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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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FORM 10-K

|           |  |                                                                                             |  | 
|---------- |  | ------------------------------------------------------------------------------------------- |  | 
|(Mark One) |  |                                                                                            
|x          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934        |  | 
|           |  | For the fiscal year ended December 31, 2002                                                 |  | 
|OR        
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934    |  | 
|           |  | For the transition period from ___________ to  ___________ 
Commission file number 333-0214 |  | 

HORSESHOE GAMING HOLDING CORP.

(Exact name of registrant as specified in its charter)


|                                                                        |  |                                                
|----------------------------------------------------------------------- |  | -----------------------------------------------
|Delaware
(State or other jurisdiction of
incorporation or organization) |  | 88-0425131
(I.R.S. Employer
Identification No.)

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 o

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]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).

YES
o
                    
NO 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 14, 2003, the Registrant had 13,298 shares of Class A Common
Stock and 9,779 of Class B Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE
None.



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TABLE OF CONTENTS



|              |                                                                                                |                                                 |  |  |  |  |  | 
|------------- | ---------------------------------------------------------------------------------------------- | ----------------------------------------------- |  |  |  |  |  | 
|PART I       
|              | Item 1. Business.                                                                             
|              | Item 2. Properties.                                                                           
|              | Item 3. Legal Proceedings                                                                     
|              | Item 4. Submission of Matters to a Vote of Security Holders.                                  
|PART II      
|              | Item 5. Market for Registrants Common Equity and Related Stockholder Matters.                
|              | Item 6. Selected Consolidated Financial Data.                                                 
|              | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
|              | Item 7A. Quantitative and Qualitative Disclosures about Market Risk.                          
|              | Item 8. Financial Statements and Supplementary Data.                                          
|              | Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure. 
|PART III     
|              | Item 10. Directors and Executive Officers of the Registrant.                                  
|              | Item 11. Executive Compensation.                                                              
|              | Item 12. Security Ownership of Certain Beneficial Owners and Management                       
|              | Item 13. Certain Relationships and Related Transactions.                                      
|PART IV      
|              | Item 15.Exhibits, Financial Statement Schedules, and Reports on Form 8-K.                     
|SIGNATURES   
|CERTIFICATION
|              | INDEPENDENT AUDITORS REPORT                                                                  
|              | REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS                                                      
|              |                                                                                                | CONSOLIDATED BALANCE SHEETS                    
|              |                                                                                                | CONSOLIDATED STATEMENTS OF OPERATIONS          
|              |                                                                                                | CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
|              |                                                                                                | CONSOLIDATED STATEMENTS OF CASH FLOWS          
|              |                                                                                                | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS     
|EXHIBIT INDEX
|EXHIBIT 4.4  
|EXHIBIT 10.22
|EXHIBIT 21.1 
|EXHIBIT 99.1 
|EXHIBIT 99.2 



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HORSESHOE GAMING HOLDING CORP.

INDEX TO ANNUAL REPORT ON FORM 10-K

For the fiscal year ended December 31, 2002

|                                                      |  |                                                                                       |  |     
|----------------------------------------------------- |  | ------------------------------------------------------------------------------------- |  | ----
|                                                      |  |                                                                                       |  | Page
|                                                      |  |                                                                                       |  |     
|PART I                                               
|                                                     
|Item 1.                                               |  | Business                                                                              |  | 3   
|                                                     
|Item 2.                                               |  | Properties                                                                            |  | 21  
|                                                     
|Item 3.                                               |  | Legal Proceedings                                                                     |  | 21  
|                                                     
|Item 4.                                               |  | Submission of Matters to a Vote of Security Holders                                   |  | 23  
|                                                     
|PART II                                              
|                                                     
|Item 5.                                               |  | Market for Registrants Common Equity and Related Stockholder Matters                 |  | 23  
|                                                     
|Item 6.                                               |  | Selected Financial Data                                                               |  | 24  
|                                                     
|Item 7.                                               |  | Managements Discussion and Analysis of Financial Condition and
Results of Operations |  | 25  
|                                                     
|Item 7A                                               |  | Quantitative and Qualitative Disclosures About Market Risk                            |  | 35  
|                                                     
|Item 8.                                               |  | Financial Statements and Supplementary Data                                           |  | 35  
|                                                     
|Item 9.                                               |  | Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure  |  | 35  
|                                                     
|PART III                                             
|                                                     
|Item 10.                                              |  | Directors and Executive Officers of the Registrant                                    |  | 36  
|                                                     
|Item 11.                                              |  | Executive Compensation                                                                |  | 38  
|                                                     
|Item 12.                                              |  | Security Ownership of Certain Beneficial Owners and Management                        |  | 42  
|                                                     
|Item 13.                                              |  | Certain Relationships and Related Transactions                                        |  | 44  
|                                                     
|Item 14.                                              |  | Controls and Procedures                                                               |  | 44  
|                                                     
|PART IV                                              
|                                                     
|Item 15.                                              |  | Exhibits, Financial Statement Schedules, and Reports on Form 8-K                      |  | 46  
|                                                     
|Signatures                                            |  | 48                                                                                   
|                                                     
|Certification Kirk C. Saylor, Chief Financial Officer |  | 49                                                                                   
|                                                     
|Certification Jack B. Binion, Chief Executive Officer |  | 50                                                                                   

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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, casinos under the Horseshoe brand. These include the
Horseshoe Bossier City Casino (Horseshoe Bossier City, Bossier or Bossier
City) in Bossier City, Louisiana, which commenced operations on July 9, 1994,
the Horseshoe Tunica Casino (Horseshoe Tunica or Tunica) in Tunica County,
Mississippi which commenced operations on February 13, 1995 and the Horseshoe
Casino Hammond (Horseshoe Hammond or Hammond) in Hammond, Indiana. Gaming
operations in Bossier City are conducted on a riverboat that is not required to
cruise. Gaming operations in Tunica are conducted on a permanently moored
barge, and Hammonds gaming operations are conducted on a catamaran vessel that
is not required to cruise. Hammond, along with Empress Casino Joliet (Empress
Joliet or Joliet) in Joliet, Illinois, were acquired from Empress
Entertainment, Inc. 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
Companys headquarters is currently located at 18454 S. West Creek Drive,
Tinley Park, IL 60477, telephone (708) 429-8300. The Company recently
announced its intention to relocate its headquarters to Las Vegas, Nevada
during the third quarter of 2003. Additional information on the Company can be
found on its website at www.Horseshoe.com.

In October 1998, the Louisiana Gaming Control Board extended the casino
gaming license renewal of Horseshoe Bossier City, subject to a suitability
review. In May 2002, the Office of the Louisiana State Police Casino Gaming
Division issued its report regarding suitability. On March 18, 2003, the
Louisiana Gaming Control Board approved a stipulation concerning the
suitability of Bossier and renewed the Bossier casino gaming license through
the original renewal period. The Bossier casino gaming license will be up for
renewal in November 2004 for an additional five-year period.

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.

The Tunica casino gaming license is due to be renewed by the Mississippi
Gaming Commission for an additional three-year term in the fourth quarter of
2003 and the Hammond casino gaming license is due to be renewed for an
additional one-year term by the Indiana Gaming Commission in the second quarter
of 2003.

Operating data for the three most recent fiscal years is set forth in Item
15, pages F-1 through F-25 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 25 through 34.

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This Annual Report on Form 10-K contains certain forward looking
statements, express or implied, which are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995 and, as
such, speak only as of the date made. The Company undertakes no obligation to
publicly update any forward-looking statements, whether as a result of new
information, future events or otherwise. These forward-looking statements
generally can be identified by phrases such as the Company or its management
believes, anticipates, expects, forecasts, estimates, foresees, or
the negative or other variations thereof or comparable terminology. In
particular, they include statements relating to, among other things, future
actions, new projects, strategies, future performance, the outcome of
contingencies such as legal proceedings and future financial results. These
forward-looking statements are based on the beliefs of management, as well as
assumptions made based on information currently available to management. The
reader is cautioned that forward-looking statements involve risks and
uncertainties, which could cause actual results or events to differ materially
from those expressed or implied therein, including, but not limited to, risks
associated with substantial indebtedness, debt service and liquidity; risks of
competition in the Companys existing and future markets; failure to obtain or
retain licenses or regulatory approvals; changes in gaming laws and
regulations; and acts of war or terrorism.

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 19.6 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 along the east side of the Red
River, directly facing downtown Shreveport, Louisiana. The casino is located
on a riverboat, which has approximately 83,000 square feet spread out over
four-decks with approximately 30,000 square feet of gaming space, including
approximately 1,600 gaming devices and 50 table games. The casino operation is
complemented by an approximately 62,000 square foot dockside pavilion with
three restaurants, a buffet, 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 five casinos
operating in the Bossier City/Shreveport market generated $823.0 million in
gaming revenues in 2002, a 2% increase from 2001. In 2002, Horseshoe Bossier
City represented 24% of gaming positions in the Bossier City/Shreveport market,
representing 31% of the markets gaming revenues.

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The Bossier City/Shreveport casinos primarily draw from the Dallas/Ft.
Worth market and share the Houston area market with four existing riverboats
located in Lake Charles, Louisiana. A land-based casino owned by the Coushatta
Indian Tribe and a horse racing facility containing 1,500 slot machines located
near Lake Charles, Louisiana, and two riverboats in Baton Rouge, Louisiana also
compete with the Horseshoe Bossier City.

An additional 900 slot machines at a horse racing facility located within
10 miles of Horseshoe Bossier City is expected to open in mid-2003. By
mid-2004, that facility is expected to expand to a total of 1,500 slot
machines. Additionally, the fifteenth and final Louisiana gaming license has
been granted to a company planning to locate a riverboat casino in Lake
Charles, Louisiana. That casino complex is expected to open in late 2004. The
additional competitor at the horseracing facility and the newly approved
riverboat in Lake Charles, Louisiana may have a material adverse impact on the
operations of Horseshoe Bossier City.

Various Native American tribes have claimed the right to conduct land
based gaming in various locations in Louisiana. Recently, the Jena Band of
Choctaw Indians sought authority to take land into trust to operate a casino
within 75 miles of Horseshoe Bossier City. If the Jena Band of Choctaw Indians
is allowed to operate its proposed casino, or if other Native American tribes
are allowed to operate casinos in the area, competition would increase, which
could have a materially adverse effect on our operations. If Texas or Arkansas
were to approve gaming, competition would increase, which may have a material
adverse effect on the operations of Horseshoe Bossier City.

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 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. The casino
operation is located on a barge of approximately 560,000 square feet. The
gaming area comprises approximately 63,000 square feet and contains
approximately 2,100 slot machines, 75 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 1,200 guests.

Competition

Horseshoe Tunica competes with eight other casinos in the competitive
Tunica County, Mississippi market. The ten casinos operating in the Mississippi
North River Region, as published by the Mississippi Gaming Commission,
generated $1.2 billion in gaming revenues in 2002, a 1% increase from 2001.
In 2002, the Horseshoe Tunica casino represented 13% of gaming position
capacity in the market, representing 21% of the markets gaming revenues.

Additional entrants into the market or the expansion of existing
competitors could have a material adverse effect on the operations of Horseshoe
Tunica.

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On November 5, 2002 a referendum passed in Tennessee allowing the
legislature to establish a state lottery. Such a lottery could possibly affect
local market conditions causing a material adverse effect on the operations of
Horseshoe Tunica.

In 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 8.9 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 Horseshoe Hammond.

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 and an additional parking facility. These new
amenities may be located in several areas adjacent to the existing operation on
real estate that is owned or controlled by the City and other local
governmental agencies (collectively the Lessors). The Lessors agreed to lease
such real estate to Hammond for a period of approximately 69 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
and at the same time, exercised a portion of its lease option. This payment is
being charged to rent expense and amortized over the remaining term of the
lease. In addition, Hammond is required to pay a security deposit to the
Lessors of $3.25 million. The Fourth Amendment also requires that Hammond
relocate the existing public boat launch ramp to a permanent location. The
relocation of the boat launch ramp is estimated to be completed in the second
quarter of 2003.

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 approximately 1,600 slot machines and 50
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.
The nine casinos operating in the Chicago market generated $2.3 billion in
gaming revenues in 2002, a 6% increase from 2001. In 2002, Horseshoe Hammond
represented 12% of the gaming positions in the Chicago market, representing 14%
of the markets gaming revenues.

In May 1999, the Illinois legislature enacted amendments to the Illinois
Riverboat Gambling Act, which could result in one of the ten state-authorized
licenses for Illinois being relocated to an area closer to Hammond. Illinois
politicians have proposed increasing the number of allowed casinos or the
number of allowed gaming positions at existing casinos. Either such increase,
or the relocation of the tenth state authorized casino to an area closer to
Hammond would cause an increase in competition, which may have a material
adverse effect on Horseshoe Hammond.

Several states surrounding Illinois and Indiana have authorized gaming
activities and other states may authorize such gaming activities in the future.
To date, riverboat and/or dockside gaming has also been approved in nearby
states such as Iowa and Missouri. Additionally, three land-based casinos
operate in Detroit, Michigan.

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 50 miles from Horseshoe
Hammond. 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.

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

The Company conducts its Louisiana gaming operations through a subsidiary,
Horseshoe Entertainment (HE), which owns and operates the Horseshoe Casino in
Bossier City, Louisiana. The ownership and operation of casino facilities in
Louisiana are subject to extensive state and local regulation, but primarily
the licensing and regulatory control of the Louisiana Gaming Control Board.

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In July 1991, the Louisiana legislature adopted legislation permitting
certain types of gaming activity on certain rivers and waterways in Louisiana.
The legislation granted authority to supervise riverboat gaming activities to
the Louisiana Riverboat Gaming Commission and the Riverboat Gaming Enforcement
Division of the Louisiana State Police, or the Louisiana Enforcement Division.
The Louisiana Riverboat Gaming Commission was authorized to hear and determine
all appeals relative to the granting, suspension, revocation, condition or
renewal of all licenses, permits and applications. In addition, the Louisiana
Riverboat Gaming Commission was authorized to establish regulations concerning
authorized routes, duration of excursions, minimum levels of insurance,
construction of riverboats and periodic inspections. The Louisiana Enforcement
Division was authorized to investigate applicants and issue licenses,
investigate violations of the statute and conduct continuing reviews of gaming
activities. The Louisiana gaming law authorizes the issuance of up to 15
licenses to conduct gaming activities on a riverboat of new construction 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

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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 $1.5
million 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 Bossier Parish property taxes assessed against Horseshoe
Bossier City that exceed the total amount of Bossier Parish property taxes paid
in 1996 (the base year). Such credit may be taken, up to a maximum of 80% of
the tax on casino revenues, and applies during the entire ten-year term of the
agreement.

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

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

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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 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.

The Louisiana gaming law requires that all riverboat gaming licensees
develop and implement comprehensive compulsive and problem gambling programs,
and the Louisiana Gaming Control Board has adopted rules for the development
and implementation of a uniform compulsive and problem gambling program.

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 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. On March 18, 2003, the Gaming Control Board approved a stipulation
finding HE and its owners suitable, and renewed the casino gaming license of HE
through November 2004. In the stipulation, HE offered to modify certain
procedures regarding procurement and minority procurement reporting among other
things. HE also agreed to pay $7.4 million to the State of Louisiana in
conjunction with the relicensing.

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

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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.

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

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counties have not voted to prohibit gaming in that county. As of February 1,
2003, 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
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

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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 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
regulations may permit institutional investors to own beneficially up to 15% of
a registered public or private companys common stock, and, in limited
circumstances, up to 19% of a registered public companys common stock without
a finding of suitability.

Under certain circumstances, an institutional investor, as defined by
the regulations, 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;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  |  | serving as a member of any committee of creditors or security holders
formed in connection with a debt restructuring;                                                                                  
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | nominating any candidate for election or appointment to the board of
directors in connection with a debt restructuring;                                                                                
|
| |  |  | accepting 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.                                                                                 

An institutional investor that has been granted a waiver may beneficially
own more than 15%, but not more than 19%, of the voting securities of a
registered public company only if such additional ownership above 15% results
from the operation of such companys stock repurchase program, as long as the
institutional investor does not purchase or acquire any additional voting
securities of the such company and the institutional investor reduces its
ownership in such company to 15% or less within one year from the date the
institutional investor receives constructive notice that its ownership in such
company exceeded 15%.

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 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

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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 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

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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
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.                              

16



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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, 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 Company conducts its Indiana gaming operations through a subsidiary,
Horseshoe Hammond, Inc., which owns and operates the Horseshoe Casino in
Hammond, Indiana. The ownership and operation of casino facilities in Hammond,
Indiana are subject to extensive state and local regulation, but primarily the
licensing and regulatory control of the Indiana Gaming Commission.

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

17



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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, and
again on May 13, 2002 and is up for renewal in June 2003. Horseshoe Hammond
will undergo a complete reinvestigation in 2004.

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 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
licensee 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

18



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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. The Indiana General Assembly amended the Indiana
Riverboat Gaming Act in 2002 to allow riverboats to choose between continuing
to conduct excursions or operate dockside. The Indiana Gaming Commission
authorized riverboats to commence dockside operations on August 1, 2002. The
Companys Hammond property opted to operate dockside and commenced dockside
operations on August 1, 2002.

Pursuant to legislation, the tax rate was increased from 20% to 22.5% of
adjusted gross receipts (AGR) during any time an Indiana riverboat opts to
conduct excursions. For those riverboats that operate dockside, including the
Companys Hammond property, the following graduated tax rate is applicable:
(i) 15% of the first $25 million of AGR; (ii) 20% of AGR in excess of $25
million, but not exceeding $50 million; (iii) 25% of AGR in excess of $50
million, but not exceeding $75 million; (iv) 30% of AGR in excess of $75
million, but not exceeding $150 million; and (v) 35% of AGR in excess of $150
million. AGR is based on the States fiscal year (July 1 of one year through
June 30 of the following year). The Indiana Act requires the riverboat owner
licensee to pay a $3.00 admission tax for each person. A riverboat that opts
to continue excursions pays the admission tax on an excursion basis while a
riverboat that operates dockside pays the admission tax on a per entry basis.
The Indiana Act provides for the suspension or revocation of a license if the
wagering and admission tax are not timely submitted. In addition, there are
several bills pending in both the Indiana Senate and the House of
Representatives which propose to increase the gaming taxes in Indiana.

Riverboats are assessed, for property tax purposes, as real property and
are taxed at rates determined by the State of Indiana. In the state of
Indiana, corporations are also subject to the Indiana gross income tax, the
Indiana adjusted gross income tax and the Indiana Supplemental corporate net
income tax. As an S Corporation, the Company is not subject to such taxes.

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

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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.

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 the Companys 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 Horseshoe Hammond 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 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 Companys casinos operated in Bossier City and Hammond must comply
with U.S. Coast Guard requirements as to boat design, on-board facilities,
equipment, personnel and safety. Each vessel must hold a Certificate of
Seaworthiness or must be approved by the American

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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 Companys 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 14, 2003, the Company and its subsidiaries employed 7,780
persons of whom 2,561 are employed at Horseshoe Bossier City, 2,727 are
employed at Horseshoe Tunica, 2,408 are employed at Horseshoe Hammond and 84
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.




Item 2. Properties.

The following is a list of the Companys principal properties as of
December 31, 2002. All of the real property and casinos are subject to first
priority liens securing the Companys Senior Subordinated Credit Facility (the
Credit Facility).

|                  |  |           |        |       |  |         |     |           |  |         |    |        |  |  |       | 
|----------------- |  | --------- | ------ | ----- |  | ------- | --- | --------- |  | ------- | -- | ------ |  |  | ----- | 
|                  |  | Casino    |        |       |  |         |     |           |  |         |    | Garage
|                  |  | Space     |        | Hotel |  |         |     |           |  | Parking
|Property Location |  | (Sq. Ft.) |        | Rooms |  | Acreage |     | Spaces(1)
|                  |  |           |        |       |  |         |     |          
|Bossier City, LA  |  |           | 30,000 |       |  |         | 606 |           |  |         | 44 | (2)    |  |  | 1,770 | 
|Tunica, MS        |  |           | 63,000 |       |  |         | 507 |           |  |         | 45 | (3)    |  |  | 1,100 | 
|Hammond, IN       |  |           | 42,500 |       |  |         | N/A |           |  |         | 38 | (4)    |  |  | 1,150 | 



---

|(1) |  | Additional surface parking is also available.                                                                                      
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------
|(2) |  | Horseshoe Bossier City owns 30 acres and leases 14 acres.                                                                          
|(3) |  | Owned by Horseshoe Tunica.                                                                                                         
|(4) |  | Horseshoe Hammond owns 33 acres. Approximately five acres
are leased from the City of Hammond, renewable for a term up to 75
years.

In addition, the Company leases 15,130 square feet of office space in
Tinley Park, IL for its corporate headquarters.




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 the Company and the Companys
subsidiary in Hammond, Indiana (Horseshoe Hammond or Hammond) on behalf of
current and former employees of Horseshoe Hammond alleging that Horseshoe
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 alleged certain tort claims based on poor air

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quality and sought certification as a class on behalf of similarly
situated current and former employees of Horseshoe Hammond. On May 8, 2002,
the United States District Court denied Plaintiffs request for class
certification and on October 18, 2002, plaintiffs counsel amended the suit to
add 25 additional plaintiffs. Horseshoe Hammond and the Company deny the
allegations in the complaint asserted by the named employees and intend to
vigorously contest this matter.

On July 8, 2002, the Common Council of the City of Hammond filed its
Verified Complaint for Preliminary Injunction And Declaratory Judgment And
Petition for Determination Of The Nature Of The City Executive And Legislative
Power By The Court, sitting en Banc in the Lake County Superior Court in Crown
Point, Indiana and captioned as Robert A. Markovich, as President of The
Common Council of the City of Hammond vs. Duane W. Dedelow, Jr., as Mayor of
the City of Hammond, Horseshoe Hammond, Inc., f/k/a Empress Casino Hammond,
Corporation, and Hammond Development Corporation. On June 21, 1996, the City
of Hammond and Horseshoe Hammond entered into the Hammond Riverboat Gaming
Project Development Agreement (Development Agreement). Subsequently, the
City of Hammond and Horseshoe Hammond entered into the First Amendment to
Development Agreement in August of 1999, the Second Amendment to Development
Agreement in August of 1999, the Third Amendment to Development Agreement in
December of 2000 and the Fourth Amendment to Development Agreement in October
of 2001 (collectively referred to herein as the Development Agreement
Amendments). Through the Development Agreement Amendments, the City of Hammond
and Horseshoe Hammond agreed, among other things, to allow Horseshoe Hammond to
expand its facilities in exchange for certain payments from Horseshoe Hammond
to certain governmental agencies at the Citys direction. In entering into the
Development Agreement Amendments, the Mayor of the City of Hammond did not seek
approval of the Development Agreement Amendments from the City of Hammond
Common Council. In the Verified Complaint, the Common Council asked the Court
to (i) enjoin the Mayor from entering into any further agreements providing for
payments from Horseshoe Hammond or spending any of the funds already paid by
Horseshoe Hammond, (ii) determine that the Mayor does not have unilateral
authority to enter into agreements with Horseshoe Hammond and (iii) enter a
declaratory judgment finding the Development Agreement Amendments invalid.
During the fourth quarter of 2002, the parties to the suit entered into a
stipulation which provided that the resolution of the lawsuit shall not affect
the validity or performance of the Development Agreement or the Development
Agreement Amendments. The parties further stipulated that the only effect of
the lawsuit would be to create a claim by the Common Council for repayment from
the recipients of any funds transferred by the Company.

In 1996, legislation was passed in Louisiana authorizing each parish
Police Jury, including 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 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 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 $1.5
million regardless of actual revenue. Subsequently, legislation was passed
increasing the maximum amount the Bossier Police Jury could collect to $3.00
per person boarding gaming boats in Bossier City. 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

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Bossier Parish as opposed to a per person boarding fee and (iii) certify
the suit as a class action on behalf of all citizens and taxpayers of Bossier
Parish. The Company believes the suit is without merit and will vigorously
defend itself in the action, including the validity of the contract.

