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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549
___________________________

FORM 10-K

(Mark One)

[X]

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2001

OR

[  ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to ____________.

HORSESHOE GAMING HOLDING CORP.

18454 S. West Creek Drive
Tinley Park, IL 60477
(Address of principal executive offices)

Registrant’s telephone number, including area code: (708) 429-8300

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YES   [X]   NO   [   ]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

     The aggregate market value of the equity of Horseshoe Gaming Holding Corp. held by non-affiliates of Horseshoe Gaming Holding Corp. is inapplicable as the equity of Horseshoe Gaming Holding Corp. is privately held.

     As of March 15, 2002, the Registrant had 13,366 shares of Class A Common Stock and 9,779 of Class B Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE
None.

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HORSESHOE GAMING HOLDING CORP.
INDEX TO ANNUAL REPORT ON FORM 10-K
For the fiscal year ended December 31, 2001

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PART I

Item 1. Business.

General

     Horseshoe Gaming Holding Corp. (the “Company”) is a leading multi-jurisdictional gaming company which owns and operates, through its wholly owned subsidiaries, riverboat casinos under the “Horseshoe” brand. These include the Horseshoe Bossier City Casino (“Horseshoe Bossier City” or “Bossier”) in Bossier City, Louisiana, which commenced operations on July 9, 1994, the Horseshoe Tunica Casino (“Horseshoe Tunica” or “Tunica”) which commenced operations on February 13, 1995 and the Horseshoe Casino Hammond (“Horseshoe Hammond” or “Hammond”) in Hammond, Indiana. Hammond, along with Empress Casino Joliet (“Empress Joliet” or “Joliet”) in Joliet, Illinois, were acquired (the “Empress Merger”) from Empress Entertainment, Inc. (“Empress”) on December 1, 1999. Hammond commenced operations on June 28, 1996. On July 31, 2001, the Company sold Joliet pursuant to the settlement agreement discussed below. The Company was incorporated in Delaware on April 15, 1999 and prior to such date operated under predecessor companies. The principal executive offices of the Company are currently located at 18454 S. West Creek Drive, Tinley Park, IL 60477, telephone (708) 429-8300.

     On April 15, 1999, the Company acquired over 90% of the aggregate ownership of Horseshoe Gaming, LLC (“Horseshoe Gaming”) from Horseshoe Gaming’s members in exchange for interests in the Company. The remaining ownership interests of Horseshoe Gaming either were contributed to the Company in exchange for interests in the Company or acquired by the Company or Horseshoe Gaming and Horseshoe Gaming was subsequently dissolved.

     The Joliet casino gaming license was due to be renewed by the Illinois Gaming Board (“IGB”) in June 2000. On June 30, 2000, the IGB preliminarily denied Joliet’s application to renew its gaming license and preliminarily found Jack Binion (“Binion”), the Company’s Chairman of the Board and CEO, unsuitable to be licensed as a key person. Joliet filed a Verified Request for Hearing of the IGB’s decision. Effective January 31, 2001, the IGB approved a settlement agreement between the IGB, the Company, Joliet and Binion. Pursuant to the pertinent parts of the settlement agreement: (a) the Company sold Joliet to a suitable purchaser; (b) Binion withdrew his key person application; and (c) Joliet withdrew its Verified Request for Hearing, thereby causing the previous denial to be moot.

     Operating data for the three most recent fiscal years is set forth in Item 14, pages F-1 through F-21 of this report. For a discussion of those results, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation included herein on pages 23 through 31.

     This Annual Report on Form 10-K contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, which generally can be identified by the use of such terms as “may,” “expect,” “anticipate,” “believe,” “continue,” or similar variations or the negative thereof. These forward-looking statements involve risks and uncertainties, many of which are outside the Company’s control and, accordingly, actual results may differ materially. Factors that might cause a difference include, but are not limited to, the competitive nature of the casino gaming industry, risk of increases in the number of competitors in the markets in which the Company operates, risk of changes in gaming laws and regulations, risks of substantial indebtedness, debt service and liquidity, licensing and other governmental approvals, construction factors, environmental restrictions, soil and water conditions, weather

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and other hazards, access to available and feasible financing, relations with partners, owners, employees and other third parties, conditions of credit markets and other business and economic conditions, litigation, judicial actions and political uncertainties and other factors discussed from time to time in the Company’s filings with the Securities and Exchange Commission. Any forward looking statements are made pursuant to the Private Securities Litigation Reform Act of 1995 and, as such, speak only as of the date made.

Bossier City Operations

Market

     The Bossier City/Shreveport market is the largest gaming market in the State of Louisiana. While approximately 350,000 people are full-time residents of Bossier City/Shreveport, approximately 16.5 million people reside within 250 miles of the Company’s Bossier City casino (approximately four hours driving distance). The Bossier City/Shreveport market attracts a significant amount of its gaming clientele from the Dallas/Fort Worth area of Texas.

Horseshoe Bossier City

     The Horseshoe Bossier City is located on approximately 30 acres along the east side of the Red River, directly facing downtown Shreveport, Louisiana. The casino is located on a riverboat, which has approximately 86,000 square feet spread out over four-decks with approximately 30,000 square feet of gaming space, including 1,600 gaming devices and 51 table games. The casino operation is complemented by an approximately 62,000 square foot dockside pavilion, a 25 story hotel with 606 deluxe rooms, meeting facilities, a health club and other luxury hotel amenities and a 1,770 car parking garage. The riverboat and pavilion are joined via an enclosed, climate-controlled boarding ramp with handicap access and escalators serving each of the gaming decks. In addition, Horseshoe Bossier City features an entertainment facility that provides seating for 1,300 guests.

Competition

     The Horseshoe Bossier City competes directly with four other riverboat casinos in Shreveport and Bossier City. These five riverboats together currently comprise the Bossier City/Shreveport market. The Bossier City/Shreveport casinos primarily draw from the Dallas/Ft. Worth market and share the Houston area market with four existing riverboats in Lake Charles, Louisiana, an additional riverboat to be located in Lake Charles, Louisiana is expected to be open sometime in 2003, a land-based casino owned by the Coushatta Indian Tribe located near Lake Charles, a horse racing facility containing 1,500 slot machines located near Lake Charles, Louisiana, and two riverboats in Baton Rouge, Louisiana. Additionally, a horse racing facility located within 20 miles of Horseshoe Bossier City has been approved for up to 1,500 slot machines. Should this facility open, it may have a material adverse impact on our operations. If Texas or Arkansas were to approve gaming, competition would increase, which could have a material adverse effect on our operations.

Tunica Operations

Market

     The Tunica County, Mississippi market is the closest legalized gaming jurisdiction to the Memphis, Tennessee metropolitan area, which is only 30 miles away. Tunica County benefits from its proximity to several major population centers and to the popularity of the Memphis

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region as a vacation destination. Over 2.5 million people live within 90 miles and over 10.7 million people live within 200 miles of the Horseshoe Tunica.

Horseshoe Tunica

     Horseshoe Tunica is located in Tunica County, Mississippi at Casino Center, an 80-acre three-casino complex. The casino operation consists of approximately 360,000 square feet. The gaming area comprises approximately 65,000 square feet and contains 2,082 slot machines, 72 table games and 12 poker tables. The casino facility includes three specialty restaurants, a 650 seat buffet, a deli, bars, retail outlets, a 14-story hotel tower with 507 rooms, a health club, meeting room facilities, an 1,100 space, four-level parking garage, and an entertainment facility that provides seating for 1,175 guests.

Competition

     Horseshoe Tunica competes with nine other casinos in the competitive Tunica County, Mississippi market. Additional entrants into the market or the expansion of existing competitors could have a material adverse effect on the operations of Horseshoe Tunica.

     Tennessee’s legislature has recently approved a resolution allowing a referendum that would enable the legislature to establish a state lottery. The referendum will be on the ballot and voted upon on November 5, 2002. If passed, the referendum would provide an exception to the Tennessee constitution thus allowing the legislature to establish a state lottery no earlier than the 2003 legislative session. Such a lottery could possibly affect local market conditions causing a material adverse effect on the operations of Horseshoe Tunica.

     In November 1996, the Mississippi county closest to Memphis (DeSoto County) voted against permitting legalized gaming to be conducted aboard vessels located in DeSoto County. Legislation passed in 1997 precludes DeSoto County from holding a subsequent election on the issue until at least October 2004. If gaming were approved in DeSoto County or in Arkansas or Tennessee, numerous additional sites closer to Memphis would be available for gaming. Thus, while Tunica County is currently the closest legalized gaming jurisdiction to the Memphis metropolitan area, there is no assurance that this situation will not change in the future. If DeSoto County, Arkansas or Tennessee were to approve gaming, competition would increase, which could have a material adverse effect on the operations of Horseshoe Tunica.

Chicago Operations

Market

     The Chicago market, which encompasses portions of both Illinois and Indiana, consists of approximately 8.0 million people within a radius of 50 miles from downtown Chicago. The Illinois Riverboat Act authorizes ten owner’s licenses for riverboat gaming operations, all of which have been issued, and four of which serve the Chicago metropolitan area. Current Indiana gaming legislation authorizes a total of five licenses to operate riverboat casinos in northern Indiana on Lake Michigan, all of which have been issued to casinos that are currently operating, including Hammond.

Horseshoe Hammond

     Horseshoe Hammond, the closest casino to downtown Chicago, includes an approximately 125,000 square foot pavilion. The real estate used by Horseshoe Hammond is leased from the City of Hammond and is subject to a 75-year lease. The casino operation is

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located on a catamaran vessel and consists of approximately 42,500 square feet of gaming space and contains 1,518 slot machines and 51 table games. The pavilion features a steakhouse, buffet, deli, coffee shop, retail shops, a 150-seat banquet room and two lounges. The facility also includes a 1,150 car parking garage.

Competition

     Horseshoe Hammond primarily competes with eight casinos, four of which are located on Lake Michigan in Indiana and four of which are located in Illinois. In addition, in May 1999, the Illinois legislature enacted amendments to the Illinois Riverboat Gambling Act, which allowed all riverboats to become permanently moored, and could result in one of the ten state-authorized licenses for Illinois being relocated to an area closer to Hammond, which could cause an increase in competition and which may have a material adverse effect on Horseshoe Hammond.

     Outside of 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, three land-based casinos have been authorized in Detroit, Michigan, all three of which have commenced gaming operations.

