<PAGE> 1
As filed with the Securities and Exchange Commission on July 30, 1999
Registration No. 333-80737
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------------
AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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HORSESHOE GAMING HOLDING CORP.
(Exact name of Registrant as specified in its charter)
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DELAWARE 7999 88-0425131
(State or other jurisdiction (Primary Standard Industrial Classification (I.R.S. Employer
of incorporation or organization) Code Number) Identification No.)
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4024 SOUTH INDUSTRIAL ROAD
LAS VEGAS, NEVADA 89103
(702) 650-0080
(Address, including ZIP code, and telephone number, including area code, of
registrant's principal executive offices)
---------------------------------
KIRK C. SAYLOR
CHIEF FINANCIAL OFFICER
HORSESHOE GAMING HOLDING CORP.
568 COLONIAL ROAD
MEMPHIS, TENNESSEE 38117
TELEPHONE: (901) 820-2460
FACSIMILE: (901) 820-2461
(Name, address, including ZIP code, and telephone number, including area code,
of agent for service)
---------------------------------
Copy to:
ROBERT M. FRIEDMAN, ESQ.
SWIDLER BERLIN SHEREFF FRIEDMAN, LLP
919 THIRD AVENUE
NEW YORK, NEW YORK 10022
TELEPHONE: (212) 758-9500
FACSIMILE: (212) 758-9526
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Approximate date of commencement of proposed sale of securities to the
public: As soon as practicable after this Registration Statement becomes
effective.
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If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
---------------------------------
WE HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY
BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL WE SHALL FILE A FURTHER AMENDMENT
WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEN BECOME
EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL
THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SEC,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SEC IS
EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS
NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR
SALE IS NOT PERMITTED.
Subject to Completion, dated July 30, 1999
PROSPECTUS
HORSESHOE GAMING HOLDING CORP.
OFFER TO EXCHANGE ALL OUTSTANDING
8 5/8% SERIES A SENIOR SUBORDINATED NOTES DUE 2009
FOR
8 5/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2009
- --------------------------------------------------------------------------------
TERMS OF EXCHANGE OFFER
- - The exchange offer expires 5:00 p.m., New York City time, ____________,
1999, unless we extend it.
- - The terms of the new notes we will issue in the exchange offer are
substantially identical to the terms of the outstanding notes, except for
transfer restrictions and registration rights relating to the outstanding
original notes.
- - We will not receive any proceeds from the exchange offer.
- - We do not intend to list the new notes we will issue in the exchange
offer on any securities exchange and, therefore, we do not anticipate an
active public market for the new notes.
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A DISCUSSION OF MATTERS
THAT YOU SHOULD CONSIDER BEFORE PARTICIPATING IN THE EXCHANGE OFFER.
-------------------------------
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR
DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
NONE OF THE MISSISSIPPI GAMING COMMISSION, THE LOUISIANA GAMING CONTROL
BOARD, THE ILLINOIS GAMING BOARD, THE INDIANA GAMING COMMISSION OR ANY OTHER
GAMING AUTHORITY HAS APPROVED OR DISAPPROVED OF THE NOTES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL AND IS A CRIMINAL OFFENSE.
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The date of this prospectus is ______________, 1999.
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TABLE OF CONTENTS
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WHERE YOU CAN FIND MORE INFORMATION......................................................................... ii
SUMMARY.....................................................................................................- 2 -
RISK FACTORS...............................................................................................- 13 -
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS............................................................- 26 -
USE OF PROCEEDS............................................................................................- 27 -
CAPITALIZATION.............................................................................................- 28 -
SELECTED FINANCIAL DATA....................................................................................- 30 -
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS..........................................................- 34 -
THE EXCHANGE OFFER.........................................................................................- 45 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS......................- 56 -
BUSINESS...................................................................................................- 65 -
REGULATORY MATTERS.........................................................................................- 68 -
MANAGEMENT.................................................................................................- 82 -
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.............................................- 86 -
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............................................................- 88 -
DESCRIPTION OF CERTAIN OTHER INDEBTEDNESS..................................................................- 89 -
DESCRIPTION OF NOTES.......................................................................................- 95 -
CERTAIN FEDERAL INCOME TAX CONSEQUENCES...................................................................- 140 -
PLAN OF DISTRIBUTION......................................................................................- 144 -
LEGAL MATTERS.............................................................................................- 145 -
EXPERTS...................................................................................................- 145 -
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INDEX TO FINANCIAL STATEMENTS.................................................................................F-1
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WHERE YOU CAN FIND MORE INFORMATION
This prospectus is part of an exchange offer registration statement for
the new notes on Form S-4 which we filed with the SEC under the Securities Act
with respect to the new notes. This prospectus does not contain all of the
information included in the registration statement and its exhibits and
schedules , certain portions of which have been omitted in accordance with the
rules and regulations of the SEC. You should refer to the registration statement
and its exhibits and schedules for further information about us and the new
notes. Statements made in this prospectus as to any contract, agreement or other
document are summaries of the material terms of such contracts, agreements or
other documents . With respect to each such contract, agreement or other
document filed as an exhibit to the registration statement, we refer you to the
exhibit for a more complete description of the matter involved, and each such
statement is qualified by such reference.
We do not currently have to comply with the informational requirements of
the Exchange Act. Upon the SEC declaring the exchange offer registration
statement effective, however, we will have to comply with the informational
requirements of the Exchange Act . In accordance with these requirements we will
be required to file with, or furnish to, the SEC reports and other information.
The registration statement with its exhibits and schedules reports and other
information filed with or furnished to the SEC by us may be inspected and copied
at the SEC's public reference facilities at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 and at the SEC's regional offices at
7 World Trade Center, Suite 1300, New York, New York 10048 and at Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You
may also obtain copies of such materials from the Public Reference Section of
the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates.
Please call the SEC at 1-800-SEC-0330 for further information on the operation
of the public reference facilities. In addition, the SEC maintains a web site on
the Internet that contains reports and other information regarding registrants
that submit electronic filings to the SEC, including us. The address of the
SEC's web site is http://www.sec.gov.
Pursuant to the indenture, we have agreed, whether or not required by the
rules and regulations of the SEC, to file with the SEC and to furnish to the
trustee and to registered holders of the notes, such reports and other
information as we would be required to file with the SEC by Sections 13(a) or
15(d) of the Exchange Act if we had to comply with the Exchange Act.
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iv
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SUMMARY
The following summary may not contain all the information that may be
important to you. You should read the entire prospectus and the information that
we have referred you to carefully, including the risk factors and our
consolidated financial statements and related notes, before deciding whether to
participate in the exchange offer. As used in this prospectus the terms "HGHC,"
"we," "our" and "us" and similar terms refer to Horseshoe Gaming Holding Corp.
and all of our consolidated subsidiaries, including Horseshoe Gaming, L.L.C., or
Horseshoe Gaming, except with respect to the section entitled "Description of
Notes" and where it is clear that such terms mean only Horseshoe Gaming Holding
Corp.
HORSESHOE GAMING HOLDING CORP.
We are a leading, multi-jurisdictional gaming company with casinos in
Bossier City, Louisiana and Tunica County, Mississippi. Bossier City/Shreveport
and Tunica County are among the largest gaming markets in the United States. We
operate under the "Horseshoe" and "Binion" names which we believe are among the
most recognized names in the gaming industry. In September 1998, we signed an
agreement to acquire by merger the operating subsidiaries of Empress
Entertainment, Inc., or Empress. Empress owns and operates two casinos in the
greater Chicago market: one in Joliet, Illinois, or Empress Joliet, and one in
Hammond, Indiana, or Empress Hammond.
REFINANCING AND THE EMPRESS MERGER
OVERVIEW
As of May 11, 1999, former members of Horseshoe Gaming have contributed
to us their membership interests in Horseshoe Gaming representing over 90% of
the aggregate ownership interests in Horseshoe Gaming. We are required to take
all necessary action such that, prior to the Empress merger, we will own 100% of
Horseshoe Gaming.
THE REFINANCING TRANSACTIONS
We have entered into, or caused to occur, the offering of the original
notes and the following additional Refinancing Transactions:
- Horseshoe Gaming has consummated a tender offer for its 12 3/4%
senior notes due 2000, $128.6 million of which were outstanding
prior to the tender offer. Approximately $128.4 million of such
senior notes were tendered in the tender offer. Horseshoe Gaming
deposited approximately $0.2 million into an account to redeem on
September 30, 1999, the senior notes that failed to tender in the
tender offer.
- We lent approximately $240.3 million of the net proceeds of the
offering of the original notes to Horseshoe Gaming to repay
outstanding borrowings under its existing credit facility and to
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consummate the tender offer and pay related fees and expenses,
including tender premiums and consent fees. The loan was evidenced
by a note of Horseshoe Gaming secured by a guarantee from Robinson
Property Group Limited Partnership, or RPG, which owns and
operates Horseshoe Tunica, and Horseshoe Entertainment, or HE,
which owns and operates Horseshoe Bossier City.
- We assigned our interest in the note of Horseshoe Gaming to the
trustee to secure our obligations under the notes and the
indenture.
- We delivered approximately $342.3 million of the net proceeds of
the offering of the original notes to U.S. Trust Company, National
Association. They invested those funds in United States Treasury
securities which were deposited into a secured proceeds account.
- The secured proceeds account was pledged to the trustee to secure
our obligations under the notes and the indenture. =
THE EMPRESS MERGER AND RELATED TRANSACTIONS
On September 2, 1998, we entered into an Agreement and Plan of Merger
with Empress to acquire the gaming business of Empress. The Empress merger
agreement was amended on March 25, 1999 and July 23, 1999.
We have entered or will enter into the following related transactions in
connection with the Empress merger:
- We entered into a new $375.0 million senior secured credit
facility, which we refer to as the new credit facility, the terms
of which are described in the section "Description of Certain
Other Indebtedness" under the heading "New Credit Facility." We
will effect the first borrowing under the new credit facility in
connection with closing the Empress merger.
- We will use the assets in the secured proceeds account, together
with approximately $245.0 million of borrowings under the new
credit facility and cash on hand to:
- pay approximately $470.9 million in cash to Empress;
- fund the Empress change of control offer; and
- pay related fees and expenses.
There can be no assurance that the Empress merger and these related
transactions will occur because conditions including, among others, receipt
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of governmental and regulatory approvals must be satisfied or waived before the
Empress merger and these related transactions can occur. The new credit facility
provides us with the flexibility to close the Empress merger in stages, which
may be necessary due to the timing of required regulatory approvals.
MERGER OF HORSESHOE GAMING WITH AND INTO US
Upon consummation of the Empress merger, we will cause Horseshoe Gaming
to merge with and into us. As a result, Horseshoe Gaming will no longer exist
and we will own directly or indirectly 100% of Horseshoe GP, Inc., RPG and New
Gaming Capital Partnership, referred to as NGCP. Horseshoe GP, Inc. is the
general partner of RPG and NGCP, and NGCP is the general partner of HE. Upon
completion of the Empress merger and the merger of Horseshoe Gaming with and
into us, we will cause all of our wholly-owned subsidiaries that are not then
guarantors to guarantee the notes.
OWNERSHIP TRANSACTIONS
We recently have consummated, or plan to consummate, the following
transactions which we refer to as the Ownership Transactions:
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- In April 1999, we exercised our option to acquire the remaining
8.08% limited partnership interest in HE not held by NGCP for
total consideration of approximately $30.4 million, which includes
payments for a non-compete covenant, consents and a release of
claims.
- In addition, we plan to pay approximately $5.7 million to
repurchase an approximate 1.07% interest in Horseshoe Gaming to
facilitate our formation as a Subchapter S corporation under the
Internal Revenue Code of 1986, as amended.
- We also plan to pay approximately $17.7 million to repurchase an
approximate 3.2% interest in us as a condition of our anticipated
licensing in Illinois.
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<PAGE> 13
Our corporate structure after the Refinancing Transactions and the
Ownership Transactions and before the Empress merger and related transactions
will be:
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Horseshoe Gaming Holding Corp. Secured
$342.3 million Proceeds
-$600 million of original notes Account
$240.3 million note of
Horseshoe Gaming
Horseshoe Gaming, L.L.C.
-Undrawn/$20.0 million total availability
existing credit facility
Horseshoe Horseshoe
Tunica Bossier City
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Our corporate structure after the Empress merger and related
transactions and the merger of Horseshoe Gaming with and into us will be:
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<CAPTION>
Horseshoe Gaming Holding Corp.
- $245 million drawn/$375.0 mIllion total availability
new credit facility
- $600.0 millIon original notes
- $160 million 9 3/8 senior subordinated notes due 2007
<S> <C> <C> <C>
Horseshoe Horseshoe Empress Empress
Tunica Bossier City Joliet Hammond
GUARANTOR GUARANTOR GUARANTOR GUARANTOR
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THE EXCHANGE OFFER
On May 11, 1999, we privately placed $600,000,000 aggregate principal
amount of our 8 5/8% Series A Senior Subordinated Notes Due 2009, or original
notes, in a transaction exempt from registration under the Securities Act. In
connection with the private placement, we entered into a registration rights
agreement, dated May 11, 1999, with the initial purchasers of the original
notes. In the registration rights agreement, we agreed to register under the
Securities Act an offer of our new 8 5/8% Series B Senior Subordinated Notes Due
2009, or new notes, in exchange for the original notes. We also agreed to
deliver this prospectus to holders of the original notes, to file the exchange
offer registration statement within 60 days of the issuance of the original
notes, to use our best efforts to cause such registration statement to become
effective within 180 days of the issuance of the original notes and to
consummate the exchange offer within 30 business days after the registration
statement becomes effective. In this prospectus, we refer to the original notes
and the new notes together as the notes. You should read the discussion in the
section entitled "Description of Notes" for information regarding the notes.
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The Exchange Offer....................... We are offering to exchange $1,000 in principal amount of new notes for each $1,000
in principal amount of original notes. The new notes are substantially identical to
the original notes, except that:
(1) the new notes will be freely transferable, other than as described
in this prospectus;
(2) the new notes will not contain any legend restricting their
transfer;
(3) holders of the new notes will not be entitled to all rights of the
holders of the original notes under the registration rights
agreement; and
(4) the new notes will not contain any provisions regarding the payment
of additional interest as damages.
We believe that you can transfer the new notes without complying with the
registration and prospectus delivery provisions of the Securities Act if you:
(1) acquire the new notes in the ordinary course of your business;
(2) are not and do not intend to become engaged in a distribution of
the new notes;
(3) are not an affiliate of us; and
(4) are not a broker-dealer that acquired original notes as a result of
market-making or other trading activities.
If any of these conditions is not satisfied and you transfer any new note without
delivering a proper prospectus or without qualifying for a registration exemption,
you may incur liability under the Securities Act.
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Each broker-dealer that receives new notes for its own account in exchange for
original notes, which it acquired as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in connection
with any resale of those new notes. See "Plan of Distribution."
Registration Rights...................... Under the registration rights agreement, we have agreed to use our best efforts to
consummate the exchange offer or to use our best efforts to cause the original notes
to be registered under the Securities Act so as to permit resales. If we are not in
compliance with our obligations under the registration rights agreement, we will be
required to pay additional interest as damages under specific circumstances in
addition to the interest that is otherwise due on the notes. The additional
interest we may be required to pay is equal to $.05 per week per $1,000 principal
amount of original notes and can increase up to a maximum of $.35 per week per
$1,000 principal amount of original notes. If we complete the exchange offer on
the terms and within the period contemplated by this prospectus, no additional
interest as damages will be payable on the notes. See the sections entitled "The
Exchange Offer -- Shelf Registration Statement" and "Liquidated Damages."
Minimum Condition........................ The exchange offer is not conditioned on any minimum amount of original notes being
tendered for exchange.
Expiration Date.......................... The exchange offer will expire at 5:00 p.m., New York City time, on _____, 1999,
unless we extend it.
Conditions to the Exchange Offer......... Our obligation to complete the exchange offer must comply with various conditions.
See the section entitled "The Exchange Offer-Conditions." We reserve the right
to terminate or amend the exchange offer at any time before the expiration date if
various specified events occur.
Withdrawal Rights........................ You may withdraw the tender of your original notes at any time before the expiration
date. Any original notes not accepted for any reason will be returned to you without
expense as promptly as practicable after the expiration or termination of the
exchange offer.
Procedures for Tendering Original Notes.. See the section entitled "The Exchange Offer -- Procedures for Tendering."
Federal Income Tax Consequences.......... The exchange of original notes for new notes by U.S. holders will not be a taxable
exchange for U.S. federal income tax purposes, and U.S. holders should not
recognize any taxable gain or loss as a result of the exchange.
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Effect on Holders of Original Notes...... If the exchange offer is completed on the terms and within the period contemplated by
this prospectus, holders of the original notes will have no further registration or
other rights under the registration rights agreement, except under limited
circumstances. See the section entitled "The Exchange Offer -- Shelf Registration
Statement" and "Liquidated Damages."
Holders of the original notes who do not tender their original notes will continue
to hold those original notes. The restrictions on transfer provided for in the
original notes and the indenture under which the original notes were and the new
notes will be issued will continue to apply to all untendered and tendered but
unaccepted, original notes. To the extent that original notes are tendered and
accepted in the exchange offer, the trading market, if any, for the original notes
could be adversely affected.
Use of Proceeds.......................... We will not receive any proceeds from the issuance of new notes in the exchange
offer.
Exchange Agent........................... U.S. Trust Company, National Association is serving as exchange agent in connection
with the exchange offer.
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THE NOTES
The exchange offer applies to $600,000,000 aggregate principal amount of
original notes. The new notes are substantially identical to the original notes,
except for transfer restrictions and registration rights relating to the
original notes. The new notes will evidence the same debt as the original notes
and will be entitled to the benefits of the indenture. See the section entitled,
"Description of Notes."
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Issuer......................................................... Horseshoe Gaming Holding Corp.
Securities Offered............................................. $600.0 million principal amount of 8 5/8% Series B Senior
Subordinated Notes Due 2009.
Maturity Date.................................................. May 15, 2009.
Interest Payment Dates......................................... Each May 15 and November 15, beginning November 15, 1999.
Guarantees..................................................... After the Empress merger and the merger of Horseshoe Gaming
with and into us, our wholly-owned subsidiaries as well as
our other subsidiaries that guarantee any of our other debt
that is equal in right of payment or subordinated to the
notes will guarantee the notes.
Optional Redemption............................................ The notes are redeemable by us on or after May 15, 2004, at
the redemption prices listed in the section "Description
of Notes" under the heading "Optional Redemption." Prior
to May 15, 2002, we may redeem up to 35% of the notes with
the proceeds of a public equity offering.
Mandatory Redemption........................................... We are required to redeem a portion of the notes at 101%
of their principal amount if:
- we fail to consummate the Empress merger for
any reason by December 1, 1999;
- we determine that the Empress merger will
not be completed by that date;
- more than $75.0 million of Empress notes
remain outstanding after the Empress change
of control offer; or
- we fail to timely consummate the Empress
change of control offer. See the section
"Description of Notes" under the heading
"Mandatory Redemption" for more information.
Ranking........................................................ Except as described in the section "Description of Notes"
under the heading "Subordination," the notes:
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- are our senior subordinated, unsecured general
obligations;
- rank junior in right of payment with all of our
existing and future senior debt;
- rank equal in right of payment with our other
existing and future senior subordinated debt; and
- are effectively behind all existing and future
debt of our subsidiaries that are not guarantors,
including trade payables.
Accounting Treatment........................................... The new notes will be accounted for in the same manner as
the original notes in our accounting records on the date
of exchange.
Change of Control.............................................. Upon the occurrence of both a change of control and either
a downgrade of our credit rating or a decline in our interest
coverage ratio, we are required to make an offer to purchase
the notes at a purchase price equal to 101% of their
principal amount plus accrued and unpaid interest to the
purchase date.
Covenants..................................................... We issued the notes under an indenture with U.S. Trust
Company, National Association, as trustee. The indenture
restricts, among other things , our ability and the ability
of our subsidiaries to:
- incur additional debt;
- pay dividends, redeem capital stock or make other
restricted payments or investments;
- enter into agreements that prohibit our subsidiaries
from paying dividends, making loans or otherwise
transferring assets to us or to any of our other
subsidiaries;
- encumber or sell assets; or
- merge, consolidate or sell all or substantially all
of our assets.
Secured Proceeds Account....................................... Approximately $342.3 million of the net proceeds of the
offering of original notes was paid to U.S. Trust Company,
National Association, as a securities intermediary. U.S.
Trust Company, National Association invested those funds
in
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United States Treasury securities and deposited them
into a secured proceeds account. The secured proceeds account
and the note of Horseshoe Gaming have been pledged to the
trustee to secure our obligations under the indenture and
the notes, including our obligation to redeem the notes
under the circumstances described in the section "Description
of Notes" under the heading "Mandatory Redemption."
Licensing...................................................... Louisiana and Mississippi gaming laws and regulations and our
certificate of incorporation and by-laws regulate the
ownership of the notes. Following consummation of the Empress
merger, Indiana and Illinois gaming laws and regulations will
also regulate the ownership of the notes. In addition, the
notes may be redeemed for regulatory reasons discussed herein.
</TABLE>
The address of our principal executive offices is Horseshoe Gaming
Holding Corp., 4024 South Industrial Road, Las Vegas, Nevada 89103 and our
telephone number is (702) 650-0080.
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RATIO OF EARNING TO FIXED CHARGES
Our ratio of earnings to fixed charges is as follows:
(a) December 31, 1994 - 1.0x;
(b) December 31, 1995 - 3.6x;
(c) December 31, 1996 - 2.6x;
(d) December 31, 1997 - 1.7x;
(e) December 31, 1998 - 1.6x;
(f) March 31, 1998 - 2.0x; and
(g) March 31, 1999 - 2.6x.
Our pro forma ratio of earnings to fixed charges is as follows:
(a) December 31, 1998 - 1.4x; and
(b) March 31, 1999 - 2.0x.
For purposes of computing the ratio of earnings to fixed charges, earnings
include net income (loss) before minority interests plus fixed charges. Fixed
charges consist of interest expense, plus amounts capitalized, a portion of
rental expense, deemed by management to be representative of the interest factor
of rental payments, and amortization of debt issuance costs. For more
information relating to our financial condition, you should read the sections
"Selected Financial Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our consolidated financial statements
and related notes, which are included elsewhere in this prospectus.
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RISK FACTORS
In addition to the other information in this prospectus and in the
documents we refer you to, you should carefully consider the following risk
factors before participating in this exchange offer.
OUR SUBSTANTIAL AMOUNT OF DEBT COULD MATERIALLY ADVERSELY AFFECT OUR BUSINESS
AND PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER THE NOTES
We have a substantial amount of debt, including (1) $600.0 million
principal amount of notes and (2) $160.0 million principal amount of Horseshoe
Gaming's 9 3/8% Senior Subordinated Notes due 2007. Upon completion of the
Empress merger, we will have additional indebtedness of approximately $245.0
million under our new credit facility. At March 31, 1999, after giving effect to
the Ownership Transactions and the Refinancing Transactions, our total
consolidated debt, excluding approximately $79.4 million of trade payables and
current and long-term accrued liabilities and $54.9 million of redeemable
ownership interests, would have been approximately $773.0 million, which
includes $325.0 million of debt that is redeemable if the Empress merger does
not occur. In addition, at March 31, 1999, after giving effect to the Empress
merger and related transactions, our total consolidated debt, excluding
approximately $127.2 million of trade payables and current and long-term accrued
liabilities and $54.9 million of redeemable ownership interests, would have been
approximately $1,016.8 million. See the sections entitled "Capitalization" and
"Unaudited Pro Forma Combined Financial Statements."
Subject to the terms of the notes and our other debt, we may be able
to borrow additional debt in the future which may be senior to the notes and the
guarantees. If we incur additional debt, the related risks that we now face
could increase.
Our substantial amount of debt could have important consequences for
you and for us, including:
- limiting our ability to satisfy our
obligations with respect to the notes;
- increasing our vulnerability to general and local
adverse economic and industry conditions;
- limiting our ability to obtain additional
financing to fund future working capital,
capital expenditures and other general
corporate requirements;
- requiring a substantial portion of our cash
flow to be used to pay principal and
interest on our debt, reducing our ability
to use our cash flow to fund working
capital, capital expenditures, and general
corporate requirements;
- limiting our flexibility in planning for, or
reacting to, changes in our business and the
industry; and
- disadvantaging us compared to competitors with
less debt or greater resources.
If we do not comply with the terms of our debt agreements and we
fail to generate sufficient cash flow from future operations, we may have to
refinance all or a portion of our indebtedness or obtain additional financing.
We can not assure you that we will be able to refinance any of our indebtedness
or obtain additional financing, particularly because of our anticipated high
levels of debt and the debt incurrence restrictions under our debt agreements.
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THE NOTES ARE NOT SECURED AND ARE SUBORDINATED TO OUR SENIOR DEBT
The notes are not secured by any of our assets or any assets of our
subsidiaries. The notes rank behind all of our existing and future senior debt,
including borrowings under the new credit facility. If we become insolvent or
are liquidated, or if payment under our new credit facility or other senior debt
is accelerated, our lenders will have a claim on our assets and the assets of
our subsidiaries before the holders of the notes. If there is a distribution to
our creditors because of a bankruptcy, liquidation, reorganization or similar
proceeding relating to us or our property, holders of debt that is senior to the
notes will be paid in full before any payment may be made with respect to the
notes. Similarly, in the event of a bankruptcy, liquidation, reorganization or
similar proceeding relating to any subsidiary guarantor, its assets would be
available to pay obligations under its guarantee only after all senior debt of
that guarantor is paid in full.
WE FACE INTENSE COMPETITION IN EACH MARKET WHERE WE OPERATE
The casino gaming industry is highly fragmented and characterized by
competition from a large number of participants, including riverboat casinos,
dockside casinos, land-based casinos, video lottery and poker machines in
locations other than casinos, card clubs, state-sponsored lotteries, Native
American gaming and other forms of gaming and non-gaming entertainment in the
United States.
Our existing casinos depend substantially on the Louisiana and
Mississippi gaming markets and compete directly with other riverboat and
dockside gaming operators in both states. The Mississippi gaming market is
extremely competitive and, under Mississippi law, the number of authorized
gaming licenses is unlimited. There are 31 licensed and operating dockside
gaming facilities in Mississippi, including ten dockside gaming facilities in
Tunica County, and the Mississippi Gaming Commission has granted a number of
other licenses for facilities not currently in operation. We expect that other
companies will open dockside gaming facilities in Tunica County in the future.
Current Louisiana gaming legislation authorizes a total of 15
riverboat gaming licenses statewide. As of March 31, 1999, the Louisiana Gaming
Control Board had granted 14 of those licenses, including licenses to four
riverboat gaming facilities currently operating in the Bossier City/Shreveport
market. The Louisiana Gaming Control Board has recently granted approval to
relocate the license for a casino, which is now closed, to a new proposed
facility in the Bossier City/Shreveport market. In addition, the Louisiana
Gaming Control Board has indicated that applications for the remaining license
will be due on November 15, 1999, and that license may be located in the Bossier
City/Shreveport market. There can be no assurance that the Bossier City/
Shreveport market will be large enough to allow more than four riverboat casinos
to operate profitably. In addition, there can be no assurance as to whether the
Louisiana legislature will increase the number of gaming facilities permitted in
Louisiana and what effect any such increase would have on our Louisiana
operations.
If we consummate the Empress merger, we will be subject to
competition in Illinois and Indiana. The Empress casinos compete with seven
other casinos in the Chicago metropolitan area, four of which are located on
Lake Michigan in Indiana, the location of Empress Hammond, and three of which
are located in Illinois. In addition, the Illinois legislature in May, 1999
enacted amendments to the Illinois Riverboat Gambling Act, which legislation was
signed by the Governor of Illinois on June 25, 1999, and which will result in
one of the ten state-authorized licenses for Illinois being relocated to the
Chicago area, which could have a material adverse effect on Empress' operations.
To a lesser extent, Empress also competes with casino operations in nearby
states including Iowa and Missouri where riverboat and/or dockside gaming also
have been approved.
Some of our competitors have certain competitive advantages over our
casinos, including significantly greater financial and other resources and
larger gaming facilities. In addition, some of our competitors are undergoing
renovation and expansion, including one competitor that is constructing a
514-room hotel in the Bossier City/Shreveport market, and some may renovate or
expand their facilities in the future. Given these factors, it is
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possible that this competition could have a material adverse effect on our
financial condition. There can be no assurance that we will not face increased
competition from these and other forms of legalized gaming, as well as
competition from jurisdictions that may legalize gaming in the future. See the
section "Business" under the heading "Competition."
WE ARE A HOLDING COMPANY; OUR ABILITY TO REPAY THE NOTES AND OTHER DEBT DEPENDS
ON CASH FLOW FROM OUR SUBSIDIARIES
We are a holding company. Our only material assets are our ownership
interests in our subsidiaries. Consequently, we depend on distributions or other
intercompany transfers of funds from our subsidiaries to meet our debt service
and other obligations, including with respect to the notes. Our subsidiaries are
not obligated to make funds available to us for payment on the notes. In
addition, distributions and intercompany transfers to us from our subsidiaries
will depend on:
- their earnings;
- covenants contained in their debt agreements,
including Horseshoe Gaming's existing credit
facility and the new credit facility;
- covenants contained in other agreements to which
our subsidiaries are or may become subject;
- business and tax considerations; and
- applicable law, including regulations of
gaming authorities.
We cannot assure you that the operating results of our subsidiaries
at any given time will be sufficient to make distributions or other payments to
us and that these distributions and/or payments will be adequate to pay
principal and interest on the notes when due. In addition, our rights and the
rights of our creditors, including holders of notes, to participate in the
assets of any of our subsidiaries upon their liquidation or recapitalization
will generally be subject to the prior claims of the subsidiaries' creditors.
WE MAY FACE DISRUPTION IN INTEGRATING OUR OPERATIONS WITH EMPRESS AND OTHER
FACILITIES WE MAY ACQUIRE OR DEVELOP
The integration of our operations with Empress' operations following
the Empress merger will require the dedication of management resources which may
temporarily detract attention from our day-to-day business. The process of
combining the two organizations may also interrupt the activities of either or
both of the businesses, which could impact our revenues and operating results
negatively. We cannot assure you that we will be able to manage the combined
operations effectively or realize any of the anticipated benefits of the Empress
merger.
Our ability to achieve our objectives in connection with the Empress
merger is subject to certain risks including, among others, the possible
inability to retain certain Empress executives. We recently entered into an
employment agreement with the president of Empress, which will become effective
upon the consummation of the Empress merger. If, for any reason, other
executives do not continue to be active in management after the Empress merger,
our operations after consummation of the Empress merger could be materially
adversely affected.
In addition, we may pursue expansion and acquisition opportunities
in the future and would face significant challenges not only in managing and
integrating the combined operations but also in managing our expansion
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projects and any other gaming operations that we might acquire in the future.
Management of such new projects will require that we increase our managerial
resources. If we fail to manage our growth effectively, it could materially
adversely affect our operating results.
EXTENSIVE GOVERNMENT REGULATION CONTINUOUSLY IMPACTS OUR OPERATIONS
General. The ownership, management and operation of gaming
facilities is subject to extensive laws, regulations and ordinances which are
administered by various federal, state and local government entities and
agencies. These laws, regulations and ordinances vary from jurisdiction to
jurisdiction, but generally concern the responsibility, financial stability and
character of the owners and managers of gaming operations as well as persons
financially interested or involved in gaming operations.
We must comply with stringent gaming laws in each state where we
conduct business. Many of these gaming laws have only recently been enacted and
may be changed at any time. In addition, state regulatory agencies have broad
rulemaking authority when interpreting the laws and developing regulations to
implement the gaming laws and may change their interpretations at any time. The
state regulatory agencies also have broad powers to request detailed financial
and other information, to suspend or revoke gaming licenses and to approve
changes in our operations. There can be no assurance that each of our gaming
licenses, or the licenses of the Empress casinos, will be renewed when they
expire. Although we know of no reason why our gaming licenses or the Empress
gaming licenses would not be renewed or maintained, a failure of our licenses,
or the licenses of the Empress casinos if the Empress merger is consummated, to
be renewed or maintained would have a material adverse effect on us.
We are subject to many different types of federal, state and local
regulations, including regulations requiring us to:
- pay gaming fees and taxes in each state where
we operate a casino;
- obtain a gaming license in each state where we
operate a casino, which we must get renewed
periodically and which may be suspended or
revoked if we do not meet detailed regulatory
requirements;
- receive and maintain federal and state
environmental approvals;
- receive and maintain federal approvals to operate
our riverboat casinos in navigable waters; and
- receive and maintain local licenses to sell
alcoholic beverages in our casinos.
The compliance costs associated with these laws, regulations and
licenses are significant. A change in the laws, regulations and licenses
applicable to our business or a violation of any current or future laws or
regulations or our gaming licenses could require us to make material
expenditures or could otherwise materially adversely affect our business or
financial results.
Louisiana. In Louisiana, our operations are regulated by the
Louisiana Gaming Control Board. In 1993, the Louisiana State Police denied an
application made by HE, our subsidiary that owns and operates Horseshoe Bossier
City, for a gaming license to operate a casino. HE appealed the denial to the
Louisiana Riverboat Gaming Commission and that Commission overturned the denial.
Our gaming license in Louisiana is subject to annual renewals. We received
renewal of our Louisiana license in October 1998, subject to completion of a
full suitability review of HE and its key personnel.
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Mississippi. In Mississippi, our operations are regulated by the
Mississippi Gaming Commission. Our gaming license in Mississippi is subject to
renewal every two years and was most recently renewed in September 1998,
effective as of October 1998.
Indiana. In Indiana, Empress Hammond's operations are regulated by
the Indiana Gaming Commission. Empress Hammond's gaming license in Indiana was
granted in June 1996 and is subject to annual renewal beginning in June 2001. In
addition, Empress Hammond is subject to various commitments to governmental
authorities and the failure to comply with such commitments would impact the
ongoing license renewal process and the approval of the Empress merger. See
below "If the Empress Merger is Consummated, We Would be Required to Make
Substantial Payments to Governmental Authorities." Three individuals challenging
the constitutionality of the Indiana Riverboat Act filed a lawsuit on October
25, 1996 in Harrison County, Indiana, although a motion to dismiss this lawsuit
filed by the State of Indiana was granted on June 10, 1999. If the Indiana
Riverboat Act ultimately was held unconstitutional and if, as a result thereof,
Empress Hammond was not permitted to operate, it would, absent timely corrective
legislation, have a material adverse effect on us if the Empress merger is
consummated. See the section "Regulatory Matters" under the heading "Indiana
Gaming Regulation."
Illinois. In Illinois, Empress Joliet's operations are regulated
by the Illinois Gaming Board. Empress Joliet's gaming license in Illinois is
subject to annual renewals and was most recently renewed in July 1998.
In May 1999, the Illinois legislature amended the Illinois
Riverboat Gambling Act . These amendments became effective in June
1999. The Illinois Riverboat Gambling Act as amended:
- deletes the prohibition on locating a gambling license
in Cook County and authorizes dockside gambling on a
self-propelled excursion boat or a permanently moored
barge on any water in or constituting a boundary of
Illinois except Lake Michigan;
- deletes the requirement that riverboats conduct excursion
cruises and permits the continuous ingress and egress of
casino patrons;
- deletes the provision that a holder of a 10% or greater
interest in an owner's license is ineligible to receive
another owner's license;
- provides that the renewal period for owners' licenses
renewed after May 1, 1998 shall be four years, unless
the Illinois Gaming Board sets a shorter period;
- deletes the requirement that a riverboat casino be a
replica of a 19th century riverboat or a casino cruise
ship design;
- reduces the admission tax to $2.00 per person admitted
instead of $2.00 per person per gaming excursion;
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- provides that three licenses, rather than four, shall
authorize riverboat gambling on the Mississippi River;
and
- provides that a licensee that was not conducting
riverboat gambling on January 1, 1998 may apply to the
Illinois Gaming Board for renewal and approval of
relocation to a new home dock and the Illinois Gaming
Board shall grant the application and approval upon
receipt by the licensee of approval from the new
municipality or country, as the case may be, in which
the licensee wishes to relocate and any licensee that
relocates its home dock pursuant to this Section shall
attain a level of at least 20% minority or female
ownership within a time period prescribed by the
Illinois Gaming Board.
The primary effects of the amendments to the Illinois Riverboat Gambling Act on
Empress are that Empress Joliet will now be permitted to conduct dockside
gaming, which will benefit Empress Joliet although the benefits cannot be
quantified. However, Empress Joliet and Empress Hammond will likely be faced
with increased competition as a result of the location of an additional casino
in the Chicago area.
THERE ARE SIGNIFICANT REGULATORY APPROVALS REQUIRED FOR US TO CONSUMMATE THE
EMPRESS MERGER
In addition to the laws and regulations that regulate how we can
operate our business, obtaining the new credit facility and consummating the
Empress merger will require us to make additional disclosure to, and receive
various approvals from, the gaming authorities in each state where we operate,
and in Indiana and Illinois. The additional disclosure could affect our ability
to renew our current licenses and to obtain new licenses to operate additional
casinos. Among the factors to be considered by the gaming authorities in
approving the sale of the notes, the new credit facility and the Empress merger
are our financial integrity and that of Horseshoe Gaming, including adequate
capitalization. The Illinois and Indiana gaming authorities will consider the
notes and the new credit facility when they consider whether to approve the
Empress merger. In connection with the Empress merger, as well as all license
renewals, the gaming authorities will also be required to approve the
suitability of our officers, directors and owners. There can be no assurance
that we will be able to obtain from the gaming authorities all approvals
necessary related to the issuance of the notes, entering into the new credit
facility or consummation of the Empress merger, or that the approvals will be
made in a timely manner. If the gaming authorities delay approval of the new
credit facility or the Empress merger or do not approve all of the terms of the
new credit facility or the Empress merger, our ability to complete the Empress
merger may be adversely affected or we may be unable to complete the Empress
merger. Failure to complete the Empress merger will result in a portion of the
notes being redeemed by us as described in the section "Description of Notes"
under the heading "Mandatory Redemption."
WE AND EMPRESS ARE SUBJECT TO ENVIRONMENTAL REGULATIONS WHICH MAY BE
BURDENSOME AND COSTLY
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We and Empress are subject to various federal, state and local
environmental regulations and ordinances. Based on our review of certain
environmental assessments, we are aware that there may be soil and groundwater
contamination present on some of the real property used by our existing casinos
or the Empress casinos due to past industrial activities. In connection with the
construction of a highway overpass to service Empress Hammond, Empress agreed to
clean up contamination discovered on property owned by the City of Hammond
during the course of construction. Empress also agreed, subject to certain
limitations, to indemnify the City of Hammond for costs related to any other
future cleanup required at the property as a result of historical conditions.
The construction of the overpass and associated cleanup efforts were completed
in 1996. Empress does not believe that the contamination discovered during the
investigations requires further investigation or cleanup under current
environmental laws. It is possible, however, that such laws will become more
stringent in the future or that additional contamination on the property will be
discovered and will need to be cleaned up. Pursuant to Empress' agreement with
the City of Hammond, which we are assuming pursuant to the Empress merger if the
Empress merger is consummated, we could be obligated to undertake any such
cleanup. Therefore, we cannot assure you that we will not be required to make
material expenditures with respect to such matters.
In 1990 Congress enacted the Oil Pollution Act to regulate response
actions and liability related to oil spills. In that regard, we and Empress are
required to meet certain financial responsibility requirements. We and Empress
have met these requirements either through self-insurance or third-party
insurance and do not believe that the costs of complying with these regulations
will be material. We could, however, incur material liability in the event of a
major oil spill that exceeds the uninsured amounts.
Although we believe we are in substantial compliance with
environmental laws, there can be no assurance that:
- we will be able to maintain such compliance;
- the environmental laws will not change; or
- we will not be required to make substantial expenditures in
the future to comply with environmental laws.
See the section "Regulatory Matters" under the heading "Other Applicable
Non-Gaming Regulatory Matters."
IF THE EMPRESS MERGER IS CONSUMMATED, WE WOULD BE REQUIRED TO MAKE SUBSTANTIAL
PAYMENTS TO GOVERNMENTAL AUTHORITIES
As a condition to its license in Indiana, Empress Hammond made
various financial and other commitments to the City of Hammond, Indiana and
other Indiana governmental bodies pursuant to a Hammond Riverboat Gaming Project
Development Agreement. These commitments will continue following the Empress
merger. As of March 31, 1999, approximately $23.3 million of such commitments
remained outstanding primarily for commercial development, residential
development and the construction of a hotel. While Empress is on track with
respect to its residential commitments, Empress is currently in discussions with
the City of Hammond regarding plans for a hotel, construction of which was
required to commence in 1996. Empress is also in discussions with the City of
Hammond regarding its commercial commitment. In addition, under the terms of the
development agreement, Empress Hammond is required to make annual payments of
approximately $1.3 million for public safety services and other uses and an
annual
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payment based on a varying percentage of Empress Hammond's adjusted gross
receipts. In the event that Empress Hammond suffers a decrease in revenues, the
costs of satisfying the foregoing commitments if the Empress merger is
consummated may have a material adverse effect on our business, financial
condition and results of operations, and our ability to repay the notes. In
addition, there can be no assurance that the actual costs incurred to complete
the projects undertaken to satisfy such commitments will not exceed the original
amount of such commitments. The level of compliance by Empress with the
commitments to the City of Hammond will be considered by the Indiana Gaming
Commission in its review of the Empress merger and compliance by us following
the Empress merger will be considered in connection with Empress Hammond's
ongoing licensure.
Empress Hammond entered into a license agreement, with the Hammond
Port Authority on June 21, 1996, pursuant to which Empress Hammond licenses from
the Hammond Port Authority certain rights to land and docking facilities at the
Hammond marina. For the rights and privileges granted to it under the terms of
the license agreement, Empress Hammond is required to pay the Hammond Port
Authority: (1) a $1.00 per passenger fee for each passenger visiting the casino;
and (2) an amount equal to the aggregate annual rental at the Hammond marina for
each boat slip that was removed or taken out of operation as a result of the
construction of the docking facilities and/or the operation of the casino. In
the event Empress Hammond suffers a decrease in revenues, the costs of
satisfying the foregoing commitments if the Empress merger is consummated, may
have a material adverse effect on our business, financial condition and results
of operations, and our ability to repay the notes.
GAMING REFERENDA OR OTHER GAMING LAWS AUTHORIZING OUR OPERATIONS AND THOSE OF
EMPRESS MAY BE ADOPTED, MODIFIED OR REPEALED
In Mississippi, a request was filed with the Secretary of State on
March 22, 1999 to place on the November 2000 statewide ballot a voter initiative
to ban gaming in the state. On May 6, 1999, the local circuit court found the
wording of the initiative inadequate, and declared the initiative measure
unconstitutional. The sponsor has appealed the local circuit court's decision on
the initiative to the Mississippi Supreme Court, where the matter awaits
resolution. These events follow two unsuccessful attempts by the same sponsor in
1998 to place substantially similar initiative measures on the November 1999
statewide ballot. Even if the Supreme Court should affirm the circuit court's
ruling, it is possible that the gaming ban initiative could be re-worded and
meet the requirements for placement on the November 2000 ballot or the ballot of
a later election. Passage of any Mississippi initiative requires an affirmative
vote representing both a majority of the votes cast with respect to such
initiative and at least 40% of the voters casting votes on any matter in the
election.
Approval by the requisite number of voters of a Mississippi
initiative similar to those proposed in 1998 and 1999 would repeal the
legislation authorizing gaming in the state subject to the final results of any
legal challenges which might be raised regarding the initiative and its impact
on any current casino operations and/or pending applications for gaming licenses
in Mississippi. We are unable to determine at this time whether any such
initiative will be submitted to voters. If any such initiative is submitted to
the voters of Mississippi for their consideration, no assurance can be given
regarding the outcome of the vote or the impact of the vote on our gaming
operations in Mississippi.
From time to time, various proposals have been introduced in the
Mississippi, Louisiana, Indiana and Illinois legislatures that, if enacted,
could adversely affect the taxation, regulation, operation, competitive
environment or other aspects of the gaming industry in those states, and we
anticipate there will be a challenge to the amendments to the Illinois Riverboat
Gambling Act which among other things authorized dockside gaming in Illinois.
There can be no assurance that future legislation or regulations, or the repeal
or modification of existing laws or regulations, would not have a material
adverse effect on the ability to conduct a gaming business in these states or
the profitability of such operations. An additional degree of uncertainty exists
in the
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Louisiana, Indiana and Illinois regulatory environment due to the limited
experience in the interpretation of the Louisiana, Indiana and Illinois gaming
legislation and regulations.
A National Gambling Impact Study Commission has been established by
the United States Congress to conduct a comprehensive study of the social and
economic impact of gaming in the United States. The National Commission issued a
report containing its findings and conclusions, together with recommendations
for legislation and administrative actions on June 18, 1999. Also, the Governor
of Indiana has appointed a Gaming Impact Study Commission to review the impact
of all forms of gaming in Indiana and to issue its report by December 31, 1999.
Any of the recommendations made by the National Commission could result in the
enactment of new laws and/or the adoption of new regulations which could
adversely impact the gaming industry in general and recommendations made by the
Indiana Commission ultimately may adversely impact gaming in Indiana. We are
unable at this time to determine what recommendations, if any, the Indiana
Commission will make, or the ultimate disposition of any recommendations the
National Commission or the Indiana Commission may make.
A LOSS OF ONE OF OUR RIVERBOATS OR DOCKSIDE FACILITIES FROM SERVICE COULD
MATERIALLY AND ADVERSELY AFFECT OUR OPERATIONS
Our profitability depends on the two riverboats and the dockside
facilities in Tunica County, Mississippi and Bossier City, Louisiana and,
following completion of the Empress merger, three riverboats and dockside
facilities in the metropolitan Chicago area. Any of these vessels could be lost
from service due to casualty, mechanical failure, a flood or other severe
weather conditions or extended or extraordinary maintenance or inspection,
including routine inspections required by the U.S. Coast Guard. Periodically,
Empress' vessels must either be dry docked for an inspection of the hull or
undergo an underwater hull survey, which could result in a loss of service for a
period of time. Any extended period of time during which our casinos are out of
service could have a material adverse effect on our cash flow and our financial
condition.
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THE GUARANTEE OF THE NOTES BY CERTAIN OF OUR SUBSIDIARIES COULD BE AVOIDED
UNDER CERTAIN CIRCUMSTANCES
Our wholly-owned and certain other subsidiaries are, upon the
occurrence of certain events, required to guarantee our obligations under the
notes. Under federal or state fraudulent transfer law, however, if any
subsidiary guarantor becomes a debtor in a case under the United States
Bankruptcy Code or otherwise encounters financial difficulty, a bankruptcy or
state court could enter an order avoiding that subsidiary's guarantee. In that
event, the court could also require that holders return any amounts received
under the guarantee to the subsidiary or to a fund for its creditors' benefit.
A court could enter an order if it found that when the subsidiary
became liable under its guarantee, or, in some states, when payments became due
thereunder, the subsidiary received less than fair consideration or reasonably
equivalent value and either:
- was or was rendered insolvent;
- was left with inadequate capital with which to
conduct its business as then contemplated; or
- believed or reasonably should have believed that
it would incur debts beyond its ability to pay
as they became due.
Regardless of those factors, however, the court could avoid the guarantee if it
found that the subsidiary entered into it with actual intent to hinder, delay,
or defraud creditors.
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Although courts in different jurisdictions measure solvency
differently, in general, a subsidiary would be deemed insolvent if the sum of
its debts, including contingent and unliquidated debts, exceed the fair value of
all its property, or if the present fair salable value of its assets is less
than the amount that would be required to pay the expected liability on its
debts, including contingent and unliquidated debts, as they become due.
A court would likely find that a subsidiary received less than fair
consideration or reasonably equivalent value for its guarantee to the extent
that it did not receive direct or indirect benefit from the issuance of the
notes. If a court should avoid the guarantee of any subsidiary, holders would
retain their rights against us and any other subsidiary guarantors, although
there is no assurance that those entities' assets would be sufficient to pay the
notes in full.
REPURCHASE OF NOTES UPON A REQUIRED REGULATORY REDEMPTION
Pursuant to, and in accordance with, any order of any governmental
authority with appropriate jurisdiction and authority relating to a gaming
license, which requires that a person who is a holder or the beneficial owner of
notes be licensed, qualified or found suitable under any gaming laws, such
holder or beneficial owner, as the case may be, shall apply for a license,
qualification or finding of suitability within the required time period. If such
holder or beneficial owner fails to apply or become licensed or qualified or is
found unsuitable, we shall have the right, at our option:
- to require such holder or beneficial owner to
dispose of such holder's or beneficial owner's
notes or beneficial interests therein within
30 days of receipt of notice of our election
or such earlier date as may be ordered by such
governmental authorities; or
- to redeem the notes of such holder or beneficial
owner at a redemption price equal to the lesser
of:
(1) the cost at which such holder or beneficial
owner acquired the notes; and
(2) 100% of the principal amount thereof,
together with accrued and unpaid interest,
if any, to the earlier of the date of
redemption or the date of the finding of
unsuitability, which may be less than 30
days following the notice of redemption if
so ordered by such governmental authorities.
We shall notify the trustee in writing of any such redemption as
soon as practicable, which may be less than 30 days following the notice of
redemption if so requested or prescribed by the applicable governmental
authorities. The holder or beneficial owner of notes applying for a license,
qualification or a finding of suitability is obligated to pay all costs of the
licensure or investigation for such qualification or finding of suitability. We
anticipate that similar requirements will exist in other states where we may
expand. If you are required to dispose of the notes, there can be no assurance
that you would be able to do so at a time, for a price and/or on terms that are
acceptable to you. See the section "Description of Notes" under the heading
"Mandatory Disposition Pursuant to Gaming Laws."
WE MAY BE REQUIRED TO REPURCHASE NOTES UPON A CHANGE OF CONTROL
Upon the occurrence of both a change of control and either a
downgrade of our credit rating or a decline in our interest coverage ratio, or a
change of control trigger, you will have the right to require us to offer to
purchase the notes at 101% of their principal amount, plus accrued interest, if
any. The lenders under Horseshoe Gaming's existing credit facility and,
following the Empress merger, the new credit facility and the holders of
Horseshoe Gaming's existing subordinated notes, will have a similar right upon a
change of control without regard to a downgrade of our credit rating or a
decline in our interest coverage ratio. See the section
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"Summary" under the heading "The Refinancing and the Empress Merger." It is
possible that if a change of control trigger occurs, we might not have
sufficient resources to satisfy all of our repurchase obligations. In addition,
the terms of some of our debt agreements prohibit us from purchasing any notes
until all debt under such agreements is paid in full. The new credit facility
contains, and other agreements relating to debt may contain, similar provisions
preventing us from repurchasing your notes. If a change of control trigger
occurs while we are prohibited from purchasing the notes, we could seek our
lenders' consent to purchase the notes or could attempt to refinance the
borrowings that contain the prohibition. There can be no assurance, however, as
to whether and to what extent we could refinance such borrowings on acceptable
terms, or at all. If we do not obtain a consent or repay the borrowings, we
would remain prohibited from purchasing the notes. In such case, our failure to
purchase submitted notes would constitute an event of default under the
indenture, which would, in turn, constitute a further default under certain of
our existing or future debt agreements, including Horseshoe Gaming's existing
credit facility and, following the Empress merger, the new credit facility.
Also, the change of control purchase feature of these notes may in certain
circumstances discourage or make it more difficult for us to be sold or taken
over.
INVESTIGATION OF POLITICAL CORRUPTION IN LOUISIANA COULD LEAD TO NEGATIVE
PUBLICITY FOR THE GAMING INDUSTRY IN GENERAL AND HEIGHTENED SCRUTINY FOR OUR
LICENSE RENEWAL IN LOUISIANA
On November 6, 1998, a grand jury in the United States District
Court for the Middle District of Louisiana returned an indictment against former
Louisiana Governor Edwin W. Edwards, his son Stephen Edwards, Louisiana State
Senator Gregory Tarver, and other individuals, alleging, among other things,
corruption in the awarding of several riverboat licenses in the State of
Louisiana. The investigation by the Federal Bureau of Investigation and the U.S.
Attorney's Office into possible corruption on the part of various state
legislators and other public officials within the State of Louisiana is ongoing.
The indictment and affidavits filed by the FBI in various federal courts have
specifically identified and accused certain public officials of accepting bribes
or illegal campaign contributions or being involved in other illegal activities,
and have associated such public officials with various gaming interests, which
do not include Horseshoe Gaming, within the State of Louisiana. We anticipate
that the indictment and ongoing investigation and the adverse publicity from the
indictment and ongoing investigation will continue to cause the gaming industry
in Louisiana to receive negative publicity and a certain amount of adverse
public reaction. Publicity against the gaming industry within Louisiana could
lead to state legislation that could significantly restrict, or eliminate,
legalized gaming within the State of Louisiana. Any such legislation would have
a material adverse effect on our business.
We also anticipate that the indictment and ongoing investigation
will cause heightened scrutiny by the Louisiana Gaming Control Board in
connection with the renewal of riverboat gaming licenses in the State of
Louisiana, including the renewal of Horseshoe Bossier City's riverboat gaming
license which is currently proceeding through the renewal process. Horseshoe
Gaming and Jack B. Binion have received and complied in a timely manner with
subpoenas from the U.S. Attorney's Office requesting records of all payments,
fees and compensation, if any, that HE has paid to various individuals and
entities which included three of HE's former limited partners, relatives of two
of those former limited partners and a Louisiana State Senator representing the
Shreveport area and certain of his relatives. We believe that the information we
provided in response to such subpoenas is complete, and that profit
distributions, fees, compensation or other payments that HE paid to any of such
persons and entities were proper and occurred in the ordinary course of
business. The U.S. Attorney's Office and the FBI have informally interviewed
some of our employees. The U.S. Attorney's Office has advised HE that it is
neither a subject nor a target of such investigation.
-27-
<PAGE> 33
Mr. Jack B. Binion, who is our largest shareholder, is actively
involved in the gaming industry. Mr. Binion and his affiliates may, without
restriction, pursue investment opportunities to acquire, develop, manage,
operate or otherwise invest in businesses ancillary to any gaming business,
including but not limited to hotels and restaurants, so long as they disclose
such pursuits to us. Any ancillary business opportunities, if pursued, that
would directly or indirectly compete with us could adversely affect our
business, financial condition or results of operations.
THE LOSS OF KEY MANAGEMENT AND OTHER PERSONNEL COULD MATERIALLY AND ADVERSELY
AFFECT OUR BUSINESS
We depend upon the efforts and skills of a few key members of our
management team. If we lose the services of any of these personnel or if they
are unable to devote sufficient attention to our casino operations, our
operations could be materially adversely affected. We recently lost the services
of six members of senior management, including our former President, Chief
Financial Officer, Senior Vice President -- Operations and General Counsel. See
the section entitled "Management." Four of such former employees have gone to
work for a competitor. The employment agreements of such former employees did
not provide for non-solicitation upon leaving us, however, we and such
competitor have executed an agreement whereby such competitor has agreed not to
solicit 50 key employees designated by us for a period of three years. We have
filled some of the vacant senior management positions and intend to fill the
remaining vacant positions as soon as practicable. We will need to integrate
these and other new employees into our business, which will take time and cost
money.
We compete with other gaming companies for qualified employees who
have significant gaming operations experience and other employees necessary to
operate our business, particularly in Louisiana and Mississippi. Because of the
recent expansion of the gaming industry in Louisiana, Mississippi and in other
states, there can be no assurance that we will be able to fill the remaining
vacant positions or hire additional experienced executives and other employees.
THE FAILURE OF OUR COMPUTER SYSTEMS AND THE COMPUTER SYSTEMS OF OUR KEY VENDORS
TO BE YEAR 2000 COMPLIANT COULD MATERIALLY AND ADVERSELY AFFECT OUR BUSINESS
The Year 2000 problem is the result of computer programs being
written using two digits rather than four to define the applicable year. Any of
our programs that have time-sensitive software may recognize a date using "00"
as the year 1900 rather than the year 2000. This could result in a major system
failure or miscalculations.
Our business operations depend on our and our suppliers' year 2000
readiness. If our systems, gaming or non-gaming, and those of our suppliers do
not function, or fail to function properly as a result of the century change, we
would have to operate under alternative procedures, some manual, until a proper
resolution of the failure can be achieved. Operating in this manner could have a
material adverse effect on our business.
Two of the major internal hardware and software systems, financial
accounting software system and human resource system, utilized by us were
identified to be not Year 2000 compliant. These systems were upgraded to a
current platform that is Year 2000 compliant. We are also undertaking the
installation of a Year 2000 compliant slot accounting software product in
Horseshoe Bossier City to replace the current system that is not Year 2000
compliant.
-28-
<PAGE> 34
We presently believe that as a result, with modifications to
existing software and converting to new software, the Year 2000 issue will not
pose significant operational problems for our internal computer systems as so
modified and converted. However, if any remaining modifications and conversions
are not completed on a timely basis, the Year 2000 problem may have a material
adverse impact on our financial condition and results of operations. In
addition, in the event that any of our significant suppliers and other parties
with which we have a material relationship, including public utilities, the
banking systems, the postal system and other similar infrastructure enterprises,
do not successfully and timely achieve Year 2000 compliance, our business or
operations could be materially adversely affected. See the section "Management's
Discussion and Analysis of Financial Condition and Results of Operations" under
the heading "Year 2000 Readiness Disclosure."
RISKS RELATING TO STATUS AS S CORPORATION
It is intended that we will qualify for and elect to be treated as
an "S corporation" for federal income tax purposes, although we are not
contractually bound to maintain such treatment. As an S corporation, we will not
be subject to federal income tax as an entity. Instead, each stockholder
generally will be subject to income tax on his proportionate share of our
income, or take into account his proportionate share of any loss. Pursuant to a
stockholders' agreement, we intend to make distributions to our stockholders to
enable them to pay any taxes on their share of our income. See the section
entitled "Certain Relationships and Related Transactions." While we believe that
we were properly formed and have been properly operating as an S corporation and
that our corporate subsidiaries were properly formed and have been properly
operating as Qualified Subchapter S Subsidiaries for Federal and state income
tax purposes, if our S corporation tax status or the Qualified Subchapter S
Subsidiary status of any of our corporate subsidiaries were successfully
challenged, we or such subsidiary could be required to pay Federal and certain
state income taxes, plus interest and possibly penalties, on our taxable income
as far back as commencement of our respective operations. Such payments could
have a material adverse effect on us. In addition, in such event, our ability to
repay principal or interest on the notes may be impaired. See the section
"Description of Notes" under the heading "Certain Covenants."
HORSESHOE CLUB MAY HAVE A CLAIM TO THE TRADEMARKS WE LICENSE FROM HORSESHOE
LICENSE COMPANY
In connection with the sale in July 1998 by Jack Binion of his
interest in Horseshoe Club Operating Company, or Horseshoe Club, which is the
owner of Binion's Horseshoe Casino in Las Vegas, Horseshoe Club assigned various
trademarks and tradenames used by Horseshoe Gaming and Horseshoe Club to a
separate license company, Horseshoe License Company. Horseshoe License Company
issued perpetual licenses to Horseshoe Club and Horseshoe Gaming. Horseshoe
Gaming received a license to use the tradename "Horseshoe" and various other
related trademarks and tradenames in the gaming and related businesses for all
jurisdictions other than Nevada and Horseshoe Club received a license to use the
tradename "Horseshoe" and various other related trademarks and tradenames in the
gaming and related businesses in Nevada.
The use of a separate license entity is intended to protect
Horseshoe Gaming's license in the event of a bankruptcy of Horseshoe Club. There
can be no assurance, however, that a party would not claim in a bankruptcy
proceeding of Horseshoe Club that the various trademarks and tradenames are
valuable and constitute a fraudulent conveyance under Title 11, United States
Code or applicable state fraudulent transfer laws. If it is determined that the
various trademarks and tradenames were a fraudulent conveyance then they may be
considered assets of Horseshoe Club in the bankruptcy proceeding and an
avoidance of the license agreement with Horseshoe Gaming may be sought. In
addition, upon a bankruptcy of Horseshoe Gaming or us as successor to Horseshoe
Gaming following the merger of Horseshoe Gaming with and into us, Horseshoe Club
has the right to purchase Horseshoe Gaming's interest in the license and, upon
such purchase, Horseshoe Gaming's interest in the license automatically
terminates. Failure of Horseshoe Gaming or us as successor to Horseshoe Gaming
following the merger of Horseshoe Gaming with and into us, to have use of the
"Horseshoe" tradename could reasonably be expected to have a material adverse
effect on our business.
-29-
<PAGE> 35
THE INDENTURE AND OUR NEW CREDIT FACILITY CONTAINS RESTRICTIVE DEBT COVENANTS
The indenture, Horseshoe Gaming's existing credit facility and the
new credit facility contains a number of significant covenants that, among other
things, restrict our ability to dispose of assets, incur additional
indebtedness, incur guarantee obligations, repay other debt or amend other debt
instruments, pay dividends, create liens on assets, enter into capital leases,
make investments, loans or advances, make acquisitions, engage in mergers or
consolidations, make capital expenditures, engage in certain transactions with
subsidiaries and affiliates and otherwise restrict corporate activities. In
addition, under Horseshoe Gaming's existing credit facility and under the new
credit facility we are required, to meet a number of financial ratios and tests.
Our ability to comply with such agreements may be affected by events
beyond our control, including prevailing economic, financial and industry
conditions. The breach of any of such covenants or restrictions could result in
a default under Horseshoe Gaming's existing credit facility or the new credit
facility, as applicable, or the indenture, which would permit certain lenders to
declare all amounts borrowed thereunder to be due and payable, together with
accrued and unpaid interest, and the commitments of the senior lenders to make
further extensions of credit under Horseshoe Gaming's existing credit facility
or the new credit facility, as applicable, could be terminated. If we were
unable to repay debt to our senior lenders, such lenders could proceed against
the collateral securing such debt.
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<PAGE> 36
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
Many statements made in this prospectus under the captions
"Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business" and elsewhere are
forward-looking statements. In some cases, you can identify forward-looking
statements by terminology such as "may," "will," "should," "expects," "plans,"
"anticipates," "believes," "estimates," "predicts" or "continue" or the negative
of these terms or other comparable terminology. The occurrence of the events
described, and the achievement of the intended results, depend on many events,
some or all of which are not predictable or within our control. Actual results
may differ materially from those anticipated in any forward-looking statements.
Many risks and uncertainties are inherent in the gaming industry. Others are
more specific to our operations. Many of the significant risks related to our
business are described in this prospectus. These include, among others:
- risks associated with substantial indebtedness, leverage and
debt service and liquidity;
- risks of competition in our existing and future markets;
- difficulties in completing our integration with Empress, if
the Empress merger is consummated;
- failure of us and our key employees to obtain or retain
licenses or regulatory approvals;
- changes in gaming laws and regulations; and
- the other factors set forth in the section
entitled "Risk Factors."
All future written and oral forward-looking statements made by us or
on our behalf are also subject to these factors. We undertake no obligation to
publicly update or revise any forward-looking statements, whether as a result of
new information, future events or otherwise, except we may be required to amend
any forward-looking statements if the information becomes materially misleading.
In light of these risks, uncertainties and assumptions, the forward-looking
events discussed in this prospectus might not occur.
Market data used throughout this prospectus including information
relating to our relative position in the casino and gaming industry is based on
the good faith estimates of management, which estimates are based upon their
review of internal surveys, independent industry publications and other publicly
available information. Although we believe that such sources are reliable, the
accuracy and completeness of such information is not guaranteed and has not been
independently verified.
You should rely only on the information contained in this document
or that we have referred you to. We have not authorized anyone to provide you
with information that is different. This prospectus does not constitute an offer
to sell, or a solicitation or an offer to buy, the securities offered hereby to
any person in any state or other jurisdiction in which such offer or
solicitation is unlawful. The delivery of this prospectus or any sale made
hereunder at any time does not imply that information contained herein is
correct as of any time subsequent to its date.
-31-
<PAGE> 37
USE OF PROCEEDS
We will not receive any cash proceeds from the issuance of the new
notes in the exchange offer as described in this prospectus. We will receive in
exchange original notes in like principal amount. The original notes surrendered
in exchange for the new notes will be retired and canceled and cannot be
reissued. Accordingly, the issuance of the new notes will not result in any
change in our outstanding debt.
The net proceeds received by us for the placement of the original
notes was approximately $582.9 million, after deducting expenses. The net
proceeds are being used:
1. to fund a secured proceeds account in the amount of approximately
$342.3 million, approximately $190.8 million of which account will
be used to finance, in part, the acquisition of all of the
outstanding capital stock of Empress Casino Joliet Corporation and
Empress Casino Hammond Corporation, and approximately $151.5 million
of which will be used to repurchase existing 8 1/8% senior
subordinated notes of Empress;
2. to repurchase all of the outstanding 12.75% senior notes of
Horseshoe Gaming and to pay tender premiums and accrued and unpaid
interest relating thereto amounting to approximately $137.1million;
3. to repay all of the indebtedness outstanding under the existing
credit agreement amounting to approximately $75.6 million; and
4. to provide working capital of approximately $27.9 million.
-32-
<PAGE> 38
CAPITALIZATION
This table sets forth our consolidated capitalization: (1) as of
March 31, 1999; (2) as adjusted to give effect to the Ownership Transactions and
the Refinancing Transactions; and (3) as further adjusted to give effect to the
Empress merger and related transactions. You should read this information in
conjunction with the section "Summary" under the heading "The Refinancing and
the Empress merger," and the sections "Use of Proceeds," "Selected Financial
Data," "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and our consolidated financial statements and related notes,
which are included or incorporated elsewhere in this prospectus.
