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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 333-60361
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EMPRESS ENTERTAINMENT, INC. (the "Company")
EMPRESS CASINO HAMMOND CORPORATION ("Empress Hammond")
EMPRESS CASINO JOLIET CORPORATION ("Empress Joliet")
EMPRESS RIVER CASINO FINANCE CORPORATION ("Empress Finance")
HAMMOND RESIDENTIAL, L.L.C. ("Hammond Residential")
(Exact name of Registrant as specified in its charter)
Delaware 36-
Indiana 3932031
Illinois 36-
Delaware 3865868
Indiana 36-
(State or other (Primary Standard 3740765
jurisdiction of Industrial (I.R.S. Employer
36-
3929804
Identification No.)
incorporation or Classification Code)
organization) 7999
2300 Empress Drive
Joliet, Illinois 60436
(Address of principal executive offices) (Zip Code)
(815) 744-9400
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Company: Voting Common Stock, $0.01 Par Value--1,745.330 Shares as of March
31, 1999; Non-Voting,
Common Stock, $0.01 Par Value--164.035 Shares as of March 31, 1999.
Empress Hammond: Common Stock, No Par Value--1,000 Shares as of March 31,
1999.
Empress Joliet: Common Stock, No Par Value--1,000 Shares as of March 31, 1999.
Empress Finance: Common Stock, $0.01 Par Value--1,000 Shares as of March 31,
1999.
Hammond Residential: 100% Interest
As of said date, there was no voting and non-voting common equity held by
non-affiliates of the Registrant.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
XYes No
Indicated by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
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TABLE OF CONTENTS
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ITEM 1. DESCRIPTION OF THE BUSINESS.................................... 1
ITEM 2. PROPERTIES..................................................... 9
ITEM 3. LEGAL PROCEEDINGS.............................................. 9
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.............. 10
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS........................................................ 10
ITEM 6. SELECTED FINANCIAL DATA........................................ 10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.......................................... 11
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK..... 14
ITEM 8. FINANCIAL STATEMENTS........................................... 14
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE........................................... 26
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............. 26
ITEM 11. EXECUTIVE COMPENSATION......................................... 31
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. 32
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................. 32
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K....................................................... 35
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PART I
Item 1. Description of the Business
Empress Entertainment, Inc. (the "Company") is one of the largest operators
of riverboat casinos serving the Chicago Metropolitan Statistical Area (the
"Chicago Market"). The Company owns two distinctly themed casino entertainment
operations, Empress Hammond and Empress Joliet, both located adjacent to major
highways. Empress Hammond, located in Hammond, Indiana, is the closest casino
to downtown Chicago and Empress Joliet, located in Joliet, Illinois, is in the
fastest growing county in the Chicago Market. During 1998, the Company's
casinos registered approximately nine million customer admissions and had the
highest share of casino revenue in the Chicago Market (approximately 25%). The
Company's 1998 average daily win per slot machine and table game was $303 and
$2,100, respectively. For the twelve months ended December 31, 1998, the
Company generated approximately $396.7 million of net revenues and $102.0
million of EBITDA.
The Chicago Market is a heavily populated and economically developed
region, consisting of approximately eight million people. Based on the 1993
U.S. Census Bureau Report, the median household income of the Chicago Market
was $45,491, approximately 46% above the national median. The Chicago Market
is primarily served by nine riverboat casinos (the "Chicago Market Casinos"),
including the Company's two casinos, operating under a limited number of
licenses granted by the States of Illinois and Indiana. These casinos
generated 1998 casino revenue of approximately $1.5 billion, ranking first
among all U.S. riverboat casino markets.
Empress Hammond features a luxury-appointed catamaran style vessel, Empress
III. Following the recent completion of the fourth deck, Empress III contains
approximately 42,500 square feet of gaming space with approximately 1,720 slot
machines and 64 table games. Empress Hammond includes an approximately 125,000
square foot mythologically themed pavilion featuring waterfalls, undersea
volcanoes and lounge and dining facilities including the Blue Water Lounge,
the Harborside Steakhouse, the Empressive Buffet and the Waves Deli. In
addition, the pavilion includes a gift shop, concierge suite and a 150 seat
banquet room. Empress Hammond provides parking for approximately 1,000 cars in
a multi-story parking structure and offers 1,300 additional surface parking
spaces.
Empress Joliet features two luxury-appointed catamaran style vessels,
Empress I and Empress II, which collectively contain approximately 36,000
square feet of gaming space with 1,056 slot machines and 59 table games.
Empress Joliet includes an approximately 150,000 square foot Egyptian themed
pavilion featuring lounge and award-winning dining facilities including the
Zanzibar, the Steakhouse Alexandria, the Cafe Casablanca and the Marrakech
Market Buffet. The pavilion also includes an off-track betting facility, gift
shop, concierge suite and a 400 seat banquet room. Empress Joliet is supported
by a three story hotel with 80 deluxe rooms, 17 junior suites and five king-
size suites and an 80-space recreational vehicle park located on 12 acres of
land adjacent to the hotel. Empress Joliet provides surface parking for more
than 2,350 cars.
Company Strengths and Strategy
The Company actively pursues opportunities to expand its customer base by
developing additional amenities and by working to attract customers from
outside the Chicago Market. Empress Joliet is one of two Chicago Market
Casinos with a hotel to accommodate overnight visitors. The Company intends to
further develop dedicated transportation services to its complexes and is
increasing billboard advertising to improve visitation by customers outside
the Chicago Market.
The Company believes that the following factors contribute significantly to
its success:
Premier Properties in Superior Locations. The Company's distinctly themed
casino entertainment complexes are strategically located to serve the growing
Chicago Market which has strong population demographics and a legislatively
limited number of licensed competitors. Empress Hammond is the closest casino
to downtown Chicago and is conveniently accessible from major highways.
Empress Joliet is located in
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the fastest growing county in the Chicago Market and features a hotel, an off-
track betting facility and a recreational vehicle park. The Company's casinos
are equipped with the latest gaming devices and are continually upgraded to
reflect innovative games. The Company delivers value to its customers by
offering superior customer service and maintaining clean, moderately priced
gaming, dining, lodging and entertainment amenities.
Market Leadership. The Company was the first Chicago Market Casino and has
established market leadership during its nearly six years of operations. The
Company is the largest Chicago Market casino operator in terms of casino
revenue. During 1998, the Company's daily gaming win per position exceeded the
averages of each of the ten largest U.S. riverboat casino markets. In 1998,
Empress Joliet received the "Best Blackjack Games in the U.S.A." award from
Casino Player Magazine.
Marketing Synergies. The Company derives unique marketing advantages from
operating two riverboat casino entertainment complexes serving the Chicago
Market. The Company believes that it receives favorable rates for television,
radio, newspaper, magazine, billboard, direct mail, mass transit and airport
diorama advertising due to its higher buying volume. Through its Empress Club
frequent player reward program, the Company promotes customer loyalty and
encourages customers to visit its complexes. Benefits of Empress Club
membership include use of VIP boarding areas, participation in special
discount programs including meal and merchandise discounts and preferred valet
parking. At December 31, 1998, approximately 1,000,000 customers were Empress
Club members.
Proprietary Customer Database. The Company has developed a proprietary
customer database that assists it in tracking customer characteristics
including visitation frequency, preferred gaming equipment usage and gaming
and entertainment spending. The Company uses information gathered from Empress
Club members to create targeted marketing programs to encourage increased
visitation to its complexes by its most profitable customers. The Company also
utilizes promotional programs, such as merchandise giveaways, slot machine and
table game tournaments and other special events in order to reward customer
loyalty, attract new customers and maintain a high level of brand name
recognition.
Recent Developments
Merger Agreement
On September 2, 1998, the Company entered into an Agreement and Plan of
Merger with Horseshoe Gaming (Midwest), Inc. and certain of its affiliates
(Horseshoe Gaming (Midwest), Inc. and its affiliates are collectively referred
to herein as "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 Plan of Merger constitutes a "Change of Control" under
the Indenture (as hereinafter defined) and will trigger Horseshoe Midwest's
obligation to make an irrevocable offer to purchase the Notes (as hereinafter
defined) (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.
Amendment to Merger Agreement
On March 25, 1999, the Company and Horseshoe Midwest executed an amendment
to the Plan of Merger (the "Amendment"). The Amendment extends the termination
date of the Merger Agreement until September
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30, 1999. In addition, the Company will be entitled to terminate the Merger
Agreement and retain the Escrow Funds if certain events are not completed or
consummated by certain specified dates.
Exchange Offer
On June 18, 1998 the Company sold to the Initial Purchasers (the
"Offering") an aggregate of $150 million principal amount 8 1/8% Senior
Subordinated Notes due 2006 (the "Old Notes") without registration under the
Securities Act, in reliance upon exemptions therefrom, pursuant to a Purchase
Agreement, dated June 11, 1998 (the "Purchase Agreement"), among the Company,
Empress Hammond, Empress Joliet, Empress Finance, Hammond Residential (Empress
Hammond, Empress Joliet, Empress Finance and Hammond Residential are
collectively referred to herein as the "Guarantors") and the Initial
Purchasers.
The Company offered to exchange, through an S-4 Exchange Offer Registration
Statement, an aggregate of up to $150 million principal amount of its 8 1/8%
Senior Subordinated Notes due 2006 (the "Exchange Notes"), which are
registered under the Securities Act of 1933, as amended (the "Securities
Act"). The Old Notes were, and the Exchange Notes are, issued under the
Indenture, dated as of June 18, 1998 (the "Indenture"), among the Company, the
Guarantors and U.S. Bank Trust National Association, as trustee (in such
capacity, the "Trustee"). The form and terms of the Exchange Notes are
identical in all material respects to the form and terms of the Old Notes,
except that (i) the Exchange Notes were registered under the Securities Act
and, therefore, do not bear legends restricting the transfer thereof, (ii)
holders of Exchange Notes are not entitled to any increase in the interest
rate thereon pursuant to certain circumstances under a Registration Rights
Agreement entered into by the Company and the Initial Purchasers, and (iii)
holders of Exchange Notes will no longer be entitled to certain other rights
under the Registration Rights Agreement.
On November 6, 1998, the Exchange Offer was completed when the holders of
the Old Notes tendered for a $150 million aggregate principal amount of
Exchange Notes.
Covenant Defeasance
Concurrently with the Offering, the Company, Empress Hammond and Empress
Joliet entered into a $100 million Credit Facility with Wells Fargo Bank, N.A.
(the "Credit Facility") to replace its existing credit facility. Upon
consummation of the sale of the Old Notes to the Initial Purchasers and the
entering into of the Credit Facility, the Company irrevocably deposited $173.4
million (the "Covenant Defeasance") for the purpose of effecting the
redemption of all of Empress Finance's 10 3/4% Senior Notes due 2002 (the "10
3/4% Senior Notes"). On February 10, 1999, the Trustee sent out a Notice of
Redemption to the holders of the 10 3/4% Senior Notes announcing the
redemption of such Notes. The Company will redeem all of the 10 3/4% Senior
Notes on April 1, 1999 at 105.38% of par, which represents the full amount on
deposit.
Competition
General
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, Native American gaming and other forms of gaming
and non-gaming entertainment in the U.S. The Company primarily competes with
the Chicago Market Casinos, five of which are located on Lake Michigan in
Indiana (including Empress Hammond) and four of which are located in Illinois
(including Empress Joliet). The seven other Chicago Market Casinos 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.
Certain of the Company's competitors are larger and have significantly
greater financial and other resources than the Company.
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Indiana
Currently, Indiana gaming law limits the number of licenses to operate
riverboat casinos in northern Indiana on Lake Michigan to five in total, all
of which have been issued to casinos that are currently operating. In addition
to the five northwest Indiana riverboats located on Lake Michigan (including
Empress Hammond), the Indiana Gaming Commission has awarded four gaming
licenses and one certificate of suitability to other riverboats located on the
Ohio River in southern Indiana, the closest of which is located over 250 miles
from downtown Chicago.
There are at least two potential sources of increased competition in
Indiana: licensure of additional riverboats and the introduction of slot
machines or other forms of gaming at horse tracks. The authorization and
opening of additional Indiana riverboats could adversely effect the Company's
potential pool of customers and have a material adverse effect on the Company.
Illinois
The Illinois Riverboat Gambling Act ("Illinois Riverboat Act") authorizes
ten owner's licenses for riverboat gaming operations, all of which have been
issued. Four of the licensees, including Empress Joliet, serve the Chicago
Market. The other six licenses have been granted to operators, the closest of
which is located approximately 150 miles from downtown Chicago. However, one
licensed operator, which operated from East Dubuque, Illinois, has ceased
operations.
In recent years, legislation has been introduced in Illinois to provide for
an expansion of gaming in Illinois, including legislation to authorize land-
based casinos in downtown Chicago and the surrounding suburbs, modify existing
regulations to decrease or eliminate certain restrictions, such as limitations
on the number of gaming positions or restrictions prohibiting dockside gaming,
and permit slot machines at horse tracks. To date, no such legislation has
been enacted. The Company is unable to predict whether any such legislation
will be enacted.
Native American Gaming
The Company competes, and expects to compete, with various gaming
operations on Native American land, including those located, or to be located,
in Michigan, Wisconsin and possibly northern Indiana. The Pokagon Band of the
Potawatomi Indians have recently proposed building a land-based casino in
northern Indiana, specifically in St. Joseph or Elkhart Counties. In addition,
the Saginaw Chippewa Tribe has substantially completed the construction of,
and is currently operating, one of the largest Native American gaming
complexes in the U.S. in Mt. Pleasant, Michigan, approximately 250 miles
northeast of Hammond, Indiana. The Governor of Michigan has recently signed a
number of Indian Compacts that would allow land-based casinos in Michigan,
including southwest Michigan. The opening of land-based casinos, which
generally have a competitive advantage over cruising casinos, in close
proximity to the Company, could have a material adverse effect on the Company.
Moreover, lower age limits at Native American casinos may put the Company,
with a minimum age requirement for admittance of 21, at a competitive
disadvantage.
Additional Sources of Competition
The Company competes with gaming facilities as well as other forms of
entertainment. Other jurisdictions may legalize various forms of gaming and
wagering that may compete with the Company in the future, including those
jurisdictions in close proximity to the Company's facilities. Gaming and
wagering include online computer gambling, bingo, pull tab games, card clubs,
sports books, pari-mutuel or telephonic betting on horse racing and dog
racing, state sponsored lotteries, video lottery terminals, video poker
terminals and in the future, may include in-flight gaming or gaming at other
venues.