In addition, Billy Brooks Hudson, among others, filed a lawsuit seeking
the exact same relief sought in the case filed by Wellborn, as described above.
The suit brought by Hudson had previously been dismissed. However, in August
2002, the Louisiana Court of Appeals found that Billy Brooks Hudson, among
others, have the right as taxpayers to prosecute a suit against the City of
Bossier and others, seeking the same relief sought in the case filed by
Wellborn on July 5, 2001. Accordingly, the Louisiana Court of Appeals directed
that the trial court reinstate in the 26th Judicial District Court, Bossier
Parish Louisiana, the previously dismissed case of Hudson et.al. v. City of
Bossier et.al. The Company believes that, like the Wellborn suit, the Hudson
suit is without merit and the Company will vigorously defend itself in the
action.




|        |  |                                                     
|------- |  | ----------------------------------------------------
|Item 4. |  | Submission of Matters to a Vote of Security Holders.
|        |  | Not applicable.                                     




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 February 28, 2003, the number of record holders for the
Companys Class A Common Stock was thirty-five and for the Companys Class B
Common Stock was one.

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 2002, 2001 and 2000 were $27.0 million,
$69.1 million and $38.0 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. No other cash dividends were paid during the three
years ended December 31, 2002.

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##### Table of Contents






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, 2002, 2001, 2000, 1999, and 1998 have been derived from the
Companys audited consolidated financial statements.

|                                               |                       |                                                                  |        |                         |         |         |         |         |          |         |        |                |         |   |        |         |         |   |        |         |         | 
|---------------------------------------------- | --------------------- | ---------------------------------------------------------------- | ------ | ----------------------- | ------- | ------- | ------- | ------- | -------- | ------- | ------ | -------------- | ------- | - | ------ | ------- | ------- | - | ------ | ------- | ------- | 
|                                               |                       |                                                                  |        | Year ended December 31,
|                                               |                       |                                                                  |        |                        
|                                               |                       |                                                                  |        | 2002                    |         | 2001(a) |         | 2000    |          | 1999(b) |        | 1998          
|                                               |                       |                                                                  |        |                         |         |         |         |         |          |         |        |               
|                                               |                       |                                                                  |        |                         |         |         |         |         |          |         |        | (in thousands) |         |   |        |         |         |   |        |        
|Statement of Operations Data:                  |                       |                                                                  |        |                         |         |         |         |         |          |         |        |                |         |   |        |         |         |   |        |        
|                                               | Net revenues          |                                                                  | $      | 812,566                 |         |         | $       | 933,258 |          |         | $      | 980,830        |         |   | $      | 500,316 |         |   | $      | 442,560 |        
|                                               | Operating expense:    |                                                                  |        |                         |         |         |         |         |          |         |        |                |         |   |        |         |         |   |        |         |        
|                                               |                       | Casino                                                           |        |                         | 434,887 |         |         |         | 528,827  |         |        |                | 523,423 |   |        |         | 247,349 |   |        |         | 229,157 | 
|                                               |                       | Non-casino                                                       |        |                         | 33,469  |         |         |         | 37,710   |         |        |                | 45,442  |   |        |         | 26,859  |   |        |         | 26,281  | 
|                                               |                       | General and administrative                                       |        |                         | 117,574 |         |         |         | 119,877  |         |        |                | 127,659 |   |        |         | 69,558  |   |        |         | 63,551  | 
|                                               |                       | Preopening expenses                                              |        |                         |        |         |         |         | 4,064    | (c)     |        |                |        |   |        |         |        |   |        |         | 653     | 
|                                               |                       | Gain on sale of Joliet                                           |        |                         |        |         |         |         | (165,485 | )       |        |                |        |   |        |         |        |   |        |         |        | 
|                                               |                       | Net (gain) loss on disposal of assets, excluding Joliet          |        |                         | 5,033   |         |         |         | 1,640    |         |        |                | (1,602  | ) |        |         | 10,424  |   |        |         | 12,990  | 
|                                               |                       | Corporate expenses (d)                                           |        |                         | 35,767  |         |         |         | 22,073   |         |        |                | 46,283  |   |        |         | 8,414   |   |        |         | 12,947  | 
|                                               |                       | Depreciation and amortization                                    |        |                         | 56,036  |         |         |         | 66,945   |         |        |                | 81,468  |   |        |         | 41,806  |   |        |         | 33,888  | 
|                                               |                       |                                                                  |        |                         |         |         |         |         |          |         |        |                |         |   |        |         |         |   |        |        
|                                               | Operating income      |                                                                  |        | 129,800                 |         |         |         | 317,607 |          |         |        | 158,157        |         |   |        | 95,906  |         |   |        | 63,093  |        
|                                               | Interest expense, net |                                                                  |        | (58,944                 | )       |         |         | (78,749 | )        |         |        | (96,211        | )       |   |        | (53,332 | )       |   |        | (37,672 | )      
|                                               |                       | Other,
net                                                       |        |                         | (974    | )       |         |         | 382      |         |        |                | (1,232  | ) |        |         | (548    | ) |        |         | 491     | 
|                                               |                       |                                                                  |        |                         |         |         |         |         |          |         |        |                |         |   |        |         |         |   |        |        
|                                               |                       | Net income before extraordinary
loss on early retirement of debt |        |                         | 69,882  |         |         |         | 239,240  |         |        |                | 60,714  |   |        |         | 42,026  |   |        |         | 25,912  | 
|Extraordinary loss on early retirement of debt |                       |                                                                  | (9,683 | )                       |         |         | (6,893  | )       |          |         |       |                |         |   | (9,653 | )       |         |   | (787   | )      
|                                               |                       |                                                                  |        |                         |         |         |         |         |          |         |        |                |         |   |        |         |         |   |        |        
|Net income                                     |                       | $                                                                | 60,199 |                         |         | $       | 232,347 |         |          | $       | 60,714 |                |         | $ | 32,373 |         |         | $ | 25,125 |        
|                                               |                       |                                                                  |        |                         |         |         |         |         |          |         |        |                |         |   |        |         |         |   |        |        

|                    |                                              |  |                    |         |         |  |      |           |         |  |      |           |  |  |   |           |  |  |   |         |  | 
|------------------- | -------------------------------------------- |  | ------------------ | ------- | ------- |  | ---- | --------- | ------- |  | ---- | --------- |  |  | - | --------- |  |  | - | ------- |  | 
|                    |                                              |  | As of December 31,
|                    |                                              |  |                   
|                    |                                              |  | 2002               |         | 2001(a) |  | 2000 |           | 1999(b) |  | 1998
|                    |                                              |  |                    |         |         |  |      |           |         |  |     
|                    |                                              |  | (in thousands)    
|Balance Sheet Data: |                                              |  |                    |         |         |  |      |           |         |  |      |           |  |  |   |           |  |  |   |        
|                    | Cash and cash equivalents                    |  | $                  | 87,373  |         |  | $    | 220,817   |         |  | $    | 78,133    |  |  | $ | 118,276   |  |  | $ | 84,151  | 
|                    | Total assets                                 |  |                    | 901,559 |         |  |      | 1,057,259 |         |  |      | 1,204,538 |  |  |   | 1,409,244 |  |  |   | 560,448 | 
|                    | Long-term debt, including current maturities |  |                    | 556,773 |         |  |      | 739,521   |         |  |      | 1,028,221 |  |  |   | 1,258,948 |  |  |   | 388,718 | 
|                    | Shareholders/members equity                |  |                    | 229,511 |         |  |      | 212,185   |         |  |      | 52,608    |  |  |   | 34,594    |  |  |   | 71,151  | 



---

|(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 $10.2 million, ($0.4) million, $8.3
million, $0.5 million and $4.2 million for the years ended December 31,
2002, 2001, 2000, 1999, and 1998, respectively.

24



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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 2002, 2001 and 2000 refer to the years ended December 31, 2002,
2001 and 2000, respectively.

Introduction

The Company is a leading multi-jurisdictional gaming company that owns and
operates, through its wholly owned subsidiaries, 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. Gaming operations in Bossier City are
conducted on a riverboat that is not required to cruise. Gaming operations in
Tunica are conducted on a permanently moored barge, and Hammonds gaming
operators are conducted on a catamaran vessel that is not required to cruise.
Hammond, along with the Empress Casino Joliet (Joliet) in Joliet, Illinois,
were acquired from Empress Entertainment, Inc. 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.

Horseshoe Entertainment (HE), the Companys subsidiary that owns and
operates Bossier City, was issued an initial operators license by the
Louisiana Enforcement Division (the Enforcement Division) on November 22,
1993 for a five year period. HE timely submitted its renewal application to
the Enforcement Division and on October 20, 1998, the Louisiana Gaming Control
Board (the Gaming Control Board) granted HEs license renewal subject to a
suitability review. HEs license renewal was extended on October 19, 1999,
subject to completion of a suitability review. The Enforcement Division filed
a report (the Report) with the Louisiana Gaming Control Board on May 13,
2002, documenting the results of its suitability review. The Report noted a
number of issues in Horseshoes history and dealings with the State of
Louisiana that, in the view of the Enforcement Division, should be considered
by the Gaming Control Board prior to making the final determination on HEs
license renewal application. HE believes the Report inaccurately describes
certain matters. On March 18, 2003, the Gaming Control Board approved a
stipulation finding HE and its owners suitable and renewed the casino gaming
license of HE through November of 2004. In the stipulation, HE offered to
modify certain procedures regarding procurement and minority procurement
reporting, among other things. HE also agreed to pay $7.4 million to the State
of Louisiana in conjunction with the

25



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##### Table of Contents



relicensing. This charge is included in general and administrative
expense in the Companys statement of operations for the year ended December
31, 2002.

Results of operations include the consolidated results of Bossier City,
Tunica and Hammond, and Joliet through the date of its sale on July 31, 2001.

Results of Operations

Financial Highlights

|                                                   |                              |   |                          |         |                       |   |         |         |             |   |             |         |   |  |         |     |           |  |         |     |  
|-------------------------------------------------- | ---------------------------- | - | ------------------------ | ------- | --------------------- | - | ------- | ------- | ----------- | - | ----------- | ------- | - |  | ------- | --- | --------- |  | ------- | --- | -
|                                                   |                              |   | Years ended December 31, |         | % Increase/(Decrease)
|                                                   |                              |   |                          |         |                      
|                                                   |                              |   | 2002                     |         | 2001                  |   | 2000    |         | '02 vs. '01 |   | '01 vs. '00
|                                                   |                              |   |                          |         |                       |   |         |         |             |   |            
|                                                   |                              |   | (dollars in thousands)  
|Casino revenues                                    |                              |   |                          |         |                       |   |         |         |             |   |             |         |   |  |         |     |           |  |         |    
|                                                   | Bossier City                 |   | $                        | 255,583 |                       |   | $       | 242,719 |             |   | $           | 247,934 |   |  |         | 5   | %         |  |         | -2  | %
|                                                   | Tunica                       |   |                          | 255,669 |                       |   |         | 254,648 |             |   |             | 240,643 |   |  |         |    |           |  |         | 6   | %
|                                                   | Hammond                      |   |                          | 316,347 |                       |   |         | 261,414 |             |   |             | 236,915 |   |  |         | 21  | %         |  |         | 10  | %
|                                                   | Joliet (a)                   |   |                          |        |                       |   |         | 158,174 |             |   |             | 235,435 |   |  |         | (e  | )         |  |         | (e  | )
|                                                   |                              |   |                          |         |                       |   |         |         |             |   |             |         |   |  |         |     |           |  |         |    
|                                                   |                              | $ | 827,599                  |         |                       | $ | 916,955 |         |             | $ | 960,927     |         |   |  | -10     | %   |           |  | -5      | %  
|                                                   |                              |   |                          |         |                       |   |         |         |             |   |             |         |   |  |         |     |           |  |         |    
|Net revenues                                       |                              |   |                          |         |                       |   |         |         |             |   |             |         |   |  |         |     |           |  |         |    
|                                                   | Bossier City                 |   | $                        | 255,712 |                       |   | $       | 250,389 |             |   | $           | 261,130 |   |  |         | 2   | %         |  |         | -4  | %
|                                                   | Tunica                       |   |                          | 247,727 |                       |   |         | 253,678 |             |   |             | 237,232 |   |  |         | -2  | %         |  |         | 7   | %
|                                                   | Hammond                      |   |                          | 309,127 |                       |   |         | 267,639 |             |   |             | 242,165 |   |  |         | 16  | %         |  |         | 11  | %
|                                                   | Joliet (a)                   |   |                          |        |                       |   |         | 161,552 |             |   |             | 240,303 |   |  |         | (e  | )         |  |         | (e  | )
|                                                   |                              |   |                          |         |                       |   |         |         |             |   |             |         |   |  |         |     |           |  |         |    
|                                                   |                              | $ | 812,566                  |         |                       | $ | 933,258 |         |             | $ | 980,830     |         |   |  | -13     | %   |           |  | -5      | %  
|                                                   |                              |   |                          |         |                       |   |         |         |             |   |             |         |   |  |         |     |           |  |         |    
|Operating income (loss)                            |                              |   |                          |         |                       |   |         |         |             |   |             |         |   |  |         |     |           |  |         |    
|                                                   | Bossier City (b)             |   | $                        | 32,194  |                       |   | $       | 29,881  |             |   | $           | 45,501  |   |  |         | 8   | %         |  |         | -34 | %
|                                                   | Tunica (b)                   |   |                          | 68,024  |                       |   |         | 67,869  |             |   |             | 68,841  |   |  |         |    |           |  |         | -1  | %
|                                                   | Hammond (b)                  |   |                          | 63,710  |                       |   |         | 31,850  |             |   |             | 33,061  |   |  |         | 100 | %         |  |         | -4  | %
|                                                   | Joliet (b)                   |   |                          |        |                       |   |         | 47,393  |             |   |             | 54,166  |   |  |         | (e  | )         |  |         | (e  | )
|                                                   | Gain on assets held for sale |   |                          |        |                       |   |         | 165,485 |             |   |             | 2,096   |   |  |         | (e  | )         |  |         | (e  | )
|                                                   | Corporate expenses           |   |                          | (25,538 | )                     |   |         | (22,483 | )           |   |             | (37,945 | ) |  |         | 14  | %         |  |         | -41 | %
|                                                   | Preopening expenses (c)      |   |                          |        |                       |   |         | (4,064  | )           |   |             |        |   |  |         | (e  | )         |  |         | (e  | )
|                                                   | Deferred compensation        |   |                          | (10,229 | )                     |   |         | 410     |             |   |             | (8,338  | ) |  |         | (e  | )         |  |         | (e  | )
|                                                   | Other                        |   |                          | 1,639   |                       |   |         | 1,266   |             |   |             | 775     |   |  |         | 29  | %         |  |         | 63  | %
|                                                   |                              |   |                          |         |                       |   |         |         |             |   |             |         |   |  |         |     |           |  |         |    
|                                                   |                              | $ | 129,800                  |         |                       | $ | 317,607 |         |             | $ | 158,157     |         |   |  | -59     | %   |           |  | 101     | %  
|                                                   |                              |   |                          |         |                       |   |         |         |             |   |             |         |   |  |         |     |           |  |         |    
|Other information                                  |                              |   |                          |         |                       |   |         |         |             |   |             |         |   |  |         |     |           |  |         |    
|                                                   | Interest expense, net        |   | $                        | 58,944  |                       |   | $       | 78,749  |             |   | $           | 96,211  |   |  |         | -25 | %         |  |         | -18 | %
|                                                   | Extraordinary loss           |   | $                        | 9,683   |                       |   | $       | 6,893   |             |   | $           |        |   |  |         | (e  | )         |  |         | (e  | )
|                                                   | Net income                   |   | $                        | 60,199  |                       |   | $       | 232,347 |             |   | $           | 60,714  |   |  |         | -74 | %         |  |         | 283 | %
|Operating margin (operating
income/net revenue)(d) |                              |   |                          |         |                       |   |         |         |             |   |             |         |   |  |         |     |           |  |         |    
|                                                   | Bossier City (b) (c)         |   |                          | 13      | %                     |   |         | 12      | %           |   |             | 17      | % |  | 1 pt    |     | - 5  pts.
|                                                   | Tunica (b)                   |   |                          | 27      | %                     |   |         | 27      | %           |   |             | 29      | % |  | 0 pts   |     | - 2  pts.
|                                                   | Hammond (b)                  |   |                          | 21      | %                     |   |         | 12      | %           |   |             | 14      | % |  | 9 pts   |     | - 2  pts.
|                                                   | Joliet (b)                   |   |                          |        |                       |   |         | 29      | %           |   |             | 23      | % |  |         | (e  | )         |  | 6  pts.
|                                                   | Consolidated                 |   |                          | 16      | %                     |   |         | 34      | %           |   |             | 16      | % |  | -18 pts |     | 18  pts. 



---

|(a) |  | Results for Joliet are through July 31, 2001, the date of sale to Argosy
Gaming Company.                                                
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------
|(b) |  | Before corporate allocations, deferred compensation, preopening expenses
and gain on assets held for sale.                              
|(c) |  | Includes advertising and production costs of $2.0 million.                                                                              
|(d) |  | The % Increase/(Decrease) for operating margin represents the absolute
difference in percentage points (pts.) between the two periods.
|(e) |  | Not meaningful.                                                                                                                         

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Years Ended December 31, 2002 and 2001

Consolidated casino revenues decreased 10% in the year ended December 31,
2002 as compared to the prior year, primarily as the result of the sale of
Joliet on July 31, 2001. Excluding Joliet, the three remaining properties
averaged a 9% increase in gaming revenues, led by Hammond with a 21% increase.
The revenue increases experienced in Hammond in the first seven months of 2002
became even more pronounced once dockside gaming was enacted on August 1, 2002.
Casino revenues in Bossier City increased 5% in 2002 as compared to 2001 in
a market that increased only 2%, while Tunica casino revenues were flat in 2002
compared to 2001 as the Tunica market increased less than 1%.

With the adoption of Statement of Financial Accounting Standards No. 142
Goodwill and Other Intangible Assets (SFAS 142), the Company ceased
amortization on most intangibles including goodwill, on January 1, 2002. Such
amortization expense totaled approximately $12.3 million in the year ended
December 31, 2001. Excluding amortization expense in the 2001 period,
operating income before corporate allocations, deferred compensation,
pre-opening expenses and gain on assets held for sale increased 2% and 56% in
Bossier City and Hammond, respectively, and decreased 1% in Tunica. In
addition, 2002 operating margins before corporate allocations, deferred
compensation, pre-opening expenses and gain on assets held for sale were 13%,
27% and 21% in Bossier City, Tunica and Hammond, respectively, as compared to
operating margins before corporate allocations, deferred compensation,
pre-opening expenses and gain on assets held for sale of 13%, 27% and 15%,
respectively, in the 2001 period when calculated on a comparable basis.

Improved results were achieved in Bossier City despite an additional 1%
increase in gaming taxes that went into effect on April 1, 2002. The positive
results in Bossier City in 2002 can be partially attributed to the absence of
some of the unusual costs that impacted the property in 2001. These include a
$1.4 million sales tax assessment on progressive slot machine royalty payments
in 2001 and $0.9 million of relicensing costs that were recorded in 2001.
Impacting 2002 was the previously discussed $7.4 million charge in 2002 related
to Bossier Citys relicensing. The 2002 period also includes a $0.8 million
reserve against a note receivable related to the year 2000 sale of its off-site
hotel.

Increases in insurance expense and points expense in Tunica in 2002 were
offset by decreases in health care costs, bad debt expense and direct mail
costs. Additionally, Tunica results in 2002 include a $1.9 million positive
adjustment related to favorable resolutions on various tax matters. Intense
competition and limited market growth in the Tunica market make near term
growth prospects rather limited in that market.

After the successful re-branding in 2001, Horseshoe Hammond experienced a
record year in 2002. Prior to the initiation of dockside gaming on August 1,
2002, Hammond generated a 14% increase in gaming revenues in the seven months
ended July 31, 2002, as compared to the same period in the prior year. The
positive momentum continued with the advent of dockside gaming, with the
property experiencing a 31% increase in gaming revenues during the five month
period from August 1, 2002 through December 31, 2002, as compared to the same
period in the prior year. Along with dockside gaming came a substantial
increase in gaming taxes, with a maximum rate of 35% on gaming revenues in
excess of $150.0 million. This is up from a 20% flat rate prior to July 1,
2002 and a 22.5% rate imposed from July 1, 2002 until the date dockside gaming
began. The effective state gaming tax rate for Hammond for the twelve months
ended December 31, 2002 was 22%. With a full year of dockside gaming, the
Company anticipates the 2003 effective state gaming tax rate will be
approximately 31%.

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##### Table of Contents



Operating income in 2001 includes $4.1 million in pre-opening expenses,
including $2.0 million of advertising and production costs, related to the
re-branding of the Hammond casino.

Corporate expenses increased $3.1 million, or 14%, in 2002 as compared to
2001. This is largely attributable to the resolution of a 1999  2001
Louisiana franchise tax audit, as a result of which the Company paid
approximately $2.3 million, plus interest. Also impacting 2002 was a $0.8
million increase in payroll and related costs over 2001. In addition, $2.3
million of the monthly consulting payments to the former owners of Joliet were
included in corporate expense during the 2001 period. Upon the sale of
Joliet, the present value of the remaining liability was accrued and charged
against the sale of Joliet, thereby excluding those payments from corporate
expense in the 2002 period.

Deferred compensation increased $10.6 million in 2002 due to additional
appreciation on vested stock appreciation rights.

During 2001, the Company recorded a gain of $165.5 million as a result of
the sale of Joliet to Argosy Gaming Company.

Depreciation and amortization expense decreased $10.9 million, or 16%, in
2002 as compared to 2001. This is primarily the result of ceasing to amortize
goodwill and certain other intangibles upon the adoption of SFAS 142, as
discussed above.

Net interest expense decreased 25% in 2002 as compared to 2001 primarily
due to reduced debt outstanding and aided by lower interest rates on the Credit
Facility. The Company retired its 9.375% Senior Subordinated Notes on the
first call date of June 15, 2002. This transaction generated an extraordinary
loss on early retirement of debt in the amount of $9.7 million in 2002 as
compared to a $6.9 million extraordinary loss on early retirement of debt in
2001.

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. 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, deferred compensation,
pre-opening expenses and gain on assets held for sale 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, deferred compensation, pre-opening expenses and gain on
assets held for sale and a five percentage point reduction in operating margin.
Operating income before corporate allocations, deferred compensation,
pre-opening expenses and gain on assets held for sale in Tunica and Hammond
decreased 1% and 4%, respectively, in 2001 as compared to 2000, with margins
decreasing at both properties by two percentage points.

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##### Table of Contents



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 $0.9 million of expenses related to relicensing 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.

In 2001, Hammond continued to invest significant resources towards
improving its level of customer service. 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 MBE Incubator
Fund, Inc. 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.

Liquidity and Capital Resources

Net cash provided by operating activities was $122.6 million, $138.1
million and $151.1 million for the years ended December 31, 2002, 2001and 2000,
respectively.

Net cash provided by/(used in) investing activities was $(36.0) million,
$370.6 million and $(68.3) million, for the years ended December 31, 2002, 2001
and 2000, respectively. Cash flows from investing activities for 2001 include
the net proceeds from the sale of Joliet.

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##### Table of Contents



Net cash used in financing activities was $220.0 million, $366.0 million
and $122.9 million for the years ended December 31, 2002, 2001 and 2000,
respectively. During 2002, 2001 and 2000, $266.0 million, $351.6 million and
$293.1 million, respectively, was repaid on long-term debt.

During 2002, the Company redeemed all of its outstanding 9.375% Senior
Subordinated Notes for $166.5 million, including call premium, and repaid
approximately $38.0 million in other debt. As of December 31, 2002, the
Company had long term debt consisting of $533.8 million of 8.625% Senior
Subordinated Notes, due 2009, and $23.0 million outstanding on its Credit
Facility.

In 1999, the Company completed its $375.0 million Senior Secured Credit
Facility. The Credit Facility consisted of a $250.0 million, five-year
revolver and a $125.0 million, seven-year term loan. In 2001, the Company
amended its Credit Facility to allow, among other things, the reduction of its
loan commitment to $150.0 million. All of the operating subsidiaries guarantee
the obligations under the Credit Facility. 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. As of December 31, 2002 there was $23.0
million outstanding under the Credit Facility.

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 debt
agreements also contain a provision that allows for an additional $50.0 million
in certain restricted payments, as defined in the agreements, as long as the
Company maintains a certain coverage ratio. As of December 31, 2002, the
Company met the coverage ratio requirement.

The Company has no off balance sheet financing.

The Company plans to spend approximately $35.7 million for capital
expenditures in 2003, including slot product upgrades. In addition, the
Company has commenced construction of an approximate $50.0 million parking
garage in Hammond. Construction is expected to be completed in the second
quarter of 2004. No other major projects are currently anticipated at any of
our properties.

