<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 333-60361
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 36-3932031
Indiana 36-3865868
Illinois 36-3740765
Delaware 36-3929804
Indiana --
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2300 Empress Drive, Joliet, Illinois 60436
---------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (815) 744-9400
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practical date.
Company: Voting Common Stock, $0.01 Par Value - 1,745.330 Shares as of August
1, 1999; Non-Voting, Common Stock, $0.01 Par Value - 164.035 Shares as of August
1, 1999
Empress Hammond: Common Stock, No Par Value - 1,000 Shares as of August 1, 1999
Empress Joliet: Common Stock, No Par Value - 1,000 Shares as of August 1, 1999
Empress Finance: Common Stock, $0.01 Par Value - 1,000 Shares as of August 1,
1999
Hammond Residential: 100% Interest
<PAGE>
EMPRESS ENTERTAINMENT, INC.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 14
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 15
2
<PAGE>
EMPRESS ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands Except Share Amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------- ------------
Assets (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 39,747 $ 33,555
Accounts receivable, less allowance for doubtful
accounts of $2,155 and $2,235, respectively 3,719 2,908
Other current assets 3,695 3,099
US Treasuries held for defeasance including accrued
interest and unamortized premium - 163,933
-------- --------
Total current assets 47,161 203,495
Property and equipment, net 190,594 193,809
Other assets, net 30,797 29,509
-------- --------
Total assets $268,552 $426,813
======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 5,630 $ 4,289
Accrued payroll and related expenses 8,697 6,802
Interest payable 6,118 10,799
Other accrued liabilities 19,066 11,573
Current portion of long-term debt - 150,000
-------- --------
Total current liabilities 39,511 183,463
Long-term debt 166,500 176,000
Commitments and contingencies
Stockholders' equity:
Common stock; $.01 par value; 6,000 shares authorized;
1,909,364 shares issued and outstanding - -
Treasury stock; 17,381 shares, held at cost (4,667) (4,667)
Additional paid-in capital 16,548 16,548
Retained earnings 50,660 55,469
-------- --------
Total stockholders' equity 62,541 67,350
-------- --------
Total liabilities and stockholders' equity $268,552 $426,813
======== ========
</TABLE>
The accompanying footnotes are an integral part of these financial statements.
3
<PAGE>
EMPRESS ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- --------------------------
1999 1998 1999 1998
-------- ------- -------- -------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Casino $105,998 $90,253 $204,891 $181,591
Food and beverage 7,523 6,307 14,718 12,699
Hotel, parking, retail and other 1,933 1,744 3,765 3,346
-------- ------- -------- --------
Gross revenues 115,454 98,304 223,374 197,636
Less: promotional allowances (3,224) (2,459) (6,551) (4,929)
-------- ------- -------- --------
Net revenues 112,230 95,845 216,823 192,707
Operating expenses:
Casino 54,500 46,653 105,699 93,656
Food and beverage 7,538 6,152 14,080 12,493
Hotel, parking and retail 1,272 942 2,562 1,862
Sales, general and administrative 10,685 11,451 20,724 22,241
Other operating 5,219 4,957 10,403 9,881
Corporate 1,737 1,285 3,167 2,567
Pre-opening 1,461 - 1,461 -
Depreciation and amortization 4,967 5,044 10,438 9,912
-------- ------- -------- --------
87,379 76,484 168,534 152,612
-------- ------- -------- --------
Income from operations 24,851 19,361 48,289 40,095
Other income (expense):
Interest income 198 1,000 2,493 1,982
Interest expense (3,444) (5,406) (10,955) (10,530)
-------- ------- -------- --------
Income before state income taxes
and extraordinary loss 21,605 14,955 39,827 31,547
Provision for state income taxes 210 110 349 194
-------- ------- -------- --------
Net income before extraordinary loss 21,395 14,845 39,478 31,353
Extraordinary loss on early extinguishment of debt 10,203 - 10,203 -
-------- ------- -------- --------
Net income $ 11,192 $14,845 $ 29,275 $ 31,353
======== ======= ======== ========
</TABLE>
The accompanying footnotes are an integral part of these financial statements.
4
<PAGE>
EMPRESS ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1999 1998
-------- ----------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 29,275 $ 31,354
Adjustments to reconcile net income to cash
provided by operating activities
Depreciation and amortization 10,438 9,912
Extraordinary loss 10,203 -
Other 297 350
Change in operating assets and liabilities:
Accounts receivable (811) (808)
Other current assets (596) 552
Accounts payable 1,341 5,509
Accrued payroll and related expenses 1,895 423
Interest payable (4,681) 422
Other accrued liabilities 7,493 3,952
-------- ---------
Net cash provided by operating activities 54,854 51,667
-------- ---------
Cash flows from investing activities:
Purchase of investments (1,200) (185,948)
Proceeds from sale of investments 161,099 30,970
Decrease in interest receivable on investments 2,538 -
Purchase of property and equipment (6,552) (16,566)
Increase in other assets (2,893) (1,027)
-------- ---------
Net cash provided by (used in) investing activities 152,992 (172,571)
-------- ---------
Cash flows from financing activities:
Proceeds from borrowings 9,000 160,000
Payments on borrowings (168,500) (58,524)
Payment of premium on early extinguishment of debt (8,070) -
Payment of financing costs - (6,429)
Stockholder distributions (34,084) (25,683)
-------- ---------
Net cash provided by (used in) financing activities (201,654) 69,364
-------- ---------
Net increase (decrease) in cash and cash equivalents 6,192 (51,540)
Cash and cash equivalents, beginning of period 33,555 73,257
-------- ---------
Cash and cash equivalents, end of period $ 39,747 $ 21,717
======== =========
Supplemental Disclosure of Cash Flow Information:
Interest paid $ 15,636 $ 10,084
Income taxes paid $ 400 $ 251
</TABLE>
The accompanying footnotes are an integral part of these financial statements.
5
<PAGE>
EMPRESS ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In Thousands)
(unaudited)
<TABLE>
<CAPTION>
Additional Total
Common Treasury Paid-in Retained Stockholders'
Stock Stock Capital Earnings Equity
------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
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
Net income - - - 29,275 29,275
Cash distributions to stockholders - - - (34,084) (34,084)
------------ ------------ ------------ ------------ --------------
Balance June 30, 1999 $ - $ (4,667) $ 16,548 $ 50,660 $ 62,541
============ ============ ============ ============= ==============
</TABLE>
The accompanying footnotes are an integral part of these financial statements.
