hereunder.
15. Entire Agreement. This Agreement constitutes the entire agreement of
the parties hereto with respect to the subject matter set forth herein, and
supersedes any and all previous oral or written agreements, understandings or
discussions between the parties hereto with respect to the subject matter set
forth herein.
16. All Amendments in Writing. This Agreement may not be amended orally,
but only pursuant to a written instrument executed by Employer, the LLC and
Employee.
17. Arbitration. In the event of any dispute or controversy between
Employer or Employee with respect to any of the matters set forth herein, then
both Employer and Employee agree to submit such dispute or controversy to
binding arbitration, to be conducted in Las Vegas, Nevada pursuant to the then
prevailing rules and regulations of the American Arbitration Association. In
such arbitration, the prevailing party shall be entitled, in addition to any
award made in such proceeding, to recover all of its costs and expenses incurred
in connection therewith, including, without limitation, attorneys' fees.
18. Governing Laws. This agreement shall be governed and construed in
accordance with the laws of the State of Nevada.
19. Notices. Any notice required or permitted to be given in connection
with this Agreement shall be given by either: (a) depositing the same in the
United States Mail, postage prepaid, registered or certified, return receipt
requested; or (b) by depositing it with a recognized overnight courier service
for delivery the following day to the other party; or (c) by facsimile
transmission, provided the other party acknowledges receipt of such
transmission.
All such notices shall be deemed received as of the date of acknowledgment
of receipt by the other party. All such notices shall be addressed to the
parties at the following addresses, or to such other address as may be provided
from time to time by one party to the other:
If to the LLC: Horseshoe Gaming, LLC
330 S. Fourth Street
Las Vegas, Nevada 89101
Attn: Jack B. Binion
If to Employer: Horseshoe Gaming, Inc.
330 S. Fourth Street
Las Vegas, Nevada 89101
Attn: Jack B. Binion
If to Employee: Mr. Gary Border
6283 S. Industrial, Unit C
Las Vegas, Nevada 89118
11
<PAGE> 12
20. Assignment. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, successors,
administrators and assigns. Notwithstanding the foregoing, Employee understands
and agrees that the nature of this Agreement is a personal services agreement,
and that Employer is entering into this Agreement based upon the specific
services to be rendered personally by Employee hereunder; and accordingly,
Employee shall not assign, transfer or delegate in any manner any of his duties,
responsibilities or obligations hereunder.
21. Waiver. No waiver of any term, condition or covenant of this Agreement
by a party shall be deemed to be a waiver of any subsequent breaches of the same
or other terms, covenants or conditions hereof by such party.
22. Construction. Whenever possible, each provision of this Agreement shall
be interpreted in such manner as to be effective or valid under applicable law,
but if any provision of this Agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective only to the extent of such
prohibition or invalidity without invalidating the remainder of such provision
or the remaining provisions of this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
day and year first above written.
"EMPLOYER" HORSESHOE GAMING, INC.
a Nevada corporation
By: \S\ Jack B. Binion
---------------------------------------
Jack B. Binion, Chief Executive Officer
"EMPLOYEE" \s\ Gary Border
--------------------------------------------
GARY BORDER
AGREED AND ACCEPTED as of this
1st day of July, 1996
HORSESHOE GAMING, L.L.C.
a Delaware limited liability Company
By: HORSESHOE GAMING, INC.,
a Nevada corporation
Manager
By: _\s\ jack B. Binion_______
Jack B. Binion
Chief Executive Officer
12
<PAGE> 13
EXHIBIT A
DEFINITIONS
All capitalized terms referenced or used in this Agreement and not
specifically defined therein shall have the meaning set forth below in this
Exhibit A, which is attached to and made a part of this Agreement for all
purposes.
Gaming Authorities. The term "Gaming Authorities" or "Authority" shall mean
all agencies, authorities and instrumentalities of any state, nation or other
governmental entity or any subdivision thereof, regulating gaming or related
activities in the United States or any State.
Governmental Authority. The term "Governmental Authority" means the
Government of the United States, and any other state, county or political
subdivision in which the any of the Company's casino facilities are located, and
any court or political subdivision, agency, commission, board or instrumentality
or officer thereof, whether federal, state or local, having or exercising
jurisdiction over Employer or any of the Company's gaming facilities, including,
without limitation, any Gaming Authority.
Governmental Requirements. The term "Governmental Requirements" means all
laws and agreements with any Governmental Authority that are applicable to the
acquisition, development, construction and/or operation of any of the Company's
gaming facilities including, without limitation, all required permits, approvals
and any rules, guidelines or restrictions created or imposed by Governmental
Authorities (including, without limitation, any Gaming Authority).
13
<PAGE> 1
EXHIBIT 10.35
1.
<PAGE> 2
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into as of the 1st day of October, 1995 by and
between Horseshoe Gaming Inc., a Nevada corporation ("Employer" or "Company")
and Mr. Walter J. Haybert ("Employee"), and is made with reference to the
following recitals of fact:
RECITALS
WHEREAS, Employer is the Manager of Horseshoe Gaming, LLC., a Delaware
limited liability company (the "LLC"), whose subsidiaries and affiliates have
developed and are currently operating casino facilities in Tunica County,
Mississippi and in Bossier City, Louisiana, and intends to develop numerous
other casino facilities in emerging gaming jurisdictions;
WHEREAS, Employee has extensive experience in the gaming industry, and
based upon his knowledge, experience and skill is capable of performing each and
all of the duties and responsibilities to be assigned to Employee pursuant to
the terms of this Agreement; and
WHEREAS, Employer wishes to hire and employ Employee, and Employee desires
to accept such employment pursuant to the terms of this Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, and in consideration of the mutual
covenants, promises and agreements herein contained, the parties hereto agree as
follows:
AGREEMENT
1. Definitions. All capitalized words referenced or used in this Agreement
and not specifically defined herein shall have the meaning set forth on Exhibit
"A", attached hereto and made a part hereof.
2. Term. This Agreement shall become effective and Employee's term of
employment with Employer shall commence, for all purposes, on October 1, 1995
(the "Commencement Date") and shall terminate on July 31, 1998, unless
terminated sooner by
2.
<PAGE> 3
Employer or Employee pursuant to the terms set forth herein.
3. Position to be Held by Employee. Employee is hereby employed and hired
by Employer to serve and act as the Chief Financial Officer of Employer and the
LLC and shall perform each and all of the duties and shall have all of the
responsibilities described herein. Employee shall at all times report directly
to and take directives from the Chief Executive officer ("CEO") of the Company,
which presently is Mr. Jack B. Binion. Employee shall not be reassigned to a
different position, relocated to a different city (other than the city in which
the company's headquarters are located) or assigned significantly different
responsibilities from those set forth herein, without the reasonable concurrence
and agreement of Employee.
4. Duties and Responsibilities.
A. General Duties. In his capacity as Chief Financial Officer of the
Company and the LLC Employee shall have responsibility for overseeing the
financial activities and affairs of the Company and the LLC in a manner so as to
maximize, to the best of his ability, the profitability of the Company and the
LLC, for and on behalf of Employer in accordance with applicable laws and
regulations. The authority of Employee to bind Employer and the LLC shall be as
broad or as limited as may be determined from time to time by the Board of
Directors of the Company. Within salary and policy guidelines established by the
CEO and/or the Board and with the reasonable concurrence of the CEO, Employee
shall have the authority to hire and fire employees of the Company who are
assigned to perform financial duties and functions and who are under the direct
or indirect supervision of Employee.
B. Specific Duties. Employee shall be responsible for the supervision
and direction of all of the day-to-day financial activities of the Company and
the LLC, including, without limitation, banking relationships, relationships
with other lenders, relationships with the Company's and the LLC`s independent
certified public accountants, relationships with the Company's and the LLC's
investment bankers and other stock analysts and investment advisors, cash
management, overseeing preparation of the Company's and the LLC`s (and their
respective subsidiaries and affiliates) tax returns and other financial
reporting requirements, establishment of policy and oversight of financial
officers at property level and other similar functions typically performed by a
Chief Financial Officer of a major casino and hotel company. In all instances,
Employee shall coordinate with and oversee all department heads charged with
direct responsibility for the various facets of the Company's and the LLC's
financial affairs as described above so
3.
<PAGE> 4
as to assure that all such employees are performing their respective assignments
and such departments are being run in a thorough, competent and professional
manner.
C. Fiduciary Duty. In every instance, Employee shall carry out his
various duties and responsibilities in a fiduciary capacity on behalf of
Employer, in an effort to maximize the profitability of the Company and the LLC.
In no event whatsoever shall Employee enter into any commitments or obligations,
written or verbal, or take any other action or omit to take any action, the
result of which would be to create a conflict of interest between Employer or
the LLC and Employee, or the result of which would benefit Employee, or any
person associated with or affiliated with Employee to the detriment of Employer
or the LLC.
D. All Time Effort. Employee acknowledges and agrees that the duties and
responsibilities to be discharged by Employee require a full time effort on the
part of Employee, and accordingly, Employee agrees to devote his full time
effort and resources for and on behalf of Employer and the LLC, and agrees that
he will not, during the term hereof, enter into any other business activities or
ventures, other than those which are passive in nature and which will not
require the active participation of Employee.
E. Directives from CEO. In all instances, Employee agrees to carry out
all of his duties and responsibilities as set forth herein pursuant to the
guidance, reasonable and lawful directives and instructions of the CEO of the
Company, Mr. Jack B. Binion, or his successor, and agrees that at all times his
authority shall be subordinate to such CEO. Any decisions as to which there is a
disagreement between Employee and the CEO, the wishes and directives of the CEO
shall prevail in all instances, and Employee shall carry out all reasonable and
lawful directives from the CEO to the best of his ability.
F. Additional Future Responsibilities of Employee. Employer understands
that Employee has significant experience in site selection and governmental
relations in various emerging gaming markets. Accordingly, Employee agrees to be
available, as requested by Employer, and as his other duties and
responsibilities may permit, to assist Employer in pursing and obtaining the
right to develop new gaming facilities in various emerging gaming markets
throughout the United States and in other countries throughout the world and to
assist in the opening of any to-be-developed casinos and hotels facilities owned
by subsidiaries or affiliates of the LLC (individually, a "Facility" and
collectively, the "Facilities") in a manner so as to maximize the profitability
of each Facility, for and on behalf
4.
<PAGE> 5
of the Company and the LLC in accordance with applicable laws and regulations.