The Company has the following future contractual cash obligations as of
December 31, 2002 (in thousands):

|                              |  |      |        |      |  |      |        |      |  |      |     |            |  |   |     |  |  |   |     |  |  |   |         | 
|----------------------------- |  | ---- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | --- | ---------- |  | - | --- |  |  | - | --- |  |  | - | ------- | 
|                              |  | 2003 |        | 2004 |  | 2005 |        | 2006 |  | 2007 |     | Thereafter
|                              |  |      |        |      |  |      |        |      |  |      |     |           
|Minimum future lease payments |  | $    | 1,637  |      |  | $    | 994    |      |  | $    | 627 |            |  | $ | 229 |  |  | $ | 163 |  |  | $ | 440     | 
|Long-term debt                |  |      |       |      |  |      | 23,000 |      |  |      |    |            |  |   |    |  |  |   |    |  |  |   | 535,015 | 
|Empress consulting agreement  |  |      | 4,000  |      |  |      | 3,667  |      |  |      |    |            |  |   |    |  |  |   |    |  |  |   |        | 
|Security deposit-Hammond      |  |      | 3,250  |      |  |      |       |      |  |      |    |            |  |   |    |  |  |   |    |  |  |   |        | 
|Construction commitments      |  |      | 2,500  |      |  |      |       |      |  |      |    |            |  |   |    |  |  |   |    |  |  |   |        | 
|Other                         |  |      | 2,468  |      |  |      | 477    |      |  |      | 185 |            |  |   | 64  |  |  |   |    |  |  |   |        | 
|                              |  |      |        |      |  |      |        |      |  |      |     |            |  |   |     |  |  |   |     |  |  |   |         | 
|                              |  | $    | 13,855 |      |  | $    | 28,138 |      |  | $    | 812 |            |  | $ | 293 |  |  | $ | 163 |  |  | $ | 535,455 | 
|                              |  |      |        |      |  |      |        |      |  |      |     |            |  |   |     |  |  |   |     |  |  |   |         | 

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As of December 31, 2002, the Company had $87.4 million of cash and cash
equivalents and $556.8 million of long term debt outstanding, of which none was
current. There was also $127.0 million of availability on the Credit Facility
at December 31, 2002. The Company has no off-balance sheet financing. The
Company believes that cash and cash equivalents on hand, cash flow from
operations and available borrowing capacity will be adequate to meet existing
debt service obligations and capital expenditure commitments for the next
twelve months.

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 and an additional parking facility. These new
amenities may be located in several areas adjacent to the existing operation on
real estate that is owned or controlled by the City and other local
governmental agencies (collectively the Lessors). The Lessors agreed to lease
such real estate to Hammond for a period of approximately 69 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
and at the same time, exercised a portion of its lease option. This payment is
being charged to rent expense and amortized over the remaining term of the
lease. In addition, Hammond is required to pay a security deposit to the
Lessors of $3.25 million. The Fourth Amendment also requires that Hammond
relocate the existing public boat launch ramp to a permanent location. The
relocation of the boat launch ramp is estimated to be completed in the second
quarter of 2003.

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 was effective April 1, 2002 and the final increase will
occur on April 1, 2003.

In February 2003, the Company announced that it would be relocating its
corporate headquarters from Tinley Park, Illinois to Las Vegas, Nevada. The
estimated cost of the relocation is approximately $3.0 million. The move is
expected to occur in the third quarter of 2003.

Ownership Repurchase Matters

During 2002, the Company purchased redeemable ownership interests of 0.3%
of the Company for $2.5 million in cash.

During 2001, the Company purchased redeemable ownership interests of 1.1%
of the Company for $8.0 million of notes payable. The Companys remaining
obligation under this purchase was $0 and $7.4 million as of December 31, 2002
and 2001, respectively.

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##### Table of Contents



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 $0.4 million reduction in
deferred compensation expense resulting from the final valuation of this
ownership interests. The Companys remaining obligation under these purchases
was $0 and $9.8 million as of December 31, 2002 and 2001, respectively.

During 1999, Horseshoe Gaming purchased redeemable ownership interests of
12.4% of Horseshoe Gaming for $67.9 million in notes payable. The Companys
remaining obligation under these purchases was $0 and $29.7 million as of
December 31, 2002 and 2001, respectively.

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, 2002 and 2001, the remaining amount to be
paid to these limited partners totaled $0.5 million and $3.2 million,
respectively, and is included in accrued expenses and other in the accompanying
consolidated balance sheets. During the first quarter of 2003, the remaining
amount owed to these former limited partners was paid.

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 judgments that affect the
reported amounts of assets, liabilities, the disclosure of contingent assets
and liabilities, and the reported amounts of revenues and expenses. On an
on-going basis, the Company evaluates its policies, estimates and assumptions
related thereto, including those related to customer programs and incentives,
provision for bad debts, depreciation and amortization, asset impairment, 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. A summary of our significant accounting policies is
included in Note 2 of the accompanying consolidated financial statements.

Recently Issued Accounting Pronouncements

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. The Company will adopt
SFAS 143 in the first quarter of 2003. Adoption of SFAS 143 is not expected to
have a material impact on the Companys results of operations or financial
position.

Also in 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

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##### Table of Contents



Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, for
long-lived assets to be disposed of by sale. SFAS 144, which was adopted by
the Company on January 1, 2002, had no impact on the Companys results of
operations or financial position.

In April 2002, the FASB issued SFAS No. 145 Rescission of FASB Statements
No. 4, 44, and 64, Amendments of FASB Statement No. 13, and Technical
Corrections (SFAS 145). SFAS 145 rescinds SFAS No. 4, Reporting Gains and
Losses from Extinguishment of Debt, and an amendment of that statement, SFAS
No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements.
SFAS 145 also rescinds SFAS No. 44, Accounting for Intangible Assets of Motor
Carriers. SFAS 145 amends SFAS No. 13, Accounting for Leases, to eliminate
an inconsistency between the required accounting for sale-leaseback
transactions and the required accounting for certain lease modifications that
have economic effects that are similar to sale-leaseback transactions. SFAS
145 also amends other existing authoritative pronouncements to make various
technical corrections, clarify meanings, or describe their applicability under
changed conditions. The provisions of this statement related to the
rescission of SFAS No. 4 are effective for fiscal years beginning after May 15,
2002. Therefore, this statement will have no impact on the financial statement
presentation for the year ended December 31, 2002. Upon adoption, the
extraordinary losses recognized in the year ended December 31, 2002 and the
year ended December 31, 2001 will be reclassified within income from operations
to conform to the provisions of SFAS No. 145. The provisions of this statement
related to SFAS No. 13 are effective for financial statements issued on or
after May 15, 2002. The implementation of these remaining provisions did not
have a material effect on the Companys consolidated results of operations or
financial position.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities (SFAS 146). SFAS 146 generally
requires companies to recognize costs associated with exit or disposal
activities when they are incurred rather than at the date of a commitment to an
exit or disposal plan, as previously required under EITF Issue 94-3. Examples
of costs covered by the standard include lease termination costs and certain
employee severance costs that are associated with a restructuring, discontinued
operation, plant closing, or other exit or disposal activity. SFAS 146 is to
be applied prospectively to exit or disposal activities initiated after
December 31, 2002. The Company will adopt SFAS 146 beginning January 1,
2003.

In October 2002, the FASB issued SFAS No. 147, Acquisitions of Certain
Financial Institutions  an amendment of FASB Statements No. 72 and 144 and
FASB Interpretation No. 9 (SFAS 147), which applies to all acquisitions of
financial institutions except those between two or more mutual enterprises.
SFAS 147 has no impact on the Companys results of operations or financial
position.

In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation  Transition and Disclosure  an amendment of FASB
Statement No. 123 (SFAS 148), to provide alternative methods of transition
for a voluntary change to the fair-value-based method of accounting for
stock-based employee compensation. SFAS 148 also requires disclosure in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. The transition guidance and annual disclosure provisions of SFAS 148
are effective for fiscal years ending after December 15, 2002. No significant
affect is anticipated from adoption.

33Table of Contents

In November 2002, the FASB published Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others which elaborates on the existing
disclosure requirements for most guarantees, including loan guarantees such as
standby letters of credit. It also clarifies that at the time a company issues
a guarantee, the company must recognize an initial liability for the fair
value, or market value, of the obligations it assumes under that guarantee and
must disclose that information in its interim and annual financial statements.
The initial recognition and initial measurement provisions apply on a
prospective basis to guarantees issued or modified after December 31, 2002.
The disclosure requirements in the Interpretation are effective for financial
statements of interim or annual periods ending after December 15, 2002.

In January 2003, the FASB issued FASB Interpretation No. 46,
Consolidation of Variable Interest Entities (FIN 46), which addresses
consolidation by business enterprises where equity investors do not bear the
residual economic risks and rewards. These entities have been commonly referred
to as special-purpose entities. Companies are required to apply the
provisions of FIN 46 prospectively for all variable interest entities created
or entered into after January 31, 2003. For public companies, all interests
acquired before February 1, 2003 must follow the new rules in accounting
periods (fiscal or interim) beginning after June 15, 2003. FIN 46 is expected
to have no impact on the Companys results of operations or financial position.

Regulation and Taxes

The gaming industry is highly regulated and casinos are required to
maintain licenses to operate. The ownership, management, and operation of
gaming facilities are subject to extensive federal, state and/or local laws,
rules and regulations, which are administered by the relevant regulatory agency
or agencies in each jurisdiction. These laws, rules, and regulations vary from
jurisdiction to jurisdiction, but generally concern the responsibility,
financial stability, and character of the owners and managers of gaming
operations, as well as persons financially interested or involved in gaming
operations. The regulatory environment in any particular jurisdiction may
change in the future and any such change could have a material adverse effect
on the results of operations of the Company.

The gaming industry provides a significant source of tax revenue to the
various jurisdictions in which casinos operate. Occasionally, proposals are
made by federal and state legislators to amend tax laws affecting the gaming
industry. It is not possible to determine with certainty the scope or
likelihood of possible future changes in tax laws or in the administration of
such laws. Changes in such laws, if any, could have a material effect on the
results of operations of the Company.

34



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##### Table of Contents






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.

|                          |  |   |                        |   |      |   |        |   |      |   |       |   |            |   |       |   |                |   |       |   |  |   |         |   |  |   |         |  |  |   |         |  | 
|------------------------- |  | - | ---------------------- | - | ---- | - | ------ | - | ---- | - | ----- | - | ---------- | - | ----- | - | -------------- | - | ----- | - |  | - | ------- | - |  | - | ------- |  |  | - | ------- |  | 
|                          |  |   | Maturity Date         
|                          |  |   | (dollars in thousands)
|                          |  |   | 2003                   |   | 2004 |   | 2005   |   | 2006 |   | 2007  |   | Thereafter |   | Total |   | Fair Value (1)
|                          |  |   |                        |   |      |   |        |   |      |   |       |   |            |   |       |   |               
|Fixed rate debt           |  | $ |                       |   |      | $ |       |   |      | $ |      |   |            | $ |      |   |                | $ |      |   |  | $ | 533,773 |   |  | $ | 533,773 |  |  | $ | 569,791 | 
|Average interest rate     |  |   | 0.000                  | % |      |   | 0.000  | % |      |   | 0.000 | % |            |   | 0.000 | % |                |   | 0.000 | % |  |   | 8.625   | % |  |   |         |  |  |   |         | 
|Variable rate debt        |  | $ |                       |   |      | $ | 23,000 |   |      | $ |      |   |            | $ |      |   |                | $ |      |   |  | $ |        |   |  | $ | 23,000  |  |  | $ | 23,000  | 
|Average interest rate (2) |  |   | 0.000                  | % |      |   | 2.913  | % |      |   | 0.000 | % |            |   | 0.000 | % |                |   | 0.000 | % |  |   | 0.000   | % |  |   |         |  |  |   |         | 



---

|(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, 2002 variable
rates. Actual rates in future periods could vary.                                                               

Other Risks

The Company could not obtain permission of Arthur Andersen LLP to the
inclusion in this Annual Report on Form 10-K of their Report of Independent
Public Accountants. Accordingly, the Arthur Andersen LLP Report of Independent
Public Accountants herein is merely reproduced from Horseshoe Gaming Holding
Corp.s Annual Report on Form 10-K for the year ended December 31, 2001
(although the consolidated balance sheet as of December 31, 2000 and the
consolidated statements of operations, changes in shareholders equity, and
cash flows for the year ended December 31, 1999 referred to in that report are
not included herein) and does not include the manual signature of Arthur
Andersen LLP. The conviction of the Companys former independent auditors,
Arthur Andersen LLP, on federal obstruction of justice charges may adversely
affect Arthur Andersen LLPs ability to satisfy any claims arising from the
provision of auditing services to the Company and may impede the Companys
access to the capital markets.




Item 8. Financial Statements and Supplementary Data.

See the Index to Consolidated Financial Statements and the Index to
Financial Statement Schedules included at Item 15. Exhibits, Financial
Statement Schedules, and Reports on Form 8-K.




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

See the Companys Current Report on Form 8-K filed with the Securities and
Exchange Commission on May 30, 2002.

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##### Table of Contents






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.

|                       |  |     |    |          |  |                                                                          
|---------------------- |  | --- | -- | -------- |  | -------------------------------------------------------------------------
|                       |  | Age |    | Position
|                       |  |     |    |         
|Jack B. Binion         |  |     | 66 |          |  | Chairman of the Board of Directors, Chief
Executive Officer and Secretary
|Peri N. Howard         |  |     | 42 |          |  | Vice Chairperson of the Board of Directors                               
|Leslie L. Kenny        |  |     | 47 |          |  | Director                                                                 
|Roger P. Wagner        |  |     | 55 |          |  | President and Chief Operating Officer                                    
|Kirk C. Saylor         |  |     | 46 |          |  | Senior Vice President  Treasurer and Chief
Financial Officer            
|Dominic F. Polizzotto  |  |     | 37 |          |  | Senior Vice President  General Counsel                                  
|Floyd B. Hannon        |  |     | 61 |          |  | Senior Vice President  Government Affairs                               
|Christopher S. Corrado |  |     | 33 |          |  | Senior Vice President  Marketing                                        
|David S. Carroll       |  |     | 48 |          |  | Senior Vice President  Human Resources                                  
|Jon C. Wolfe           |  |     | 35 |          |  | Senior Vice President  Chief Information Officer                        
|J. Lawrence Lepinski   |  |     | 56 |          |  | General Manager of Horseshoe Bossier City                                
|Robert McQueen         |  |     | 49 |          |  | General Manager of Horseshoe Tunica                                      
|Ricky S. Mazer         |  |     | 48 |          |  | General Manager of Horseshoe Hammond                                     

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.

36



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##### Table of Contents



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 1997.

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. Hannon has expressed his intentions to resign from the Company. He and the
Company are currently negotiating the terms of his resignation.

Mr. Corrado had been the Companys Senior Vice President  Marketing since
October 2002. Prior thereto, he served as the Companys Vice President of
Advertising and Branding since August 2001. From November 1999 to August 2001,
Mr. Corrado served as Vice President of Marketing for Empress Casino in Joliet,
Illinois. From May 1999 to November 1999, he served as Director of Marketing
for Empress Casino in Joliet, Illinois and from September 1998 to May 1999, Mr.
Corrado was Marketing Manager for KPMG  Business Valuation Division, Chicago,
Illinois.

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.

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 since February
1996.

37



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##### Table of Contents






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, 2002, 2001 and 2000:

Summary Compensation Table
(dollars in thousands)

|                          |                         |      |      |        |  |       |                     |                  |                       |                  |           |       |  |  |              |       |  |   |      |       | 
|------------------------- | ----------------------- | ---- | ---- | ------ |  | ----- | ------------------- | ---------------- | --------------------- | ---------------- | --------- | ----- |  |  | ------------ | ----- |  | - | ---- | ----- | 
|                          |                         |      |      |        |  |       |                     |                  |                       |                  |           |       |  |  | Long-Term    |       |  |   |     
|                          |                         |      |      |        |  |       |                     |                  |                       |                  |           |       |  |  | Compensation |       |  |   |     
|                          |                         |      |      |        |  |       | Annual Compensation |                  |                       |                  |           |       | 
|                          |                         |      |      |        |  |       |                     |                  | Securities Underlying |                  | All Other
|Name                      |                         | Year |      | Salary |  | Bonus |                     | Options/SARS (#) |                       | Compensation (1)
|                          |                         |      |      |        |  |       |                     |                  |                       |                 
|Jack B. Binion            |                         |      | 2002 |        |  | $     | 1,000.0             |                  |                       |                  |          |       |  |  |             |       |  | $ |     |      
|                          | Chairman of the Board   |      |      | 2001   |  |       | $                   | 1,000.0          |                       |                  |           |      |  |  |              |      |  |   | $    | 199.4 | 
|                          | CEO and Secretary       |      |      | 2000   |  |       | $                   | 1,000.0          |                       |                  |           |      |  |  |              |      |  |   | $    | 179.8 | 
|Roger P. Wagner (2)       |                         |      | 2002 |        |  | $     | 550.0               |                  |                       |                  | 481.3     |       |  |  | 40.15        |       |  | $ | 39.2 |      
|                          | President  Chief       |      |      | 2001   |  |       | $                   | 500.0            |                       |                  |           | 250.0 |  |  |              | 91.35 |  |   | $    | 100.7 | 
|                          | Operating Officer       |      |      | 2000   |  |       | $                   | 295.8            |                       |                  |           | 146.2 |  |  |              | 18.35 |  |   | $    | 107.0 | 
|Peri N. Howard (3)        |                         |      | 2002 |        |  | $     | 350.0               |                  |                       |                  | 306.3     |       |  |  | 25.55        |       |  | $ | 20.2 |      
|                          | Vice Chairperson        |      |      | 2001   |  |       | $                   | 250.0            |                       |                  |           | 125.0 |  |  |              | 53.35 |  |   | $    | 61.2  | 
|                          |                         |      | 2000 |        |  | $     | 230.0               |                  |                       |                  | 113.6     |       |  |  | 16.85        |       |  | $ | 61.5 |      
|Kirk C. Saylor (4)        |                         |      | 2002 |        |  | $     | 300.0               |                  |                       |                  | 262.5     |       |  |  | 21.90        |       |  | $ | 31.8 |      
|                          | Senior Vice President   |      |      | 2001   |  |       | $                   | 270.0            |                       |                  |           | 135.0 |  |  |              | 57.75 |  |   | $    | 61.9  | 
|                          | Chief Financial Officer |      |      | 2000   |  |       | $                   | 250.0            |                       |                  |           | 123.5 |  |  |              | 18.35 |  |   | $    | 144.2 | 
|Dominic F. Polizzotto (5) |                         |      | 2002 |        |  | $     | 300.0               |                  |                       |                  | 318.7     |       |  |  | 21.90        |       |  | $ | 16.3 |      
|                          | Senior Vice President   |      |      | 2001   |  |       | $                   | 270.0            |                       |                  |           | 191.2 |  |  |              | 89.83 |  |   | $    | 179.3 | 
|                          | General Counsel         |      |      | 2000   |  |       |                     |                 |                       |                  |           |      |  |  |              |      |  |   |      |      | 
|Floyd B. Hannon (6)       |                         |      | 2002 |        |  | $     | 300.0               |                  |                       |                  | 262.5     |       |  |  | 21.90        |       |  | $ | 27.8 |      
|                          | Senior Vice President   |      |      | 2001   |  |       | $                   | 267.5            |                       |                  |           | 133.8 |  |  |              | 57.45 |  |   | $    | 67.7  | 
|                          | Government Affairs      |      |      | 2000   |  |       | $                   | 250.0            |                       |                  |           | 123.5 |  |  |              | 18.35 |  |   | $    | 71.1  | 



|(1) |  | Detail of other compensation:
(dollars in thousands)
|--- |  | ----------------------------------------------------

|                      |  |      |      |         |  |          |     |      |  |           |       |              |  |      |     |              |  |         |     |       |  |            |     |       |  |   |      |  |  |   |       |        |  |       |       |  |  |   |       | 
|--------------------- |  | ---- | ---- | ------- |  | -------- | --- | ---- |  | --------- | ----- | ------------ |  | ---- | --- | ------------ |  | ------- | --- | ----- |  | ---------- | --- | ----- |  | - | ---- |  |  | - | ----- | ------ |  | ----- | ----- |  |  | - | ----- | 
|                      |  |      |      |         |  |          |     |      |  |           |       |              |  |      |     |              |  |         |     |       |  |            |     |       |  |   |      |  |  |   |       |        |  | Below |       |  |  |  
|                      |  |      |      |         |  |          |     |      |  |           |       |              |  |      |     |              |  |         |     |       |  | Deferred   |     |       |  |   |      |  |  |   |       | Market |  |       |       | 
|                      |  |      |      |         |  |          |     |      |  | Insurance |       | Health       |  | 401k |     | Compensation |  |         |     |       |  | Relocation |     | Stock |  |   |      | 
|Name                  |  | Year |      | Medical |  | Premiums |     | Club |  | Match     |       | Contribution |  | Auto |     | Payments     |  | Options |     | Total
|                      |  |      |      |         |  |          |     |      |  |           |       |              |  |      |     |              |  |         |     |      
|Jack B. Binion        |  |      | 2002 |         |  |          |    |      |  |           |      |              |  |      |    |              |  |         |    |       |  |            |    |       |  |   |     |  |  |   |      |        |  |       |      |  |  |   |      | 
|                      |  |      | 2001 |         |  |          |    |      |  | $         | 199.4 |              |  |      |    |              |  |         |    |       |  |            |    |       |  |   |     |  |  |   |      |        |  |       |      |  |  | $ | 199.4 | 
|                      |  |      | 2000 |         |  |          |    |      |  | $         | 179.8 |              |  |      |    |              |  |         |    |       |  |            |    |       |  |   |     |  |  |   |      |        |  |       |      |  |  | $ | 179.8 | 
|Roger P. Wagner       |  |      | 2002 |         |  | $        | 9.8 |      |  | $         | 20.4  |              |  | $    | 0.9 |              |  | $       | 7.5 |       |  | $          | 0.6 |       |  |   |     |  |  |   |      |        |  |       |      |  |  | $ | 39.2  | 
|                      |  |      | 2001 |         |  |          |    |      |  | $         | 18.4  |              |  | $    | 0.5 |              |  | $       | 6.2 |       |  |            |    |       |  |   |     |  |  |   |      |        |  | $     | 75.6  |  |  | $ | 100.7 | 
|                      |  |      | 2000 |         |  |          |    |      |  | $         | 6.4   |              |  |      |    |              |  | $       | 4.9 |       |  |            |    |       |  |   |     |  |  | $ | 95.7  |        |  |       |      |  |  | $ | 107.0 | 
|Peri N. Howard        |  |      | 2002 |         |  | $        | 0.5 |      |  | $         | 11.8  |              |  | $    | 0.9 |              |  | $       | 7.0 |       |  |            |    |       |  |   |     |  |  |   |      |        |  |       |      |  |  | $ | 20.2  | 
|                      |  |      | 2001 |         |  |          |    |      |  | $         | 16.1  |              |  | $    | 0.5 |              |  | $       | 6.8 |       |  |            |    |       |  |   |     |  |  |   |      |        |  | $     | 37.8  |  |  | $ | 61.2  | 
|                      |  |      | 2000 |         |  |          |    |      |  | $         | 6.4   |              |  |      |    |              |  | $       | 5.7 |       |  |            |    |       |  |   |     |  |  | $ | 49.4  |        |  |       |      |  |  | $ | 61.5  | 
|Kirk C. Saylor        |  |      | 2002 |         |  | $        | 9.5 |      |  | $         | 14.1  |              |  | $    | 1.2 |              |  | $       | 7.0 |       |  |            |    |       |  |   |     |  |  |   |      |        |  |       |      |  |  | $ | 31.8  | 
|                      |  |      | 2001 |         |  |          |    |      |  | $         | 13.5  |              |  | $    | 0.8 |              |  | $       | 6.8 |       |  |            |    |       |  |   |     |  |  |   |      |        |  | $     | 40.8  |  |  | $ | 61.9  | 
|                      |  |      | 2000 |         |  |          |    |      |  | $         | 10.9  |              |  |      |    |              |  | $       | 6.8 |       |  |            |    |       |  |   |     |  |  | $ | 126.5 |        |  |       |      |  |  | $ | 144.2 | 
|Dominic F. Polizzotto |  |      | 2002 |         |  | $        | 2.3 |      |  | $         | 6.3   |              |  | $    | 0.9 |              |  | $       | 6.8 |       |  |            |    |       |  |   |     |  |  |   |      |        |  |       |      |  |  | $ | 16.3  | 
|                      |  |      | 2001 |         |  |          |    |      |  | $         | 4.1   |              |  | $    | 0.6 |              |  | $       | 6.8 |       |  |            |    |       |  |   |     |  |  | $ | 50.4  |        |  | $     | 117.4 |  |  | $ | 179.3 | 
|                      |  |      | 2000 |         |  |          |    |      |  |           |      |              |  |      |    |              |  |         |    |       |  |            |    |       |  |   |     |  |  |   |      |        |  |       |      |  |  |   |      | 
|Floyd B. Hannon       |  |      | 2002 |         |  |          |    |      |  | $         | 12.1  |              |  |      |    |              |  | $       | 6.7 |       |  |            |    |       |  | $ | 9.0  |  |  |   |      |        |  |       |      |  |  | $ | 27.8  | 
|                      |  |      | 2001 |         |  |          |    |      |  | $         | 11.8  |              |  |      |    |              |  | $       | 6.8 |       |  |            |    |       |  | $ | 8.6  |  |  |   |      |        |  | $     | 40.5  |  |  | $ | 67.7  | 
|                      |  |      | 2000 |         |  |          |    |      |  | $         | 11.1  |              |  |      |    |              |  | $       | 3.8 |       |  |            |    |       |  | $ | 13.8 |  |  | $ | 42.4  |        |  |       |      |  |  | $ | 71.1  | 

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With the exception of Jack B. Binion, the above named officers are all entitled
to 2.99 times their most recent salary and bonus in the event there is a change
in control.



|(2) |  | 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 following the sale of Joliet to more
accurately set the exercise price of the options/SARs to an amount
consistent with a pricing that would have been established if the Company
had not owned Joliet when the options/SARs were issued.                                                                                                                                               
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(3) |  | Included in the Long-Term Compensation column for 2001 are 18.25
options/SARs and 16.85 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 following the sale of Joliet to more
accurately set the exercise price of the options/SARs to an amount
consistent with a pricing that would have been established if the Company
had not owned Joliet when the options/SARs were issued.                                                                                                                                               
|   
|(4) |  | 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 following the sale of Joliet to more
accurately set the exercise price of the options/SARs to an amount
consistent with a pricing that would have been established if the Company
had not owned Joliet when the options/SARs were issued.                                                                                                                                               
|   
|(5) |  | Mr. Polizzottos employment agreement also requires a bonus in the amount
of $56,204 payable on each January 1, 2001, 2002 and 2003. 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 exercise price on these options/SARs was adjusted downward by
25% in 2001 following the sale of Joliet to more accurately set the
exercise price of the options/SARs to an amount consistent with a pricing
that would have been established if the Company had not owned Joliet when
the options/SARs were issued.               
|   
|(6) |  | 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 following the sale of Joliet to more
accurately set the exercise price of the options/SARs to an amount
consistent with a pricing that would have been established if the Company
had not owned Joliet when the options/SARs were issued. Mr. Hannon has
expressed his intentions to resign from the Company. He and the Company
are currently negotiating the terms of his resignation.