6
<PAGE>
EMPRESS ENTERTAINMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999 (Unaudited)
1. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements of Empress Entertainment, Inc. ("the
Company") include the accounts of its wholly owned subsidiaries, Empress
Casino Joliet Corporation ("Empress Joliet") incorporated on December 26,
1990, Empress Casino Hammond Corporation ("Empress Hammond") incorporated
on November 25, 1992, Empress River Casino Finance Corporation ("Empress
Finance") incorporated on January 7, 1994, and Empress Opportunities, Inc.
("Empress Opportunities") incorporated on July 14, 1998. Empress Finance
was formed to issue $150 million 10 3/4% Senior Notes (the "Senior Notes")
due 2002, all of which were redeemed on April 1, 1999. 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 June 1999 for a one year period through June, 2000,
to operate the Empress I and Empress II riverboat casinos located on the
Des Plaines River in Joliet, Illinois. Empress Hammond was granted a five-
year operating license, with annual renewals thereafter, from the Indiana
Gaming Commission on June 21, 1996 to operate the Empress III riverboat
casino located on Lake Michigan in Hammond, Indiana. Empress III commenced
operations on June 28, 1996. The majority of the Company's customers
reside in the Chicago metropolitan area.
Empress Opportunities was formed as an unrestricted subsidiary to serve as
a holding company, under which the Company is pursuing certain business
opportunities other than the Company's gaming operations in Joliet,
Illinois and Hammond, Indiana. Empress Racing, Inc. ("Empress Racing") was
formed as an unrestricted subsidiary of Empress Opportunities to hold a 50%
ownership interest in Kansas Racing, LLC, which acquired the Woodlands
Racetrack in Kansas City, Kansas on December 31, 1998 in an auction
pursuant to a proceeding under Chapter 7 of the U.S. Bankruptcy Code.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. Interim results may not necessarily be
indicative of results, which may be expected for any other interim period,
or for the year as a whole. These consolidated financial statements should
be read in conjunction with the consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1998. The accompanying unaudited consolidated financial
statements contain adjustments which are, in the opinion of management,
necessary to present fairly the financial position and results of
operations for the periods indicated. Such adjustments include only normal
recurring accruals.
Reclassifications
Certain amounts in prior years' financial statements have been reclassified
to conform to the current year presentation.
7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
2. Plan of Merger
On September 2, 1998, as amended on March 25, 1999 and July 23, 1999, the
Company entered into an Agreement and Plan of Merger (the "Merger
Agreement") with Horseshoe Gaming (Midwest), Inc. and certain of its
affiliates ("Horseshoe Midwest"). The Merger Agreement 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"). The Proposed
Mergers require regulatory approval from the Indiana Gaming Commission and
the Illinois Gaming Board and closing on or before December 1, 1999.
Consummation of the Merger Agreement constitutes a "Change of Control"
under the Indenture, dated as of June 18, 1998, by and among the Company,
the Guarantors named therein and U.S. Bank Trust National Association, as
Trustee, (the "Indenture") and will trigger Horseshoe Midwest's obligation
to make an irrevocable offer to purchase an aggregate of up to $150 million
principal amount of its 8 1/8% Senior Subordinated Notes due 2006 (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 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 Merger Agreement 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 Merger Agreement.
3. Early Retirement of Debt
In June 1998, the Company irrevocably deposited $167.2 million (the
"Covenant Defeasance") for the purpose of effecting the redemption of all
of the Company's Senior Notes. On February 10, 1999, the Trustee sent out a
Notice of Redemption to the holders of the Senior Notes announcing the
redemption of such Senior Notes. On April 1, 1999, the Company redeemed all
its $150 million Senior Notes, thus fulfilling all of its obligations
related to the Senior Notes. The Company recognized an extraordinary loss
of $10.2 million in the second quarter of fiscal 1999 due to this early
retirement of debt, representing the premium paid on early retirement and
the write off of unamortized deferred financing costs.
4. Subsidiary Guarantors
In conjunction with the Covenant Defeasance, the Company issued $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.
The following tables present summarized balance sheet information of the
Company as of June 30, 1999 and December 31, 1998 and summarized statement
of income information for the three and six months ended June 30, 1999 and
1998. The column labeled "Parent Company" represents the holding company
for each of the Company's direct subsidiaries, the column labeled
"Guarantors" represents each of the Company's restricted subsidiaries, all
of which are wholly owned by the parent company, and the column labeled
"Non-Guarantors" represents the unrestricted subsidiaries.
8
<PAGE>
The Company believes that separate financial statements and other disclosures
regarding the Guarantors, except as otherwise required under Regulation S-X, are
not material to investors.