5. Compensation. As compensation for the services to be rendered by
Employee pursuant to the terms of this Agreement, Employee shall be entitled to
receive the following:
(a) a base salary of Three Hundred and Fifty Thousand Dollars ($350,000)
per year (the "Base Compensation"), payable semi-monthly; plus
(b) Subject to the provisions of Section 11 hereof, an ownership
interest of 500,489 Units in the LLC ("the Ownership Interest"). Such Ownership
Interest shall entitle Employee to receive an interest in the Net Profits
generated by the LLC, in accordance with the Limited Liability Agreement of the
LLC to which Employee is a party, including those Net Profits generated as a
result of the LLC's Ownership Interest in the Bossier City, Louisiana and
Tunica, Mississippi casinos presently in operation as well as all other future
operating subsidiaries to be owned in whole or in part by the LLC.
The Ownership Interest in the Units granted hereunder to Employee
shall include for all purposes hereunder and under the terms of the Operating
Agreement for the LLC, a right to distributions based upon a share of Net
Profits after the date of grant of the Ownership Interests(the "Grant Date"),
including appreciation in the assets of the LLC over their fair market value as
of the Grant Date, but not including a share of the then capital of the LLC,
including any appreciation in assets of the LLC up to the Grant Date."
6. Fringe Benefits. Employee shall be entitled to participate in such
health and pension plans as Employer shall adopt for all of the executives of
the Company: it being understood and agreed that the only pension plan that
Employer anticipates adopting at this time is a Section 401(k) form of
retirement plan. In addition, it is understood and agreed that the Base
Compensation to be received by Employee is to be all-inclusive of other typical
fringe benefits provided to executives in a similar position as Employee;
provided, however, that Employee shall be entitled to the following benefits at
no cost to Employee and/or entitled to reimbursement for all reasonable
out-of-pocket expenses incurred in connection with the following:
(a) to the extent Employer establishes a bonus plan or plans offering
cash, stock options, stock grants or other equity ownership in the LLC, Employee
shall be eligible for inclusion in such plan(s) on a fair and equitable basis in
comparison to other participants in such plan(s) and on a basis
5.
<PAGE> 6
generally consistent with industry standards and practices. Employee understands
that the grant of any such cash or stock bonus, however, shall be in the sole
discretion of the Board of Directors of Horseshoe Gaming, Inc.
(b) if the CEO determines that Employee should establish his office at
the Company headquarters in Las Vegas, Nevada, the reasonable expense of moving
his family and his personal belongings to Las Vegas, Nevada, plus reimbursement
for any real estate commission paid by Employee to a licensed broker on the sale
of Employee's principal residence in Memphis, Tennessee, and the closing costs
associated with the acquisition by Employee of a new principal residence in Las
Vegas, Nevada, provided that such reimbursement in the aggregate shall not
exceed Fifty Thousand Dollars ($50,000);
(c) if the CEO determines that Employee should establish his office at
the Company headquarters in Las Vegas, Nevada, reasonable rental housing
expenses, air transportation expenses and other similar expense incurred by
Employee and/or Employee's spouse, for a period not to exceed sixty (60) days
during Employee's relocation to Las Vegas, Nevada;
(d) on an on-going basis, all reasonable entertainment, traveling and
other similar expenses incurred in the performance of his duties and
responsibilities as Chief Financial Officer, such expenses to be subject to
budgets established for such purpose;
(e) participation in Employer's health coverage plan for Employee and
all members of his immediate family, with such policy to be on terms and
conditions typically provided by major gaming companies, and subject to the
maximum benefit limitations typically included in such plans. Such insurance
coverage shall include insurance for disability in an amount and upon terms to
be reasonably agreed upon and determined by Employer and Employee within sixty
(60) days from and after the date hereof. Employer and Employee agree that
Employer shall be obligated to continue the payment of Employee's base salary
during any short term disability, i.e. one continuing for a period of 180 days
or less, provided that such payments and obligation shall be reduced by the
amount of any disability insurance payments employee is entitled to receive
during such period of time;
(f) paid vacation of three (3) weeks per year; provided that Employee
may not accumulate more than four (4) weeks of vacation, regardless of the
amount of vacation actually taken by Employee during the course of his
employment; and
6.
<PAGE> 7
(g) reimbursement for the cost of maintaining an existing $500,000 term
life insurance policy, insuring the life of Employee, provided that Employee
remains insurable at the rate generally established by major life insurance
companies for people who smoke, but are otherwise in good health and the same
age as Employee; provided, however, that if Employee is in a higher risk
category, said policy shall nevertheless continue to be made available to
Employee, but Employer will only be obligated to pay that portion of the premium
payable by a person who smokes, but is otherwise in good health, and all
premiums in excess of such standard premium shall be paid by Employee.
In addition to the foregoing, Employer and LLC agree to make available
and provide to Employee within ten (10) days after request by Employee, a
personal loan on the following terms and conditions:
Amount: Up to $200,000
Interest Rate: 10% per annum
Maturity: July 31, 1998
Security: pledge of Employee's Ownership
Interest in the LLC
7. Gaming License. Employer and Employee understand that it may be
necessary for Employee to apply for and obtain, and maintain in full force and
effect at all times, a gaming license in various jurisdictions in which
subsidiaries or affiliates of the LLC are conducting gaming operations for
persons serving in a similar capacity as Employee. Accordingly, Employee agrees,
promptly after the date hereof, to make application for any and all of such
required gaming licenses, to fully cooperate in the investigation or
investigations to be conducted in connection therewith, and otherwise use his
best efforts to obtain such gaming licenses in a timely fashion. Employer agrees
to fully cooperate with Employee in such regard and provide all necessary
information required in connection therewith, and to pay for all costs
associated with Employee obtaining such gaming licenses, including application
fees, investigation fees, or any other similar expenses such as attorneys' fees,
reasonably approved by Employer and incurred in connection therewith. In the
event that Employee should fail to obtain any such license, due to his lack of
suitability or failure to submit information in a timely manner, then this
Agreement may be immediately terminated by Employer, in which event Employee
shall have no right to any further compensation hereunder and the divestiture
provisions set forth in Section 11 hereof shall become effective. During the
course of his employment, Employee agrees to fully comply with all requirements
of applicable Gaming Authorities and Governmental Authorities.
7.
<PAGE> 8
8. Termination.
A. Termination For Cause. Employee may be terminated by Employer for
"cause" in which event the provisions of Section 8A(i) through (iv) below shall
apply.
For purposes of this Agreement "cause" is herein defined as one or
more of the following events:
a) the failure of Employee to initially obtain a gaming license or
the revocation, or suspension for a period in excess of ninety (90) days, of any
of Employee's gaming licenses due to an act or omission of Employee, which was
not caused by Employer or any of its representatives;
b) failure or refusal by Employee to observe or perform any of the
material provisions of this Agreement or any other written agreement with
Employer, or to perform in a reasonably satisfactory manner all of the material
duties required of Employee under this Agreement or any other written agreement
with Employer;
c) commission of fraud, misappropriation, embezzlement or other acts
of dishonesty, alcoholism, drug addiction or dependency or conviction for any
crime punishable as a felony or a gross misdemeanor involving dishonesty or
moral turpitude, or the commission of any act or acts which have a material
adverse effect upon Employee's ability to perform the duties which are assumed
or assigned to him pursuant to this Agreement, or which actions or occurrences
are materially adverse to the interests of Employer;
d) refusal or failure to comply with the reasonable and lawful
directives of and/or procedures established by the CEO, Jack B. Binion, or his
successor, or the Board of Directors; or
e) the death of Employee or the "long-term" mental or physical
disability of Employee to such a degree that Employee, in the reasonable
judgment of responsible physicians retained by Employer, is unable to carry out
all of his obligations, duties and responsibilities set forth herein. For
purposes of this Agreement, "long-term" shall be defined as exceeding a period
of one hundred and eighty (180) days.
Termination of Employee's employment for cause under Subsections 8A(c) or
(e) above shall be effective upon notice. Termination of Employee's employment
for cause under Subsections 8A(a), (b) or (d) above shall be effective upon
thirty (30) days prior written notice to Employee; provided that prior to the
giving of such notice of termination, Employer shall
8.
<PAGE> 9
notify Employee that a factual basis for termination for cause exists,
specifying such basis.
Upon any termination of Employee's employment with Employer, the following
shall apply:
i) Employee shall be paid his Base Compensation through the effective
date of such termination;
ii) Employee shall be entitled to retain his Fully Vested Ownership
Interest in Employer (as hereinafter defined in Section 11);
iii) The covenant not to compete and confidentiality agreement set
forth in Sections 9 and 10 hereinbelow shall apply in the manner and to the
extent set forth herein; and
iv) The put/call option described in Section 12 hereinbelow shall become
effective for all purposes.
B. Termination Without Cause. This Agreement may be terminated at any
time by Employer, upon thirty (30) days prior written notice to Employee, at the
will of Employer and without good cause as described in Section 8A above. In the
event of any such termination without cause, the following shall apply;
i) Employee shall be paid his Base Compensation through the effective
date of such termination;
ii) Employee shall be entitled to retain that portion of his Ownership
Interest in the LLC which, upon the effective date of such termination, is fully
vested plus Employee shall be entitled to be vested in an additional 125,122.25
Units in the LLC, as of the effective date of such termination by Employer
(subject to the maximum Ownership Interest of 500,489 Units set forth in Section
5(b) above);
iii) The covenant not to compete and confidentiality agreement set forth
in Section 9 and 10 hereinbelow shall apply in the manner and to the extent set
forth herein; and
iv) The put/call option described in Section 12 hereinbelow shall become
effective for all purposes.
C. Additional Benefit. Upon the termination of Employee for whatever
reason, Employee shall also be paid the following amounts (the "Severance
Benefits");
9.
<PAGE> 10
a) if such termination is with cause (i) $300,000, if Employee is
terminated on or before July 20, 1996; (ii) $683,461, if Employee is terminated
on or before July 20, 1997; (iii) $1,025,192, if Employee is terminated on or
before July 30, 1998 and (iv) $1,366,923, if Employee is terminated after July
30, 1998, or
b) if such termination is without cause, (i) $683,461, if Employee is
terminated on or before July 20, 1996; (ii) $1,025,192, if Employee is
terminated on or before July 20, 1997; and (iii) $1,366,923, if Employee is
terminated after July 20, 1997.
Notwithstanding the foregoing, within ninety (90) days of the occurrence
of a Binion Disposition Event (defined in Section 11 below), unless Employee has
been previously paid a Severance Benefit, Employee shall be paid $1,366,923 and
Employee shall have no further right to receive a Severance Benefit.