     Horseshoe Hammond 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 is planning to build a land-based casino in New Buffalo, Michigan located in southwest Michigan, approximately ten minutes from Michigan City, Indiana. In addition, the Saginaw Chippewa Tribe is currently operating one of the largest Native American gaming complexes in the United States in Mt. Pleasant, Michigan, approximately 250 miles northeast of Hammond, Indiana. The opening of land based casinos, which generally have a competitive advantage over riverboat casinos, in close proximity to Horseshoe Hammond could have a material adverse effect on the operations of the casino. In addition, lower age limits at Native American casinos may put Horseshoe Hammond, with a minimum age requirement for admittance of 21, at a competitive disadvantage.

Gaming Regulatory Matters

     The Company is subject to state and Federal laws, which regulate businesses generally and the gaming business specifically. Below is a brief description of some of the more significant regulations which govern the Company and its operations. All laws and regulations which govern the Company are subject to change and different interpretations. Changes in laws or their interpretation may result in the imposition of more stringent, burdensome or expensive requirements, or the outright prohibition of an activity.

Louisiana

     In July 1991, the Louisiana legislature adopted legislation permitting certain types of gaming activity on certain rivers and waterways in Louisiana. The legislation granted authority to supervise riverboat gaming activities to the Louisiana Riverboat Gaming Commission and the Riverboat Gaming Enforcement Division of the Louisiana State Police, or the Louisiana Enforcement Division. The Louisiana Riverboat Gaming Commission was authorized to hear and determine all appeals relative to the granting, suspension, revocation, condition or renewal of all licenses, permits and applications. In addition, the Louisiana Riverboat Gaming Commission was authorized to establish regulations concerning authorized routes, duration of excursions, minimum levels of insurance, construction of riverboats and periodic inspections. The Louisiana

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Enforcement Division was authorized to investigate applicants and issue licenses, investigate violations of the statute and conduct continuing reviews of gaming activities. The Louisiana gaming law authorizes the issuance of up to 15 licenses to conduct gaming activities on a riverboat of new construction on certain designated waterways in accordance with applicable law. However, no more than six licenses may be granted to riverboats operating from any designated waterway.

     The state has granted approval to applicants for the 15 legislatively authorized licenses, five of which have been approved for the northern region of the state in Bossier City/Shreveport. The Louisiana Gaming Control Board awarded the fifteenth license on October 16, 2001. Prior to the passage of legislation legalizing dockside gaming, effective April 1, 2001, in the 2001 Special Session of the Louisiana Legislature, the Louisiana gaming law stated that riverboat casinos must cruise, but the Bossier City/Shreveport casinos were granted a legislative exemption in June 1993 that allows them to operate as dockside facilities. Louisiana permits most types of casino games, other than bingo and sports betting, and has neither betting nor loss limits. Moreover, house credit may be extended to qualified patrons. The only significant limitation imposed by Louisiana gaming regulations restricts gaming space on riverboats to no more than 30,000 square feet. Prior to the passage of legislation legalizing dockside gaming, effective April 1, 2001, in the 2001 Special Session of the Louisiana Legislature, fees to the State of Louisiana for conducting gaming activities on a riverboat were (1) $50,000 per riverboat for the first year of operation and $100,000 per year per riverboat thereafter plus (2) 18.5% of net gaming proceeds. In the 2001 Special Session of the Louisiana Legislature, a law was passed legalizing dockside gaming and increasing the fees paid to the state of Louisiana to 21.5% of net gaming proceeds effective April 1, 2001 for the riverboats outside of the northern region of the state in Bossier City/Shreveport, while the fee increase to 21.5% of net gaming proceeds will be phased in over an approximately two year period for the riverboats in the northern region of the state in Bossier City/ Shreveport. The city of Bossier City also imposes a 3.2% tax on gaming revenue plus an annual fee of $700,000.

     In the 1996 Special Session of the Louisiana Legislature, Louisiana lawmakers passed a measure which established the Louisiana Gaming Control Board and provided that it is the successor to all such prior authorities with regard to the regulation and supervision of gaming in Louisiana except for the regulation of horse racing and off-track betting and the conducting of charitable gaming operations. Effective May 1, 1996, the powers, duties, functions, and responsibilities with respect to riverboat gaming of the Louisiana Riverboat Gaming Commission and the Louisiana Enforcement Division were transferred to the Louisiana Gaming Control Board. The Louisiana Enforcement Division continues to provide investigative and enforcement support to the Louisiana Gaming Control Board.

     In addition, legislation was passed in 1996 authorizing the Bossier Police Jury, the governing body of Bossier Parish, to impose a boarding fee of $0.50 per patron entering riverboat gaming facilities in Bossier Parish. In response to this legislation, Horseshoe Bossier City and the Isle of Capri Casino in Bossier City commenced litigation against the Bossier Police Jury, asserting that the Bossier Police Jury had previously contracted away their right to impose an additional $0.50 boarding fee. In January 1997, Horseshoe Bossier City separately settled with the Bossier Police Jury, and the lawsuit was dismissed as it relates to Horseshoe Bossier City, but not Isle of Capri Casino, and the Bossier Police Jury. As part of the settlement, Horseshoe Bossier City agreed to pay a 1% tax on its gross casino revenues to Bossier Parish with a minimum annual payment of $1,500,000, regardless of actual revenue. Under the terms of the settlement, Horseshoe Bossier City has the right to receive a credit against gross gaming tax for the amount of increased property taxes assessed against our property in Bossier Parish resulting from increased assessments attributable to our major expansion project. Such credit may be taken up to a maximum of 80% of the tax on casino revenues, and applies during the entire ten-year term of the agreement.

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     In the 1997 Regular Session of the Louisiana Legislature, a law was passed authorizing the operation of slot machines at certain horse racing tracks in Louisiana, including a racetrack situated in Bossier Parish. The legislation limits slot machine space at each racetrack to 15,000 square feet. Within the gaming space, however, there is no numerical limit on the number of slot machines that can be permissibly installed.

     In issuing a license, the Louisiana Gaming Control Board must find that the applicant is a person of good character, honesty and integrity and a person whose prior activities, criminal record, if any, reputation, habits, and associations do not pose a threat to the public interest of the State of Louisiana or to the effective regulation and control of gaming, or create or enhance the dangers of unsuitable, unfair or illegal practices, methods and activities in the conduct of gaming or the carrying on of business and financial arrangements in connection therewith. The Louisiana Gaming Control Board will not grant a license unless it finds that: (1) the applicant is capable of conducting gaming operations, which means that the applicant can demonstrate the capability, either through training, education, business experience, or a combination of the above, to operate a gaming casino; (2) the proposed financing of the riverboat and the gaming operations is adequate for the nature of the proposed operation and from a source suitable and acceptable to the Louisiana Gaming Control Board; (3) the applicant demonstrates a proven ability to operate a vessel of comparable size, capacity and complexity to a riverboat so as to ensure the safety of its passengers; (4) the applicant submits a detailed plan of design of the riverboat in its application for a license; (5) the applicant designates the docking facilities to be used by the riverboat; (6) the applicant shows adequate financial ability to construct and maintain a riverboat; and (7) the applicant has a good faith plan to recruit, train and upgrade minorities in all employment classifications.

     Certain persons affiliated with a riverboat gaming licensee, including directors and officers of the licensee, directors and officers of any holding company of the licensee involved in gaming operations, persons holding 5% or greater interests in the licensee, and persons exercising influence over a licensee (“Affiliated Gaming Persons”), are subject to the application and suitability requirements of the Louisiana gaming law.

     The Louisiana gaming law specifies certain restrictions and conditions relating to the operation of riverboat gaming, including the following: (1) prior to the passage of legislation legalizing dockside gaming, effective April 1, 2001, in the 2001 Special Session of the Louisiana Legislature, gaming is not permitted while a riverboat is docked, other than the forty-five minutes between excursions, and during times when dangerous weather or water conditions exist, except that the casinos operating in the Bossier City/Shreveport area are permitted to operate exclusively at dockside pursuant to a special exemption; (2) prior to the passage of legislation legalizing dockside gaming, effective April 1, 2001, in the 2001 Special Session of the Louisiana Legislature, each roundtrip riverboat cruise may not be less than three nor more than eight hours in duration, subject to specified exceptions; (3) agents of the Louisiana Enforcement Division and the Louisiana Gaming Control Board are permitted on board at any time during gaming operations; (4) gaming machines, equipment and supplies may only be purchased or leased from permitted suppliers; (5) gaming may only take place in the designated gaming area while the riverboat is upon a designated river or waterway; (6) gaming equipment may not be possessed, maintained or exhibited by any person on a riverboat except in the specifically designated gaming area, or a secure area used for inspection, repair or storage of such equipment; (7) wagers may be received only from a person present on a licensed riverboat; (8) persons under 21 are not permitted in designated gaming areas; (9) except for slot machine play, wagers may be made only with tokens, chips or electronic cards purchased from the licensee aboard a riverboat; (10) licensees may only use docking facilities and routes for which they are licensed and may only board and discharge passengers at the riverboat’s licensed berth; (11) licensees must have adequate protection and indemnity insurance; (12) licensees must have

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all necessary Federal and state licenses, certificates and other regulatory approvals prior to operating a riverboat; and (13) gaming may only be conducted in accordance with the terms of the license and the rules and regulations adopted by the Louisiana Enforcement Division and the Louisiana Gaming Control Board.

     An initial license to conduct riverboat gaming operations is valid for a term of five years. The Louisiana gaming law provides that a renewal application for each five-year period succeeding the initial five-year term of the operator’s license must be made to the Louisiana Enforcement Division. The application for renewal consists of a statement under oath of any and all changes to the information, including financial information, provided in the previous application. Horseshoe Entertainment (“HE”), the Company’s subsidiary that owns and operates Horseshoe Bossier City, was issued an initial operator’s license by the Louisiana Enforcement Division on November 22, 1993, and HE timely submitted its renewal application to the Louisiana Enforcement Division. On October 20, 1998, the Louisiana Gaming Control Board granted HE’s license renewal subject to suitability review, and on October 19, 1999 the Louisiana Gaming Control Board extended the license renewal subject to suitability review. HE is currently in the process of completing the suitability review with the Louisiana Enforcement Division.

     The transfer of a license or permit or an interest in a license or permit is prohibited except as permitted by the Louisiana gaming law. The sale, purchase, assignment, transfer, pledge or other hypothecation, lease, disposition or acquisition (a “Transfer”) by any person of securities which represent 5% or more of the total outstanding shares issued by a corporation that holds a license is subject to Louisiana Gaming Control Board disapproval. A security issued by a corporation that holds a license must disclose these restrictions. Prior Louisiana Gaming Control Board approval is required for the Transfer of any ownership interest of 5% or more in any non-corporate licensee or for the Transfer of any “economic interest” of 5% or more in any licensee or Affiliated Gaming Person. An “economic interest” is defined for purposes of a Transfer as any interest whereby a person receives or is entitled to receive, by agreement or otherwise, a profit, gain, thing of value, loan, credit, security interest, ownership interest or other economic benefit.