Summarized balance sheet information as of June 30, 1999 and December 31, 1998
is as follows:
<TABLE>
<CAPTION>
June 30, 1999
--------------------------------------------------------------------------------------------------
Restricted Unrestricted
Parent Subsidiaries Subsidiaries
Company (Guarantors) (Non-Guarantors) Eliminations Consolidated
---------------- ------------------ ----------------- ------------------ -----------------
<S> <C> <C> <C> <C> <C>
Assets:
Current assets $ 7,341 $ 39,830 $ - $ - $ 47,161
Non-current assets 166,673 210,151 10,927 (166,360) 221,391
---------------- ------------------ ---------------- ------------------ -----------------
$ 174,014 $ 249,071 $ 10,927 $ (166,360) $ 268,552
================ ================== ================ ================== =================
Liabilities and Equity:
Current liabilities $ 7,435 $ 32,076 $ - $ - $ 39,511
Non-current liabilities 168,469 150,569 11,131 (163,669) 166,500
Stockholders' equity (1,890) 67,326 (204) (2,691) 62,541
---------------- ------------------ ----------------- ------------------- -----------------
$ 171,014 $ 249,971 $ 10,927 $ (166,360) $ 268,552
================ ================== ================ =================== =================
December 31, 1998
--------------------------------------------------------------------------------------------------
Restricted Unrestricted
Parent Subsidiaries Subsidiaries
Company (Guarantors) (Non-Guarantors) Eliminations Consolidated
---------------- ------------------ ----------------- ------------------ -----------------
Assets:
Current assets $ 6,722 $ 196,773 $ - $ - $ 203,495
Non-current assets 163,881 216,521 9,334 (166,418) 223,318
---------------- ------------------ ---------------- ------------------ -----------------
$ 170,603 $ 413,294 $ 9,334 $ (166,418) $ 426,813
================ ================== ================ ================== =================
Liabilities and Equity:
Current liabilities $ 7,132 $ 176,331 $ - $ - $ 183,463
Non-current liabilities 177,671 152,518 9,538 (163,727) 176,000
Stockholders' equity (14,200) 84,445 (204) (2,691) 67,350
---------------- ------------------ ----------------- ------------------- -----------------
$ 170,603 $ 413,294 $ 9,334 $ (166,418) $ 426,813
================ ================== ================ =================== =================
</TABLE>
Summarized statement of income information for the three months ended June 30,
1999 and 1998 is as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30, 1999
--------------------------------------------------------------------------------------------------
Restricted Unrestricted
Parent Subsidiaries Subsidiaries
Company (Guarantors) (Non-Guarantors) Eliminations Consolidated
---------------- ------------------ ----------------- ------------------ -----------------
<S> <C> <C> <C> <C> <C>
Net revenues $ 1,500 $ 112,230 $ - $ (1,500) $ 112,230
Costs and expenses 1,784 87,095 - (1,500) 87,379
Net interest expense 405 2,841 - - 3,246
Net income (loss) (689) 11,881 - - 11,192
Three Months Ended June 30, 1998
--------------------------------------------------------------------------------------------------
Restricted Unrestricted
Parent Subsidiaries Subsidiaries
Company (Guarantors) (Non-Guarantors) Eliminations Consolidated
---------------- ------------------ ----------------- ------------------ -----------------
Net revenues $ - $ 95,845 $ - $ - $ 95,845
Costs and expenses 1,285 75,199 - - 76,484
Net interest expense - 4,406 - - 4,406
Net income (loss) (1,285) 16,130 - - 14,845
</TABLE>
9
<PAGE>
Summarized statement of income information for the six months ended
June 30, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
Six Months Ended June 30, 1999
---------------------------------------------------------------------------
Restricted Unrestricted
Parent Subsidiaries Subsidiaries
Company (Guarantors) (Non-Guarantors) Eliminations Consolidated
-------- ----------- ---------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net revenues $ 3,000 $ 216,823 $ - $ (3,000) $216,823
Cost and expenses 3,259 168,275 - (3,000) 168,534
Net interest expense 846 7,616 - - 8,462
Net income (loss) (1,105) 30,380 - - 29,275
Six Months Ended June 30, 1998
---------------------------------------------------------------------------
Restricted Unrestricted
Parent Subsidiaries Subsidiaries
Company (Guarantors) (Non-Guarantors) Eliminations Consolidated
-------- ----------- ---------------- ------------ ------------
Net revenues $ - $ 192,707 $ - $ - $192,707
Cost and expenses 2,567 150,045 - - 152,612
Net interest expense - 8,548 - - 8,548
Net income (loss) (2,567) 33,920 - - 31,353
</TABLE>
5. Commitments and Contingencies
In August 1999 the Company executed two amendments to its Development
Agreement concerning its financial commitments with the City of Hammond,
Indiana.
The first amendment requires the Company to satisfy its $10.0 million
commercial commitment as follows:
. The payment of $0.5 million for the purchase of property in the City of
Hammond, which was consummated in June 1999;
. A cash grant of $3.0 million to the City of Hammond for the City's
unrestricted use in one or more public projects, which was paid
subsequent to June 30, 1999;
. The purchase of $3.0 million in revenue bond anticipation notes, which
must be repaid to the Company by December 31, 2007. $2.0 million of
revenue bond anticipation notes were purchased in June, 1999 and $1.0
million were purchased in August, 1999;
. The expenditure of $2.5 million for the development of retail or
commercial facilities to be made by December 31, 2005; and
. The expenditure of $1.0 million for parking facilities and for the
acquisition of the hotel parcel.
The second amendment addresses the Company's commitment to construct a
$10.0 million hotel in the City of Hammond. The second amendment requires
the Company to commence construction of the hotel facilities on or before
August 1, 2000 and to diligently pursue its completion.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
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.
Three Months Ended June 30, 1999 Compared to Three Months Ended June 30, 1998
Net revenues for the three months ended June 30, 1999 totaled $112.2 million
compared to $95.8 million for the three months ended June 30, 1998, an increase
of $16.4 million or 17.1%. The increase in net revenues was primarily
attributable to increased casino revenues. Empress Hammond's net revenues
increased $5.3 million or 9.2% to $63.0 million from $57.7 million and Empress
Joliet's net revenues increased $11.1 million or 29.1% to $49.2 million from
$38.1 million.
Casino revenues totaled $106.0 million and $90.3 million for the three months
ended June 30, 1999 and 1998, respectively, an increase of $15.7 million or
17.4%. Empress Hammond's casino revenues increased $5.4 million or 9.8% to
$60.0 million from $54.6 million due to an increase in win per passenger and the
addition of the fourth deck in the second quarter of 1998. Empress Joliet's
casino revenues increased $10.3 million or 28.9% to $46.0 million from $35.7
million primarily due to an increase in win per passenger.
Casino expenses totaled $54.5 million and $46.7 million for the three months
ended June 30, 1999 and 1998, respectively, an increase of $7.8 million or
16.7%. Empress Hammond's casino expenses increased $2.7 million or 9.8% to $30.3
million from $27.6 million primarily due to an increase in gaming and admission
taxes on the increased casino revenues. Empress Joliet's casino expenses
increased $5.1 million or 26.7% to $24.2 million from $19.1 million primarily
due to increased gaming and admission taxes on the increase in casino revenues.
Pre-opening expenses totaled $1.5 million for the three months ended June 30,
1999 related to the opening of Club Chameleon nightclub at Empress Joliet. The
nightclub was opened on June 23, 1999.