No other annual compensation or long-term incentive plan payouts were paid
during the year ended December 31, 2002.

The following table sets forth certain information regarding grants of
stock options made to the Named Executive Officers during 2002, 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)

|                      |  |              |       |                |  |                   |      |            |  |    |       |                        |  |                       |          |  |  |   |       |  |  |   |       | 
|--------------------- |  | ------------ | ----- | -------------- |  | ----------------- | ---- | ---------- |  | -- | ----- | ---------------------- |  | --------------------- | -------- |  |  | - | ----- |  |  | - | ----- | 
|                      |  |              |       |                |  | Individual Grants |      |            |  |    |       | Potential Realizable  
|                      |  |              |       |                |  |                   |      |            |  |    |       | Value at Assumed      
|                      |  | Number of    |       | Percent of     |  |                   |      |            |  |    |       |                        |  | Annual Rates of Stock
|                      |  | Securities   |       | Total Options/ |  | Exercise          |      |            |  |    |       | Price Appreciation for
|                      |  | Underlying   |       | SARs Granted   |  | or Base           |      |            |  |    |       | Option/SAR Term (1)   
|                      |  | Options/SARs |       | To Employees   |  | Price             |      | Expiration |  |   
|Name                  |  | Granted (2)  |       | in 2002        |  | ($/sh.)           |      | Date       |  | 5% |       | 10%                   
|                      |  |              |       |                |  |                   |      |            |  |    |       |                       
|Jack B. Binion        |  |              |      |                |  |                   |     |            |  |    |      |                        |  |                       |         |  |  |   |      |  |  |   |      | 
|Roger P. Wagner       |  |              | 40.15 |                |  |                   | 6.12 | %          |  | $  | 4,947 | (3)                    |  |                       | 1/1/2012 |  |  | $ | 124.7 |  |  | $ | 316.1 | 
|Peri N. Howard        |  |              | 25.55 |                |  |                   | 3.90 | %          |  | $  | 4,947 | (3)                    |  |                       | 1/1/2012 |  |  | $ | 79.4  |  |  | $ | 201.2 | 
|Kirk C. Saylor        |  |              | 21.90 |                |  |                   | 3.34 | %          |  | $  | 4,947 | (3)                    |  |                       | 1/1/2012 |  |  | $ | 68.0  |  |  | $ | 172.4 | 
|Dominic F. Polizzotto |  |              | 21.90 |                |  |                   | 3.34 | %          |  | $  | 4,947 | (3)                    |  |                       | 1/1/2012 |  |  | $ | 68.0  |  |  | $ | 172.4 | 
|Floyd B. Hannon       |  |              | 21.90 |                |  |                   | 3.34 | %          |  | $  | 4,947 | (3)                    |  |                       | 1/1/2012 |  |  | $ | 68.0  |  |  | $ | 172.4 | 

39



---



##### Table of Contents





---

|(1) |  | The dollar amount under these columns are the result of calculations at
five percent and ten percent rates set by the Securities and Exchange
Commission and therefore are not intended to forecast possible future
appreciation. There is no assurance that the value realized by an officer
will be at or near the value estimated above.                                                           
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) |  | Employees vest in the right to exercise these options/SARs over a
four-year period. Options/SARs are subject to certain conditions,
including compliance with terms and conditions of the options/SARs as
approved by the Company. The executive officers listed above received
tandem SARs in conjunction with the listed options. The tandem SARs have
substantially identical terms to the options.
|(3) |  | Beginning with options/SARs granted on or after January 1, 2002 the
Company amended the Equity Incentive Plan to modify the valuation
methodology. Options/SARs granted prior to January 1, 2002 will continue
to be valued using the old methodology.                                                                                                                                               

The following table sets forth certain information concerning stock option
exercises during 2002 by the Named Executive Officers and information
concerning option values:

Aggregated Option/SAR Exercises in 2002 and December 31, 2002 Option/SAR Values(dollars in thousands)

|                      |  |           |       |          |  |             |       |               |  |                        |   |                           |  |  |       |  |  |  |   |  |  |   |       | 
|--------------------- |  | --------- | ----- | -------- |  | ----------- | ----- | ------------- |  | ---------------------- | - | ------------------------- |  |  | ----- |  |  |  | - |  |  | - | ----- | 
|                      |  |           |       |          |  |             |       |               |  | Number of Securities   |   |                           |  |  |       |  |  | 
|                      |  |           |       |          |  |             |       |               |  | Underlying Unexercised |   | Value of Unexercised,    
|                      |  |           |       |          |  |             |       |               |  | Options/SARs Held      |   | In-the-Money Options/SARs
|                      |  |           |       |          |  |             |       |               |  | at December 31, 2002   |   | at December 31, 2002 (1) 
|                      |  | SARs      |       | Value    |  |             |       |              
|Name                  |  | Exercised |       | Realized |  | Exercisable |       | Unexercisable |  | Exercisable            |   | Unexercisable            
|                      |  |           |       |          |  |             |       |               |  |                        |   |                          
|Jack B. Binion        |  |           |      |          |  |             |      |               |  |                        |  |                           |  |  |      |  |  |  |  |  |  |   |      | 
|Roger P. Wagner       |  |           | 22.88 |          |  | $           | 345.0 |               |  |                        |  |                           |  |  | 81.28 |  |  |  |  |  |  | $ | 954.0 | 
|Peri N. Howard        |  |           | 16.56 |          |  | $           | 216.1 |               |  |                        |  |                           |  |  | 51.23 |  |  |  |  |  |  | $ | 548.6 | 
|Kirk C. Saylor        |  |           | 18.22 |          |  | $           | 239.7 |               |  |                        |  |                           |  |  | 49.97 |  |  |  |  |  |  | $ | 557.8 | 
|Dominic F. Polizzotto |  |           | 18.77 |          |  | $           | 252.5 |               |  |                        |  |                           |  |  | 50.38 |  |  |  |  |  |  | $ | 566.6 | 
|Floyd B. Hannon       |  |           | 18.69 |          |  | $           | 228.5 |               |  |                        |  |                           |  |  | 50.36 |  |  |  |  |  |  | $ | 567.1 | 



---

|(1) |  | Amount represents the difference between the aggregate exercise price of
unexercised options/SARs and the value per share price as determined by
the Company pursuant to the Equity Incentive Plan. The per share price
represents the latest available fair market price as determined pursuant
to the plan.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Compensation of Directors; Compensation Committee Interlocks and Insider
Participation

The Bylaws of the Company provide for a six-member Board of Directors.
There are currently three directors. Directors serve until the next annual
meeting of stockholders and until their successors have been elected and
qualified. Vacancies on the Board of Directors may be filled by a majority of
the remaining directors. The Chairman of the Board of Directors and the
directors receive no compensation for their services on the board. Officers
serve at the discretion of the Board. The Board has no Compensation Committee.

Employment Agreements

Roger P. Wagner is employed as the President and Chief Operating Officer
of the Company pursuant to an employment agreement with the Company that is
terminable for cause, as defined in the agreement, or without cause with the
payment of an amount equal to one year of base compensation plus pro-rata
bonus. Mr. Wagner collaborates with Senior Management of the Company to develop
operating objectives that will achieve the Companys profitability and
development goals. He directs and oversees Company operations at each casino
and assures that each operating division is properly organized, staffed, and
directed to fulfill its responsibilities in accordance with Company standards.
As of January 1, 2003, Mr. Wagner earns a base salary of six hundred thousand
dollars ($600,000) and a discretionary bonus.

Kirk C. Saylor is employed as the Senior Vice President  Chief Financial
Officer for the Company pursuant to an employment agreement with the Company
that is terminable for cause,

40



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##### Table of Contents



as defined in the agreement, or without cause with the payment of an
amount equal to one year of base compensation plus pro-rata bonus. Mr. Saylor
is responsible for overseeing the senior accounting operations of the Companys
facilities and assisting in the opening of any casino and hotel facilities to
be developed or acquired by subsidiaries or affiliates of the Company. As of
January 1, 2003, Mr. Saylor earns compensation of three hundred fifty thousand
dollars ($350,000) per year base salary and a discretionary bonus.

Dominic F. Polizzotto is employed as the Senior Vice President  General
Counsel for the Company pursuant to an employment agreement with the Company
that is terminable for cause, as defined in the agreement, or without cause
with the payment of an amount equal to one year of base compensation plus
pro-rata bonus. Mr. Polizzotto is responsible for overseeing all legal issues
for the Company and its subsidiaries, and developing compliance and risk
management systems. In addition, Mr. Polizzotto is in charge of investigating
new opportunities for expansion of the Companys operations. As of January 1,
2003, Mr. Polizzotto earns compensation of three hundred twenty thousand
dollars ($320,000) per year base salary and a discretionary bonus. His
employment agreement also included a bonus of $56,204 payable on each January
1, 2001, 2002 and 2003.

Floyd P. Hannon is employed as the Senior Vice President  Government
Affairs for the Company pursuant to an employment agreement with the Company
that is terminable for cause, as defined in the agreement, or without cause
with the payment of an amount equal to one year of base compensation plus
pro-rata bonus. Mr. Hannon is responsible for overseeing all aspects of
governmental relations, regulatory compliance and assisting in the opening of
any casino and hotel facilities to be developed or acquired by subsidiaries or
affiliates of the Company. As of January 1, 2003, Mr. Hannon earns compensation
of three hundred thousand dollars ($300,000) per year base salary and a
discretionary bonus. Mr. Hannon has expressed his intentions to resign from
the Company. He and the Company are currently negotiating the terms of his
resignation.

Report on Executive Compensation

The Board of Directors has no Compensation Committee so the entire Board
of Directors is charged with the responsibility to develop and administer
compensation programs for the Companys executive officers. To this end, the
Board of Directors has established the following fundamental philosophy for
executive compensation: To assist the Company in attracting and retaining high
quality talent, the Company shall provide executives with compensation packages
that include a base pay that is competitive in the marketplace and the ability
to substantially increase their compensation through performance. The
performance component of each executives compensation package shall be
established to assist the Company in achieving overall corporate performance
goals that ultimately enhance shareholder value. In accordance with this
philosophy, the Company compensates its executives through three primary
sources; base pay, a performance-based annual bonus, and stock options/SARs.
Under this approach the Company sees that a significant portion of the
compensation for these officers is at risk.

Base Pay

The Company sets salaries for executives taking into account the
competitive marketplace and a subjective assessment of the nature of the
position. For the Company this marketplace includes companies of similar size
and companies in the gaming markets. Adjustments to base salaries are based on
recommendations from the Chief Executive Officer.

41



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##### Table of Contents



Management Bonus Plan

The Company maintains a management incentive plan that includes the
executive officers. The plan allows for payment of annual cash rewards based
on the accomplishment of goals specified by the Company. If results of
operations exceed the net profitability goals, the amount of the executives
bonus may be increased in the sole discretion of the Companys Board of
Directors and if the results of operations for the year do not achieve such net
profitability goals, the amount of the executives bonus (if any) is within the
sole discretion of the Companys Board of Directors.

Stock Options/SARs

The Company utilizes stock options/SARs to promote the success of the
Company and enhance its value by linking the personal interests of participants
to those of its stockholders by providing an incentive for outstanding
performance. From time to time the Board of Directors approves the grant of
options/SARs to the executives based on a number of subjective factors,
including performance of the Company and performance of the individual
executives functional area of responsibility.

Compensation of the Chief Executive Officer

Compensation of the Chief Executive Officer is based upon an understanding
between the Company and Mr. Binion. There is no currently existing employment
agreement, but Mr. Binion provides services to the Company and receives an
annual base salary which has not increased since 1998.



| |  |  | Members of the Board of Directors
Jack B. Binion, Chairman
Peri N. Howard, Vice Chairperson
Leslie L. Kenny
| |  |  | -----------------------------------------------------------------------------------------------------------




Item 12. Security Ownership of Certain Beneficial Owners and Management

The following table sets forth certain information regarding beneficial
ownership of common stock in the Company, as of March 14, 2003, by each person
who is known by the Company to own beneficially more than 5% of the outstanding
shares, by each director of the Company, each of the executive officers and by
all directors and executive officers of the Company as a group.

|                                                 |  |                  |        |                      |  |  |        |  
|------------------------------------------------ |  | ---------------- | ------ | -------------------- |  |  | ------ | -
|Name                                             |  | Number of Shares |        | Percentage of Shares
|                                                 |  |                  |        |                     
|Jack B. Binion                                   |  |                  | 23,183 | (1)                  |  |  | 100.00 | %
|Phyllis M. Cope                                  |  |                  | 1,907  | (2)                  |  |  | 8.26   |  
|Leslie L. Kenny                                  |  |                  | 1,194  | (3)                  |  |  | 5.17   |  
|Peri N. Howard                                   |  |                  | 3,644  | (4)                  |  |  | 15.78  |  
|Scott Hamilton                                   |  |                  | 1,272  | (5)                  |  |  | 5.51   |  
|Wanda Parsons                                    |  |                  | 1,907  | (6)                  |  |  | 8.26   |  
|Roger P. Wagner                                  |  |                  | 28     | (7)                  |  |  | *      |  
|Kirk C. Saylor                                   |  |                  | 19     | (8)                  |  |  | *      |  
|Dominic F. Polizzotto                            |  |                  | 20     | (9)                  |  |  | *      |  
|Floyd B. Hannon                                  |  |                  | 20     | (10)                 |  |  | *      |  
|Directors and
executive officers
as a group (12) |  |                  | 23,183 | (11)                 |  |  | 100.00 |  

* Indicates less than 1%

42



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##### Table of Contents



The address for each of the persons or entities listed above is c/o the
Company at 18454 S. West Creek Drive, Tinley Park, IL 60477. Unless otherwise
indicated, the shares described below are shares of Class A Common Stock.

(1)  Includes 9,779 shares of Class B Common Stock held by Mr. Binion as an
individual of which he has sole voting and investment power. These shares have
a preferential vote such that each share of Class B Common Stock has a vote
equivalent to five shares of Class A Common Stock. Except as otherwise
required by applicable law, the Class A Common Stock and the Class B Common
Stock vote together as one class. Mr. Binion has shared voting power over the
remaining 13,480 shares of Class A Common Stock beneficially owned by him,
which include; (a) the 1,907 shares owned by Phyllis M. Cope; (b) the 3,644
shares owned by Peri N. Howard including 19 shares subject to options that are
currently exercisable or will become exercisable within 60 days; (c) the 1,194
shares owned by Leslie L. Kenney; (d) the 1,272 shares owned by Scott Hamilton;
(e) the 1,907 shares owned by Wanda Parsons; (f) the 1,645 shares held by
members of Mr. Binions family or trusts for the benefit of members of Mr.
Binions family; and (g) the 1,911 shares, including 87 shares subject to
options that are currently exercisable or will become exercisable within 60
days, which are held by other individuals. Mr. Binion shares voting power of
such shares pursuant to a Stockholders Agreement dated as of April 29, 1999
among all shareholders of Horseshoe. Holders of options must enter into the
Stockholders Agreement before they receive shares of options which they have
exercised. Mr. Binion expressly disclaims beneficial ownership of the 13,523
shares not held by him individually.

(2)  Includes 954 shares held by Phyllis M. Cope, as Trustee of the Ted J.
Fechser Trust, and 953 shares held by Phyllis M. Cope, as Trustee of the Fancy
Ann Fechser Trust. Phyllis M. Cope has sole investment power over these shares
and shares voting power over these shares with Mr. Binion; however, she
expressly disclaims beneficial ownership of any shares held by her as trustee
of such trusts, which are trusts established for the benefit of certain members
of the families of Mr. Binion or Phyllis M. Cope, for purposes of Sections
13(d) and 13(g) of the Exchange Act.

(3)  Includes 1,194 shares held by Leslie L. Kenny individually of which she has
sole investment power and shares voting power over these shares with Mr.
Binion.

(4)  Includes 275 shares held by Peri N. Howard, as Trustee of the Ted J.
Fechser Trust, 275 shares held by Peri N. Howard, as Trustee of the Fancy Ann
Fechser Trust, 275 shares held by Peri N. Howard, as Trustee of the James
Christopher Fechser Trust, 275 shares held by Peri N. Howard, as Trustee of the
Robert Daniel Fechser Trust, 275 shares held by Peri N. Howard, as Trustee of
the Katie ONeill Trust, 275 shares held by Peri N. Howard, as Trustee of the
Kellie ONeill Trust, 275 shares held by Peri N. Howard, as Trustee of the
Rachel Fechser Trust 275 shares held by Peri N. Howard, as Trustee of the Ben
E. Johnson Trust, 55 shares held by Peri N. Howard, as Trustee of the Bonnie
Binion Trust, and 55 shares held by Peri N. Howard, as Trustee of the Benny
Behnen Trust; 55 shares held by Peri N. Howard, as Trustee of the Jack Behnen
Trust, 1,261 shares held by Peri N. Howard as an individual and 19 shares
subject to options that are currently exercisable or will become exercisable
within 60 days. Peri N. Howard has sole investment power over these shares and
shares voting power over these shares with Mr. Binion; however, she expressly
disclaims beneficial ownership of any shares held by her as trustee of such
trusts, which are trusts established for the benefit of certain members of the
families of Mr. Binion or Phyllis M. Cope, for purposes of Sections 13(d) and
13(g) of the Exchange Act.

(5)  Includes 636 shares held by Scott Hamilton, as Trustee of the James C.
Fechser Trust, and 636 shares held by Scott Hamilton, as Trustee of the Rachel
Fechser Trust. Scott Hamilton has sole investment power over these shares and
shares voting power over these shares with Mr. Binion; however, he expressly
disclaims beneficial ownership of any shares held by him as trustee of such
trusts, which are trusts established for the benefit of certain members of the
families of Mr. Binion or Phyllis M. Cope, for purposes of Sections 13(d) and
13(g) of the Exchange Act.

(6)  Includes 954 shares held by Wanda Parsons, as Trustee of the Katie ONeill
Trust, and 953 shares held by Wanda Parsons, as Trustee of the Kellie ONeill
Trust. Wanda Parsons has sole investment power over these shares and shares
voting power over these shares with Mr. Binion; however, she expressly
disclaims beneficial ownership of any shares held by her as trustee of such
trusts, which are trusts established for the benefit of certain members of the
families of Mr. Binion or Phyllis M. Cope, for purposes of Sections 13(d) and
13(g) of the Exchange Act.

(7)  Includes 28 shares subject to options that are currently exercisable or
will become exercisable within 60 days.

43



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##### Table of Contents



(8)  Includes 19 shares subject to options that are currently exercisable or
will become exercisable within 60 days.

(9)  Includes 20 shares subject to options that are currently exercisable or
will become exercisable within 60 days.

(10)  Includes 20 shares subject to options that are currently exercisable or
will become exercisable within 60 days.

(11)  Includes 106 shares subject to options that are currently exercisable or
will become exercisable within 60 days.

Equity Compensation Plan Information

The following table summarizes the Companys equity compensation plan
under which equity securities of the Company are authorized for issuance as of
December 31, 2002.

|                                                       |  |                         |     |                      |  |                       |        |     |  |  |       | 
|------------------------------------------------------ |  | ----------------------- | --- | -------------------- |  | --------------------- | ------ | --- |  |  | ----- | 
|                                                       |  | (a)                     |     |                      |  |                       |        | (c)
|                                                       |  | Number of               |     | (b)                  |  | Number of            
|                                                       |  | securities to be issued |     | Weighted-average     |  | securities remaining 
|                                                       |  | upon exercise of        |     | exercise price of    |  | available for future 
|                                                       |  | outstanding options,    |     | outstanding options, |  | issuance under equity
|Plan Category                                          |  | warrants and rights     |     | warrants and rights  |  | compensation plans(1)
|                                                       |  |                         |     |                      |  |                      
|Equity compensation plans
approved by stockholders(2)  |  |                         | 477 |                      |  | $                     | 13,624 |     |  |  | 2,023 | 
|Equity compensation plans not
approved by stockholders |  |                         | N/A |                      |  |                       | N/A    |     |  |  | N/A   | 
|                                                       |  |                         |     |                      |  |                       |        |     |  |  |       | 
|Total                                                  |  |                         | 477 |                      |  | $                     | 13,624 |     |  |  | 2,023 | 
|                                                       |  |                         |     |                      |  |                       |        |     |  |  |       | 



---

|(1) |  | Excluding securities reflected in column (a).                                                                                                                                                 
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) |  | Includes the Horseshoe Gaming Holding Corp Equity Incentive Plan, a
description of which is set forth in Note 11 to the consolidated financial
statements set forth on pages F-1 through F-25.




Item 13. Certain Relationships and Related Transactions.

In July 2000 the Company loaned Kirk C. Saylor, the Companys Senior Vice
President and Chief Financial Officer, $0.2 million evidenced by a promissory
note. The note required bi-weekly payments of $743 including interest at 8%
and was due July 2005. The note was secured by a second mortgage on Mr.
Saylors personal residence. The note was repaid in full by Mr. Saylor during
2002.

Item 14. Controls and Procedures.