     Riverboat gaming licensees and their Affiliated Gaming Persons are required to notify the Louisiana Enforcement Division prior to the receipt by any such persons of any loans or extensions of credit. The Louisiana Gaming Control Board is required to investigate the reported loan or extension of credit and, subject to certain exemptions, to either approve or disapprove the transaction. If disapproved, the loan or extension of credit cannot be consummated by the licensee or Affiliated Gaming Person. The Company is an Affiliated Gaming Person of HE. The Company and HE have submitted all required disclosures to the Louisiana Gaming Control Board and the Louisiana Enforcement Division. Any other advances by the Company to HE in the form of loans or other inter-company indebtedness are subject to the disapproval power of the Louisiana Gaming Control Board and the Louisiana Enforcement Division.

Mississippi

     The Company conducts its Mississippi gaming operations through a subsidiary, Robinson Property Group, Limited Partnership (“RPG”), which owns and operates the Horseshoe Casino in the City of Robinsonville, Tunica County, Mississippi. The ownership and operation of casino facilities in Mississippi are subject to extensive state and local regulation, but primarily the licensing and regulatory control of the Mississippi Gaming Commission and the Mississippi State Tax Commission.

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     The Mississippi Gaming Control Act (the “Mississippi Act”), which legalized dockside casino gaming in Mississippi, was enacted on June 29, 1990. Effective October 29, 1991, the Mississippi Gaming Commission adopted regulations in furtherance of the Mississippi Act (the “regulations”).

     The laws, regulations and supervisory procedures of Mississippi and the Mississippi Gaming Commission seek to:

	•		prevent unsavory or unsuitable persons from having any direct or indirect involvement with gaming at any time or in any capacity;
	•		establish and maintain responsible accounting practices and procedures;
	•		maintain effective control over the financial practices of licensees, including establishing minimum procedures for internal fiscal affairs and safeguarding of assets and revenues, providing reliable record keeping and making periodic reports to the Mississippi Gaming Commission;
	•		prevent cheating and fraudulent practices;
	•		provide a source of state and local revenues through taxation and licensing fees; and
	•		ensure that gaming licensees, to the extent practicable, employ Mississippi residents.

     The regulations are subject to amendment and interpretation by the Mississippi Gaming Commission. Changes in Mississippi law or the regulations or the Mississippi Gaming Commission’s interpretations thereof may limit or otherwise materially affect the types of gaming that may be conducted, and could have a material adverse effect on the Company and RPG’s Mississippi gaming operations.

     The Mississippi Act provides for legalized dockside gaming at the discretion of the 14 counties that either border the Gulf Coast or the Mississippi River, but only if the voters in such counties have not voted to prohibit gaming in that county. As of February 1, 2002, dockside gaming was permissible in nine of the 14 eligible counties in the state and gaming operations had commenced in Adams, Coahoma, Hancock, Harrison, Tunica, Warren and Washington counties. Under Mississippi law, gaming vessels must be located on the Mississippi River or on navigable waters in eligible counties along the Mississippi River, or in the waters of the State of Mississippi lying south of the state in eligible counties along the Mississippi Gulf Coast. Although there are no legislative limitations on the number of gaming licenses which may be issued in Mississippi, competition is limited by the availability of legal, suitable and accessible sites.

     Mississippi law permits unlimited stakes gaming on permanently moored vessels on a continuous 24-hour basis and does not restrict the size of the gaming area or the percentage of vessel space which may be utilized for gaming. All types of casino games (other than bingo and race and/or sports betting) may be offered. House credit may be extended to qualified patrons. The legal age for gaming in Mississippi is 21.

     The Company and RPG are subject to the licensing and regulatory control of the Mississippi Gaming Commission. The Company is registered under the Mississippi Act as a publicly traded holding company of RPG. As a registered publicly traded corporation, the Company is required to periodically submit detailed financial, operating and other reports to the Mississippi Gaming Commission and furnish any other information which the Mississippi Gaming Commission may require. If the Company is unable to satisfy the registration

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requirements of the Mississippi Act, the Company and RPG cannot own or operate gaming facilities in Mississippi. RPG is also required to periodically submit detailed financial, operating and other reports to the Mississippi Gaming Commission and the Mississippi State Tax Commission and to furnish any other information required thereby.

     RPG must maintain a gaming license from the Mississippi Gaming Commission to operate a casino in Mississippi. Gaming licenses require the periodic payment of fees and taxes and are not transferable. Gaming licenses are issued for a maximum term of three years and must be renewed periodically thereafter. RPG received its Mississippi gaming operator’s license on October 13, 1994 and renewals on October 14, 1996, October 15, 1998 and October 16, 2000. No person may become a stockholder of or receive any percentage of profits from a licensed gaming entity, including both the Company and RPG, without first obtaining licenses and approvals from the Mississippi Gaming Commission.

     Certain of the Company’s officers, directors and employees and the officers, directors and key employees of RPG who are actively and directly engaged in the administration or supervision of gaming in Mississippi must be found suitable or be licensed by the Mississippi Gaming Commission. On October 13, 1994, the Mississippi Gaming Commission found certain key principals of the Company and RPG suitable, and all required findings of suitability have been maintained and are current. The Company believes that it and RPG have applied for all necessary findings of suitability with respect to these persons, although the Mississippi Gaming Commission, in its discretion, may require additional persons to file applications for findings of suitability. In addition, any person having a material relationship or involvement with the Company or RPG may be required to be found suitable, in which case those persons must pay the costs and fees associated with the investigation. A finding of suitability requires submission of detailed personal and financial information followed by a thorough investigation. There can be no assurance that a person who is subject to a finding of suitability will be found suitable by the Mississippi Gaming Commission. The Mississippi Gaming Commission may deny an application for a finding of suitability for any cause that it deems reasonable. Findings of suitability must be periodically renewed.

     Changes in certain licensed positions must be reported to the Mississippi Gaming Commission. In addition to its authority to deny an application for a finding of suitability, the Mississippi Gaming Commission has jurisdiction to disapprove a change in a licensed position. The Mississippi Gaming Commission has the power to require the Company and RPG to suspend or dismiss officers, directors and other key employees or sever relationships with other persons who refuse to file appropriate applications or whom the authorities find unsuitable to act in their capacities.

     Employees associated with gaming must obtain work permits that are subject to immediate suspension. The Mississippi Gaming Commission will refuse to issue a work permit to a person convicted of a felony and it may refuse to issue a work permit to a gaming employee if the employee has committed various misdemeanors or knowingly violated the Mississippi Act or for any other reasonable cause.

     At any time, the Mississippi Gaming Commission has the power to investigate and require a finding of suitability of the Company’s record or beneficial stockholders, regardless of the percentage of ownership. Mississippi law requires any person who acquires more than 5% of the voting securities of a publicly traded corporation registered with the Mississippi Gaming Commission to report the acquisition to the Mississippi Gaming Commission, and that person may be required to be found suitable. Also, any person who becomes a beneficial owner of more

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than 10% of the voting securities of such a company, as reported to the Mississippi Gaming Commission, must apply for a finding of suitability by the Mississippi Gaming Commission. An applicant for finding of suitability must pay the costs and fees that the Mississippi Gaming Commission incurs in conducting the investigation. The Mississippi Gaming Commission has generally exercised its discretion to require a finding of suitability of any beneficial owner of more than 5% of a registered public or private company’s voting securities. However, the Mississippi Gaming Commission has adopted a policy that may permit institutional investors to own beneficially up to 10% and, under certain circumstances, up to 15%, of a registered public or private company’s voting securities without a finding of suitability.

     Under certain circumstances, an “institutional investor,” as defined by the Mississippi Gaming Commission’s Policy on Findings of Suitability of Institutional Shareholders (adopted January 20, 2000 and amended June 21, 2001), which acquires more than 10% but not more than 15% of a registered public or private company’s voting securities, may apply to the Executive Director of the Mississippi Gaming Commission for a waiver of such finding of suitability if such institutional investor holds the voting securities for investment purposes only. An institutional investor shall not be deemed to hold voting securities for investment purposes unless the voting securities were acquired and are held in the ordinary course of business as an institutional investor and not for the purpose of causing, directly or indirectly, the election of a majority of the members of the board of directors of the registered public or private company, any change in the registered public or private company’s corporate charter, bylaws, management, policies or operations of the registered public or private company or any of its gaming affiliates, or any other action which the Mississippi Gaming Commission finds to be inconsistent with holding the registered public or private company’s voting securities for investment purposes only. Activities that are not deemed to be inconsistent with holding voting securities for investment purposes only include:

	•		voting, directly or indirectly through the delivery of a proxy furnished by the board of directors, on all matters voted upon by the holders of such voting securities;
	•		serving as a member of any committee of creditors or security holders;
	•		nominating any candidate for election or appointment to the board of directors in connection with a debt restructuring;
	•		accepting appointment or election (or having a representative accept appointment or election) as a member of the board of directors in connection with a debt restructuring and serving in that capacity until the conclusion of the member’s term;
	•		making financial and other inquiries of management of the type normally made by securities analysts for informational purposes and not to cause a change in its management, policies or operations; and
	•		such other activities as the Mississippi Gaming Commission may determine to be consistent with such investment intent.

     If a stockholder who must be found suitable is a corporation, partnership or trust, it must submit detailed business and financial information including a list of beneficial owners. The

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Mississippi Gaming Commission may at any time dissolve, suspend, condition, limit or restrict a finding of suitability to own the Company’s equity interests for any cause it deems reasonable.

     The Company may be required to disclose to the Mississippi Gaming Commission, upon request, the identities of the holders of any debt or other securities. In addition, under the Mississippi Act, the Mississippi Gaming Commission may, in its discretion:

	•		require holders of debt securities of registered corporations to file applications;
	•		investigate the holders; and
	•		require the holders to be found suitable to own the debt securities.

     Although the Mississippi Gaming Commission generally does not require the individual holders of obligations such as notes to be investigated and found suitable, the Mississippi Gaming Commission retains the discretion to do so for any reason, including but not limited to a default, or where the holder of the debt instrument exercises a material influence over the gaming operations of the entity in question. Any holder of debt or equity securities required to apply for a finding of suitability must pay all investigative fees and costs of the Mississippi Gaming Commission in connection with the investigation.