Income from operations totaled $24.9 million and $19.4 million for the three
months ended June 30, 1999 and 1998, respectively, an increase of $5.5 million
or 28.3%. Income from operations at Empress Hammond, before corporate and
intercompany transactions, increased $2.7 million or 20.1% to $16.1 million from
$13.4 million. Income from operations at Empress Joliet, before corporate and
intercompany transactions, increased $3.3 million or 45.2% to $10.6 million from
$7.3 million. Corporate costs and expenses totaled $1.8 million and $1.3
million for the three months ended June 30, 1999 and 1998, respectively.
Net interest expense for the three months ended June 30, 1999 totaled $3.2
million compared to $4.4 million for the three months ended June 30, 1998, a
decrease of $1.2 million or 27.3%. This decrease was a result of reduced net
interest expense associated with the refinancing and related Covenant Defeasance
of the Company's debt during the second quarter of 1998.
The Company recognized an extraordinary loss of $10.2 million on the early
extinguishment of debt during the three months ended June 30, 1999. The loss
was comprised of the call premium on the extinguished debt of $8.1 million and
the write off of unamortized loan costs of $2.1 million.
Net income amounted to $11.2 million and $14.8 million for the three months
ended June 30, 1999 and 1998, respectively. This decrease in net income was due
to the factors discussed above.
11
<PAGE>
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998
Net revenues for the six months ended June 30, 1999 totaled $216.8 million
compared to $192.7 million for the six months ended June 30, 1998, an increase
of $24.1 million or 12.5%. The increase in net revenues was primarily
attributable to increased casino revenues. Empress Hammond's net revenues
increased $7.3 million or 6.3% to $123.5 million from $116.2 million and Empress
Joliet's net revenues increased $16.8 million or 22.0% to $93.3 million from
$76.5 million.
Casino revenues totaled $204.9 million and $181.6 million for the six months
ended June 30, 1999 and 1998, respectively, an increase of $23.3 million or
12.8%. Empress Hammond's casino revenues increased $7.5 million or 6.8% to
$117.5 million from $110.0 million due to an increase in win per passenger and
the addition of the fourth deck in the second quarter of 1998. Empress Joliet's
casino revenues increased $15.8 million or 22.0% to $87.4 million from $71.6
million primarily due to an increase in win per passenger.
Casino expenses totaled $105.7 million and $93.7 million for the six months
ended June 30, 1999 and 1998, respectively, an increase of $12.0 million or
12.8%. Empress Hammond's casino expenses increased $4.3 million or 7.8% to $59.3
million from $55.0 million primarily due to an increase in gaming and admission
taxes on the increased casino revenues. Empress Joliet's casino expenses
increased $7.7 million or 19.9% to $46.4 million from $38.7 million primarily
due to increased gaming and admission taxes on the increase in casino revenues.
Pre-opening expenses totaled $1.5 million for the six months ended June 30, 1999
related to the opening of Club Chameleon nightclub at Empress Joilet. The
nightclub was opened on June 23, 1999.
Income from operations totaled $48.3 million and $40.1 million for the six
months ended June 30, 1999 and 1998, respectively, an increase of $8.2 million
or 20.4%. Income from operations at Empress Hammond, before corporate and
intercompany transactions, increased $3.1 million or 11.0% to $31.2 million from
$28.1 million. Income from operations at Empress Joliet, before corporate and
intercompany transactions, increased $5.9 million or 40.4% to $20.5 million from
$14.6 million. Corporate costs and expenses totaled $3.4 million and $2.6
million for the six months ended June 30, 1999 and 1998, respectively.
Net interest expense for the six months ended June 30, 1999 totaled $8.5 million
compared to $8.6 million for the six months ended June 30, 1998, a decrease of
$0.1 million or 1.2%. This decrease was a result of reduced net interest
expense associated with the refinancing and related Covenant Defeasance of the
Company's debt during the second quarter of 1998.
The Company recognized an extraordinary loss of $10.2 million on the early
extinguishment of debt during the six months ended June 30, 1999. The loss was
comprised of the call premium on the extinguished debt of $8.1 million and the
write off of unamortized loan costs of $2.1 million.
Net income amounted to $29.3 million and $31.4 million for the six months ended
June 30, 1999 and 1998, respectively. This decrease in net income was due to
the factors discussed above.
Earnings Before Interest, Taxes, Depreciation and Amortization
Earnings before interest, taxes, depreciation and amortization and pre-opening
expenses ("EBITDA") for the three months ended June 30, 1999 totaled
$31.3 million compared to $24.4 million for the three months ended June 30,
1998 an increase of $6.9 million or 28.3%. EBITDA from Empress Hammond, before
corporate and intercompany transactions, increased by $2.9 million or 17.7% to
$19.3 million from $16.4 million and Empress Joliet's EBITDA, before pre-opening
expenses and corporate and intercompany transactions, increased $4.4 million or
47.3% to $13.7 million from $9.3 million. Corporate expenses amounted to
$1.7 million and $1.3 million for the three months ended June 30, 1999 and 1998,
respectively.
Earnings before interest, taxes, depreciation and amortization and pre-opening
expenses ("EBITDA") for the six months ended June 30, 1999 totaled $60.2 million
compared to $50.0 million for the six months ended June 30, 1998 an increase of
10.2 million or 20.4%. EBITDA from Empress Hammond, before corporate and
intercompany transactions, increased by $4.1 million or 12.1% to $37.8 million
from $33.7 million and Empress Joliet's EBITDA, before pre-opening expenses and
corporate and intercompany transactions, increased $6.7 million or 35.4% to
$25.6 million from $18.9 million. Corporate expenses amounted to $3.2 million
and $2.6 million for the six months ended June 30, 1999 and 1998, respectively.
EBITDA is calculated by adding depreciation and amortization and pre-opening
expenses to income from operations.
12
<PAGE>
The Company considers EBITDA to be a widely accepted financial indicator of a
companies ability to service debt, fund capital expenditures and expand its
business: however, EBITDA is not calculated the same way by all companies and
does not represent cash flows from operations as defined by generally accepted
accounting principles. EBITDA should not be considered by an investor as an
alternative to net income, as an indicator of operating performance or as an
alternative to cash flow as a measure of liquidity. The calculation of EBITDA
presented herein is calculated differently than for the purpose of the covenants
under the Company's indenture governing its $150 million of 8 1/8% Senior
Subordinated Notes.