9. Covenant Not to Compete.
A. Covenant. Upon any resignation by Employee or termination of the
employment of Employee with cause, Employee agrees that for a period not to
exceed one year from and after the date of such termination he will not serve in
any capacity, whether as an officer, director, employee or consultant, to any
other casino company which is either (i) competing directly against the LLC, the
Company or any of their subsidiaries or affiliates at the time of such
termination; or (ii) in any "RFP" process or any other similar competitive
process in which a limited number of gaming licenses are available for issuance
to one or more gaming companies selected out a group of competing companies,
such as the competitive licensing process which one of the LLC's subsidiaries is
presently engaged in Harrison County, Indiana. Employer and Employee agree that
such covenant not to compete has been given by Employee to Employer and the LLC
for full and adequate consideration, including, without limitation, Employee's
Ownership Interest described in Section 5(b) hereinabove, and that such covenant
not to compete will expire on the earlier to occur of: (i) one year; or (ii) the
date upon which the competitive licensing process was completed and a specific
company was selected for award of such license.
B. Modification. In the event that any court of competent jurisdiction
determines that the term or the business or geographic scope of the covenant
contained in Subsection 9A above is impermissible due to the extent thereof,
said covenant shall be modified to reduce its term, business scope or geographic
scope, as the case may be, to the extent necessary to make such covenant valid,
and said covenant shall be enforced as modified.
10.
<PAGE> 11
C. Injunctive Relief. Employee understands and agrees that it would be
difficult or impossible to ascertain the measure of damages to Employer and/or
the LLC resulting from any breach of this covenant not to compete and that
injury to Employer and/or the LLC from any such breach may be irreparable, and
that money damages therefor may be an inadequate remedy. Accordingly, in the
event of a breach or threatened breach by Employee of the provisions of this
Section 9, Employer and/or the LLC shall be entitled to seek and obtain, in
addition to monetary damages, injunctive relief against Employee, in a court of
competent jurisdiction, restraining Employee from engaging in such competitive
situation with Employer and/or the LLC.
10. Disclosure of Confidential Information.
A. Definition of Confidential Information. For purposes of this
Agreement, "Confidential Information" means any information that is not
generally known to the public that relates to the existing or reasonably
foreseeable business of Employer and/or the LLC which has been expressly or
implicitly protected by Employer and/or the LLC or which, from all of the
circumstances, Employee knows or has reason to know that Employer and/or the LLC
intend or expect the secrecy of such information to be maintained. Confidential
Information includes, but is not limited to, information contained in or
relating to the customer lists, account lists, price lists, product designs,
marketing plans or proposals, customer information, merchandising, selling,
accounting, finances, knowhow, trademarks, trade names, trade practices, trade
secrets and other proprietary information of Employer and/or the LLC.
B. Employee Shall Not Disclose Confidential Information. Employee will
not, during the term of Employee's employment and for two (2) years following
the termination of Employee's employment with Employer, use, show, display,
release, discuss, communicate, divulge or otherwise disclose Confidential
Information to any unauthorized person, firm, corporation, association or other
entity for any reason or purpose whatsoever, without the prior written consent
or authorization of Employer. Nothing contained herein shall be interpreted or
construed as restraining or preventing Employee from using Confidential
Information in the proper conduct of services to be rendered by Employee on
behalf of Employer and/or the LLC pursuant to this Agreement.
C. Scope. Employee's covenant in Subsection 10B above to not disclose
Confidential Information shall not apply to information which, at the time of
such disclosure, may be obtained from sources outside of Employer, or from its
agents, lawyers or accountants, so long as those sources did not receive
11.
<PAGE> 12
the information in an improper manner or against the wishes of Employer.
D. Title. All documents and other tangible or intangible property
(including business opportunities which Employer and/or the LLC is pursuing)
relating in any way to the business of Employer and/or the LLC which are
conceived or generated by Employee or come into Employee's Possession during the
employment period shall be and remain the exclusive property of Employer and/or
the LLC, and Employee agrees to return immediately to Employer and/or the LLC,
upon their request, all such documents and tangible and intangible property,
including, but not limited to, all records, manuals, books, blank forms,
documents, letters, memoranda, notes, notebooks, reports, data, tables, magnetic
tapes, computer disks, calculations or copies thereof, which are the property of
Employer and/or the LLC and which relate in anyway to the business, customers,
products, practices or techniques of Employer and/or the LLC, as well as all
other property of Employer and/or the LLC, including but not limited to, all
documents which in whole or in part contain any Confidential Information of
Employer and/or the LLC which in any of these cases are in Employee's possession
or under Employee's control.
E. Compelled Disclosure. In the event a third party seeks to compel
disclosure of Confidential Information by Employee by judicial or administrative
process, Employee shall promptly notify Employer of such occurrence and furnish
to Employer a copy of the demand, summons, subpoena or other process served upon
Employee to compel such disclosure, and will permit Employer to assume, at its
expense, but with Employee's cooperation, defense of such disclosure demand. In
the event that Employer refuses to contest such a third party disclosure demand
under judicial or administrative process, or a final judicial judgment is issued
compelling disclosure of Confidential Information by the Employee, Employee
shall be entitled to disclose such information in compliance with the terms of
such administrative or judicial process or order.
F. Injunctive Relief. Employee understands and agrees that the
disclosure, use or usurpation of Confidential Information would cause
significant economic detriment to the business of Employer and/or the LLC which
may be irreparable and for which monetary damages may be an inadequate remedy.
Accordingly, Employee understands and agrees that Employer and/or the LLC shall
be entitled to seek and obtain, in addition to monetary damages, injunctive
relief against Employee, in a court of competent jurisdiction, restraining
Employee from the disclosure, use or usurpation in any manner of any
Confidential Information.
12.
<PAGE> 13
11. Possible Divestiture of Ownership Interest in LLC. Employee's Ownership
Interest in the LLC, being 500,489 Units, which Employee is entitled to receive
in accordance with the terms of this Agreement shall be conveyed in its entirety
to and held by Employee on October 1, 1995, subject to the approval of
applicable Gaming Authorities and compliance with Governmental Requirements. A
portion of the Ownership Interest of Employee shall, nevertheless, be subject to
divestiture based upon the following terms and conditions:
(a) Twenty-five percent (25%) of such Ownership Interest shall not be
subject to divestiture and shall be deemed fully vested for all purposes upon
execution of this Agreement; provided that the remaining seventy-five percent
(75%) shall be subject to possible divestiture and shall only become fully
vested based upon the following provisions;
(b) Subject to the provisions of Section 8B above, seventy-five percent
(75%) of such Ownership Interest of Employee in the LLC shall be subject to
divestiture in the event that Employee is terminated or voluntarily resigns
prior to July 20, 1996;
(c) Subject to the provisions of Section 8B above, fifty percent (50%)
of such Ownership Interest of Employee in the LLC shall be subject to
divestiture in the event that Employee is terminated or voluntarily resigns
prior to July 20, 1997; and
(d) Subject to the provisions of Section 8B above, the final twenty-five
percent (25%) of such Ownership Interest of Employee in the LLC shall be subject
to divestiture in the event that Employee is terminated or voluntarily resigns
prior to the scheduled termination date of this Agreement set forth in Section 2
above. The Ownership Interest of Employee in the LLC which is not subject to
divestiture pursuant to the provisions set forth above is referred to herein as
the "Fully Vested Ownership Interest".
Such divestiture of Employee's Partnership Interest in Employer shall be
automatic upon the occurrence of the event giving rise to such divestiture, and
shall not require the consent, acknowledgement or concurrence of Employee. Upon
any such event causing divestiture of all or a portion of Employee's Ownership
Interest in the LLC, the LLC shall send a written notice to Employee specifying
the amount of Ownership Interest that has been divested and the reason for such
divestiture. Employee agrees to execute any and all documents reasonably
requested by counsel for the LLC to evidence such divestiture. Such divestiture
shall be made without payment of any type whatsoever to Employee, and shall be
effective for all purposes
13.
<PAGE> 14
from the date of the event giving rise to such divestiture. In no event shall
such divestiture be deemed a "forfeiture", but rather the possibility of such
divestiture is part of the bargained for consideration to Employer in entering
into this Agreement; it being clearly understood and agreed that Employee's
performance of services in a manner satisfactory to Employer for the entire term
of this Agreement is the consideration to be provided by Employee to Employer
for the Ownership Interest to be conveyed to Employee pursuant to this
Agreement.
Notwithstanding the provisions of Sections 11(b), (c) and (d) hereof, in
the event Jack B. Binion (including any entities through which Jack B. Binion
holds his ownership interest in the LLC, family members of Jack B. Binion and/or
trusts established for the benefit of his heirs) transfers controlling interest
in the LLC to a third party in a transaction other than a public offering (a
"Binion Disposition Event"), the entire Ownership Interest of Employee shall
immediately become a Fully Vested Ownership Interest and no longer subject to
divestiture.
12. Put/Call Option Upon Termination. In the event of the termination of
Employee's employment with Employer, for whatever reason, and with or without
cause, then the LLC shall have the right to purchase the Fully Vested Ownership
Interest of Employee at the fair market value of such Ownership Interest as
determined pursuant to the terms of this Agreement (the "Call Option"). In a
similar fashion, Employee shall have an option to require the LLC to purchase
back his Fully Vested Ownership Interest in the LLC at the fair market value of
such Ownership Interest as determined pursuant to the terms of this Agreement
(the "Put Option"). The LLC or Employee, as the case may be, may exercise their
respective options provided for in this Section 12, by tendering written notice
to the other party of its exercise of such option within ninety (90) days after
the date of the termination of this Agreement.
In the event that either option described herein should he exercised by
Employee or the LLC, then Employee and the LLC agree to promptly convene and
attempt in good faith to determine the fair market value of the Ownership
Interest to be purchased by the LLC from Employee. Such fair market value of the
Fully Vested Ownership Interest shall take into account that such Interest has
an interest only in future profits and asset appreciation, and not capital, all
as provided in Section 5(b) hereof. In the event that the LLC and Employee are
unable to agree upon such fair market value, then the parties hereto agree to
submit such matter to an independent appraisal to be conducted in Las Vegas,
Nevada in accordance with the terms set forth below. Either party may initiate
such appraisal process by delivery of written notice to the other party to such
effect,
14.
