+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE OR OTHER STATE OR OTHER JURISDICTION IN WHICH SUCH +
+OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR +
+QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE OR OTHER +
+JURISDICTION. +
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
As Filed with the Securities and Exchange Commission on July 31, 1998.
Registration No.
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_______________
EMPRESS ENTERTAINMENT, INC.
EMPRESS CASINO HAMMOND CORPORATION
EMPRESS CASINO JOLIET CORPORATION
EMPRESS RIVER CASINO FINANCE CORPORATION
HAMMOND RESIDENTIAL, L.L.C.
(Exact names of registrants as specified in their respective charter)
Delaware 36-3932031
Indiana 36-3865868
Illinois 36-3740765
Delaware 36-3929804
Indiana 7999 __________
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code) Identification No.)
2300 Empress Drive
Joliet, Illinois 60436
(815) 744-9500
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
_______________
Michael W. Hansen
Chief Legal Officer
2300 Empress Drive
Joliet, Illinois 60436
(815) 744-9400
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
Joel D. Rubin, Esq.
Suzanne L. Saxman, Esq.
D'Ancona & Pflaum
30 N. LaSalle, Suite 2900
Chicago, IL 60602
(312) 580-2000
_______________
Approximate Date of Commencement of Proposed Sale to the Public: As soon as
practicable after the effectiveness of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
CALCULATION OF REGISTRATION FEE
=============================================================================================================================
Proposed Proposed
Title of each class of maximum maximum
securities Amount offering price aggregate Amount of
to be registered to be registered per unit(1) offering price(2) registration fee
- -----------------------------------------------------------------------------------------------------------------------------
8 1/8% Senior Subordinated Notes due 2006 of
Empress Entertainment, Inc. $150,000,000 100% $150,000,000 $44,250
- -----------------------------------------------------------------------------------------------------------------------------
Guarantee of 8 1/8% Senior Subordinated Notes
due 2006 by Guarantors (as hereinafter defined) $150,000,000 -- -- None(2)
=============================================================================================================================
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(f) under the Securities Act of 1933, as amended.
(2) Pursuant to Rule 457(n), no separate fee is payable for the Guarantees.
_____________
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
section 8(a), may determine.
SUBJECT TO COMPLETION, DATED JULY 31, 1998
PROSPECTUS
- ----------
Empress Entertainment, Inc.
OFFER TO EXCHANGE
All 8 1/8% Senior Subordinated Notes due 2006
which have been registered under the
Securities Act of 1933 for all outstanding
8 1/8% Senior Subordinated Notes due 2006
($150,000,000 principal amount outstanding)
The Exchange Offer (as defined) and withdrawal rights will expire at 5:00
p.m., New York City time, on __________, 1998 (as such date may be extended, the
"Expiration Date").
Upon the terms and subject to the conditions set forth in this Prospectus,
as it may be amended and supplemented from time to time (this "Prospectus"), and
the accompanying Letter of Transmittal (the "Letter of Transmittal," and
together with the Prospectus, the "Exchange Offer"), Empress Entertainment,
Inc., a Delaware corporation (the "Company"), hereby offers, to exchange an
aggregate of up to $150,000,000 principal amount of its 8 1/8% Senior
Subordinated Notes due 2006 (the "New Notes"), which have been registered under
the Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
Registration Statement of which this Prospectus is a part, for an identical
principal amount of its outstanding 8 1/8% Senior Subordinated Notes due 2006
(the "Old Notes") (the Old Notes and the New Notes are collectively referred to
herein as the "Notes") of the Company from the holders thereof in integral
multiples of $1,000. See "The Exchange Offer."
The Company will accept for exchange any and all Old Notes that are validly
tendered prior to 5:00 p.m., New York City time, on the Expiration Date.
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New York
City time, on the Expiration Date; otherwise such tenders are irrevocable. The
Exchange Offer is not conditioned upon any minimum principal amount of the Old
Notes being tendered for exchange. However, the Exchange Offer is subject to
certain customary conditions and to the terms and provisions of the Registration
Rights Agreement, dated as of June 18, 1998 (the "Registration Rights
Agreement"), among the Company, Empress Casino Hammond Corporation ("Empress
Hammond"), Empress Casino Joliet Corporation ("Empress Joliet"), Empress River
Casino Finance Corporation ("Empress Finance") and Hammond Residential, L.L.C.
("Hammond Residential," and together with Empress Hammond, Empress Joliet and
Empress Finance, collectively, the "Guarantors") and Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated and Wasserstein Perella
Securities, Inc. (the "Initial Purchasers"). See "The Exchange Offer" and
"Registration Rights."
(continued on next page)
__________________
SEE "RISK FACTORS" ON PAGES 16 THROUGH 27 FOR A DISCUSSION OF CERTAIN RISKS
THAT SHOULD BE CONSIDERED BY HOLDERS IN EVALUATING THE EXCHANGE OFFER.
__________________
THE NOTES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
NONE OF THE ILLINOIS GAMING BOARD, THE INDIANA GAMING COMMISSION OR ANY OTHER
GAMING AUTHORITY HAS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
- -----------
The date of this Prospectus is ______, 1998
An aggregate of $150 million principal amount of Old Notes were sold by the
Company to the Initial Purchasers (the "Offering") on June 18, 1998 (the "Issue
Date") 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, the Guarantors and the Initial
Purchasers. The Initial Purchasers subsequently resold the Old Notes in reliance
on Rule 144A under the Securities Act ("Rule 144A") and Regulation S under the
Securities Act ("Regulation S"). The Company, the Guarantors and the Initial
Purchasers also entered into the Registration Rights Agreement, pursuant to
which the Company granted certain registration rights for the benefit of the
holders of the Old Notes.
The Old Notes were, and the New Notes will be, 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"). As of the date of this Prospectus, there are $150 million aggregate
principal amount of Old Notes outstanding. The form and terms of the New Notes
will be identical in all material respects to the form and terms of the Old
Notes, except that (i) the New Notes have been registered under the Securities
Act and, therefore, will not bear legends restricting the transfer thereof, (ii)
holders of New Notes will not be entitled to any increase in the interest rate
("Additional Interest") thereon pursuant to certain circumstances under the
Registration Rights Agreement, and (iii) holders of New Notes will no longer be
entitled to certain other rights under the Registration Rights Agreement.
Interest on the New Notes is payable semiannually in arrears on each
January 1 and July 1, commencing January 1, 1999. Holders whose Old Notes are
accepted for exchange will have the right to receive interest accrued thereon
from the date of their original issuance or the last interest payment date, as
applicable, to, but not including, the date of issuance of the New Notes, such
interest to be payable with the first interest payment on the New Notes.
Interest on the Old Notes accepted for exchange will cease to accrue on the day
prior to the issuance of the New Notes. The New Notes will mature on July 1,
2006. See "Description of the New Notes--Maturity, Interest and Principal."
The New Notes will be redeemable at the option of the Company, in whole or
in part, at any time on or after July 1, 2002, at the redemption prices set
forth herein, plus accrued and unpaid interest thereon, if any, to the date of
redemption. In addition, on or prior to July 1, 2001, the Company may redeem up
to 35% of the originally issued aggregate principal amount of the Notes, at a
redemption price of 108 1/8% of the principal amount thereof, plus accrued and
unpaid interest thereon, if any, to the redemption date, with the net proceeds
of an Equity Offering (as defined herein); provided, that not less than $97.5
million in aggregate principal amount of New Notes remain outstanding
immediately after giving effect to such redemption. The Company may redeem the
New Notes, in whole or in part, pursuant to a Required Regulatory Redemption (as
defined) at 100% of the principal amount thereof, plus accrued and unpaid
interest, if any, to the date of redemption. Upon a Change of Control (as
defined herein), each holder of the New Notes will, subject to certain
limitations, have the right to require the Company to repurchase all or a
portion of such holder's New Notes, at a purchase price equal to 101% of the
principal amount, plus accrued and unpaid interest, if any, to the date of
repurchase. See "Description of the New Notes--Redemption" and "--Change of
Control."
Payment of principal and interest on the Notes will be jointly, severally
and unconditionally guaranteed (the "Guarantees") on an unsecured senior
subordinated basis by all existing and future Restricted Subsidiaries (as
defined) of the Company. The Notes and the Guarantees will be senior unsecured
subordinated obligations of the Company and the Guarantors, respectively, and
will be subordinated in right of payment to all existing and future Indebtedness
(as defined) of the Company, including Indebtedness (as defined) under the
Credit Facility (as defined), and the Guarantors, respectively. As of June 30,
1998, excluding $150.0 million of indebtedness (the "Defeased Debt") under the
Company's $150.0 million 10 3/4% Senior Notes due 2002 (the "10 3/4% Notes"),
substantially all of the operating covenants of which were defeased in
connection with the sale of the Old Notes (the "Covenant Defeasance") the
Company and the Guarantors had $10.0 million of Senior Indebtedness outstanding,
to which holders of the Notes are subordinated. In connection with the
Offering, the Company replaced its Existing Credit Facility (as defined) with a
new senior secured reducing revolving credit facility (the "Credit Facility").
See "Use of Proceeds" and "Description of Certain Other Indebtedness."
The New Notes are being offered hereby in order to satisfy certain
obligations of the Company contained in the Registration Rights Agreement. The
Company is making the Exchange Offer in reliance on the position of the staff of
i
the Securities and Exchange Commission (the "Commission") as set forth in
certain interpretive letters addressed to third parties in other transactions.
However, the Company has not sought its own interpretive letter and there can be
no assurance that the staff of the Commission would make a similar determination
with respect to the Exchange Offer as it has in such interpretive letters to
third parties. Based on these interpretations by the staff of the Commission,
the Company believes that New Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale, resold and otherwise
transferred by a holder (other than (i) a broker-dealer who purchased Old Notes
directly from the Company for resale pursuant to Rule 144A or any other
available exemption under the Securities Act, (ii) an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act or (iii) a broker-dealer
who acquired the Old Notes as a result of market-making or other trading
activities), without further compliance with the registration and prospectus
delivery provisions of the Securities Act, provided, that such holder is
acquiring the New Notes in the ordinary course of business and is not
participating, and has no arrangement or understanding with any person to
participate, in a distribution (within the meaning of the Securities Act) of the
New Notes. Holders wishing to accept the Exchange Offer must represent to the
Company, as required by the Registration Rights Agreement, that such conditions
have been met. Any holder of Old Notes who is not able to rely on the
interpretations of the staff of the Commission set forth in the above-mentioned
interpretive letters must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any sale of such Old
Notes, unless such sale is made pursuant to an exemption from such requirements.
See "The Exchange Offer--Resales of New Notes."
Each broker-dealer who receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it acquired the Old Notes for its own
account as a result of market-making activities or other trading activities and
must agree that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such New Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. Based on the position taken by the staff of the
Commission in the interpretive letters referred to above, the Company believes
that broker-dealers who acquired Old Notes for their own accounts as a result of
market-making or other trading activities ("Participating Broker-Dealers") may
fulfill their prospectus delivery requirements with respect to the New Notes
received upon exchange of such Old Notes (other than Old Notes that represent an
unsold allotment from the original sale of the Old Notes) with a prospectus
meeting the requirements of the Securities Act, which may be the prospectus
prepared for an exchange offer so long as it contains a description of the plan
of distribution with respect to the resale of such New Notes. Accordingly, this
Prospectus may be used by a Participating Broker-Dealer in connection with
resales of New Notes received in exchange for Old Notes where such Old Notes
were acquired by such Participating Broker-Dealer for its own account as a
result of market-making or other trading activities. Subject to certain
provisions set forth in the Registration Rights Agreement, the Company has
agreed that this Prospectus may be used by a Participating Broker-Dealer in
connection with resales of such New Notes. See "Plan of Distribution." However,
a Participating Broker-Dealer who intends to use this Prospectus in connection
with the resale of New Notes received in exchange for Old Notes pursuant to the
Exchange Offer must notify the Company, or cause the Company to be notified, on
or prior to the Expiration Date, that it is a Participating Broker-Dealer. Such
notice may be given in the space provided for that purpose in the Letter of
Transmittal or may be delivered to the Exchange Agent at one of the addresses
set forth herein under "The Exchange Offer--The Exchange Agent; Assistance." Any
Participating Broker-Dealer who is an "affiliate" of the Company may not rely on
such interpretive letters and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction. See "The Exchange Offer--Resales of New Notes."
In that regard, each Participating Broker-Dealer who surrenders Old Notes
pursuant to the Exchange Offer will be deemed to have agreed, by execution of
the Letter of Transmittal, that, upon receipt of notice from the Company of the
occurrence of any event or the discovery of any fact which makes any statement
contained in this Prospectus untrue in any material respect or which causes this
Prospectus to omit to state a material fact necessary in order to make the
statements contained herein, in light of the circumstances under which they were
made, not misleading or of the occurrence of certain other events specified in
the Registration Rights Agreement, such Participating Broker-Dealer will suspend
the sale of New Notes pursuant to this Prospectus until the Company has amended
or supplemented this Prospectus to correct such misstatement or omission and has
furnished copies of the amended or supplemented Prospectus to such Participating
Broker-Dealer or the Company has given notice that the sale of the New Notes may
be resumed, as the case may be.
ii
The New Notes issued pursuant to this Exchange Offer will be issued in the
form of a Global New Note (as defined herein), which will be deposited with, or
on behalf of, The Depository Trust Company ("DTC") and registered in its name or
in the name of Cede & Co., its nominee. Beneficial interests in the Global New
Note representing the New Notes will be shown on, and transfers thereof will be
effected through, records maintained by DTC and its participants.
Notwithstanding the foregoing, Old Notes held in certificated form, if any, will
be exchanged solely for Certificated New Notes (as defined herein). After the
initial issuance of the Global New Note, Certificated New Notes will be issued
in exchange for interests in the Global New Note only on the terms set forth in
the Indenture. See "Description of the New Notes" and "Book-Entry; Delivery and
Form."
The Company will not receive any proceeds from this offering, but, pursuant
to the Registration Rights Agreement, the Company will bear certain registration
expenses. No underwriter is being utilized in connection with the Exchange
Offer.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF OLD NOTES ARE URGED TO READ THIS PROSPECTUS AND THE
RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO TENDER THEIR
OLD NOTES PURSUANT TO THE EXCHANGE OFFER.
AVAILABLE INFORMATION
The Company and the Guarantors have jointly filed a registration statement
on Form S-4 (together with any amendments thereto, the "Registration Statement")
with the Commission under the Securities Act with respect to the New Notes and
the related Guarantees. This Prospectus, which constitutes a part of the
Registration Statement, omits certain information contained in the Registration
Statement and reference is made to the Registration Statement and the exhibits
and schedules thereto for further information with respect to the Company and
the New Notes offered hereby. This Prospectus contains summaries of the material
terms and provisions of certain documents and in each instance reference is made
to the copy of such document filed as an exhibit to the Registration Statement.
Each such summary is qualified in its entirety by such reference.
The Company is not currently subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Upon the
effectiveness of the Registration Statement, the Company will be subject to the
reporting requirements of the Exchange Act and the interpretations issued
thereunder by the staff of the Commission. The Registration Statement, such
reports and other information can be inspected and copied at the offices of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, as well as the following regional offices of the Commission: Seven
World Trade Center, Suite 1300, New York, New York 10048; and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Such
material also may be accessed electronically by means of the Commission's home
page on the Internet (http://www.sec.gov).
So long as any of the Notes are outstanding, the Company will file with the
Commission, to the extent then permitted by the Commission, the annual reports,
quarterly reports and other documents that the Company would have been required
to file with the Commission pursuant to Sections 13(a) and 15(d) of the Exchange
Act if the Company was subject to such Sections, and the Company will promptly
provide to the Trustee copies of such reports and documents; provided, however,
that if the Company is for any reason unable to make such filings it will make
available, upon request, to any holder of Notes or prospective purchaser of New
Notes, the information specified in Rule 144A(d)(4) of the Securities Act.
iii
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Prospectus under "Prospectus Summary,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business," in addition to certain statements contained
elsewhere in this Prospectus, are "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995 and are thus
prospective. Such "forward-looking statements" are subject to risks,
uncertainties and other factors that could cause actual results to differ
materially from future results expressed or implied by such forward-looking
statements. The most significant of such risks, uncertainties and other factors
are discussed under the heading "Risk Factors," on pages 16 through 27 of this
Prospectus and holders of Notes are urged to carefully consider such factors.
iv
PROSPECTUS SUMMARY
The following is a summary of certain information contained elsewhere in
this Prospectus and is qualified by the more detailed information set forth
elsewhere herein, which should be read in its entirety. Unless otherwise
indicated, capitalized terms used in this Prospectus Summary have the respective
meanings ascribed to them elsewhere in this Prospectus. As used in this
Prospectus, unless the context suggests otherwise, references to "the Company"
shall include the Company and its subsidiaries. See "Forward-Looking
Statements" on page iv.
Overview
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 Casino
Hammond Corporation ("Empress Hammond") and Empress Casino Joliet Corporation
("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 1997, the Company's casinos registered approximately
nine million customer admissions and had the highest share of casino revenue in
the Chicago Market (approximately 27%). The Company's 1997 average daily win per
slot machine and table game of $308 and $2,168, respectively, exceeded the
averages of each of the nine U.S. riverboat casino markets. For the twelve
months ended March 31, 1998, the Company generated approximately $372.5 million
of net revenues and $82.8 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
1997 casino revenue of approximately $1.3 billion, ranking first among all U.S.
riverboat casino markets and capturing an estimated 6.8% of the total U.S.
casino market.
Empress Hammond features a newly built, 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
1,740 slot machines and 54 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, 1,011 slot machines and 52 table games. Empress Joliet
includes an approximately 150,000 square foot Egyptian themed pavilion featuring
lounge and award-winning dining facilities including the Oasis Bar, the
Steakhouse Alexandria, Cafe Casablanca and the Marrakech 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.
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 the only Chicago Market Casino with a
hotel to accommodate overnight visitors. As a part of its development plan, the
Company expects to construct a 200 room deluxe hotel and a conference center at
Empress Hammond to expand its appeal to customers outside the Chicago Market.
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.
1
Company Strengths
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 the fastest growing county in the Chicago Market
and is the only Chicago Market Casino to feature a hotel, an off-track
betting facility or 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 and number of slot machines. During 1997, the Company's average daily
slot machine and table win per unit exceeded the averages of each of the nine
U.S. riverboat casino markets. The Company's casinos also had nearly two and
one-half times as many 1997 customer admissions as any other Chicago Market
casino operator. For the past two years, the Company's casinos received the
"Best Blackjack Games in the U.S.A." award in Indiana and Illinois 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 March 31, 1998, approximately 900,000 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
To capitalize on excess demand, the Company opened a fourth deck on Empress
III on April 27, 1998, which increased gaming space by over 7,500 square feet,
and added 335 slot machines and space for ten table games. This addition
increased Empress III's gaming square footage and passenger capacity by
approximately 25%, making it the second largest Chicago Market Casino.
Furthermore, in an effort to increase its market share, the Company has begun an
approximately $5.0 million renovation of the Empress Joliet pavilion which will
include construction of a state-of-the-art nightclub, along with extensive
remodeling of the food and beverage outlets. In addition, the Company completed
a $1.0 million renovation of Empress I in May 1998.
2
The Reorganization
Concurrently with the Offering, the Company effected a reorganization (the
"Reorganization") pursuant to which (i) the Company changed its name from LMC
Leasing, Ltd. to Empress Entertainment, Inc., (ii) Empress Joliet merged into a
newly formed, wholly-owned subsidiary of the Company, with Empress Joliet
surviving the merger, (iii) Empress Joliet sold its 60% common stock interest in
Empress River Casino Finance Corporation ("Empress Finance") to the Company
and (iv) the Company contributed Empress III to Empress Hammond. As a result of
the Reorganization, Empress Joliet and Empress Finance became wholly-owned
subsidiaries of the Company. Following the Reorganization, the Company operates
Empress III through its wholly-owned subsidiary Empress Hammond and operates
Empress I and Empress II through its wholly-owned subsidiary Empress Joliet.
The following chart illustrates the current organizational structure of the
Company:
---------------------------
EMPRESS ENTERTAINMENT, INC.
(Issuer of the Notes)
---------------------------
|
|
------------------------------------------------------------------------------------------------
100% | 100% | 100% | 100% |
| | | |
- ------------------- ------------------------------ ----------------------- --------------------
EMPRESS CASINO EMPRESS OPPORTUNITIES, INC.(1) EMPRESS RIVER CASINO EMPRESS CASINO
JOLIET CORPORATION (Unrestricted Subsidiary) FINANCE CORPORATION (2) HAMMOND CORPORATION
(Guarantor) (Guarantor) (Guarantor)
- ------------------- ------------------------------ ----------------------- --------------------
100% | |
| |
| |100%
------------------------------------- |
| | |
100% | |100% --------------------
------------------------- ------------------------------- HAMMOND RESIDENTIAL
EMPRESS RACING, INC. EMPRESS MISSISSIPPI, INC. (4) L.L.C.(5)
(Unrestricted Subsidiary) (Unrestricted Subsidiary) (Guarantor)
------------------------- -------------------------------- --------------------
(1) Empress Opportunities, Inc. ("Empress Opportunities") was formed as an
Unrestricted Subsidiary (as defined) to serve as a holding company under
which the Company intends to explore certain business opportunities other
than the Company's gaming operations in Hammond, Indiana and Joliet,
Illinois.
(2) Empress Finance was formed as a single purpose entity to issue the 10 3/4%
Notes and is expected to be dissolved during 1999.
(3) Empress Racing, Inc. ("Empress Racing") was formed as an Unrestricted
Subsidiary (as defined) to hold a 50% ownership interest in a limited
liability company which, subject to certain regulatory approvals, intends to
acquire certain outstanding secured indebtedness of Sunshine Racing, Inc.,
the owner of the Woodlands Racetrack in Kansas City, Kansas, and to
ultimately bid to purchase the Woodlands Racetrack in an auction pursuant to
a proceeding under Chapter 7 of the U.S. Bankruptcy Code. See "Business--
Recent Developments."
(4) Empress Mississippi, Inc. ("Empress Mississippi") was formed as an
Unrestricted Subsidiary (as defined) to investigate business opportunities
in Mississippi.
(5) Hammond Residential, L.L.C. ("Hammond Residential") was formed to satisfy
certain residential development commitments to the City of Hammond. See
"Business--Commitments to Governmental Authorities."
- ----------------------------
The Company's principal executive offices are located at 2300 Empress
Drive, Joliet, Illinois 60436 and its telephone number is (815) 744-9400.
3
THE EXCHANGE OFFER
Securities Offered.................. Up to $150,000,000 principal amount of
the Company's 8 1/8% Senior Subordinated
Notes due 2006, which have been
registered under the Securities Act. The
terms of the New Notes and the Old Notes
are identical in all material respects,
except for certain transfer restrictions,
additional interest provisions and
certain other registration rights
relating to the Old Notes described below
under "--Description of the New Notes."
The Exchange Offer.................. The Company is offering, upon the terms
and subject to the conditions set forth
herein and in the accompanying Letter of
Transmittal, to exchange $1,000 in
principal amount of New Notes for each
$1,000 in principal amount of the
outstanding Old Notes. The issuance of
the New Notes is intended to satisfy
obligations of the Company contained in
the Registration Rights Agreement. As of
the date of this Prospectus, $150 million
in aggregate principal amount of Old
Notes is outstanding, the maximum amount
authorized by the Indenture for all
Notes. The Company will issue the New
Notes to holders that validly tender Old
Notes on or prior to the Expiration Date.
See "The Exchange Offer--Terms of the
Exchange Offer."
Expiration Date..................... 5:00 p.m., New York City time, on______ ,
1998, as the same may be extended. See
"The Exchange Offer--Expiration Date;
Extensions; Amendments."
Conditions of the Exchange
Offer; Extensions; Amendments...... The Exchange Offer is not conditioned
upon any minimum principal amount of Old
Notes being tendered for exchange.
However, the Exchange Offer is subject to
certain customary conditions and to the
terms and provisions of the Registration
Rights Agreement. The Company expressly
reserves the right, in its sole and
absolute discretion, (i) to delay
accepting any Old Notes, (ii) to extend
the Exchange Offer, (iii) if any of the
conditions set forth under "The Exchange
Offer--Conditions of the Exchange Offer"
shall not have been satisfied, to
terminate the Exchange Offer, by giving
oral or written notice of such delay,
extension or termination to the Exchange
Agent (as defined herein) and (iv) to
waive any condition or otherwise amend
the terms of the Exchange Offer in any
manner. If the Exchange Offer is amended
in a manner determined by the Company to
constitute a material change, the Company
will promptly disclose such amendments by
means of a prospectus supplement that
will be distributed to the registered
holders of the Old Notes. See "The
Exchange Offer--Expiration Date;
Extensions; Amendments" and "The Exchange
Offer--Conditions of the Exchange Offer."
Accrued Interest on the Old Notes... Holders whose Old Notes are accepted for
exchange will have the right to receive
interest accrued thereon from the date of
their original issuance or the last
interest payment date, as applicable, to,
but not including, the date of issuance
of the New Notes, such interest to be
payable with the first interest payment
on the New Notes. Interest on the Old
Notes accepted for exchange will cease to
accrue on the day prior to the issuance
of the New Notes.
4
Procedures for Tendering Old Notes; Special
Procedures for Beneficial Owners........... Except as otherwise provided
below, each holder desiring to
accept the Exchange Offer must
transmit a properly completed and
duly executed Letter of
Transmittal, including all other
documents required by the Letter
of Transmittal, to the Exchange
Agent at the address set forth in
"The Exchange Offer--The Exchange
Agent; Assistance" prior to 5:00
p.m., New York City time, on the
Expiration Date. In addition,
either (i) certificates for such
Old Notes must be received by the
Exchange Agent along with the
Letter of Transmittal, (ii) a
timely confirmation of book-entry
transfer of such Old Notes, if
such procedure is available, into
the Exchange Agent's account at
DTC pursuant to the procedure for
book-entry transfer described
below must be received by the
Exchange Agent prior to the
Expiration Date or (iii) the
holder must comply with the
guaranteed delivery procedures
described below. Any beneficial
owner of the Old Notes (a
"Beneficial Owner") whose Old
Notes are registered in the name
of a nominee, such as a broker,
dealer, commercial bank or trust
company, and who wishes to tender
Old Notes in the Exchange Offer
should instruct such registered
holder to promptly tender on such
Beneficial Owner's behalf. If
such Beneficial Owner wishes to
tender on such Beneficial Owner's
own behalf, such Beneficial Owner
must, prior to completing and
executing the Letter of
Transmittal and delivering the
Old Notes, make appropriate
arrangements to either register
ownership of the Old Notes in
such Beneficial Owner's name or
obtain a properly completed bond
power from the registered holder.
By executing the Letter of
Transmittal, each holder will
represent to the Company that,
among other things, (i) the
holder is not an "affiliate" of
the Company as defined in Rule
405 of the Securities Act, (ii)
the holder is not a broker-dealer
that acquired Old Notes directly
from the Company in order to
resell them pursuant to Rule 144A
of the Securities Act or any
other available exemption under
the Securities Act, (iii) the
holder will acquire the New Notes
in the ordinary course of
business and (iv) the holder is
not participating, and does not
intend to participate, and has no
arrangement or understanding with
any person to participate, in the
distribution of the New Notes.
Any Old Notes not accepted for
exchange for any reason will be
returned, without expense to the
tendering holder thereof, as
promptly as practicable after the
Expiration Date. See "The
Exchange Offer--Procedures for
Tendering Old Notes."
Guaranteed Delivery Procedures.............. Holders of Old Notes who wish to
tender their Old Notes and (i)
whose Old Notes are not
immediately available or (ii) who
cannot deliver their Old Notes,
the Letter of Transmittal or any
other documents required by the
Letter of Transmittal to the
Exchange Agent on or prior to the
Expiration Date or (iii) who
cannot complete the procedures
for delivery by book-entry
transfer on a timely basis, may
tender their Old Notes according
to the guaranteed delivery
procedures set forth in the
Letter of Transmittal. See "The
Exchange Offer--Guaranteed
Delivery Procedures."
Acceptance of Old Notes and
Delivery of New Notes...................... Upon satisfaction or waiver of
all conditions of the Exchange
Offer, the Company will accept
any and all Old Notes that are
properly tendered in the Exchange
Offer prior to 5:00 p.m., New
York City time, on the Expiration
Date. The New Notes issued
pursuant to the Exchange Offer
will be delivered promptly after
acceptance of the Old Notes. See
"The Exchange Offer--Acceptance
of Old Notes for Exchange;
Delivery of New Notes."
5
Withdrawal Rights.................... Tenders of Old Notes may be withdrawn at
any time prior to 5:00 p.m., New York
City time, on the Expiration Date. See
"The Exchange Offer--Withdrawal Rights."
The Exchange Agent................... U.S. Bank Trust National Association is
the exchange agent (in such capacity,
the "Exchange Agent"). The address and
telephone number of the Exchange Agent
are set forth in "The Exchange Offer--
The Exchange Agent; Assistance."
Fees and Expenses.................... All expenses incident to the Company's
consummation of the Exchange Offer and
compliance with the Registration Rights
Agreement will be borne by the Company.
The Company will also pay certain
transfer taxes, if applicable, related
to the Exchange Offer. See "The Exchange
Offer--Fees and Expenses."
Resales of New Notes................. The Company is making the Exchange Offer
in reliance on the position of the staff
of the Commission as set forth in
certain interpretive letters addressed
to third parties in other transactions.
However, the Company has not sought its
own interpretive letter and there can be
no assurance that the staff of the
Commission would make a similar
determination with respect to the
Exchange Offer as it has in such
interpretive letters to third parties.
Based on these interpretations by the
staff of the Commission, the Company
believes that New Notes issued pursuant
to the Exchange Offer in exchange for
Old Notes may be offered for resale,
resold and otherwise transferred by a
holder (other than (i) a broker-dealer
who purchased Old Notes directly from
the Company for resale pursuant to Rule
144A or any other available exemption
under the Securities Act, (ii) an
"affiliate" of the Company within the
meaning of Rule 405 under the Securities
Act or (iii) a broker-dealer who
acquired the Old Notes as a result of
market-making or other trading
activities) without further compliance
with the registration and prospectus
delivery provisions of the Securities
Act; provided, that such holder is
acquiring the New Notes in the ordinary
course of business and is not
participating, and has no arrangement or
understanding with any person to
participate, in a distribution (within
the meaning of the Securities Act) of
the New Notes. Holders wishing to accept
the Exchange Offer must represent to the
Company, as required by the Registration
Rights Agreement, that such conditions
have been met. Any holder of Old Notes
who is not able to rely on the
interpretations of the staff of the
Commission set forth in the above-
mentioned interpretive letters must
comply with the registration and
prospectus delivery requirements of the
Securities Act in connection with any
sale of such Old Notes, unless such sale
is made pursuant to an exemption from
such requirements. See "The Exchange
Offer--Resales of New Notes."
Federal Income Tax
Consequences......................... The issuance of the New Notes to holders
pursuant to the terms set forth in this
Prospectus will not constitute an
exchange for federal income tax
purposes. Consequently, no gain or loss
will be recognized by holders upon
receipt of the New Notes. See "Certain
Federal Income Tax Considerations."
Use of Proceeds...................... There will be no proceeds to the Company
from the Exchange Offer. See "Use of
Proceeds."
Consequences Of Not Exchanging Old Notes
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to restrictions on
transfer of such Old Notes contained in the legend thereon. In general, the Old
6
Notes may not be offered or sold unless registered under the Securities Act,
except pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. The Company does not
currently anticipate that it will register the Old Notes under the Securities
Act. See "Risk Factors--Restrictions on Resale" and "The Exchange Offer--
Consequences of Failure to Exchange."
7
DESCRIPTION OF THE NEW NOTES
The form and terms of the New Notes will be identical in all material
respects to the form and terms of the Old Notes, except that (i) the New Notes
have been registered under the Securities Act and, therefore, will not bear
legends restricting the transfer thereof, (ii) holders of New Notes will not be
entitled to any Additional Interest pursuant to certain circumstances under the
terms of the Registration Rights Agreement and (iii) holders of New Notes will
not be entitled to certain other rights under the Registration Rights Agreement.
The New Notes will evidence the same debt as the Old Notes and will be entitled
to the benefits of the Indenture. See "The Exchange Offer--Termination of
Certain Rights," "The Exchange Offer--Procedures for Tendering Old Notes" and
"Description of the New Notes."
Notes Offered........... Up to $150,000,000 principal amount of the Company's
8 1/8% Senior Subordinated Notes due 2006, which have
been registered under the Securities Act.
Maturity Date........... July 1, 2006
Interest Payment Dates.. Interest on the New Notes will be payable
semi-annually in arrears on January 1, and July 1 of
each year, commencing January 1, 1999.
Guarantees.............. The Notes will be guaranteed by each of Empress
Hammond, Empress Joliet, Empress Finance, Hammond
Residential and all future Restricted Subsidiaries.
Ranking................. The Notes and the Guarantees will be unsecured senior
subordinated obligations of the Company and the
Guarantors, respectively, and will be subordinated in
right of payment to all existing and future Senior
Indebtedness of the Company, including Indebtedness
under the Credit Facility (as defined herein), and the
Guarantors, respectively. The Notes and the Guarantees
will rank pari passu in right of payment with all
other existing and future senior subordinated
indebtedness of the Company and the Guarantors,
respectively, and senior in right of payment to all
other existing and future Subordinated Indebtedness of
the Company and the Guarantors, respectively. As of
June 30, 1998, excluding the Defeased Debt, the
Company and the Guarantors had $10.0 million of
Senior Indebtedness outstanding to which holders of
the Notes are subordinated.
Change of Control....... Upon the occurrence of a Change of Control, each
holder of the Notes, subject to certain limitations,
has the right to require the Company to repurchase all
or a portion of such holder's Notes at a purchase
price equal to 101% of the principal amount thereof,
plus accrued and unpaid interest thereon, if any, to
the repurchase date. See "Description of the New
Notes--Change of Control."
Offers to Purchase...... The Company will, under certain circumstances, be
obligated to make an offer to purchase Notes in the
event of an Asset Sale. See "Description of the New
Notes--Certain Covenants--Limitation on Sale of Assets
and Subsidiary Stock; Event of Loss."
8
Optional Redemption..... The Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or after
July 1, 2002, at the redemption prices set forth
herein, plus accrued and unpaid interest thereon, if
any, to the date of redemption. See "Description of
the New Notes--Redemption."
In the event the Company consummates an Equity
Offering on or prior to July 1, 2001, the Company may
redeem up to 35% of the originally issued aggregate
principal amount of the Notes at a redemption price of
108 1/8% of the principal amount thereof, plus accrued
and unpaid interest thereon, if any, to the date of
redemption; provided that not less than $97.5 million
of the aggregate principal amount of the Notes remains
outstanding immediately after giving effect to such
redemption. See "Description of the New Notes--
Redemption."
Regulatory Redemption... The Notes will be subject to certain mandatory
disposition and redemption requirements following
certain determinations by the applicable Gaming
Authorities (as defined) of any jurisdiction in which
the Company conducts gaming operations. See
"Description of the New Notes--Redemption."
Registration Rights..... In the event that applicable law or Commission policy
does not permit the Company to effect the Exchange
Offer, or if certain holders of the Old Notes are not
permitted to participate in, or do not receive the
benefit of the Exchange Offer, the Registration Rights
Agreement provides that the Company will use its best
efforts to cause to become effective a shelf
registration statement (the "Shelf Registration
Statement") with respect to the resale of the Old
Notes and to keep such Shelf Registration Statement
effective until two years after the Issue Date or such
shorter period ending when all the Old Notes have been
sold thereunder or cease to be outstanding. The
interest rate on the Old Notes is subject to increase
under certain circumstances if the Company is not in
compliance with its obligations under the Registration
Rights Agreement.
Certain Covenants....... The Indenture contains certain covenants, including,
among others: (i) limitation on incurrence of
indebtedness and preferred stock; (ii) limitation on
restricted payments; (iii) limitation on dividends and
other payment restrictions affecting Restricted
Subsidiaries; (iv) limitation on liens; (v) limitation
on sale of assets and subsidiary stock; event of loss;
(vi) limitation on transactions with affiliates; (vii)
limitation on mergers and consolidations; (viii)
limitation on other senior subordinated indebtedness;
(ix) limitation on sale of capital stock of Restricted
Subsidiaries; and (x) limitations on lines of
business. See "Description of the New Notes--Certain
Covenants."
For more detailed information regarding the terms of the new Notes and for
definitions of capitalized terms not otherwise defined, see "Description of the
New Notes."
Risk Factors
Prospective investors should carefully consider all of the information set
forth in this Prospectus and, in particular, should evaluate the specific
factors set forth under "Risk Factors" beginning on page 16 for a discussion of
certain risks involved with the Notes.
9
SUMMARY HISTORICAL COMBINED FINANCIAL DATA
The following table presents summary combined financial data of the Company.
The historical financial data were derived from, and should be read in
conjunction with, the combined financial information appearing elsewhere in this
Prospectus. See "Selected Combined Financial Data."
The Company believes the results of operations for each of the five years in
the period ended December 31, 1997 are not readily comparable to each other
because Empress Hammond commenced gaming operations on June 28, 1996. See "Risk
Factors--Competition" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Three months
------------------
ended March 31, Year ended December 31,
------------------ ------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- -------- --------
(in millions, except certain Other Data and ratios)
Statement of Operations Data:
Revenues
Casino................................ $ 91.3 $ 88.4 $ 346.0 $ 263.0 $ 202.3 $ 202.7 $ 172.8
Other, net of promotional allowances.. 5.6 5.6 23.6 15.7 12.3 12.6 14.5
------- ------- ------- ------- ------- ------- -------
Total net revenues.................. 96.9 94.0 369.6 278.7 214.6 215.3 187.3
Operating expenses
Casino................................ 15.1 15.7 64.8 48.1 30.7 29.1 18.7
Gaming and admission taxes............ 30.2 27.1 108.0 73.1 47.1 46.9 38.9
Other departmental expenses........... 26.0 24.9 113.4 77.7 56.1 51.3 35.5
Pre-opening expenses.................. -- -- -- 5.7 1.3 3.3 3.0
Depreciation and amortization......... 4.7 4.7 18.8 13.9 16.9 17.8 13.2
------- ------- ------- ------- ------- ------- -------
Total operating expenses............ 76.0 72.4 305.0 218.5 152.1 148.4 109.3
------- ------- ------- ------- ------- ------- -------
Income from operations.................. 20.9 21.6 64.6 60.2 62.5 66.9 78.0
Interest expense........................ (5.3) (5.7) (21.1) (18.3) (16.4) (11.5) (2.8)
Interest income......................... 1.0 1.1 3.3 3.5 5.2 2.9 0.4
State taxes............................. (0.1) (0.1) (0.5) (0.5) (0.7) (0.8) (1.2)
------- ------- ------- ------- ------- ------- -------
Net income.............................. $ 16.5 $ 16.9 $ 46.3 $ 44.9 $ 50.6 $ 57.5 $ 74.4
======= ======= ======= ======= ======= ======= =======
Other Data:
EBITDA (1).............................. $ 25.6 $ 26.3 $ 83.4 $ 79.8 $ 80.7 $ 88.0 $ 94.2
Capital expenditures (2)................ 7.2 2.0 16.1 106.0 7.4 44.3 34.6
Casino square footage (3)............... 71,156 71,156 71,156 71,156 36,266 36,266 36,266
Number of slot machines (3)............. 2,425 2,320 2,325 2,232 978 964 688
Win per slot per day (4)................ $ 326 $ 312 $ 308 $ 322 $ 382 $ 386 $ 480
Number of table games (3)............... 107 107 107 110 56 59 49
Win per table per day (4)............... $ 2,175 $ 2,413 $ 2,168 $ 2,535 $ 3,169 $ 3,107 $ 3,820
Ratio of Earnings to Fixed Charges (5).. 4.1x 4.0x 3.1x 3.1x 4.0x 5.3x 25.3x
Pro Forma Ratio of Earnings to
Fixed Charges (5).................... 2.8x 2.2x
March 31, 1998
--------------
Actual
------
Balance Sheet Data:
Cash, cash equivalents and marketable securities.. $ 93.6
Total assets...................................... 302.4
Long-term debt, including current maturities...... 203.4
Stockholders' equity.............................. 65.1
Footnotes on following page
10
(1) EBITDA is a supplemental financial measurement used by the Company in the
evaluation of its gaming business. EBITDA is calculated by adding net
interest expense, income taxes, depreciation and amortization and pre-
opening expense to net income. However, EBITDA should only be read in
conjunction with all of the Company's financial data summarized above and
its combined financial statements, including the Notes thereto, prepared in
accordance with generally accepted accounting principles ("GAAP")
appearing elsewhere herein, and should not be construed as an alternative
either to income from operations (as determined in accordance with GAAP) as
an indicator of the Company's operating performance or to cash flows from
operating activities (as determined in accordance with GAAP) as a measure of
liquidity.
(2) Included in capital expenditures for the year ended December 31, 1996 is
$93.4 million in conjunction with the opening of Empress Hammond.
(3) Data reflected is as of the end of the respective period.
(4) Amount reflects the weighted average calculation for the respective period.
(5) The ratio of earnings to fixed charges has been computed by dividing
earnings available for fixed charges (income before state income taxes plus
fixed charges and the current period amortization of interest capitalized in
prior periods less capitalized interest) by fixed charges (interest expense
plus capitalized interest, amortization of debt issue costs and the interest
factor of rent expense). The pro forma ratio of earnings to fixed charges
reflects the increase in interest expense related to the 8 1/8% Notes
included in fixed charges and the impact on earnings of the increased
interest expense offset by the increase in interest income related to the
interest to be earned on the U.S. Treasury Securities held to effect the
Covenant Defeasance lowered by the interest income no longer earned on the
cash to be utilized to effect the Covenant Defeasance.
11
Empress Entertainment, Inc.
Unaudited Pro Forma Combined
Financial Information
Unaudited Pro Forma Condensed Combined Balance Sheet
The unaudited pro forma condensed combined balance sheet of the Company has been
derived from the historical actual combined balance sheet of the Company
adjusted for the Offering, the U.S. Treasury Securities purchased to effect the
Covenant Defeasance and certain costs and expenses incurred in connection with
the Offering. The unaudited pro forma condensed combined balance sheet of the
Company has been prepared assuming the Offering occurred on March 31, 1998.