     Any person who fails or refuses to apply for a finding of suitability or a license within 30 days after being ordered to do so by the Mississippi Gaming Commission may be found unsuitable. Any person found unsuitable and who holds, directly or indirectly, any beneficial ownership of the Company’s securities beyond the time that the Mississippi Gaming Commission prescribes may be guilty of a misdemeanor. The Company and RPG will be subject to disciplinary action if, after receiving notice that a person is unsuitable to be a stockholder, a holder of the Company’s debt securities or to have any other relationship with the Company or RPG, the Company:

	•		pays the unsuitable person any dividend, interest or other distribution whatsoever;
	•		recognizes the exercise, directly or indirectly, of any voting rights conferred through such securities held by the unsuitable person;
	•		pays the unsuitable person any remuneration in any form for services rendered or otherwise, except in limited and specific circumstances;
	•		makes any payment to the unsuitable person by way of principal, redemption, conversion, exchange, liquidation or similar transaction; or
	•		fails to pursue all lawful efforts to require the unsuitable person to divest himself of the securities, including, if necessary, the immediate purchase of the securities for cash at a fair market value.

     RPG must maintain in Mississippi a current ledger with respect to the ownership of its equity securities and the Company must maintain in Mississippi a current list of its stockholders which must reflect the record ownership of each outstanding share of any equity security issued by the Company. The ledger and stockholder lists must be available for inspection by the Mississippi Gaming Commission at any time. If any securities are held in trust by an agent or by a nominee, the record holder may be required to disclose the identity of the beneficial owner to the Mississippi Gaming Commission. A failure to make that disclosure may be grounds for finding the record holder unsuitable. The Company must also render maximum assistance in determining the identity of the beneficial owner.

     The Mississippi Act requires that the certificates representing securities of the Company bear a legend to the general effect that the securities are subject to the Mississippi Act and the

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regulations of the Mississippi Gaming Commission. On October 15, 2001, the Mississippi Gaming Commission granted the Company a waiver of this legend requirement. The Mississippi Gaming Commission has the power to impose additional restrictions on the Company and the holders of its securities at any time.

     Substantially all loans, leases, sales of securities and similar financing transactions by a licensed gaming subsidiary must be reported to or approved by the Mississippi Gaming Commission. A licensed gaming subsidiary may not make a public offering of its securities, but may pledge or mortgage casino facilities if it obtains the prior approval of the Mississippi Gaming Commission. The Company may not make a public offering or private placement of its securities without the prior approval of the Mississippi Gaming Commission if any part of the proceeds of the offering is to be used to finance the construction, acquisition or operation of gaming facilities in Mississippi or to retire or extend obligations incurred for those purposes. The approval, if given, does not constitute a recommendation or approval of the accuracy or adequacy of the prospectus or the investment amounts of the securities subject to the offering. On September 20, 2001, the Mississippi Gaming Commission granted the Company a waiver of the prior approval requirement for the Company’s securities offerings for a period of two years, subject to certain conditions. The waiver may be rescinded for good cause without prior notice upon the issuance of an interlocutory stop order by the Executive Director of the Mississippi Gaming Commission.

     Under the regulations of the Mississippi Gaming Commission, RPG may not guarantee a security issued by the Company pursuant to a public offering, or pledge its assets to secure payment or performance of the obligations evidenced by a security issued by the Company, without the prior approval of the Mississippi Gaming Commission. Similarly, the Company may not pledge the ownership interests of RPG, nor may the pledgee of such ownership interests foreclose on such a pledge, without the prior approval of the Mississippi Gaming Commission. Moreover, restrictions on the transfer of an equity security issued by RPG and agreements not to encumber such securities granted by the Company are ineffective without the prior approval of the Mississippi Gaming Commission. The waiver of the prior approval requirement for the Company’s securities offerings received from the Mississippi Gaming Commission on September 20, 2001 includes a waiver of the prior approval requirement for such guarantees, pledges and restrictions of RPG, subject to certain conditions.

     Neither the Company nor RPG may change its control through merger, consolidation, acquisition of assets, management or consulting agreements or any form of takeover without the prior approval of the Mississippi Gaming Commission. The Mississippi Gaming Commission may also require controlling stockholders, officers, directors, and other persons having a material relationship or involvement with the entity proposing to acquire control, to be investigated and licensed as part of the approval process relating to the transaction.

     Neither the Company nor RPG may engage in gaming activities in Mississippi while the Company, RPG and/or persons found suitable to be associated with the gaming license of RPG conduct gaming operations outside of Mississippi without approval of the Mississippi Gaming Commission. The Mississippi Gaming Commission may require means for it to have access to information concerning the Company’s and its affiliates’ out-of-state gaming operations.

     If the Mississippi Gaming Commission decides that a licensed gaming subsidiary violated a gaming law or regulation, the Mississippi Gaming Commission could limit, condition, suspend or revoke the license of the subsidiary. In addition, the licensee, its registered holding company, and the persons involved could be subject to substantial fines for each separate

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violation. A violation under any of the Company’s other operating subsidiaries’ gaming licenses may be deemed a violation of RPG’s gaming license. Because of a violation, the Mississippi Gaming Commission could attempt to appoint a supervisor to operate the casino facilities. Limitation, conditioning or suspension of RPG’s gaming license or the Company’s registration as a publicly traded holding company of RPG, or the appointment of a supervisor could, and revocation of any gaming license or registration would, materially adversely affect the business of RPG, the Company, and the Company’s other operating subsidiaries.

     A licensed gaming subsidiary must pay license fees and taxes, computed in various ways depending on the type of gaming involved, to the State of Mississippi and to the county or city in which the licensed gaming subsidiary conducts operations. Depending upon the particular fee or tax involved, these fees and taxes are payable periodically and are based upon:

	•		a percentage of the gross gaming revenues received by the casino operation;
	•		the number of slot machines operated by the casino; and
	•		the number of table games operated by the casino.

     The license fee payable to the State of Mississippi is based upon “gaming receipts,” generally defined as gross receipts less payouts to customers as winnings, and equals:

	•		4% of gaming receipts of $50,000 or less per month;
	•		6% of gaming receipts over $50,000 but not exceeding $134,000 per month; and
	•		8% of gaming receipts over $134,000 per month.

     These license fees are allowed as a credit against a licensee’s Mississippi income tax liability for the year paid. The gross revenue fee imposed by the Mississippi cities and counties in which casino operations are located is in addition to the fees payable to the State of Mississippi and equals approximately 4% of the gaming receipts.

     The Mississippi Gaming Commission adopted a regulation in 1994 requiring as a condition of licensure or license renewal that a gaming establishment’s plan include a 500-car parking facility in close proximity to the casino complex and infrastructure facilities which will amount to at least 25% of the casino cost. Infrastructure facilities are defined in the regulation to include a hotel with at least 250 rooms, theme park, golf course and other similar facilities. With the opening of its hotel and other amenities, the Horseshoe Tunica is in compliance with this requirement. On January 21, 1999, the Mississippi Gaming Commission adopted an amendment to this regulation which increased the infrastructure requirement to 100% from the existing 25%; however, the regulation grandfathers existing licensees and applies only to new casino projects and casinos that are not operating at the time of acquisition or purchase, and would therefore not apply to the Horseshoe Tunica. In any event, the Horseshoe Tunica would comply with the increased requirement.

     Both the local jurisdiction and the Alcoholic Beverage Control Division of the Mississippi State Tax Commission license, control and regulate the sale of alcoholic beverages, including beer and wine, by RPG at the Horseshoe Tunica. The Horseshoe Tunica is in an area designated as a special resort area, which allows casinos located therein to serve alcoholic beverages on a 24-hour basis. The Alcoholic Beverage Control Division requires that the key officers and managers of the Company and RPG and all owners of more than 5% of RPG’s equity submit detailed personal, and in some instances, financial information to the Alcoholic Beverage Control Division and be investigated and licensed. All such licenses are non-transferable. The Alcoholic Beverage Control Division must approve changes in key positions. The Alcoholic Beverage Control Division has the full power to limit, condition,

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suspend or revoke any license for the service of alcoholic beverages or to place a licensee on probation with or without conditions. Any disciplinary action could, and revocation would, have a material adverse effect upon the operations of the Horseshoe Tunica.

Indiana

     The Indiana Riverboat Gaming Act (“Indiana Act”) authorizes the issuance of up to 11 riverboat gaming licenses on waterways located in Indiana counties that are contiguous to Lake Michigan, the Ohio River and Patoka Lake. The Indiana 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 Act vests the Indiana Gaming Commission with the power and duties of administering, regulating and enforcing the system of riverboat gaming in the State of Indiana. The Indiana Gaming Commission’s jurisdiction extends to every person, association, corporation, partnership and trust involved in riverboat gaming operations in the State of Indiana.

     The Indiana Act requires the owner of a riverboat gaming operation to hold an owner’s license issued by the Indiana Gaming Commission. Each license granted entitles the licensee to own and operate one riverboat and gaming equipment as part of the gaming operation. A licensee may own no more than a 10% interest in any other owner’s license under the Indiana Act.

     The Indiana Gaming Commission has issued: (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 County and (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. The Indiana Gaming Commission has not considered applications for a license to be sited in a county contiguous to Patoka Lake since Patoka Lake is a project of the U.S. Army Corps of Engineers (“Corps”) and the Corps has determined Patoka Lake is unsuitable for a riverboat project.

     Each initial 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 Act and the rules and regulations adopted thereunder. The Indiana Act requires that a licensed owner undergo a complete investigation every three years. If for any reason the license is terminated, the assets of the riverboat gaming operation cannot be disposed of without the approval of the Indiana Gaming Commission. Furthermore, the Indiana Act requires that officers, directors and employees of a gaming operation be licensed. The Company’s Hammond license was renewed on August 24, 2001. The license was renewed until June of 2002.

     Applicants for licensure must submit a 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 person holding an ownership interest in the applicant. Any person holding significant interests (5%) in the applicant must undergo a background investigation and be licensed. The Indiana Gaming Commission has the authority to request specific information on or license anyone holding an ownership interest.

     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 may be subject to a finding of suitability. Institutional investors acquiring 15% or more must be found suitable. A person who acquires 5% or more of any class of voting securities of a holding

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company of a licensee is required to apply to the Indiana Gaming Commission for a finding of suitability.

     A holder of a gaming license is required to post a 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. A license must hold insurance of the type and amount deemed necessary by the Indiana Gaming Commission.

     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 Act.