In addition to Illinois and Indiana, several other states have authorized
gaming activities and other states in the future may authorize such gaming
activities. To date, riverboat and/or dockside gaming has also been
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approved in nearby states such as Iowa and Missouri. Moreover, it is
anticipated that the three land-based casinos authorized in Detroit, Michigan,
will begin gaming operations at temporary facilities by late September of
1999. The opening of such temporary facilities, however, is contingent upon
winning state licensing from the Michigan Gaming Control Board, which is not
expected to begin its review until late spring or early summer of 1999.
Employees
As of December 31, 1998, the Company had approximately 3,036 full-time
employees, of which 2,573 are hourly employees and the remainder are salaried
employees. Approximately 12.5% of the Company's workforce is unionized.
Empress Joliet's contract with the International Union of Operating Engineers,
Local 150 expires in November 2002. On April 29, 1998, Empress Joliet and
Hotel Employees and Restaurant Employees Union, Local 1 entered into a
Memorandum of Agreement containing the terms of their collective bargaining
agreement. This agreement will expire on April 30, 2001. The Company has not
experienced any work stoppages and believes its relations with its employees
and the unions are good.
Gaming Regulation
From time to time, various proposals have been introduced in the Indiana
and Illinois legislatures that, if enacted, could adversely affect the
taxation, regulation, operation or other aspects of the gaming industry, and
the Company. Furthermore, pursuant to the Indiana Riverboat Gambling Act (the
"Indiana Riverboat Act") and the Illinois Riverboat Act, the Indiana Gaming
Commission and the Illinois Gaming Board, respectively, have broad rulemaking
authority to adopt regulations with respect to riverboat gaming operations.
For example, in the event any stockholder of the Company were to be found
"unsuitable" by either the Indiana Gaming Commission or the Illinois Gaming
Board, such regulatory authority could require such stockholder to divest
himself of his Company stock. Since there is no public market for the shares
of the Company's stock, a transfer to any person or entity other than the
Company or its stockholders may not be possible. The Company may be unable or
unwilling to acquire such stockholder's shares due to various factors,
including, without limitation, restrictions in the terms of the Notes or the
Credit Facility, disagreements on the purchase price, or inadequate funds
available to consummate the purchase. If either gaming authority were to order
a stockholder to divest his shares of Company stock and he failed to do so,
Empress Hammond or Empress Joliet may be subject to discipline that may have a
material adverse effect on the Company.
Indiana
Pursuant to the Indiana Riverboat Act, Empress Hammond's current operations
are regulated by the Indiana Gaming Commission, which initially issued Empress
Hammond a five-year gaming license (the "Indiana License") on June 21, 1996.
As a condition to maintaining the Indiana License, Empress Hammond must, among
other things, submit detailed financial and other information to the Indiana
Gaming Commission, which has broad powers to suspend or revoke gaming
licenses. In granting and renewing gaming licenses, the Indiana Gaming
Commission conducts investigations into the character, reputation, experience
and financial integrity of each owner and principal employee of the applicant.
The Indiana Gaming Commission may request a detailed personal disclosure form
from any officer, director or shareholder of Empress Hammond or any other
person or entity having a significant relationship with Empress Hammond.
The Indiana License is subject to renewal in June 2001. Empress Hammond
believes that its current compliance record and standing with the Indiana
Gaming Commission indicate that the Indiana License will likely be renewed.
However, the failure of the Indiana Gaming Commission to renew the Indiana
License would cause Empress Hammond to cease its Indiana gaming operations,
and, therefore, would have a material adverse effect on the Company. In
addition, the Indiana Gaming Commission has broad regulatory powers with
respect to changes in Empress Hammond's operations. For example, Empress
Hammond was required to obtain the Indiana Gaming Commission's approval of the
Offering and the Credit Facility (which approval was obtained on May 6, 1998).
No assurance can be given that Empress Hammond will be able to obtain the
regulatory approvals necessary for other future plans.
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Illinois
Pursuant to the Illinois Riverboat Act, Empress Joliet's current operations
are regulated by the Illinois Gaming Board, which initially issued Empress
Joliet a three-year gaming license (the "Illinois License") on July 9, 1992,
with annual renewals required thereafter. The Illinois License was renewed on
July 21, 1998 and is effective through June 1999. As a condition to
maintaining the Illinois License, Empress Joliet must, among other things,
submit detailed financial and other information to the Illinois Gaming Board,
which has broad powers to suspend or revoke gaming licenses. In granting
gaming licenses, the Illinois Gaming Board conducts investigations into the
character, reputation, experience and financial integrity of each owner and
principal employee of the applicant. The failure of the Illinois Gaming Board
to renew the Illinois License in the future would cause Empress Joliet to
cease its Illinois gaming operations, and, therefore, would have a material
adverse effect on the Company. In addition, the Illinois Gaming Board has
broad regulatory powers with respect to changes in Empress Joliet's
operations. For example, Empress Joliet was required to obtain the Illinois
Gaming Board's approval of the Offering (which approval was obtained on April
22, 1998) and the Credit Facility (which approval was obtained on June 30,
1998). No assurance can be given that Empress Joliet will be able to obtain
the regulatory approvals necessary for other future plans.
Non-Gaming Regulation
The Company is subject to certain Federal, state and local safety and
health laws, regulations and ordinances that apply to businesses generally,
such as the Clean Air Act, Clean Water Act, Occupational Safety and Health
Act, Resource Conservation and Recovery Act and Comprehensive Environmental
Response, Compensation and Liability Act. The coverage and attendant
compliance costs associated with such laws, regulations and ordinances may
result in material costs to the Company.
Empress I, Empress II and Empress III must comply with U.S. Coast Guard
safety requirements and must hold a Certificate of Seaworthiness. These
requirements set limits on the operation of the vessels and require individual
licensing of all personnel involved with the operation of the vessels. Loss of
the Certificate of Seaworthiness of Empress I, Empress II or Empress III would
preclude use as a riverboat, which would have a material adverse effect on the
Company. Periodically, the Company's vessels must either be drydocked 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. The underwater hull survey
has been completed on the Empress I and the Empress II. Empress III is due for
inspection in September 2000. Any extended period of time during which any of
the Company's vessels is required to cease gaming operations to facilitate
inspections or maintenance could have a material adverse effect on the
Company.
Safe Harbor Statement Under The Private Securities Litigation Reform Act of
1995
The Company cautions readers that certain important factors may affect the
Company's actual results and could cause such results to differ materially
from forward-looking statements which may be deemed to have been made in this
Form 10-K, or which are otherwise made by or on behalf of the Company. Such
factors include, but are not limited to, changing market conditions; the
availability and cost of materials for the Company's products, the timely
development and market acceptance of the Company's products; and other risks
detailed under the caption "Risk Factors" below or otherwise described herein
or detailed from time to time in the Company's Securities and Exchange
Commission filings.
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Risk Factors
THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN ADDITION TO THE
OTHER INFORMATION IN THIS REPORT ON FORM 10-K IN EVALUATING THE COMPANY AND ITS
BUSINESS.
Leverage and Ability to Service Debt
As a result of the Offering and borrowings by the Company under the Credit
Facility, the Company has a significant amount of Indebtedness. At December 31,
1998, excluding Defeased Debt, the Company had total consolidated long-term
indebtedness of $176.0 million (including $150.0 million of the Exchange Notes)
and $74.0 million of availability under the Credit Facility. In addition,
subject to the restrictions in the Indenture governing the Exchange Notes and
in the Credit Facility, the Company may incur additional Indebtedness from time
to time. If the Company is unable to meet its debt service obligations, it
could be required to pursue one or more alternatives, such as refinancing or
restructuring the Indebtedness or divesting assets or operations. There can be
no assurance that any of such actions could be effected on satisfactory terms,
that such actions would enable the Company to meet its debt service obligations
or that such actions would be permitted under the terms of the Indenture or
under the Credit Facility.
The ability of the Company to satisfy its debt service obligations, engage
in various significant corporate transactions that may be important to its
business, and comply with the covenants contained in the Indenture and in the
Credit Facility, including the ability of the Company to repurchase Notes
pursuant to offers that must be made under certain circumstances, will be
dependent on the future performance of the Company's business.
Expansion Opportunities
The Company is currently exploring the potential of other gaming operations
as opportunities arise, including the possible expansion of riverboat gaming
and land-based casinos in other states throughout the U.S. Empress Racing, Inc.
was formed to hold a 50% ownership interest in a limited liability company that
acquired the Woodlands Racetrack in Kansas City, Kansas on December 31, 1998.
Empress Racing, Inc. has been designated as an Unrestricted Subsidiary under
the Indenture and is not a Guarantor of the Exchange Notes. There can be no
assurance that the Woodlands transaction will be successful. In addition, there
can be no assurances that other such ventures will become available to the
Company, that any opportunities made available to the Company with respect to
such ventures will be made available on terms and conditions acceptable to the
Company, or that, if suitable opportunities are found, the Company will be
successful.
From time to time the Company may form other subsidiaries to pursue gaming
opportunities in other jurisdictions. The Company may designate such
subsidiaries as Unrestricted Subsidiaries and therefore, the subsidiaries would
not be a Guarantor of the Exchange Notes. However, there can be no assurance
that such gaming opportunities will become available to the Company or such
opportunities will become available on terms and conditions acceptable to the
Company.
Repurchase of Notes upon a Required Regulatory Redemption or Change of Control
The Exchange Notes will be redeemable, in whole or in part, at any time, at
100% of the principal amount thereof, plus accrued and unpaid interest to the
redemption date, (i) pursuant to, and in accordance with, any order of any
governmental authority with appropriate jurisdiction and authority relating to
a gaming license ("Gaming License"), or (ii) to the extent necessary in the
reasonable, good faith judgment of the Board of Directors of the Company to
prevent the loss, failure to obtain or material impairment of, or to secure the
reinstatement of, any Gaming License, which if lost, impaired, not obtained or
not reinstated, would reasonably be expected to have a material adverse effect
on the Company or would restrict the ability of the Company to conduct business
in any Gaming Jurisdiction, in the case of each of (i) and (ii) where such
redemption or acquisition is required because the holder or beneficial owner of
such Exchange Note is required to be found
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suitable, or otherwise qualify, under any Gaming Laws and is not found
suitable or so qualified. Upon a Change of Control, each holder of the
Exchange Notes will, subject to certain limitations, have the right to require
the Company to repurchase all or a portion of such holder's Exchange Notes at
a purchase price equal to 101% of the principal amount thereof, plus accrued
and unpaid interest thereon, if any, to the date of repurchase. There can be
no assurance that the Company will have sufficient funds to consummate such a
redemption or acquisition or that such a redemption or acquisition, if
consummated, would not have a material adverse effect on the Company.
Single Market
The Company's gaming operations primarily serve the Chicago Market. The
Company's future operating results will depend in part, on matters over which
the Company has no control, including, without limitation, general economic
conditions in the Chicago Market. Therefore, it is not possible to estimate
future operating revenues and expenses of the Company based upon historical
operating performance.
Commitments to Governmental Authorities
As a condition to the Indiana License, Empress Hammond made various
financial and other commitments to the City of Hammond, Indiana ("City") and
other Indiana governmental bodies pursuant to a Hammond Riverboat Gaming
Project Development Agreement (the "Development Agreement"). 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 1998, Empress Hammond paid approximately $10.3 million to
the City to satisfy its commitments to the City of Hammond. In the event that
the Company suffers a decrease in revenues, the costs of satisfying the
foregoing commitments may have a material adverse effect on the Company. In
addition, there can be no assurance that the actual costs of Empress Hammond's
commitments will not exceed the currently anticipated costs of such
commitments.
Empress Hammond entered into a License Agreement ("License Agreement") with
the Hammond Port Authority ("Port Authority") on June 21, 1996, pursuant to
which Empress Hammond licenses from the 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 Port Authority (i) a $1.00 per passenger fee for each
passenger visiting Empress III; and (ii) 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 Empress III. In the event that the Company
suffers a decrease in revenues, the costs of satisfying the foregoing
commitments may have a material adverse effect on the Company.
Taxation
The Company believes that the prospect of significant additional revenue is
one of the primary reasons that jurisdictions have legalized gaming. As a
result, gaming companies are typically subject to significant taxes and fees
in addition to normal Federal and state income taxes, and such taxes and fees
are subject to increase at any time. The Company pays substantial taxes and
fees with respect to its operations. There can be no assurance that the
Indiana or Illinois legislatures will not enact higher wagering taxes. In
addition, there have been proposals from time to time to tax all gaming
establishments (including riverboat casinos) at the Federal level. Any
increase in the Company's tax rates could have a material adverse effect on
the Company.
The Company is a Subchapter S Corporation under the Internal Revenue Code
of 1986, and its corporate subsidiaries are Qualified Subchapter S
Subsidiaries. Accordingly, the stockholders of the Company are directly
subject to tax on their respective proportionate share of the taxable income
of the Company and its subsidiaries for Federal and certain state income tax
purposes.
8
<PAGE>
While the Company believes that it was properly formed and has been
properly operating as an S Corporation and that its corporate subsidiaries
were properly formed and have been properly operating as Qualified Subchapter
S Subsidiaries for Federal and state income tax purposes, if the S Corporation
tax status of the Company or the Qualified Subchapter S Subsidiary status of
any of its corporate subsidiaries were successfully challenged, such entity
could be required to pay Federal and certain state income taxes (plus interest
and possibly penalties) on its taxable income as far back as the commencement
of their respective operations. Such payments could have a material adverse
effect on the Company.
Dependence on Key Personnel; Ability to Attract Qualified Employees
The success of the Company is largely dependent upon the efforts and skills
of its executive officers, the loss of services of any of whom could have a
material adverse effect on the Company. A shortage of skilled labor exists in
the gaming industry, which may make it more difficult and expensive to attract
and retain qualified employees. While the Company believes that it will be
able to attract qualified employees, no assurance can be given that such
employees will be available to the Company.
Item 2. Properties
The Company's corporate headquarters are located within Empress Joliet's
150,000 square foot pavilion. In addition to the pavilion, Empress Joliet owns
the Empress I and Empress II, which collectively contain 36,000 square feet of
gaming space, the dock site from which they operate and the surrounding land-
based facilities, which encompass approximately 350 acres along the Des
Plaines River in Joliet, Illinois.
Empress Hammond includes an approximately 125,000 square foot pavilion.
Although the real estate is owned by the City of Hammond, Empress Hammond has
a 75 year lease for the use of such real estate. Empress Hammond owns the
Empress III, which contains approximately 42,500 square feet of gaming space.