The unaudited pro forma condensed combined balance sheet of the Company should
be read in conjunction with the historical combined financial statements of the
Company and the notes thereto as of December 31, 1997 and 1996, and for each of
the three years in the period ended December 31, 1997 and as of March 31, 1998
and 1997, and for the three month periods then ended, which are included
elsewhere in this Registration Statement. The unaudited pro forma condensed
combined balance sheet of the Company is not necessarily indicative of the
financial position of the Company that would actually have been obtained had the
Offering been consummated on March 31, 1998.
12
Empress Entertainment, Inc.
Pro Forma Condensed Combined Balance Sheet
March 31, 1998
----------------------------------
Pro Forma As
Actual Adjustments (1) Adjusted
------ --------------- ---------
(in millions)
Assets -
Cash and cash equivalents $ 77.5 $(30.8) 46.7
Cash and U.S. Treasury Securities
held to effect the Covenant Defeasance - 175.3 175.3
Other current assets 21.5 - 21.5
------ ------ ------
Total current assets 99.0 144.5 243.5
Property and equipment, net 189.0 - 189.0
Other assets, net 14.4 5.5 19.9
------ ------ ------
Total assets $302.4 $150.0 $452.4
====== ====== ======
Liabilities and stockholders' equity -
Current liabilities $ 51.3 $ - -
Other long-term debt 36.0 - 36.0
10 3/4% Notes to be redeemed in
connection with the Covenant Defeasance 150.0 - 150.0
New Notes - 150.0 150.0
Stockholders' equity 65.1 - 65.1
------ ------ ------
Total liabilities and stockholders'
equity $302.4 $150.0 $452.4
====== ====== ======
(1) The pro forma adjustments reflect the impact of the Offering and the
Covenant Defeasance as of March 31, 1998. The cash and U.S. Treasury
Securities held to effect the Covenant Defeasance represent an irrevocable
deposit in trust for the purpose of effecting the Covenant Defeasance. The
amount was funded through the net proceeds from the Offering ($146.1
million) and cash on hand ($29.2 million). The fees and expenses
associated with the Offering ($5.5 million) were capitalized and will be
amortized over the life of the Notes. The 10 3/4% Notes to be redeemed in
connection with the Covenant Defeasance will be recorded as a liability
until the redemption of the outstanding 10 3/4% Notes is consummated, which
is anticipated to occur on April 1, 1999. The effects of repaying all other
outstanding indebtedness of the Company has not been reflected in the pro
forma adjustments.
13
Unaudited Pro Forma Condensed Combined Statements of Income
The unaudited pro forma condensed combined statements of income of the
Company have been derived from the historical actual combined statements of
income adjusted for the Offering and the Covenant Defeasance. The unaudited pro
forma combined statements of income of the Company have been prepared assuming
the Offering occurred on January 1, 1997.
The unaudited pro forma combined statements of income of the Company should
be read in conjunction with the historical combined financial statements of the
Company and the notes thereto for each of the three years in the period ended
December 31, 1997, and for the three months ended March 31, 1998 and 1997,
included elsewhere in this Registration Statement. The unaudited pro forma
statements of income of the Company are not necessarily indicative of the
financial results of the Company that would actually have been obtained had the
Offering been consummated on January 1, 1997.
14
Empress Entertainment, Inc.
Pro Forma Condensed Combined Statements of Income
Three months ended March 31, 1998
------------------------------------
Pro Forma As
Actual Adjustments (1) Adjusted
-------- --------------- ---------
(in millions)
Revenues
Casino $ 91.3 $ - $ 91.3
Other, net of promotional allowances 5.6 - 5.6
------ ------ ------
Total net revenues 96.9 - 96.9
Operating expenses
Casino 15.1 - 15.1
Gaming and admission taxes 30.2 - 30.2
Other departmental expenses 26.0 - 26.0
Depreciation and amortization 4.7 - 4.7
------ ------ ------
Total operating expenses 76.0 - 76.0
------ ------ ------
Income from operations 20.9 - 20.9
Interest expense (5.3) (3.2) (8.5)
Interest income 1.0 2.3 3.3
State taxes (0.1) - (0.1)
------ ------ ------
Net income $ 16.5 $ (0.9) $ 15.6
====== ====== ======
Year ended December 31, 1997
-----------------------------------
Pro Forma As
Actual Adjustments (1) Adjusted
------- -------------- --------
(in millions)
Revenues
Casino $346.0 $ - $346.0
Other, net of promotional allowances 23.6 - 23.6
------ ------ ------
Total net revenues 369.6 - 369.6
Operating expenses
Casino 64.8 - 64.8
Gaming and admission taxes 108.0 - 108.0
Other departmental expenses 113.4 - 113.4
Depreciation and amortization 18.8 - 18.8
------ ------ ------
Total operating expenses 305.0 - 305.0
------ ------ ------
Income from operations 64.6 - 64.6
Interest expense (21.1) (12.9) (34.0)
Interest income 3.3 9.2 12.5
State taxes (0.5) - (0.5)
------ ------ ------
Net income $ 46.3 $ (3.7) $ 42.6
====== ====== ======
(1) The pro forma adjustments reflect the impact of the Offering assuming the
Offering occurred on January 1, 1998. The interest expense adjustment
reflects the interest on the New Notes and the amortization of the deferred
financing costs. The interest income adjustment reflects the interest to
be earned on the U.S. Treasury Securities held in trust to effect the
Covenant Defeasance based on the securities purchased and their respective
interest rates offset by the interest income no longer earned on the cash
to be utilized to effect the Covenant Defeasance.
15
RISK FACTORS
In addition to the other information contained in this Prospectus,
including the combined financial statements and notes thereto of the Company,
the following risk factors should be carefully considered by a holder of Old
Notes prior to making a decision to tender their Old Notes in the Exchange
Offer. The Risk Factors set forth below are generally applicable to the Old
Notes as well as the New Notes. This Prospectus contains forward-looking
statements which involve risks and uncertainties. The Company's actual results
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth in the
following risk factors and elsewhere in this Prospectus.
Leverage and Ability to Service Debt
As a result of the Offering and future borrowings by the Company (including
the Guarantors) under the Credit Facility, the Company will incur a significant
amount of Indebtedness. At June 30, 1998, excluding the Defeased Debt, the
Company had total consolidated long-term indebtedness of $160.0 million
(including $150.0 million of the Old Notes) and $90.0 million of availability
under the Credit Facility. In addition, subject to the restrictions in the
Indenture governing the 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. See "Use of
Proceeds," "Capitalization," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Description of Certain Other
Indebtedness," and "Description of the New Notes."
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.
Subordination
The Notes and the Guarantees will be subordinated in right of payment to
all Senior Indebtedness of the Company, including Indebtedness under the Credit
Facility, and the Guarantors, respectively. Further, the Credit Facility will be
secured by substantially all of the assets of the Company and the Guarantors and
will become due prior to the time the principal on the Notes will become due. In
the event of any default in the payment in respect of certain Senior
Indebtedness, no payment with respect to the Notes may be made by the Company
unless and until such default has been cured or waived. In addition, in the
event of the bankruptcy, liquidation, dissolution, reorganization or other
winding up of the Company or the Guarantors, the assets of the Company and the
Guarantors will be available to pay obligations on the Notes and the Guarantees
only after all Indebtedness that is senior to the Notes and the Guarantees has
been paid in full, and there may not be sufficient assets remaining to pay
amounts due on any or all of the Notes or the Guarantees outstanding. As of June
30, 1998, the Company and the Guarantors had $10.0 million of Senior
Indebtedness outstanding to which holders of the Notes are subordinated and
would have had the ability (subject to certain conditions) to incur an
additional $90.0 million of Senior Indebtedness under the Credit Facility.
Subject to certain restrictions, exceptions and financial tests set forth in the
Indenture and the Credit Facility, the Company and the Guarantors also may incur
additional Indebtedness in the future that ranks prior to claims of holders of
the Notes. See "Description of the New Notes--Certain Covenants--Limitation on
Incurrence of Indebtedness and Preferred Stock."
16
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; Showboat 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. On June 1, 1998, Harrah's
publicly announced the consummation of its acquisition of Showboat, Inc.
(operator of the Showboat Casino) which made Harrah's the largest riverboat
operator serving the Chicago Market in terms of gaming square footage and number
of table games and the only other operator of two Chicago Market Casinos. In the
fourth quarter of 1997, Trump Casino commenced construction of a 300 room hotel
in Gary, Indiana.
Certain of the Company's competitors are larger and have significantly
greater financial and other resources than the Company. Given these factors, it
is possible that substantial competition could have a material adverse effect on
the Company.
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 gaming licenses to
three other riverboats and a certificate of suitability, a precursor to a
license, to a fourth riverboat, all four of which are located on the Ohio River
in southern Indiana and the closest of which is located over 250 miles from
downtown Chicago. Two licenses are unissued, one of which must be issued on
Patoka Lake and the other of which must be issued on the Ohio River.
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. On January
6, 1998, a bill was introduced in the Indiana State Legislature that would grant
the Indiana Horse Racing Commission (the "Racing Commission") the power to
authorize slot machine gaming, under certain circumstances, at Indiana
racetracks. Under the bill, the Racing Commission could grant a slot machine
gaming license to a person who holds a pari-mutuel horse racing permit and who
conducted live races at the racetrack prior to January 1, 1998. To date, there
has been no action with respect to the proposed legislation. If such legislation
were to be enacted, it could 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.
17
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. If such legislation were to be enacted, it could have a material
adverse effect on the Company.
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. The
legalization of gaming or wagering operations in jurisdictions in close
proximity to the Company's facilities could have a material adverse effect on
the Company.
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 approved in
nearby states such as Iowa and Missouri. Moreover, on November 20, 1997, the
Mayor of Detroit announced the three finalists to construct and operate three
land-based casinos in downtown Detroit. These casinos are not expected to be
licensed or operational until 2001.
Expansion Opportunities; Sale Transactions
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 was formed
to hold a 50% ownership interest in a limited liability company which, subject
to certain regulatory approvals, intends to acquire certain outstanding secured
indebtedness of Sunshine Racing, Inc., the owner of the Woodlands Racetrack in
Kansas City, Kansas, and to ultimately bid to purchase the Woodlands
Racetrack in an auction pursuant to a proceeding under Chapter 7 of the U.S.
Bankruptcy Code. Empress Racing has been designated as an Unrestricted
Subsidiary under the Indenture and is not a Guarantor of the Notes. There can be
no assurance that the Woodlands transaction will be consummated or that, if
consummated, that it 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
18
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.
In addition, from time to time the Company receives offers to purchase all
or a portion of its stock or assets. The Company's Board of Directors considers
all such offers in accordance with its fiduciary duties. The Company cannot make
any representations as to whether it will enter into any sale transaction in the
future or whether any person that would acquire the Company in such a
transaction would be able to satisfy the Company's obligations under the
Indenture. See "--Repurchase of Notes upon a Required Regulatory Redemption or
Change of Control.
Gaming Licensing and Regulation
General
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.
No assurances can be given that future legislation or regulations would not
have a material adverse effect on the Company. An additional degree of
uncertainty exists in the Indiana and Illinois regulatory environment due to the
limited experience in the interpretation of the Indiana and Illinois gaming
legislation and regulations. See "Regulatory Matters."
Gas City, Ltd., a corporation owned by William McEnery, a stockholder and
director of the Company and a director of each of the Company's corporate
subsidiaries, has operated ten service stations along the Indiana Toll Road
since June 1995. Since December 1995, Gas City and Mr. McEnery have responded to
document subpoenas from the Assistant U.S. Attorney for the U.S. District Court
for the Northern District of Indiana for a grand jury. In addition, certain Gas
City employees have been subpoenaed to testify before the grand jury. While
grand jury proceedings are secret, published accounts have indicated that the
grand jury is investigating, and has indicted, certain officials and suppliers
of the Indiana Toll Road. As of this date, none of Gas City, Mr. McEnery or any
employees of Gas City have received target letters from the Assistant U.S.
Attorney with respect to the pending grand jury. In March 1998, the Indiana
Department of Transportation ("INDOT") notified Gas City that it was
terminating Gas City's lease for the ten toll road service stations alleging
that for approximately a six month period Gas City engaged in wire fraud with
respect to the price survey used to determine the gasoline prices at its service
stations on the toll road. Gas City responded by filing a cause of action
against INDOT contesting its allegations and seeking a declaratory judgment that
INDOT has no grounds for termination. INDOT filed an emergency petition for
injunctive relief to cause Gas City to vacate the leased premises on May 1,
1998. The court has denied INDOT's petition, ruling that under Indiana law INDOT
must file an ejectment action. INDOT has appealed the court's ruling. The
Company cannot predict the outcome of these actions, however, any unfavorable
developments may have a material adverse effect on the Company.
19
In May 1998, T.J. Lambrecht Construction, Inc., a corporation owned by
Thomas J. Lambrecht, a stockholder and director of the Company and a director of
each of the Company's corporate subsidiaries, pleaded guilty, pursuant to a
settlement agreement, to two misdemeanor charges under the Federal Clean Water
Act relating to two discharges of effluent waste into Hickory Creek without a
permit. As part of the settlement agreement, T.J. Lambrecht Construction, Inc.
paid a $200,000 fine. There were no personal allegations or charges against Mr.
Lambrecht in connection with this matter. The Company does not anticipate that
any unfavorable developments will result from this matter; however, if any such
developments do arise, they 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. Although Empress
Hammond believes that its current compliance record and standing with the
Indiana Gaming Commission indicate that the Indiana License will likely be
renewed, there can be no assurance that the Indiana Gaming Commission will renew
the Indiana License. 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. See "Business" and
"Regulatory Matters."
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 for a one-year period through July 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. See "Business" and "Regulatory Matters."
20
Non-Gaming Regulatory Requirements
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. Empress I is currently undergoing an
underwater hull survey. Empress II and Empress III will be due for inspection
prior to December 1998 and September 2000, respectively. 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. See "Business--Other Applicable Non-Gaming
Regulatory Requirements."
Repurchase of Notes upon a Required Regulatory Redemption or Change of Control
The 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 (as defined) with appropriate jurisdiction and authority relating to a
Gaming License (as defined), 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 Note is required to be found suitable, or otherwise qualify, under any
Gaming Laws and is not found suitable or so qualified. Upon a Change of Control
(as defined), each holder of the Notes will, subject to certain limitations,
have the right to require the Company to repurchase all or a portion of such
holder's 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. See "Description of the New Notes--Redemption" and "--Change of
Control."
Stockholder Relationships; Stockholders Agreement
Certain aspects of the ownership and management of the Company are governed
by the terms of an Amended and Restated Stockholders Agreement (the
"Stockholders Agreement"). In addition to limiting the rights of stockholders to
transfer shares of stock of the Company, the Stockholders Agreement requires
each stockholder to vote in favor of the existing directors of the Company,
Empress Hammond, Empress Joliet and Empress Finance for so long as he owns
shares in the Company. The Stockholders Agreement also requires the approval of
a super majority of the stockholders in order to undertake certain matters,
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 sale or issuance of stock of Empress Joliet or Empress Hammond. See
"Management," "Certain Transactions" and "Principal Stockholders."
21
Loss of Riverboat or Dockside Facility from Service
The Company's profitability is entirely dependent on three riverboats and
the dockside facilities in Hammond, Indiana and Joliet, Illinois. Empress I,
Empress II or Empress III could be lost from service due to casualty, mechanical
failure, a flood or other severe weather conditions or extended or extraordinary
maintenance or inspection (including routine inspections required by the U.S.
Coast Guard). Any extended period of time during which Empress I, Empress II or
Empress III is required to be out of service without the conduct of gaming could
have a material adverse effect on the Company. See "--Non-Gaming Regulatory
Requirements."
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 and 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. There can be no assurances that the
Company will continue to be profitable.
Holding Company Structure
The Company is a holding company that conducts its operations through
direct and indirect subsidiaries. The Company's available cash will depend upon
the cash flow of its subsidiaries and the ability of such subsidiaries to make
funds available to the Company. The subsidiaries are separate and distinct legal
entities and have no obligation to make funds available to the Company.
Concurrently with the closing of the Offering, the Company entered into the
Credit Facility, which is secured by substantially all of the assets of Empress
Hammond and Empress Joliet (excluding the Indiana License and the Illinois
License). In addition, the Guarantors, either alone or in combination, may
become parties to other financing arrangements. In the event of any insolvency,
bankruptcy or similar proceedings of such Guarantors, creditors of any such
entity would generally be entitled to priority over the Company with respect to
assets of such Guarantors.
Year 2000 Compliance
In the year 2000, many existing computer programs that use only two digits to
identify a year (for example, "98" instead of "1998") could fail or create
erroneous results if not corrected. The Company has determined that it may need
to modify portions of its software so that its computer systems will function
properly with respect to the year 2000 and beyond. The Company also has
initiated discussions with its software providers to ensure that those parties
have appropriate plans to remedy any year 2000 issues that may impact the
Company's operations; however, the Company has not verified that companies doing
business with it are year 2000 compliant. The Company does not anticipate that
the effect of any computer program deficiency on its operations will be
material. However, significant uncertainty exists concerning the potential costs
and effects associated with any year 2000 compliance. Any year 2000 compliance
problem of the Company or the companies doing business with it could have a
material adverse effect on the Company.
Labor Relations
Approximately 12.7% 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
22
Joliet and the Hotel Employees and Restaurant Employees Union, Local 1 entered
into a Memorandum of Agreement, which is being converted into a formal contract,
containing the terms of their collective bargaining agreement. This Agreement
will be in effect until April 30, 2001. There can be no assurances that the
Company will be able to negotiate future labor agreements with its unions on
terms acceptable to the Company. In addition, Empress Hammond is not a party to
any collective bargaining agreements, although there are current efforts to
organize certain of its employees. Although the Company believes that its
relations with its employees and the unions are good, any labor disruptions,
whether union-related or otherwise, could have a material adverse effect on the
Company.
Commitments to Governmental Authorities
The City of Hammond, Indiana
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 March 31, 1998,
approximately $25.0 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 1997, Empress
Hammond paid approximately $9.9 million to the City to satisfy this obligation.
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. See "Business--Commitments to Governmental Authorities."
Hammond Port Authority
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. See "Business--Commitments to Governmental
Authorities."
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. See
"--Commitments to Governmental Authorities" and "Regulatory Matters."
23
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. See "Management."
Fraudulent Transfer Considerations
The obligations of the Company under the Notes or of the Guarantors under
their respective Guarantees may be subject to challenge under state or Federal
fraudulent transfer laws. Under such laws, if a court in a lawsuit by an unpaid
creditor or representative of creditors of the Company or a Guarantor, such as a
trustee in bankruptcy of the Company or a Guarantor, or the Company or a
Guarantor as debtor in possession, were to find that at the time the Company or
any such Guarantor incurred its obligations, it (a)(i) is or was rendered
insolvent; (ii) was engaged in a business or transaction for which its remaining
unencumbered assets constituted unreasonably small capital; or (iii) intended to
incur, or believed or reasonably should have believed that it would incur, debts
beyond its ability to pay as such debts matured; and (b) received less than
reasonably equivalent value or fair consideration therefor, such court could
void all or a portion of the Company's obligations to the holders of the Notes
or void such Guarantor's Guarantee and its obligations thereunder, and direct
the return of any amounts paid by the Company or any such Guarantor to holders
of the Notes to a fund for the benefit of their respective creditors. A court
might hold that the Company or a Guarantor received less than fair consideration
or reasonably equivalent value for incurring the Notes or any debt being
refinanced thereby, or for its Guarantee to the extent that its liability
thereunder exceeded the amount of the proceeds of the Notes made available to
the Guarantor, respectively. Moreover, a court could void all or a portion of
the Company's obligations to the holders of the Notes or void the Guarantee and
direct such repayment if it found that the Notes or any such Guarantee was
entered into with the actual intent to hinder, delay or defraud the Company's or
a Guarantor's creditors. The measure of insolvency for purposes of the foregoing
will vary depending on the law of the jurisdiction being applied. Generally,
however, an entity would be considered insolvent if the sum of its debts
(including contingent or unliquidated debts) is greater than all of its property
at a fair valuation or if the present fair salable value of its assets is less
than the amount that will be required to pay its probable liability on its
existing debts as they become due.
Environmental Risks
Pursuant to the terms of the Development Agreement, Empress Hammond
constructed certain public improvements necessary to provide improved access to
the location of its riverboat gaming facility. To satisfy this requirement,
certain parcels of real property located near the proposed complex were either
purchased by Empress Hammond or an affiliated entity or taken by the City of
Hammond pursuant to eminent domain proceedings with funds donated to the City of
Hammond by Empress Hammond. The area surrounding the Hammond complex is heavily
industrialized and may be subject to various environmental risks. At the present
time, the Company is not aware of any environmental costs that would have a
material adverse effect on the Company. However, if any environmental clean-up
costs or other related liabilities turn out to be substantial, such costs could
have a material adverse effect on the Company.
Litigation
On July 17, 1998, a lawsuit was filed against Empress Hammond and Empress
Joliet and four of their employees in the United States District Court for the
Northern District of Illinois. The lawsuit, brought by a
24
current female employee of Empress Hammond and a former female employee of
Empress Hammond, alleges that Empress Hammond and Empress Joliet 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
its 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. There can be no
assurances, however, that Empress Joliet and Empress Hammond will not be found
liable for an amount that could have a material adverse effect on the Company.
The City of Hammond is presently 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. Under the terms of the Development
Agreement, Empress Hammond is responsible for the payment of all costs incurred
by the City of Hammond with respect to this litigation. The two appraisers
representing the City of Hammond appraised the subject property at approximately
$36,000 and $41,000, respectively. The two appraisers representing the former
property owner appraised the property at approximately $6.6 million and $8.9
million, respectively. Two court-appointed appraisers valued the subject
property at $959,000 and one valued it at $455,776. On December 8, 1995, the
City of Hammond deposited $959,000 with the Clerk of the Court, which amount was
tendered to the City of Hammond by Empress Hammond. A trial has been scheduled
to commence in September 1998. The Company anticipates that the deposited amount
should cover any judgment or settlement. There can be no assurances, however,
that the court will not find in favor of the defendant for a sum materially in
excess of the amount placed in escrow.
A lawsuit was filed on October 25, 1996 in Harrison County, Indiana by
three individuals residing in counties abutting the Ohio River against the State
of Indiana, the 108th Indiana General Assembly, the Indiana Gaming Commission
and individual members of the Indiana Gaming Commission. The lawsuit challenges
the constitutionality of the Indiana Riverboat Act on the grounds that (i) it
allegedly creates an unequal privilege because under the Indiana Riverboat Act
"citizens opposed to riverboat gambling must win several elections to ensure
riverboat gambling is not allowed in their county" but "citizens who support
riverboat gambling need only win once to entrench riverboat gambling
indefinitely into a county"; and (ii) it was enacted as a provision attached to
a state budget bill allegedly in violation of an Indiana constitutional
provision requiring legislative acts to be confined to one subject and to
matters properly connected with the subject. The defendants have filed an answer
to the complaint generally denying the allegations. If the Indiana Riverboat Act
ultimately were held unconstitutional it would, absent timely corrective
legislation, have a material adverse effect on the Company.
S Corporation Status
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.
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.
25
Absence of Prior Public Market for New Notes
The New Notes will constitute a new class of securities with no established
trading market. Although the New Notes will generally be permitted to be resold
or otherwise transferred by nonaffiliates of the Company without compliance with
the registration requirements under the Securities Act, the Company does not
intend to apply for a listing of the New Notes on any securities exchange or to
arrange for the New Notes to be quoted on the NASDAQ National Market or other
quotation system, although they have been designated for trading in the Private
Offering, Resales and Trading through Automated Linkages ("PORTAL") Market.
The Initial Purchasers have advised the Company that they currently intend to
make a market in the New Notes; however, the Initial Purchasers are not
obligated to do so, and any market-making with respect to the New Notes may be
discontinued at any time without notice. As a result, there can be no assurance
that an active trading market for the New Notes will develop. If a market were
to develop, the New Notes could trade at prices that may be lower than the
initial market values thereof depending on many factors, including prevailing
interest rates and the markets for similar securities.
Restrictions on Resale
The Old Notes were offered and sold by the Company in a private offering
exempt from registration pursuant to the Securities Act and have been resold
pursuant to Rule 144A, Regulation S and certain other available exemptions under
the Securities Act. As a result, the Old Notes may not be reoffered or resold by
purchasers, except pursuant to an effective registration statement under the
Securities Act, or pursuant to an applicable exemption from such registration.
Based on interpretations by the staff of the Commission, the Company believes
that each holder (other than (i) a broker-dealer who purchased Old Notes
directly from the Company for resale pursuant to Rule 144A of the Securities Act
or any other available exemption under the Securities Act, (ii) an "affiliate"
of the Company within the meaning of Rule 405 under the Securities Act or (iii)
a broker-dealer who acquired the Old Notes as a result of market-making or other
trading activities) who duly exchanges Old Notes for New Notes in the Exchange
Offer will receive notes that are freely transferable under the Securities Act,
provided, that such New Notes are acquired in the ordinary course of such
holder's business and that such holder is not participating, and has no
arrangement or understanding with any other person to participate, in a
distribution (within the meaning of the Securities Act) of the New Notes. The
Company has not, however, sought its own no-action letter from the staff of the
Commission regarding resales of the New Notes and there can be no assurance that
the staff of the Commission would make a similar determination with respect to
the resale of the New Notes. Any holder of Old Notes who is not able to rely
upon such staff interpretations must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any sale of such
Old Notes, unless such sale is made pursuant to an exemption from such
requirements. See "Prospectus Summary--The Exchange Offer."
Certain Market Consequences of Failure to Exchange Old Notes
To the extent that Old Notes are tendered and accepted for exchange
pursuant to the Exchange Offer, the trading market for Old Notes that remain
outstanding may be more significantly limited, which might adversely affect the
liquidity of the Old Notes not tendered for exchange. The extent of the market
therefor and the availability of price quotations would depend upon a number of
factors, including the number of holders of Old Notes remaining at such time and
the interest in maintaining a market in such Old Notes on the part of securities
firms. An issue of securities with a smaller outstanding market value available
for trading (the "float") may command a lower price than would a comparable
issue of securities with a greater float. As a result, the market price for Old
Notes that are not exchanged in the Exchange Offer may be adversely affected to
the extent that the amount of Old Notes exchanged pursuant to the Exchange Offer
reduces the float. The reduced float also may make the trading price of the Old
Notes that are not exchanged more volatile. In addition, holders of Old Notes
who do not exchange their Old Notes for New Notes pursuant to the Exchange Offer
will continue to be subject to restrictions on transfer of such Old Notes
contained in the legend thereon.
26
In general, the Old Notes may not be offered or sold unless registered under the
Securities Act, except pursuant to an exemption from, or in a transaction not
subject to, the Securities Act and applicable state securities laws. The Company
does not currently anticipate that it will register the Old Notes under the
Securities Act. See "Risk Factors--Restrictions on Resale" and "The Exchange
Offer--Consequences of Failure to Exchange."
27
THE EXCHANGE OFFER
The following discussion sets forth or summarizes what the Company believes
are the material terms of the Exchange Offer. This Summary is qualified in its
entirety by reference to the full text of the documents underlying the Exchange
Offer, copies of which are filed as exhibits to the Registration Statement of
which this Prospectus is a part, and are incorporated by reference herein.
Purpose and Effect
The Old Notes were sold by the Company to the Initial Purchasers on June
18, 1998 pursuant to the Purchase Agreement. The Initial Purchasers subsequently
resold the Old Notes in reliance on Rule 144A and Regulation S. The Company, the
Guarantors and the Initial Purchasers also entered into the Registration Rights
Agreement, pursuant to which the Company agreed to use its best efforts (i) to
file an exchange offer registration statement ("Exchange Offer Registration
Statement") with the Commission under the Securities Act concerning the Exchange
Offer within 45 days after the Issue Date, (ii) to cause the Exchange Offer
Registration Statement to be declared effective by the Commission within 105
days after the Issue Date, (iii) to keep the Exchange Offer Registration
Statement effective until the closing of the Exchange Offer and (iv) to cause
the Exchange Offer to be consummated within 135 days after the Issue Date.
Pursuant to such Registration Rights Agreement, the Company will endeavor to,
within the applicable time periods, register under the Securities Act all of the
New Notes pursuant to a registration statement under which the Company will
offer each holder of Old Notes the opportunity to exchange any and all of the
outstanding Old Notes held by such holder for New Notes in an aggregate
principal amount equal to the aggregate principal amount of Old Notes tendered
for exchange by such holder. Subject to limited exceptions, the Exchange Offer
being made hereby, if commenced and consummated within such applicable time
periods, will satisfy those requirements under the Registration Rights
Agreement. In such event, Old Notes not exchanged for New Notes in the Exchange
Offer would remain outstanding and would continue to accrue interest, but would
generally not retain any rights under the Registration Rights Agreement. Holders
of Old Notes seeking liquidity in their investment would have to rely on an
exemption to the registration requirements under the securities laws, including
the Securities Act. This Exchange Offer is intended to satisfy the Company's
exchange offer obligations under the Registration Rights Agreement.
Terms of the Exchange Offer
The Company hereby offers, upon the terms and subject to the conditions set
forth herein and in the accompanying Letter of Transmittal, to exchange $1,000
in principal amount of the New Notes for each $1,000 in principal amount of the
outstanding Old Notes. The Company will accept for exchange any and all Old
Notes that are validly tendered on or prior to 5:00 p.m., New York City time, on
the Expiration Date. Tenders of the Old Notes may be withdrawn in accordance
with the procedures described under "--Withdrawal Rights" at any time prior to
5:00 p.m., New York City time, on the Expiration Date. The Exchange Offer is not
conditioned upon any minimum principal amount of Old Notes being tendered for
exchange. However, the Exchange Offer is subject to certain customary conditions
that may be waived by the Company, and to the terms and provisions of the
Registration Rights Agreement. See "--Conditions of the Exchange Offer."
Old Notes may be tendered only in multiples of $1,000. Subject to the
foregoing, holders may tender less than the aggregate principal amount
represented by the Old Notes held by them, provided that they appropriately
indicate this fact on the Letter Of Transmittal accompanying the tendered Old
Notes (or so indicate pursuant to the procedures for book-entry transfer).
28
As of the date of this Prospectus, $150 million in aggregate principal
amount of the Old Notes is outstanding, the maximum amount authorized by the
Indenture for all Notes. This Prospectus, together with the Letter of
Transmittal, is first being sent on or about ______, 1998, to all holders of Old
Notes known to the Company.
Because the Exchange Offer is for any and all Old Notes, the number of Old
Notes tendered and exchanged in the Exchange Offer will reduce the principal
amount of Old Notes outstanding. Following the consummation of the Exchange
Offer, holders who did not tender their Old Notes generally will not have any
further registration rights under the Registration Rights Agreement, and such
Old Notes will continue to be subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for such Old Notes could be adversely
affected. The Old Notes are currently eligible for sale pursuant to Rule 144A
through the PORTAL system. Because the Company anticipates that most holders of
Old Notes will elect to exchange such Old Notes for New Notes due to the absence
of restrictions on the resale of New Notes under the Securities Act, the Company
anticipates that the liquidity of the market for any Old Notes remaining after
the consummation of the Exchange Offer may be substantially limited. See "Risk
Factors--Certain Market Consequences of Failure to Exchange Old Notes."
The form and terms of the New Notes are generally the same as the form and
terms of the Old Notes, except that (i) the New Notes have been registered under
the Securities Act and will not bear legends restricting the transfer thereof,
(ii) the holders of New Notes will not be entitled to any Additional Interest
under the terms of the Registration Rights Agreement and (iii) holders of New
Notes will not be entitled to certain other rights under the Registration Rights
Agreement. The New Notes will evidence the same debt as the Old Notes and will
be entitled to the benefits of the Indenture.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
of Old Notes and for the purposes of receiving the New Notes from the Company
and delivering New Notes to such holders.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering holder thereof as promptly as practicable
after the Expiration Date.
Holders of Old Notes do not have any appraisal or dissenters' rights in
connection with the Exchange Offer.
Holders of Old Notes who tender in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Old Notes
pursuant to the Exchange Offer. The Company will pay all charges and expenses,
other than certain applicable taxes, in connection with the Exchange Offer. See
"--Fees and Expenses."
NEITHER THE BOARD OF DIRECTORS OF THE COMPANY NOR THE COMPANY MAKES ANY
RECOMMENDATION TO HOLDERS OF OLD NOTES AS TO WHETHER TO TENDER OR REFRAIN FROM
TENDERING ALL OR ANY PORTION OF THEIR OLD NOTES PURSUANT TO THE EXCHANGE OFFER.
IN ADDITION, NO ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH RECOMMENDATION. HOLDERS
OF OLD NOTES MUST MAKE THEIR OWN DECISION WHETHER TO TENDER PURSUANT TO THE
EXCHANGE OFFER AND, IF SO, THE AGGREGATE PRINCIPAL AMOUNT OF OLD NOTES TO
TENDER, AFTER READING CAREFULLY THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL
AND CONSULTING WITH THEIR ADVISORS, IF ANY, BASED ON THEIR OWN FINANCIAL
POSITION AND REQUIREMENTS.
Expiration Date; Extensions; Amendments
29
The Exchange Offer shall remain open for a period of not less than 20
Business Days after notice is mailed to holders. The Expiration Date shall be
, 1998 at 5:00 p.m., New York City time, unless the Company, in its sole
discretion, extends the Exchange Offer, in which case the Expiration Date shall
be the latest date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will make a public
announcement thereof, by means of a press release or any other acceptable means,
each prior to 9:00 a.m., New York City time, on the next business day after the
previously scheduled Expiration Date.
The Company expressly reserves the right, in its sole and absolute
discretion, (i) to delay accepting any Old Notes, (ii) to extend the Exchange
Offer, (iii) if any of the conditions set forth below under "--Conditions of the
Exchange Offer" shall not have been satisfied, to terminate the Exchange Offer,
by giving oral or written notice of such delay, extension or termination to the
Exchange Agent and (iv) to waive any condition or otherwise amend the terms of
the Exchange Offer in any manner. If such waiver or amendment constitutes a
material change to the Exchange Offer, the Company will promptly disclose such
waiver or amendment by means of a prospectus supplement that will be distributed
to the registered holders of the Old Notes, and the Company will extend the
Exchange Offer to the extent required by Rule l4e-1 under the Exchange Act.
Any such delay in acceptance, extension, termination or amendment will be
followed promptly by oral or written notice thereof to the Exchange Agent and by
making a public announcement thereof, and such announcement in the case of an
extension will be made no later than 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date. Without limiting
the manner in which the Company may choose to make any public announcement and
subject to applicable law, the Company shall have no obligation to publish,
advertise or otherwise communicate any such public announcement other than by
issuing a release to the Dow Jones News Service.
Conditions of the Exchange Offer
Notwithstanding any other provisions of the Exchange Offer, or any
extension of the Exchange Offer, the Company will not be required to accept for
exchange, or to exchange, any Old Notes for any New Notes, and, as described
below, may terminate the Exchange Offer (whether or not any Old Notes have
theretofore been accepted for exchange) or may waive any conditions to or amend
the Exchange Offer, if any of the following conditions have occurred or exist or
have not been satisfied:
(i) the due tendering of Old Notes in accordance with the Exchange
Offer;
(ii) the Exchange Offer, or the making of any exchange by a holder,
violates any applicable law, statute, rule, regulation or any applicable
interpretation of the staff of the Commission;
(iii) any law, statute, rule, regulation or interpretation by the staff of
the Commission is proposed, adopted or enacted, which, in the reasonable
judgment of the Company, might materially impair the ability of the Company to
proceed with the Exchange Offer or materially impair the contemplated benefits
of the Exchange Offer to the Company;
(iv) each holder of Old Notes exchanged in the Exchange Offer shall have
made certain customary representations, including representations that, among
other things, (i) the holder is not an "affiliate" of the Company as defined in
Rule 405 of the Securities Act, (ii) the holder is not a broker-dealer that
acquired Old Notes directly from the Company in order to resell them pursuant to
Rule 144A of the Securities Act or any other available exemption under the
Securities Act, (iii) the holder will acquire the New Notes in the ordinary
30
course of business and (iv) that the holder is not participating, and does not
intend to participate, and has no arrangement or understanding with any person
to participate, in the distribution of the New Notes;
(v) all governmental approvals have been obtained, which such approval
the Company shall, in its reasonable judgment, deem necessary for the
consummation of the Exchange Offer as contemplated hereby;
(vi) there shall be threatened, instituted or pending any action or
proceeding before, or any injunction, order or decree shall have been issued by,
any court or governmental agency or other governmental regulatory or
administrative agency or commission, (a) seeking to restrain or prohibit the
making or consummation of the Exchange Offer or any other transaction
contemplated by the Exchange Offer, or assessing or seeking any damages as a
result thereof or (b) resulting in a material delay in the ability of the
Company to accept for exchange or exchange some or all of the Old Notes pursuant
to the Exchange Offer;
(vii) there shall have occurred (a) any general suspension of or general
limitation on prices for, or trading in, securities on any national securities
exchange or in the over-the-counter market, (b) any limitation by any
governmental agency or authority which may adversely affect the ability of the
Company to complete the transactions contemplated by the Exchange Offer, (c) a
declaration of a banking moratorium or any suspension of payments in respect of
banks in the United States or any limitation by any governmental agency or
authority which adversely affects the extension of credit or (d) a commencement
of a war, armed hostilities or other similar international calamity directly or
indirectly involving the United States, or, in the case of any of the foregoing
existing at the time of the commencement of the Exchange Offer, a material
acceleration or worsening thereof; or
(viii) any change (or any development involving a prospective change)
shall have occurred or be threatened in the business, properties, assets,
liabilities, financial condition, operations, results of operations or prospects
of the Company and its subsidiaries taken as a whole that, in the sole judgment
of the Company, is or may be adverse to the Company, or the Company shall have
become aware of facts that, in the sole judgment of the Company, have or may
have an adverse effect on the value of the Old Notes or the New Notes.
If the Company determines in its sole and absolute discretion that any of
the foregoing events or conditions has occurred or exists or has not been
satisfied, the Company may, subject to applicable law, (i) terminate the
Exchange Offer (whether or not any Old Notes have theretofore been accepted for
exchange), (ii) extend the Exchange Offer and retain all Old Notes tendered
prior to the expiration of the Exchange Offer subject, however, to the rights of
holders to withdraw such Old Notes or (iii) waive any such condition or
otherwise amend the terms of the Exchange Offer in any respect. If such waiver
or amendment constitutes a material change to the Exchange Offer, the Company
will promptly disclose such waiver or amendment by means of a prospectus
supplement that will be distributed to the registered holders of the Old Notes,
and the Company will extend the Exchange Offer to the extent required by Rule
l4e-1 under the Exchange Act.
The foregoing conditions are for the sole benefit of the Company and may be
waived by the Company in whole or in part at any time and from time to time in
its sole discretion. The failure by the Company at any time to exercise any of
the foregoing rights shall not be deemed a waiver of such rights and each such
right shall be deemed an ongoing right which may be asserted at any time and
from time to time. Any determination by the Company concerning the events
described above will be final and binding upon all parties.
In addition, the Company will not accept for exchange any Old Notes
tendered, and no New Notes will be issued in exchange for any such Old Notes, if
at such time any stop order shall be threatened or in effect with respect to the
Registration Statement of which this Prospectus constitutes a part or the
qualification of the Indenture under the Trust Indenture Act of 1939.
Termination of Certain Rights
31
Holders of New Notes will not be and, upon consummation of the Exchange
Offer, holders of Old Notes who were permitted to participate in the Exchange
Offer will no longer be, entitled to (i) the right to receive Additional
Interest under the Registration Rights Agreement or (ii) certain other rights
under the Registration Rights Agreement intended for the holders of unregistered
securities; provided, that holders of Old Notes who are not permitted to
participate in the Exchange Offer or who do not receive fully tradeable New
Notes pursuant to the Exchange Offer, shall have the right to require the
Company to file a Shelf Registration Statement solely for the benefit of such
holders of Old Notes and will be entitled to receive Additional Interest
following the occurrence of a Registration Default in connection with the filing
of such Shelf Registration Statement. See "Registration Rights." Notwithstanding
anything to the contrary in the foregoing, Old Notes not tendered in the
Exchange Offer will remain outstanding and continue to accrue interest in
accordance with their terms.
Accrued Interest on the Old Notes
Holders whose Old Notes are accepted for exchange will have the right to
receive interest accrued thereon from the date of their original issuance or the
last interest payment date, as applicable, to, but not including, the date of
issuance of the New Notes, such interest to be payable with the first interest
payment on the New Notes. Interest on the Old Notes accepted for exchange, which
interest accrued at the rate of 8 1/8% per annum, will cease to accrue on the
day prior to the issuance of the New Notes.
Procedures for Tendering Old Notes
The tender of a holder's Old Notes as set forth below and the acceptance
thereof by the Company will constitute a binding agreement between the tendering
holder and the Company upon the terms and subject to the conditions set forth in
this Prospectus and in the accompanying Letter of Transmittal. Except as set
forth below, a holder who wishes to tender Old Notes for exchange pursuant to
the Exchange Offer must transmit a properly completed and duly executed Letter
of Transmittal, including all other documents required by such Letter of
Transmittal, to the Exchange Agent at the address set forth under "--The
Exchange Agent; Assistance" prior to 5:00 p.m., New York City time on the
Expiration Date. In addition, either (i) certificates of such Old Notes must be
received by the Exchange Agent along with the Letter of Transmittal, (ii) a
timely confirmation of book-entry transfer of such Old Notes, if such procedure
is available, into the Exchange Agent's account at DTC pursuant to the procedure
for book-entry transfer described below, must be received by the Exchange Agent
prior to the Expiration Date, or (iii) the holder must comply with the
guaranteed delivery procedures described below.
THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE
ELIGIBLE HOLDER. IF SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED
MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. INSTEAD OF
DELIVERY BY MAIL, IT IS RECOMMENDED THAT THE ELIGIBLE HOLDER USE AN OVERNIGHT OR
HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE
TIMELY DELIVERY. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE
COMPANY OR DTC. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS,
COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT SUCH TENDER FOR SUCH
HOLDER.
Any Beneficial Owner whose Old Notes are registered in the name of a
nominee, such as a broker, dealer, commercial bank or trust company, and who
wishes to tender Old Notes in the Exchange Offer should contact such registered
holder promptly and instruct such registered holder to tender on such Beneficial
Owner's
32
behalf. If such Beneficial Owner wishes to tender directly, such Beneficial
Owner must, prior to completing and executing the Letter of Transmittal and
tendering Old Notes, either make appropriate arrangements to register ownership
of the Old Notes in such Beneficial Owner's name or obtain a properly completed
bond power from the registered holder. Beneficial Owners should be aware that
the transfer of registered ownership may take considerable time.