     The Indiana Act does not limit the maximum bet or per patron loss. The licensee sets minimum and maximum wagers on games. 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 need not meet this requirement.

     After consultation with the Corps, the Indiana Gaming Commission may determine the available navigable waterways that are suitable for the operation of riverboats under the Indiana Act. If the Corps rescinds an approval for the operation of riverboats on a waterway, a license issued under the Indiana Act is void and the holder may not conduct or continue gaming operations under the Indiana Act.

     Pursuant to gaming commission policy, gaming may not be conducted for more than 21 hours each day. 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 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). Except for patron embarkation and disembarkation periods, dockside gambling may not be conducted unless the master of the riverboat certifies, in writing, that one of the following conditions exist: (1) weather or water conditions present a danger to the riverboat, its passengers and crew; (2) the vessel or docking facility is being repaired; (3) traffic conditions present a danger to the riverboat, its passengers and crew or other vessels; or (4) cruising would result in a violation of Federal law. The Indiana Gaming Commission may grant extended cruise hours in its discretion.

     The Indiana 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 Revenue before the close of the business day following the day when the wagers are made. The Indiana 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 by the Indiana Act. Riverboats are assessed, for property tax purposes, as real property and are taxed at rates determined by local taxing authorities. Indiana corporations are also subject to the Indiana

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gross income tax, the Indiana adjusted gross income tax and the Indiana Supplemental corporate net income tax.

     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 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 Indiana Gaming Commission determines that the revocation of the license is in the best interests of the State of Indiana.

     The Indiana Act places special emphasis upon minority and women’s business enterprise participation in the riverboat industry. Any person issued a riverboat owner’s license must establish goals of expending at least 10% of the total dollar value of the licensee’s contracts for goods and services with minority business enterprises and 5% of the total dollar value of the licensee’s contracts for goods and services with women’s business enterprises.

     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.

     The Indiana 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 prohibits a distribution (except to allow payment of taxes) by a riverboat licensee to its partners, shareholders, itself, or any affiliated entity, if the distribution would impair the financial viability of the riverboat gaming operation. The Indiana Gaming Commission also requires riverboat licensees to maintain, on a quarterly basis, a cash reserve equal to the average amount of payouts over a three day period. The cash reserve includes cash in the casino cage, cash in a bank account in Indiana, or cash equivalents not committed or obligated.

Environmental Regulations

     The Company is subject to Federal, state and local laws, regulations and ordinances, or environmental laws, that: (1) govern activities or operations that may have adverse environmental effects, such as discharges to air and water as well as handling and disposal practices for solid and hazardous wastes; and (2) impose liability for the costs of cleaning up, and certain damages resulting from, past spills, disposals or other releases of hazardous substances.

     Based on our review of certain environmental assessments, the Company is aware that there may be soil and groundwater contamination present on some of the real property used by our Hammond casino due to past industrial activities. In connection with the construction of a highway overpass to service Hammond, Hammond paid for the remediation on property owned by the City of Hammond. Hammond also agreed, subject to certain limitations, to indemnify the

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City of Hammond for the costs of remediation related to any other future cleanup required. The Company does not believe that the contamination discovered during the investigations requires further investigation or cleanup under current environmental laws. It is possible, however, that such laws will become more stringent in the future or that additional contamination on the property will be discovered and will need to be cleaned up. Pursuant to an agreement with the City of Hammond, Hammond could be obligated to undertake any such cleanup and may be required to make material expenditures with respect to such matters.

Status as an S Corporation

     As an S corporation, the Company will not be subject to Federal income tax as an entity. Instead, each stockholder generally will be subject to income tax on his proportionate share of the Company’s income (or take into account his proportionate share of any loss). Pursuant to a stockholder’ agreement, the Company intends to make distributions to its stockholders to enable them to pay any taxes on their share of the Company’s income. While the Company believes it was properly formed and has been properly operating as an S corporation and that its subsidiaries were properly formed and have been properly operating as Qualified Subchapter S Subsidiaries for Federal and state income tax purposes, if the Company’s S corporation tax status or the Qualified Subchapter S Subsidiary status of any of its subsidiaries were successfully challenged, the Company or such subsidiary could be required to pay Federal and certain state income taxes, plus interest and possibly penalties, on our taxable income for all open tax years. Such payments could have a material adverse effect on the Company.

Other Laws and Regulations

     The riverboats operated by the Company’s subsidiaries must comply with U.S. Coast Guard requirements as to boat design, on-board facilities, equipment, personnel and safety. Each riverboat must hold a Certificate of Seaworthiness or must be approved by the American Bureau of Shipping, or ABS, for stabilization and floatation, and may also be subject to local zoning and building codes. Loss of a riverboat’s Certificate of Seaworthiness or ABS approval would preclude its use as a floating casino.

     Each of the riverboat casinos is subject to extensive Federal, state and local regulations. These laws and regulations include, but are not limited to, restrictions and conditions concerning alcoholic beverages, environmental matters, employees, currency transactions, taxation, zoning and building codes, and marketing and advertising. Such laws and regulations could change or could be interpreted differently in the future, or new laws and regulations could be enacted. Material changes, new laws or regulations, or material differences in interpretations by courts or governmental authorities could adversely affect our operating results.

Employees

     As of March 13, 2002, the Company and its subsidiaries employed 7,483 persons of whom 2,572 are employed at Horseshoe Bossier City, 2,684 are employed at Horseshoe Tunica, 2,147 are employed at Horseshoe Hammond and 80 are employed in our corporate office.

     Management believes the Company and its subsidiaries maintain an excellent relationship with their respective employees and we are not aware of any threatened labor activity affecting its employees. Neither the Company nor any of its subsidiaries have ever experienced a work stoppage due to a labor dispute.

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Item 2. Properties.

     The Company owns and operates casinos in Bossier City, Louisiana; Tunica County, Mississippi; and Hammond, Indiana. All of the real property and casinos are subject to first priority liens securing the Company’s credit facility.

Horseshoe Bossier City

     Horseshoe Bossier City is located on approximately 30 acres along the east side of the Red River, directly facing downtown Shreveport, Louisiana. The casino complex consists of an approximately 86,000 square foot, four deck riverboat with approximately 30,000 square feet of gaming space and an approximately 62,000 square foot dockside pavilion, including a 25-story hotel tower, an entertainment venue and a 1,770 car parking garage.

Horseshoe Tunica

     Horseshoe Tunica is located in Tunica County, Mississippi at Casino Center, an 80-acre three-property complex. Horseshoe Tunica is approximately 360,000 square feet, with an approximately 65,000 square foot gaming area, three specialty restaurants, a 650 seat buffet, bars, retail outlets, a 14-story hotel tower, an entertainment venue and an 1,100 car parking garage. In addition to the parking garage, there are approximately 4,000 lighted surface parking spaces in the Casino Center complex. The facility also includes over 46,000 square feet of administrative space.

Horseshoe Hammond

     Horseshoe Hammond, the closest casino to downtown Chicago, includes an approximately 125,000 square foot pavilion. The real estate used by Horseshoe Hammond is leased from the City of Hammond, Indiana and is subject to a 75-year lease. The casino operation is located on a catamaran vessel and consists of approximately 42,500 square feet of gaming space. The pavilion features a steakhouse, buffet, deli, coffee shop, retail shops, a 150-seat banquet room and two lounges. The facility also includes a 1,150 car parking garage.

Item 3. Legal Proceedings.

     On June 2, 2000, a lawsuit was filed in the United States District Court for the Northern District of Indiana, against Hammond and the Company on behalf of current and former employees of Hammond alleging that Hammond and the Company are responsible for damages to current and former employees as a result of poor air quality on the gaming vessel operating in Hammond, Indiana. The lawsuit alleges certain tort claims based on poor air quality and seeks certification as a class on behalf of similarly situated current and former employees of Hammond. Hammond and the Company deny the allegations in the complaint and intend to vigorously contest this matter.

     On February 13, 2001, a lawsuit was filed in the Court of Chancery of the State of Delaware in New Castle County, by Edward T. McGowan, a former shareholder of Empress Entertainment, Inc., against the Company and seven other former shareholders of Empress Entertainment, Inc., challenging the validity of the Empress Merger. The lawsuit sought injunctive relief, monetary damages and rescission of the Empress Merger. The Company demanded indemnification for any and all claims, losses, costs and expenses incurred as a result of, or in connection with the defense of, such lawsuit pursuant to a Stockholder Indemnification Agreement dated December 1, 1999 by and among the Company and each of the former

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shareholders of Empress Entertainment, Inc. other than Edward T. McGowan. On January 11, 2002, the lawsuit against the Company was dismissed.

     On July 5, 2001, James Wellborn and Charles J. Nickel filed a lawsuit in the 26th Judicial Court (Bossier Parish) against the Municipality of Bossier City, Louisiana asking the Court to: (i) order the City to collect a $3.00 per person boarding fee from Horseshoe Entertainment; (ii) invalidate a contract fixing the amount paid by Horseshoe Entertainment to Bossier City as opposed to a per person boarding fee; and (iii) certify the suit as a class action on behalf of all citizens and tax payers of Bossier Parish. The Company is not named in the suit but will seek to intervene to protect its interest. The Company believes the suit is without merit and will vigorously defend the validity of the contract.

Item 4. Submission of Matters to a Vote of Security Holders.

     Not applicable.

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PART II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters.

     There is no established public trading market for the equity interests in the Company. As of March 15, 2002, the number of record holders of equity interests in the Company was 35.

     The Company pays tax distributions in accordance with its debt agreements to enable the holders of equity interests in the Company to pay state and Federal income taxes on their proportionate share of the Company’s income. The amount of tax distributions paid during 2001, 2000 and 1999 were $69.1 million, $38.0 million and $12.8 million, respectively. The Company’s debt agreements contain provisions which restrict the ability of the Company to make distributions to the holders of equity interests, based on the Company’s earnings, the ability of the Company to meet certain restrictions on borrowing, and certain other criteria.

Item 6. Selected Consolidated Financial Data.

     The following table summarizes certain selected consolidated financial data, which should be read in conjunction with the Company’s Consolidated Financial Statements and notes thereto, included elsewhere herein and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The selected consolidated financial data as of and for the years ended December 31, 2001, 2000, 1999, 1998, and 1997 have been derived from the Company’s audited consolidated financial statements included elsewhere herein.