<TABLE>
<CAPTION>
AT MARCH 31, 1999 (UNAUDITED)
---------------------------------------------------------------
AS ADJUSTED FOR THE AS FURTHER ADJUSTED FOR
OWNERSHIP AND REFINANCING THE EMPRESS MERGER AND
ACTUAL TRANSACTIONS RELATED TRANSACTIONS
------ ------------ --------------------
(IN MILLIONS)
<S> <C> <C> <C>
Cash and cash equivalents................................. $ 47.4 $ 64.4 $ 55.4
Long-term debt, including current portion:
Existing credit facility................................ $ 85.0 $ - $ -
Notes payable to former owners.......................... - 14.1 14.1
New credit facility..................................... - - 245.0
12 3/4% senior notes due 2000(1)........................ 127.8 - -
9 3/8% senior subordinated notes due 2007,
net of discount....................................... 159.9 159.9 159.9
Notes offered hereby, net of discount................... - 274.0(2) 597.8
---------- --------- ---------
Total long-term debt...................................... 372.7 448.0 1,016.8
---------- --------- ---------
Redeemable ownership interests(3)......................... 54.9 54.9 54.9
Members'/stockholders' equity(4).......................... 47.0 13.7 13.7
---------- --------- ---------
Total capitalization................................. $ 474.6 $ 516.6 $1,085.4
========== ========= =========
</TABLE>
- ------------
(1) Includes an unamortized discount of $0.8 million. $0.2 million
principal amount of senior notes did not tender in the tender
offer.
(2) Excludes $325.0 million principal amount of notes that are
subject to redemption if we fail to consummate the Empress merger.
(3) Represents the aggregate fair market value of all interests subject
to put/call provisions contained in employment agreements and option
agreements of certain of our former employees as determined by an
independent appraisal obtained in November 1997. For further
information on these ownership interests, see the section entitled
"Management's Discussion and Analysis of Financial Condition and
Results of Operations."
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<PAGE> 39
(4) Members'/stockholders' equity is reduced to account for the recognition
of an extraordinary loss on early retirement of long-term debt and
ownership transactions.
-34-
<PAGE> 40
SELECTED FINANCIAL DATA
You should read the selected consolidated financial data set forth
below in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," the financial statements and the notes
thereto, and the other financial information included herein. Our selected
consolidated financial data for the years ended December 31, 1998, 1997, 1996,
1995 and 1994 have been derived from our audited consolidated financial
statements. Our selected consolidated financial data for the quarters ended
March 31, 1999 and 1998 have been derived from our unaudited consolidated
financial statements and, in our opinion, include all adjustments, consisting
of only normal recurring adjustments, necessary for a fair presentation of our
results of operations for such periods and financial condition as of the dates
presented. Results of interim periods are not necessarily indicative of results
for the full year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
1994(1) 1995(2) 1996 1997 1998 1998 1999
------- ------- ---- ---- ---- ---- ----
($ IN MILLIONS EXCEPT PER UNIT DATA) (UNAUDITED)
------------------------------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenues
Casino $59.2 $283.4 $317.5 $321.2 $429.8 $106.8 $112.7
Food and beverage 5.9 24.3 26.9 30.0 48.3 11.1 13.0
Hotel 1.8 7.3 7.9 8.8 35.4 8.3 8.8
Retail and other 0.9 4.1 4.4 4.3 10.0 2.1 3.1
--- --- --- --- ---- --- ---
Gross revenues 67.8 319.1 356.7 364.3 523.5 128.3 137.6
Less: Promotional allowances 4.4 20.7 25.0 29.2 62.3 14.4 17.4
--- ---- ---- ---- ---- ---- ----
Total net revenues 63.4 298.4 331.7 335.1 461.2 113.9 120.2
---- ----- ----- ----- ----- ----- -----
Operating expenses
Casino 24.3 133.3 162.4 175.4 245.2 60.5 60.7
Food and beverage 3.2 12.7 12.3 11.0 16.0 4.2 4.4
Hotel 1.1 5.7 6.8 7.9 11.8 2.9 2.6
Retail and other 0.7 1.7 1.4 1.4 6.9 1.6 2.5
General and administrative 17.8 42.9 45.4 43.6 57.2 13.5 12.6
Depreciation and amortization 2.5 12.6 16.0 19.4 33.9 7.9 8.6
Preopening(3) 6.7 7.0 -- 3.0 0.7 0.7 --
Development 2.1 4.4 6.6 1.6 0.5 0.2 --
Corporate expenses -- 3.4 10.2 22.5 12.9 3.1 2.2
Asset write-down(4) -- -- -- -- 12.9 -- --
----
Total operating 58.4 223.7 261.1 285.8 398.0 94.6 93.6
</TABLE>
<PAGE> 41
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
expenses
Operating income 5.0 74.7 70.6 49.3 63.2 19.3 26.6
Interest expense (6.8) (20.2) (28.1) (20.8) (39.9) (9.7) (10.3)
Interest income 0.6 1.5 6.1 5.0 2.2 0.5 0.6
Gain on sale of land(5) 5.2 -- -- -- -- -- --
Minority interest in (income)
loss of subsidiary(5) (5.7) (8.9) (1.8) (0.4) 0.6 -- (0.3)
Other, net -- -- 0.2 (0.4) (0.2) (0.1) --
--- ---- ---- ----
Income (loss) before
extraordinary loss on early
retirement of long-term debt (1.7) 47.1 47.0 32.7 25.9 10.0 16.6
Extraordinary loss on early
retirement of long-term debt -- (7.2) -- (5.3) (0.8) -- --
---- ---- ----
Net income (loss)(6) $ (1.7) $ 39.9 $ 47.0 $ 27.4 $ 25.1 $ 10.0 $ 16.6
OTHER DATA:
EBITDA (unaudited)(7) $ 9.0 $ 93.6 $ 90.9 $ 83.8 $114.2 $ 28.6 $ 35.7
EBITDA margin (unaudited)(8) 14.2% 31.4% 27.4% 25.0% 24.8% 25.1% 29.7%
Net Cash provided by (used in):
Operating activities 9.9 91.1 69.4 71.3 68.8 5.4 27.9
Investing activities (56.4) (58.3) (65.5) (161.2) (90.4) (47.1) (8.4)
Financing activities 65.0 14.2 9.7 59.4 57.1 38.9 (56.2)
Capital expenditures $ 65.7 $ 19.0 $ 58.8 $ 215.6 $ 46.6 $ 25.4 $ 6.1
Ratio of earnings to fixed 1.0x 3.6x 2.6x 1.7x 1.6x 2.0x 2.6x
charges(9)
</TABLE>
- 36 -
<PAGE> 42
<TABLE>
<CAPTION>
AT DECEMBER 31, AT MARCH 31,
----------------------------------------------------------------------------
1994 1995 1996 1997 1998 1998 1999
---- ---- ---- ---- ---- ---- ----
(IN MILLIONS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents(10) $18.6 $96.9 $121.4 $48.7 $84.1 $46.0 $47.4
Total assets 145.5 300.1 377.6 511.6 560.4 532.4 526.0
Total debt(11) 125.0 197.6 232.7 313.3 388.8 356.8 372.7
Redeemable Ownership -- 18.4 24.9 51.6 53.7 53.0 54.9
Liability
Members' equity 3.6 52.7 79.8 64.6 71.1 68.8 47.0
</TABLE>
- ---------------------
(1) Horseshoe Bossier City opened on July 9, 1994.
(2) Horseshoe Tunica opened on February 13, 1995.
(3) Preopening costs incurred during the expansion and development of
existing casino properties are expensed as incurred.
(4) Horseshoe Bossier City's new casino facility replaced the Queen of the
Red. The Queen of the Red, along with related gaming equipment, is
included in assets held for sale. During the year ended December 31,
1998, we recorded a charge of approximately $12.9 million to adjust
the carrying value of the Queen of the Red to our estimate of its net
realizable value.
(5) We own less than 100% of certain subsidiaries. Minority interest
represents the share of each subsidiary's income attributable to those
interests not owned by us as well as the 1994 gain on sale of land by
RPG of $5.2 million distributed to some, but not all, of our members.
(6) Horseshoe Gaming is organized as a limited liability company under
Delaware law. Accordingly, no provision is made in its accounts for
federal income taxes, as such taxes are the liabilities of its
members.
(7) EBITDA is calculated by adding to operating income: depreciation and
amortization and non-cash items. Non-cash items such as asset
write-downs and deferred compensation, including, in millions: $1.5,
$6.3, $4.3, $15.1 and $4.2 in 1994, 1995, 1996, 1997 and 1998,
respectively, and $0.5 and $1.4 for the quarters ended March 31, 1999
and 1998, respectively, are not included in EBITDA as these items do
not impact operating results on a recurring basis. We consider EBITDA
to be a widely accepted financial indicator of a company's ability to
service debt, fund capital expenditures and expand its business;
however, EBITDA is not calculated in the same way by all companies and
is neither a measure required, nor represents cash flow from
operations as defined, by generally accepted accounting principles.
EBITDA should not be considered by an investor as an alternative to
net income, as an indicator of operating performance or as an
alternative to cash flow as a measure of liquidity. The calculation of
EBITDA for purposes of the financial information presented herein is
calculated differently than for purposes of the covenants under our
indentures.
- 37 -
<PAGE> 43
(8) EBITDA margin is calculated by dividing EBITDA by net revenue.
(9) For purposes of computing the ratio of earnings to fixed charges,
earnings include net income (loss) before minority interests plus
fixed charges. Fixed charges consist of interest expense, plus amounts
capitalized, a portion of rental expense, deemed by management to be
representative of the interest factor of rental payments, and
amortization of debt issuance costs.
(10) Includes escrow funds, restricted for expansion of existing
facilities, development of new projects or repayment of debt,
amounting to $42.2 million and $31.3 million as of December 31, 1996
and 1995, respectively.
(11) Includes deferred interest payable on notes to affiliates of $2.5
million as of December 31, 1994.
- 38 -
<PAGE> 44
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements are
based upon and should be read in conjunction with Empress' and our historical
consolidated financial statements.
The unaudited pro forma combined financial statements are being
provided in connection with our exchange offer of the original notes for the
new notes. The proceeds from the offering of the original notes are being used
to facilitate the Empress merger and related transactions, the Refinancing
Transactions and the Ownership Transactions.
The unaudited pro forma combined statements of operations for the
quarter ended March 31, 1999 and year ended December 31, 1998 and the unaudited
pro forma combined balance sheet as of March 31, 1999 present the combined
effect for the transactions listed above. The effects on the statements of
operations are presented as if all such transactions were consummated on the
first day of the period presented. The effects on the pro forma combined
balance sheet are presented as if all such transactions occurred on March 31,
1999.
The unaudited pro forma combined statements of operations do not
reflect any adjustments for cost savings that may be realized as a result of
combining our operations with Empress' operations following the Empress
merger.
The unaudited pro forma combined financial statements have been
prepared based upon currently available information and assumptions that we
have deemed appropriate. This pro forma information may not be indicative of
what actual results would have been, nor does such data purport to represent
our combined financial results and Empress' combined financial results for
future periods.
- 39 -
<PAGE> 45
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
QUARTER ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
PRO FORMA FOR
THE OWNERSHIP,
PRO FORMA FOR THE EMPRESS REFINANCING AND
HISTORICAL OWNERSHIP REFINANCING OWNERSHIP AND HISTORICAL MERGER EMPRESS MERGER
HORSESHOE ADJUSTMENTS ADJUSTMENTS REFINANCING ADJUSTMENTS EMPRESS ADJUSTMENTS ADJUSTMENTS
--------- ----------- ----------- ----------------------- ------- ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Revenue Casino $112.7 $ -- -- $112.7 $ 98.9 $ -- $211.6
Food and Beverage 13.0 -- -- 13.0 7.2 -- 20.2
Hotel 8.8 -- -- 8.8 0.4 -- 9.2
Retail and Other 3.1 -- -- 3.1 1.4 -- 4.5
------ ------ ------ ------
137.6 -- -- 137.6 107.9 -- 245.5
Promotional 17.4 -- -- 17.4 3.3 -- 20.7
------ ------ ------ ------
Allowances
Total Net Revenues 120.2 -- -- 120.2 104.6 -- 224.8
------ ------ ------ ------
Operating Expenses:
Casino 60.7 -- -- 60.7 51.2 -- 111.9
Food and Beverage 4.4 -- -- 4.4 6.5 -- 10.9
Hotel 2.6 -- -- 2.6 0.3 -- 2.9
Retail and Other 2.5 -- -- 2.5 1.0 -- 3.5
General and 12.6 -- -- 12.6 15.3 -- 27.9
Administrative
Depreciation and
Amortization 8.6 1.9(a) -- 10.5 5.5 4.6(e) 21.6
1.0(m)
Preopening -- -- -- -- -- -- --
Development -- -- -- -- -- -- --
Total Operating Expenses 91.4 1.9 -- 93.3 79.8 5.6 178.7
------ ----- -- ------ ------ ----- -----
Operating Profit
Before Corporate
Expenses and Asset 28.8 (1.9) -- 26.9 24.8 (5.6) 46.1
Write-Down
Corporate 2.2 -- -- 2.2 1.4 -- 3.6
Expenses
Asset Write-Down -- -- -- -- -- -- --
Operating Income 26.6 (1.9) -- 24.7 23.4 (5.6) 42.5
Interest Expense (10.3) -- 6.4(c) (3.9) (7.5) 2.3(f) (9.1)
Interest Expense--
New Subordinated Debt -- -- (6.1)(c) (6.1) -- (7.2)(g) (13.3)
Interest Income 0.6 -- -- 0.6 2.3 (2.2)(j) 0.7
</TABLE>
- 40 -
<PAGE> 46
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
State Taxes -- -- -- -- (0.1) -- (0.1)
Minority Interest
in Income of
Subsidiary (0.3) 0.3(a) -- -- -- -- --
Other, net -- -- -- -- -- -- --
Income From Continuing
Operations $16.6 $(1.6) $0.3 $15.3 $18.1 $(12.7) $20.7
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements.
- 41 -
<PAGE> 47
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
PRO FORMA FOR
PRO FORMA FOR THE OWNERSHIP,
THE OWNERSHIP EMPRESS REFINANCING AND
HISTORICAL OWNERSHIP REFINANCING AND REFINANCING HISTORICAL MERGER EMPRESS MERGER
HORSESHOE ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS EMPRESS ADJUSTMENTS ADJUSTMENTS
--------- ----------- ----------- ----------- ------- ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues
Casino $429.8 $ -- $ -- $429.8 $373.0 $ -- $802.8
Food and Beverage 48.3 -- -- 48.3 27.9 -- 76.2
Hotel 35.4 -- -- 35.4 1.6 -- 37.0
Retail and Other 10.0 -- -- 10.0 5.5 -- 15.5
------ ------ ------ ----
523.5 -- -- 523.5 408.0 -- 931.5
Less: Promotional
Allowances 62.3 -- -- 62.3 11.3 -- 73.6
------ ------ ------ ----
Total Net Revenues 461.2 -- -- 461.2 396.7 -- 857.9
------ ------ ------ -----
Operating Expenses
Casino 245.2 -- -- 245.2 194.0 -- 439.2
Food and Beverage 16.0 -- -- 16.0 26.0 -- 42.0
Hotel 11.8 -- -- 11.8 1.0 -- 12.8
Retail and Other 6.9 -- -- 6.9 3.2 -- 10.1
General and 57.2 -- -- 57.2 70.5 -- 127.7
Administrative
Depreciation and
Amortization 33.9 7.6(a) -- 41.5 21.1 18.5(e) 85.1
4.0(m)
Preopening 0.7 -- -- 0.7 -- -- 0.7
Development 0.5 -- -- 0.5 -- -- 0.5
------ ------ ---
Total Operating
Expenses 372.2 7.6 -- 379.8 315.8 22.5 718.1
------ ----- ----- ------ ------ ----- ------
Operating Profit
Before
Corporate Expenses and 89.0 (7.6) -- 81.4 80.9 (22.5) 139.8
Asset Write-Down
Corporate Expenses 12.9 -- -- 12.9 -- -- 12.9
Asset Write-Down 12.9 -- -- 12.9 -- -- 12.9
------ ------ ----
Operating Income 63.2 (7.6) -- 55.6 80.9 (22.5) 114.0
Interest Expense (39.9) -- 24.3(c) (15.6) (25.6) 4.8(f) (36.4)
Interest Expense--
New Subordinated
Debt -- -- (24.6)(c) (24.6) -- (29.0)(g) (53.6)
</TABLE>
- 42 -
<PAGE> 48
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Income 2.2 -- -- 2.2 6.7 (4.8)(j) 4.1
State Taxes -- -- -- -- (0.4) -- (0.4)
Minority Interest in
Loss of Subsidiary 0.6 (0.6)(a) -- -- -- -- --
Other, net (0.2) -- -- (0.2) -- -- (0.2)
---- ---- ----
Income From Continuing
Operations $25.9 $(8.2) $(0.3) $17.4 $61.6 $(51.5) $27.5
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements.
- 43 -
<PAGE> 49
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
MARCH 31, 1999
<TABLE>
<CAPTION>
PRO FORMA FOR
PRO FORMA FOR THE OWNERSHIP,
THE OWNERSHIP REFINANCING
AND EMPRESS AND EMPRESS
HISTORICAL OWNERSHIP REFINANCING REFINANCING HISTORICAL MERGER MERGER
HORSESHOE ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS EMPRESS ADJUSTMENTS ADJUSTMENTS
--------- ----------- ----------- ----------- ------- ----------- -----------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash & Cash Equivalents $ 47.4 $(2.1)(a) $ 28.7(d) $64.4 $36.9 $(42.7)(h) $55.4
(9.3)(b) (0.3)(d) (0.1)(i)
(3.1)(l)
Secured Proceeds Account -- -- 17.3(d) 17.3 -- (17.3)(h) --
Account Receivable, Net . . . 8.8 -- -- 8.8 3.3 -- 12.1
Inventories . . . . . . . . . 2.5 -- -- 2.5 -- -- 2.5
Prepaid Expenses and Other . 8.9 -- -- 8.9 2.7 -- 11.6
Restricted cash held for -- -- -- -- 166.1 (166.1)(j) --
defeasance . . . . . . .
---- ------ ----- ----- ----- ---------- -------
Total Current Assets . . . 67.6 (11.4) 45.7 101.9 209.0 (229.3) 81.6
---- ------ ----- ----- ----- ---------- -------
Net Property and Equipment . 373.4 0.4(a) -- 373.8 190.5 4.9 (e) 569.2
OTHER ASSETS:
Goodwill, net . . . . . . . . 35.9 16.0(a) -- 51.9 -- 388.5(e) 440.4
Investment in Unconsolidated
Subsidiary . . . . . . . -- -- -- -- 10.7 (10.7)(i) --
Asset Held for Sale(o) . . . 12.0 -- -- 12.0 -- -- 12.0
Other . . . . . . . . . . . . 37.1 10.0(a) 5.3(d) 56.4 19.7 16.4(k) 109.4
15.0(e)
4.0(a) (10.0)(h)
(2.1)(j)
(6.0)(l)
20.0(m)
---- ------ ----- ----- ----- ---------- -------
$526.0 $ 19.0 $ 51.0 $596.0 $429.9 $186.7 $1,212.6
====== ====== ====== ====== ====== ====== ========
CURRENT LIABILITIES:
Accounts Payable . . . . . . $ 7.8 $ -- $ -- $7.8 $4.3 $(0.1)(i) $12.0
Accrued Expenses . . . . . . 41.1 4.1(a) -- 45.2 24.5 (0.8)(i) 72.9
4.0 (m)
Interest Payable . . . . . . 4.7 -- (0.3)(d) 4.4 11.2 (0.1)(i) 4.3
(3.1)(l)
(8.1)(j)
Current Portion of
Long-Term Debt: . . . . . . -- -- -- -- 150.0 (150.0)(j) --
---- ------ ----- ----- ----- ---------- -------
</TABLE>
- 44 -
<PAGE> 50
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Total Current Liabilities 53.6 4.1 (0.3) 57.4 190.0 (158.2) 89.2
Long-Term Debt (Net of
Current Portion): . . . . . 372.7 14.1(b) 61.2(d) 448.0 150.0 418.8(l) 1,016.8
16.5 (16.5)(i)
Long-Term Accrued Expenses . -- 22.0(a) -- 22.0 -- 16.0(m) 38.0
Redeemable Ownership Interest 54.9 -- -- 54.9 -- -- 54.9
Commitments and
Contingencies(p) . . . . . .
Minority Interest (2.2) 2.2 -- -- -- -- --
Members'/Stockholders' Equity: 47.0 (23.4)(b) (9.9)(d) 13.7 73.4 (70.0)(n) 13.7
(10.1)(j)
6.7(i)
----- ----- ----- ------ ------ ------ --------
$526.0 $19.0 $51.0 $596.0 $429.9 $186.7 $1,212.6
====== ===== ===== ====== ====== ====== ========
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements.
- 45 -
<PAGE> 51
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
OWNERSHIP ADJUSTMENTS
(a) Reflects the effects of the repurchase of 8.08% of
limited partnership interests in HE for $30.4
million. The purchase price was allocated as
follows: $16.0 million to goodwill to be amortized
over 25 years, $10.0 million to a non-compete
agreement to be amortized over 2 years, $4.0 million
to another asset for release of claims and consent to
be amortized over 2 years and $0.4 million to the
write-up of the existing riverboat to be depreciated
over 15 years. Payment for the purchase was made as
follows: (i) the credit of $2.2 million to the
minority interest holders' capital account, which was
a deficit, (ii) an accrued liability to be paid over
three years, $4.1 million of which is current and
$22.0 million of which is long-term, and (iii) the
use of $2.1 million in cash to make the initial
payment due upon execution of the agreement to
repurchase. For the year ended December 31, 1998, and
for the quarter ended March 31, 1999, the increase in
amortization expense is comprised of $0.6 million and
$0.2 million, respectively, for amortization of
goodwill and $7.0 million and $1.7 million,
respectively, for amortization of non-compete and
release of claims and consent. Adjustment also
includes the removal of $0.3 million of minority
interest income for the three months ended March 31,
1999 and $0.6 million of minority interest expense
for the year ended December 31, 1998.
(b) Records the purchase of approximately 1.07% of
ownership interests in Horseshoe Gaming for $5.7
million to facilitate our formation as a Subchapter S
corporation under the Internal Revenue Code of 1986,
as amended, and the purchase of approximately 3.2% of
ownership interests in us for $17.7 million as a
condition of our anticipated licensing in Illinois.
REFINANCING ADJUSTMENTS
(c) Reflects the changes in interest expense, including
amortization of related deferred financing charges
and original issue discount arising from the issuance
of $275.0 million principal amount of notes, the
non-redeemable portion used to effect the Refinancing
Transactions, and the use of such proceeds to paydown
Horseshoe Gaming's $130.0 million existing credit
facility, of which $85.0 million was outstanding on
March 31, 1999, and to retire the senior notes, of
which $128.6 million was outstanding on March 31,
1999.
(d) Reflects the effects of the issuance of $275.0
million principal amount of notes, the non-redeemable
portion, less $1.0 million original issue discount
pursuant to this offering and the estimated use of
such proceeds to retire Horseshoe Gaming's $128.6
million of senior notes and repay its $85.0 million
existing credit facility. As a result, long-term debt
will increase by $61.2 million, adjusted for $0.8
million of unamortized discount on the retired notes.
The $60.4 million of remaining proceeds will be used
to pay $7.6 million of transactions fees in
connection with the refinancing; $6.8 million in
tender premium and consent fees on the senior notes;
$14.0 million of accrued interest and $3.3 million of
redemption premium on $325.0 million principal amount
of notes, the redeemable portion to be used to effect
the Empress merger
- 46 -
<PAGE> 52
and related transactions, the latter two of which are
to be deposited into the secured proceeds account;
and $28.7 million for general corporate purposes.
The secured proceeds account, as reflected, does not
include $325.0 million principal amount of notes, the
redeemable portion, which are also deposited therein.
In connection with the Refinancing Transactions,
unamortized deferred financing charges will increase
by a net amount of $5.3 million due to the $7.6
million associated with the non-redeemable portion of
the notes and due to the write-off of $1.2 million
associated with the senior notes and $1.1 million
associated with Horseshoe Gaming's existing credit
facility.
The $0.3 million accrued interest associated with
payment of the credit facility has been reflected as
paid from cash and a reduction of interest payable.
Also in connection with the Refinancing Transactions,
$6.8 million in tender premiums and consent fees on
the senior notes, $2.3 million write-off of
unamortized deferred finance charges and $0.8 million
write-off of unamortized discount on the senior notes
are recorded as an extraordinary item and reflected
as a change in members'/stockholders' equity.
EMPRESS MERGER ADJUSTMENTS
(e) Reflects estimated expense for the amortization of
the excess of the purchase price paid over the fair
value of the assets acquired, $16.3 million for the
year ended December 31, 1998 and $4.1 million for the
quarter ended March 31, 1999, respectively. The
following table sets forth the purchase price of
Empress and the preliminary allocation as of March
31, 1999:
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
Purchase Price:
Initial purchase price $609.0
Working capital adjustment 11.9
Tender premium for the Empress notes 1.5
---
$622.4
======
Preliminary Allocation:
Working capital $11.9
Land 17.1
Buildings, riverboats, furniture, fixtures 178.3
and equipment
Other long-term assets 26.6
======
Subtotal (fair value of net assets acquired) 233.9
Goodwill (excess of purchase price over
fair value of assets acquired) 388.5
======
$622.4
======
</TABLE>
- 47 -
<PAGE> 53
We are currently in the process of allocating the
purchase price among the tangible and intangible
assets to be acquired and the liabilities to be
assumed. We estimate the value of other acquired
intangibles included in other long-term assets are
$10 million for trademarks and $5 million for
customer lists, amortized over 5 years. The final
purchase price and its allocation will be based on
independent appraisals, discounted cash flows, quoted
market prices and estimates by management which are
expected to be completed within one year following
the Empress merger. Upon completion of the purchase
price allocation process, to the extent the purchase
price exceeds the fair value of the net identifiable
tangible and intangible assets acquired, such excess
will be allocated to goodwill and amortized over
approximately twenty-five (25) years.
(f) Reflects the net change in interest expense from the
anticipated borrowing of approximately $245.0 million
under our new credit facility, the repurchase of
$150.0 million of Empress notes, the repayment of
Empress' $100.0 million credit facility, of which
$16.5 million was outstanding on March 31, 1999, and
the elimination of interest for the $150.0 million of
10 3/4% senior notes of Empress retired on April 1,
1999 (note (j)). The pro forma effects of such
borrowings on interest expense have been computed at
a rate of 7 3/4% on our new credit facility. Each
1/8% change in the rate on these borrowings would
result in a change in interest expense of $308,000
for the year ended December 31, 1998 and $77,000 for
the quarter ended March 31, 1999.
(g) Reflects the increase in interest expense, including
amortization of related deferred financing charges
and original issue discount arising from the issuance
of $325.0 million principal amount of notes, the
redeemable portion, to consummate the Empress merger
and related transactions.
(h) Following is the estimated sources and uses of funds
necessary to consummate the Empress merger:
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C> <C>
Sources of Funds:
Proceeds from issuance of redeemable portion of $323.8
notes
New credit facility borrowings 245.0
Additional funds in secured proceeds account 17.3
Working capital 42.7
Empress merger deposit 10.0
----
Total sources $638.8
======
Uses of Funds:
Repurchase Empress notes $150.0
Premium on Empress notes 1.5
Financing fees 16.4
----
Subtotal $167.9
Net cash to be paid for the purchase of Empress:
Purchase price $609.0
Less: Empress notes (150.0)
Plus: Working capital 11.9
-------
Net cash to be paid to Empress 470.9
-----
Total uses $638.8
======
</TABLE>
(i) Reflects reductions for assets and liabilities, which
are not included in our purchase of Empress.
- 48 -
<PAGE> 54
(j) Removes from the historical combined balance sheet of
Empress, the balance of $150.0 million 10 3/4% senior
notes, the related $2.1 million unamortized deferred
finance charges, $8.1 million accrued interest and
$166.1 million of trust assets set-aside for
retirement. Also removes interest income on the trust
assets of $2.2 million for the three months ended
March 31, 1999 and $4.8 million for the year ended
December 31, 1998. This retirement resulted in a
$10.1 million charge to members'/stockholders' equity
for net assets not acquired.
(k) Reflects the increase of $16.4 million in deferred
finance charges related to our new credit facility,
of which $245.0 million has been reflected as
outstanding, and $325.0 million of notes, the
redeemable portion.
(l) Reflects the net increase in long-term debt from
$245.0 million to be drawn under our new credit
facility and $325.0 million principal amount of
notes, the redeemable portion, less $1.2 million of
original issue discount. In addition to providing
funds for the purchase of Empress, the proceeds from
the redeemable portion of the notes will be used in
part to repurchase the $150.0 million of Empress
notes. Adjustments also include the removal of $6.0
million in unamortized deferred finance charges and
$3.1 million of accrued interest relating to the
repurchase of the Empress notes.
(m) On July 23, 1999, we entered into a consulting
agreement Empress to provide us with a wide range of
consulting and advisory services in connection with
operating casinos in the greater Chicago market and,
in particular, expecting in full the opportunities
presented to Empress Joliet as a result of the
legislation which now permits dockside gaming. In
consideration for the consulting and advisory
services to be provided and in recognition of the
economic benefits to us of maintaining dockside
gaming, we will pay Empress a monthly consulting fee
of $333,333 for a period of five years, the total of
all such payments not to exceed $20,000,000. The
consulting payments will not commence until the
closing of the Empress merger and will be suspended
during any period during which Empress Joliet is
prohibited from conducting dockside gaming
activities. All consulting payments will be
accelerated if we undergo a change in control.
(n) Reflects the elimination necessary for the
consolidation of Empress based on the allocation of
the purchase price. The $70.0 million adjustment is
comprised of Empress' historical equity of $73.4
million, plus equity adjustments of $6.7 million for
the net liabilities not acquired (note (i)) less a
$10.1 million charge to members'/stockholders' equity
for the retirement of debt (note (j)).
(o) During the second quarter of 1999, the Company
recorded an additional $8.0 million charge to adjust
the carrying value of the Queen of the Red to its
estimated net realized value. This additional charge
was made to reflect the current market conditions for
idle riverboats.
(p) As a condition to its license in Indiana, Empress
Hammond made various financial and other commitments
to the City of Hammond, Indiana and other Indiana
governmental bodies pursuant to a Hammond Riverboat
Gaming Project Development Agreement. These
commitments will continue following the Empress
merger. As of March 31, 1999, approximately $23.3
million of such commitments remained outstanding
primarily for commercial development, residential
development and the construction of a hotel. While
Empress is on track with respect to its residential
commitments, Empress is currently in discussions with
the City of Hammond regarding plans for a hotel,
construction of which was required to commence in
1996. Empress is also in discussions with the City of
Hammond regarding its commercial commitment. In
addition, under the terms of the development
agreement, Empress Hammond is required to make annual
payments of approximately $1.3 million for public
safety services and other uses and an annual payment
based on a varying percentage of Empress Hammond's
adjusted gross receipts.
- 49 -
<PAGE> 55
THE EXCHANGE OFFER
BACKGROUND
We sold the original notes on May 11, 1999, in a transaction exempt
from the registration requirements of the Securities Act. The initial
purchasers of the original notes subsequently resold the notes to qualified
institutional buyers in reliance on Rule 144A and under Regulation S under the
Securities Act. As of the date of this prospectus, $600.0 million aggregate
principal amount of original notes are outstanding.
We entered into a registration rights agreement with the initial
purchasers of the original notes under which we agreed that we would, at our
own cost,
- file an exchange offer registration statement under the
Securities Act within 60 days after May 11, 1999, the original
issue date of the original notes,
- use our best efforts to cause the exchange offer registration
statement to become effective under the Securities Act at the
earliest possible time, but no later than 180 days following
May 11, 1999, and
- upon the effectiveness of the exchange offer registration
statement to consummate the exchange offer within 30 business
days.
The summary in this prospectus of provisions of the registration
rights agreement is subject to, and is qualified by, all the provisions of
the registration rights agreement, a copy of which is filed as an exhibit to
the registration statement of which this prospectus is a part.
RESALE OF THE NEW NOTES
Based on no-action letters issued by the staff of the SEC to third
parties, we believe that a holder of original notes, but not a holder who is an
affiliate of us within the meaning of Rule 405 of the Securities Act, who
exchanges original notes for new notes in the exchange offer, generally may
offer the new notes for resale, sell the new notes and otherwise transfer the
new notes without further registration under the Securities Act and without
delivery of a prospectus that satisfies the requirements of Section 10 of the
Securities Act. This does not apply, however, to a holder who is an affiliate
of us within the meaning of Rule 405 of the Securities Act. We also believe
that a holder may offer, sell or transfer the new notes only if the holder
acquires the new notes in the ordinary course of its business and is not
participating, does not intend to participate and has no arrangement or
understanding with any person to participate in a distribution of the new
notes.
Any holder of original notes using the exchange offer to participate
in a distribution of new notes cannot rely on the no-action letters referred to
above. This includes a broker-dealer that acquired original notes directly from
us, but not as a result of market-making activities or other trading
activities. Consequently, the holder must comply with the registration and
prospectus delivery requirements of the Securities Act in the absence of an
exemption from such requirements.
Each broker-dealer that receives new notes for its own account in
exchange for original notes, where such original notes were acquired by the
broker-dealer as a result of market-making activities or other trading
activities may be a statutory underwriter and must acknowledge that it will
deliver a prospectus meeting the requirements of the Securities Act in
connection with the resale of new notes received in exchange for original
notes. The letter of transmittal which accompanies this prospectus states that
by so acknowledging and by delivering a prospectus, a participating
broker-dealer will not be deemed to admit that it is an underwriter within the
meaning of the Securities Act. A participating broker-dealer may use this
prospectus, as it may be amended from time to time, in connection with resales
of new notes it receives in exchange for original notes in the exchange offer.
We will make this prospectus available to any participating broker-dealer in
connection with any resale of this kind for a period of one
- 51 -
<PAGE> 56
year after the deadline for consummation of the exchange offer or such shorter
period as will terminate when all original notes have been sold pursuant to the
exchange offer registration statement. See "Plan of Distribution".
Each holder of the original notes who wishes to exchange original
notes for new notes in the exchange offer will be required to represent and
acknowledge, for the holder and for each beneficial owner of such original
notes, whether or not the beneficial owner is the holder, in the letter of
transmittal that:
- the new notes to be acquired by the holder and each beneficial
owner, if any, are being acquired in the ordinary course of
business,
- neither the holder nor any beneficial owner is an affiliate,
as defined in Rule 405 of the Securities Act, of us or any of
our subsidiaries,
- any person participating in the exchange offer with the
intention or purpose of distributing new notes received in
exchange for original notes, including a broker-dealer that
acquired original notes directly from us, but not as a result
of market-making activities or other trading activities cannot
rely on the no-action letters referenced above and must comply
with the registration and prospectus delivery requirements of
the Securities Act, in connection with a secondary resale of
the new notes acquired by such person,
- if the holder is not a broker-dealer, the holder and each
beneficial owner, if any, are not participating, do not intend
to participate and have no arrangement or understanding with
any person to participate in any distribution of the new notes
received in exchange for original notes, and
- if the holder is a broker-dealer that will receive new notes
for the holder's own account in exchange for original notes,
the original notes to be so exchanged were acquired by the
holder as a result of market-making or other trading
activities and the holder will deliver a prospectus meeting
the requirements of the Securities Act in connection with any
resale of such new notes received in the exchange offer.
However, by so representing and acknowledging and by
delivering a prospectus, the holder will not be deemed to
admit that it is an underwriter within the meaning of the
Securities Act.
SHELF REGISTRATION STATEMENT
If applicable law or interpretations of the staff of the SEC are
changed so that the new notes received by holders who make all of the above
representations in the letter of transmittal are not or would not be, upon
receipt, transferrable by each such holder without restriction under the
Securities Act, we will, at our cost:
- file a shelf registration statement covering resales of the
original notes within the time period specified in the
registration rights agreement,
- use our best efforts to cause the shelf registration statement
to be declared effective under the Securities Act on or prior
to 60 days after the filing deadline for the shelf
registration statement, and
- use our best efforts to keep effective the shelf registration
statement until the earlier of three years after May 11, 1999,
or the time when all of the applicable original notes have
been sold pursuant to the shelf registration statement or
otherwise cease to be a transfer restricted security in
accordance with the registration rights agreement.
We will, if and when we file the shelf registration statement, provide
to each holder of the original notes copies of the prospectus which is a part
of the shelf registration statement, notify each holder when the shelf
registration statement has become effective and take other actions as are
required to permit unrestricted resales of
- 52 -
<PAGE> 57
the original notes. A holder that sells original notes pursuant to the shelf
registration statement generally must be named as a selling security-holder in
the related prospectus and must deliver a prospectus to purchasers, will be
subject to civil liability provisions under the Securities Act in connection
with these sales and will be bound by the provisions of the registration rights
agreement which are applicable to the holder, including certain indemnification
obligations. In addition, each holder of original notes must deliver
information to be used in connection with the shelf registration statement and
provide comments on the shelf registration statement in order to have its
original notes included in the shelf registration statement and benefit from
the provisions regarding any liquidated damages described below.
LIQUIDATED DAMAGES
If:
(a) the exchange offer registration statement or the
shelf registration statement described above is not
filed with the SEC on or before the date specified
for such filing;
(b) any such registration statement is not declared
effective by the SEC on or prior to the date
specified for such effectiveness, or the
Effectiveness Target Date;
(c) the exchange offer has not been consummated on or
prior to the date specified for such consummation, or
the Consummation Date;
(d) any such registration statement is filed and declared
effective but thereafter ceases to be effective or
fails to be usable in connection with resales of
notes during the period specified in the registration
rights agreement, each such event referred to in
clauses (a) through (d) above a "Registration
Default";
then we will pay liquidated damages to each holder of the original notes, with
respect to the first 90-day period immediately following the occurrence of such
Registration Default, additional interest in an amount equal to $.05 per week
per $1,000 principal amount of the original notes held by such holder. Upon a
Registration Default, liquidated damages will accrue at the rate specified
above until such Registration Default is cured and the amount of liquidated
damages will increase by an additional $.05 per week per $1,000 principal
amount of original notes with respect to each subsequent 90-day period until
all Registration Defaults have been cured, up to a maximum amount of
liquidated damages of $.35 per week per $1,000 principal amount of original
notes, provided that we shall in no event be required to pay liquidated
damages for more than one Registration Default at any given time.
Notwithstanding anything to the contrary set forth herein:
- upon the filing of the exchange offer registration statement
and/or, if applicable, the shelf registration statement, in
the case of (a) above;
- upon the effectiveness of the exchange offer registration
statement and/or, if applicable, the shelf registration
statement, in the case of (b) above;
- upon consummation of the exchange offer, in the case of (c)
above; or
- upon the filing of a post-effective amendment to the
registration statement or an additional registration statement
that causes the exchange offer registration statement and/or,
if applicable, the shelf registration statement, to again be
declared effective or made usable in the case of (d) above,
the liquidated damages payable with respect to the original
notes as a result of such clauses (a), (b), (c) or (d), as
applicable, shall cease.
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We will pay any accrued liquidated damages on May 15 and November 15
of each year to the holders of original notes by wire transfer of immediately
available funds or by mailing checks to their registered addresses if no such
accounts have been specified.
TERMS OF THE EXCHANGE OFFER
Upon the exchange offer registration statement being declared
effective, we will offer the new notes in exchange for surrender of the
original notes. We will keep the exchange offer open for at least 20 business
days, or longer if required by applicable law.
Upon the terms and subject to the conditions contained in this
prospectus and in the letter of transmittal which accompanies this prospectus,
we will accept any and all original notes validly tendered and not withdrawn
before 5:00 p.m., New York City time, on the expiration date of the exchange
offer. We will issue an equal principal amount of new notes in exchange for the
principal amount of original notes accepted in the exchange offer. Holders may
tender some or all of their original notes under the exchange offer. Original
notes may be tendered only in integral multiples of $1,000.
The form and terms of the new notes will be the same as the form and
terms of the original notes except that:
- the new notes will have been registered under the Securities
Act and therefore will not bear legends restricting their
transfer; and
- the new notes will not contain certain terms providing for an
increase in the interest rate on the original notes under
specific circumstances which are described in the registration
rights agreement.
The new notes will evidence the same debt as the original notes and
will be entitled to the benefits of the indenture governing the original notes.
In connection with the exchange offer, holders of original notes do
not have any appraisal or dissenters' rights under law or the indenture
governing the original notes. We intend to conduct the exchange offer in
accordance with the applicable requirements of the Exchange Act and the rules
and regulations of the SEC related to such offers.
We shall be deemed to have accepted validly tendered original notes
when, as and if we have given oral or written notice of acceptance to U.S.
Trust Company, National Association, exchange agent for the exchange offer. The
exchange agent will act as agent for the tendering holders for the purpose of
receiving the new notes from us.
If any tendered original notes are not accepted for exchange because
of an:
- invalid tender;
- the occurrence of certain other events specified in this
prospectus; or
- if original notes are submitted for a greater principal
amount;
than the holder desires to exchange, the certificates for the unaccepted
original notes will be returned without expense to the tendering holder. If
original notes were tendered by book-entry transfer in the exchange agent
account at The Depository Trust Company in accordance with the book-entry
transfer procedures described below, these non-exchanged original notes will be
credited to an account maintained with The Depositary Trust Company as promptly
as practicable after the expiration date of the exchange offer.
We will pay all charges and expenses, other than transfer taxes in
certain circumstances, in connection with the exchange offer. See the heading
"Fees and Expenses." Holders who tender original notes in the exchange offer
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<PAGE> 59
will therefore not need to pay brokerage commissions or fees or, subject to the
instructions in the letter of transmittal, transfer taxes with respect to the
exchange of original notes in the exchange offer.
Expiration Date; Extensions; Amendments
The expiration date of the exchange offer is 5:00 p.m., New York City
time, on ,___________, 1999, unless we, in our reasonable discretion, extend
the exchange offer, in which case the expiration date shall be the latest date
and time to which the exchange offer is extended.
In order to extend the exchange offer, we will notify the exchange
agent of any extension by oral or written notice and will make a public
announcement of the extension before 9:00 a.m., New York City time, on the next
business day after the previously scheduled expiration date.
We reserve the right, in our reasonable discretion:
- to delay accepting any original notes, to extend the exchange
offer or to terminate the exchange offer if, in our reasonable
judgement, any of the conditions described below under
"Conditions" shall not have been satisfied, by giving oral or
written notice of the delay, extension or termination to the
exchange agent; or
- to amend the terms of the exchange offer in any manner.
We will promptly announce any such event making a timely release and
may or may not do so by other means as well.
PROCEDURES FOR TENDERING
You may tender your own original notes in the exchange offer. To
tender in the exchange offer, a holder must do the following:
- complete, sign and date the letter of transmittal, or a
facsimile of the letter of transmittal;
- have the signatures thereon guaranteed if required by the
letter of transmittal; and
- except as discussed under the heading "Guaranteed Delivery
Procedures," mail or otherwise deliver the letter of
transmittal, or facsimile, together with the original notes
and any other required documents, to the exchange agent prior
to 5:00 p.m., New York City time, on the expiration date of
the exchange offer.
The exchange agent must receive the original notes, a completed letter
of transmittal and all other required documents at the address listed below
under "Exchange Agent" before 5:00 p.m., New York City time, on the expiration
date for the tender to be effective. You may deliver your original notes by
using the book-entry transfer procedures described below, as long as the
exchange agent receives confirmation of the book-entry transfer before the
expiration date.
The Depository Trust Company has authorized its participants that hold
original notes on behalf of beneficial owners of original notes through The
Depository Trust Company to tender their original notes as if they were
holders. To effect a tender of original notes, The Depository Trust Company
participants should either:
- complete and sign the letter of transmittal, or a manually
signed facsimile of the letter, have the signature thereon
guaranteed if required by the instructions to the letter of
transmittal, and mail or deliver the letter of transmittal, or
the manually signed facsimile, to the exchange agent according
to the procedure described under the heading "Procedures for
Tendering" in the letter of transmittal; or
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<PAGE> 60
- transmit their acceptance to The Depository Trust Company
through its automated tender offer program for which the
transaction will be eligible and follow the procedure for
book-entry transfer as described under the heading "Book-Entry
Transfer."
By tendering, each holder will make the representations contained in
the fourth paragraph above under the heading "Resale of the New Notes." Each
participating broker-dealer must acknowledge that it will deliver a prospectus
in connection with any resale of such new notes. See the section entitled "Plan
of Distribution."
The tender by a holder and the acceptance of the tender by us will
constitute the agreement between the holder and us set forth in this prospectus
and in the letter of transmittal.
The method of delivery of original notes and the letter of transmittal
and all other required documents to the exchange agent is at the election and
sole risk of the holder. As an alternative to delivery by mail, holders may
wish to consider overnight or hand delivery service. In all cases, holders
should allow sufficient time to assure delivery to the exchange agent before
the expiration date. No letter of transmittal or original notes or book-entry
confirmation should be sent to us. Holders may request their respective
brokers, dealers, commercial banks, trust companies or nominees to effect the
above transactions on their behalf.
Any beneficial owner whose original notes are registered in the name
of a broker, dealer, commercial bank, trust company or other nominee and who
wishes to tender should contact the registered holder promptly and instruct it
to tender on the beneficial owner's behalf. See "Instructions to Registered
Holder from Beneficial Owner" included with the letter of transmittal. If the
beneficial owner wishes to tender on his own behalf, such owner must, prior to
completing and executing the letter of transmittal and delivering such
beneficial owner's original notes, either make appropriate arrangements to
register ownership of the original notes in such owner's name or obtain a
properly completed bond power from the registered holder. The transfer of
registered ownership may take considerable time.
Signatures on a letter of transmittal or a notice of withdrawal must
be guaranteed by an eligible guarantor institution, within the meaning of Rule
17A d-5 under the Exchange Act, unless the original notes are tendered:
- by a registered holder of such original notes; or
- for the account of an eligible institution, such as a bank,
broker, dealer, credit union, savings association, clearing
agency or other institution that is a member of a recognized
signature medallion program.
If signatures on a letter of transmittal or a notice of withdrawal, as
the case may be, are required to be guaranteed, the guarantee must be by a
member firm of a registered national securities exchange or of the National
Association of Securities Dealers, Inc., a commercial bank or trust company
having an office or correspondent in the United States or an eligible
institution.
If a letter of transmittal is signed by a person other than the
registered holder of any original notes listed in the letter of transmittal,
the original notes must be endorsed or accompanied by a properly completed bond
power and signed by the registered holder as the registered holder's name
appears on the original notes.
If a letter of transmittal or any original notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and unless waived by
us, evidence satisfactory to us of their authority to so act must be submitted
with the letter of transmittal.
Promptly after the date of this prospectus, the exchange agent will
establish a new account or utilize an existing account with respect to the
original notes at the book-entry transfer facility, The Depository Trust
Company, or DTC, for the purpose of facilitating the exchange offer. Subject to
the establishment of the account,
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<PAGE> 61
any financial institution that is a participant in the book-entry transfer
facility's system may make book-entry delivery of original notes by causing the
book-entry transfer facility to transfer the original notes into the exchange
agent's account with respect to the original notes in accordance with that
facility's procedures. Although delivery of the original notes may be effected
through book-entry transfer into the exchange agent's account at the book-entry
transfer facility, an appropriate letter of transmittal properly completed and
duly executed or an agent's message with any required signature guarantee and
all other required documents must, in any case be delivered to the exchange
agent at its address listed below on or before the expiration date of the
exchange offer, or, if the guaranteed delivery procedures described below are
complied with, within the time period provided under such procedures. Delivery
of documents to the book-entry transfer facility does not constitute delivery
to the exchange agent.
The term "agent's message" means a message transmitted by The
Depositary Trust Company to, and received by, the exchange agent, which states
that The Depository Trust Company has received an express acknowledgment from
the participant in The Depository Trust Company tendering the original notes
stating:
- the aggregate principal amount of original notes which have
been tendered by such participant;
- that such participant has received and agrees to be bound by
the term of the letter of transmittal; and
- that we may enforce such agreement against the participant.
All questions as to the validity, form, eligibility, including time of
receipt, acceptance of tendered original notes and withdrawal of tendered
original notes will be determined by us in our sole discretion, which
determination will be final and binding. We reserve the absolute right to
reject any and all original notes not properly tendered or any original notes
our acceptance of which would, in the opinion of counsel for us, be unlawful.
We also reserve the right to waive any defects, irregularities or conditions of
tender as to particular original notes. Our interpretation of the terms and
conditions of the exchange offer, including the instructions in the letter of
transmittal, will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of original notes must be
cured within a period of time that we shall determine.
Neither we, the exchange agent nor any other person shall incur any
liability for failure to give notice of any defect or irregularity with respect
to any tender of original notes. Tenders of original notes will not be deemed
to have been made until such defects or irregularities mentioned above have
been cured or waived. Any original notes received by the exchange agent that
are not properly tendered and as to which the defects or irregularities have
not been cured or waived will be returned by the exchange agent to the
tendering holders, unless otherwise provided in the letter of transmittal, as
soon as practicable following the expiration date of the exchange offer.
GUARANTEED DELIVERY PROCEDURES
A holder who wishes to tender its original notes and:
- whose original notes are not immediately available;
- who cannot deliver the holder's original notes, the letter of
transmittal or any other required documents to the exchange
agent prior to the expiration date; or
- who cannot complete the procedures for book-entry transfer,
before the expiration date;
may effect a tender if:
- the tender is made through an eligible institution;
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<PAGE> 62
- before the expiration date, the exchange agent receives from
the eligible institution, a properly completed and duly
executed notice of guaranteed delivery by facsimile
transmission, mail or hand delivery, the name and address of
the holder, the certificate number(s) of the original notes
and the principal amount of original notes tendered, stating
that the tender is being made thereby and guaranteeing that,
within three New York Stock Exchange trading days after the
expiration date, the letter of transmittal, or facsimiles
thereof, together with the certificate(s) representing the
original notes, or a confirmation of book-entry transfer of
the original notes into the exchange agent's account at the
book-entry transfer facility, and any other documents required
by the letter of transmittal will be deposited by the eligible
guarantor institution with the exchange agent; and
- the exchange agent receives, within three New York Stock
Exchange trading days after the expiration date, a properly
completed and executed letter of transmittal or facsimile, as
well as the certificate(s) representing all tendered original
notes in proper form for transfer or a confirmation of
book-entry transfer of such original notes into the exchange
agent's account at the book-entry transfer facility, and all
other documents required by the letter of transmittal.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, tenders of original
notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on
the expiration date of the exchange offer.
To withdraw a tender of original notes in the exchange offer, a letter
or facsimile transmission notice of withdrawal must be received by the exchange
agent at its address set forth below prior to 5:00 p.m., New York City time, on
the expiration date. Any notice of withdrawal must:
- specify the name of the person having deposited the original
notes to be withdrawn;
- identify the original notes to be withdrawn including the
certificate number(s) and principal amount of such original
notes or, in the case of original notes transferred by
book-entry transfer, the name and number of the account at the
book-entry transfer facility to be credited and otherwise
comply with the procedures of the transfer agent;
- be signed by the holder in the same manner as the original
signature on the letter of transmittal by which the original
notes were tendered, including any required signature
guarantees, or be accompanied by documents of transfer
sufficient to have the trustee under the indenture governing
the original notes register the transfer of the original notes
into the name of the person withdrawing the tender; and
- specify the name in which any such original notes are to be
registered, if different from that of the person who deposited
the notes.
If certificates for original notes have been delivered or otherwise
identified to the exchange agent, then, before the release of the certificates,
the withdrawing holder must also submit the serial numbers of the particular
certificates to be withdrawn and a signed notice of withdrawal with signatures
guaranteed by an eligible guarantor institution unless the holder is an
eligible guarantor institution.
All questions as to the validity, form and eligibility, including time
of receipt, of such notices will be determined by us, and such determination
shall be final and binding on all parties. Any original notes so withdrawn will
be deemed not to have been validly tendered for purposes of the exchange offer,
and no new notes will be issued, unless the original notes so withdrawn are
validly retendered. Any original notes which have been tendered but which are
not accepted for exchange will be returned to the holder without cost to the
holder as soon as practicable after withdrawal, rejection of tender or
termination of the exchange offer. Properly withdrawn original
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<PAGE> 63
notes may be retendered by following one of the procedures described above
under the heading "Procedures for Tendering" at any time before the expiration
date.
CONDITIONS
Despite any other term of the exchange offer, we are not required to
accept for exchange, or exchange new notes for, any original notes and may
terminate the exchange offer as provided in this prospectus before the
acceptance of the original notes, if:
- any action or proceeding is instituted or threatened in any
court or by or before any governmental agency with respect to
the exchange offer which, in our reasonable judgment, might
materially impair our ability to proceed with the exchange
offer or materially impair the contemplated benefits of the
exchange offer to us, or any material adverse development has
occurred in any existing action or proceeding with respect to
us or any of its subsidiaries;
- any change, or any development involving a prospective change,
in our business or financial affairs or of any of our
subsidiaries has occurred which, in our reasonable judgment,
might materially impair our ability to proceed with the
exchange offer or materially impair the contemplated benefits
of the exchange offer to us;
- any governmental approval, including approvals of relevant
gaming authorities, has not been obtained, which approval we
shall, in our reasonable discretion, deem necessary for the
consummation for the exchange offer as contemplated by this
prospectus;
- there shall have been proposed, adopted or enacted any law,
statute, rule or regulation, or an amendment to any existing
law, statute, rule or regulation, which, in our sole judgment,
might materially impair our ability to proceed with the
exchange offer or have a material adverse effect on the
contemplated benefits of the exchange offer to us;
- there shall occur a change in the current interpretation by
the staff of the SEC which permits the new notes issued
pursuant to the exchange offer in exchange for original notes
to be offered for resale, resold and otherwise transferred by
holders thereof, other than any such holder that is an
"affiliate" of us within the meaning of Rule 405 under the
Securities Act, without compliance with the registration and
prospectus delivery provisions of the Securities Act provided
that such new notes are acquired in the ordinary course of
such holders' business and such holder have no arrangement
with any person to participate in the distribution of such new
notes; or
- there shall have occurred:
- any general suspension of, shortening of hours for,
or limitation on prices for, trading in securities on any national securities
exchange or in the over-the-counter market, whether or not mandatory;
- any limitation by any governmental agency or
authority which may adversely affect our ability to complete the transactions
contemplated by the exchange offer;
- a declaration of a banking moratorium or any
suspension of payments in respect of banks by Federal or state authorities in
the United States, whether or not mandatory;
- a commencement of a war, armed hostilities or other
international or national crisis directly or indirectly involving the United
States;
- any limitation, whether or not mandatory, by any
governmental authority on, or other event having a reasonable likelihood of
affecting, the extension of credit by banks or other lending institutions in
the United States; or
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<PAGE> 64
- in the case of any of the foregoing existing at the
time of the commencement of the exchange offer, a material acceleration or
worsening thereof.
The conditions listed above are for our sole benefit and may be
asserted by us regardless of the circumstances giving rise to any of these
conditions. We may waive these conditions in our reasonable discretion in whole
or in part at any time and from time to time. The failure by us at any time to
exercise any of the above rights shall not be deemed a waiver of such right and
such right shall be deemed an ongoing right which may be asserted at any time
and from time to time. If we determine in our reasonable discretion that any
of the conditions are not satisfied, we may:
- refuse to accept any original notes and return all tendered
original notes to the tendering holders;
- extend the exchange offer and retain all original notes
tendered before the expiration of the exchange offer, subject,
however, to the rights of holders to withdraw these original
notes, See the heading "Withdrawal of Tenders" above; or
- waive unsatisfied conditions with respect to the exchange
offer and accept all properly tendered original notes which
have not been withdrawn. If this waiver constitutes a material
change to the exchange offer, we will promptly disclose the
waiver by means of a prospectus supplement that will be
distributed to the registered holders. We will also extend the
exchange offer for a period of five to ten business days,
depending upon the significance of the waiver and the manner
of disclosure to the registered holders, if the exchange offer
would otherwise expire during such five to ten business day
period.
EXCHANGE AGENT
U.S. Trust Company, National Association has been appointed as
exchange agent for the exchange offer. Questions and requests for assistance
and requests for additional copies of this prospectus or of the letter of
transmittal should be directed to U.S. Trust Company, National Association
addressed as follows:
<TABLE>
<S> <C>
By Registered or Certified Mail: By Overnight Courier:
U.S. Trust Company, National Association U.S. Trust Company, National Association
c/o United States Trust Company of New York c/o United States Trust Company of New York
P.O. Box 841 770 Broadway, 13th Floor
Peter Cooper Station New York, New York 10003
New York, New York 10276-0841 Attention: Corporate Trust Operations
By Hand: By Facsimile:
U.S. Trust Company, National Association (212) 420-6211
c/o United States Trust Company of New York Attention: Customer Service
111 Broadway, Lower Level
New York, New York 10006-1906 Confirm by telephone:
Attention: Corporate Trust Operations (800) 225-2398
</TABLE>
U.S. Trust Company, National Association also acts as trustee under
the indenture governing the notes.
FEES AND EXPENSES
We will bear the expenses of soliciting tenders. We have not retained
any dealer-manager in connection with the exchange offer and will not make any
payments to brokers, dealers or others soliciting acceptances of the exchange
offer. We, however, will pay the exchange agent reasonable and customary fees
for its services and will reimburse it for its reasonable out-of-pocket
expenses in connection with providing its services.
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The expenses to be incurred in connection with the exchange offer will
be paid by us. Such expenses include fees and expenses of U.S. Trust Company,
National Association as exchange agent and as trustee under the indenture
governing the notes, accounting and legal fees and printing costs, among
others.
ACCOUNTING TREATMENT
The new notes will be recorded at the same carrying value as the
original notes as reflected in our accounting records on the date of exchange.
Accordingly, no gain or loss for accounting purposes will be recognized by us.
The expenses of the exchange offer and the unamortized expenses related to the
issuance of the original notes will be amortized over the term of the notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of original notes who are eligible to participate in the
exchange offer but who do not tender their original notes will not have any
further registration rights, and their original notes will continue to be
subject to restrictions on transfer. Accordingly, such original notes may be
resold only:
- to us, upon redemption of these notes or otherwise;
- so long as the original notes are eligible for resale pursuant
to Rule 144A under the Securities Act, to a person inside the
United States whom the seller reasonably believes is a
qualified institutional buyer within the meaning of Rule 144A
in a transaction meeting the requirements of Rule 144A;
- in accordance with Rule 144 under the Securities Act, or under
another exemption from the registration requirements of the
Securities Act, and based upon an opinion of counsel
reasonably acceptable to us;
- outside the United States to a foreign person in a transaction
meeting the requirements of Rule 904 under the Securities Act;
or
- under to an effective registration statement under the
Securities Act, in each case in accordance with any applicable
securities laws of any state of the United States.
REGULATORY APPROVALS
We do not believe that the receipt of any material federal or state
regulatory approval will be necessary in connection with the exchange offer,
other than the effectiveness of the exchange offer registration statement under
the Securities Act.
APPRAISAL RIGHTS
Holders of original notes will not have dissenters' rights or
appraisal rights in connection with the exchange offer.
OTHER
Participation in the exchange offer is voluntary and holders of
original notes should carefully consider whether to accept the terms and
condition of this offer. Holders of the original notes are urged to consult
their financial and tax advisors in making their own decisions on what action
to take with respect to the exchange offer.
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<PAGE> 66
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information which we
believe is relevant to an assessment and understanding of our consolidated
financial condition and results of operations. We were formed in April 1999 and
are a holding company and, therefore, the historical results of operations
presented represent the operations of Horseshoe Gaming. The membership
interests of Horseshoe Gaming and the capital stock of Horseshoe Gaming, Inc.,
or HGI, represent our only assets. You should read the following discussion in
conjunction with the consolidated financial statements and notes thereto
contained elsewhere in this prospectus.
INTRODUCTION
Horseshoe Bossier City, which is owned by HE, commenced operations
on July 9, 1994, and Horseshoe Tunica, which is owned by RPG, commenced
operations on February 13, 1995. Effective October 1, 1995, Mr. Binion and
certain related and unrelated parties transferred their ownership interests in
HE and RPG to Horseshoe Gaming in exchange for ownership interests in Horseshoe
Gaming, or the Roll-Up Transaction.
As a result of the Roll-Up Transaction, Horseshoe Gaming owned 89% of
HE, 100% of RPG, and 80% of Horseshoe Ventures, L.L.C., a Delaware limited
liability company that was formed to pursue casino development opportunities in
new jurisdictions. As of December 31, 1995, Horseshoe Gaming acquired an
additional 2.92% ownership interest in HE and, in April 1999, we exercised our
option to repurchase the remainder of the ownership interest in HE not owned by
NGCP, a wholly-owned subsidiary of Horseshoe Gaming and the general partner of
HE. Our consolidated financial statements include the assets, liabilities,
revenues and expenses for all entities included in the Roll-Up Transaction, as
if such entities were our subsidiaries for all periods presented.
Results of Operations Overview
Results of operations include the consolidated results of Horseshoe
Gaming's two owned properties, Horseshoe Tunica and Horseshoe Bossier City.
Horseshoe Tunica competes with nine other casinos in the competitive Tunica
County, Mississippi market. In December 1997, Horseshoe Tunica completed a
significant expansion of its facilities. Several of the other existing Tunica
casinos have also substantially expanded their gaming facilities, including
constructing additional hotel rooms. The impact on operating margins from the
overall increase in supply to this market is uncertain.
Horseshoe Bossier City is one of four riverboat casinos currently
operating in the Bossier City/Shreveport, Louisiana market. The Louisiana
Gaming Control Board recently granted approval to transfer the license for a
New Orleans casino, which is now closed, to a new proposed facility to be
located adjacent to an existing competitor's facility in Shreveport, which is
expected to open for business in 2000. The Louisiana legislature has also
passed a law authorizing slot machines at the horse racing track in Shreveport,
although when, and if, slot operations will actually begin at the track is
uncertain. In January 1998, Horseshoe Bossier City completed a major expansion
project. The impact on operating margins from the overall increase in supply
to this market is uncertain.
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OPERATIONS
Three Months Ended March 31, 1999 and 1998
Net revenues for the quarter ended March 31, 1999 were $120.2 million
as compared to $113.9 million for the quarter ended March 31, 1998. Operating
income for the quarter ended March 31, 1999 was $26.6 million compared to
$19.3 million for the quarter ended March 31, 1998. The operating income
margin increased in the quarter ended March 31, 1999 to 22.1% of net revenues
from 16.9% for the comparable 1998 period. The 1999 period includes a full
quarter of operations in the newly expanded facility at Horseshoe Bossier City,
whereas the 1998 period included only two months of operations in the newly
expanded facility.
Horseshoe Tunica
Horseshoe Tunica contributed net revenues of $59.5 million for the
quarter ended March 31, 1999 and $55.6 million for the quarter ended March 31,
1998. The increase in net revenues is primarily due to an increase in slot
volume.
Horseshoe Tunica's net revenues include casino revenues and non-casino
revenues of $57.2 million and $2.3 million, respectively, for the quarter ended
March 31, 1999 and $53.3 million and $2.3 million, respectively, for the
quarter ended March 31, 1998. Casino revenue per day increased approximately
7.3% in the quarter ended March 31, 1999 to $635,000 from $592,000 for the
comparable 1998 period.
The increase of $1.4 million in promotional allowances for the quarter
ended March 31, 1999 compared to the prior year period is primarily due to an
increase in the volume of complimentary food, beverage and hotel rooms provided
to guests as an incentive to come to Horseshoe Tunica.
Horseshoe Tunica's operating income for the quarter ended March 31,
1999 was $15.1 million compared to $13.1 million for the quarter ended March
31, 1998. The increase in operating income of $2.0 million is primarily due to
an increase in slot volume. The operating income margin increased from 23.5%
of net revenues for the quarter ended March 31, 1998 to 25.4% for the quarter
ended March 31, 1999. The increase of 1.9 percentage points in the margin is
primarily due to a 0.9 percentage point reduction in allocated corporate
expenses.
Horseshoe Bossier City
Horseshoe Bossier City contributed net revenues of $60.7 million for
the quarter ended March 31, 1999 and $58.3 million for the quarter ended March
31, 1998. The increase in net revenues is primarily due to a full quarter of
operations in the newly expanded facility during 1999, whereas the 1998 period
included only two months of operations in the newly expanded facility at
Horseshoe Bossier City which caused an increase in slot volume that contributed
approximately $3.1 million to the increase in net revenues. The increase in
slot volume was partially offset by a reduction in table games win percentage
of approximately $1.1 million. Horseshoe Bossier City's net revenues include
casino revenues and non-casino revenues of $55.5 million and $5.2 million,
respectively, for the quarter ended March 31, 1999 and $53.5 million and $4.7
million, respectively, for the quarter ended March 31, 1998. Casino revenue per
day increased approximately 3.7% in the quarter ended March 31, 1999 to
$617,000 from $595,000 for the comparable 1998 period.
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The increase of $1.6 million in promotional allowances for the quarter
ended March 31, 1999 compared to the prior year period is primarily due to an
increase in the volume of complimentary food, beverage and hotel rooms provided
to guests.
Horseshoe Bossier City's operating income for the quarter ended March
31, 1999 was $10.4 million, compared to $6.4, million for the quarter ended
March 31, 1998. The operating income margin increased to 17.1% of net revenues
in 1999 from 11.0% in 1998. The increase in operating income of $4.0 million
and operating income margin of 6.1 percentage points is primarily due to an
increase in net revenues. Operating income and the corresponding margin in the
1998 period also included additional promotional expenses related to the
opening of the newly expanded facility of approximately $1.1 million, or 2.0
percentage points. The 1998 period also includes approximately $0.7 million,
or 1.1 percentage points of pre-opening expenses incurred to develop and expand
the facility. Allocated corporate expenses decreased approximately $0.5
million or 1.1 percentage points in the 1999 period compared to 1998.