<PAGE> 15
designating the name of an appraiser that is to represent it in such appraisal
process. Thereafter, within ten (10) days of receipt of such notice, the other
party shall designate an appraiser to represent it in such process. Within ten
(10) days after designation of the second appraiser, the two appraisers shall
convene and agree upon a third appraiser. In the event that said two appraisers
are unable to agree upon a third appraiser, then the third appraiser shall be
selected by lottery, with each appraiser to submit the name of another reputable
appraiser, and with the appraiser whose name is drawn in such lottery being
designated for all purposes as the third appraiser.
Within ten (10) days after selection of the third appraiser, the three
appraisers shall convene and attempt to agree upon the fair market value of the
Ownership Interest to be purchased by the LLC. If unable to agree, then each
appraiser shall within thirty (30) days thereafter prepare his own independent
appraisal report and such reports shall be submitted to the LLC and Employee.
Provided that the middle appraisal is within ten percent (10%) of either the
high or low appraisal, then the middle appraisal (the highest and lowest
appraisals being disregarded) shall be deemed to be the fair market value and
thus the valuation to be used for purposes of the LLC's acquisition of
Employee's Fully Vested Ownership Interest.
In the event that the middle appraisal is not within ten percent (10%) of
either the high or low appraisal, then the determination of the fair market
value of Employee's Ownership Interest shall be submitted to arbitration in
accordance with the provisions of Section 17 hereinbelow, and in such
arbitration, each of the appraisers shall be entitled to submit their appraisal
report and testify on behalf of the LLC or Employee. The arbitration panel,
after hearing all evidence desired to be submitted by the LLC and Employee,
shall determine said fair market value, and such decision by said arbitration
panel shall be binding upon the LLC and Employee.
The purchase price to be paid by the LLC as determined by agreement or
appraisal as described herein, shall be paid in cash to Employee upon Employee's
transfer to the LLC of his Fully Vested Ownership Interest in the LLC.
The LLC and Employee agree that any persons chosen to represent them as
appraisers shall be qualified and competent MAI appraisers or a certified public
accountant with one of the "Big Six" accounting firms, experienced in valuing
closely held partnerships or corporations. In the event that the LLC is a
publicly traded company at the time of termination, then the provisions of this
Section 12 shall be inapplicable, and accordingly, the Put and Call Option
described herein shall terminate for all purposes.
16.
<PAGE> 16
In the event that the LLC exercises its Call Option, then the LLC agrees to
pay for all of the reasonable expenses incurred in connection with such
appraisal process, including the cost associated with the appraiser selected by
Employee, provided that the amount charged by such appraiser is a fair and
reasonable fee. In the event that Employee exercises its Put Option, then the
LLC shall bear the cost of its appraiser, Employee shall bear the cost of its
appraiser and the LLC and Employee shall each bear one-half (1/2) of the cost of
the third appraiser.
13. Distributions: Public Offering. Employee shall become an equity owner
in the LLC subject to all rights, conditions and other provisions of any
shareholder's agreement which shall apply equitably to and govern the
relationship among all of the equity owners of the company. Accordingly,
Employee shall be entitled to receive distributions from the LLC with respect to
Employee's Ownership Interest in the same manner and at the same time as other
shareholders of the LLC are entitled to do so under the terms of any
shareholder's agreement among the equity owners of the LLC or the terms of any
credit agreement or other financing to which the LLC, or any of its subsidiaries
is a party. The LLC and Employee understand and agree that one of the credit
agreements currently in effect restricts the equity owners of the LLC from
receiving distributions in an amount in excess of that intended to be sufficient
to discharge federal and state income taxes that may be levied against the
income allocated to each of such equity owners pursuant to the provisions of
applicable law.
In addition, in the event that the LLC is at some point in the future
involved in a public offering, which public offering involves all or
substantially all of the gaming interests or ventures owned or controlled by
Jack B. Binion, then in such event, Employee agrees that the valuation to be
placed upon the LLC shall be that which is determined in good faith by the
investment banking firm acting as the lead underwriter in such public offering,
and based upon such firm's fair market appraisal of the value of the LLC in
comparison to the other assets to be included in such public offering. In such
event, Employee shall receive an amount of stock in such public offering equal
to the percentage that the value of the Employee's Ownership Interest (as
determined taking into account that such Interest has an interest only in future
profits and asset appreciation, and not capital, all as provided in Section 5(b)
hereof) bears to the value of the LLC (subject to dilution as a result of such
offering) times the amount determined by dividing the value of the LLC, as
determined by such independent appraisal, by the value of all assets (including
the LLC) included in and cash raised in such public offering. By way of
16.
<PAGE> 17
example, if Employee's Ownership Interest was valued at one-half of one percent
(.5%) of the LLC's value and the cumulative value of the LLC was $400,000,000
and the value of the other assets included in the public offering, including
cash raised, was $200,000,000, then the ownership or stock interest of Employee
in the public company after the public offering would be equal to one-third of
one percent (.333%) (subject to dilution as a result of such offering).
In the event that the LLC should become a publicly traded company at any
time during the term of this Agreement, then that portion of the stock of the
LLC that Employee is entitled to receive, but which is still not fully vested
and thus subject to the divestiture pursuant to the terms of this Agreement,
shall be escrowed in the custody of the LLC and shall not be released to
Employee until such time as such stock becomes free from potential divestiture.
Accordingly, during the time that such stock is escrowed with the LLC, Employee
shall not margin, pledge, sell, transfer or otherwise attempt to encumber or
dispose of such stock, except to the LLC. At the time that such stock is no
longer subject to divestiture, then it shall be immediately released by the LLC
to Employee.
14. Representations and Warranties. Employer as the following relate to
Employer, and the LLC, as the following relate to the LLC, hereby represent and
warrant to Employee as follows:
(a) The LLC is a limited liability company, duly organized and validly
existing under the laws of the State of Delaware; Employer is a Nevada
corporation, duly organized and validly existing under the laws of the State of
Nevada.
(b) This Agreement, when executed by Jack B. Binion, as President and
CEO of the Company, will constitute a legal, valid and binding agreement on the
part of Employer and the LLC, having been duly authorized by all requisite
corporate and company resolutions or authorizations; and
(c) This Agreement, when executed by Employer and the LLC, will not
conflict with, violate the terms of or create a default under any other
agreement, contract or other obligation Employer and/or the LLC is a party to or
by which Employer or the LLC is bound.
Employee hereby represents and warrants to Employer and the LLC as follows:
(i) this Agreement, when executed by Employee, will not conflict with,
violate the terms of or create a default under Employee's present employment
arrangements and/or
17.
<PAGE> 18
agreement, whether oral or written;
(ii) Employee has never been denied a gaming application by any Gaming
Authority and Employee currently knows of no reason why Employee would not be
qualified to receive a gaming license from any jurisdiction in which the or any
of its affiliates or subsidiaries conducts gaming operations; and
(iii) Employee is unaware of any mental, physical or emotional
condition, including, without limitation, substance or alcohol abuse problems,
which currently affects Employee, and which might result in Employee's being
unable to carry out all of his duties, obligations and responsibilities set
forth herein.
Employer, the LLC and Employee understand and agree that each 15 entering
into this Agreement in strict reliance upon the representations and warranties
set forth herein, and that a breach of any of said representations and
warranties by either of the parties hereto would constitute a default hereunder.
15. Entire Agreement. This Agreement constitutes the entire agreement of
the parties hereto with respect to the subject matter set forth herein, and
supersedes any and all previous oral or written agreements, understandings or
discussions between the parties hereto with respect to the subject matter set
forth herein.
16. All Amendments in Writing. This Agreement may not be amended orally,
but only pursuant to a written instrument executed by Employer, the LLC and
Employee.
17. Arbitration. In the event of any dispute or controversy between
Employer and/or the LLC or Employee with respect to any of the matters set forth
herein, then Employer, the LLC and Employee agree to submit such dispute or
controversy to binding arbitration, to be conducted in Las Vegas, Nevada
pursuant to the then prevailing rules and regulations of the American
Arbitration Association. In such arbitration, the prevailing party shall be
entitled, in addition to any award made in such proceeding, to recover all of
its costs and expenses incurred in connection therewith, including, without
limitation, attorneys' fees.
18. Governing Laws. This agreement shall be governed and construed in
accordance with the laws of the State of Nevada.
19. Notices. Any notice required or permitted to be given in connection
with this Agreement shall be given by either: (a) depositing the same in the
United States Mail, postage prepaid, registered or certified, return receipt
requested; or
18.
<PAGE> 19
(b) by depositing it with a recognized overnight courier service
for delivery the following day to the other party; or (c) by facsimile
transmission, provided the other party acknowledges receipt of such
transmission.
All such notices shall be deemed received us of the date of acknowledgment
of receipt by the other party. All such notices shall be addressed to the
parties at the following addresses, or to such other address as may be provided
from time to time by one party to the other:
If to Employer: Horseshoe Gaming, Inc.
330 S. Fourth Street
Las Vegas, Nevada 89101
Attn: Jack B. Binion
If to Employee: Mr. Walter J. Haybert
9636 Fox Hill Circle North
Germantown, TN 38139
If to the LLC: Horseshoe Gaming, LLC
330 S. Fourth Street
Las Vegas, Nevada 89101
Attn: Jack B. Binion
20. Assignment. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, successors,
administrators and assigns. Notwithstanding the foregoing, Employee understands
and agrees that the nature of this Agreement is a personal services agreement,
and that Employer is entering into this Agreement based upon the specific
services to be rendered personally by Employee hereunder; and accordingly,
Employee shall not assign, transfer or delegate in any manner any of his duties,
responsibilities or obligations hereunder.
21. Waiver. No waiver of any term, condition or covenant of this Agreement
by a party shall be deemed to be a waiver of any subsequent breaches of the same
or other terms, covenants or conditions hereof by such party.
22. Construction. Whenever possible, each provision of this Agreement shall
be interpreted in such manner as to be effective or valid under applicable law,
but if any provision of this Agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective only to the extent of such
prohibition or invalidity without invalidating the remainder of such provision
or the remaining provisions of this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
day and year first above written.
19.
<PAGE> 20
"EMPLOYER" HORSESHOE GAMING, INC.,
a Nevada Corporation
By: Jack B. Binion
-------------------------
Jack B. Binion, President
"EMPLOYEE" \s\ Walter J. Haybert
--------------------------
Walter J. Haybert
9636 Fox Hill Circle North
Germantown, TN 38139
AGREED AND ACCEPTED as of the
1st day of October, 1995
HORSESHOE GAMING, LLC., a
Delaware Limited Liability Company
By: HORSESHOE GAMING, INC.,
a Nevada Corporation
Manager
By: \S\ Jack B. Binion
-------------------------
Jack B. Binion, President
20.