(a)		Includes the results of operations of Joliet through July 31, 2001, the date of sale to Argosy Gaming Company.
(b)		Includes the results of operations of Hammond and Joliet since their acquisition on December 1, 1999.
(c)		Includes advertising and production costs of approximately $2.0 million.
(d)		Includes deferred compensation of ($0.4) million, $8.3 million, $0.5 million, $4.2 million, and $15.1 million for the years ended December 31, 2001, 2000, 1999, 1998, and 1997, respectively.
(e)		Prior to April 1999, the Company owned less than 100% of Bossier City. Minority interest represents the share of each subsidiary’s income attributable to those interests not owned by the Company.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

     The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of the consolidated financial condition and results of operations of Horseshoe Gaming Holding Corp. (“the Company”) and its subsidiaries. The discussion should be read in conjunction with “Selected Consolidated Financial Data” and the Consolidated Financial Statements and notes thereto included elsewhere herein. References to 2001, 2000 and 1999 refer to the years ended December 31, 2001, 2000 and 1999, respectively.

Introduction

     The Company is a leading multi-jurisdictional gaming company which owns and operates, through its wholly owned subsidiaries, riverboat casinos under the “Horseshoe” brand. These include the Horseshoe Bossier City Casino (“Bossier City”) in Bossier City, Louisiana, which commenced operations on July 9, 1994, the Horseshoe Tunica Casino (“Tunica”) in Robinsonville, Mississippi, which commenced operations on February 13, 1995, and the Horseshoe Casino Hammond (“Hammond”) in Hammond, Indiana. Hammond, along with the Empress Casino Joliet (“Joliet”) in Joliet, Illinois, were acquired (the “Empress Merger”) from Empress Entertainment, Inc. (“Empress”) on December 1, 1999. Hammond commenced operations on June 28, 1996. On July 31, 2001, the Company sold Joliet pursuant to the settlement agreement discussed below.

     The Joliet casino gaming license was due to be renewed by the Illinois Gaming Board (“IGB”) in June 2000. On June 30, 2000, the IGB preliminarily denied Joliet’s application to renew its gaming license and preliminarily found Jack Binion (“Binion”), Chairman of the Board and CEO of the Company, unsuitable to be licensed as a key person. Joliet filed a Verified Request for Hearing of the IGB’s decision. Effective January 31, 2001, the IGB approved a settlement agreement between the IGB, the Company, Joliet and Binion. Pursuant to the pertinent parts of the settlement agreement: (a) the Company sold Joliet to a suitable purchaser; (b) Binion withdrew his key person application, and (c) Joliet withdrew its Verified Request for Hearing thereby causing the previous denial of Joliet’s renewal application to be moot.

     Results of operations include the consolidated results of Bossier City and Tunica, and Hammond and Joliet from the date of their acquisition on December 1, 1999. Results of operations for 2001 include Joliet through the date of its sale on July 31, 2001.

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Results of Operations

Financial Highlights

(a)		Empress Merger closed on December 1, 1999.
(b)		Results for Joliet are through July 31, 2001, the date of sale to Argosy Gaming Company.
(c)		Before corporate allocations and other non-recurring items.
(d)		Not meaningful.
(e)		Includes advertising and production costs of $2.0 million.
(f)		The “% Increase/(Decrease)” for operating margin represents the absolute difference in percentage points (pts.) between the two periods.

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Years Ended December 31, 2001 and 2000

     Consolidated casino revenues decreased 5% in the year ended December 31, 2001 as compared to the prior year, primarily as the result of the sale of Joliet on July 31, 2001. 2001 results include only seven months of activity from Joliet as compared to a full period in 2000. Excluding Joliet, the three remaining properties averaged a 5% increase in gaming revenues, led by strong volume increases in Hammond. Bossier City experienced a decrease in casino revenues year over year due to the additional competition that entered that market in December 2000. Tunica managed a 6% increase in gaming revenues in what is considered a relatively flat market. Additional capacity in Tunica afforded by the recent expansion which was completed in December 2000, and the lack of construction disruption in 2001, allowed for a 5% increase in volume in 2001 as compared to 2000.

     Operating income before corporate allocations and other non-recurring items decreased in Bossier City, Tunica and Hammond in 2001 as compared to 2000. The most significant decrease occurred in Bossier City with a 34% decline in operating income before corporate allocations and other non-recurring items and a five percentage point reduction in operating margin. Operating income before corporate allocations and non-recurring charges in Tunica and Hammond decreased 1% and 3%, respectively, in 2001 as compared to 2000, with margins decreasing at both properties by two percentage points.

     While experiencing a 4% decrease in net revenues, Bossier City incurred significant marketing costs in order to combat the increased competition in that market. In addition, the property was faced with a 37%, or $2.3 million, increase in health care costs; a 1% increase in gaming taxes that was effective April 1, 2001; and a $1.4 million sales tax assessment on progressive slot machine royalty payments in 2001. Also in 2001, the property recorded approximately $900,000 of expenses related to relicencing costs.

     Increased health care costs in 2001 were most significant in Tunica, with that property experiencing a 63%, or $3.3 million, increase. Also impacting operating income and operating margins in Tunica in 2001 was the additional overhead required to operate the expanded facility, including an additional $5.5 million in depreciation and amortization expense related to the expansion. The expansion has afforded Tunica the opportunity to maintain revenue growth and market superiority, thus solidifying their leadership in that market.

     In 2001, Hammond continued to invest significant resources towards improving its level of customer service. While revenue continues to increase, it has not yet offset the cost of this endeavor. In May 2001, the property converted from the Empress to the Horseshoe brand, incurring approximately $4.1 million in pre-opening costs, including approximately $2.0 million of advertising and production costs. In addition to the costs associated with the ongoing improvements to the operating and service standards in Hammond, the property experienced a 48%, or $2.6 million, increase in health care costs in 2001 as compared to 2000.

     As a result of the sale of Joliet and the subsequent pay-down of debt, the Company recorded a gain of $165.5 million and an extraordinary loss of $6.9 million related to the sale of Joliet and the loss on early retirement of debt, respectively, in 2001.

     Corporate expenses decreased $15.5 million in 2001 as compared to 2000. The prior year includes a number of items that did not recur in 2001. These include additional legal and professional fees incurred in 2000 related to the regulatory challenges in Illinois; charges related to the relocation of its corporate headquarters to Illinois; and a $6.0 million payment to the MBE

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Incubator Fund, Inc. (“Incubator Fund”). In addition, the prior year includes an additional $2.0 million for benefits and severance related to certain current and former executives. Also in 2000, the monthly consulting payments with the former owners of Joliet, amounting to $4.0 million annually, was included in corporate expense. In 2001, only $2.3 million was included in corporate expense due to the sale of Joliet on July 31, 2001. The present value of the remaining liability was accrued and charged against the gain on sale of Joliet.

     Depreciation and amortization expense decreased 18% in 2001 as compared to 2000. This is primarily the result of ceasing to depreciate and amortize Joliet assets once Joliet became an asset held for sale on February 1, 2001, partially offset by increased depreciation due to the expansions in Tunica and Hammond.

     Net interest expense decreased 18% in 2001 as compared to 2000 due to reduced debt outstanding. Proceeds from the sale of Joliet have been used to retire $288.7 million of debt since July 31, 2001.

Years Ended December 31, 2000 and 1999

     A 97% increase in consolidated casino revenues for the year ended December 31, 2000 over the prior year was primarily the result of having only one month of revenues from Hammond and Joliet in 1999. Casino revenues at Bossier City and Tunica increased an average of 8% in the year 2000 over 1999 with slot volume being the primary driver of those increases. Contributing to the increase in slot volumes in Bossier City in 2000 was the addition of 200 slot machines to the gaming floor upon the closure of the poker room in the first quarter of 2000. Offsetting the increased slot volumes was a slight decrease in the table game hold percentage at both Bossier City and Tunica year over year. In addition, construction disruption in 2000 affected revenues in Tunica.

     Food and beverage revenue at Bossier City and Tunica increased 5% in 2000 over 1999. This increase in food and beverage revenue has a direct correlation with the increase in slot volumes experienced in 2000.

     Consolidated hotel revenues decreased 4% in 2000 in spite of the additional revenues from the Joliet hotel for a full year in 2000 as opposed to one month in 1999. Hotel revenue in Bossier City decreased 15% in 2000 from 1999 primarily due to a reduction in the direct mail programs that were in effect in the prior year. In addition, hotel revenues in Bossier City were adversely impacted by the sale of an off-site hotel in the first half of 2000.

     Operating income on a consolidated basis increased 65% in the year ended December 31, 2000 as compared to the year ended December 31, 1999 primarily related to the positive impact of the Empress Merger. Operating margins at Bossier City and Tunica, excluding corporate allocations and other non-recurring items, were flat year over year in Bossier City and increased one percentage point in Tunica in 2000 as a result of the increase in net revenues. Bossier City and Tunica experienced increases in gaming taxes and payroll as a result of the increased revenues in 2000. Competitive pressures in all of the Company’s markets have impacted margins due to increases in payroll, marketing efforts and direct mail offers. Consolidated operating margins were also impacted in 2000 by additional expenditures necessary to increase the operating and service standards in Hammond and Joliet to a level more consistent with the Company’s expectations.

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     During 2000, the Company sold a riverboat and related equipment not currently used, which had been written down in both 1998 and 1999 by $23.2 million, resulting in a gain on sale of $2.1 million.

     Corporate expenses increased $30.0 million during the year 2000 as compared to 1999. During 2000, the Company relocated its corporate headquarters and doubled the size of the corporate staff in order to build the corporate infrastructure required to accommodate the Empress Merger. Legal and professional fees increased approximately $5.4 million primarily related to regulatory matters in Illinois, $4.0 million was paid related to a consulting agreement with Empress and $6.0 million of contributions were made to the Incubator Fund. The main purpose of the Incubator Fund is to assist and foster minority owned business enterprises in Illinois, Indiana, Louisiana and Mississippi, which provide goods and services to the casino industry. In addition, approximately $3.1 million was incurred for benefits and severance related to certain current and former executives.

     Deferred compensation expense increased approximately $7.9 million in 2000 over 1999. Deferred compensation expense is recorded based on the change in the fair market value of redeemable ownership interests and stock appreciation rights issued and the vesting schedule pursuant to these agreements.

     During 2000, the Company recorded an additional $19.8 million in acquisition related expenses as compared to 1999, primarily related to depreciation and amortization expenses associated with the Empress Merger. On a consolidated basis, depreciation and amortization expense increased 95% in 2000 over 1999, primarily attributable to both depreciation of the two new properties and the amortization of goodwill associated with the Empress Merger.