Other Factors Affecting Earnings
Corporate expenses decreased approximately $0.7 million during 1999
primarily due to the reduction in the amount of non-cash deferred compensation
expense.
Net interest increased approximately $0.4 million primarily due to the
amount of debt outstanding during the three months ended March 31, 1999 as
compared to 1998.
Net income increased to $16.6 million for the three months ended March
31, 1999 as compared to $10.0 million for the comparable period in 1998. The
increase in net income is primarily due to the increases in operating income at
our properties as discussed above.
Years Ended December 31, 1998 and 1997
Net revenues for the year ended December 31, 1998 were $461.2 million
compared to $335.1 million for the year ended December 31, 1997. Operating
income increased to $63.2 million for the year ended December 31, 1998 from
$49.3 million for the year ended December 31, 1997. The operating income margin
decreased in 1998 to 13.7% of net revenues from 14.7% for the 1997 period. The
increase in net revenues and operating income occurred as a result of an
increase in gaming capacity from the expansions that occurred at both Horseshoe
Tunica and Horseshoe Bossier City.
Horseshoe Tunica
Horseshoe Tunica contributed net revenues of $221.8 million and
$167.2 million for the year ended December 31, 1997.
Horseshoe Tunica's net revenues included casino revenues and
non-casino revenues of $212.0 million and $9.8 million, respectively, for the
year ended December 31, 1998 and $161.3 million and $5.9 million, respectively,
for the year ended December 31, 1997. The increase in net revenues for the year
ended December 31, 1998 compared to the prior year was primarily due to
increases in slot revenue of approximately $43.3 million and table games
revenue of approximately $7.4 million as a result of the recently completed
expansion. Net revenues in 1998 were also affected by lower than anticipated
win percentages in table games and slots which slightly offset the growth in
revenues by
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approximately $7.0 million and $3.8 million, respectively. Casino revenue per
day increased approximately 31% in the year ended December 31, 1998 to $581,000
from $442,000 in the prior year.
The increase to $29.7 million in promotional allowances for the year
ended December 31, 1998 compared to $14.3 million for the prior year was
partially due to an increase in the pricing structure of non-casino services of
approximately $5.0 million. The recently completed expansion of the property,
including the addition and/or upgrading of restaurants and hotel
accommodations, provided us with an opportunity to increase the retail cost of
hotel and food prices. The $10.4 million remaining increase was caused by an
increase in overall volume, primarily in hotel rooms and entertainment.
Operating income was $44.7 million for the year ended December 31,
1998 compared to $34.3 million for the year ended December 31, 1997. The
operating income margin was 20.2% of net revenues for 1998 compared to 20.5%
for 1997.
Operating income increased by $10.4 million in 1998 as compared to
1997. This increase was caused primarily by the expansion of the facility
during 1997. In addition, the 1997 period includes pre-opening expenses of
$1.1 million not present in 1998 and $4.7 million in additional corporate
expenses. The 1998 period reflects an increase in bad debt expenses of $4.6
million and an increase of $6.5 million in depreciation and amortization due
to the expansion of the facility. Operating income for 1998 was also affected
by the operation of our new entertainment facility which contributed
approximately $4.2 million to the decrease.
Horseshoe Bossier City
Horseshoe Bossier City contributed net revenues of $239.4 million
for the year ended December 31, 1998 and $167.9 million for the year ended
December 31, 1997. The increase in net revenues for the year ended December 31,
1998 compared to the prior year was primarily due to the recently completed
expansion at such property. Horseshoe Bossier City's net revenues include
casino revenues and non-casino revenues of $217.8 million and $21.6 million,
respectively, for the year ended December 31, 1998 and $160.0 million and $7.9
million, respectively, for the year ended December 31, 1997. Casino revenue per
day increased approximately 36% in the year ended December 31, 1998 to $597,000
from $438,000 in the prior year.
The increase to $32.7 million in promotional allowances for the year
ended December 31, 1998 compared to $14.9 million for the prior year was
partially due to an increase in the pricing structure of non-casino services of
approximately $6.0 million. The recently completed expansion of the property,
including the addition and/or upgrading of restaurants and hotel
accommodations, provided us with an opportunity to increase the retail cost of
hotel and food prices. The $11.8 million remaining increase was caused by an
increase in overall volume of promotional allowances, primarily in hotel rooms.
Operating income was $19.3 million for the year ended December 31,
1998 compared to $16.7 million for the year ended December 31, 1997. The
operating income margin was 8.1% of net revenues for 1998 compared to 9.9% for
1997.
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Operating income increased by $2.6 million in 1998 as compared to
1997. Operating income for 1998 includes an asset write-down charge of $12.9
million as more fully discussed below. The 1998 period reflects an increase of
$8.0 million in depreciation and amortization due to the expansion of the
facility. In addition, the 1997 period includes $1.8 million in pre-opening
expenses, whereas the 1998 period only includes $0.7 million. The 1997 period
also includes $4.7 million additional corporate expenses.
Horseshoe Bossier City's new riverboat casino facility replaced the
existing riverboat casino facility, the "Queen of the Red." The Queen of the
Red, along with related gaming equipment, is included in assets held for sale
in the Consolidated Condensed Balance Sheets at December 31, 1998. During the
year ended December 31, 1998, we recorded a charge of $12.9 million to adjust
the carrying value of the Queen of the Red to our estimate of its net
realizable value. We are continuing to review various options for use of the
Queen of the Red, including a sale.
Other Factors Affecting Earnings
Corporate expenses decreased approximately $9.5 million during 1998
primarily due to a reduction in non-cash compensation expense. The non-cash
compensation expense is recorded to reflect the increased value of redeemable
ownership interests in us based on an independent appraisal. For more details,
see the heading "Liquidity and Capital Resources -- Ownership Repurchase
Matters."
The increase of $21.9 million in net interest expense for the year
ended December 31, 1998 compared with the year ended December 31, 1997 is
primarily due to the increase in debt outstanding in 1998 and the
capitalization of interest in 1997. Approximately $11.2 million of
construction period interest related to the expansion programs at Horseshoe
Tunica and Horseshoe Bossier City was capitalized in the year ended December
31, 1997. Total debt outstanding increased to $388.8 million as of December 31,
1998 from $313.3 million as of December 31, 1997. The increased borrowings were
necessary to fund a major portion of the construction, as well as our
subsequent purchase of outstanding warrants which closed in January 1999. For
more details, see the heading "Liquidity and Capital Resources."
During 1998, we purchased $8.4 million in 12.75% senior notes in the
open market. An extraordinary loss of $0.8 million was recognized for
prepayment penalties, premium and write-off of unamortized discounts and
deferred finance charges. The 1997 period includes an extraordinary loss of
$5.2 million from the refinancing of certain indebtedness as more fully
described below.
Net income declined in 1998 to $25.1 million from $27.4 million in
1998, or 8.4%. The decline in net income is due to the factors discussed above.
Years Ended December 31, 1997 and 1996
Net revenues for the year ended December 31, 1997 were $335.1 million
compared to $331.7 million for the year ended December 31, 1996. The overall
increase in net revenues of $3.4 million was primarily attributable to a $3.8
million increase in casino revenues. Horseshoe Bossier City reported a decrease
in casino revenues of $6.8 million, whereas Horseshoe Tunica reported an
increase of $10.6 million over 1996.
Operating income for the year ended December 31, 1997 was $49.3
million compared to $70.6 million for the year ended December 31, 1996. The
operating income margin decreased in 1997 to 14.7% of net revenues from 21.3%
for the 1996 period.
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Horseshoe Tunica
Horseshoe Tunica contributed net revenues of $167.2 million for the
year ended December 31, 1997 and $156.9 million for the year ended December
31, 1996. The increase in net revenues for the year ended December 31, 1997
compared to the prior year was primarily due to an increase in slot machine
revenue of 10.8%. Horseshoe Tunica's net revenues include casino revenues and
non-casino revenues of $161.3 million and $5.9 million, respectively, for the
year ended December 31, 1997 and $150.7 million and $6.2 million, respectively,
for the year ended December 31, 1996. Casino revenue per day increased
approximately 7.3% for the year ended December 31, 1997 to $442,000 from
$412,000 for the prior year despite disruption related to the property's
expansion project.
Operating income was $34.3 million for the year ended December 31,
1997 compared to $44.6 million for the year ended December 31, 1996. The
operating income margin was 20.5% of net revenues for 1997 compared to 28.4%
for 1996.
Operating income decreased $10.3 million, 23.1%, and the margin
decreased 7.9 percentage points in 1997 as compared to 1996. The reduction
was primarily caused by an increase in bad debt expenses of $2.5 million, 1.4
percentage points, an increase in depreciation and amortization expense due to
the expansion of the casino facility of $1.7 million, 0.8 percentage points,
and an increase in allocated corporate expense of $7.0 million, 4.0 percentage
points. The 1997 period also includes pre-opening expenses from the expansion
of the facility not present in 1996 of $1.1 million, 0.7 percentage points, as
well as an increase in promotional and direct marketing expenses of $1.8
million, 0.6 percentage points.
Horseshoe Bossier City
Horseshoe Bossier City contributed net revenues of $167.9 million
for the year ended December 31, 1997 and $174.8 million for the year ended
December 31, 1996. The decrease in net revenues for the year ended December 31,
1997 compared to the prior year was primarily due to a 2.8% decrease in slot
machine volume, as well as a decrease in win percentages in slots of
approximately $2.7 million and table games of approximately $1.4 million.
Horseshoe Bossier City's net revenues include casino revenues and non-casino
revenues of $160.0 million and $7.9 million, respectively, for the year ended
December 31, 1997 and $166.8 million and $8.1 million, respectively, for the
year ended December 31, 1996. Casino revenue per day decreased approximately
3.9% for the year ended December 31, 1997 to $438,000 from $456,000 for the
prior year. The reduction in total casino volume occurred as a result of
increased competition in the Bossier City/Shreveport market as well as the
ongoing development and expansion of the entire operating facility.
Operating income was $16.7 million for the year ended December 31,
1997 compared to $32.2 million for the year ended December 31, 1996. The
operating income margin was 9.9% of net revenues for 1997 compared to 18.4% for
1996. Operating income declined $15.5 million, or 8.5 percentage points in
1997 as compared to
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1996. The reduction was mainly caused by a decrease in gaming revenues of $6.8
million, an increase in depreciation and amortization from property
improvements of $1.7 million, 1.2 percentage points, an increase in allocated
corporate expenses of $6.5 million, 4.0 percentage points, and pre-opening
expenses of $1.8 million, 1.1 percentage points, not present in 1996.
Other Factors Affecting Earnings
Development expenses, which are included in operating income, were
$1.7 million and $6.6 million, respectively, for the years ended December 31,
1997 and 1996. The 1996 period includes expenses associated with our failure to
obtain a license to conduct gaming in the State of Indiana.
Corporate expenses increased approximately $12.2 million during 1997
primarily due to the $10.8 million increase in non-cash charge to compensation
expense to reflect the increased value of redeemable ownership interests in
Horseshoe Gaming. For more details, see the heading "Liquidity and Capital
Resources -- Ownership Repurchase Matters."
Interest expense declined approximately $7.3 million in 1997 as
compared to 1996 principally as a result of the capitalization of interest
expense related to Horseshoe Tunica and Horseshoe Bossier City expansion
projects. Total interest capitalized for the years ended December 31, 1997 and
1996 was $11.2 and $1.3 million, respectively.
In November 1997, Horseshoe Gaming completed the exchange offering of
its $160.0 million of 9 3/8% Senior Subordinated Notes due 2007 for publicly
registered notes with substantially identical terms. Proceeds from the original
offering of notes in a private placement in June 1997 were used to extinguish
certain of our borrowings and fund a portion of the expansion of our existing
facilities. An extraordinary loss of approximately $5.2 million was recognized
in the second quarter in conjunction with the debt redemption.
Net income declined $19.6 million, 41.7%, in 1997 as compared to 1996
due to the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
On May 11, 1999, we issued $600 million of our original notes. The
proceeds from such issuance were used to refinance Horseshoe Gaming's 12 3/4%
senior notes and refinance Horseshoe Gaming's $130 million credit facility, of
which $75 million was outstanding as of May 11, 1999. $342.3 million of such
proceeds was placed in a secured proceeds account. The secured proceeds
account was pledged to the trustee to secure our obligations under the notes
and the indenture, including our obligation to redeem a portion of the notes at
101% of their principal amount if: (a) we fail to consummate the Empress
merger for any reason by December 1, 1999; (b) we determine that the Empress
merger will not be completed by that date; (c) more than $75.0 million of the
$150.0 million of Empress' 8 1/8% senior subordinated notes due 2006, or
Empress notes, remain outstanding after we consummate a change of control offer
to purchase the Empress notes, or Empress change of control offer; or (d) we
fail to timely consummate the Empress change of control offer.
Liquidity
Net cash provided by operating activities was $27.9 million and $5.4
million for the three months ended March 31, 1999 and 1998, respectively, and
$68.8 million, $71.3 million and $69.4 million for the years ended December 31,
1998, 1997 and 1996, respectively. The increase in operating cash flow from
the first quarter of 1999 compared to the first quarter of 1998 is due mainly
to the 1998 period reflecting a $15.0 million payment for accrued dividends.
Capital Spending and Financing
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Net cash used in investing activities was $8.4 million and $47.1
million for the three months ended March 31, 1999 and 1998, respectively, and
$90.4 million, $161.2 million and $65.5 million, for the years ended December
31, 1998, 1997 and 1996, respectively. Cash flows from investing activities
include expenditures for normal capital replacement and expansion projects.
The fluctuations in investing cash flows for all periods presented are mainly
due to the expansion projects recently completed in Horseshoe Tunica and
Horseshoe Bossier City.
Net cash (used in) provided by financing activities was $(56.2)
million and $38.9 million for the three months ended March 31, 1999 and 1998,
respectively, and $57.1 million, $59.4 million and $9.7 million for the years
ended December 31, 1998, 1997 and 1996, respectively. Two factors caused the
fluctuation in the quarters ended March 31, 1999 and 1998. First, the 1998
period includes $45.0 million in borrowings to finance expansion capital
expenditures and the 1999 period includes $34.4 million in payments to purchase
outstanding warrants. The primary reason for the fluctuations in cash flows
from financing activities in 1998, 1997 and 1996 are due to the amount of
borrowings necessary to complete our expansion projects.
Cash and cash equivalents totaled $47.4 million as of March 31, 1999.
Included in accrued expenses at March 31, 1999 is a tax distribution payable to
the owners of Horseshoe Gaming amounting to approximately $5.6 million, which
was paid in April 1999. We believe that our cash and cash equivalents on hand,
cash from operations and available borrowing capacity will be adequate to meet
our existing debt service obligations and capital expenditure commitments for
the next twelve months.
Ownership Repurchase Matters
On January 13, 1999, Horseshoe Gaming repurchased outstanding warrants
held by a third party which entitled such third party to purchase an
approximate 6.99% ownership interest in Horseshoe Gaming from its largest
shareholder, HGI, for an exercise price of $510,000. Upon acquisition,
Horseshoe Gaming exercised the warrants and retired the membership units
acquired from HGI. The total cost of the warrants, including fees, expenses and
the exercise price paid to HGI, was approximately $34.4 million, which was
recorded as a reduction in members' equity in the first quarter of 1999.
Horseshoe Gaming has employment agreements and unit option agreements
with certain employees which contain put/call options whereby, upon termination
of employment, Horseshoe Gaming must, at the election of any such employee, and
may, at Horseshoe Gaming's election, purchase such employee's ownership
interest in Horseshoe Gaming for an amount equal to the fair market value of
such interest as determined by an independent appraisal or an arbitration
process. As of March 31, 1999, the aggregate fair market value of all interests
subject to such put/call options, representing approximately 9.9% ownership of
Horseshoe Gaming, was $54.9 million based on an appraisal obtained by Horseshoe
Gaming in November 1997. Such agreements provide that the purchase price for
the employee's ownership interest shall be paid in cash, either upon transfer
of the interest to us or in installments over a period not to exceed five years
depending on the aggregate purchase price. Five former employees of Horseshoe
Gaming holding ownership interests totaling approximately 7.2% have exercised
their put/call option and one employee, holding approximately 0.5% has agreed
not to exercise his put/call option until January 1, 2001.
In May 1999, we reached an agreement in principle with the five former
employees with aggregate ownership interests in Horseshoe Gaming of 7.2% on the
valuation of their ownership interests. The agreed-upon valuation of our
company for purposes of calculating the valuation of the five former employees'
ownership interests is $470 million if the Empress merger is not consummated
and $500 million if the Empress merger is consummated. In June 1999, the
first installment of approximately $11.5 million was paid to these five former
employees with the remaining amount to be paid over a period not to exceed
four years. The notes receivable from these employees were fully paid as a
result of this transaction. The effect of the change in the estimated value
will be reflected in the second quarter 1999 financial statements.
Four current employees of Horseshoe Gaming holding ownership interests
totaling approximately 1.3% have exercised their put/call option and two
employees holding unit options have exercised their put/call
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option. In July 1999 we paid approximately $0.5 million to the two employees
holding unit options in full settlement. The four current employees will be
paid out over a period of three years, with the first installment of $2.9
million due and payable upon final agreement which will occur in the third
quarter of 1999.
Louisiana Repurchase
In April 1999, we exercised our option to acquire the remaining 8.08%
limited partnership interest in HE not held by NGCP for total consideration of
up to $30.4 million, which included payments for a non-compete covenant,
consents and a release of claims. The consideration for the repurchase
consisted of cash, payables to the former limited partners and offsets against
the negative capital account balances of the former limited partners.
EMPRESS MERGER
On September 2, 1998, we entered into an Agreement and Plan of Merger,
as amended on March 25, 1999 and July 23, 1999, to acquire the operating
subsidiaries of Empress for an estimated $609.0 million, subject to adjustment,
including assumption of $150.0 million of Empress notes. We intend to use the
funds in the secured proceeds account and amounts available under the new
credit facility in order to consummate the Empress merger. The acquisition
will be accomplished by merging two of our wholly-owned subsidiaries into the
Empress subsidiaries that own Empress Hammond and Empress Joliet. The
transactions contemplated by the merger agreement are subject to the approval
of the Mississippi Gaming Commission, the Louisiana Gaming Control Board, the
Illinois Gaming Board and the Indiana Gaming Commission. There can be no
assurance that we will be successful in obtaining such approvals. In addition,
the merger agreement provides that each party has the right to terminate the
agreement under certain circumstances, which in some instances would allow
Empress to retain a $10.0 million down payment we made towards the purchase
price as well as receive other consideration not to exceed $3.0 million. The
July 23, 1999 amendment to the Agreement and Plan of Merger extended the
closing date to December 1, 1999.
RECENT DEVELOPMENTS
Outlined below are the results that we and Empress expect to report for
the quarter ended June 30, 1999 based on preliminary unaudited data, and the
results for the comparable prior year period.
<TABLE>
<CAPTION>
HORSESHOE EMPRESS PRO FORMA COMBINED
-------------- -------------- ------------------
6 Months Ended 6 Months Ended 6 Months Ended
June 30, June 30 June 30
1998 1999 1998 1999 1998 1999
($ in millions)
<S> <C> <C> <C> <C> <C> <C>
Net Revenues ........ $225.4 $240.1 $192.7 $216.8 $418.1 $456.9
Operating Income .... 38.1 44.5 40.5 48.3 78.6 92.8
Net Income .......... 19.1 13.4 31.4 29.3 50.5 42.7
</TABLE>
OTHER ITEMS
On October 13, 1998, we were notified by Lady Luck Gaming Corporation
that it was terminating the joint venture agreement to develop a casino in
Vicksburg, Mississippi. Management of Lady Luck indicated that it was
terminating the joint venture plans because of extended legal proceedings
concerning the suitability of gaming on the nearby Big Black River.
During the second quarter of 1999, we recorded an additional $8.0
million charge to adjust the carrying value to our revised estimate of the
Queen of the Red and equipments' net realizable value. This additional charge
was made to reflect the current market conditions for idle riverboats.
CERTAIN ACCOUNTING PRONOUNCEMENTS
During the first quarter of 1998, we adopted SFAS No. 130, Reporting
Comprehensive Income. There was no impact of such adoption on our consolidated
financial statements, as total comprehensive income is the same as net income
for all periods presented.
YEAR 2000 READINESS DISCLOSURE
The Year 2000 problem is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of our
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a major system
failure or miscalculations.
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We have broken our Year 2000 compliance plan into three phases:
(1) a thorough internal review of potential system
problems and their impact on our business;
(2) the subsequent implementation of the remediation plan
formulated as a result of phase 1 and a review of the compliance of our
significant vendors and suppliers; and
(3) extensive testing of the remediation plan
implementation and extensive construction and review of contingency plans by an
internal Year 2000 task force comprised of key corporate and property
executives and personnel.
Key elements of the remediation plan generated from phase 1 included
some of the following. Our financial and human resources software packages were
upgraded to become Y2K compliant. In excess of 200 personal computers were
purchased and installed. A new network operating system and company-wide email
system was purchased and subsequently installed. Our hotel management system
was upgraded to a new version, which was Y2K compliant. All telephone call
accounting software packages were replaced with new compliant software. Our
time and attendance software and time clocks in Horseshoe Bossier City are
being replaced. Our slot accounting system in Horseshoe Tunica has been
upgraded and the one in Horseshoe Bossier City is scheduled for an upgrade.
Contingency plans are being developed and tested in phase 3.
Accordingly, we do not anticipate that any internal systems failures will have
a material impact on our financial position or results of operations. We will
continue our efforts to ensure those major third party vendors as well as
public and private providers of infrastructure services such as utilities and
communication services will be Year 2000 compliant. The failure of such
infrastructure services could result in a "worst case" scenario in which
operations relying on services like mechanical gaming devices would be
temporarily disrupted. We cannot presently estimate either the likelihood or
the potential cost of such failures. While we cannot be sure that we and our
suppliers and customers will fully resolve the Year 2000 compliance issues,
neither the estimated costs nor the outcome of
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<PAGE> 76
the Year 2000 problem is expected to have a material impact on our financial
position or results of operations.
Phase 1 has been completed; with phase 2 substantially completed, and
phase 3 to be completed by October 1, 1999. Horseshoe Gaming expects to be
fully Year 2000 compliant by October 1, 1999.
As of June 1, 1999, we had spent approximately $430,000 and estimate
additional costs of approximately $246,000 in connection with our Year 2000
compliance program. We plan to fund expenditures associated with Year 2000
compliance from working capital.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk is changes in our interest rate risk
associated with long term debt. To date, we have not held or issued derivative
financial instruments for trading purposes, and we do not enter into derivative
transactions that would be considered speculative positions. For debt
obligations, the table presents principal cash flows and related weighted
average interest rates by expected maturity dates.
<TABLE>
<CAPTION>
(Dollars in thousands)
MATURITY DATE
-------------------------------------------------------------------------------- FAIR
1999 2000 2001 2002 2003 THEREAFTER TOTAL VALUE(1)
---- ---- ---- ---- ---- ---------- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Liabilities
Long-term debt
Fixed rate $1,175 $127,681 $-- $ -- $ -- $159,863 $ 288,719 $ 304,145
Average interest rate 8.250% 12.750% -- -- -- 9.375%
Variable rate $ -- $100,000 $-- $ -- $ -- $ -- $ 100,000 $ 100,000
Average interest rate (2) -- 7.150% -- -- -- --
</TABLE>
(1) The fair values are based on the borrowing rates currently available for
debt instruments with similar terms and maturities and market quotes of our
publicly traded debt.
(2) The average interest rates were based on December 31, 1998, variable rates.
Actual rates in future periods could vary.
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BUSINESS
General
We are a leading, multi-jurisdictional gaming company with casinos
in Bossier City, Louisiana and Tunica County, Mississippi. Bossier
City/Shreveport and Tunica County are among the largest gaming markets in the
United States. We operate under the "Horseshoe" and "Binion" names which we
believe are among the most recognized names in the gaming industry. In
September 1998, we signed a definitive agreement to acquire by merger the
operating subsidiaries of Empress, which owns and operates two casinos in the
greater Chicago market, Empress Joliet and Empress Hammond. The Empress merger
is subject, among other things, to receipt of various regulatory and
governmental approvals.
BOSSIER CITY OPERATIONS
Market
The Bossier City/Shreveport gaming market is the largest in the State
of Louisiana. Approximately 16.4 million people reside within 250 miles of
Horseshoe Bossier City, including 5.3 million within the Dallas/Fort Worth
metropolitan area, a primary market for Horseshoe Bossier City. The Louisiana
Gaming Control Board has granted 14 of the 15 statutorily authorized licenses,
including licenses to four gaming facilities currently operating in the Bossier
City/Shreveport market. Approval was recently granted to relocate a fifth
license to a new proposed facility to be operated in Shreveport. While the
Louisiana gaming regulations state that riverboat casinos must cruise, the
Bossier City/Shreveport casinos were granted a legislative exemption that
allows them to operate as dockside facilities and thereby provide 24 hour
gaming.
Horseshoe Bossier City
Based on monthly reports issued by the Louisiana State Police,
Horseshoe Bossier City has the largest market share of casino revenues and
gaming positions in its market. The casino is located on an approximately
30-acre site which is highly visible and easily accessible from Interstate 20,
an east-west traffic artery connecting Bossier City/Shreveport to Dallas/Fort
Worth.
Horseshoe Bossier City is located on a new riverboat which was part
of a $204.4 million expansion completed in January 1998. The riverboat is the
only one in its market that provides an escalator to facilitate access to each
gaming floor. Before entering the gaming areas, patrons pass the famous
"Million Dollar Wall," a collection of $100 bills totaling $1 million. Just
beyond the wall is an expansive 30-foot wide entrance inviting patrons into the
gaming areas. Dramatically treated 16-foot high ceilings and a 108-foot wide
beam create a spacious gaming environment characteristic of land-based casinos.
As part of our recent expansion, the riverboat contains all new
furnishings and equipment, including 1,343 new gaming machines, 58 table games
and 11 poker tables, representing an increase in total gaming positions of
approximately 27%. Also as part of the recent expansion, we constructed a new
25-story hotel, making us the first casino operator in this market to open an
on-site hotel. The hotel building is the second tallest and most visible
building in the area and, with its prominent signage, serves as a beacon for
approaching customers. The hotel contains 606 deluxe rooms, meeting facilities,
a health club and other luxury hotel amenities. In addition, we have recently
added a new entertainment facility that provides seating for 1,300 guests and
have expanded our parking structure to include 1,000 additional spaces.
TUNICA OPERATIONS
Market
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The Tunica County, gaming market is the largest gaming market in the
State of Mississippi and the closest legalized gaming jurisdiction to the
Memphis, Tennessee metropolitan area, which is only 30 miles away. Mississippi
gaming regulations do not require riverboat casinos to cruise, thereby allowing
them to offer 24 hour gaming, and do not restrict the amount of space dedicated
to gaming.
Horseshoe Tunica
Based on monthly information received from the Tunica County casino
operators, Horseshoe Tunica generates the highest casino revenue among its
competitors. The facility is in the central location of a 70-acre, three
property complex.
As part of our $109.8 million expansion completed in December 1997, we
increased our gaming space by 50% to 45,000 square feet, increased the number
of gaming machines by 51% to 1,547, and increased the number of table games and
poker tables by 55% to 76. We also added a 14-story hotel tower with 312 deluxe
rooms, giving us a total of 507 deluxe rooms, a health club, meeting room
facilities, and a 1,100-space, four-level parking garage. In addition, we
opened a new 1,000-seat, themed entertainment facility that has hosted renowned
musical talent such as Julio Iglesias, Vince Gill, Roger Daltrey and Ringo
Starr. We also added or renovated several full-service, themed gourmet
restaurants and retail facilities.
TRADEMARK
Horseshoe License Company issued perpetual licenses to Horseshoe Club
and Horseshoe Gaming. Horseshoe Gaming received a license to use the tradename
"Horseshoe" and various other related trademarks and tradenames in the gaming
and related businesses for all jurisdictions other than Nevada and Horseshoe
Club received a license to use the tradename "Horseshoe" and various other
related trademarks and tradenames in the gaming and related businesses in
Nevada.
EMPRESS OPERATIONS
On September 2, 1998, we agreed to acquire Empress, which built the
first Chicago market casino and has established itself as a market leader
during its nearly seven years of operations. The Empress merger will provide
us with access to the Chicago casino market, allowing us to diversify our
operations beyond our southern U.S. markets.
Chicago Market
The Chicago market, which encompasses portions of both Illinois and
Indiana, consists of approximately 11.6 million people within a radius of 100
miles from downtown Chicago. The Illinois Riverboat Act authorizes ten owner's
licenses for riverboat gaming operations, four of which, including Empress
Joliet, currently serve the Chicago metropolitan area. While all of the ten
authorized gaming licenses in Illinois have been issued, one has been
suspended, and , as a result of recent amendments to the Illinois Riverboat
Gambling Act, it is likely that this license will be relocated to the Chicago
area, which could have a material adverse effect on Empress' operations. See
"Extensive Government Regulation Continuously Impacts Our Operations." Current
Indiana gaming legislation authorizes a total of five licenses to operate
riverboat casinos in northern Indiana on Lake Michigan, all of which have been
issued to casinos that are currently operating, including Empress Hammond.
Empress Joliet
Empress Joliet is located in one of the fastest growing counties in the
Chicago market. The facility features two luxury-appointed vessels and an
approximately 150,000 square foot Egyptian-themed pavilion featuring
award-winning dining facilities and a 400-seat banquet room. Empress Joliet is
supported by a three-story hotel with 80 rooms, 17 junior suites and five
king-size suites and an 80-space recreational vehicle park. Empress Joliet
provides surface parking for 2,350 cars.
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In June, 1999, amendment to the Illinois Riverboat Gambling Act
permitting dockside gambling became effective. On July 23, 1999, we entered
into a consulting agreement with Empress to provide us with a wide range of
consulting and advisory services in connection with operating casinos in the
greater Chicago market and, in particular, exploiting in full the opportunities
presented to Empress Joliet as a result of the legislation which now permits
dockside gaming. In consideration for the consulting and advisory services to
be provided and in recognition of the economic benefits to us of maintaining
dockside gaming, we will pay Empress a monthly consulting fee of $333,333 for a
period of five years, the total of all such payments not to exceed $20,000,000.
The consulting payments will not commence until the closing of the Empress
merger and will be suspended during any period during which Empress Joliet is
prohibited from conducting dockside gaming activities. All consulting payments
will be accelerated if we undergo a change in control.
Empress Hammond
Empress Hammond, the closest casino to downtown Chicago, was recently
expanded to add an additional floor to its casino. As a result, gaming space
was increased by 25%, or 7,500 square feet, with 335 new gaming machines and
nine additional table games. Empress Hammond includes an approximately
125,000-square foot mythologically-themed pavilion featuring waterfalls,
lounges, dining facilities and a 150-seat banquet room. Empress Hammond
provides parking for 1,000 cars in a multi-story parking structure and offers
1,300 additional surface parking spaces.
COMPETITION
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. Some of our
competitors are undergoing renovation or expansion, including the construction
of a 514-room hotel, and others may do so in the future, which may have an
adverse effect on our operations. The Louisiana Gaming Control Board has
recently granted approval to Hollywood Casinos and New Orleans Paddlewheels
Company to relocate the license for the New Orleans Flamingo Hilton Casino,
which is now closed, to a new proposed facility to be located adjacent to
Harrah's in Shreveport. The state has granted approval to applicants for 14 of
the 15 legislatively authorized licenses, five of which have been approved for
the northern region of the state in Bossier City/Shreveport. The Louisiana
Gaming Control Board has not granted the remaining fifteenth license. If this
license is granted, it may be located in the Bossier City/Shreveport market.
While new competition may adversely affect Horseshoe Bossier City's revenues
and operating income in the near term, we believe the expansion of Horseshoe
Bossier City and the potential addition of two riverboat casinos and slot
machines at the racetrack in the Bossier City/Shreveport market will increase
the size and scope of the overall gaming market, mitigating in the long term,
at least in part, the potential adverse impact on operations which initially
may be felt. The impact on operating margins from the overall increase in
supply to this market is uncertain. As only 15 Louisiana riverboats and one
land-based casino in New Orleans have been 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,
which would have an adverse effect on our operations.
We believe that the Bossier City/Shreveport riverboats have an
operational advantage over the other Louisiana riverboats because the Bossier
City/Shreveport riverboats do not have to cruise in minimum 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. Horseshoe Bossier City remains dockside,
allowing passengers to enter and exit as they please and enabling us to conduct
24-hour a day continuous gaming operations.
Horseshoe Tunica competes with nine other casinos in the competitive
Tunica County, Mississippi market; Gold Strike, Sheraton, Harrah's, Sam's Town,
Hollywood Casino, Fitzgeralds, Bally's, Isle of Capri and Grand. There are no
legislative limitations on the number of gaming licenses which may be issued in
Mississippi, including in Tunica County, and additional competition could
adversely affect Horseshoe Tunica's revenues and
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operating income. Competition in Tunica County is limited by the availability
of legal and accessible sites on the Mississippi River. Some of our competitors
are undergoing renovation or expansion and others may do so in the future. Such
expansion may have an adverse effect on our operations.
Empress primarily competes with seven casinos, four of which are
located on Lake Michigan in Indiana and three of which are located in Illinois.
The seven casinos Empress competes with are: Trump Casino and Majestic Star
located in Gary, Indiana; Harrah's Casino located in East Chicago, Indiana;
Blue Chip Casino located in Michigan City, Indiana; Harrah's Casino located in
Joliet, Illinois; Hollywood Casino located in Aurora, Illinois; and Grand
Victoria Casino located in Elgin, Illinois. In addition, in June 1999,
certain amendments to the Illinois Riverboat Gambling Act became effective
which will likely result in one of the ten state-authorized licenses for
Illinois being relocated to the Chicago area, which could have a material
adverse effect on Empress' operations. Certain of Empress' competitors are
larger and have significantly greater financial and other resources than
Empress.
EMPLOYEES
As of June 1, 1999, we employed 5,260 persons of which 2,445 are
employed at Horseshoe Tunica, 2,790 are employed at Horseshoe Bossier City and
25 are employed in our corporate office. At such date, none of our employees
were covered by collective bargaining agreements.
We believe that our relationship with our employees is good. We have
never experienced a work stoppage due to a labor dispute and we are not aware
of any threatened labor activity.
PROPERTIES
We own and operate casinos in Bossier City, Louisiana and Tunica
County, Mississippi. All of our real property and casinos are subject to first
priority liens securing Horseshoe Gaming's existing credit facility and,
following the Empress merger, the new credit facility, and second priority
liens securing Horseshoe Gaming's senior notes. We also lease space in Las
Vegas, Nevada and Memphis, Tennessee where we maintain executive offices.
Horseshoe Bossier City
Horseshoe Bossier City is located on an approximately 30-acre site on
the east side of the Red River, directly facing downtown Shreveport,
Louisiana. The newly expanded development consists of an approximately
62,400-square foot, four-deck riverboat with approximately 30,000 square feet
of gaming area and an approximately 55,000-square foot dockside pavilion,
including a 25-story hotel tower, an entertainment facility and a 2,100-car
parking garage.
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HORSESHOE TUNICA
Horseshoe Tunica is located in Tunica County, Mississippi at Casino Center,
a 70-acre three property complex. In December 1997, we completed the expansion
and renovation of Horseshoe Tunica and increased the overall size to
approximately 327,000 square feet. The newly expanded development consists of a
45,000 square-foot gaming area, two restaurants, a newly expanded buffet, bars,
retail outlets, a 14-story hotel tower, an entertainment venue and an 1,100-car
parking garage.
LEGAL PROCEEDINGS
We are, from time to time, during the normal course of operating our
business, subject to various litigation claims and legal disputes. In our
opinion, none is expected to have a material adverse impact on our operations;
however, no assurance can be given that an adverse determination of any claim or
dispute would not have an adverse impact on our operations during any given
period.
REGULATORY MATTERS
GAMING REGULATORY MATTERS
We are 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 we are 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 relatively 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. In addition, approvals of the gaming authorities in each of our
existing jurisdictions, Mississippi and Louisiana, and in Empress'
jurisdictions, Indiana and Illinois, will be required with respect to some or
all of the following: (1) the Ownership Transactions; (2) the terms and issuance
of the notes and the terms of the other Refinancing Transactions; (3) the
Empress merger and related transactions; and (4) the merger of Horseshoe Gaming
with and into us. There can be no assurance that we will receive all of the
necessary approvals to consummate these transactions.
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, or 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. The Louisiana gaming law authorizes the 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.
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The state has granted approval to applicants for 14 of the 15 legislatively
authorized licenses, five of which have been approved for the northern region of
the state in Bossier City/Shreveport. We are aware that the Louisiana Gaming
Control Board intends to publish a request for applications for the 15th
license, the deadline for which we anticipate will be November 15, 1999. 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. 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 Louisiana gaming regulations
restricts gaming space on riverboats to no more than 30,000 square feet. Fees to
the State of Louisiana for conducting gaming activities on a riverboat include
(1) $50,000 per riverboat for the first year of operation and $100,000 per year
per riverboat thereafter plus (2) 18 1/2% of net gaming proceeds. The city of
Bossier City also imposes a 3.2% tax on gaming revenue plus an annual fee of
$700,000.
In the 1996 special session of the Louisiana legislature, Louisiana
lawmakers passed a measure which established the Louisiana Gaming Control Board
and provided that it 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 were transferred to the
Louisiana Gaming Control Board. The Louisiana Enforcement Division continues to
provide investigative and enforcement support to the Louisiana Gaming Control
Board.
In addition, legislation was passed in 1996 authorizing the Bossier Police
Jury, the governing body of Bossier Parish, to impose a boarding fee of $0.50
per patron entering riverboat gaming facilities in Bossier Parish. In response
to this legislation, Horseshoe Bossier City and the Isle of Capri Casino in
Bossier City commenced litigation against the Bossier Police Jury, asserting
that the Bossier Police Jury had previously contracted away their right to
impose an additional $0.50 boarding fee. In January 1997, Horseshoe Bossier City
separately settled with the Bossier Police Jury, and the lawsuit was dismissed
as it relates to Horseshoe Bossier City, but not Isle of Capri Casino, and the
Bossier Police Jury. As part of the settlement, we agreed to pay a 1% tax on our
gross casino revenues to Bossier Parish with a minimum annual payment of
$1,500,000, regardless of actual revenue. Under the terms of the settlement, we
have the right to receive a credit against gross gaming tax for the amount of
increased property taxes assessed against our property in Bossier Parish
resulting from increased assessments attributable to our major expansion
project. Such credit may be taken up to a maximum of 80% of the tax on casino
revenues, and applies during the entire ten-year term of the agreement.
In the 1997 Regular Session of the Louisiana Legislature, a law was passed
authorizing the operation of slot machines at certain horse racing tracks in
Louisiana, including a racetrack situated in Bossier Parish. The legislation
limits slot machine space at each racetrack to 15,000 square feet. Within the
gaming space, however, there is no numerical limit on the number of slot
machines that can be permissibly installed. Before slot machines can be operated
at the racetrack facilities, passage of companion legislation is required to
establish the tax rate to be levied on slot machine revenue.
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: (1) 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; (2) 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; (3) 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; (4) the applicant submits a detailed plan
of design of the riverboat in its application for a license; (5) the applicant
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designates the docking facilities to be used by the riverboat; (6) the applicant
shows adequate financial ability to construct and maintain a riverboat; and (7)
the applicant has a good faith plan to recruit, train and upgrade minorities in
all employment classifications.
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 5% or
greater interests in the licensee, and persons exercising influence over a
licensee, or 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: (1)
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 casinos operating in the Bossier
City/Shreveport area are permitted to operate exclusively at dockside pursuant
to a special exemption; (2) each roundtrip riverboat cruise may not be less than
three nor more than eight hours in duration, subject to specified exceptions;
(3) agents of the Louisiana Enforcement Division and the Louisiana Gaming
Control Board are permitted on board at any time during gaming operations; (4)
gaming machines, equipment and supplies may only be purchased or leased from
permitted suppliers; (5) gaming may only take place in the designated gaming
area while the riverboat is upon a designated river or waterway; (6) 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; (7) wagers may be
received only from a person present on a licensed riverboat; (8) persons under
21 are not permitted in designated gaming areas; (9) except for slot machine
play, wagers may be made only with tokens, chips or electronic cards purchased
from the licensee aboard a riverboat; (10) 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; (11) licensees must have
adequate protection and indemnity insurance; (12) licensees must have all
necessary Federal and state licenses, certificates and other regulatory
approvals prior to operating a riverboat; and (13) 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. The Louisiana gaming law provides that a renewal application
for each one-year 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. In 1993, the Louisiana State Police denied an application made by
HE, our subsidiary that operates Horseshoe Bossier City, for a gaming license to
operate a casino. HE appealed the denial to the Louisiana Riverboat Gaming
Commission, which overturned the denial. HE then was issued an initial
operator's license by the Louisiana Enforcement Division on November 22, 1993,
and HE timely submitted its renewal application to the Louisiana Enforcement
Division. On October 20, 1998, the Louisiana Gaming Control Board granted HE's
license renewal subject to suitability review, and HE is currently in the
process of completing the suitability review with the Louisiana Enforcement
Division.
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, or 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 must 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 prior to the receipt by any such
persons of any loans or extensions of credit. The Louisiana
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Gaming Control Board is required to investigate the reported loan or extension
of credit and, subject to certain exemptions, to either approve or disapprove
the transaction. If disapproved, the loan or extension of credit cannot be
consummated by the licensee or Affiliated Gaming Person. We are an Affiliated
Gaming Person of HE. We and HE all required disclosures to the Louisiana Gaming
Control Board and the Louisiana Enforcement Division. Any other advances by us
to HE in the form of loans or other intercompany indebtedness are subject to the
disapproval power of the Louisiana Gaming Control Board and the Louisiana
Enforcement Division.
MISSISSIPPI GAMING REGULATION
The ownership and operation of casino gaming facilities in Mississippi are
subject to extensive state and local regulation primarily through the licensing
and regulatory control of the Mississippi Gaming Commission and the Mississippi
State Tax Commission. We must register and be licensed under the Mississippi
Gaming Control Act, or the Mississippi Act, and our 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: (1) prevent unsavory or unsuitable
persons from having any direct or indirect involvement with gaming at any time
or in any capacity; (2) establish and maintain responsible accounting practices
and procedures; (3) 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 Gaming Commission; (4) prevent
cheating and fraudulent practices; (5) provide a source of state and local
revenues through taxation and licensing fees; and (6) 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 July 27, 1999, 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 emptying into the Mississippi
River. On May 29, 1993, the Mississippi Gaming Commission granted approval for
the site of Horseshoe Tunica. On October 13, 1994, Horseshoe Tunica received a
gaming operator's license from the Mississippi Gaming Commission. At the same
meeting, certain key principals of RPG were found suitable. The license is
required to be renewed every two years. The license was most recently renewed in
September 1998, effective as of October 1998, and all findings of suitability
have been maintained and are current.
We 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 us 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 they
request.
Each of our directors, officers and key employees who are actively and
directly engaged in the administration or supervision of gaming, or who have any
other significant involvement with our activities, and
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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,
us or RPG may be required to be investigated in order to be found suitable or to
be licensed as a business associate of ours or RPG. Key employees, controlling
persons or others who exercise significant influence upon our or RPG's
management or affairs 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
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 us or RPG, we or the general partner of RPG would have to
suspend, dismiss and sever all relationships with such person. We 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 that
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 us 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 us 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. We are subject to
disciplinary action if, after we receive notice that a person is unsuitable to
be an owner of or to have any other relationship with us, we or RPG (1) pay the
unsuitable persons any dividends or interest upon any of our securities or any
payments or distribution of any kind whatsoever, (2) recognize the exercise,
directly or indirectly, of any voting rights of our securities by the unsuitable
person, or (3) pay 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 us or RPG, as applicable, and we or RPG must purchase the
securities so offered for cash at fair market value within 10 days.
We and RPG will be required to maintain current ownership ledgers in the
State of Mississippi that 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. We and RPG also are
required to render maximum assistance in determining the identity of the
beneficial owner. We may be required to disclose to the Mississippi Gaming
Commission, upon request, the identities of the holders of certain of our
indebtedness. In addition, the Mississippi Gaming Commission under the
Mississippi Act may, in its discretion, (1) require holders of debt securities
to file applications, (2) investigate such holders, and (3) 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.
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The regulations provide that a change in control of us or RPG may not occur
without the prior approval of the Mississippi Gaming Commission. Mississippi law
prohibits us from making a public offering or private placement of our
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 certain
indebtedness and certain other transactions consummated in connection therewith.
The Mississippi Act requires that certificates representing our or RPG's
securities 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 our or RPG's
securities at any time.
Neither we 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 initially granted by the
Mississippi Gaming Commission on October 13, 1994, and additional approvals have
been granted on a jurisdiction-by-jurisdiction basis. The failure to obtain or
retain any such approval could have a material adverse effect on us or RPG.
The licenses obtained by us and RPG are not transferable and must 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 us
or RPG for any cause deemed reasonable by such agency. Substantial fines for
each violation of gaming laws or regulations may be levied against us or RPG in
Mississippi. A violation under any gaming license held by us or RPG may be
deemed a violation of all the other licenses held by us or RPG. Suspension or
revocation of any of the foregoing licenses or of the approval of us or RPG
would have a material adverse effect upon our business.
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 are conducted. Depending upon the particular
fee or tax involved, these fees and taxes are payable either weekly, monthly,
quarterly or annually and are based upon (1) the percentage of the gross casino
revenues received by the casino operation, (2) the number of slot machines
operated by the casino, (3) the number of table games operated by the casino or
(4) the number of casino patrons.
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. Horseshoe Tunica and related facilities
have complied with these requirements. In January 1999, the Mississippi Gaming
Commission amended its infrastructure regulation thereby increasing the minimum
level of infrastructure investment from 25% to 100% of the casino cost. However,
the 100% infrastructure investment requirement would apply only to new casino
developments and existing casino developments that are not in operation at the
time of their acquisition or purchase, and therefore does not apply to Horseshoe
Tunica. In any event, Horseshoe Tunica would comply with such requirements.
The sale of alcoholic beverages, including beer and wine, at Horseshoe
Tunica is subject to licensing, control and regulation by the Alcoholic Beverage
Control Division, or the ABC, of the Mississippi State Tax Commission. The ABC
requires that all equity owners and managers file personal record forms and
fingerprint
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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 Horseshoe Tunica.
In November 1996, the Mississippi county closest to Memphis, DeSoto County,
voted against permitting legal gaming to be conducted aboard vessels located in
DeSoto County. Legislation passed in 1997 precludes DeSoto County from holding a
subsequent election on the issue until at least October 2004. If gaming were
approved in DeSoto County or 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.
If DeSoto County, Arkansas or Tennessee were to approve gaming, competition
would increase, which would have an adverse effect on our operations.
MISSISSIPPI VOTER INITIATIVE TO BAN GAMING
In Mississippi, a request was filed with the Secretary of State on March
22, 1999 to place on the November 2000 statewide ballot a voter initiative to
ban gaming in the state. On May 6, 1999, the local circuit court found the
wording of the initiative inadequate, and declared the initiative measure
unconstitutional. The sponsor has appealed the local circuit court's decision on
the initiative to the Mississippi Supreme Court, where the matter awaits
resolution. These events follow two unsuccessful attempts by the same sponsor in
1998 to place substantially similar initiative measures on the November 1999
statewide ballot. Even if the Supreme Court should affirm the circuit court's
ruling, it is possible that the gaming ban initiative could be re-worded and
meet the requirements for placement on the November 2000 ballot or the ballot of
a later election. Passage of any Mississippi initiative requires an affirmative
vote representing both a majority of the votes cast with respect to such
initiative and at least 40% of the voters casting votes on any matter in the
election.
Approval by the requisite number of voters of a Mississippi initiative
similar to those proposed in 1998 and 1999 would repeal the legislation
authorizing gaming in the state subject to the final results of any legal
challenges which might be raised regarding the initiative and its impact on any
current casino operations and/or pending applications for gaming licenses in
Mississippi. We are unable to determine at this time whether any such initiative
will be submitted to voters. If any such initiative is submitted to the voters
of Mississippi for their consideration, no assurance can be given regarding the
outcome of the vote or the impact of the vote on our gaming operations in
Mississippi.
INDIANA GAMING REGULATION
The Indiana Riverboat Act authorizes the issuance of up to 11 riverboat
gaming licenses on waterways located in Indiana counties which are contiguous to
Lake Michigan, the Ohio River or Patoka Lake. The Indiana Gaming Commission has
not considered applicants for the eleventh license since the Patoka Lake site
has been determined by the U.S. Army Corps of Engineers to be unsuitable for a
casino vessel project. The Indiana Riverboat Act strictly regulates the
facilities, persons, associations and practices related to gaming operations
pursuant to the police powers of the State of Indiana, including comprehensive
law enforcement provisions. The Indiana Riverboat Act vests the Indiana Gaming
Commission with the power and duties of administering, regulating and enforcing
the system of riverboat gaming in the State of Indiana. The Indiana Gaming
Commission's jurisdiction extends to every person, association, corporation,
partnership and trust involved in riverboat gaming operations in the State of
Indiana.
The Indiana Riverboat Act requires the owner of a riverboat gaming
operation to hold an owner's license issued by the Indiana Gaming Commission.
Each license granted entitles the licensee to own and operate one riverboat and
gaming equipment as part of the gaming operation. A licensee may own no more
than a 10% interest in any other owner's license under the Indiana Riverboat
Act.
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Each owner's license runs for a period of five years. Thereafter, the
license is subject to renewal on an annual basis upon a determination by the
Indiana Gaming Commission that the licensee continues to be eligible for an
owner's license pursuant to the Indiana Riverboat Act and the rules and
regulations adopted thereunder. A licensed owner undergoes a complete
investigation every three years. If for any reason the license is terminated,
the assets of the riverboat gambling operation must be secured and cannot be
disposed of without the approval of the Indiana Gaming Commission. A licensed
owner may apply for and may hold other licenses that are necessary for the
operation of a riverboat, including licenses to sell alcoholic beverages, a
license to prepare and serve food and any other necessary license. Furthermore,
the Indiana Riverboat Act requires that officers, directors and employees of a
gaming operation and suppliers of gaming equipment, devices, and supplies and
certain other suppliers be licensed.
Applicants for licensure must submit comprehensive application and personal
disclosure forms and undergo an exhaustive background investigation prior to the
issuance of a license. The applicant must also disclose the identity of every
shareholder or participant of the applicant and provide specific information
with respect to certain shareholders holding significant interests, 5% or
greater, in the applicant. The Indiana Gaming Commission has the authority to
request specific information on any shareholder.
A riverboat owner licensee or any other person may not lease, hypothecate,
borrow money against or loan money against an owner's riverboat gaming license.
An ownership interest in an owner's riverboat gaming license may only be
transferred in accordance with the regulations promulgated under the Indiana
Riverboat Act.
The Indiana Riverboat Act does not limit the maximum bet or per patron
loss. Minimum and maximum wagers on games are set by the licensee. Wagering may
not be conducted with money or other negotiable currency. No person under the
age of 21 is permitted to wager, and wagers may only be taken from a person
present on a licensed riverboat.
Riverboats operating in Indiana must (1) have a valid certificate of
inspection from the U.S. Coast Guard to carry at least 500 passengers; and (2)
be at least 150 feet long. Any riverboat that operates on the Ohio River must
replicate, as nearly as possible, historic Indiana steamboat passenger vessels
of the nineteenth century. Riverboats operating on Lake Michigan need not meet
this requirement.
Gaming sessions are generally required to be at least two hours and are
limited to a maximum duration of four hours. No gaming may be conducted while
the boat is docked, except (1) for 30-minute time periods at the beginning and
end of each cruise while the passengers are embarking and disembarking, total
gaming time is limited to four hours, however, including the pre- and
post-docking periods; and (2) when weather or water conditions prevent the boat
from cruising. The Indiana Gaming Commission may grant extended cruise hours in
its discretion. If the master of the riverboat reasonably determines and
certifies in writing that specific weather conditions or water conditions
present a danger to the riverboat and the riverboat's passengers and crew, the
riverboat may remain docked and gaming may take place until (1) the master
determines that the conditions have sufficiently diminished for the riverboat to
safely proceed; or (2) the duration of the authorized excursion has expired.
After consultation with the U.S. Army Corps of Engineers, the Indiana
Gaming Commission may determine the available navigable waterways that are
suitable for the operation of riverboats under the Indiana Riverboat Act. If the
U.S. Army Corps of Engineers rescinds an approval for the operation of
riverboats on a waterway, a license issued under the Indiana Riverboat Act is
void and the holder may not conduct or continue gaming operations under the
Indiana Riverboat Act. The Indiana Gaming Commission requires employees working
on a riverboat to have a valid merchant marine document from the U.S. Coast
Guard.
The Indiana Riverboat Act imposes a 20% wagering tax on adjusted gross
receipts from gaming. The tax imposed is to be paid by the licensed owner to the
Indiana Department of State Revenue before the close of the business day
following the day when the wagers are made. The Indiana Riverboat Act also
requires that licensees pay a $3.00 admission tax for each person admitted to a
gaming excursion. A riverboat license may be suspended for failure to pay such
tax as required pursuant to the Indiana Riverboat Act. Riverboats are assessed
for property
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tax purposes as real property and are taxed at rates determined by local taxing
authorities. All Indiana state excise taxes, use taxes and gross retail taxes
apply to sales on a riverboat.
The Indiana Gaming Commission may subject a licensee to fines, suspension
or revocation of its license for any act that is in violation of the Indiana
Riverboat Act, the regulations of the Indiana Gaming Commission, or for any
other fraudulent act. In addition, the Indiana Gaming Commission may revoke an
owner's license if the licensee has not begun regular riverboat excursions prior
to the end of the twelve month period following receipt of a license from the
Indiana Gaming Commission or if the Indiana Gaming Commission determines that
the revocation of the license is in the best interests of the State of Indiana.
A holder of a gaming license is required to post bond with the Indiana Gaming
Commission in an amount that the Indiana Gaming Commission determines will
adequately reflect the amount that a local community will expend for
infrastructure and other facilities associated with a riverboat operation.
The Indiana Riverboat Act places special emphasis upon minority and women's
business enterprise participation in the riverboat industry. Any person issued a
riverboat owner's license must establish goals of expending at least 10% of the
total dollar value of the licensee's contracts for goods and services with
minority business enterprises and 5% of the total dollar value of the licensee's
contracts for goods and services with women's business enterprises.
An institutional investor which acquires 5% or more of any class of voting
securities of a holding company of a licensee is required to notify the Indiana
Gaming Commission and to provide additional information, and may be subject to a
finding of suitability. A person who acquires 5% or more of any class of voting
securities of a holding company of a licensee is required to apply to the
Indiana Gaming Commission for a finding of suitability.
A riverboat owner licensee may not enter into or perform any contract or
transaction in which it transfers or receives consideration which is not
commercially reasonable or which does not reflect the fair market value of the
goods and services rendered or received. All contracts are subject to
disapproval by the Indiana Gaming Commission. A riverboat owner licensee or an
affiliate may not enter into a debt transaction of $1.0 million or more without
the prior approval of the Indiana Gaming Commission, including these notes and
the new credit facility. The Indiana Gaming Commission has a rule requiring the
reporting of certain currency transactions, which is similar to that required by
Federal authorities. See "Other Applicable Non-Gaming Regulatory Matters" below.
The Indiana Riverboat Act prohibits contributions to a candidate for a
state, legislative, or local office, or to a candidate's committee or to a
regular party committee by the holder of a riverboat owner's license or a
supplier's license, by an officer of a licensee or by an officer of a person
that holds at least a 1% interest in the licensee. The Indiana Gaming Commission
has promulgated a rule requiring quarterly reporting by the holder of a
riverboat owner's license or a supplier's license or officers of the licensee,
officers of persons that hold at least a 1% interest in the licensee, and of
persons who directly or indirectly own a 1% interest in the licensee.
Legislation is pending in the current session of the Indiana General Assembly
which, if enacted, would impose additional reporting requirements and
restrictions on persons with an interest in a license.
The Indiana Gaming Commission adopted a rule which prohibits a
distribution, except to allow payment of taxes, by a riverboat licensee to its
partners, shareholders, itself, or any affiliated entity, if the distribution
would impair the financial viability of the riverboat gaming operation. The
Indiana Gaming Commission has adopted a rule which requires riverboat licensees
to maintain, on a quarterly basis, a cash reserve in the amount of the actual
payout for three days, and the cash reserve would include cash in the casino
cage, cash in a bank account in Indiana, or cash equivalents not committed or
obligated.
The Governor of Indiana has appointed a Gaming Impact Study Commission
chaired by the Attorney General to review the impact of all forms of gaming in
Indiana and to issue its final report by December 31, 1999.
A lawsuit was filed on October 25, 1996 in Harrison County, Indiana by
three individuals residing in counties abutting the Ohio River against the State
of Indiana, the 108th Indiana General assembly, the Indiana Gaming Commission
and individual members of the Indiana Gaming Commission. The lawsuit challenges
the
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constitutionality of the Indiana Riverboat Act on the grounds that (1) it
allegedly creates an unequal privilege because under the Indiana Riverboat Act
"citizens opposed to riverboat gambling must win several elections to ensure
riverboat gambling is not allowed in their county" but "citizens who support
riverboat gambling need only win once to entrench riverboat gambling
indefinitely into a county"; and (2) it was enacted as a provision attached to a
state budget bill allegedly in violation of an Indiana constitutional provision
requiring legislative acts to be confined to one subject and to matters properly
connected with the subject. The defendants have filed an answer to the complaint
generally denying the allegations. On June 10, 1999, the State of Indiana's
motion to dismiss this lawsuit was granted. If the Indiana Riverboat Act
ultimately were held unconstitutional and if, as a result thereof, Empress
Hammond were not permitted to operate, it would, absent timely corrective
legislation, have a material adverse effect on us if the Empress merger is
consummated.
ILLINOIS GAMING REGULATION
The Illinois Riverboat Gambling Act authorizes the issuance of up to ten
riverboat gaming licenses by the five-member Illinois Gaming Board on any water
within or forming a boundary of Illinois except for Lake Michigan. The Illinois
Riverboat Gambling Act regulates the facilities, persons, associations and
practices related to riverboat gaming operations. The Illinois Riverboat
Gambling Act grants the Illinois Gaming Board specific powers and duties, and
all other powers necessary and proper to fully and effectively execute the
Illinois Riverboat Gambling Act for the purpose of administering, regulating and
enforcing the system of riverboat gaming. The Illinois Gaming Board's
jurisdiction extends to every person, association, corporation, partnership and
trust involved in riverboat gaming operations in Illinois.
The Illinois Riverboat Gambling Act requires the owner of a riverboat
gaming operation to hold an owner's license issued by the Illinois Gaming Board.
The Illinois Gaming Board is authorized to issue ten owner's licenses statewide.
Each owner's license permits up to 1200 gaming positions.
The Illinois Riverboat Gambling Act restricts the granting of certain of
the ten owner's licenses by location. Three licenses are reserved for operators
docking at sites on the Mississippi River, one for an operator docking at a site
on the Illinois River south of Marshall County and one for an operator docking
at a site on the Des Plaines River in Will County. The remaining owner's
licenses are not restricted as to location. The Illinois Riverboat Gambling Act
provides that a licensee that was conducting riverboat gambling on January 1,
1998 may apply to the Illinois Gaming Board for renewal and approval of
relocation to a new home dock location and the Illinois Gaming Board shall grant
the application and approval upon receipt by the licensee of approval from the
new municipality or county in which the licensee wishes to relocate. In addition
to the ten owner's licenses which are authorized under the Illinois Riverboat
Gambling Act, the Illinois Gaming Board may issue special event licenses
allowing persons who are not otherwise licensed to conduct riverboat gaming and
to conduct such gaming on a specified date or series of dates. Riverboat gaming
under such a license may take place on a riverboat not normally used for
riverboat gaming.
An owner's license is issued for an initial period of three years and must
be renewed thereafter. An owner's license is eligible for renewal upon payment
of the applicable fee and a determination by the Illinois Gaming Board that the
licensee continues to meet all of the requirements of the Illinois Riverboat
Gambling Act. An owner's license may be renewed for a period of four years,
unless the Illinois Gaming Board sets a shorter period. The Illinois Gaming
Board also requires that officers, directors, shareholders and employees of a
gaming operation and suppliers of gaming equipment, devices and supplies and
certain other suppliers be licensed. Licenses issued by the Illinois Gaming
Board may not be transferred to another person or entity. All licensees must
maintain their suitability for licensure and have a continuing duty to disclose
any material changes in information provided to the Illinois Gaming Board.
Applicants for and holders of an owner's license are required to obtain
formal approval from the Illinois Gaming Board for changes in: (1) key
personnel, including officers, directors, managing agents, or holders of a 5%
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or greater ownership interest in the business entity; (2) its organizational
form; (3) the equity and debt capitalization of the entity; (4) investors and/or
debt holders; (5) sources of funds; (6) the applicant's economic development
plan; (7) riverboat capacity or significant design changes; (8) the number of
gaming positions; (9) anticipated economic impact; or (10) oral or written
agreements relating to the acquisition or disposition of property of a value
greater than $1.0 million. A holder of an owner's license is allowed to make
distributions to its partners, stockholders or itself only to the extent that
such distribution would not impair the financial viability of the gaming
operation. Factors to be considered by the licensee include, but are not limited
to, the following: (1) working capital requirements, (2) debt service
requirements, (3) requirements for repairs and maintenance and (4) capital
expenditure requirements.
The Illinois Gaming Board will require a personal disclosure from any
person or entity, unless such person or entity qualifies as an institutional
investor, who or which, individually or in association with others, acquires,
directly or indirectly, beneficial ownership of more than 5% of any class of
voting securities or non-voting securities convertible into voting securities of
a publicly traded corporation which holds an ownership interest or a beneficial
interest in the holder of an owner's license. If the Illinois Gaming Board
denies an application for such an acquisition, commencing as of the date the
Illinois Gaming Board issues a notice that it denies such application, it will
be unlawful for such applicant to receive any dividends or interest on his or
its securities, to exercise, directly or indirectly, any right conferred by such
securities or to receive any remuneration in any form from any person or entity
holding any license under the Illinois Riverboat Gambling Act for services
rendered or otherwise. If the Illinois Gaming Board denies an application for
such a transfer and if no hearing is requested or if the Illinois Gaming Board
issues a final order of disqualification, the holder of the affected owner's
license shall purchase all of the disqualified person's or entity's securities
at the lesser of either the market price or the purchase price of such
securities. An ownership interest in a holder of an owner's license may be
transferred or pledged as collateral only with the consent of the Illinois
Gaming Board.
The Illinois Riverboat Gambling Act does not limit the maximum bet or per
patron loss, and licensees may set any maximum or minimum limits on wagering. No
person under the age of 21 is permitted to wager in Illinois.
Under the Illinois Riverboat Gambling Act, vessels must have the capacity
to hold a minimum of 500 persons if operating on the Mississippi River or the
Illinois River south of Marshall County, and a minimum of 400 persons on any
other waterway. A licensee may conduct riverboat gambling authorized under the
Illinois Riverboat Gambling Act on a self-propelled excursion boat or on a
permanently moored barge. A license may, but need not conduct excursion cruises
and may permit the continuous ingress and egress of passengers for the purpose
of gambling. All riverboats must be accessible to disabled persons.
A $2.00 per person admission tax is imposed on the owner of a riverboat
operation. Prior to January 1, 1998, the Illinois Riverboat Gambling Act imposed
a 20% tax on all adjusted gross receipts on each Illinois gaming vessel.
Effective on January 1, 1998, the Illinois Riverboat Gambling Act was amended to
impose the following graduated wagering tax rates on adjusted gross receipts
from gaming: (1) 15% of the calendar year adjusted gross receipts up to and
including $25.0 million; (2) 20% of the calendar year adjusted gross receipts in
excess of $25.0 million but not exceeding $50.0 million; (3) 25% of the calendar
year adjusted gross receipts in excess of $50.0
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million but not exceeding $75.0 million; (4) 30% of the calendar year adjusted
gross receipts in excess of $75.0 million but not exceeding $100.0 million; and
(5) 35% of the calendar year adjusted gross receipts in excess of $100.0
million. The licensee is required to wire transfer all such gaming tax payments
to the Illinois Gaming Board.
The Illinois Gaming Board is authorized to conduct investigations into the
conduct of gaming and into alleged violations of the Illinois Riverboat Gambling
Act and to take such disciplinary and enforcement action as it may deem
necessary and proper. Employees and agents of the Illinois Gaming Board have
access to and may inspect any facilities relating to riverboat gaming operations
at all times.
A holder of any license is subject to the imposition of penalties and
fines, suspension or revocation of such licence, or other action for any act or
failure to act by such holder or his or her agents or employees, that is
injurious to the public health, safety, morals, good order and general welfare
of the people of the State of Illinois, or that would discredit or tend to
discredit the Illinois gaming industry or the State of Illinois. Any riverboat
operation not conducted in compliance with the Illinois Riverboat Gambling Act
may constitute an illegal gaming place and consequently may be subject to
criminal penalties, which penalties include possible seizure, confiscation and
destruction of illegal gaming devices and seizure and sale of riverboats and
dock facilities to pay any unsatisfied judgment that may be recovered and any
unsatisfied fine that may be levied. The Illinois Riverboat Gambling Act also
provides for civil penalties, equal to the amount of gross receipts derived from
wagering on gaming, whether unauthorized or authorized, conducted on the day of
any violation. The Illinois Gaming Board may revoke or suspend licenses, as the
Illinois Gaming Board may see fit and in compliance with applicable laws of the
State of Illinois regarding administrative procedures, and may suspend an
owner's license, without notice or hearing, upon a determination that the safety
or health of patrons or employees is jeopardized by continuing a riverboat's
operation. The suspension may remain in effect until the Illinois Gaming Board
determines that the cause for suspension has been abated and it may revoke the
owner's license upon a determination that the owner has not made satisfactory
progress toward abating the hazard.