<PAGE> 21
EXHIBIT A
DEFINITIONS
All capitalized terms referenced or used in this Agreement and not
specifically defined therein shall have the meaning set forth below in this
Exhibit A, which is attached to and made a part of this Agreement for all
purposes.
Gaming Authorities. The term "Gaming Authorities" or "Authority" shall mean
all agencies, authorities and instrumentalities of any state, nation or other
governmental entity or any subdivision thereof, regulating gaming or related
activities in the United States or any State.
Governmental Authority. The term "Governmental Authority" means the
Government of the United States, and any other state, county or political
subdivision in which the any of the Company's casino facilities are located, and
any court or political subdivision, agency, commission, board or instrumentality
or officer thereof, whether federal, state or local, having or exercising
jurisdiction over Employer or any of the Company's gaming facilities, including,
without limitation, any Gaming Authority.
Governmental Requirements. The term "Governmental Requirements" means all
laws and agreements with any Governmental Authority that are applicable to the
acquisition, development, construction and/or operation of any of the Company's
gaming facilities including, without limitation, all required permits, approvals
and any rules, guidelines or restrictions created or imposed by Governmental
Authorities (including, without limitation, any Gaming Authority).
Net Profits. The term "Net Profits" shall have the same meaning as the term
"Profits" has in the Limited Liability Company Agreement of the LLC.
21.
<PAGE> 1
EXHIBIT 10.36
<PAGE> 2
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into as of the 1st day of October, 1995 by and
between HORSESHOE GAMING, INC., a Nevada corporation ("employer" or "Company")
and Mr. JOHN J. SCHREIBER ("Employee"), and is made with reference to the
following recitals of fact:
RECITALS
WHEREAS, Employer is the Manger of Horseshoe Gaming, LLC, a Delaware
limited liability company (the "LLC"), whose subsidiaries and affiliates have
developed and are currently operating casino facilities in Tunica County,
Mississippi (the "Tunica Facility") and in Bossier city, Louisiana (the "Bossier
City Facility"), and intends to develop numerous other casino facilities in
emerging gaming jurisdictions;
WHEREAS, Employee has heretofore served as the Senior Vice President
pursuant to an Employment Agreement dated April 6, 1994 by and between Horseshoe
Club Operating Company and Employee (the "Prior Employment Agreement"), which
Prior Employment Agreement is being terminated concurrent with the effectiveness
of this Agreement;
WHEREAS, Employee has extensive experience in the gaming industry, and
based upon his knowledge, experience and skill is capable of performing each and
all of the duties and responsibilities to be assigned to Employee pursuant to
the terms of this Agreement; and
WHEREAS, Employer wishes to hire and employ Employee, and Employee desires
to accept such employment pursuant to the terms of this Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, and in consideration of the mutual
covenants, promises and agreements herein contained, the parties hereto agree as
follows:
1. Definitions. All capitalized words referenced or used in this Agreement
and not specifically defined herein shall have the meaning set forth on Exhibit
"A", attached hereto and made a part hereof.
2. Term. This Agreement shall become effective and
2.
<PAGE> 3
Employee's term of employment with Employer shall commence, for all purposes, on
October 1, 1995 (the "Commencement Date") and shall terminate on September 30,
1998, unless terminated sooner by Employer or Employee pursuant to the terms set
forth herein.
3. Position to be Held by Employee. Employee is hereby employed and hired
by Employer to serve and act as the Senior Vice President-Governmental Relations
of Employer and shall perform each and all of the duties and shall have all of
the responsibilities described herein. Employee shall at all times report
directly to and take directives from the Chief Executive Officer ("CEO") of the
Company, which presently is Mr. Jack B. Binion.
4. Duties and Responsibilities.
A. General Duties. In his capacity as Senior Vice President-Governmental
Relations of the Company, Employee shall have responsibility for overseeing the
lobbying and gaming commission relationships of the Company in a manner so as to
maximize to the best of his ability, the profitability of the Company, for and
on behalf of Employer and the LLC in accordance with applicable laws and
regulations and assisting in the opening of any to-be-developed casino and hotel
facilities owned by subsidiaries or affiliates of the LLC (individually, a
"Facility" and collectively, the "Facilities") in a manner so as to maximize, to
the best of his ability, the profitability of each Facility, for and on behalf
of the LLC in accordance with applicable laws and regulations. The authority of
Employee to bind Employer shall be as broad or as limited as may be determined
from time to time by the Board of Directors of the Company. Within salary and
policy guidelines established the CEO and/or the board and with the reasonable
concurrence of the CEO, Employee shall have the authority to hire and fire
employees of the Company who are assigned to perform governmental
relations/lobbying duties and functions and who are under the direct or indirect
supervision of Employee.
B. Specific Duties. Employee agrees to perform such duties as may be
assigned to him from time to time by the CEO. In particular, Employee and
Employer understand and agree that one of the principal incentives for Employer
to enter into this Agreement with Employee is Employee's experience in site
selection and governmental relations, particularly in emerging gaming markets.
Accordingly, Employee agrees to be available, as requested by Employer, to
actively assist Employer in obtaining the right to develop casino facilities in
various emerging gaming markets throughout the United States and Canada.
C. Fiduciary Duty. In every instance, Employee shall carry out his
various duties and responsibilities in a
3.
<PAGE> 4
fiduciary capacity on behalf of Employer, in an effort to maximize the
profitability of the Facilities. In no event whatsoever shall Employee enter
into any commitments or obligations, written or verbal, or take any other action
or omit to take any action, the result of which would be to create a conflict of
interest between Employer and Employee, or the result of which would benefit
Employee, or any person associated with or affiliated with Employee, to the
detriment of Employer
D. Full Time Effort. Employee acknowledges and agrees that the duties
and responsibilities to be discharged by Employee require a full time effort on
the part of Employee, and accordingly, Employee agrees to devote his full time
effort and resources for and on behalf of Employer, and agrees that he will not,
during the term hereof, enter into any other business activities or ventures,
other than those which are passive in nature and which will not require the
active participation of Employee.
E. Directives from CEO. In all instances, Employee agrees to carry out
all of his duties and responsibilities as set forth herein pursuant to the
guidance, reasonable and lawful directives and instructions of the CEO of the
Company, Mr. Jack B. Binion, or his successor, and agrees that at all times his
authority shall be subordinate to such CEO. Any decisions as to which there is a
disagreement between Employee and the CEO, the wishes and directives of the CEO
shall prevail in all instances, and Employee shall carry out any and all
reasonable and lawful directives from the CEO to the best of his ability.
5. Compensation. As compensation for the services to be rendered by
Employee pursuant to the terms of this Agreement, Employee shall be entitled to
receive the following:
(a) a base salary of Three Hundred and Fifty Thousand Dollars ($350,000)
per year (the "Base Compensation"), payable semi-monthly; plus
(b) a one time bonus of Fifty Thousand Dollars ($50,000), payable on or
before January 15, 1996;
(c) (i) Employer and Employee acknowledge that Employee has held a
one-half percent (.5%) partnership interest in New Gaming Capital Partnership
pursuant to the terms of the Prior Employment Agreement, and that such interest
has been contributed to the LLC pursuant to the terms of that certain Assignment
Agreement effective September 1, 1995, executed by Employee in favor of the LLC
in exchange for 236,265 Units (the "Old Units") in the LLC. Subject to the
provisions of Section 11 hereof, Employee's interest in the LLC shall increase
by the
4.
<PAGE> 5
grant, as of the date hereof, of 514,469 Units (the "New Units") to a total of
750,734 Units (the Old Units and the New Units shall constitute "the Ownership
Interest"). Subject to the limitations in Subsections (ii) and (iii) below, such
Ownership Interest shall entitle Employee to receive an interest in the Net
Profits generated by the LLC, in accordance with the Limited Liability Agreement
of the LLC to which Employee is a party, including those Net Profits generated
as a result of the LLC's Ownership Interest in the Bossier City, Louisiana and
Tunica, Mississippi casinos presently in operation as well as all other future
operating subsidiaries to be owned in whole or in part by the LLC.
(ii) The Ownership Interest in the Old Units granted hereunder to
Employee shall include for all purposes hereunder and under the terms of the
Operating Agreement for the LLC, a right to distributions based upon a share of
Net Profits from and after the date of grant of the Old Units (the "Old Units
Grant Date"), including appreciation in the assets of the LLC over their fair
market value as of the Old Units Grant Date, but not including a share of the
then capital of the LLC, including any appreciation in the assets of the LLC up
to the Old Units Grant Date.
(iii) The Ownership Interest in the New Units granted hereunder to
Employee shall include for all purposes hereunder and under the terms of the
Operating Agreement for the LLC, a right to distributions based upon a share of
Net Profits from and after the date of grant of the New Units (the "New Unit
Grant Date"), including appreciation in the assets of the LLC over their fair
market value as of the New Units Grant Date, but not including a share of the
then capital of the LLC, including any appreciation in the assets of the LLC up
to the New Units Grant Date.
6. Fringe Benefits. Employee shall be entitled to participate in such
health and pension plans as Employer shall adopt for all of the executives of
the Company; it being understood and agreed that the only pension plan that
Employer anticipates adopting at this time is a Section 401(k) form of
retirement plan. In addition, it is understood and agreed that the Base
Compensation to be received by Employee is to be all-inclusive of other typical
fringe benefits provided to executives in a similar position as Employee;
provided, however, that Employee shall be entitled to the following benefits as
not cost to Employee and/or entitled to reimbursement for all reasonable
out-of-pocket expenses incurred in connection with the following;
(a) to the extent Employer establishes a bonus plan or plans offering
cash, stock options, stock grants or other
5.
<PAGE> 6
similar equity ownership in the LLC, Employee shall be eligible for inclusion in
such plan(s) on a fair and equitable basis in comparison to other participants
in such plan(s) and on a basis generally consistent with industry standards and
practices. Employee understands that the grant of any such cash or stock bonus,
however, shall be in the sole discretion of the Board of Directors of Horseshoe
Gaming, Inc.
(b) the right to designate the beneficiary of a $1,000,000 term life
insurance policy, insuring the life of Employee, such life insurance policy to
be provided to Employee, at no cost to Employee, provided that Employee remains
insurable at the rates normally established by major life insurance companies
for term life insurance policies for persons in good health and the same age as
Employee; provided that if Employee is rated in a higher risk category said
policy shall nevertheless be made available; however, Employer shall only be
obligated to pay up to 110% of the premium payable by a person in good health
and all premiums in excess of such amount shall be paid by Employee.