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at DTC for the purposes of the Exchange Offer within two
business days after the date of this Prospectus. Any financial institution that
is a participant in DTC's Book-Entry Transfer Facility system may make book-
entry delivery of the Old Notes by causing DTC to transfer such Old Notes into
the Exchange Agent's account in accordance with DTC's procedures for such
transfer. However, although delivery of the Old Notes may be effected through
book-entry transfer into the Exchange Agent's account at DTC, the Letter of
Transmittal (or facsimile thereof), properly completed and duly executed, with
any required signature guarantees and any other required documents, must in any
case, be delivered to and received by the Exchange Agent at its address set
forth under "--The Exchange Agent; Assistance" on or prior to the Expiration
Date, or the guaranteed delivery procedure set forth below must be complied
with, within the time period provided under such procedures. Delivery of
documents to DTC does not constitute delivery to the Exchange Agent.
Each signature on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined herein)
unless the Old Notes surrendered for exchange pursuant hereto are tendered (i)
by a registered holder of the Old Notes who has not completed either the box
entitled "Special Exchange Instructions" or the box entitled "Special Delivery
Instructions" in the Letter of Transmittal or (ii) for the account of an
Eligible Institution. In the event that a signature on a Letter of Transmittal
or a notice of withdrawal, as the case may be, is required to be guaranteed,
such signature must be guaranteed by an Eligible Institution. If the Letter of
Transmittal is signed by a person other than the registered holder of the Old
Notes, the Old Notes surrendered for exchange must be endorsed or accompanied by
appropriate bond powers and a proxy which authorizes such person to tender the
Old Notes on behalf of the registered holder, in each case, signed by the
registered holder, with the signature thereon guaranteed by an Eligible
Institution. The term "registered holder" as used herein with respect to the Old
Notes means any person in whose name the Old Notes are registered on the books
of the Registrar. The term "Eligible Institution" as used herein means a firm
which is a member of a registered national securities exchange or of the
National Association of Securities Dealers, Inc., a commercial bank or trust
company having an office or correspondent in the United States or any other
"eligible guarantor institution" as such term is defined in Rule 17Ad-15 under
the Exchange Act.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of Old Notes tendered for exchange will be
determined by the Company in its sole discretion, which determination shall be
final and binding. The Company reserves the absolute right to reject any and all
Old Notes not properly tendered and to reject any Old Notes the Company's
acceptance of which might, in the judgment of the Company or its counsel, be
unlawful. The Company also reserves the absolute right to waive any defects or
irregularities or conditions of the Exchange Offer as to particular Old Notes
either before or after the Expiration Date (including the right to waive the
ineligibility of any holder who seeks to tender Old Notes in the Exchange
Offer). The interpretation of the terms and conditions of the Exchange Offer
(including the Letter of Transmittal and the instructions thereto) by the
Company shall be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Old Notes for exchange must be
cured within such period of time as the Company shall determine. Neither the
Company, the Exchange Agent nor any other person shall be under any duty to give
notification of defects or irregularities with respect to tenders of Old Notes,
nor shall any of them incur any liability for failure to give notification of
defects or irregularities with respect to tenders of Old Notes. Tenders of the
Old Notes will not be deemed to have been made until such irregularities have
been cured or waived.
If any Letter of Transmittal, endorsement, bond power, power of attorney or
any other document required by the Letter of Transmittal is signed by a trustee,
executor, administrator, guardian, attorney-in-fact,
33
officer of a corporation or other person acting in a fiduciary or representative
capacity, such person should so indicate when signing, and, unless waived by the
Company, proper evidence satisfactory to the Company, in its sole discretion, of
such person's authority so to act must be submitted with the Letter of
Transmittal.
By tendering, each registered holder will represent to the Company, among
other things, that: (i) the holder is not an "affiliate" of the Company as
defined in Rule 405 of the Securities Act, (ii) the holder is not a broker-
dealer that acquired Old Notes directly from the Company in order to resell them
pursuant to Rule 144A of the Securities Act or any other available exemption
under the Securities Act, (iii) the holder will acquire the New Notes in the
ordinary course of business and (iv) the holder is not participating, and does
not intend to participate, and has no arrangement or understanding with any
person to participate, in the distribution of the New Notes. Any holder of Old
Notes that is unable to make these representations to the Company will not be
able to rely on the interpretations of the staff of the Commission described in
"--Resales of New Notes" and therefore will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any sale of such Old Notes, unless such sale is made pursuant to
an exemption from such requirements.
Guaranteed Delivery Procedures
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other documents required by the Letter of Transmittal to the
Exchange Agent on or prior to the Expiration Date or (iii) who cannot complete
the procedure for book-entry transfer on a timely basis, may tender their Old
Notes according to the guaranteed delivery procedures set forth in the Letter of
Transmittal. Pursuant to such procedures: (i) such tender must be made by or
through an Eligible Institution, (ii) prior to the Expiration Date, the Exchange
Agent must have received from the holder and the Eligible Institution a properly
completed and duly executed Notice of Guaranteed Delivery (by facsimile
transmission, mail or hand delivery) setting forth the name and address of the
holder, the certificate or registration number or numbers of the tendered Old
Notes, and the principal amount of tendered Old Notes, stating that the tender
is being made thereby and guaranteeing that, at least within four (4) New York
Stock Exchange trading days after the Expiration Date, the tendered Old Notes, a
duly executed Letter of Transmittal (or a facsimile thereof) and any other
required documents will be deposited by the Eligible Institution with the
Exchange Agent and (iii) such properly completed and executed documents required
by the Letter of Transmittal (or a facsimile thereof) and the tendered Old Notes
in proper form for transfer (or confirmation of a book-entry transfer of such
Old Notes into the Exchange Agent's account at DTC) must be received by the
Exchange Agent within at least four (4) New York Stock Exchange trading days
after the Expiration Date.
Acceptance of Old Notes for Exchange; Delivery of New Notes
Upon satisfaction or waiver of all the conditions to the Exchange Offer,
the Company will accept any and all Old Notes that are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York City time, on the Expiration Date.
The New Notes issued pursuant to the Exchange Offer will be delivered as
promptly as practicable after acceptance of the Old Notes. For purposes of the
Exchange Offer, the Company shall be deemed to have accepted validly tendered
Old Notes, when, as, and if the Company has given oral or written notice thereof
to the Exchange Agent.
In all cases, issuances of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of such Old Notes, a properly completed and duly executed
Letter of Transmittal (or a facsimile thereof) and all other required documents
(or of confirmation of a book-entry transfer of such Old Notes into the Exchange
Agent's account at DTC); provided, that the Company reserves the absolute right
to waive any defects or irregularities in the tender or
34
conditions of the Exchange Offer. If any tendered Old Notes are not accepted for
any reason, such unaccepted Old Notes will be returned without expense to the
tendering holder thereof as promptly as practicable after the expiration or
termination of the Exchange Offer.
Withdrawal Rights
Tenders of the Old Notes may be withdrawn by delivery of a written or
facsimile transmission notice to the Exchange Agent, at its address set forth
herein, at any time prior to 5:00 p.m., New York City time, on the Expiration
Date after which tenders of Old Notes are irrevocable. Any such notice of
withdrawal must (i) specify the name of the person having deposited the Old
Notes to be withdrawn (the "Depositor"), (ii) identify the Old Notes to be
withdrawn (including the certificate or registration number or numbers and
principal amount of such Old Notes, as applicable or, in the case of notes
transferred by book-entry transfer, the name and number of the account at DTC to
be credited), (iii) be signed by the Depositor in the same manner as the
original signature on the Letter of Transmittal by which such Old Notes were
tendered (including any required signature guarantees) or be accompanied by a
bond power in the name of the person withdrawing the tender, in satisfactory
form as determined by the Company in its sole discretion, duly executed by the
registered holder, with the signature thereon guaranteed by an Eligible
Institution together with the other documents required upon transfer by the
Indenture, (iv) specify the name in which such Old Notes are to be re-
registered, if different from the Depositor, pursuant to such documents of
transfer and (v) include a statement that such holder is withdrawing its
election to have such Old Notes exchanged. All questions as to the validity,
form and eligibility (including time of receipt) of such notices will be
determined by the Company, in its sole discretion. The Old Notes so withdrawn
will be deemed not to have been validly tendered for exchange for purposes of
the Exchange Offer and no New Notes will be issued with respect thereto unless
the Old Notes so withdrawn are validly retendered. Any Old Notes which have
been tendered for exchange but which are withdrawn will be returned to the
holder thereof without cost to such holder as promptly as practicable after
withdrawal. Properly withdrawn Old Notes may be retendered by following one of
the procedures described under "--Procedures for Tendering Old Notes" at any
time on or prior to the Expiration Date.
35
The Exchange Agent; Assistance
U.S. Bank Trust National Association has been appointed the Exchange Agent
for the Exchange Offer. All tendered Old Notes, executed Letters of Transmittal
and other related documents should be directed to the Exchange Agent. Questions
and requests for assistance and requests for additional copies of the
Prospectus, the Letter of Transmittal and other related documents should be
addressed to the Exchange Agent as follows:
By Hand, Registered or Certified Mail or Overnight Courier:
U.S. Bank Trust National Association
U.S. Bank Trust Center
180 East Fifth Street
St. Paul, MN 55101
Attention: Specialized Finance Department
By Facsimile:
651-244-1537
Attention: Specialized Finance Department
Confirm by Telephone 651-
DELIVERY OF DOCUMENTS TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF DOCUMENTS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE DOES NOT
CONSTITUTE A VALID DELIVERY OF SUCH DOCUMENTS.
Fees and Expenses
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail. However, additional solicitations may be
made by facsimile, telephone or in person by officers and regular employees of
the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptance of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith and pay
other registration expenses, including fees and expenses of the Trustee, filing
fees, blue sky fees and printing and distribution expenses.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing New Notes or Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be issued in the name
of, any person other than the registered holder of the Old Notes tendered or if
a transfer tax is imposed for any reason other than the exchange of Old Notes
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered holder or any other persons) will be payable
by the tendering holder. If satisfactory evidence of payment of such taxes or
exemption is not submitted with the Letter of Transmittal, the amount of such
transfer taxes will be billed directly to such tendering holder.
Accounting Treatment
The New Notes will be recorded at the same carrying value as the Old Notes,
as reflected in the Company's accounting records on the date of the exchange.
Accordingly, no gain or loss will be recognized
36
by the Company for accounting purposes in connection with the Exchange Offer.
The expenses of the Exchange Offer will be amortized over the term of the New
Notes.
Resales of New Notes
Upon consummation of the Exchange Offer, holders of Old Notes who were not
prohibited from participating in the Exchange Offer and did not tender their Old
Notes will generally not have any registration rights under the Registration
Rights Agreement with respect to such nontendered Old Notes and such Old Notes
will continue to be subject to the restrictions on transfer contained in the
legend thereon. In general, the Old Notes may not be offered or sold unless
registered under the Securities Act and applicable state securities laws, except
pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. The Company does not
currently anticipate that it will register the Old Notes under the Securities
Act.
The Company is making the Exchange Offer in reliance on the position of the
staff of the Commission as set forth in certain interpretive letters addressed
to third parties in other transactions. However, the Company has not sought its
own interpretive letter and there can be no assurance that the staff of the
Commission would make a similar determination with respect to the Exchange Offer
as it has in such interpretive letters to third parties. Based on these
interpretations by the staff of the Commission, the Company believes that New
Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be
offered for resale, resold and otherwise transferred by a holder (other than (i)
a broker-dealer who purchased Old Notes directly from the Company for resale
pursuant to Rule 144A or any other available exemption under the Securities Act,
(ii) an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act or (iii) a broker-dealer who acquired the Old Notes as a result
of market-making or other trading activities), without further compliance with
the registration and prospectus delivery provisions of the Securities Act,
provided, that such holder is acquiring the New Notes in the ordinary course of
business and is not participating, and has no arrangement or understanding with
any person to participate, in the distribution of the New Notes. Any holder
wishing to accept the Exchange Offer must represent to the Company, as required
by the Registration Rights Agreement, that (i) it is not an "affiliate" of the
Company as defined in Rule 405 of the Securities Act, (ii) it is not a broker-
dealer that acquired Old Notes directly from the Company in order to resell them
pursuant to Rule 144A of the Securities Act or any other available exemption
under the Securities Act, (iii) it will acquire the New Notes in the ordinary
course of business and (iv) it is not participating, and does not intend to
participate, and has no arrangement or understanding with any person to
participate, in the distribution of the New Notes. Any holder of Old Notes that
is unable to make these representations to the Company will not be able to rely
on the interpretations of the staff of the Commission described above and
therefore will be required to comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any sale of such
Old Notes unless such sale is made pursuant to an exemption from such
requirements.
Each broker-dealer who receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it acquired the Old Notes for its own
account as a result of market-making activities or other trading activities and,
because it may be deemed a statutory underwriter, must agree that it will
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. Based on the position taken by the staff of the Commission in
the interpretive letters referred to above, the Company believes that
Participating Broker-Dealers may fulfill their prospectus delivery requirements
with respect to the New Notes received upon exchange of such Old Notes (other
than Old Notes that represent an unsold allotment from the original sale of the
Old Notes) with a prospectus meeting the requirements of the Securities Act,
which may be the prospectus prepared for an exchange offer so long as it
contains a description of the plan of distribution with respect to the resale of
such New Notes. Accordingly, this Prospectus may be used by a Participating
Broker-Dealer during the period referred to below in connection with resales of
New Notes received in exchange for Old Notes where such Old Notes were acquired
by such Participating Broker-Dealer for its own
37
account as a result of market-making or other trading activities. Subject to
certain provisions and time limitations set forth in the Registration Rights
Agreement, the Company has agreed that this Prospectus may be used by a
Participating Broker-Dealer in connection with resales of such New Notes. See
"Plan of Distribution." However, a Participating Broker-Dealer who intends to
use this Prospectus in connection with the resale of New Notes received in
exchange for Old Notes pursuant to the Exchange Offer must notify the Company,
or cause the Company to be notified, on or prior to the Expiration Date, that it
is a Participating Broker-Dealer. Such notice may be given in the space provided
for that purpose in the Letter of Transmittal or may be delivered to the
Exchange Agent at one of the addresses set forth herein under "--The Exchange
Agent; Assistance." A Participating Broker-Dealer who delivers this Prospectus
to purchasers in connection with resales of New Notes will be subject to certain
of the civil liabilities under the Securities Act and will be bound by the
provisions of the Registration Rights Agreement (including certain
indemnification rights and obligations). Any Participating Broker-Dealer who is
an "affiliate" of the Company may not rely on such interpretive letters and must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction.
In that regard, each Participating Broker-Dealer who surrenders Old Notes
pursuant to The Exchange Offer will be deemed to have agreed, by execution of
the Letter of Transmittal, that, upon receipt of notice from the Company of the
occurrence of any event or the discovery of any fact which makes any statement
contained in this Prospectus untrue in any material respect or which causes this
Prospectus to omit to state a material fact necessary in order to make the
statements contained herein, in light of the circumstances under which they were
made, not misleading or of the occurrence of certain other events specified in
the Registration Rights Agreement, such Participating Broker-Dealer will suspend
the sale of New Notes pursuant to this Prospectus until the Company has amended
or supplemented this Prospectus to correct such misstatement or omission and has
furnished copies of the amended or supplemented Prospectus to such Participating
Broker-Dealer or the Company has given notice that the sale of the New Notes may
be resumed, as the case may be.
Consequences of Failure to Exchange
Holders of Old Notes who are permitted to participate in the Exchange Offer
and who do not tender their Old Notes generally will not have any further
registration rights under the Registration Rights Agreement or otherwise.
Accordingly, any holder that does not exchange such holder's Old Notes for New
Notes will continue to hold the untendered Old Notes and will be entitled to all
the rights and limitations applicable thereto under the Indenture, except to the
extent that such rights or limitations, by their terms, terminate or cease to
have further effectiveness as a result of the Exchange Offer.
The Old Notes that are not exchanged for New Notes pursuant to the Exchange
Offer will continue to be subject to the restrictions on transfer contained in
the legend thereon. In general, the Old Note may not be offered or sold, unless
registered under the Securities Act, except pursuant to an exemption from, or in
a transaction not subject to, the Securities Act and applicable state securities
laws. The Company does not currently anticipate that it will register the Old
Notes under the Securities Act. Accordingly, such Old Notes may be resold only
(i) to the Company (upon redemption thereof or otherwise), (ii) pursuant to an
effective registration statement under the Securities Act, (iii) so long as the
Old Notes are eligible for resale pursuant to Rule 144A, to a Qualified
Institutional Buyer (as defined in the Securities Act) in a transaction meeting
the requirements of Rule 144A, (iv) outside the United States to a foreign
person pursuant to the exemption from the registration requirements of the
Securities Act provided by Regulation S, (v) to an institutional "accredited
investor" (as defined in the Securities Act) in a transaction exempt from the
registration requirements of the Securities Act, in each case in accordance with
any applicable securities laws of any state of the United States or other
applicable jurisdiction, or (vi) pursuant to any other available exemption from
the registration requirements of the Securities Act.
Miscellaneous
38
Participation in the Exchange Offer is voluntary and holders should
carefully consider whether to accept such offer. Holders of the Old Notes are
urged to consult their financial and tax advisors in making their own decisions
on what action to take.
The Company may in the future seek to acquire untendered Old Notes, to the
extent permitted by applicable law, in open market or privately negotiated
transactions, through subsequent exchange offers or otherwise. The Company has
no present plans to acquire any Old Notes that are not tendered in the Exchange
Offer or to file a registration statement to permit resales of any untendered
Old Notes.
HOLDERS OF OLD NOTES WILL NOT HAVE DISSENTERS' RIGHTS OR APPRAISAL RIGHTS
IN CONNECTION WITH THE EXCHANGE OFFER.
39
USE OF PROCEEDS
There will be no proceeds to the Company from the Exchange of the Old Notes
for New Notes pursuant to the Exchange Offer.
The net proceeds to the Company from the Offering were approximately $146.1
million, after deducting the Initial Purchasers' discount and other expenses
related to the Offering. The Company used the net proceeds of the Offering,
together with approximately $73.7 million of cash on hand, to (i) place $167.2
million of cash and U.S. Treasury Securities in trust with U.S. Bank Trust
National Association to effect the Covenant Defeasance; (ii) repay in full $52.0
million of outstanding indebtedness under the Amended and Restated Promissory
Note (the "Existing Credit Facility") dated June 30, 1997 executed by Empress
Hammond in favor of Bank of America National Trust and Savings Association; and
(iii) repay in full $0.6 million of outstanding vendor financing. See "Certain
Transactions," "Description of Certain Other Indebtedness," and "Description of
the New Notes."
40
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1998 and as adjusted to give effect to the Offering and the
application of the net proceeds therefrom. See "Use of Proceeds" and the
combined financial statements and notes thereto contained elsewhere in this
Prospectus.
March 31, 1998
-------------------
Actual As Adjusted
------ -----------
(in millions)
Current maturities of long-term debt.............................. $ 17.4 $ 17.4
Long-term debt:
Credit Facility................................................ 36.0 36.0
10-3/4% Notes to be redeemed in connection with the Covenant
Defeasance (1).............................................. 150.0 150.0
New Notes...................................................... -- 150.0
------ ------
Total long-term debt........................................ 203.4 353.4
Total stockholders' equity (2).................................... 65.1 65.1
------ ------
Total capitalization.............................................. $268.5 $418.5
====== ======
- --------------
(1) The 10-3/4% Notes to be redeemed in connection with the Covenant Defeasance
will be recorded as a liability until the redemption of the outstanding 10-
3/4% Notes is effected, which is anticipated to occur on April 1, 1999. The
effects of the refinancing related to the repayment of all other outstanding
Indebtedness of the Company has not been reflected in the table above.
(2) The impact of the premium ($8.1 million) on the redemption of the 10-3/4%
Notes and the write-off of the remaining deferred financing costs ($2.1
million) related to the 10-3/4% Notes will be recognized on April 1, 1999.
41
SELECTED COMBINED FINANCIAL DATA
The following selected combined financial data as of and for each of the
three years ended December 31, 1997, 1996 and 1995 have been derived from the
audited combined financial statements of the Company. The data presented below
as of and for each of the years ended December 31, 1994 and 1993 and as of and
for each of the three months ended March 31, 1998 and 1997 are unaudited. In the
opinion of the Company, such interim data includes all adjustments (which were
of a normal recurring nature) necessary for a fair presentation of the
information set forth therein. The Company's operations are subject to seasonal
factors, and therefore, the results of operations for each of the three months
ended March 31, 1998 and 1997 are not necessarily indicative of the results of
operations for the full year. The following data should be read in conjunction
with the combined financial statements and notes thereto included elsewhere in
this Prospectus. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
The Company believes the results of operations for each of the five years
in the period ended December 31, 1997 are not readily comparable to each other
because Empress Hammond commenced gaming operations on June 28, 1996. See "Risk
Factors--Competition" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Three months
ended
March 31, Year ended December 31,
---------------- ------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------- ------- -------- -------- -------- -------- --------
(in millions)
Statement of Operations Data:
Revenues
Casino.......................................... $ 91.3 $ 88.4 $346.0 $263.0 $202.3 $202.7 $172.8
Other, net of promotional allowances............ 5.6 5.6 23.6 15.7 12.3 12.6 14.5
------ ------ ------ ------ ------ ------ ------
Total net revenues............................ 96.9 94.0 369.6 278.7 214.6 215.3 187.3
Operating expenses
Casino.......................................... 15.1 15.7 64.8 48.1 30.7 29.1 18.7
Gaming and admission taxes...................... 30.2 27.1 108.0 73.1 47.1 46.9 38.9
Other departmental expenses..................... 26.0 24.9 113.4 77.7 56.1 51.3 35.5
Pre-opening expenses............................ -- -- -- 5.7 1.3 3.3 3.0
Depreciation and amortization................... 4.7 4.7 18.8 13.9 16.9 17.8 13.2
------ ------ ------ ------ ------ ------ ------
Total operating expenses...................... 76.0 72.4 305.0 218.5 152.1 148.4 109.3
------ ------ ------ ------ ------ ------ ------
Income from operations............................ 20.9 21.6 64.6 60.2 62.5 66.9 78.0
Interest expense.................................. (5.3) (5.7) (21.1) (18.3) (16.4) (11.5) (2.8)
Interest income................................... 1.0 1.1 3.3 3.5 5.2 2.9 0.4
State taxes....................................... (0.1) (0.1) (0.5) (0.5) (0.7) (0.8) (1.2)
------ ------ ------ ------ ------ ------ ------
Net income........................................ $ 16.5 $ 16.9 $ 46.3 $ 44.9 $ 50.6 $ 57.5 $ 74.4
====== ====== ====== ====== ====== ====== ======
Other Data:
Capital expenditures (1).......................... 7.2 2.0 16.1 106.0 7.4 44.3 34.6
Ratio of earnings to fixed charges(2)............. 4.1x 4.0x 3.1x 3.1x 4.0x 5.3x 25.3x
Balance Sheet Data:
Cash, cash equivalents and marketable securities.. $ 93.6 $ 82.8 $ 83.3 $ 75.7 $ 67.1 $ 62.8 $ 16.3
Total assets...................................... 302.4 291.0 291.5 288.3 201.8 208.2 92.9
Total debt........................................ 203.4 204.7 208.5 214.3 150.6 152.2 32.6
Stockholders' equity.............................. 65.1 57.7 55.9 49.6 36.8 33.4 48.8
- -------------
42
(1) Included in capital expenditures for the year ended December 31, 1996 is
$93.4 million in conjunction with the opening of Empress Hammond.
(2) The ratio of earnings to fixed charges has been computed by dividing
earnings available for fixed charges (income before state income taxes plus
fixed charges and the current period amortization of interest capitalized in
prior periods less capitalized interest) by fixed charges (interest expense
plus capitalized interest, amortization of debt issue costs and the interest
factor of rent expense).
43
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with, and is
qualified in its entirety by, the combined financial statements and the notes
thereto of the Company included elsewhere in the Prospectus.
Overview
The Company was organized in January 1994, as an S Corporation for Federal
and state income tax purposes, for the sole purpose of constructing Empress III
and leasing it to Empress Hammond. As a result of the Reorganization, the
Company is a holding company with Empress Hammond, Empress Joliet and Empress
Finance as its wholly-owned, Qualified Subchapter S Subsidiaries.
Empress Hammond was organized in November 1992 as an S Corporation for
Federal and state income tax purposes. A preliminary finding of suitability of
the owners of Empress Hammond was granted by the Indiana Gaming Commission on
November 17, 1995, and Empress Hammond was granted a five-year operating license
from the Indiana Gaming Commission on June 21, 1996. Empress Hammond commenced
gaming operations in Hammond, Indiana on June 28, 1996. On November 14, 1997,
Empress Hammond became a wholly-owned, Qualified Subchapter S Subsidiary of the
Company.
Empress Joliet was organized in December 1990 as an S Corporation for
Federal and state income tax purposes. A preliminary finding of suitability of
the owners of Empress Joliet was granted by the Illinois Gaming Board on July
16, 1991. Empress Joliet commenced gaming operations in Joliet, Illinois on June
17, 1992, and was granted a one-year renewal of its gaming license by the
Illinois Gaming Board on July 21, 1998. In connection with the Reorganization,
Empress Joliet became a wholly-owned, Qualified Subchapter S Subsidiary of the
Company.
Empress Finance was organized in January 1994 as a C Corporation for the
sole purpose of issuing the 10 3/4% Notes. In connection with the
Reorganization, Empress Finance became a wholly-owned, Qualified Subchapter S
Subsidiary of the Company. Hammond Residential is the wholly-owned subsidiary of
Empress Hammond and was formed primarily to satisfy certain residential
development commitments to the City of Hammond. Empress Finance has no business
activities except its obligations with respect to the 10 3/4% Notes and Hammond
Residential has no business activities except for satisfying such residential
development commitments.
Empress Opportunities was formed as an Unrestricted Subsidiary to serve as
a holding company under which the Company intends to explore business
opportunities other than the Company's gaming operations in Hammond, Indiana and
Joliet, Illinois. Empress Racing was formed as an Unrestricted Subsidiary to
hold a 50% ownership interest in a limited liability company which, subject to
certain regulatory approvals, intends to acquire certain outstanding secured
indebtedness of Sunshine Racing, Inc., the owner of the Woodlands Racetrack in
Kansas City, Kansas and to ultimately bid to purchase the Woodlands Racetrack in
an auction pursuant to a proceeding under Chapter 7 of the U.S. Bankruptcy Code.
Empress Mississippi was formed as an Unrestricted Subsidiary to investigate
business opportunities in Mississippi. As unrestricted Subsidiaries, Empress
Opportunities, Empress Racing and Empress Mississippi are not Guarantors of the
Notes.
Results of Operations
The Company's results from 1997 forward reflect full operations at Empress
Joliet and Empress Hammond, the 1996 results reflect a full year of operations
at Empress Joliet and one-half year of operations at Empress Hammond and the
1995 results reflect a full year of operations at Empress Joliet only. From May
1994 through September 1994, Empress Hammond operated a seasonal restaurant at
its current operating site. Empress
44
Hammond did not commence gaming operations until June 28, 1996. The following
discussion is based upon the combined operating results of the Company.
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31, 1997
Net revenues for the three months ended March 31, 1998 increased to
approximately $96.9 million, or 3.1% compared to net revenues of approximately
$94.0 million for the three months ended March 31, 1997. The increase in net
revenues was primarily attributable to increased casino revenues.
Casino revenues were approximately $91.3 million for the three months ended
March 31, 1998 compared to approximately $88.4 million for the three months
ended March 31, 1997, an increase of approximately $2.9 million, or 3.3%. This
increase was primarily due to an increased win per passenger of $40.85 compared
to $39.53 in 1997.
Revenues from non-gaming operations, consisting primarily of food and
beverage, parking, gift shop and hotel revenues, were approximately $6.9 million
for the three months ended March 31, 1998 compared to approximately $6.7 million
for the three months ended March 31, 1997, an increase of approximately $0.2
million, or 3.0%. The increase in revenues from non-gaming operations was
primarily attributable to an increase in food and beverage revenues at Empress
Hammond partially offset by a decrease in food and beverage revenues at Empress
Joliet.
Promotional allowances increased approximately $0.3 million for the three
months ended March 31, 1998 compared to the three months ended March 31, 1997.
This increase was primarily attributable to an increase in food and beverage
complementaries at Empress Joliet.
Casino expenses totaled approximately $15.1 million for the three months
ended March 31, 1998, a decrease of 3.8% or approximately $0.6 million compared
to $15.7 million for the three months ended March 31, 1997. This decrease was
principally due to a decrease in casino marketing and promotional expenses.
Gaming and admission taxes increased approximately $3.1 million to
approximately $30.2 million for the three months ended March 31, 1998 compared
to the three months ended March 31, 1997. This increase was due to the increase
in combined casino revenues and passengers, as well as a higher gaming tax
structure in Illinois.
Expenses relating to non-gaming operations, including depreciation and
amortization, for the three months ended March 31, 1998 totaled approximately
$30.7 million, an increase of 3.7% or approximately $1.1 million compared to the
three months ended March 31, 1997. This increase was primarily due to an
increase in general and administrative expenses, as well as advertising and
sales expenses.
Income from operations for the three months ended March 31, 1998 totaled
approximately $20.9 million compared to approximately $21.6 million for the
three months ended March 31, 1997, a decrease of approximately $0.7 million, or
3.2%. This decrease in income from operations was primarily attributable to a
decline in operating results at Empress Hammond due to increased competition
partially offset by an increase in operating results at Empress Joliet.
Net interest expense for the three months ended March 31, 1998 was
approximately $4.3 million, a decrease of approximately $0.3 million compared to
the three months ended March 31, 1997. This decrease was a result of lower
interest expense associated with decreased borrowings under the Existing Credit
Facility.
Net income amounted to approximately $16.5 million and $16.9 million for
the three months ending March 31, 1998 and 1997, respectively.
45
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Net revenues for the year 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 revenues 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 from
Indiana riverboats serving the Chicago 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
increase 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 serving the Chicago 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 of operations of Empress Hammond and hotel
revenue at Empress Joliet, partially offset by a decrease in food and beverage
revenue at Empress Joliet due to a reduction in the number of customers visiting
Empress Joliet due to increased competition serving the Chicago Market.
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 $64.8 million for the year ended
December 31, 1997, an increase of 34.7% or approximately $16.7 million compared
to the year ended December 31, 1996. This increase was principally due to a full
year of operations at Empress Hammond.
Gaming and admission taxes increased approximately $34.9 million to
approximately $108.0 million for the year ended December 31, 1997 compared to
the year ended December 31, 1996. This increase was due to the increase in
combined casino revenues and passengers.
Expenses relating to non-gaming operations, including depreciation and
amortization, for the year ended December 31, 1997 totaled approximately $132.2
million, an increase of 35.9% or approximately $34.9 million compared to the
year 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 operating results at Empress Joliet due to increased competition
serving the Chicago Market.
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 the additional interest
expense associated with increased borrowings under the Existing Credit Facility
and vendor financing of gaming equipment.
46
Net income amounted to approximately $46.3 million and $44.9 million for
the years December 31, 1997 and 1996, respectively.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net revenues for the year ended December 31, 1996 were approximately $278.7
million, an increase of 29.8% from net revenues of approximately $214.6 million
for the year ended December 31, 1995. The increase in net revenues was primarily
attributable to the opening of Empress Hammond in June, 1996 partially offset by
a decrease in revenues at Empress Joliet due to increased competition from
Indiana riverboats serving the Chicago Market.
Casino revenues were approximately $263.0 million for the year ended
December 31, 1996 compared to approximately $202.3 million for the year ended
December 31, 1995, an increase of approximately $60.7 million, or 30.0%. This
increase was primarily attributable to the opening of Empress Hammond in June
1996, partially offset by a decrease in revenues at Empress Joliet due to
increased competition serving the Chicago Market.
Revenues from non-gaming operations, consisting primarily of food and
beverage, admissions, parking, gift shop and hotel revenues, were approximately
$22.8 million for the year ended December 31, 1996 compared to approximately
$28.2 million for the year ended December 31, 1995, a decrease of approximately
$5.4 million, or 19.1%. The decrease in revenues from non-gaming operations was
primarily due to the full year impact of the elimination of admission charges in
August 1995 in response to customer and market demand, partially offset by an
increase in food and beverage revenues from the opening of Empress Hammond, as
well as hotel revenue at Empress Joliet.
Promotional allowances decreased approximately $8.7 million for the year
ended December 31, 1996 compared to the year ended December 31, 1995. This
decrease was primarily attributable to the elimination of admission fees and the
implementation of a player recognition program which rewards guests for their
number of visits and amount of play. Guests earn points and may use them for
cash back rewards, food and beverage or valuable gifts. Costs relating to this
reward program are classified as a casino expense, rather than classified as a
promotional allowance.
Casino expenses totaled approximately $48.1 million for the year ended
December 31, 1996, an increase of 56.9% or approximately $17.5 million compared
to the year ended December 31, 1995. This increase was principally due to the
opening of Empress Hammond as well as a player recognition program in effect for
the entire year.
Gaming and admission taxes increased approximately $26.0 million to
approximately $73.1 million for the year ended December 31, 1996 compared to the
year ended December 31, 1995. This increase was due to the increase in combined
casino revenues and passengers.
Expenses relating to non-gaming operations, including depreciation and
amortization, for the year ended December 31, 1996 totaled approximately $97.3
million, an increase of 30.9% or approximately $23.0 million compared to the
year ended December 31, 1995. This increase was primarily due to the opening and
operation of Empress Hammond, partially offset by a decrease in depreciation and
amortization expenses due to an increase in the useful lives of the Company's
riverboats and the expiration of a non-compete agreement.
Income from operations for the year ended December 31, 1996 totaled
approximately $60.2 million compared to approximately $62.5 million for the year
ended December 31, 1995, a decrease of approximately $2.3 million, or 3.8%. This
decrease in income from operations was primarily attributable to the cost of
opening
47
Empress Hammond as well as a decline in the operating results of Empress Joliet
due to increased competition serving the Chicago Market.
Net interest expense for the year ended December 31, 1996 was approximately
$14.8 million, an increase of approximately $3.7 million compared to the year
ended December 31, 1995. This increase was a result of the additional interest
expenses associated with increased borrowings under the Company's credit
facilities and vendor financing of gaming equipment.
Net income amounted to approximately $44.9 million and $50.6 million for
the years ended December 31, 1996 and 1995, respectively.
Liquidity and Capital Resources
The principal sources of capital for the Company since 1995 have been cash
provided from operations, credit facilities, non-recourse vendor financing, the
Old Notes and the 10 3/4% Notes. Concurrently with the Offering, the Company
undertook a Covenant Defeasance of the 10 3/4% Notes. See "Use of Proceeds,"
"Description of Certain Other Indebtedness" and "Description of the New Notes."
For the three months ended March 31, 1998, the Company generated cash flow
from operations of approximately $29.9 million compared to approximately $27.6
million for the three months ended March 31, 1997. This increase of
approximately $2.3 million was primarily attributable to an increase in other
accrued liabilities, partially offset by a decrease in accrued payroll and
related expenses.
During the three months ended March 31, 1998, the Company used cash to
purchase approximately $7.2 million of property and equipment primarily related
to the addition of the fourth deck on Empress III.
During the three months ended March 31, 1998, principal payments on
borrowings were approximately $5.1 million.
During the three months ended March 31, 1998 and 1997, stockholder
distributions totaled approximately $7.2 million and $8.8 million, respectively.
Of these distributions, approximately $7.2 million and approximately $5.1
million, respectively, were distributed to allow the Company's stockholders to
pay Federal and state income taxes due to the Company's Subchapter S status.
For the year ended December 31, 1997, proceeds from borrowings were $29.0
million of which $28.1 million were proceeds from the Existing Credit Facility
and $0.9 million was from vendor financing.
For the year ended December 31, 1997, the Company generated cash flow from
operations of approximately $70.3 million compared to approximately $64.3
million for the year ended December 31, 1996. This increase of approximately
$6.0 million was primarily attributable to a full year of operations of Empress
Hammond.
During the year ended December 31, 1997, the Company used cash to purchase
approximately $16.1 million of property and equipment. Approximately $11.9
million was related to the following expenditures at Empress Hammond: (i)
construction of an exterior access ramp for the parking garage; (ii)
commencement of construction of the fourth deck to Empress III; and (iii) other
miscellaneous maintenance capital expenditures. Approximately $4.2 million was
used in connection with the commencement of construction of Empress Joliet's
recreational vehicle park, childcare center and other miscellaneous maintenance
capital expenditures. During the year ended December 31, 1996, the Company used
cash to purchase approximately $106.0 million of property and equipment, of
which $93.4 million was used in conjunction with the opening of Empress Hammond,
$6.5 million was used to construct the Empress Joliet hotel and the remaining
$6.1 million was used
48
for other property improvements. In addition, the Company used approximately
$0.5 million and $4.8 million in the years ended December 31, 1997 and 1996,
respectively, for the purchase of other assets associated with the development
and opening of Empress Hammond.
During the years ended December 31, 1997 and 1996, principal payments on
borrowings were approximately $34.8 million and $3.0 million, respectively.
During the years ended December 31, 1997 and 1996 stockholder distributions
totaled approximately $40.1 million and $32.3 million, respectively. Of these
distributions, approximately $24.3 million and approximately $20.1 million,
respectively, was distributed to allow the stockholders to pay Federal and state
income taxes due to the Company's Subchapter S status.
The net proceeds of the Offering, together with approximately $28.9 million
of cash on hand, was used by the Company to effect the Covenant Defeasance, to
repay all other outstanding Indebtedness of the Company and to pay fees and
expenses in connection with the Refinancing. See "Use of Proceeds" and
"Description of Certain Other Indebtedness."
The Company's 1998 operating plan includes capital expenditures totaling
approximately $22.0 million, of which $7.2 million has been expended as of March
31, 1998. Planned capital improvements include the renovation of the exterior
and interior of the Empress Joliet complex, the addition of a nightclub at
Empress Joliet and the fourth deck on Empress III. The Company also intends to
explore the expansion of its operations into other gaming markets as
opportunities arise. The Company anticipates that cash on hand, the Credit
Facility and cash flows from operations will be sufficient to satisfy the
Company's cash requirements as currently contemplated. In the event such sources
are insufficient to satisfy the foregoing, or in the event that the Company
expands its operations into other gaming markets, the Company may need to obtain
additional capital either through debt and/or equity financings. See "Risk
Factors--Leverage and Ability to Service Debt," "--Expansion Opportunities," and
"Use of Proceeds."
49
BUSINESS
Overview
The Company is one of the largest operators of riverboat casinos serving
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 1997, the Company's casinos
registered approximately nine million customer admissions and had the highest
share of casino revenue in the Chicago Market (approximately 27%). The Company's
1997 average daily win per slot machine and table game of $308 and $2,168,
respectively, exceeded the averages of each of the nine U.S. riverboat casino
markets. For the twelve months ended March 31, 1998, the Company generated
approximately $372.5 million of net revenues and $82.8 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 the Chicago Market Casinos, operating under a limited number
of licenses granted by the States of Illinois and Indiana. These casinos
generated 1997 casino revenue of approximately $1.3 billion, ranking first among
all U.S. riverboat casino markets and capturing an estimated 6.8% of the total
U.S. casino market.
Empress Hammond features a newly built, 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
1,740 slot machines and 54 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, 1,011 slot machines and 52 table games. Empress Joliet
includes an approximately 150,000 square foot Egyptian themed pavilion featuring
lounge and award-winning dining facilities including the Oasis Bar, the
Steakhouse Alexandria, Cafe Casablanca and the Marrakech 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.
The Company actively pursues opportunities to expand its customer base by
developing additional amenities and by working to attract new customers from
outside the Chicago Market. Empress Joliet is the only Chicago Market Casino
with a hotel to accommodate overnight visitors. As a part of its development
plan, the Company expects to construct a 200 room deluxe hotel and a conference
center at Empress Hammond to expand its appeal to customers outside the Chicago
Market. 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.
Company Strengths
The Company believes that the following factors contribute significantly to
its success:
50
. 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 the fastest growing county in
the Chicago Market and is the only Chicago Market Casino to feature a
hotel, an off-track betting facility or 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 and number of slot machines. During 1997, the Company's
average daily slot machine and table win per unit exceeded the averages of
each of the nine U.S. riverboat casino markets. The Company's casinos also
had nearly two and one-half times as many 1997 customer admissions as any
other Chicago Market casino operator. For the past two years, the Company's
casinos received the "Best Blackjack Games in the U.S.A." award in Indiana
and Illinois 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 March 31, 1998, approximately
900,000 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.
Empress Hammond
Empress Hammond commenced gaming operations on June 28, 1996 and operates
Empress III, which departs on two-hour cruises every two hours from 8:30 a.m. to
2:30 a.m., seven days per week. Passengers can board 30 minutes prior to the
cruise time and can begin gaming immediately upon boarding. Including the fourth
deck, Empress III's gaming space is configured as follows:
Empress III Gaming Configuration
Number Number
------ ------
Slot Machines of Units(1) Table Games of Units(1)
- ------------- ----------- ----------- -----------
25c................... 682 Baccarat................ 1
50c................... 97 Blackjack............... 37
$1.................... 877 Caribbean Stud.......... 2
$2.................... 14 Craps................... 5
51
$5....................... 63 Let It Ride............. 5
$10...................... 2 Mini Baccarat........... 1
$25...................... 5 Roulette................ 3
----- --
Total Slot Machines...... 1,740 Total Table Games....... 54
===== ==
- --------------
(1) An additional 10 poker tables have been received but will not be used until
receipt of Indiana Gaming Commission approval.
The fourth deck on Empress III will allow the Company to offer a greater
variety of gaming than was previously offered, including a wider selection of
slot machines and additional table games, including poker.
Empress Hammond Pavilion
The Empress Hammond pavilion is a 125,000 square foot mythologically themed
facility featuring waterfalls, undersea volcanoes and a picturesque view of Lake
Michigan and the Chicago skyline. Amenities offered at the Empress Hammond
pavilion include the following:
. Three Restaurants: The Harborside Steakhouse is a steak and chops
restaurant with seating for 92 and private dining for 40. The Empressive
Buffet offers a broad selection of food items with seating for 154. The
Waves Deli offers customers quick fare such as hot dogs, sandwiches and
snack items, with seating for 62.
. Gift Shop: A gift shop offering a variety of items bearing the Company's
brand name is located in a strategic position in the pavilion to maximize
usage by customers.
. Lounge: Customers waiting for the next cruise can relax in the Blue Water
Lounge, which offers light snacks and beverages with seating for 90.