The Illinois Gaming Board may waive any licensing requirement or procedure
provided by rule if it determines that such waiver is in the best interests of
the public and the gaming industry.
OTHER APPLICABLE NON-GAMING REGULATORY MATTERS
We have not made, and do not anticipate making, material expenditures with
respect to environmental laws. However, the coverage and attendant compliance
costs associated with such laws may result in future additional costs to our
operations. For example, in 1990 Congress enacted the Oil Pollution Act to
regulate response actions and liability related to oil spills. In that regard,
we and Empress are required to meet certain financial responsibility
requirements. We and Empress have met these requirements either through
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self-insurance or third-party insurance and do not believe that the costs of
complying with these regulations will be material. We could, however, incur
material liability in the event of a major oil spill that exceeds the uninsured
amounts.
We have reviewed environmental assessments, in some cases including soil
and groundwater testing, relating to certain of our and the Empress properties.
As a result, we are aware that there may be soil and groundwater contamination
present on some of these properties due to past industrial activities. In
connection with the construction of a highway overpass to service our Hammond
riverboat gaming facility, Empress agreed to clean up contamination discovered
on property owned by the City of Hammond during the course of construction.
Empress also agreed, subject to certain limitations, to indemnify the City of
Hammond for costs related to any other future cleanup required at the property
as a result of historical conditions. The construction of the overpass and
associated cleanup efforts were completed in 1996. We do not believe that the
contamination discovered during the investigations requires further
investigation or cleanup under current environmental laws. It is possible,
however, that such laws will become more stringent in the future or that
additional contamination on the property will be discovered and will need to be
cleaned up. Pursuant to Empress' agreement with the City of Hammond, which we
are assuming pursuant to the Empress merger if the Empress merger is
consummated, we could be obligated to undertake any such cleanup. Therefore, we
cannot assure you that we will not be required to make material expenditures
with respect to such matters.
The riverboats we operate must comply with U.S. Coast Guard requirements as
to boat design, on-board facilities, equipment, personnel and safety. Each of
them must hold a Certificate of Seaworthiness or must be approved by the
American Bureau of Shipping, or ABS, for stabilization and flotation, and may
also be subject to local zoning and building codes. The U.S. Coast Guard
requirements establish design standards, set limits on the operation of the
vessels and require individual licensing of all personnel involved with the
operation of the vessels. Loss of a vessel's Certificate of Seaworthiness or ABS
approval would preclude its use as a floating casino.
All of our shipboard employees, including those who have nothing to do with
the actual operation of the vessel, such as dealers, waiters and security
personnel, may be subject to the Jones Act which, among other things, exempts
those employees from state workers' compensation awards.
As a condition to its license in Indiana, Empress Hammond made various
financial and other commitments to the City of Hammond, Indiana and other
Indiana governmental bodies pursuant to a development agreement. These
commitments will continue following the Empress merger. As of December 31, 1998,
approximately $23.6 million of such commitments remained outstanding primarily
for commercial development, residential development and the construction of a
hotel. In addition, under the terms of the development agreement, Empress
Hammond is required to make annual payments of approximately $1.3 million for
public safety services and other uses and an annual payment based on a varying
percentage of Empress Hammond's adjusted gross receipts. In the event that we
suffer a decrease in revenues, the costs of satisfying the foregoing commitments
following the consummation of the Empress merger may have a material adverse
effect on us.
Each of the riverboat casinos operated by us is subject to extensive state
and local regulations and, on a periodic basis, must obtain various licenses and
permits, including those required to sell alcoholic beverages. Management
believes that we have obtained all required licenses and permits and our
businesses are conducted in substantial compliance with applicable laws.
IRS REGULATIONS
The Internal Revenue Service, or IRS, requires operators of casinos located
in the United States to file information returns for U.S. citizens, including
names and addresses of winners, for keno and slot machine winnings in excess of
stipulated amounts. The IRS also requires operators to withhold taxes on certain
keno, bingo and slot machine winnings of nonresident aliens. We are unable to
predict the extent, if any, to which such requirements, if extended, might
impede or otherwise adversely affect operations of, and/or income from, such
other games.
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Regulations adopted by the Financial Crimes Enforcement Network of the
Treasury Department and the gaming regulatory authorities in certain domestic
jurisdictions in which we operate casinos, or in which we have applied for
licensing to operate a casino, require the reporting of currency transactions in
excess of $10,000 occurring within a gaming day, including identification of the
patron by name and social security number. This reporting obligation commenced
in May 1985 and may have resulted in the loss of casino revenues to
jurisdictions outside the United States which are exempt from the ambit of such
regulations.
- 90 -
<PAGE> 95
MANAGEMENT
This table sets forth information concerning our executive officers,
directors and other key personnel.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Jack B. Binion 62 Chairman of the Board of Directors, President, Chief Executive Officer and Secretary
Peri Howard 38 Vice Chairman of the Board of Directors
Leslie Kenny 43 Director
Kirk Saylor 42 Chief Financial Officer and Treasurer
Roger Wagner 51 Senior Vice President and Chief Operating Officer
Gary Border 48 Senior Vice President -- Marketing
David Carroll 45 Senior Vice President -- Human Resources
J. Lawrence Lepinski 52 Senior Vice President and General Manager of Horseshoe Bossier City
Bob McQueen 46 Senior Vice President and General Manager of Horseshoe Tunica
John Moran 35 Vice President -- Database Marketing & Analysis
Jon Wolfe 31 Vice President -- Chief Information Officer
</TABLE>
Mr. Binion has been our Chairman of the Board, Chief Executive Officer and
President since our formation in April 1999. Prior thereto, he served as the
Chief Executive Officer of Horseshoe Gaming, Inc., or HGI, since its inception
in December 1992 and as Chief Executive Officer of the general partner of NGCP
since immediately prior to the Roll-Up Transaction. Mr. Binion also served as
the Chief Executive Officer of the general partner of RPG, the entity that
operates Horseshoe Bossier City, from its inception in May 1993 until it merged
into HGI in the Roll-Up Transaction. From 1964 to July 1998, Mr. Binion was the
President and Chief Executive Officer of the Horseshoe Club, which owns and
operates Binion's Horseshoe Casino in Las Vegas, Nevada.
Ms. Howard has been our Vice Chairman of the board of directors since our
formation in April 1999 and previously served as a director of HGI since January
1997. Ms. Howard has served in various capacities with Horseshoe Tunica since
1995 and Binion's Horseshoe Casino in Las Vegas from 1993 to 1995. Ms. Howard is
the daughter of Mr. Binion's wife.
Ms. Kenny has been one of our directors since our formation in April 1999
and previously served as a director of HGI since September 1998. Ms. Kenny has
been self-employed as a manicurist since 1983. Ms. Kenny is the daughter of Mr.
Binion's wife.
Mr. Saylor has been our Chief Financial Officer and Treasurer since our
formation in April 1999. Prior thereto, he had served as Vice President and
Chief Accounting Officer of HGI since November 1998. From November 1995 to
November 1998, Mr. Saylor served as HGI's Corporate Controller. From October
1994 to November 1995, Mr. Saylor served as Vice President and Chief Financial
Officer of Lone Star Casino Corp. in Las Vegas. From June 1993 to October 1994,
Mr. Saylor served as Chief Financial Officer of Binion's Horseshoe Casino in Las
Vegas.
Mr. Wagner has been our Senior Vice President and Chief Operating Officer
since our formation in April 1999. Prior thereto, he had served in the same
capacity with HGI since November 1998. From October 1996 to March 1998, Mr.
Wagner served as President of the development company for Trump Hotel and Casino
Resorts in Atlantic City, New Jersey. Prior thereto, Mr. Wagner served as
President and Chief Operating Officer of Trump Castle Casino in Atlantic City,
New Jersey since January 1991.
- 91 -
<PAGE> 96
Mr. Border has been our Senior Vice President -- Marketing since our
formation in April 1999. Prior thereto, he had served in the same capacity with
HGI since July 1996. Since 1987, Mr. Border has served as President and founder
of Marketing Results, Inc.
Mr. Carroll has been our Senior Vice President -- Human Resources since our
formation in April 1999. Prior thereto, he had served in the same capacity with
HGI since November 1998. From August 1997 to November 1998, Mr. Carroll was Vice
President -- Human Resources of HGI. From September 1993 to August 1997, Mr.
Carroll was Director of Human Resources for Harrah's Casino in Shreveport,
Louisiana.
Mr. Lepinski has been our Senior Vice President and General Manager of
Horseshoe Bossier City since September 1995. Prior thereto, Mr. Lepinski served
as General Manager of Bally's Saloon and Gambling Hall in Tunica, Mississippi
since August 1993.
Mr. McQueen has been our Senior Vice President and General Manager of
Horseshoe Tunica since July 1996 and prior to that as Vice President of Casino
Operations for Horseshoe Tunica since June 1994. From April 1992 to June 1994,
Mr. McQueen served as a Senior Level Executive with Carnival Cruise Lines.
Mr. Moran has been Vice President -- Database Marketing and Analysis since
our formation in April 1999. Prior thereto, he had served in the same capacity
with HGI since November 1998. From December 1996 to November 1998, Mr. Moran was
Director of Club Operations and Analysis for HGI. From September 1995 to
December 1996, Mr. Moran was Director of Club Operations and Analysis for
Binion's Horseshoe Casino and, from February 1987 to September 1995, was
Director of Marketing Operations for the Claridge Casino and Hotel.
Mr. Wolfe has been our Vice President and Chief Information Officer since
our formation in April 1999. Prior thereto, he had served in the same capacity
with HGI since October 1998. From October 1995 to October 1998, Mr. Wolfe was
Director of Information Systems for HGI. From July 1994 to October 1995, Mr.
Wolfe was Director of Information Systems for Horseshoe Tunica and, from October
1993 to July 1994, Mr. Wolfe was Director of Information Systems for President
Casinos.
This table sets forth all compensation awarded to, earned by or paid to our
Chief Executive Officer and our other six most highly compensated executive
officers for their services to us for the years ended December 31, 1998, 1997
and 1996. We are a holding company, recently formed by the owners of Horseshoe
Gaming, therefore, the services performed and compensation indicated are for
Horseshoe Gaming. In addition, certain of the named executive officers are no
longer employed by us.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(3)
--------------------------- ---- ------ ----- ---------------
<S> <C> <C> <C> <C>
Jack B. Binion 1998 $1,000,000 $0 $0
Chairman of the Board, CEO, President and 1997 0 0 0
Secretary 1996 0 0 0
Gary A. Border 1998 350,000 0 3,550
Senior VP Marketing 1997 350,000 0 3,550
1996 168,996 0 1,646
J. Larry Lepinski 1998 189,231 94,493 5,867
Senior VP General Manager -- Horseshoe Bossier 1997 180,000 120,000 5,525
City 1996 180,000 71,980 1,856
Bob McQueen 1998 168,476 95,000 12,594
Senior VP General Manager -- Horseshoe 1997 161,510 95,000 4,636
</TABLE>
- 92 -
<PAGE> 97
<TABLE>
<S> <C> <C> <C> <C>
Tunica 1996 127,203 95,000 1,607
Kirk C. Saylor 1998 132,488 75,000 4,107
Chief Financial Officer 1997 126,966 15,000 4,006
1996 122,901 15,000 1,659
Paul R. Alanis(1) 1998 517,308 0 12,982
Former President 1997 500,000 195,000 19,355
1996 494,636 200,000 7,351
J. Michael Allen(2) 1998 362,115 0 8,992
Former Senior VP -- Operations 1997 350,000 0 10,853
1996 367,713 0 1,792
</TABLE>
- -------------------
(1) Mr. Alanis served as Horseshoe Gaming's President until September 1998.
(2) Mr. Allen served as the Horseshoe Gaming's Senior VP -- Operations until
September 1998.
(3) Premium on insurance policies.
COMPENSATION OF DIRECTORS; COMPENSATION COMMITTEE INTERLOCKS AND INSIDER
PARTICIPATION
Our Bylaws provide for a three-member board of 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. Jack Binion and Leslie Kenny receive no
compensation for their services on the board. Peri Howard receives $150,000 per
year for her services on the board. Ms. Howard receives other compensation from
us for her services at HGI. Officers serve at the discretion of the Board. The
Board has no Compensation Committee.
EMPLOYMENT AGREEMENTS
Mr. Binion has provided services pursuing, developing and managing gaming
operations for us and our subsidiaries. A salary of $1,000,000 was accrued for
Mr. Binion for his services during 1998. There is no 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 us in 1999.
Gary Border is employed as our Senior Vice President -- Marketing pursuant
to an employment agreement with us dated November 23, 1998. Mr. Border's term of
employment under the employment agreement expires December 1, 2002. Mr. Border
is responsible for supervising our marketing departments, developing and
creating marketing strategies, creative strategies, planning and support for all
national local markets, assisting the general managers of various properties
owned by our subsidiaries or affiliates and coordinating and overseeing the
various department heads charged with casino and hotel marketing. Mr. Border
earns compensation of $350,000 per year base salary and a discretionary bonus
not to exceed 50% of the base salary. In addition, Mr. Border was granted a
$100,000 signing bonus upon execution of the employment agreement.
Larry Lepinski is employed as a Senior Vice President and General Manager
of Horseshoe Bossier City pursuant to an employment agreement dated September
18, 1998. Mr. Lepinski's term of employment expires September 18, 2002. Mr.
Lepinski is responsible for supervising the day to day operations of Horseshoe
Bossier City. Mr. Lepinski earns compensation of $208,000 per year base salary
and a discretionary bonus not to exceed 50% of the base salary. In addition, Mr.
Lepinski was granted an $18,000 signing bonus upon execution of his employment
agreement.
- 93 -
<PAGE> 98
Robert McQueen is employed as a Senior Vice President -- General Manager of
Horseshoe Tunica pursuant to an employment agreement with us dated October 15,
1998. Mr. McQueen's term of employment expires January 1, 2003. Mr. McQueen is
responsible for supervising the day to day activities of Horseshoe Tunica. Mr.
McQueen earns compensation of $200,000 per year base salary and a bonus of
$95,000 for calendar years 1998 and 1999, and a discretionary bonus not to
exceed 50% of his base salary for each year thereafter.
Kirk Saylor is employed as our Chief Financial Officer and Treasurer. Mr.
Saylor's employment agreement, dated November 15, 1998, expires January 1, 2003.
Mr. Saylor is responsible for overseeing the senior accounting operations of our
existing properties and assisting in the opening of any casino and hotel
facilities to be developed or acquired by our subsidiaries or affiliates. Mr.
Saylor earns compensation of $225,000 per year base salary and a discretionary
bonus not to exceed 50% of the base salary.
VOTING AGREEMENT
Pursuant to our stockholders' agreement, Mr. Binion has the right to
designate for nomination all three members to our board of directors. Until the
consummation of an initial public offering, each stockholder has agreed to vote
their stock in favor of such designees.
- 94 -
<PAGE> 99
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This table sets forth certain information as of June 1, 1999, regarding
beneficial ownership of our common stock, by each person who is known by us to
own beneficially more than 5% of such common stock, by each of our directors and
executive officers and by all of our directors and executive officers as a
group. We have two classes of common stock, Class A Stock, with one vote per
share, and Class B Stock, with five votes per share. Except as to the number of
votes per share, the two classes of common stock are identical. Mr. Binion is
the only shareholder that holds Class B Stock.
<TABLE>
<CAPTION>
NAME(1) AND ADDRESS NUMBER OF SHARES PERCENTAGE OF CLASS
- ------------------- ---------------- -------------------
<S> <C> <C>
Jack B. Binion(2) 21,536.66 86.15%
4024 S. Industrial Road
Las Vegas, NV 89103
Peri Howard(3)(4) 3,642.17 14.57
4024 S. Industrial Road
Las Vegas, NV 89103
Phyllis M. Cope(3)(5) 1,915.96 7.66
4024 S. Industrial Road
Las Vegas, NV 89103
Wanda Parsons(3)(6) 1,915.96 7.66
4024 S. Industrial Road
Las Vegas, NV 89103
Scott Hamilton(3)(7) 1,277.32 5.11
4024 S. Industrial Road
Las Vegas, NV 89103
Leslie Kenny(3) 1,199.11 4.80
J. Lawrence Lepinski(8) 73.79 *
Bob McQueen(3) 42.34 *
Gary Border(3) 147.00 *
Directors and executive officers as a
group (11 persons)(9) 21,799.79 87.20%
</TABLE>
- ----------
* Less than 1%.
(1) Except as set forth in the section "Management" under the heading
"Voting Agreement," 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 9,823.78 shares held by Mr. Binion as an
individual; (b) the 1,915.96 shares owned by Phyllis M. Cope; (c)
the 3,642.17 shares owned by Peri Howard; (d) the 1,199.11 shares
owned by Leslie Kenny; (e) the 1,915.96 shares owned by Wanda
Parsons; (f) the 1,277.32 shares owned by Scott Hamilton; and (g)
1,762.36 shares 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 11,712.88 shares
which are held of record 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) The beneficial owner has granted a proxy to Jack B. Binion to
vote such person's shares with respect to certain matters
pursuant to our stockholders' agreement. See the section entitled
"Management" under the heading "Voting Agreement."
- 95 -
<PAGE> 100
(4) Represents 3,642.17 shares beneficially owned by Peri Howard, as
trustee of various trusts established for the benefit of certain
members of the families of Mr. Binion or Phyllis M. Cope for
purposes of Section 13(d) and 13(g) of the Exchange Act. Peri
Howard expressly disclaims beneficial ownership of any shares
beneficially owned by her as trustee of such trusts.
(5) Represents 1,915.96 shares beneficially owned by Phyllis M. Cope,
as trustee of various trusts established for the benefit of
certain members of the families of Mr. Binion or Phyllis M. Cope
for purposes of Section 13(d) and 13(g) of the Exchange Act.
Phyllis M. Cope expressly disclaims beneficial ownership of such
shares.
(6) Represents 1,915.96 shares beneficially owned by Wanda Parsons,
as trustee of various trusts established for the benefit of
certain members of the families of Mr. Binion or Phyllis M. Cope
for purposes of Section 13(d) and 13(g) of the Exchange Act.
Wanda Parsons expressly disclaims beneficial ownership of such
shares.
(7) Represents 1,277.32 shares beneficially owned by Scott Hamilton,
as trustee of various trusts established for the benefit of
certain members of the families of Mr. Binion or Phyllis M. Cope
for purposes of Section 13(d) and 13(g) of the Exchange Act.
Scott Hamilton expressly disclaims beneficial ownership of such
shares.
(8) Represents shares issuable upon exercise of currently exercisable
options.
(9) See footnotes 2, 4, 5 and 8 above.
- 96 -
<PAGE> 101
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We conduct a portion of our marketing through an entity that is owned by
the wife of Gary Border, our Senior Vice President-Marketing. Amounts paid by us
to this company for fees and reimbursable expenses totaled $3,625,000 for the
year ended December 31, 1998.
We have made loans to various employees, including some who are now former
employees, who own interests in Horseshoe Gaming. The amount outstanding under
all of these loans, including accrued interest, totaled $3,223,000 as of March
31, 1999. The loans to employees, which are evidenced by notes, are secured by
their ownership interests. The notes have various due dates through October 1999
with interest rates ranging from 7% to 10%, and will be repaid out of the
proceeds of the put/call provisions relating to such ownership interests. See
the section entitled "Management Discussion and Analysis of Financial Condition
and Results of Operations" under the heading "Liquidity and Capital Resources --
Ownership Repurchase Matters" for further discussion of the purchase of
ownership interests and their related loans.
We have entered into an agreement with Walter Haybert, Horseshoe Gaming's
former Chief Financial Officer, whereby we have agreed to pay Mr. Haybert
$150,000 per year for each of 1999 and 2000 as advances against the purchase
price for his ownership interest. Mr. Haybert's ownership interest is subject to
purchase by us pursuant to the put/call provisions that were contained in his
employment agreement. See the section "Management's Discussion and Analysis of
Financial Condition and Results of Operations" under the heading "Liquidity and
Capital Resources -- Ownership Repurchase Matters."
Pursuant to our stockholders' agreement, we intend to make certain periodic
distributions to our stockholders to enable them to pay certain Federal and
state income taxes owed by such stockholders as a result of our status as an S
corporation for Federal and state income tax purposes. The indenture will
contain certain restrictions on our ability to make such distributions. See the
section "Description of Notes" under the heading "Certain Covenants --
Limitation on Restricted Payments."
- 97 -
<PAGE> 102
DESCRIPTION OF CERTAIN OTHER INDEBTEDNESS
The following is a summary of the new credit facility, Horseshoe Gaming's
existing credit facility, Horseshoe Gaming's 9 3/8% senior subordinated notes
and the Empress notes. This summary is qualified in its entirety by reference to
the documents governing such indebtedness, copies of which are available upon
request. See the section entitled "Where You Can Find More Information."
NEW CREDIT FACILITY
As part of the Empress merger and related transactions, we have entered
into a $375.0 million new credit facility. We intend to borrow approximately
$245.0 million under the new credit facility to fund, in part, the Empress
merger, to repay and/or retire debt and to pay related fees and expenses.
Following the Empress merger, we will have an additional approximately $130.0
million of availability under the new credit facility. The commitment for the
new credit facility is subject to customary conditions, including among others,
the execution of satisfactory credit documentation and the absence of a material
adverse change in our business or prospects or the business or prospects of
Empress or the regulatory environment in general. It is expected that the new
credit facility will provide us with the flexibility to close the Empress merger
in stages, which may be necessary due to the timing of required regulatory
approvals.
<TABLE>
<S> <C>
TOTAL FACILITY: $375.0 million
REVOLVING FACILITY: $250.0 million
REVOLVING FACILITY
COMMITMENT REDUCTIONS: The revolving facility commitments shall reduce by: (1)
15% of the original commitment amount in year 3; (2)
20% of the original commitment amount in year 4; and
(3) 65% of the original commitment amount in year 5.
TERM FACILITY: $125.0 million
TERM FACILITY
AMORTIZATION: The term loan will amortize each year in
quarterly installments in an aggregate
amount equal to 1% of the original
principal amount of the term loan per year
for each of the first six years and equal
to 94% of the original principal amount of
the term loan in year 7; provided, however,
that if more than $50.0 million principal
amount of Empress notes remain outstanding
60 days after the closing of the Empress
merger, the final maturity of the
term loan will be 105 days prior to the
stated maturity of the Empress notes.
INTEREST RATE: At our option, loans will bear interest
based on the base rate or the Eurodollar
rate, plus, in either case, applicable
margins. The revolving facility applicable
margin is 1.25% for base rate loans and
2.25% for Eurodollar loans. The term
facility applicable margin is 1.50% for
base rate loans and 2.50% for Eurodollar
loans.
</TABLE>
- 98 -
<PAGE> 103
<TABLE>
<S> <C>
MANDATORY PREPAYMENTS AND
COMMITMENT REDUCTIONS: Customary for credit facilities of this
type, including (1) 100% of proceeds from
permitted asset sales; (2) 100% of proceeds
from the sale or issuance of debt or equity
securities; and (3) 50% of proceeds from
the sale or issuance of equity securities
provided, that when our leverage ratio is
below 3.5x, no prepayment with respect to
the sale or issuance of equity securities
will be required. Prepayment amounts will
be applied first to our term loan ratably
against future amortization payments and
second to the revolver with corresponding
permanent commitment reductions.
COMMITMENT REDUCTION IF
EMPRESS NOTES ARE NOT REDEEMED: If Empress notes in an aggregate amount of
at least $25 million but no more than $75
million remain outstanding 60 days after
the closing of the Empress merger, the
revolving facility commitments will be
permanently reduced by the aggregate amount
of Empress notes outstanding on such date.
GUARANTEES: The new credit facility is guaranteed unconditionally as
to principal, premium, if any, and interest, by all of
our direct and indirect subsidiaries.
CERTAIN COVENANTS: Customary for credit facilities of this
type, including, among others, covenants
which limit our and our subsidiaries
ability to, subject to certain exceptions,
incur additional debt, pay dividends, make
payments, other than scheduled interest, on
senior notes and subordinated debt, grant
liens, sell assets, make investments,
acquisitions or capital expenditures, enter
into transactions with affiliates and enter
into mergers and consolidations.
FINANCIAL COVENANTS: Customary for this type of transaction, including,
without limitation, the financial covenants set forth
below:
- Maintenance of a minimum net worth;
- Maintenance of a maximum leverage ratio; and
- Maintenance of a minimum fixed charge coverage ratio.
RANKING: The new credit facility is our senior obligation and
ranks pari passu in right of payment with all of our
other senior indebtedness.
COLLATERAL: The new credit facility will be secured by
first-priority perfected liens on all of
our and our subsidiaries ownership
interests and all of our and our
subsidiaries' property and assets, tangible
and intangible, including, without
limitation, deeds of trusts or mortgages,
as applicable, on
</TABLE>
- 99 -
<PAGE> 104
<TABLE>
<S> <C>
Horseshoe Tunica, Horseshoe Bossier City, Empress
Hammond and Empress Joliet, and ship mortgage on
all vessels.
</TABLE>
EXISTING CREDIT FACILITY
Horseshoe Gaming entered into a senior credit facility on October 10,
1995, borrowing at that time an aggregate of $93.2 million out of an initial
availability of $100.0 million. The proceeds of such credit facility were used
to repay certain outstanding indebtedness and for other purposes. On November
12, 1997, Horseshoe Gaming finalized a restructuring of such credit facility.
Pursuant to the terms of its existing credit facility there was $130.0 million
of availability as of March 31, 1999 and Horseshoe Gaming had drawn
approximately $85.0 million as of such date. The commitment under the existing
credit facility has recently been reduced to $20.0 million. We have recently
entered into a new credit facility in connection with the Empress merger which
is described above under the heading "New Credit Facility."
<TABLE>
<S> <C>
FACILITY: $20.0 million
MATURITY: June 15, 2000
INTEREST RATE: At Horseshoe Gaming's option, loans bear
interest based on the base rate or the
Eurodollar rate, plus, in either case,
applicable margins. Base rate margins range
from .25% to 1.00% and Eurodollar margins
range from 1.00% to 2.00% depending on our
leverage ratio at the end of each
quarter.
GUARANTEE: The existing credit facility is guaranteed
unconditionally as to principal, premium,
if any, and interest, on a senior secured
basis by RPG.
CHANGE OF CONTROL: Upon the occurrence of a change of control,
Horseshoe Gaming will be required to make
an offer to repay its existing credit
facility at a price equal to 101% of the
principal amount thereof, together with
accrued and unpaid interest, if any, to
the date of repurchase.
CERTAIN COVENANTS: Customary for credit facilities of this
type, including, among others, covenants
which limit our and our subsidiaries
ability to, subject to certain exceptions,
incur indebtedness, pay dividends, grant
liens, sell assets, make acquisitions or
capital expenditures and enter into mergers
or consolidations.
FINANCIAL COVENANTS: Customary for this type of transaction,
including the financial covenants set forth below:
- Maintenance of a minimum net worth;
- Maintenance of a leverage ratio; and
- Maintenance of a fixed charge coverage ratio.
RANKING: The existing credit facility is a senior
obligation of Horseshoe Gaming and ranks
pari passu in right of payment with all
other senior indebtedness of Horseshoe
Gaming.
</TABLE>
- 100 -
<PAGE> 105
<TABLE>
<S> <C>
COLLATERAL: The existing credit facility is secured by
a pledge of intercompany senior notes of HE
and RPG, which in turn are secured by a
first lien position on the casino and real
property of Horseshoe Bossier City and the
Horseshoe Tunica, respectively.
Additionally, the existing credit facility
will have a first lien on all intercompany
notes received by Horseshoe Gaming from its
subsidiaries, in each case secured by a
first lien on the casino and real property
of each such subsidiary, and is secured by
a pledge of Horseshoe Gaming's ownership
interests in RPG and all present and future
subsidiaries, other than a pledge of NGCP's
interest in HE, and by a pledge of the
minority interests in all present and
future subsidiaries owned by JBB Gaming
Investments, L.L.C. The delivery and
enforcement of pledges of ownership
interests in subsidiaries will generally be
governed by laws and regulations concerning
gaming activities in the respective jurisdictions.
</TABLE>
HORSESHOE GAMING SUBORDINATED NOTES
Horseshoe Gaming entered into the indenture relating to its senior
subordinated notes on June 15, 1997, borrowing an aggregate of $160.0 million.
<TABLE>
<S> <C>
SUBORDINATED NOTES: $160.0 million aggregate principal amount of 9 3/8%
Senior Subordinated Notes due June 15, 2007
MATURITY: June 15, 2007
INTEREST RATE: 9 3/8% per annum, payable semi-annually in arrears on
each June 15 and December 15.
GUARANTEE: The Subordinated Notes are guaranteed
unconditionally as to principal, premium,
if any, and interest, by RPG and other
wholly-owned subsidiaries of Horseshoe
Gaming that operate a casino or related business.
CHANGE OF CONTROL: Upon the occurrence of a Change of Control,
as defined, Horseshoe Gaming will be
required to make an offer to repurchase the
Subordinated Notes at a price equal to 101%
of their principal amount, together with
accrued and unpaid interest, if any, to the
date of repurchase.
CERTAIN ADDITIONAL
COVENANTS: The indenture contains certain customary
financial and other covenants, including
without limitation, covenants that
restrict, subject to specified exceptions,
(i) the incurrence of additional debt, (ii)
the making of dividends, distributions and
other restricted payments, (iii) the sale
of all or substantially all Horseshoe
Gaming's or its subsidiaries' assets, and
(iv) the incurrence of debt that is
subordinate or junior in right of payment
to any senior debt and senior in any
respect in right of payment to the existing
subordinated notes.
RANKING: The existing subordinated notes are general
unsecured obligations of
</TABLE>
- 101 -
<PAGE> 106
<TABLE>
<S> <C>
Horseshoe Gaming, subordinated in right of
payment with all other senior indebtedness of
Horseshoe Gaming.
OPTIONAL REDEMPTION: Unless required by a Gaming Authority or
except as set forth below, the Subordinated
notes will be redeemable at the option of
Horseshoe Gaming, in whole or in part, at
any time after June 15, 2002, at the
redemption prices set forth below plus
accrued and unpaid interest thereon and
liquidated damages, if any, to the date of
redemption.
YEAR REDEMPTION PRICE
------- ----------------
2002 104.688%
2003 103.125%
2004 101.563%
2005 and thereafter 100.000%
Prior to June 15, 2000, Horseshoe Gaming
may redeem up to 30% of the aggregate
principal amount of existing subordinated
notes then outstanding at a price equal to
110% of the principal amount thereof,
together with accrued interest to the date
of redemption with the net cash proceeds of
an underwritten public offering by
Horseshoe Gaming of common stock pursuant
to an effective registration statement
under the Securities Act.
</TABLE>
Empress Notes
Empress entered into the indenture relating to the Empress notes on June
18, 1998, borrowing an aggregate of $150.0 million. Upon consummation of the
Empress merger, we will commence the Empress change of control offer. There can
be no assurance that such noteholders will tender their Empress notes pursuant
to the Empress change of control offer.
<TABLE>
<S> <C>
EMPRESS NOTES: $150.0 million aggregate principal amount of 8 1/8%
Senior Subordinated Notes due July 1, 2006.
MATURITY: July 1, 2006
INTEREST RATE: 8 1/8% per annum, payable semi-annually in
arrears on each January 1 and July 1.
GUARANTEE: The Empress notes are guaranteed
unconditionally as to principal, premium,
if any, and interest, by each of Empress
Hammond, Empress Joliet, and all other
subsidiaries of Empress. Upon consummation
of the Empress merger, all of our
subsidiaries will be required to guarantee
the Empress notes pursuant to the terms of
the indenture relating to the Empress notes.
CHANGE OF CONTROL: Upon the occurrence of a change of control,
Empress will be required to make an offer
to repurchase the Empress notes at a price
equal to 101% of the principal amount
thereof, together with accrued and unpaid
interest, if any, to the date of repurchase.
</TABLE>
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<PAGE> 107
<TABLE>
<S> <C>
CERTAIN ADDITIONAL The indenture relating to the Empress notes
COVENANTS: contains certain customary financial and
other covenants, including without
limitation, covenants that restrict,
subject to specified exceptions, (a) the
incurrence of additional debt, (b) the
making of dividends, distributions and
other restricted payments, (c) the sale of
all or substantially all of Empress' or its
subsidiaries' assets and (d) the incurrence
of debt that is subordinate in right of
payment to any senior debt of Empress
unless it is pari passu in right of payment
to the Empress notes or subordinate in right
of payment to the Empress notes.
RANKING: The Empress notes are unsecured, senior
subordinated obligations of Empress and rank
subordinate in right of payment with all other
senior indebtedness of Empress.
OFFERS TO PURCHASE: Empress will, under certain circumstances,
which would include the Empress merger, be
obligated to make an offer to purchase the
Empress notes in the event of an asset
sale, unless we otherwise were making an
offer to purchase following a change of control.
OPTIONAL REDEMPTION: The Empress notes will be redeemable at the
option of Empress, in whole or in part, at
any time on or after July 1, 2002, at the
redemption prices set forth below, plus
accrued and unpaid interest thereon, if
any, to the date of redemption if redeemed
during the 12-month period beginning on
July 1 of the years indicated below:
YEAR REDEMPTION PRICE
------ ----------------
2002 104.063%
2003 102.708%
2004 101.354%
2005 and thereafter 100.000%
In the event Empress consummates an equity
offering on or prior to July 1, 2001,
Empress may redeem up to 35% of the
originally issued aggregate principal
amount of the Empress notes at a redemption
price of 108 1/8% of the principal amount
thereof, plus accrued and unpaid interest
thereon, if any, to the date of redemption;
provided that not less than $97.5 million
of the aggregate principal amount of the
Empress notes remains outstanding
immediately after giving effect to such
redemption.
</TABLE>
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<PAGE> 108
DESCRIPTION OF NOTES
For purposes of this Description of Notes, all references to "HGHC," "we,"
"us" or "our" refer to Horseshoe Gaming Holding Corp. and not to any of our
subsidiaries, except as the context requires otherwise. The new notes, like the
original notes, will be issued under the indenture, dated as of May 11, 1999, by
and between us and U.S. Trust Company, National Association, as trustee. The
terms of the indenture will be governed by certain provisions contained in the
Trust Indenture Act of 1939, as amended. The following summaries of certain
provisions of the indenture are summaries only and are qualified by reference to
all of the provisions of the indenture. Capitalized terms used herein and not
otherwise defined shall have the meanings assigned to them in the indenture.
Wherever particular provisions of the indenture are referred to in this summary,
such provisions are incorporated by reference as a part of the statements made
and such statements are qualified in their entirety by such reference. We urge
you to read the indenture because it, and not this description, defines your
rights as holders of notes. A copy of the form of indenture is available from us
upon request.
GENERAL
The notes are our senior subordinated, general obligations, limited in
aggregate principal amount to $600 million. The notes are our unsecured
obligations, subordinate in right of payment to certain other debt obligations,
except that the notes are secured by the assets in the secured proceeds account
and by the Horseshoe Note as described below under "Secured Proceeds Account;
Horseshoe Note" and "Subordination." Under certain circumstances described under
"Certain Covenants -- Guarantors" below, the notes will be jointly and severally
guaranteed, on a senior subordinated basis by each of our wholly owned
subsidiaries and by any other of our subsidiaries that executes a guarantee of
Indebtedness that is unsecured and equal in right of payment or subordinate to
the notes. As a result of restrictions contained in Horseshoe Gaming's senior
subordinated notes indenture, our subsidiaries could not guarantee the notes as
of the issue date. See, however, "Certain Covenants -- Guarantors" below. There
can be no assurance as to whether and to what extent the notes will be
guaranteed in the future. Our failure to cause the notes to be guaranteed upon
the occurrence of certain events will result in an Event of Default. See "Events
of Default and Remedies." The indenture limits the obligations of each guarantor
in a manner intended to protect its guarantee from attack as a fraudulent
transfer. See "Certain Bankruptcy Limitations" below. The notes have been issued
only in fully registered form, without coupons, in denominations of $1,000 and
integral multiples thereof.
The notes will mature on May 15, 2009. The notes bear interest from the
date of issuance or from the most recent date to which interest has been paid or
provided for, payable semi-annually in arrears on May 15 and November 15 of each
year, commencing November 15, 1999, to the persons in whose names such notes are
registered at the close of business on the May 1 or November 1 immediately
preceding such interest payment date. Interest is calculated on the basis of a
360-day year consisting of twelve 30-day months.
Principal of, premium, if any, and interest, and liquidated damages, if
any, on the notes is payable, and the notes may be presented for registration of
transfer or exchange, at our office or agency maintained for such purpose, which
office or agency shall be maintained in the Borough of Manhattan, The City of
New York. Except as set forth below, at our option, payment of interest may be
made by check mailed to the holders of the notes, at the addresses set forth
upon our registry books. No service charge will be made for any registration of
transfer or exchange of notes, but we may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
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<PAGE> 109
Until otherwise designated by us, our office or agency will be the corporate
trust office of the trustee presently located at the office of the trustee in
the Borough of Manhattan, The City of New York.
The term "subsidiaries" as used in this Description of Notes does not
include unrestricted subsidiaries. As of the date of the indenture, none of our
subsidiaries were unrestricted subsidiaries, except Horseshoe Gaming, Inc.,
which has been designated an unrestricted subsidiary. Under certain
circumstances, we will be able to designate current or future subsidiaries as
unrestricted subsidiaries. Unrestricted subsidiaries will not be subject to the
restrictive covenants set forth in the indenture.
SECURED PROCEEDS ACCOUNT; HORSESHOE NOTE
Secured Proceeds Account
Approximately $342.3 million of the net proceeds of the notes was paid in
cash directly to U.S. Trust Company, National Association, as securities
intermediary, or the "Securities Intermediary. The Securities Intermediary
invested those proceeds in United States Treasury securities and deposited the
pledged securities into a securities account, or the Secured Proceeds Account.
All earnings on the pledged securities will accumulate in the Secured Proceeds
Account. Under a Security and Control Agreement among us, the Securities
Intermediary and the trustee, the trustee has a security interest in the Secured
Proceeds Account and the assets therein to secure our obligations under the
indenture and the notes.
The indenture requires us to consummate the Empress merger no later than
December 1, 1999 and to consummate a change of control offer to repurchase the
Empress notes as required by the Empress indenture, or the Empress change of
control offer, no later than 35 business days following the Empress merger. The
indenture and the security agreement will permit us to use funds from the
Secured Proceeds Account in connection with both the Empress merger and the
Empress change of control offer. If:
- we do not consummate the Empress merger on or prior to December 1,
1999; or
- if after the consummation of the Empress change of control offer more
than $75 million in Empress notes remain outstanding; or
- if we fail to timely consummate the Empress change of control offer;
the indenture requires that we redeem a portion of the notes, and the assets in
the Secured Proceeds Account will be available for that purpose. See "Mandatory
Redemption" below.
The security agreement provides that, if we deliver to the trustee the
items described below in connection with either the Empress merger or an Empress
change of control offer, and no Default or Event of Default has occurred and is
continuing, the trustee will direct the Securities Intermediary to liquidate
assets in the Secured Proceeds Account and deliver the net proceeds to us in an
amount equal to the Merger Release Amount or the Change of Control Release
Amount, as applicable, on the date we consummate the Empress merger and the
Empress change of control offer, respectively.
(1) In connection with the Empress merger, we must deliver to the trustee:
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<PAGE> 110
(a) a certificate, in form and substance reasonably satisfactory to
the trustee, that:
- the Empress merger will be consummated on the date
specified in the certificate therein, which date shall
be no more than five and no less than two business days
after the certificate's delivery and on or before
December 1, 1999, substantially on the terms set forth
in the merger agreement and in the Offering Memorandum;
- we will use the Merger Release Amount solely to pay a
portion of the Empress merger consideration and related
costs;
- we will cause the merger of Horseshoe Gaming with and into
us to occur substantially concurrently with, and not more
than one business day after, the Empress merger; and
- as of the date of the certificate and as of the date of the
Empress merger, we own and we will own all of the Equity
Interests of Horseshoe Gaming; and
(b) an opinion of our counsel to the effect that the consummation of
the Empress merger and the transactions contemplated thereby will
not conflict with or result in a violation or breach of, or
constitute, with or without due notice or the passage of time or
both, a default under, any of the terms, conditions or other
provisions of the indenture governing the Empress notes.
(2) In connection with an Empress change of control offer, we must deliver
to the trustee a certificate, in form and substance reasonably
satisfactory to the trustee, that:
(a) the Empress merger and the merger of Horseshoe Gaming with and
into us have been consummated; and
(b) we will use the Change of Control Release Amount solely to fund
the Empress change of control offer, which will occur on the date
specified in the certificate, which date shall be two business
days after the certificate's delivery and no more than 35
business days after the consummation of the Empress merger.
Horseshoe Note
We also pledged the Horseshoe Note to the trustee as collateral for the
notes. If an Event of Default occurs, the trustee will have all the rights that
we have under the Horseshoe Note against Horseshoe Gaming, including all of our
rights under RPG's and HE's guarantee thereof.
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<PAGE> 111
MANDATORY REDEMPTION
Mandatory Redemption upon a Triggering Event
If (a) the Empress merger has not occurred by December 1, 1999, or (b) we
have determined that the Empress merger will not occur by that date on
acceptable terms, each a Triggering Event, we will be required to redeem, or a
Triggering Event Mandatory Redemption, $325 million aggregate principal amount
of notes, for a price equal to 101% of their principal amount, plus accrued and
unpaid interest thereon through the redemption date, or the Triggering Event
Mandatory Redemption Price, together with liquidated damages, if any. The
Triggering Event Mandatory Redemption must occur on a date, or the Triggering
Event Mandatory Redemption Date, no later than the earlier of (a) 5 business
days after December 1, 1999, and (b) 10 business days after the Triggering
Event.
Mandatory Redemption Following Empress Change of Control Offer
If (a) after consummation of the Empress change of control offer, more than
$75 million aggregate principal amount of Empress notes remain outstanding, or
(b) we fail to consummate the Empress Change Control Offer on or before the 35th
business day after the consummation of the Empress merger, we will be required
to redeem, or a Change of Control Mandatory Redemption, notes having an
aggregate principal amount equal to the principal amount of Empress notes that
remain outstanding on the Change of Control Mandatory Redemption Date, as
defined below, for a price equal to 101% of their principal amount, plus accrued
and unpaid interest thereon through the redemption date, or the Change of
Control Mandatory Redemption Price, together with liquidated damages, if any.
The Change of Control Mandatory Redemption Date shall be the date which is the
earlier of (a) five business days after we consummate the Empress change of
control offer and (b) 40 business days after the Empress merger.
Mandatory Redemption Procedures
In the event of either a Triggering Event Mandatory Redemption or an
Empress Change of Control Mandatory Redemption, each, a Mandatory Redemption,
the trustee will direct the Securities Intermediary to liquidate assets in the
Secured Proceeds Account in an amount to generate sufficient net proceeds to
pay, as applicable, the Triggering Event Mandatory Redemption Price or the
Change of Control Mandatory Redemption Price, each, a Mandatory Redemption
Price, and to deliver the net proceeds to the trustee.
In either event, notice of a Mandatory Redemption will be mailed to each
holder of notes to be redeemed, at its registered address, at least five
business days before, as applicable, the Change of Control Mandatory Redemption
Date or the Triggering Event Mandatory Redemption Date, each, a Mandatory
Redemption Date. On the Mandatory Redemption Date, upon payment to the holders
of the Mandatory Redemption Price, a portion equal to that holder's pro rata
share of the notes to be redeemed shall, automatically be deemed to be no longer
outstanding for any purpose under the indenture.
RELEASE OF COLLATERAL
The trustee will release its security interest in the Secured Proceeds
Account after all the assets therein have been applied by us in the following
manner, in each case as set forth above:
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<PAGE> 112
(1) If the Empress merger is completed by December 1, 1999 on acceptable
terms:
- We will apply the Merger Release Amount to fund, in part,
the Empress merger consideration and related costs.
- We will apply the Change of Control Release Amount to
consummate the Empress change of control offer.
- If the Empress change of control offer is not consummated
within 35 business days after the Empress merger or, if
after the Empress change of control offer, more than $75
million aggregate principal amount of Empress notes remain
outstanding, we will apply proceeds from assets in the
Secured Proceeds Account to effect a Change of Control
Mandatory Redemption.
(2) If the Empress merger is not completed by December 1, 1999, or if we
determine it will not be completed by that date on acceptable terms,
we will apply proceeds from assets in the Secured Proceeds Account to
effect the Triggering Event Mandatory Redemption.
Any remaining amounts will be for our account and we may be required to
permanently reduce commitments under our New Credit Facility. See "Application
of Funds in Secured Proceeds Account; Merger of Horseshoe Gaming With and Into
Us."
Neither the Horseshoe note nor RPG's or HE's guarantee thereof will have
any value after the merger of Horseshoe Gaming with and into us. Accordingly,
after the merger of Horseshoe Gaming with and into us and the trustee's release
of its security interest in the Secured Proceeds Account, the notes will be our
unsecured obligations.
MANDATORY DISPOSITION PURSUANT TO GAMING LAWS
Each holder, by accepting a note, shall be deemed to have agreed that if
the Gaming Authority of any jurisdiction in which we or any of our subsidiaries
conducts or proposes to conduct gaming requires that a person who is a holder or
the beneficial owner of notes be licensed, qualified or found suitable under
applicable gaming laws, such holder or beneficial owner, as the case may be,
shall apply for a license, qualification or a finding of suitability within the
required time period. If such person fails to apply or become licensed or
qualified or is found unsuitable, we shall have the right, at our option:
- to require such person to dispose of its notes or beneficial
interest therein within 30 days of receipt of notice of our
election or such earlier date as may be requested or
prescribed by such Gaming Authority; or
- to redeem such notes, or a Regulatory Redemption, at a
redemption price equal to the lesser of (A) such person's
cost or (B) 100% of the principal amount thereof, plus
accrued and unpaid interest, if any, to the earlier of the
redemption date or the date of the finding of unsuitability.
We shall notify the trustee in writing of any such
redemption as soon as practicable. We shall not be
responsible for any costs or expenses any such
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<PAGE> 113
holder may incur in connection with its application for a
license, qualification or a finding of suitability.
SUBORDINATION
The notes and the guarantees are or will be our and the guarantors'
general, unsecured obligations, respectively, subordinated in right of payment
to all of our and the guarantors' Senior Debt, as applicable. On a pro forma
basis, as of March 31, 1999, after giving effect to the offering of the original
notes, the Empress merger and the transactions contemplated hereby and thereby,
we would have had outstanding an aggregate of approximately $245.0 million of
Senior Debt that is secured, $771.8 million of Indebtedness equal or subordinate
to the notes in right of payment, and our subsidiaries would have had no
Indebtedness outstanding. See "Risk Factors."
No payment may be made by or on behalf of us or a guarantor, as applicable,
on account of any Obligation in respect of the notes, including the principal
of, premium, if any, or interest on the notes, including any repurchases of
notes, or, except as expressly provided by the last paragraph of this section,
on account of the redemption provisions of the notes, or liquidated damages, for
cash, property or securities, other than Junior Securities:
- upon the maturity of any of our or such guarantor's Senior
Debt, as applicable, by lapse of time, acceleration, unless
waived, or otherwise, unless and until all principal of,
premium, if any, and the interest on such Senior Debt are
first paid in full in cash, or such payment is duly provided
for in cash; or
- in the event of default in the payment of any principal of,
premium, if any, or interest on our or such Guarantor's
Designated Senior Debt, as applicable, when it becomes due
and payable, whether at maturity or at a date fixed for
prepayment or by declaration or otherwise, or a Payment
Default, unless and until such Payment Default has been
cured or waived or otherwise has ceased to exist.
Upon (1) the happening of an Event of Default other than a Payment Default
that permits the holders of Senior Debt to declare such Senior Debt to be due
and payable and (2) written notice of such Event of Default given to the trustee
by us or any holder of Designated Senior Debt or their representative, or a
Payment Notice, then, unless and until such Event of Default has been cured or
waived or otherwise has ceased to exist, no payment may be made in cash,
property or securities, other than Junior Securities, by or on behalf of us or
any guarantor which is an obligor under such Designated Senior Debt on account
of any Obligation in respect of the notes. Notwithstanding the foregoing, unless
the Designated Senior Debt in respect of which such Event of Default exists has
been declared due and payable in its entirety within 179 days after the Payment
Notice is delivered as set forth above, or the Payment Blockage Period at the
end of the Payment Blockage Period, unless such payments are prohibited by the
immediately preceding or immediately succeeding paragraphs, we and the
guarantors shall resume all payments as and when due on the notes. Any number of
Payment Notices may be given; provided, however, that (1) not more than one
Payment Notice shall be given within a period of any 360 consecutive days, and
(2) no default that existed upon the date of such Payment Notice or the
commencement of such Payment Blockage Period, whether or not such event of
default is on the same issue of Designated Senior Debt, shall be made the basis
for the commencement of any other Payment Blockage Period, unless such default
shall not have been cured or waived for a period of not less than 181 days.
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<PAGE> 114
Except as described below, upon any distribution of our or any guarantor's
assets upon any dissolution, winding up, total or partial liquidation or
reorganization of us or a guarantor, whether voluntary or involuntary, in
bankruptcy, insolvency, receivership or a similar proceeding or upon assignment
for the benefit of creditors or any marshaling of assets or liabilities:
- the holders of all of our or such guarantor's Senior Debt,
as applicable, will first be entitled to receive payment in
full in cash, or have such payment duly provided for, or
otherwise to the extent holders accept satisfaction of
amounts due by settlement in other than cash before the
holders are entitled to receive any payment on account of
any Obligation in respect of the notes, including the
principal of, premium, if any, and interest on the notes, or
liquidated damages, other than Junior Securities; and
- any payment or distribution of our or such guarantor's
assets of any kind or character from any source, whether in
cash, property or securities, other than Junior Securities,
to which the holders or the trustee on behalf of the holders
would be entitled, except for the subordination provisions
contained in the indenture, will be paid by the liquidating
trustee or agent or other person making such a payment or
distribution directly to the holders of such Senior Debt or
their representative to the extent necessary to make payment
in full in cash, or have such payment duly provided for in
cash, on all such Senior Debt remaining unpaid, after giving
effect to any concurrent payment or distribution to the
holders of such Senior Debt.
In the event that, notwithstanding the foregoing, any payment or
distribution of our or any guarantor's assets, other than Junior Securities,
shall be received by the trustee or the holders at a time when such payment or
distribution is prohibited by the foregoing provisions, such payment or
distribution shall be held in trust for the benefit of the holders of such
Senior Debt, and shall be paid or delivered by the trustee or such holders, as
the case may be, to the holders of such Senior Debt remaining unpaid or
unprovided for or to their representative or representatives, or to the trustee
or trustees under any indenture pursuant to which any instruments evidencing any
of such Senior Debt may have been issued, ratably according to the aggregate
principal amounts remaining unpaid on account of such Senior Debt held or
represented by each, for application to the payment of all such Senior Debt
remaining unpaid, to the extent necessary to pay or to provide for the payment
of all such Senior Debt in full in cash after giving effect to any concurrent
payment or distribution to the holders of such Senior Debt.
No provision contained in the indenture or the notes will affect our and
the guarantors' obligation, which is absolute and unconditional, to pay, when
due, principal of, premium, if any, and interest, and liquidated damages, if
any, on the notes. The subordination provisions of the indenture and the notes
will not prevent the occurrence of any Default, as defined herein, under the
indenture or limit the rights of the trustee or any holder to pursue any other
rights or remedies with respect to the notes.
As a result of these subordination provisions, in the event of the
liquidation, bankruptcy, reorganization, insolvency, receivership or similar
proceeding or an assignment for the benefit of our creditors or creditors of any
of the guarantors or a marshaling of our assets or liabilities or the assets or
liabilities of any of the guarantors, holders of the notes may receive ratably
less than other creditors.
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<PAGE> 115
We conduct our operations through our subsidiaries. Accordingly, our
ability to meet our cash obligations is dependent upon the ability of our
subsidiaries to make cash distributions to us. Furthermore, any right we have to
receive the assets of any such subsidiary upon such subsidiary's liquidation or
reorganization, and the consequent right of the holders of the notes to
participate in the distribution of the proceeds of those assets, effectively
will be subordinated by operation of law to the claims of such subsidiary's
creditors and holders of its preferred stock, except to the extent that we are
recognized as a creditor or preferred stockholder of such subsidiary, in which
case our claims would still be subordinate to any indebtedness or preferred
stock of such subsidiary senior in right of payment to that held by us.
Notwithstanding the foregoing, the rights of holders to receive any funds
in the Secured Proceeds Account or, prior to the Empress merger or a Mandatory
Redemption, as applicable, upon any distribution of our or any guarantor's
assets upon any dissolution, winding up, total or partial liquidation or
reorganization of us or any guarantor, will not be subject to the above
subordination provisions.
CERTAIN BANKRUPTCY LIMITATIONS
Holders of notes will be direct creditors of each guarantor that executes
and delivers a guarantee of the notes. See "Guarantors." In the event of a
guarantor's bankruptcy or other financial difficulty, however, its guarantee may
be subject to avoidance under state or federal fraudulent transfer laws. Under
those laws, a court may avoid, or cancel, a guarantee if it concludes that when
the guarantor entered into its guarantee or, in some states, when payments
became due thereunder, it received less than fair consideration or reasonably
equivalent value and was either insolvent or rendered insolvent or
undercapitalized, or believed that it would incur debts beyond its ability to
pay as they became due.
The indenture will limit each guarantor's liability in a manner intended to
protect the guarantees from fraudulent transfer attack, although no assurance
can be given that such protection will be successful and that the guarantees
will not be avoided as fraudulent transfers. See the section "Risk Factors"
under the heading "The Guarantee of The Notes By Certain of Our Subsidiaries
Could Be Avoided Under Certain Circumstances."
If any guarantee is avoided, in whole or in part, holders of notes would
have to look to our assets and any remaining guarantors for payment. There can
be no assurance in that event that those assets would suffice to pay the
outstanding principal and interest on the notes.
OPTIONAL REDEMPTION
We do not have the right to redeem any notes prior to May 15, 2004, other
than out of the Net Cash Proceeds of a Public Equity Offering of common stock,
as described in the next following paragraph, and except pursuant to a Mandatory
Redemption or a Regulatory Redemption. The notes will be redeemable for cash at
our option, in whole or in part, at any time on or after May 15, 2004, upon not
less than 30 days nor more than 60 days notice to each holder of notes, at the
following redemption prices, expressed as percentages of the principal amount,
if redeemed during the 12-month period commencing May 15 of the years indicated
below, in each case, subject to the right of holders of record on an interest
record date, or Record Date, to receive the corresponding interest due, and
liquidated damages, if any, on an interest payment date corresponding to such
Record Date that is on or prior to such Redemption Date, together with accrued
and unpaid interest and liquidated damages, if any, thereon to the date of
redemption of the notes, or Redemption Date:
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<PAGE> 116
<TABLE>
<CAPTION>
<S> <C>
YEAR PERCENTAGE
---- ----------
2004 104.313%
2005 102.875%
2006 101.438%
2007 and thereafter 100.000%
</TABLE>
Until May 15, 2002, upon one or more Public Equity Offerings of our common
stock for cash, up to 35% of the aggregate principal amount of the notes issued
pursuant to the indenture may be redeemed at our option within 90 days of such
Public Equity Offering, on not less than 30 days, but not more than 60 days,
notice to each holder of the notes to be redeemed, with cash from the Net Cash
Proceeds of such Public Equity Offering, at a redemption price equal to 108.625%
of principal together with accrued and unpaid interest and liquidated damages,
if any, thereon to the Redemption Date; provided, however, that immediately
following such redemption not less than 65% of the aggregate principal amount of
the notes originally issued pursuant to the indenture remain outstanding. In the
event that we are required to consummate, and in fact so consummate, a Mandatory
Redemption in accordance with the terms hereof prior to a Public Equity
Offering, for purposes of the foregoing, the aggregate principal amount of notes
originally issued pursuant to the indenture shall be deemed to be reduced by the
aggregate principal amount of notes subject to the Mandatory Redemption.
In the case of a partial redemption, the trustee shall select the notes or
portions thereof for redemption on a pro rata basis, by lot or in such other
manner it deems appropriate and fair. The notes may be redeemed in part in
multiples of $1,000 only.
Optional Redemption Procedures
Except in the case of a Mandatory Redemption or a Regulatory Redemption,
notice of any redemption will be sent prior to the date fixed for redemption to
the holder of each note to be redeemed. Any notice which relates to a note to be
redeemed in part only must state the portion of the principal amount equal to
the unredeemed portion thereof and must state that on and after the date of
redemption, upon surrender of such note, a new note or notes in a principal
amount equal to the unredeemed portion thereof will be issued. On and after the
date of redemption, interest will cease to accrue on the notes or portions
thereof called for redemption, unless we default in the payment thereof.
NO SINKING FUND
The notes do not have the benefit of any sinking fund and we will not be
required to make any mandatory redemption payments with respect to the notes,
other than payment of the Mandatory Redemption Price in connection with a
Mandatory Redemption.
CERTAIN COVENANTS
Repurchase of Notes at the Option of the Holder Upon a Change of Control
In the event that a Change of Control Triggering Event has occurred, each
holder of notes will have the right, at such holder's option, pursuant to an
offer by us, or the Change of Control Offer, to require us to repurchase all or
any part of such holder's notes on a date, or the Change of Control Purchase
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<PAGE> 117
Date, that is no later than 35 business days after the occurrence of such Change
of Control Triggering Event, at a cash price equal to 101% of the principal
amount thereof, or the Change of Control Purchase Price, together with accrued
and unpaid interest and liquidated damages, if any, thereon to the Change of
Control Purchase Date. The Change of Control Offer shall be made within 10
business days following a Change of Control Triggering Event and shall remain
open for 20 business days following its commencement, or the Change of Control
Offer Period. Upon expiration of the Change of Control Offer Period, we promptly
shall purchase all Notes properly tendered in response to the Change of Control
Offer.
Prior to the commencement of a Change of Control Offer, but in any event
within 30 days following any Change of Control Triggering Event, we will:
(1) (a) repay in full and terminate all commitments of Indebtedness under
the Horseshoe Credit Agreement or the New Credit Facility, as the case
may be, and all other Senior Debt the terms of which require repayment
upon a Change of Control Triggering Event or (b) offer to repay in
full and terminate all commitments of Indebtedness under the Horseshoe
Credit Agreement or the New Credit Facility, as the case may be, and
all such other Senior Debt and repay the Indebtedness owed to each
lender which has accepted such offer in full; or
(2) obtain the requisite consents under the Horseshoe Credit Agreement or
the New Credit Facility, as the case may be, and all such other Senior
Debt to permit the repurchase of the notes as provided herein.
Our failure to comply with the preceding sentence shall constitute an Event of
Default, but without giving effect to the stated exceptions in such clause,
under "Events of Default" below.
Notwithstanding the foregoing, we will not be required to make a Change of
Control Offer upon a Change of Control Triggering Event if a third party makes
the Change of Control Offer in the manner, at the times and otherwise in
compliance with the requirements set forth in the indenture applicable to a
Change of Control Offer made by us.
On or before the Change of Control Purchase Date, we will (1) accept for
payment notes or portions thereof properly tendered and not validly withdrawn
pursuant to the Change of Control Offer, (2) deposit with our paying agent, or
the Paying Agent, cash sufficient to pay the Change of Control Purchase Price,
together with accrued and unpaid interest and liquidated damages, if any,
thereon, of all notes so tendered and (3) deliver to the trustee the notes so
accepted together with an Officers' Certificate listing the notes or portions
thereof being purchased by us. The Paying Agent promptly will pay the holders of
notes so accepted an amount equal to the Change of Control Purchase Price,
together with accrued and unpaid interest and liquidated damages, if any,
thereon, and the trustee promptly will authenticate and deliver to such holders
a new note equal in principal amount to any unpurchased portion of the note
surrendered. Any notes not so accepted will be delivered promptly by us to the
holder thereof. We publicly will announce the results of the Change of Control
Offer on or as soon as practicable after the Change of Control Purchase Date.
The Change of Control purchase feature of the notes may make more difficult
or discourage a takeover of us, and, thus, the removal of incumbent management.
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The phrase "all or substantially all" of the our assets will likely be
interpreted under applicable state law and will be dependent upon particular
facts and circumstances. As a result, there may be a degree of uncertainty in
ascertaining whether a sale or transfer of "all or substantially all" of our
assets has occurred. In addition, no assurances can be given that we will have
sufficient cash on hand or adequate financing available to consummate the
purchase of notes tendered upon the occurrence of a Change of Control Triggering
Event.
Any Change of Control Offer will be made in compliance with all
applicable laws, rules and regulations. To the extent that the provisions of any
securities laws or regulations conflict with the provisions of this paragraph,
compliance by us or any of the guarantors with such laws and regulations shall
not in and of itself cause a breach of their obligations under such covenant.
If the Change of Control Purchase Date hereunder is on or after an
interest payment Record Date and on or before the associated interest payment
date, then any accrued and unpaid interest, and liquidated damages, if any, due
on such interest payment date will be paid to the person in whose name a note is
registered at the close of business on such Record Date, and such interest, and
liquidated damages, if applicable, will not be payable to holders, if different
than the holders on the Record Date, who tender the notes pursuant to the Change
of Control Offer.
Limitation on Incurrence of Additional Indebtedness and Disqualified Capital
Stock
We and the guarantors will not, and will not permit any of our
subsidiaries to, directly or indirectly, issue, assume, guaranty, incur, become
directly or indirectly liable with respect to, or otherwise become responsible
for, contingently or otherwise, other than Permitted Indebtedness.
Notwithstanding the foregoing if (1) no Default or Event of Default shall have
occurred and be continuing at the time of, or would occur after giving effect on
a pro forma basis to, such incurrence of Indebtedness or Disqualified Capital
Stock and (2) on the date of such incurrence, or the Incurrence Date, our
Consolidated Coverage Ratio for the Reference Period immediately preceding the
Incurrence Date, after giving effect on a pro forma basis to such incurrence of
such Indebtedness or Disqualified Capital Stock and, to the extent set forth in
the definition of Consolidated Coverage Ratio, the use of proceeds thereof,
would be at least 2.0 to 1.0, or the Debt Incurrence Ratio, then we and the
guarantors may incur such Indebtedness or Disqualified Capital Stock; provided,
however, that we may not incur such Indebtedness or Disqualified Capital Stock
prior to our merger of Horseshoe Gaming with and into us.
The foregoing limitations will not apply to:
(a) the incurrence by us, after the merger of Horseshoe Gaming with
and into us, or at any time by any subsidiary, of Purchase Money
Indebtedness; provided, that such Indebtedness is either (1)
Non-Recourse Indebtedness or (2) limited in aggregate amount
incurred and outstanding at any time pursuant to this clause
(a)(2) to the lesser of (A) $15 million per casino, and (B) 100%
of the original cost to us or such subsidiary, as applicable, of
the property so purchased, constructed, improved or leased, on a
casino by casino basis;
(b) the incurrence by us, after the merger of Horseshoe Gaming with
and into us, or at any time by any Guarantor, of Indebtedness in
an aggregate
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amount incurred and outstanding at any time pursuant to this
paragraph (b), including any Refinancing Indebtedness incurred to
retire, defease, refinance, replace or refund such Indebtedness,
of not more than $25 million;
(c) (1) prior to the Empress merger, the incurrence by Horseshoe
Gaming and RPG of Indebtedness pursuant to the Horseshoe Credit
Agreement and related guarantee, respectively, in an aggregate
amount incurred and outstanding at any time pursuant to this
clause (1) of this paragraph (c), including any Refinancing
Indebtedness incurred to retire, defease, refinance, replace or
refund such Indebtedness, of not more than $20 million, minus the
amount of any such Indebtedness (x) retired with the Net Cash
Proceeds from any Asset Sale applied to permanently reduce the
outstanding amounts or the commitments with respect to such
Indebtedness pursuant to the covenant "Limitation on Sale of
Assets and Subsidiary Stock" or (y) assumed by a transferee in an
Asset Sale; provided, that following the consummation of a
Triggering Event Mandatory Redemption, the amount of such
Indebtedness permitted to be incurred and outstanding at any time
pursuant to this clause (1) shall be not more than $100 million;
and (2) from and after the Empress merger, the incurrence by us or
any Guarantor of Indebtedness pursuant to the New Credit Facility
in an aggregate amount incurred and outstanding at any time
pursuant to this clause (2) of this paragraph (c), including any
Refinancing Indebtedness incurred to retire, defease, refinance,
replace or refund such Indebtedness, of not more than $375
million, minus the amount of any such Indebtedness (x) retired
with the Net Cash Proceeds from any Asset Sale applied to
permanently reduce the outstanding amounts or the commitments with
respect to such Indebtedness pursuant to the covenant "Limitation
on Sale of Assets and Subsidiary Stock" or (y) assumed by a
transferee in an Asset Sale; provided, however, that the maximum
amount permitted to be outstanding under either clause (1) or
clause (2) of this paragraph (c) shall not be deemed to limit
additional Indebtedness under the Horseshoe Credit Agreement or
the New Credit Facility, as the case may be, to the extent the
incurrence of such additional Indebtedness was permitted and
incurred pursuant to the Debt Incurrence Ratio;
(d) each of our subsidiaries that owns a casino may incur up to $5
million of working capital Indebtedness at any time outstanding
pursuant to this clause (d);
(e) prior to consummation of the Empress change of control offer and
as a result of the Empress merger, not more than $150 million
aggregate principal amount of the Empress notes; and
(f) in the event that the Empress merger is consummated, the amount of
the Empress notes not redeemed in the Empress change of control
offer; provided that we complied with our obligations under
"Mandatory Redemption Following Change of Control" above and make
any Credit Facility Reduction described in "Application of Funds
in Secured Proceeds Account; Merger of Horseshoe Gaming with and
into us" below.