(c) on an on-going basis, all reasonable entertainment, traveling and
other similar expenses incurred in the performance of his duties and
responsibilities hereunder, such expenses to be subject to budgets established
for such purpose;
(d) participation in Employer's health coverage plan for Employee and
all members of his immediate family, with such policy to be on terms and
conditions typically provided by major gaming companies, and subject to the
maximum benefit limitations typically included in such plans. Such insurance
coverage shall include insurance for disability in an amount and upon terms to
be reasonably agreed upon and determined by Employer and Employee within sixty
(60) days from and after the date hereof. Employer and Employee agree that
Employer shall be obligated to continue the payment of Employee's base salary
during any short term disability, i.e. one continuing for a period of 180 days
or less, provided that such payments and obligations shall be reduced by and
amount of any disability insurance payments Employee is entitled to receive
during such period of time; and
(e) paid vacation of three (3) weeks per year; provided that Employee
may not accumulate more than six (6) of vacation, regardless of the amount of
vacation actually taken by Employee during the course of his employment.
Employee shall have the right, upon termination, and subject to the
requirements set forth in the life and/or health insurance policies described in
subparagraphs (a) and (c) above, to take over such policies and continue them in
full force and
6.
<PAGE> 7
effect at his sole cost and expense.
7. Gaming License. Employer and Employee understand that in may be
necessary for Employee to apply for and obtain, and maintain in full force and
effect at all times, a gaming license in various jurisdictions in which
subsidiaries or affiliates of the LLC are conducting gaming operations for
persons serving in a similar capacity as Employee. Accordingly, Employee agrees,
promptly after the date hereof, to make application for any and all of such
required gaming licenses, to fully cooperate in the investigation or
investigations to be conducted in connection therewith, and otherwise use his
best efforts to obtain such gaming licenses in a timely fashion. Employer agrees
to fully cooperate with Employee in such regard and provide all necessary
information required in connection therewith, and to pay for all costs
associated with Employee obtaining such gaming licenses, including application
fees, investigation fees, or any other similar expenses such as attorneys' fees,
reasonably approved by Employer and incurred in connection therewith. In the
event that Employee should fail to obtain any such license, due to his lack of
suitability or failure to submit information in a timely manner, then this
Agreement may be immediately terminated by Employer, in which event Employee
shall have no right to any further compensation hereunder and the divestiture
provisions set forth in Section 11 hereof shall become effective. During the
course of his employment, Employee agrees to fully comply with all requirements
of applicable Gaming Authorities and Governmental Authorities.
8. Termination.
A. Termination for Cause. Employee may be terminated by Employer for
"cause" in which event the provisions of Section 8(i) through (iv) below shall
apply. For purposes of this Agreement "cause" is herein defined as one or more
of the following events:
(i) the failure of Employee to initially obtain a gaming license or
the revocation, or suspension for a period in excess of ninety (90) days, of any
of Employee's gaming licenses due to an act or omission of Employee, which was
not caused by Employer or any of its representatives;
(ii) failure or refusal by Employee to observe or perform any of the
material provisions of this Agreement or any other written agreement with
Employer, or to perform in a reasonably satisfactory manner all of the material
duties required of Employee under this Agreement or any other written agreement
with Employer;
(iii) commission of fraud, misappropriation,
7.
<PAGE> 8
embezzlement or other acts of dishonesty, alcoholism, drug addiction or
dependency or conviction for any crime punishable as a felony or a gross
misdemeanor involving dishonesty or moral turpitude, or the commission of any
act or acts which have a material adverse effect upon Employee's ability to
perform the duties which are assumed or assigned to him pursuant to this
Agreement, or which actions or occurrences are materially adverse to the
interests of Employer;
(iv) failure or refusal by Employee to comply with the reasonable and
lawful directives of and/or procedures established by the CEO, Jack B. Binion,
or his successor, or the Board of Directors; or
(v) the death of or the "long-term" mental or physical disability of
Employee to such a degree that Employee, in the reasonable judgment of
responsible physicians retained by Employer, is unable to carry out all of his
obligations, duties and responsibilities set forth herein. for purposes of this
Agreement, "long-term" shall be defined as exceeding a period of one hundred and
eighty (180) days.
Termination of Employee's employment for cause under Subsections 8(iii) or
(v) above shall be effective upon notice. Termination of Employee's employment
for cause under Subsections 8A(i), (ii) or (iv) above shall be effective upon
thirty (30) days prior written notice to Employee; provided that prior to the
giving of such notice of termination, Employer shall notify Employee that a
factual basis for termination for cause exists, specifying such basis.
B. Termination Without Cause. So long as the Company is controlled by
Jack B. Binion, this Agreement may be terminated at any time by Employer, upon
thirty (30) days prior written notice to Employee, at the will of Employer and
without good cause as described in Section 8A above.
C. Upon any termination of Employee's employment with Employer, the
following shall apply;
(i) Employee shall be paid his Base Compensation through the
effective date of such termination;
(ii) Employee shall be entitled to retain his Fully Vested Ownership
Interest in the LLC (as hereinafter defined in Section 11);
(iii) The covenant not to compete and confidentiality agreement set
forth in Sections 9 and 10 hereinbelow shall apply in the manner and to the
extent set forth herein; and
8.
<PAGE> 9
(iv) The put/call option described in Section 12 hereinbelow shall
become effective for all purposes.
D. Additional Benefit. Upon the termination of Employee from his
employment with Employer for whatever reason (including a failure to renew this
Employment Agreement or to enter into a new Employment Agreement with Employer),
Employee shall also be paid the following amounts (the "Severance Benefits");
(a) (i) $892,510, if Employee is terminated on or before October 30,
1995; (ii) if Employee is terminated after October 30, 1995, $892,510 increasing
by $28,478 per month until a maximum payment of $1,405,105 is payable if
Employee is terminated;
(b) Notwithstanding the foregoing, within ninety (90) days of the
occurrence of a Binion Disposition Event (defined in Section 11 below), unless
Employee has been previously paid a Severance Benefit, Employee shall be paid
$1,405,105 and Employee shall have no further right to receive a Severance
Benefit.
9. Covenant Not to Compete.
A. Covenant. Upon any resignation by Employee or termination of the
employment of Employee with cause, Employee agrees that for a period not to
exceed one year from and after the date of such termination he will not serve in
any capacity, whether as an officer, director, employee or consultant, to any
other casino company which is either (i) competing directly against the LLC, the
Company or any of their subsidiaries of affiliates at the time of such
termination; or (ii) in any "RFP" process or any other similar competitive
process in which a limited number of gaming licenses are available for issuance
to one or more gaming companies selected out a group of competing companies,
such as the competitive licensing process which one of the LLC's subsidiaries is
presently engaged in Harrison County, Indiana. Employer and Employee agree that
such covenant not to compete has been given by Employee to Employer for full and
adequate consideration, including, without limitation, Employee's Ownership
Interest described in Section 5(c) hereinabove, and that such covenant not to
compete will expire on the earlier to occur of: (i) one year; or (ii) the date
upon which the competitive licensing process was completed and a specific
company was selected for award of such license.
B. Modification. In the event that any court of competent jurisdiction
determines that the term or the business
9.
<PAGE> 10
or geographic scope of the covenant contained in Subsection 9A above is
impermissible due to the extent thereof, said covenant shall be modified to
reduce its term, business scope or geographic scope, as the case may be, to the
extent necessary to make such covenant valid, and said covenant shall be
enforced as modified.
C. Injunctive Relief. Employee understands and agrees that it would be
difficult or impossible to ascertain the measure of damages to Employer
resulting from any breach of this covenant not to compete and that injury to
Employer from any such breach may be irreparable, and that money damages
therefor may be an inadequate remedy. Accordingly, in the event of a breach or
threatened breach by Employee of the provisions of this Section 9, Employer
shall be entitled to seek and obtain, in addition to monetary damages,
injunctive relief against Employee, in a court of competent jurisdiction,
restraining Employee from engaging in such competitive situation with Employer.
10. Disclosure of Confidential Information.
A. Definition of Confidential Information. For purposes of this
Agreement, "Confidential Information" means any information that is not
generally known to the public that relates to the existing or reasonably
foreseeable business of Employer and/or the LLC which has been expressly or
implicitly protected by Employer and/or the LLC or which, from all of the
circumstances, Employee knows or has reason to know that Employer or the LLC
intend or expect the secrecy of such information to be maintained. Confidential
Information includes, but is not limited to, information contained in or
relating to the customer lists, account lists, price lists, product designs,
marketing plans or proposals, customer information, merchandising, selling,
accounting, finances, knowhow, trademarks, trade names, trade practices, trade
secrets and other proprietary information of Employer.
B. Employee Shall Not Disclose Confidential Information. Employee will
not, during the term of Employee's employment and for two (2) years following
the termination of Employee's employment with Employer, use, show, display,
release, discuss, communicate, divulge or otherwise disclose Confidential
Information to any unauthorized person, firm, corporation, association or other
entity for any reason or purpose whatsoever, without the prior written consent
or authorization of Employer. Nothing contained herein shall be interpreted or
construed as restraining or preventing Employee from using Confidential
Information in the proper conduct of services to be rendered by Employee on
behalf of Employer pursuant to this Agreement.
C. Scope. Employee's covenant in Subsection 10B above to not disclose
Confidential Information shall not apply to
10.
<PAGE> 11
information which, at the time of such disclosure, may be obtained from sources
outside of Employer, or from its agents, lawyers or accountants, so long as
those sources did not receive the information in an improper manner or against
the wishes of Employer.
D. Title. All documents and other tangible or intangible property
(including business opportunities which Employer and/or the LLC is pursuing)
relating in any way to the business of Employer and/or the LLC which are
conceived or generated by Employee or come into Employee's possession or
knowledge during the employment period shall be and remain the exclusive
property of Employer and/or the LLC, and Employee agrees to return immediately
to Employer and/or the LLC, upon their request, all such documents and tangible
and intangible property, including, but not limited to, all records, manuals,
books, blank forms, documents, letters, memoranda, notes, notebooks, reports,
data, tables, magnetic tapes, computer disks, calculations or copies thereof,
which are the property of Employer and/or the LLC and which relate in any way to
the business, customers, products, practices or techniques of Employer and/or
the LLC, including but not limited to, all documents which in whole or in part
contain any Confidential Information of Employer and/or the LLC which in any of
these cases are in Employee's possession or under Employee's control.