. Concierge Suite: A 1,900 square foot concierge suite overlooks the Hammond
marina. The concierge suite provides selected gaming customers the
opportunity to enjoy a well-appointed relaxation area with special
amenities and services prior to a cruise.
. Banquet Room: For private gatherings and group functions, a 2,380 square
foot room with seating for 150 is available.
. Parking Facilities: Customers are offered the convenience of valet parking
services or free access to the approximately 1,000 space sheltered parking
garage that is connected to the pavilion. The sheltered parking facility
offers benefits in inclement weather and advantages over the remote
parking/bus transportation system utilized at some of the other Chicago
Market Casinos. In August 1997, the Company completed a $7.2 million
addition to its parking garage, which further improved customer access and
traffic flow within the parking garage.
Empress Joliet
Empress Joliet commenced operations on June 17, 1992 and operates Empress I
and Empress II. With the ability to facilitate simultaneous docking of both
riverboats, Empress Joliet is able to offer to its customers a flexible cruise
schedule that limits the maximum time between boarding to 30 minutes during peak
gaming hours. Cruises depart every hour from 9:30 a.m. to 2:30 a.m., with an
additional 4:30 a.m. cruise each day, and
52
each cruise lasts two hours. Passengers can board 30 minutes prior to the cruise
time and can begin gaming immediately upon boarding. Empress I and Empress II's
combined gaming space is configured as follows:
Combined Empress I and Empress II Gaming Configuration
Number Number
------ ------
Slot Machines of Units(1) Table Games of Units(1)
- ------------- ----------- ----------- -----------
25c................... 386 Blackjack................. 32
50c................... 118 Caribbean Stud............ 4
$1.................... 447 Craps..................... 6
$5.................... 52 Let it Ride............... 4
$10................... 3 Mini Baccarat............. 2
$25................... 5 Roulette.................. 4
----- --
Total Slot Machines... 1,011 Total Table Games......... 52
===== ==
- ---------------
(1) Under Illinois law, casinos are limited to a maximum of 1,200 gaming
positions.
The configuration of Empress Joliet's slot machines and table games
outlined above is designed to fully utilize all 1,200 gaming positions allowed
under its Illinois License. On December 2, 1993, the Illinois Gaming Board
adopted a resolution authorizing gaming operators to maintain additional gaming
equipment on riverboats as long as no more than 1,200 gaming positions are
operated at any given time. The Company currently maintains 40 tournament slot
machines, in addition to those set forth in the table above, on Empress II and
utilizes these machines during slot tournaments.
Empress Joliet Pavilion
Empress Joliet owns the dock site and other facilities from which it
operates, all of which are located on approximately 350 acres along the Des
Plaines River. In 1994, Empress Joliet completed the expansion of its land-based
Egyptian themed pavilion which features approximately 150,000 square feet of
guest amenities, including the following:
. Three Restaurants: In 1998, Empress Joliet received the Silver Platter
Award for the #1 Casino Dining in the Chicago Market from Food Industry
News. The Steakhouse Alexandria, recipient of the 1995 Award of Excellence
from Wine Spectator, features fine dining with seating for 88. Cafe
Casablanca specializes in casual fare offering a wide range of menu items,
with seating for 150. Marrakech Buffet offers a broad selection of food
items with seating for 212.
. Gift Shop: The Palace Treasures gift shop offers a wide assortment of goods
and souvenirs, including, clothing, jewelry and gaming novelties.
. Off-Track Betting: Opened in 1994, the Empress Joliet OTB was the first
off-track betting facility to operate in an Illinois casino. This facility
was renovated and reconfigured in 1998 and is the only off-track betting
facility operating in a Chicago Market Casino.
. Lounge: Guests waiting for the next cruise may relax in the Oasis Bar. The
bar features a walk-out terrace that overlooks landscaped grounds, as well
as the dock.
. Concierge Suite: The concierge suite is available adjacent to the boarding
area to provide selected gaming customers with special amenities and
services, including a bar, television viewing area and food service.
53
. Banquet Room: The Egyptian themed Grand Ballroom can accommodate groups of
up to 400 people for special events, such as concerts, fund-raising
telethons and player parties.
. Parking Facilities: Empress Joliet offers over 2,350 well-lit parking
spaces, including handicapped, bus and valet areas, for the convenience of
its customers.
Empress Joliet Hotel
On August 2, 1996, the Company opened a three story hotel at Empress Joliet
featuring 80 deluxe rooms, 17 junior suites and 5 king-size suites, as well as a
fitness center and an indoor pool. The structure and exterior finish are matched
to the existing Empress Joliet pavilion. Both the junior and king-size suites
offer jacuzzi baths, and the king-size suites also offer separate living and
sleeping areas, a corner bar and a refrigerator. A meeting room, fully equipped
with current audio-visual equipment, is also available.
Marketing and Promotion
The Company has capitalized on its leading market position by developing a
strong brand identity during its nearly six years of operation. In addition to
mass media marketing, the Company utilizes on-site marketing, provides
complementary items to selected customers, maintains a proprietary customer
database and organizes customer transportation to its complexes. The Company's
on-site marketing efforts include a variety of promotions, media events,
merchandise give-aways, Empress Club membership and concierge suites. The
Company's proprietary database, with information derived from Empress Club
members, allows the Company to track and direct market to its customers. Through
its up-scale concierge suites, the Company offers selected customers
complementary food and non-alcoholic beverages while they wait for the next
cruise.
As part of the Company's marketing campaign, the Company organizes the
transportation of local group and bus tours to its facilities. The Company
focuses on this market segment through its relationships with local and out of
town tour operators and by contacting local businesses, organizations and other
groups. To date, the Company's marketing efforts to these groups have focused on
filling cruises during off peak hours. The typical customer from this market
segment tends to be a slot machine player. The Company generally monitors the
level of slot play in order to better focus its marketing efforts in an attempt
to maximize slot win.
Competition
The Company competes for customers principally on the basis of location,
variety and quality of amenities. Certain of the Company's competitors have
significantly greater financial and other resources than the Company. The
Company's primary competition consists of the Chicago Market Casinos, five of
which are located in Indiana (including Empress Hammond) and four of which are
located in Illinois (including Empress Joliet). To a lesser extent, the Company
also competes with casino operations in nearby states including Iowa and
Missouri where riverboat and/or dockside gaming have also been approved.
Additionally, the Company competes with casino gaming on Native American land,
including those located or proposed to be located in northern Indiana, Michigan
and Wisconsin. See "Risk Factors--Competition."
54
Commitments to Governmental Authorities
City of Hammond, Indiana
As a condition to the Indiana License, Empress Hammond made various
financial and other commitments to the City of Hammond, Indiana and other
Indiana governmental bodies pursuant to the Development Agreement. As of March
31, 1998, approximately $25.0 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 to make an annual
payment to the City of the greater of $3.0 million or certain percentages of
Empress Hammond's adjusted gross receipts as follows: 4.0% of adjusted gross
receipts up to $125.0 million; 6.0% of adjusted gross receipts over $125.0
million up to $200.0 million; and 4.0% of adjusted gross receipts in excess of
$200.0 million. In 1997, Empress Hammond paid approximately $9.9 million to the
City to satisfy this obligation.
Hammond Port Authority
Pursuant to the License Agreement with the Hammond Port Authority, 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.
Recent Developments
The Company recently formed Empress Racing as an Unrestricted Subsidiary to
hold a 50% ownership interest in a limited liability company which, subject to
regulatory approval of the Kansas Racing and Gaming Commission, intends to
acquire certain outstanding secured indebtedness of Sunshine Racing, Inc., the
owner of the Woodlands Racetrack in Kansas City, Kansas, and to ultimately bid
to purchase the Woodlands Racetrack in an auction pursuant to a proceeding under
Chapter 7 of the U.S. Bankruptcy Code. There can be no assurance that the
Woodlands transaction will be consummated or that, if consummated, that it will
be successful. In addition, the Company recently formed Empress Opportunities
and Empress Mississippi as Unrestricted Subsidiaries. See "Description of the
New Notes--Certain Covenants--Limitation on Designations of Unrestricted
Subsidiaries."
Properties
Empress Hammond owns Empress III, which has been pledged as security under
the Credit Facility. Supporting Empress III is the Empress Hammond pavilion,
which is situated on land owned by the City of Hammond and leased to Empress
Hammond pursuant to the License Agreement. Empress Hammond owns a ten acre
parcel of land near its complex. See "--Commitments to Governmental
Authorities--Hammond Port Authority" and "Certain Transactions."
Empress Joliet owns Empress I, Empress II, the dock site from which they
operate and the surrounding land-based facilities, all of which are located on
approximately 350 acres along the Des Plaines River in Joliet, Illinois.
Additionally Empress Joliet owns a 102-room hotel and an 80 space recreational
vehicle park.
55
Employees
As of March 31, 1998, the Company had approximately 3,150 full-time
employees, of which 2,650 are hourly employees and the remainder are salaried
employees. Approximately 12.7% 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,
which is being converted into a formal contract, 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. See "Management."
The Reorganization
Concurrently with the Offering, the Company effected the Reorganization
pursuant to which (i) the Company changed its name from LMC Leasing, Ltd. to
Empress Entertainment, Inc., (ii) Empress Joliet merged into a newly-formed
wholly-owned subsidiary of the Company, with Empress Joliet surviving the
merger, (iii) Empress Joliet sold its 60% common stock interest in Empress
Finance to the Company and (iv) the Company contributed Empress III to Empress
Hammond. Immediately after the Reorganization, Empress Joliet and Empress
Finance became wholly-owned subsidiaries of the Company. Following the
Reorganization, the Company operates Empress III through its wholly-owned
subsidiary Empress Hammond and operates Empress I and Empress II through its
wholly-owned subsidiary Empress Joliet.
Legal Proceedings
On July 17, 1998, a lawsuit was filed against Empress Hammond and Empress
Joliet and four of their employees in the United States District Court for the
Northern District of Illinois. The lawsuit, brought by a current female
employee of Empress Hammond and a former female employee of Empress Hammond,
alleges that Empress Hammond and Empress Joliet 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 its 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 compliant and intends to vigorously
contest this matter. There can be no assurances, however, that Empress Joliet
and Empress Hammond will not be found liable for an amount that could have a
material adverse effect on the Company.
The City of Hammond is presently 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. Under the terms of the Development
Agreement, Empress Hammond is responsible for the payment of all costs incurred
by the City of Hammond with respect to this litigation. The two appraisers
representing the City of Hammond appraised the subject property at approximately
$36,000 and $41,000, respectively. The two appraisers representing the former
property owner appraised the property at $6.6 million and $8.9 million,
respectively. Two court-appointed appraisers valued the subject property at
$959,000 and one valued it at $455,776. On December 8, 1995, the City of Hammond
deposited $959,000 with the Clerk of the Court, which amount was tendered to the
City of Hammond by Empress Hammond. The Company anticipates that such amount
should cover any judgment or settlement amount. There can be no assurances,
however, that the court will not find in favor of the defendant for a sum
materially in excess of the amount placed in escrow.
56
A lawsuit was filed on October 25, 1996 in Harrison County, Indiana by
three individuals residing in counties abutting the Ohio River against the State
of Indiana, the 108th Indiana General Assembly, the Indiana Gaming Commission
and individual members of the Indiana Gaming Commission. The lawsuit challenges
the constitutionality of the Indiana Riverboat Act on the grounds that (i) it
allegedly creates an unequal privilege because under the Indiana Riverboat Act
"citizens opposed to riverboat gambling must win several elections to ensure
riverboat gambling is not allowed in their county" but "citizens who support
riverboat gambling need only win once to entrench riverboat gambling
indefinitely into a county"; and (ii) it was enacted as a provision attached to
a state budget bill allegedly in violation of an Indiana constitutional
provision requiring legislative acts to be confined to one subject and matters
properly connected with the subject. The defendants have filed an answer to the
complaint generally denying the allegations. The Indiana Supreme Court has
previously upheld the constitutionality of the Indiana Riverboat Act, although
the prior challenge was on different grounds than those contained in the
recently filed lawsuit. If the Indiana Riverboat Act ultimately were held
unconstitutional it would, absent timely corrective legislation, have a material
adverse effect on the Company's operations.
57
REGULATORY MATTERS
Indiana
The Indiana Riverboat Act authorizes the issuance of up to 11 riverboat
gaming licenses on waterways located in Indiana counties which are contiguous to
Lake Michigan, the Ohio River or Patoka Lake. The Indiana Gaming Commission has
not considered applicants for the eleventh license since the Patoka Lake site
has been determined by the U.S. Army Corps of Engineers to be unsuitable for a
casino vessel project. The Indiana Riverboat Act strictly regulates the
facilities, persons, associations and practices related to gaming operations
pursuant to the police powers of the State of Indiana, including comprehensive
law enforcement provisions. The Indiana Riverboat Act vests the Indiana Gaming
Commission with the power and duties of administering, regulating and enforcing
the system of riverboat gaming in the State of Indiana. The Indiana Gaming
Commission's jurisdiction extends to every person, association, corporation,
partnership and trust involved in riverboat gaming operations in the State of
Indiana.
Owner's Licenses
The Indiana Riverboat Act requires the owner of a riverboat gaming
operation to hold an owner's license issued by the Indiana Gaming Commission.
The Indiana Gaming Commission is authorized to issue 11 owner's licenses
statewide. Each license granted entitles the licensee to own and operate one
riverboat and gaming equipment as part of the gaming operation. A licensee may
own no more than a 10% interest in any other owner's license under the Indiana
Riverboat Act.
The Indiana Riverboat Act restricts the granting of the 11 owner's licenses
by location. The 11 licenses must be awarded as follows: (i) two licenses for
riverboats operating from Gary; (ii) one license for a riverboat operating in
Hammond; (iii) one license for a riverboat operating in East Chicago; (iv) one
license for a riverboat operating in any city located in LaPorte, Porter or Lake
counties, not including the above-named cities; (v) five licenses for riverboats
that operate upon the Ohio River from counties contiguous thereto and with no
more than one operating in any county; and (vi) one license for a riverboat
operating on Patoka Lake from either DuBois, Crawford or Orange Counties.
Each owner's license runs for a period of five years. Thereafter, the
license is subject to renewal on an annual basis upon a determination by the
Indiana Gaming Commission that the licensee continues to be eligible for an
owner's license pursuant to the Indiana Riverboat Act and the rules and
regulations adopted thereunder. A licensed owner undergoes a complete
investigation every three years. A licensed owner may apply for and may hold
other licenses that are necessary for the operation of a riverboat, including
licenses to sell alcoholic beverages, a license to prepare and serve food and
any other necessary license. Furthermore, the Indiana Riverboat Act requires
that officers, directors and employees of a gaming operation and suppliers of
gaming equipment, devices, and supplies and certain other suppliers be licensed.
All Indiana state excise taxes, use taxes, and gross retail taxes apply to sales
on a riverboat.
Applicants for licensure must submit comprehensive application and personal
disclosure forms and undergo an exhaustive background investigation prior to the
issuance of a license. The applicant must also disclose the identity of every
shareholder or participant of the applicant and provide specific information
with respect to certain shareholders holding significant interests (5% or
greater) in the applicant. The Indiana Gaming Commission has the authority to
request specific information on any shareholder.
A riverboat owner licensee or any other person may not lease, hypothecate,
borrow money against or loan money against an owner's riverboat gaming license.
An ownership interest in an owner's riverboat gaming license may only be
transferred in accordance with the regulations promulgated under the Indiana
Riverboat Act.
58
Regulation of Gaming Operations
The Indiana Riverboat Act does not limit the maximum bet or per patron
loss. Minimum and maximum wagers on games are set by the licensee. Wagering may
not be conducted with money or other negotiable currency. No person under the
age of 21 is permitted to wager, and wagers may only be taken from a person
present on a licensed riverboat.
Riverboats operating in Indiana must (i) have a valid certificate of
inspection from the U.S. Coast Guard to carry at least 500 passengers; and (ii)
be at least 150 feet long. Any riverboat that operates on the Ohio River must
replicate, as nearly as possible, historic Indiana steamboat passenger vessels
of the nineteenth century. Riverboats operating on Lake Michigan or Patoka Lake
need not meet this requirement.
Gaming sessions are generally required to be at least two hours and are
limited to a maximum duration of four hours. No gaming may be conducted while
the boat is docked, except (i) for 30-minute time periods at the beginning and
end of each cruise while the passengers are embarking and disembarking (total
gaming time is limited to four hours, however, including the pre- and post-
docking periods); and (ii) when weather or water conditions prevent the boat
from cruising. The Indiana Gaming Commission may grant extended cruise hours in
its discretion. If the master of the riverboat reasonably determines and
certifies in writing that specific weather conditions or water conditions
present a danger to the riverboat and the riverboat's passengers and crew, the
riverboat may remain docked and gaming may take place until (i) the master
determines that the conditions have sufficiently diminished for the riverboat to
safely proceed; or (ii) the duration of the authorized excursion has expired.
After consultation with the U.S. Army Corps of Engineers, the Indiana
Gaming Commission may determine the available navigable waterways that are
suitable for the operation of riverboats under the Indiana Riverboat Act. If the
U.S. Army Corps of Engineers rescinds an approval for the operation of
riverboats on a waterway, a license issued under the Indiana Riverboat Act is
void and the holder may not conduct or continue gaming operations under the
Indiana Riverboat Act. The Indiana Gaming Commission requires employees working
on a riverboat to have a valid merchant marine document from the U. S. Coast
Guard.
The Indiana Riverboat Act imposes a 20% wagering tax on adjusted gross
receipts from gaming. The tax imposed is to be paid by the licensed owner to the
Indiana Department of State Revenue before the close of the business day
following the day when the wagers are made. The Indiana Riverboat Act also
requires that licensees pay a $3.00 admission tax for each person admitted to a
gaming excursion. A riverboat license may be suspended for failure to pay such
tax as required pursuant to the Indiana Riverboat Act. Riverboats are assessed
for property tax purposes as real property and are taxed at rates determined by
local taxing authorities.
The Indiana Gaming Commission may subject a licensee to fines, suspension
or revocation of its license for any act that is in violation of the Indiana
Riverboat Act, the regulations of the Indiana Gaming Commission, or for any
other fraudulent act. In addition, the Indiana Gaming Commission may revoke an
owner's license if the licensee has not begun regular riverboat excursions prior
to the end of the twelve month period following receipt of a license from the
Indiana Gaming Commission or if the Indiana Gaming Commission determines that
the revocation of the license is in the best interests of the State of Indiana.
A holder of a gaming license is required to post bond with the Indiana Gaming
Commission in an amount that the Indiana Gaming Commission determines will
adequately reflect the amount that a local community will expend for
infrastructure and other facilities associated with a riverboat operation.
The Indiana Riverboat Act places special emphasis upon minority and women's
business enterprise participation in the riverboat industry. Any person issued a
riverboat owner's license must establish goals of expending at least 10% of the
total dollar value of the licensee's contracts for goods and services with
minority
59
business enterprises and 5% of the total dollar value of the licensee's
contracts for goods and services with women's business enterprises.
An institutional investor which acquires 5% or more of any class of voting
securities of a holding company of a licensee is required to notify the Indiana
Gaming Commission and to provide additional information, and may be subject to a
finding of suitability. A person who acquires 5% or more of any class of voting
securities of a holding company of a licensee is required to apply to the
Indiana Gaming Commission for a finding of suitability.
A riverboat owner licensee may not enter into or perform any contract or
transaction in which it transfers or receives consideration which is not
commercially reasonable or which does not reflect the fair market value of the
goods and services rendered or received. All contracts are subject to
disapproval by the Indiana Gaming Commission. A riverboat owner licensee or an
affiliate may not enter into a debt transaction of $1.0 million or more without
the prior approval of the Indiana Gaming Commission. The Indiana Gaming
Commission has a rule requiring the reporting of certain currency transactions,
which is similar to that required by Federal authorities. See "--Other
Applicable Non-Gaming Regulations."
The Indiana Riverboat Act prohibits contributions to a candidate for a
state, legislative, or local office, or to a candidate's committee or to a
regular party committee by the holder of a riverboat owner's license or a
supplier's license, by an officer of a licensee or by an officer of a person
that holds at least a 1% interest in the licensee. The Indiana Gaming Commission
has promulgated a rule requiring quarterly reporting by the holder of a
riverboat owner's license or a supplier's license or officers of the licensee,
officers of persons that hold at least a 1% interest in the licensee, and of
persons who directly or indirectly own a 1% interest in the licensee.
The Indiana Gaming Commission adopted a rule which prohibits a distribution
by a riverboat licensee to its partners, shareholders, itself, or any affiliated
entity, if the distribution would impair the financial viability of the
riverboat gaming operation. The Indiana Gaming Commission has adopted a rule
which requires riverboat licensees to maintain, on a quarterly basis, a cash
reserve in the amount of the actual payout for three days, and the cash reserve
would include cash in the casino cage, cash in a bank account in Indiana, or
cash equivalents not committed or obligated.
The Governor of Indiana has appointed a Gaming Impact Study Commission
chaired by the Attorney General to review the impact of all forms of gaming in
Indiana and to issue its final report by December 31, 1999.
Illinois
The Illinois Riverboat Act authorizes the issuance of up to ten riverboat
gaming licenses by the five-member Illinois Gaming Board on navigable streams
within or forming a boundary of Illinois, except for Lake Michigan and any
waterway in Cook County, which includes the City of Chicago. The Illinois
Riverboat Act regulates the facilities, persons, associations and practices
related to riverboat gaming operations. The Illinois Riverboat Act grants the
Illinois Gaming Board specific powers and duties, and all other powers necessary
and proper to fully and effectively execute the Illinois Riverboat Act for the
purpose of administering, regulating and enforcing the system of riverboat
gaming. The Illinois Gaming Board's jurisdiction extends to every person,
association, corporation, partnership and trust involved in riverboat gaming
operations in Illinois.
Owner's Licenses
The Illinois Riverboat Act requires the owner of a riverboat gaming
operation to hold an owner's license issued by the Illinois Gaming Board. The
Illinois Gaming Board is authorized to issue ten owner's licenses
60
statewide. Each owner's license permits up to two boats as a part of a single
riverboat gaming operation. No entity may be licensed as the owner of more than
one riverboat gaming operation in Illinois, although a licensed owner may hold
up to 10% of a second riverboat gaming operation in Illinois.
The Illinois Riverboat Act restricts the granting of certain of the ten
owner's licenses by location. Four licenses are reserved for operators docking
at sites on the Mississippi River, one for an operator docking at a site on the
Illinois River south of Marshall County and one for an operator docking at a
site on the Des Plaines River in Will County. The remaining four owner's
licenses are not restricted as to location. In addition to the ten owner's
license which are authorized under the Illinois Riverboat Act, the Illinois
Gaming Board may issue special event licenses allowing persons who are not
otherwise licensed to conduct riverboat gaming and to conduct such gaming on a
specified date or series of dates. Riverboat gaming under such a license may
take place on a riverboat not normally used for riverboat gaming.
An owner's license is issued for an initial period of three years and must
be renewed annually thereafter. An owner's license is eligible for renewal upon
payment of the applicable fee and a determination by the Illinois Gaming Board
that the licensee continues to meet all of the requirements of the Illinois
Riverboat Act. The Illinois Gaming Board also requires that officers, directors,
shareholders and employees of a gaming operation and suppliers of gaming
equipment, devices and supplies and certain other suppliers be licensed.
Licenses issued by the Illinois Gaming Board may not be transferred to another
person or entity. All licensees must maintain their suitability for licensure
and have a continuing duty to disclose any material changes in information
provided to the Illinois Gaming Board.
Applicants for and holders of an owner's license are required to obtain
formal approval from the Illinois Gaming Board for changes in: (i) key
personnel, including officers, directors, managing agents, or holders of a 5% or
greater ownership interest in the business entity; (ii) its organizational form;
(iii) the equity and debt capitalization of the entity; (iv) investors and/or
debt holders; (v) sources of funds; (vi) the applicant's economic development
plan; (vii) riverboat capacity or significant design changes; (viii) the number
of gaming positions; (ix) anticipated economic impact; or (x) oral or written
agreements relating to the acquisition or disposition of property of a value
greater than $1,000,000. A holder of an owner's license is allowed to make
distributions to its partners, stockholders or itself only to the extent that
such distribution would not impair the financial viability of the gaming
operation. Factors to be considered by the licensee include, but are not limited
to, the following: (i) working capital requirements, (ii) debt service
requirements, (iii) requirements for repairs and maintenance and (iv) capital
expenditure requirements.
The Illinois Gaming Board will require a personal disclosure from any
person or entity (unless such person or entity qualifies as an institutional
investor) who or which, individually or in association with others, acquires,
directly or indirectly, beneficial ownership of more than 5% of any class of
voting securities or non-voting securities convertible into voting securities of
a publicly traded corporation which holds an ownership interest or a beneficial
interest in the holder of an owner's license. If the Illinois Gaming Board
denies an application for such an acquisition, commencing as of the date the
Illinois Gaming Board issues a notice that it denies such application, it will
be unlawful for such applicant to receive any dividends or interest on his or
its securities, to exercise, directly or indirectly, any right conferred by such
securities or to receive any remuneration in any form from any person or entity
holding any license under the Illinois Riverboat Act for services rendered or
otherwise. If the Illinois Gaming Board denies an application for such a
transfer and if no hearing is requested or if the Illinois Gaming Board issues a
final order of disqualification, the holder of the affected owner's license
shall purchase all of the disqualified person's or entity's securities at the
lesser of either the market price or the purchase price of such securities. An
ownership interest in a holder of an owner's license may be transferred or
pledged as collateral only with the consent of the Illinois Gaming Board.
Regulation of Gaming Operations
61
The Illinois Riverboat Act does not limit the maximum bet or per patron
loss, and licensees may set any maximum or minimum limits on wagering. No person
under the age of 21 is permitted to wager in Illinois.
Under the Illinois Riverboat Act, vessels must have the capacity to hold a
minimum of 500 persons if operating on the Mississippi River or the Illinois
River south of Marshall County, and a minimum of 400 persons on any other
waterway.
The number of gaming positions is limited to a maximum of 1,200 per
license. All riverboats must be accessible to disabled persons, must be either a
replica of a 19th century Illinois riverboat or be of a casino cruise ship
design, and must comply with applicable Federal and state laws, including, but
not limited to, U.S. Coast Guard regulations.
Gaming sessions are generally limited to a maximum duration of four hours.
No gaming may be conducted while the boat is docked, except (i) for 30-minute
time periods at the beginning and end of each cruise while the passengers are
embarking and disembarking (total gaming time, however, including such
embarkation and disembarkation, is limited to a maximum of four hours) and (ii)
when weather or mechanical problems prevent the boat from cruising. If a
riverboat captain reasonably determines that it is unsafe to transport
passengers on the waterway due to inclement weather or that the riverboat has
been rendered temporarily inoperable by mechanical or structural difficulties or
river icing, the captain must either not leave the dock or immediately return to
it in which event a gaming excursion may commence or continue while the
gangplank or its equivalent is raised and remains raised. Special event extended
cruises may be authorized by the Illinois Gaming Board.
A $2 per person admission tax is imposed on the owner of a riverboat
operation. Prior to January 1, 1998, the Illinois Riverboat Act imposed a 20%
tax on all adjusted gross receipts on each Illinois gaming vessel. Effective on
January 1, 1998, the Illinois Riverboat Act was amended to impose the following
graduated wagering tax rates on adjusted gross receipts from gaming: (i) 15% of
the calendar year adjusted gross receipts up to and including $25.0 million;
(ii) 20% of the calendar year adjusted gross receipts in excess of $25.0 million
but not exceeding $50.0 million; (iii) 25% of the calendar year adjusted gross
receipts in excess of $50.0 million but not exceeding $75.0 million; (iv) 30% of
the calendar year adjusted gross receipts in excess of $75.0 million but not
exceeding $100.0 million; and (v) 35% of the calendar year adjusted gross
receipts in excess of $100.0 million. The licensee is required to wire transfer
all such gaming tax payments to the Illinois Gaming Board.
The Illinois Gaming Board is authorized to conduct investigations into the
conduct of gaming and into alleged violations of the Illinois Riverboat Act and
to take such disciplinary and enforcement action as it may deem necessary and
proper. Employees and agents of the Illinois Gaming Board have access to and may
inspect any facilities relating to riverboat gaming operations at all times.
A holder of any license is subject to the imposition of penalties and
fines, suspension or revocation of such licence, or other action for any act or
failure to act by such holder or his or her agents or employees, that is
injurious to the public health, safety, morals, good order and general welfare
of the people of the State of Illinois, or that would discredit or tend to
discredit the Illinois gaming industry or the State of Illinois. Any riverboat
operation not conducted in compliance with the Illinois Riverboat Act may
constitute an illegal gaming place and consequently may be subject to criminal
penalties, which penalties include possible seizure, confiscation and
destruction of illegal gaming devices and seizure and sale of riverboats and
dock facilities to pay any unsatisfied judgment that may be recovered and any
unsatisfied fine that may be levied. The Illinois Riverboat Act also provides
for civil penalties, equal to the amount of gross receipts derived from wagering
on gaming, whether unauthorized or authorized, conducted on the day of any
violation. The Illinois Gaming Board may revoke or suspend licenses, as the
Illinois Gaming Board may see fit and in compliance with applicable laws of the
State of Illinois regarding administrative procedures, and may suspend an
owner's license, without notice or hearing, upon a determination that the safety
or health of patrons or employees is jeopardized by continuing a riverboat's
operation. The suspension may remain in effect until the Illinois Gaming Board
62
determines that the cause for suspension has been abated and it may revoke the
owner's license upon a determination that the owner has not made satisfactory
progress toward abating the hazard.
The Illinois Gaming Board may waive any licensing requirement or procedure
provided by rule if it determines that such waiver is in the best interests of
the public and the gaming industry.
Native American Gaming
The Federal Indian Gaming Regulatory Act of 1988 (the "Gaming Act")
provides that a Native American tribe may conduct defined gaming activities in a
state only in accordance with a compact between the tribe and the state in which
the gaming activities are located. The Gaming Act imposes on a state a duty to
negotiate in good faith with the tribe for purposes of forming a compact and
authorizes a tribe to file suit in Federal court to compel the state to perform
that duty. In March 1996, the U.S. Supreme Court decided, in the case of
Seminole Tribe of Florida v. Florida, that, under the Eleventh Amendment to the
U.S. Constitution (state sovereign immunity), Congress did not have the power to
grant Federal court jurisdiction under the Gaming Act over a state that did not
consent to be sued. As a result of this decision, the future of Native American
gaming under Federal and state laws and regulations is uncertain and no
assurance can be given with respect to future developments including, among
other things, rulemaking by the U.S. Department of the Interior's Bureau of
Indiana Affairs.
Other Applicable Non-Gaming Regulatory Requirements
The Company is subject to certain Federal, state and local safety and
health laws, regulations and ordinances that apply to non-gaming businesses
generally, such as the Clean Air Act, Clean Water Act, Occupational Safety and
Health Act, Resource Conservation Recovery Act and the Comprehensive
Environmental Response, Compensation and Liability Act. The Company has not
made, and does not anticipate making, material expenditures with respect to such
environmental laws and regulations. However, the coverage and attendant
compliance costs associated with such laws, regulations and ordinances may
result in future additional costs to the Company's operations. For example, in
1990 Congress enacted the Oil Pollution Act to consolidate and rationalize
mechanisms under various oil spill response laws. The Department of
Transportation has proposed regulations requiring owners and operators of
certain vessels to establish through the U.S. Coast Guard evidence of financial
responsibility in the amount of $5.5 million for clean-up of oil pollution. This
requirement would be satisfied by either proof of adequate insurance (including
self-insurance) or the posting of a surety bond or guaranty.
The riverboats operated by the Company must comply with U.S. Coast Guard
requirements as to boat design, on-board facilities, equipment, personnel and
safety. Each of them must hold a Certificate of Seaworthiness or must be
approved by the American Bureau of Shipping ("ABS") for stabilization and
flotation, and may also be subject to local zoning and building codes. The U.S.
Coast Guard requirements establish design standards, set limits on the operation
of the vessels and require individual licensing of all personnel involved with
the operation of the vessels. Loss of a vessel's Certificate of Seaworthiness or
ABS approval would preclude its use as a floating casino.
All shipboard employees of the Company, including those who have nothing to
do with the actual operation of the vessel (such as dealers, waiters and
security personnel) may be subject to the Jones Act which, among other things,
exempts those employees from state workers' compensation awards.
63
MANAGEMENT
Executive Officers and Directors
The following table sets forth the names, ages and principal position of
the executive officers and directors of the Company and each of the Guarantors:
Name Age Position(1)
- ---- --- --------------------------------------------------------------------
Peter A. Ferro, Jr.............. 47 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............... 39 President of the Company, Empress Hammond and Empress Joliet
John G. Costello................ 36 Vice President, Chief Financial Officer and Treasurer of the Company
and each of the Guarantors
Michael W. Hansen............... 46 Vice President, Chief Legal Officer and Secretary of the Company and
each of the Guarantors
Rick S. Mazer................... 43 Vice President--General Manager of Empress Hammond
David F. Fendrick............... 48 Vice President--General Manager of Empress Joliet
Charles P. Hammersmith, Jr.(2).. 46 Director of each of the Company, Empress Joliet, Empress Hammond
and Empress Finance
Robert W. Kegley, Sr.(2)........ 56 Director of each of the Company, Empress Joliet, Empress Hammond,
and Empress Finance
Thomas J. Lambrecht(2).......... 48 Chairman of the Board and Director of each of the Company, Empress
Joliet, Empress Hammond and Empress Finance
William J. McEnery.............. 55 Director of each of the Company, Empress Joliet, Empress Hammond
and Empress Finance
Edward T. McGowan............... 61 Director of each of the Company, Empress Joliet, Empress Hammond
and Empress Finance
William J. Sabo................. 59 Director of each of the Company, Empress Joliet, Empress Hammond
and Empress Finance
- -------------
(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.
64
(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.
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.
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.
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.
Charles P. Hammersmith, Jr. Mr. Hammersmith has been a Director of each of
the Company, Empress Joliet, Empress Hammond 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.
65
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 Joliet, Empress Hammond 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 Joliet, Empress Hammond 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. See "Risk Factors--Gaming
Licensing and Regulation--General."
William J. McEnery. Mr. McEnery has been a Director of each of the Company,
Empress Joliet, Empress Hammond 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. See "Risk Factors--Gaming Licensing and Regulation-
- -General."
Edward T. McGowan. Mr. McGowan has been a Director of each of the Company,
Empress Joliet, Empress Hammond 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 and
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 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. See "Certain Transactions."
66
SUMMARY COMPENSATION TABLE
Name and Principal Position Annual Compensation
- --------------------------- ---------------------
All other
Year Salary (1) Bonus (2) compensation(3)
---- ---------- --------- ---------------
Peter A. Ferro, Jr.
President and Chief Executive Officer(4)........... 1997 $389,231 $ -- $ 3,781
1996 -- -- --
1995 -- -- --
Joseph J. Canfora
President(4)....................................... 1997 250,000 125,000 29,075
1996 -- -- --
1995 -- -- --
William J. Sabo
Former Vice Chairman of the Board(5)............... 1997 220,673 -- 5,678
1996 225,000 70,000 9,132
1995 225,000 100,000 20,089
Michael W. Hansen
Chief Legal Officer................................ 1997 202,539 70,000 4,564
1996 189,423 100,000 3,955
1995 160,000 100,000 2,565
John G. Costello
Chief Financial Officer............................ 1997 134,423 50,000 5,470
1996 112,423 32,000 3,951
1995 90,000 22,500 1,947
- -------------
(1) The services and salaries of the executive officers are allocated evenly
between Empress Hammond and Empress Joliet. The salaries listed represent
the full, unallocated amount of the named executive's salary.
(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. The bonuses
listed represent the full, unallocated amount of the named executive's
bonus.
(3) 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.
Footnotes continued on following page
67
(4) 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.
(5) Mr. Sabo served as Vice Chairman of the Board of the Company, Empress
Hammond, Empress Joliet and Empress Finance until the annual stockholders
meetings of the Company in January 1998. Mr. Sabo's employment agreement
with Empress Hammond expired on December 31, 1997. Mr. Sabo currently
serves as a consultant to Empress Hammond and Empress Joliet. See "Certain
Transactions--Other Relationships."
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.
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
68
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 Joliet and Empress
Hammond. 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 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.
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.
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,
69
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.
William J. Sabo. Empress Joliet and William J. Sabo were parties to an
employment agreement dated October 23, 1991, as amended March 3, 1992. The
agreement expired on December 31, 1997. Mr. Sabo currently serves as a
consultant to Empress Hammond and Empress Joliet. See "Certain Transactions--
Other Relationships."
Limitations on Directors' and Officers' Liability
The by-laws of the Company, Empress Hammond, Empress Joliet and Empress
Finance provide that each corporation will have the power to indemnify any
person who is or was a director, officer, employee or agent of the corporation,
or who is or was serving at the request of the corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, or other enterprise to the fullest extent permitted by law.
The Company and Empress Finance are each incorporated under the laws of the
State of Delaware. The Company's and Empress Finance's respective Certificates
of Incorporation provide that a director of such corporation shall not be
personally liable to such corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director to the fullest extent permitted by
law. The effect of this provision in the Company's and Empress Finance's
respective Certificates of Incorporation is to eliminate the rights of the
corporation and its stockholders (through stockholders' derivative suits on
behalf of the Company or Empress Finance) to recover monetary damages against a
director for breach of the fiduciary duty of care as a director (including
breaches resulting from negligent or grossly negligent behavior) except in
certain limited situations. This provision does not limit or eliminate the
rights of the Company or Empress Finance or any of their respective stockholders
to seek non-monetary relief such as an injunction or rescission in the event of
a breach of a director's duty of care. These provisions do not alter the
liability of directors under Federal securities laws.
Section 145 of the Delaware General Corporation Law empowers a corporation,
subject to certain qualifications and limitations, to indemnify its directors
and officers against expenses (including attorneys' fees), judgments, fines and
certain amounts paid in settlements actually and reasonably incurred by them in
connection with any suit or proceeding to which they are a party so long as they
acted in good faith and in a manner they reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe their conduct
was unlawful. The Company's and Empress Finance's respective Certificates of
Incorporation and by-laws provide that such entity shall indemnify its directors
and such of its officers, employees and agents as the Board of Directors may
determine from time to time, to the fullest extent permitted by applicable law.
Empress Hammond is incorporated under the laws of the State of Indiana.
Sections 23-1-37-8 and 23-1-37-13 of the Indiana Business Corporation Law
empower a corporation to indemnify its directors and officers against liability
incurred by them in connection with any suit or proceeding to which they are a
party so long as their conduct was in good faith and (i) in the case of conduct
in the director's or officer's capacity as a director or officer, as the case
may be, in a manner the individual reasonably believed to be in the best
interests of the corporation; (ii) in all other cases, in a manner the
individual reasonably believed to be not opposed to the best interests of the
corporation; and (iii) with respect to criminal proceedings, the individual
either (A) had reasonable cause to believe his conduct was lawful; or (B) had no
reasonable cause to believe his conduct was unlawful. In addition, unless
limited by its articles of incorporation, a corporation shall indemnify a
director or officer who is wholly successful, on the merits or otherwise, in the
defense of any proceeding to which the director or officer was a party because
the director or officer was a director or officer of the corporation against
reasonable expenses incurred by the director or officer in connection with the
proceeding. Section 23-1-35-1(e)
70
of the Indiana Business Corporation Law provides that a director of an Indiana
corporation is not liable for any action taken as a director, or any failure to
take any action, unless (1) the director has breached or failed to perform the
duties of the director's office in compliance with the statute, and (2) the
breach or failure to perform constitutes willful misconduct or recklessness.
Empress Hammond's by-laws provide that Empress Hammond shall indemnify its
directors and its officers, employees and agents in accordance with the
provisions of the Indiana Business Corporation Law.
Empress Joliet is incorporated under the laws of the State of Illinois. The
Illinois Business Corporation Act was amended effective January 1, 1994 to
permit an Illinois corporation's articles of incorporation to limit its
directors' personal exposure to liability for monetary damages. As a result
thereof, Empress Joliet amended its Articles of Incorporation to provide that a
director of Empress Joliet shall not be personally liable to Empress Joliet or
its shareholders for monetary damages for breach of fiduciary duty as a director
to the fullest extent permitted by law. The effect of this provision in Empress
Joliet's Articles of Incorporation is to eliminate the rights of Empress Joliet
and its shareholders (through shareholders' derivative suits on behalf of
Empress Joliet) to recover money damages against a director for breach of the
fiduciary duty of care as a director (including breaches resulting from
negligent or grossly negligent behavior) except in certain limited situations.
This provision would not limit or eliminate the rights of each of Empress Joliet
or its shareholders to seek non-monetary relief such as an injunction or
recession in the event of a breach of a director's duty of care. The provision
would not alter the liability of directors under Federal securities laws.
Section 8.75 of the Business Corporation Act of 1983 of the State of
Illinois, as amended, empowers a corporation, subject to certain qualifications
and limitations, to indemnify its directors and officers against expenses
(including attorney's fees), judgments, fines and certain amounts paid in
settlements actually and reasonably incurred by them in connection with any suit
or proceeding to which they are a party, or are threatened to be made a party
of, so long as they acted in good faith and in a manner they reasonably believed
to be in or not opposed the best interests of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe their
conduct to have been unlawful. Empress Joliet's by-laws provide that Empress
Joliet shall have the power to indemnify its officers, directors, employees and
agents to the full extent permitted by law.
CERTAIN 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 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 1997 and 1996, the
total amount paid by Empress Hammond to Empress Joliet under this agreement was
approximately $1.2 million and $0.6 million, respectively.
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 $0.5
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 $0.6 million and $0.1 million in 1997 and 1996,
respectively.
71
The Company shares common executive officers with its subsidiaries,
including the President, Chief Executive Officer, Chief Financial Officer and
Chief Legal Officer. Prior to the Reorganization, the salaries of such executive
officers were allocated evenly between Empress Joliet and Empress Hammond. See
"Management."
Empress Joliet provides certain consulting services to Empress Hammond for
a fee of $5,000 per month. The consulting fee for each of the years ended
December 31, 1997, 1996 and 1995 was $60,000. Empress Joliet also incurs certain
indirect corporate and general and administrative costs and expenses related to
the start-up, management and operations of Empress Hammond. These costs are then
allocated to Empress Hammond. In 1997 and 1996, the total amounts allocated to
Empress Hammond were approximately $2.8 million and $2.7 million, respectively.