Indebtedness or Disqualified Capital Stock of any person which is
outstanding at the time such person becomes our subsidiary or other person as a
subsidiary, or is merged with or into or consolidated with us or our subsidiary
shall be deemed to have been incurred at the time such person becomes our
subsidiary or is merged with or into or consolidated with us or our subsidiary,
as applicable.
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Notwithstanding any other provision of this covenant, but only to avoid
duplication, a guarantee of our or of another subsidiary guarantor's
Indebtedness incurred in accordance with the terms of the indenture issued at
the time such Indebtedness was incurred or if later at the time the guarantor
thereof became our subsidiary will not constitute a separate incurrence, or
amount outstanding, of Indebtedness. Upon each incurrence, we may designate
pursuant to which provision of this covenant such Indebtedness is being incurred
and such Indebtedness shall not be deemed to have been incurred under any other
provision of this covenant, except as stated otherwise in the foregoing
provisions.
Limitation on Restricted Payments
We and the guarantors will not, and will not permit any of their
subsidiaries to, directly or indirectly, make any Restricted Payment if, after
giving effect to such Restricted Payment on a pro forma basis, (1) a Default or
an Event of Default shall have occurred and be continuing, (2) we are not
permitted to incur at least $1.00 of additional Indebtedness pursuant to the
Debt Incurrence Ratio in the covenant "Limitation on Incurrence of Additional
Indebtedness and Disqualified Capital Stock," or (3) the aggregate amount of all
Restricted Payments made by us and our subsidiaries, including after giving
effect to such proposed Restricted Payment, on and after the issue date, would
exceed, without duplication, the sum of:
(a) 50% of our aggregate Adjusted Consolidated Net Income for the
period, taken as one accounting period, commencing on the first
day of the first full fiscal quarter commencing after the issue
date, to and including the last day of the latest fiscal quarter
ended immediately prior to the date of each such calculation for
which financial statements are available, or, in the event
Adjusted Consolidated Net Income for such period is a deficit,
then minus 100% of such deficit, plus
(b) the aggregate Net Cash Proceeds received by us from the sale of
our Qualified Capital Stock, other than (x) to one of our
subsidiaries and (y) to the extent applied in connection with a
Qualified Exchange, after the issue date, plus
(c) the aggregate Net Cash Proceeds received by us from a Capital
Contribution after the issue date, plus
(d) the amount by which our or any Guarantor's Indebtedness, other
than Subordinated Indebtedness, is reduced on our balance sheet
upon the conversion or exchange for our Equity Interests, other
than (x) Disqualified Capital Stock and (y) an issuance or sale to
a subsidiary of ours or an employee stock ownership plan or other
trust established by us or any of our subsidiaries, subsequent to
the end of the most recent fiscal quarter ended immediately after
the issue date of any Indebtedness, other than Subordinated
Indebtedness, of ours or any guarantor's which by its terms is
convertible or exchangeable for our Equity Interests, other than
Disqualified Capital Stock, less the amount of any cash or other
property distributed by us or any subsidiary upon such conversion
or exchange, plus
(e) the amount, not to exceed the aggregate amount of Investments
previously made by us or any guarantor which were treated as a
Restricted Payment and counted against the amount available under
this clause (3), equal to the net reduction in Investments
resulting from either (x) any dividends, repayments of loans or
advances or other transfers of assets to us or any guarantor or
the satisfaction or reduction, other than by means of payments by
us or any subsidiary, of obligations of other persons which have
been guaranteed by us or any guarantor or (y) the redesignation of
an unrestricted subsidiary as a subsidiary which executes a
guarantee;
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provided, however, that the amount of anything credited pursuant
to this clause (e) shall not exceed its fair market value at the
time of transfer or redesignation, as the case may be.
Notwithstanding the foregoing, except for Restricted Payments permitted
pursuant to clauses (1) and (6) below and, to the extent such Restricted Payment
is used to repurchase or redeem the Equity Interests of Horseshoe Gaming not
owned by us as of the issue date, clause (7) below, we shall not make any
Restricted Payments prior to the merger of Horseshoe Gaming with and into us.
The foregoing clauses (2) and (3) of the first paragraph of this
covenant, however, will not prohibit:
(1) with respect to each tax year that we qualify as an "S
corporation" under the Internal Revenue Code of 1986, as amended,
or any similar provision of state or local law, Permitted Tax
Distributions in respect of the jurisdictions in which we so
qualify; provided, however, that prior to any Permitted Tax
Distributions a knowledgeable and duly authorized Horseshoe Gaming
Holding Corp. officer certifies, and counsel reasonably acceptable
to the trustee opines, that we, and each subsidiary in respect of
which such distributions are being made, qualify as Flow Through
Entities for Federal income tax purposes and for the states in
respect of which such distributions are being made and that at the
time of such distribution, our most recent audited financial
statements, as provided to the trustee pursuant to the section
entitled "Reports" herein, provide that we and each such
subsidiary were treated as Flow Through Entities for the period of
such financial statements;
(2) any dividend, distribution or other payments by any of our
subsidiaries on its Equity Interests that is paid pro rata to all
holders of such Equity Interests;
(3) a Qualified Exchange;
(4) the payment of any dividend on or redemption of Qualified Capital
Stock within 60 days after the date of its declaration or
authorization if such dividend or redemption could have been made
on the date of such declaration or authorization in compliance
with the foregoing provisions;
(5) Investments in one or more persons in an amount not in excess of
$50 million in the aggregate at any one time outstanding measured
at the time made or returned, as applicable, for all such
Investments made in any one or more persons in reliance upon this
clause (5), for the purpose of developing, constructing or
acquiring (a) a casino or casinos or, if applicable, any Related
Business in connection with such casino or casinos, or (b) a
Related Business to be used primarily in connection with an
existing casino or casinos; provided, that to the extent we or any
subsidiary has received cash distributions from any such person,
the amount thereof will be deemed to reduce the amount of
Investments then outstanding under this clause (5) for the
purposes of the $50 million limit, the amount of any such
reduction to be without duplication to amounts available for
Restricted Payments under clause (3) of the first paragraph of
this covenant;
(6) the redemption or repurchase of any of our or our subsidiaries'
Equity Interests or Indebtedness, other than held or beneficially
owned by any Excluded Person, required by the redemption
provisions described under "Mandatory Disposition Pursuant to
Gaming Laws" above; and
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(7) further Restricted Payments of any type which in the aggregate do
not exceed $50 million for all such Restricted Payments permitted
by this clause (7) taken together; provided, however, that no
payment may be made pursuant to this clause (7) unless we could
then incur at least $1.00 of additional Indebtedness pursuant to
the Debt Incurrence Ratio in the covenant "Limitation on
Incurrence of Additional Indebtedness and Disqualified Capital
Stock," after taking into account any funding of such Restricted
Payments; provided, further, however, that up to an additional $50
million of Restricted Payments of any type may be made under this
clause (7) if, immediately after giving effect to such Restricted
Payment, after taking into account the funding of such Restricted
Payment, our Consolidated Coverage Ratio for the Reference Period
immediately preceding such Restricted Payment would be at least
3.0 to 1.0.
The full amount of any Restricted Payment made pursuant to the foregoing
clauses (2), (4) and (6) of the immediately preceding sentence, however, will be
counted as Restricted Payments made for purposes of the calculation of the
aggregate amount of Restricted Payments available to be made referred to in
clause (3) of the first paragraph of this covenant.
For purposes of this covenant, the amount of any Restricted Payment, if
other than in cash, shall be the fair market value thereof, as determined in the
good faith reasonable judgment of our board of directors.
Limitation on Dividends and Other Payment Restrictions Affecting Subsidiaries
We, and the guarantors will not, and will not permit any of our
subsidiaries to, directly or indirectly, create, assume or suffer to exist any
consensual restriction on the ability of any of our subsidiaries to pay
dividends or make other distributions to or on behalf of, or to pay any
obligation to or on behalf of, or otherwise to make any transfer of assets or
property to or on behalf of, or make or pay any loans or advances to or on
behalf of, us or any or our subsidiaries, except:
(a) other than as provided by clause (e) below, restrictions imposed
by the notes or the indenture or by our other indebtedness ranking
senior or equal in right of payment with the notes or the
guarantees, as applicable; provided, that such restrictions are no
more restrictive taken as a whole than those imposed by the
indenture and the notes;
(b) restrictions imposed by applicable law;
(c) existing restrictions under Indebtedness outstanding on the issue
date;
(d) restrictions under any Acquired Indebtedness not incurred in
violation of the indenture or any agreement relating to any
property, asset, or business acquired by us or any of our
subsidiaries, which restrictions in each case existed at the time
of acquisition, were not put in place in connection with or in
anticipation of such acquisition and are not applicable to any
person, other than the person acquired, or to any property, asset
or business, other than the property, assets and business so
acquired;
(e) any such restriction or requirement imposed by Indebtedness
incurred under the Horseshoe Credit Agreement or the New Credit
Facility, as the case may be, permitted by the covenant
"Limitation on Incurrence of Additional Indebtedness and
Disqualified Capital Stock";
(f) restrictions with respect solely to any of our subsidiaries
imposed pursuant to a binding agreement which has been entered
into for the sale or disposition of all or substantially all
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of the Equity Interests or assets of such subsidiary; provided,
that such restrictions apply solely to the Equity Interests or
assets of such subsidiary which are being sold;
(g) restrictions on transfer contained in Purchase Money Indebtedness
incurred pursuant to paragraph (a) of the covenant "Limitation on
Incurrence of Additional Indebtedness and Disqualified Capital
Stock"; provided, that such restrictions relate only to the
transfer of the property acquired with the proceeds of such
Purchase Money Indebtedness; and
(h) in connection with and pursuant to permitted Refinancings,
replacements of restrictions imposed pursuant to clauses (a), (c),
(d), (e), (g) or this clause (h) of this paragraph that are not
more restrictive taken as a whole than those being replaced and do
not apply to any other person or assets than those that would have
been covered by the restrictions in the Indebtedness so
refinanced.
Notwithstanding the foregoing, (x) customary provisions restricting
subletting or assignment of any lease entered into in the ordinary course of
business, consistent with industry practice and (y) any asset subject to a Lien
which is not prohibited to exist with respect to such asset pursuant to the
terms of the indenture may be subject to customary restrictions on the transfer
or disposition thereof pursuant to such Lien.
Limitations on Layering Indebtedness
We and the guarantors will not, and will not permit any of our
subsidiaries to, directly or indirectly, incur, or suffer to exist any
Indebtedness that is subordinate in right of payment to any other of our or a
guarantor's Indebtedness unless, by its terms, such Indebtedness (1) has a final
stated maturity date on or subsequent to the Stated Maturity of the notes and an
Average Life longer than that of the notes and (2) is subordinate in right of
payment to, or ranks equal in right of payment with, the notes or the guarantee,
as applicable.
Limitation on Liens
We and the guarantors will not, and will not permit any of our
subsidiaries to, create, incur, assume or suffer to exist any Lien of any kind,
other than Permitted Liens, upon any of our respective assets now owned or
acquired on or after the issue date or upon any income or profits therefrom
securing any of our or any of our Subsidiaries' Indebtedness other than Senior
Debt, unless we provide, and cause our subsidiaries to provide, concurrently
therewith, that the notes and the applicable guarantees are equally and ratably
so secured; provided, that if such Indebtedness is Subordinated Indebtedness,
the Lien securing such Subordinated Indebtedness shall be subordinate and junior
to the Lien securing the notes, and any related applicable guarantees, with the
same relative priority as such Subordinated Indebtedness shall have with respect
to the notes, and any related applicable guarantees. We will not create, incur,
assume or suffer to exist any Lien of any kind on the Horseshoe Note or the
Secured Proceeds Account, except in favor of the trustee for the benefit of the
holders.
Limitation on Sale of Assets and Subsidiary Stock
Prior to the merger of Horseshoe Gaming with and into us, we and the
guarantors will not, and will not permit any of our subsidiaries to consummate
an Asset Sale, as defined below, other than any transaction described in clauses
(1), (3), (4) and (5) of the fourth paragraph of this covenant.
Following the merger of Horseshoe Gaming with and into us, we and the
guarantors will not, and will not permit any of our
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subsidiaries to convey, sell, transfer, assign or otherwise dispose of, directly
or indirectly, any of our property, business or assets, including by merger or
consolidation and including any sale or other transfer or issuance of any Equity
Interests of any of our subsidiaries, whether by us or any other of our
subsidiaries or through the issuance, sale or transfer of Equity Interests by
one of our subsidiaries, and including any sale and leaseback transaction, any
of the foregoing, an "Asset Sale", unless:
(l) (a) the Net Cash Proceeds therefrom, or the Asset Sale Offer
Amount, are applied:
(x) within 270 days after the date of such Asset Sale to
the optional redemption of the notes in accordance
with the terms of the indenture and our other
Indebtedness ranking on a parity with the notes and
with similar provisions requiring us to redeem such
Indebtedness with the proceeds from such Asset Sale,
pro rata in proportion to the respective principal
amounts, or accreted values in the case of
Indebtedness issued with an original issue discount,
of the notes and such other Indebtedness then
outstanding; or
(y) within 300 days after the date of such Asset Sale to
the repurchase of the notes and such other
Indebtedness on a parity with the notes and with
similar provisions requiring us to make an offer to
purchase such Indebtedness with the proceeds from
such Asset Sale pursuant to a cash offer pro rata in
proportion to the respective principal amounts, or
accreted values in the case of Indebtedness issued
with an original issue discount, of the notes and
such other Indebtedness then outstanding, or the
Asset Sale Offer, at a purchase price of 100% of
principal amount, or accreted value in the case of
Indebtedness issued with an original issue discount,
or the Asset Sale Offer Price, together with accrued
and unpaid interest and liquidated damages, if any,
thereon to the date of payment, made within 270 days
of such Asset Sale; or
(b) within 270 days following such Asset Sale, the Asset Sale
Offer Amount is:
(x) invested in assets and property, other than notes,
bonds, obligations and securities, which in the good
faith reasonable judgment of our board of directors
will immediately constitute or be a part of our or
one of our subsidiaries' Related Businesses
immediately following such transaction; or
(y) used to retire Purchase Money Indebtedness secured
by the asset which was the subject of the Asset
Sale, Indebtedness outstanding under the Horseshoe
Credit Agreement or the New Credit Facility, as the
case may be, or other Senior Debt the terms of which
require retirement upon such Asset Sale, on a pro
rata basis and, to permanently reduce, in the case
of Senior Debt that is not such Purchase Money
Indebtedness, the amount of Indebtedness outstanding
on the issue date or permitted pursuant to paragraph
(b), (c) or (d), as applicable, of the covenant
"Limitation on Incurrence of Additional Indebtedness
and Disqualified Capital Stock", including that in
the case of a revolver or similar arrangement that
makes credit available, such commitment is so
permanently reduced by such amount;
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(2) 75% of the total consideration for such Asset Sale or series of
related Asset Sales consists of cash or Cash Equivalents;
(3) no Default or Event of Default shall have occurred and be
continuing at the time of, or would occur after giving effect, on
a pro forma basis, to, such Asset Sale, unless such Asset Sale is
in consideration solely of cash or Cash Equivalents and such
consideration is applied immediately to the permanent reduction of
the amount of Indebtedness outstanding under the New Credit
Facility or other bank credit facility debt which is incurred
pursuant to clause (c)(1) or (2) of the covenant described herein
under the heading "Limitation on Incurrence of Additional
Indebtedness and Disqualified Capital Stock"; and
(4) our board of directors determines in good faith that we or such
subsidiary, as applicable, receives not less than fair market
value for such Asset Sale.
An acquisition of notes pursuant to an Asset Sale Offer may be deferred
until the accumulated Net Cash Proceeds from Asset Sales not applied to the uses
set forth in 1(a)(x) or 1(b) above, or the Excess Proceeds, exceeds $10 million.
Each Asset Sale Offer shall remain open for 20 business days following its
commencement, or the Asset Sale Offer Period. Upon expiration of the Asset Sale
Offer Period, we shall apply the Asset Sale Offer Amount plus an amount equal to
accrued and unpaid interest and liquidated damages, if any, to the purchase of
all Indebtedness properly tendered, on a pro rata basis if the Asset Sale Offer
Amount is insufficient to purchase all Indebtedness so tendered, at the Asset
Sale Offer Price, together with accrued interest and liquidated damages, if any.
To the extent that the aggregate amount of notes and such other equal in right
of payment Indebtedness tendered pursuant to an Asset Sale Offer is less than
the Asset Sale Offer Amount, we may use any remaining Net Cash Proceeds for
general corporate purposes as otherwise permitted by the indenture and following
each Asset Sale Offer the Excess Proceeds amount shall be reset to zero. For
purposes of (2) above, total consideration received means the total
consideration received for such Asset Sales minus the amount of, (a) Purchase
Money Indebtedness secured solely by the assets sold and assumed by a
transferee; provided, that we and our subsidiaries are fully released from all
obligations relating thereto and (b) property that within 30 days of such Asset
Sale is converted into cash or Cash Equivalents; provided, that such cash and
Cash Equivalents shall be treated as Net Cash Proceeds attributable to the
original Asset Sale for which such property was received.
Notwithstanding, and without complying with, the provisions of this
covenant:
(1) we and our subsidiaries may, in the ordinary course of business:
(a) convey, sell, transfer, assign or otherwise dispose
of inventory and other assets acquired and held for
resale in the ordinary course of business; and
(b) liquidate Cash Equivalents;
(2) following the merger of Horseshoe Gaming with and into us, we and
our subsidiaries may convey, sell, transfer, assign or otherwise
dispose of assets pursuant to and in accordance with the covenant
"Limitation on Merger, Sale or Consolidation";
(3) we and our subsidiaries may sell or dispose of damaged, worn out
or other obsolete property in the ordinary course of business so
long as such property is no longer necessary for the proper
conduct of our or such subsidiary's business, as applicable;
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(4) our subsidiaries may convey, sell, transfer, assign or otherwise
dispose of assets to us or any other subsidiary and we may convey,
sell, transfer, assign or otherwise dispose of assets to any
subsidiary; and
(5) we and each of our subsidiaries may surrender or waive contract
rights or settle, release or surrender contract, tort or other
claims of any kind or grant Liens not prohibited by the indenture.
Upon the accumulation of $10 million of Net Cash Proceeds from an Event
of Loss, other than the proceeds of any business interruption insurance, each
dollar of Net Cash Proceeds from an Event of Loss that exceeds such amount shall
be:
(1) applied to the redemption or repurchase of the notes and other of
our Indebtedness ranking on a parity with the notes and with
similar provisions requiring us to redeem or repurchase such
Indebtedness, pro rata in proportion to the respective principal
amounts or, accreted values in the case of Indebtedness issued
with an original issue discount, of the notes and such other
Indebtedness then outstanding;
(2) invested in assets and property, other than notes, bonds,
obligation and securities, which in the good faith reasonable
judgment of our board of directors will immediately constitute or
be a part of a Related Business of ours or one of our subsidiaries
immediately following such Event of Loss; or
(3) used to retire Purchase Money Indebtedness secured by the asset
which was the subject of the Event of Loss, Indebtedness
outstanding under the Horseshoe Credit Agreement or the New Credit
Facility, as the case may be, or other Senior Debt the terms of
which so require and to permanently reduce, in the case of Senior
Debt that is not such Purchase Money Indebtedness, the amount of
Indebtedness outstanding on the issue date or permitted pursuant
to paragraph (b), (c) or (d), as applicable, of the covenant
"Limitation on Incurrence of Additional Indebtedness and
Disqualified Capital Stock", including that in the case of a
revolver or similar arrangement that makes credit available, such
commitment is so permanently reduced by such amount, all within
the time periods and as otherwise provided above in clauses 1(a)
or 1(b) of the first paragraph of this covenant.
Any Asset Sale Offer shall be made in compliance with all applicable
laws, rules, and regulations. To the extent that the provisions of any
securities laws or regulations conflict with the provisions of this paragraph,
compliance by us or any of our subsidiaries with such laws and regulations shall
not in and of itself cause a breach of its obligations under such covenant.
If the payment date in connection with an Asset Sale Offer hereunder is
on or after an interest payment Record Date and on or before the associated
interest payment date, any accrued and unpaid interest, and liquidated damages,
if any, due on such interest payment date, will be paid to the person in whose
name a note is registered at the close of business on such Record Date, and such
interest, or liquidated damages, if applicable, will not be payable to holders
who tender notes pursuant to such Asset Sale Offer.
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Limitation on Transactions with Affiliates
Neither we nor any of our subsidiaries will be permitted on or after the
issue date to enter into or suffer to exist any contract, agreement, arrangement
or transaction with any affiliate or any series of related affiliate
transactions, other than Exempted Affiliate Transactions:
(1) unless it is determined that the terms of such affiliate
transaction are fair and reasonable to us, and no less favorable
to us, than could have been obtained in an arm's length
transaction with a non-Affiliate; and
(2) if involving consideration to either party in excess of $5
million, unless
(a) such affiliate transaction(s) is evidenced by an Officers'
Certificate addressed and delivered to the trustee
certifying that such affiliate transaction has been
approved by a majority of the members of our board of
directors that are disinterested in such transaction, if
any; and
(b) prior to the consummation thereof, we obtain a written
favorable opinion as to the fairness of such transaction to
us from a financial point of view from an independent
investment banking firm of national reputation in the
United States or, if pertaining to a matter for which such
investment banking firms do not customarily render such
opinions, an appraisal or valuation firm of national
reputation in the United States.
Limitation on Merger, Sale or Consolidation
Prior to the merger of Horseshoe Gaming with and into us, we will not
consolidate with or merge with or into another person or, directly or
indirectly, sell, lease, convey or transfer all or substantially all of our
assets, whether in a single transaction or a series of related transactions, to
another person or group of affiliated persons.
Following the merger of Horseshoe Gaming with and into us, we will not
consolidate with or merge with or into another person or, directly or
indirectly, sell, lease, convey or transfer all or substantially all of our
assets, whether in a single transaction or a series of related transactions, to
another person or group of affiliated persons, unless:
(1) either (a) we are the continuing entity or (b) the resulting,
surviving or transferee entity is a corporation organized under
the laws of the United States or the District of Columbia and
expressly assumes by supplemental indenture all of our obligations
in connection with the notes and the indenture;
(2) no Default or Event of Default shall exist or shall occur
immediately after giving effect on a pro forma basis to such
transaction;
(3) immediately after giving effect to such transaction on a pro forma
basis, the consolidated resulting, surviving or transferee entity
would immediately thereafter be permitted to incur at least $1.00
of additional Indebtedness pursuant to the Debt Incurrence Ratio
set forth in the covenant "Limitation on Incurrence of Additional
Indebtedness and Disqualified Capital Stock", except in the case
where such transaction is solely between us and our wholly
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owned subsidiaries or solely between our wholly owned
subsidiaries; and
(4) such transaction will not result in the loss of any material
gaming license.
Notwithstanding the foregoing, in no event shall the merger of Horseshoe
Gaming with and into us be prohibited by, or cause a default under, this
covenant or any other covenant under the indenture.
Upon any consolidation or merger or any transfer of all or substantially
all of our assets in accordance with the foregoing, the successor corporation
formed by such consolidation or into which we are merged or to which such
transfer is made shall succeed to and, except in the case of a lease, be
substituted for, and may exercise every right and power of, ours under the
indenture with the same effect as if such successor corporation had been named
therein as us, and, except in the case of a lease, we shall be released from the
obligations under the notes and the indenture except with respect to any
obligations that arise from, or are related to, such transaction.
For purposes of the foregoing, the transfer of all or substantially all
of the properties and assets of one or more subsidiaries, our interest in which
constitutes all or substantially all of our properties and assets, shall be
deemed to be the transfer of all or substantially all of our properties and
assets.
Limitation on Lines of Business
Neither we nor any of our subsidiaries shall directly or indirectly
engage to any substantial extent in any line or lines of business activity other
than that which, in the reasonable good faith judgment of our board of
directors, is a Related Business.
Guarantors
Except as set forth in the next sentence, upon consummation of the
Empress merger, we have agreed to cause each of our wholly owned subsidiaries
and any other of our subsidiaries that executes a guarantee of Indebtedness that
is equal in right of payment or subordinate to the notes jointly and severally
to guaranty irrevocably and unconditionally all principal, premium, if any,
liquidated damages, if any, and interest on the notes on a senior subordinated
basis. As a result of restrictions contained in an indenture relating to debt of
Horseshoe Gaming, notwithstanding the foregoing, the subsidiaries of Horseshoe
Gaming will not be required to guarantee the notes until we consummate the
merger of Horseshoe Gaming with and into us. In connection with the foregoing,
we have agreed:
(1) until we consummate the merger of Horseshoe Gaming with and into
us, to own directly at least 90% of Horseshoe Gaming; and
(2) that upon consummation of the Empress merger, RPG, HE, Empress
Indiana and Empress Illinois will be our wholly owned subsidiaries
and, therefore, guarantors.
The obligation of any potential guarantor to execute a guarantee will be
subject to the receipt of any approval required by any Gaming Authority, which
we and our Subsidiaries must use their reasonable best efforts to obtain.
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Release of Guarantors
No guarantor shall consolidate or merge with or into another person
unless, subject to the provisions of the following paragraph and certain other
provisions of the indenture;
(1) the person formed by or surviving any such consolidation or
merger, if other than such guarantor, assumes all the obligations
of such guarantor pursuant to a supplemental indenture in form
reasonably satisfactory to the trustee, pursuant to which such
person shall unconditionally guarantee, on a senior subordinated
basis, all of such guarantor's obligations under such guarantor's
guarantee on the terms set forth in the indenture;
(2) immediately before and immediately after giving effect to such
transaction on a pro forma basis, no Default or Event of Default
shall have occurred or be continuing; and
(3) immediately after such transaction, the surviving person holds all
Permits required for operation of the business of, and such entity
is controlled by a person or entity, or has retained a person or
entity which is, experienced in, operating casino hotels or
otherwise holds all Permits to operate its business.
The provisions of the covenant shall not apply to the merger of any guarantors
with and into each other or with or into us.
Upon the sale or disposition of a guarantor or all or substantially all
of its assets to an entity which is not a subsidiary, or the designation of a
subsidiary to become an unrestricted subsidiary, which transaction is otherwise
in compliance with the indenture, such guarantor will be deemed released from
its obligations under its guarantee of the notes; provided, however, that any
such termination shall occur only to the extent that all obligations of such
guarantor under all of its guarantees of, and under all of its pledges of assets
or other security interests which secure, any of our or any other of our
subsidiary's Indebtedness shall also terminate upon such release, sale or
transfer.
Limitation on Status as Investment Company
We and our subsidiaries will not become required to register as an
"investment company", as that term is defined in the Investment Company Act of
1940, as amended, or otherwise become subject to regulation under the
Investment Company Act.
Application of Funds in Secured Proceeds Account; Merger of Horseshoe Gaming
With and Into Us
We will apply the Merger Release Amount solely to pay a portion of the
Empress merger consideration and related costs simultaneously with the release
of that amount from the Secured Proceeds Account unless the Empress merger does
not occur, in which case the Merger Release Amount will be available for the
Triggering Event Mandatory Redemption. We will apply the Change of Control
Release Amount solely to fund the Empress change of control offer simultaneously
with the release of that amount from the Secured Proceeds Account, which will
occur not later than 35 business days after the Empress merger. If, after
consummation of the Empress change of control offer, more than $25.0 million but
equal to or less than $75.0 million aggregate principal amount of
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Empress notes remain outstanding, then, if and to the extent required by the
terms of our New Credit Facility, we will permanently reduce commitments under
our New Credit Facility, or a Credit Facility Reduction.
We will cause the merger of Horseshoe Gaming with and into us to occur
substantially concurrently with and not later than one business day following
the Empress merger or Triggering Event Mandatory Redemption, as applicable.
Use of Proceeds of Horseshoe Note
We will cause Horseshoe Gaming to use the proceeds of the Horseshoe Note
on the issue date to:
(1) repay outstanding borrowings in full under the Horseshoe Credit
Agreement;
(2) consummate a tender offer and consent solicitation, or the Tender
Offer, with respect to Horseshoe Gaming's 12 3/4:% Senior Notes
due 2000, or the Senior Notes; and
(3) pay related fees and expenses, including tender premiums and
consent fees; provided, however, that in the event that either;
(x) on or before the closing of this offering, Horseshoe
Gaming for any reason fails to consummate the Tender
Offer; or
(y) any Senior Notes remain outstanding after
consummation of the Tender Offer, we will cause
Horseshoe Gaming on the issue date to:
(a) irrevocably deposit a portion of the proceeds
of the Horseshoe a into a defeasance account
in an amount sufficient to repay the then
outstanding Senior Notes on September 30,
1999, the earliest date such notes may be
redeemed, or Earliest Redemption Date, plus
accrued interest thereon; and
(b) redeem the Senior Notes in full on the
Earliest Redemption Date. Any remaining
proceeds of the Horseshoe Note may be used by
Horseshoe Gaming for general corporate
purposes.
Empress Merger
Notwithstanding anything herein to the contrary, no provision of the
indenture will prohibit or, with the passage of time or otherwise, be violated
by, any component of the Empress merger pursuant to the merger agreement
including, without limiting the generality of the foregoing, the incurrence of
indebtedness to finance such transactions, the granting and priority of liens to
secure such indebtedness, and the perfection of such liens.
REPORTS
We shall deliver to the trustee and, to each holder and to prospective
purchasers of notes identified to us by an Initial Purchaser, within 15 days
after it is or would have been, if it were subject to such reporting
obligations, required to file such with the Securities and Exchange Commission,
or
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the Commission, annual and quarterly financial statements substantially
equivalent to financial statements that would have been included in reports
filed with the Commission, if we were subject to the requirements of Section 13
or 15(d) of the Exchange Act, including, with respect to annual information
only, a report thereon by our certified independent public accountants as such
would be required in such reports to the Commission, and, in each case, together
with a management's discussion and analysis of financial condition and results
of operations which would be so required and, unless the Commission will not
accept such reports, file with the Commission the annual, quarterly and other
reports which it is or would have been required to file with the Commission.
EVENTS OF DEFAULT AND REMEDIES
The indenture defines an "Event of Default" as:
(1) our failure to pay any installment of interest, or liquidated
damages, if any, on the notes as and when the same becomes due and
payable and the continuance of any such failure for 30 days;
(2) our failure to pay all or any part of the principal, or premium,
if any, on the notes when and as the same becomes due and payable
at maturity, redemption, by acceleration or otherwise, including,
without limitation, payment of the Mandatory Redemption Price upon
the occurrence of an event giving rise to a Mandatory Redemption,
or payment of the Change of Control Purchase Price, except as
provided in "Repurchase of Notes at the Option of the Holders Upon
a Change of Control", or the Asset Sale Offer Price on notes
validly tendered and not properly withdrawn pursuant to a Change
of Control Offer or Asset Sale Offer, as applicable;
(3) our or any of our subsidiaries' failure to observe or perform any
other covenant or agreement contained in the notes or the
indenture and, except for the provisions under "Repurchase of
Notes at the Option of the Holder Upon a Change of Control,"
"Limitations on Sale of Assets and Subsidiary Stock," "Limitation
on Merger, Sale or Consolidation," "Application of Funds in
Secured Proceeds Account; Merger of Horseshoe Gaming with and into
us," and "Use of Proceeds of Horseshoe Note" the continuance of
such failure for a period of 30 days after written notice is given
to us by the trustee or to us and the trustee by the holders of at
least 25% in aggregate principal amount of the notes outstanding;
(4) certain events of bankruptcy, insolvency or reorganization in
respect of us or any of our significant subsidiaries;
(5) a default in our or any of our subsidiaries' Indebtedness with an
aggregate amount outstanding in excess of $10 million, other than
our Indebtedness solely to any of our subsidiaries;
(a) resulting from the failure to pay principal at final stated
maturity; or
(b) as a result of which the maturity of such Indebtedness has
been accelerated prior to its final stated maturity;
(6) final non-appealable unsatisfied judgments not covered by
insurance aggregating in excess of $10 million, at any one time
rendered against us or any of our subsidiaries and not stayed,
bonded or discharged within 60 days;
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(7) any guarantee of a guarantor that is a significant subsidiary
ceases to be in full force and effect or becomes unenforceable or
invalid or is declared null and void, other than in accordance
with the terms of the guarantee, or any guarantor that is a
Significant Subsidiary denies or disaffirms its Obligations under
its guarantee;
(8) the suspension or loss of our or any of our subsidiaries' legal
right to operate the gaming establishment included within any
casino and such suspension or loss continuing for more than 90
consecutive days or for 120 days within any consecutive 180 day
period; and
(9) our failure to effect the merger of Horseshoe Gaming with and into
us following the occurrence of the Empress merger, or a Triggering
Event Mandatory Redemption, as applicable, or our failure to cause
our subsidiaries to guarantee the notes upon the consummation of
the Empress merger and the merger of Horseshoe Gaming with and
into us as described under the covenant "Guarantors."
If a Default occurs and is continuing, the trustee must, within 90 days
after the occurrence of such Default, give to the holders notice of such
Default; provided, however, that except in the case of a Default in payment of
principal of or interest on any note, the trustee may withhold the notice if and
so long as a committee of its Trust Officers in good faith determines that
withholding the notice is in the interest of the holders.
If an Event of Default occurs and is continuing, other than an Event of
Default specified in clause (4), above, relating to us, then in every such case,
unless the principal of all of the notes shall have already become due and
payable, either the trustee or the holders of at least 25% in aggregate
principal amount of the notes then outstanding, by notice in writing to us, and
to the trustee if given by holders, or an Acceleration Notice, may declare all
principal, determined as set forth below, and accrued interest, and liquidated
damages, if any, thereon to be due and payable immediately; provided, however,
that if any Designated Senior Debt is outstanding pursuant to the Horseshoe
Credit Agreement or the New Credit Facility, as the case may be, or otherwise,
upon a declaration of such acceleration, such principal and interest shall be
due and payable upon the earlier of:
(x) the third business day after the sending to us and to the
agent or representative of the lenders under the Horseshoe
Credit Agreement or the New Credit Facility, as the case
may be, or other Designated Senior Debt, of such written
notice, unless such Event of Default is cured or waived
prior to such date; and
(y) the date of acceleration of any Senior Debt under the
Horseshoe Credit Agreement or the New Credit Facility, as
the case may be, or other Designated Senior Debt.
In the event a declaration of acceleration resulting from an Event of Default
described in clause (5) above has occurred and is continuing, such declaration
of acceleration shall be automatically annulled if such default is cured or
waived or the holders of the Indebtedness which is the subject of such default
have rescinded their declaration of acceleration in respect of such Indebtedness
within 30 days thereof and the trustee has received written notice of such cure,
waiver or rescission and no other Event of Default described in clause (5) above
has occurred that has not been cured or waived within 30 days of the declaration
of such acceleration in respect of such Indebtedness. If an Event of Default
specified in clause (4) above, relating to us occurs, all principal and accrued
interest, and liquidated damages, if any, thereon will be immediately due and
payable on all outstanding notes without any declaration or other act on the
part of the trustee or the holders. The holders of a majority in aggregate
principal amount of notes generally are
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authorized to rescind any acceleration if all existing Events of Default, other
than the non-payment of the principal of, premium, if any, and interest on the
notes which have become due solely by such acceleration and except a Default
with respect to any provision requiring a supermajority approval to amend, which
Default may only be waived by such a supermajority, have been cured or waived.
Prior to the declaration of acceleration of the maturity of the notes,
the holders of a majority in aggregate principal amount of the notes at the time
outstanding may waive on behalf of all the holders any Default, except a Default
with respect to any provision requiring a supermajority approval to amend, which
Default may only be waived by such a supermajority, and except a Default in the
payment of principal of or interest on any note not yet cured or a Default with
respect to any covenant or provision which cannot be modified or amended without
the consent of the holder of each outstanding note affected. Subject to the
provisions of the indenture relating to the duties of the trustee, the trustee
will be under no obligation to exercise any of its rights or powers under the
indenture at the request, order or direction of any of the holders, unless such
holders have offered to the trustee reasonable security or indemnity. Subject to
all provisions of the indenture and applicable law, the holders of a majority in
aggregate principal amount of the notes at the time outstanding will have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the trustee, or exercising any trust or power conferred on
the trustee.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
We may, at our option and at any time, elect to have our obligations and
the obligations of the guarantors discharged with respect to the outstanding
notes, or Legal Defeasance. Such Legal Defeasance means that we shall be deemed
to have paid and discharged the entire indebtedness represented by the notes,
and the indenture shall cease to be of further effect as to all outstanding
notes and guarantees, except as to:
(1) rights of holders to receive payments in respect of the principal
of, premium, if any, and interest, and liquidated damages, if any,
on such notes when such payments are due from the trust funds;
(2) our obligations with respect to such notes concerning issuing
temporary notes, registration of notes, mutilated, destroyed, lost
or stolen notes, and the maintenance of an office or agency for
payment and money for security payments held in trust;
(3) the rights, powers, trust, duties, and immunities of the trustee,
and our obligations in connection therewith; and
(4) the Legal Defeasance provisions of the indenture.
In addition, we may, at our option and at any time, elect to have our and the
guarantors' obligations released with respect to certain covenants under the
indenture, except as described otherwise in the indenture, or Covenant
Defeasance, and thereafter any omission to comply with such obligations shall
not constitute a Default or Event of Default with respect to the notes. In the
event Covenant Defeasance occurs, certain events described under "Events of
Default" will no longer constitute an Event of Default with respect to the
notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
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(1) we must irrevocably deposit with the trustee, in trust, for the
benefit of the holders of the notes, U.S. legal tender, U.S.
Government Obligations or a combination thereof, in such amounts
as will be sufficient, in the opinion of a nationally recognized
firm of independent public accountants, to pay the principal of,
premium, if any, liquidated damages, if any, and interest on such
notes on the stated date for payment thereof or on the redemption
date of such principal or installment of principal of, premium, if
any, liquidated damages, if any, or interest on such notes, and
the holders of notes must have a valid, perfected, exclusive
security interest in such trust;
(2) in the case of Legal Defeasance, we shall have delivered to the
trustee an opinion of counsel in the United States reasonably
acceptable to the trustee confirming that (A) we have received
from, or there has been published by the Internal Revenue Service,
a ruling or (B) since the date of the indenture, there has been a
change in the applicable federal income tax law, in either case to
the effect that, and based thereon such opinion of counsel shall
confirm that, the holders of such notes will not recognize income,
gain or loss for federal income tax purposes as a result of such
Legal Defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as would
have been the case if such Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, we shall have delivered to the
trustee an opinion of counsel in the United States reasonably
acceptable to such trustee confirming that the holders of such
notes will not recognize income, gain or loss for federal income
tax purposes as a result of such Covenant Defeasance and will be
subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such
Covenant Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or insofar as Events of
Default from bankruptcy or insolvency events are concerned, at any
time in the period ending on the 91st day after the date of
deposit;
(5) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under the
indenture or any other material agreement or instrument to which
we or any of our subsidiaries is a party or by which we or any of
our subsidiaries is bound;
(6) we shall have delivered to the trustee an Officers' Certificate
stating that the deposit was not made by us with the intent of
preferring the holders of such notes over any other of our
creditors or with the intent of defeating, hindering, delaying or
defrauding any other our creditors or others; and
(7) we shall have delivered to the trustee an Officers' Certificate
and an opinion of counsel, each stating that the conditions
precedent provided for in, in the case of the Officers'
Certificate, clauses (1) through (6) and, in the case of the
opinion of counsel, clauses (1), with respect to the validity and
perfection of the security interest, (2), (3) and (5) of this
paragraph have been complied with and we shall have delivered to
the trustee an Officers' Certificate, subject to such
qualifications and exceptions as the trustee deems appropriate, to
the effect that, the trust funds will not be subject to the effect
of any applicable Federal bankruptcy, insolvency, reorganization
or similar laws affecting creditors' right generally.
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If the funds deposited with the trustee to effect Covenant Defeasance are
insufficient to pay the principal of, premium, if any, and interest on the notes
when due, then our and the guarantors' obligations under the indenture will be
revived and no such defeasance will be deemed to have occurred.
SATISFACTION AND DISCHARGE
The indenture will be discharged and will cease to be of further effect,
except as to surviving rights of registration of transfer or exchange of notes,
as to all outstanding Notes when either:
(a) all such notes theretofore authenticated and delivered,
except lost, stolen or destroyed notes which have been
replaced or paid and notes for whose payment money has
theretofore been deposited in trust or segregated and held
in trust by us and thereafter repaid to us or discharged
from such trust, have been delivered to the trustee for
cancellation; or
(b)
- all notes not theretofore delivered to the trustee
for cancellation otherwise have become due and
payable or, within one year will become due and
payable or subject to redemption as set forth above
under the heading "Optional Redemption," and we have
irrevocably deposited or caused to be deposited with
the trustee as trust funds in the trust for such
purpose an amount of money sufficient to pay and
discharge the entire indebtedness on the notes not
theretofore delivered to the trustee for
cancellation, including all principal, premium, if
any, and accrued interest, and liquidated damages,
if any;
- we have paid all sums payable by it under the
indenture;
- we have delivered irrevocable instructions to the
trustee to apply the deposited money toward the
payment of the notes at maturity or the redemption
date, as the case may be; and
- the holders of the notes have a valid, perfected,
exclusive security interest in such trust. In
addition, we must deliver an Officers' Certificate
and an opinion of counsel stating that all
conditions precedent to satisfaction and discharge
have been complied with.
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AMENDMENTS AND SUPPLEMENTS
The indenture contains provisions permitting us, the guarantors and the
trustee to enter into a supplemental indenture for certain limited purposes
without the consent of the holders. With the consent of the holders of not less
than a majority in aggregate principal amount of the notes at the time
outstanding, we, the guarantors and the trustee are permitted to amend or
supplement the indenture or any supplemental indenture or modify the rights of
the holders; provided, that no such modification may, without the consent of
holders of at least 66 2/3% in aggregate principal amount of notes at the time
outstanding, modify the provisions of the covenant "Repurchase of Notes at the
Option of the holder upon a Change of Control" in a manner adverse to the
holders and provided, that no such modification may, without the consent of each
holder affected thereby:
(1) change the Stated Maturity on any note, or reduce the principal
amount thereof or the rate, or extend the time for payment, of
interest thereon or any premium payable upon the redemption at our
option thereof, or change the place of payment where, or the coin
or currency in which, any note or any premium or the interest
thereon, and liquidated damages, if any, is payable, or impair the
right to institute suit for the enforcement of any such payment on
or after the Stated Maturity thereof, or, in the case of
redemption at our option, on or after the Redemption Date; or
(2) reduce the Mandatory Redemption Price; or
(3) reduce the Change of Control Purchase Price or the Asset Sale
Offer Price after the corresponding Asset Sale or Change of
Control has occurred; or
(4) alter the provisions, including the defined terms used therein,
regarding any mandatory redemption provisions or our right to
redeem the notes in a manner adverse to the holders; or
(5) reduce the percentage in principal amount of the outstanding
notes, the consent of whose holders is required for any such
amendment, supplemental indenture or waiver provided for in the
indenture; or
(6) modify any of the waiver provisions, except to increase any
required percentage or to provide that certain other provisions of
the indenture cannot be modified or waived without the consent of
the holder of each outstanding note affected thereby.
NO PERSONAL LIABILITY OF PARTNERS, STOCKHOLDERS, OFFICERS, DIRECTORS
The indenture provides that none of our, the guarantors or any successor
entity's direct or indirect stockholder, employee, officer or director, as such,
past, present or future shall have any personal liability in respect of our or
the guarantors' obligations under the indenture or the notes solely by reason of
his or its status as such stockholder, employee, officer or director, except
that this provision shall in no way limit the obligation of any Guarantor
pursuant to any guarantee of the notes.
BOOK-ENTRY; DELIVERY AND FORM
General. Except as described below, the notes will not be represented by
physical certificates. Instead, the notes will be in the form of one or more
fully registered global notes. Each global note will be deposited with the
trustee, as custodian for, and registered in the name of DTC or a nominee of
DTC. The
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original notes, to the extent validly tendered and accepted and directed by
their holders in their letters of transmittal, will be exchanged through
electronic transfer through DTC's Automated Tender Offer Program. Notes that are
issued as described below under the heading "Physical Notes" will be issued as
physical certificates. Upon the transfer of a note of any series issued as
physical certificates, that note will be exchanged for an interest in the global
note representing the principal amount of notes being transferred, unless the
global notes for that series have previously been exchanged for physical
certificates.
The Global Notes. We expect that in accordance with DTC's procedures: (1)
upon deposit of the global notes, DTC or its custodian will credit, on its
internal system, the principal amount of the individual beneficial interests
represented by the global notes to the respective accounts of persons who have
accounts with DTC and (2) ownership of beneficial interests in the global notes
will be shown on, and the transfer of that ownership will be effected only
through: records maintained by DTC or its nominee with respect to interests of
persons who have accounts with DTC, or participants, and the records of
participants with respect to interests of persons other than participants. So
long as DTC, or its nominee, is the registered owner or holder of the global
notes, DTC or the nominee will be considered the sole record owner or holder of
the notes represented by the global notes for all purposes under the indenture.
No beneficial owner of an interest in the global notes will be able to transfer
that interest except in accordance with DTC's procedures and the requirements of
the indenture.
We will make payments of the principal of, or premium and interest on,
the global notes to DTC or its nominee, as the registered owner of the global
notes. Neither us, the trustee or any paying agent under the indenture will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the global notes
or for maintaining, supervising or reviewing any records relating to those
beneficial ownership interests. We expect that DTC or its nominee, upon receipt
of any payment of the principal of, or premium and interest on, the global
notes, will credit participants' accounts with payments in amounts proportionate
to their respective beneficial interests in the principal amount of the global
notes as shown on the records of DTC or its nominee. We also expect that
payments by participants to owners of beneficial interests in the global notes
held through those participants will be governed by standing instructions and
customary practice as is now the case with securities held for the accounts of
customers registered in the names of nominees for those customers. Those
payments will be the responsibility of those participants. Transfers between
participants in DTC will be effected in accordance with DTC's procedures and
will be settled in immediately available funds. If a holder requires physical
delivery of the notes for any reason, including to sell notes to persons in
states which require physical delivery of the notes, or to pledge the notes, the
holder must transfer its interest in the global notes in accordance with DTC's
normal procedures and the procedures described in the indenture. DTC has advised
us that it will take any action permitted to be taken by a holder of notes only
at the direction of one or more participants to whose account interests in the
global notes are credited and only in respect of the aggregate principal amount
of notes as to which that participant has given direction. However, if there is
an Event of Default under the indenture, DTC will exchange the global notes for
physical notes, which it will distribute to its participants. DTC has advised us
as follows:
(1) DTC is a limited purpose trust company organized under the laws of
the State of New York;
(2) a member of the Federal Reserve System;
(3) a "clearing corporation" within the meaning of the Uniform
Commercial Code; and
(4) a "clearing agency" registered under the provisions of Section 17A
of the Exchange Act.
DTC was created to hold securities for its participants and facilitate the
clearance and settlement of securities transactions between participants through
electronic entries in its participants' accounts. This system eliminated the
need for physical movement of certificates. Participants include securities
brokers and dealers, banks, trust
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companies and clearing corporations and certain other organizations. Indirect
access to the DTC system is available to others such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a participant, or indirect participants. Although DTC and its participants are
expected to follow these procedures in order to facilitate transfers of
interests in the global notes among participants, they are under no obligation
to perform these procedures, and the procedures may be discontinued at any time.
Neither we nor the trustee will have any responsibility for the performance by
DTC or its participants or indirect participants of their respective obligations
under the rules and procedures governing their operations.
Physical Notes. Notes issued as physical certificates are referred to in
this prospectus as "physical notes." These physical notes will be exchangeable
or transferable for global notes if:
(1) DTC notifies us that it is unwilling or unable to continue as
depositary for the global notes, or DTC ceases to be a "clearing
agency" registered under the Exchange Act, and a successor
depositary is not appointed by us within 90 days; or
(2) we, in our discretion, at any time determine not to have all of
the notes represented by a global note and notify the trustee of
our decision; or
(3) an Event of Default or an event which, with the giving of notice
or lapse of time, or both, would constitute an Event of Default
relating to the notes represented by the global security has
occurred and is continuing. Upon the occurrence of any of the
above events, we will cause the appropriate physical notes to be
delivered.
CERTAIN DEFINITIONS
"Acquired Indebtedness" means Indebtedness or Disqualified Capital Stock
of any person existing at the time such person becomes our subsidiary, including
by designation, or is merged or consolidated into or with us or one of our
subsidiaries.
"Adjusted Consolidated EBITDA" means, with respect to us, for any period,
our Consolidated EBITDA, minus the product of (1) the Consolidated EBITDA for
such period of each Consolidated Subsidiary which is not wholly-owned by us and
(2) the percentage of the Equity Interests of such Consolidated Subsidiary
which, during such period, is not owned by us.
"Adjusted Consolidated Net Income" means, with respect to any period,
Consolidated Net Income for such period, minus (1) 100% of the amount of any
writedowns, writeoffs or negative extraordinary charges not otherwise reflected
in Consolidated Net Income during such period and minus (2) Permitted Tax
Distributions for such period.
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"Applicable Capital Gain Tax Rate" in respect of each of us or any of our
subsidiaries shall mean for each such entity calculated separately an amount
equal to the sum of (1) the highest marginal Federal capital gain tax rate
applicable to any of our Equity Holders plus (2) an amount equal to the sum of
the highest marginal state and local capital gain tax rates applicable to any of
our Equity Holders, multiplied by a factor equal to 1 minus such highest
marginal Federal capital gain tax rate.
"Applicable Income Tax Rate" in respect of each of us or any of our
subsidiaries shall mean for each such entity calculated separately, an amount
equal to the sum of (i) the highest marginal Federal income tax rate applicable
to any our Equity Holders plus (ii) an amount equal to the sum of the highest
marginal state and local income tax rates applicable to any of our Equity
Holders, multiplied by a factor equal to 1 minus such highest marginal Federal
income tax rate.
"Average Life" means, as of the date of determination, with respect to
any security or instrument, the quotient obtained by dividing (1) the sum of the
products (a) of the number of years from the date of determination to the date
or dates of each successive scheduled principal, or redemption, payment of such
security or instrument and (b) the amount of each such respective principal, or
redemption, payment by (2) the sum of all such principal, or redemption
payments.
"Capital Contribution" means any contribution to our equity from our
direct or indirect parent for which no consideration other than the issuance of
common stock with no redemption rights and no special preferences, privileges or
voting rights is given.
"Capitalized Lease Obligation" means, as to any person, the obligations
of such person under a lease that are required to be classified and accounted
for as capital lease obligations under United States generally accepted
accounting principles and, for purposes of this definition, the amount of such
obligations at any date shall be the capitalized amount of such obligations at
such date, determined in accordance with United States generally accepted
accounting principles.
"Capital Stock" means, with respect to any corporation, any and all
shares, interests, rights to purchase, other than convertible or exchangeable
Indebtedness that is not itself otherwise capital stock, warrants, options,
participations or other equivalents of or interests, however designated, in
stock issued by that corporation.
"Cash Equivalent" means:
(1) securities issued or directly and fully guaranteed or insured by
the United States of America or any agency or instrumentality
thereof, provided, that the full faith and credit of the United
States of America is pledged in support thereof; or
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(2) time deposits and certificates of deposit and commercial paper
issued by the parent corporation of any domestic commercial bank
of recognized standing having capital and surplus in excess of
$500 million; or
(3) commercial paper issued by others rated at least A-2 or the
equivalent thereof by Standard & Poor's Corporation or at least
P-2 or the equivalent thereof by Moody's Investors Service, Inc.,
and in the case of each of (1), (2), and (3) maturing within one
year after the date of acquisition; or
(4) repurchase obligations with a term of not more than ten days for
underlying securities of the types described in clause (1) above
entered into with any bank meeting the qualifications specified in
clause (2) above; or
(5) marketable obligations issued by any state of the United States of
America or any political subdivision of any such state or any
public instrumentality thereof maturing, or payable at the demand
of the holder thereof, within one year from the date of
acquisition thereof and, at the time of acquisition, having one of
the three highest ratings obtainable from either Standard & Poor's
Corporation or Moody's Investors Services, Inc.; and
(6) investments in money market funds substantially all of whose
assets comprise securities of the types described in clauses (1)
through (5) above.
"Change of Control" means:
(1) prior to the completion of an Initial Public Offering by us, the
failure at any time of Excluded persons as a group to own and
control at least 40% of our issued and outstanding Equity
Interests;
(2) after the completion of an Initial Public Offering by us, the
acquisition, in one or more transactions, of beneficial ownership
by (A) any person or entity, other than an Excluded Person, or (B)
any group of persons or entities, excluding any group in which
Excluded Persons beneficially own in the aggregate at least 75% of
the equity and voting interests beneficially owned by the group,
who constitute a group, within the meaning of Section 13(d)(3) of
the Exchange Act, in either case, of our Equity Interests such
that, as a result of such acquisition, such person, entity or
group beneficially owns, within the meaning of Rule 13d-3 under
the Exchange Act, directly or indirectly, 30% or more of the
voting power of our Equity Interests entitled to vote in the
election of our directors then outstanding; provided, however,
that no Change of Control shall be deemed to have occurred if (A)
Excluded Persons beneficially own, in the aggregate, at such time,
a greater percentage of the total voting power of our Equity
Interests entitled to vote in the election of our directors than
such other person, entity or group or (B) at the time of such
acquisition, Excluded Persons, or any of them, possess the ability
to elect, or cause the election of, a majority of the members of
our board of directors;
(3) any merger or consolidation of us with or into any person or any
sale, transfer or other conveyance, whether direct or indirect, of
all or substantially all of our assets, on a consolidated basis,
in one transaction or a series of related transactions, if
immediately after giving effect to such transaction or
transactions, any person or group, excluding any group in which
Excluded
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persons beneficially own in the aggregate at least 75% of the
equity and voting interests beneficially owned by the group, is or
becomes the beneficial owner, directly or indirectly, of 30% or
more of the total voting power of Equity Interests of the
surviving or transferee person; provided, however, that no Change
of Control shall be deemed to have occurred if (a) Excluded
persons beneficially own, in the aggregate, at such time, (x) 40%
or more of the total voting power of Equity Interests of the
surviving or transferee person and (y) a greater percentage of the
total voting power of Equity Interests of the surviving or
transferee person than such other person or group or (b) after
giving effect to such transaction, Excluded persons, or any of
them, possess the ability to elect, or cause the election of, a
majority of the members of our board of directors;
(4) during any period of 12 consecutive months after the issue date,
individuals who at the beginning of any such 12-month period
constituted our board of directors, together with any new
directors whose election by such board of directors or whose
nomination for election by our shareholders was approved by a vote
of a majority of the directors then still in office who were
either directors at the beginning of such period or whose election
or nomination for election was previously so approved, including
new directors designated in or provided for in an agreement
regarding the merger, consolidation or sale, transfer or other
conveyance, of all or substantially all of our assets, if such
agreement was approved by a vote of such majority of directors,
cease for any reason to constitute a majority of our board of
directors then in office; or
(5) we adopt a plan of liquidation.
"Change of Control Release Amount" means the amount, determined by us, in
good faith and as set forth in a certificate to be delivered to the Securities
Intermediary and the trustee, necessary to consummate the Empress change of
control offer on the terms set forth in the Empress indenture.
"Change of Control Triggering Event" means the occurrence of both a
Change of Control and either (x) a Rating Decline or (y) a decline in our
Consolidated Coverage Ratio.
"Consolidated Coverage Ratio" of any person on any date of determination,
or the Transaction Date, means the ratio, on a pro forma basis, of (1) the
aggregate amount of Consolidated EBITDA of such person, in the case of us,
Adjusted Consolidated EBITDA, attributable to continuing operations and
businesses, exclusive of amounts attributable to operations and businesses
permanently discontinued or disposed of, for the Reference Period to (2) the
aggregate Consolidated Fixed Charges of such person, exclusive of amounts
attributable to operations and businesses permanently discontinued or disposed
of, but only to the extent that the obligations giving rise to such Consolidated
Fixed Charges would no longer be obligations contributing to such person's
Consolidated Fixed Charges subsequent to the Transaction Date, during the
Reference Period; provided, that for purposes of such calculation:
(a) Acquisitions which occurred during the Reference Period or
subsequent to the Reference Period and on or prior to the
Transaction Date shall be assumed to have occurred on the
first day of the Reference Period;
(b) transactions giving rise to the need to calculate the
Consolidated Coverage Ratio shall be assumed to have
occurred on the first day of the Reference Period;
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(c) the incurrence of any Indebtedness or issuance of any
Disqualified Capital Stock during the Reference Period or
subsequent to the Reference Period and on or prior to the
Transaction Date, and the application of the proceeds
therefrom to the extent used to refinance or retire other
Indebtedness, shall be assumed to have occurred on the
first day of the Reference Period; and
(d) the Consolidated Fixed Charges of such person attributable
to interest on any Indebtedness or dividends on any
Disqualified Capital Stock bearing a floating interest, or
dividend, rate shall be computed on a pro forma basis as if
the average rate in effect from the beginning of the
Reference Period to the Transaction Date had been the
applicable rate for the entire period, unless such person
or any of its subsidiaries is a party to an Interest Swap
and Hedging Obligation, which shall remain in effect for
the 12-month period immediately following the Transaction
Date, that has the effect of fixing the interest rate on
the date of computation, in which case such rate shall be
used.
"Consolidated EBITDA" means, with respect to any person, for any period,
the Consolidated Net Income of such person for such period adjusted to add
thereto, to the extent deducted from net revenues in determining Consolidated
Net Income, without duplication, the sum of:
(1) Consolidated income tax expense;
(2) Consolidated depreciation and amortization expense;
(3) Consolidated Fixed Charges;
(4) Consolidated Preopening Expenses;
(5) minority interests in income of Consolidated Subsidiaries as
adjusted to deduct therefrom minority interests in the losses of
Consolidated Subsidiaries; provided that, for purposes of this
clause (5) there shall be excluded from the definition of income
and loss, only to the extent included in computing such net income
(or loss) and without duplication, the items described in clauses
(a), (b), (c), (d) and (e) of the definition of Consolidated Net
Income; and
(6) all other non-cash charges attributable to the grant, exercise or
repurchase of options for or shares of Qualified Capital Stock to
or from employees of such person and its Consolidated
subsidiaries.
"Consolidated Fixed Charges" of any person means, for any period, the
aggregate amount, without duplication and determined in each case in accordance
with United States generally accepted accounting principles, of
(1) interest expensed whether capitalized, paid, accrued, or scheduled
to be paid or accrued, including, in accordance with the following
sentence, interest attributable to Capitalized Lease Obligations,
of such person and its Consolidated Subsidiaries for such period,
including, to the extent such expense was deducted in computing
Consolidated Net Income during such period;
(a) amortization of original issue discount and non-cash
interest payments or accruals on any Indebtedness;
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(b) the interest portion of all deferred payment obligations
that constitute Indebtedness; and
(c) all commissions, discounts and other fees and charges owed
with respect to bankers' acceptances and letters of credit
financings and currency and Interest Swap and Hedging
Obligations, in each case to the extent attributable to
such period; and
(2) the amount of dividends accrued or payable, or guaranteed, by such
person or any of its Consolidated Subsidiaries in respect of
Disqualified Capital Stock, other than by subsidiaries of such
person to such person or such person's wholly owned subsidiaries.
For purposes of this definition, (x) interest on a Capitalized Lease Obligation
shall be deemed to accrue at an interest rate reasonably determined in good
faith by us to be the rate of interest implicit in such Capitalized Lease
Obligation in accordance with United States generally accepted accounting
principles and (y) interest expense attributable to any Indebtedness represented
by the guaranty by such person or a subsidiary of such person of an obligation
of another person shall be deemed to be the interest expense attributable to the
Indebtedness guaranteed.
"Consolidated Net Income" means, with respect to any person for any
period, the net income (or loss) of such person and its Consolidated
subsidiaries, determined on a consolidated basis in accordance with United
States generally accepted accounting principles, for such period, adjusted to
exclude, only to the extent included in computing such net income (or loss) and
without duplication:
(1) all gains and losses which are either extraordinary, as determined
in accordance with United States generally accepted accounting
principles, or are either unusual or nonrecurring, including,
without limitation, from the sale or other disposition of assets
outside the ordinary course of business or from the issuance or
sale of any capital stock or from the repayment, cancellation,
repurchase or redemption of Indebtedness;
(2) the net income, if positive, of any person, other than a
Consolidated Subsidiary, in which such person or any of its
Consolidated Subsidiaries has an interest, except to the extent of
the amount of any dividends or distributions actually paid in cash
to such person or a Consolidated Subsidiary of such person during
such period, but in any case not in excess of such person's pro
rata share of such person's net income for such period;
(3) the net income or loss of any person acquired in a pooling of
interests transaction for any period prior to the date of such
acquisition;
(4) the net income, if positive, of any of such person's Consolidated
Subsidiaries to the extent that the declaration or payment of
dividends or similar distributions is not at the time permitted by
operation of the terms of its charter or bylaws or any other
Agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to such Consolidated
Subsidiary, other than any Gaming Law that is generally applicable
to all persons operating casinos through subsidiaries in any
jurisdiction in which we or such subsidiary are conducting
business so long as there is in effect no specific order, decree
or other prohibition pursuant to such Gaming Law in such
jurisdiction limiting the payment of a dividend or similar
distribution by such a Consolidated Subsidiary; and
(5) the cumulative effect of a change in accounting principles.
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"Consolidated Preopening Expenses" means those costs incurred prior to
the commencement of a new operation, including payroll, consulting fees, legal
expenses, licensing, supplies, travel, printing, relocation expense, temporary
housing and other similar expenses, that are not required, in accordance with
United States generally accepted accounting principles, to be capitalized or
expensed when incurred but are acceptable in accordance with United States
generally accepted accounting principles to be deferred until the new operation
commences.
"Consolidated Subsidiary" means, for any person, each subsidiary of such
person, whether now existing or hereafter created or acquired, the financial
statements of which are consolidated for financial statement reporting purposes
with the financial statements of such person in accordance with United States
generally accepted accounting principles.
"Consolidation" means, with respect to us, the consolidation of the
accounts of our subsidiaries, all in accordance with United States generally
accepted accounting principles; provided, that "consolidation" will not include
consolidation of the accounts of any Unrestricted Subsidiary with our accounts.
The term "consolidated" has a correlative meaning to the foregoing.
"Default" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
"Designated Senior Debt" means (1) any Indebtedness under the Horseshoe
Credit Agreement or the New Credit Facility, as the case may be, and (2) any
other Senior Debt permitted to be incurred by the indenture the principal amount
of which is $25 million or more and that has been designated by the board of
directors as "Designated Senior Debt."
"Disqualified Capital Stock" means:
(1) except as set forth in (2), with respect to any person, Equity
Interests of such person that, by its terms or by the terms of any
security into which it is convertible, exercisable or
exchangeable, is, or upon the happening of an event or the passage
of time or both would be, required to be redeemed or repurchased,
including at the option of the holder thereof, by such person or
any of its subsidiaries, in whole or in part, on or prior to the
Stated Maturity of the notes; and
(2) with respect to any subsidiary of such person, including with
respect to any of our subsidiaries, any Preferred Stock; provided,
that a provision providing for a change of control redemption at
the option of the holder that is expressly subordinated to the
prior payment of the notes shall not cause such Equity Interests
to be treated as Disqualified Capital Stock.
"Equity Holder" means:
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(1) with respect to a corporation, each shareholder of such
corporation;
(2) with respect to a limited liability company or similar entity,
each member of such limited liability company or similar entity;
(3) with respect to a partnership, each partner of such partnership;
and
(4) with respect to any disregarded entity, the owner of such entity.
"Equity Interest" of any person means any shares, interests,
participations or other equivalents, however designated, in such person's
equity, and shall in any event include any Capital Stock issued by, or
partnership, participation or membership interests in, such person.
"Event of Loss" means, with respect to any property or asset, any (1)
loss, destruction or damage of such property or asset or (2) any condemnation,
seizure or taking, by exercise of the power of eminent domain or otherwise, of
such property or asset, or confiscation or requisition of the use of such
property or asset.
"Excluded Person" means:
(1) Jack Binion;
(2) Phyllis Cope;
(3) Peri Cope Howard; or
(4) any affiliate, where the determination of Affiliate is made
without reference to clause (b) of the definition of such term, of
the persons described in clause (1), (2) or (3) above.
"Exempted Affiliate Transaction" means:
(1) payments of reasonable and customary compensation, managers' and
directors' fees and indemnities of managers, directors, officers
and employees;
(2) any employment agreement entered into by us or any of our
subsidiaries in the ordinary course of business and consistent
with the usual and customary practice of the gaming industry in
the United States;
(3) Restricted Payments permitted under the terms of the covenant
discussed above under "Limitation on Restricted Payments",
including transactions which are permitted because they are
excluded from the definition of the term "Restricted Payment";
(4) transactions solely between us and any guarantor or solely among
guarantors;
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(5) transactions permitted pursuant to paragraph (d) of the definition
of Permitted Indebtedness; and
(6) the execution, delivery and performance of the Horseshoe Note.