E. Compelled Disclosure. In the event a third party seeks to compel
disclosure of Confidential Information by Employee by judicial or administrative
process, Employee shall promptly notify Employer of such occurrence and furnish
to Employer a copy of the demand, summons, subpoena or other process served upon
Employee to compel such disclosure, and will permit Employer to assume, at its
expense, but with Employee's cooperation, defense of such disclosure demand. In
the event that Employer refuses to contest such a third party disclosure demand
under judicial or administrative process, or a final judicial judgment is issued
compelling disclosure of Confidential Information by the Employee, Employee
shall be entitled to disclose such information in compliance with the terms of
such administrative or judicial process or order.
F. Injunctive Relief. Employee understands and agrees that the
disclosure, use or usurpation of Confidential Information would cause
significant economic detriment to the business of Employer and/or the LLC which
may be irreparable and for which monetary damages may be an inadequate remedy.
Accordingly, Employee understands and agrees that Employer shall be entitled to
seek and obtain, in addition to monetary damages, injunctive relief against
Employee, in a court of competent jurisdiction, restraining Employee from the
disclosure, use or usurpation in any manner of any Confidential Information.
11.
<PAGE> 12
11. Possible Divestiture of Ownership Interest in Employer. Employee's
Ownership Interest in the LLC, being 750,734 Units, which Employee is entitled
to receive in accordance with the terms of this Agreement shall be conveyed in
its entirety to and held by Employee within thirty (30) days after the date of
execution of this Agreement, subject to the approval of applicable Gaming
Authorities and compliance with Governmental Requirements. A portion of the
Ownership Interest of Employee shall, nevertheless, be subject to divestiture
based upon the following terms and conditions.
(a) Approximately seventy-five percent (75%) of such Ownership Interest,
represented by 236,265 Old Units and 326,786 New Units, shall not be subject to
divestiture and shall be deemed fully vested for all purposes upon execution of
this Agreement.
(b) Subject to the provisions of Section 8B above, the remaining
twenty-five percent (25%) of such Ownership Interest of Employee, represented by
187,683 New Units in the LLC shall be subject to divestiture in the event that
Employee is terminated for any reason or voluntarily resigns prior to April 25,
1997 as follows: such remaining twenty-five percent (25%) shall vest on a
monthly basis commencing October 30, 1995 and ending March 31, 1997 at the rate
of one-eighteenth (1/18th) per month, or 10,427 New Units at the end of each
month from the date hereof through March 31, 1997 or until all New Units are
fully vested.
The Ownership Interest of Employee in the LLC which is not subject to
divestiture pursuant to the provisions set forth above is referred to herein as
the "Fully Vested Ownership Interest".
Such divestiture of Employee's Ownership Interest in the LLC shall be
automatic upon the occurrence of the event giving rise to such divestiture, and
shall not require the consent, acknowledgement or concurrence of Employee. Upon
any such event causing divestiture of all or a portion of Employee's Ownership
Interest in the LLC, Employer shall send a written notice to Employee specifying
the amount of Ownership Interest that has been divested and the reason for such
divestiture. Employee agrees to execute any and all documents reasonably
requested by counsel for Employer to evidence such divestiture. Such divestiture
shall be made without payment of any type whatsoever to Employee, and shall be
effective for all purposes from the date of the event giving rise to such
divestiture. In no event shall such divestiture be deemed a "forfeiture", but
rather the possibility of such divestiture is part of the bargained for
consideration to Employer in entering into this
12.
<PAGE> 13
Agreement; it being clearly understood and agreed that Employee's performance of
services in a manner satisfactory to Employer for the entire term of this
Agreement is the consideration to be provided by Employee to Employer for the
Ownership Interest to be conveyed to Employee pursuant to this Agreement.
Notwithstanding the provisions of Section 11(b) hereof, in the event Jack
B. Binion (including any entities through which Jack B. Binion holds his
ownership interest in the LLC), family members of Jack B. Binion and/or trusts
established for the benefit of his heirs transfer controlling interest in the
LLC to a third party in a transaction other than a public offering (a "Binion
Disposition Event"), the entire Ownership Interest of Employee shall immediately
become a Fully Vested ownership Interest and no longer subject to divestiture.
12. Put/Call Option Upon Termination. In the event of the termination of
Employee's employment with Employer, for whatever reason, and with or without
cause, then the LLC shall have the right to purchase the Fully Vested Ownership
Interest of Employee at the fair market value of such Ownership Interest as
determined pursuant to the terms of this Agreement (the "Call Option"). In a
similar fashion, Employee shall have an option to require the LLC to purchase
back his entire Fully Vested Ownership Interest in the LLC at the fair market
value of such Ownership Interest as determined pursuant to the terms of this
Agreement (the "Put Option"). The LLC or Employee, as the case may be, may
exercise their respective options provided for in this Section 12, by tendering
written notice to the other party of its exercise of such option within thirty
(30) days after the date of the termination of this Agreement.
In the event that either option described herein should be exercised by
Employee or the LLC, then Employee and the LLC agree to promptly convene and
attempt in good faith to determine the fair market value of the Ownership
Interest to be purchased by the LLC from Employee. Such fair market value of the
Fully Vested Ownership Interest shall take into account that such Interest has
an interest only in future profits and asset appreciation, and not capital, all
as provided in Section 5(c) hereof. In the event that the LLC and Employee are
unable to agree upon such fair market value, then the parties hereto agree to
submit such matter to an independent appraisal to be conducted in Las Vegas,
Nevada in accordance wit the terms set forth below. Either party may initiate
such appraisal process by delivery of written notice to the other party to such
effect, designating the name of an appraiser that is to represent it in such
appraisal process. Thereafter, within ten (10) days of receipt of such notice,
the other party shall designate an appraiser to represent it in such process.
Within ten (10) days after designation of the second appraiser, the two
appraisers shall convene and agree
13.
<PAGE> 14
upon a third appraiser. In the event that said two appraisers are unable to
agree upon a third appraiser, then the third appraiser shall be selected by
lottery, with each appraiser to submit the name of another reputable appraiser,
and with the appraiser whose name is drawn in such lottery being designated for
all purposes as the third appraiser.
Within ten (10) days after selection the third appraiser, the three
appraisers shall convene and attempt to agree upon the fair market value of the
Ownership Interest to be purchased by the LLC. If unable to agree, then each
appraiser shall within thirty (30) days thereafter prepare his own independent
appraisal report and such reports shall be submitted to the LLC and Employee.
Provided that the middle appraisal is within ten percent (10%) of either the
high or low appraisal, then the middle appraisal (the highest and lowest
appraisals being disregarded) shall be deemed to be the fair market value and
thus the valuation to be used for purposes of the LLC's acquisition of
Employee's Fully Vested Ownership Interest.
In the event that the middle appraisal is not within ten percent (10%) of
either the high or low appraisal, then the determination of the fair market
value of Employee's Ownership Interest shall be submitted to arbitration in
accordance wit the provisions of Section 17 hereinbelow, and in such
arbitration, each of the appraisers shall be entitled to submit their appraisal
report and testify on behalf of the LLC or Employee. The arbitration panel,
after hearing all evidence desire to be submitted by the LLC and Employee, shall
determine said fair market value, and such decision by said arbitration panel
shall be binding upon the LLC and Employee.
The Purchase Price to be paid by Employer as determined by agreement or
appraisal as described herein, shall be paid in three (3) equal principal
installments, with the first payment being due within ten (10) days after
determination of or agreement as to value, the second payment shall be due and
payable on the first anniversary date of termination and the last payment shall
be due and payable on the second anniversary date of termination provided,
however, that if the value is less than $750,000 then the entire purchase price
shall be paid to Employee in one lump sum within ten (10) days after
determination of agreement as to value. Notwithstanding the foregoing, in the
event any of the LLC's lenders prohibit payment of the Purchase Price to be made
over as short as a three (3) year period, then Employee agrees that the Purchase
Price shall be paid in equal principal installments over the time period
permitted by such lender but in no event over a period in excess of five (5)
years. Such obligation shall bear interest at the prime rate of interest, as
quoted from time to time by the largest commercial bank (in terms of assets) in
the State of Nevada, and accrued but
14.
<PAGE> 15
unpaid interest shall be due and payable together with each annual principal
installment.
The LLC and Employee agree that any persons chosen to represent them as
appraisers shall be qualified and competent MAI appraisers or a certified public
accountant with one of the "Big Six" accounting firms, experienced in valuing
closely held partnerships or corporations. In the event that the LLC is a
publicly traded company at the time of termination, then the provisions of this
Section 12 shall be inapplicable, and accordingly, the Put and Call Option
described herein shall terminate for all purposes.
In the event that the LLC exercises its Call Option, then the LLC agrees to
pay for all of the reasonable expenses incurred in connection with such
appraisal process, including the cost associated with the appraiser selected by
Employee, provided that the amount charged by such appraiser is a fair and
reasonable fee. In the event that Employee exercises its Put Option, then
Employer shall bear the cost of its appraiser, Employee shall bear the cost of
its appraiser and the LLC and Employee shall each bear one-half (1/2) of the
cost of the third appraiser.
13. Distributions; Public Offering. Employee shall become an equity owner
in the LLC subject to all rights, conditions and other provisions of any
member's agreement which shall apply equitably to and govern the relationship
among all of the equity owners of the LLC. Accordingly, Employee shall be
entitled to receive distributions from the LLC with respect to Employee's
Ownership Interest in the same manner and at the same time as other members of
the LLC are entitled to do so under the terms of any member's agreement among
the equity owners of the LLC or the terms of any credit agreement or other
financing to which the LLC, or any of its subsidiaries or affiliates is a party.
Employer and Employee understand and agree that one of the credit agreements
currently in effect restricts the equity owners of the LLC from receiving
distributions in an amount in excess of that intended to be sufficient to
discharge federal and state income taxes that may be levied against the income
allocated to each of such equity owners pursuant to the provisions of applicable
law.
In addition, in the event that the LLC is at some point in the future
involved in a public offering, which public offering involves all or
substantially all of the gaming interests or ventures owned or controlled by
Jack B. Binion, then in such event, Employee agrees that the valuation to be
placed upon the LLC shall be that which is determined in good faith by the
investment banking firm acting as the lead underwriter in such public offering,
and based upon such firm's fair market
15.