In accordance with Empress Hammond's original $50.0 million revolving
credit facility (the "Original Credit Facility"), which was replaced with the
Existing Credit Facility, Empress Joliet guaranteed the indebtedness and was
compensated by Empress Hammond in an amount equal to approximately $0.2 million
and $0.2 million in 1997 and 1996, respectively. In addition, under the Original
Credit Facility and the Existing Credit Facility, the Company guaranteed Empress
Hammond's obligations thereunder and was compensated by Empress Hammond in an
amount equal to 0.5% of the available line of credit. The total amount paid by
Empress Hammond to the Company for such guaranty was approximately $0.2 million
for each of 1997 and 1996. On June 30, 1997, Empress Joliet's guaranty of
Empress Hammond's indebtedness terminated. These facilities were replaced by the
Credit Facility.
Pursuant to the terms of the 1994 Indenture, (i) Empress Finance loaned
Empress Joliet the principal amount of $150.0 million; (ii) Empress Joliet
loaned the Company the principal amount of $25.0 million; (iii) Empress Joliet
loaned Empress Hammond the principal amount of $33.0 million and (iv) Empress
Joliet has from time to time made intercompany loans to the Company and Empress
Hammond in the aggregate principal amount of $7.0 million and $4.0 million,
respectively, all of which loans were repaid in full in connection with the
Offering.
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 Joliet or
Empress Hammond 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 for $4.7 million all of the shares
of the Company's common stock held by an approximately 1% stockholder.
Empress Hammond, Empress Joliet and 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
72
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; and (iv) a contract with T.J. Lambrecht Construction, Inc., an entity
owned by Thomas J. Lambrecht, to provide construction services.
From January 1, 1998 through May 31, 1998, the Company paid an aggregate of
approximately $15,763, $0.1 million, $0.3 million and $13,179 to the Columbian
Agency, Gas City, Ltd., P.T. Ferro Construction Company, Inc. and T.J. Lambrecht
Construction, Inc., 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 $2.1 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, 1993 through December 31, 1997, the Company made an
aggregate of approximately $267.0 million of distributions to stockholders,
which included distributions in the amount of approximately $122.4 million to
pay certain personal Federal and state income taxes owed by stockholders as a
result of the Company's Subchapter S tax status. In addition, from January 1,
1998 through June 30, 1998, the Company, Empress Hammond and Empress Joliet
made an aggregate of approximately $22.3 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.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the ownership
of shares of common stock of the Company as of the date of this Prospectus (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.
Non-Voting
----------
% of Common % of
---- ------ ----
Name and Address of Beneficial Owner(1) Common Shares Class Shares Class
- --------------------------------------- ------------- ------ ------ -----
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%
73
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)(3) 5.3
All executive officers and directors as a
group (12 persons)....................... 1,745.33 100.0% 134.79 82.17%
======== ===== ======= =====
- -------------
(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.
74
DESCRIPTION OF CERTAIN OTHER INDEBTEDNESS
As of June 30, 1998, the Company had outstanding indebtedness aggregating
approximately $160.0 million, excluding the Defeased Debt and including $150.0
million of outstanding Old Notes.
10 3/4% Notes
The Company currently has outstanding $150.0 million of the 10 3/4% Notes. The
Company irrevocably deposited $167.2 million of cash and U.S. Treasury
Securities in trust for the purpose of effecting the Covenant Defeasance, which,
together with interest earned thereon, will be used to pay (i) the principal
amount of the 10 3/4% Notes on April 1, 1999; (ii) estimated interest of $16.1
million on the 10 3/4% Notes through the date of redemption (April 1, 1999): and
(iii) the premium of $8.1 million upon the redemption of the 10 3/4% Notes on
April 1, 1999.
Credit Facility
Concurrently with the closing of the Offering, the Company entered into a $100
million senior secured reducing revolving credit facility. The Company, Empress
Hammond and Empress Joliet are primary obligors under the Credit Facility. The
Company granted a first priority security interest in substantially all of the
assets of the Company, Empress Hammond and Empress Joliet (excluding the
Illinois License and the Indiana License) to secure their obligations under the
Credit Facility. The Credit Facility expires on June 15, 2003. Credit
availability starts at $100.0 million, with scheduled reductions on December 31
of each year beginning on December 31, 1998, in the amounts of $5.0 million,
$7.5 million, $7.5 million and $15.0 million, respectively. The Company is
subject to a number of restrictive covenants, including: (i) maintenance of a
maximum Leverage Ratio; (ii) maintenance of an Adjusted Fixed Charge Coverage
Ratio; (iii) maintenance of a Minimum Tangible Net Worth; and (iv) a Limitation
on Capital Expenditures. The interest rate on borrowings under the Credit
Facility is determined by a pricing matrix based upon, at the Company's option,
either (i) LIBOR or (ii) a base rate equal to the higher of (a) the agent's
prime rate, or (b) 0.5% plus the Federal Funds Rate, in each case, plus a
sliding scale margin of up to 2.125% on LIBOR loans and up to 1.00% on base rate
loans based upon the ratio of the Company's funded debt (excluding defeased
debt) to its EBITDA (the "Leverage Ratio"). During the term of the Credit
Facility, the Company must pay a commitment fee of between 0.225% and 0.375% of
the unused portion of the commitment under the Credit Facility, determined based
upon the Leverage Ratio. The Company paid at the closing of the Credit Facility
a closing fee equal to $750,000.
75
DESCRIPTION OF THE NEW NOTES
The Old Notes were issued and the New Notes will be issued under an
Indenture dated as of June 18, 1998 (the "Indenture") among the Company, the
Guarantors and U.S. Bank Trust National Association, as trustee (the "Trustee").
For purposes of this summary, references to the "Company" means only Empress
Entertainment, Inc. and not any of its subsidiaries. References to the Notes
include the New Notes and the Old Notes unless the context otherwise requires.
Upon the effectiveness of the Registration Statement of which this
Prospectus forms a part, the Indenture will be subject to and governed by the
Trust Indenture Act. The following is a summary of the material provisions of
the Indenture and does not purport to be complete, and where reference is made
to particular provisions of the Indenture, such provisions, including the
definitions of certain terms, are qualified in their entirety by reference to
all of the provisions of the Indenture and those terms made a part of the
Indenture by reference to the Trust Indenture Act. A copy of the Indenture is
filed as an exhibit to the Registration Statement of which this Prospectus forms
a part, and is incorporated by reference herein. For definitions of certain
capitalized terms used in the following summary, see "--Certain Definitions" or
"Exchange Offer; Registration Rights."
General
The New Notes will be unsecured senior subordinated obligations of the
Company limited to $150,000,000 aggregate principal amount. Principal of,
premium, if any, and interest on, the Notes will be payable, and the Notes may
be presented for registration of transfer or exchange, at the office or agency
of the Company maintained for such purpose in the City of New York, New York. At
the option of the Company, payment of interest may be made by check mailed to
the holders at the addresses set forth upon the registry books of the Company.
See "Book-Entry, Delivery and Form." The New Notes will be issued solely in
exchange for an equal principal amount of outstanding Old Notes pursuant to the
Exchange Offer. The form and terms of the New Notes will be identical in all
material respects to the form and terms of the Old Notes, except that (i) the
New Notes have been registered under the Securities Act and, therefore, will not
bear legends restricting the transfer thereof, (ii) holders of New Notes will
not be entitled to any Additional Interest thereon pursuant to certain
circumstances under the Registration Rights Agreement and (iii) holders of New
Notes will no longer be entitled to certain other rights under the Registration
Rights Agreement. The New Notes will be issued only in fully registered form
without coupons, in denominations of $1,000 and integral multiples thereof. No
service charge will be made for any registration of transfer, exchange or
redemption of the Notes, except in certain circumstances for any tax or other
governmental charge that may be imposed in connection therewith.
Because the Company is a holding company which conducts substantially all
of its operations through its Subsidiaries, the Notes will be effectively
subordinated to all existing and future liabilities of the Company's
Subsidiaries. Thus, the right of the Company, and hence the right of creditors
of the Company (including the holders of the Notes), to participate in any
distribution of the assets of any Subsidiary upon its liquidation or
reorganization or otherwise is necessarily subject to the prior claims of
creditors of such Subsidiary, except to the extent that claims of the Company
itself as a creditor of the Subsidiary may be recognized.
As of the date of the Indenture, all of the Company's Subsidiaries will be
Restricted Subsidiaries. However, under certain circumstances, the Company will
be able to designate future Subsidiaries as Unrestricted Subsidiaries.
Unrestricted Subsidiaries will not be subject to many of the restrictive
covenants set forth in the Indenture.
76
Maturity, Interest and Principal
The Notes will mature on July 1, 2006. The Notes will bear interest at the
rate per annum equal to 8 1/8% per annum from the date of issuance. Interest
will be payable semi-annually on January 1 and July 1 of each year, commencing
on January 1, 1999, to the registered holders of such Notes ("Holders") at the
close of business on the December 15 or June 15 immediately preceding such
Interest Payment Date. Interest will be calculated on the basis of a 360-day
year, consisting of twelve 30-day months.
Guarantees
The Company's payment obligations under the Notes will be jointly and
severally guaranteed on an unsecured senior subordinated basis (the
"Guarantees") by each of the Company's existing and future Restricted
Subsidiaries, as guarantors. The Guarantees will be subordinated in right of
payment to all existing and future Senior Indebtedness of the Guarantors. The
Notes are not guaranteed by Empress Opportunities, Empress Racing, Empress
Mississippi, or any future Unrestricted Subsidiaries.
The Indenture contains provisions the intent of which is to provide that
the obligations of each Guarantor will be limited to the maximum amount that
will, after giving effect to all other contingent and fixed liabilities of such
Guarantor and after giving effect to any collections from, rights to receive
contribution from, or payments made by or on behalf of any other Guarantor in
respect of the obligations of such other Guarantor under its Guarantee or
pursuant to its contribution obligations under the Indenture, result in the
obligations of such Guarantor under its Guarantee not constituting a fraudulent
conveyance or fraudulent transfer under any applicable Federal, state or foreign
law. Each Guarantor that makes a payment or distribution under a Guarantee shall
be entitled to contribution from each other Guarantor so long as the exercise of
such right does not impair the rights of the holders of the Notes. See "Risk
Factors--Fraudulent Transfer Considerations."
The Indenture provides that in the event of (i) a sale or other disposition
of all or substantially all of the assets of any Guarantor or the sale of a
Guarantor, by way of merger, consolidation or otherwise, (ii) a Subsidiary
becoming an Unrestricted Subsidiary pursuant to terms of the Indenture or (iii)
a sale or other disposition of all of the Capital Stock of any Guarantor, then
such Guarantor or the corporation acquiring the property, as applicable, shall
be released and relieved of any obligations under its guarantee, provided that
the Company complies with the provisions of the covenant described under
"Certain Covenants--Limitation on Sale of Assets and Subsidiary Stock; Event of
Loss."
The Indenture provides that the Company shall cause each Restricted
Subsidiary hereafter formed or acquired or any Unrestricted Subsidiary that is
designated a Restricted Subsidiary to (i) execute and deliver to the Trustee a
supplemental indenture in a form satisfactory to the Trustee pursuant to which
such Restricted Subsidiary shall unconditionally guarantee all of the Company's
obligations under the Notes on the terms set forth in the Indenture and (ii)
deliver to the Trustee an opinion of counsel, subject to customary assumptions
and exclusions, stating that such supplemental indenture has been duly executed
and delivered by such Restricted Subsidiary.
Redemption
Optional Redemption. The Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or after July 1, 2002, at the
following redemption prices (expressed as percentages of the principal amount)
set forth below, plus accrued and unpaid interest thereon, if any, to the date
of redemption, if redeemed during the 12-month period commencing July 1 of the
years indicated below:
Year Percentage
---- ----------
2002.................... 104.063%
2003.................... 102.708%
77
2004................... 101.354%
2005................... 100.000%
Optional Redemption upon Equity Offering. On or prior to July 1, 2001, the
Company may, at its option, use the net proceeds of an Equity Offering to redeem
up to 35% of the issued aggregate principal amount of the Notes, at a redemption
price in cash equal to 108 1/8% of the principal amount thereof, plus accrued
and unpaid interest thereon, if any, to the date of redemption; provided,
however, that not less than $97.5 million in aggregate principal amount of Notes
is outstanding following such redemption. Notice of any such redemption must be
given not later than 60 days after the consummation of the related Equity
Offering.
As used in the preceding paragraph, an "Equity Offering" means a public
sale of common stock of the Company in a transaction registered with the
Commission.
Required Regulatory Redemption. The 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 (a "Gaming Authority"), 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 and its Restricted Subsidiaries,
considered as a whole, or would restrict the ability of the Company or any of
its Restricted Subsidiaries 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 Note is required to be
found suitable, or otherwise qualify, under any Gaming Laws and is not found
suitable or so qualified (a "Required Regulatory Redemption").
If a Noteholder or a beneficial owner of a Note is required by any Gaming
Authority to be found suitable, the Noteholder shall apply for a finding of
suitability within 30 days after a Gaming Authority requests or sooner if so
required by such Gaming Authority. The applicant for a finding of suitability
must pay all costs of the investigation for such finding of suitability. If a
Noteholder or beneficial owner is required to be found suitable and is not found
suitable by a Gaming Authority, the Noteholder shall, to the extent required by
applicable law, dispose of his Notes within 30 days or within that time
prescribed by a Gaming Authority, whichever is earlier.
Selection and Notice. Notice of any redemption will be sent by first-class
mail at least 30 days and not more than 60 days prior to the date fixed for
redemption, to the Holder of each Note to be redeemed to such Holder's last
address as then shown upon the registry books of the Company. The notice of
redemption must state the date fixed for redemption, the redemption price and
the amount of accrued and unpaid interest to be paid. Any notice which relates
to a Note to be redeemed in part only must state the portion of the principal
amount equal to the unredeemed portion thereof and must state that on and after
the date fixed for redemption, upon surrender of such Note, a new Note or Notes
in principal amount equal to the unredeemed portion thereof will be issued. On
and after the date fixed for redemption, interest will cease to accrue on the
Notes or portions thereof called for redemption so long as the Company has
deposited with the paying agent for the Notes funds in satisfaction of the
redemption price, plus accrued and unpaid interest, pursuant to the Indenture.
In the case of a partial redemption, the Trustee shall select the Notes or
portions thereof for redemption in compliance with the requirements of the
principal national securities exchange, if any, on which the Notes are listed
or, if the Notes are not listed on a national securities exchange, on a pro rata
basis, by lot or in such other manner as the Trustee deems appropriate and fair;
provided, however, that any such redemption made with the net proceeds of an
Equity Offering shall be made on a pro rata basis or on as nearly a pro rata
basis as practicable (subject to the procedures of the DTC). The Notes may be
redeemed in part in multiples of $1,000 only.
78
The Notes will not have the benefit of any sinking fund.
Change of Control
The Indenture provides that, upon the occurrence of a Change of Control,
each Holder of Notes will have the right, at such Holder's option, subject to
the terms and conditions of the Indenture, pursuant to an irrevocable,
unconditional offer by the Company (the "Change of Control Offer"), to require
the Company to repurchase all or any portion of such Holder's Notes (provided
that the principal amount of such Notes at maturity must be $1,000 or an
integral multiple thereof) on a date (the "Change of Control Purchase Date")
that is no later than 30 Business Days after the occurrence of such Change of
Control, at a cash price (the "Change of Control Purchase Price") equal to
101% of the principal amount thereof, plus accrued and unpaid interest to and
including the Change of Control Purchase Date. The Change of Control Offer must
commence within 10 Business Days following a Change of Control and must remain
open for at least 20 Business Days following its commencement, except to the
extent that a longer period is expressly required by applicable law (the
"Change of Control Offer Period"). Upon expiration of the Change of Control
Offer Period, the Company will purchase all Notes tendered in accordance with
the terms of the Indenture in response to the Change of Control Offer.
On or before the Change of Control Purchase Date, (i) the Company will
accept for payment Notes or portions thereof properly tendered to the Company
pursuant to the Change of Control Offer; (ii) the Company will deposit with the
paying agent for the Notes U.S. Legal Tender sufficient to pay the Change of
Control Purchase Price (including accrued and unpaid interest) of all Notes so
tendered; and (iii) the Company will deliver to the Trustee Notes so accepted
together with an Officers' Certificate listing the Notes or portions thereof
being purchased by the Company. The joint and several obligations of each of the
Guarantors upon a Change of Control extend both to the payment of principal and
interest on the Notes and to the joint and several obligations of each of the
Guarantors to honor the Change of Control repurchase obligations of the Company
in the event that a Change of Control occurs and the Company is unable to pay in
full the Change of Control Purchase Price. The paying agent for the Notes will
promptly mail to the Holders of Notes so accepted, payment in an amount equal to
the Change of Control Purchase Price (including accrued and unpaid interest),
and the Trustee will promptly authenticate and mail or deliver to such Holders a
new Note equal to the principal amount of any unpurchased portion of the Note
surrendered. Any Notes not so accepted will be promptly mailed or delivered by
the Company to the Holder thereof. The Company will publicly announce the
results of the Change of Control Offer on or as soon as practicable after the
Change of Control Purchase Date. The Company can give no assurances that it will
have sufficient funds or access to financing to enable it to meet its obligation
to repurchase the Notes upon a Change of Control.
To the extent applicable and if required by law, the Company will comply
with Section 14 of the Exchange Act, and the provisions of Regulation 14E and
any other tender offer rules promulgated pursuant to the Exchange Act and other
securities laws, rules and regulations which may then be applicable to any offer
by the Company to purchase the Notes at the option of Holders upon a Change of
Control or other Offer to Purchase.
Subordination
The payment of the principal of, premium, if any, and interest (including
any additional interest in respect of a Registration Default) on the Notes will
be subordinated in right of payment, as described below, to the prior payment in
full of all Senior Indebtedness.
The Indenture will provide that in the event of any insolvency or
bankruptcy case or proceeding, or any receivership, liquidation, reorganization
or other similar case or proceeding in connection therewith, relating to the
Company, or any liquidation, dissolution or other winding-up of the Company,
whether voluntary or involuntary, or any assignment for the benefit of creditors
or other marshalling of assets or liabilities of the
79
Company, (i) all Senior Indebtedness must be paid in full before any payment or
distribution (excluding any payment or distribution of certain permitted equity
or subordinated securities) is made on account of the principal of, premium, if
any, or interest on the Notes or the Guarantees, and (ii) until all Senior
Indebtedness is paid in full, any distribution to which Holders of the Notes
would be entitled but for this provision shall be made to holders of Senior
Indebtedness as their interests may appear, except that Holders of the Notes may
receive Capital Stock or any debt securities that are subordinated to Senior
Indebtedness to at least the same extent as the Notes.
During the continuance of any default in the payment of any Designated
Senior Indebtedness pursuant to which the maturity thereof may immediately be
accelerated beyond any applicable grace period, no payment or distribution of
any assets of the Company of any kind or character (excluding any payment or
distribution of certain permitted equity or subordinated securities) shall be
made on account of the principal of, premium, if any, or interest on, or the
purchase, redemption or other acquisition of, the Notes unless and until such
default has been cured or waived or has ceased to exist or such Designated
Senior Indebtedness shall have been discharged or paid in full.
During the continuance of any non-payment default with respect to any
Designated Senior Indebtedness pursuant to which the maturity thereof may
immediately be accelerated (a "Non-payment Default") and after the receipt by
the Trustee from the representatives of holders of such Designated Senior
Indebtedness of a written notice of such Non-payment Default, no payment or
distribution of any assets of the Company of any kind or character (excluding
any payment or distribution of certain permitted equity or subordinated
securities) may be made by the Company on account of the principal of, premium,
if any, or interest on, or the purchase, redemption or other acquisition of, the
Notes for the period specified below (the "Payment Blockage Period").
The Payment Blockage Period will commence upon the receipt of written
notice of a Non-payment Default by the Trustee from the representatives of
holders of Designated Senior Indebtedness specifying an election to effect a
Payment Blockage Period and will end on the earlier to occur of the following
events: (i) 179 days shall have elapsed since the receipt of such notice of a
Non-payment Default (provided that such Designated Senior Indebtedness shall not
theretofore have been accelerated), (ii) such default is cured or waived or
ceases to exist or such Designated Senior Indebtedness is discharged or (iii)
such Payment Blockage Period shall have been terminated by written notice to the
Company or the Trustee from the representatives of holders of Designated Senior
Indebtedness initiating such Payment Blockage Period. After the end of any
Payment Blockage Period, the Company shall promptly resume making any and all
required payments in respect of the Notes, including any missed payments.
Notwithstanding anything in the subordination provisions of the Indenture or the
Notes to the contrary, (x) in no event shall a Payment Blockage Period extend
beyond 179 days from the date of the receipt by the Trustee of the notice
initiating such Payment Blockage Period, (y) there shall be a period of at least
186 consecutive days in each 365-day period when no Payment Blockage Period is
in effect and (z) not more than one Payment Blockage Period with respect to the
Notes may be commenced within any period of 365 consecutive days. A Non-payment
Default with respect to Designated Senior Indebtedness that existed or was
continuing on the date of the commencement of any Payment Blockage Period with
respect to the Designated Senior Indebtedness initiating such Payment Blockage
Period cannot be made the basis for the commencement of a second Payment
Blockage Period, whether or not within a period of 365 consecutive days, unless
such default has been cured or waived for a period of not less than 90
consecutive days and subsequently recurs.
As used herein, the term "Designated Senior Indebtedness" means (a) the
Bank Indebtedness and (b) any other Senior Indebtedness in a principal amount of
at least $10 million outstanding which, at the time of determination, is
specifically designated in the instrument governing such Senior Indebtedness as
"Designated Senior Indebtedness" by the Company.
If the Company fails to make any payment on the Notes when due or within
any applicable grace period, whether or not on account of the payment blockage
provisions referred to above, such failure would constitute
80
an Event of Default under the Indenture and would enable the holders of the
Notes to accelerate the maturity thereof. See "--Events of Default and
Remedies."
By reason of such subordination, in the event of liquidation or insolvency,
creditors of the Company who are holders of Senior Indebtedness may recover
more, ratably, than the holders of the Notes and funds which would be otherwise
payable to the holders of the Notes will be paid to the holders of Senior
Indebtedness to the extent necessary to pay the Senior Indebtedness in full, and
the Company may be unable to meet its obligations fully with respect to the
Notes.
As of June 30, 1998, excluding the outstanding indebtedness under the
10 3/4% Notes, the Company and the Guarantors had $10.0 million of Senior
Indebtedness outstanding. The Indenture limits, but does not prohibit, the
incurrence by the Company of additional Indebtedness which is senior to the
Notes. See "Risk Factors--Subordination."
Certain Covenants
Limitation on Incurrence of Indebtedness and Preferred Stock
The Indenture provides that, except as set forth in any one of the
paragraphs below, the Company shall not, and shall not cause or permit any of
its Restricted Subsidiaries to, directly or indirectly, issue, assume, guaranty,
incur, suffer to exist, become directly or indirectly liable with respect to
(including as a result of an acquisition, merger or consolidation), extend the
maturity of, or otherwise become responsible for, contingently or otherwise
(individually and collectively, to "incur," or, as appropriate, an
"incurrence"), any Indebtedness or any Preferred Stock on or after the Issue
Date; provided that the Company and its Restricted Subsidiaries may incur
Indebtedness or Preferred Stock if: (i) no Default or Event of Default shall
have occurred and be continuing at the time of, or would occur after giving
effect to, on a pro forma basis, such incurrence of such Indebtedness or
Preferred Stock; and (ii) on the date of the incurrence of such Indebtedness or
Preferred Stock (the "Incurrence Date"), the Consolidated Fixed Charge
Coverage Ratio for the Reference Period immediately preceding the Incurrence
Date, after giving effect, on a pro forma basis, to the incurrence of such
Indebtedness or Preferred Stock as of the first day of the Reference Period,
would be at least 2.00 to 1.
Notwithstanding the foregoing, the Company and its Restricted Subsidiaries,
as applicable, may incur each of the following (collectively, "Permitted
Indebtedness"):
(a) The Company may incur the Indebtedness represented by the Notes and its
Restricted Subsidiaries may incur the Subsidiary Guarantees;
(b) The Company and its Restricted Subsidiaries may incur the Existing
Indebtedness;
(c) The Company and its Restricted Subsidiaries may incur the Bank
Indebtedness in an aggregate principal amount at any one time outstanding not to
exceed $100.0 million, less the amount of all permanent repayments thereof with
the Net Cash Proceeds from an Asset Sale as set forth under "--Limitation on
Sale of Assets and Subsidiary Stock; Event of Loss";
(d) The Company and its Restricted Subsidiaries may incur Purchase Money
Indebtedness or Non-Recourse Indebtedness, provided that the amount of such
Indebtedness outstanding at any time pursuant to this paragraph (d) (including
any Indebtedness, whether or not Refinancing Indebtedness, issued to refinance,
replace or refund such Indebtedness) shall not, in the aggregate, exceed $7.5
million;
81
(e) The Company and its Restricted Subsidiaries may incur FF&E
Indebtedness, provided, that the amount of such Indebtedness outstanding at any
time pursuant to this paragraph (e) (including any Indebtedness, whether or not
Refinancing Indebtedness, issued to refinance, replace or refund such
Indebtedness) shall not, in the aggregate, exceed at any time the product of (i)
$7.5 million, times (ii) the number of Facilities being operated by the Company
and its Restricted Subsidiaries;
(f) The Company and its Restricted Subsidiaries may incur Refinancing
Indebtedness with respect to any Indebtedness or Preferred Stock, as applicable,
described in clauses (b) through (e) of this covenant (so long as, in the case
of Indebtedness used to refinance, replace or retire Indebtedness in clause (d),
such Refinancing Indebtedness is non-recourse as to any assets other than the
assets that secured such Indebtedness being refinanced, replaced or retired; and
in the case of clause (b) of this covenant, other than Refinancing Indebtedness
with respect to the 10 3/4% Notes);
(g) The Company and its Restricted Subsidiaries may incur Indebtedness
under Interest Swap Obligations, provided that in each case the notional
principal amount of such Interest Swap Obligation does not exceed the principal
amount of Indebtedness to which such Interest Swap Obligation relates;
(h) The Company and its Restricted Subsidiaries may incur Indebtedness in
the form of (i) letters of credit and (ii) performance bonds and surety bonds,
the aggregate principal amount of which shall not at any time exceed $7.5
million in the aggregate outstanding;
(i) The Company may incur Indebtedness to a Restricted Subsidiary, a
Restricted Subsidiary may incur Indebtedness to the Company and a Restricted
Subsidiary may incur Indebtedness to another Restricted Subsidiary; provided
that any such Indebtedness is made pursuant to an intercompany note and is
expressly subordinated in right of payment to the payment and performance of the
Company's obligations under the Notes or such Restricted Subsidiary's
obligations under the Subsidiary Guarantees, as applicable, and, upon an Event
of Default, such Indebtedness shall not be due and payable until such Event of
Default is cured, waived or rescinded; provided, further, that any disposition,
pledge or transfer of any such Indebtedness to a Person (other than a
disposition, pledge or transfer to a Restricted Subsidiary) shall be deemed to
be an incurrence of such Indebtedness by the Company or such Restricted
Subsidiary, as applicable, not permitted by this clause (i); and
(j) The Company and its Restricted Subsidiaries may incur Indebtedness in
an aggregate principal amount outstanding at any time of up to $25 million in
the aggregate.
Limitation on Restricted Payments
The Company shall not, and shall not cause or permit any of its Restricted
Subsidiaries to, directly or indirectly, make any Restricted Payment if,
immediately prior to such proposed Restricted Payment or after giving effect to
such proposed Restricted Payment on a pro forma basis, (1) a Default or an Event
of Default shall have occurred and be continuing; or (2) the Company would not
be permitted to incur at least $1.00 of additional Indebtedness pursuant to the
Consolidated Fixed Charge Coverage Ratio test contained in the covenant
described under "--Limitation on Incurrence of Indebtedness and Preferred
Stock"; or (3) the aggregate amount of all Restricted Payments made by the
Company and its Restricted Subsidiaries, including after giving pro forma effect
to such proposed Restricted Payment (including Restricted Payments described in
clause (a) of the following paragraph) from and after the Issue Date, would
exceed the sum of (a) 50% of the amount by which the aggregate Adjusted
Consolidated Net Income for the period (taken as one accounting period)
commencing on the first day of the fiscal quarter that includes the Issue Date,
to and including the last day of the full fiscal quarter ended immediately prior
to the date of each such calculation, exceeds permitted distributions of Tax
Amounts (as defined) made with respect to such period (or, in the event Adjusted
Consolidated Net Income less permitted distributions of Tax Amounts made with
respect to such period is a deficit, then minus 100% of such deficit) plus (b)
50% of all cash dividends or any other cash payments which
82
represent distributions of net income (determined in accordance with GAAP) paid
by an Unrestricted Subsidiary or any other person (other than a Restricted
Subsidiary) in which the Company or any Restricted Subsidiary has an ownership
interest to the Company or a Restricted Subsidiary to the extent the same are
not otherwise included in Adjusted Consolidated Net Income or represent a return
of capital, plus (c) 100% of the aggregate Net Cash Proceeds received by the
Company or any Restricted Subsidiary as a capital contribution (other than
capital contributions directly or indirectly made from the Company or any
Restricted Subsidiary and other than capital contributions made from the
proceeds of loans or advances described in clause (g) of the following
paragraph) or from the sale of Qualified Capital Stock after the Issue Date plus
(d) in the case of the disposition or repayment of any Investment in an
Unrestricted Subsidiary or any other person (other than a Restricted Subsidiary)
in which the Company or any Restricted Subsidiary has an ownership interest
constituting a Restricted Payment made after the Issue Date, an amount equal to
the lesser of the return of capital with respect to such Investment and the
initial amount of such Investment which was treated as a Restricted Payment, in
either case, less the cost of the disposition or repayment of such Investment.
The restrictions set forth in the immediately preceding paragraph, however,
will not prohibit (a) the payment of any dividend or redemption payment within
60 days after the date of declaration thereof, if at the date of declaration
such payment would have complied with the provisions of the Indenture; (b) a
Qualified Exchange; (c) a Required Regulatory Redemption; (d) with respect to
each tax year that the Company qualifies as an S Corporation under the Code, or
any similar provision of state or local law, distributions of Tax Amounts,
provided, however, that prior to any distribution of Tax Amounts, a
knowledgeable and duly authorized officer of the Company certifies, and counsel
reasonably acceptable to the Trustee opines, to the Trustee that the Company
qualifies as an S Corporation for Federal income tax purposes and for the states
in respect of which such distributions are being made (or so qualified for the
period or periods for which such Tax Amounts are computed); (e) for so long as
no Default or Event of Default shall have occurred and be continuing, Restricted
Payments in an amount not to exceed $10 million in the aggregate to pay for the
redemption of Capital Stock of the Company held by its directors or officers, or
by its stockholders, as of the Issue Date; (f) for so long as no Default or
Event of Default shall have occurred and be continuing, Restricted Payments in
the aggregate amount of up to $10 million, which amount shall increase by $10
million on each of the first four anniversaries of the Issue Date, provided that
the Consolidated Fixed Charge Coverage Ratio for the Reference Period
immediately preceding the date of making any such Restricted Payment permitted
solely by this clause (f) would be at least 3.00 to 1 on a pro forma basis, as
if such Restricted Payment were made on the first day of the Reference Period;
(g) for so long as no Default or Event of Default shall have occurred and be
continuing, loans or advances to officers, directors, employees or stockholders
of the Company or any Restricted Subsidiary in an aggregate amount not to exceed
$7.5 million at any time outstanding, provided that (A) such loan or advance is
used by the officer, director, employee or stockholder receiving such loan or
advance to purchase Capital Stock of the Company or any Restricted Subsidiary,
and (B) the repayment of such loan or advance is secured by a first priority
pledge of the Capital Stock so purchased; and (h) for so long as no Default or
Event of Default shall have occurred and be continuing, Permitted Investments.
"Tax Amounts" with respect to any year means an amount equal to (a) the
higher of (i) the product of (A) the taxable income of the Company for such year
as determined in good faith by its Board of Directors; and (B) the Tax
Percentage (as defined); and (ii) the product of (A) the alternative minimum
taxable income attributable to the Company for such year as determined in good
faith by its Board of Directors; and (B) the Tax Percentage, plus (b) any
deficiencies, penalties or interest payable by the Company's stockholders solely
as a result of the taxable income of the Company, less (c) to the extent not
previously taken into account, any income tax benefit attributable to the
Company which could be realized by the Company's stockholders in the current or
a prior taxable year (including, without limitation, tax losses, alternative
minimum tax credits, other tax credits and carryforwards and carrybacks
thereof); provided, however, that in no event shall such Tax Percentage exceed
the lesser of (1) the highest aggregate applicable effective marginal rate of
Federal, state and local income tax or, when applicable, alternative minimum
tax, to which a corporation doing business in Chicago, Illinois would be subject
in the relevant year of determination (as certified to the Trustee by a
nationally recognized tax accounting firm) plus 500 "Basis Points"; and (2)
60%. Any part of the Tax Amount not distributed in respect
83
of a tax period for which it is calculated shall be available for distribution
in subsequent tax periods (whether or not the Company ceases to qualify as an S
Corporation prior to such distribution). The term "Tax Percentage" is the
highest aggregate applicable effective marginal rate of Federal, state and local
income tax or, when applicable, alternative minimum tax, to which an individual
resident of Chicago, Illinois would be subject in the relevant year of
determination (as certified to the Trustee by a nationally recognized tax
accounting firm). Distributions of Tax Amounts may be made from time to time
with respect to a tax year based on reasonable estimates, with a reconciliation
within 40 days of the earlier of (i) the Company's filing of the Internal
Revenue Service Form 1120S for the applicable taxable year; and (ii) the last
date such form is required to be filed (without regard to any extensions). The
stockholders of the Company will enter into a binding agreement with the Company
to reimburse the Company for certain positive differences between the
distributed amount and the Tax Amount, which difference must be paid at the time
of such reconciliation; provided, that in lieu thereof, the Company shall notify
all stockholders that any such positive differences will be set off against
future distributions of Tax Amounts.
Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries
The Company shall not, and shall not cause or permit any of the Restricted
Subsidiaries to, directly or indirectly, create, assume or suffer to exist any
consensual encumbrance or restriction on the ability of any Restricted
Subsidiary to (i) pay dividends, in cash or otherwise, or make other
distributions on its Capital Stock or pay Indebtedness owed to the Company or
any other Restricted Subsidiary, (ii) make any loans or advances to the Company
or any other Restricted Subsidiary or (iii) transfer any of its assets to the
Company or any other Restricted Subsidiary, except (a) restrictions imposed by
the Notes or the Indenture, or restrictions imposed by other Senior Indebtedness
which are substantially the same as (and apply only to the same persons and
property as) such restrictions; (b) restrictions imposed by applicable Gaming
Law; and (c) restrictions under any Acquired Indebtedness not incurred in
violation of the Indenture or any agreement relating to any property, asset, or
business acquired by the Company or any of the Restricted Subsidiaries, which
restrictions existed at the time of such acquisition, were not incurred in
connection with or in anticipation of such acquisition and are not applicable to
any person, other than the person acquired, or to any property, asset or
business, other than the property, assets and business so acquired.
Notwithstanding the foregoing, neither (a) reasonable and customary provisions
restricting subletting or assignment of any lease entered into in the ordinary
course of business, consistent with industry practice; nor (b) Liens on assets
securing Senior Indebtedness not incurred in violation of the Indenture, shall
in and of themselves be considered a restriction on the ability of the
applicable Restricted Subsidiary to transfer such property or assets, as the
case may be.
Limitation on Liens
The Company shall not, and shall not cause or permit any of the Restricted
Subsidiaries to, directly or indirectly, create, incur, assume or suffer to
exist any Lien in or on any right, title or interest to any of their respective
properties or assets, now owned or hereafter acquired, securing any obligation
unless the Notes are secured on an equal and ratable basis with such Lien, other
than Permitted Liens.
Limitation on Sale of Assets and Subsidiary Stock; Event of Loss
The Company shall not, and shall not cause or permit any of its Restricted
Subsidiaries, directly or indirectly, to, make any Asset Sale unless (a) no
Default or Event of Default shall have occurred and be continuing at the time
of, or would occur after giving effect, on a pro forma basis, to, such Asset
Sale; (b) the Board of Directors of the Company determines in good faith that
the Company or such Restricted Subsidiary, as applicable, receives fair market
value as consideration for such Asset Sale, as evidenced by an Officers'
Certificate delivered to the Trustee; and (c) at least 75% of the consideration
for such conveyance, sale, lease,
84
transfer or other disposition consists of U.S. Legal Tender, Cash Equivalents or
securities of a company with a market capitalization of at least $500 million,
which securities are traded on a national securities exchange and are of a class
and series of securities with a minimum public float of $100 million. Within 360
days following an Asset Sale, the Company and its Restricted Subsidiaries must
apply (or enter into a binding contractual commitment to apply) the Net Cash
Proceeds therefrom (a) first, to the extent the Company or a Restricted
Subsidiary elects (or is required by the terms of any Senior Indebtedness), to
permanently repay Senior Indebtedness (for purposes of this clause, a repayment
of any amount owing under a revolving credit facility shall be deemed a
permanent repayment to the extent the amount represented by such repayment is
not drawn upon by the Company for a period of six months after such repayment);
(b) second, to the extent the Company or a Restricted Subsidiary elects, to
reinvest in additional assets that are part of a Related Business of the Company
or a Restricted Subsidiary; and (c) third, to the extent the Net Cash Proceeds,
after application of (a) and (b), exceed $10 million (the "Excess Proceeds"),
the Company shall make an offer (the "Asset Sale Offer") to all Holders to
purchase the Notes in the amount of the Excess Proceeds at 100% of the principal
amount thereof, plus accrued and unpaid interest to the date of payment (the
"Asset Sale Offer Price"). Each Asset Sale Offer shall remain open for twenty
(20) Business Days following its commencement and no longer, except to the
extent that a longer period is expressly required by applicable law (the "Asset
Sale Offer Period"). Upon expiration of the Asset Sale Offer Period, the
Company shall apply an amount equal to the Excess Proceeds received from an
Asset Sale included in such Asset Sale Offer to the purchase of all Notes
tendered (on a pro rata basis if the Excess Proceeds are insufficient to
purchase all Notes so tendered) at the Asset Sale Offer Price.
Upon an Event of Loss relating to property with a fair market value in
excess of $5.0 million, the Company and any Restricted Subsidiaries will apply
the Net Cash Proceeds therefrom in accordance with the provisions of the
preceding paragraph.
Limitation on Transactions with Affiliates
The Company shall not, and shall not cause or permit any of its Restricted
Subsidiaries, on or after the Issue Date, to enter into any transaction,
including any contract, arrangement, agreement, loan, advance, guarantee or
understanding and including any series of related transactions, with or for the
benefit of any Affiliate (an "Affiliate Transaction") unless such Affiliate
Transaction or series of related Affiliate Transactions are made in good faith
and (a) the terms of such Affiliate Transaction or series of related Affiliate
Transactions are fair and reasonable to the Company or such Restricted
Subsidiary, as applicable, and are at least as favorable to the Company or such
Restricted Subsidiary, as applicable, as the terms that could be obtained by the
Company or such Restricted Subsidiary, as applicable, in a comparable
transaction made on an arms' length basis between unaffiliated parties, (b) that
with respect to any Affiliate Transaction (including any series of related
Affiliate Transactions) involving consideration to either party in excess of
$2.0 million, the Company shall have delivered to the Trustee an Officer's
Certificate certifying that such Affiliate Transaction or series of related
Affiliate Transactions complies with clause (a) above, and (c) with respect to
any Affiliate Transaction (including any series of related Affiliate
Transactions) involving consideration to either party in excess of $5.0 million,
either (A) such Affiliate Transaction or series of Affiliate Transactions has
been approved by a majority of the disinterested directors of the Company or (B)
the Company delivers to the Trustee a written favorable opinion as to the
fairness of such transaction to the Company from a financial point of view, from
an independent investment banking firm of national reputation; provided, that
any transactions solely between or among the Company and its Restricted
Subsidiaries, between or among the Restricted Subsidiaries or between or among
the Company and its Unrestricted Subsidiaries shall not be deemed to be
Affiliate Transactions for purposes of this covenant (as long as in the case of
Unrestricted Subsidiaries, the Capital Stock which is not owned by any of the
Company, a Restricted Subsidiary or an Unrestricted Subsidiary, is not owned by
an Affiliate of the Company or any of its Restricted Subsidiaries).
Limitation on Mergers and Consolidations
85
The Company shall not consolidate with or merge with or into another person
or, directly or indirectly, sell, lease or convey all or substantially all of
its assets (computed on a consolidated basis), whether in a single transaction
or a series of related transactions, to another person or group of affiliated
persons, unless (i) the resulting, surviving or transferee entity is a
corporation organized under the laws of the U.S., any state thereof or the
District of Columbia and expressly assumes by supplemental indenture all of the
obligations of the Company in connection with the Notes and the Indenture; (ii)
no Default or Event of Default shall exist or shall occur immediately after
giving effect on a pro forma basis to such transaction; (iii) immediately after
giving effect to such transaction, on a pro forma basis, the surviving or
transferee entity would immediately thereafter be permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Consolidated Fixed Charge
Coverage Ratio provision contained in the covenant described under
"--Limitation on Incurrence of Indebtedness and Preferred Stock"; and (iv) such
transaction will not result in the loss of any Gaming License held by a
Significant Subsidiary of the Company. For purposes of this covenant, the
Consolidated Fixed Charge Coverage Ratio shall be determined on a pro forma
consolidated basis (after giving effect, on a pro forma basis, to the
transaction and any related incurrence of Indebtedness or Preferred Stock) for
the Reference Period which ended immediately preceding such transaction.
Upon any consolidation or merger or any transfer of all or substantially
all of the assets of the Company in accordance with the foregoing, the successor
corporation formed by such consolidation or into which the Company is merged or
to which such transfer is made, shall succeed to, and be substituted for, and
may exercise every right and power of the Company under the Indenture and the
Notes, with the same effect as if such successor corporation had been named
therein as the Company.
Limitation on Other Senior Subordinated Indebtedness
The Company shall not, and shall not cause or permit any of the Restricted
Subsidiaries to, create, incur, assume, guarantee or in any other manner become
liable with respect to any Indebtedness (other than the Notes and the
Guarantees) that is subordinate in right of payment to any Senior Indebtedness
of the Company or such Restricted Subsidiary, as applicable, unless such
Indebtedness is either (a) pari passu in right of payment with the Notes or the
Guarantee, as applicable or (b) subordinate in right of payment to the Notes or
the Guarantee, as applicable, in the same manner and at least to the same extent
as the Notes are subordinated to Senior Indebtedness of the Company or as such
Guarantee is subordinated to Senior Indebtedness of such Guarantor, as
applicable.