"Flow Through Entity" means an entity which:
(1) for Federal income tax purposes constitutes (a) an "S
corporation", as defined in Section 1361(a) of the Internal
Revenue Code of 1986, as amended, (b) a "qualified subchapter S
subsidiary", as defined in Section 1361(b)(3)(B) of the Internal
Revenue Code of 1986, as amended, (c) a "partnership", within the
meaning of Section 7701(a)(2) of the Internal Revenue Code of
1986, as amended, other than an "publicly traded partnership", as
defined in Section 7704 of the Internal Revenue Code of 1986, as
amended, or (d) a business entity which is disregarded as an
entity separate from its owner under the Internal Revenue Code of
1986, as amended, the Treasury Regulations or any published
administrative guidance of the Internal Revenue Service; and
(2) for state and local jurisdictions in respect of which Permitted
Tax Distributions are being made, is subject to substantially
similar "flow through" treatment under the applicable state or
local income tax law.
"Gaming Authority" means any Governmental Authority with the power to
regulate gaming in any Gaming Jurisdiction, and the corresponding Governmental
Authorities with the responsibility to interpret and enforce the laws and
regulations applicable to gaming in any Gaming Jurisdiction.
"Gaming Jurisdiction" means any Federal, state or local jurisdiction in
which any entity in which we have a direct or indirect beneficial, legal or
voting interest conducts gaming, now or in the future.
"Gaming Law" means any law, rule, regulation or ordinance governing
gaming activities, any administrative rules or regulations promulgated
thereunder, and any of the corresponding statutes, rules and regulations in each
Gaming Jurisdiction.
"Governmental Authority" means any agency, authority, board, bureau,
commission, department, office or instrumentality of any nature whatsoever of
the United States or foreign government, any state, province or any city or
other political subdivision or otherwise and whether now or hereafter in
existence, or any officer or official thereof, and any maritime authority.
"Horseshoe Credit Agreement" means the Credit Agreement, dated as of
October 10, 1995, among Horseshoe Gaming, Robinson Property Group, as guarantor,
and certain financial institutions identified therein, as lenders, that provides
for no greater than an aggregate of $20 million in Indebtedness, including any
related notes, guarantees, collateral documents, instruments and agreements
executed in connection therewith, as such Credit Agreement and/or related
documents may be amended, restated, supplemented, renewed, replaced or otherwise
modified from time to time whether or not with the same agent, trustee,
representative lenders or holders, and, subject to the proviso to the next
succeeding sentence, irrespective of any changes in the terms and conditions
thereof. Without limiting the generality of the foregoing, the term "Horseshoe
Credit Agreement" shall include
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agreements in respect of Interest Swap and Hedging Obligations with lenders
party to the Horseshoe Credit Agreement and shall also include any amendment,
amendment and restatement, renewal, extension, restructuring, supplement or
modification to any Horseshoe Credit Agreement and all refundings, refinancings
and replacements of any Horseshoe Credit Agreement, including any agreement:
(1) extending the maturity of any Indebtedness incurred thereunder or
contemplated thereby;
(2) adding or deleting borrowers or guarantors thereunder, so long as
borrowers and issuers include one or more of us and our
subsidiaries and their respective successors and assigns;
(3) increasing the amount of Indebtedness incurred thereunder or
available to be borrowed thereunder; provided, that on the date
such Indebtedness is incurred it would not be prohibited by the
covenant "Limitation on Incurrence of Additional Indebtedness and
Disqualified Capital Stock"; or
(4) otherwise altering the terms and conditions thereof in a manner
not prohibited by the terms of the indenture.
"Horseshoe Note" means a promissory note, dated as of the issue date, in
the principal amount of approximately $240.3 million made by Horseshoe Gaming in
our favor evidencing a loan by us to Horseshoe Gaming, the proceeds of which
shall be used by Horseshoe Gaming as required under the covenant "Use of
Proceeds of Horseshoe Note." Repayment of the Horseshoe Note will be guaranteed
by RPG and HE.
"Indebtedness" of any person means, without duplication:
(1) all liabilities and obligations, contingent or otherwise, of such
person to the extent such liabilities and obligations would appear
as a liability upon the consolidated balance sheet of such person
in accordance with United States generally accepted accounting
principles;
(a) in respect of borrowed money, whether or not the recourse
of the lender is to the whole of the assets of such person
or only to a portion thereof;
(b) evidenced by bonds, notes, debentures or similar
instruments; or
(c) representing the balance deferred and unpaid of the
purchase price of any property or services, except, other
than accounts payable or other obligations to trade
creditors which have remained unpaid for greater than 90
days past their original due date, except to the extent any
such obligation is being contested in good faith and for
which adequate reserves are maintained in accordance with
United States generally accepted accounting principles,
those incurred in the ordinary course of its business that
would constitute ordinarily a trade payable to trade
creditors;
(2) all liabilities, contingent or otherwise, of such person:
(a) evidenced by bankers' acceptances or similar instruments
issued or accepted by banks;
(b) relating to any Capitalized Lease Obligation; or
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(c) evidenced by a letter of credit or a reimbursement
obligation of such person with respect to any letter of
credit;
(3) all net obligations of such person under Interest Swap and Hedging
Obligations;
(4) all liabilities and obligations of others of the kind described in
the preceding clause (a), or (b) or (c) that such person has
guaranteed or provided credit support or that is otherwise its
legal liability, but only to the extent of the amount actually
guaranteed, or which are secured by any assets or property of such
person and all obligations to purchase, redeem or acquire any
third party Equity Interests;
(5) any and all deferrals, renewals, extensions, refinancing and
refundings, whether direct or indirect, of, or amendments,
modifications or supplements to, any liability of the kind
described in any of the preceding clauses (a), (b), (c), or (d) or
this clause (e), whether or not between or among the same parties;
and
(6) all Disqualified Capital Stock of such person, measured at the
greater of its voluntary or involuntary maximum fixed repurchase
price plus accrued and unpaid dividends;
provided, that any indebtedness which has been defeased in accordance with
United States generally accepted accounting principles or defeased pursuant to
the deposit of cash or Government Securities, in an amount sufficient to satisfy
all such indebtedness obligations at maturity or redemption, as applicable, and
all payments of interest and premium, if any, in a trust or account created or
pledged for the sole benefit of the holders of such indebtedness, and subject to
no other Liens, and the other applicable terms of the instrument governing such
indebtedness, shall not constitute "Indebtedness."
For purposes hereof, the "maximum fixed repurchase price" of any
Disqualified Capital Stock which does not have a fixed repurchase price shall be
calculated in accordance with the terms of such Disqualified Capital Stock as if
such Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to the indenture, and if such price
is based upon, or measured by, the Fair Market Value of such Disqualified
Capital Stock, such Fair Market Value to be determined in good faith by the
board of directors of the issuer, or managing general partner of the issuer, of
such Disqualified Capital Stock. The amount of any Indebtedness outstanding as
of any date shall be:
(a) the accreted value thereof, in the case of any Indebtedness
issued with original issue discount, but the accretion of
original issue discount in accordance with the original
terms of Indebtedness issued with an original issue
discount will not be deemed to be an incurrence; and
(b) the principal amount thereof, in the case of any other
Indebtedness.
"Interest Swap and Hedging Obligation" means any obligation of any person
pursuant to any interest rate swap agreement, interest rate cap agreement,
interest rate collar agreement, interest rate exchange agreement, currency
exchange agreement or any other agreement or arrangement designed to protect
against fluctuations in interest rates or currency values, including, without
limitation, any arrangement whereby, directly or indirectly, such person is
entitled to receive from time to time periodic payments calculated by applying
either a fixed or floating rate of interest on a stated notional amount in
exchange for periodic payments made by such person calculated by applying a
fixed or floating rate of interest on the same notional amount.
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"Investment" by any person in any other person means, without
duplication:
(a) the acquisition, whether by purchase, merger, consolidation or
otherwise, by such person, whether for cash, property, services,
securities or otherwise, of capital stock, bonds, notes,
debentures, partnership or other ownership interests or other
securities, including any options or warrants, of such other
person or any agreement to make any such acquisition;
(b) the making by such person of any deposit with, or advance, loan or
other extension of credit to, such other person, including the
purchase of property from another person subject to an
understanding or agreement, contingent or otherwise, to resell
such property to such other person, or any commitment to make any
such advance, loan or extension, but excluding accounts
receivable, endorsements for collection or deposits arising in the
ordinary course of business;
(c) other than guarantees of our or any guarantor's Indebtedness or to
the extent permitted by the covenant "Limitation on Incurrence of
Additional Indebtedness and Disqualified Capital Stock," the
entering into by such person of any guarantee of, or other credit
support or contingent obligation with respect to, Indebtedness or
other liability of such other person;
(d) the making of any capital contribution by such person to such
other person; and
(e) the designation by our board of directors of any person to be an
unrestricted subsidiary.
We shall be deemed to make an Investment in an amount equal to the fair market
value of the net assets of any subsidiary or, if neither we nor any of our
subsidiaries has theretofore made an Investment in such subsidiary, in an amount
equal to the Investments being made, at the time that such subsidiary is
designated an unrestricted subsidiary, and any property transferred to an
unrestricted subsidiary from us or our subsidiary shall be deemed an Investment
valued at its fair market value at the time of such transfer determined in good
faith by our board of directors.
"Junior Security" means any Qualified Capital Stock and any of our or a
guarantor's Indebtedness, as applicable, that is subordinated in right of
payment to Senior Debt, and any Indebtedness issued in exchange for Senior Debt,
at least to the same extent as the notes or the Guarantee, as applicable, and
has no scheduled installment of principal due, by redemption, sinking fund
payment or otherwise, on or prior to the Stated Maturity of the notes.
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"Merger Release Amount" means the amount by which the value of the assets
in the Secured Proceeds Account exceeds the sum of (x) $151.5 million plus (y)
seven-months of interest on $150 million aggregate principal amount of the
notes.
"Net Cash Proceeds" means the aggregate amount of cash or Cash
Equivalents received by us, in the case of a sale of Qualified Capital Stock,
and by us and our subsidiaries in respect of an Asset Sale plus, in the case of
an issuance of Qualified Capital Stock upon any exercise, exchange or conversion
of our securities, including options, warrants, rights and convertible or
exchangeable debt, that were issued for cash on or after the issue date, the
amount of cash originally received by us upon the issuance of such securities,
including options, warrants, rights and convertible or exchangeable debt, less,
in each case, the sum of all payments, fees, commissions and expenses,
including, without limitation, the fees and expenses of legal counsel and
investment banking fees and expenses, incurred in connection with such Asset
Sale or sale of Qualified Capital Stock, and, in the case of an Asset Sale only,
less (1) the amount, estimated reasonably and in good faith by us, of income,
franchise, sales and other applicable taxes required to be paid by us or any of
our respective subsidiaries in connection with such Asset Sale in the taxable
year that such sale is consummated or in the immediately succeeding taxable
year, the computation of which shall take into account the reduction in tax
liability resulting from any available operating losses and net operating loss
carryovers, tax credits and tax credit carryforwards, and similar tax
attributes, (2) the amount of any liabilities relating to the assets sold or
transferred that are retained by us or our subsidiaries, and (3) an amount,
estimated reasonably and in good faith by us or required by the terms of such
Asset Sale agreement, of a reserve for indemnifications and warranties or
representations made in connection with such Asset Sale.
"Non-Recourse Indebtedness" means Indebtedness of a person to the extent
that under the terms thereof, including any related instruments, documents or
filings, no personal recourse shall be had against such
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person for the payment of the principal of or interest or premium on such
Indebtedness or the Indebtedness refinanced by such Indebtedness and as to which
neither we nor any subsidiary provides any guarantee, collateral or other credit
support of any kind whatsoever.
"Obligation" means any principal, premium or interest payment, or
monetary penalty, or damages, due by us or any guarantor under the terms of the
notes or the indenture, including any liquidated damages due pursuant to the
terms of the Registration Rights Agreement, in each case as such documents may
be amended from time to time.
"Permitted Indebtedness" means that:
(a) we and the guarantors may incur Indebtedness evidenced by the
notes and represented by the indenture and the guarantees thereof
up to the amounts being issued on the issue date;
(b) we and the guarantors, as applicable, may incur Refinancing
Indebtedness with respect to any Indebtedness or Disqualified
Capital Stock, as applicable, described in clause (a) or this
clause (b) of this definition or incurred under the Debt
Incurrence Ratio test or clause (1) of paragraph (c) of the
covenant "Limitation on Incurrence of Additional Indebtedness and
Disqualified Capital Stock," or which is outstanding on the issue
date, less the amount of any of our or our subsidiaries'
Indebtedness, other than under the Horseshoe Credit Agreement, in
existence on the issue date repaid on or after the issue date;
(c) we and our subsidiaries may incur Indebtedness solely in respect
of bankers acceptances, letters of credit and performance bonds,
to the extent that such incurrence does not result in the
incurrence of any obligation to repay any obligation relating to
borrowed money of others, all in the ordinary course of business
in accordance with customary industry practices, in amounts and
for the purposes customary in our industry or pursuant to
self-insurance obligations; provided, that the aggregate amount
outstanding of such Indebtedness, including any Refinancing
Indebtedness and any other Indebtedness issued to retire,
refinance, refund, defease or replace such Indebtedness, shall at
no time exceed $5 million;
(d) we may incur Indebtedness or issue Disqualified Capital Stock to
any subsidiary, and any subsidiary may incur Indebtedness or issue
Disqualified Capital Stock to any other subsidiary or to us;
provided, however, that such obligations shall be evidenced by an
intercompany note and, in any case where we or a guarantor is the
obligor, shall be subordinated in all respects to our Obligations
pursuant to the notes and the Horseshoe Credit Agreement or the
New Credit Facility, as the case may be, and the Guarantor's
Obligations pursuant to the Guarantee of our Obligations under the
notes and the Horseshoe Credit Agreement or the New Credit
Facility, as the case may be;
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(e) we and any subsidiary may post a bond or surety obligation, or
incur an indemnity or similar obligation, to or in favor of any
Governmental Authority in order to prevent the impairment or loss
by us or any subsidiary of or to obtain for us or any subsidiary a
Gaming License, to the extent required by applicable law and
consistent in character and amount with customary industry
practice; and
(f) we and any subsidiary may incur Interest Swap and Hedging
Obligations that are incurred for the purpose of fixing or hedging
interest rate risk with respect to any floating rate Indebtedness
that is permitted by the indenture to be outstanding; provided,
that the notional amount of any such Interest Swap and Hedging
Obligation does not exceed the principal amount of Indebtedness to
which such Interest Swap and Hedging Obligation relates.
"Permitted Liens" means:
(a) Liens existing on the issue date;
(b) Liens imposed by governmental authorities for taxes, assessments
or other charges not yet subject to penalty or which are being
contested in good faith and by appropriate proceedings, if
adequate reserves with respect thereto are maintained on our books
in accordance with United States generally accepted accounting
principles;
(c) statutory liens of carriers, warehousemen, mechanics, material
men, landlords, repairmen or other like Liens arising by operation
of law in the ordinary course of business provided that (x) the
underlying obligations are not overdue for a period of more than
60 days, or (y) such Liens are being contested in good faith and
by appropriate proceedings and adequate reserves with respect
thereto are maintained on our books in accordance with United
States generally accepted accounting principles;
(d) Liens securing the performance of bids, trade contracts, other
than borrowed money, leases, statutory obligations, surety and
appeal bonds, performance bonds and other obligations of a like
nature incurred in the ordinary course of business;
(e) easements, rights-of-way, zoning, similar restrictions and other
similar encumbrances or title defects which, singly or in the
aggregate, do not in any case materially detract from the value of
the property, subject thereto, as such property is used by us or
any of our subsidiaries, or interfere with the ordinary conduct of
our business or any of our subsidiaries; provided, however, that
any such liens are not incurred in connection with any borrowing
of money or any commitment to loan any money or extend any credit;
(f) Liens arising by operation of law in connection with judgments,
only to the extent, for an amount and for a period not resulting
in an Event of Default with respect thereto;
(g) pledges or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and
other types of social security legislation;
(h) Liens securing the indenture and the notes;
(i) Liens securing Indebtedness of a person existing at the time such
person becomes a subsidiary or is merged with or into us or a
subsidiary or Liens securing Indebtedness incurred in connection
with an acquisition, provided, that such Liens
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were in existence prior to the date of such acquisition, merger or
consolidation, were not incurred in anticipation thereof, and do
not extend to any other assets;
(j) Liens arising from Purchase Money Indebtedness permitted to be
incurred pursuant to clause (a) of the covenant "Limitation on
Incurrence of Additional Indebtedness and Disqualified Capital
Stock" provided such Liens relate solely to the property which is
subject to such Purchase Money Indebtedness;
(k) leases or subleases granted to other persons in the ordinary
course of business not materially interfering with the conduct of
our business or any of our subsidiaries or materially detracting
from the value of the relative assets of ours or any subsidiary;
(l) Liens arising from precautionary Uniform Commercial Code financing
statement filings regarding operating leases entered into by us or
any of our subsidiaries in the ordinary course of business;
(m) Liens securing Refinancing Indebtedness incurred to refinance any
Indebtedness that was previously so secured in a manner no more
adverse to the holders than the terms of the Liens securing such
refinanced Indebtedness, and provided that the Indebtedness
secured is not increased and the Lien is not extended to any
additional assets or property that would not have been security
for the Indebtedness refinanced;
(n) Liens securing Indebtedness incurred under the Horseshoe Credit
Agreement or the New Credit Facility, as the case may be, in
accordance with the terms of the covenant "Limitation on
Incurrence of Additional Indebtedness and Disqualified Capital
Stock;"
(o) any (x) interest or title of a lessor or sublessor under any
lease, including under any Capitalized Lease Obligation, (y)
restriction or encumbrance that the interest or title of such
lessor or sublessor may be subject to, or (z) subordination of the
interest of the lessee or sublessee under such lease to any
restriction or encumbrance referred to in subclause (y); and
(p) Liens in favor of us or any of our subsidiaries.
"Permitted Tax Distributions" in respect of us, and each of our
subsidiaries that qualify as a Flow Through Entity shall mean, with respect to
any taxable year, the sum of: (I) the product of (A) the excess of (x) all items
of taxable income or gain, other than capital gain, allocated by us and each
such subsidiary to their respective Equity Holders for that year over (x) all
items of taxable deduction or loss, other than capital loss, allocated to such
Equity Holders by us and each such subsidiary, respectively, for such year and
(B) the Applicable Income Tax Rate, plus (II) the product of (A) the net capital
gain, i.e., net long-term capital gain over net short-term capital loss, if any,
allocated by us and each such subsidiary to their respective Equity Holders for
such year and (B) the Applicable Capital Gain Tax Rate, plus (III) taking into
account our and each such subsidiary's capital gain and loss, respectively, the
product of (A) the net short-term capital gain, i.e., net short-term capital
gain in excess of net long-term capital loss, if any, allocated by us and each
such subsidiary to their respective Equity Holders for such year and (B) the
Applicable Income Tax Rate, minus (IV) the aggregate Tax Loss Benefit Amounts
for us and each such subsidiary, respectively, for such year. For purposes of
calculating the amount of our Permitted Tax Distributions, the proportionate
part of the items of taxable income, gain, deduction or loss, including capital
gain or loss, of any subsidiary which is a Flow Through Entity shall be included
in determining our taxable income, gain, deduction or loss, including capital
gain or loss.
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Estimated tax distributions shall be made within fifteen days
following March 31, May 31, August 31, and December 31 based upon an estimate of
the excess of (x) the tax distributions that would be payable for the period
beginning on January 1 of such year and ending on March 31, May 31, August 31,
and December 31 if such period were a taxable year, computed as provided above,
over (y) distributions attributable to all prior periods during such taxable
year. Promptly after filing by us and each such subsidiary of their respective
annual tax return, each Equity Holder shall reimburse us or the applicable
subsidiary, as the case may be, to the extent such estimated tax distributions
made to such Equity Holder exceeded the actual Permitted Tax Distributions, as
determined on the basis of such tax returns filed in respect of such taxable
year for that Equity Holder and us or the applicable subsidiary, as the case may
be, shall make a further payment to its respective Equity Holders to the extent
such estimated tax distributions were less than the tax distributions actually
payable to such Equity Holders with respect to such taxable year. If the
appropriate Federal or state taxing authority finally determines that the amount
of the items of our or any subsidiary's taxable income, gain, deduction or loss,
including capital gain or loss, for any taxable year or the aggregate Tax Loss
Benefit Amounts carried forward to such taxable year should be changed or
adjusted, then each Equity Holder shall reimburse us or the applicable
subsidiary, as the case may be, to the extent the Permitted Tax Distributions
previously made to such Equity Holder in respect of that taxable year exceeded
the Permitted Tax Distributions with respect to such taxable year taking into
account such change or adjustment for that Equity Holder, or as the case may be,
we shall make a further payment to its respective Equity Holders to the extent
the Permitted Tax Distributions previously paid to such Equity Holder were less
than the Permitted Tax Distributions payable to such Equity Holders with respect
to such taxable year taking into account such change or adjustment.
To the extent that any tax distribution would otherwise be made to any
Equity Holder at a time when an obligation of such Equity Holder to make a
payment to us or the applicable subsidiary pursuant to the two previous
sentences remains outstanding, the amount of any tax distribution to be made
shall be reduced by the amounts such Equity Holder is obligated to pay us or the
applicable subsidiary.
"Person" or "person" means any corporation, individual, limited liability
company, joint stock company, joint venture, partnership, limited liability
partnership, unincorporated association, governmental regulatory entity,
country, state or political subdivision thereof, trust, municipality or other
entity.
"Preferred Stock" means any Equity Interest of any class or classes of a
person, however designated, which is preferred as to payments of dividends, or
as to distributions upon any liquidation or dissolution, over Equity Interests
of any other class of such person.
"Purchase Money Indebtedness" of any person means any Indebtedness of
such person to any seller or other person incurred solely to finance the
acquisition, including in the case of a Capitalized Lease Obligation, the lease,
construction or improvement of any after acquired real or personal tangible
property which, in the reasonable good faith judgment of our board of directors,
is related to our Related Business and which is incurred concurrently with, or
within 270 days following, such acquisition and is secured only by the assets so
financed.
"Qualified Capital Stock" means any of our Capital Stock that is not
Disqualified Capital Stock.
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"Qualified Exchange" means any defeasance, redemption, repurchase, or
other acquisition of our Capital Stock or Subordinated Indebtedness with the Net
Cash Proceeds received by us from the substantially concurrent sale of our
Qualified Capital Stock or in exchange for our Qualified Capital Stock.
"Rating Agencies" means (a) Standard & Poor's Rating Services and (b)
Moody's Investors Services, Inc. or (c) if Standard & Poor's Rating Services or
Moody's Investors Services, Inc. or both shall not make a rating of the notes
publicly available, a nationally recognized securities rating agency or
agencies, as the case may be, selected by us, which shall be substituted for
Standard & Poor's Rating Services or Moody's Investors Services, Inc. or both,
as the case may be.
"Rating Category" means currently:
(1) with respect to Standard & Poor's Rating Services, any of the
following categories: BB, B, CCC, CC, C and D, or equivalent
successor categories;
(2) with respect to Moody's Investors Services, Inc., any of the
following categories: Ba, B, Caa, Ca, C and D, or equivalent
successor categories; and
(3) the equivalent of any such category of Standard & Poor's Rating
Services or Moody's Investors Services, Inc. used by another
Rating Agency.
In determining whether the rating of the notes has decreased by one or
more gradations, gradations within Rating Categories, currently + and -- for
Standard & Poor's Rating Services, 1, 2 and 3 for Moody's Investors Services,
Inc.; or the equivalent gradations for another Rating Agency, shall be taken
into account e.g., with respect to Standard & Poor's Rating Services, a decline
in a rating from BB+ to BB, as well as from BB -- to B+, will constitute a
decrease of one gradation.
"Rating Decline" means the occurrence, on or within 90 days after the
earliest to occur of:
(1) a Change of Control; and
(2) the date of the first public notice of the occurrence of a Change
of Control or of the intention by any person to effect a Change of
Control, which period shall be extended so long as the rating of
the notes is under publicly announced consideration for possible
downgrade by any of the Rating Agencies, of a decrease in the
rating of the notes by either Rating Agency by one or more
gradations, including gradations within Rating Categories as well
as between Rating Categories.
"Reference Period" with regard to any person means the four full fiscal
quarters, or such lesser period during which such person has been in existence,
ended for which financial information is available immediately preceding any
date upon which any determination is to be made pursuant to the terms of the
notes or the indenture.
"Refinancing Indebtedness" means Indebtedness or Disqualified Capital
Stock (a) issued in exchange for, or the proceeds from the issuance and sale of
which are used substantially concurrently to repay, redeem, defease, refund,
refinance, discharge or otherwise retire for value, in whole or in part, or (b)
constituting an amendment, modification or supplement to, or a deferral or
renewal of, (a) and (b) above are, collectively, a "Refinancing", any
Indebtedness or Disqualified Capital Stock in a principal amount or, in the case
of Disqualified Capital Stock, liquidation preference, not to exceed, after
deduction of reasonable and customary fees and expenses incurred in connection
with the Refinancing plus the amount of any premium paid in connection with such
Refinancing in
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accordance with the terms of the documents governing the Indebtedness refinanced
without giving effect to any modification thereof made in connection with or in
contemplation of such refinancing, the lesser of (i) the principal amount or, in
the case of Disqualified Capital Stock, liquidation preference, of the
Indebtedness or Disqualified Capital Stock so Refinanced and (ii) if such
Indebtedness being Refinanced was issued with an original issue discount, the
accreted value thereof, as determined in accordance with United States generally
accepted accounting principles, at the time of such Refinancing; provided, that
(A) such Refinancing Indebtedness shall only be used to refinance outstanding
Indebtedness or Disqualified Capital Stock of such person issuing such
Refinancing Indebtedness, (B) such Refinancing Indebtedness shall (x) not have
an Average Life shorter than the Indebtedness or Disqualified Capital Stock to
be so refinanced at the time of such Refinancing and (y) in all respects, be no
less subordinated or junior, if applicable, to the rights of holders of the
notes than was the Indebtedness or Disqualified Capital Stock to be refinanced,
(C) such Refinancing Indebtedness shall have a final stated maturity or
redemption date, as applicable, no earlier than the final stated maturity or
redemption date, as applicable, of the Indebtedness or Disqualified Capital
Stock to be so refinanced, and (D) such Refinancing Indebtedness shall be
secured, if secured, in a manner no more adverse to the holders of the notes
than the terms of the Liens, if any, securing such refinanced Indebtedness,
including, without limitation, the amount of Indebtedness secured shall not be
increased.
"Related Business" means the gaming, including pari-mutual betting,
business and any and all reasonably related businesses, including the ownership
and/or operation of entertainment facilities and hotels, necessary for, in
support or anticipation of and ancillary to or in preparation for, the gaming
business including, without limitation, the development, expansion or operation
of any casino, including any land-based, dockside, river boat or other type of
casino, owned, or to be owned, by us or one of our subsidiaries.
"Restricted Investment" means, in one or a series of related
transactions, any Investment other than (1) in Cash Equivalents and in
Investments of the type set forth in clause (5) of the definition of Cash
Equivalents that have a maturity longer than one year so long as the Average
Life of all such Investments does not exceed 15 months, (2) extensions of credit
to customers of casinos consistent with industry practice in the ordinary course
of business, (3) Investments in a person engaged in a Related Business if as a
result of such Investment such person immediately becomes a subsidiary or such
person is immediately merged with or into us or a subsidiary and (4) Investments
by us in any subsidiary or by a subsidiary in any other subsidiary, or any loan
or advance by any of our subsidiaries to us to the extent permitted by clause
(d) of the definition of "Permitted Indebtedness."
"Restricted Payment" means, with respect to any person,
(a) the declaration or payment of any dividend or other distribution
in respect of Equity Interests of such person or any parent or
subsidiary of such person,
(b) any payment on account of the purchase, redemption or other
acquisition or retirement for value of Equity Interests of such
person or any subsidiary or parent of such person,
(c) other than with the proceeds from the substantially concurrent
sale of, or in exchange for, Refinancing Indebtedness any
purchase, redemption, or other acquisition or retirement for value
of, any payment in respect of any amendment of the terms of or any
defeasance of, any Subordinated Indebtedness, directly or
indirectly, by such person or a parent or
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subsidiary of such person prior to the scheduled maturity, any
scheduled repayment of principal, or scheduled sinking fund
payment, as the case may be, of such Indebtedness, and
(d) any Restricted Investment, including, in any case, the designation
of such person as an Unrestricted p by such person; provided,
however, that the term "Restricted Payment" does not include:
(1) (A) any dividend, distribution or other payment on or with
respect to Equity Interests of an issuer or (B) the
acquisition by the issuer or a wholly owned subsidiary of
such issuer of Equity Interests of another subsidiary or an
unrestricted subsidiaruy of such issuer, in the case of
each of (A) and (B) of this clause (1), to the extent
payable solely in shares of Qualified Capital Stock of such
issuer;
(2) any dividend, distribution or other payment to us, or to
any of our subsidiaries, by any of our subsidiaries;
(3) loans or advances to officers or employees of ours or any
of our subsidiaries, other than Mr. Binion, Phyllis Cope
and members of the families of the foregoing persons, (a)
to pay business related expenses or relocation costs of
such officers or employees in connection with their
employment by us or any of our subsidiaries in an aggregate
amount outstanding at any time not exceeding $5 million for
all such officers and employees or (b) for the purchase
price of our or any subsidiary's Equity Interests, provided
that the Equity Interests purchased with the proceeds of
such loan or advance shall be pledged to us or the
subsidiary, as applicable, as security for the repayment of
such loan or advance;
(4) any Investment received as consideration for any Asset Sale
to the extent that we or any of our subsidiaries is
permitted to receive such Investment without violating the
provisions of the covenant "Limitation on Sale of Assets
and Subsidiary Stock";
(5) Investments received as part of the settlement of
litigation or in satisfaction of extensions of credit to
any person otherwise permitted under the indenture pursuant
to the reorganization, bankruptcy or liquidation of such
person; and
(6) the liquidating distributions and related transactions
contemplated by the merger of Horseshoe Gaming with and
into us.
"Senior Debt" of ours or any Guarantor means our or such Guarantor's
Indebtedness arising under the Horseshoe Credit Agreement or the New Credit
Facility, as the case may be, or any other Indebtedness permitted to be incurred
under the indenture unless the instrument under which such Indebtedness is
incurred expressly provides that it is subordinated in right of payment to any
of our or such guarantor's Senior Debt; provided, that in no event shall Senior
Debt include (a) Indebtedness of ours to any of our Affiliates, (b) Indebtedness
incurred in violation of the terms of the indenture, (c) Indebtedness to trade
creditors, and (d) any liability for taxes owed or owing by us or such
guarantor.
"Significant Subsidiary" shall have the meaning provided under Regulation
S-X of the Securities Act, as in effect on the issue date.
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"Stated Maturity," when used with respect to any note, means May 15,
2009.
"Subordinated Indebtedness" means our or a guarantor's Indebtedness that
is subordinated in right of payment by its terms or the terms of any document or
instrument relating thereto to the notes or such guarantee, as applicable.
"Tax Loss Benefit Amount" as to any of our or any of our subsidiaries'
taxable years shall mean the amount by which the Permitted Tax Distributions
would be reduced were a net operating loss or net capital loss from a prior
taxable year of such entity ending subsequent to the date hereof carried forward
to the applicable taxable year; provided, that for such purpose the amount of
any such net operating loss or net capital loss shall be utilized only once and
in each case shall be carried forward to the next succeeding taxable year until
so utilized.
"U.S. Government Obligations" means direct non-callable obligations of,
or noncallable obligations guaranteed by, the United States of America for the
payment of which obligation or guarantee the full faith and credit of the United
States of America is pledged.
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"Voting Equity Interests" means Equity Interests which at the time are
entitled to vote in the election of directors, members or partners generally.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain United States federal income tax
consequences, under the Internal Revenue Code of 1986, as amended, of exchanging
original notes for new notes in the exchange offer and, to original purchasers
of original notes, holding notes. The summary is based upon laws, regulations,
rulings and pronouncements released by the Internal Revenue Service and judicial
decisions now in effect, all of which are subject to change, possibly on a
retroactive basis. This summary assumes that investors will hold their notes as
"capital assets" within the meaning of Section 1221 of the Internal Revenue Code
of 1986, as amended, i.e., generally property held for investment. This summary
does not discuss all aspects of United States federal income taxation that may
be relevant to investors in light of their personal investment circumstances or
to certain types of holders of notes subject to special treatment under the
United States federal income tax laws, for example, dealers in securities,
financial institutions, tax-exempt organizations, insurance companies, banks,
purchasers that hold notes as part of a hedge, straddle, or "synthetic security"
or other integrated investment, taxpayers subject to the alternative minimum
tax, foreign persons or purchasers that have a "functional currency" other than
the U.S. dollar, and does not discuss the consequences to a holder of notes
under state, local or foreign tax laws. We have not and will not seek any
rulings from the Internal Revenue Service with respect to the matters discussed
below. There can be no assurance that the Internal Revenue Service will not take
positions concerning the tax consequences of the purchase, ownership or
disposition of the notes which are different from those discussed herein.
EACH PERSON CONSIDERING EXCHANGING ORIGINAL NOTES FOR NEW NOTES IS URGED
TO CONSULT HIS OWN TAX ADVISOR REGARDING THE PARTICULAR TAX CONSEQUENCES TO HIM
OF EXCHANGING ORIGINAL NOTES FOR NEW NOTES, AND OWNING AND DISPOSING OF THE
NOTES, INCLUDING THE APPLICATION OF UNITED STATES FEDERAL, STATE, LOCAL AND
FOREIGN TAX LAWS AND POSSIBLE FUTURE CHANGES IN SUCH TAX LAWS.
For purposes of this summary, a "U.S. Holder" is a beneficial owner of a
note that is (1) an individual who is a citizen or resident of the United
States, (2) a corporation, partnership, or other entity created or organized
under the laws of the United States or any state or political subdivision
thereof, (3) an estate that is subject to United States federal income taxation
without regard to the source of its income, or (4) a trust the administration of
which is subject to the primary supervision of a United States court and which
has one or more United States persons who have the authority to control all
substantial decisions of the trust. A "Non-U.S. Holder" is a beneficial owner of
a note that is not a U.S. Holder.
U.S. HOLDERS AND NON-U.S. HOLDERS
Exchange Offer
The exchange of original notes for new notes pursuant to the exchange
offer will not constitute a taxable exchange. As a result (1) a U.S. Holder or a
Non-U.S. Holder should not recognize taxable gain or loss as a result of
exchanging original notes for new notes pursuant to the exchange offer, (2) the
holding period of the new notes should include the holding period of the
original notes exchanged therefor and (3) the adjusted tax basis of the new
notes should be the same as the adjusted tax basis of the original notes
exchanged therefor immediately before the exchange.
If we are required to pay additional cash interest on the notes upon a
failure to comply with certain of our obligations under the Registration Rights
Agreement, the additional interest should be taxable to a U.S. Holder when the
payment of such interest is made.
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<PAGE> 160
U.S. HOLDERS
STATED INTEREST
In general, interest on a note will be taxable to a U.S. Holder as
ordinary interest income at the time it accrues or is received, in accordance
with such holder's regular method of tax accounting.
SALE, EXCHANGE OR RETIREMENT OF THE NOTES
Upon the sale, exchange, retirement or other disposition of a note, a
U.S. Holder generally will recognize capital gain or loss in an amount equal to
the difference between (1) the amount realized upon such sale, other than
amounts paid in respect of accrued but unpaid interest on the note and (2) the
U.S. Holder's adjusted tax basis in the note. Net capital gain, i.e., generally,
capital gain in excess of capital losses, recognized by an individual upon the
sale of a note that has been held for more than 12 months will generally be
subject to tax at a rate not to exceed 20%. Capital gain recognized from the
sale of a note that has been held for 12 months or less will be subject to tax
at ordinary income tax rates. In addition, capital gain recognized upon the sale
of a note by a corporate taxpayer will be subject to tax at the ordinary income
tax rates applicable to corporations.
NON-U.S. HOLDERS
STATED INTEREST
Subject to the discussion of backup withholding below, interest received
on a note by a Non-U.S. Holder will generally not be subject to United States
federal income or withholding tax, provided that (1) the Non-U.S. Holder is not
(i) an actual or constructive owner of 10% or more of the total voting power of
all voting capital of us, (ii) a controlled foreign corporation related to us
through stock ownership, (iii) a foreign tax-exempt organization treated as a
foreign private foundation for United States federal income tax purposes or (iv)
a bank whose receipt of interest on a note is described in Section 881(c)(3)(A)
of the Internal Revenue Code of 1986, as amended, (2) such interest payments are
not effectively connected with the conduct by the Non-U.S. Holder of a trade or
business within the United States and (3) the requirements of section 871(h) or
881(c) of the Internal Revenue Code of 1986, as amended are satisfied as
described below under "Owner Statement Requirement".
A Non-U.S. Holder that does not qualify for exemption from withholding
under the preceding paragraph generally will be subject to withholding of United
States federal income tax at the rate of 30%, or lower applicable treaty rate,
on payments of interest on the notes. Non-U.S. Holders should consult any
applicable income tax treaties, which may provide for a lower rate of
withholding tax, exemption from or reduction of branch profits tax, or other
rules different from those described above.
If the payments of interest on a note are effectively connected with the
conduct by a Non-U.S. Holder of a trade or business in the United States, such
payments will be subject to United States federal income tax on a net income
basis at the rates applicable to United States persons generally and, with
respect to corporate holders, may also be subject to a 30% branch profits tax.
If payments are subject to United States federal income tax on a net income
basis in accordance with the rules described in the preceding sentence, such
payments will not be subject to United States withholding tax as long as the
holder provides us or our paying agent with a properly executed Form 4224, or
successor form.
OWNER STATEMENT REQUIREMENT
Current United States federal income tax law requires that either the
beneficial owner of a note or a securities clearing organization, bank or other
financial institution that holds customers' securities in the ordinary course of
its trade or business and that holds a note on behalf of such owner file a
statement with us or our agent to
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<PAGE> 161
the effect that the beneficial owner is not a United States person in order to
avoid withholding of United States federal income tax (an "Owner's Statement").
SALE, EXCHANGE OR REDEMPTION OF NOTES
Except as described below and subject to the discussion concerning backup
withholding set forth below, any gain realized by a Non-U.S. Holder on the sale,
exchange, retirement or other disposition of a note generally will not be
subject to United States federal income tax, unless (1) such gain is effectively
connected with the conduct by such Non-U.S. Holder of a trade or business within
the United States or (2) the Non-U.S. Holder is an individual and is present in
the United States for 183 days or more in the taxable year of the disposition
and certain other conditions are satisfied.
UNITED STATES FEDERAL ESTATE TAX
Notes held, or treated as held, by an individual who is a Non-U.S. Holder
at the time of his death will not be subject to United States federal estate tax
provided that (1) the individual does not actually or constructively own 10% or
more of the total voting power of all of our capital stock and (2) income on the
notes was not effectively connected with the conduct by such Non-U.S. Holder of
a trade or business within the United States.
INFORMATION REPORTING AND BACKUP WITHHOLDING
We must report annually to the Internal Revenue Service and to each
Non-U.S. Holder any interest that is subject to withholding or that is exempt
from United States withholding tax. Copies of such reports may also be made
available, under the provisions of a specific treaty or agreement, to the tax
authorities of the country in which the Non-U.S. Holder resides.
The regulations provide that the 31% backup withholding tax and
information reporting will not apply to payments made in respect of the notes by
us to a Non-U.S. Holder, if an Owner's Statement has been received or an
exemption has otherwise been established, provided that neither us nor our
paying agent has actual knowledge that such Non-U.S. Holder is a United States
person or that the conditions of any other exemption are not, in fact,
satisfied.
Under current Treasury Regulations, payments of the proceeds of the sale
of a note to or through a foreign office of a "broker" will not be subject to
backup withholding but will be subject to information reporting if the broker is
a United States person, a controlled foreign corporation for United States
federal income tax purposes, or a foreign person 50% or more of whose gross
income is from a United States trade or business for a specified three-year
period, unless the broker has in its records documentary evidence that the
holder is not a United States person and certain conditions are met or the
holder otherwise establishes an exemption. Payment of the proceeds of a sale to
or through the United States office of a broker is subject to backup withholding
and information reporting unless the holder certifies as to its Non-United
States status under penalties of perjury or otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules from a payment to
a Non-U.S. Holder will be allowed as a refund or a credit against such Non-U.S.
Holder's U.S. Federal income tax liability, provided that the requisite
procedures are followed.
The U.S. Treasury Department has promulgated final regulations, or the
Final Regulations, regarding the withholding and information reporting rules
discussed above. In general, the Final Regulations do not significantly alter
the substantive withholding and information reporting requirements but unify
current certification procedures and forms and clarify reliance standards. The
Final Regulations are generally effective for payments made after December 31,
2000, subject to certain transition rules.
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<PAGE> 162
PLAN OF DISTRIBUTION
Except as described below (1) a broker-dealer may not participate in the
exchange offer in connection with a distribution of the new notes, (2) such
broker-dealer would be deemed an underwriter in connection with such
distribution and (3) such broker-dealer would be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any secondary resale transactions. A broker-dealer may, however,
receive new notes for its own account pursuant to the exchange offer in exchange
for original notes, so long as not acquired directly from us or an affiliate of
us, when such original notes were acquired as a result of market-making
activities or other trading activities. Each such broker-dealer must acknowledge
that it will deliver a prospectus in connection with any resale of such new
notes. This prospectus, as it may be amended or supplemented from time to time,
may be used by a broker-dealer, other than an affiliate of us, in connection
with resales of such new notes. We have agreed that for a period of one year
after the consummation deadline for the exchange offer as set forth in the
registration rights agreement, or Consummation Deadline, we will make this
prospectus, as amended or supplemented, available to any such broker-dealer for
use in connection with any such resale.
We will not receive any proceeds from any sale of new notes by
broker-dealers. New notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the new notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such new notes. Any broker-dealer
that resells new notes that were received by it for its own account pursuant to
the exchange offer may be deemed to be an "underwriter" within the meaning of
the Securities Act and any profit on any such resale of new notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a holder will not be deemed to admit that it is an "underwriter"
within the meaning of the Securities Act.
For a period of one year after the Consummation Deadline, we will
promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests such documents
in a letter of transmittal. We have agreed to pay all expenses incident to the
exchange offer other than commissions or concessions of any brokers or dealers
and transfer taxes and will indemnify the holders of the original notes,
including any broker-dealers, against certain liabilities, including liabilities
under the Securities Act.
With respect to resales of new notes, based on interpretations by the SEC
staff set forth in no-action letters issued to third parties, we believe that a
holder or other person who receives new notes, whether or not such person is the
holder, other than a person that is an "affiliate" of us within the meaning of
Rule 405 under the Securities Act, who receives new notes in exchange for notes
in the ordinary course of business and who is not participating, does not intend
to participate, and has no arrangement or understanding with person to
participate, in the distribution of the new notes, will be allowed to resell the
new notes to the public without further registration under the Securities Act
and without delivering to the purchasers of the new notes a prospectus that
satisfies the requirements of Section 10 of the Securities Act. However, if any
holder acquires new notes in the exchange offer for the purpose of distribution
or participating in a distribution of the new notes, such holder cannot rely on
the position of the staff enunciated in such no-action letters or any similar
interpretative letters, and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction and such a secondary resale transaction should be covered by an
effective registration statement containing the selling security holder
information required by Item 507 or 508, as applicable, of Regulation S-K under
the Securities Act, unless an exemption from registration is otherwise
available.
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<PAGE> 163
LEGAL MATTERS
The validity of the new notes will be passed upon for us by Swidler
Berlin Shereff Friedman, LLP, New York, New York.
EXPERTS
Our audited consolidated financial statements included in this prospectus
and elsewhere in the Registration Statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in giving said report.
Ernst & Young LLP, independent auditors, have audited the Empress
Entertainment, Inc. consolidated financial statements at December 31, 1998 and
1997, and for each of the three years in the period ended December 31, 1998, as
set forth in their report. We have included Empress' consolidated financial
statements in the prospectus and elsewhere in the Registration Statement in
reliance on Ernst & Young LLP's report, given their authority as experts in
accounting and auditing.
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<PAGE> 164
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
--------
Page
----
<S> <C>
Horseshoe Gaming Holding Corp. and Subsidiaries
Consolidated Condensed Financial Statements:
Balance sheets as of March 31, 1999 (unaudited) and December 31, 1998....................... F-2
Statements of operations for the three months ended March 31, 1999 and 1998 (unaudited)..... F-3
Statements of cash flows for the three months ended March 31, 1999 and 1998 (unaudited)..... F-4
Notes to consolidated condensed financial statements (unaudited)............................ F-5
Report of Independent Public Accountants....................................................... F-7
Consolidated Financial Statements:
Balance sheets as of December 31, 1998 and 1997............................................. F-8
Statements of operations for the years ended December 31, 1998, 1997 and 1996............... F-9
Statements of members' equity for the years ended December 31, 1998, 1997 and 1996.......... F-10
Statements of cash flows for the years ended December 31, 1998, 1997 and 1996............... F-11
Notes to consolidated financial statements.................................................. F-12
Empress Entertainment, Inc.
Consolidated Condensed Financial Statements:
Balance sheets as of March 31, 1999 (unaudited) and December 31, 1998 F-21
Statements of income for the three months ended March 31, 1999 and 1998 (unaudited) F-22
Statements of cash flows for the three months ended March 31, 1999 and 1998 (unaudited) F-23
Notes to consolidated condensed financial statements (unaudited) F-24
Report of Independent Auditors F-26
Consolidated Financial Statements:
Balance sheets as of December 31, 1998 and 1997 F-27
Statements of income for the years ended December 31, 1998, 1997 and 1996 F-28
Statements of stockholders' equity for the years ended December 31, 1998, 1997 and 1996 F-29
Statements of cash flows for the years ended December 31, 1998, 1997 and 1996 F-30
Notes to consolidated financial statements F-31
</TABLE>
F-1
<PAGE> 165
HORSESHOE GAMING HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1999
-----------------------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $47,437 $84,151
Accounts receivable, net 8,839 9,653
Inventories 2,437 3,548
Prepaid expenses and other 8,899 4,484
----- -----
Total current assets 67,612 101,836
------ -------
Property and Equipment:
Land 16,174 16,093
Buildings, boat, barge and improvements 340,791 333,071
Furniture, fixtures and equipment 85,731 83,360
Less: accumulated depreciation (69,305) (61,330)
------- -------
373,391 371,194
Construction in progress 33 4,113
-- -----
Net property and equipment 373,424 375,307
------- -------
Other Assets:
Goodwill, net 35,938 36,124
Assets held for resale 12,000 12,000
Other 37,016 35,181
------ ------
$525,990 $560,448
======== ========
LIABILITIES AND MEMBERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $-- $1,174
Accounts payable 7,683 8,252
Accrued expenses and other 45,896 40,599
------ ------
Total current liabilities 53,579 50,025
Long-term Debt, less current maturities 372,678 387,544
Minority Interest (2,253) (1,965)
Commitments and Contingencies
Redeemable Ownership Interests 54,941 53,693
Members' Equity 47,045 71,151
------ ------
$525,990 $560,448
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
F-2
<PAGE> 166
HORSESHOE GAMING HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
1999 1998
---- ----
(IN THOUSANDS)
<S> <C> <C>
Revenues:
Casino $112,698 $106,840
Food and beverage 12,995 11,082
Hotel 8,762 8,283
Retail and other 3,135 2,091
----- -----
Gross revenues 137,590 128,296
Promotional allowances (17,398) (14,390)
------- -------
Net revenues 120,192 113,906
------- -------
Expenses:
Casino 60,651 60,548
Food and beverage 4,403 4,179
Hotel 2,570 2,884
Retail and other 2,515 1,584
General and administrative 12,613 13,505
Development 64 181
Preopening -- 653
Depreciation and amortization 8,585 7,947
----- -----
Corporate expenses 2,213 3,114
----- -----
Total expenses 93,614 94,595
====== ======
Operating Income 26,578 19,311
Other Income (Expense):
Interest expense (10,260) (9,729)
Interest income 572 477
Other, net (9) (110)
Minority interest in loss (income) of
subsidiaries (312) 24
---- --
Net Income $16,569 $9,973
======= ======
</TABLE>
The accompanying notes are an integral part of these consolidated
condensed financial statements.
F-3
<PAGE> 167
HORSESHOE GAMING HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 1998
---- ----
(IN THOUSANDS)
<S> <C> <C>
CASH PROVIDED BY OPERATING ACTIVITIES:
Net income $16,569 $9,973
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 8,585 7,947
Amortization of debt discount, deferred finance charges
and other 676 670
Provision for doubtful accounts 810 2,500
Minority interest in income (loss) of subsidiary 312 (24)
Increase in redeemable ownership interests 575 1,345
Net change in assets and liabilities 335 (16,965)
--- -------
Net cash provided by operating activities 27,862 5,446
------ -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (6,090) (25,448)
Proceeds from sale of property and equipment -- 194
Increase (decrease) in construction payables 763 (19,202)
Increase in other long-term assets (3,072) (2,684)
------ ------
Net cash used in investing activities (8,399) (47,140)
------ -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt -- 45,000
Payments on long-term debt (16,175) (1,675)
Capital distributions (5,576) (4,383)
Warrant repurchase (34,426) --
------- --
Net cash used in financing activities (56,177) 38,942
------- ------
Net change in cash and cash equivalents (36,714) (2,752)
Cash and cash equivalents, beginning of period 84,151 48,710
------ ------
Cash and cash equivalents, end of period $47,437 $45,958
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
F-4
<PAGE> 168
HORSESHOE GAMING HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. INTRODUCTION:
The accompanying unaudited Consolidated Condensed Financial Statements of
Horseshoe Gaming Holding Corp., a Delaware corporation (the "Company") and its
subsidiaries (including Horseshoe Gaming, L.L.C. ("Horseshoe Gaming"); see Note
5) have been prepared without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. These condensed consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements and notes thereto contained elsewhere in this prospectus. The results
for the periods indicated are unaudited, but reflect all adjustments (consisting
only of normal recurring adjustments) which management considers necessary for a
fair presentation of operating results. Results of operations for interim
periods are not necessarily indicative of a full year of operations.
2. CONTINGENCIES:
The Company and its subsidiaries, during the normal course of operating
its business, become engaged in various litigation and other legal disputes. In
the opinion of the Company's management, the ultimate disposition of such
disputes will not have a material impact on the Company's financial position and
its results of operations.
On September 2, 1998, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") to acquire the operating subsidiaries of Empress
Entertainment, Inc. ("Empress") for an estimated $609 million, including
assumption of a portion of Empress' existing debt of approximately $150 million.
Empress owns two riverboat gaming operations: one in Hammond, Indiana and one in
Joliet, Illinois. The Company intends to fund the acquisition through new
borrowings (see Subsequent Events below). The transactions contemplated by the
Merger Agreement are subject to the approval of the Mississippi Gaming
Commission, the Louisiana Gaming Control Board, the Illinois Gaming Board and
the Indiana Gaming Commission. There can be no assurance that the Company will
be successful in obtaining such approvals or consummating the Notes Offering (as
defined below) or other financing to complete the Empress Merger. In addition,
the Merger Agreement, including the amendment dated March 25, 1999, provides
that each party has the right to terminate the agreement under certain
circumstances, which in some instances would allow Empress to retain a $10
million down payment made by the Company towards the purchase price as well as
receive other consideration from the Company not to exceed $3 million.
3. OWNERSHIP TRANSACTION:
On January 13, 1999, Horseshoe Gaming repurchased outstanding warrants
held by a third party which entitled such third party to purchase approximately
6.99% ownership in Horseshoe Gaming from its largest shareholder, Horseshoe
Gaming, Inc. ("HGI"), for an exercise price of $510,000. Upon acquisition,
Horseshoe Gaming exercised the warrants and retired the membership units
acquired from HGI. The total cost of the warrants, including fees, expenses and
the exercise price paid to HGI was approximately $34.4 million, which was
recorded as a reduction in members' equity.
4. SUBSEQUENT EVENTS:
On April 15, 1999, the Company was formed to facilitate the issuance of
senior subordinated debt and the purchase of Empress (see Note 2). The Company
intends to qualify and to elect to be treated as an "S corporation" for federal
income tax purposes. Horseshoe Gaming's owners have exchanged substantially all
of their membership
F-5
<PAGE> 169
interests for stock in the Company. Prior to the Empress Merger, any remaining
membership interests not exchanged for stock in the Company will be purchased by
the Company.
To finance the Empress Merger, in April 1999, the Company received a
commitment for a new $375 million senior credit facility and completed an
offering of $600 million of senior subordinated notes (the "Notes") in a private
placement (the "Notes Offering"). The proceeds from the Notes Offering were used
to repay debt of Horseshoe Gaming and pay related fees and expenses. The Notes
were not registered under the Securities Act of 1933, as amended.
In May 1999, Horseshoe Gaming consummated a tender offer for its 12 3/4%
senior notes due 2000, $128.6 million of which were outstanding prior to the
tender offer. Approximately $128.4 million of such senior notes were tendered in
the tender offer. Horseshoe Gaming irrevocably deposited approximately $0.2
million into a defeasance account to redeem on September 30, 1999 (the first
date such notes may be redeemed) the approximately $0.2 million of senior notes
that failed to tender in the tender offer.
On April 21, 1999, Horseshoe Gaming exercised an option, subject to
regulatory approval, to purchase an 8.08% limited partnership interest in
Horseshoe Entertainment (the remaining interest not held by New Gaming Capital
Partnership, L.P., a wholly owned subsidiary of the Company) for total
consideration of up to $30.4 million, which includes payments for a non-compete
covenant, consents and the release of claims. The consideration for the
repurchase consisted of cash, payables to the former limited partners, and
offsets against the negative capital account balances of the former limited
partners and notes receivable from the former limited partners.
In May 1999, the Company reached an agreement in principle with five
former employees with aggregate redeemable ownership interests in Horseshoe
Gaming of 7.2% on the valuation of their ownership interests. The agreed-upon
valuation of the Company for purposes of calculating the valuation of the five
former employees' ownership interests is $470 million if the Empress Merger is
not consummated and $500 million if the Empress Merger is consummated. In June
1999, the first installment of approximately $11.5 million was paid to these
five former employees with the remaining amount to be paid over a period not to
exceed five years. The notes receivable from these employees was fully paid as a
result of this transaction. The effect of the change in the estimated value will
be reflected in the second quarter 1999 financial statements.
During the second quarter of 1999, the Company recorded an additional
$8.0 million charge to adjust the carrying value of the Queen of the Red to its
estimated net realizable value. This additional charge was made to reflect the
current market conditions for idle riverboats.
F-6
<PAGE> 170
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Horseshoe Gaming Holding Corp.:
We have audited the accompanying consolidated balance sheets of Horseshoe
Gaming Holding Corp. (a Delaware corporation) and subsidiaries as of December
31, 1998 and 1997, and the related consolidated statements of operations,
members' equity and cash flows for each of the three years in the period ended
December 31, 1998. 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 Holding
Corp. and subsidiaries as of December 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Memphis, Tennessee,
March 8, 1999 (except with respect
to the matter discussed in Note 10,
as to which the date is May 31, 1999).
F-7
<PAGE> 171
HORSESHOE GAMING HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1998 1997
---- ----
(IN THOUSANDS)
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $84,151 $48,710
Accounts receivable, net of allowance for doubtful
accounts of $10,346 and $8,965 9,653 13,518
Inventories 3,548 2,958
Prepaid expenses and other 4,484 2,102
----- -----
Total current assets 101,836 67,288
------- ------
Property and Equipment:
Land 16,093 14,688
Buildings, boat, barge and improvements 333,071 276,936
Furniture, fixtures and equipment 83,360 68,194
Less: accumulated depreciation (61,330) (42,769)
------- -------
371,194 317,049
Construction in progress 4,113 67,428
----- ------
Net property and equipment 375,307 384,477
------- -------
Other Assets:
Assets held for resale 12,000 --
Goodwill, net 36,124 37,960
Other 35,181 21,831
------ ------
$560,448 $511,556
======== ========
LIABILITIES AND MEMBERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $1,174 $1,674
Accounts payable 6,558 8,784
Construction payables 1,694 27,984
Accrued expenses and other 40,599 46,601
------ ------
Total current liabilities 50,025 85,043
Long-term Debt, less current maturities 387,544 311,601
Minority Interest (1,965) (1,317)
Commitments and Contingencies (Notes 8 and 9)
Redeemable Ownership Interests, net of deferred compensation
of $272 and $1,954 53,693 51,634
Members' Equity (Note 10) 71,151 64,595
------ ------
$560,448 $511,556
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-8
<PAGE> 172
HORSESHOE GAMING HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------
1998 1997 1996
---- ---- ----
(IN THOUSANDS)
Revenues:
<S> <C> <C> <C>
Casino $429,825 $321,236 $317,479
Food and beverage 48,263 29,990 26,947
Hotel 35,448 8,773 7,919
Retail and other 9,980 4,305 4,425
----- ----- -----
Gross Revenues 523,516 364,304 356,770
Promotional allowances (62,340) (29,211) (25,033)
------- ------- -------
Net revenues 461,176 335,093 331,737
------- ------- -------
Expenses:
Casino 245,234 175,394 162,408
Food and beverage 15,959 10,981 12,317
Hotel 11,785 7,877 6,798
Retail and other 6,910 1,425 1,359
General and administrative 57,202 43,600 45,351
Depreciation and amortization 33,888 19,411 15,989
Preopening 653 2,964 --
Development 515 1,653 6,629
--- ----- -----
Corporate expenses 12,947 22,490 10,254
Asset write-down 12,911 -- --
------ -- --
TOTAL EXPENSES 398,004 285,795 261,105
======= ======= =======
Operating Income 63,172 49,298 70,632
Other Income (Expense):
Interest expense (39,861) (20,792) (28,090)
Interest income 2,189 4,996 6,126
Other, net (228) (429) 154
Minority interest in (income) loss of subsidiary 640 (420) (1,861)
------- ------- -------
Income Before Extraordinary Loss on Early Retirement of
Debt 25,912 32,653 46,961
Extraordinary Loss on Early Retirement of Debt (787) (5,243) --
---- ------ --
Net Income $25,125 $27,410 $46,961
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-9
<PAGE> 173
HORSESHOE GAMING HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF MEMBERS' EQUITY
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
MEMBERS' CONTRIBUTIONS
EQUITY RECEIVABLE TOTAL
------ ---------- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at December 31, 1995 $54,102 $(1,355) $52,747
Collection of contributions receivable -- 1,355 1,355
Cash 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
Distributions:
Cash (11,056) -- (11,056)
Payable (15,000) -- (15,000)
Increase in redeemable ownership interests (16,541) -- (16,541)
Net income 27,410 -- 27,410
------ -- ------
Balance at December 31, 1997 64,595 -- 64,595
Cash distributions (17,012) -- (17,012)
Revaluation of land contribution (1,109) -- (1,109)
Increase in redeemable ownership interests (448) -- (448)
Net income 25,125 -- 25,125
------ -- ------
Balance at December 31, 1998 (Note 10) $71,151 $-- $71,151
======= === =======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-10
<PAGE> 174
HORSESHOE GAMING HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1998 1997 1996
---- ---- ----
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $25,125 $27,410 $46,961
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interest in income (loss) of subsidiary (640) 420 1,861
Depreciation and amortization 33,888 19,411 15,989
Asset write-down 12,911 -- --
Amortization of debt discounts, deferred finance
charges and other 2,741 2,313 3,032
Loss on disposal of property -- 389 1,011
Provision for doubtful accounts 11,937 7,556 4,388
Increase in redeemable ownership interests 4,245 15,066 4,546
Extraordinary loss on early retirement of debt 787 5,243 --
Net change in assets and liabilities (22,238) (6,482) (8,390)
------- ------ ------
Net cash provided by operating activities 68,756 71,326 69,398
------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (46,576) (215,576) (58,824)
Increase (decrease) in construction payables (26,290) 13,879 10,906
Proceeds from sale of property 383 -- 1,400
Net decrease (increase) in escrow funds -- 42,235 (10,919)
Net increase in other assets (17,902) (1,717) (8,024)
------- ------ ------
Net cash used in investing activities (90,385) (161,179) (65,461)
------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 85,000 175,438 49,073
Payments on debt (10,185) (97,877) (15,547)
Capital distributions (17,012) (11,056) (20,710)
Distributions to minority holders (8) (910) (1,560)
Debt issue costs and commitment fees (725) (6,191) (1,575)
---- ------ ------
Net cash provided by financing activities 57,070 59,404 9,681
------ ------ -----
Net change in cash and cash equivalents 35,441 (30,449) 13,618
Cash and cash equivalents, beginning of period 48,710 79,159 65,541
------ ------ ------
Cash and cash equivalents, end of period $84,151 $48,710 $79,159
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-11
<PAGE> 175
HORSESHOE GAMING HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
Horseshoe Gaming, L.L.C. ("Horseshoe Gaming") was formed in Delaware in
August 1995 to acquire, through a roll-up transaction effective October 1, 1995,
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. Subsequent to year-end, Horseshoe Gaming
Holding Corp. (the "Company") was formed (see Note 11). Because of the
integrated nature of these operations, the Company is considered to be engaged
in one business segment. A description of each principal subsidiary 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 Horseshoe Gaming and its subsidiary Horseshoe GP, Inc. As of
December 31, 1998 and 1997, 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 Horseshoe Gaming and its subsidiary Horseshoe
GP, Inc.
- 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 and is 80% owned and
managed by Horseshoe Gaming. The consolidated statements of
operations include 100% of the losses of Horseshoe Ventures with no
minority interest reported, because the Company funds 100% of such
losses and is obligated to fund all future losses.
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
F-12
<PAGE> 176
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 on the straight-line basis over the estimated
useful lives as follows:
Buildings, boat, barge and improvements 15 to 30 years
Furniture, fixtures and equipment 3 to 10 years
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, 1998, 1997 and 1996, was $163,000,
$11,191,000 and $1,272,000, respectively.
GOODWILL
Goodwill is amortized on a straight-line basis over 25 years, which
management estimates is the related benefit period. 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 years
ended December 31, 1998, 1997 and 1996, was $1,668,000, $1,662,000 and
$1,654,000, respectively.
DEFERRED FINANCE CHARGES
Deferred finance charges, which are included in other assets, consist of
fees and expenses incurred to obtain the Company's debt. The deferred finance
charges are being amortized over the term of the related debt using the
effective interest method (see Note 6).
REDEEMABLE OWNERSHIP INTERESTS
Horseshoe Gaming is obligated to repurchase ownership interests totaling
4.2% issued to certain employees pursuant to employment agreements in the event
of their termination at a price equal to the then fair market value, based on an
independent appraisal. The estimated fair value of such ownership interests is
reported outside of members' equity in the accompanying consolidated balance
sheets for all periods presented and expensed over the vesting period (see Notes
8 and 11).
In addition, certain individuals obtained ownership interests in Horseshoe
Gaming or its subsidiaries prior to becoming employees of Horseshoe Gaming. 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 Horseshoe Gaming
between October 1, 1995, and January 1, 1996, and held ownership interests in
Horseshoe Gaming totaling 5.1% as of December 31, 1998, 1997 and 1996. The
estimated fair value of these ownership interests, of $33,381,000 and
$32,931,000, based on a valuation dated November 1997, has also been classified
outside of members' equity in the accompanying consolidated balance sheets as of
December 31, 1998 and 1997, respectively.
F-13
<PAGE> 177
CAPITAL DISTRIBUTIONS
Horseshoe Gaming's debt agreements 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.
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>
YEARS ENDED DECEMBER 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Food and beverage $36,705 $24,967 $22,055
Hotel 8,325 3,360 3,034
Other operating expenses 5,067 664 619
----- --- ---
$50,097 $28,991 $25,708
======= ======= =======
</TABLE>
ADVERTISING COSTS
The Company expenses all costs associated with advertising as incurred,
and such amounts are included in general and administrative expenses in the
accompanying consolidated statements of operations.
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
during the expansion and development of existing casino properties are expensed
as incurred. Total preopening costs of $653,000 and $2,964,000 were expensed
during 1998 and 1997 in conjunction with the expansion efforts at the Horseshoe
Bossier City and Horseshoe Casino Center. There were no preopening costs in
1996. In the future, the Company will expense as incurred all preopening costs
related to new construction in accordance with Statements of Position 98-5
"Reporting on the Cost of Start-up Activities."
CORPORATE EXPENSES
Horseshoe Gaming 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 as corporate expenses and are reflected in the accompanying
consolidated statements of operations in the period such expenses are incurred
by HGI.
F-14
<PAGE> 178
Included in corporate expenses for the years ended December 31, 1998, 1997
and 1996 are normal operating expenses of HGI. Also included in corporate
expenses is the compensation expenses related to ownership interest in the
Company issued to employees pursuant to employment agreements (see Note 8).
INCOME TAXES
Horseshoe Gaming 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 $3,847,000 and $1,613,000 at
December 31, 1998 and 1997, respectively. Taxable income was in excess of net
income reported in the accompanying consolidated statements of operations for
all periods presented (see Note 10).
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, there were no significant
impairments of long-lived assets that occurred during the years ended December
31, 1997 and 1996. During 1998, the Company recorded a write-down in the
carrying value of an idle riverboat (see Note 4).
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.
3. CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash payments made for interest, excluding amounts capitalized, totaled
$36,530,000, $29,524,000 and $24,799,000 for the years ended December 31, 1998,
1997 and 1996, respectively.
A capital contribution of $1,150,000 was made to RPG through the issuance
of a contribution receivable during the year ended December 31, 1995. RPG
received land in satisfaction of the receivable during 1996. During 1998, the
carrying value of the land was adjusted to its estimated fair market value as
agreed to by RPG and the contributing partner. As a result, RPG reduced the
value of the land by $941,000 and reduced goodwill by $168,000 with a
corresponding reduction in partners' capital of $1,109,000.
Distributions totaling $15,000,000, which were accrued at December 31,
1997 were paid in February 1998.