The Company maintains disclosure controls and procedures that are designed
to ensure that information required to be disclosed in the Companys Exchange
Act reports is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commissions rules and forms,
and that such information is accumulated and communicated to the Companys
management, including its Chief Executive Officer and Chief Financial Officer,
as appropriate, to allow timely decisions regarding required disclosure. In
designing and evaluating the disclosure controls and procedures, management
recognized that any controls and procedures, no matter how well designed and
operated, can provide only reasonable assurance of achieving the desired
control objectives, and management necessarily was required to apply its
judgment in evaluating the cost-benefit relationship of possible controls and
procedures.

44



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##### Table of Contents



Within 90 days prior to the date of this report, the Company carried out
an evaluation, under the supervision and with the participation of the
Companys management, including the Companys Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the Companys disclosure controls
and procedures. Based on the foregoing, the Companys Chief Executive Officer
and Chief Financial Officer concluded that the Companys disclosure controls
and procedures were effective.

There have been no significant changes in the Companys internal controls
or in other factors that could significantly affect the internal controls
subsequent to the date the Company completed its evaluation.

45



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##### Table of Contents






PART IV




Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.



|(a)(1) |  | Index to Consolidated Financial Statements:
|------ |  | -------------------------------------------

|                              |  |       
|----------------------------- |  | ------
|                              |  | Page  
|                              |  | Number
|                              |  |       
|HORSESHOE GAMING HOLDING CORP |  | F-1   



|(2) |  | All schedules have been omitted as the required information is
inapplicable or not present in amounts sufficient to require submission
of the schedule, or because the information is presented in the
consolidated financial statements or related notes thereto. The
exhibits listed on the accompanying Exhibit Index are filed as part of
this Form 10-K.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(3) |  | Exhibits                                                                                                                                                                                                                                                                                                                                                     

|        |  |             |  |                                                                                                                                                                                                                                                         
|------- |  | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |            
|Number  |  | Description
|        |  |            
|2.1     |  | (i.)        |  | Agreement and Plan of Merger by and among Argosy Gaming
Company, Joliet Acquisition Corporation, Empress Casino
Joliet Corporation, and Horseshoe Gaming Holding Corp.
dated as of April 12, 2001.                                                      
|3.1     |  | (c.)        |  | Certificate of Incorporation of Horseshoe Gaming Holding
Corp.                                                                                                                                                                                          
|3.2     |  | (c.)        |  | By-laws of Horseshoe Gaming Holding Corp.                                                                                                                                                                                                               
|4.1     |  | (c.)        |  | Indenture, dated as of May 11, 1999, by and between
Horseshoe Gaming Holding Corp. and U.S. Trust Company,
National Association.                                                                                                                        
|4.2     |  | (c.)        |  | Second Supplemental Indenture, dated as of May 11, 1999,
to Indenture, dated as of October 10, 1995, by and
between Horseshoe Gaming, L.L.C., Robinson Property
Group Limited Partnership and U.S. Trust Company,
National Association.                 
|4.3     |  | (c.)        |  | Amendment No. 1 to Second Ship Mortgage on the whole of
the Horseshoe Casino & Hotel, Tunica executed by
Robinson Property Group Limited Partnership, as Owner
and Mortgagor, in favor of Horseshoe Gaming, L.L.C. and
United Trust Company of New York.
|4.4     |  | (n.)        |  | Intercompany Note due May 15, 2009 executed by Horseshoe
Hammond, Inc. in favor of Horseshoe Gaming Holding Corp.                                                                                                                                       
|4.5     |  | (e.)        |  | Horseshoe Gaming Holding Corp. Credit Agreement, dated
as of June 30, 1999, by and among Horseshoe Gaming
Holding Corp., the Lenders listed therein, DLJ Capital
Funding, Inc. and Canadian Imperial Bank of Commerce.                                  
|4.6     |  | (f.)        |  | Amendment No. 1 to Horseshoe Gaming Holding Corp. Credit
Agreement, dated as of November 18, 1999, by and among
Horseshoe Gaming Holding Corp., the Lenders listed
therein, DLJ Capital Funding, Inc. and Canadian Imperial
Bank of Commerce.           
|4.7     |  | (f.)        |  | Amendment No. 2 to Horseshoe Gaming Holding Corp. Credit
Agreement, dated as of November 30, 1999, by and among
Horseshoe Gaming Holding Corp., the Lenders listed
therein, DLJ Capital Funding, Inc. and Canadian Imperial
Bank of Commerce.           
|4.8     |  | (f.)        |  | Amendment No. 3 to Horseshoe Gaming Holding Corp. Credit
Agreement, dated as of January 20, 2000, by and among
Horseshoe Gaming Holding Corp., the Lenders listed
therein, DLJ Capital Funding, Inc. and Canadian Imperial
Bank of Commerce.            
|4.9     |  | (j.)        |  | Amendment No. 4 to Horseshoe Gaming Holding Corp. Credit
Agreement, dated as of July 20, 2001, by and among
Horseshoe Gaming Holding Corp., the Lenders listed
therein, Credit Suisse First Boston and Canadian
Imperial Bank of Commerce.              
|4.10    |  | (k.)        |  | Amendment No. 5 to Horseshoe Gaming Holding Corp. Credit
Agreement, dated as of September 1, 2001, by and among
Horseshoe Gaming Holding Corp., the Lenders listed
therein, Credit Suisse First Boston and Canadian
Imperial Bank of Commerce.          
|10.1    |  | (c.)        |  | Horseshoe Note Pledge and Security Agreement, dated as
of and on May 11, 1999, by and among Horseshoe Gaming
Holding Corp., Horseshoe Gaming, L.L.C. and U.S. Trust
Company, National Association.                                                      
|10.2    |  | (c.)        |  | Guarantee, dated as of May 11, 1999, by Robinson
Property Group, Limited Partnership for the benefit of
Horseshoe Gaming Holding Corp.                                                                                                                  
|10.3    |  | (c.)        |  | Guarantee, dated as of May 11, 1999, by Horseshoe
Entertainment for the benefit of Horseshoe Gaming
Holding Corp.                                                                                                                                       

46



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##### Table of Contents



|        |  |             |  |                                                                                                                                                                                                                                                
|------- |  | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |            
|Number  |  | Description
|        |  |            
|10.4    |  | (c.)        |  | Stockholders Agreement for Horseshoe Gaming Holding
Corp., dated as of April 29, 1999, by and among
Horseshoe Gaming Holding Corp. and parties listed
therein.                                                                                
|10.5    |  | (a.)        |  | Exclusive License Agreement, dated July 2, 1998, by and
between Horseshoe Gaming, L.L.C. and Horseshoe License
Company.                                                                                                                        
|10.6    |  | (b.)        |  | Agreement, dated as of April 21, 1999, by and among
Horseshoe Gaming, L.L.C., Horseshoe Gaming, Inc.,
Horseshoe Entertainment, LP, and New Gaming Capital
Partnership; Jack B. Binion; The Robin Group, Inc. and
August Robin.                 
|10.7    |  | (b.)        |  | Agreement, dated as of April 21, 1999, by and among
Horseshoe Gaming, L.L.C., Horseshoe Gaming, Inc.,
Horseshoe Entertainment, LP, and New Gaming Capital
Partnership; Jack B. Binion; Wendell Piper; Cassandra
Piper; and Robert E. Piper, Jr.
|10.8    |  | (d.)        |  | Consulting Agreement, dated as of July 23, 1999, by and
between Horseshoe Gaming, L.L.C. and Empress
Entertainment, Inc.                                                                                                                       
|10.9    |  | (f.)        |  | Equity Incentive Plan dated as of January 1, 1999 by and
between Horseshoe Gaming Holding Corp. and certain
employees.                                                                                                                         
|10.10   |  | (g.)        |  | Empress Casino Joliet Settlement Agreement between the
Illinois Gaming Board, Horseshoe Gaming Holding Corp.,
Empress Casino Joliet Corporation and Jack Binion, dated
January 31, 2001.                                                       
|10.11   |  | (l.)        |  | Amended and Restated Executive Severance Agreement,
dated November 30, 2001, by and between Horseshoe Gaming
Holding Corp. and Roger P. Wagner.                                                                                                
|10.12   |  | (l.)        |  | Amended and Restated Executive Severance Agreement,
dated November 30, 2001, by and between Horseshoe Gaming
Holding Corp. and Kirk C. Saylor.                                                                                                 
|10.13   |  | (l.)        |  | Amended and Restated Executive Severance Agreement,
dated November 30, 2001, by and between Horseshoe Gaming
Holding Corp. and Peri N. Howard.                                                                                                 
|10.14   |  | (l.)        |  | Executive Severance Agreement, dated November 30, 2001
by and between Horseshoe Gaming Holding Corp. and
Dominic F. Polizzotto.                                                                                                                
|10.15   |  | (h.)        |  | Executive Severance Agreement, dated August 21, 2001, by
and between Horseshoe Gaming Holding Corp. and Floyd B.
Hannon.                                                                                                                       
|10.16   |  | (h.)        |  | Horseshoe Gaming Holding Corp. Deferred Compensation
Plan.                                                                                                                                                                                     
|10.17   |  | (l.)        |  | First, Second, Third and Fourth Amendments of the
Horseshoe Gaming Holding Corp. Deferred Compensation
Plan.                                                                                                                                   
|10.18   |  | (m.)        |  | Fourth Amendment to the Hammond Riverboat Gaming Project
Development Agreement, dated as of October 26, 2001.                                                                                                                                  
|10.19   |  | (m.)        |  | Horseshoe Gaming Holding Corp. Executive Supplemental
Medical Plan, effective January 1, 2002.                                                                                                                                                 
|10.20   |  | (m.)        |  | First Amendment to the Horseshoe Gaming Holding Corp.
Equity Incentive Plan.                                                                                                                                                                   
|10.21   |  | (m.)        |  | Second Amendment to the Horseshoe Gaming Holding Corp.
Equity Incentive Plan.                                                                                                                                                                  
|10.22   |  | (n.)        |  | Stipulation, dated March 18, 2003, in regards to
Horseshoe Entertainment and the Louisiana Gaming Control
Board.                                                                                                                               
|21.1    |  | (n.)        |  | Subsidiaries of Horseshoe Gaming Holding Corp.                                                                                                                                                                                                 
|99.1    |  | (n.)        |  | Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.                                                                                                                        
|99.2    |  | (n.)        |  | Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.                                                                                                                        



---

|     |  |                                                                                                                                   
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------
|(a.) |  | Filed as an Exhibit to Horseshoe Gaming, L.L.C. Form 10-K for the fiscal
year ended December 31, 1999.                            
|(b.) |  | Filed as an Exhibit to Horseshoe Gaming, L.L.C. Form 10-Q filed on May
3, 1999.                                                   
|(c.) |  | Filed as an Exhibit to Horseshoe Gaming Holding Corp.s Form S-4
Registration Statement filed on June 15, 1999.                   
|(d.) |  | Filed as an Exhibit to Amendment No. 1 to Horseshoe Gaming Holding
Corps Form S-4 Registration Statement filed on July 30, 1999. 
|(e.) |  | Filed as an Exhibit to Amendment No. 2 to Horseshoe Gaming Holding
Corps Form S-4 Registration Statement filed on August 2, 1999.
|(f.) |  | Filed as an Exhibit to Horseshoe Gaming Holding Corp. Form 10-K on March
30, 2000.                                                
|(g.) |  | Filed as an Exhibit to Horseshoe Gaming Holding Corp. Form 8-K on
February 7, 2001.                                               
|(h.) |  | Filed as an Exhibit to Horseshoe Gaming Holding Corp. Form 10-K on April
2, 2001.                                                 
|(i.) |  | Filed as an Exhibit to Horseshoe Gaming Holding Corp. Form 8-K on April
19, 2001.                                                 
|(j.) |  | Filed as an Exhibit to Horseshoe Gaming Holding Corp. Form 10-Q on
August l4, 2001.                                               
|(k.) |  | Filed as an Exhibit to Horseshoe Gaming Holding Corp. Form 10-Q on
November 14, 2001.                                             
|(l.) |  | Filed as an Exhibit to Horseshoe Gaming Holding Corp. Form 10-K on March
21, 2002.                                                
|(m.) |  | Filed as an Exhibit to Horseshoe Gaming Holding Corp. Form 10-Q on May
7, 2002.                                                   
|(n.) |  | Filed herewith.                                                                                                                   

Reports on Form 8-K: None

47



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##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

|                     |  |                                                       |  |                                                                          
|-------------------- |  | ----------------------------------------------------- |  | -------------------------------------------------------------------------
|                     |  | Horseshoe Gaming Holding Corp.
a Delaware corporation
|Date: March 21, 2003 |  | By:                                                   |  | /s/ Jack B. Binion                                                       
|                     |  |                                                       |  |                                                                          
|                     |  |                                                       |  | Jack B. Binion                                                           
|                     |  | Its:                                                  |  | Chief Executive Officer, Secretary
and Chairman of the Board of Directors

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.

|                                     |  |                                                                                                         |  |               
|------------------------------------ |  | ------------------------------------------------------------------------------------------------------- |  | --------------
|Signature                            |  | Title                                                                                                   |  | Date          
|                                     |  |                                                                                                         |  |               
|                                     |  |                                                                                                         |  |               
|/s/ Jack B. Binion

Jack B. Binion   |  | Chief Executive Officer, Secretary and
Chairman of the Board of Directors
(Principal Executive Officer) |  | March 21, 2003
|/s/ Peri N. Howard

Peri N. Howard   |  | Director                                                                                                |  | March 21, 2003
|/s/ Leslie L. Kenny

Leslie L. Kenny |  | Director                                                                                                |  | March 21, 2003
|/s/ Kirk C. Saylor

Kirk C. Saylor   |  | Chief Financial Officer and Treasurer
(Principal Financial and Accounting
Officer)                      |  | March 21, 2003

48



---



##### Table of Contents






CERTIFICATION

I, Kirk C. Saylor, certify that:



|1. |  | I have reviewed this annual report on Form 10-K of Horseshoe Gaming
Holding Corp.;                                                                                                                                                                                                                                      
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;                   
|  
|4. |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                               



| | (a) |  | Designed such disclosure controls and procedures
to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly
during the period in which this annual report is being
prepared;                                                                       
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | Evaluated the effectiveness of the registrants
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this annual report (the
Evaluation Date); and
(c) Presented in this annual report our conclusions
about the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation Date;
|
| | (c) |  | Presented in this annual
report our conclusions about the effectiveness of the disclosure
controls and procedures based on our evaluation as of the Evaluation
Date;                                                                                                                                                                                               



|5. |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (a) |  | All significant deficiencies in the design or
operation of internal controls which could adversely affect
the registrants ability to record, process, summarize and
report financial data and have identified for the registrants
auditors any material weaknesses in internal controls; and
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | Any fraud, whether or not material, that involves
management or other employees who have a significant role in
the registrants internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                     |  |                                       
|-------------------- |  | --------------------------------------
|Date: March 21, 2003 |  | /s/ Kirk C. Saylor                    
|                     |  |                                       
|                     |  | Kirk C. Saylor
Chief Financial Officer

49



---



##### Table of Contents



CERTIFICATION

I, Jack B. Binion, certify that:



|1) |  | I have reviewed this annual report on Form 10-K of Horseshoe Gaming
Holding Corp.;                                                                                                                                                                                                                                      
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2) |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
|  
|3) |  | Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;                   
|  
|4) |  | The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:                                                                                               



| | (a) |  | Designed such disclosure controls and procedures
to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly
during the period in which this annual report is being
prepared;
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | Evaluated the effectiveness of the registrants
disclosure controls and procedures as of a date within 90 days
prior to the filing date of this annual report (the
Evaluation Date); and                                                                                                  
|
| | (c) |  | Presented in this annual report our conclusions
about the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation Date;                                                                                                                        



|5) |  | The registrants other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (a) |  | All significant deficiencies in the design or
operation of internal controls which could adversely affect
the registrants ability to record, process, summarize and
report financial data and have identified for the registrants
auditors any material weaknesses in internal controls; and
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | Any fraud, whether or not material, that involves
management or other employees who have a significant role in
the registrants internal controls; and                                                                                                                                        



|6) |  | The registrants other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                     |  |                                       
|-------------------- |  | --------------------------------------
|Date: March 21, 2003 |  | /s/ Jack B. Binion                    
|                     |  |                                       
|                     |  | Jack B. Binion
Chief Executive Officer

50



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##### Table of Contents



Supplemental Information to Be Furnished With Reports Filed Pursuant to Section
15(d) of the Act by Registrants which have not registered Securities Pursuant
to Section 12 of the Act.

No annual report or proxy material will be provided to security holders by the
Company.

51



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##### Table of Contents



HORSESHOE GAMING HOLDING CORP. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS

|                                         |                                                                                         |  |      |     | 
|---------------------------------------- | --------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                         |                                                                                         |  | Page
|                                         |                                                                                         |  |     
|Independent Auditors Report             |                                                                                         |  | F-2  |    
|Report of Independent Public Accountants |                                                                                         |  | F-3  |    
|Consolidated Financial Statements:       |                                                                                         |  |      |    
|                                         | Balance sheets as of December 31, 2002 and 2001                                         |  |      | F-4 | 
|                                         | Statements of operations for the years ended December 31, 2002, 2001 and 2000           |  |      | F-5 | 
|                                         | Statements of stockholders equity for the years ended December 31, 2002, 2001 and 2000 |  |      | F-6 | 
|                                         | Statements of cash flows for the years ended December 31, 2002, 2001 and 2000           |  |      | F-7 | 
|                                         | Notes to consolidated financial statements                                              |  |      | F-8 | 

F-1



---



##### Table of Contents






INDEPENDENT AUDITORS REPORT

To the Stockholders of Horseshoe Gaming Holding Corp.

We have audited the accompanying consolidated balance sheet of Horseshoe
Gaming Holding Corp. and subsidiaries (Company) as of December 31, 2002, and
the related consolidated statement of operations, stockholders equity, and
cash flows for the year then ended. These financial statements are the
responsibility of the Companys management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit. The
consolidated financial statements of Horseshoe Gaming Holding Corp. as of
December 31, 2001 and for the years ended December 31, 2001 and 2000, before
the inclusion of the disclosures discussed in Note 6 to the consolidated
financial statements, were audited by other auditors who have ceased
operations. Those auditors expressed an unqualified opinion on those financial
statements in their report dated February 15, 2002.

We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free from material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.

In our opinion, the 2002 consolidated financial statements present fairly,
in all material respects, the financial position of Horseshoe Gaming Holding
Corp. and subsidiaries as of December 31, 2002, and the results of their
operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America.

As discussed above, the consolidated financial statements of Horseshoe
Gaming Holding Corp., as of December 31, 2001 and for the years ended December
31, 2001 and 2000 were audited by other auditors who have ceased operations.
As described in Note 6, these financial statements have been revised to include
the transitional disclosures required by Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142), which was
adopted by the Company as of January 1, 2002. Our audit procedures with
respect to the disclosures in Note 6 with respect to 2001 and 2000 included (1)
comparing the previously reported net income to the previously issued financial
statements and the adjustments to reported net income representing amortization
expense recognized in those periods related to goodwill and
intangible assets that are no longer being
amortized as a result of initially applying SFAS 142 to the Companys
underlying analysis obtained from management, (2) testing the mathematical
accuracy of the reconciliation of adjusted net income to reported net income.
In our opinion, the disclosures for 2001 and 2000 in Note 6 are appropriate.
However, we were not engaged to audit, review or apply any procedures to the
2001 and 2000 consolidated financial statements of the Company other than with
respect to such disclosures and, accordingly, we do not express an opinion or
any other form of assurance on the 2001 and 2000 consolidated financial
statements taken as a whole.

As discussed in Note 6 to the consolidated financial statements, in 2002,
the Company changed its method of accounting for goodwill and other intangible
assets to conform to Statement of Financial Accounting Standards No. 142
Goodwill and Other Intangible Assets.

/s/ Deloitte & Touche LLP

Memphis, Tennessee
March 19, 2003

F-2



---



##### Table of Contents






REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Horseshoe Gaming Holding Corp.:

We have audited the accompanying consolidated balance sheets of HORSESHOE
GAMING HOLDING CORP. AND SUBSIDIARIES (the Company) (a Delaware corporation)
as of December 31, 2001 and 2000, and the related consolidated statements of
operations, stockholders equity and cash flows for each of the three years in
the period ended December 31, 2001. These financial statements are the
responsibility of the Companys management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Horseshoe Gaming Holding
Corp. and Subsidiaries as of December 31, 2001 and 2000, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States.

Arthur Andersen LLP

Memphis, Tennessee,
February 15, 2002.

EXPLANATORY NOTE REGARDING REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

On May 24, 2002, Horseshoe Gaming Holding Corp. (the Company) decided to
terminate Arthur Andersen LLP as the Companys independent public accountants
and on June 21, 2002 engaged Deloitte & Touche LLP to serve as its independent
public accountants for the year ending December 31, 2002. More information
regarding the Companys change in independent public accountants is contained
in its current report on Form 8-K filed with the Securities and Exchange
Commission on May 30, 2002.

The Company could not obtain permission of Arthur Andersen LLP to the
inclusion in this Annual Report on Form 10-K of their Report of Independent
Public Accountants above. Accordingly, the Arthur Andersen LLP Report of
Independent Public Accountants herein is merely reproduced from Horseshoe
Gaming Holding Corp.s Annual Report on Form 10-K for the year ended December
31, 2001 (although the consolidated balance sheet as of December 31, 2000 and
the consolidated statements of operations, changes in shareholders equity, and
cash flows for the year ended December 31, 1999 referred to in that report are
not included herein) and does not include the manual signature of Arthur
Andersen LLP. The conviction of the Companys former independent public
accountants, Arthur Andersen LLP, on federal obstruction of justice charges may
adversely affect Arthur Andersen LLPs ability to satisfy any claims arising
from the provision of auditing services to the Company and may impede the
Companys access to the capital markets.