In addition, Empress Hammond owns a ten acre parcel of land located next to
its complex.
Item 3. Legal Proceedings
The Company is from time to time a party to legal proceedings arising in
the ordinary course of business. Other than as discussed below, the Company is
unaware of any legal proceedings which, even if the outcome were unfavorable
to the Company, would have a material adverse impact on either its financial
condition or results of operations.
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.
On July 21, 1998, a lawsuit was filed against Empress Joliet and Empress
Hammond and four of their employees by two former female employees of Empress
Joliet, alleging that Empress Joliet and Empress Hammond committed gender
discrimination and sexual harassment in violation of Title VII of the Civil
Rights Act of 1964 and permitted a hostile work environment to exist at their
facilities. The lawsuit also alleges certain tort claims and seeks
certification as a class action on behalf of similarly situated current and
former female employees of Empress Joliet and Empress Hammond, and seeks
injunctive relief and money damages. The Company denies the allegations in the
complaint and intends to vigorously contest this matter. A trial date has been
set for April 3, 2000.
9
<PAGE>
In March 1999, certain former shareholders of Empress Joliet filed suit
against Empress Joliet alleging breach of contract. In 1995, Empress Joliet
and its shareholders settled certain prior litigation with these former
shareholders and entered into a settlement agreement pursuant to which, among
other things, Empress Joliet agreed to certain reimbursements to the former
shareholders for their payment of taxes on Empress Joliet's 1995 income
through the date of settlement. The complaint alleges that Empress Joliet (and
its then shareholders) breached the settlement agreement with respect to the
reimbursement of tax payments. The Company denies the allegations and intends
to vigorously contest this matter.
Item 4. Submission of Matters to Vote of Security Holders
None.
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Market Information
There is no established public market for the Company's equity securities.
In June 1998, concurrent with the Offering and the Covenant Defeasance, the
Company, Empress Hammond, Empress Joliet, Empress Finance and Hammond
Residential effected a corporate reorganization whereby (i) Empress Joliet
merged into a newly formed wholly-owned subsidiary of the Company, with
Empress Joliet surviving the merger; (ii) the Empress III was transferred to
Empress Hammond; and (iii) Empress Joliet's stock in Empress Finance was sold
to the Company so that it became a wholly-owned subsidiary of the Company. As
a result of the reorganization, the Company operates the Empress III through
its wholly-owned subsidiary Empress Hammond and operates the Empress I and
Empress II through its wholly-owned subsidiary Empress Joliet. Upon the merger
of Empress Joliet into the Company's subsidiary, the stockholders' shares in
Empress Joliet were cancelled and deemed of no further force and effect and
the stockholders were issued voting and non-voting common stock in the
Company.
In November 1997, as part of a reorganization, Empress Hammond was merged
into a wholly-owned subsidiary of the Company with Empress Hammond surviving
the merger. In connection with the reorganization, Martin J. McNally, who held
non-voting common stock in Empress Hammond was issued 29.245 shares of non-
voting common stock of the Company. The Company issued the shares to Mr.
McNally in reliance on the exemption for non-public offerings contained in
section 4(2) of the Securities Act.
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
Year Ended December 31, (in Millions)
---------------------------------------
1998 1997 1996 1995 1994
------ ------ ------ ------ -----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues(1)......................... $396.7 $369.6 $278.7 $214.6 $215.3
Income from operations.................. 80.9 64.6 60.2 62.5 66.9
Net income.............................. 61.3 46.3 44.9 50.6 57.5
Balance Sheet Data:
Total assets............................ 426.8 291.5 288.3 201.8 208.2
Total debt.............................. 326.0 208.5 214.3 150.6 152.2
Stockholders' equity.................... 67.4 55.9 49.6 36.8 33.4
</TABLE>
- --------
(1) Empress Hammond commenced gaming operations on June 28, 1996.
10
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
The following discussion and analysis provides information which the
Company's management believes is relevant to an assessment and understanding
of the consolidated financial condition and results of operations of the
Company. The discussion should be read in conjunction with the Consolidated
Financial Statements and notes thereto.
Results of Operations
The following discussion is based upon the consolidated operating results
of the Company.
Twelve Months Ended December 31, 1998 Compared to Twelve Months Ended
December 31, 1997
Net revenues for the twelve months ended December 31, 1998 were
approximately $396.7 million, an increase of approximately $27.1 million, or
7.3% compared to net revenues of approximately $369.6 million for the twelve
months ended December 31, 1997. The increase in net revenues was primarily
attributable to increased casino revenue. Empress Hammond's net revenues
increased from $221.6 million to $232.8 million and Empress Joliet's net
revenues increased from $152.7 million to $168.4 million.
Casino revenues were approximately $373.0 million for the twelve months
ended December 31, 1998 compared to approximately $346.0 million for the
twelve months ended December 31, 1997, an increase of approximately $27.0
million, or 7.8%. Empress Hammond's casino revenues increased from $210.1
million to $220.1 million primarily due to increased admissions and Empress
Joliet's casino revenues increased from $136.0 million to $152.9 million due
to an increase in win per admission.
Casino expenses totaled approximately $194.0 million for the twelve months
ended December 31, 1998, an increase of 7.6% or approximately $13.7 million
compared to $180.3 million for the twelve months ended December 31, 1997. This
increase was principally due to an increase in gaming and admission taxes
partially offset by a decrease in casino marketing and promotional expenses.
Empress Hammond's casino expenses increased from $109.2 million to $110.9
million and Empress Joliet Casino expenses increased from $71.1 million to
$83.1 million due to an increase in gaming taxes in Illinois.
Expenses relating to non-gaming operations, including depreciation and
amortization, for the twelve months ended December 31, 1998 totaled
approximately $121.8 million, a decrease of 2.3% or approximately $2.9 million
compared to the twelve months ended December 31, 1997. Expenses relating to
non-gaming operations for Empress Hammond increased from $71.7 million to
$72.5 million. This increase was offset by a decrease in expenses relating to
non-gaming operations at Empress Joliet, which decreased from $60.7 million to
$53.9 million, primarily due to a decrease in sales and general and
administration expenses.
Income from operations for the twelve months ended December 31, 1998
totaled approximately $80.9 million compared to approximately $64.6 million
for the twelve months ended December 31, 1997, an increase of approximately
$16.3 million, or 25.2%. Income from operations at Empress Hammond increased
from $40.7 million to $49.4 million and income from operations at Empress
Joliet increased from $21.0 million to $31.5 million.
Net interest expense for the twelve months ended December 31, 1998 was
approximately $18.8 million, an increase of approximately $1.0 million
compared to the twelve months ended December 31, 1997. This increase was a
result of the additional interest expense associated with the refinancing and
related Covenant Defeasance of the Company's debt.
Net income amounted to approximately $61.3 million and $46.3 million for
the twelve months ended December 31, 1998 and 1997, respectively. This
increase in net income was due to the factors discussed above.
11
<PAGE>
Twelve Months Ended December 31, 1997 Compared to Twelve Months Ended December
31, 1996
Net revenues for the twelve months ended December 31, 1997 were
approximately $369.6 million, an increase of 32.6% from net revenues of
approximately $278.7 million for the year ended December 31, 1996. The increase
in net revenue was primarily attributable to a full year of operations at
Empress Hammond, partially offset by a decrease in revenues at Empress Joliet
due to increased competition in the Chicagoland market.
Casino revenues were approximately $346.0 million for the year ended
December 31, 1997 compared to approximately $263.0 million for the year ended
December 31, 1996, an increase of approximately $83.0 million, or 31.6%. This
change was due to a full year of operations at Empress Hammond, partially
offset by a decrease in revenues at Empress Joliet due to increased competition
in the Chicagoland market.
Revenues from non-gaming operations, consisting primarily of food and
beverage, parking, gift shop and hotel revenues, were approximately $34.9
million for the year ended December 31, 1997 compared to approximately $22.8
million for the year ended December 31, 1996, an increase of approximately
$12.1 million, or 53.1%. The increase in revenues from non-gaming operations
was primarily due to the full year impact of the Empress Hammond and hotel
revenue at Empress Joliet, partially offset by a decrease in food and beverage
revenue at Empress Joliet.
Promotional allowances increased approximately $4.1 million for the year
ended December 31, 1997 compared to the year ended December 31, 1996. This
increase was primarily attributable to a full year of operations at Empress
Hammond, partially offset by a decrease in promotional allowances at Empress
Joliet.
Casino expenses totaled approximately $180.3 million for the twelve months
ended December 31, 1997, an increase of 42.2% or approximately $53.5 million
compared to $126.8 million for the twelve months ended December 31, 1996. This
decrease was principally due to an increase in gaming and admissions taxes at
Empress Hammond as a result of a full year of operation partially offset by a
decrease in gaming and admission taxes at Empress Joliet due to a decrease in
revenues as a result of increased competition in the Chicagoland market.
Expenses relating to non-gaming operations, including depreciation and
amortization, for the twelve months ended December 31, 1997 totaled
approximately $124.7 million, an increase of 36.0% or approximately $33.0
million compared to the twelve months ended December 31, 1996. This increase
was primarily due to a full year of operations at Empress Hammond.
Income from operations for the year ended December 31, 1997 totaled
approximately $64.6 million compared to approximately $60.2 million for the
year ended December 31, 1996, an increase of approximately $4.4 million, or
7.3%. This increase in income from operations was primarily attributable to an
increase in the operating results at Empress Hammond, partially offset by a
decline in the results of operations at Empress Joliet.
Net interest expense for the year ended December 31, 1997 was approximately
$17.8 million, an increase of approximately $3.0 million compared to the year
ended December 31, 1996. This increase was a result of additional interest
expense associated with increased borrowings under the Company's credit
facilities and vendor financing of gaming equipment.
Net income amounted to approximately $46.3 million and $44.9 million for the
years ended December 31, 1997 and December 31, 1996, respectively. This
increase in net income was due to the factors discussed above.
Liquidity and Capital Resources
For the twelve months ended December 31, 1998, the Company generated cash
flow from operations of approximately $90.9 million compared to approximately
$70.3 million for the twelve months ended December 31, 1997. This increase of
approximately $20.6 million was primarily attributable to an increase in net
income as well as an increase in interest payable due to the Company's
refinancing.
During the twelve months ended December 31, 1998, the Company contributed
$9.2 million to an unrestricted subsidiary, which holds a 50% ownership
interest in a limited liability company. The limited liability
12
<PAGE>
company used these funds to acquire certain outstanding secured indebtedness
of Sunflower Racing, Inc., 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.
During the twelve months ended December 31, 1998, the Company purchased
approximately $26.5 million of property and equipment, primarily related to
the addition of the fourth deck on Empress III, remodeling of Empress I and
Empress II and interior and exterior renovations to the Empress Joliet
pavilion. During the twelve months ended December 31, 1998, proceeds from
borrowings were approximately $187.5 million, including the issuance of the
$150.0 million 8 1/8% Notes, the proceeds of which were used to purchase an
investment in U.S. Treasury securities to be held in trust for the purpose of
effecting the Covenant Defeasance of the 10 3/4% Senior Notes. During the
twelve months ended December 31, 1998, payments on borrowings were
approximately $70.0 million, which included the pay down of the outstanding
balance of the $60.0 million amended and restated credit facility and $11.5
million in repayments on the current revolving Credit Facility.
During the twelve months ended December 31, 1998 and 1997, stockholder
distributions totaled approximately $45.2 million and $40.1 million,
respectively. During the twelve months ended December 31, 1998 and 1997,
approximately $28.4 million and approximately $24.3 million, respectively, was
distributed to permit shareholders to pay federal and state income taxes.
As of December 31, 1998, the Company had $26.0 million outstanding under
its $100.0 million revolving Credit Facility.
The Company's 1999 operating plan includes capital expenditures totaling
approximately $12.4 million. Capital improvements include the renovation of
the interior of the Empress Hammond pavilion and an addition of a nightclub to
the Empress Joliet pavilion.
The Company anticipates that cash on hand and cash flows from operations
and the revolving Credit Facility will be sufficient to satisfy the Company's
cash requirements as currently contemplated.
Year 2000
The Year 2000 or "Y2K" problem is the result of computer programs being
written using two digits rather than four to define the applicable year. Any
of the Company's 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.
As part of the first phase of the Company's Year 2000 compliance program,
the Company conducted an internal review of its computer systems to identify
the systems that could be affected by the Year 2000 problem, including both
"information technology" systems (such as software that processes financial
and other information) and non-information technology. The Company is in the
process of completing the second phase of its Year 2000 compliance program,
which involves (1) the implementation of its existing remediation plan to
resolve the Company's internal Year 2000 issues, (2) the identification of any
potential Year 2000 issues with the Company's significant vendors and
suppliers and (3) the evaluation of a contingency plan in the event that the
Company or its significant vendors and suppliers are unable to adequately
address Year 2000 issues in time. The Company has a July 1999 target date to
complete its implementation efforts.
The Company presently believes that, with modifications to existing
software and conversions to new software, the Year 2000 issue will not pose
significant operational problems for the Company's internal computer systems
as so modified and converted. However, if such modifications and conversions
are not completed on a timely basis, the Year 2000 problem may have a material
adverse impact on the operations of the Company. In addition, in the event
that any of the Company's significant vendors and suppliers do not
successfully and timely achieve Year 2000 compliance, the Company's business
or operations could be adversely affected. The Company estimates it will incur
less than $300,000 in expenses to ensure all systems will function properly
with respect to dates in the year 2000. These expenses are not expected to
have a material impact on the financial position, results of operation or
liquidity of the Company.
13
<PAGE>
This is a Year 2000 readiness disclosure entitled to protection as provided
in the Year 2000 Information and Readiness Disclosure Act.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market Risk--Interest Rate Sensitivity
The market risk inherent in the Company's financial instruments is the
potential loss in fair value arising from the adverse changes in interest
rates. Currently, the Company does not use interest rate derivative instruments
to manage exposure to interest rate changes as the vast majority of the
Company's indebtedness is financed at fixed rates. At December 31, 1998, the
carrying amount of the Company's long-term debt instruments approximated their
fair value.
Item 8. Financial Statements
Page
----
Report of Independent Auditors.............................................15
Consolidated Balance Sheets................................................16
Consolidated Statements of Income..........................................17
Consolidated Statements of Stockholders' Equity............................18
Consolidated Statements of Cash Flows......................................19
Notes to Consolidated Financial Statements.................................20
14
<PAGE>
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
15
<PAGE>
EMPRESS ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------
1998 1997
-------- --------
(In Thousands
Except Share
Amounts)
<S> <C> <C>
Assets
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.