Limitation on Sale of Capital Stock of Restricted Subsidiaries
The Company shall not, and shall not cause or permit any of its Restricted
Subsidiaries to, transfer, convey, sell, lease or otherwise dispose of any
Capital Stock of any Restricted Subsidiary to any person (other than the Company
or a Guarantor), unless (a) (i) such transfer, conveyance, sale, lease or other
disposition is of all of the Capital Stock of such Restricted Subsidiary or (ii)
after giving effect to such transfer, conveyance, sale, lease or other
disposition, the Company or the applicable Guarantor remains the owner of a
majority of the Capital Stock of such Restricted Subsidiary and (b) the Net Cash
Proceeds from such transfer, conveyance, sale, lease or other disposition are
applied in accordance with the covenant described above under the caption
"--Limitation on Sale of Assets and Subsidiary Stock; Event of Loss."
Limitation on Lines of Business
The Company shall not, and shall not cause or permit any of the Restricted
Subsidiaries to, directly or indirectly, engage in any line or lines of business
activity other than in a Related Business.
86
Limitation on Designations of Unrestricted Subsidiaries
The Company may designate after the Issue Date any Subsidiary of the
Company (other than a Guarantor in existence on the Issue Date) as an
"Unrestricted Subsidiary" under the Indenture (a "Designation") only if, at the
time of Designation:
(i) no Default shall have occurred and be continuing at the time of or
after giving effect to such Designation;
(ii) the Company would be permitted to make an Investment at the time of
Designation (assuming the effectiveness of such Designation) in an amount (the
"Designation Amount") equal to the amount of the Company's Investment in such
Subsidiary on such date;
(iii) neither the Company nor any Restricted Subsidiary has any
Indebtedness with respect to which such Unrestricted Subsidiary is also an
obligor or guarantor; and
(iv) the Company would be permitted under the Indenture to incur $1.00 of
additional Indebtedness (other than Permitted Indebtedness) pursuant to the
covenant described under "--Limitation on Incurrence of Indebtedness and
Preferred Stock" at the time of such Designation (assuming the effectiveness of
such Designation).
In the event of any such Designation, the Company shall be deemed to have
made an Investment constituting a Restricted Payment pursuant to the covenant
described under "--Limitation on Restricted Payments" for all purposes of the
Indenture in the Designation Amount.
The Company may revoke any Designation of a Subsidiary as an Unrestricted
Subsidiary (a "Revocation") if:
(i) no Default shall have occurred and be continuing at the time of and
after giving effect to such Revocation (unless the Revocation cures such
default); and
(ii) all Liens and Indebtedness of such Unrestricted Subsidiary outstanding
immediately following such Revocation would, if incurred at such time, have been
permitted to be incurred by the Company or its Restricted Subsidiaries for all
purposes of the Indenture.
All Designations and Revocations must be evidenced by Board Resolutions of
the Company delivered to the Trustee and an Officer's Certificate certifying
compliance with the foregoing provisions.
Limitation on Status as Investment Company
The Company and the Restricted Subsidiaries from becoming investment
companies (as that term is defined in the Investment Company Act of 1940, as
amended (the "Investment Company Act")), or from otherwise becoming subject to
regulation under the Investment Company Act.
As used in this section, the phrase "directly or indirectly" shall not be
construed so as to prohibit an Unrestricted Subsidiary from undertaking the
otherwise prohibited action nor shall such phrase be construed to prohibit the
stockholder of an Unrestricted Subsidiary from voting its stock in favor of such
action.
87
Reports
Whether or not the Company is subject to the reporting requirements of Section
13 or 15(d) of the Exchange Act, it shall deliver to the Trustee and to each
Holder and to prospective purchasers of Notes identified to the Company by the
Initial Purchaser, within 15 days after it is or would have been (if it were
subject to such reporting obligations) required to file such with the
Commission, (i) annual and quarterly financial statements substantially
equivalent to financial statements that would have been included in reports
filed with the Commission if the Company were subject to the requirements of
Section 13 or 15(d) of the Exchange Act including, with respect to annual
information only, a report thereon by a certified independent public accountant
as such would be required in such reports to the Commission and, in each case,
together with a management's discussion and analysis of financial condition and
results of operations which would be so required and (ii) all current reports
that would be required to be filed with the Commission on Form 8-K if the
Company were required to file such reports. The timely filing with the
Commission of Forms 10-Q, 10-K and 8-K, as applicable, shall satisfy the
requirements of (i) and (ii) above. In addition, whether or not required by the
rules and regulations of the Commission, the Company will file a copy of all
such information and reports with the Commission for public availability within
the time periods specified in the Commission's rules and regulations (unless the
Commission will not accept such a filing) and make such information available to
securities analysts and prospective investors upon request. In addition, the
Company has agreed that, for so long as any Notes remain outstanding, they will
furnish to the Holders and to securities analysts and prospective investors,
upon their request, the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act.
Events of Default and Remedies
The Indenture defines an Event of Default as (i) the failure by the Company to
pay any installment of interest on the Notes as and when due and payable and the
continuance of any such failure for 30 days; (ii) the failure to pay all or any
part of the principal of, or premium, if any, on, the Notes when and as the same
become due and payable at maturity, redemption, by acceleration or otherwise, or
the failure by the Company or any Restricted Subsidiary to comply with any of
its obligations described under "--Limitation on Sale of Assets and Subsidiary
Stock; Event of Loss," "--Change of Control" or "--Limitation on Mergers and
Consolidations;" (iii) the failure by the Company to observe or perform any
other covenant or agreement contained in the Notes or the Indenture and, subject
to certain exceptions, the continuance of such failure for a period of 30 days
after written notice is given to the Company by the Trustee or to the Company
and the Trustee by the Holders of at least 25% in aggregate principal amount of
the Notes outstanding; (iv) certain events of bankruptcy, insolvency or
reorganization in respect of the Company or any of its Significant Subsidiaries;
(v) default or defaults under one or more agreements, indentures or instruments
under which the Company or any Restricted Subsidiary then has outstanding
Indebtedness in excess of $10.0 million individually or in the aggregate and
either (a) such Indebtedness (or any payment of principal, interest or premium
thereon) is already due and payable or (b) such default or defaults results in
the acceleration of the maturity of such Indebtedness; (vi) final unsatisfied
judgments no longer subject to appeal not covered by insurance aggregating in
excess of $10.0 million at any one time rendered against the Company or any of
the Restricted Subsidiaries and not stayed, bonded or discharged within 60 days;
or (vii) the loss for 90 days of the legal right to conduct gaming operations at
any Casino which, if the Facility of which such Casino is a part were operated
by a single Subsidiary, would constitute a Significant Subsidiary. The Indenture
will provide that if a Default occurs and is continuing, the Trustee must,
within 90 days after the occurrence of such default, give to the Holders notice
of such default.
If an Event of Default occurs and is continuing (other than an Event of
Default specified in clause (iv) above relating to the Company or any of the
Significant Subsidiaries) unless the principal of all of the Notes shall have
already become due and payable, either the Trustee or the Holders of 25% of the
aggregate principal amount of the Notes then outstanding, by notice in writing
to the Company (and to the Trustee if given by Holders) (an "Acceleration
Notice"), may declare all principal of, and accrued and unpaid interest on, the
Notes due and payable immediately. If an Event of Default specified in clause
(iv) above relating to the Company or any of the Significant Subsidiaries
occurs, all principal of, and accrued and unpaid interest on, the Notes will
88
be immediately due and payable without any declaration or other act on the part
of Trustee or the Holders. The Holders of no less than a majority in aggregate
principal amount of Notes are generally authorized to rescind such acceleration
if all existing Events of Default, other than the non-payment of the principal
of, premium, if any, and interest on, the Notes which have become due solely by
such acceleration, have been cured or waived.
Prior to the declaration of acceleration of the maturity of the Notes, the
Holders of a majority of the aggregate principal amount of the Notes at the time
outstanding may waive on behalf of all the Holders any Default or Event of
Default, except a Default or Event of Default in the payment of principal of, or
interest on, any Note not yet cured, or a Default or Event of Default with
respect to any covenant or provision which cannot be modified or amended without
the consent of the Holder of each outstanding Note affected. Subject to the
provisions of the Indenture relating to the duties of the Trustee, the Trustee
will be under no obligation to exercise any of its rights or powers under the
Indenture at the request, order or direction of any of the Holders, unless such
Holders have offered to the Trustee reasonable security or indemnity. Subject to
all provisions of the Indenture and applicable law, the Holders of a majority of
the aggregate principal amount of the Notes at the time outstanding will have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the Trustee, or exercising any trust or power conferred
on the Trustee.
Legal Defeasance and Covenant Defeasance
The Company may, at its option at any time within the final year of the
Stated Maturity of the Notes, elect to have its obligations discharged with
respect to the outstanding Notes ("Legal Defeasance"). Such Legal Defeasance
means that the Company shall be deemed to have paid and discharged the entire
Indebtedness represented, and the Indenture shall cease to be of further effect
as to all outstanding Notes and Subsidiary Guarantees except as to (i) rights of
Holders to receive payments in respect of the principal of, premium, if any, and
interest on, such Notes when such payments are due solely from the trust fund
described below; (ii) the Company's obligations with respect to such Notes
concerning issuing temporary Notes, registration of Notes, mutilated, destroyed,
lost or stolen Notes, and the maintenance of an office or agency for payment and
money for security payments held in trust; (iii) the rights, powers, trust,
duties, and immunities of the Trustee, and the Company's obligations in
connection therewith; and (iv) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have the
obligations of the Company and all Guarantors released with respect to certain
covenants that are described in the Indenture ("Covenant Defeasance") and
thereafter, any failure to comply with such obligations shall not constitute a
Default or Event of Default with respect to the Notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment, bankruptcy,
receivership, rehabilitation and insolvency events) described under "Events of
Default and Remedies" will no longer constitute an Event of Default with
respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Notes, U.S. Legal Tender, non-callable Government
Securities or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium, if any, and interest on, such Notes on the
stated date for payment thereof or on the redemption date of such principal or
installment of principal of, premium, if any, or interest on, such Notes, and
the Holders of Notes must have a valid, perfected, exclusive security interest
in such trust; (ii) in the case of Legal Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the U.S. reasonably acceptable
to the Trustee confirming that (A) the Company has received from, or there has
been published by the Internal Revenue Service a ruling; or (B) since the date
of the Indenture, there has been a change in the applicable Federal income tax
law, in either case to the effect that, and based thereon such opinion of
counsel shall confirm that, the Holders of such Notes will not recognize income,
gain or loss for Federal income tax purposes as a result of such Legal
Defeasance and will be subject to Federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Legal
Defeasance had not occurred; (iii) in the case of Covenant Defeasance, the
Company shall have delivered to the Trustee an opinion of counsel in the U.S.
reasonably acceptable to such
89
Trustee confirming that the Holders of such Notes will not recognize income,
gain or loss for Federal income tax purposes as a result of such Covenant
Defeasance and will be subject to Federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred; (iv) no Default or Event of Default shall have
occurred and be continuing on the date of such deposit or insofar as Events of
Default from bankruptcy or insolvency events are concerned, at any time in the
period ending on the 91st day after the date of deposit; (v) such Legal
Defeasance or Covenant Defeasance shall not result in a breach or violation of,
or constitute a default under, the Indenture or any other material agreement or
instrument to which the Company, the Guarantors or any of their respective
Subsidiaries is a party or by which the Company, the Guarantors or any of their
respective Subsidiaries is bound; (vi) the Company shall have delivered to the
Trustee an Officers' Certificate stating that the deposit was not made by the
Company with the intent of preferring the Holders of such Notes over any other
creditors of the Company or with the intent of defeating, hindering, delaying or
defrauding any other creditors of the Company or others; and (vii) the Company
shall have delivered to the Trustee an Officer's Certificate and an opinion of
counsel, each stating that all conditions precedent provided for or relating to
the Legal Defeasance or the Covenant Defeasance have been complied with.
Satisfaction and Discharge
The Indenture will cease to be of further effect as to all such outstanding
Notes when (i) either (a) all such Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or paid) have
been delivered to the Trustee for cancellation; or (b) all such Notes not
theretofore delivered to the Trustee for cancellation have become due and
payable and the Company or any Guarantor has irrevocably deposited or caused to
be deposited with the Trustee funds in an amount sufficient to pay and discharge
the entire indebtedness on the Notes not theretofore delivered to the Trustee
for cancellation, for principal of, premium, if any, and interest to the Stated
Maturity of, the Notes; (ii) the Company or any Guarantor has paid all other
sums payable under the Indenture; and (iii) the Company and each Guarantor has
delivered to the Trustee an Officers' Certificate and an opinion of counsel each
stating that all conditions precedent under the Indenture relating to the
satisfaction and discharge of the Indenture have been complied with.
Amendments and Supplements
The Indenture contains provisions permitting the Company, the Guarantors
and the Trustee, without the consent of the Holders, to enter into a
supplemental indenture for certain limited purposes including, among other
things, to cure any ambiguity, defect or inconsistency in the Indenture; to
provide for the assumption of the Company's obligations to the Holders by a
successor entity; or to make any change that does not adversely affect the
rights of any Holders. With the consent of the Holders of not less than a
majority in aggregate principal amount of the Notes at the time outstanding, the
Company, the Guarantors and the Trustee are permitted to amend or supplement the
Indenture or any supplemental indenture or modify the rights of the Holders;
provided, that no such modification may, without the consent of each Holder
affected thereby: (i) change the Stated Maturity of any Note; or (ii) reduce the
principal amount thereof or the rate (or extend the time for payment) of
interest thereon or any premium payable upon the redemption thereof, or change
the place of payment where, or the coin or currency in which, any Note or any
premium or the interest thereon is payable, or impair the right to institute
suit for the enforcement of any such payment on or after the Stated Maturity
thereof (or, in the case of redemption, on or after the Redemption Date), or
reduce any Offer to Purchase Price; or (iii) alter the redemption provisions in
a manner adverse to the Holders; or (iv) make the Notes subordinate to any
Indebtedness or other claims; (v) change the covenant described under ''--Change
of Control'' above; or (vi) reduce the percentage in principal amount of the
outstanding Notes, the consent of whose Holders is required for any such
amendment, supplemental indenture or waiver provided for in the Indenture; or
(vii) modify any of the waiver provisions, except to increase any required
percentage or to provide that certain other
90
provisions of the Indenture cannot be modified or waived without the consent of
the Holder of each outstanding Note affected thereby.
No Personal Liability of Partners, Stockholders, Officers, Directors
No direct or indirect owner, stockholder, employee, agent, officer or
director, as such, past, present or future of the Company or any of its
Subsidiaries or any successor entity shall have any personal liability in
respect of the obligations of the Company or any of its Subsidiaries under the
Indenture or the Notes by reason of his or its status as such owner,
stockholder, employee, agent, officer or director.
Certain Definitions
"Acceleration Notice" has the meaning set forth under "--Events of
Default and Remedies."
"Acquired Indebtedness" with respect to the Company means Indebtedness of
another person existing at the time such person becomes a Restricted Subsidiary
or is merged or consolidated into or with the Company or one of its Restricted
Subsidiaries, and not incurred in connection with or in anticipation of, such
merger or consolidation or of such person becoming a Restricted Subsidiary.
"Acquisition" means the purchase or other acquisition of any person or
substantially all the assets of any person by any other person, whether by
purchase, merger, consolidation or other transfer, and whether or not for
consideration.
"Adjusted Consolidated Net Income" means Consolidated Net Income, minus
100% of the amount of any writedowns, writeoffs, or negative extraordinary
charges not otherwise reflected in Consolidated Net Income during such period.
"Affiliate" means (i) any person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company or any
of the Restricted Subsidiaries; (ii) with respect to the Company and any
Restricted Subsidiary, so long as the Company is an S Corporation, any director
or stockholder of the Company or such Restricted Subsidiary; (iii) any spouse,
immediate family member, or other relative who has the same principal residence
of any person described in clauses (i) or (ii) above; and (iv) any trust in
which any person described in clauses (i) or (ii) above has a beneficial
interest. For purposes of this definition, the term "control" means (a) the
power to direct the management and policies of a person, directly or through one
or more intermediaries, whether through the ownership of voting securities, by
contract, or otherwise; or (b) the beneficial ownership of 10% or more of any
class of voting Capital Stock of a person (on a fully diluted basis) or of
warrants or other rights to acquire such class of Capital Stock (whether or not
presently exercisable).
"Affiliate Transaction" has the meaning set forth under "--Certain
Covenants--Limitation of Transactions with Affiliates."
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease or other disposition (including, without limitation, any merger,
consolidation or sale-leaseback transaction) to any person other than the
Company or a Restricted Subsidiary, in one or a series of related transactions,
of (i) any Capital Stock of any Restricted Subsidiary; (ii) all or substantially
all of the assets of any division or line of business of the Company or any
Restricted Subsidiary; or (iii) any other properties or assets of the Company or
any Restricted Subsidiary other than in the ordinary course of business. For the
purposes of this definition, the term "Asset Sale" will not include (a) any
sale of the Capital Stock of an Unrestricted Subsidiary or any other person
(other than a Restricted Subsidiary) in which the Company or any Restricted
Subsidiary has an ownership interest or any merger or consolidation involving
only an Unrestricted Subsidiary or any other person (other than a
91
Restricted Subsidiary) in which the Company or any Restricted Subsidiary has an
ownership interest or any merger or consolidation involving only an Unrestricted
Subsidiary or any other person (other than a Restricted Subsidiary) in which the
Company or any Restricted Subsidiary has an ownership interest or any sale,
issuance, conveyance, transfer, lease or other disposition of properties or
assets governed by the provisions described under ''--Limitation on Mergers and
Consolidations''; (b) sales of property or equipment that have become worn out,
obsolete or damaged or otherwise unsuitable for use in connection with the
business of the Company or any Restricted Subsidiary, as the case may be; (c)
any sale, conveyance, transfer, lease or other disposition of any property or
asset either (i) in the ordinary course of business and consistent with past
practice or (ii) whether in one transaction or a series of related transactions,
involving assets with a fair market value not in excess of $2.0 million; (d) the
sale of the Company's airplane owned on the Issue Date; or (e) the sale,
transfer, lease, conveyance or other disposition of all or any portion of a
parcel of real estate located in Joliet, Illinois owned by the Company and its
Restricted Subsidiaries, comprised of approximately 350 acres, the legal
description of which is set forth on an exhibit to the Indenture (the ''Joliet
Real Estate'').
''Asset Sale Offer'' has the meaning set forth under ''--Certain
Covenants--Limitation on Sale of Assets and Subsidiary Stock; Events of Loss.''
''Asset Sale Offer Period'' has the meaning set forth under ''--Certain
Covenants--Limitation on Sale of Assets and Subsidiary Stock; Events of Loss.''
''Asset Sale Offer Price'' has the meaning set forth under ''--Certain
Covenants--Limitation on Sale of Assets and Subsidiary Stock; Events of Loss.''
''Average Life'' means, as of the date of determination, with respect to any
security or instrument, the quotient obtained by dividing (i) the sum of the
products of the number of years from the date of determination to the date of
each successive scheduled principal (or redemption) payment of such security or
instrument and multiplied by the amount of each such respective principal (or
redemption) payment by (ii) the sum of all such principal (or redemption)
payments.
''Bank Indebtedness'' means any and all amounts payable from time to time
under or in respect of the Credit Facility, including principal, premium (if
any), interest, (including interest accruing on or after the filing of any
petition in bankruptcy or for reorganization relating to the Company whether or
not a claim for post-filing interest is allowed in such a proceeding), fees,
charges, expenses, reimbursement obligations, guarantees, indemnities and all
other amounts and other liabilities payable thereunder or in respect thereof.
''Beneficial Owner'' for purposes of the definition of Change of Control
has the meaning attributed to it in Rules 13d-3 and 13d-5 under the Exchange
Act, whether or not applicable, except that a ''person'' shall be deemed to have
''beneficial ownership'' of all shares that any such person has the right to
acquire, whether such right is exercisable immediately or only after the passage
of time.
''Business Day'' means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in New York, New York are
authorized or obligated by law or executive order to close.
''Capital Stock'' means, with respect to any corporation, any and all
shares, interests, rights to purchase (other than convertible or exchangeable
Indebtedness), warrants, options, participations or other equivalents of or
interests (however designated) in stock issued by that corporation.
''Capitalized Lease Obligation'' means any obligation under a lease of (or
other agreement conveying the right to use) any property (whether real, personal
or mixed) required to be classified and accounted for as a capital lease
obligation under GAAP, and, for the purpose of the Indenture, the amount of such
obligation at any date shall be the capitalized amount thereof at such date,
determined in accordance with GAAP consistently applied.
92
"Cash Equivalent" means (i) any evidence of Indebtedness with a maturity of
not more than one year issued or directly and fully guaranteed or insured by the
United States of America or any agency or instrumentality thereof (provided that
the full faith and credit of the United States of America is pledged in support
thereof); (ii) time deposits and certificates of deposit and commercial paper or
bankers' acceptances with a maturity of not more than one year of any financial
institution that is a member of the Federal Reserve System having combined
capital and surplus and undivided profits of not less than $500,000,000; (iii)
commercial paper with a maturity of not more than one year issued by a
corporation that is not an Affiliate of the Company organized under the laws of
any state of the U.S. or the District of Columbia and rated at least A-1 by
Standard & Poor's Rating Services, a division of the McGraw Hill Companies, Inc.
or at least P-1 by Moody's Investor's Service, Inc.; and (iv) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clauses (i) and (ii) above entered into with any
financial institution meeting the qualifications specified in clause (ii) above.
"Casino" means a gaming establishment owned by the Company or a Restricted
Subsidiary, and containing at least 200 slot machines or at least 15 gaming
tables, or containing at least 10,000 square feet dedicated to the operation of
games of chance, and any hotel, building, restaurant, theater, parking
facilities, retail shops, land, equipment and other property or asset directly
ancillary thereto or used in connection therewith.
"Change of Control" means (i) any merger or consolidation of, or any sale,
transfer or other conveyance, whether direct or indirect, of all or
substantially all of the assets of, the Company in each case on a consolidated
basis, in one transaction or a series of related transactions, if, immediately
after giving effect to such transaction, any "person" or "group" (as such terms
are used for purposes of Sections 13(d) and 14(d) of the Exchange Act, whether
or not applicable), other than Excluded Persons or entities of which a majority
of voting power is owned by such Excluded Persons, is or becomes the "beneficial
owner," directly or indirectly, of more than 50% of the aggregate voting power
normally entitled to vote in the election of directors of the transferee; (ii)
the time that any "person" or "group" (as such terms are used for purposes of
Sections 13(d) and 14(d) of the Exchange Act, whether or not applicable), other
than Excluded Persons or entities of which a majority of voting power is owned
by such Excluded Persons, is or becomes the "beneficial owner," directly or
indirectly, of more than 50% of the aggregate voting power of all classes of
Capital Stock then outstanding of the Company normally entitled to vote in
elections of directors; or (iii) during any period of 12 consecutive months
after the Issue Date, individuals who at the beginning of any such 12-month
period constituted the Board of Directors of the Company (together with any new
directors whose election by such Board or whose nomination for election by the
stockholders of the Company was approved by a vote of a majority of the
directors then still in office who were either directors at the beginning of
such period or whose election or nomination for election was previously so
approved), cease for any reason to constitute a majority of the Board of
Directors of the Company then in office.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is no precise established definition of the phrase under applicable
law. Accordingly, the ability of a Holder of Notes to require the Company to
repurchase such Notes as a result of a sale, lease, transfer, conveyance or
other disposition of less than all of the assets of the Company and its
Subsidiaries taken as a whole to another person or group may be uncertain.
"Change of Control Offer" has the meaning set forth under "--Change of
Control."
"Change of Control Offer Period" has the meaning set forth under "--Change
of Control."
"Change of Control Purchase Date" has the meaning set forth under "--Change
of Control."
"Change of Control Purchase Price" has the meaning set forth under "--
Change of Control."
93
"Consolidated Depreciation and Amortization Expense" means, for any period,
the total amount of depreciation and amortization expense and other non-cash
expenses (excluding any non-cash expense that represents an accrual, reserve or
amortization of a cash expenditure for a past, present or future period) for the
Company and its Restricted Subsidiaries (but excluding its Unrestricted
Subsidiaries or other persons other than its Restricted Subsidiaries, even
though such amounts may be included in a consolidated calculation in accordance
with GAAP) for such period on a consolidated basis as defined in accordance with
GAAP.
"Consolidated EBITDA" means, for any period, Consolidated Net Income for
such period adjusted to add thereto (to the extent deducted from net revenues in
determining Consolidated Net Income), without duplication, the sum of (i)
Consolidated Income Tax Expense; (ii) Consolidated Depreciation and Amortization
Expense; and (iii) Consolidated Fixed Charges.
"Consolidated Fixed Charge Coverage Ratio" on any date of determination
(the "Transaction Date") means the ratio, on a pro forma basis, of (a) the
aggregate amount of Consolidated EBITDA attributable to continuing operations
and businesses (exclusive of amounts attributable to operations and businesses
permanently discontinued or disposed of) for the Reference Period to (b) the
aggregate Consolidated Fixed Charges (exclusive of amounts attributable to
operations and businesses permanently discontinued or disposed of, but only to
the extent that the obligations giving rise to such Consolidated Fixed Charges
would no longer be obligations contributing to Consolidated Fixed Charges
subsequent to the Transaction Date) during the Reference Period; provided, that
for purposes of such calculation: (i) Acquisitions or Asset Sales (or
transactions which would constitute Asset Sales but for the exclusions set forth
in clause (a), and in the last sentence, of the definition of "Asset Sales")
which occurred during the Reference Period or subsequent to the Reference Period
and on or prior to the Transaction Date shall be assumed to have occurred on the
first day of the Reference Period; (ii) transactions giving rise to the need to
calculate the Consolidated Fixed Charge Coverage Ratio shall be assumed to have
occurred on the first day of the Reference Period; (iii) the incurrence of any
Indebtedness or issuance of any Disqualified Capital Stock during the Reference
Period or subsequent to the Reference Period and on or prior to the relevant
Transaction Date (and the application of the proceeds therefrom to the extent
used to refinance or retire other Indebtedness) shall be assumed to have
occurred on the first day of such Reference Period; and (iv) the Consolidated
Fixed Charges attributable to interest on any Indebtedness or dividends on any
Disqualified Capital Stock bearing a floating interest (or dividend) rate shall
be computed on a pro forma basis as if the average rate in effect from the
beginning of the Reference Period to the relevant Transaction Date had been the
applicable rate for the entire period, unless such Person or any of its
Subsidiaries is a party to an Interest Swap Obligation (which shall remain in
effect for the 12-month period immediately following the Transaction Date) that
has the effect of fixing the interest rate on the date of computation, in which
case such rate (whether higher or lower) shall be used.
"Consolidated Fixed Charges" means, for any period, the aggregate amount
(without duplication) of (a) interest expensed or capitalized, paid, accrued, or
scheduled to be paid or accrued in accordance with GAAP (including, in
accordance with the following sentence, interest attributable to Capitalized
Lease Obligations) during such period in respect of all Indebtedness of the
Company and its Restricted Subsidiaries (but excluding its Unrestricted
Subsidiaries or other persons other than its Restricted Subsidiaries, even
though such amounts may be included in a consolidated calculation in accordance
with GAAP), including (i) original issue discount and non-cash interest payments
or accruals on any Indebtedness; (ii) the interest portion of all deferred
payment obligations, calculated in accordance with GAAP; and (iii) all
commissions, discounts and other fees and charges owed with respect to bankers'
acceptance financings and currency and Interest Swap Obligations, in each case
to the extent attributable to such period and determined on a consolidated basis
in accordance with GAAP; (b) one-third of the rental expense for such period
attributable to operating leases of the Company and its Restricted Subsidiaries;
and (c) the amount of dividends paid or payable by the Company or any of its
Restricted Subsidiaries in respect of Disqualified Capital Stock (other than by
Subsidiaries of such person to such person or such person's wholly owned
Subsidiaries). For purposes of this definition, (x) interest on a Capitalized
Lease Obligation shall be deemed to accrue at an interest rate reasonably
determined by such person to be the rate of interest implicit in such
Capitalized Lease Obligation in accordance with GAAP; (y) interest
94
expense attributable to any Indebtedness represented by the guaranty by such
person or a Restricted Subsidiary of such person of an obligation of another
person shall be deemed to be the interest expense attributable to the
Indebtedness guaranteed; and (z) any interest expense or premium for the period
from and after the Issue Date relating to the 10 3/4% Notes shall be excluded
from Consolidated Fixed Charges.
"Consolidated Income Tax Expense" means, for any period, the provision for
Federal, state, local and foreign income taxes of the Company and its Restricted
Subsidiaries (but excluding its Unrestricted Subsidiaries or other persons other
than its Restricted Subsidiaries, even though such amounts may be included in a
consolidated calculation in accordance with GAAP), for such period as determined
in accordance with GAAP.
"Consolidated Net Income" means, with respect to any period, the net income
(or loss) of the Company and its Restricted Subsidiaries (but excluding
Unrestricted Subsidiaries or other persons other than its Restricted
Subsidiaries, even though such amounts may be included in a consolidated
calculation in accordance with GAAP), determined on a consolidated basis in
accordance with GAAP, for such period, adjusted to exclude (only to the extent
included in computing such net income (or loss) and without duplication): (a)
all gains which are extraordinary (as determined in accordance with GAAP) or are
either unusual or nonrecurring (including, without limitation, any gain from the
sale or other disposition of assets outside the ordinary course of business or
from the sale of any Capital Stock, but gains from the sale of Capital Stock of
Unrestricted Subsidiaries (or other persons other than Restricted Subsidiaries)
or a merger or consolidation involving Unrestricted Subsidiaries (or other
persons other than Restricted Subsidiaries) shall be included in the calculation
of net income; (b) the portion of net income, if positive, of any Restricted
Subsidiary allocable to minority interests therein, except to the extent of the
amount of any dividends or distributions actually paid in cash to the Company or
a Restricted Subsidiary; (c) the net income, if positive, of any person acquired
in a pooling of interests transaction for any period prior to the date of such
acquisition; and (d) any interest expense or premium for the period from and
after the Issue Date relating to the 10 3/4 Notes, and any interest income
relating to securities deposited in connection with the Covenant Defeasance
thereof.
"Credit Facility" means the $100.0 million revolving line of credit,
including a subfacility for the issuance of standby and documentary letters of
credit, established pursuant to a Credit Agreement to be dated as of June 18,
1998, as amended from time to time, among the Company, certain of the Company's
Subsidiaries, the lenders named therein and Wells Fargo Bank, National
Association, and any related documents or instruments and any extensions,
revisions, refinancings or replacements thereof by a bank or a syndicate of
institutional lenders.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Designation" has the meaning set forth in "--Certain Covenants--Limitation
on Designations of Unrestricted Subsidiaries."
"Designation Amount" has the meaning set forth in "--Certain Covenants--
Limitation on Designations of Unrestricted Subsidiaries."
"Disqualified Capital Stock" means (a) except as set forth in (b), with
respect to any person, Capital Stock of such person that, by its terms or by the
terms of any security into which it is convertible, exercisable or exchangeable,
is, or upon the happening of an event or the passage of time would be, required
to be redeemed or repurchased (including at the option of the holder thereof) by
such person or any of its Subsidiaries, in whole or in part, on or prior to the
Stated Maturity of the Notes; and (b) with respect to any Subsidiary of such
person, any Capital Stock.
95
"Event of Loss" means, with respect to any property or asset, any loss,
destruction or damage of such property or asset or any condemnation, seizure or
taking, by exercise of the power of eminent domain or otherwise, of any property
or asset, or confiscation or requisition of the use of such property or asset.
"Excess Proceeds" shall have the meaning set forth in "--Certain
Covenants--Limitation on Sale of Assets and Subsidiary Stock; Event of Loss."
"Excluded Persons" means collectively, the existing stockholders of the
Company as of the Issue Date and any of their respective estates, spouses,
heirs, ancestors, lineal descendants, legatees, and legal representatives and
the trustee of any bona fide trust of which one or more of the foregoing are the
sole beneficiaries.
"Existing Indebtedness" means Indebtedness outstanding on the date of the
Indenture.
"Facility" means one or more Casinos and related facilities operated by the
Company or any of its Restricted Subsidiaries that are located within a ten-mile
radius of one another.
"FF&E Indebtedness" means Indebtedness which is secured by a Lien upon any
tangible personal property acquired after the Issue Date, constituting operating
assets, which are financed, purchased or leased for the purpose of engaging in
or developing a Related Business.
"GAAP" means U.S. generally accepted accounting principles as in effect on
the Issue Date.
"Gaming Authority" means any Governmental Authority with appropriate
jurisdiction and authority relating to a Gaming License.
"Gaming Jurisdiction" means any foreign, Federal, state or local
jurisdiction in which the Company, any Restricted Subsidiary or any of their
respective Subsidiaries has a direct or indirect beneficial, legal or voting
interest in an entity that conducts casino gaming.
"Gaming Law" means any law, rule, regulation or ordinance governing gaming
activities, including the Illinois Riverboat Act and the Indiana Riverboat Act,
any administrative rules or regulations promulgated thereunder, and any of the
corresponding statutes, rules and regulations in each Gaming Jurisdiction.
"Gaming Licenses" means every license, franchise or other authorization on
the Issue Date or thereafter required to own, lease, operate or otherwise
conduct riverboat, dockside or land-based gaming in any Gaming Jurisdiction, and
any applicable liquor licenses.
"Governmental Authority" means any agency, authority, board, bureau,
commission, department, office or instrumentality of any nature whatsoever of
the U.S. or a foreign government, any state, province or any city or other
political subdivision or otherwise and whether now or hereafter in existence, or
any officer or official thereof, and any maritime authority.
"Guarantors" means all existing Restricted Subsidiaries of the Company and
all future Restricted Subsidiaries of the Company.
"Indebtedness" of any person means, without duplication, (a) all
liabilities and obligations, contingent or otherwise, with respect to any
person, (i) in respect of borrowed money (whether or not the recourse of the
lender is to the whole of the assets of such person or only to a portion
thereof); (ii) evidenced by bonds (other than surety or performance bonds),
notes, debentures or similar instruments; (iii) representing the balance
deferred and unpaid of the purchase price of any property or services, except
such as would constitute trade payables to trade creditors in the ordinary
course of business that are not more than 90 days past their original due date
or are being contested in good faith; (iv) evidenced by bankers' acceptances or
similar instruments
96
issued or accepted by banks; (v) for the payment of money relating to a
Capitalized Lease Obligation; or (vi) evidenced by a letter of credit or a
reimbursement obligation of such person with respect to any letter of credit;
(b) all net obligations of such person under Interest Swap Obligations and
foreign currency hedges; (c) all liabilities of others of the kind described in
the preceding clauses (a) or (b) that such person has guaranteed or that is
otherwise its legal liability; (d) all obligations to purchase, redeem or
acquire any Capital Stock; (e) all obligations secured by a Lien, to which the
property or assets (including, without limitation, leasehold interests and any
other tangible or intangible property rights) of such person are subject,
whether or not the obligations secured thereby shall have been assumed by or
shall otherwise be such person's legal liability, provided, that the amount of
such obligations shall be limited to the lesser of the fair market value of the
assets or property to which such Lien attaches and the amount of the obligation
so secured; and (f) any and all deferrals, renewals, extensions, refinancings
and refundings (whether direct or indirect) of, or amendments, modifications or
supplements to, any liability of the kind described in any of the preceding
clauses (a), (b), (c), (d) or (e), or this clause (f), whether or not between or
among the same parties.
"Interest Payment Date" means the stated due date of an installment of
interest on the Notes.
"Interest Swap Obligations" means the obligations of any person pursuant to
any arrangement with any other person whereby, directly or indirectly, such
person is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such person to such other
person calculated by applying a fixed or a floating rate of interest on the same
notional amount or any other arrangement involving payments by or to such other
person based upon fluctuations in interest rates.
"Investment" by any person in any other person means (without duplication)
(a) the acquisition by such person (whether for cash, property, services,
securities or otherwise) of capital stock, bonds, notes, debentures, partnership
or other ownership interests or other securities, including any options or
warrants, of such other person or any agreement to make any such acquisition;
(b) the making by such person of any deposit with, or advance, loan or other
extension of credit to, such other person (including the purchase of property
from another person subject to an understanding or agreement, contingent or
otherwise, to resell such property to such other person) or any commitment to
make any such advance, loan or extension (but excluding accounts receivable
arising in the ordinary course of business that are not more than 30 days past
their original due date); (c) other than the Subsidiary Guarantees, the entering
into by such person of any guarantee of, or other credit support or contingent
obligation with respect to, Indebtedness or other liability of such other
person; or (d) the making of any capital contribution by such person to such
other person.
"Issue Date" means the date of first issuance of the Notes under the
Indenture.
"Joliet Real Estate" shall have the meaning given to such term in the
definition of "Asset Sale" set forth above.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Net Cash Proceeds" means the aggregate amount of U.S. Legal Tender or Cash
Equivalents received by the Company or a Restricted Subsidiary in the case of a
sale of Qualified Capital Stock and by the Company or a Restricted Subsidiary in
respect of an Asset Sale, less, in each case, the sum of all fees, commissions
and other (in the case of an Asset Sale, reasonable and customary) expenses
incurred in connection with such Asset Sale or sale of Qualified Capital Stock,
and, in the case of an Asset Sale only, less the amount (estimated reasonably
and in good faith by the Company or such Restricted Subsidiary) of income,
franchise, sales and
97
other applicable taxes required to be paid by the Company or such Restricted
Subsidiary in connection with such Asset Sale.
"Net Proceeds" means the aggregate Net Cash Proceeds and fair market value
of property (valued at the fair market value thereof at the time of receipt in
good faith by the Board of Directors of the Company or the applicable Restricted
Subsidiary), other than securities of the Company or a Restricted Subsidiary,
received by the Company or a Restricted Subsidiary after payment of expenses,
commissions, discounts and the like incurred in connection therewith.
"Non-Recourse Indebtedness" means Indebtedness of a person to the extent
that under the terms thereof or any other document, instrument or filing no
personal recourse shall be had against such person for the payment of the
principal of, premium, if any, or interest on, such Indebtedness, and
enforcement of obligations on such Indebtedness is limited only to recourse
against interests in property and assets purchased with the proceeds of the
incurrence of such Indebtedness and as to which none of the Company or any
Restricted Subsidiary provides any credit support or is directly or indirectly
liable. Indebtedness shall not lose its characterization as Non-Recourse
Indebtedness solely as a result of a person being personally liable for losses
caused by misappropriation, fraud or wilful breaches of representations and
warranties.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Offer to Purchase" means any Change of Control Offer or Asset Sale Offer.
"Offer to Purchase Price" means any Change of Control Purchase Price or
Asset Sale Offer Price.
"Officer's Certificate" means, with respect to the Company or any
Restricted Subsidiary, a certificate signed by two Officers of the Company or
such Restricted Subsidiary and otherwise complying with the requirements of the
Indenture.
"Payment Blockage Period" shall have the meaning set forth in "--
Subordination."
"Permitted Investments" means the aggregate of (a) any Investment in the
Company or in any Restricted Subsidiary; (b) any Investment in Cash Equivalents
or purchases by the Company or any Restricted Subsidiary of any of the Notes in
open market purchase transactions; (c) any Investment by the Company or any
Restricted Subsidiary in a Person, if as a result of such Investment (i) such
Person becomes a Restricted Subsidiary of the Company that is engaged in a
Related Business, or (ii) such Person is merged, consolidated or amalgamated
with or into, or transfers or conveys substantially all of its assets to, or is
liquidated into, the Company or a Restricted Subsidiary and that is engaged in a
Related Business; (d) any Restricted Investment made as a result of the receipt
of non-cash consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption "--Limitation on
Sale of Assets and Subsidiary Stock; Event of Loss"; (e) any acquisition of
assets solely in exchange for the issuance of Qualified Capital Stock of the
Company or its Restricted Subsidiaries; (f) any Investment of the Joliet Real
Estate or proceeds from the sale of the Joliet Real Estate; and (g) Investments,
the aggregate fair market value of which (measured on the date each such
Investment was made and without giving effect to subsequent changes in value),
when taken together with all other Investments made pursuant to this clause (g)
that are at the time outstanding, do not exceed $50.0 million.
"Permitted Liens" means any of the following:
(a) Liens existing on the date of the Indenture;
98
(b) Liens securing Obligations of the Company or any of the Restricted
Subsidiaries under any Senior Indebtedness permitted to be incurred under the
Indenture;
(c) Liens to secure Obligations of the Company or any of the Restricted
Subsidiaries under any FF&E Indebtedness permitted to be incurred pursuant to
clause (e) of the covenant described under "--Certain Covenants--Limitation an
Incurrence of Indebtedness and Preferred Stock," that do not exceed $7.5 million
at any one time outstanding per Facility;
(d) Liens to secure Obligations of the Company or any of its Restricted
Subsidiaries under any Purchase Money Indebtedness or Non-Recourse Indebtedness
permitted to be incurred pursuant to clause (d) of the covenant described under
"--Certain Covenants--Limitation on Incurrence of Indebtedness and Preferred
Stock" in an amount not to exceed $7.5 million in the aggregate at any one time
outstanding;
(e) Liens to secure Obligations of the Company or any of the Restricted
Subsidiaries under any Refinancing Indebtedness incurred to refinance any
Indebtedness referred to in the foregoing clauses (a) through (d), provided that
(i) the Indebtedness to be refinanced was secured and (ii) the Lien does not
extend beyond the amount of Indebtedness to be refinanced;
(f) Liens for taxes, assessments or other governmental charges not yet due
or which are being contested in good faith and by appropriate proceedings by the
Company or the applicable Restricted Subsidiary if adequate reserves with
respect thereto are maintained on the books of the Company or such Restricted
Subsidiary, as applicable, in accordance with GAAP;
(g) statutory Liens of carriers, warehousemen, mechanics, landlords,
materialmen, repairmen or other like Liens arising by operation of law in the
ordinary course of business and consistent with industry practices and Liens on
deposits made to obtain the release of such Liens if (i) the underlying
obligations are not overdue; or (ii) such Liens are being contested in good
faith and by appropriate proceedings by the Company or the applicable Restricted
Subsidiary and adequate reserves with respect thereto are maintained on the
books of the Company or such Restricted Subsidiary as the case may be, in
accordance with GAAP;
(h) easements, rights-of-way, zoning and similar restrictions and other
similar encumbrances or title defects incurred in the ordinary course of
business and consistent with industry practices which, in the aggregate, are not
substantial in amount, and which do not in any case materially detract from the
value of the property subject thereto (as such property is used by the Company
or a Restricted Subsidiary) or interfere with the ordinary conduct of the
business of the Company or a Restricted Subsidiary; provided, that any such
Liens are not incurred in connection with any borrowing of money or any
commitment to loan any money or to extend any credit; and
(i) Liens created by the Indenture.