F-3



---



##### Table of Contents






HORSESHOE GAMING HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31
(dollars in thousands, except share data)

|                                                |                                                                                                                                  |                                                                                                 |                             |                      |        |         |           |         |         |         |         | 
|----------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------- | --------------------------- | -------------------- | ------ | ------- | --------- | ------- | ------- | ------- | ------- | 
|                                                |                                                                                                                                  |                                                                                                 |                             |                      |        | 2002    |           | 2001   
|                                                |                                                                                                                                  |                                                                                                 |                             |                      |        |         |           |        
|ASSETS                                         
|Current assets                                  |                                                                                                                                  |                                                                                                 |                             |                      |        |         |           |        
|                                                |                                                                                                                                  | Cash and cash equivalents                                                                       |                             | $                    | 87,373 |         |           | $       | 220,817 |        
|                                                |                                                                                                                                  | Restricted cash                                                                                 |                             |                      | 14,286 |         |           |         | 14,059  |        
|                                                |                                                                                                                                  | Accounts receivable, net of allowance for doubtful
accounts of $6,779 and $13,160, respectively |                             |                      | 12,555 |         |           |         | 13,516  |        
|                                                |                                                                                                                                  | Inventories                                                                                     |                             |                      | 5,418  |         |           |         | 5,031   |        
|                                                |                                                                                                                                  | Prepaid expenses and other                                                                      |                             |                      | 7,825  |         |           |         | 12,152  |        
|                                                |                                                                                                                                  |                                                                                                 |                             |                      |        |         |           |        
|                                                |                                                                                                                                  |                                                                                                 |                             | Total current assets |        |         | 127,457   |         |         |         | 265,575 | 
|                                                |                                                                                                                                  |                                                                                                 |                             |                      |        |         |           |        
|Property and equipment, net                     |                                                                                                                                  |                                                                                                 | 471,003                     |                      |        |         | 482,379   |        
|Goodwill                                        |                                                                                                                                  |                                                                                                 | 252,242                     |                      |        |         | 254,413   |        
|Other, net                                      |                                                                                                                                  |                                                                                                 | 50,857                      |                      |        |         | 54,892    |        
|                                                |                                                                                                                                  |                                                                                                 |                             |                      |        |         |           |        
|                                                |                                                                                                                                  | $                                                                                               | 901,559                     |                      |        | $       | 1,057,259 |        
|                                                |                                                                                                                                  |                                                                                                 |                             |                      |        |         |           |        
|LIABILITIES AND STOCKHOLDERS EQUITY            |                                                                                                                                  |                                                                                                 |                             |                     
|Current liabilities                             |                                                                                                                                  |                                                                                                 |                             |                      |        |         |           |        
|                                                | Accounts payable                                                                                                                 |                                                                                                 | $                           | 8,860                |        |         | $         | 13,426  |        
|                                                | Accrued expenses and other                                                                                                       |                                                                                                 |                             | 99,492               |        |         |           | 81,428  |        
|                                                | Current maturities of long-term debt                                                                                             |                                                                                                 |                             |                     |        |         |           | 9,823   |        
|                                                |                                                                                                                                  |                                                                                                 |                             |                      |        |         |           |        
|                                                |                                                                                                                                  |                                                                                                 | Total current liabilities   |                      |        | 108,352 |           |         |         | 104,677 |        
|                                                |                                                                                                                                  |                                                                                                 |                             |                      |        |         |           |        
|Long-term liabilities                           |                                                                                                                                  |                                                                                                 |                             |                      |        |         |           |        
|                                                | Long-term debt, less current maturities                                                                                          |                                                                                                 |                             | 556,773              |        |         |           | 729,698 |        
|                                                | Other long-term liabilities                                                                                                      |                                                                                                 |                             | 6,923                |        |         |           | 10,699  |        
|                                                |                                                                                                                                  |                                                                                                 |                             |                      |        |         |           |        
|                                                |                                                                                                                                  |                                                                                                 | Total long-term liabilities |                      |        | 563,696 |           |         |         | 740,397 |        
|                                                |                                                                                                                                  |                                                                                                 |                             |                      |        |         |           |        
|Commitments and contingencies (Notes 13 and 14) |                                                                                                                                  |                                                                                                 |                             |                      |        |         |           |        
|Stockholders equity                            |                                                                                                                                  |                                                                                                 |                             |                      |        |         |           |        
|                                                | Common stock, $.01 par value, 50,000 shares authorized, 25,000
shares issued, 23,077 and 23,145 shares outstanding, respectively |                                                                                                 |                             |                     |        |         |           |        |        
|                                                | Additional paid-in capital                                                                                                       |                                                                                                 |                             | 59,808               |        |         |           | 59,808  |        
|                                                | Retained earnings                                                                                                                |                                                                                                 |                             | 225,001              |        |         |           | 205,162 |        
|                                                |                                                                                                                                  |                                                                                                 |                             |                      |        |         |           |        
|                                                |                                                                                                                                  |                                                                                                 | 284,809                     |                      |        |         | 264,970   |        
|                                                | Treasury stock, at cost, 1,923 and 1,855 shares, respectively                                                                    |                                                                                                 |                             | (55,298              | )      |         |           | (52,785 | )      
|                                                |                                                                                                                                  |                                                                                                 |                             |                      |        |         |           |        
|                                                |                                                                                                                                  |                                                                                                 | Total stockholders equity  |                      |        | 229,511 |           |         |         | 212,185 |        
|                                                |                                                                                                                                  |                                                                                                 |                             |                      |        |         |           |        
|                                                |                                                                                                                                  | $                                                                                               | 901,559                     |                      |        | $       | 1,057,259 |        
|                                                |                                                                                                                                  |                                                                                                 |                             |                      |        |         |           |        

The accompanying notes are an integral part of these
consolidated financial statements.

F-4



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##### Table of Contents






HORSESHOE GAMING HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31
(in thousands)

|                                                             |                                       |                              |         |          |         |      |           |          |         |   |           |          |         |  
|------------------------------------------------------------ | ------------------------------------- | ---------------------------- | ------- | -------- | ------- | ---- | --------- | -------- | ------- | - | --------- | -------- | ------- | -
|                                                             |                                       |                              |         | 2002     |         | 2001 |           | 2000    
|                                                             |                                       |                              |         |          |         |      |           |         
|Revenues                                                     |                                       |                              |         |          |         |      |           |          |         |   |           |         
|                                                             | Casino                                |                              | $       | 827,599  |         |      | $         | 916,955  |         |   | $         | 960,927  |        
|                                                             | Food and beverage                     |                              |         | 79,384   |         |      |           | 87,876   |         |   |           | 85,212   |        
|                                                             | Hotel                                 |                              |         | 28,772   |         |      |           | 29,697   |         |   |           | 32,169   |        
|                                                             | Retail and other                      |                              |         | 19,290   |         |      |           | 20,856   |         |   |           | 20,411   |        
|                                                             |                                       |                              |         |          |         |      |           |          |         |   |           |         
|                                                             |                                       |                              | 955,045 |          |         |      | 1,055,384 |          |         |   | 1,098,719 |         
|                                                             | Promotional allowances and other      |                              |         | (142,479 | )       |      |           | (122,126 | )       |   |           | (117,889 | )      
|                                                             |                                       |                              |         |          |         |      |           |          |         |   |           |         
|                                                             |                                       | Net revenues                 |         |          | 812,566 |      |           |          | 933,258 |   |           |          | 980,830 |  
|                                                             |                                       |                              |         |          |         |      |           |          |         |   |           |         
|Expenses                                                     |                                       |                              |         |          |         |      |           |          |         |   |           |         
|                                                             | Casino                                |                              |         | 434,887  |         |      |           | 528,827  |         |   |           | 523,423  |        
|                                                             | Food and beverage                     |                              |         | 24,067   |         |      |           | 27,245   |         |   |           | 34,378   |        
|                                                             | Hotel                                 |                              |         | 2,351    |         |      |           | 2,963    |         |   |           | 4,146    |        
|                                                             | Retail and other                      |                              |         | 7,051    |         |      |           | 7,502    |         |   |           | 6,918    |        
|                                                             | General and administrative            |                              |         | 117,574  |         |      |           | 119,877  |         |   |           | 127,659  |        
|                                                             | Corporate expenses                    |                              |         | 25,538   |         |      |           | 22,483   |         |   |           | 37,945   |        
|                                                             | Deferred compensation                 |                              |         | 10,229   |         |      |           | (410     | )       |   |           | 8,338    |        
|                                                             | Preopening expenses                   |                              |         |         |         |      |           | 4,064    |         |   |           |         |        
|                                                             | Net loss (gain) on disposal of assets |                              |         | 5,033    |         |      |           | (163,845 | )       |   |           | (1,602   | )      
|                                                             | Depreciation and amortization         |                              |         | 56,036   |         |      |           | 66,945   |         |   |           | 81,468   |        
|                                                             |                                       |                              |         |          |         |      |           |          |         |   |           |         
|                                                             |                                       | Total expenses               |         |          | 682,766 |      |           |          | 615,651 |   |           |          | 822,673 |  
|                                                             |                                       |                              |         |          |         |      |           |          |         |   |           |         
|Operating income                                             |                                       |                              | 129,800 |          |         |      | 317,607   |          |         |   | 158,157   |         
|Other income (expense)                                       |                                       |                              |         |          |         |      |           |          |         |   |           |         
|                                                             | Interest expense                      |                              |         | (61,243  | )       |      |           | (82,720  | )       |   |           | (98,894  | )      
|                                                             | Interest income                       |                              |         | 2,299    |         |      |           | 3,971    |         |   |           | 2,683    |        
|                                                             | Other, net                            |                              |         | (974     | )       |      |           | 382      |         |   |           | (1,232   | )      
|                                                             |                                       |                              |         |          |         |      |           |          |         |   |           |         
|                                                             |                                       | Total other income (expense) |         |          | (59,918 | )    |           |          | (78,367 | ) |           |          | (97,443 | )
|                                                             |                                       |                              |         |          |         |      |           |          |         |   |           |         
|Income before extraordinary loss
on early retirement of debt |                                       |                              | 69,882  |          |         |      | 239,240   |          |         |   | 60,714    |         
|Extraordinary loss on early retirement of debt               |                                       |                              | (9,683  | )        |         |      | (6,893    | )        |         |   |          |         
|                                                             |                                       |                              |         |          |         |      |           |          |         |   |           |         
|Net income                                                   |                                       | $                            | 60,199  |          |         | $    | 232,347   |          |         | $ | 60,714    |         
|                                                             |                                       |                              |         |          |         |      |           |          |         |   |           |         

The accompanying notes are an integral part of these
consolidated financial statements.

F-5



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##### Table of Contents






HORSESHOE GAMING HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
FOR YEARS ENDED DECEMBER 31, 2002, 2001 and 2000
(in thousands)

|                                           |            |   |          |   |         |   |          |   |       |   |         |         |   |   |         |         |  
|------------------------------------------ | ---------- | - | -------- | - | ------- | - | -------- | - | ----- | - | ------- | ------- | - | - | ------- | ------- | -
|                                           |            |   | Treasury |   | Paid-in |   | Retained |   |       |   |        
|                                           |            |   | Stock    |   | Capital |   | Earnings |   | Total
|                                           |            |   |          |   |         |   |          |   |      
|Balance, January 1, 2000                   |            | $ | (28,832  | ) |         | $ | 46,637   |   |       | $ | 16,789  |         |   | $ | 34,594  |        
|Dividends:                                 |            |   |          |   |         |   |          |   |       |   |         |         |   |   |         |        
|                                           | Cash       |   |          |  |         |   |          |  |       |   |         | (36,395 | ) |   |         | (36,395 | )
|                                           | Receivable |   |          |  |         |   |          |  |       |   |         | 2,159   |   |   |         | 2,159   |  
|Increase in redeemable ownership
interests |            |   |         |   |         |   | (400     | ) |       |   |        |         |   |   | (400    | )      
|Treasury stock purchases                   |            |   | (14,542  | ) |         |   | 6,478    |   |       |   |        |         |   |   | (8,064  | )      
|Net income                                 |            |   |         |   |         |   |         |   |       |   | 60,714  |         |   |   | 60,714  |        
|                                           |            |   |          |   |         |   |          |   |       |   |         |         |   |   |         |        
|Balance, December 31, 2000                 |            |   | (43,374  | ) |         |   | 52,715   |   |       |   | 43,267  |         |   |   | 52,608  |        
|Dividends:                                 |            |   |          |   |         |   |          |   |       |   |         |         |   |   |         |        
|                                           | Cash       |   |          |  |         |   |          |  |       |   |         | (71,255 | ) |   |         | (71,255 | )
|                                           | Receivable |   |          |  |         |   |          |  |       |   |         | 803     |   |   |         | 803     |  
|Treasury stock purchases                   |            |   | (9,411   | ) |         |   | 7,093    |   |       |   |        |         |   |   | (2,318  | )      
|Net income                                 |            |   |         |   |         |   |         |   |       |   | 232,347 |         |   |   | 232,347 |        
|                                           |            |   |          |   |         |   |          |   |       |   |         |         |   |   |         |        
|Balance, December 31, 2001                 |            |   | (52,785  | ) |         |   | 59,808   |   |       |   | 205,162 |         |   |   | 212,185 |        
|Dividends:                                 |            |   |          |   |         |   |          |   |       |   |         |         |   |   |         |        
|                                           | Cash       |   |          |  |         |   |          |  |       |   |         | (27,845 | ) |   |         | (27,845 | )
|                                           | Payable    |   |          |  |         |   |          |  |       |   |         | (12,515 | ) |   |         | (12,515 | )
|Treasury stock purchases                   |            |   | (2,513   | ) |         |   |         |   |       |   |        |         |   |   | (2,513  | )      
|Net income                                 |            |   |         |   |         |   |         |   |       |   | 60,199  |         |   |   | 60,199  |        
|                                           |            |   |          |   |         |   |          |   |       |   |         |         |   |   |         |        
|Balance, December 31, 2002                 |            | $ | (55,298  | ) |         | $ | 59,808   |   |       | $ | 225,001 |         |   | $ | 229,511 |        
|                                           |            |   |          |   |         |   |          |   |       |   |         |         |   |   |         |        

The accompanying notes are an integral part of these
consolidated financial statements.

F-6



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HORSESHOE GAMING HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
(in thousands)

|                                               |                                                                                   |                                                                    |                                                     |          |         |          |         |          |          |          |         |          |        |          |  
|---------------------------------------------- | --------------------------------------------------------------------------------- | ------------------------------------------------------------------ | --------------------------------------------------- | -------- | ------- | -------- | ------- | -------- | -------- | -------- | ------- | -------- | ------ | -------- | -
|                                               |                                                                                   |                                                                    |                                                     |          | 2002    |          | 2001    |          | 2000    
|                                               |                                                                                   |                                                                    |                                                     |          |         |          |         |          |         
|Cash flows from operating activities           |                                                                                   |                                                                    |                                                     |          |         |          |         |          |          |          |         |         
|                                               | Net income                                                                        |                                                                    | $                                                   | 60,199   |         |          | $       | 232,347  |          |          | $       | 60,714   |       
|                                               | Adjustments to reconcile net income to
net cash provided by operating activities: |                                                                    |                                                     |          |         |          |         |          |          |          |         |          |       
|                                               |                                                                                   | Depreciation and amortization                                      |                                                     |          | 56,036  |          |         |          | 66,945   |          |         |          | 81,468 |         
|                                               |                                                                                   | Net loss (gain) on disposal of assets                              |                                                     |          | 5,033   |          |         |          | (163,845 | )        |         |          | (1,602 | )       
|                                               |                                                                                   | Amortization of debt discounts,
deferred finance charges and other |                                                     |          | 2,918   |          |         |          | 3,964    |          |         |          | 4,468  |         
|                                               |                                                                                   | Provision for doubtful accounts                                    |                                                     |          | 4,068   |          |         |          | 7,226    |          |         |          | 7,651  |         
|                                               |                                                                                   | Deferred compensation                                              |                                                     |          | 10,229  |          |         |          | (410     | )        |         |          | 8,338  |         
|                                               |                                                                                   | Extraordinary loss on early retirement of debt                     |                                                     |          | 9,683   |          |         |          | 6,893    |          |         |          |       |         
|                                               |                                                                                   | Increase in restricted cash                                        |                                                     |          | (10,727 | )        |         |          |         |          |         |          |       |         
|                                               |                                                                                   | Net change in current assets and liabilities                       |                                                     |          | (14,818 | )        |         |          | (14,988  | )        |         |          | (9,949 | )       
|                                               |                                                                                   |                                                                    |                                                     |          |         |          |         |          |          |          |         |         
|                                               |                                                                                   |                                                                    | Net cash provided by operating activities           |          |         | 122,621  |         |          |          | 138,132  |         |          |        | 151,088  |  
|                                               |                                                                                   |                                                                    |                                                     |          |         |          |         |          |          |          |         |         
|Cash flows from investing activities           |                                                                                   |                                                                    |                                                     |          |         |          |         |          |          |          |         |         
|                                               | Purchases of property and equipment                                               |                                                                    |                                                     | (43,768  | )       |          |         | (44,137  | )        |          |         | (74,551  | )     
|                                               | Proceeds from sale of property and equipment                                      |                                                                    |                                                     | 485      |         |          |         | 241      |          |          |         | 6,292    |       
|                                               | Net proceeds from sale of Joliet                                                  |                                                                    |                                                     |         |         |          |         | 442,662  |          |          |         |         |       
|                                               | Indemnification escrow related to Joliet sale                                     |                                                                    |                                                     | 10,500   |         |          |         | (14,059  | )        |          |         |         |       
|                                               | Goodwill                                                                          |                                                                    |                                                     |         |         |          |         |         |          |          |         | (80      | )     
|                                               | Net increase in other assets                                                      |                                                                    |                                                     | (3,240   | )       |          |         | (14,126  | )        |          |         |         |       
|                                               |                                                                                   |                                                                    |                                                     |          |         |          |         |          |          |          |         |         
|                                               |                                                                                   |                                                                    | Net cash provided by (used in) investing activities |          |         | (36,023  | )       |          |          | 370,581  |         |          |        | (68,339  | )
|                                               |                                                                                   |                                                                    |                                                     |          |         |          |         |          |          |          |         |         
|Cash flows from financing activities           |                                                                                   |                                                                    |                                                     |          |         |          |         |          |          |          |         |         
|                                               | Proceeds from long-term debt                                                      |                                                                    |                                                     | 83,000   |         |          |         | 55,000   |          |          |         | 49,500   |       
|                                               | Repayments on long-term debt                                                      |                                                                    |                                                     | (266,031 | )       |          |         | (351,590 | )        |          |         | (293,079 | )     
|                                               | Decrease in restricted cash                                                       |                                                                    |                                                     |         |         |          |         |         |          |          |         | 159,002  |       
|                                               | Capital dividends                                                                 |                                                                    |                                                     | (27,041  | )       |          |         | (69,096  | )        |          |         | (38,024  | )     
|                                               | Debt issue costs and commitment fees                                              |                                                                    |                                                     | (7,457   | )       |          |         | (343     | )        |          |         | (291     | )     
|                                               | Purchase of stock for treasury                                                    |                                                                    |                                                     | (2,513   | )       |          |         |         |          |          |         |         |       
|                                               |                                                                                   |                                                                    |                                                     |          |         |          |         |          |          |          |         |         
|                                               |                                                                                   |                                                                    | Net cash used in financing activities               |          |         | (220,042 | )       |          |          | (366,029 | )       |          |        | (122,892 | )
|                                               |                                                                                   |                                                                    |                                                     |          |         |          |         |          |          |          |         |         
|Net change in cash and cash equivalents        |                                                                                   |                                                                    | (133,444                                            | )        |         |          | 142,684 |          |          |          | (40,143 | )       
|Cash and cash equivalents, beginning of period |                                                                                   |                                                                    | 220,817                                             |          |         |          | 78,133  |          |          |          | 118,276 |         
|                                               |                                                                                   |                                                                    |                                                     |          |         |          |         |          |          |          |         |         
|Cash and cash equivalents, end of period       |                                                                                   | $                                                                  | 87,373                                              |          |         | $        | 220,817 |          |          | $        | 78,133  |         
|                                               |                                                                                   |                                                                    |                                                     |          |         |          |         |          |          |          |         |         

The accompanying notes are an integral part of these
consolidated financial statements.

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##### Table of Contents






HORSESHOE GAMING HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2002

1. ORGANIZATION AND BASIS OF PRESENTATION

Horseshoe Gaming Holding Corp., a Delaware corporation, and subsidiaries,
(the Company), conducts casino gaming, hotel and other related operations at
riverboat casinos under the Horseshoe names in Bossier City, Louisiana;
Tunica County, Mississippi and Hammond, Indiana. In addition, the Company
owned and operated the Empress Casino Joliet (Joliet or Empress Joliet) in
Joliet, Illinois from December 1, 1999 until July 31, 2001 (see Note 3).

A description of each principal subsidiary is as follows:



| |  |  | New Gaming Capital Partnership (NGCP) is a Nevada limited
partnership which was formed on February 4, 1993. NGCP is 100%
owned by the Company and its subsidiary, Horseshoe GP, Inc. and
owns 91.92% of Horseshoe Entertainment (HE), a Louisiana limited
partnership, which owns and operates the Horseshoe Bossier City
(Bossier City). The remaining 8.08% is owned by the Company.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Robinson Property Group, Limited Partnership (RPG) is a
Mississippi limited partnership, which was formed on June 7, 1993.
RPG owns and operates the Horseshoe Tunica (Tunica) located in
Tunica County, Mississippi, and is 100% owned by the Company and
its subsidiary, Horseshoe GP, Inc.                                                                                           
|
| |  |  | Horseshoe Hammond, Inc. (Hammond), formerly Empress
Casino Hammond Corporation, is an Indiana corporation, which was
formed on November 25, 1992. The Company acquired Hammond from
Empress Entertainment, Inc. on December 1, 1999. Hammond owns and
operates the Horseshoe Casino in Hammond, Indiana and is 100% owned
by the Company.                                                 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of the Company
and all of its subsidiaries (see Note 1). All significant intercompany
accounts and transactions have been eliminated.

Cash and Cash Equivalents

Cash equivalents are highly liquid investments with an original maturity
of three months or less and are stated at the lower of cost or market.

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##### Table of Contents



2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Restricted Cash

Restricted cash represents net proceeds remaining in escrow to cover
future potential indemnifications related to the sale of Joliet (see Note 3)
and amounts on deposit for Hammond pursuant to the bonding requirements of the
Indiana Gaming Commission.

Inventories

Inventories are stated at the lower of cost, as determined on a first-in,
first-out basis, or market value and consist primarily of food, beverage,
retail merchandise, kitchen smallwares and employee wardrobe.

Property and Equipment

Property and equipment are stated at cost. The costs of normal repairs
and maintenance are expensed as incurred while major expenditures that extend
the useful lives of assets are capitalized.

Depreciation is provided on the straight-line basis over the estimated
useful lives as follows:

|                                        |  |    |  |    |  |      |  |      
|--------------------------------------- |  | -- |  | -- |  | ---- |  | -----
|Buildings, boat, barge and improvements |  | 15 |  | to |  | 31.5 |  | years
|Furniture, fixtures and equipment       |  | 2  |  | to |  | 10   |  | years

Impairment of Long-Lived Assets

When events or circumstances indicate that the carrying amount of
long-lived assets to be held and used might not be recoverable, the expected
future undiscounted cash flows from the assets is estimated and compared with
the carrying amount of the assets. If the sum of the estimated undiscounted
cash flows is less than the carrying amount of the assets, an impairment loss
is recorded. The impairment loss is measured on a property by property basis
by comparing the fair value of the assets with their carrying amount.
Long-lived assets that are held for disposal are reported at the lower of the
assets carrying amount or fair value less costs related to the assets
disposition.

Goodwill

Goodwill represents the cost of net assets acquired in excess of their
fair value. During the years ended December 31, 2001 and prior, the Company
amortized goodwill on a straight-line basis over 25 years, which management
estimated was the related minimum benefit period. In accordance with Financial
Accounting Standards Board (FASB) Statement of Financial Accounting Standards
(SFAS) No. 142 Goodwill and Other Intangible Assets (SFAS 142), effective
January 1, 2002, goodwill and intangible assets that are determined to have an
indefinite life are no longer amortized, but are subject to impairment testing
at least annually (see Note 6).

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##### Table of Contents



2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Capitalized Interest

The Company capitalizes interest for associated borrowing costs of major
construction projects. Capitalization of interest ceases when the asset is
substantially complete and ready for its intended use. During the years ended
December 31, 2002 and 2001 no interest was capitalized. Interest capitalized
during the year ended December 31, 2000 was $1.0 million.

Deferred Finance Charges

Deferred finance charges, which are included in other assets, consist of
fees and expenses incurred to obtain the Companys debt. The deferred finance
charges are being amortized over the term of the related debt using the
effective interest method (see Note 8). Deferred finance charges, net
of accumulated amortization, were $13.0 million at
December 31, 2002.

Revenue Recognition

Casino Revenues  Casino revenues are the aggregate of gaming wins and
losses.

Food, Beverage, Hotel, Retail and Other Revenues  Food, beverage, hotel,
retail and other revenues are recognized at the point of sale and include the
complimentary goods and services that are furnished to guests without charge.

Promotional Allowances and Other

Promotional allowances and other consists of the following:



| |  |  | The retail value of complimentary food and beverage,
rooms and other services furnished to guests without charge.                                                                                           
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The estimated cash value of slot club points earned by
guests. In order to induce casino play, customers using their
player cards all able to earn points through casino play which
are redeemable for cash.
|
| |  |  | Direct mail cash offers redeemed by guests.                                                                                                                                                                 
|
| |  |  | Customer discounts.                                                                                                                                                                                         

The retail value of complimentary food and beverage, rooms and other
services furnished to guests without charge was approximately $87.6 million,
$93.9 million and $85.9 million for the years ended December 31, 2002, 2001 and
2000, respectively. Such amounts are included in gross revenues and deducted
as promotional allowances and other. The estimated costs of providing such
complimentary services, which are included in casino department expenses, are
as follows (in thousands):

|                         |  |                          |        |      |  |      |        |  |  |   |        | 
|------------------------ |  | ------------------------ | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                         |  | Years ended December 31,
|                         |  |                         
|                         |  | 2002                     |        | 2001 |  | 2000
|                         |  |                          |        |      |  |     
|Food and beverage        |  | $                        | 60,842 |      |  | $    | 67,426 |  |  | $ | 61,555 | 
|Hotel                    |  |                          | 8,660  |      |  |      | 8,893  |  |  |   | 8,702  | 
|Other operating expenses |  |                          | 9,523  |      |  |      | 10,844 |  |  |   | 9,475  | 
|                         |  |                          |        |      |  |      |        |  |  |   |        | 
|                         |  | $                        | 79,025 |      |  | $    | 87,163 |  |  | $ | 79,732 | 
|                         |  |                          |        |      |  |      |        |  |  |   |        | 

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Preopening Expenses

The Company expenses preopening costs as incurred. During 2001, the
Company incurred preopening expenses related to the rebranding of Hammond.
Included in preopening expenses are advertising and production costs related to
the name change of approximately $2.0 million for the year ended December 31,
2001.