16
<PAGE>
EMPRESS ENTERTAINMENT, INC
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1998 1997 1996
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Revenues:
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
debt............................................ 292 -- --
-------- -------- --------
Net income................................... $ 61,326 $ 46,304 $ 44,920
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
17
<PAGE>
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.
18
<PAGE>
EMPRESS ENTERTAINMENT, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1998 1997 1996
--------- -------- ---------
(In Thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
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.
19
<PAGE>
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 principals 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.
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.
20
<PAGE>
EMPRESS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 include 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.
2. Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
------------------
Estimated 1998 1997
Life -------- --------
(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>
21
<PAGE>
EMPRESS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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 $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.
22
<PAGE>
EMPRESS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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>
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>
23
<PAGE>
EMPRESS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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:
4.0% up to $125 million;
6.0% over $125 million and up to $200 million; and
4.0% in excess of $200 million
. 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.
24
<PAGE>
EMPRESS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Concluded)
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.
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.
25
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III.
Item 10. Directors and Executive Officers of the Registrant
<TABLE>
<CAPTION>
Name Age Position(1)
---- --- -----------
<S> <C> <C>
Peter A. Ferro, Jr........... 48 Chief Executive Officer and Director of the
Company, Empress Hammond and Empress Joliet,
Chief Executive Officer of Hammond
Residential and President and Director of
Empress Finance
Joseph J. Canfora............ 40 President of the Company, Empress Hammond and
Empress Joliet
John G. Costello............. 37 Vice President, Chief Financial Officer and
Treasurer of the Company and each of the
Guarantors
Michael W. Hansen............ 47 Vice President, Chief Legal Officer and
Secretary of the Company and each of the
Guarantors
David F. Fendrick............ 50 Vice President--General Manager of Empress
Joliet
Rick S. Mazer................ 44 Vice President--General Manager of Empress
Hammond
Charles P. Hammersmith, 47 Director of each of the Company, Empress
Jr.(2)...................... Hammond, Empress Joliet and Empress Finance
Robert W. Kegley, Sr.(2)..... 57 Director of each of the Company, Empress
Hammond, Empress Joliet and Empress Finance
Thomas J. Lambrecht(2)....... 49 Chairman of the Board and Director of each of
the Company, Empress Hammond, Empress Joliet
and Empress Finance
William J. McEnery........... 56 Director of each of the Company, Empress
Hammond, Empress Joliet and Empress Finance
Edward T. McGowan............ 62 Director of each of the Company, Empress
Hammond, Empress Joliet and Empress Finance
William J. Sabo.............. 60 Director of each of the Company, Empress
Hammond, Empress Joliet and Empress Finance
</TABLE>
- --------
(1) Each director of the Company, Empress Hammond, Empress Joliet and Empress
Finance has been a member of the Board of Directors of such entity since
such entity's formation.
(2) Serves on the Company's audit committee.
Peter A. Ferro, Jr. Mr. Ferro has been a Director of the Company and each of
the corporate Guarantors since their respective formation. Since January 1997
Mr. Ferro has been Chief Executive Officer of each of the Company, Empress
Hammond and Empress Joliet. Mr. Ferro has been President of Empress Finance
since December 1997. From 1984 to 1997 Mr. Ferro was President and Chief
Executive Officer of P. T. Ferro Construction Company. From 1989 to 1997, Mr.
Ferro was Vice President of Ferro Asphalt Corporation. Mr. Ferro is a graduate
from the University of Illinois with a Bachelors of Science in finance which he
received in 1972.
26
<PAGE>
Joseph J. Canfora. Mr. Canfora was elected President of the Company, Empress
Hammond and Empress Joliet in June 1997. From 1995 through 1997, Mr. Canfora
was President of Midwest Operations for Station Casinos, Inc. From 1992 through
1997, Mr. Canfora served as Executive Vice President and Chief Operating
Officer of Station Casinos, Inc. Prior to joining Station Casinos, Inc., Mr.
Canfora held management positions with the Maxim Hotel and Casino, Sundance
Casino and the Aladdin Hotel and Casino. Mr. Canfora graduated from the
University of Nevada, Las Vegas in 1982.
John G. Costello. Mr. Costello has served as the Vice President, Chief
Financial Officer and Treasurer of the Company and each of the corporate
Guarantors since June 1994 and has served in such capacity at Hammond
Residential since the date of its formation. From 1991 through 1994, Mr.
Costello was employed by Argosy Gaming Company, serving as its Controller from
1991 through 1993, and as Assistant General Manager of its Alton Belle Casino
from July 1993 through June 1994. From 1984 to 1991, Mr. Costello was in public
accounting as a Certified Public Accountant. Mr. Costello received his Bachelor
of Science degree in Business Administration from Southern Illinois University
at Edwardsville.
Michael W. Hansen. Mr. Hansen has served as Chief Legal Officer of the
Company and each of the corporate Guarantors since July 1994 and has served in
such capacity at Hammond Residential since the date of its formation. Since
1995, Mr. Hansen has served as Vice President and, since 1997, as the
Secretary, of the Company and the Guarantors. Mr. Hansen acted as outside
counsel in the formation of Empress Joliet in 1991 and oversaw the development
and construction of Empress Hammond in 1995 and 1996. From 1976 to 1994, Mr.
Hansen was in private legal practice as a partner in the Joliet, Illinois law
firm of Herschbach, Tracy, Johnson, Bertani & Wilson. Mr. Hansen is a 1973
graduate of the University of Notre Dame, and a 1976 graduate of Drake
University Law School.
David F. Fendrick. Mr. Fendrick was appointed Vice President--General
Manager of Empress Joliet in August 1997. From 1994 through 1997, Mr. Fendrick
served as Vice President--General Manager of Station Casinos, Inc. in Kansas
City. From 1993 through 1994, Mr. Fendrick held the position of Vice
President--General Manager of Fitzgerald's Casino in Tunica, Mississippi. He
was the Director of Casino Operations for Princess Cruises in 1993. From 1992
to 1993, Mr. Fendrick served as the Director of Casino Operations for President
Riverboat Casino in Davenport, Iowa.
Rick S. Mazer. Mr. Mazer was appointed Vice President--General Manager of
Empress Hammond in February 1996, where he oversees the operation of Empress
Hammond's gaming complex. From October 1995 to February 1996, Mr. Mazer served
as Director of Marketing and Advertising for Empress Joliet. From 1993 through
1995, Mr. Mazer was Vice President of Marketing for Par-A-Dice Riverboat Casino
in Peoria, Illinois and served in various other management capacities from 1991
through 1993. Mr. Mazer received a B.S.B.A. degree from Boston University in
1976.
Charles P. Hammersmith, Jr. Mr. Hammersmith has been a Director of each of
the Company, Empress Hammond, Empress Joliet and Empress Finance from the date
of their respective formation. Since 1973, Mr. Hammersmith has been employed
with Elmhurst-Chicago Stone Co. and since 1989 has served as its President.
Since 1983, Mr. Hammersmith has been the President of Hammerline Express, a
bulk cement transportation company.
Robert W. Kegley, Sr. Mr. Kegley has been a Director of each of the Company,
Empress Hammond, Empress Joliet and Empress Finance from the date of their
respective formation. Since 1982, Mr. Kegley has owned and operated Columbia
Properties, a real estate holding company. Since 1979, Mr. Kegley has owned the
Columbian Agency in New Lenox, Illinois, a commercial insurance brokerage
company, where he is the President.
Thomas J. Lambrecht. Mr. Lambrecht is the original founder of the Company
and has been Chairman of the Board and a Director of each of the Company,
Empress Hammond, Empress Joliet and Empress Finance from the date of their
respective formation. Since 1988, Mr. Lambrecht has been the President and sole
stockholder of T.J. Lambrecht Construction, Inc.
27
<PAGE>
William J. McEnery. Mr. McEnery has been a Director of each of the Company,
Empress Hammond, Empress Joliet, and Empress Finance from the date of their
respective formation. Since 1966, Mr. McEnery has owned and operated Gas City,
Ltd., which owns and operates approximately 40 gasoline stations and
convenience stores. Since 1975, Mr. McEnery has owned and operated Bell Valley
Farm, Inc. which is devoted to breeding and training standard-bred horses for
the harness horse racing industry. Since 1982, Mr. McEnery has owned and
operated A.D. Connor, Inc., a petroleum transportation company. Since 1990, Mr.
McEnery has owned and operated Green Garden Country Club. Since 1991, Mr.
McEnery has been a director and shareholder of Argosy Gaming Company, which
owns a beneficial interest in Indiana Gaming Company, L.P., the holder of an
owner's license in Lawrenceburg, Indiana, and Alton Gaming Company, the holder
of an owner's license in Alton, Illinois.
Edward T. McGowan. Mr. McGowan has been a Director of each of the Company,
Empress Hammond, Empress Joliet, and Empress Finance from the date of their
respective formation. Since 1963, Mr. McGowan has been the President of, and
since 1977, has been the sole owner of, the EDON Construction Company. Since
1977, Mr. McGowan has been a 50% owner of Dremco Inc., a corporation that
builds, sells and/or manages various real estate developments in the Chicago
area. In 1977, Mr. McGowan was elected as a member of the Board of Directors of
Ford City Bank of Chicago which merged into Cole Taylor Bank in 1984, at which
time Mr. McGowan became a member of the Board of Directors of Cole Taylor Bank.
William J. Sabo. Mr. Sabo was the Vice Chairman of Empress Hammond from
1995-1997 and of Empress Joliet from 1991 until 1997, and has been a Director
of the Company, Empress Hammond, Empress Joliet and Empress Finance from the
date of their respective formation. Since January 1, 1998, Mr. Sabo, through
his company, WJS & Co., Inc., has served as a consultant to Empress Hammond and
Empress Joliet.
The directors of the Company, Empress Hammond, Empress Joliet and Empress
Finance are elected each year at annual meetings of stockholders. Executive
officers are elected each year by the Board of Directors of each entity.
Pursuant to the terms of the Stockholders Agreement, all stockholders have
agreed to vote their shares to establish Boards of Directors of the Company,
Empress Hammond, Empress Joliet and Empress Finance to include the following
seven persons: Peter A. Ferro, Jr., Charles P. Hammersmith, Jr., Robert W.
Kegley, Sr., Thomas J. Lambrecht, William J. McEnery, Edward T. McGowan and
William J. Sabo.
Employment Agreements
Peter A. Ferro, Jr., Chief Executive Officer. Empress Hammond and Empress
Joliet are each parties to identical employment agreements dated March 7, 1997
with Peter A. Ferro, Jr. The agreements were effective as of January 1, 1997
and terminate on December 31, 1999. An allocation agreement was entered into
between Empress Hammond and Empress Joliet calling for an equal allocation of
Mr. Ferro's compensation and benefits between the two entities. Pursuant to the
terms of the employment agreements, Mr. Ferro is entitled to an aggregate
salary of $400,000 per year. In addition, Mr. Ferro is entitled to certain
customary employee benefits.
Empress Hammond and Empress Joliet may terminate the employment agreements
if (i) Mr. Ferro's gaming license in Indiana or Illinois, respectively, is
suspended or revoked; (ii) Mr. Ferro fails a drug test administered by either
entity; (iii) at least two-thirds of the members of Empress Hammond's or
Empress Joliet's Board of Directors vote to terminate his employment with
either entity; (iv) the Indiana License or the Illinois License is revoked or
not renewed; or (v) there is a change in control in Empress Hammond or Empress
Joliet during the term of the agreements, consisting of either a sale or
transfer of a majority equity interest or a sale of a substantial portion of
the assets. Notwithstanding termination due to (iii), (iv) or (v) above,
Empress Hammond's and Empress Joliet's obligations to Mr. Ferro under the
agreements continue in full force and effect until December 31, 1999.
28
<PAGE>
Joseph J. Canfora, President. Empress Hammond and Empress Joliet are each
parties to identical employment agreements dated June 12, 1997 with Joseph J.
Canfora. Each of the employment agreements commenced on June 23, 1997 and
terminates on June 22, 2000. An allocation agreement was entered into between
Empress Hammond and Empress Joliet calling for an equal allocation of Mr.
Canfora's compensation and benefits between the two entities. Pursuant to the
terms of the employment agreements, Mr. Canfora is entitled to an aggregate
base salary of $500,000 per year ("Base Salary"). In addition, Mr. Canfora is
eligible to receive performance based bonuses ("Bonus") based on a percentage
of the Company's, Empress Hammond's and Empress Joliet's ("Affiliated
Companies") combined EBITDA. If the Affiliated Companies' EBITDA is greater
than $100 million, Mr. Canfora's Bonus will be 3.913% of half of the combined
after-tax earnings of the Affiliated Companies less his Base Salary. Mr.
Canfora will not be entitled to a Bonus if he resigns or is terminated for
cause. Furthermore, the Chief Executive Officer of Empress Hammond or Empress
Joliet, in his sole discretion, may increase Mr. Canfora's Base Salary and
Bonus.
In addition to such compensation, Mr. Canfora is entitled to term life
insurance in an amount equal to $4.0 million and certain other employee
benefits. If Mr. Canfora's employment is terminated for reasons other than
cause, death, disability or change in control, Empress Hammond and Empress
Joliet are required (i) to pay Mr. Canfora his Base Salary, Bonus and earned
benefits for services rendered prior to the date of termination; (ii) to pay
Mr. Canfora a pro rata Bonus to the date of termination in accordance with the
terms of the agreements; (iii) to make all payments of Base Salary required
under the agreements to Mr. Canfora through the next scheduled termination
date; and (iv) in the case of disability, to continue to provide health
insurance to Mr. Canfora. If Mr. Canfora resigns his employment with Empress
Hammond or Empress Joliet, other than at the expiration of the term of the
agreements, he is not entitled to any compensation or benefits beyond his last
day of employment. Unless terminated without cause or at the next scheduled
termination date, Mr. Canfora is prohibited, for a period of one year, from
competing with the Affiliated Companies' business, products or services in the
Counties of Lake, Cook, Kane, Will, DuPage and McHenry, Illinois, and the
Counties of Lake, Porter and LaPorte, Indiana.