     Net interest expense, increased $42.9 million, or 80%, in 2000 over 1999. This is the direct result of additional borrowings made in late 1999 to fund the Empress Merger and to extinguish approximately $128.6 million in higher interest debt. During 1999, the Company recorded an extraordinary loss of approximately $9.7 million related to this early retirement of debt. During 2000, the Company recorded $1.0 million in capitalized interest related to the expansion of the Tunica casino. Only $8,000 of capitalized interest was recorded in 1999.

Liquidity and Capital Resources

     Net cash provided by operating activities was $138.1 million, $151.1 million and $118.1 million for the years ended December 31, 2001, 2000 and 1999, respectively.

     Net cash provided by/(used in) investing activities was $370.6 million, $(68.3) million and $(488.7) million, for the years ended December 31, 2001, 2000 and 1999, respectively. Cash flows from investing activities for 2001 include the net proceeds from the sale of Joliet while 1999 includes the acquisition costs associated with the purchase of Hammond and Joliet.

     Net cash (used in)/provided by financing activities was $(366.0) million, $(122.9) million and $404.7 million for the years ended December 31, 2001, 2000 and 1999, respectively. The borrowings in 1999 were necessary to complete the Empress Merger. During 2001, 2000 and 1999, $351.6 million, $293.1 million and $236.9 million, respectively, was repaid on long-term debt.

     On July 31, 2001, the Company sold Joliet to Argosy Gaming Company for $465.0 million in cash. The net proceeds from the sale, net of a deficiency in working capital and other

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transaction costs, were $442.7 million. An additional $38.4 million in tax distributions related to the sale were made in the third quarter of 2001. As further described below, a portion of the remaining proceeds was used to retire a total of $288.7 million of debt in 2001.

     As of December 31, 2001, the Company had outstanding debt consisting of $159.0 million of 9.375% Senior Subordinated Notes (the “9.375% Notes”) due 2007; $533.6 million of 8.625% Senior Subordinated Notes (the “8.625% Notes”) due 2009; and various other shareholder related debt approximating $47.0 million, with due dates through 2005. Pursuant to the terms of the Company’s debt agreements, upon the sale of Joliet the remaining proceeds, as defined, were required to be offered to the bondholders (the “Asset Sale Offer”). As a result, $940,000 of the 9.375% Notes and $65.0 million of the 8.625% Notes were tendered in an Asset Sale Offer during 2001.

     In 1999, the Company completed a $375.0 million Senior Secured Credit Facility (the “Credit Facility”) with a group of banks. The Credit Facility was comprised of a $250.0 million revolver and a $125.0 million term loan. In 2001, the Company amended its Credit Facility to allow, among other things, (i) for the sale of Joliet and (ii) the reduction of its loan commitment to $150.0 million. The Credit Facility, as amended, is permanently reduced by $28.1 million on December 31, 2003 and $40.6 million per quarter beginning March 31, 2004. Upon the sale of Joliet, the Company repaid the $122.8 million that was outstanding on the term loan and the $100.0 million that was outstanding on the Revolver.

     The Company’s debt agreements contain covenants that, among other things, (i) limit the amount of dividends the Company can pay to its stockholders; (ii) limit the amount of additional indebtedness which may be incurred by the Company and its subsidiaries; (iii) prohibit any consolidation or merger of the Company or its subsidiaries with an affiliate or third party, any sale of substantially all of the Company or its subsidiaries’ assets, or any payment of subordinated indebtedness prior to its scheduled maturity; and (iv) limit the amount of restricted payments, as defined, the Company may make.

     The Company plans to spend approximately $40.0 million for capital expenditures in 2002 including slot product upgrades and hotel room renovations. In addition, upon final execution of the agreement with the City of Hammond, as further discussed below, the Company is required to commence construction of a parking garage on or before December 31, 2002.

     The first call date on the 9.375% Notes is June 15, 2002. The Company is currently evaluating whether or not to call the bonds on that date. If the Company calls the bonds in June 2002, the cash required, including call premium, would be approximately $166.5 million. Cash flow from operations, existing cash balances and amounts available on the Credit Facility would be sufficient to cover this expenditure.

     As of December 31, 2001, the Company had $220.8 million of cash and cash equivalents and $739.5 million of long term debt outstanding, of which $9.8 million was current, and $150.0 million of availability on the Credit Facility. The Company has no off-balance sheet financing. The Company believes that cash and cash equivalents on hand, cash from operations and available borrowing capacity will be adequate to meet existing debt service obligations and capital expenditure commitments for the next twelve months.

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Hammond Commitments

     In February 2002, Hammond and the City of Hammond (the “City”) executed the Fourth Amendment to the Hammond Riverboat Development Agreement (“Fourth Amendment”). Pursuant to the Fourth Amendment, the City agreed to allow the expansion of the Hammond facility, to include certain amenities including, but not limited to, a hotel, pavilion entertainment venue and additional parking facility. The Fourth Amendment also requires Hammond to begin construction of an above ground parking garage before December 31, 2001. These new amenities may be located in several areas adjacent to the existing operation on real estate which is owned or controlled by the City and other local governmental agencies (collectively the “Lessors”). The Lessors would lease such real estate to Hammond for a period of approximately 67 years (“Expansion Lease”). The Fourth Amendment also provided Hammond with a ten year option to lease additional real estate in the Hammond marina for a term equal to the balance of the Expansion Lease (“Option”).

     The cost of the Expansion Lease, the Option and the lease rental rate for the parcels covered by the Expansion Lease and the Option is $14.0 million plus one dollar per year. Hammond paid the $14.0 million to the Lessors in two installments during the fourth quarter of 2001 and the first quarter of 2002. In addition, Hammond will pay a security deposit to the Lessors of $3.25 million during the first half of 2002. The Fourth Amendment also requires that Hammond relocate the existing public boat launch ramp to a permanent location.

     The Lessors have until April 30, 2002, to obtain all necessary approvals and to execute the Fourth Amendment.

Additional Factors Affecting Future Operating Income

     In 2001, the Louisiana legislature passed a bill that increased the gaming taxes paid by riverboats in the Bossier City/Shreveport market, including the Company’s Bossier City property, by 3%. The increased tax is being phased in through April 1, 2003. The first 1% increase was effective April 1, 2001. The second 1% increase is effective April 1, 2002 and the final increase will occur on April 1, 2003.

Ownership Repurchase Matters

     During 2001, the Company purchased redeemable ownership interests of 1.1% of the Company for $8.0 million of notes payable. As of December 31, 2001, the Company’s remaining obligation under these purchases was $7.4 million.

     During 2000, the Company purchased redeemable ownership interests of 1.5% of the Company for $13.2 million of notes payable. Operating results for the year ended December 31, 2000 includes an approximate $443,000 reduction in deferred compensation expense resulting from the final valuation of these ownership interests. As of December 31, 2001, the Company’s remaining obligation under these purchases was $9.8 million.

     During 1999, the Company purchased redeemable ownership interests of 3.9% of the Company for $23.6 million of notes payable. As of December 31, 2001, the Company’s remaining obligation under this purchase was $20.0 million.

     During 1999, Horseshoe Gaming purchased redeemable ownership interests from four current employees and five former employees representing a total of 8.5% of Horseshoe Gaming for $44.3 million. Operating results for the year ended December 31, 1999 includes a $2.9 

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million reduction in deferred compensation expense resulting from the final valuation of these ownership interests. As of December 31, 2001, the Company’s remaining obligation under these purchases was $9.7 million.

     In January 1999, Horseshoe Gaming repurchased outstanding warrants held by a third party which entitled such third party to purchase an approximate 6.99% ownership interest in Horseshoe Gaming from its largest stockholder, Horseshoe Gaming, Inc. (“HGI”), for an exercise price of $510,000. Upon acquisition, Horseshoe Gaming exercised the warrants and retired the membership units acquired from HGI. The total cost of the warrants, including fees, expenses and the exercise price paid to HGI, was approximately $34.4 million, which was recorded as a reduction in members’ equity in the first quarter of 1999.

     In April 1999, the Company exercised an option to acquire the remaining 8.08% limited partnership interest in Bossier City not held by New Gaming Capital Partnership for total consideration of $30.6 million, which included payments for a non-compete covenant, consents and a release of claims. The consideration for the repurchase consisted of $2.1 million cash, offsets against the negative capital account balances of the former limited partners and payables amounting to $26.0 million. In May 2001, the former limited partners and the Company executed a second two-year covenant not to compete for $7.9 million. As of December 31, 2001, the remaining amount to be paid to these limited partners totaled $3.2 million and is included in accrued expenses and other in the accompanying consolidated balance sheets. Included in other assets in the accompanying consolidated balance sheets at December 31, 2001 and 2000 are notes receivable from the former limited partners totaling $1.8 million and $5.7 million, respectively.

Critical Accounting Policies

     The Company’s discussion and analysis of its financial condition and results of operations are based upon the Company’s consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates and judgements that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to customer programs and incentives, bad debts, impairment of goodwill, self insurance reserves, and contingencies and litigation. The Company bases its estimates on historical experience, observance of trends in the industry and on various other assumptions that are believed to be reasonable under the circumstances. There can be no assurance that actual results will not differ from our estimates.

Recently Issued Accounting Pronouncements

     In January 2001, the Emerging Issues Task Force of the Financial Accounting Standards Board (“FASB”) reached a consensus on Issue 3 of Issue 00-22 (“EITF 00-22”), “Accounting for ‘Points’ and Certain Other Time-Based or Volume-Based Sales Incentive Offers, and Offers for Free Products or Services to Be Delivered in the Future.” EITF 00-22 requires that the cash value of points awarded under slot club programs (“Points”) be recorded as a reduction of revenue. The Company had historically classified Points as operating expenses. In accordance with the transition rules, the Company adopted EITF 00-22 in the first quarter of 2001 and now includes Points as promotional allowances and other in the accompanying consolidated statements of operations for all periods presented. The adoption of EITF 00-22 had no effect on the Company’s operating income.

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     In June 2001, the FASB issued Statements of Financial Accounting Standards No. 142 “Goodwill and Other Intangible Assets” (“SFAS 142”). This pronouncement changes the accounting for goodwill and intangible assets. SFAS 142 states that goodwill and indefinite-lived intangible assets are no longer amortized but are reviewed for impairment annually (or more frequently if impairment indicators arise). Separable intangible assets that are not deemed to have an indefinite life will continue to be amortized over their useful lives. The amortization provisions of SFAS 142 apply to goodwill and intangible assets acquired after June 30, 2001. With respect to goodwill and intangible assets acquired prior to July 1, 2001, companies are required to adopt the pronouncement in their fiscal year beginning after December 15, 2001. As of January 1, 2002, the Company had unamortized goodwill and intangibles of $261.3 million that will be subject to the provisions of SFAS 142. The Company amortized $12.3 million, $20.7 million and $3.6 million of goodwill in the twelve months ended December 31, 2001, 2000 and 1999, respectively. The Company is currently evaluating the provisions of SFAS 142 and the impact that adoption will have on the Company’s financial position and results of operations. While the impairment tests have not yet been completed, it is possible that an impairment charge will be necessary for Hammond. Such a charge, if necessary, would likely be reported in the first quarter of 2002 as a change in accounting principle.