<PAGE> 16
appraisal of the value of the LLC in comparison to the other assets to be
included in such public offering. In such event, Employee shall receive an
amount of stock in such public offering equal to the percentage that the value
of the Employee's Ownership Interest (as determined taking into account that
such Interest has an interest only in future profits and asset appreciation, and
not capital, all as provided in Section 5(b) hereof) bears to the value of the
LLC (subject to dilution as a result of such offering) times the amount
determined by dividing the value of the LLC, as determined by such independent
appraisal, by the value of all assets (including the LLC) included in and cash
raised in such public offering. By way of example, if Employee's Ownership
Interest was valued at one-half of one percent (.5%) of the LLC's value and the
cumulative value of the LLC was $400,000,000 and the value of the other assets
included in the public offering, including cash raised, was $200,000,000, then
the ownership or stock interest of Employee in the public company after the
public offering would be equal to one-third of one percent (.333%) (subject to
dilution as a result of such offering).
In the event that the LLC should become a publicly traded company at any
time during the term of this Agreement, then that portion of the stock of LLC
that Employee is entitled to receive, but which is still not fully vested and
thus subject to divestiture pursuant to the terms of this Agreement, shall be
escrowed in the custody of Employer and shall not be released to Employee until
such time as such stock becomes free from potential divestiture. Accordingly,
during the time that such stock is escrowed with the LLC, Employee shall not
margin, pledge, sell, transfer or otherwise attempt to encumber or dispose of
such stock, except to the LLC. At the time that such stock is no longer subject
to divestiture, then it shall be immediately released by the LLC to Employee.
14. Representations and Warranties. Employer, as the following relate to
Employer, and the LLC, as the following relate to the LLC, hereby represent and
warrant to Employee as follows:
(a) The LLC is a limited liability company, duly organized and validly
existing under the laws of the State of Delaware. Employer is a Nevada
corporation, duly organized and validly existing under the laws of the State of
Nevada;
(b) This Agreement, when executed by Jack B. Binion, as President and
CEO of the Company, will constitute a legal, valid and binding agreement on the
part of Employer and the LLC, having been duly authorized by all requisite
corporate and company resolutions or authorizations; and
16.
<PAGE> 17
(c) This Agreement, when executed by Employer and the LLC, will not
conflict with, violate the terms of or create a default under any other
agreement, contract or other obligation Employer and/or the LLC is a party to or
by which Employer or the LLC is bound.
Employee hereby represents and warrants to Employer as follows:
i) this Agreement, when executed by Employee, will not conflict with,
violate the terms of or create a default under Employee's present employment
arrangements and/or agreement, whether oral or written;
ii) Employee has never been denied a gaming application by any Gaming
Authority and Employee currently knows of no reason why Employee would not be
qualified to receive a gaming license from any jurisdiction in which the LLC
and/or any of its affiliates or subsidiaries conducts gaming operations; and
iii) Employee is unaware of any mental, physical or emotional condition,
including, without limitation, substance or alcohol abuse problems, which
currently affects Employee, and which might result in Employee's being unable to
carry out all of his duties, obligations and responsibilities set forth herein.
Employer, the LLC and Employee understand and agree that each is entering
into this Agreement in strict reliance upon the representations and warranties
set forth herein, and that a breach of any of said representations and
warranties by any of the parties hereto would constitute a default hereunder.
15. Entire Agreement. This Agreement constitutes the entire agreement of
the parties hereto with respect to the subject matter set forth herein, and
supersedes any and all previous oral or written agreements, understandings or
discussions between the parties hereto with respect to the subject matter set
forth herein.
16. All Amendments in Writing. This Agreement may not be amended orally,
but only pursuant to a written instrument executed by Employer, the LLC and
Employee.
17. Arbitration. In the event of any dispute or controversy between
Employer or Employee with respect to any of the matters set forth herein, then
both Employer and Employee agree to submit such dispute or controversy to
binding arbitration, to be conducted in Las Vegas, Nevada pursuant to the then
prevailing rules and regulations of the American Arbitration Association. In
such arbitration, the prevailing party shall be
17.
<PAGE> 18
entitled, in addition to any award made in such proceeding, to recover all of
its costs and expenses incurred in connection therewith, including, without
limitation, attorneys' fees.
18. Governing Laws. This agreement shall be governed and construed in
accordance with the laws of the State of Nevada.
19. Notices. Any notice required or permitted to be given in connection
with this Agreement shall be given by either: (a) depositing the same in the
United States Mail, postage prepaid, registered or certified, return receipt
requested; or (b) by depositing it with a recognized overnight courier service
for delivery the following day to the other party; or (c) by facsimile
transmission, provided the other party acknowledges receipt of such
transmission.
All such notices shall be deemed received as of the date of acknowledgment
of receipt by the other party. All such notices shall be addressed to the
parties at the following addresses, or to such other address as may be provided
from time to time by one party to the other:
If to the LLC: Horseshoe Gaming, LLC
330 S. Fourth Street
Las Vegas, Nevada 89101
Attn: Jack B. Binion
If to Employer: Horseshoe Gaming, Inc.
330 S. Fourth Street
Las Vegas, Nevada 89101
Attn: Jack B. Binion
If to Employee: Mr. John J. Schreiber
6895 E. Washington Avenue
Las Vegas, Nevada 89110
20. Assignment. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, successors,
administrators and assigns. Notwithstanding the foregoing, Employee understands
and agrees that the nature of this Agreement is a personal services agreement,
and that Employer is entering into this Agreement based upon the specific
services to be rendered personally by Employee hereunder; and accordingly,
Employee shall not assign, transfer or delegate in any manner any of his duties,
responsibilities or obligations hereunder.
21. Waiver. No waiver of any term, condition or covenant of this Agreement
by a Party shall be deemed to be a waiver of any subsequent breaches of the same
or other terms, covenants or conditions hereof by such party.
18.
<PAGE> 19
22. Construction. Whenever possible, each provision of this Agreement shall
be interpreted in such manner as to be effective or valid under applicable law,
but if any provision of this Agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective only to the best of such
prohibition or invalidity without invalidating the remainder of such provision
or the remaining provisions of this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
day and year first above written.
EMPLOYER HORSESHOE GAMING, INC.
a Nevada corporation,
By: _Paul R. Alanis__________
Paul R. Alanis, President
"EMPLOYEE" _John J. Schreiber____________
JOHN J. SCHREIBER
AGREED AND ACCEPTED as of the
1st day of October, 1995
HORSESHOE GAMING, LLC,
a Delaware Limited Liability Company
By: HORSESHOE GAMING, INC.
a Nevada corporation
Manager
By: _\S\ Paul R. Alanis__
Paul R. Alanis, President
19.
<PAGE> 20
EXHIBIT A
DEFINITIONS
All capitalized terms referenced or used in this Agreement and not
specifically defined therein shall have the meaning set forth below in this
Exhibit A, which is attached to and made a part of this Agreement for all
purposes.
Gaming Authorities. The term "Gaming Authorities" or "Authority" shall mean
all agencies, authorities and instrumentalities of any state, nation or other
governmental entity or any subdivision thereof, regulating gaming or related
activities in the United States or any State.
Governmental Authority. The term "Governmental Authority" means the
Government of the United States, and any other state, county or political
subdivision in which the any of the company's casino facilities are located, and
any court or political subdivision, agency, commission, board or instrumentality
or officer thereof, whether federal, state or local, having or exercising
jurisdiction over Employer or any of the Company's gaming facilities, including,
without limitation, any Game Authority.
Governmental Requirements. The term "Governmental Requirements" means all
laws and agreements with any Governmental Authority that are applicable to the
acquisition development, construction and/or operation of any of the Company's
gaming facilities including, without limitation, all required permits, approvals
and any rules, guidelines or restrictions created or imposed by Governmental
Authorities (including, without limitation, any Gaming Authority).
Net Profits. The term "Net Profits" shall have the same meaning as the term
"Profits" has in the Limited Liability Company Agreement of the LLC..
20.
<PAGE> 1
EXHIBIT 21.1
HORSESHOE GAMING, L.L.C.
SUBSIDIARIES OF THE REGISTRANT
AS OF DECEMBER 31, 1996
<TABLE>
<CAPTION>
Subsidiary State of Incorporation
- ---------- ----------------------
<S> <C>
Horseshoe GP, Inc.(1) Nevada
New Gaming Capital Partnership(2) Nevada
Horseshoe Entertainment L.P. Louisiana
Robinson Property Group, Limited Partnership Mississippi
Horseshoe Ventures(3) Nevada
Horseshoe Casinos Indiana, LLC(4) Indiana
Red Oak Insurance Company Ltd.(5) Barbados
</TABLE>
(1) 100% owned by Horseshoe Gaming, L.L.C. and is the 1% General Partner of
both New Gaming Capital Partnership and Robinson Property Group Limited
Partnership.
(2) New Gaming Capital Partnership is the 89% General Partner and a 2.92%
Limited Partner of Horseshoe Entertainment L.P.
(3) Horseshoe Ventures is owned 50% by Horseshoe Gaming, L.L.C.
(4) Horseshoe Casinos Indiana, LLC is owned 80% by Horseshoe Gaming, L.L.C.
(5) Red Oak Insurance Company Ltd is owned 100% by Horseshoe Gaming. L.L.C.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRITY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001005732
<NAME> HORSESHOE GAMING L.L.C.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 79,159
<SECURITIES> 42,235
<RECEIVABLES> 8,026<F1>
<ALLOWANCES> 0<F1>
<INVENTORY> 1,435
<CURRENT-ASSETS> 90,259
<PP&E> 212,248
<DEPRECIATION> 26,493
<TOTAL-ASSETS> 377,597
<CURRENT-LIABILITIES> 52,101
<BONDS> 232,744
0
0
<COMMON> 0
<OTHER-SE> 79,782
<TOTAL-LIABILITY-AND-EQUITY> 377,597
<SALES> 11,273<F2>
<TOTAL-REVENUES> 331,731
<CGS> 13,676
<TOTAL-COSTS> 182,882
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28,090
<INCOME-PRETAX> 46,961
<INCOME-TAX> 0
<INCOME-CONTINUING> 46,961
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 46,961
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
Amounts inapplicable or not disclosed as a separate line item on the Statement
of Financial Position or Results of Operations are reported as 0 herein.
<F1>Notes and accounts receivable-trade are reported net of allowances for doubtful
accounts in the Statement of Financial Position.
<F2>Net sales are reported net of promotional allowances applicable to tangible
items.
</FN>
</TABLE>