The net change in assets and liabilities consists of the following (in
thousands):
F-15
<PAGE> 179
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
(Increase) decrease in assets:
Accounts receivable $(8,072) $(13,091) $(7,207)
Inventories (590) (1,523) 46
Prepaid expenses and other (2,382) (493) (281)
Increase (decrease) in liabilities:
Accounts payable (2,226) 5,600 (726)
Accrued expenses and other (8,968) 3,025 (222)
------ ----- ----
$(22,238) $(6,482) $(8,390)
======== ======= =======
</TABLE>
4. ASSETS HELD FOR RESALE
In January 1998, NGCP's new riverboat casino facility replaced the
existing riverboat facility ("Queen of the Red"). The Queen of the Red, along
with the related gaming equipment is reported as assets held for resale in the
accompanying consolidated balance sheet. Additionally, NGCP recorded an asset
write-down of $12,911,000 based on an appraisal of the Queen of the Red.
Management is continuing to evaluate various options for use of the Queen of the
Red, including sale (see Note 11).
5. ACCRUED EXPENSES AND OTHER
Accrued expenses and other consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
---- ----
<S> <C> <C>
Payroll and related tax liabilities $8,674 $8,814
Vacation and other employee benefits 3,157 3,050
Accrued interest 5,491 5,165
Gaming, sales, use and property taxes 3,815 2,542
Progressive slot and slot club liabilities 6,691 4,681
Distributions payable -- 15,000
Other accrued expenses 12,771 7,349
------ -----
$40,599 $46,601
======= =======
</TABLE>
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
---- ----
(IN THOUSANDS)
<S> <C> <C>
12.75% Senior Notes (effective interest rate of 12.75%), due
September 30, 2000, net of unamortized discount of $909,000 and
$1,522,000 $127,681 $135,478
9.375% Senior Subordinated Notes (effective interest of 9.375%),
due June 15, 2007, net of unamortized discount of $137,000 and
$152,000 159,863 159,848
Senior Secured Revolving Credit Facility, secured by substantially
all of the assets of the Company, $130 million borrowing capacity,
due June 15, 2000, with varying interest rates ranging from 6.812% to
7.50% 100,000 15,100
</TABLE>
F-16
<PAGE> 180
<TABLE>
<S> <C> <C>
Notes Payable, interest ranging from 6% to 8.25%, due in various
installments through January 1999 1,174 2,849
----- -----
388,718 313,275
Less: current maturities (1,174) (1,674)
------ ------
$387,544 $311,601
======== ========
</TABLE>
The Senior Notes were issued at 98% of par value and included warrants to
purchase an additional $50,000,000 of Senior Notes at a price of 98.15% of par
value. These warrants were exercised on April 10, 1996, and Horseshoe Gaming
received proceeds of $49,073,000. The Senior Notes and the related interest are
guaranteed unconditionally by RPG and are secured by a second pledge of
Horseshoe Gaming's ownership interest in all present and future subsidiaries
with the exception of NGCP's ownership interest in HE. The 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 Horseshoe 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 interest
in all present and future subsidiaries owned by Mr. Binion and certain
affiliates of Mr. Binion. The Senior Notes are not redeemable prior to September
30, 1999.
On June 15, 1997, Horseshoe Gaming issued $160,000,000 of 9 3/8% Senior
Subordinated Notes ("Subordinated Notes") due June 15, 2007. The Subordinated
Notes were issued at 99.899% of par value. The Subordinated Notes are unsecured
and require semi-annual interest payments on June 15 and December 15. A portion
of the proceeds were used to retire a previously outstanding credit facility
(see below), as well as retire $13 million in Senior Notes. An extraordinary
loss on early retirement of debt of $5,243,000 was recognized in 1997 for
prepayment penalties and premium, and the write-off of unamortized discounts and
deferred finance charges. The remaining proceeds were used to fund a portion of
the expansion of Horseshoe Gaming's existing facilities.
On November 12, 1997, Horseshoe Gaming finalized a restructuring of its
Senior Secured Credit Facility. Pursuant to the terms of the amended and
restated loan agreement, CIBC Wood Gundy Securities Corp. agreed to provide a
$130 million Senior Secured Revolving Credit Facility (the "Amended and Restated
Credit Facility").
The Amended and Restated 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 Amended and Restated 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 Horseshoe Gaming
from its subsidiaries, in each case secured by a first lien on the casino and
real property of each subsidiary; and (iii) a first pledge of the minority
interest in all present and future subsidiaries owned by Mr. Binion and certain
affiliates of Mr. Binion.
The Senior Notes and the Amended and Restated Credit Facility contain
covenants that, among other things, (i) limit the amount of distributions
Horseshoe Gaming can pay to its members; (ii) limit the amount of additional
indebtedness which may be incurred by Horseshoe Gaming and its subsidiaries;
(iii) prohibit any consolidation or merger of Horseshoe Gaming or its
subsidiaries with an affiliate or third party, any sale of substantially all of
Horseshoe Gaming or its subsidiaries' assets, or any payment of subordinated
indebtedness prior to its scheduled maturity; and (iv) require Horseshoe Gaming
and its subsidiaries to invest excess funds in cash equivalents, as defined, and
government securities with a maturity of one year or less.
During 1998, Horseshoe Gaming repurchased some of its Senior Notes from
individual note holders in the open market totaling $8,410,000. An extraordinary
loss on early retirement of debt of $787,000 was recognized in 1998 for
prepayment penalties, premium and the write-off of unamortized discounts and
deferred finance charges.
As of December 31, 1998 the five year maturities for long-term debt were
$1,174,000 (1999), $227,681,000 (2000), $0 (2001), $0 (2002) and $0 (2003).
F-17
<PAGE> 181
As of December 31, 1998 and 1997, the fair market value of the Senior
Notes, based on quoted market prices was $138,170,000 and $151,385,000,
respectively. As of December 31, 1998 and 1997, the fair market value of the
Subordinated Notes, based on quoted market prices was $164,800,000 and
$168,000,000, respectively. The fair market value of the Company's other
long-term debt approximated its carrying value as of December 31, 1998 and 1997,
based on the borrowing rates currently available for debt with similar terms.
7. TRANSACTIONS WITH RELATED PARTIES
Mr. Binion has provided services pursuing, developing and managing gaming
operations for the Company and its subsidiaries. Mr. Binion has never received
compensation for his services, although the Company accrued compensation at
December 31, 1998 for Mr. Binion equal to the fair value of his services. Mr.
Binion does not have an employment agreement to receive compensation for his
services; however, the Company and Mr. Binion may enter into such an employment
agreement during 1999.
KII-Pasadena, Inc., which is owned by two individuals who were executive
officers of HGI between January 1, 1996 and December 31, 1998, has acted on
behalf of Horseshoe Gaming as developer for the Horseshoe Bossier City and the
Horseshoe Casino Center and has provided consulting services to Horseshoe Gaming
related to pursuing new gaming developments. Additionally, one of the placement
agents for the Senior Notes and Credit Facility discussed in Note 6 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 during the year ended December 31, 1996.
The principals of the placement agent referred to above own approximately
3.9% of Horseshoe Gaming. Fees were paid to the placement agent during 1997 and
1996 for various financial advisory services totaling $600,000 and $510,000,
respectively.
Notes receivable (including accrued interest) from employees with
ownership interests in Horseshoe Gaming and limited partners of HE totaling
$11,201,000 and $6,844,000 are included in other assets in the accompanying
consolidated balance sheets are as of December 31, 1998 and 1997, respectively.
The notes to employees are secured by their ownership interests in Horseshoe
Gaming, and the notes to the limited partners are secured by their ownership
interests in HE. The notes have various due dates and interest rates ranging
from 6% to 10%.
The Company conducts a portion of its marketing through an entity that is
owned by the wife of an officer. Fees and expenses paid to this company totaled
$3,625,000, $2,648,000 and $1,632,000 for the years ended December 31, 1998,
1997 and 1996, respectively.
8. EMPLOYEE COMPENSATION AND BENEFITS
EMPLOYMENT AGREEMENTS
HE and RPG have 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 Horseshoe Gaming and vest
over the term 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 as variable stock purchase plans. Compensation expense is
recorded each period equal to the change in the fair market value of ownership
interests issued and the vesting schedule pursuant to these agreements.
F-18
<PAGE> 182
During the fourth quarter of 1995, certain employees of HGI received
ownership interests Horseshoe Gaming, 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 2, Horseshoe Gaming is required
to reimburse HGI for all expenses incurred related to the operations of
Horseshoe Gaming and would be required to fund any repurchase of HGI employees'
ownership interests in Horseshoe Gaming, 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 Horseshoe Gaming issued to employees
pursuant to such employment agreements was 4.1% as of December 31, 1998, 1997
and 1996. As of December 31, 1998, all employees/former employees were fully
vested. The amount of compensation expense recorded in the accompanying
consolidated statements of operations related to these ownership interests was
$4,245,000, $15,066,000 and $4,340,000 for the years ended December 31, 1998,
1997 and 1996, respectively.
During 1998, the employment agreements of five officers of Horseshoe
Gaming expired or were terminated. These officers hold ownership interests in
Horseshoe Gaming totaling 7.4% (including 5.0% which were received prior to the
officers becoming employees) which are subject to put/call provisions. Four of
the officers have notified the Company of their intent to exercise their put
options and one employee has agreed not to exercise his put option prior to
January 1, 2001. The purchase price of these ownership interests has not yet
been agreed to by the parties and may ultimately be determined by an arbitrator,
as provided for in the employment agreements. The employment agreements also
provide for the final purchase price to be paid to the employees over three to
five years. (See Note 10)
Some of the employment agreements also include a guaranteed severance
payment in the event of termination. The amount of such liability was $1,810,000
and $5,795,000 at December 31, 1998 and 1997, respectively. Three former
employees were paid their severance payments in 1998.
UNIT OPTION PLAN
During 1997, HGI approved Horseshoe Gaming's 1997 Unit Option Plan which
provides for certain employees to be granted options to purchase membership
units in Horseshoe Gaming at a fixed exercise price of $3.47 per unit. The
options vest in three equal annual installments beginning one year subsequent to
the date of the option holder's employment and expire after 10 years. At
December 31, 1998, 631,225 units had been granted, 589,144 of which had vested.
The Unit Option Plan contains a put/call provision under the same terms as
described above for the employment agreements. Accordingly, the unit option plan
is accounted for as a variable stock purchase plan. Compensation expense is
recorded each period based on vesting an amount equal to the change in the fair
market value of the vested membership units in Horseshoe Gaming, provided such
value exceeds the exercise price of the options. The net value is included in
redeemable ownership interests in the accompanying consolidated balance sheets.
The Company recognized compensation expense of $1,544,000 and $1,107,000 related
to this option plan during 1998 and 1997, respectively.
One former employee that has a Unit Option Agreement (126,245 units) has
elected not to renew his employment agreement and has exercised his option to
purchase the units pursuant to the Unit Option Agreement and his option to put
the units back to Horseshoe Gaming at fair market value. The employee and
Horseshoe Gaming have agreed that the exercise price shall be deducted from the
proceeds to be received by the employee for the redemption of his units.
F-19
<PAGE> 183
401(k) SAVINGS PLAN
Effective January 1, 1995, a 401(k) savings plan was established for 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 Horseshoe Gaming 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 $923,000, $716,000 and $667,000 for the years ended December 31, 1998, 1997
and 1996, 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 financial position and results of its
operations.
MINORITY INTEREST PURCHASE COMMITMENTS
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 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, 1998, 1997 and 1996, the earnings
criteria were met and additional consideration was recorded. Of the additional
consideration recorded, $799,500 was allocated to the non-compete agreement, and
the remaining $700,500 was allocated to goodwill. The unamortized balance of the
non-compete agreement included in other assets in the accompanying consolidated
balance sheets was $1,229,000 as of December 31, 1997. The non-compete agreement
was fully amortized as of December 31, 1998.
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.
WARRANT REPURCHASE
On January 13, 1999, Horseshoe Gaming repurchased outstanding warrants
held by a third party which entitled such third party to purchase an approximate
6.99% ownership interest in Horseshoe Gaming from HGI, for an exercise price of
$510,000. Upon acquisition, Horseshoe Gaming exercised the warrants and retired
the membership units acquired from HGI. The total amount Horseshoe Gaming paid
for the warrants, including fees, expenses and the exercise price paid to HGI,
was $34.4 million, which will be recorded as a reduction in members' equity in
the first quarter on 1999.
F-20
<PAGE> 184
PROPOSED ACQUISITION
On September 2, 1998, Horseshoe Gaming entered into an Agreement and Plan
of Merger to acquire the operating subsidiaries of Empress Entertainment, Inc.
("Empress") for an estimated $609 million, including assumption of a portion of
Empress' existing debt aggregating approximately $150 million. Empress owns two
riverboat gaming operations: one in Hammond, Indiana; and one in Joliet,
Illinois. Horseshoe Gaming intends to finance the acquisition through new
borrowings. Under the terms of the agreement relating to the Empress acquisition
(the "Merger Agreement"), Horseshoe Gaming made a down payment of $10 million
towards the purchase price. The transactions contemplated by the Merger
Agreement are subject to the approval of the Mississippi Gaming Commission, the
Louisiana Gaming Control Board, the Illinois Gaming Board and the Indiana Gaming
Commission. The Merger Agreement provides that each party has the right to
terminate the agreement under certain circumstances, which in some instances
provides for Empress to retain the $10 million down payment as well as receive
other consideration not to exceed $3 million. There can be no assurance that the
Company will be successful in obtaining the necessary approvals or additional
financing to complete the Empress acquisition.
10. FORMATION OF HORSESHOE GAMING HOLDING CORP.
On April 15, 1999, the Company was formed to facilitate the issuance of
senior subordinated debt and the purchase of Empress (see Note 9). The Company
intends to qualify and to elect to be treated as an "S corporation" for federal
income tax purposes. Horseshoe Gaming's owners have exchanged substantially all
of their membership interests for stock of the Company. Prior to the Empress
Merger, any remaining membership interests not exchanged for stock in the
Company will be purchased by the Company.
11. SUBSEQUENT EVENTS (UNAUDITED)
REDEEMABLE OWNERSHIP INTERESTS
In May 1999, the Company reached an agreement in principle with five
former employees with aggregate redeemable ownership interests in Horseshoe
Gaming of 7.2% on the valuation of their ownership interests. The agreed-upon
valuation of the Company for purposes of calculating the valuation of the five
former employees' ownership interests is $470 if the Empress Merger is not
consummated and $500 million if the Empress Merger is consummated. In June 1999,
the first installment of approximately $11.5 million was paid to these five
former employees with the remaining amount to be paid over a period not to
exceed five years. The notes receivable from these employees were fully paid as
a result of this transaction. The effect of the change in the estimated value
will be reflected in the second quarter 1999 financial statements.
ASSET WRITE-DOWN
During the second quarter of 1999, the Company recorded an additional $8.0
million charge to adjust the carrying value of the Queen of the Red to its
estimated net realizable value. This additional charge was made to reflect the
current market conditions for idle riverboats.
F-21
<PAGE> 185
EMPRESS ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, 1999 DECEMBER 31, 1998
-------------- -----------------
(UNAUDITED)
(IN THOUSANDS EXCEPT SHARE
AMOUNTS)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $36,892 $33,555
Restricted cash held for defeasance 166,133 --
Accounts receivable, less allowance for doubtful accounts of
$1,808 and $2,235, respectively 3,249 2,908
Other current assets 2,744 3,099
US Treasuries held for defeasance including accrued
interest and unamortized premium -- 163,933
-- -------
Total current assets 209,018 203,495
Property and equipment, net 190,482 193,809
Other assets, net 30,410 29,509
------ ------
Total assets $429,910 $426,813
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $4,311 $4,289
Accrued payroll and related expenses 7,355 6,802
Interest payable 11,184 10,799
Other accrued liabilities 17,134 11,573
Current portion of long-term debt 150,000 150,000
------- -------
Total current liabilities 189,984 183,463
Long-term debt 166,500 176,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock; $.01 par value; 6,000 shares authorized;
1,909.365 shares issued and outstanding -- --
Treasury stock; 17.381 shares, held at cost (4,667) (4,667)
Additional paid-in capital 16,548 16,548
Retained earnings 61,545 55,469
------ ------
Total stockholders' equity 73,426 67,350
------ ------
Total liabilities and stockholders' equity $429,910 $426,813
======== ========
</TABLE>
The accompanying footnotes are an integral part of these
financial statements.
F-22
<PAGE> 186
EMPRESS ENTERTAINMENT, INC
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------------
1999 1998
---- ----
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
REVENUES:
Casino $98,893 $91,337
Food and beverage 7,195 6,392
Hotel, parking, retail and other 1,832 1,603
----- -----
Gross revenues 107,920 99,332
Less: promotional allowances (3,326) (2,470)
------ ------
Net Revenues 104,594 96,862
OPERATING EXPENSES:
Casino 51,199 47,007
Food and beverage 6,541 6,344
Hotel, parking and retail 1,290 1,111
Sales, general and administrative 10,040 10,549
Other operating 5,184 4,790
Corporate 1,430 1,282
Depreciation and amortization 5,471 4,868
----- -----
81,155 75,951
------ ------
Income from operations 23,439 20,911
OTHER INCOME (EXPENSE):
Interest income 2,294 982
Interest expense (7,511) (5,301)
------ ------
Income before state income taxes 18,222 16,592
Provision for state income taxes 139 83
--- --
Net income $18,083 $16,509
======= =======
</TABLE>
The accompanying footnotes are an integral part of these
financial statements.
F-23
<PAGE> 187
EMPRESS ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------------------
1999 1998
---- ----
(UNAUDITED)
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 18,083 $ 16,509
Adjustments to reconcile net income to cash provided by 5,471 4,868
operating activities
Depreciation and amortization
Other 336 --
Change in operating assets and liabilities:
Accounts receivable (341) 892
Other current assets 355 907
Accounts payable 22 (332)
Accrued payroll and related expenses 553 (385)
Interest payable 385 4,043
Other accrued liabilities 5,561 3,399
--------- ---------
Net cash provided by operating activities 30,425 29,901
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investments (1,200) (16,083)
Proceeds from sale of investments 161,099 10,010
Decrease in interest receivable on investment 2,538
Purchase of property and equipment (1,743) (7,242)
Increase in restricted cash (166,133)
Increase in other assets (142) --
--------- ---------
Net cash used in investing activities (5,581) (13,315)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on borrowings (9,500) (5,091)
Stockholder distributions (12,007) (7,239)
--------- ---------
Net cash used in financing activities (21,507) (12,330)
--------- ---------
Net increase in cash and cash equivalents 3,337 4,256
Cash and cash equivalents, beginning of period 33,555 73,257
--------- ---------
Cash and cash equivalents, end of period $ 36,892 $ 77,513
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest Paid $ 7,126 $ 1,081
Income taxes paid $ 400 $ 250
</TABLE>
The accompanying footnotes are an integral part of these
financial statements.
F-24
<PAGE> 188
EMPRESS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements of Empress Entertainment, Inc. ("the
Company") include the accounts of its wholly owned subsidiaries, Empress Casino
Hammond Corporation ("Empress Hammond") incorporated on November 25, 1992,
Empress Casino Joliet Corporation ("Empress Joliet") incorporated on December
26, 1990, Empress River Casino Finance Corporation ("Empress Finance")
incorporated on January 7, 1994, and Empress Opportunities, Inc. ("Empress
Opportunities") incorporated on July 14, 1998. All significant intercompany
transactions have been eliminated.
The Company is engaged in the business of providing riverboat gaming and
related entertainment to the public. Empress Joliet was granted a three year
operating license from the Illinois Gaming Board on July 9, 1992, which was
renewed in July 1998 and must be renewed each year thereafter, to operate the
Empress I and Empress II riverboat casinos located on the Des Plaines River in
Joliet, Illinois. Empress Hammond was granted a five-year operating license,
with annual renewals thereafter, from the Indiana Gaming Commission on June 21,
1996 to operate the Empress III riverboat casino located on Lake Michigan in
Hammond, Indiana. Empress III commenced operations on June 28, 1996. The
majority of the Company's customers reside in the Chicago metropolitan area.
Empress Opportunities was formed as an unrestricted subsidiary to serve as
a holding company, under which the Company is pursuing certain business
opportunities other than the Company's gaming operations in Joliet, Illinois and
Hammond, Indiana. Empress Racing, Inc. ("Empress Racing") was formed as an
unrestricted subsidiary of Empress Opportunities to hold a 50% ownership
interest in Kansas Racing, LLC, which has acquired certain indebtedness of
Sunflower Racing, Inc., then the owner of the Woodlands Racetrack in Kansas
City, Kansas. Kansas Racing subsequently acquired the Woodlands Racetrack with a
bid in an auction pursuant to a proceeding under Chapter 7 of the U.S.
Bankruptcy Code.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. Interim results may not necessarily be indicative of
results, which may be expected for any other interim period, or for the year as
a whole. These consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998. The
accompanying unaudited consolidated financial statements contain adjustments
which are, in the opinion of management, necessary to present fairly the
financial position and results of operations for the periods indicated. Such
adjustments include only normal recurring accruals.
RECLASSIFICATIONS
Certain amounts in prior years' financial statements have been
reclassified to conform to the current year presentation.
2. PLAN OF MERGER
On September 2, 1998, and as amended on March 25, 1999, the Company
entered into an Agreement and Plan of Merger (the "Merger Agreement") with
Horseshoe Gaming (Midwest), Inc. and certain of its affiliates
F-25
<PAGE> 189
("Horseshoe Midwest") which, if consummated, would result in the acquisition by
Horseshoe Midwest of all of the outstanding stock of Empress Hammond and Empress
Joliet via two simultaneous merger transactions (the "Proposed Mergers").
Consummation of the Merger Agreement constitutes a "Change of Control"
under the Indenture and will trigger Horseshoe Midwest's obligation to make an
irrevocable offer to purchase the Notes (the "Change of Control Offer") at a
cash price equal to 101% of the principal amount plus accrued and unpaid
interest. Holders of the Notes will have the option of tendering all or any
portion of their Notes for redemption, or they may retain the Notes. The Company
and/or Horseshoe Midwest intend to comply with the provisions of the Indenture.
The Change of Control Offer must commence within 10 business days following the
consummation of the transactions contemplated by the Plan of Merger and must
remain open for at least 20 business days. Horseshoe Midwest must complete the
repurchase of any Notes tendered in response to the Change of Control Offer no
more than 30 business days after the consummation of the transactions as
contemplated in the Plan of Merger.
3. SUBSEQUENT EVENT
In June 1998, the Company irrevocably deposited $167.2 million (the
"Covenant Defeasance") for the purpose of effecting the redemption of all of the
Company's 10 3/4% Senior Notes due 2002 (the "Senior Notes"). On February 10,
1999, the Trustee sent out a Notice of Redemption to the holders of the Senior
Notes announcing the redemption of such Notes. On April 1, 1999, the Company
redeemed all of its $150 million of 10 3/4% Senior Notes, thus fulfilling all of
its obligations related to the Senior Notes. The Company will recognize an
extraordinary loss of $10.2 million in the second quarter of fiscal 1999 due to
this early retirement of debt.
F-26
<PAGE> 190
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Empress Entertainment, Inc.
We have audited the accompanying consolidated balance sheets of Empress
Entertainment, Inc. as of December 31, 1998 and 1997, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1998. 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 consolidated financial position of Empress
Entertainment, Inc. at December 31, 1998 and 1997, and the consolidated results
of its operations and its cash for each of the years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
Ernst &
Young
LLP
Chicago, Illinois,
March 26, 1999.
F-27
<PAGE> 191
EMPRESS ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
---- ----
(IN THOUSANDS
EXCEPT SHARE
AMOUNTS)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 33,555 $ 73,257
Marketable securities, at fair value which approximates cost -- 10,010
Accounts receivable, less allowance for doubtful accounts
of $2,235 and $1,762, respectively 2,908 3,789
Other current assets 3,099 3,393
US Treasuries held for defeasance including accrued
interest and unamortized premium 163,933 --
------- ---------
Total current assets 203,495 90,449
Property and equipment, net 193,809 185,911
Other assets, net 29,509 15,182
--------- ---------
Total assets $ 426,813 $ 291,542
========= =========
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES:
Accounts payable $ 4,289 $ 3,535
Accrued payroll and related expenses 6,802 7,356
Interest payable 10,799 4,074
Other accrued liabilities 11,573 12,194
Current portion of long-term debt 150,000 18,524
--------- ---------
Total current liabilities 183,463 45,683
Long-term debt 176,000 190,000
COMMITMENTS AND CONTINGENCIES
Stockholders' equity:
Common stock; $.01 par value; 6,000 shares authorized;
1,909.365 and 1,926.746 shares issued and outstanding,
respectively -- --
Treasury stock; 17.381 shares, held at cost (4,667) --
Additional paid-in capital 16,548 16,548
Retained earnings 55,469 39,311
------ ------
Total stockholders' equity 67,350 55,859
--------- ---------
Total liabilities and stockholders' equity $ 426,813 $ 291,542
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-28
<PAGE> 192
EMPRESS ENTERTAINMENT, INC
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1998 1997 1996
---- ---- ----
(IN THOUSANDS)
REVENUES:
<S> <C> <C> <C>
Casino $ 373,038 $ 346,049 $ 263,040
Food and beverage 27,889 27,344 17,991
Hotel, parking, retail and other 7,070 7,554 4,836
--------- --------- ---------
Gross revenues 407,997 380,947 285,867
Less: promotional allowances (11,331) (11,303) (7,205)
--------- --------- ---------
Net revenues 396,666 369,644 278,662
OPERATING EXPENSES:
Casino 193,950 180,253 126,846
Food and beverage 25,986 26,903 18,205
Hotel, parking and retail 4,210 5,523 6,153
Sales, general and administrative 50,229 52,284 31,569
Other operating 20,267 21,184 16,167
Pre-opening -- -- 5,672
Depreciation and amortization 21,124 18,849 13,896
--------- --------- ---------
315,766 304,996 218,508
Income from operations 80,900 64,648 60,154
OTHER INCOME (EXPENSE):
Interest income 6,710 3,324 3,487
Interest expense (25,559) (21,154) (18,274)
--------- --------- ---------
Income before state income taxes 62,051 46,818 45,367
Provision for state income taxes 433 514 447
--------- --------- ---------
Income before extraordinary item 61,618 46,304 44,920
Extraordinary loss on early extinguishment of 292 -- --
--------- --------- ---------
debt
Net income $ 61,326 $ 46,304 $ 44,920
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-29
<PAGE> 193
EMPRESS ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON TREASURY PAID-IN RETAINED STOCKHOLDERS'
STOCK STOCK CAPITAL EARNINGS EQUITY
----- ----- ------- -------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance December 31, 1995
$-- $-- $ 16,430 $ 20,417 $ 36,847
Net income -- -- -- 44,920 44,920
Sale and issuance of common stock -- -- 118 -- 118
Cash distributions to stockholders -- -- -- (32,273) (32,273)
------- ------- ------- ------- ------
Balance December 31, 1996 -- -- 16,548 33,064 49,612
Net income -- -- -- 46,304 46,304
Cash distributions to stockholders -- -- -- (40,057) (40,057)
------- ------- ------- ------- ------
Balance December 31, 1997 -- -- 16,548 39,311 55,859
Net income -- -- -- 61,326 61,326
Purchase of stock for treasury -- (4,667) -- -- (4,667)
Cash distributions to stockholders -- -- -- (45,168) (45,168)
------- -------- --------- -------- --------
Balance December 31, 1998 $-- $ (4,667) $ 16,548 $ 55,469 $ 67,350
======= ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-30
<PAGE> 194
EMPRESS ENTERTAINMENT, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1998 1997 1996
---- ---- ----
(IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income $ 61,326 $ 46,304 $ 44,920
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization 21,124 18,849 13,896
Other 696 833 983
Write off of unamortized loan costs 292 -- --
Change in operating assets and liabilities:
Accounts receivable 881 (643) (1,770)
Other current assets 294 2,297 (320)
Accounts payable 754 591 (109)
Accrued payroll and related expenses (556) 982 3,315
Interest payable 6,725 (152) 194
Other accrued liabilities (621) 1,263 3,192
--------- --------- ---------
Net cash provided by operating activities 90,915 70,324 64,301
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investments (185,948) (62,847) (61,495)
Proceeds from sale of investments 33,910 83,079 57,539
Increase in interest receivable on investments (2,538) -- --
Purchase of property and equipment (26,476) (16,137) (105,988)
Decrease in restricted cash -- -- 23,611
Increase in other assets (10,532) (480) (4,850)
--------- --------- ---------
Net cash provided by (used in) investing activities (191,584) 3,615 (91,183)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 187,500 28,965 66,681
Payments on borrowings (70,024) (34,765) (2,991)
Payment of financing costs (6,674) (290) --
Sale of common stock -- -- 118
Purchase of treasury stock (4,667) -- --
Stockholder distributions (45,168) (40,057) (32,273)
--------- --------- ---------
Net cash provided by (used in) financing activities 60,967 (46,147) 31,535
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents (39,702) 27,792 4,653
Cash and cash equivalents, beginning of year 73,257 45,465 40,812
--------- --------- ---------
Cash and cash equivalents, end of year $ 33,555 $ 73,257 $ 45,465
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 18,957 $ 20,636 $ 18,950
Income taxes paid $ 798 $ 475 $ 825
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-31
<PAGE> 195
EMPRESS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements of Empress Entertainment, Inc. (the
"Company") include the accounts of its wholly owned subsidiaries, Empress Casino
Hammond Corporation ("Empress Hammond") incorporated on November 25, 1992,
Empress Casino Joliet Corporation ("Empress Joliet") incorporated on December
26, 1990, Empress River Casino Finance Corporation ("Empress Finance")
incorporated on January 7, 1994, and Empress Opportunities, Inc. ("Empress
Opportunities") incorporated on July 14, 1998. All significant intercompany
transactions have been eliminated.
The Company is engaged in the business of providing riverboat gaming and
related entertainment to the public. Empress Joliet was granted a three year
operating license from the Illinois Gaming Board on July 9, 1992, which was
renewed in July 1998 and must be renewed each year thereafter, to operate the
Empress I and Empress II riverboat casinos located on the Des Plaines River in
Joliet, Illinois. Empress Hammond was granted a five-year operating license,
with annual renewals thereafter, from the Indiana Gaming Commission on June 21,
1996 to operate the Empress III riverboat casino located on Lake Michigan in
Hammond, Indiana. Empress III commenced operations on June 28, 1996. The
majority of the Company's customers reside in the Chicago metropolitan area.
Empress Opportunities was formed as an unrestricted subsidiary to serve as
a holding company, under which the Company is pursuing certain business
opportunities other than the Company's gaming operations in Hammond, Indiana and
Joliet, Illinois. Empress Racing, Inc. ("Empress Racing") was formed as an
unrestricted subsidiary of Empress Opportunities to hold a 50% ownership
interest in Kansas Racing, LLC, which acquired certain indebtedness of Sunflower
Racing, Inc., then the owner of the Woodlands Racetrack in Kansas City, Kansas.
Kansas Racing subsequently acquired the Woodlands Racetrack with a bid in an
auction pursuant to a proceeding under Chapter 7 of the U.S. Bankruptcy Code.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements as well as revenues and expenses during the reporting period. Actual
amounts when ultimately realized could differ from those estimates.
CASH EQUIVALENTS AND CONCENTRATIONS OF CASH
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents. Cash equivalents are
placed primarily with high-credit-quality financial institutions and are
invested in short-term corporate and U.S. Government obligations.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets. Costs for major improvements are capitalized while
the cost of normal repairs and maintenance are expensed as incurred.
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<PAGE> 196
IMPAIRMENT OF LONG-LIVED ASSETS
When events or circumstances indicate that the carrying amount of
long-lived assets to be held and used might not be recoverable, the expected
future undiscounted cash flows from the assets are estimated and compared with
the carrying amount of the assets. If the sum of the estimated undiscounted cash
flows is less than the carrying amount of the assets, impairment is recorded.
The impairment loss is measured by comparing the fair value of the assets with
their carrying amount. Long-lived assets that are held for disposal are reported
at the lower of the assets' carrying amount or fair value less costs related to
the assets' disposition. The Company performs an annual evaluation to identify
potential impairment of long-lived assets.
DEBT ISSUANCE COSTS
Debt issuance costs incurred in connection with the issuance of long-term
debt or acquiring credit facilities are capitalized and amortized over the terms
of the related debt or credit agreements.
NONCOMPETE AGREEMENT
A noncompete agreement for $3.75 million was entered into in July 1995 and
was fully amortized as of December 31, 1998.
REVENUE AND PROMOTIONAL ALLOWANCES
In accordance with industry practice, the Company recognizes as casino
revenue the net win from gaming activities, which is the difference between
gaming wins and losses.
The retail value of food, beverage, and other services, which are provided
to customers without charge, has been included in the respective revenue
classifications and then deducted as a promotional allowance. The estimated
direct costs of providing such complimentary services are included as an
operating expense of the casino department which totaled $3.3 million, $3.4
million, and $2.7 million in 1998, 1997 and 1996, respectively.
ADVERTISING COSTS
All advertising costs are expensed as incurred. Advertising expense was
$7.1 million, $7.2 million and $7.9 million for the years ended December 31,
1998, 1997 and 1996, respectively.
PRE-OPENING EXPENSES
Pre-opening expenses, which are principally of lease payments and
professional fees, are expensed as incurred.
INCOME TAXES
The stockholders of the Company have elected, under Subchapter S of the
Internal Revenue Code to include the Company's income in their individual income
tax returns. Accordingly, the Company is not subject to federal income taxes.
The Company continues to be subject to certain state income taxes.
RECLASSIFICATIONS
Certain amounts in prior years' financial statements have been
reclassified to conform to the current year presentation.
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<PAGE> 197
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
ESTIMATED LIFE 1998 1997
-------------- ---- ----
(YEARS) (IN THOUSANDS)
<S> <C> <C> <C>
Land -- $ 12,155 $ 9,139
Building and improvements 20-31 71,270 69,408
Riverboats, docks and improvements 20 61,296 53,768
Leasehold improvements 20 47,218 45,416
Furniture, fixtures and equipment 5 63,640 49,857
Construction in progress -- 1,121 2,709
--------- ---------
Total 256,700 230,297
Accumulated depreciation (62,891) (44,386)
--------- ---------
Property and equipment, net $ 193,809 $ 185,911
========= =========
</TABLE>
Interest totaling $123,000, $144,000, and $1,645,000 was capitalized
during the years ended December 31, 1998, 1997 and 1996, respectively.
3. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
---- ----
(IN THOUSANDS)
<S> <C> <C>
10 3/4% Senior Notes $150,000 $150,000
8 1/8% Senior Subordinated Notes 150,000 --
Revolving Credit Facility 26,000 56,000
Other -- 2,524
-------- --------
326,000 208,524
Current portion of long-term debt 150,000 18,524
-------- --------
$176,000 $190,000
======== ========
</TABLE>
The Company issued $150 million 10 3/4% Senior Notes (the "Senior Notes")
due 2002 pursuant to a public offering on April 7, 1994. The Senior Notes are
irrevocably and unconditionally guaranteed on a senior unsecured basis by the
Company and its existing and future Restricted Subsidiaries. In 1998, the
Company entered into a refinancing, the components of which included a covenant
defeasance of the Senior Notes and the issuance of
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<PAGE> 198
$150 million 8 1/8% Senior Subordinated Notes (the "Notes"). The Notes are
jointly, severally and unconditionally guaranteed on an unsecured senior
subordinated basis by all existing and future Restricted Subsidiaries. Audited
financial information of those guarantor subsidiaries has been omitted because
the Notes are guaranteed by all direct and indirect subsidiaries of the parent
and the parent company has no significant operations or assets separate from its
investments in its subsidiaries. All unrestricted non-guarantor subsidiaries of
the parent are not significant.
Interest on the Notes is payable January 1 and July 1 of each year. The
Notes are due and payable on July 1, 2006. The Company and all of its future
subsidiaries may be required to repay all or a portion of the Notes upon the
occurrence of certain repurchase events.
Under the covenant defeasance in connection with the issuance of the
Notes, the Senior Notes will be paid off on April 1, 1999 and the Company will
recognize a $10.2 million extraordinary loss related to the early extinguishment
of debt in 1999. At December 31, 1998, the Company held U.S. Treasury Securities
in an amount sufficient to settle all obligations related to the defeased Senior
Notes, including the premium due to the early extinguishment. These securities
are restricted solely for the purpose of settling all such obligations.
In June 1998, the Company entered into a $100 million reducing revolving
credit facility (the "Credit Agreement") which will expire June 18, 2003. Under
the terms of the Credit Agreement, the Company is required to meet certain
financial and other covenants. Interest shall accrue on the entire outstanding
principal balance of the Credit Agreement at a rate per annum equal to the
higher of (a) the Prime Rate in effect on such date or (b) the Federal Funds
Rate in effect on such date plus one-half of one percent. As of December 31,
1998, $26 million was outstanding at a blended rate of 6.55%. On December 31,
1999, 2000, 2001 and 2002 the availability under the Credit Agreement will be
reduced by $5 million, $7.5 million, $7.5 million and $15 million, respectively,
leaving the total availability at $65 million from December 31, 2002 until
maturity. The Company incurs a commitment fee on the unused portion of the
credit facility, which ranges from .225% to .375% per annum depending upon the
level of a certain predefined ratio. The credit facility is collateralized by
substantially all the real and personal property of the Company and its
Restricted Subsidiaries.
Prior to the Credit Agreement, the Company had a $60 million credit
facility which was paid off in full as part of the refinancing. The Company
recognized an extraordinary loss of $292,000 for the write-off of unamortized
loan costs related to the credit facility.
As of December 31, 1998 the carrying amount of all of the Company's debt
instruments approximates their fair value. Fair value was determined based on
the quoted market price for the Notes.
Aggregate maturities of long-term debt (in thousands) are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
<S> <C>
1999 $150,000
2000 --
2001 --
2002 --
2003 26,000
Thereafter 150,000
--------
$326,000
========
</TABLE>
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<PAGE> 199
4. LEASE COMMITMENTS
The Company entered into a lease providing for the right to use the site
of the development and the parking structure which was conveyed to the City of
Hammond upon completion. The lease expires on the fifth anniversary of the
Company's procurement of its operating license from the Indiana Gaming
Commission (see Note 1). The term of the lease will be automatically extended
for periods equal to each renewal period of the operating license provided that
the total term will not exceed seventy-five (75) years. The Company has paid in
full the rent for the amount of $1.00 per year for the term of the lease
($75.00).
The Company pays to the Hammond Port Authority (HPA) an amount equal to
the aggregate of the annual rental being charged by the HPA for each boat slip
that is removed or taken out of operation as a result of the operation of
Empress III. These rental amounts will be the same as the rental amounts charged
to other users of similar boat slips. The annual amount paid in 1998, 1997 and
1996 was approximately $345,000, $345,000, and $421,000, respectively.
Rent expense for the years ended December 31, 1998, 1997 and 1996 was
$1,500,000, $800,000, and $750,000, respectively.
5. RELATED PARTY TRANSACTIONS
The Company engages businesses owned by certain stockholders of the
Company to provide certain services. The amounts paid for these services were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Insurance brokerage $ 130 $2,669 $2,704
Construction services 355 633 408
Fuel services and related transportation 498 501 635
Other services 235 51 51
------ ------ ------
$1,218 $3,854 $3,798
====== ====== ======
</TABLE>
6. 401(k) PLAN
In 1993, the Company adopted a 401(k) plan covering substantially all of
its employees. The Company's contribution to the plan is based on a
discretionary percentage of employee contributions and may include an additional
discretionary amount. The Company incurred approximately $628,000, $446,000 and
$339,000 of contribution expense related to the plan years ended December 31,
1998, 1997 and 1996, respectively.
7. COMMITMENTS AND CONTINGENT LIABILITY
In June 1996, the Company executed a number of agreements which secure its
rights to operate in the City of Hammond at the Hammond Marina. Significant
among the commitments as of December 31, 1998, are the financial obligations of
the Company which include, but are not limited to the following:
- An annual payment to the City of Hammond of the greater of $3
million or certain percentages of adjusted gross receipts as
follows:
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<PAGE> 200
<TABLE>
<S> <C>
4.0% up to $125 million;
6.0% over $125 million and up to $200
million; and
4.0% in excess of $200 million
</TABLE>
- A passenger payment to the Hammond Port Authority in the sum of
$1.00 per passenger.
- An annual payment to the City of Hammond for police and fire
purposes of $1 million.
- Contribution to the City of Whiting and civic organizations in
Whiting for public safety and to promote economic development in the
total sum of $1.25 million. Payments to be made in equal
installments over five years commenced June 1996.
- Construction of a hotel and conference center with an estimated cost
of $10 million.
- Commercial development within the greater Hammond area with an
estimated cost of $10 million to be completed by July 1, 2001. No
amounts have been expended as of December 31, 1998.
- Renovation of existing housing and construction of new market rate
housing in the greater Hammond area with estimated expenditures and
loans of $5 million to be completed by July 1, 2001.
Residential housing investments which will comprise $3.5 million of the
$5.0 million will be made in accordance with the following schedule:
<TABLE>
<CAPTION>
INVESTMENT DATE AMOUNT
--------------- ------
<S> <C>
By July 1, 1998 $500,000
By July 1, 1999 1,500,000
By July 1, 2000 500,000
By July 1, 2001 1,000,000
---------
$3,500,000
==========
</TABLE>
To fulfill the remaining $1,500,000 of the commitment, the Company has
entered into an agreement to loan $1,400,000 and donate $100,000 to Hammond
Enterprise Development Corporation. The $100,000 donation was made in 1998 along
with a loan of $400,000. The remaining $1,000,000 will be loaned in $500,000
increments on May 1, 1999 and May 1, 2000. As of December 31, 1998,
approximately $1.4 million has been expended.
The City of Hammond is a plaintiff in a condemnation proceeding filed in
September 1995 in Lake Superior Court in Lake County, Indiana, in which the City
of Hammond condemned a small parcel of land for the construction of the overpass
located near Empress Hammond. This case was transferred on a change of venue in
the summer of 1998 to Newton County, Indiana. On September 28, 1998, the jury
returned a $5.2 million award, which bears prejudgment interest at 8% since
1995. Under terms of the Development Agreement between Empress Hammond and the
City, Empress Hammond is responsible for reimbursing the City of Hammond for its
costs, fees and any judgments. The City of Hammond appealed this decision to the
Indiana appellate court. As a result, it is not yet clear how much, or when, the
condemnation award will be paid.
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<PAGE> 201
8. PLAN OF MERGER
On September 2, 1998, and as amended on March 25, 1999, the Company
entered into an Agreement and Plan of Merger with Horseshoe Gaming (Midwest),
Inc. and certain of its affiliates ("Horseshoe Midwest") which, if consummated,
would result in the acquisition by Horseshoe Midwest of all of the outstanding
stock of Empress Joliet and Empress Hammond via two simultaneous merger
transactions (the "Proposed Mergers").
Consummation of the Plan of Merger constitutes a "Change of Control" under
the Indenture and will trigger Horseshoe Midwest's obligation to make an
irrevocable offer to purchase the Notes (the "Change of Control Offer") at a
cash price equal to 101% of the principal amount plus accrued and unpaid
interest. Holders of the Notes will have the option of tendering all or any
portion of their Notes for redemption, or they may retain the Notes. The Company
and/or Horseshoe Midwest intend to comply with the provisions of the Indenture.
The Change of Control Offer must commence within 10 business days following the
consummation of the transactions contemplated by the Plan of Merger and must
remain open for at least 20 business days. Horseshoe Midwest must complete the
repurchase of any Notes tendered in response to the Change of Control Offer no
more than 30 business days after the consummation of the transactions as
contemplated in the Plan of Merger.
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<PAGE> 202
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The General Corporation Law of the State of Delaware (the "Delaware Law")
permits indemnification of directors, employees and agents of corporations
under certain conditions and subject to certain limitations. Pursuant to the
Delaware Law, we have included in our Certificate of Incorporation and bylaws a
provision to eliminate the personal liability of our directors for monetary
damages for breach or alleged breach of their duty of care to the fullest
extent permitted by the Delaware Law.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following is a complete list of Exhibits filed as a part of this
Registration Statement, which are incorporated herein:
1.1 #### Purchase Agreement, dated May 6, 1999, by and among
Horseshoe Gaming Holding Corp. and the initial
purchasers.
2.1 ## First Amendment to Deposit Escrow Agreement, by and among
Horseshoe Gaming, L.L.C. and Empress Entertainment, Inc.,
dated March 25, 1999.
2.2 ## First Amendment to Agreement and Plan of Merger, dated as
of March 25, 1999, to the Agreement and Plan of Merger,
dated as of September 22, 1998, by and among Horseshoe
Gaming, L.L.C., Horseshoe Gaming (Midwest), Inc., Empress
Acquisition Illinois, Inc., Empress Acquisition Indiana,
Inc., Empress Casino Joliet Corporation, Empress Casino
Hammond Corporation and Empress Entertainment, Inc.
2.3 # Agreement and Plan of Merger, dated as of September 2,
1998, by and among Horseshoe Gaming, L.L.C., Horseshoe
Gaming (Midwest), Inc., Empress Acquisition Illinois,
Inc., Empress Acquisition Indiana, Inc., Empress Casino
Joliet Corporation, Empress Casino Hammond Corporation
and Empress Entertainment, Inc.
2.4 #### Subscription and Reorganization Agreement, dated as of
April 23, 1999, by and among Horseshoe Gaming Holding
CCCCCorp, Horseshoe Gaming, L.L.C., Robinson Property
Group, Inc., and others listed therein.
2.5 ##### Second Amendment to Agreement and Plan of Merger, Dated
as of July 23, 1999, to the Agreement and Plan of Merger,
dated as of September 22, 1998, by and among Horseshoe
Gaming, L.L.C., Horseshoe Gaming (Midwest), Inc., Empress
Acquisition Illinois, Inc., Empress Acquisition Indiana,
Inc., Empress Entertainment, Inc., Empress Casino Joliet
Corporation and Empress Casino Hammond Corporation.
3.1 #### Certificate of Incorporation of Horseshoe Gaming Holding
Corp.
3.2 #### By-laws of Horseshoe Gaming Holding Corp.
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<PAGE> 203
4.1 #### Indenture, dated as of May 11, 1999, by and between
Horseshoe Gaming Holding Corp. and U.S. Trust Company,
National Association.
4.2 #### Second Supplemental Indenture, dated as of May 11, 1999,
to Indenture, dated as of October 10, 1995, by and
between Horseshoe Gaming, L.L.C., Robinson Property Group
Limited Partnership and U.S. Trust Company, National
Association.
4.3 * 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.
4.4 * 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.
4.5 * Bossier City Security Agreement and Assignment thereof.
4.6 * 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.
4.7 * 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.
4.8 * Tunica County Security Agreement and Assignment thereof.
4.9 * Intercompany Senior Secured Note due September 30, 2000,
executed by Horseshoe Entertainment in favor of Horseshoe
Gaming, L.L.C.
4.10 * Intercompany Senior Secured Note due September 30, 2000,
executed by Robinson Property Group Limited Partnership
in favor of Horseshoe Gaming, L.L.C.
4.11 * Form of Senior Note of Horseshoe Gaming, L.L.C. 12.75%
Senior Notes due 2000.
4.12 * 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.
4.13 * 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.
4.14 * 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, 2000 issued by Horseshoe Gaming, L.L.C.
II-2
<PAGE> 204
4.15 #### Amendment No. 1 to Second Pledge Agreement, from Jack
Binion, B&O Development Limited Partnership, JBB Gaming
Investments, L.L.C. in favor of United States Trust
Company of New York for the benefit of the Holders of
12.75% Senior Notes due September 30, 2000.
4.16 * 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.
4.17 #### Amendment No. 1 to Second Pledge Agreement, 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.
4.18 * 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.
4.19 #### Amendment No. 1 to Second Ship Mortgage on the Whole of
the Queen of the Red by Horseshoe Entertainment in favor
of Horseshoe Gaming, L.L.C.
4.20 * Bossier City Second Security Agreement and Assignment
thereof.
4.21 * 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 Holder, as
beneficiaries.
4.22 #### Amendment No. 1 to Second Deed of Trust, Security
Agreement and Assignment of Leases and Rents from
Robinson Property Group, Limited Partnership to Rowan H.
Taylor, Jr. for the benefit of 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.
4.23 * Second Ship Mortgage on the Whole of the Horseshoe Casino
& 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.
4.24 #### Amendment No. 1 to Second Ship Mortgage on the Whole of
the Horseshoe Casino & Hotel, Tunica executed by Robinson
Property Group Limited Partnership, as Owner and
Mortgagor, in favor of Horseshoe Gaming, L.L.C. and
United Trust Company of New York.
4.25 *** 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.
4.26 + Intercompany Senior Secured Note due September 30, 2000
executed by Robinson Property Group Limited Partnership
in favor of Horseshoe Gaming, L.L.C.
4.27 + Intercompany Senior Secured Note due September 30, 2000
executed by Horseshoe Entertainment in favor of Horseshoe
Gaming, L.L.C.
II-3
<PAGE> 205
4.28 ++ Purchase Agreement for 9 3/8% Series A Senior
Subordinated Notes by and among Horseshoe Gaming, L.L.C.
and Robinson Property Group Limited Partnership, as
guarantor, and Wasserstein Perella Securities, Inc. as
Initial Purchaser.
4.29 ++ Form of 9 3/8% Senior Subordinated Note due 2007 of
Horseshoe Gaming, L.L.C.
4.30 ++ Indenture, dated as of June 15, 1997, by and among
Horseshoe Gaming, L.L.C., U.S. Trust Company of Texas,
N.A., as Trustee, and Robinson Property Group Limited
Partnership, as guarantor, with respect to the 9 3/8%
Senior Subordinated Notes due 2007.
4.31 ++ Exchange and Registration Rights Agreement, dated as of
June 25, 1997, by and among Horseshoe Gaming, L.L.C.,
Robinson Property Group Limited Partnership and
Wasserstein Perella Securities, Inc.
4.32 ++ Intercompany Senior Secured Note due June 15, 2007
executed by Robinson Property Group Limited Partnership
in favor of Horseshoe Gaming, L.L.C.
4.33 ++ Intercompany Senior Secured Note due June 15, 2007
executed by Horseshoe Entertainment in favor of Horseshoe
Gaming, L.L.C.
4.34 +++ Intercompany Senior Secured Note due June 15, 2000
executed by Robinson Property Group Limited Partnership
in favor of Horseshoe Gaming, L.L.C.
4.35 +++ Intercompany Senior Secured Note due June 15, 2000
executed by Horseshoe Entertainment in favor of Horseshoe
Gaming, L.L.C.
4.36 +++ Amended and Restated Credit Facility Agreement, dated as
of November 12, 1997, by and among Horseshoe Gaming,
L.L.C. and Canadian Imperial Bank of Commerce as agent
for the lenders.
4.37 #### Amendment No. 1 to the Amended and Restated Note
Assignment, dated as of May 11, 1999, from Horseshoe
Gaming, L.L.C. in favor of the Holders of Senior Secured
Credit Facility Notes due September 30, 2000.
4.38 +++ Form of Revolving Note between Horseshoe Gaming, L.L.C.
and Lender pursuant to the Amended and Restated Credit
Facility Agreement.
4.39 +++ Form of Swingline Note between Horseshoe Gaming, L.L.C.
and Canadian Imperial Bank of Commerce pursuant to the
Amended and Restated Credit Facility Agreement.
4.40 +++ Security Agreement made as of November 12, 1997 by the
Company in favor of Canadian Imperial Bank of Commerce
(the "Bank").
4.41 +++ Guarantee and Security Agreement made by Horseshoe
Gaming, Inc. as of November 12, 1997 in favor of the Bank
4.42 +++ Guarantee and Security Agreement made by Horseshoe GP,
Inc. as of November 12, 1997 in favor of the Bank
4.43 +++ Amended and Restated Guarantee and Security Agreement
made by Robinson Property Group LP as of November 12,
1997 in favor of the Bank.
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<PAGE> 206
4.44 +++ Guarantee and Security Agreement made by New Gaming
Capital Partnership as of November 12, 1997 in favor of
the Bank.
4.45 +++ Guarantee and Security Agreement made by Horseshoe
Ventures as of November 12, 1997 in favor of the Bank.
4.46 +++ Amended and Restated Note Assignment made by Horseshoe
Gaming, L.L.C. as of November 12, 1997 in favor of the
Bank 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.
4.47 +++ Amended and Restated Pledge Agreement of HGHC as of
November 12, 1997 in favor of the Bank.
4.48 +++ Amended and Restated Pledge Agreement of JBB Gaming
Investments as of November 12, 1997 in favor of the Bank.
4.49 +++ Amended and Restated Intercreditor Agreement, dated as of
November 12, 1997, by and between Horseshoe Gaming,
L.L.C. and Canadian Imperial Bank of Commerce.
4.50 ### Dealer Manager Agreement, dated as of April 20, 1999, by
and between Horseshoe Gaming, L.L.C. and Donaldson,
Lufkin & Jenrette Securities Corporation.
4.51 ##### Horseshoe Gaming Holding Corp. Credit Agreement, dated as
of June 30, 1999, by and among Horseshoe Gaming Holding
Corp., the Lenders Listed Therein, DLJ Capital Funding,
Inc. and Canadian Imperial Bank of Commerce.(1)
5.1 ##### Opinion of Swidler Berlin Shereff Friedman, LLP.
10.1 #### Settlement Term Sheet, dated as of May 19, 1999, by and
among Jack B. Binion, Horseshoe Gaming, Inc., Horseshoe
Gaming, L.L.C., Paul R. Alanis, Loren Ostrow, John
Schreiber and Cliff Kortman.
10.2 #### Horseshoe Note Pledge and Security Agreement, dated as of
and on May 11, 1999, by and among Horseshoe Gaming
Holding Corp., Horseshoe Gaming, L.L.C. and U.S. Trust
Company, National Association.
10.3 #### Promissory Note, dated May 11, 1999, from Horseshoe
Gaming, L.L.C. to Horseshoe Gaming Holding Corp. for
$240,349,125.00.
10.4 #### Registration Rights Agreement, dated May 11, 1999, by and
among Horseshoe Gaming Holding Corp. and the initial
purchasers.
- -------------------
(1) In accordance with item 601 of Regulation S-K, the Registrant has
not filed the schedules to this Agreement with the Securities and Exchange
Commission. The Registrant undertakes to supplementally provide a copy of such
schedules to the Securities and Exchange Commission upon request.
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<PAGE> 207
10.5 #### Security and Control Agreement, dated as of and on May
11, 1999, by and among Horseshoe Gaming Holding Corp. and
U.S. Trust Company, National Association.
10.6 #### Guarantee, dated as of May 11, 1999, by Robinson Property
Group, Limited Partnership for the benefit of Horseshoe
Gaming Holding Corp.
10.7 #### Guarantee, dated as of May 11, 1999, by Horseshoe
Entertainment for the benefit of Horseshoe Gaming Holding
Corp.
10.8 #### Stockholders' Agreement for Horseshoe Gaming Holding
Corp., dated as of April 29 1999, by and among Horseshoe
Gaming Holding Corp. and parties listed therein.
10.9 * 401(k) Plan of Robinson Property Group Limited
Partnership.
10.10 ** 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.
10.11 ++ Second Amended and Restated Employment Agreement, dated
as of October, 1, 1995, by and between Horseshoe Gaming,
Inc. and Walter J. Haybert.
10.12 * Employment Agreement, dated January 1, 1996, by and
between Horseshoe Gaming, Inc. and Paul Alanis.
10.13 * Employment Agreement, dated January 1, 1996, by and
between Horseshoe Gaming, L.L.C. and Loren S. Ostrow.
10.14 ++ Second Amended and Restated Employment Agreement, dated
as of October 1, 1995, by and between Horseshoe Gaming,
Inc. and John Michael Allen.
10.15 ++ Second Amended and Restated Employment Agreement, dated
as of October 1, 1995, by and between Horseshoe Gaming,
Inc. and John J. Schreiber.
10.16 ++ 1997 Unit Option Plan of Horseshoe Gaming, L.L.C.
10.17 ## Unit Option Agreement, dated as of February 1, 1997, by
and between Horseshoe Gaming, L.L.C. and Larry Lepinski.
10.18 ## Unit Option Agreement, dated as of February 1, 1997, by
and between Horseshoe Gaming, L.L.C. and Cliff Kortman.
10.19 ## Warrant Purchase Agreement, dated as of December 21,
1998, by and between Hanwa Co., Ltd. and Horseshoe
Gaming, L.L.C.
10.20 ## Settlement Agreement, dated as of December 31, 1998, by
and among Horseshoe Gaming, Inc., Horseshoe Gaming,
L.L.C. and Hollywood Park, Inc.
10.21 ## Settlement Agreement, dated as of February 3, 1999, by
and among Horseshoe Gaming, Inc., Horseshoe Gaming,
L.L.C. and Mike Allen.
II-6
<PAGE> 208
10.22 ## Letter Agreement, dated October 19, 1998, by Horseshoe
Gaming, Inc. and Horseshoe Gaming, L.L.C. and accepted by
Walter Haybert.
10.23 ## Letter Agreement, dated January 4, 1999, by Horseshoe
Gaming, Inc. and Horseshoe Gaming, L.L.C. and accepted by
Walter Haybert.
10.24 ## Mutual General Release, dated February 23, 1999, by and
among Horseshoe Gaming, L.L.C., Horseshoe Gaming, Inc.,
Horseshoe GP, Inc., Robinson Property Group Limited
Partnership, New Gaming Capital Partnership, Horseshoe
Entertainment, and Nobutaka Mutaguchi.
10.25 ## Exclusive License Agreement, dated July 2, 1998, by and
between Horseshoe Gaming, L.L.C. and Horseshoe License
Company.
10.26 ## Amended and Restated Employment Agreement, dated November
23, 1998, by and between Horseshoe Gaming, Inc. and Gary
Border.
10.27 ## Amended and Restated Employment Agreement, dated November
23, 1998, by and between Horseshoe Gaming, Inc. and Larry
Lepinski.
10.28 ## Amended and Restated Employment Agreement, dated October
15, 1998, by and between Horseshoe Gaming, Inc. and
Robert McQueen.
10.29 ## Amended and Restated Employment Agreement, dated November
23, 1998, by and between Horseshoe Gaming, Inc. and Kirk
Saylor.
10.30 #### Amended and Restated Employment Agreement, dated November
23, 1998, by and between Horseshoe Gaming, Inc. and David
Carroll.
10.31 #### Amended and Restated Employment Agreement, dated November
23, 1998, by and between Horseshoe Gaming, Inc. and John
Moran.
10.32 #### Employment Agreement, dated as of November 3, 1998, by
and between Horseshoe Gaming, Inc. and Roger Wagner.
10.33 ## Unit Option Agreement, dated as of February 1, 1997, by
and between Horseshoe Gaming, L.L.C. and Urs Vogel.
10.34 ## Unit Option Agreement, dated as of February 1, 1997, by
and between Horseshoe Gaming, L.L.C. and Glen Buxton.
10.35 ### Agreement, dated as of April 21, 1999, by and among
Horseshoe Gaming, L.L.C., Horseshoe Gaming, Inc.,
Horseshoe Entertainment, LP, and New Gaming Capital
Partnership; Jack B. Binion; The Robin Group, Inc. and
August Robin.
10.36 ### Agreement, dated as of April 21, 1999, by and among
Horseshoe Gaming, L.L.C., Horseshoe Gaming, Inc.,
Horseshoe Entertainment, LP, and New Gaming Capital
Partnership; Jack B. Binion; Wendell Piper; Cassandra
Piper; and Robert E. Piper, Jr.
10.37 ##### Employment Agreement, dated as of January 11, 1999, by
and between Horseshoe Gaming, Inc. and Joseph J. Canfora.
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<PAGE> 209
10.38 ##### Consulting Agreement, dated as of July 23, 1999, by and
between Horseshoe Gaming, L.L.C. and Empress
Entertainment, Inc.
12.1 #### Statements re Computations of Ratios
20.1 # Press Release issued on September 2, 1998 by Horseshoe
Gaming, L.L.C. announcing that it had executed an
agreement to acquire the riverboat gaming operations of
Empress Entertainment, Inc.
21.1 #### Subsidiaries of Horseshoe Gaming Holding Corp.
23.1 ##### Consent of Arthur Andersen LLP.
23.2 ##### Consent of Ernst & Young LLP.
23.3 ##### Consent of Swidler Berlin Shereff Friedman, LLP (included
in Exhibit 5.1 to this Registration Statement).
24.1 #### Power of Attorney (included on signature page hereto).
25.1 #### Statement of Eligibility of Trustee.
27.1 #### Financial Data Schedule
99.1 #### Form of Letter of Transmittal for Tender of all
Outstanding 85/8% Series A Senior Subordinated Notes Due
2009 in exchange for 85/8% Series B Senior Subordinated
Notes Due 2009 of Horseshoe Gaming Holding Corp.
99.2 #### Form of Tender for all Outstanding 85/8% Series A Senior
Subordinated Notes Due 2009 in exchange for 85/8% Series
B Senior Subordinated Notes Due 2009 of Horseshoe Gaming
Holding Corp.
99.3 #### Form of Instruction to Registered Holder from Beneficial
Owner of 85/8% Series A Senior Subordinated Notes Due
2009 of Horseshoe Gaming Holding Corp.
99.4 #### Form of Notice of Guaranteed Delivery for Outstanding
85/8% Series A Senior Subordinated Notes Due 2009 in
exchange for 85/8% Series B Senior Subordinated Notes Due
2009 of Horseshoe Gaming Holding Corp.
- -----------------------------
* Filed as an Exhibit to Horseshoe Gaming, L.L.C. Registration Statement
on Form S-4 (No. 333-0214) (the "1996 Form S-4") filed on January 8,
1996.
** Filed as an Exhibit to Horseshoe Gaming, L.L.C. Amendment No. 1 to the
1996 Form S-4 filed on April 26, 1996.
*** Filed as an Exhibit to Horseshoe Gaming, L.L.C. Form 10-Q for the
Quarter Ended June 30, 1996.
+ Filed as an Exhibit to Horseshoe Gaming, L.L.C. Form 10-Q for the
Quarter Ended March 31, 1997.
++ Filed as an Exhibit to Horseshoe Gaming, L.L.C. Registration Statement
on Form S-4 (No. 333-33145) filed on August 7, 1997.
+++ Filed as an Exhibit to Horseshoe Gaming, L.L.C. Form 10-K for the Year
Ended December 31, 1997.
# Filed as an Exhibit to Horseshoe Gaming, L.L.C. Form 8-K filed on
September 12, 1998.
## Filed as an Exhibit to Horseshoe Gaming, L.L.C. Form 10-K for the
fiscal year ended December 31, 1998.
II-8
<PAGE> 210
### Filed as an Exhibit to Horseshoe Gaming, L.L.C. Form 10-Q for the
Quarter Ended March 31, 1999.
#### Filed as an Exhibit to Horseshoe Gaming Holding Corp.'s Form S-4
Registration Statement filed on June 15, 1999.
##### Filed herewith.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
- To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
- To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule 424(b) if,
in the aggregate, the changes in volume and price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement; and
- To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
(4) That prior to any public reoffering of the securities registered
hereunder through the use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c) under the Securities Act of 1933, as amended, or the
Securities Act, the issuer undertakes that such reoffering prospectus will
contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition
to the information called for by the other Items of the applicable form.
(5) That every prospectus (x) that is filed pursuant to paragraph (4)
immediately preceding, or (y) that purports to meet the requirements of section
10(a)(3) of the Securities Act and is used in connection with an offering of
securities subject to Rule 415 under the Securities Act, will be filed as a
part of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any
liability under the Securities Act, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-9
<PAGE> 211
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrants
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
enforceable. In the event that a claim for indemnification against such
liabilities, other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceedings, is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of Form S-4 promulgated by the SEC, within one
business day of receipt of such request, and to send the incorporated documents
by first class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
(d) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(e) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrants' annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934, and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934, that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-10
<PAGE> 212
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Horseshoe Gaming Holding Corp. has duly caused this Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Las Vegas, State of Nevada, on July 28, 1999.
HORSESHOE GAMING HOLDING CORP.
By: *
---------------------------------------
Jack B. Binion
Chairman of the Board, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act, as amended, this
Registration Statement has been signed by the following persons in the
capacities indicated on July 28, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
*
- ---------------------------------- Chairman of the Board, President and Chief Executive
Jack B. Binion Officer (Principal Executive Officer) and Director
/s/ Kirk C. Saylor
- ---------------------------------- Chief Financial Officer (Principal Financial Officer)
Kirk C. Saylor
Director
- ----------------------------------
Peri Cope Howard
* Director
- ----------------------------------
Leslie Kenny
</TABLE>
II-11
<PAGE> 213
*By: /s/ Kirk C. Saylor
- ----------------------------------
Attorney-in-Fact
EXHIBIT INDEX
1.1 #### Purchase Agreement, dated May 6, 1999, by and among
Horseshoe Gaming Holding Corp. and the initial
purchasers.
2.1 ## First Amendment to Deposit Escrow Agreement, by and among
Horseshoe Gaming, L.L.C. and Empress Entertainment, Inc.,
dated March 25, 1999.
2.2 ## First Amendment to Agreement and Plan of Merger, dated as
of March 25, 1999, to the Agreement and Plan of Merger,
dated as of September 22, 1998, by and among Horseshoe
Gaming, L.L.C., Horseshoe Gaming (Midwest), Inc., Empress
Acquisition Illinois, Inc., Empress Acquisition Indiana,
Inc., Empress Casino Joliet Corporation, Empress Casino
Hammond Corporation and Empress Entertainment, Inc.
2.3 # Agreement and Plan of Merger, dated as of September 2,
1998, by and among Horseshoe Gaming, L.L.C., Horseshoe
Gaming (Midwest), Inc., Empress Acquisition Illinois,
Inc., Empress Acquisition Indiana, Inc., Empress Casino
Joliet Corporation, Empress Casino Hammond Corporation
and Empress Entertainment, Inc.