Liquidity and Capital Resources
For the six months ended June 30, 1999, the Company generated cash flow from
operations of $54.9 million compared to $51.7 million for the six months ended
June 30, 1998. This increase of $3.2 million was primarily attributable to an
increase in net income before the extraordinary loss partially offset by changes
in operating assets and liabilities.
During the six months ended June 30, 1999, the Company contributed $1.2 million
to Empress Racing, Inc., which holds a 50% ownership interest in a Kansas
Racing, L.L.C. Kansas Racing, L.L.C. used the funds to acquire the remaining 15%
of outstanding secured indebtedness of Sunflower Racing, Inc., the owner of the
Woodlands Racetrack in Kansas City, Kansas. Kansas Racing, L.L.C. previously
acquired 85% of the outstanding secured indebtedness of Sunflower Racing, Inc.
in December 1998 using in part funds contributed by the Company of $9.2 million
to acquire the Woodlands Racetrack pursuant to a proceeding under Chapter 7 of
the U.S. Bankruptcy Code.
During the six months ended June 30, 1999, the Company received cash of $153.0
million from investing activities. Proceeds from the sale of U.S. Treasuries
amounted to $161.1 million. The sale proceeds and interest received on the U.S.
Treasuries of $5.0 million were transferred to the restricted cash account on
March 31, 1999. The restricted cash was used on April 1, 1999 to retire all of
the $150 million of 10 3/4% Senior Notes including the call premium and accrued
interest.
During the six months ended June 30, 1999 and 1998, stockholder distributions
totaled $34.1 million and $25.7 million, respectively. Of these distributions,
$20.6 million and $22.2 million, respectively, was distributed to shareholders
for payment of federal and state income taxes.
As of June 30, 1999, the Company had $16.5 million outstanding under its $100
million revolving Credit Facility.
The Company's 1999 operating plan includes capital expenditures totaling $12.4
million. Capital improvements include the recently completed renovation of the
interior of the Empress Hammond pavilion and the addition of the Club Chameleon
nightclub to the Empress Joliet pavilion. The nightclub was opened on June 23,
1999 and the pre-opening expenses totaling $1.5 million were expensed in the
second quarter.
On June 25, 1999, Illinois Governor George Ryan signed into law Senate Bill 1017
permitting Illinois casino riverboats to discontinue cruising and allowing
gaming while the boats remain dockside. On June 26, 1999, Empress Joliet
received approval from the Illinois Gaming Board to operate the Empress I and
Empress II dockside. Empress Joliet subsequently began and continues to explore
alternative facilities related to dockside gaming. The scope and costs of any
project have not been determined. Any project will require the appropriate
regulatory approvals including the Illinois Gaming Board.
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.
13
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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 September 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 $400,000 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 operations or liquidity of the Company.
This is a Year 2000 readiness disclosure entitled to protection as provided in
the Year 2000 Information and Readiness Disclosure Act.
Item 3. 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 June
30, 1999, the carrying amount of the Company's long-term debt instruments
approximated fair value.
14
<PAGE>
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: Unless otherwise noted, the following exhibits are
incorporated by reference into this Report:
Exhibit No. Exhibit
- ----------- -------
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"), incorporated by reference to
Exhibit 2.7 of the Company's Annual Report on Form 10-K, filed March 31,
1999.
2.8* Second Amendment to Agreement and Plan of Merger, dated as of July 23,
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").
15
<PAGE>
3.1 Amended Certificate of Incorporation of the Company, as amended as of May
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.
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
16
<PAGE>
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.
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
17
<PAGE>
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.
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.
18
<PAGE>
10.24 Employment Agreement dated March 12, 1998 between Empress Joliet and
David F. Fendrick, incorporated by reference to Exhibit 10.24 of the
Company's Registration Statement on Form S-4, filed July 31, 1998.
10.25 Employment Agreement dated March 12, 1998 between Empress Hammond and
Rick. Mazer, incorporated by reference to Exhibit 10.25 of the Company's
Registration Statement on Form S-4, filed July 31, 1998.
10.26 Employment Agreement dated as of January, 1999, between Peter A. Ferro,
Jr. and Horseshoe Gaming, Inc., incorporated by reference to Exhibit
10.24 of the Company's Annual Report on Form 10-K, filed March 31, 1999.
10.27 Employment Agreement dated as of January, 1999, between Joseph J. Canfora
and Horseshoe Gaming, Inc., incorporated by reference to Exhibit 10.25 of
the Company's Annual Report on Form 10-K, filed March 31, 1999.
10.28* Consulting Agreement, dated as of July 23, 1999, by and between the
Company and Horseshoe Gaming, L.L.C.
27.1* Financial Data Schedule.
(b) Reports on Form 8-K
No reports of Form 8-K were filed during the period covered by this report.
* Copy of exhibit filed with this report of Form 10-Q.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the issuer
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Empress Entertainment, Inc.
(Issuer)
Dated: August 16, 1999
s/s John G. Costello
--------------------
By: John G. Costello, Vice President,
Chief Financial Officer & Treasurer
(Principal Financial Officer)
Empress Casino Hammond Corporation
(Issuer)
- --------
s/s John G. Costello
- --------------------
By: John G. Costello
Vice President, Chief Financial Officer & Treasurer
(Principal Financial Officer)
Empress Casino Joliet Corporation
(Issuer)
s/s John G. Costello
- --------------------
By: John G. Costello
Vice President, Chief Financial Officer & Treasurer
(Principal Financial Officer)
Empress River Casino Finance Corporation
(Issuer)
s/s John G. Costello
- --------------------
By: John G. Costello
Vice President, Chief Financial Officer & Treasurer
(Principal Financial Officer)
Hammond Residential, L.L.C.