In addition, the Affiliated Companies and Mr. Canfora are parties to a long-
term incentive bonus agreement (the "Bonus Agreement"), under which Mr. Canfora
is entitled to 3.913% of the excess of (i) the Benchmark Value (as defined in
the Bonus Agreement) of the Affiliated Companies as of the date of termination
of Mr. Canfora's employment without cause, or a Change in Control, over (ii)
the Affiliated Companies' Base Value (as defined in the Bonus Agreement). If
there is a Change of Control within the first twelve months of the Bonus
Agreement, Mr. Canfora is to receive the greater of the bonus as determined by
the above formula or $1.0 million. The Bonus Agreement provides for differing
vesting provisions depending on Mr. Canfora's length of employment or the
occurrence of a Change in Control. With the exception of a Change in Control,
Mr. Canfora's bonus under the Bonus Agreement is not to exceed $10.0 million.
John G. Costello, Chief Financial Officer. Empress Joliet is a party to an
employment agreement dated March 12, 1998 with John G. Costello. Mr. Costello's
employment agreement was effective as of January 1, 1998 and terminates on
December 31, 1999. Pursuant to the terms of the employment agreement, Mr.
Costello is entitled to a base salary of not less than $135,000 per year. Mr.
Costello's base salary is allocated equally between Empress Hammond and Empress
Joliet. In addition, Mr. Costello is entitled to participate in the incentive
compensation bonus programs and employee benefit plans of Empress Joliet.
Empress Joliet may terminate Mr. Costello's employment for cause (as defined
in the agreement) at any time or without cause on thirty (30) days' written
notice. If terminated for cause, Mr. Costello will be paid to the date of
termination only. If terminated without cause, Mr. Costello is to receive his
present base salary and all health insurance benefits, through the later of the
expiration date of the agreement or one year from the date of termination plus
two weeks, whichever is greater. In addition, Mr. Costello is entitled to a
payment equal to his bonus payment from the prior year. Moreover, in the event
Empress Joliet fails to provide 180 days notice to Mr. Costello that his
agreement will not be renewed, Empress Joliet is required to pay Mr. Costello:
(i) a six month severance payment; (ii) a bonus payment through the scheduled
term based upon the last annual bonus payment paid; and (iii) benefits through
the scheduled term. If Mr. Costello is terminated as a result of a change
29
<PAGE>
of control (as defined in the agreement), Empress Joliet must continue to pay
his base salary through the next scheduled termination date or one year,
whichever is greater, and an amount equal to the last annual bonus payment
prorated to the date termination. Upon a change of control, Mr. Costello is
also entitled to receive a bonus equal to two and one-half times ("Bonus
Multiple") the sum of his annual base salary in effect immediately prior to the
change in control plus his annual bonus for the fiscal year immediately prior
to the change in control.
Michael W. Hansen, Chief Legal Officer. Empress Joliet is a party to an
employment agreement dated March 12, 1998 and effective January 1, 1998 with
Michael W. Hansen. Mr. Hansen's employment agreement with Empress Joliet is
substantially similar to Mr. Costello's agreement, except that (i) Mr. Hansen
is to receive an annual base salary of not less than $206,000 during the term
of the agreement, and (ii) Mr. Hansen's Bonus Multiple is two.
David F. Fendrick, Vice President--General Manager of Empress Joliet.
Empress Joliet is party to an employment agreement dated March 12, 1998 and
effective August 1, 1997 with David F. Fendrick. Mr. Fendrick's employment
agreement with Empress Joliet is substantially similar to Mr. Costello's
agreement, except that (i) the term of Mr. Fendrick's contract is three years,
from August 1, 1997 through July 31, 2000, (ii) Mr. Fendrick is to receive an
annual base salary of not less than $200,000 during the term of the agreement,
and (iii) Mr. Fendrick's Bonus Multiple is one and one-half.
Rick S. Mazer, Vice President--General Manager of Empress Hammond. Empress
Hammond is party to an employment agreement dated March 12, 1998 and effective
January 1, 1998 with Rick S. Mazer. Mr. Mazer's employment agreement with
Empress Hammond is substantially similar to Mr. Costello's agreement, except
that (i) Mr. Mazer is to receive an annual base salary of not less than
$180,000 during the term of the agreement, and (ii) Mr. Mazer's Bonus Multiple
is two.
Employment Agreements with Horseshoe Gaming, Inc.
Peter A. Ferro, Jr. entered into an employment agreement with Horseshoe
Gaming, Inc., a Nevada corporation ("Horseshoe Gaming") (the "Employment
Agreement"). Horseshoe Gaming Inc. is the manager of Horseshoe Gaming, L.L.C.,
a Delaware limited liability company ("Horseshoe LLC"). Horseshoe LLC's
subsidiaries and affiliates (i) operate casino facilities in Tunica,
Mississippi, and Bossier City, Louisiana, and (ii) are parties to an agreement
to acquire Empress Hammond and Empress Joliet. The Employment Agreement is
effective upon the consummation of the Proposed Merger and will continue until
December 31, 2001. Mr. Ferro will serve as Executive Vice President of
Horseshoe Gaming and will receive base compensation of $400,000 per year, a
discretionary bonus not to exceed 50% of the base compensation, and the right
to participate in any employee stock option or stock purchase plans of
Horseshoe Gaming or its subsidiaries and affiliates. Mr. Ferro is entitled to
specific fringe benefits.
Joseph J. Canfora entered into an employment agreement with Horseshoe
Gaming. The Employment Agreement is effective upon the consummation of the
Proposed Merger and will continue until December 31, 2001. Mr. Canfora will
serve as President of Horseshoe Gaming and will receive base compensation of
$500,000 per year, a discretionary bonus not to exceed 50% of the base
compensation, and the right to participate in any employee stock option or
stock purchase plans of Horseshoe Gaming or its subsidiaries and affiliates.
Mr. Canfora is entitled to specific fringe benefits.
Director Committees
The Board of Directors has established an Audit Committee. Messrs.
Hammersmith, Kegley and Lambrecht serve on the Audit Committee.
30
<PAGE>
Item 11. Executive Compensation
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual
Compensation
------------------
Bonus All other
Name and Principal Position Year Salary(4) (5) compensation(6)
- --------------------------- ---- --------- -------- ---------------
<S> <C> <C> <C> <C>
Peter A. Ferro, Jr.
President and Chief Executive
Officer(1)(2)(3)..................... 1998 $415,385 $ -- $ 2,968
1997 389,231 -- 3,781
1996 -- -- --
Joseph J. Canfora
President(1)(2)(3).................... 1998 500,000 250,000 128,590
1997 250,000 125,000 29,075
1996 -- -- --
Michael W. Hansen
Chief Legal Officer(1)(2)............. 1998 206,000 70,000 4,716
1997 202,539 70,000 4,564
1996 189,423 100,000 3,955
David F. Fendrick
Vice President, General Manager
Empress Joliet....................... 1998 189,078 69,216 8,444
1997 96,139 25,000 15,181
1996 -- -- --
Rick Mazer
Vice President, General Manager
Empress Hammond...................... 1998 193,077 65,000 6,920
1997 166,154 60,560 7,394
1996 152,192 70,000 6,130
</TABLE>
- --------
(1) The services and salaries of the executive officers are allocated evenly
between Empress Hammond and Empress Joliet.
(2) Consists of bonuses paid pursuant to a management bonus plan. Under such
plan, a percentage of pretax earnings based upon operating results of each
year are distributed to the executive officers of Empress Hammond and
Empress Joliet and to other selected employees, if any, during the next
fiscal year. The bonuses distributed to each executive officer and/or
employee of Empress Hammond and Empress Joliet (other than the Chief
Executive Officer) are determined by the Chief Executive Officer of the
Company. The bonus, if any, paid to the Chief Executive Officer of the
Company is determined by the Board of Directors of the Company. The
bonuses paid are allocated between Empress Hammond and Empress Joliet.
(3) Mr. Ferro served as President of the Company, Empress Hammond and Empress
Joliet until June 22, 1997, when Mr. Canfora began his employment as
President.
(4) The salaries listed represent the full, unallocated amount of the named
executive's salary, including deferred compensation under a non-qualified
plan.
(5) The bonuses listed represent the full, unallocated amount of the named
executive's bonus, including deferred compensation under a non-qualified
plan.
(6) Consists of the Company's contribution to such executive officer's 401(k)
plan, Company paid group term life insurance premiums and automobile
expenses. Pursuant to the terms of Mr. Canfora's employment agreements
with Empress Joliet and Empress Hammond, those entities provide Mr.
Canfora with term life insurance in an amount equal to $4.0 million and
reimbursement of relocation expenses. The amount listed in the table
includes the aggregate annual premiums paid by Empress Joliet and Empress
Hammond with respect to such insurance and reimbursement of relocation
expenses.
On July 23, 1998, the Company adopted an Executive Deferred Compensation
Plan ("Plan"). This Plan provides that certain executives of the Company, as
determined by the Board of Directors, are eligible to defer compensation until
such time as set forth in the Plan. The executives may defer up to 50% of
their scheduled salary or 100% of any bonus, termination or change of control
payment. The Plan provides for certain benefit payment options.
31
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding the ownership
of shares of common stock of the Company as of the date of this 10-K (i) by
each person known to the Company to own beneficially more than 5% of the
outstanding shares of common stock of the Company and (ii) by each of the
Company's executive officers and directors and by all of such executive
officers and directors as a group.
<TABLE>
<CAPTION>
Non-
Voting
Name and Address of Beneficial Common % of Common % of
Owner(1) Shares Class Shares Class
- ------------------------------ -------- ----- ------ -----
<S> <C> <C> <C> <C>
Joseph J. Canfora.................... -- -- -- --
John G. Costello..................... -- -- -- --
David F. Fendrick.................... -- -- -- --
Peter A. Ferro, Jr................... 196.14(2)(3) 11.2% 15.15(2)(3) 9.2%
Charles P. Hammersmith, Jr........... 332.44 19.0 25.67 15.7
Michael W. Hansen.................... -- -- -- --
Robert W. Kegley, Sr................. 166.22 9.5 12.84 7.8
Thomas J. Lambrecht.................. 302.52 17.3 23.36 14.2
Rick S. Mazer........................ -- -- -- --
William J. McEnery................... 332.44(4) 19.0 25.67 15.7
Edward T. McGowan.................... 332.44(5) 19.0 25.67 15.7
William J. Sabo...................... 113.03(2) 6.6 8.73(2) 5.3
-------- ----- ------ -----
All executive officers and directors
as a group (12 persons)............. 1,745.33 100.0% 134.79 82.17%
======== ===== ====== =====
</TABLE>
- --------
(1) To the Company's knowledge, the persons named in the table have sole
voting and investment power with respect to all shares of common stock
shown as beneficially owned by them, unless otherwise noted in the
footnotes to this table. The address of each of the stockholders named in
this table is c/o Empress Entertainment, Inc., 2300 Empress Drive, Joliet,
Illinois 60436.
(2) Includes the following number of shares of common stock of the Company
owned by the following trusts of which William J. Sabo and Peter A. Ferro,
Jr. are co-trustees: 9.97 common shares and 0.77 non-voting common shares
of the Company owned of record by the Trust for the benefit of Melissa
Kate Lambrecht under Trust Agreement dated May 3, 1993; 9.97 common shares
and 0.77 non-voting common shares of the Company owned of record by the
Trust for the benefit of Paul John Lambrecht under Trust Agreement dated
May 3, 1993; and 9.97 common shares and 0.77 non-voting common shares of
the Company owned of record by the Trust for the benefit of Matthew Thomas
Lambrecht under Trust Agreement dated May 3, 1993. These shares are
included twice in the table, once in the total for Mr. Sabo and once for
the total for Mr. Ferro.
(3) Includes 166.22 common shares and 12.84 non-voting common shares held by a
voting trust of which Mr. Ferro is the sole voting trustee. Mr. Ferro is
the owner of 55.4 of the shares of common stock and 4.28 of the shares of
non-voting common stock held by such voting trust and 55.4 shares of
common stock and 4.28 of the shares of non-voting common stock are owned
by each of James J. Ferro and John T. Ferro, Mr. Ferro's two brothers.
(4) Held by Trust for the benefit of William J. McEnery of which Mr. McEnery
is the sole trustee.
(5) Held by Trust for the benefit of Edward T. McGowan of which Mr. McGowan is
the sole trustee.
For "Change in Control" see "Description of the Business--Recent
Developments--Merger Agreement."
Item 13. Certain Relationships and Related Transactions
Company and Subsidiary Relationships
Empress Hammond licenses certain trademarks from Empress Joliet pursuant to
the terms of a Trademark License Agreement dated as of June 30, 1997. Empress
Hammond pays an annual fixed license fee of $1.2
32
<PAGE>
million to Empress Joliet for the non-exclusive right to use certain Empress
Casino trademarks in Hammond, Indiana, with express permission to use
intrastate and interstate advertising and promotion of Empress Hammond's
gaming operation in Hammond, Indiana. The Trademark License Agreement expires
on December 31, 2001. In 1998, the total amount paid by Empress Hammond to
Empress Joliet under this agreement was approximately $1.2 million.
Using information generated from the Empress Club, Empress Joliet created
and currently maintains a database containing information about customers of
the casino. Empress Hammond contributes information to the patron database and
licenses from Empress Joliet its patron database information. Empress Hammond
is required to pay to Empress Joliet five annual payments of approximately
$0.4 million each year based on an estimated fair market value of Empress
Joliet's patron database as of June 1996. The amount charged to Empress
Hammond for the database was approximately $0.4 million in 1998.
The Company shares common executive officers with its subsidiaries,
including the Chief Executive Officer, President, Chief Financial Officer and
Chief Legal Officer. Prior to the Reorganization, the salaries of such
executive officers were allocated evenly between Empress Hammond and Empress
Joliet.
Empress Joliet provides certain consulting services to Empress Hammond for
a fee of $5,000 per month. The consulting fee for the year ended December 31,
1998, was $60,000. Empress Joliet also incurs certain indirect corporate and
general and administrative costs and expenses related to the management and
operations of Empress Hammond. These costs are then allocated to Empress
Hammond. In 1998, the total amounts allocated to Empress Hammond were
approximately $2.7 million.
Pursuant to Empress Finance's issuance of the 10 3/4% Senior Notes due
2002, Empress Joliet then issued $150.0 million of 10 3/4% notes due 2002
("Mirror Notes") to Empress Finance, with terms identical to the 10 3/4%
Senior Notes due 2002.