2.4 #### Subscription and Reorganization Agreement, dated as of
April 23, 1999, by and among Horseshoe Gaming Holding
Corp, Horseshoe Gaming, L.L.C., Robinson Property Group,
Inc., and others listed therein.
2.5 ##### Second Amendment to Agreement and Plan of Merger, dated
as of July 23, 1999, to the Agreement and Plan of Merger,
dated as of September 22, 1998, by and among Horseshoe
Gaming, L.L.C., Horseshoe Gaming (Midwest),Inc., Empress
Acquisition Illinois, Inc., Empress Acquisition
Indiana,Inc., Empress Entertainment, Inc., Empress Casino
Joliet Corporation and Empress Casino Hammond
Corporation.
3.1 #### Certificate of Incorporation of Horseshoe Gaming Holding
Corp.
3.2 #### By-laws of Horseshoe Gaming Holding Corp.
4.1 #### Indenture, dated as of May 11, 1999, by and between
Horseshoe Gaming Holding Corp. and U.S. Trust Company,
National Association.
4.2 #### Second Supplemental Indenture, dated as of May 11, 1999,
to Indenture, dated as of October 10, 1995, by and
between Horseshoe Gaming, L.L.C., Robinson Property Group
Limited Partnership and U.S. Trust Company, National
Association.
4.3 * 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.
<PAGE> 214
4.4 * 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.
4.5 * Bossier City Security Agreement and Assignment thereof.
4.6 * 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.
4.7 * 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.
4.8 * Tunica County Security Agreement and Assignment thereof.
4.9 * Intercompany Senior Secured Note due September 30, 2000,
executed by Horseshoe Entertainment in favor of Horseshoe
Gaming, L.L.C.
4.10 * Intercompany Senior Secured Note due September 30, 2000,
executed by Robinson Property Group Limited Partnership
in favor of Horseshoe Gaming, L.L.C.
4.11 * Form of Senior Note of Horseshoe Gaming, L.L.C. 12.75%
Senior Notes due 2000.
4.12 * 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.
4.13 * 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.
4.14 * 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, 2000 issued by Horseshoe Gaming, L.L.C.
4.15 #### Amendment No. 1 to Second Pledge Agreement, from Jack
Binion, B&O Development Limited Partnership, JBB Gaming
Investments, L.L.C. in favor of United States Trust
Company of New York for the benefit of the Holders of
12.75% Senior Notes due September 30, 2000.
4.16 * 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.
4.17 #### Amendment No. 1 to Second Pledge Agreement, 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.
<PAGE> 215
4.18 * 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.
4.19 #### Amendment No. 1 to Second Ship Mortgage on the Whole of
the Queen of the Red by Horseshoe Entertainment in favor
of Horseshoe Gaming, L.L.C.
4.20 * Bossier City Second Security Agreement and Assignment
thereof.
4.21 * 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 Holder, as
beneficiaries.
4.22 #### Amendment No. 1 to Second Deed of Trust, Security
Agreement and Assignment of Leases and Rents from
Robinson Property Group, Limited Partnership to Rowan H.
Taylor, Jr. for the benefit of 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.
4.23 * Second Ship Mortgage on the Whole of the Horseshoe Casino
& 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.
4.24 #### Amendment No. 1 to Second Ship Mortgage on the Whole of
the Horseshoe Casino & Hotel, Tunica executed by Robinson
Property Group Limited Partnership, as Owner and
Mortgagor, in favor of Horseshoe Gaming, L.L.C. and
United Trust Company of New York.
4.25 *** 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.
4.26 + Intercompany Senior Secured Note due September 30, 2000
executed by Robinson Property Group Limited Partnership
in favor of Horseshoe Gaming, L.L.C.
4.27 + Intercompany Senior Secured Note due September 30, 2000
executed by Horseshoe Entertainment in favor of Horseshoe
Gaming, L.L.C.
4.28 ++ Purchase Agreement for 9 3/8% Series A Senior
Subordinated Notes by and among Horseshoe Gaming, L.L.C.
and Robinson Property Group Limited Partnership, as
guarantor, and Wasserstein Perella Securities, Inc. as
Initial Purchaser.
4.29 ++ Form of 9 3/8% Senior Subordinated Note due 2007 of
Horseshoe Gaming, L.L.C.
4.30 ++ Indenture, dated as of June 15, 1997, by and among
Horseshoe Gaming, L.L.C., U.S. Trust Company of Texas,
N.A., as Trustee, and Robinson Property Group Limited
Partnership, as guarantor, with respect to the 9 3/8%
Senior Subordinated Notes due 2007.
4.31 ++ Exchange and Registration Rights Agreement, dated as of
June 25, 1997, by and among Horseshoe Gaming, L.L.C.,
Robinson Property Group Limited Partnership and
Wasserstein Perella Securities, Inc.
<PAGE> 216
4.32 ++ Intercompany Senior Secured Note due June 15, 2007
executed by Robinson Property Group Limited Partnership
in favor of Horseshoe Gaming, L.L.C.
4.33 ++ Intercompany Senior Secured Note due June 15, 2007
executed by Horseshoe Entertainment in favor of Horseshoe
Gaming, L.L.C.
4.34 +++ Intercompany Senior Secured Note due June 15, 2000
executed by Robinson Property Group Limited Partnership
in favor of Horseshoe Gaming, L.L.C.
4.35 +++ Intercompany Senior Secured Note due June 15, 2000
executed by Horseshoe Entertainment in favor of Horseshoe
Gaming, L.L.C.
4.36 +++ Amended and Restated Credit Facility Agreement, dated as
of November 12, 1997, by and among Horseshoe Gaming,
L.L.C. and Canadian Imperial Bank of Commerce as agent
for the lenders.
4.37 #### Amendment No. 1 to the Amended and Restated Note
Assignment, dated as of May 11, 1999, from Horseshoe
Gaming, L.L.C. in favor of the Holders of Senior Secured
Credit Facility Notes due September 30, 2000.
4.38 +++ Form of Revolving Note between Horseshoe Gaming, L.L.C.
and Lender pursuant to the Amended and Restated Credit
Facility Agreement.
4.39 +++ Form of Swingline Note between Horseshoe Gaming, L.L.C.
and Canadian Imperial Bank of Commerce pursuant to the
Amended and Restated Credit Facility Agreement.
4.40 +++ Security Agreement made as of November 12, 1997 by the
Company in favor of Canadian Imperial Bank of Commerce
(the "Bank").
4.41 +++ Guarantee and Security Agreement made by Horseshoe
Gaming, Inc. as of November 12, 1997 in favor of the Bank
4.42 +++ Guarantee and Security Agreement made by Horseshoe GP,
Inc. as of November 12, 1997 in favor of the Bank
4.43 +++ Amended and Restated Guarantee and Security Agreement
made by Robinson Property Group LP as of November 12,
1997 in favor of the Bank.
4.44 +++ Guarantee and Security Agreement made by New Gaming
Capital Partnership as of November 12, 1997 in favor of
the Bank.
4.45 +++ Guarantee and Security Agreement made by Horseshoe
Ventures as of November 12, 1997 in favor of the Bank.
4.46 +++ Amended and Restated Note Assignment made by Horseshoe
Gaming, L.L.C. as of November 12, 1997 in favor of the
Bank 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.
4.47 +++ Amended and Restated Pledge Agreement of the Company as
of November 12, 1997 in favor of the Bank.
<PAGE> 217
4.48 +++ Amended and Restated Pledge Agreement of JBB Gaming
Investments as of November 12, 1997 in favor of the Bank.
4.49 +++ Amended and Restated Intercreditor Agreement, dated as of
November 12, 1997, by and between Horseshoe Gaming,
L.L.C. and Canadian Imperial Bank of Commerce.
4.50 ### Dealer Manager Agreement, dated as of April 20, 1999, by
and between Horseshoe Gaming, L.L.C. and Donaldson,
Lufkin & Jenrette Securities Corporation.
4.51 ##### Credit Facility for Acquisition of Empress Casino Hammond
Corporation and Horseshoe Gaming Holding Corp. Credit
Agreement, dated as of June 30, 1999, by and among
Horseshoe Gaming Holding Corp., the Lenders listed
therein, DLJ Capital Funding, Inc. and Canadian Imperial
Bank of Commerce.(2)
5.1 ##### Opinion of Swidler Berlin Shereff Friedman, LLP.
10.1 #### Settlement Term Sheet, dated as of May 19, 1999, by and
among Jack B. Binion, Horseshoe Gaming, Inc., Horseshoe
Gaming, L.L.C., Paul R. Alanis, Loren Ostrow, John
Schreiber and Cliff Kortman.
10.2 #### Horseshoe Note Pledge and Security Agreement, dated as of
and on May 11, 1999, by and among Horseshoe Gaming
Holding Corp., Horseshoe Gaming, L.L.C. and U.S. Trust
Company, National Association.
10.3 #### Promissory Note, dated May 11, 1999, from Horseshoe
Gaming, L.L.C. to Horseshoe Gaming Holding Corp. for
$240,349,125.00.
10.4 #### Registration Rights Agreement, dated May 11, 1999, by and
among Horseshoe Gaming Holding Corp. and the initial
purchasers.
10.5 #### Security and Control Agreement, dated as of and on May
11, 1999, by and among Horseshoe Gaming Holding Corp. and
U.S. Trust Company, National Association.
10.6 #### Guarantee, dated as of May 11, 1999, by Robinson Property
Group, Limited Partnership for the benefit of Horseshoe
Gaming Holding Corp.
10.7 #### Guarantee, dated as of May 11, 1999, by Horseshoe
Entertainment for the benefit of Horseshoe Gaming Holding
Corp.
10.8 #### Stockholders' Agreement for Horseshoe Gaming Holding
Corp., dated as of April 29, 1999, by and among Horseshoe
Gaming Holding Corp. and parties listed therein.
10.9 * 401(k) Plan of Robinson Property Group Limited
Partnership.
- --------
(2) In accordance with item 601 of Regulation S-K, the Registrant has
not filed the schedules to this Agreement with the Securities and Exchange
Commission. The Registrant undertakes to supplementally provide a copy of such
schedules to the Securities and Exchange Commission upon request.
<PAGE> 218
10.10 ** 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.
10.11 ++ Second Amended and Restated Employment Agreement, dated
as of October, 1, 1995, by and between Horseshoe Gaming,
Inc. and Walter J. Haybert.
10.12 * Employment Agreement, dated January 1, 1996, by and
between Horseshoe Gaming, Inc. and Paul Alanis.
10.13 * Employment Agreement, dated January 1, 1996, by and
between Horseshoe Gaming, L.L.C. and Loren S. Ostrow.
10.14 ++ Second Amended and Restated Employment Agreement, dated
as of October 1, 1995, by and between Horseshoe Gaming,
Inc. and John Michael Allen.
10.15 ++ Second Amended and Restated Employment Agreement, dated
as of October 1, 1995, by and between Horseshoe Gaming,
Inc. and John J. Schreiber.
10.16 ++ 1997 Unit Option Plan of Horseshoe Gaming, L.L.C.
10.17 ## Unit Option Agreement, dated as of February 1, 1997, by
and between Horseshoe Gaming, L.L.C. and Larry Lepinski.
10.18 ## Unit Option Agreement, dated as of February 1, 1997 by
and between Horseshoe Gaming, L.L.C. and Cliff Kortman.
10.19 ## Warrant Purchase Agreement, dated as of December 21,
1998, by and between Hanwa Co., Ltd. and Horseshoe
Gaming, L.L.C.
10.20 ## Settlement Agreement, dated as of December 31, 1998, by
and among Horseshoe Gaming, Inc., Horseshoe Gaming,
L.L.C. and Hollywood Park, Inc.
10.21 ## Settlement Agreement, dated as of February 3, 1999, by
and among Horseshoe Gaming, Inc., Horseshoe Gaming,
L.L.C. and Mike Allen.
10.22 ## Letter Agreement, dated October 19, 1998, by Horseshoe
Gaming, Inc. and Horseshoe Gaming, L.L.C. and accepted by
Walter Haybert.
10.23 ## Letter Agreement, dated January 4, 1999, by Horseshoe
Gaming, Inc. and Horseshoe Gaming, L.L.C. and accepted by
Walter Haybert.
10.24 ## Mutual General Release, dated February 23, 1999, by and
among Horseshoe Gaming, L.L.C., Horseshoe Gaming, Inc.,
Horseshoe GP, Inc., Robinson Property Group Limited
Partnership, New Gaming Capital Partnership, Horseshoe
Entertainment, and Nobutaka Mutaguchi.
10.25 ## Exclusive License Agreement, dated July 2, 1998, by and
between Horseshoe Gaming, L.L.C. and Horseshoe License
Company.
<PAGE> 219
10.26 ## Amended and Restated Employment Agreement, dated November
23, 1998, by and between Horseshoe Gaming, Inc. and Gary
Border.
10.27 ## Amended and Restated Employment Agreement, dated November
23, 1998, by and between Horseshoe Gaming, Inc. and Larry
Lepinski.
10.28 ## Amended and Restated Employment Agreement, dated October
15, 1998, by and between Horseshoe Gaming, Inc. and
Robert McQueen.
10.29 ## Amended and Restated Employment Agreement, dated November
23, 1998, by and between Horseshoe Gaming, Inc. and Kirk
Saylor.
10.30 #### Amended and Restated Employment Agreement, dated November
23, 1998, by and between Horseshoe Gaming, Inc. and David
Carroll.
10.31 #### Amended and Restated Employment Agreement, dated November
23, 1998, by and between Horseshoe Gaming, Inc. and John
Moran.
10.32 #### Employment Agreement, dated as of November 3, 1998, by
and between Horseshoe Gaming, Inc. and Roger Wagner.
10.33 ## Unit Option Agreement, dated as of February 1, 1997, by
and between Horseshoe Gaming, L.L.C. and Urs Vogel.
10.34 ## Unit Option Agreement, dated as of February 1, 1997, by
and between Horseshoe Gaming, L.L.C. and Glen Buxton.
10.35 ### Agreement, dated as of April 21, 1999, by and among
Horseshoe Gaming, L.L.C., Horseshoe Gaming, Inc.,
Horseshoe Entertainment, LP, and New Gaming Capital
Partnership; Jack B. Binion; The Robin Group, Inc. and
August Robin.
10.36 ### Agreement, dated as of April 21, 1999, by and among
Horseshoe Gaming, L.L.C., Horseshoe Gaming, Inc.,
Horseshoe Entertainment, LP, and New Gaming Capital
Partnership; Jack B. Binion; Wendell Piper; Cassandra
Piper; and Robert E. Piper, Jr.
10.37 ##### Employment Agreement, dated as of January 11, 1999, by
and between Horseshoe Gaming, Inc. and Joseph J. Canfora.
10.38 ##### Consulting Agreement, dated as of July 23, 1999, by and
between Horseshoe Gaming, L.L.C. and Empress
Entertainment, Inc.
12.1 #### Statements re Computations of Ratios
20.1 # Press Release issued on September 2, 1998 by Horseshoe
Gaming, L.L.C. announcing that it had executed an
agreement to acquire the riverboat gaming operations of
Empress Entertainment, Inc.
21.1 #### Subsidiaries of Horseshoe Gaming Holding Corp.
23.1 ##### Consent of Arthur Andersen LLP.
23.2 ##### Consent of Ernst & Young LLP.
<PAGE> 220
23.3 ##### Consent of Swidler Berlin Shereff Friedman, LLP (included
in Exhibit 5.1 to this Registration Statement).
24.1 #### Power of Attorney (included on signature page hereto).
25.1 #### Statement of Eligibility of Trustee.
27.1 #### Financial Data Schedule
99.1 #### Form of Letter of Transmittal for Tender of all
Outstanding 8 5/8% Series A Senior Subordinated Notes Due
2009 in exchange for 8 5/8% Series B Senior Subordinated
Notes Due 2009 of Horseshoe Gaming Holding Corp.
99.2 #### Form of Tender for all Outstanding 85/8% Series A Senior
Subordinated Notes Due 2009 in exchange for 8 5/8% Series
B Senior Subordinated Notes Due 2009 of Horseshoe Gaming
Holding Corp.
99.3 #### Form of Instruction to Registered Holder from Beneficial
Owner of 8 5/8% Series A Senior Subordinated Notes Due
2009 of Horseshoe Gaming Holding Corp.
99.4 #### Form of Notice of Guaranteed Delivery for Outstanding 8
5/8% Series A Senior Subordinated Notes Due 2009 in
exchange for 8 5/8% Series B Senior Subordinated Notes
Due 2009 of Horseshoe Gaming Holding Corp.
- -----------------------------
* Filed as an Exhibit to Horseshoe Gaming, L.L.C. Registration Statement on
Form S-4 (No. 333-0214) (the "1996 Form S-4") filed on January 8, 1996.
** Filed as an Exhibit to Horseshoe Gaming, L.L.C. Amendment No. 1 to the
1996 Form S-4 filed on April 26, 1996.
*** Filed as an Exhibit to Horseshoe Gaming, L.L.C. Form 10-Q for the Quarter
Ended June 30, 1996.
+ Filed as an Exhibit to Horseshoe Gaming, L.L.C. Form 10-Q for the Quarter
Ended March 31, 1997.
++ Filed as an Exhibit to Horseshoe Gaming, L.L.C. Registration Statement on
Form S-4 (No. 333-33145) filed on August 7, 1997.
+++ Filed as an Exhibit to Horseshoe Gaming, L.L.C. Form 10-K for the Year
Ended December 31, 1997.
# Filed as an Exhibit to Horseshoe Gaming, L.L.C. Form 8-K filed on
September 12, 1998.
## Filed as an Exhibit to Horseshoe Gaming, L.L.C. Form 10-K for the fiscal
year ended December 31, 1998.
### Filed as an Exhibit to Horseshoe Gaming, L.L.C. Form 10-Q for the Quarter
Ended March 31, 1999.
#### Filed as an Exhibit to Horseshoe Gaming Holding Corp.'s Form S-4
Registration Statement filed on June 15, 1999.
##### Filed herewith.
<PAGE> 1
EXHIBIT 2.5
-----------
SECOND AMENDMENT
TO
AGREEMENT AND PLAN OF MERGER
This Second Amendment (the "Second Amendment") dated as of July 23, 1999
to the Agreement and Plan of Merger dated as of September 2, 1998, as amended by
the First Amendment dated as of March 25, 1999 (as amended by the First
Amendment, the "Merger Agreement") by and among Horseshoe Gaming, L.L.C., a
Delaware limited liability company ("Parent"), Horseshoe Gaming (Midwest), Inc.,
a Delaware corporation ("Horseshoe), Empress Acquisition Illinois, Inc., a
Delaware corporation ("Empress Illinois"), Empress Acquisition Indiana, Inc., a
Delaware corporation ("Empress Indiana"), Empress Entertainment, Inc., a
Delaware corporation ("Empress"), Empress Casino Joliet Corporation, an Illinois
corporation ("Empress Joliet"), and Empress Casino Hammond Corporation, an
Indiana corporation ("Empress Hammond"), is entered into by and among Parent,
Horseshoe, Empress Illinois, Empress Indiana, Empress, Empress Joliet and
Empress Hammond.
RECITALS
A. The parties have heretofore entered into the Merger Agreement, which
provides, among other things, for the merger of Empress Illinois with and into
Empress Joliet, and the merger of Empress Indiana with and into Empress Hammond.
All capitalized terms used herein and not otherwise defined herein shall have
the meaning ascribed to them in the Merger Agreement.
B. Parent, Horseshoe, Empress Illinois and Empress Indiana (collectively
the "Buyers") and Empress, Empress Joliet and Empress Hammond (collectively, the
"Sellers') wish to enter into this Second
<PAGE> 2
Amendment to amend certain provisions of the Merger Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and mutual agreements
herein contained, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Status of Merger Agreement. Except as set forth herein, the Merger
Agreement and each of the exhibits and schedules (as updated) thereto shall
remain in full force and effect and shall not be waived, modified, superseded or
otherwise affected by this Second Amendment.
2. Amendments to the Merger Agreement.
(a) Section 1.02. Section 1.02(a) of the Merger Agreement is hereby
deleted in its entirety and replaced with the following:
"(a) at the offices of D'Ancona & Pflaum LLC, 111 East Wacker Drive,
Suite 2800, Chicago, Illinois 60601 on such date as is determined in
accordance with Section 9.01 and upon the satisfaction or waiver of
the conditions set forth in Articles VII and VIII of this Agreement;
or"
(b) Schedule 1.07. Schedule 1.07 to the Merger Agreement is hereby
deleted in its entirety and replaced with Schedule 1.07-A attached hereto.
(c) Section 6.03. A third sentence is added to Section 6.03 as
follows:
"The Buyers acknowledge and approve the amendment of agreements
relating to the Hammond Commitments and new agreements entered into by
Empress Hammond in fulfillment of the Hammond Commitments. The Buyers
agree to be bound by the terms of such amended and new agreements,
which are identified on Schedule 2.28-A attached hereto."
-2-
<PAGE> 3
(d) Section 7.08. A new Section 7.08 is added to the Merger Agreement
to read in its entirety as follows:
"Section 7.08. Approval of Consulting Agreement. In connection
with the approvals of the Illinois Gaming Board and the Indiana Gaming
Commission necessary to consummate the transactions contemplated by
this Agreement, the Illinois Gaming Board and the Indiana Gaming
Commission shall not have disapproved the Consulting Agreement by and
between Parent and Empress. The Buyers agree not to institute any
legal action against the Sellers for a failure to waive the condition
set forth in the foregoing sentence."
(e) Section 9.01. Section 9.01 of the Merger Agreement is hereby
deleted in its entirety and replaced with the following:
"The closing of the transactions contemplated by this Agreement
shall take place on December 1, 1999; provided, however, that at any
time prior thereto upon receipt of all necessary regulatory approvals
the Buyers may give the Sellers written notice that the Buyers are
prepared to close, and the Closing shall occur within three (3)
business days after the receipt of such notice by the Sellers."
(f) Section 10.01. Section 10.01(h) of the Merger Agreement is hereby
deleted in its entirety and replaced with the following:
"(h) Without notice or any action by any party hereto, this
Agreement shall terminate automatically if the Closing has not
occurred on or prior to December 1, 1999."
(g) Section 15.07. The name and address for Sellers' counsel in
Section 15.07 of the Merger Agreement is hereby deleted in its entirety and
replaced with the following:
"D'Ancona & Pflaum LLC
111 East Wacker Drive, Suite 2800
Chicago, Illinois 60601
Attention: Joel D. Rubin, Esq.
Telecopy: (312) 602-3000"
3. Representations and Warranties of Buyers. Buyers represent and warrant
that:
(a) Prior to May 31, 1999, the Buyers or their Affiliates completed an
offering of debt
-3-
<PAGE> 4
securities in the principal amount of $600 million pursuant to Rule 144A under
the Securities Act of 1933, as amended, and there is no default or event of
default under the Indenture and the other agreements executed pursuant thereto
by the Buyers or their Affiliates relating to the offering and issuance of such
securities.
(b) The Buyers or their Affiliates have consistently maintained a
substantial portion of the funds raised pursuant to the securities offering
described above in escrow to be used to complete the transactions contemplated
by the Merger Agreement, and, since the date of the closing of that securities
offering, the monthly balance sheets of Buyers provided to Sellers within thirty
(30) days after the end of each calendar month with a certification by the Chief
Financial Officer of Buyers have reflected the escrowed amount of such proceeds,
which is true and correct.
(c) Prior to June 30, 1999, the Buyers or their Affiliates have
entered into a senior credit facility in the aggregate principal amount of $375
million to make available funds adequate to consummate the transactions
contemplated by the Merger Agreement and there is no default or event of default
under such senior credit facility.
(d) Prior to May 31, 1999, the Buyers or their Affiliates consummated
(subject only to payment terms) transactions with each of August Robin,
Cassandra Piper and Wendell Piper to purchase or redeem such individual's equity
interests in certain Affiliates of the Buyers.
4. Authorization of Second Amendment. The Buyers and Sellers each
represent and warrant that their respective execution, delivery and performance
of this Second Amendment has been duly authorized, this Second Amendment is a
legal, valid and binding obligation of each such entity enforceable in
accordance with its terms, and this Second Amendment does not conflict with any
agreement or
-4-
<PAGE> 5
obligation of the respective parties.
5. Limited Release. The Buyers and each of their respective Affiliates
hereby release the Sellers from any and all claims that the Buyers or such
Affiliates may have as a result of any breach of the covenants set forth in
Sections 4.07, 4.11 and 4.13 of the Merger Agreement arising from actions taken
by the Sellers or their Affiliates prior to the date of this Second Amendment in
connection with obtaining the approvals necessary from the Illinois Gaming Board
and the Indiana Gaming Commission.
6. No Waiver. The Buyers acknowledge and agree that they shall be
obligated to timely perform their obligations contained in the Merger Agreement
after the date hereof irrespective of the fact that Sellers have waived Buyers'
timely performance of certain obligations of the Buyers contained the Merger
Agreement prior to the date hereof. No other action or failure to act by the
Sellers shall constitute a waiver of the Buyers obligations under the Merger
Agreement. No waiver or modification relating to the Merger Agreement shall be
legally effective unless it is in writing and executed on behalf of the Buyers
and the Sellers.
7. Counterparts. This Second Amendment may be executed in any number of
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
8. Governing Law. This Second Amendment shall be a contract made under and
governed by the laws of the State of Delaware, without regard to conflict of law
principles.
-5-
<PAGE> 6
IN WITNESS WHEREOF, the parties have executed this Second Amendment and
caused the same to be duly delivered on their behalf on the day and year first
written above.
HORSESHOE GAMING, L.L.C.
By: /s/ Jack B. Binion
---------------------------
Title:
------------------------
HORSESHOE GAMING (MIDWEST), INC.
By: /s/ Jack B. Binion
---------------------------
Title:
------------------------
EMPRESS ACQUISITION ILLINOIS, INC.
By: /s/ Jack B. Binion
---------------------------
Title:
------------------------
EMPRESS ACQUISITION INDIANA, INC.
By: /s/ Jack B. Binion
---------------------------
Title:
-----------------------
-6-
<PAGE> 7
EMPRESS ENTERTAINMENT, INC.
By: /s/ Peter Ferro
---------------------------
Title: CEO
------------------------
EMPRESS CASINO JOLIET CORPORATION
By: /s/ Peter Ferro
---------------------------
Title: CEO
------------------------
EMPRESS CASINO HAMMOND CORPORATION
By: /s/ Peter Ferro
---------------------------
Title: CEO
------------------------
-7-
<PAGE> 8
AMENDED
DISCLOSURE SCHEDULES TO
AGREEMENT AND PLAN OF MERGER
Dated as of July 23, 1999
SCHEDULE 1.07-A - INDEMNIFICATION ESCROWS
- -----------------------------------------
General Escrow: Seven Million Dollars ($7,000,000)
First Supplemental Escrow: One Million Five Hundred Thousand Dollars
($1,500,000)
Second Supplemental Escrow: One Million Five Hundred Thousand Dollars
($1,500,000)
-8-
<PAGE> 9
AMENDED
DISCLOSURE SCHEDULES TO
AGREEMENT AND PLAN OF MERGER, AS AMENDED
Dated as of July 23, 1999
SCHEDULE 2.28-A HAMMOND COMMITMENTS
First Amendment to Hammond Riverboat Gaming Project Development Agreement,
dated as of June ____, 1999 by and between the City of Hammond, Indiana and
Empress Casino Hammond Corporation.
Second Amendment to Hammond Riverboat Gaming Project Development
Agreement, dated as of June ______, 1999 by and between the City of Hammond,
Indiana and Empress Casino Hammond Corporation.
First Amendment to Intergovernmental Lease Agreement and Grant of
Easement, dated as of __________, 1999 by and between the City of Hammond,
Department of Redevelopment and the Hammond Port Authority.
Bond Anticipation Note Purchase Agreement, dated as of June 22, 1999 by
and between Empress Casino Hammond Corporation and the Hammond Redevelopment
Commission, governing body of the City of Hammond, Department of Redevelopment
and the Redevelopment District of the City of Hammond, for and on behalf of the
Redevelopment District.
-9-
<PAGE> 1
EXHIBIT 5.1
SWIDLER BERLIN SHEREFF FRIEDMAN, LLP
919 THIRD AVENUE
NEW YORK, N.Y. 10022-9998
----------
TELEPHONE (212) 758-9500
FACSIMILE (212) 758-9526
TELEX 237328
July 27, 1999
Horseshoe Gaming Holding Corp
4024 S. Industrial Road
Las Vegas, NV 89103
Ladies and Gentlemen:
Horseshoe Gaming Holding Corp., a Delaware corporation (the "Company"),
is transmitting for filing with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-4 (the "Registration
Statement"), for the purpose of registering the Company's offer to exchange (the
"Exchange Offer") $600,000,000 aggregate principal amount of the Company's 8
5/8% Series B Senior Subordinated Notes Due 2009 (the "New Notes") for a like
principal amount of the Company's outstanding 8 5/8% Series A Senior
Subordinated Notes Due 2009 (the "Original Notes," together with the New Notes,
the "Notes"). The Original Notes have been, and the New Notes will be, issued
pursuant to the Indenture (the "Indenture") dated as of May 11, 1999, by and
among the Company and U.S. Trust Company, National Association, as trustee. This
opinion is an exhibit to the Registration Statement. Any capitalized terms used
but not defined herein shall have the respective meanings ascribed to such terms
in the Registration Statement or the Indenture.
We have from time to time acted as special counsel to the Company in
connection with certain corporate and securities matters, and in such capacity
we have participated in various corporate and other proceedings taken by or on
behalf of the Company in connection with the Exchange Offer by the Company as
contemplated by the Registration Statement. We have examined copies (in each
case signed, certified or otherwise proven to our satisfaction to be genuine) of
the Company's Certificate of Incorporation, By-Laws, minutes and other
instruments evidencing actions taken by its directors and stockholders, the
Registration Statement and
<PAGE> 2
Horseshoe Gaming Holding Corp.
July 27, 1999
Page 2
exhibits thereto, the Indenture, the Notes, the Purchase Agreement, the
Registration Rights Agreement and such other documents and instruments relating
to the Company and the Exchange Offer as we have deemed necessary under the
circumstances.
We note that we are members of the Bar of the State of New York and
insofar as this opinion may involve the laws of the State of Delaware, our
opinion is based solely upon our reading of the Delaware General Corporation Law
as published in standard compilations. Whether or not expressly stated in the
opinion below, the conclusions set forth below are expressed with respect to the
laws of the State of New York, the Delaware General Corporation Law (subject to
the immediately preceding sentence) and the federal laws of the United States of
America, and we express no opinion as to the applicability or effect of the laws
of any other jurisdiction upon the conclusions set forth below. We express no
opinion as to the application of the securities or "blue sky" laws of any state,
including the State of Delaware or New York, to the offer and/or sale of the
Notes.
Our opinions in paragraphs 1 and 2 , with respect to the legality,
validity, binding nature and enforceability, as the case may be, of the
agreements or provisions thereof referred to in such paragraphs are limited by,
and subject to the assumptions contained in, the following clauses (a) through
(h):
(a) The effect of applicable bankruptcy, insolvency, fraudulent
conveyance, moratorium, reorganization and similar laws affecting the
enforcement of creditors' rights and remedies generally;
(b) Rights of acceleration and the availability of equitable remedies
may be limited by equitable principles of general applicability including
principles of commercial reasonableness, good faith and fair dealing
(regardless of whether such enforceability is considered in a proceeding
at law or in equity);
(c) The unenforceability under certain circumstances, under state or
federal law or court decisions, of provisions expressly or by implication
waiving broadly or vaguely stated rights, unknown future rights, defenses
to obligations or rights granted by law or statute, where such waivers
are against public policy or prohibited by law;
(d) The assumption that the Holders, the Trustee and the Securities
Intermediary will act and forebear to act in exercising their rights in
good faith in a commercially reasonable manner;
<PAGE> 3
Horseshoe Gaming Holding Corp.
July 27, 1999
Page 3
(e) The unenforceability under certain circumstances, under state or
federal law or court decisions, of provisions providing for the
indemnification of or contribution to, or prospective release of, a party
with respect to a liability (i) where such indemnification or
contribution is contrary to public policy or federal or state securities
laws or (ii) for its own negligent or wrongful acts;
(f) The unenforceability under certain circumstances, under state or
federal law or court decisions, of provisions that purport to establish
(or may be construed to establish) evidentiary standards;
(g) The unenforceability under certain circumstances of provisions to
the effect that rights or remedies are not exclusive, that every right or
remedy is cumulative and may be exercised in addition to or with any
other right or remedy, that election of a particular remedy or remedies
does not preclude recourse to one or more other remedies, that any right
or remedy may be exercised without notice, or that failure to exercise or
delay in exercising rights or remedies will not operate as a waiver of
any such right or remedy; and
(h) The unenforceability of provisions providing for the payment of
interest if the rate provided for therein would constitute usury under
the laws of the State of New York.
Based on the foregoing, it is our opinion that:
1. The Indenture has been duly authorized, executed and delivered by
the Company and is a valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms; and
2. The New Notes (substantially in the form filed as an exhibit to
the Registration Statement) have been duly authorized by the Company and when
executed and authenticated in accordance with the terms of the Indenture and
delivered in exchange for the Original Notes in accordance with the terms of the
Exchange Offer, the New Notes will constitute, the legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms.
We hereby consent to the filing of this opinion as an exhibit to the
Registration
<PAGE> 4
Horseshoe Gaming Holding Corp.
July 27, 1999
Page 4
Statement and as an exhibit to any application under the securities or other
laws of any state of the United States or any foreign jurisdiction which relates
to the offering which is the subject of this opinion, and to the references to
this firm appearing under the heading "Legal Matters" in the Prospectus that is
contained in the Registration Statement.
This opinion is as of the date hereof, is limited to the law in effect as
of the date hereof, and we undertake no obligation to advise you of any change,
whether legal or factual, in any matter set forth herein. This opinion is
furnished to you in connection with the filing of the Registration Statement,
and is not to be used, circulated, quoted or otherwise relied upon for any other
purposes, except as expressly provided in the preceding paragraph.
Very truly yours,
/s/ SWIDLER BERLIN SHEREFF FRIEDMAN, LLP
----------------------------------------
SWIDLER BERLIN SHEREFF FRIEDMAN, LLP
SBSF:RMF:JSH:BM:LL
<PAGE> 1
EXHIBIT 10.37
-------------
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Employment Agreement") entered into as of
January 11, 1999, by and between Horseshoe Gaming, Inc., a Nevada Corporation
("Employer"), and Joseph J. Canfora ("Employee").
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 and hotel facilities in Tunica,
Mississippi (the "Tunica Facility") and in Bossier City, Louisiana (the "Bossier
City Facility" and, together with the Tunica Facility, referred to as the
"Existing Facilities"), and who is party to an agreement to acquire additional
casino and hotel facilities in Hammond, Indiana (the "Hammond Facility") and
Joliet, Illinois (the "Joliet Facility" and, together with the Hammond Facility,
referred to as the "To Be Acquired Facilities"); and
WHEREAS, on the Acquisition Date (as defined below) Employer desires to
employ Employee, and Employee desires to accept such employment, pursuant to the
terms of this Employment 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
Employment Agreement and not specifically defined herein shall have the meaning
set forth on Exhibit A, which is attached hereto and by this reference made a
part hereof.
2. Term. This Employment Agreement shall become effective on the
Acquisition Date (the "Commencement Date") and shall continue in effect for a
period terminating December 31, 2001, 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 President 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 of Employer (the "CEO").
<PAGE> 2
4. Duties and Responsibilities.
A. General Duties. In his capacity as President of Employer, Employee
shall have the responsibility for (1) overseeing the operations of the Existing
Facilities and the To Be Acquired Facilities and assisting in the opening of any
casino and hotel facilities to be developed and/or acquired by subsidiaries or
affiliates of the LLC (together with the Existing Facilities and the To Be
Acquired Facilities each referred to individually as a "Facility" and
collectively as 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 and (2) to work with the CEO and
perform such duties as may be assigned to him from time to time by the CEO. The
authority of Employee to bind Employer shall be as broad or as limited as may be
determined from time to time by the CEO or the Board of Directors of Employer
(the "Board").
B. Specific Duties. Employee shall coordinate 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 and all other functions
typically performed by a President of a major casino and hotel facility.
Employee acknowledges and agrees, however, that in connection with his
employment he may be required to travel on behalf of Employer.
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 Employer. Except for the
manner provided in Subsection 4(C)(i) and (ii), in no event whatsoever shall
Employee enter into any commitments or obligations, written or verbal, or take
or omit to take any other action, the result of which would be to create a
conflict of interest between Employer and Employee, or the result of which would
(directly or indirectly) benefit Employee, any person or entity associated with
or affiliated with Employee, or any person or entity in any manner involved in
the gaming industry to the detriment of Employer. In all instances, Employee
shall perform his services and oversee his department(s) in a thorough,
competent, efficient and professional manner. Employer acknowledges and agrees
that Employee presently serves and may continue to serve as director, officer
of, and is an investor in Empress Entertainment, Inc. and certain subsidiaries
and affiliates of Empress Entertainment, Inc. (collectively, "Empress").
Employee represents and warrants that his position and involvement in Empress
does not, in any way, breach or violate the terms of this Employment Agreement
in any way. Employer is aware of and acknowledges that Employee is currently
pursuing certain gaming opportunities in Wyandotte County, Kansas and in Jackson
County, Missouri ("Kansas Opportunity") and that pursuit of the Kansas
Opportunity is not a breach or violation of Employee's duties under this
Employment Agreement. Employee covenants and agrees that in the event that
Employee's involvement in Empress would, in the sole discretion of Employer,
breach this Employment Agreement in any way, Employee would upon notice from
Employer of such a breach, immediately resign from any and all positions with
Empress and divest himself of any interest, equity or otherwise, or any
relationship with Empress or resign from his employment with Employer.
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<PAGE> 3
i Gaming Opportunity. Employee shall, upon learning, other than
from Empress or its board officers or directors, of a gaming opportunity which
includes, but is not limited to, any opportunity to open a casino style gaming
facility, the operation of slot machines or the operation of video poker
machines, (each, an "Opportunity"), submit a written report to the Employer
evaluating the feasibility and profitability of the Opportunity (the "Report").
Within sixty (60) days of Employer's receipt of the Report Employer shall
express, in writing, Employer's intent to pursue the Opportunities (such
opportunity being an "Accepted Opportunity"). In the event that the Employer
fails to indicate its intent to pursue the Opportunity within sixty (60) days of
receipt of the Report, the Employer shall be deemed to have waived, in writing,
its intent to pursue this Opportunity. In the event that the Employer indicates,
in writing, as required herein, an intent to pursue the Opportunity, the
Opportunity shall be subject to the provisions of Subsection 11(A) hereof.
ii Rejection of a Gaming Opportunity. In the event that Employer
declines an Opportunity properly presented to it by Employee as described in
Subsection 4(C)(i) ("Declined Opportunity"), Employee may invest in such
Opportunity and serve as a member of the Board of Directors or in a similar
capacity in any entity formed to pursue such Opportunity and such action shall
not be deemed a violation of Subsections 4(C), 4(D) or Section 11 of this
Employment Agreement, provided however, that such entity, its subsidiary or
affiliates does not expand or venture into any other Opportunities at a new
location without Employee first offering such Opportunity to Employer in the
manner described in Section 4(C)(i).
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 (directly or indirectly) any other business
activities or ventures, other than (a) an investment which is passive in nature
and does not otherwise violate any of the terms of this Employment Agreement;
(b) the activity permitted in Subsections 4(C)(i) and (ii) herein; or (c) the
act of serving as a Member of the Board of Directors or in a similar capacity of
any entity not involved either directly or indirectly in casino gaming
including, but not limited to, the operation of slot machines and video poker.
E. Directives from the CEO. In all instances, Employee agrees to
carry out all of his duties and responsibilities as set forth herein pursuant to
the guidance, directives and instructions of the CEO and agrees that at all
times his authority shall be subordinate to the CEO. The wishes and directives
of the CEO shall prevail in all matters and decisions as to which there is a
disagreement between Employee and the CEO, and Employee shall carry out any and
all lawful directives from the CEO to the best of his ability.
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<PAGE> 4
5. Compensation. As compensation for the services to be rendered by
Employee pursuant to the terms of this Employment Agreement, Employee shall be
entitled to receive the following:
A. a base salary of Five Hundred Thousand Dollars ($500,000) per
year, which may be adjusted annually by a merit increase based upon Employer's
existing policy and an annual performance appraisal of Employee and Employer and
the LLC (the "Base Compensation") which appraisals shall be performed in a
manner suitable to Employer in all respects, and which shall be payable in equal
semi-monthly installments;
B. a discretionary bonus in an amount determined in accordance with
Employer's bonus plan, as may be amended from time to time by Employer in
Employer's sole discretion, (the "Bonus"), which shall not exceed 50% of
Employee's Base Compensation at the time such Bonus is awarded; and
C. the right to participate in any employee stock option or stock
purchase plan that may be adopted by Employer for its executive level employees
and the executive level employees of its gaming subsidiaries (and, at Employer's
sole discretion, for executive level employees of other gaming operations
principally owned or controlled by Jack B. Binion), such participation to be at
a level commensurate with that of other executives performing similar duties and
at a similar compensation level as that of Employee.
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. reimbursement, on an on-going basis, for 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 and the Employer's reimbursement
procedures;
B. participation in Employer's health coverage plan for Employee and
all members of his immediate family, with such plan and the terms of Employee's
participation in such plan to be on terms and conditions determined solely by
Employer;
C. participation in such pension plans as Employer shall adopt for
all of its employees; 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 plan;
D. business and personal use of a company vehicle;
E. participation in Employer's "Paid Days Off/Vacation" policy;
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<PAGE> 5
F. reimbursement for the cost of maintaining and carrying Employee's
portable disability insurance policy Employee previously received from Empress;
and
G. reimbursement for the cost of maintaining a Four Million Dollar
($4,000,000) 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 term life insurance policies for persons in good health
and the same age as Employee; and provided further that if Employee is rated in
a higher risk category said policy shall nevertheless be made available but
Employer shall only be obligated to pay the premium payable by a person in good
health and all premiums in excess of such amount shall be paid Employee.
7. Indemnification.
A. Indemnification of Employee by Employer. In addition to all
indemnities available under Employer's Articles of Incorporation and Bylaws, the
Employer hereby further agrees to hold harmless and indemnify Employee: (i)
against any and all expenses (including attorney's fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by Employee in
connection with any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (including an action by
or in the right of Employer) to which Employee is, was or at any time becomes a
party, or is threatened to be made a party, by reason of fact that Employee is,
was or at any time becomes a director, officer, employee or agent of Employer,
or is or was serving or any time serves at the request of Employer as a
director, officer, employee or agent of any of Employer's direct or indirect
subsidiaries, another corporation, partnership, joint venture, trust or other
enterprise, and (ii) to the fullest extent as may be required under applicable
law. Employer shall cause Employee to be covered by the current policies of
directors' and officers' liability insurance covering directors and officers of
Employer in accordance with their terms, to the maximum extent of the coverage
available for any director or officer of Employer. Employer shall use
commercially reasonably efforts to cause the policies of directors' and
officers' liability insurance covering directors and officers of Employer to be
maintained throughout the term of Employee's employment with Employer.
B. Indemnification of Employer by Employee. Employee shall indemnify
Employer against any and all expenses, costs (including attorney's fees),
judgments, losses, fines and amounts paid in settlement actually and reasonably
incurred by Employer in connection with, arising out of or in any way related to
any threatened, pending or completed action, suit or proceeding, pursued by or
on behalf of Empress, its subsidiaries or any entity in which the Employee is an
owner or investor, (all such entities referred to as the "Empress Entities")
whether civil, criminal, administrative or investigative to which Employer is,
was or at any time becomes a party, or is threatened to be made a party, as a
result of, arising out of or in any way related to (i) events which occurred
during the term of this Employment Agreement or are in any way related to the
period of time comprising the term of this Employment Agreement, and (ii) are in
any way related to Employee's employment, board or officer position with,
ownership interest in or
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duties and obligations to any of the Empress Entities; provided however, this
indemnification shall not obligate Employee to indemnify Employer for any
obligation of Employer stemming from Employer's written agreement creating an
obligation or a duty of Employer to the Empress Entities.
8. Gaming License. Employer and Employee understand that it shall be
necessary for Employee to obtain and maintain in full force and effect at all
times, gaming licenses required by each of the various jurisdictions in which
subsidiaries or affiliates of the LLC are conducting gaming operations.
Accordingly, during the course of his employment, Employee agrees to use his
best efforts to obtain and maintain such licenses, to fully cooperate in the
investigation or investigations to be conducted in connection therewith and
otherwise to fully comply with all requirements of applicable Gaming Authorities
and Governmental Authorities.
9. Termination.
A. Termination With Cause. Employer may terminate Employee for
"cause" as provided in this Section 9. For purposes of this Employment Agreement
"cause" means the occurrence of one or more of the following events:
i The failure of Employee to obtain any of the gaming licenses
required pursuant to Section 8 within a reasonable period of time following
employment or the revocation, suspension or failure to renew for a period in
excess of ninety (90) days, of any such gaming license due to an act or omission
of Employee (or such alleged act or omission ) upon which the Gaming Authorities
or Governmental Authorities have based their determination to revoke, suspend or
fail to renew any gaming license;
ii failure or refusal by Employee to observe or perform any of
the provisions of this Employment Agreement or any other written agreement with
Employer, or to perform in a reasonably satisfactory manner all of the duties
required of Employee under this Employment Agreement or any other written
agreement with Employer;
iii commission of fraud, misappropriation, embezzlement or other
acts of dishonesty, or conviction for any crime punishable as a felony or a
gross misdemeanor involving dishonesty or moral turpitude;
iv the use of illegal drugs while on duty for Employer or on
premises of any Facility;
v unreasonable refusal or failure to comply with the proper and
lawful directives of and/or procedures established by the CEO or the Board of
Directors of Employer (or persons of comparable position); and/or
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<PAGE> 7
vi the death of Employee or the mental or physical disability of
Employee to such a degree that Employee, in the reasonable judgment of a
licensed physician retained by Employer, is unable to carry out all of his
obligations, duties and responsibilities set forth herein for a period in excess
of sixty (60) days.
Termination of Employee's employment for cause under Subsections 9(A)(i),
9(A)(iii), 9(A)(iv) or 9(A)(vi) above shall be effective immediately upon notice
thereof by Employer to Employee. Termination of Employee's employment for cause
under Subsections 9(A)(ii) or 9(A)(v) above shall be effective upon fourteen
(14) days' prior notice thereof by Employer to Employee, provided however that
Employee shall have 14 days from the date of the notice of a violation of
Section 9(A)(ii) or 9(A)(v), in which to cure any default, unless such act is
also a basis for termination under any of subsections 9(A)(i), (iii), (iv) or
(vi) in which case termination shall be immediate. The factual basis for
termination for cause shall be included within such notice of termination.
B. Termination for Cause, Resignation, or Expiration of Term. Upon
termination of Employee's employment with Employer (i) by Employer for cause
(ii) upon the resignation of Employee or (iii) upon the expiration of the term
of this Employment Agreement, employee shall be paid his Base Compensation
through the effective date of the earliest to occur of termination, resignation
or expiration of the term.
C. Termination Without Cause. Employer in its discretion may
terminate Employee at any time without cause upon thirty (30) days prior written
notice to the Employee. If Employee is terminated by Employer without cause,
Employee shall continue to receive for a period of time equal to the balance of
the term of this Employment Agreement: (1) the Base Compensation (payable as
provided in Subsection 5(A)), provided, however, all Fringe Benefits (other than
the health insurance coverage described in Subsection 9(C)(2)) described herein,
or otherwise provided to Employee shall terminate immediately and Employee shall
be entitled to a pro rata Bonus and (2) health insurance provided to the
Employee and members of his immediate family under the health insurance program
provided by Employer to its senior executive officers so long as Employee makes
any required employee contributions therefor.
i Employee Option Upon Termination Without Cause. In the event
of termination without cause, Employee may, at his sole discretion, refuse the
receipt of his Base Compensation which would be paid to him as described in
Section 9(C) above. This option must be exercised in writing and delivered to
the Employer during the thirty (30) day period immediately following the receipt
of written notice by the Employee of termination without cause. Upon exercise of
this option, the one (1) year period of time during which Employee is prohibited
from soliciting other employees or competing with Employer, as more fully
described herein, shall begin immediately.
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10. Survival of Certain Covenants. The covenants not to compete, solicit
or hire and the confidentiality agreements set forth in Sections 11 and 12
herein below shall continue to apply beyond termination in the manner and to the
extent set forth herein.
11. Covenants Not to Compete, Solicit or Hire.
A. Covenant Not to Compete. For so long as the Employee is receiving
Base Compensation and for a period of one (1) year from and after the last date
on which any amount constituting Base Compensation is paid to Employee, Employee
agrees that he will not directly or indirectly, whether as principal, manager,
agent, consultant, officer, director, stockholder, partner, investor, lender or
employee, or in any other capacity, carry on, be engaged in or employed by or be
a consultant to or to have any financial interest in any other casino operation
conducting business within one hundred (100) miles of (i) any gaming facility
principally owned or controlled by Jack B. Binion, Employer, or Employer's
subsidiaries or related companies, including, but not limited to, the Existing
Facilities or the To Be Acquired Facilities, or (ii) any Accepted Opportunity
unless (a) such gaming facility or Accepted Opportunity is or would be located
in any of Las Vegas, Reno, Lake Tahoe, Atlantic City, Jackson County, Missouri
or Wyandotte County, Kansas; (b) such interest is not more than 2% passive
interest in any publicly traded entity; (c) such interest is an ownership
interest in any gaming facility owned wholly or in part by Jack B. Binion,
Employer or Employer's subsidiaries or related companies; or (d) operated by
Jack B. Binion, Employer or Employer's subsidiary or related companies. Employer
and Employee agree that such covenant not to compete is a condition of
Employee's employment and that the covenant not to compete has been given by
Employee to Employer for full and adequate consideration.
B. Covenant Not to Solicit or Hire. For so long as the Employee is
receiving Base Compensation and for a period of one (1) year from and after the
last date on which any amount constituting Base Compensation is paid to
Employee, Employee agrees that he will not, directly or indirectly, hire, retain
or solicit, or cause any other employer of his or any other person who has
retained Employee as a consultant or independent contractor to hire, retain or
solicit, as an employee, consultant, independent contractor in a supervisory
capacity or otherwise any person who was at any time during the period
commencing on the date three (3) months prior to the Commencement Date and
ending on the date of the termination of Employee's employment hereunder an
employee of or consultant or independent contractor to Employer, the LLC or any
other gaming operations principally owned or controlled by Jack B. Binion,
Employer, or Employer's subsidiaries or related companies, including, but not
limited to, the Existing Facilities or the To Be Acquired Facilities.
12. Nondisclosure of Confidential Information.
A. Definition of Confidential Information. For purposes of this
Employment 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. Confidential Information includes, but is not
limited to, information contained in or relating to the customer lists, account
lists, price lists,
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<PAGE> 9
product designs, marketing plans or proposals, acquisition or growth 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
shall not, during the term of Employee's employment and following the
termination of this Employment Agreement until such time as the confidential
information becomes generally known to, or readily ascertainable by proper means
by, the public, 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 Employment
Agreement. Mistake or lack of knowledge as to the status of information wrongly
disclosed or used by Employer shall not serve as a defense to breach of this
Employment Agreement.
C. Scope. Employee's covenant in Subsection 12(B) above not to
disclose Confidential Information shall not apply to information which, at the
time of such disclosure, may be obtained from sources other than from Employer,
or its agents, lawyers or accountants, provided however, that such information
which may be obtained from sources other than from Employer, or its agents,
lawyers or accountants is not obtained from sources which received the
information in an improper manner or against the wishes of Employer.
D. Title. All documents and other tangible or intangible property
relating in any way to the business of Employer 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 Employee agrees to
return immediately to Employer, upon its 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 which relate in any way to the
business, customers, products, practices or techniques of Employer, as well as
all other property of Employer, including but not limited to, all documents
which in whole or in part contain any Confidential Information of Employer 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 full 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
non-appealable judicial judgment is issued compelling Employee to disclose
Confidential Information, Employee shall be entitled to disclose such
information in compliance with the terms of such administrative or judicial
process or order.
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13. Reasonableness of Terms. The Employer and the Employee stipulate and
agree that the terms and covenants contained in Section 11 and Section 12 herein
are fair and reasonable in all respects, including the time period and
geographical coverage in Section 11, and that these restrictions are designed
for the reasonable protection of the Employer's business and Employer's
legitimate interests therein. In the event that these restrictions are found to
be overly broad or unreasonable, the Employer and the Employee agree that such
restrictions shall be severable and enforceable on such modified terms as may be
deemed reasonable and enforceable by a court of competent jurisdiction.
14. Representations and Warranties.
Employee hereby represents and warrants to Employer, LLC and its
affiliated or related entities that:
A. the execution, delivery and performance by Employee of this
Employment Agreement will not conflict with, violate the terms of or create a
default under any other agreement by which Employee is bound, including without
limitation Employee's present employment or similar agreements, whether oral or
written;
B. no Gaming Authority or other Governmental Authority has ever
denied or otherwise declined to issue any gaming license or related
authorization applied for by Employee;
C. Employee is not aware of any facts which, if known to any Gaming
Authority or other Governmental Authority, would cause the refusal of his
application for any gaming licenses required to be obtained by Employee pursuant
to Section 8;
D. Employee is not aware of any mental, physical or emotional
condition 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;
E. Employee understands and agrees that Employer is entering into
this Employment Agreement in strict reliance upon the representations and
warranties of Employee set forth herein, and that a breach of any of said
representations and warranties by Employee would constitute a default hereunder;
and
F. Employee has received and reviewed Employer's "Paid Days
Off/Vacation" policy and understands and agrees to its terms.
15. Entire Agreement. This Employment 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 with respect to the employment of Employee.
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16. All Amendments in Writing. This Employment Agreement may be amended
only pursuant to a written instrument executed by Employer and Employee. It
shall not be reasonable for either Employer or Employee to rely on any oral
statements or representations by the other party that are in conflict with the
terms of this Employment Agreement.
17. Arbitration. In the event of any dispute or controversy between
Employer and Employee with respect to any of the matters set forth herein, 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 Law. This Employment Agreement shall be governed and
construed in accordance with the internal laws of the State of Nevada. The terms
of this Employment Agreement are intended to supplement but not displace, the
parties respective rights under the Nevada Uniform Trade Secrets Act, Nev. Rev.
Stat. Ann. 600A.010 et seq., as amended, and any similar laws adopted in
Indiana, Illinois, Mississippi or Louisiana.
19. Notices. All notices required or desired to be given under this
Employment Agreement shall be in writing and shall be deemed to have been duly
given (i) on the date of service if served personally on the party to whom
notice is to be given, (ii) on the date of receipt by the party to whom notice
is to be given if transmitted to such party by telefax, provided a copy is
mailed as set forth below on the date of transmission, or (iii) on the third day
after mailing if mailed to the party to whom notice is to be given by registered
or certified mail, return receipt requested, postage prepaid, to 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.
4024 South Industrial Road
Las Vegas, NV 89103
Attn: Jack B. Binion
If to Employee: Joseph A. Canfora
6004 S. Grant Street
Burr Ridge, IL 60521
20. Assignment. This Employment 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 Employment Agreement is a personal services
agreement, and that Employer is entering into this Employment 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.
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<PAGE> 12
21. No Third Party Beneficiaries. This Employment Agreement is solely for
the benefit of Employer, the LLC, its subsidiaries and affiliates, and Employee,
and in no event shall any other person or entity by deemed or construed as a
third party beneficiary of any of the provisions or conditions set forth herein.
22. Waiver. No waiver of any term, condition or covenant of this
Employment 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.
23. Construction. Whenever possible, each provision of this Employment
Agreement shall be interpreted in such manner as to be effective or valid under
applicable law, but if any provision of this Employment 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
Employment Agreement. Without limiting the generality of the foregoing, if any
court determines that the term or the business or geographic scope of the
covenants contained in Subsections 11(A) or 11(B) is impermissible due to the
extent thereof, said covenant shall be modified to reduce its term and/or
business 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.
24. Withholding. Employer shall withhold from any payments due to Employee
hereunder, all taxes, FICA or other amounts required to be withheld pursuant to
any applicable law.
25. Injunctive Relief. Employee and Employer each acknowledge that the
provisions of Sections 11 and 12 are reasonable and necessary, that the damages
that would be suffered as a result of a breach of threatened breach by Employee
of Sections 11 and/or 12 may not be calculable, and that the award of a money
judgment to Employer for such a breach or threatened breach thereof by Employee
would be an inadequate remedy. Consequently, Employee agrees that in addition to
any other remedy to which Employer may be entitled in law or in equity, the
provisions of Sections 11 and 12 may be enforced by Employer by injunctive or
other equitable relief, including a temporary and/or permanent injunction
(without proving a breach therefor), and Employer shall not be obligated to post
bond or other security in seeking such relief. Employee consents to the
jurisdiction of any state or federal court located in the State of Nevada,
Mississippi, Indiana or Illinois and hereby waives any and all objections to
venue.
26. Counterparts. This Employment Agreement may be executed in any number
of counterparts, each of which shall be deemed an original but all of which
together shall constitute a single instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the undersigned have executed this Employment
Agreement as of the date and year first above written.
"EMPLOYER" HORSESHOE GAMING, INC.
A Nevada Corporation
By: /s/ Jack B. Binion
----------------------------------
B. Binion, Chief Executive Officer
"EMPLOYEE" /s/ Joseph J. Canfora
----------------------------------
Joseph J. Canfora
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EXHIBIT A
DEFINITIONS
All capitalized terms referenced or used in this Employment 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 Employment Agreement for
all purposes.
Acquisition Date. The term "Acquisition Date" shall mean the date of
closing of the merger transactions as contemplated by that certain Agreement and
Plan of Merger by and among Horseshoe Gaming, L.L.C., Horseshoe Gaming
(Midwest), Inc., Empress Acquisition Illinois, Inc., Empress Acquisition
Indiana, Inc., Empress Casino Joliet Corporation, Empress Casino Hammond
Corporation and Empress Entertainment, Inc., dated as of September 2, 1998.
Gaming Authority. The term "Gaming Authority" and "Gaming Authorities"
shall mean all agencies, authorities and instrumentalities of any state, nation
(including Native American nations) or other governmental entity or any
subdivision thereof, regulating gaming or related activities in the United
States or any state or political subdivision thereof, including, without
limitation, the Mississippi and Louisiana Gaming Commissions.
Governmental Authority. The term "Governmental Authority" and Governmental
Authorities" means the governments of (i) the United States of America, (ii) the
State of Mississippi, (iii) Tunica County, (iv) the State of Louisiana, (v)
Bossier City, Louisiana and (vi) any other political subdivision of any state of
the United States in which a casino Facility is 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 a Facility, and including, without limitation, any Gaming Authority.
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EXHIBIT 10.38
-------------
CONSULTING AGREEMENT
This Consulting Agreement (the "Agreement") is entered into as of July 23,
1999 by and between Horseshoe Gaming, L.L.C. ("Horseshoe") and Empress
Entertainment, Inc., a Delaware corporation ("Empress").
RECITALS:
Horseshoe and Empress are parties to an Agreement and Plan of Merger dated
as of September 2, 1998, as amended on March 25, 1999 (the "First Amendment")
and on July 23, 1999 (the "Second Amendment") (collectively, the "Merger
Agreement"), pursuant to which the parties have agreed that Horseshoe will
acquire ownership of Empress Casino Joliet Corporation ("Empress Joliet") and
Empress Casino Hammond Corporation (the "Empress Acquisition"). Since September
3, 1998, legislation authorizing dockside gaming in the State of Illinois has
been enacted (the "Dockside Legislation"). The owners and officers of Empress
have substantial expertise in the area of casino construction, development and
marketing and in operating casinos in Illinois and Indiana, Horseshoe is
desirous of engaging Empress to consult with and advise Horseshoe in maximizing
the economic benefits which may be derived by Horseshoe from the Empress
Acquisition, including advertising in and building the greater Chicago market,
constructing hotels and additional amenities to be coordinated with the casinos
and exploiting in full the opportunities afforded as a result of Empress
Joliet's ability to conduct dockside gaming activities. In addition, it is
anticipated that there will be challenges seeking to repeal or narrow the
Dockside Legislation. Because of the extensive knowledge and understanding of
the owners and operators of Empress with respect to Illinois gaming matters,
Horseshoe is desirous of retaining Empress as a consultant to Horseshoe to
provide advice and share its expertise in (a) reviewing its options with respect
to dockside gaming, (b) positioning Empress Joliet's dockside gaming business,
(c) presenting Horseshoe's point of view in the case of legal challenges to the
Dockside Legislation, and (d) preserving the economic benefits to be derived by
Empress Joliet as a result of the Dockside Legislation. Although the economic
benefits to be derived by Horseshoe from operating in the greater Chicago market
and, in particular, by Empress Joliet, as a result of being able to conduct
dockside gaming cannot be quantified with any precision, Horseshoe believes that
such economic benefits may be substantial, and the parties hereto have
determined that the consideration to be paid by Horseshoe for the services to be
rendered by Empress is fair and equitable to both parties based on the savings
to be realized by the Empress Joliet since the commencement of Dockside
operations as evidenced by Attachment A.
<PAGE> 2
AGREEMENTS:
NOW, THEREFORE, in consideration of the foregoing and the covenants set
forth herein, the parties agree as follows:
1. Consulting Services. In consideration of the consulting payments to be
made pursuant to paragraph 2 below, Empress shall (a) provide Horseshoe and its
affiliates with such advice and counsel as is requested, and to consult with
Horseshoe and its affiliates, concerning (i) the Dockside Legislation, including
challenges and proposed changes or modifications to the Dockside Legislation,
(ii) Empress Joliet's dockside gaming business, including without limitation the
development and marketing of dockside gaming, (iii) construction and other
matters related to Empress Joliet's expansion into dockside gaming, (iv) such
other matters related to the Dockside Legislation and the expansion by Empress
Joliet into dockside gaming as is reasonably requested by Horseshoe, and (v)
conducting business generally in the greater Chicago market, and (b) make its
personnel available as reasonably requested to assist Horseshoe in analyzing and
responding to challenges and proposed changes to Dockside Legislation.
2. Consulting Payments.
a. Subject to subparagraph 2(b) below, for a period of five (5)
years following the closing of the Empress Acquisition (the
"Acquisition Date"), Horseshoe shall pay Empress a consulting fee
of up to $4 million per year payable in monthly installments in
arrears of $333,333 each until fully paid (the "Consulting
Payments"), said payments are based on the savings to be realized
by the Empress Joliet since the commencement of Dockside
operations as evidenced by Attachment A. Consulting Payments
will be made in the form directed by Empress from time to time.
All Consulting Payments shall accelerate and become immediately
due and payable upon such date as Jack Binion and members of his
family cease to own directly or indirectly a majority of the
outstanding equity interests of Horseshoe or any successor entity
of Horseshoe, unless by agreement, operation of law or otherwise
the successor entity or owner of the outstanding equity interests
of the successor entity assumes the obligation to make the
Consulting Payments in accordance with this Agreement.
b. The obligations of Horseshoe to make Consulting Payments to
Empress hereunder shall be suspended during any period during
which dockside gaming by Empress Casino Joliet Corporation is
prohibited as a result of the repealing of the Dockside
Legislation or as a result of any other governmental action of
any type. If the obligation to make Consulting Payments
following a suspension in accordance with the foregoing sentence
is resumed more than 15 days after the beginning of a calendar
month, the next Consulting Payment shall not be paid until the
end of the subsequent calendar month. No Consulting Payments
shall accrue or be due with respect to any period during which
the obligation to make the Consulting Payments is suspended. No
Consulting Payments shall be made after the date
<PAGE> 3
which is eight (8) years after the date of the Empress
Acquisition; provided further, that the aggregate amount of the
Consulting Payments to be made pursuant to this Agreement shall
not exceed $20,000,000.
3. General Terms. The recitals form an integral part of this Agreement.
Any capitalized terms not defined in this Agreement shall have the meanings
ascribed to them in the Merger Agreement. This Agreement constitutes the entire
agreement between the parties and supersedes any previous oral or written
agreements relating to the subject matter hereof. The parties may amend, modify
or supplement this Agreement in such manner as may be agreed upon by them in
writing. This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns. This Agreement may
be executed in any number of counterparts, each of which shall be deemed an
original. This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware without regard to conflict of law principals.
Empress may not assign any of its obligations under this Agreement without the
prior written consent of Horseshoe; however, Empress may assign its rights to
payments under this Agreement subject to the prior consent of Horseshoe which
shall not be unreasonably withheld.
[Remainder of page intentionally blank.]
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers as of the day and year
first above written.
HORSESHOE GAMING, L.L.C. EMPRESS ENTERTAINMENT, INC.
By: HORSESHOE GAMING HOLDING
CORP., manager
By: /s/ Jack B. Binion By: /s/ Peter Ferro
----------------------- -----------------------
Chief Executive Officer Chief Executive Officer
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To: Horseshoe Gaming Holding Corp.
As independent public accountants, we hereby consent to the use of our
reports and to all references to our firm included in or made a party of this
registration statement.
ARTHUR ANDERSEN LLP
Memphis, Tennessee,
July 28, 1999.
<PAGE> 1
Exhibit 23.2
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated March 26, 1999, with respect to the financial
statements of Empress Entertainment, Inc. included in Amendment No. 1 to the
Registration Statement (Form S-4) and related Prospectus of Horseshoe Gaming
Holding Corp. for the registration of $600,000,000 of Series B Senior
Subordinated Notes Due 2009.
ERNST & YOUNG LLP
Chicago, Illinois
July 28, 1999