Capital Dividends

The Companys debt agreements contain covenants that limit dividends and
tax distributions to its stockholders. As of December 31, 2002, the maximum
permitted dividends that could be paid by the Company was $69.9 million. In
addition, tax distributions to the stockholders are based upon the Companys
taxable income and the highest marginal Federal and state individual statutory
tax rates in effect, which are applicable to any stockholder. Such tax
distributions are to be paid quarterly based upon estimated taxable income.
After filing of the annual tax returns by the Company and its subsidiaries,
each stockholder is to reimburse the Company for overpayments of tax
distributions or the Company is to withhold such amounts from future dividends
to the stockholders.

Advertising Costs

The costs associated with the production of advertising are expensed as
incurred while the costs of communication (airtime or space) are expensed after
the airtime or space has been used. Advertising costs are included in general
and administrative expenses in the accompanying consolidated statements of
operations and totaled approximately $17.4 million, $15.9 million and $19.7
million for the years ended December 31, 2002, 2001 and 2000, respectively.
Costs of communication which have been paid for but not used, totaled $0.1
million and $0.2 million as of December 31, 2002 and 2001, respectively, and
are included in prepaid expenses and other in the accompanying consolidated
balance sheets.

Corporate Expenses

Expenses associated with the management of the Company are recorded as
corporate expenses and are reflected in the accompanying consolidated
statements of operations in the periods such expenses are incurred.

Deferred Compensation

Deferred compensation in 2002 represents compensation expenses related to
the Equity Incentive Plan, and in 2001 and 2000, represents ownership interests
in the Company issued to employees pursuant to employment agreements and the
1997 Unit Option Plan (see Note 11).

Equity Incentive Plan

The Company has an Equity Incentive Plan in which stock options (with
tandem Stock Appreciation Rights (SARs)) or SARs are granted to certain key
employees. The stock options and/or SARs are expensed ratably, based on the
current market price, over their four year vesting period (see Note 11).

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Income Taxes

The Company is organized as a corporation under Delaware laws and has
elected to be taxed as an S Corporation for Federal income tax purposes.
Accordingly, no provision is made in the accounts of the Company for Federal
income taxes, as such taxes are liabilities of the stockholders or members.

The Companys income tax returns and the amount of allocable taxable
income are subject to examination by Federal and state taxing authorities. If
an examination results in a change to taxable income, the income tax reported
by the stockholders may also change.

Use of Estimates

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, and disclosure of contingent assets and liabilities,
at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.

Recently Issued Accounting Pronouncements

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. The Company will adopt
SFAS 143 in the first quarter of 2003. Adoption of SFAS 143 is not expected to
have a material impact on the Companys results of operations or financial
position.

Also in 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,
which was adopted by the Company on January 1, 2002, had no impact on the
Companys results of operations or financial position.

In April 2002, the FASB issued SFAS No. 145 Rescission of FASB Statements
No. 4, 44, and 64, Amendments of FASB Statement No. 13, and Technical
Corrections (SFAS 145). SFAS 145 rescinds SFAS No. 4, Reporting Gains and
Losses from Extinguishment of Debt, and an amendment of that statement, SFAS
No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements.
SFAS 145 also rescinds SFAS No. 44, Accounting for Intangible Assets of Motor
Carriers. SFAS 145 amends SFAS No. 13, Accounting for Leases, to eliminate
an inconsistency between the required accounting for sale-leaseback
transactions and the required accounting for certain lease modifications that
have economic effects that are similar to sale-leaseback transactions. SFAS
145 also amends other existing authoritative pronouncements to make various
technical corrections, clarify meanings, or describe their applicability under
changed conditions. The provisions of this statement related to the
rescission of SFAS No. 4 are effective for fiscal years beginning after May
15, 2002. Therefore,

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

this statement will have no impact on the financial statement presentation for
the year ended December 31, 2002. Upon adoption, the extraordinary losses
recognized in the year ended December 31, 2002 and the year ended December 31,
2001 will be reclassified within income from operations to conform to the
provisions of SFAS No. 145. The provisions of this statement related to SFAS
No. 13 are effective for financial statements issued on or after May 15, 2002.
The implementation of these remaining provisions did not have a material effect
on the Companys results of operations or financial position.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities (SFAS 146). SFAS 146 generally
requires companies to recognize costs associated with exit or disposal
activities when they are incurred rather than at the date of a commitment to an
exit or disposal plan, as previously required under EITF Issue 94-3. Examples
of costs covered by the standard include lease termination costs and certain
employee severance costs that are associated with a restructuring, discontinued
operation, plant closing, or other exit or disposal activity. SFAS 146 is to
be applied prospectively to exit or disposal activities initiated after
December 31, 2002. The Company will adopt SFAS 146 beginning January 1,
2003.

In October 2002, the FASB issued SFAS No. 147, Acquisitions of Certain
Financial Institutions  an amendment of FASB Statements No. 72 and 144 and
FASB Interpretation No. 9 (SFAS 147), which applies to all acquisitions of
financial institutions except those between two or more mutual enterprises.
SFAS 147 has no impact on the Companys results of operations or financial
position.

In December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation  Transition and Disclosure  an amendment of FASB
Statement No. 123 (SFAS 148), to provide alternative methods of transition
for a voluntary change to the fair-value-based method of accounting for
stock-based employee compensation. SFAS 148 also requires disclosure in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results. The transition guidance and annual disclosure provisions of SFAS 148
are effective for fiscal years ending after December 15, 2002. No additional
disclosures are required in the financial statements due to the provisions of
SFAS 148. No significant effect is anticipated from adoption (see Note 11).

In November 2002, the FASB published Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others which elaborates on the existing
disclosure requirements for most guarantees, including loan guarantees such as
standby letters of credit. It also clarifies that at the time a company issues
a guarantee, the company must recognize an initial liability for the fair
value, or market value, of the obligations it assumes under that guarantee and
must disclose that information in its interim and annual financial statements.
The initial recognition and initial measurement provisions apply on a
prospective basis to guarantees issued or modified after December 31, 2002.
The disclosure requirements in the Interpretation are effective for financial
statements of interim or annual periods ending after December 15, 2002.

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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

In January 2003, the FASB issued FASB Interpretation No. 46,
Consolidation of Variable Interest Entities (FIN 46), which addresses
consolidation by business enterprises where equity investors do not bear the
residual economic risks and rewards. These entities have been commonly referred
to as special-purpose entities. Companies are required to apply the
provisions of FIN 46 prospectively for all variable interest entities created
or entered into after January 31, 2003. For public companies, all interests
acquired before February 1, 2003 must follow the new rules in accounting
periods (fiscal or interim) beginning after June 15, 2003. FIN 46 is expected
to have no impact on the Companys results of operations or financial position.

3. SALE OF EMPRESS CASINO JOLIET

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 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. A gain of $165.5 million related to the sale of
Joliet is included in the net loss (gain) on disposal of assets for the year
ended December 31, 2001 in the accompanying consolidated statements of
operations.

Pursuant to the merger agreement in which the Company sold Joliet, the
Company deposited $16.3 million of the net proceeds into escrow to cover
potential future indemnifications related to the Joliet facility. Of this
amount, $2.3 million was disbursed in October 2001 and $10.5 million was
returned to the Company in November 2002. The escrowed funds, including
earnings, which totaled $3.7 million at December 31, 2002, are reflected as
restricted cash in the accompanying consolidated balance sheets.

Joliet did not contribute any revenues or profits for the year ended
December 31, 2002. Included in the accompanying consolidated statements of
operations, are net revenues from Joliet of $161.6 million and $240.3 million
for the years ended December 31, 2001 and 2000, respectively. Joliet also
contributed $47.4 million and $54.2 million of operating income before
corporate allocations and deferred compensation for the years ended December
31, 2001 and 2000, respectively.

4. ALLOWANCE FOR DOUBTFUL ACCOUNTS

Activity in the allowance for doubtful accounts consists of the following
(in thousands):

|                                                                                         |  |                          |         |      |  |      |        |   |  |   |        |  
|---------------------------------------------------------------------------------------- |  | ------------------------ | ------- | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                                                                         |  | As of and for the       
|                                                                                         |  | Years ended December 31,
|                                                                                         |  |                         
|                                                                                         |  | 2002                     |         | 2001 |  | 2000
|                                                                                         |  |                          |         |      |  |     
|Balance, beginning of period                                                             |  | $                        | 13,160  |      |  | $    | 13,112 |   |  | $ | 11,289 |  
|Additions charged to expense                                                             |  |                          | 4,068   |      |  |      | 7,226  |   |  |   | 7,651  |  
|Deductions from reserves and uncollectable accounts
written off, net of amounts received |  |                          | (10,449 | )    |  |      | (7,178 | ) |  |   | (5,828 | )
|                                                                                         |  |                          |         |      |  |      |        |   |  |   |        |  
|Balance, end of period                                                                   |  | $                        | 6,779   |      |  | $    | 13,160 |   |  | $ | 13,112 |  
|                                                                                         |  |                          |         |      |  |      |        |   |  |   |        |  

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5. PROPERTY AND EQUIPMENT

Property and equipment consists of the following (in thousands):

|                                        |  |                          |          |      |  |   |          |  
|--------------------------------------- |  | ------------------------ | -------- | ---- |  | - | -------- | -
|                                        |  | Years ended December 31,
|                                        |  |                         
|                                        |  | 2002                     |          | 2001
|                                        |  |                          |          |     
|Land and land improvements              |  | $                        | 33,053   |      |  | $ | 30,854   |  
|Buildings, boat, barge and improvements |  |                          | 487,444  |      |  |   | 481,563  |  
|Furniture, fixtures and equipment       |  |                          | 155,752  |      |  |   | 140,072  |  
|Construction in progress                |  |                          | 3,236    |      |  |   | 3,084    |  
|                                        |  |                          |          |      |  |   |          |  
|                                        |  |                          | 679,485  |      |  |   | 655,573  |  
|Accumulated depreciation                |  |                          | (208,482 | )    |  |   | (173,194 | )
|                                        |  |                          |          |      |  |   |          |  
|                                        |  | $                        | 471,003  |      |  | $ | 482,379  |  
|                                        |  |                          |          |      |  |   |          |  

6. GOODWILL AND OTHER INTANGIBLE ASSETS

On January 1, 2002 the Company adopted SFAS 142. 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 continue to be amortized over their useful lives.

The Company conducted its initial goodwill impairment test as of January
1, 2002 and its annual impairment test as of November 30, 2002. No impairment
charge was required on either of those tests. Going forward, impairment tests
will be conducted when conditions warrant but not less than annually.

The following table sets forth a reconciliation of income before
extraordinary item and net income, assuming that SFAS No. 142 was applied
during all periods presented.

|                                  |                                           |   |                          |        |      |   |         |         |  |   |        |        | 
|--------------------------------- | ----------------------------------------- | - | ------------------------ | ------ | ---- | - | ------- | ------- |  | - | ------ | ------ | 
|                                  |                                           |   | Years ended December 31,
|                                  |                                           |   |                         
|                                  |                                           |   | 2002                     |        | 2001 |   | 2000   
|                                  |                                           |   |                          |        |      |   |        
|Income before extraordinary item: |                                           |   |                          |        |      |   |         |         |  |   |        |       
|                                  | As reported                               |   | $                        | 69,882 |      |   | $       | 239,240 |  |   | $      | 60,714 | 
|                                  | Goodwill amortization                     |   |                          |       |      |   |         | 12,340  |  |   |        | 20,659 | 
|                                  | Indefinite-lived intangibles amortization |   |                          |       |      |   |         | 167     |  |   |        | 2,000  | 
|                                  |                                           |   |                          |        |      |   |         |         |  |   |        |       
|As adjusted                       |                                           | $ | 69,882                   |        |      | $ | 251,747 |         |  | $ | 83,373 |       
|                                  |                                           |   |                          |        |      |   |         |         |  |   |        |       

|            |                                           |   |                          |        |      |   |         |         |  |   |        |        | 
|----------- | ----------------------------------------- | - | ------------------------ | ------ | ---- | - | ------- | ------- |  | - | ------ | ------ | 
|            |                                           |   | Years ended December 31,
|            |                                           |   |                         
|            |                                           |   | 2002                     |        | 2001 |   | 2000   
|            |                                           |   |                          |        |      |   |        
|Net income: |                                           |   |                          |        |      |   |         |         |  |   |        |       
|            | As reported                               |   | $                        | 60,199 |      |   | $       | 232,347 |  |   | $      | 60,714 | 
|            | Goodwill amortization                     |   |                          |       |      |   |         | 12,340  |  |   |        | 20,659 | 
|            | Indefinite-lived intangibles amortization |   |                          |       |      |   |         | 167     |  |   |        | 2,000  | 
|            |                                           |   |                          |        |      |   |         |         |  |   |        |       
|As adjusted |                                           | $ | 60,199                   |        |      | $ | 244,854 |         |  | $ | 83,373 |       
|            |                                           |   |                          |        |      |   |         |         |  |   |        |       

During the third quarter of 2002, in accordance with Emerging Issue Task
Force (EITF) 93-7 Uncertainties Related to Income Taxes in a Purchase
Business Combination, the Company reduced goodwill and accrued liabilities by
$2.2 million related to the favorable resolution of an estimated tax liability
established in connection with the 1999 acquisition of Hammond.

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7. ACCRUED EXPENSES AND OTHER

Accrued expenses and other consists of the following (in thousands):

|                                           |  |                    |        |      |  |   |        | 
|------------------------------------------ |  | ------------------ | ------ | ---- |  | - | ------ | 
|                                           |  | As of December 31,
|                                           |  |                   
|                                           |  | 2002               |        | 2001
|                                           |  |                    |        |     
|Payroll and related liabilities            |  | $                  | 24,417 |      |  | $ | 22,230 | 
|Gaming, sales, use and property taxes      |  |                    | 16,342 |      |  |   | 13,541 | 
|Accrued shareholder distributions          |  |                    | 12,515 |      |  |   |       | 
|Progressive slot and slot club liabilities |  |                    | 10,648 |      |  |   | 10,122 | 
|Bossier City relicensing                   |  |                    | 7,400  |      |  |   |       | 
|Accrued interest                           |  |                    | 6,618  |      |  |   | 9,474  | 
|Insurance and guest claims payable         |  |                    | 1,638  |      |  |   | 5,338  | 
|Other accrued expenses                     |  |                    | 19,914 |      |  |   | 20,723 | 
|                                           |  |                    |        |      |  |   |        | 
|                                           |  | $                  | 99,492 |      |  | $ | 81,428 | 
|                                           |  |                    |        |      |  |   |        | 

8. LONG-TERM DEBT

Long-term debt consists of the following (in thousands):

|                                                                                                                                                                                                                     |  |                    |         |      |  |   |         |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | ------- | ---- |  | - | ------- | -
|                                                                                                                                                                                                                     |  | As of December 31,
|                                                                                                                                                                                                                     |  |                   
|                                                                                                                                                                                                                     |  | 2002               |         | 2001
|                                                                                                                                                                                                                     |  |                    |         |     
|8.625% Senior Subordinated Notes (effective interest rate
of 8.657%), due May 15, 2009, net of unamortized
discount of $1,242 and $1,437, interest payable semi-
annually on May 15 and November 15                  |  | $                  | 533,773 |      |  | $ | 533,578 |  
|9.375% Senior Subordinated Notes (effective interest of
9.384%), due June 15, 2007, net of unamortized
discount of $0 and $88, interest payable semi-
annually on June 15 and December 15                            |  |                    |        |      |  |   | 158,972 |  
|Senior Secured Revolving Credit Facility, secured by
substantially all of the assets of the Company, $150
million borrowing capacity, due September 30, 2004,
with variable interest rates based upon the
Eurodollar |  |                    | 23,000  |      |  |   |        |  
|Notes Payable, interest ranging from 4.75% to 12%                                                                                                                                                                    |  |                    |        |      |  |   | 46,971  |  
|                                                                                                                                                                                                                     |  |                    |         |      |  |   |         |  
|                                                                                                                                                                                                                     |  |                    | 556,773 |      |  |   | 739,521 |  
|Current maturities                                                                                                                                                                                                   |  |                    |        |      |  |   | (9,823  | )
|                                                                                                                                                                                                                     |  |                    |         |      |  |   |         |  
|                                                                                                                                                                                                                     |  | $                  | 556,773 |      |  | $ | 729,698 |  
|                                                                                                                                                                                                                     |  |                    |         |      |  |   |         |  

In July 2001, $65.0 million of the Companys 8.625% Senior Subordinated
Notes and $0.9 million of the Companys 9.375% Senior Subordinated Notes were
tendered in an Asset Sale Offer to its bondholders. As a result of these
retirements, the Company recorded an extraordinary loss on early retirement of
debt in the year ended December 31, 2001 in the amount of $6.9 million.

In June 2002, the Company called and retired the remaining 9.375% Senior
Subordinated Notes for $166.5 million, including call premium. As a result of
the retirement, the Company recorded an extraordinary loss on early retirement
of debt in the year ended December 31, 2002 in the amount of $9.7 million.

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8. LONG-TERM DEBT (continued)

In June 1999, the Company completed its $375.0 million Senior Secured
Credit Facility (the Credit Facility). The Credit Facility consisted of a
$250.0 million, five-year revolver and a $125.0 million, seven-year term loan.
In July 2001 the Company amended its Credit Facility to allow, among other
things, the reduction of its loan commitment to $150.0 million. All of the
operating subsidiaries guarantee the obligations under the Credit Facility.
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. As
of December 31, 2002 there was $23.0 million outstanding under the Credit
Facility.

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 debt
agreements also contain a provision that allows for an additional $50.0 million
in certain restricted payments, as defined in the agreements, as long as the
Company maintains a certain coverage ratio. As of December 31, 2002, the
Company met the coverage ratio requirement.

$23.0 million outstanding on the Companys Credit Facility will mature
during the year ending December 31, 2004. There are no other maturities of
long-term debt during the five year period ending December 31, 2007.

At December 31, 2002 and 2001, the fair market value of the 8.625% Senior
Subordinated Notes, based on quoted market prices was $569.8 million and $556.4
million, respectively. As of December 31, 2001, the fair market value of the
9.375% Senior Subordinated Notes, based on quoted market prices was $169.2
million. The fair market value of the Companys other long-term debt
approximated its carrying value as of December 31, 2001, based on the borrowing
rates currently available for debt with similar terms.

The Company is the issuer of certain debt securities that have been
guaranteed by HE, RPG and Hammond. The Company has no independent assets or
operations, the guarantees are full and unconditional and joint and several and
any subsidiaries of the Company other than the subsidiary guarantors are minor.

9. OWNERSHIP REPURCHASE MATTERS

During 2002, the Company purchased redeemable ownership interests of 0.3%
of the Company for $2.5 million in cash.

During 2001, the Company purchased redeemable ownership interests of 1.1%
of the Company for $8.0 million of notes payable. The Companys remaining
obligation under this purchase was $0 and $7.4 million as of December 31, 2002
and 2001, respectively.

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 $0.4 million reduction in
deferred compensation expense resulting

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9. OWNERSHIP REPURCHASE MATTERS (continued)

from the final valuation of this ownership interests. The Companys remaining
obligation under these purchases was $0 and $9.8 million as of December 31,
2002 and 2001, respectively.

During 1999, Horseshoe Gaming purchased redeemable ownership interests of
12.4% of Horseshoe Gaming for $67.9 million in notes payable. The Companys
remaining obligation under these purchases was $0 and $29.7 million as of
December 31, 2002 and 2001, respectively.

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, 2002 and 2001, the remaining amount to be
paid to these limited partners totaled $0.5 million and $3.2 million,
respectively, and is included in accrued expenses and other in the accompanying
consolidated balance sheets. During the first quarter of 2003, the remaining
amount owed to these former limited partners was paid.

10. TRANSACTIONS WITH RELATED PARTIES

In July 2000, the Company loaned an executive officer of the Company $0.2
million, evidenced by a promissory note. The note included interest at 8%, was
due July 2005 and was secured by a second mortgage on the officers personal
residence. The note was repaid in full during 2002.

A current owner, through an entity he owns, provides certain financial
consulting services to the Company. For the years ended December 31, 2002,
2001 and 2000, the Company paid fees of approximately $0.4 million, $0.4
million and $0.3 million, respectively, to this owner. In addition, this
entity received fees from various investment banking firms related to
transactions involving the sale of Joliet and the placement of the Companys
Credit Facility and 8.625% Senior Subordinated Notes. These fees totaled $0,
$1.7 million and $0.2 million in 2002, 2001, and 2000, respectively.

11. EMPLOYEE COMPENSATION AND BENEFITS

Deferred compensation expense represents compensation expenses related to
ownership interests in the Company issued to employees pursuant to employment
agreements, the 1997 Unit Option Plan, and the Equity Incentive Plan as follows
(in thousands):

|                             |  |                          |        |      |  |      |      |   |  |   |       | 
|---------------------------- |  | ------------------------ | ------ | ---- |  | ---- | ---- | - |  | - | ----- | 
|                             |  | Years ended December 31,
|                             |  |                         
|                             |  | 2002                     |        | 2001 |  | 2000
|                             |  |                          |        |      |  |     
|Employee ownership interests |  | $                        |       |      |  | $    |     |   |  | $ | 4,024 | 
|1997 Unit Option Plan        |  |                          |       |      |  |      |     |   |  |   | 913   | 
|Equity Incentive Plan        |  |                          | 10,229 |      |  |      | (410 | ) |  |   | 3,401 | 
|                             |  |                          |        |      |  |      |      |   |  |   |       | 
|                             |  | $                        | 10,229 |      |  | $    | (410 | ) |  | $ | 8,338 | 
|                             |  |                          |        |      |  |      |      |   |  |   |       | 

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11. EMPLOYEE COMPENSATION AND BENEFITS (continued)

Employee Ownership Interests

Certain former employees were issued ownership interests in the Company
pursuant to employment agreements. The employment agreements included a
put/call provision which required the Company to repurchase such employees
respective ownership interests in the Company in the event of termination at
the then fair market value based on an independent appraisal. Accordingly,
those compensation agreements were accounted for as variable stock purchase
plans. Deferred compensation expense or income was recorded each period equal
to the change in the fair market value of the ownership interest. As of
December 31, 2000, all of the put/call provisions in the employment agreements
had been exercised.

1997 Unit Option Plan

In 1997, the Company approved the 1997 Unit Option Plan, which provided
for certain employees to be granted options to purchase membership units in
Horseshoe Gaming at a fixed exercise price of $3.47 per unit. The Unit Option
Plan contained a put/call provision under the same terms as described above for
employee ownership interests. Accordingly, the Unit Option Plan was accounted
for as a variable stock purchase plan. Deferred compensation expense was
recorded each period based on vesting in an amount equal to the change in the
fair market value of the stock in the Company, provided such value exceeds the
exercise price of the options. As of December 31, 2000, all unit options had
been exercised.

Equity Incentive Plan

During 1999, the Company approved the Horseshoe Gaming Holding Corp.
Equity Incentive Plan which provides for (i) certain employees to be granted
stock options (with tandem Stock Appreciation Rights (SARs)) to purchase
stock in the Company and, (ii) certain other employees to be granted SARs to
share in the increase in the market value of the stock options and SARs as
determined in accordance with the Equity Incentive Plan. The exercise price
for the stock options/SARs is determined in accordance with the plan document
and represents managements best estimate of the fair market value at the date
of grant. The stock options/SARs vest over a period of four years and expire
in ten years.

The Company has amended the Equity Incentive Plan to modify the valuation
methodology for options and SARs granted after January 1, 2002. Options and
SARs granted prior to January 1, 2002 will continue to be valued using the old
method.