The Company entered into a refinancing on June 18, 1998, the components of
which included the covenant defeasance of the $150.0 million 10 3/4% Senior
Notes due 2002 and the issuance of $150.0 million 8 1/8% Senior Subordinated
Notes due 2006 (the "8 1/8% Notes"). Concurrent with the refinancing, Empress
Joliet extinguished its Mirror Notes and received payment in full on all
intercompany notes receivable. The 8 1/8% Notes are jointly, severally and
unconditionally guaranteed on an unsecured senior subordinated basis by all
existing and future Restricted Subsidiaries of the Company.
Other Relationships
The Company is governed by an Amended and Restated Stockholders Agreement
pursuant to which, among other things, (i) the stockholders agreed to vote for
the election of Mr. Ferro, Mr. Hammersmith, Mr. Kegley, Mr. Lambrecht, Mr.
McEnery, Mr. McGowan and Mr. Sabo to the Board of Directors of the Company and
each of its subsidiaries, (ii) the Company and each of the other stockholders
have an option to purchase the stock of a stockholder upon certain events,
(iii) limitations were placed on the ability of the stockholders to sell their
stock in the Company, (iv) the approval of at least 75% of the stockholders is
required in order for the Company or any of its subsidiaries to undertake
certain transactions, including the merger of the Company or any of its
subsidiaries, the sale of all or substantially all of the assets of the
Company or any of its subsidiaries or the issuance or sale of stock of Empress
Hammond or Empress Joliet and (v) as long as the Company qualifies as a
Subchapter S Corporation, the Company has agreed to make distributions to its
stockholders in order for them to pay federal and state income taxes on the
net income of the Company.
In July 1998, in settlement of litigation, and in exchange for a general
release of all claims, the Company redeemed all of the shares of the Company's
common stock held by an approximately 1% stockholder.
33
<PAGE>
Empress Hammond, Empress Joliet and WJS & Co., Inc., a company owned by
William J. Sabo, a stockholder and director of the Company, and a director of
each of the corporate Guarantors, are parties to two identical consulting
agreements dated as of January 1, 1998, pursuant to which Mr. Sabo provides
consulting services to Empress Hammond and Empress Joliet for an annual
consulting fee of $150,000 in the aggregate. Such consulting fee is paid
equally by Empress Hammond and Empress Joliet. The consulting agreements
expire on December 31, 1999, and may be terminated for cause (as defined in
the agreements). In connection with his consulting agreements, Mr. Sabo has
agreed during his consulting period and for a period of one year thereafter
not to compete in the casino business within a 200 mile radius of each of
Hammond, Indiana and Joliet, Illinois. Mr. Sabo has also agreed not to solicit
any employee, vendor or supplier of Empress Hammond or Empress Joliet.
The Company and its subsidiaries have entered into the following contracts
with certain of the companies owned by its stockholders: (i) a contract with
Gas City, Ltd., a company owned by William J. McEnery, to provide fuel for the
Company's vessels and Company-owned vehicles; (ii) a contract with P.T. Ferro
Construction Company, a company owned in part by Peter A. Ferro, Jr., to
provide construction services; (iii) a contract with Columbian Agency, an
insurance brokerage company owned by Robert W. Kegley, Sr., to provide
insurance brokerage services; (iv) a contract with T.J. Lambrecht
Construction, Inc., an entity owned by Thomas J. Lambrecht, to provide
construction services; and (v) a contract with EDON Construction Company, an
entity owned by Edward T. McGowan, to provide construction services.
From January 1, 1998 through December 31, 1998, the Company paid an
aggregate of approximately $0.2 million, $0.1 million, $0.5 million, $0.3
million, $0.1 million and $0.1 million to WJS & Co., Inc., the Columbian
Agency, Gas City, Ltd., P.T. Ferro Construction Company, Inc., T.J. Lambrecht
Construction, Inc. and EDON Construction Company, respectively. In 1997, the
Company paid an aggregate of approximately $ 2.7 million, $0.5 million, $0.4
million and $0.2 million to the Columbian Agency, Gas City, Ltd., P.T. Ferro
Construction Company and T.J. Lambrecht Construction, Inc., respectively. In
1996, the Company paid an aggregate of approximately $2.7 million, $0.6
million, $0.3 million and $0.1 million to the Columbian Agency, Gas City,
Ltd., P.T. Ferro Construction Company and T.J. Lambrecht Construction, Inc.,
respectively.
Distributions to Stockholders
From January 1, 1998 through December 31, 1998, the Company, Empress
Hammond and Empress Joliet made an aggregate of approximately $28.4 million of
distributions to pay personal income taxes to stockholders. The Company
currently intends to make periodic distributions to its stockholders in
sufficient amounts to enable them to pay Federal and state income taxes
attributable to their pro rata portion of the estimated taxable earnings of
the Company, and to make other periodic distributions to its stockholders.
34
<PAGE>
PART IV.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) Documents Filed With This Report:
(1) Financial Statements
Reference is made to the Consolidated Financial Statements and the
Report of Independent Auditors appearing in Item 8 of this Form 10-K.
(2) Financial Statement Schedules
Financial statement schedules are not submitted because they are not
applicable or because the required information is included in the financial
statements or notes thereto.
(3) Index to Exhibits.................................................34
The following exhibits are filed herewith or incorporated by reference
as indicated. Exhibit numbers refer to Item 601 of Regulation S-K. As used
in the list of Exhibits below, "Registrant" refers to Empress
Entertainment, Inc.
<TABLE>
<CAPTION>
Exhibit
No. Exhibit
------- -------
<C> <S> <C>
2.1 Agreement and Plan of Merger, dated June 1, 1998, of New
Empress Joliet, Inc. into Empress Joliet, incorporated by
reference to Exhibit 2.1 of the Company's Registration
Statement on Form S-4, filed July 31, 1998.
2.2 Articles of Merger, filed June 5, 1998, between New
Empress Joliet, Inc. into Empress Joliet (included in
Exhibit 3.5), incorporated by reference to Exhibit 2.2 of
the Company's Registration Statement on Form S-4, filed
July 31, 1998.
2.3 Stock Purchase Agreement, dated June 12, 1998, between the
Company and Empress Joliet, incorporated by reference to
Exhibit 2.3 of the Company's Registration Statement on
Form S-4, filed July 31, 1998.
2.4 Termination of Lease, dated June 17, 1998, between the
Company and Empress Hammond, incorporated by reference to
Exhibit 2.4 of the Company's Registration Statement on
Form S-4, filed July 31, 1998.
2.5 Bill of Sale for the Empress III, dated June 17, 1998
executed by the Company incorporated by reference to
Exhibit 2.5 of the Company's Registration Statement on
Form S-4, filed July 31, 1998.
2.6 Agreement and Plan of Merger, dated as of September 2,
1998, by and among the Company, Empress Hammond, Empress
Joliet and Horseshoe Gaming, L.L.C., a Delaware limited
liability company ("Horseshoe"), Horseshoe Gaming
(Midwest), Inc., a Delaware corporation ("Horseshoe
Midwest"), Empress Acquisition Illinois, Inc., a Delaware
corporation ("Empress Illinois"), Empress Acquisition
Indiana, Inc., a Delaware corporation ("Empress Indiana"),
incorporated by reference to Exhibit 2.6 of the Company's
Pre-Effective Amendment No. 1 to Registration Statement on
Form S-4, filed September 11, 1998.
2.7 First Amendment to Agreement and Plan of Merger, dated as
of March 25, 1999, by and among the Company, Empress
Hammond, Empress Joliet and Horseshoe Gaming, L.L.C., a
Delaware limited liability company ("Horseshoe"),
Horseshoe Gaming (Midwest), Inc., a Delaware corporation
("Horseshoe Midwest"), Empress Acquisition Illinois, Inc.,
a Delaware corporation ("Empress Illinois"), Empress
Acquisition Indiana, Inc., a Delaware corporation
("Empress Indiana").
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Exhibit
------- -------
<C> <S> <C>
3.1 Amended Certificate of Incorporation of the Company, as
amended as of 28, 1998, incorporated by reference to
Exhibit 3.1 of the Company's Registration Statement on
Form S-4, filed July 31, 1998.
3.2 By-Laws of the Company incorporated by reference to
Exhibit 3.2 of the Company's Registration Statement on
Form S-4, filed July 31, 1998.
3.3 Restated Articles of Incorporation of Empress Hammond as
amended as of March 11, 1996 incorporated by reference to
Exhibit 3. of the Company's Registration Statement on Form
S-4, filed July 31, 1998.
3.4 By-Laws of Empress Hammond incorporated by reference to
Exhibit 3.4 of the Company's Registration Statement on
Form S-4, filed July 31, 1998.
3.5 Articles of Incorporation of Empress Joliet incorporated
by reference to Exhibit of the Company's Registration
Statement on Form S-4, filed July 31, 1998.
3.6 By-Laws of Empress Joliet incorporated by reference to
Exhibit 3.6 of the Company's Registration Statement on
Form S-4, filed July 31, 1998.
3.7 Certificate of Incorporation of Empress Finance
incorporated by reference to Exhibit 3.7 of the Company's
Registration Statement on Form S-4, filed July 31, 1998.
3.8 By-Laws of Empress Finance incorporated by reference to
Exhibit 3.8 of the Company's Registration Statement on
Form S-4, filed July 31, 1998.
3.9 Certificate of Organization of Hammond Residential as of
February 23, 1998 incorporated by reference to Exhibit 3.9
of the Company's Registration Statement on Form S-4, filed
July 31, 1998.
3.10 Operating Agreement of Hammond Residential incorporated by
reference to Exhibit 3.10 of the Company's Registration
Statement on Form S-4, filed July 31, 1998.
4.1 Indenture, dated June 18, 1998, among the Company, the
Guarantors and U.S. Bank Trust National Association, as
Trustee, including forms of the Old Notes and the New
Notes issued pursuant to such Indenture, incorporated by
reference to Exhibit 4.1 of the Company's Registration
Statement on Form S-4, filed July 31, 1998.
4.2 Registration Rights Agreement, dated June 18, 1998, by and
among the Company, the Guarantors, and the Initial
Purchasers, incorporated by reference to Exhibit 4.2 of
the Company's Registration Statement on Form S-4, filed
July 31, 1998.
4.3 Indenture, dated April 1, 1994, among Empress Finance, the
Company (f/k/a LMC Leasing, Ltd.), Empress Hammond (f/k/a
Lake Michigan Charters, Ltd.), Empress Joliet (f/k/a
Empress River Casino Corporation) and U.S. Bank Trust
National Association (f/k/a First Trust National
Association), as Trustee, including a form the Notes,
incorporated by reference to Exhibit 4.3 of the Company's
Registration Statement on Form S-4, filed July 31, 1998.
4.4 Supplemental Indenture to the 1994 Indenture dated
November 6, 1997 among Empress Finance, the Company,
Empress Hammond, Empress Joliet, New Empress Hammond, Inc.
and First Trust National Association, as Trustee,
incorporated by reference to Exhibit 4.4 of the Company's
Registration Statement on Form S-4, filed July 31, 1998.
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Exhibit
------- -------
<C> <S> <C>
4.5 Supplemental Indenture No. 2 to the 1994 Indenture dated
February 23, 1998 among Empress Finance, the Company,
Empress Hammond, Empress Joliet, Hammond Residential and
U.S. Bank Trust National Association, as Trustee,
incorporated by reference to Exhibit 4.5 of the Company's
Registration Statement on Form S-4, filed July 31, 1998.
4.6 Supplemental Indenture No. 3 to the 1994 Indenture dated
April 29, 1998 among Empress Finance, the Company, Empress
Hammond, Empress Joliet, New Empress Joliet, Inc., Hammond
Residential and U.S. Bank Trust National Association, as
Trustee, incorporated by reference to Exhibit 4.6 of the
Company's Registration Statement on Form S-4, filed July
31, 1998.
4.7 Supplemental Indenture No. 4 to the 1994 Indenture dated
June 10, 1998 among Empress Finance, the Company, Empress
Hammond, Empress Joliet, New Empress Joliet, Inc., Hammond
Residential and U.S. Bank Trust National Association, as
Trustee, incorporated by reference to Exhibit 4.7 of the
Company's Registration Statement on Form S-4, filed July
31, 1998.
4.8 Credit Agreement, dated as of June 17, 1998 by and among
the Company, Empress Hammond, Empress Joliet and Wells
Fargo Bank, National Association ("Wells Fargo"),
incorporated by reference to Exhibit 4.8 of the Company's
Registration Statement on Form S-4, filed July 31, 1998.
10.1 Tax Reimbursement Agreement, dated June 18, 1998, by and
between the Company and each of the Stockholders of the
Company, incorporated by reference to Exhibit 10.1 of the
Company's Registration Statement on Form S-4, filed July
31, 1998.
10.2 Guaranty executed by Empress Hammond in favor of the
holders of the Notes, incorporated by reference to Exhibit
10.2 of the Company's Registration Statement on Form S-4,
filed July 31, 1998.
10.3 Guaranty executed by Empress Joliet in favor of the
holders of the Notes, incorporated by reference to Exhibit
10.3 of the Company's Registration Statement on Form S-4,
filed July 31, 1998.
10.4 Guaranty executed by Empress Finance in favor of the
holders of the Notes, incorporated by reference to Exhibit
10.4 of the Company's Registration Statement on Form S-4,
filed July 31, 1998.
10.5 Guaranty executed by Hammond Residential in favor of the
holders of the Notes, incorporated by reference to Exhibit
10.5 of the Company's Registration Statement on Form S-4,
filed July 31, 1998.
10.6 Contract dated November 20, 1997 between Empress Joliet
and Gas City, Ltd., incorporated by reference to Exhibit
10.6 of the Company's Registration Statement on Form S-4,
filed July 31, 1998.
10.7 Trademark License Agreement dated June 30, 1997 between
Empress Joliet and Empress Hammond, incorporated by
reference to Exhibit 10.7 of the Company's Registration
Statement on Form S-4, filed July 31, 1998.
10.8 Consulting Agreement dated January 1, 1998 between Empress
Hammond and William J. Sabo, incorporated by reference to
Exhibit 10.8 of the Company's Registration Statement on
Form S-4, filed July 31, 1998.
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Exhibit
------- -------
<C> <S> <C>
10.9 Consulting Agreement dated January 1, 1998 between Empress
Joliet and William J. Sabo, incorporated by reference to
Exhibit 10.9 of the Company's Registration Statement on
Form S-4, filed July 31, 1998.
10.10 Hammond Riverboat Gaming Project Development Agreement by
and among the City of Hammond, Indiana, City of Hammond,
Department of Redevelopment and Empress Casino Hammond
Corporation, dated as of June 21, 1996, incorporated by
reference to Exhibit 10.10 of the Company's Registration
Statement on Form S-4, filed July 31, 1998.