     Also in June 2001, the FASB issued SFAS No. 143 “Accounting for Asset Retirement Obligations” (“SFAS 143”). SFAS 143 requires the recognition of legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or the normal operation of the long-lived asset, as well as the disclosure of certain information related to asset retirement obligations. Companies are required to adopt the provisions of SFAS 143 as of the beginning of the entity’s fiscal year beginning after June 15, 2002. The Company is currently evaluating the provisions of SFAS 143 and the impact that adoption will have on the Company’s financial position and results of operations.

     In August 2001, the FASB issued SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”). This statement establishes a single accounting model, based on the framework established by SFAS No. 121 “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,” for long-lived assets to be disposed of by sale. SFAS 144 must be adopted for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years. The Company does not anticipate that the adoption of SFAS 144 will materially impact the Company’s financial position or results of operations.

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Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

     The Company’s exposure to market risk is changes in its interest rate risk associated with long term debt. To date, the Company has not held or issued derivative financial instruments for trading purposes, and the Company does not enter into derivative transactions that would be considered speculative positions. For debt obligations, the table below presents principal cash flows and related weighted average interest rates by expected maturity dates.

(1)		The fair values are based on the borrowing rates currently available for debt instruments with similar terms and maturities and market quotes of the Company’s publicly traded debt.
(2)		The average interest rates were based on December 31, 2001 variable rates. Actual rates in future periods could vary.

Item 8. Financial Statements and Supplementary Data.

     See the Index to Consolidated Financial Statements and the Index to Financial Statement Schedules included at “Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K”.

Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.

     None.

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PART III

Item 10. Directors and Executive Officers of the Registrant.

     The following table sets forth information concerning the Company executive officers, directors and other key personnel.

     Mr. Binion has served as Chairman of the Board, Chief Executive Officer and Secretary of the Company since its formation in April 1999. From December 1992 to April 1999, Mr. Binion served as the Chief Executive Officer of various entities including Horseshoe Gaming, Inc. (“HGI”), which was the former managing member of Horseshoe Gaming, LLC, the predecessor in interest to the Company, and Horseshoe GP, Inc., a wholly owned subsidiary of Horseshoe Gaming, LLC, which acted as the general partner of RPG and as the general partner of New Gaming Capital Partnership, which acted as the general partner of Horseshoe Entertainment. From 1964 to July 1998, Mr. Binion was the President and Chief Executive Officer of the Horseshoe Club Operating Company, which owns and operates Binion’s Horseshoe Casino in Las Vegas, Nevada, which is not affiliated with the Company.

     Ms. Howard has been the Company’s Vice Chairperson of the board of directors since its inception in April 1999 and previously served as a director of HGI since January 1997. Ms. Howard has served in various capacities with Horseshoe Tunica since 1995. Ms. Howard is the daughter of Mr. Binion’s wife.

     Ms. Kenny has been one of the Company’s directors since its inception in April 1999 and previously served as director of HGI since September 1998. Ms. Kenny has been self-employed as a manicurist since 1983. Ms. Kenny is the daughter of Mr. Binion’s wife.

     Mr. Wagner has been the Company’s President and Chief Operating Officer since January 1, 2001. Prior thereto, he served as Senior Vice President and Chief Operating Officer since the Company’s formation in April 1999. Prior thereto, he served as Senior Vice President and Chief Operating Officer of HGI since November 1998. From October 1996 to March 1998, Mr. Wagner served as President of the development company for Trump Hotel and Casino Resorts in Atlantic City, New Jersey.

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     Mr. Saylor has been the Company’s Senior Vice President and Chief Financial Officer since the Company’s formation in April 1999. Prior thereto, he served as Vice President and Chief Accounting Officer of HGI since November 1998. He has also served as HGI’s Chief Financial Officer since August 1, 1998. From November 1995 to November 1998, Mr. Saylor served as HGI’s Corporate Controller.

     Mr. Polizzotto has been the Company’s Senior Vice President — General Counsel since January 2001. Prior thereto he was a partner in the law firm of Ice Miller in Indianapolis, Indiana since August 1990.

     Mr. Carroll has been the Company’s Senior Vice President — Human Resources since the Company’s formation in April 1999. Prior thereto, he served in the same capacity with HGI since November 1998. From August 1997 to November 1998, Mr. Carroll was Vice President — Human Resources of HGI. From September 1993 to November 1998, Mr. Carroll was Director of Human Resources for Harrah’s Casino in Shreveport, Louisiana.

     Mr. Hannon has been the Company’s Senior Vice President — Government Affairs since the Company’s formation in April 1999. Prior thereto, he served in the same capacity with HGI since July 1999. From November 1993 to June 1999, Mr. Hannon served as Deputy Director of the Indiana Gaming Commission.

     Mr. Wolfe has been the Company’s Senior Vice President — Chief Information Officer since October 2000. Prior thereto, Mr. Wolfe served as the Company’s Vice President — Chief Information Officer since the Company’s formation in April 1999. Prior thereto, he served in the same capacity with HGI since October 1998. From October 1995 to October 1998, Mr. Wolfe was Director of Information Systems for HGI.

     Mr. Lepinski has been General Manager of the Horseshoe Bossier City since September 1995.

     Mr. McQueen has been General Manager of the Horseshoe Tunica since July 1996.

     Mr. Mazer has been General Manager of the Horseshoe Hammond (formerly Empress Hammond) since February 1996.

Item 11. Executive Compensation.

     The following table sets forth all compensation awarded to, earned by or paid to the Chief Executive Officer and the four most highly compensated executive officers (the “Named Executive Officers”) for the years ended December 31, 2001, 2000 and 1999:

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Summary Compensation Table
(dollars in thousands)

(1)		All other compensation includes premiums on insurance policies of $199,394, $179,767 and $144,960 for 2001, 2000 and 1999, respectively.
(2)		All other compensation includes premiums on insurance policies of $18,380, $6,370 and $4,452 for 2001, 2000 and 1999, respectively, payments for health club membership amounting to $519 for 2001, employer match on 401(k) plan of $6,188, $4,932, and $4,800 for 2001, 2000 and 1999, respectively, $75,592 in below market stock options issued in 2001 and relocation payments made to, and on behalf of, Mr. Wagner amounting to $95,697 for 2000. In the event there is a change in control, Mr. Wagner is entitled to 2.99 times his most recent salary and bonus. Included in the Long-Term Compensation column for 2001 are 36.50 options/SARs and 18.35 options/SARs originally issued on January 1, 2001 and 2000, respectively. The exercise price on these options/SARs was adjusted downward by 25% in 2001 due to the sale of Joliet. The sale prompted this adjustment in order to more accurately set the exercise price of the options/SARs to an amount more consistent with a pricing that would have occurred if the Company had not owned Joliet when the options/SARs were issued.
(3)		All other compensation includes premiums on insurance policies of $13,524, $10,914 and $7,684 for 2001, 2000 and 1999, respectively, payments for health club membership amounting to $755 for 2001, employer match on 401(k) plan of $6,800, $6,800, and $3,574 for 2001, 2000, and 1999, respectively, $40,799 in below market stock options issued in 2001 and relocation payments made to, and on behalf of, Mr. Saylor amounting to $126,518 for 2000. In the event there is a change in control, Mr. Saylor is entitled to 2.99 times his most recent salary and bonus. Included in the Long-Term Compensation column for 2001 are 19.70 options/SARs and 18.35 options/SARs originally issued on January 1, 2001 and 2000, respectively. The exercise price on these options/SARs was adjusted downward by 25% in 2001 due to the sale of Joliet. The sale prompted this adjustment in order to more accurately set the exercise price of the options/SARs to an amount more consistent with a pricing that would have occurred if the Company had not owned Joliet when the options/SARs were issued.
(4)		All other compensation includes premiums on insurance policies of $4,149, payments for health club membership of $570, employer match on 401(k) plan of $6,800, $117,385 in below market stock options issued and relocation payments made to, and on behalf of, Mr. Polizzotto amounting to $50,365 for 2001. Mr. Polizzotto’s employment agreement also requires a bonus in the amount of $56,204 payable on each January 1, 2001, 2002 and 2003. In the event there is a change in control, Mr. Polizzotto is entitled to 2.99 times his most recent salary and bonus. Included in the Long-Term Compensation column for 2001 are 38.05 options/SARs originally issued on January 1, 2001, that were repriced on November 26, 2001. The

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		exercise price on these options/SARs was adjusted downward by 25% in 2001 due to the sale of Joliet. The sale prompted this adjustment in order to more accurately set the exercise price of the options/SARs to an amount more consistent with a pricing that would have occurred if the Company had not owned Joliet when the options/SARs were issued.
(5)		All other compensation includes premiums on insurance policies of $11,766, $11,090 and $750 for 2001, 2000 and 1999, respectively, employer match on 401(k) plan of $6,800 and $3,816 for 2001 and 2000, respectively, $40,488 in below market stock options issued in 2001, relocation payments made to, and on behalf of, Mr. Hannon amounting to $42,363 for 2000 and use of Company automobile amounting to $8,634 and $13,840 for 2001 and 2000, respectively. In the event there is a change in control, Mr. Hannon is entitled to 2.99 times his most recent salary and bonus. Included in the Long-Term Compensation column for 2001 are 19.55 options/SARs and 18.35 options/SARs originally issued on January 1, 2001 and 2000, respectively. The exercise price on these options/SARs was adjusted downward by 25% in 2001 due to the sale of Joliet. The sale prompted this adjustment in order to more accurately set the exercise price of the options/SARs to an amount more consistent with a pricing that would have occurred if the Company had not owned Joliet when the options/SARs were issued.

     No other annual compensation or long-term incentive plan payouts were paid during the year ended December 31, 2001.

     The following table sets forth certain information regarding grants of stock options made to the Named Executive Officers during 2001, including information as to the potential realizable value of such options at assumed annual rates of stock price appreciation for the remaining option terms.

Option/SAR Grants in Last Fiscal Year
(dollars in thousands)