"person" means any individual, limited liability company, corporation,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or other agency or political
subdivision thereof.
"Preferred Stock" means, with respect to any person, Capital Stock of any
class or classes (however designated) which is preferred as to the payment of
dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such person, over Capital
Stock of any other class of such person.
"Purchase Money Indebtedness" means any Non-recourse Indebtedness of such
person owed to any seller or other person which is incurred to finance the
acquisition of any real or personal tangible property of a Related Business
within 90 days of such acquisition.
99
"Qualified Capital Stock" means any Capital Stock of the Company or a
Restricted Subsidiary that is not Disqualified Capital Stock.
"Qualified Exchange" means any defeasance, redemption, repurchase or other
acquisition of Capital Stock or Indebtedness of a Guarantor with the Net
Proceeds received by such Guarantor from the substantially concurrent sale of
Qualified Capital Stock of such Guarantor or in exchange for Qualified Capital
Stock of such Guarantor.
"Redeemable Capital Stock" means any class or series of Capital Stock to
the extent that, either by its terms, by the terms of any security into which it
is convertible or exchangeable, or by contract or otherwise, is or upon the
happening of an event or passage of time would be, required to be redeemed prior
to the final Stated Maturity of the Notes or is redeemable at the option of the
holder thereof at any time prior to such Stated Maturity, or is convertible into
or exchangeable for debt securities at any time prior to such Stated Maturity.
"Redemption Date," when used with respect to any Note to be redeemed, means
the date fixed for such redemption pursuant to the Indenture and the form of
Note included therein.
"Reference Period" with regard to any person means the four full fiscal
quarters (or such lesser period during which such person has been in existence)
ended immediately preceding the relevant date upon which such determination is
to be made pursuant to the terms of the Notes or the Indenture.
"Refinancing Indebtedness" means Indebtedness or Disqualified Capital Stock
(a) issued in exchange for, or the proceeds from the issuance and sale of which
are used substantially concurrently to repay, redeem, defease, refund,
refinance, discharge or otherwise retire for value, in whole or in part; or (b)
constituting an amendment, modification or supplement to, or a deferral or
renewal of ((a) and (b) above are, collectively, a "Refinancing"), any
Indebtedness or Disqualified Capital Stock of such person in a principal amount
or, in the case of Disqualified Capital Stock, liquidation preference, not to
exceed (after deduction of reasonable and customary fees and expenses incurred
in connection with the Refinancing) the lesser of (i) the principal amount or,
in the case of Disqualified Capital Stock, liquidation preference, of the
Indebtedness or Disqualified Capital Stock so Refinanced and (ii) if such
Indebtedness being Refinanced was issued with an original issue discount, the
accreted value thereof (as determined in accordance with GAAP) at the time of
such Refinancing; provided, that (A) Refinancing Indebtedness of any Restricted
Subsidiary shall only be used to Refinance outstanding Indebtedness or
Disqualified Capital Stock of such Restricted Subsidiary; (B) Refinancing
Indebtedness shall not have an Average Life less than that of the Indebtedness
or Disqualified Capital Stock to be so refinanced at the time of such
refinancing; (C) such Refinancing Indebtedness shall have no installment of
principal (or redemption payment) scheduled to come due earlier than the
scheduled maturity of any installment of principal of the Indebtedness (or
Disqualified Capital Stock) to be so refinanced which was scheduled to come due
on or prior to the Stated Maturity; and (D) if the Indebtedness or Disqualified
Capital Stock to be so refinanced was subordinate or junior in right of payment
to the Guarantee, then the Refinancing Indebtedness shall be subordinate or
junior in right of payment to such Guarantee to an extent no less favorable in
respect thereof to the Holders.
"Related Business" means the gaming business conducted (or proposed to be
conducted) by the Company, its Restricted Subsidiaries and their respective
Subsidiaries as of the Issue Date and any and all related businesses in support
of, ancillary to or attracting visitors to the gaming business of the Company,
its Restricted Subsidiaries and their respective Subsidiaries and additionally
expressly includes any riverboat, dockside or land-based gaming or horse racing
businesses or any business mandated by a Gaming Authority in order to obtain or
retain a Gaming License.
"Required Regulatory Redemption" shall have the meaning set forth under "--
Redemption--Required Regulatory Redemption."
100
"Restricted Investment" means, in one or a series of related transactions,
any Investment, other than Investments in Cash Equivalents; provided, that a
Restricted Investment shall not include (i) the extension of credit to customers
of Casinos consistent with industry practice in the ordinary course of business;
and (ii) a guaranty by a Guarantor of Indebtedness incurred by another Guarantor
or the Company in accordance with the covenant described under "--Certain
Covenants--Limitation on Incurrence of Indebtedness and Preferred Stock."
"Restricted Payment" means, with respect to any person, (a) the declaration
or payment of any dividend or other distribution in respect of Capital Stock of
such person or any Restricted Subsidiary of such person; (b) any payment on
account of the purchase, redemption or other acquisition or retirement for value
of Capital Stock of such person or any Restricted Subsidiary of such person; (c)
any purchase, redemption, or other acquisition or retirement for value of, any
payment in respect of any amendment of the terms of or any defeasance of, any
subordinated Indebtedness, directly or indirectly, by such person or a
Restricted Subsidiary of such person prior to the scheduled maturity, and
scheduled repayment of principal, or scheduled sinking fund payment, as the case
may be, of such Indebtedness; and (d) any Restricted Investment by such person;
provided, however, that the term "Restricted Payment" does not include (i) any
dividend, distribution or other payment on or with respect to Capital Stock of
an issuer to the extent payable solely in shares of Qualified Capital Stock of
such issuer; and (ii) any Investment in the Company or any of the Restricted
Subsidiaries by any of their respective Subsidiaries.
"Restricted Subsidiary" means any Subsidiary of the Company that has not
been Designated by the Board of Directors of the Company, by a Board Resolution
delivered to the Trustee, as an Unrestricted Subsidiary pursuant to and in
compliance with the covenant described under "--Certain Covenants--Limitation
on Designations of Unrestricted Subsidiaries." Except in the case of the
current Guarantors, any such Designation may be Revoked by a Board Resolution of
the Board of Directors of the Company delivered to the Trustee, subject to the
provisions of such covenant.
"Revocation" shall have the meaning set forth in "--Certain Covenants--
Limitation on Designations of Unrestricted Subsidiaries."
"Senior Indebtedness" means (i) the Bank Indebtedness, and (ii) the
principal of, premium, if any, and interest on any Indebtedness of the Company,
whether outstanding on the Issue Date or thereafter created, incurred or
assumed, unless, in the case of any particular Indebtedness, the instrument
creating or evidencing the same or pursuant to which the same is outstanding
expressly provides that such Indebtedness shall not be senior in right of
payment to any Indebtedness of the Company. Notwithstanding the foregoing,
"Senior Indebtedness" shall not include, to the extent constituting
Indebtedness, (i) Indebtedness evidenced by the Notes, (ii) Indebtedness that is
subordinate or junior in right of payment to any Indebtedness of the Company,
(iii) Indebtedness which, when incurred and without respect to any election
under Section 1111(b) of Title 11, U.S. Code, is without recourse to the
Company, (iv) Indebtedness which is represented by Redeemable Capital Stock, (v)
Indebtedness for goods, materials or services purchased in the ordinary course
of business or Indebtedness consisting of trade payables or other current
liabilities (other than any current liabilities owing under the Credit Facility
or the current portion of any long-term Indebtedness which would constitute
Senior Indebtedness but for the operation of this clause (v)), (vi) Indebtedness
of or amounts owed by the Company for compensation to employees or for services
rendered to the Company, (vii) Indebtedness of or amounts owed by the Company or
a Restricted Subsidiary to the Company or another Restricted Subsidiary, (viii)
any liability for Federal, state, local or other taxes owed or owing by the
Company, (ix) Indebtedness of the Company to any other Subsidiary of the Company
and (x) that portion of any Indebtedness which at the time of issuance is issued
in violation of the Indenture.
"Significant Subsidiary" means any Restricted Subsidiary (i) the assets of
which (after intercompany eliminations) exceed 10% of the assets of the Company
and its Restricted Subsidiaries, considered as a whole, or (ii) the Consolidated
Net Income of which (before income taxes and extraordinary items) exceeds 10% of
101
the Consolidated Net Income of the Company and its Restricted Subsidiaries,
considered as a whole, or (iii) that holds a Gaming License with respect to any
Casino, if the Facility of which the Casino is a part (were such facility
operated by a single Restricted Subsidiary) would be a Significant Subsidiary as
set forth in (i) or (ii) above.
"Stated Maturity," when used with respect to any Note, means July 1, 2006.
"Subordinated Indebtedness" means Indebtedness of a Restricted Subsidiary
that is subordinated in right of payment to the Subsidiary Guaranty of such
Restricted Subsidiary to any extent.
"Subsidiary," with respect to any person, means (i) a corporation at least
a majority of whose Capital Stock with voting power, under ordinary
circumstances, to elect directors is at the time, directly or indirectly, owned
by such person, by such person and one or more Subsidiaries of such person or by
one or more Subsidiaries of such person or (ii) any other person (other than a
corporation) in which such person, one or more Subsidiaries of such person, or
such person and one or more Subsidiaries of such person, directly or indirectly,
at the date of determination thereof has at least majority ownership interest.
"10 3/4% Notes" means the 10 3/4% Senior Notes due 2002 issued pursuant to
the terms of an indenture, dated April 7, 1994 among Empress River Casino
Finance Corporation, as issuer, the Guarantors named therein and First Trust
National Association, as Trustee.
"Unrestricted Subsidiary" means a Subsidiary of the Company (other than a
Guarantor) designated as such pursuant to and in compliance with the covenant
described under "--Certain Covenants--Limitation on Designations of
Unrestricted Subsidiaries." Any such Designation may be Revoked by a Board
Resolution of the Company delivered to the Trustee, subject to the provisions of
such covenant.
"U.S. Legal Tender" means such coin or currency of the United States of
America as at the time of payment is legal tender for the payment of public and
private debts.
102
BOOK-ENTRY; DELIVERY AND FORM
The Old Notes offered and sold to qualified institutional buyers (as
defined under Rule 144A) ("QIBs") were each registered in book-entry form, are
represented by a global note in fully registered form without interest coupons,
which was deposited with the Trustee as custodian for DTC and registered in the
name of Cede & Co. or such other nominee as DTC may designate.
The Old Notes offered and sold to persons outside the United States who
received such Old Notes pursuant to sales in accordance with Regulation S were
each initially represented by a global note certificate in fully registered form
without interest coupons (the "Offshore Global Old Note"). The Offshore Global
Old Note was deposited with the Trustee as custodian for DTC and registered in
the name of Cede & Co. Prior to the expiration of the "40-day restricted period"
within the meaning of Rule 903 of Regulation S, transfers of interest in the
Offshore Global Old Note were only effected through records maintained by DTC,
Cedel Bank, societe anonyme ("Cedel") or Euroclear System ("Euroclear").
The certificates representing the New Notes will be issued in fully
registered form without interest coupons. Except as described below, the New
Notes will be deposited with, or on behalf of, DTC, and registered in the name
of Cede & Co as DTC's nominee, in the form of a global New Note certificate (the
"Global New Note") or will remain in the custody of the Trustee pursuant to the
FAST Balance Certificate between DTC and the Trustee.
Holders of New Notes who elect to take physical delivery of their
certificates instead of holding their interest through the Global New Note
(collectively referred to herein as the "Non-Global Holders") will be issued in
registered form a certificated New Note ("Certificated New Note"). Upon the
transfer of any Certificated New Note initially issued to a Non-Global Holder,
such Certificated New Note will, unless the transferee requests otherwise or the
Global New Note has previously been exchanged in whole for Certificated New
Notes, be exchanged for an interest in the Global New Note.
The Global New Note. The Company expects that, pursuant to procedures
established by DTC, (a) upon deposit of the Global New Note, DTC or its
custodian will credit on its internal system the principal amount at maturity of
New Notes of the individual beneficial interests represented by such Global New
Note to the respective accounts of persons who have accounts with DTC and (b)
ownership of beneficial interests in the Global New Note will be shown on, and
the transfer of ownership thereof will be effected only through, records
maintained by DTC or its nominee (with respect to interests of Participants (as
defined herein)) and the records of Participants (with respect to interests of
persons other than Participants). Ownership of beneficial interests in the
Global New Note will be limited to persons who have accounts with DTC
("Participants") or persons who hold interests through Participants. QIBs may
hold their interests in the Global New Note directly through DTC if they are
Participants in such system, or indirectly through organizations which are
Participants in such system.
So long as DTC, or its nominee, is the registered owner or holder of the
New Notes, DTC or such nominee, as the case may be, will be considered the sole
owner and holder of the New Notes represented by such Global New Note for all
purposes under the Indenture. No beneficial owner of an interest in the Global
New Note will be able to transfer such interest except in accordance with DTC's
procedures, in addition to those provided for under the Indenture with respect
to the New Notes.
Payments of the principal of or premium and interest on the Global New Note
will be made to DTC or its nominee, as the case may be, as the registered owner
thereof. None of the Company, the Trustee or any paying agent under the
Indenture will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership
interests in the Global New Note or for maintaining, supervising or reviewing
any records relating to such beneficial ownership interest.
103
The Company expects that DTC or its nominee, upon receipt of any payment of
the principal of or premium and interest on the Global New Note, will credit
Participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Global New Note
as shown on the records of DTC or its nominee. The Company also expects that
payments by Participants to owners of beneficial interests in the Global New
Note held through such Participants will be governed by standing instructions
and customary practice as is now the case with securities held for the accounts
of customers registered in the names of nominees for such customers. Such
payments will be the responsibility of such Participants.
Transfers between Participants in DTC will be effected in the ordinary way
through DTC's same-day funds system in accordance with DTC rules and will be
settled in federal funds. If a holder requires physical delivery of a
Certificated New Note for any reason, including to sell New Notes to persons in
states that require physical delivery of the New Notes or to pledge such
securities, such holder must transfer its interest in the Global New Note in
accordance with normal procedures of DTC and with the procedures set forth in
the Indenture.
DTC has advised the Company that DTC will take any action permitted to be
taken by a holder of New Notes (including the presentation of New Notes for
exchange as described below) only at the direction of one or more Participants
to whose account the DTC interests in the Global New Note are credited and only
in respect of such portion of the aggregate principal amount of New Notes as to
which such Participant or Participants has or have given such direction.
However, if there is an Event of Default under the Indenture, DTC will exchange
the Global New Note for Certificated New Notes, which it will distribute to its
Participants.
DTC has advised the Company as follows: DTC is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the Uniform
Commercial Code and a "clearing agency" registered pursuant to the provisions of
Section 17A of the Exchange Act. DTC was created to hold securities for its
Participants and facilitate the clearance and settlement of securities
transactions between Participants through electronic book-entry changes in
accounts of its Participants, thereby eliminating the need for physical movement
of certificates. Participants include securities brokers and dealers, banks,
trust companies and clearing corporations and certain other organizations.
Indirect access to the DTC system is available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly ("Indirect
Participants").
Although DTC, Euroclear and Cedel are expected to follow the foregoing
procedures in order to facilitate transfers of interest in the Global New Notes
among Participants of DTC, they are under no obligation to perform such
procedures, and such procedures may be discontinued at any time. Neither the
Company nor the Trustee will have any responsibility for the performance by DTC,
Euroclear and Cedel or the Participants or Indirect Participants of their
respective obligations under the rules and procedures governing their
operations.
Certificated New Notes. Interests in the Global New Note will be exchangeable
or transferable, as the case may be, for Certificated Notes if (i) DTC notifies
the Company that it is unwilling or unable to continue as depositary for such
Global New Note, or DTC ceases to be a "Clearing Agency" registered under the
Exchange Act, and a successor depositary is not appointed by the Company within
90 days, or (ii) an Event of Default has occurred and is continuing with respect
to such New Notes. Upon the occurrence of any of the events described in the
preceding sentence, the Company will cause the appropriate Certificated New
Notes to be delivered.
REGISTRATION RIGHTS
Pursuant to the Registration Rights Agreement with the Initial Purchasers, the
Company agreed to file with the Commission the Exchange Offer Registration
Statement of which this Prospectus is a part on an appropriate form under the
Securities Act with respect to an offer to exchange the Old Notes for the New
Notes. Upon the
104
effectiveness of the Exchange Offer Registration Statement, the Company will
offer to the holders of Old Notes who are able to make certain representations
the opportunity to exchange their Old Notes for New Notes. If (i) the Company is
not permitted to file the Exchange Offer Registration Statement or to consummate
the Exchange Offer because the Exchange Offer is not permitted by applicable law
or Commission policy, (ii) the Exchange Offer is not for any other reason
consummated within 180 days after the Issue Date, (iii) any holder of Old Notes
notifies the Company within a specified time period that (a) due to a change in
applicable law or Commission policy it is not entitled to participate in the
Exchange Offer, (b) due to a change in applicable law or Commission policy it
may not resell the New Notes acquired by it in the Exchange Offer to the public
without delivering a prospectus and the prospectus contained in the Exchange
Offer Registration Statement is not appropriate or available for such resales by
such holder or (c) it is a broker-dealer and owns Old Notes acquired directly
from the Company or (iv) the holders of a majority of the Old Notes may not
resell the New Notes to be acquired by them in the Exchange Offer to the public
without restriction under the Securities Act and without restriction under
applicable blue sky or state securities laws, the Company will file with the
Commission the Shelf Registration Statement to cover resales of the Transfer
Restricted Notes (as defined herein) by the holders thereof. The Company will
use its best efforts to cause the applicable registration statement to be
declared effective as promptly as possible by the Commission. For purposes of
the foregoing, "Transfer Restricted Notes" means each Old Note until (i) the
date on which such Old Note has been exchanged by a person other than a broker-
dealer for a New Note in the Exchange Offer, (ii) following the exchange by a
broker-dealer in the Exchange Offer of an Old Note for a New Note, the date on
which such New Note is sold to a purchaser who receives from such broker-dealer
on or prior to the date of such sale a copy of the prospectus contained in the
Exchange Offer Registration Statement, (iii) the date on which such Old Note has
been effectively registered under the Securities Act and disposed of in
accordance with the Shelf Registration Statement, (iv) the date on which such
Old Note is distributed to the public pursuant to Rule 144(k) under the
Securities Act (or any similar provision then in force, but not Rule 144A under
the Securities Act), (v) such Old Note shall have been otherwise transferred by
the holder thereof and a New Note not bearing a legend restricting further
transfer shall have been delivered by the Company and subsequent disposition of
such Old Note shall not require registration or qualification under the
Securities Act or any similar state law then in force or (vi) such Old Note
ceases to be outstanding.
Under existing Commission interpretations, the New Notes would, in general, be
freely transferable after the Exchange Offer without further registration under
the Securities Act; provided, that in the case of broker-dealers participating
in the Exchange Offer, a prospectus meeting the requirements of the Securities
Act must be delivered upon resale by such broker-dealers in connection with
resales of the New Notes. The Company has agreed, for period of 180 days after
consummation of the Exchange Offer, to make available a prospectus meeting the
requirements of the Securities Act to any such broker-dealer for use in
connection with any resale of any New Notes acquired in the Exchange Offer. A
broker-dealer who delivers such a prospectus to purchasers in connection with
such resales will be subject to certain of the civil liability provisions under
the Securities Act and will be bound by the provisions of the Registration
Rights Agreement (including certain indemnification rights and obligations).
Each holder of Old Notes who wishes to exchange such Old Notes for New Notes
in the Exchange Offer will be required to make certain representations,
including representations that: (i) the holder is not an "affiliate" of the
Company as defined in Rule 405 of the Securities Act, (ii) the holder is not a
broker-dealer that acquired Old Notes directly from the Company in order to
resell them pursuant to Rule 144A of the Securities Act or any other available
exemption under the Securities Act, (iii) the holder will acquire the New Notes
in the ordinary course of business and (iv) the holder is not participating, and
does not intend to participate, and has no arrangement or understanding with any
person to participate, in the distribution of the New Notes.
If the holder is a broker-dealer that will receive New Notes for its own
account in exchange for Old Notes that were acquired as a result of market-
making activities or other trading activities, it will be required to
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes.
105
The Company has agreed to pay all expenses incident to the Exchange Offer and
will indemnify the Initial Purchasers against certain liabilities, including
liabilities under the Securities Act.
The Registration Rights Agreement provides that (i) unless the Exchange Offer
would not be permitted by applicable law or Commission policy, the Company will
use its best efforts to file the Exchange Offer Registration Statement with the
Commission on or prior to 45 days after the Issue Date (which requirement the
Company has met), (ii) unless the Exchange Offer would not be permitted by
applicable law or Commission policy, the Company will use its best efforts to
have the Exchange Offer Registration Statement declared effective by the
Commission on or prior to 105 days after the Issue Date, (iii) unless the
Exchange Offer would not be permitted by applicable law or Commission policy,
the Company will use its best efforts to have the Exchange Offer Registration
Statement remain effective until the closing of the Exchange Offer, (iv) unless
the Exchange Offer would not be permitted by applicable law or Commission
policy, the Company will commence the Exchange Offer and use its best efforts to
issue, on or prior to 135 days after the Issue Date, New Notes in exchange for
all Old Notes tendered prior thereto in the Exchange Offer and (v) if obligated
to file the Shelf Registration Statement, the Company will use its best efforts
to file the Shelf Registration Statement prior to the later of (a) 105 days
after the Issue Date or (b) 30 days after such filing obligation arises and use
its best efforts to cause the Shelf Registration Statement to be declared
effective by the Commission on or prior to 60 days after such obligation arises;
provided, that if the Company has not consummated the Exchange Offer within 180
days of the Issue Date, then the Company will file the Shelf Registration
Statement with the Commission on or prior to the 181st day after the Issue Date.
The Company shall use its best efforts to keep such Shelf Registration Statement
continuously effective, supplemented and amended until the second anniversary of
the Issue Date or such shorter period that will terminate when all the Transfer
Restricted Notes covered by the Shelf Registration Statement have been sold
pursuant thereto. A holder of Old Notes who intends to sell such Old Notes
pursuant to the Shelf Registration Statement will be required to be named as a
selling securityholder in the related prospectus and to deliver such prospectus
to purchasers, will be subject to certain of the civil liability provisions
under the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement applicable to such holder
(including certain indemnification and contribution obligations).
If (i) the Company fails to file any of the registration statements required
by the Registration Rights Agreement on or before the date specified for such
filing, (ii) any of such registration statements are not declared effective by
the Commission on or prior to the date specified for such effectiveness (the
"Effectiveness Target Date"), subject to certain limited exceptions, (iii) the
Company fails to consummate the Exchange Offer within 30 days of the
Effectiveness Target Date with respect to the Exchange Offer Registration
Statement or (iv) the Shelf Registration Statement or the Exchange Offer
Registration Statement is declared effective but thereafter, subject to certain
limited exceptions, ceases to be effective or usable in connection with the
Exchange Offer or resales of Transfer Restricted Notes, as the case may be,
during the periods specified in the Registration Rights Agreement (each such
event referred to in clauses (i) through (iv) above, a "Registration Default"),
then the interest rate on the Transfer Restricted Notes will accrue at a rate
per annum equal to an additional one quarter of one percent (0.25%) of the
principal amount of the Notes upon the occurrence of each Registration Default,
which rate will increase by one quarter of one percent (0.25%) each 90-day
period that such Additional Interest continues to accrue under any such
circumstance, with an aggregate maximum increase in the interest rate equal to
one percent (1%) per annum. Following the cure of all Registration Defaults, the
accrual of additional interest will cease and the interest rate will revert to
the original rate.
The summary herein of certain provisions of the Registration Rights Agreement
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy which is filed as an exhibit to the Registration Statement of
which this Prospectus forms a part.
106
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the material federal income tax
considerations of the issuance of New Notes and the Exchange Offer. This summary
does not discuss all aspects of federal income taxation that may be relevant to
particular holders of Note, especially in light of a holder's personal
investment circumstances, or to certain types of holders subject to special
treatment under the federal income tax laws (for example, life insurance
companies, tax-exempt organizations and foreign corporations and individuals who
are not citizens or residents of the United States) and does not discuss any
aspects of state, local or foreign taxation. This discussion is limited to those
holders who will hold the Notes as "capital assets" (generally, property held
for investment) within the meaning of Section 1221 of the Internal Revenue Code
of 1986, as amended (the "Code").
This summary is based upon laws, regulations, rulings and decisions now in
effect and upon proposed regulations, all of which are subject to change
(possibly with retroactive effect) by legislation, administrative action or
judicial decision.
Exchange Offer. The exchange of Old Notes for New Notes pursuant to the
Exchange Offer should not be treated as a taxable "exchange" because the New
Notes should not be considered to differ materially in kind or extent from the
Old Notes. Rather, the New Notes received by a holder of the Old Notes should be
treated as a continuation of the Old Notes in the hands of such holder. As a
result, there should be no gain or loss to holders exchanging the Old Notes for
the New Notes pursuant to the Exchange Offer.
Interest. A holder will be required to include in gross income the stated
interest on the Old Notes or the New Notes in accordance with the holder's
method of tax accounting.
Tax Basis. Generally, a holder's tax basis in an Old Note will initially be
the holder's purchase price for the Old Note and will be decreased by the amount
of any principal payments received. If a holder exchanges an Old Note for a New
Note pursuant to the Exchange Offer, the tax basis of the New Note immediately
after such exchange should equal the holder's tax basis in the Old Note
immediately prior to the exchange.
Sale or Redemption. The sale, exchange, redemption or other disposition of an
Old Note or a New Note (other than pursuant to the Exchange Offer) generally
will be a taxable event. A holder generally will recognize gain or loss equal to
the difference between (i) the amount of cash plus the fair market value of any
property received upon such sale, exchange, redemption or other taxable
disposition of an Old Note or a New Note (other than in respect of accrued
interest thereon) and (ii) the holder's adjusted tax basis in such Old Note or
New Note. Such gain or loss generally will be capital gain or loss, provided
that the holder has held the Note as a capital asset. The recently enacted
Taxpayer Relief Act of 1997 made certain changes to the Code with respect to
taxation of capital gains of taxpayers other than corporations. In general, the
maximum tax rate for non-corporate taxpayers on long-term capital gains has been
lowered to 20% from the previous 28% rate for most capital assets (including the
Old or New Notes) held for more than 18 months. For taxpayers in the 15% regular
tax bracket, the maximum tax rate on long-term capital gains is now 10%. Capital
gain on such assets for non-corporate holders having a holding period of more
than one year but not more than 18 months will be subject to a maximum tax rate
of 28%. The holding period of each New Note would include the holding period of
the Old Notes exchanged therefor. Recently enacted legislation eliminates the
maximum 28% rate for non-corporate holders with a holding period of more than
one year but not more than 18 months. The law is effective retroactively for a
disposition after January 1, 1998, and imposes the maximum rate of 20% on such
capital assets held more than one year.
Purchasers of Notes at Other than Original Issuance. The foregoing summary
does not discuss special rules which may affect the treatment of purchasers that
acquire Notes other than at original issuance, including those provisions of the
Code relating to the treatment of "market discount" and "acquisition premium."
Any
107
such Purchaser should consult its tax advisor as to the consequences to him of
the acquisition, ownership and disposition of Old Notes and the New Notes.
Backup Withholding. Unless a holder or other payee provides its correct
taxpayer identification number (employer identification number or social
security number) to the Company (as payor) and certifies that such number is
correct, under the federal income tax backup withholding rules, generally 31% of
(1) the interest paid on the Notes, and (2) proceeds of sale or other
disposition of the Notes must be withheld and remitted to the United States
Department of the Treasury. Therefore, each holder should complete and sign the
Substitute Form W-9 included so as to provide the information and certification
necessary to avoid backup withholding. In addition, backup withholding in the
amount of 31% on the interest paid on the Notes must be withheld and remitted if
the Company is notified by the Internal Revenue Service that the payee has under
reported interest income. However, certain exchanging holders (including, among
others, certain foreign individuals) are not subject to these backup withholding
and reporting requirements. In order for a foreign individual to qualify as an
exempt foreign recipient, that exchanging holder must submit a statement, signed
under penalties of perjury, attesting to that individual's exempt foreign
status.
Withholding is not an additional federal income tax. Rather, the federal
income tax liability of a person subject to withholding will be reduced by the
amount of tax withheld. If withholding results in an overpayment of taxes, a
refund may be obtained from the Internal Revenue Service.
THE FOREGOING SUMMARY IS INCLUDED HEREIN FOR GENERAL INFORMATION ONLY. EACH
HOLDER OF NOTES OR NEW NOTES SHOULD CONSULT SUCH HOLDER'S TAX ADVISOR AS TO THE
SPECIFIC TAX CONSEQUENCES TO SUCH HOLDER OF THE EXCHANGE OFFER, INCLUDING THE
APPLICATION OF AND EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
108
PLAN OF DISTRIBUTION
Pursuant to the Exchange Offer, each Participating Broker-Dealer must
acknowledge that it will deliver a prospectus in connection with any resale of
such New Notes. This Prospectus may be used by a Participating Broker-Dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. The Company has agreed that it will make this Prospectus
available to any Participating Broker-Dealer for use in connection with any such
resale and Participating Broker-Dealers shall be authorized to deliver this
Prospectus for a period not exceeding 90 days after the Expiration Date.
The Company will not receive any proceeds from any sales of the New Notes by
Participating Broker-Dealers. New Notes received by Participating Broker-Dealers
for their own account pursuant to the Exchange Offer may be sold from time to
time, in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the New Notes or a combination
of such methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or at negotiated prices. Any
such resale may be made directly to purchasers or to or through brokers or
dealers who may receive compensation in the form of commissions or concessions
from such Participating Broker-Dealer or the purchasers of any such New Notes.
Any broker-dealer that resells New Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such New Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of New Notes and any commissions or concessions received by any such
persons may be deemed to be underwriting compensation under the Securities Act.
The Letter of Transmittal states that by acknowledging that it will deliver and
by delivering a prospectus, a Participating Broker-Dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
The Company will promptly send additional copies of this Prospectus and any
amendment or supplement to this Prospectus to any Participating Broker-Dealer
that reasonably requests such documents in the Letter of Transmittal. See "The
Exchange Offer."
LEGAL MATTERS
Certain legal matters with respect to the validity of the issuance of the New
Notes offered hereby will be passed upon for the Company by D'Ancona & Pflaum,
Chicago, Illinois.
EXPERTS
The combined financial statements of the Company as of December 31, 1997 and
1996, and for each of the three years in the period ended December 31, 1997,
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
109
INDEX TO COMBINED FINANCIAL STATEMENTS
Page
------------------------------ ----
Combined Balance Sheet at March 31, 1998 (unaudited)............................................... F-2
Combined Statements of Income for the three months ended March 31, 1998 and 1997 (unaudited)....... F-3
Combined Statements of Cash Flows for the three months ended March 31, 1998 and 1997 (unaudited)... F-4
Notes to Combined Financial Statements for the three months ended March 31, 1998 and 1997
(unaudited)..................................................................................... F-5
Report of Independent Auditors..................................................................... F-7
Combined Balance Sheets at December 31, 1997 and 1996.............................................. F-8
Combined Statements of Income for the years ended December 31, 1997, 1996, and 1995................ F-9
Combined Statements of Stockholders' Equity for the years ended December 31, 1997, 1996, and 1995.. F-10
Combined Statements of Cash Flows for the years ended December 31, 1997, 1996, and 1995............ F-11
Notes to Combined Financial Statements for the years ended December 31, 1997, 1996 and 1995........ F-12
F-1
EMPRESS ENTERTAINMENT, INC.
COMBINED BALANCE SHEET
(Unaudited)
March 31,
1998
-------------
Assets
Current assets:
Cash and cash equivalents...................................................... $ 77,511,415
Marketable securities, at fair value which approximates cost................... 16,082,714
Accounts receivable, less allowance for doubtful accounts of $1,964,000........ 2,897,303
Interest receivable............................................................ 321,073
Inventories.................................................................... 883,305
Prepaid expenses............................................................... 1,281,587
------------
Total current assets........................................................ 98,977,397
Property and equipment:
Land........................................................................... 9,139,658
Building and improvements...................................................... 69,440,117
Riverboat...................................................................... 53,845,141
Leasehold improvements......................................................... 45,416,048
Furniture, fixtures and equipment.............................................. 50,849,527
Construction in progress....................................................... 8,849,073
------------
237,539,564
Less: Accumulated depreciation................................................. (48,567,606)
------------
Property and equipment, net...................................................... 188,971,958
Noncompete agreement, less accumulated amortization of $3,368,056................ 381,944
Deferred financing cost, less accumulated amortization of $2,823,955............. 2,841,302
Other assets, less accumulated amortization of $1,433,533........................ 11,271,880
------------
Total assets................................................................ $302,444,481
============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable............................................................... $ 3,204,122
Accrued payroll and related expenses........................................... 6,970,923
Other accrued liabilities...................................................... 15,592,373
Interest payable............................................................... 8,116,505
Current portion of long-term debt.............................................. 17,432,792
------------
Total current liabilities................................................... 51,316,715
Notes payable.................................................................... 186,000,000
Stockholders' equity:
Common stock of Empress Casino Joliet Corporation; no par value; 2,000 shares
authorized; 1,150 shares issued and outstanding; at stated value............. 11,500,000
Common stock of Empress Entertainment, Inc.; $.01 par value; 6,000 shares
authorized; 1,179.245 shares issued and outstanding.......................... 12
Additional paid-in capital..................................................... 5,047,605
Retained earnings.............................................................. 48,580,149
------------
65,127,766
------------
Total liabilities and stockholders' equity.................................. $302,444,481
============
The accompanying notes are an integral part of these combined financial
statements.
F-2
EMPRESS ENTERTAINMENT, INC.
COMBINED STATEMENTS OF INCOME
(Unaudited)
Three months ended March 31,
----------------------------
1998 1997
------------ ------------
Revenues
Casino............................... $91,337,267 $88,429,519
Food and beverage.................... 5,323,992 4,976,225
Hotel................................ 350,387 329,537
Parking.............................. 272,697 333,342
Gift shop............................ 371,559 483,370
Other................................ 607,960 617,692
----------- -----------
98,263,862 95,169,685
Less: Promotional allowances......... (1,401,678) (1,143,223)
----------- -----------
96,862,184 94,026,462
Operating expenses
Casino............................... 15,056,427 15,708,658
Gaming and admission taxes........... 30,220,561 27,123,183
Food and beverage.................... 6,344,062 6,140,840
Admissions, parking and gift shop.... 888,708 1,264,494
Hotel................................ 222,401 231,269
Advertising and sales................ 4,247,933 3,827,668
General and administrative........... 7,759,936 6,551,569
Security and surveillance............ 1,730,410 1,802,107
Facility and property................ 4,789,896 5,055,569
Depreciation and amortization........ 4,690,893 4,717,181
----------- -----------
75,951,227 72,422,538
----------- -----------
Income from operations............ 20,910,957 21,603,924
Other income (expense)
Interest expense..................... (5,300,715) (5,658,554)
Interest income...................... 981,557 1,061,667
----------- -----------
Income before state income taxes.. 16,591,799 17,007,037
Provision for state income taxes..... 83,267 78,827
----------- -----------
Net income........................ $16,508,532 $16,928,210
=========== ===========
The accompanying notes are an integral part of these combined financial
statements.
F-3
EMPRESS ENTERTAINMENT, INC.
COMBINED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended March 31,
------------------------------
1998 1997
-------------- --------------
Cash flows from operating activities:
Net income..................................................................... $ 16,508,532 $ 16,928,210
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization............................................... 4,867,932 4,894,220
Changes in operating assets and liabilities:
Accounts and interest receivable......................................... 1,071,036 1,274,144
Inventories.............................................................. 122,317 52,711
Prepaid expenses......................................................... 605,523 233,506
Accounts payable......................................................... (331,514) 502,204
Interest payable......................................................... 4,042,552 3,987,854
Accrued payroll and related expenses..................................... (385,484) (85,734)
Other accrued liabilities................................................ 3,398,697 (149,901)
------------ ------------
Net cash provided by operating activities............................. 29,899,591 27,637,214
Cash flows from investing activities:
Purchase of investments........................................................ (16,082,714) (20,509,965)
Proceeds from the sale of investments.......................................... 10,010,028 23,723,828
Purchase of property and equipment............................................. (7,242,038) (2,036,288)
------------ ------------
Net cash (used in) provided by investing activities................... (13,314,724) 1,177,575
Cash flows from financing activities:
Payments on borrowings......................................................... (5,090,995) (9,635,074)
Stockholder distributions...................................................... (7,239,479) (8,830,064)
------------ ------------
Net cash used in financing activities................................. (12,330,474) (18,465,138)
Net increase in cash and cash equivalents........................................ 4,254,393 10,349,651
Cash and cash equivalents, beginning of year..................................... 73,257,022 45,464,963
------------ ------------
Cash and cash equivalents, end of period......................................... $ 77,511,415 $ 55,814,614
============ ============
Supplemental disclosure of cash flow information:
Interest paid.................................................................. $ 1,081,125 $ 1,184,007
Income taxes paid.............................................................. 250,000 475,000
The accompanying notes are an integral part of these combined financial
statements.
F-4
EMPRESS ENTERTAINMENT, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
For the three months ended March 31, 1998 and 1997
(Unaudited)
1. Summary of Significant Accounting Policies
Basis of Presentation
The combined financial statements of Empress Entertainment, Inc. (the
"Company") include the accounts of four affiliated entities, Empress Casino
Joliet Corporation ("Empress Joliet") incorporated on December 26, 1990,
Empress River Casino Finance Corporation ("Empress Finance") incorporated on
January 7, 1994, Empress Entertainment, Inc. (f/k/a LMC Leasing, Ltd.),
incorporated on January 27, 1994, and Empress Casino Hammond Corporation
("Empress Hammond") incorporated on November 25, 1992. 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.
The accompanying unaudited combined financial statements 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. For further information, refer to the
combined financial statements and footnotes thereto for the year ended December
31, 1997 included elsewhere in the Prospectus. The accompanying unaudited
combined financial statements contain all adjustments which are, in the opinion
of management, necessary to present fairly the financial position and the
results of operations for the periods indicated. Such adjustments include only
normal recurring accruals.
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 were provided
to customers without charge, has been included in the respective revenue
classifications and then deducted as a promotional allowance. The estimated
direct costs of providing such complimentary services are included in operating
expenses and totaled approximately $0.6 million and $0.5 million for the three
months ended March 31, 1998 and 1997, respectively.
Revenues from food, beverage, gift shop and related services are recognized
at the time the related service is performed.
F-5
EMPRESS ENTERTAINMENT, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
2. Commitments
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 these commitments, as of March 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 $3.0 million
or certain percentages of adjusted gross receipts as follows:
--4.0% up to $125.0 million;
--6.0% over $125.0 million to $200.0 million; and
--4.0% in excess of $200.0 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
$1.0 million.
. Contributions 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 200 room hotel and conference center with an estimated
cost of $10.0 million.
. Commercial development within the greater Hammond area with an estimated
cost of $10.0 million to be completed within 5 years of the date of the
Certificate of Suitability. No amounts have been expended as of March 31,
1998.
. Renovate existing housing and construction of new market rate housing in
the greater Hammond area with an estimated cost $5.0 million to be
completed within 5 years of the date of the Certificate of Suitability. No
amounts have been expended as of March 31, 1998.
3. Year 2000
The Company has determined that it may need to modify portions of its
software so that its computer systems will function properly with respect to
dates in the year 2000 and beyond. The Company also has initiated discussions
with its software providers to ensure that those parties have appropriate plans
to remediate year 2000 issues where their systems interface with the Company's
system or otherwise impact its operations. The Company is assessing the extent
to which its operations are vulnerable should those organizations fail to
properly remediate its computer systems.
F-6
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Empress Entertainment, Inc.
We have audited the accompanying combined balance sheets of Empress
Entertainment, Inc. as of December 31, 1997 and 1996, and the related combined
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 1997. 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 combined financial position of Empress
Entertainment, Inc. at December 31, 1997 and 1996, and the combined results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
Chicago, Illinois
April 7, 1998, except for
Note 10 as to which the
date is June 18, 1998
F-7
EMPRESS ENTERTAINMENT, INC.
COMBINED BALANCE SHEETS
December 31,
----------------------------
1997 1996
------------- -------------
Assets
Current assets:
Cash and cash equivalents.................................................. $ 73,257,022 $ 45,464,963
Marketable securities, at fair value which approximates cost............... 10,010,028 30,241,843
Accounts receivable, less allowance for doubtful accounts of $1,762,000
and $1,528,000, respectively............................................. 3,789,455 3,146,188
Interest receivable........................................................ 499,957 741,126
Inventories................................................................ 1,005,622 1,311,034
Prepaid expenses........................................................... 1,887,110 3,637,170
------------ ------------
Total current assets.................................................... 90,449,194 84,542,324
Property and equipment:
Land and improvements...................................................... 9,139,658 9,103,320
Building and improvements.................................................. 69,407,747 68,776,417
Riverboats, docks and improvements......................................... 53,768,016 53,373,138
Leasehold improvements..................................................... 45,416,048 37,392,320
Furniture, fixtures and equipment.......................................... 49,857,048 46,289,959
Construction in progress................................................... 2,709,009 47,676
------------ ------------
230,297,526 214,982,830
Less: Accumulated depreciation............................................. (44,386,127) (28,258,788)
------------ ------------
Property and equipment, net.................................................. 185,911,399 186,724,042
Non-compete agreement, less accumulated amortization of $3,055,556 and
$1,805,556, respectively.................................................... 694,444 1,944,444
Deferred financing costs, less accumulated amortization of $2,646,916 and
$1,938,759, respectively.................................................... 3,018,341 3,726,498
Other assets, less accumulated amortization of $1,236,619 and $462,420,
respectively................................................................ 11,468,794 11,372,654
------------ ------------
Total assets............................................................ $291,542,172 $288,309,962
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable........................................................... $ 3,535,636 $ 2,944,600
Accrued payroll and related expenses....................................... 7,356,407 6,374,090
Other accrued liabilities.................................................. 12,193,675 10,831,078
Interest payable........................................................... 4,073,953 4,225,481
Bank line of credit........................................................ -- 19,600,000
Current portion of long-term debt.......................................... 18,523,788 26,540,296
------------ ------------
Total current liabilities............................................... 45,683,459 70,515,545
Long-term debt............................................................... 190,000,000 168,183,457
Stockholders' equity:
F-8
Common stock of Empress Casino Joliet Corporation; no par value; 2,000
shares authorized; 1,150 shares issued and outstanding; at stated value.. 11,500,000 11,500,000
Common stock of Empress Entertainment, Inc.; $.01 par value; 6,000 and
3,000 shares authorized; 1,179.245 and 1,150 shares issued and
outstanding, respectively................................................ 12 12
Additional paid-in capital................................................. 5,047,605 5,047,605
Retained earnings.......................................................... 39,311,096 33,063,343
------------ ------------
55,858,713 49,610,960
------------ ------------
Total liabilities and stockholders' equity.............................. $291,542,172 $288,309,962
============ ============
The accompanying notes are an integral part of these combined financial
statements.