10.11 Lease by and between the City of Hammond, Department of
Redevelopment and Empress Hammond, dated as of June 19,
1996, incorporated by reference to Exhibit 10.11 of the
Company's Registration Statement on Form S-4, filed July
31, 1998.10.12 License Agreement by and between Hammond
Port Authority and Empress Hammond, dated as of June 21,
1996, incorporated by reference to Exhibit 10.12 of the
Company's Registration Statement on Form S-4, filed July
31, 1998.
10.13 License Agreement by and between Department of Waterworks
of the City of Hammond and the City of Hammond, Indiana
and Empress Hammond, incorporated by reference to Exhibit
10.13 of the Company's Registration Statement on Form S-4,
filed July 31, 1998.
10.14 Employment Agreement dated March 7, 1997 between Empress
Hammond and Peter A. Ferro, Jr., incorporated by reference
to Exhibit 10.14 of the Company's Registration Statement
on Form S-4, filed July 31, 1998.
10.15 Employment Agreement dated March 7, 1997 between Empress
Joliet and Peter A. Ferro, Jr., incorporated by reference
to Exhibit 10.15 of the Company's Registration Statement
on Form S-4, filed July 31, 1998.
10.16 Allocation Agreement dated March 7, 1997 between Empress
Hammond and Empress Joliet, incorporated by reference to
Exhibit 10.16 of the Company's Registration Statement on
Form S-4, filed July 31, 1998.
10.17 Employment Agreement dated June 12, 1997 between Empress
Hammond and Joseph J. Canfora, incorporated by reference
to Exhibit 10.17 of the Company's Registration Statement
on Form S-4, filed July 31, 1998.
10.18 Employment Agreement dated June 12, 1997 between Empress
Joliet and Joseph J. Canfora, incorporated by reference to
Exhibit 10.18 of the Company's Registration Statement on
Form S-4, filed July 31, 1998.
10.19 Long Term Incentive Bonus Agreement dated June 12, 1997
between Empress Hammond and Joseph J. Canfora,
incorporated by reference to Exhibit 10.19 of the
Company's Registration Statement on Form S-4, filed July
31, 1998.
10.20 Long Term Incentive Bonus Agreement dated June 12, 1997
between Empress Joliet and Joseph J. Canfora, incorporated
by reference to Exhibit 10.20 of the Company's
Registration Statement on Form S-4, filed July 31, 1998.
10.21 Allocation Agreement dated June 12, 1997 between Empress
Hammond and Empress Joliet, incorporated by reference to
Exhibit 10.21 of the Company's Registration Statement on
Form S-4, filed July 31, 1998.
10.22 Employment Agreement dated March 12, 1998 between Empress
Joliet and John G. Costello, incorporated by reference to
Exhibit 10.22 of the Company's Registration Statement on
Form S-4, filed July 31, 1998.
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Exhibit
------- -------
<C> <S> <C>
10.23 Employment Agreement dated March 12, 1998 between Empress
Joliet and Michael W. Hansen, incorporated by reference to
Exhibit 10.23 of the Company's Registration Statement on
Form S-4, filed July 31, 1998.
10.24 Employment Agreement dated as of January, 1999 between
Peter A. Ferro, Jr. and Horseshoe Gaming, Inc.
10.25 Employment Agreement dated as of January, 1999 between
Joseph J. Canfora and Horseshoe Gaming, Inc.
21.1 List of Subsidiaries of the Company, incorporated by
reference to Exhibit 21.1 of the Company's Registration
Statement of Form S-4, filed July 31, 1998.
24.1 Powers of Attorney (included as part of the signature page
hereof).
27.1 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
39
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, in Joliet, Illinois on March 31, 1999.
Empress Entertainment, Inc.
/s/ Peter A. Ferro, Jr.
By: _________________________________
Peter A. Ferro, Jr., Chief
Executive Officer
Each person whose signature appears below constitutes and appoints Peter A.
Ferro, Jr. and Michael W. Hansen, or either of them, as such person's true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, to sign any and all amendments to this Form 10-K, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities set forth below on March 31, 1999.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Peter A. Ferro, Jr. Director and Chief Executive Officer
___________________________________________
Peter A. Ferro, Jr.
/s/ Joseph J. Canfora President
___________________________________________
Joseph J. Canfora
/s/ John G. Costello Vice President, Chief Financial and
___________________________________________ Accounting Officer and Treasurer
John G. Costello
/s/ Michael W. Hansen Vice President, Secretary and Chief Legal
___________________________________________ Officer
Michael W. Hansen
/s/ Charles P. Hammersmith, Jr. Director
___________________________________________
Charles P. Hammersmith, Jr.
/s/ Robert W. Kegley, Sr. Director
___________________________________________
Robert W. Kegley, Sr.
/s/ Thomas J. Lambrecht Director and Chairman of the Board of
___________________________________________ Directors
Thomas J. Lambrecht
/s/ William J. McEnery Director
___________________________________________
William J. McEnery
/s/ Edward T. McGowan Director
___________________________________________
Edward T. McGowan
/s/ William J. Sabo Director
___________________________________________
William J. Sabo
</TABLE>
40
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, in Joliet, Illinois on March 31, 1999.
Empress Casino Hammond Corporation
/s/ Peter A. Ferro, Jr.
By: _________________________________
Peter A. Ferro, Jr., Chief
Executive Officer
Each person whose signature appears below constitutes and appoints Peter A.
Ferro, Jr. and Michael W. Hansen, or either of them, as such person's true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, to sign any and all amendments to this Form 10-K, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities set forth below on March 31, 1999.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Peter A. Ferro, Jr. Director and Chief Executive Officer
___________________________________________
Peter A. Ferro, Jr.
/s/ Joseph J. Canfora President
___________________________________________
Joseph J. Canfora
/s/ John G. Costello Vice President, Chief Financial and
___________________________________________ Accounting Officer and Treasurer
John G. Costello
/s/ Michael W. Hansen Vice President, Secretary and Chief Legal
___________________________________________ Officer
Michael W. Hansen
/s/ Charles P. Hammersmith, Jr. Director
___________________________________________
Charles P. Hammersmith, Jr.
/s/ Robert W. Kegley, Sr. Director
___________________________________________
Robert W. Kegley, Sr.
/s/ Thomas J. Lambrecht Director and Chairman of the Board of
___________________________________________ Directors
Thomas J. Lambrecht
/s/ William J. McEnery Director
___________________________________________
William J. McEnery
/s/ Edward T. McGowan Director
___________________________________________
Edward T. McGowan
/s/ William J. Sabo Director
___________________________________________
William J. Sabo
</TABLE>
41
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, in Joliet, Illinois on March 31, 1999.
Empress Casino Joliet Corporation
/s/ Peter A. Ferro, Jr.
By: _________________________________
Peter A. Ferro, Jr., Chief
Executive Officer
Each person whose signature appears below constitutes and appoints Peter A.
Ferro, Jr. and Michael W. Hansen, or either of them, as such person's true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, to sign any and all amendments to this Form 10-K, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities set forth below on March 31, 1999.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Peter A. Ferro, Jr. Director and Chief Executive Officer
___________________________________________
Peter A. Ferro, Jr.
/s/ Joseph J. Canfora President
___________________________________________
Joseph J. Canfora
/s/ John G. Costello Vice President, Chief Financial and
___________________________________________ Accounting Officer and Treasurer
John G. Costello
/s/ Michael W. Hansen Vice President, Secretary and Chief Legal
___________________________________________ Officer
Michael W. Hansen
/s/ Charles P. Hammersmith, Jr. Director
___________________________________________
Charles P. Hammersmith, Jr.
/s/ Robert W. Kegley, Sr. Director
___________________________________________
Robert W. Kegley, Sr.
/s/ Thomas J. Lambrecht Director and Chairman of the Board of
___________________________________________ Directors
Thomas J. Lambrecht
/s/ William J. McEnery Director
___________________________________________
William J. McEnery
/s/ Edward T. McGowan Director
___________________________________________
Edward T. McGowan
/s/ William J. Sabo Director
___________________________________________
William J. Sabo
</TABLE>
42
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized in Joliet, Illinois on March 31, 1999.
Empress River Casino Finance
Corporation
/s/ Peter A. Ferro, Jr.
By: _________________________________
Peter A. Ferro, Jr., President
Each person whose signature appears below constitutes and appoints Peter A.
Ferro, Jr. and Michael W. Hansen, or either of them, as such person's true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, to sign any and all amendments to this Form 10-K, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities set forth below on March 31, 1999.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Peter A. Ferro, Jr. Director and President
___________________________________________
Peter A. Ferro, Jr.
/s/ John G. Costello Vice President, Chief Financial and
___________________________________________ Accounting Officer and Treasurer
John G. Costello
/s/ Michael W. Hansen Vice President, Secretary and Chief Legal
___________________________________________ Officer
Michael W. Hansen
/s/ Charles P. Hammersmith, Jr. Director
___________________________________________
Charles P. Hammersmith, Jr.
/s/ Robert W. Kegley, Sr. Director
___________________________________________
Robert W. Kegley, Sr.
/s/ Thomas J. Lambrecht Director and Chairman of the Board of
___________________________________________ Directors
Thomas J. Lambrecht
/s/ William J. McEnery Director
___________________________________________
William J. McEnery
/s/ Edward T. McGowan Director
___________________________________________
Edward T. McGowan
/s/ William J. Sabo Director
___________________________________________
William J. Sabo
</TABLE>
43
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized in Joliet, Illinois on March 31, 1999.
Hammond Residential, L.L.C.
/s/ Peter A. Ferro, Jr.
By: _________________________________
Peter A. Ferro, Jr., Chief
Executive Officer
Each person whose signature appears below constitutes and appoints Peter A.
Ferro, Jr. and Michael W. Hansen, or either of them, as such person's true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, to sign any and all amendments to this Form 10-K, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities set forth below on March 31, 1999.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Peter A. Ferro, Jr. Director of Empress Hammond, the Sole
___________________________________________ member of Hammond Residential and Chief
Peter A. Ferro, Jr. Executive Officer
/s/ John G. Costello Vice President and Chief Financial Officer
___________________________________________ and Treasurer of Hammond Residential
John G. Costello
/s/ Michael W. Hansen Vice President, Secretary and Chief Legal
___________________________________________ Officer of Hammond Residential
Michael W. Hansen
/s/ Charles P. Hammersmith, Jr. Director of Empress Hammond, the Sole
___________________________________________ Member of Hammond Residential
Charles P. Hammersmith, Jr.
/s/ Robert W. Kegley, Sr. Director of Empress Hammond, the Sole
___________________________________________ Member of Hammond Residential
Robert W. Kegley, Sr.
/s/ Thomas J. Lambrecht Director and Chairman of the Board of
___________________________________________ Directors of Empress Hammond, the Sole
Thomas J. Lambrecht Member of Hammond Residential
/s/ William J. McEnery Director of Empress Hammond, the Sole
___________________________________________ Member of Hammond Residential
William J. McEnery
/s/ Edward T. McGowan Director of Empress Hammond, the Sole
___________________________________________ Member of Hammond Residential
Edward T. McGowan
/s/ William J. Sabo Director of Empress Hammond, the Sole
___________________________________________ Member of Hammond Residential
William J. Sabo
</TABLE>
44
<PAGE>
Exhibit 2.7
FIRST AMENDMENT
TO
AGREEMENT AND PLAN OF MERGER
The First Amendment (this "Amendment") dated as of March 25, 1999 to the
Agreement and Plan of Merger (the "Merger Agreement") dated as of September 2,
1998 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. Parent, Horseshoe, Empress Illinois, Empress Indiana, Empress, Empress
Joliet and Empress Hammond have heretofore entered into the Merger Agreement,
which provides, among other things, for (i) the merger of Empress Illinois with
and into Empress Joliet; and (ii) 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, Empress Indiana, Empress, Empress
Joliet and Empress Hammond wish to enter into this 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 agrees as
follows:
1. Status of Merger Agreement. Except as specifically set forth herein, the
Merger Agreement and each of the exhibits thereto shall remain in full force and
effect and shall not be waived, modified, superseded or otherwise affected by
this Amendment. This Amendment is not to be construed as a release, waiver or
modification of any of the terms, conditions, representations, warranties,
covenants, rights or remedies set forth in the Merger Agreement, except as
specifically set forth herein.
<PAGE>
2. Amendments to the Merger Agreement.
(a) Section 1.05 of the Merger Agreement. The first sentence of Section
1.05 of the Merger Agreement is hereby deleted in its entirety and replaced with
the following:
"Subject to the terms and conditions set forth in this Agreement, the
aggregate consideration to be received by Empress upon the consummation of the
Merger shall be an aggregate amount equal to: (a) Six Hundred Nine Million
Dollars ($609,000,000), plus or minus (as the case may be) (b) Net Working
Capital (or the deficit in Net Working Capital), minus (c) Existing Debt plus
(d) the aggregate amount of the Hammond Payments plus (e) the aggregate amount
of cash expended on or after June 30, 1999 and prior to the Closing by the
Subsidiaries for the purchase of assets or property (except with respect to the
Hammond Payments and those expenditures described on Schedule 2.06(b)) that, in
accordance with GAAP, is capitalized on such Subsidiaries' balance sheet at any
time on or after June 30, 1999 and is made in accordance with Section 4.12 (the
"Merger Consideration")."
(b) Section 1.09 of the Merger Agreement. Section 1.09 of the Merger
Agreement is hereby deleted in its entirety and replaced with the following:
"Section 1.09. Deposit. The Buyers are depositing $10,000,000 (plus any
interest earned thereon, the "Deposit"), with the Escrow Agent (the "Deposit
Escrow") pursuant to an escrow agreement to be substantially in the form of
Exhibit A, as amended from time to time by the parties hereto (the "Deposit
Escrow Agreement," and together with the Adjustment Escrow Agreement, the
General Escrow Agreement, the Supplemental Escrow Agreements, and the Bonus
Escrow Agreement, the "Escrow Agreements"). The Deposit, without any right of
set-off, shall be paid to Empress in the event of termination of this Agreement
pursuant to Sections 10.01(a), (b), (d), (h) or (i) and the Deposit shall be
returned to the Buyers upon termination of this Agreement pursuant to Sections
10.01(c), (e), or (f). In the event of a termination of this Agreement pursuant
to Section 10.01(g), the Buyers and the Sellers shall mutually determine how the
Deposit will be disbursed. In the event of a Closing, the Deposit shall be
credited against the Merger Consideration and distributed to Empress in
accordance with Section 1.05. If the Deposit is paid to Empress as a result of a
termination of this Agreement pursuant to Sections 10.01(a), (b), (d), (h) or
(i), the Deposit and any payments made pursuant to the last sentence of this
Section 1.09 shall be paid as liquidated damages (and not as a penalty) in
recognition of the difficulty to ascertain damages. The receipt of the Deposit
and any payments made pursuant to the last sentence of this Section 1.09 shall
be in lieu of all other rights and remedies available to any of the Sellers and
any of their respective Affiliates, stockholders, representatives and agents, as
a result of a breach of this Agreement by any of the Buyers. Upon a termination
of this Agreement for any reason whatsoever, in addition to the payment of the
Deposit, if applicable, the Buyers agree to pay Sellers one-half of the amount
of the Commercial Payments, not to exceed $3,000,000, such payment to be made
within 10 days after the Sellers have provided to the Buyers reasonable
documentation of the amount and payment of the Commercial Payments."