(Issuer)
s/s John G. Costello
- --------------------
By: John G. Costello
Vice President Chief Financial Officer & Treasurer
(Principal Financial Officer)
20
<PAGE>
EXHIBIT 2.8
SECOND AMENDMENT
TO
AGREEMENT AND PLAN OF MERGER
This Second Amendment (the "Second Amendment") dated as of July 23, 1999 to
the Agreement and Plan of Merger dated as of September 2, 1998, as amended by
the First Amendment dated as of March 25, 1999 (as amended by the First
Amendment, the "Merger Agreement") by and among Horseshoe Gaming, L.L.C., a
Delaware limited liability company ("Parent"), Horseshoe Gaming (Midwest), Inc.,
a Delaware corporation ("Horseshoe"), Empress Acquisition Illinois, Inc., a
Delaware corporation ("Empress Illinois"), Empress Acquisition Indiana, Inc., a
Delaware corporation ("Empress Indiana"), Empress Entertainment, Inc., a
Delaware corporation ("Empress"), Empress Casino Joliet Corporation, an Illinois
corporation ("Empress Joliet"), and Empress Casino Hammond Corporation, an
Indiana corporation ("Empress Hammond"), is entered into by and among Parent,
Horseshoe, Empress Illinois, Empress Indiana, Empress, Empress Joliet and
Empress Hammond.
RECITALS
--------
A. The parties have heretofore entered into the Merger Agreement, which
provides, among other things, for the merger of Empress Illinois with and into
Empress Joliet, and the merger of Empress Indiana with and into Empress Hammond.
All capitalized terms used herein and not otherwise defined herein shall have
the meaning ascribed to them in the Merger Agreement.
B. Parent, Horseshoe, Empress Illinois and Empress Indiana (collectively
the "Buyers") and Empress, Empress Joliet and Empress Hammond (collectively, the
"Sellers") wish to enter into this Second Amendment to amend certain provisions
of the Merger Agreement.
<PAGE>
AGREEMENT
---------
NOW, THEREFORE, in consideration of the premises and mutual agreements
herein contained, and for other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Status of Merger Agreement. Except as set forth herein, the Merger
Agreement and each of the exhibits and schedules (as updated) thereto shall
remain in full force and effect and shall not be waived, modified,
superseded or otherwise affected by this Second Amendment.
2. Amendments to the Merger Agreement.
(a) Section 1.02. Section 1.02(a) of the Merger Agreement is hereby
deleted in its entirety and replaced with the following:
"(a) at the offices of D'Ancona & Pflaum LLC, 111 East Wacker Drive,
Suite 2800, Chicago, Illinois 60601 on such date as is determined in
accordance with Section 9.01 and upon the satisfaction or waiver of
the conditions set forth in Articles VII and VIII of this Agreement;
or"
(b) Schedule 1.07. Schedule 1.07 to the Merger Agreement is hereby
deleted in its entirety and replaced with Schedule 1.07-A attached hereto.
(c) Section 6.03. A third sentence is added to Section 6.03 as
follows:
"The Buyers acknowledge and approve the amendment of agreements
relating to the Hammond Commitments and new agreements entered into by
Empress Hammond in fulfillment of the Hammond Commitments. The Buyers
agree to be bound by the terms of such amended and new agreements,
which are identified on Schedule 2.28-A attached hereto."
(d) Section 7.08. A new Section 7.08 is added to the Merger Agreement
to read in its entirety as follows:
"Section 7.08. Approval of Consulting Agreement. In connection
with the approvals of the Illinois Gaming Board and the Indiana Gaming
Commission necessary to consummate the transactions contemplated by
this Agreement, the
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<PAGE>
Illinois Gaming Board and the Indiana Gaming Commission shall not have
disapproved the Consulting Agreement by and between Parent and
Empress. The Buyers agree not to institute any legal action against
the Sellers for a failure to waive the condition set forth in the
foregoing sentence."
(e) Section 9.01. Section 9.01 of the Merger Agreement is hereby
deleted in its entirety and replaced with the following:
"The closing of the transactions contemplated by this Agreement
shall take place on December 1, 1999; provided, however, that at any
time prior thereto upon receipt of all necessary regulatory approvals
the Buyers may give the Sellers written notice that the Buyers are
prepared to close, and the Closing shall occur within three (3)
business days after the receipt of such notice by the Sellers."
(f) Section 10.01. Section 10.01(h) of the Merger Agreement is hereby
deleted in its entirety and replaced with the following:
"(h) Without notice or any action by any party hereto, this
Agreement shall terminate automatically if the Closing has not
occurred on or prior to December 1, 1999."
(g) Section 15.07. The name and address for Sellers' counsel in
Section 15.07 of the Merger Agreement is hereby deleted in its entirety and
replaced with the following:
"D'Ancona & Pflaum LLC
111 East Wacker Drive, Suite 2800
Chicago, Illinois 60601
Attention: Joel D. Rubin, Esq.
Telecopy:(312) 602-3000"
3. Representations and Warranties of Buyers. Buyers represent and warrant
that:
(a) Prior to May 31, 1999, the Buyers or their Affiliates completed
an offering of debt securities in the principal amount of $600 million pursuant
to Rule 144A under the Securities Act of 1933, as amended, and there is no
default or event of default under the Indenture and the other agreements
executed pursuant thereto by the Buyers or their Affiliates relating to the
offering and
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<PAGE>
issuance of such securities.
(b) The Buyers or their Affiliates have consistently maintained a
substantial portion of the funds raised pursuant to the securities offering
described above in escrow to be used to complete the transactions contemplated
by the Merger Agreement, and, since the date of the closing of that securities
offering, the monthly balance sheets of Buyers provided to Sellers within thirty
(30) days after the end of each calendar month with a certification by the Chief
Financial Officer of Buyers have reflected the escrowed amount of such proceeds,
which is true and correct.
(c) Prior to June 30, 1999, the Buyers or their Affiliates have
entered into a senior credit facility in the aggregate principal amount of $375
million to make available funds adequate to consummate the transactions
contemplated by the Merger Agreement and there is no default or event of default
under such senior credit facility.
(d) Prior to May 31, 1999, the Buyers or their Affiliates consummated
(subject only to payment terms) transactions with each of August Robin,
Cassandra Piper and Wendell Piper to purchase or redeem such individual's equity
interests in certain Affiliates of the Buyers.
4. Authorization of Second Amendment. The Buyers and Sellers each
represent and warrant that their respective execution, delivery and performance
of this Second Amendment has been duly authorized, this Second Amendment is a
legal, valid and binding obligation of each such entity enforceable in
accordance with its terms, and this Second Amendment does not conflict with any
agreement or obligation of the respective parties.