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##### Table of Contents



11. EMPLOYEE COMPENSATION AND BENEFITS (continued)

The following table represents stock option (with tandem SARs) activity
for the three years ended December 31, 2002:

|                                 |  |           |        |           |         |               |        |   |        | 
|-------------------------------- |  | --------- | ------ | --------- | ------- | ------------- | ------ | - | ------ | 
|                                 |  |           |        | Number    |         | Average Price
|                                 |  |           |        | of Shares |         | per Share    
|                                 |  |           |        |           |         |              
|Balance, December 31, 1999       |  |           | 145.74 |           |         | $             | 13,641 |  
|                                 |  | Issued    |        |           | 157.25  |               |        | $ | 44,488 | 
|                                 |  | Cancelled |        |           | (34.76  | )             |        | $ | 27,488 | 
|                                 |  | Exercised |        |           | (32.87  | )             |        | $ | 13,637 | 
|                                 |  |           |        |           |         |               |        |  
|Balance, December 31, 2000       |  |           | 235.36 |           |         | $             | 32,211 |  
|                                 |  | Issued    |        |           | 568.53  |               |        | $ | 22,303 | 
|                                 |  | Cancelled |        |           | (348.25 | )             |        | $ | 30,842 | 
|                                 |  | Exercised |        |           | (38.13  | )             |        | $ | 13,641 | 
|                                 |  |           |        |           |         |               |        |  
|Balance, December 31, 2001       |  |           | 417.51 |           |         | $             | 21,557 |  
|                                 |  | Issued    |        |           | 212.95  |               |        | $ | 4,940  | 
|                                 |  | Exercised |        |           | (153.90 | )             |        | $ | 23,129 | 
|                                 |  |           |        |           |         |               |        |  
|Balance, December 31, 2002       |  |           | 476.56 |           |         | $             | 13,624 |  
|                                 |  |           |        |           |         |               |        |  
|Exercisable at December 31, 2002 |  |           | 7.88   |           |         | $             | 33,366 |  
|                                 |  |           |        |           |         |               |        |  

The following table represents SAR activity for the three years ended December 31, 2002:

|                                 |           |  |           |          |               |   |        |        | 
|-------------------------------- | --------- |  | --------- | -------- | ------------- | - | ------ | ------ | 
|                                 |           |  | Number    |          | Average Price
|                                 |           |  | of Shares |          | per Share    
|                                 |           |  |           |          |              
|Balance, December 31, 1999       |           |  | 171.51    |          |               | $ | 13,660 |       
|                                 | Issued    |  |           | 466.10   |               |   | $      | 45,203 | 
|                                 | Cancelled |  |           | (33.60   | )             |   | $      | 25,781 | 
|                                 | Exercised |  |           | (40.69   | )             |   | $      | 13,660 | 
|                                 |           |  |           |          |               |   |        |       
|Balance, December 31, 2000       |           |  | 563.32    |          |               | $ | 39,036 |       
|                                 | Issued    |  |           | 1,118.15 |               |   | $      | 21,774 | 
|                                 | Cancelled |  |           | (886.59  | )             |   | $      | 32,491 | 
|                                 | Exercised |  |           | (28.54   | )             |   | $      | 13,660 | 
|                                 |           |  |           |          |               |   |        |       
|Balance, December 31, 2001       |           |  | 766.34    |          |               | $ | 22,333 |       
|                                 | Issued    |  |           | 442.65   |               |   | $      | 5,062  | 
|                                 | Cancelled |  |           | (51.46   | )             |   | $      | 19,604 | 
|                                 | Exercised |  |           | (265.49  | )             |   | $      | 23,650 | 
|                                 |           |  |           |          |               |   |        |       
|Balance, December 31, 2002       |           |  | 892.04    |          |               | $ | 13,528 |       
|                                 |           |  |           |          |               |   |        |       
|Exercisable at December 31, 2002 |           |  | 18.05     |          |               | $ | 36,744 |       
|                                 |           |  |           |          |               |   |        |       

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11. EMPLOYEE COMPENSATION AND BENEFITS (continued)

Options and SARs cancelled and issued during 2001 include the activity
resulting from a reduction of the exercise price of options and SARs issued in
2000 and 2001 by 25% due to the sale of Joliet. The sale prompted this
adjustment in order to more accurately set the exercise price of the options
and SARs to an amount more consistent with a pricing that would have occurred
if the Company had not owned Joliet when the options and SARs were issued. In
total, 1,044.7 options and SARs with an average exercise price of $30,964 were
adjusted to an average exercise price of $23,223. The estimated market price
on the date of adjustment was $16,500.

401(k) Savings Plan

The Company maintains a 401(k) Savings Plan whereby eligible employees may
contribute up to 50% of their earnings to the plan, on a pre-tax basis.
Employees are eligible to participate in the plan on the first day of the next
calendar quarter following six months of service. In addition, the Company
provides a matching contribution of 100% of the first 2% and 50% of the next 4%
of the employees contributions. Employees vest in the Companys matching
contributions over four years. The Companys matching contributions were $3.8
million, $4.2 million and $3.5 million for the years ended December 31, 2002,
2001 and 2000, respectively.

Deferred Compensation Plan

The Company maintains a nonqualified deferred compensation plan for
certain key employees. The plan allows participants to defer, on a pre-tax
basis, a portion of their salary and accumulate tax deferred earnings, plus
interest, as a retirement fund. These deferrals are in addition to those
allowed under the Companys 401(k) Savings Plan. All deferred amounts vest
immediately. There are no employer matching contributions made under this plan.
The employer can make discretionary contributions to the plan. The full
amount vested in a participants account will be distributed to a participant
following termination of employment, normal retirement or in the event of
disability or death.

12. SUPPLEMENTAL CASH FLOW DISCLOSURES

The net change in current assets and liabilities consists of the following
(in thousands):

|                                                 |                                                                   |                            |         |                          |        |      |         |        |        |   |        |         |        |  
|------------------------------------------------ | ----------------------------------------------------------------- | -------------------------- | ------- | ------------------------ | ------ | ---- | ------- | ------ | ------ | - | ------ | ------- | ------ | -
|                                                 |                                                                   |                            |         | Years ended December 31,
|                                                 |                                                                   |                            |         |                         
|                                                 |                                                                   |                            |         | 2002                     |        | 2001 |         | 2000  
|                                                 |                                                                   |                            |         |                          |        |      |         |       
|                                                 | (Increase) decrease in assets:                                    |                            |         |                          |        |      |         |        |        |   |        |         |       
|                                                 |                                                                   | Accounts receivable        |         | $                        | (2,706 | )    |         | $      | (7,975 | ) |        | $       | (7,117 | )
|                                                 |                                                                   | Inventories                |         |                          | (387   | )    |         |        | 290    |   |        |         | (162   | )
|                                                 |                                                                   | Prepaid expenses and other |         |                          | (1,417 | )    |         |        | 405    |   |        |         | (5,223 | )
|                                                 | (Decrease) increase in liabilities:                               |                            |         |                          |        |      |         |        |        |   |        |         |       
|                                                 |                                                                   | Accounts payable           |         |                          | (4,579 | )    |         |        | (3,531 | ) |        |         | 6,555  |  
|                                                 |                                                                   | Accrued expenses and other |         |                          | (5,729 | )    |         |        | (4,177 | ) |        |         | (4,002 | )
|                                                 |                                                                   |                            |         |                          |        |      |         |        |        |   |        |        
|                                                 |                                                                   | $                          | (14,818 | )                        |        | $    | (14,988 | )      |        | $ | (9,949 | )      
|                                                 |                                                                   |                            |         |                          |        |      |         |        |        |   |        |        
|Supplemental Cash Flow Disclosure (in thousands) |                                                                   |                            |         |                          |        |      |         |        |        |   |        |        
|                                                 | Cash paid for interest, net of amounts capitalized                |                            | $       | 60,776                   |        |      | $       | 80,894 |        |   | $      | 100,044 |       
|                                                 | Repurchase common stock for debt                                  |                            | $       |                         |        |      | $       | 8,043  |        |   | $      | 13,175  |       
|                                                 | Increase in assets and liabilities associated
with Empress Merger |                            | $       |                         |        |      | $       |       |        |   | $      | 156,578 |       

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13. LEASE COMMITMENTS

The Company and its subsidiaries lease both real estate and equipment used
in its operations and classifies those leases as operating leases following the
provisions of SFAS No. 13 Accounting for Leases. As of December 31, 2002,
the Company did not have any capital leases.

Hammond entered into a lease providing for the right to use the site of
the development and the parking structure, which was conveyed to the City of
Hammond upon completion. The term of the lease automatically extends for a
period equal to each renewal period of the operating license provided that the
total term will not exceed 75 years. Hammond has paid in full the rent for the
amount of $1.00 per year for the term of the lease.

Rent expense for the years ended December 31, 2002, 2001 and 2000 was
approximately $7.9 million, $8.9 million and $8.2 million, respectively.

As of December 31, 2002, the Company is obligated under non-cancelable
operating leases to make future minimum lease payments as follows (in
thousands):

|                       |       |   |       |       | 
|---------------------- | ----- | - | ----- | ----- | 
|Year ended December 31 |       |   |       |      
|                       |       |   |       |      
|2003                   |       | $ | 1,637 |      
|2004                   |       |   | 994   |      
|2005                   |       |   | 627   |      
|2006                   |       |   | 229   |      
|2007                   |       |   | 163   |      
|Thereafter             |       |   | 440   |      
|                       |       |   |       |      
|                       | Total |   | $     | 4,090 | 
|                       |       |   |       |      

In addition to these minimum rental commitments, certain of the Companys
operating leases provide for contingent rentals based on a percentage of
revenues in excess of specified amounts.

14. COMMITMENTS AND CONTINGENCIES

Severance Agreements

The Company has employment agreements and executive severance agreements
with its senior executives which provide for payments to the executives in the
event of their termination after a change of control, as defined. These
agreements provide for, among other things, a payment of up to 2.99 times
executives annual salary and bonus, as defined, as well as for accelerated
vesting of stock options and SARs upon a change of control, as defined. The
estimated amount payable to the executives under these arrangements, excluding
any payments for stock options and SARs, was approximately $15.4 million and
$14.0 million as of January 1, 2003 and 2002, respectively.

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14. COMMITMENTS AND CONTINGENCIES (continued)

Self-Insurance

The Company is partially self-insured for general liability, workers
compensation and employee medical coverage. Insurance claims and reserves
include accruals of estimated settlements for known claims, as well as accruals
of estimates of incurred but not reported claims. These amounts are included
in accrued expenses and other in the accompanying consolidated balance sheets.

Litigation

The Company and its subsidiaries are from time to time, party to legal
proceedings arising in the ordinary course of business. Except as discussed
below, the Company is unaware of any legal proceedings which, even if the
outcome were unfavorable to the Company, would have a material adverse impact
on either its financial condition or results of operations.

On June 2, 2000, a lawsuit was filed in the United States District Court
for the Northern District of Indiana, against the Company and the Companys
subsidiary in Hammond, Indiana (Horseshoe Hammond or Hammond) on behalf of
current and former employees of Horseshoe Hammond alleging that Horseshoe
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 alleged certain tort claims based on poor air
quality and sought certification as a class on behalf of similarly situated
current and former employees of Horseshoe Hammond. On May 8, 2002, the United
States District Court denied Plaintiffs request for class certification and on
October 18, 2002, plaintiffs counsel amended the suit to add 25 additional
plaintiffs. Horseshoe Hammond and the Company deny the allegations in the
complaint asserted by the named employees and intend to vigorously contest this
matter.

In 1996, legislation was passed in Louisiana authorizing each parish
Police Jury, including 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 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 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 $1.5
million regardless of actual revenue. Subsequently, legislation was passed
increasing the maximum amount the Bossier Police Jury could collect to $3.00
per person boarding gaming boats in Bossier City. 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 Parish as opposed to a per person boarding
fee and (iii) certify the suit as a class action on behalf of all citizens and
taxpayers of Bossier Parish. The Company believes the suit is without merit
and will vigorously defend itself in the action, including the validity of the
contract.

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14. COMMITMENTS AND CONTINGENCIES (continued)

In addition, Billy Brooks Hudson, among others, filed a lawsuit seeking
the exact same relief sought in the case filed by Wellborn, as described above.
The suit brought by Hudson had previously been dismissed. However, in August
2002, the Louisiana Court of Appeals found that Billy Brooks Hudson, among
others, have the right as taxpayers to prosecute a suit against the City of
Bossier and others, seeking the same relief sought in the case filed by
Wellborn on July 5, 2001. Accordingly, the Louisiana Court of Appeals directed
that the trial court reinstate in the 26th Judicial District Court, Bossier
Parish Louisiana, the previously dismissed case of Hudson et.al. v. City of
Bossier et.al. The Company believes that, like the Wellborn suit, the Hudson
suit is without merit and the Company will vigorously defend itself in the
action.

Hammond Commitment

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 and an additional parking facility. These new
amenities may be located in several areas adjacent to the existing operation on
real estate that is owned or controlled by the City and other local
governmental agencies (collectively the Lessors). The Lessors agreed to lease
such real estate to Hammond for a period of approximately 69 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
and at the same time, exercised a portion of its lease option. This payment is
being charged to rent expense and amortized over the remaining term of the
lease. In addition, Hammond is required to pay a security deposit to the
Lessors of $3.25 million. The Fourth Amendment also requires that Hammond
relocate the existing public boat launch ramp to a permanent location. The
relocation of the boat launch ramp is estimated to be completed in the second
quarter of 2003.

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15. SUBSEQUENT EVENTS

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 (the Enforcement Division) on November 22,
1993 for a five year period. HE timely submitted its renewal application to
the Enforcement Division and on October 20, 1998, the Louisiana Gaming Control
Board (the Gaming Control Board) granted HEs license renewal subject to a
suitability review. HEs license renewal was extended on October 19, 1999,
subject to completion of a suitability review. The Enforcement Division
filed a report (the Report) with the Louisiana Gaming Control Board on May
13, 2002, documenting the results of its suitability review. The Report noted
a number of issues in Horseshoes history and dealings with the State of
Louisiana that, in the view of the Enforcement Division, should be considered
by the Gaming Control Board prior to making the final determination on HEs
license renewal application. HE believed the Report inaccurately describes
certain matters. On March 18, 2003, the Gaming Control Board approved a
stipulation finding HE and its owners suitable and renewed the casino gaming
license of HE through November of 2004. In the stipulation, HE offered to
modify certain procedures regarding procurement and minority procurement
reporting, among other things. HE also agreed to pay $7.4 million to the State
of Louisiana in conjunction with the relicensing. This charge is included in
general and administrative expense in the Companys statement of operations for
the year ended December 31, 2002.

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EXHIBIT INDEX

|        |  |             |  |                                                                                                                                                                                                                                                         
|------- |  | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |            
|Number  |  | Description
|        |  |            
|2.1     |  | (i.)        |  | Agreement and Plan of Merger by and among Argosy Gaming
Company, Joliet Acquisition Corporation, Empress Casino
Joliet Corporation, and Horseshoe Gaming Holding Corp.
dated as of April 12, 2001.                                                      
|3.1     |  | (c.)        |  | Certificate of Incorporation of Horseshoe Gaming Holding
Corp.                                                                                                                                                                                          
|3.2     |  | (c.)        |  | By-laws of Horseshoe Gaming Holding Corp.                                                                                                                                                                                                               
|4.1     |  | (c.)        |  | Indenture, dated as of May 11, 1999, by and between
Horseshoe Gaming Holding Corp. and U.S. Trust Company,
National Association.                                                                                                                        
|4.2     |  | (c.)        |  | Second Supplemental Indenture, dated as of May 11, 1999,
to Indenture, dated as of October 10, 1995, by and
between Horseshoe Gaming, L.L.C., Robinson Property
Group Limited Partnership and U.S. Trust Company,
National Association.                 
|4.3     |  | (c.)        |  | Amendment No. 1 to Second Ship Mortgage on the whole of
the Horseshoe Casino & Hotel, Tunica executed by
Robinson Property Group Limited Partnership, as Owner
and Mortgagor, in favor of Horseshoe Gaming, L.L.C. and
United Trust Company of New York.
|4.4     |  | (n.)        |  | Intercompany Note due May 15, 2009 executed by Horseshoe
Hammond, Inc. in favor of Horseshoe Gaming Holding Corp.                                                                                                                                       
|4.5     |  | (e.)        |  | Horseshoe Gaming Holding Corp. Credit Agreement, dated
as of June 30, 1999, by and among Horseshoe Gaming
Holding Corp., the Lenders listed therein, DLJ Capital
Funding, Inc. and Canadian Imperial Bank of Commerce.                                  
|4.6     |  | (f.)        |  | Amendment No. 1 to Horseshoe Gaming Holding Corp. Credit
Agreement, dated as of November 18, 1999, by and among
Horseshoe Gaming Holding Corp., the Lenders listed
therein, DLJ Capital Funding, Inc. and Canadian Imperial
Bank of Commerce.           
|4.7     |  | (f.)        |  | Amendment No. 2 to Horseshoe Gaming Holding Corp. Credit
Agreement, dated as of November 30, 1999, by and among
Horseshoe Gaming Holding Corp., the Lenders listed
therein, DLJ Capital Funding, Inc. and Canadian Imperial
Bank of Commerce.           
|4.8     |  | (f.)        |  | Amendment No. 3 to Horseshoe Gaming Holding Corp. Credit
Agreement, dated as of January 20, 2000, by and among
Horseshoe Gaming Holding Corp., the Lenders listed
therein, DLJ Capital Funding, Inc. and Canadian Imperial
Bank of Commerce.            
|4.9     |  | (j.)        |  | Amendment No. 4 to Horseshoe Gaming Holding Corp. Credit
Agreement, dated as of July 20, 2001, by and among
Horseshoe Gaming Holding Corp., the Lenders listed
therein, Credit Suisse First Boston and Canadian
Imperial Bank of Commerce.              
|4.10    |  | (k.)        |  | Amendment No. 5 to Horseshoe Gaming Holding Corp. Credit
Agreement, dated as of September 1, 2001, by and among
Horseshoe Gaming Holding Corp., the Lenders listed
therein, Credit Suisse First Boston and Canadian
Imperial Bank of Commerce.          
|10.1    |  | (c.)        |  | Horseshoe Note Pledge and Security Agreement, dated as
of and on May 11, 1999, by and among Horseshoe Gaming
Holding Corp., Horseshoe Gaming, L.L.C. and U.S. Trust
Company, National Association.                                                      
|10.2    |  | (c.)        |  | Guarantee, dated as of May 11, 1999, by Robinson
Property Group, Limited Partnership for the benefit of
Horseshoe Gaming Holding Corp.                                                                                                                  
|10.3    |  | (c.)        |  | Guarantee, dated as of May 11, 1999, by Horseshoe
Entertainment for the benefit of Horseshoe Gaming
Holding Corp.                                                                                                                                       





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|        |  |             |  |                                                                                                                                                                                                                                                
|------- |  | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |            
|Number  |  | Description
|        |  |            
|10.4    |  | (c.)        |  | Stockholders Agreement for Horseshoe Gaming Holding
Corp., dated as of April 29, 1999, by and among
Horseshoe Gaming Holding Corp. and parties listed
therein.                                                                                
|10.5    |  | (a.)        |  | Exclusive License Agreement, dated July 2, 1998, by and
between Horseshoe Gaming, L.L.C. and Horseshoe License
Company.                                                                                                                        
|10.6    |  | (b.)        |  | Agreement, dated as of April 21, 1999, by and among
Horseshoe Gaming, L.L.C., Horseshoe Gaming, Inc.,
Horseshoe Entertainment, LP, and New Gaming Capital
Partnership; Jack B. Binion; The Robin Group, Inc. and
August Robin.                 
|10.7    |  | (b.)        |  | Agreement, dated as of April 21, 1999, by and among
Horseshoe Gaming, L.L.C., Horseshoe Gaming, Inc.,
Horseshoe Entertainment, LP, and New Gaming Capital
Partnership; Jack B. Binion; Wendell Piper; Cassandra
Piper; and Robert E. Piper, Jr.
|10.8    |  | (d.)        |  | Consulting Agreement, dated as of July 23, 1999, by and
between Horseshoe Gaming, L.L.C. and Empress
Entertainment, Inc.                                                                                                                       
|10.9    |  | (f.)        |  | Equity Incentive Plan dated as of January 1, 1999 by and
between Horseshoe Gaming Holding Corp. and certain
employees.                                                                                                                         
|10.10   |  | (g.)        |  | Empress Casino Joliet Settlement Agreement between the
Illinois Gaming Board, Horseshoe Gaming Holding Corp.,
Empress Casino Joliet Corporation and Jack Binion, dated
January 31, 2001.                                                       
|10.11   |  | (l.)        |  | Amended and Restated Executive Severance Agreement,
dated November 30, 2001, by and between Horseshoe Gaming
Holding Corp. and Roger P. Wagner.                                                                                                
|10.12   |  | (l.)        |  | Amended and Restated Executive Severance Agreement,
dated November 30, 2001, by and between Horseshoe Gaming
Holding Corp. and Kirk C. Saylor.                                                                                                 
|10.13   |  | (l.)        |  | Amended and Restated Executive Severance Agreement,
dated November 30, 2001, by and between Horseshoe Gaming
Holding Corp. and Peri N. Howard.                                                                                                 
|10.14   |  | (l.)        |  | Executive Severance Agreement, dated November 30, 2001
by and between Horseshoe Gaming Holding Corp. and
Dominic F. Polizzotto.                                                                                                                
|10.15   |  | (h.)        |  | Executive Severance Agreement, dated August 21, 2001, by
and between Horseshoe Gaming Holding Corp. and Floyd B.
Hannon.                                                                                                                       
|10.16   |  | (h.)        |  | Horseshoe Gaming Holding Corp. Deferred Compensation
Plan.                                                                                                                                                                                     
|10.17   |  | (l.)        |  | First, Second, Third and Fourth Amendments of the
Horseshoe Gaming Holding Corp. Deferred Compensation
Plan.                                                                                                                                   
|10.18   |  | (m.)        |  | Fourth Amendment to the Hammond Riverboat Gaming Project
Development Agreement, dated as of October 26, 2001.                                                                                                                                  
|10.19   |  | (m.)        |  | Horseshoe Gaming Holding Corp. Executive Supplemental
Medical Plan, effective January 1, 2002.                                                                                                                                                 
|10.20   |  | (m.)        |  | First Amendment to the Horseshoe Gaming Holding Corp.
Equity Incentive Plan.                                                                                                                                                                   
|10.21   |  | (m.)        |  | Second Amendment to the Horseshoe Gaming Holding Corp.
Equity Incentive Plan.                                                                                                                                                                  
|10.22   |  | (n.)        |  | Stipulation, dated March 18, 2003, in regards to
Horseshoe Entertainment and the Louisiana Gaming Control
Board.                                                                                                                               
|21.1    |  | (n.)        |  | Subsidiaries of Horseshoe Gaming Holding Corp.                                                                                                                                                                                                 
|99.1    |  | (n.)        |  | Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.                                                                                                                        
|99.2    |  | (n.)        |  | Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.                                                                                                                        



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|---- |  | ----------------------------------------------------------------------------------------------------------------------------------
|(a.) |  | Filed as an Exhibit to Horseshoe Gaming, L.L.C. Form 10-K for the fiscal
year ended December 31, 1999.                            
|(b.) |  | Filed as an Exhibit to Horseshoe Gaming, L.L.C. Form 10-Q filed on May
3, 1999.                                                   
|(c.) |  | Filed as an Exhibit to Horseshoe Gaming Holding Corp.s Form S-4
Registration Statement filed on June 15, 1999.                   
|(d.) |  | Filed as an Exhibit to Amendment No. 1 to Horseshoe Gaming Holding
Corps Form S-4 Registration Statement filed on July 30, 1999. 
|(e.) |  | Filed as an Exhibit to Amendment No. 2 to Horseshoe Gaming Holding
Corps Form S-4 Registration Statement filed on August 2, 1999.
|(f.) |  | Filed as an Exhibit to Horseshoe Gaming Holding Corp. Form 10-K on March
30, 2000.                                                
|(g.) |  | Filed as an Exhibit to Horseshoe Gaming Holding Corp. Form 8-K on
February 7, 2001.                                               
|(h.) |  | Filed as an Exhibit to Horseshoe Gaming Holding Corp. Form 10-K on April
2, 2001.                                                 
|(i.) |  | Filed as an Exhibit to Horseshoe Gaming Holding Corp. Form 8-K on April
19, 2001.                                                 
|(j.) |  | Filed as an Exhibit to Horseshoe Gaming Holding Corp. Form 10-Q on
August l4, 2001.                                               
|(k.) |  | Filed as an Exhibit to Horseshoe Gaming Holding Corp. Form 10-Q on
November 14, 2001.                                             
|(l.) |  | Filed as an Exhibit to Horseshoe Gaming Holding Corp. Form 10-K on March
21, 2002.                                                
|(m.) |  | Filed as an Exhibit to Horseshoe Gaming Holding Corp. Form 10-Q on May
7, 2002.                                                   
|(n.) |  | Filed herewith.