2
<PAGE>
(c) Section 4.04(xii) of the Merger Agreement. Section 4.04(xii) of the
Merger Agreement is hereby amended by adding the following at the end of such
section:
";provided that Sellers, in consultation with Buyers, may make one or more
lump sum cash payments to satisfy all or any portion of the $10,000,000
commercial facilities commitment made by Sellers under the license of
suitability development agreement (the "Commercial Payments") of the Hammond
Commitments, which payments, if any, shall be deemed to be included in the
Hammond Payments."
(d) Section 4.12 of the Merger Agreement. Section 4.12 of the Merger
Agreement is hereby deleted in its entirety and replaced with the following:
"Section 4.12. Capital Expenditures. Empress shall and shall cause each of
the Subsidiaries to complete all capital expenditure projects contemplated in
the Budget on Schedule 2.06(b) and to the extent such projects have not been
completed as of the Closing Date, the costs to complete such projects shall be
deemed a Current Liability for purposes of the Closing Statement.
Notwithstanding any other provision of this Agreement, Empress or the
Subsidiaries may spend more on capital expenditures than the amounts provided
for in Schedule 2.06(b), provided that with respect to all such expenditures
over $25,000 Empress or the Subsidiaries, as applicable, shall consult with the
Buyers regarding the details related to such expenditures, prior to making such
expenditures."
(e) Section 6.03 of the Merger Agreement. Section 6.03 of the Merger
Agreement is hereby deleted in its entirety and replaced with the following:
"Section 6.03. Hammond Payments. Schedule 2.27 sets forth all of the
remaining commitments of Sellers to the City of Hammond, Indiana or other
governmental or quasi-governmental agencies thereof (collectively, the "Hammond
Commitments"). All amounts paid by Empress or any Subsidiary from the date of
this Agreement to the Closing in fulfillment of any portion of the Hammond
Commitments or to relieve Sellers of any of their remaining obligations relating
to the Hammond Commitments (collectively, the "Hammond Payments") and, to the
extent necessary, approved by the Buyers in accordance with Section 4.04(xii),
shall be included in the Merger Consideration as provided in Section 1.05(d)."
(f) Sections 8.08 and 10.01(e) of the Merger Agreement. Sections 8.08 and
10.01(e) of the Merger Agreement are hereby amended by deleting the phrase
"(other than changes directly relating to the Buyers' ability to obtain the
necessary Illinois and Indiana gaming licenses)" from such sections.
(g) Section 10.01 of the Merger Agreement. The first sentence of Section
10.01 of the Merger Agreement is hereby amended by deleting the phrase
"subparagraphs (g) or (h)" and replacing it with the phrase "subparagraphs (g),
(h) or (i)."
3
<PAGE>
(h) Section 10.01(h) of the Merger Agreement. Section 10.01(h) of the
Merger Agreement is hereby deleted in its entirety and replaced with the
following:
"(h) By either the Buyers or the Sellers, if the Closing has not occurred
on or prior to September 30, 1999; provided, however that the right to terminate
this Agreement under this Section 10.01(h) will not be available to any party
whose failure to timely fulfill any obligation under this Agreement has been the
cause of, or resulted in, the failure of the Closing to occur on or before such
date."
(i) Section 10.01 of the Merger Agreement. Section 10.01 of the Merger
Agreement is hereby amended by adding the following provision immediately after
subparagraph (h) of Section 10.01:
"(i) By Sellers if (i) the Buyers or their Affiliates who have become
parties to and agreed to be bound by this Agreement as a Buyer have not
completed an offering of securities pursuant to Rule 144A under the Securities
Act of 1933, as amended, by May 31, 1999; (ii) the Buyers or their Affiliates
who have become parties to and agreed to be bound by this Agreement as a Buyer
fail to maintain a substantial portion of the funds raised pursuant to the
offering described in Section 10.01(i)(i) in escrow to be used to complete the
transactions contemplated by this Agreement (as evidenced by monthly balance
sheets of Buyers provided to Sellers within thirty (30) days after the end of
each calendar month prior to Closing, with a certification by the Chief
Financial Officer of Buyers that the escrowed amount is true and correct); (iii)
prior to May 31, 1999, the Buyers or their Affiliates who have become parties to
and agreed to be bound by this Agreement as a Buyer have not entered into a
customary Commitment Letter with one or more financial institutions (in a form
reasonably acceptable to Sellers) to obtain the funds necessary to consummate
the transactions contemplated by this Agreement and such Commitment Letter is
not maintained at all times after the execution thereof until the senior credit
facility described in item (iv) below becomes effective; (iv) prior to June 30,
1999 the Buyers or their Affiliates who have become parties to and agreed to be
bound by this Agreement as a Buyer have not entered into a new senior credit
facility to make available funds adequate to consummate the transactions
contemplated by this Agreement, or such new senior credit facility is not
maintained in place at all times after execution thereof and prior to the
Closing or Buyers fail to maintain sufficient availability under the new senior
credit facility to consummate the transactions contemplated by this Agreement at
any time prior to the Closing; (v) neither the Buyers nor any of their
respective Affiliates have consummated (subject only to payment terms)
transactions with August Robin, Cassandra Piper and Wendell Piper, or any of
their respective Affiliates to purchase or redeem any such parties' equity
interests in Buyers or any of their respective Affiliates by May 31, 1999; or
(vi) the Indiana Gaming Commission has not approved the transfer of ownership of
Empress Hammond to the Buyers pursuant to the Indiana Merger on or before August
31, 1999."
(j) Section 10.02(e) of the Merger Agreement. Section 10.02(e) of the Merger
Agreement is hereby deleted in its entirety and replaced with the following:
4
<PAGE>
"(e) Whether or not any breach or default by the Buyers with respect to
the provisions of this Agreement is willful or otherwise, the sole and exclusive
remedy of the Sellers against the Buyers shall be to recover the Deposit and
one-half of the Commercial Payments, not to exceed $3,000,000, as liquidated
damages and in no event shall the Buyers or any of their respective directors,
officers, members, managers, representatives, agents or Affiliates be liable to
any of the Sellers, or any of their respective directors, officers,
stockholders, representatives, agents or Affiliates, in any respect for any
amount except for the Deposit, and one-half of the Commercial Payments, not to
exceed $3,000,000, which shall be disbursed in accordance with Section 1.09.
(k) The following definition shall be added to Article XVI of the Merger
Agreement:
"Commercial Payments" has the meaning set forth in Section 4.04(xii)
hereof."
3. Acknowledgment of Reorganization. Each of Empress, Empress Joliet and
Empress Hammond acknowledges, agrees and consents that in connection with the
securities offering to be made by the Buyers pursuant to Rule 144A under the
Securities Act of 1933, as amended, (i) Horseshoe Gaming Holding Corp. ("HGHC")
will be organized as a Delaware corporation to effect the offering; (ii) HGHC
shall replace Horseshoe as a party to the Merger Agreement; (iii) substantially
all of the membership interests in Horseshoe Gaming, L.L.C. will be contributed
to HGHC in exchange for capital stock of HGHC; and (iv) two to-be-formed,
wholly-owned subsidiaries of HGHC will replace Empress Illinois and Empress
Indiana as (x) parties to the Merger Agreement and (y) the entities to be merged
with and into Empress Joliet and Empress Hammond, respectively. In accordance
with the last sentence of Section 1.01 of the Merger Agreement, the Sellers
consent to the foregoing actions and agree to execute appropriate amendments to
the Merger Agreement to reflect such actions.
4. No Waiver. Each of the Buyers acknowledges and agrees that it shall
be obligated to timely perform its 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 in the Merger
Agreement prior to the date hereof.
5. Representations and Warranties of Entities. Each of Parent,
Horseshoe, Empress Illinois, Empress Indiana, Empress, Empress Joliet and
Empress Hammond represents and warrants that its execution, delivery and
performance of this Amendment has been duly authorized by all necessary
corporate action and this Amendment is a legal, valid and binding obligation of
such entity in accordance with its terms.
6. Counterparts. This 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.
7. Governing Law. This Amendment shall be a contract made under and
governed by the laws of the State of Delaware, without regard to conflict of law
principles.
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IN WITNESS WHEREOF, the parties have executed this 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: Chairman
----------------------------------
HORSESHOE GAMING (MIDWEST), INC.
By: /s/ Jack B. Binion
-------------------------------------
Title: CEO
----------------------------------
EMPRESS ACQUISITION ILLINOIS, INC.
By: /s/ Jack B. Binion
-------------------------------------
Title: CEO
----------------------------------
EMPRESS ACQUISITION INDIANA, INC.
By: /s/ Jack B. Binion
-------------------------------------
Title: CEO
----------------------------------
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EMPRESS ENTERTAINMENT, INC.
By: /s/ Peter A. Ferro, Jr.
-------------------------------------
Title: Chief Executive Officer
----------------------------------
EMPRESS CASINO JOLIET CORPORATION
By: /s/ Peter A. Ferro, Jr.
-------------------------------------
Title: Chief Executive Officer
----------------------------------
EMPRESS CASINO HAMMOND CORPORATION
By: /s/ Peter A. Ferro, Jr.
-------------------------------------
Title: Chief Executive Officer
----------------------------------
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<PAGE>
Exhibit 10.24
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Employment Agreement") entered into as of
January __, 1999, by and between Horseshoe Gaming, Inc., a Nevada Corporation
("Employer"), and Peter A. Ferro, Jr. ("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 Executive Vice President of Employer, and
shall perform each and all of the duties and shall have all of the
responsibilities described here. Employee shall at all times report directly to
and take directives from the President and Chief Executive Officer of Employer
(the "CEO"). Any and all directives of the CEO will take precedence over and
override any directives of the President which directly or indirectly conflict
with those of the CEO.
4. Duties and Responsibilities.
A. General Duties. In his capacity as Executive Vice President of
Employer, Employee shall have the responsibility for (1) overseeing the
operations of the Existing Facilities and
<PAGE>
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 President and CEO and
perform such duties as may be assigned to him from time to time by them. 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's specific duties shall include, but not
be limited to, strategic planning and development, overseeing capital
management, directing development and construction for new and existing
operations and oversight for capital budgeting, financial planning, regulatory
and legislative affairs of the Employer and its related and affiliated
companies. 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.
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
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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 President and 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 President and CEO
and agrees that at all times his authority shall be subordinate to that of the
President and CEO. The wishes and directives of the President and CEO shall
prevail in all matters and decisions as to which there is a disagreement between
Employee and either the President or CEO, and Employee shall carry out any and
all lawful directives from the President and CEO to the best of his ability. In
the event that wishes or directives of the President and CEO directly or
indirectly conflict, the wishes and directives of the CEO will take precedent
over and override any and all directives of the President.
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:
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<PAGE>
A. a base salary of Four Hundred Thousand Dollars ($400,000.00) 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;
F. reimbursement for the cost of maintaining and carrying
Employee's portable disability insurance policy Employee previously received
from Empress; and
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<PAGE>
G. reimbursement for the cost of maintaining a Two Million Dollar
($2,000,000) 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 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.
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<PAGE>
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
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.
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<PAGE>
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 fourteen (14) days from the date of the notice of a
violation of subsection 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.
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
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<PAGE>
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 (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
subsidiaries 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, 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,
-8-
<PAGE>
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.
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
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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.
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,
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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. 600A010 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
addressed 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:
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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.
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
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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.
HORSESHOE GAMING, INC.
A Nevada Corporation
By:/s/ Jack B. Binion
-------------------------------------------
Jack B. Binion, Chief Executive Officer
"EMPLOYEE" /s/ Peter A. Ferro, Jr.
-------------------------------------------
Peter A. Ferro, Jr.
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<PAGE>
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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<PAGE>
Exhibit 10.25
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").
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
<PAGE>
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 the 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
Employee, or any person or entity in any manner involved in the gaming industry
to the detriment of the 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 or
any interest, equity or otherwise, or any relationship with Empress or resign
from his employment with Employer.
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
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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.
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
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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;
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
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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 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
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<PAGE>
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
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,
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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.
10. Survival of Certain Convenants. 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
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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, 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
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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.
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.
-9-
<PAGE>
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.
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.
-10-
<PAGE>
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 J. 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.
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
- 11 -
<PAGE>
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)
- 12 -
<PAGE>
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
--------------------------------------------
Jack B. Binion, Chief Executive Officer
"EMPLOYEE" /s/ Joseph J. Canfora
--------------------------------------------
Joseph J. Canfora
- 13 -
<PAGE>
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 terms "Governmental Authority" and
"Governmental Authorities" mean 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.
- 14 -
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from the
consolidated financial statements of Empress Entertainment, Inc. as of and for
the year ended December 31, 1998.
</LEGEND>
<CIK> 0001066974
<NAME> EMPRESS ENTERTAINMENT, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 35,555
<SECURITIES> 163,933
<RECEIVABLES> 5,143
<ALLOWANCES> 2,235
<INVENTORY> 0
<CURRENT-ASSETS> 203,495
<PP&E> 256,700
<DEPRECIATION> 62,891
<TOTAL-ASSETS> 426,813
<CURRENT-LIABILITIES> 183,463
<BONDS> 150,000
0
0
<COMMON> 0
<OTHER-SE> 67,350
<TOTAL-LIABILITY-AND-EQUITY> 426,813
<SALES> 0
<TOTAL-REVENUES> 396,666
<CGS> 0
<TOTAL-COSTS> 315,766
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,559
<INCOME-PRETAX> 62,051
<INCOME-TAX> 433
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> (292)
<CHANGES> 0
<NET-INCOME> 61,326
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