5. Limited Release. The Buyers and each of their respective Affiliates
hereby release the Sellers from any and all claims that the Buyers or such
Affiliates may have as a result of any breach of the covenants set forth in
Sections 4.07, 4.11 and 4.13 of the Merger Agreement arising from
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<PAGE>
actions taken by the Sellers or their Affiliates prior to the date of this
Second Amendment in connection with obtaining the approvals necessary from the
Illinois Gaming Board and the Indiana Gaming Commission.
6. No Waiver. The Buyers acknowledge and agree that they shall be
obligated to timely perform their obligations contained in the Merger Agreement
after the date hereof irrespective of the fact that Sellers have waived Buyers'
timely performance of certain obligations of the Buyers contained the Merger
Agreement prior to the date hereof. No other action or failure to act by the
Sellers shall constitute a waiver of the Buyers obligations under the Merger
Agreement. No waiver or modification relating to the Merger Agreement shall be
legally effective unless it is in writing and executed on behalf of the Buyers
and the Sellers.
7. Counterparts. This Second Amendment may be executed in any number of
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
8. Governing Law. This Second Amendment shall be a contract made under
and governed by the laws of the State of Delaware, without regard to conflict of
law principles.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Second Amendment and
caused the same to be duly delivered on their behalf on the day and year first
written above.
HORSESHOE GAMING, L.L.C.
By: /s/ Jack B. Binion
-------------------------------
Title:
-----------------------------
HORSESHOE GAMING (MIDWEST), INC.
By: /s/ Jack B. Binion
-------------------------------
Title:
-----------------------------
EMPRESS ACQUISITION ILLINOIS, INC.
By: /s/ Jack B. Binion
-------------------------------
Title:
-----------------------------
EMPRESS ACQUISITION INDIANA, INC.
By: /s/ Jack B. Binion
-------------------------------
Title:
-----------------------------
-6-
<PAGE>
EMPRESS ENTERTAINMENT, INC.
By: /s/ Peter Ferro
-------------------------------
Title: CEO
-----------------------------
EMPRESS CASINO JOLIET CORPORATION
By: /s/ Peter Ferro
-------------------------------
Title: CEO
-----------------------------
EMPRESS CASINO HAMMOND CORPORATION
By: /s/ Peter Ferro
-------------------------------
Title: CEO
-----------------------------
-7-
<PAGE>
AMENDED
DISCLOSURE SCHEDULES TO
AGREEMENT AND PLAN OF MERGER
Dated as of July 23, 1999
Schedule 1.07-A - Indemnification Escrows
- -----------------------------------------
General Escrow: Seven Million Dollars ($7,000,000)
First Supplemental Escrow: One Million Five Hundred Thousand Dollars
($1,500,000)
Second Supplemental Escrow: One Million Five Hundred Thousand Dollars
($1,500,000)
-8-
<PAGE>
AMENDED
DISCLOSURE SCHEDULES TO
AGREEMENT AND PLAN OF MERGER, as amended
Dated as of July 23, 1999
Schedule 2.28-A Hammond Commitments
- -----------------------------------
First Amendment to Hammond Riverboat Gaming Project Development Agreement,
dated as of June ___, 1999 by and between the City of Hammond, Indiana and
Empress Casino Hammond Corporation.
Second Amendment to Hammond Riverboat Gaming Project Development Agreement,
dated as of June ___, 1999 by and between the City of Hammond, Indiana and
Empress Casino Hammond Corporation.
First Amendment to Intergovernmental Lease Agreement and Grant of Easement,
dated as of __________, 1999 by and between the City of Hammond, Department of
Redevelopment and the Hammond Port Authority.
Bond Anticipation Note Purchase Agreement, dated as of June 22, 1999 by and
between Empress Casino Hammond Corporation and the Hammond Redevelopment
Commission, governing body of the City of Hammond, Department of Redevelopment
and the Redevelopment District of the City of Hammond, for and on behalf of the
Redevelopment District.
-9-
<PAGE>
EXHIBIT 10.28
CONSULTING AGREEMENT
--------------------
This Consulting Agreement (the "Agreement") is entered into as of July 23,
1999 by and between Horseshoe Gaming, L.L.C. ("Horseshoe") and Empress
Entertainment, Inc., a Delaware corporation ("Empress").
Recitals:
Horseshoe and Empress are parties to an Agreement and Plan of Merger dated
as of September 2, 1998, as amended on March 25, 1999 (the "First Amendment")
and on July 23, 1999 (the "Second Amendment") (collectively, the "Merger
Agreement"), pursuant to which the parties have agreed that Horseshoe will
acquire ownership of Empress Casino Joliet Corporation ("Empress Joliet") and
Empress Casino Hammond Corporation (the "Empress Acquisition"). Since September
3, 1998, legislation authorizing dockside gaming in the State of Illinois has
been enacted (the "Dockside Legislation"). The owners and officers of Empress
have substantial expertise in the area of casino construction, development and
marketing and in operating casinos in Illinois and Indiana, Horseshoe is
desirous of engaging Empress to consult with and advise Horseshoe in maximizing
the economic benefits which may be derived by Horseshoe from the Empress
Acquisition, including advertising in and building the greater Chicago market,
constructing hotels and additional amenities to be coordinated with the casinos
and exploiting in full the opportunities afforded as a result of Empress
Joliet's ability to conduct dockside gaming activities. In addition, it is
anticipated that there will be challenges seeking to repeal or narrow the
Dockside Legislation. Because of the extensive knowledge and understanding of
the owners and operators of Empress with respect to Illinois gaming matters,
Horseshoe is desirous of retaining Empress as a consultant to Horseshoe to
provide advice and share its expertise in (a) reviewing its options with respect
to dockside gaming, (b) positioning Empress Joliet's dockside gaming business,
(c) presenting Horseshoe's point of view in the case of legal challenges to the
Dockside Legislation, and (d) preserving the economic benefits to be derived by
Empress Joliet as a result of the Dockside Legislation. Although the economic
benefits to be derived by Horseshoe from operating in the greater Chicago market
and, in particular, by Empress Joliet, as a result of being able to conduct
dockside gaming cannot be quantified with any precision, Horseshoe believes that
such economic benefits may be substantial, and the parties hereto have
determined that the consideration to be paid by Horseshoe for the services to be
rendered by Empress is fair and equitable to both parties based on the savings
to be realized by the Empress Joliet since the commencement of Dockside
operations as evidenced by Attachment A.