F-9
EMPRESS ENTERTAINMENT, INC.
COMBINED STATEMENTS OF INCOME
Year ended December 31,
-------------------------------------------
1997 1996 1995
------------- ------------- -------------
Revenues
Casino............................... $346,048,799 $263,039,586 $202,334,313
Food and beverage.................... 27,344,287 17,990,942 14,094,879
Admissions, parking and gift shop.... 3,527,033 2,680,538 11,958,453
Hotel................................ 1,484,236 524,274 --
Other................................ 2,542,231 1,630,874 2,133,341
------------ ------------ ------------
380,946,586 285,866,214 230,520,986
Less: Promotional allowances......... (11,302,593) (7,204,548) (15,909,716)
------------ ------------ ------------
369,643,993 278,661,666 214,611,270
Operating expenses
Casino............................... 64,799,119 48,110,983 30,659,248
Gaming and admission taxes........... 107,992,842 73,126,648 47,146,219
Food and beverage.................... 26,903,259 18,204,758 12,467,219
Admissions, parking and gift shop.... 4,585,876 5,704,813 5,038,836
Hotel................................ 937,504 447,832 --
Advertising and sales................ 19,554,500 12,889,608 9,195,912
General and administrative........... 32,728,734 18,679,502 15,011,889
Pre-opening.......................... -- 5,671,960 1,300,530
Security and surveillance............ 7,461,046 5,608,128 3,782,362
Facility and property................ 21,183,925 16,166,991 10,618,338
Depreciation and amortization........ 18,848,950 13,895,776 16,892,216
------------ ------------ ------------
304,995,755 218,506,999 152,112,769
------------ ------------ ------------
Income from operations............ 64,648,238 60,154,667 62,498,501
Other income (expense)
Interest expense..................... (21,153,957) (18,274,497) (16,351,561)
Interest income...................... 3,323,865 3,487,434 5,238,655
------------ ------------ ------------
Income before state income taxes.. 46,818,146 45,367,604 51,385,595
Provision for state income taxes..... 513,798 447,338 743,418
------------ ------------ ------------
Net income........................ $ 46,304,348 $ 44,920,266 $ 50,642,177
============ ============ ============
The accompanying notes are an integral part of these combined financial
statements.
F-10
EMPRESS ENTERTAINMENT, INC.
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
Additional Total
Common Paid-in Retained Stockholders'
Stock Capital Earnings Equity
----------- ---------- ------------- --------------
Balance at December 31, 1994........ $11,500,012 $4,929,138 $ 16,942,123 $ 33,371,273
Cash distributions to stockholders.. -- -- (47,168,269) (47,168,269)
Net income.......................... -- -- 50,642,177 50,642,177
----------- ---------- ------------ ------------
Balance at December 31, 1995........ 11,500,012 4,929,138 20,416,031 36,845,181
Sale and issuance of common stock... -- 118,467 -- 118,467
Cash distributions to stockholders.. -- -- (32,272,954) (32,272,954)
Net income.......................... -- -- 44,920,266 44,920,266
----------- ---------- ------------ ------------
Balance at December 31, 1996........ 11,500,012 5,047,605 33,063,343 49,610,960
Cash distributions to stockholders.. -- -- (40,056,595) (40,056,595)
Net income.......................... -- -- 46,304,348 46,304,348
----------- ---------- ------------ ------------
Balance at December 31, 1997........ $11,500,012 $5,047,605 $ 39,311,096 $ 55,858,713
=========== ========== ============ ============
The accompanying notes are an integral part of these combined financial
statements.
F-11
EMPRESS ENTERTAINMENT, INC.
COMBINED STATEMENTS OF CASH FLOWS
Year ended December 31,
--------------------------------------------
1997 1996 1995
------------- -------------- -------------
Cash flows from operating activities:
Net income............................................... $ 46,304,348 $ 44,920,266 $ 50,642,177
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization......................... 19,557,108 14,603,930 17,600,373
Other................................................. 124,928 274,770 52,287
Allowance on advances to Hammond Port Authority....... -- -- (1,600,000)
Changes in operating assets and liabilities:
Advances to Hammond Port Authority................. -- -- (650,000)
Cash on deposit.................................... -- -- 500,000
Accounts and interest receivable................... (402,098) (1,465,088) (865,022)
Inventories........................................ 305,412 (519,859) (427,605)
Prepaid expenses................................... 1,750,060 (104,646) (281,005)
Accounts payable................................... 591,036 (109,450) (6,359,777)
Interest payable................................... (151,528) 194,231 (9,985)
Accrued payroll and related expenses............... 982,317 3,314,705 (1,439,364)
Other accrued liabilities.......................... 1,262,595 3,191,958 (525,394)
------------ ------------- ------------
Net cash provided by operating activities....... 70,324,178 64,300,817 56,636,685
Cash flows from investing activities:
Purchase of investments.................................. (62,847,480) (61,495,163) (80,743,757)
Proceeds from the sale of investments.................... 83,079,295 57,539,099 59,674,069
Increase in other assets................................. (480,142) (4,849,730) (2,776,560)
Decrease in restricted cash.............................. -- 23,610,936 10,788,426
Purchase of property and equipment....................... (16,137,037) (105,988,320) (7,389,889)
Issuance of non-compete agreement........................ -- -- (3,750,000)
------------ ------------- ------------
Net cash provided by (used in) investing
activities..................................... 3,614,636 (91,183,178) (24,197,711)
Cash flows from financing activities:
Stockholder distributions................................ (40,056,595) (32,272,954) (47,168,269)
Sale of common stock..................................... -- 118,467 --
Payments on borrowings................................... (34,765,295) (2,990,570) (1,539,576)
Proceeds from borrowings................................. 28,965,332 66,680,592 --
Deferred financing costs................................. (290,197) -- --
------------ ------------- ------------
Net cash (used in) provided by financing
activities..................................... (46,146,755) 31,535,535 (48,707,845)
Net increase (decrease) in cash and cash equivalents....... 27,792,059 4,653,174 (16,268,871)
Cash and cash equivalents, beginning of year............... 45,464,963 40,811,789 57,080,660
------------ ------------- ------------
F-12
Cash and cash equivalents, end of year..................... $ 73,257,022 $ 45,464,963 $ 40,811,789
============ ============= ============
Supplemental disclosure of cash flow information:
Interest paid............................................ $ 20,635,718 $ 18,950,400 $ 16,190,396
Income taxes paid........................................ 475,000 825,000 865,000
The accompanying notes are an integral part of these combined financial
statements.
F-13
EMPRESS ENTERTAINMENT, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
For the Three Years Ended December 31, 1997
1. Summary of Significant Accounting Policies
Basis of Presentation
The combined financial statements of Empress Entertainment, Inc. (the
"Company") (formerly referred to as Empress Casinos), include the accounts of
four affiliated entities, Empress Casino Joliet Corporation ("Empress Joliet")
incorporated on December 26, 1990, Empress River Casino Finance Corporation
("Empress Finance") incorporated on January 7, 1994, Empress Entertainment,
Inc. (f/k/a LMC Leasing, Ltd.) incorporated on January 27, 1994 and its wholly
owned subsidiary, Empress Casino Hammond Corporation ("Empress Hammond")
incorporated on November 25, 1992. All significant intercompany transactions
have been eliminated.
The Company is engaged in the business of providing riverboat gaming and
related entertainment to the public. The Company was granted a three year
operating license from the Illinois Gaming Board on July 9, 1992, which was
renewed on July 9, 1995, 1996 and 1997, 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. The Company 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 Joliet owns and operates the Empress I and Empress II riverboats in
Joliet, Illinois. Empress Hammond operates the Empress III riverboat in Hammond,
Indiana. The Company was originally incorporated for the sole purpose to build
and lease a riverboat casino (the "Empress III") to Empress Hammond. On
November 14, 1997, the Company became the parent of Empress Hammond through a
share exchange (the Exchange) which qualified as a transfer of a company under
common control. Prior to November 14, 1997, the Company and Empress Hammond were
affiliated through common ownership, at which time the Company leased the
riverboat casino Empress III to Empress Hammond. Accordingly, the Exchange has
been accounted for at historical cost in a manner similar to a pooling of
interests. Empress Finance was incorporated for the sole purpose of issuing
$150.0 million 10 3/4% Senior Notes due 2002 (the "10 3/4% Notes") and is
owned by Empress Joliet (60%) and the Company (40%). These financial statements
have been prepared as if this Exchange had occurred as of December 31, 1994.
Each of the four affiliated entities are owned directly or indirectly by
the same individuals and trusts with the exception of one shareholder which has
a 2.33% ownership in Empress Joliet only, and one shareholder which owns 2.48%
of the Company only.
The preparation of the financial statements, in conformity with generally
accepted accounting principles, necessarily 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.
F-14
EMPRESS ENTERTAINMENT, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Reclassifications
Certain amounts in prior years' financial statements have been reclassified to
conform to the 1997 presentation.
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.
Marketable Securities
Marketable securities consist principally of investment grade commercial paper
with original maturities at date of purchase beyond three months and less than
twelve months. Such marketable securities are carried at fair value, which
approximates original cost, due to the short period of time to maturity.
Advertising Costs
All advertising costs are expended as incurred.
Inventories
Inventories, which consist of food, beverage, gift shop and promotional items
are recorded at the lower of cost (determined by the first in, first out method)
or market.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method over the following estimated useful lives:
Building and improvements.................. 20--31 years
Leasehold improvements..................... 20 years
Riverboats, docks and improvements......... 20 years
Furniture, fixtures and equipment.......... 5 years
The Company capitalized interest of $0.1 million and $1.6 million in 1997 and
1996, respectively.
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.
F-15
EMPRESS ENTERTAINMENT, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
The retail value of food, beverage and other services, which were provided
to customers without charge, has been included in the respective revenue
classifications and then deducted as a promotional allowance. The estimated
direct costs of providing such complimentary services are included in operating
expenses and totaled approximately $3.4 million, $2.7 million, and $9.2 million
in 1997, 1996 and 1995, respectively.
Revenues from food, beverage, gift shop and related services are recognized
at the time the related service is performed.
Non-compete Agreement
A non-compete agreement for $3.8 million was entered into in July, 1995 and
is being amortized on a straight-line basis over three years. A separate non-
compete agreement for $30.7 million was entered into in October, 1992 and was
fully amortized as of December 31, 1995.
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.
F-16
EMPRESS ENTERTAINMENT, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Pre-opening Expense
Pre-opening expenses, which consist principally of lease payments and
professional fees, were expensed as incurred.
2. Other Assets
Other assets consist of the following:
December 31,
--------------------------
1997 1996
------------ ------------
Licensing costs................. $10,003,337 $ 9,803,337
Development related legal fees.. 1,970,044 1,589,903
Loan acquisition costs.......... 613,565 323,367
Organizational costs............ 118,467 118,467
----------- -----------
12,705,413 11,835,074
Accumulated amortization........ (1,236,619) (462,420)
----------- -----------
$11,468,794 $11,372,654
=========== ===========
Licensing costs represent amounts paid or committed to be paid to various
municipalities and organizations in connection with the granting of the
operating license from the Indiana Gaming Commission (see Note 8). Such assets
as well as the development related legal fees are being amortized on a straight-
line basis over 20 years.
Approximately $0.1 million and $3.4 million, for 1997 and 1996,
respectively, of these other assets were recorded based on an unconditional
commitment and a corresponding accrual was made. These assets are not reflected
on the Statement of Cash Flows.
3. Other Accrued Liabilities
Other accrued liabilities consist of the following:
December 31,
------------------------
1997 1996
----------- -----------
Property taxes................... $ 2,398,256 $ 483,003
Empress Club program............. 1,585,138 800,431
Gaming and admission taxes....... 1,506,868 1,320,762
Progressive jackpots............. 1,027,032 977,669
Sales and use taxes.............. 881,073 235,748
Development related commitments.. 875,000 3,443,750
Chip and token float............. 756,110 540,921
State income taxes............... 455,001 416,238
Other............................ 2,709,197 2,612,556
----------- -----------
$12,193,675 $10,831,078
=========== ===========
EMPRESS ENTERTAINMENT, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
4. Long-Term Debt
Long-term debt consists of the following:
December 31,
--------------------------
1997 1996
------------ ------------
10 3/4% Notes...................... $150,000,000 $150,000,000
Credit Facility.................... 56,000,000 39,000,000
Other.............................. 2,523,788 5,723,753
------------ ------------
208,523,788 194,723,753
Current portion of long-term debt.. 18,523,788 26,540,296
------------ ------------
$190,000,000 $168,183,457
============ ============
Empress Finance issued the 10 3/4% Notes pursuant to a public offering on
April 7, 1994. The 10 3/4% Notes are irrevocably and unconditionally guaranteed
on a senior unsecured basis by the Company, Empress Joliet, Empress Hammond and
all of its future subsidiaries.
Interest on the 10 3/4% Notes is payable semiannually on April 1 and
October 1 of each year. The 10 3/4% Notes are due and payable on April 1, 2002.
The Company and all of its future subsidiaries may be required to repay all or a
portion of the 10 3/4% Notes upon the occurrences of certain repurchase events
described in the 1994 Indenture (the "1994 Indenture") which was entered into
by the Company in connection with this offering.
Certain provisions of the 1994 Indenture restrict, among other things, the
Company's ability to: (i) incur additional indebtedness; (ii) pay certain
dividends or make certain other restricted payments and investments; (iii) enter
into transactions with affiliates; and (iv) merge, consolidate, or transfer
substantially all of the Company's assets.
In June 1997, the Company entered into a $60.0 million Amended and Restated
Credit Facility (the "Existing Credit Facility") which will expire June 30,
2000. The Existing Credit Facility was issued in replacement and substitution
for the original $50.0 million credit facility issued on April 12, 1996. Under
the terms of the Existing Credit Facility, the Company is required to meet
certain financial and other covenants. The initial use of the funds was for the
construction of the Empress Hammond facility and for working capital purposes.
Interest on the Existing Credit Facility is paid quarterly and is based
upon a variable rate based on the Federal Reserve's funds rate. The rate at
December 31, 1997 was 7.72%. The amount outstanding under the Existing Credit
Facility as of December 31, 1997 was $56.0 million. Beginning on December 31,
1997, on the last banking day of each March, June, September and December the
principal amount of the Existing Credit Facility will be reduced by $4.0 million
with a balloon payment of $20.0 million at June 30, 2000.
As of December 31, 1997, the Company had two unused bank lines of credit
available totaling $6.0 million. As of December 31, 1996, the Company had used
$19.6 million of a $20.0 million line of credit. Interest on the $20.0 million
bank line of credit was based on the Federal Reserve fund rate. The rate at
December 31, 1996 was 6.57%. The entire portion of the outstanding balance of
the $20.0 million line of credit was paid in full on June 30, 1997.
The other financing represents vendor financing of gaming equipment.
Interest on the equipment financing is based upon a variable rate of 3% over
prime and is paid monthly. The principal balance due as of December 31, 1997 was
approximately $2.5 million. The entire principal balance is due and payable in
1998.
F-17
The total fair value of the 10 3/4% Notes was approximately $162.0 million
as of December 31, 1997. Fair value was determined based on the quoted market
price of the 10 3/4% Notes. The carrying value of all other debt instruments
approximates fair value.
F-18
EMPRESS ENTERTAINMENT, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
Aggregate maturities of long-term debt are as follows:
Year ending December 31:
1998................. $ 18,523,788
1999................. 16,000,000
2000................. 24,000,000
2001................. --
2002................. 150,000,000
------------
$208,523,788
============
5. 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 the
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 1997 and 1996
was approximately $0.3 million and $0.4 million, respectively.
Rent expense for the years ended December 31, 1997, 1996, and 1995 was
approximately $0.8 million, $0.8 million, and $0.3 million respectively.
6. Related Party Transactions
The Company engages businesses owned by certain stockholders of the Company
to provide certain services. The amounts paid for insurance brokerage provided
by such businesses were $2.7 million, $2.8 million, and $1.5 million, for the
years ended December 31, 1997, 1996, and 1995, respectively. The amounts paid
for construction services by such businesses were approximately $0.6 million,
$0.5 million, and $0.9 million, for the years ended December 31, 1997, 1996, and
1995, respectively. The amounts paid for fuel purchases and related
transportation by such businesses were $0.5 million, $0.7 million, and $0.5
million for the years ended December 31, 1997, 1996, and 1995, respectively.
7. 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 $0.4 million, $0.3
million and $0.4 million of contribution expense related to the plan for the
years ended December 31, 1997, 1996, and 1995, respectively.
F-19
EMPRESS ENTERTAINMENT, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(Continued)
8. Commitments
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, 1997, 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 $3.0 million or
certain percentages of adjusted gross receipts as follows:
--4.0% up to $125.0 million;
--6.0% over $125.0 million to $200.0 million; and
--4.0% in excess of $200.0 million.
. A passenger payment to the HPA in the sum of $1.00 per passenger.
. An annual payment to the City of Hammond for police and fire purposes of
$1.0 million.
. Contributions 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 200 room hotel and conference center with an estimated
cost of $10.0 million.
. Commercial development within the greater Hammond area with an estimated
cost of $10.0 million to be completed within 5 years of the date of the
Certificate of Suitability. No amounts have been expended as of December
31, 1997.
. Renovate existing housing and construction of new market rate housing in
the greater Hammond area with an estimated cost of $5.0 million to be
completed within 5 years of the date of the Certificate of Suitability. No
amounts have been expended as of December 31, 1997.
9. Year 2000 (Unaudited)
The Company has determined that it may need to modify portions of its
software so that its computer systems will function properly with respect to
dates in the year 2000 and beyond. The Company also has initiated discussions
with its software providers to ensure that those parties have appropriate plans
to remedy Year 2000 issues where their systems interface with the Company's
system or otherwise impact its operations. The Company is assessing the extent
to which its operations are vulnerable should those organizations fail to
properly remedy its computer systems.
10. Subsequent Event
On June 18, 1998, the Company issued $150.0 million of Senior Subordinated
Notes which mature in 2006 and have an interest rate of 8 1/8%. The proceeds
from the Notes were used to purchase U.S. Treasury Securities to effect a
covenant defeasance on the Company's 10 3/4% Notes. Concurrently with the
issuance of the Notes, the Company effected a reorganization to which Empress
Joliet and Empress Finance became wholly-owned subsidiaries of the Company.
Empress Hammond, Empress Joliet and Empress Finance are all guarantors of the
Notes. Audited financial information of those guarantor subsidiaries' has been
omitted because the Notes are guaranteed on a joint, several and unconditional
basis by all direct and indirect subsidiaries of the parent, which has no
significant operations or assets separate from its investments in its
subsidiaries.
F-20
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations not contained in this Prospectus and,
if given or made, such information or representations must not be relied upon
as having been authorized by the Company, any Guarantor or the Exchange Agent.
This Prospectus does not constitute an offer to sell, or a solicitation of an
offer to buy, any of the Notes offered hereby in any jurisdiction where, or to
any person to whom, it is unlawful to make such offer or solicitation. Neither
the delivery of this Prospectus nor any sale hereunder shall, in any
circumstances, create an implication that the information herein is correct as
of anytime subsequent to the date hereof or that there has been no change in the
facts set forth in this Prospectus or in the affairs of the Company since such
date.
---------
TABLE OF CONTENTS
Prospectus Summary......................................... 1
Risk Factors............................................... 16
The Exchange Offer......................................... 28
Use of Proceeds............................................ 40
Capitalization............................................. 41
Selected Combined Financial Data........................... 42
Management's Discussion and Analysis of
Financial Condition And Results of
Operations............................................... 44
Business................................................... 50
Regulatory Matters......................................... 58
Management................................................. 64
Certain Transactions....................................... 71
Principal Stockholders..................................... 73
Description of Certain Other Indebtedness.................. 75
Description of the New Notes............................... 76
Book-Entry; Delivery and Form.............................. 103
Registration Rights........................................ 104
Certain Federal Income
Tax Considerations....................................... 107
Plan of Distribution....................................... 109
Legal Matters.............................................. 109
Independent Auditors....................................... 109
Index to Combined Financial Statements..................... F-1
Until ____, 1998 (90 days as of the date this Prospectus), all dealers effecting
transactions in the registered securities, whether or not participating in the
distribution, may be required to deliver a Prospectus.
$150,000,000
LOGO
Empress Entertainment, Inc.
8 1/8% Senior Subordinated Notes due 2006
------------
PROSPECTUS
------------
, 1998
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
The by-laws of the Company, Empress Hammond, Empress Joliet and Empress
Finance provide that each corporation will have the power to indemnify any
person who is or was a director, officer, employee or agent of the corporation,
or who is or was serving at the request of the corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, or other enterprise to the fullest extent permitted by law.
The Company and Empress Finance are each incorporated under the laws of the
State of Delaware. The Company's and Empress Finance's respective Certificates
of Incorporation provide that a director of such corporation shall not be
personally liable to such corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director to the fullest extent permitted by
law. The effect of this provision in the Company's and Empress Finance's
respective Certificates of Incorporation is to eliminate the rights of the
corporation and its stockholders (through stockholders' derivative suits on
behalf of the Company or Empress Finance) to recover monetary damages against a
director for breach of the fiduciary duty of care as a director (including
breaches resulting from negligent or grossly negligent behavior) except in
certain limited situations. This provision does not limit or eliminate the
rights of the Company or Empress Finance or any of their respective stockholders
to seek non-monetary relief such as an injunction or rescission in the event of
a breach of a director's duty of care. These provisions do not alter the
liability of directors under Federal securities laws.
Section 145 of the Delaware General Corporation Law empowers a corporation,
subject to certain qualifications and limitations, to indemnify its directors
and officers against expenses (including attorneys' fees), judgments, fines and
certain amounts paid in settlements actually and reasonably incurred by them in
connection with any suit or proceeding to which they are a party so long as they
acted in good faith and in a manner they reasonably believed to be in or not
opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe their conduct
was unlawful. The Company's and Empress Finance's respective Certificates of
Incorporation and by-laws provide that such entity shall indemnify its directors
and such of its officers, employees and agents as the Board of Directors may
determine from time to time, to the fullest extent permitted by applicable law.
Empress Hammond is incorporated under the laws of the State of Indiana.
Sections 23-1-37-8 and 23-1-37-13 of the Indiana Business Corporation Law
empower a corporation to indemnify its directors and officers against liability
incurred by them in connection with any suit or proceeding to which they are a
party so long as their conduct was in good faith and (i) in the case of conduct
in the director's or officer's capacity as a director or officer, as the case
may be, in a manner the individual reasonably believed to be in the best
interests of the corporation; (ii) in all other cases, in a manner the
individual reasonably believed to be not opposed to the best interests of the
corporation; and (iii) with respect to criminal proceedings, the individual
either (A) had reasonable cause to believe his conduct was lawful; or (B) had no
reasonable cause to believe his conduct was unlawful. In addition, unless
limited by its articles of incorporation, a corporation shall indemnify a
director or officer who is wholly successful, on the merits or otherwise, in the
defense of any proceeding to which the director or officer was a party because
the director or officer was a director or officer of the corporation against
reasonable expenses incurred by the director or officer in connection with the
proceeding. Section 23-1-35-1(e) of the Indiana Business Corporation Law
provides that a director of an Indiana corporation is not liable for any action
taken as a director, or any failure to take any action, unless (1) the director
has breached or failed to perform the duties of the director's office in
II-1
compliance with the statute, and (2) the breach or failure to perform
constitutes willful misconduct or recklessness. Empress Hammond's by-laws
provide that Empress Hammond shall indemnify its directors and its officers,
employees and agents in accordance with the provisions of the Indiana Business
Corporation Law.
Empress Joliet is incorporated under the laws of the State of Illinois. The
Illinois Business Corporation Act was amended effective January 1, 1994 to
permit an Illinois corporation's articles of incorporation to limit its
directors' personal exposure to liability for monetary damages. As a result
thereof, Empress Joliet amended its Articles of Incorporation to provide that a
director of Empress Joliet shall not be personally liable to Empress Joliet or
its shareholders for monetary damages for breach of fiduciary duty as a director
to the fullest extent permitted by law. The effect of this provision in Empress
Joliet's Articles of Incorporation is to eliminate the rights of Empress Joliet
and its shareholders (through shareholders' derivative suits on behalf of
Empress Joliet) to recover money damages against a director for breach of the
fiduciary duty of care as a director (including breaches resulting from
negligent or grossly negligent behavior) except in certain limited situations.
This provision would not limit or eliminate the rights of each of Empress Joliet
or its shareholders to seek non-monetary relief such as an injunction or
recession in the event of a breach of a director's duty of care. The provision
would not alter the liability of directors under Federal securities laws.
Section 8.75 of the Business Corporation Act of 1983 of the State of
Illinois, as amended, empowers a corporation, subject to certain qualifications
and limitations, to indemnify its directors and officers against expenses
(including attorney's fees), judgments, fines and certain amounts paid in
settlements actually and reasonably incurred by them in connection with any suit
or proceeding to which they are a party, or are threatened to be made a party
of, so long as they acted in good faith and in a manner they reasonably believed
to be in or not opposed the best interests of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe their
conduct to have been unlawful. Empress Joliet's by-laws provide that Empress
Joliet shall have the power to indemnify its officers, directors, employees and
agents to the full extent permitted by law.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
(a) Exhibits
The exhibits filed as part of this registration statement are as follows:
EXHIBIT NO. EXHIBIT
- ----------- -------
- -----------
1.1 Purchase Agreement, dated June 11, 1998 among Empress Entertainment,
Inc. (the "Company"), Empress Casino Hammond Corporation ("Empress
Hammond"), Empress Casino Joliet Corporation ("Empress Joliet"),
Empress River Casino Finance Corporation ("Empress Finance") and
Hammond Residential, L.L.C. ("Hammond Residential" and together with
Empress Hammond, Empress Joliet and Empress Finance, collectively, the
"Guarantors"), Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated and Wasserstein Perella Securities, Inc. (the
"Initial Purchasers").
II-2
2.1 Agreement and Plan of Merger, dated June 1, 1998, of New Empress
Joliet, Inc. into Empress Joliet.
2.2 Articles of Merger, filed June 5, 1998, between New Empress Joliet,
Inc. into Empress Joliet (included in Exhibit 3.5).
2.3 Stock Purchase Agreement, dated June 12, 1998, between the Company
and Empress Joliet.
2.4 Termination of Lease, dated June 17, 1998, between the Company and
Empress Hammond.
2.5 Bill of Sale for the Empress III, dated June 17, 1998 executed by
the Company.
3.1 Amended Certificate of Incorporation of the Company, as amended as of
May 28, 1998.
3.2 By-Laws of the Company.
3.3 Restated Articles of Incorporation of Empress Hammond as amended as
of March 11, 1996.
3.4 By-Laws of Empress Hammond.
3.5 Articles of Incorporation of Empress Joliet.
3.6 By-Laws of Empress Joliet.
3.7 Certificate of Incorporation of Empress Finance.
3.8 By-Laws of Empress Finance.
3.9 Certificate of Organization of Hammond Residential as of February 23,
1998.
3.10 Operating Agreement of Hammond Residential.
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.
4.2 Registration Rights Agreement, dated June 18, 1998, by and among the
Company, the Guarantors, and the Initial Purchasers.
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.
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.
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.
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.
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.
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").
4.8(a) Closing Agreement among the Company, Empress Hammond, Empress Joliet
and Wells Fargo, dated June 17, 1998.
4.8(b) $100,000,000 Revolving Credit Promissory Note executed by the Company,
Empress Joliet and Empress Hammond in favor of Wells Fargo, as Agent
Bank, dated June 17, 1998.
4.8(c) $5,000,000 Swingline Note executed by the Company, Empress Joliet and
Empress Hammond in favor of Wells Fargo, dated June 17, 1998.
4.8(d) Senior Mortgage with Absolute Assignment of Leases and Rents executed
by Empress Hammond in favor of Wells Fargo, as Agent Bank, dated June
17, 1998.
4.8(e) First Preferred Ship Mortgage executed by Empress Hammond with respect
to Empress III in favor of Wells Fargo, as Agent Bank dated as of June
17, 1998.
4.8(f) Security Agreement between the Company and Wells Fargo, as
administrative and collateral agent, dated as of June 17, 1998.
4.8(g) Security Agreement between Empress Hammond and Wells Fargo, as
administrative and collateral agent, dated as of June 17, 1998.
4.8(h) Security Agreement and Pledge of Stock (Indiana) between the Company
and Wells Fargo, as Agent Bank dated as of June 17, 1998.
4.8(i) Trademark Security Agreement by the Company and Empress Hammond dated
June 17, 1998.
4.8(j) Certificate and Indemnification Regarding Hazardous Substances by
Empress Entertainment and Empress Hammond dated June 17, 1998
(included in Exhibit 4.8(o)).
4.8(k) Senior Mortgage with Absolute Assignment of Leases and Rents, Security
Agreement and Fixture Filing executed by Empress Joliet in favor of
Wells Fargo, dated as of June 30, 1998.
4.8(l) First Preferred Fleet Mortgage executed by Empress Joliet with respect
to Empress I and Empress II in favor of Wells Fargo, as Agent Bank,
dated as of June 30, 1998.
4.8(m) Security Agreement and Pledge of Stock (Illinois) between the Company
and Wells Fargo, as Agent Bank, dated as of June 30, 1998.
4.8(n) Trademark Security Agreement by Empress Joliet dated as of June 30,
1998.
4.8(o) Certificate and Indemnification Regarding Hazardous Materials by
Empress Joliet dated as of June 30, 1998.
5.1* Form of Opinion of D'Ancona & Pflaum, dated ________, 1998.
9.1 Amended and Restated Stockholders Agreement dated April 18, 1998 by
and among the Company and each of the stockholders of the Company.
9.2 First Amendment dated June 1, 1998 to the Company's Amended and
Restated Stockholders Agreement.
9.3 Voting Trust Agreement dated May 3, 1993 among Peter A. Ferro, Jr.,
John T. Ferro and James J. Ferro.
9.4 Voting Trust Agreement Amendment No. 1, dated September 6, 1993
among Peter A. Ferro, Jr., John T. Ferro and James J. Ferro.
10.1 Tax Reimbursement Agreement, dated June 18, 1998, by and between the
Company and each of the Stockholders of the Company.
10.2 Guaranty executed by Empress Hammond in favor of the holders of the
Notes.
10.3 Guaranty executed by Empress Joliet in favor of the holders of the
Notes.
10.4 Guaranty executed by Empress Finance in favor of the holders of the
Notes.
10.5 Guaranty executed by Hammond Residential in favor of the holders of
the Notes.
10.6 Contract dated November 20, 1997 between Empress Joliet and Gas City,
Ltd.
10.7 Trademark License Agreement dated June 30, 1997 between Empress Joliet
and Empress Hammond.
10.8 Consulting Agreement dated January 1, 1998 between Empress Hammond and
William J. Sabo.
10.9 Consulting Agreement dated January 1, 1998 between Empress Joliet and
William J. Sabo.
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.
10.11 Lease by and between the City of Hammond, Department of Redevelopment
and Empress Hammond, dated as of June 19, 1996.
10.12 License Agreement by and between Hammond Port Authority and Empress
Hammond, dated as of June 21, 1996.
10.13 License Agreement by and between Department of Waterworks of the City
of Hammond and the City of Hammond, Indiana and Empress Hammond.
10.14 Employment Agreement dated March 7, 1997 between Empress Hammond and
Peter A. Ferro, Jr.
10.15 Employment Agreement dated March 7, 1997 between Empress Joliet and
Peter A. Ferro, Jr.
10.16 Allocation Agreement dated March 7, 1997 between Empress Hammond and
Empress Joliet.
10.17 Employment Agreement dated June 12, 1997 between Empress Hammond and
Joseph J. Canfora.
10.18 Employment Agreement dated June 12, 1997 between Empress Joliet and
Joseph J. Canfora.
10.19 Long Term Incentive Bonus Agreement dated June 12, 1997 between
Empress Hammond and Joseph J. Canfora.
10.20 Long Term Incentive Bonus Agreement dated June 12, 1997 between
Empress Joliet and Joseph J. Canfora.
10.21 Allocation Agreement dated June 12, 1997 between Empress Hammond and
Empress Joliet.
10.22 Employment Agreement dated March 12, 1998 between Empress Joliet and
John G. Costello.
10.23 Employment Agreement dated March 12, 1998 between Empress Joliet and
Michael W. Hansen.
10.24 Employment Agreement dated March 12, 1998 between Empress Joliet and
David F. Fendrick.
10.25 Employment Agreement dated March 12, 1998 between Empress Hammond and
Rick. Mazer.
12.1 Computation of Ratio of Earnings to Fixed Charges.
21.1 List of Subsidiaries of the Company.
23.1 Consent of Ernst & Young LLP.
23.2* Consent of D'Ancona & Pflaum (included in their opinion filed as
Exhibit 5.1).
24.1 Powers of Attorney (included as part of the signature page hereof).
25.1 Form T-1 Statement of Eligibility under the Trust Indenture Act of
1939 of U.S. Bank Trust National Association.
27.1 Financial Data Schedule
27.2 Financial Data Schedule
99.1 Form of Letter of Transmittal for the New Notes.
99.2 Guidelines for Certification of Taxpayer Identification Numbers on
Substitute Form W-9.
99.3 Form of Notice of Guaranteed Delivery.
* To be filed with an Amendment to the Registration Statement.
(b) Financial Statement Schedule
The following financial statement schedule for the years 1997, 1996 and
1995 is submitted herewith:
Schedule II Valuation and Qualifying Accounts
All other schedules are either not required under the related instructions
or are not applicable, and therefore have been omitted.
Item 22. Undertakings
Each of the undersigned registrants hereby undertakes:
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(a) Each of the undersigned registrants hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)
(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than 20 percent
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement; and
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
registration statement or any material change to such information
in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) Each of the undersigned registrants hereby undertakes:
(1) To respond to requests for information that is incorporated
by reference into the Prospectus pursuant to Item 4, 10(b), 11 or 13 of
this form, within one business day of receipt of such request, and to send
the incorporated documents by first class mail or other equally prompt
means. This includes information contained in documents filed subsequent to
the effective date of the Registration Statement through the date of
responding to the request.
(2) To supply by means of a post-effective amendment all
information concerning a transaction, and the company being acquired
involved therein, that was not the subject of and included in the
registration statement when it became effective.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Empress Entertainment, Inc. has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in Chicago,
Illinois on July 29, 1998.
EMPRESS ENTERTAINMENT, INC.
By: /s/ Peter A. Ferro, Jr.
--------------------------------------------
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 (including post-effective
amendments) to this Registration Statement, 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
Registration Statement has been signed below by the following persons on behalf
of Empress Entertainment, Inc. and in the capacities set forth below set forth
below on July 29, 1998.
Signature Title
--------- -----
/s/ Peter A. Ferro, Jr.
- ---------------------------------- Director and Chief Executive Officer
Peter A. Ferro, Jr.
/s/ Joseph A. Canfora
- ---------------------------------- President
Joseph A. Canfora
/s/ John G. Costello
- ---------------------------------- Vice President, Chief Financial and
John G. Costello Accounting Officer and Treasurer
/s/ Michael W. Hansen
- ---------------------------------- Vice President and Chief Legal Officer
Michael W. Hansen and Secretary
/s/ Charles P. Hammersmith, Jr.
- ---------------------------------- Director
Charles P. Hammersmith, Jr.
II-4
/s/ Robert W. Kegley, Sr.
- ---------------------------------- Director
Robert W. Kegley, Sr.
/s/ Thomas J. Lambrecht
- ---------------------------------- 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
II-5
Pursuant to the Requirements of the Securities Act of 1933, as amended,
Empress Casino Hammond Corporation has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
__________, Illinois, on July 29, 1998.
EMPRESS CASINO HAMMOND
CORPORATION
By: /s/ Peter A. Ferro, Jr.
----------------------------------------
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 (including post-effective
amendments) to this Registration Statement, 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
Registration Statement has been signed below by the following persons on behalf
of Empress Casino Hammond Corporation and in the capacities such forth below on
July 29, 1998.
Signature Title
--------- -----
/s/ Peter A. Ferro, Jr.
- ---------------------------------- Director and Chief Executive Officer
Peter A. Ferro, Jr.
/s/ Joseph A. Canfora
- ---------------------------------- President
Joseph A. Canfora
/s/ John G. Costello
- ---------------------------------- Vice President, Chief Financial Officer
John G. Costello and Treasurer
/s/ Michael W. Hansen
- ---------------------------------- Vice President, Chief Legal Officer
Michael W. Hansen and Secretary
II-6
/s/ Charles P. Hammersmith, Jr.
- ---------------------------------- Director
Charles P. Hammersmith, Jr.
/s/ Robert W. Kegley, Sr.
- ---------------------------------- Director
Robert W. Kegley, Sr.
/s/ Thomas J. Lambrecht
- ---------------------------------- 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
II-7
Pursuant to the requirements of the Securities Act of 1933, as amended,
Empress Casino Joliet Corporation has duly caused this Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in
Chicago, Illinois on July 29, 1998.
EMPRESS CASINO JOLIET CORPORATION
By: /s/ Peter A. Ferro, Jr.
------------------------------------------
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 (including post-effective
amendments) to this Registration Statement, 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 Registration Statement has been signed below by the following persons on
behalf of Empress Casino Joliet Corporation and in the capacities set forth
below on July 29, 1998.
Signature Title
--------- -----
/s/ Peter A. Ferro, Jr.
- ---------------------------------- Director and Chief Executive Officer
Peter A. Ferro, Jr.
/s/ Joseph A. Canfora
- ---------------------------------- President
Joseph A. Canfora
/s/ John G. Costello
- ---------------------------------- Vice President, Chief Financial Officer
John G. Costello and Treasurer
/s/ Michael W. Hansen
- ---------------------------------- Vice President, Chief Legal Officer and
Michael W. Hansen Secretary
/s/ Charles P. Hammersmith, Jr.
- ---------------------------------- Director
Charles P. Hammersmith, Jr.
/s/ Robert W. Kegley, Sr.
- ---------------------------------- Director
Robert W. Kegley, Sr.
/s/ Thomas J. Lambrecht
- ---------------------------------- 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
II-8
Pursuant to the requirements of the Securities Act of 1933, as amended,
Empress River Casino Finance Corporation has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in Chicago, Illinois on July 29, 1998.
EMPRESS RIVER CASINO FINANCE
CORPORATION
By: /s/ Peter A. Ferro, Jr.
------------------------------
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 (including post-effective
amendments) to this Registration Statement, 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 Registration Statement has been signed below by the following persons on
behalf of Empress River Casino Finance Corporation and in the capacities set
forth below on July 29, 1998.
Signature Title
--------- -----
/s/ Peter A. Ferro, Jr.
- ---------------------------------- Director and President
Peter A. Ferro, Jr.
/s/ John G. Costello
- ---------------------------------- Vice President, Chief Financial Officer
John G. Costello and Treasurer
/s/ Michael W. Hansen
- ---------------------------------- Vice President, Chief Legal Officer
Michael W. Hansen and Secretary
/s/ Charles P. Hammersmith, Jr.
- ---------------------------------- Director
Charles P. Hammersmith, Jr.
/s/ Robert W. Kegley, Sr.
- ---------------------------------- Director
Robert W. Kegley, Sr.
II-9
/s/ Thomas J. Lambrecht
- ---------------------------------- 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
Pursuant to the requirements of the Securities Act of 1933, as amended,
Hammond Residential, L.L.C. has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in Chicago,
Illinois on July 29, 1998.
HAMMOND RESIDENTIAL, L.L.C.
By: /s/ Peter A. Ferro, Jr.
----------------------------------------
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 (including post-effective
amendments) to this Registration Statement, 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 Registration Statement has been signed below by the following persons on
behalf of Hammond Residential, L.L.C. and in the capacities set forth below on
July 29, 1998.
Signature Title
--------- -----
/s/ Peter A. Ferro, Jr.
- ---------------------------------- Director of Empress Hammond, the Sole
Peter A. Ferro, Jr. Member of Hammond Residential and Chief
Executive Officer
/s/ John G. Costello
- ---------------------------------- Vice President and Chief Financial Officer
John G. Costello of Hammond Residential
/s/ Michael W. Hansen
- ---------------------------------- Vice President and Chief Legal Officer of
Michael W. Hansen Hammond Residential
/s/ Charles P. Hammersmith, Jr.
- ---------------------------------- Director of Empress Hammond, the Sole
Charles P. Hammersmith, Jr. Member of Hammond Residential
/s/ Robert W. Kegley, Sr.
- ---------------------------------- Director of Empress Hammond, the Sole
Robert W. Kegley, Sr. Member of Hammond Residential
/s/ Thomas J. Lambrecht
- ---------------------------------- Chairman of the Board of Directors of
Thomas J. Lambrecht Empress Hammond, the Sole Member of Hammond
Residential
/s/ William J. McEnery
- ---------------------------------- Director of Empress Hammond, the Sole
William J. McEnery Member of Hammond Residential
/s/ Edward T. McGowan
- ---------------------------------- Director of Empress Hammond, the Sole
Edward T. McGowan Member of Hammond Residential
/s/ William J. Sabo
- ---------------------------------- Director of Empress Hammond, the Sole
William J. Sabo Member of Hammond Residential
II-10
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
- ------------------------------------------------------------------------------------------------------------------------------------
Col. A Col. B Col. C Col. D Col. E
- ------------------------------------------------------------------------------------------------------------------------------------
Additions
-------------------------------------
(1) (2)
Balance at Charged to
Beginning Charged to Other Accounts- Deductions-- Balance at
Description of Period Costs and -Describe Describe End of Period
Expenses
- ------------------------------------------------------------------------------------------------------------------------------------
Allowance for doubtful accounts: Write-Offs
----------
Year ended December 31, 1997.. $1,527,774 $652,984 $419,342 $1,761,416
Year ended December 31, 1996.. 1,170,265 587,080 229,571 1,527,774
Year ended December 31, 1995.. 1,112,394 117,390 59,519 1,170,265