Agreements:
NOW, THEREFORE, in consideration of the foregoing and the covenants set
forth herein, the parties agree as follows:
1. Consulting Services. In consideration of the consulting payments to
be made pursuant to paragraph 2 below, Empress shall (a) provide Horseshoe and
its affiliates with such advice and counsel as is requested, and to consult with
Horseshoe and its affiliates, concerning (i) the Dockside Legislation, including
challenges and proposed changes or modifications to the Dockside Legislation,
<PAGE>
(ii) Empress Joliet's dockside gaming business, including without limitation the
development and marketing of dockside gaming, (iii) construction and other
matters related to Empress Joliet's expansion into dockside gaming, (iv) such
other matters related to the Dockside Legislation and the expansion by Empress
Joliet into dockside gaming as is reasonably requested by Horseshoe, and (v)
conducting business generally in the greater Chicago market, and (b) make its
personnel available as reasonably requested to assist Horseshoe in analyzing and
responding to challenges and proposed changes to Dockside Legislation.
2. Consulting Payments.
a. Subject to subparagraph 2(b) below, for a period of five (5) years
following the closing of the Empress Acquisition (the "Acquisition
Date"), Horseshoe shall pay Empress a consulting fee of up to $4
million per year payable in monthly installments in arrears of
$333,333 each until fully paid (the "Consulting Payments"), said
payments are based on the savings to be realized by the Empress Joliet
since the commencement of Dockside operations as evidenced by
Attachment A. Consulting Payments will be made in the form directed by
Empress from time to time. All Consulting Payments shall accelerate
and become immediately due and payable upon such date as Jack Binion
and members of his family cease to own directly or indirectly a
majority of the outstanding equity interests of Horseshoe or any
successor entity of Horseshoe, unless by agreement, operation of law
or otherwise the successor entity or owner of the outstanding equity
interests of the successor entity assumes the obligation to make the
Consulting Payments in accordance with this Agreement.
b. The obligations of Horseshoe to make Consulting Payments to Empress
hereunder shall be suspended during any period during which dockside
gaming by Empress Casino Joliet Corporation is prohibited as a result
of the repealing of the Dockside Legislation or as a result of any
other governmental action of any type. If the obligation to make
Consulting Payments following a suspension in accordance with the
foregoing sentence is resumed more than 15 days after the beginning of
a calendar month, the next Consulting Payment shall not be paid until
the end of the subsequent calendar month. No Consulting Payments shall
accrue or be due with respect to any period during which the
obligation to make the Consulting Payments is suspended. No Consulting
Payments shall be made after the date which is eight (8) years after
the date of the Empress Acquisition; provided further, that the
aggregate amount of the Consulting Payments to be made pursuant to
this Agreement shall not exceed $20,000,000.
3. General Terms. The recitals form an integral part of this Agreement.
Any capitalized terms not defined in this Agreement shall have the meanings
ascribed to them in the Merger Agreement. This Agreement constitutes the entire
agreement between the parties and supersedes any previous oral or written
agreements relating to the subject matter hereof. The parties may amend, modify
or supplement this Agreement in such manner as may be agreed upon by them in
writing. This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns. This Agreement may
be executed in any number of counterparts, each of
<PAGE>
which shall be deemed an original. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware without regard to
conflict of law principals. Empress may not assign any of its obligations under
this Agreement without the prior written consent of Horseshoe; however, Empress
may assign its rights to payments under this Agreement subject to the prior
consent of Horseshoe which shall not be unreasonably withheld.
[Remainder of page intentionally blank.]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers as of the day and year
first above written.
HORSESHOE GAMING, L.L.C. EMPRESS ENTERTAINMENT, INC.
By: HORSESHOE GAMING HOLDING
CORP., manager
By: By: /s/ Peter Ferro
---------------------------- ----------------------------
Chief Executive officer Chief Executive officer
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers as of the day and year
first above written.
HORSESHOE GAMING, L.L.C. EMPRESS ENTERTAINMENT, INC.
By: HORSESHOE GAMING HOLDING
CORP., manager
By: /s/ Jack B. Binion By:
---------------------------- ----------------------------
Chief Executive officer Chief Executive officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001066974
<NAME> EMPRESS ENTERTAINMENT, INC.
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999 DEC-31-1998 DEC-31-1998
<PERIOD-START> APR-01-1999 JAN-01-1999 APR-01-1998 JAN-01-1998
<PERIOD-END> JUN-30-1999 JUN-30-1999 JUN-30-1998 JUN-30-1998
<CASH> 39,747 39,747 22,016 22,016
<SECURITIES> 0 0 164,039 164,039
<RECEIVABLES> 5,874 5,874 4,614 4,614
<ALLOWANCES> 2,155 2,155 2,098 2,098
<INVENTORY> 0 0 0 0
<CURRENT-ASSETS> 47,161 47,161 194,100 194,100
<PP&E> 263,196 263,196 246,863 246,863
<DEPRECIATION> 72,602 72,602 52,923 52,923
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<BONDS> 150,000 150,000 300,000 300,000
0 0 0 0
0 0 0 0
<COMMON> 0 0 0 0
<OTHER-SE> 62,541 62,541 61,529 61,529
<TOTAL-LIABILITY-AND-EQUITY> 268,552 268,552 408,995 408,995
<SALES> 0 0 0 0
<TOTAL-REVENUES> 112,230 216,823 95,845 192,707
<CGS> 0 0 0 0
<TOTAL-COSTS> 87,379 168,534 76,484 152,612
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 3,444 10,955 5,406 10,530
<INCOME-PRETAX> 21,605 39,827 14,955 31,547
<INCOME-TAX> 210 349 110 194
<INCOME-CONTINUING> 21,395 39,478 14,845 31,353
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> (10,203) (10,203) 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 11,192 29,275 14,845 31,353
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