As filed with the Securities and Exchange Commission on July 30, 2004
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
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Diamond Jo, LLC Peninsula Gaming, LLC Peninsula Gaming Corp. The Old Evangeline
(Exact name of registrants (Exact name of registrants as (formerly known as Downs, L.L.C.
as specified in their specified in their charter) The Old Evangeline Downs (Exact name of
charter) Capital Corp.) registrants as specified
(Exact name of in their charter)
registrants as specified
in their charter)
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Delaware Delaware Delaware Louisiana
(State or other (State or other jurisdiction of (State or other (State or other
jurisdiction of incorporation or organization) jurisdiction of jurisdiction of
incorporation or incorporation or incorporation or
organization) organization) organization)
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42-1483875 20-0800583 25-1902805 72-1280511
(I.R.S. Employer (I.R.S. Employer (I.R.S. Employer (I.R.S. Employer
Identification No.) Identification No.) Identification No.) Identification No.)
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7948
(Primary standard industrial
classification code number)
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P.O. Box 90270
Lafayette, Louisiana 70509-0270
(337) 896-7223
(Address, including zip code, and telephone number, including area
code, of registrants' principal executive offices)
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M. Brent Stevens
Chief Executive Officer
P.O. Box 90270
Lafayette, Louisiana 70509-0270
(337) 896-7223
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copy to:
Nazim Zilkha, Esq.
Mayer, Brown, Rowe & Maw LLP
1675 Broadway
New York, New York
(212) 506-2620
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this registration statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, please check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TO BE REGISTERED REGISTERED OFFERING AGGREGATE REGISTRATION
PRICE PER UNIT (1) OFFERING PRICE (1) FEE
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8 3/4% Senior Secured Notes due 2012...... $233,000,000 100%(1) $233,000,000 $29,521.10
Guarantees(3)........................... (2) (2) (2) (2)
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(1) Calculated based on the book value of the securities to be received by
the registrant in the exchange in accordance with Rule 457(f) under the
Securities Act of 1933.
(2) Pursuant to Rule 457(n) under the Securities Act of 1933, no separate
fee is payable for the guarantees.
(3) The Old Evangeline Downs, L.L.C. will guarantee the notes being
registered hereby.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. We may
not sell securities until the registration statement filed with the Securities
and Exchange Commission is effective. This prospectus is not an offer to sell
these securities and it is not soliciting any offer to buy these securities in
any state where the offer or sale is not permitted.
Subject to Completion, Dated July 30, 2004
PROSPECTUS
DIAMOND JO, LLC
PENINSULA GAMING CORP.
PENINSULA GAMING, LLC
Offer to Exchange
$233,000,000
8 3/4% Senior Secured Notes due 2012
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o We are offering to exchange new registered 83/4% Senior Secured Notes
due 2012 for all of our outstanding unregistered 83/4% Senior Secured
Notes due 2012.
o The exchange offer expires at 5:00 p.m., New York City time, on
, 2004, unless extended.
o The exchange offer is subject only to the conditions that the exchange
offer will not violate any applicable law or any interpretation of
applicable law by the staff of the Securities and Exchange Commission.
o All outstanding notes that are validly tendered and not validly
withdrawn prior to the expiration of the exchange offer will be
exchanged.
o Tenders of outstanding notes may be withdrawn at any time before 5:00
p.m., New York City time, on the expiration date of the exchange
offer.
o We will not receive any proceeds from the exchange offer.
o The terms of the new notes to be issued are substantially identical to
your notes, except that the new notes will not have securities laws
transfer restrictions, and you will not have registration rights.
o Any restricted subsidiary we form or acquire will be required to fully
and unconditionally guarantee the notes on a senior secured basis,
subject to the prior lien with respect to the collateral securing our
secured credit facility.
o There is no established trading market for the new notes, and we do
not intend to apply for listing of the new notes on any securities
exchange.
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For a discussion of factors that you should consider before you participate in
the exchange offer, see "Risk Factors" beginning on page 17 of this prospectus.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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The date of this prospectus is , 2004
Forward-Looking Statements.......................................................................................1
Prospectus Summary...............................................................................................3
Terms of the Exchange Offer......................................................................................8
Risk Factors....................................................................................................17
The Transactions................................................................................................32
Use Of Proceeds.................................................................................................35
Capitalization..................................................................................................36
Selected Consolidated Financial Data............................................................................38
Management's Discussion and Analysis of Financial Condition and Results of Operations...........................41
Business .......................................................................................................56
Regulatory Matters..............................................................................................62
Management......................................................................................................70
Executive Compensation..........................................................................................72
Security Ownership of Certain Beneficial Owners and Management..................................................75
Certain Relationships and Related Party Transactions............................................................77
Description of Senior Secured Credit Facility...................................................................79
The Exchange Offer..............................................................................................80
Description of Notes............................................................................................90
Book-Entry; Delivery and Form..................................................................................134
Specific United States Federal Income Tax Consequences.........................................................137
Plan of Distribution...........................................................................................140
Legal Matters..................................................................................................140
Experts ......................................................................................................140
Where You Can Find More Information............................................................................140
Index to Financial Statements..................................................................................F-1
Each broker-dealer that receives new notes for its own account pursuant
to the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of the new notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act of 1933, as amended, which we refer to as the Securities Act.
This prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of new notes received in
exchange for old notes where the old notes were acquired by the broker-dealer as
a result of market-making activities or other trading activities. We have agreed
that, for a period of up to 180 days after the expiration of the exchange offer,
we will make this prospectus available to any broker-dealer for use in
connection with any such resale. See "Plan of Distribution".
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FORWARD-LOOKING STATEMENTS
This prospectus includes "forward-looking statements" within the meaning of
the federal securities laws. These statements relate to analyses and other
information which are based on forecasts of future results and estimates of
amounts not yet determinable. These statements also relate to our future
prospects, developments and business strategies. These forward-looking
statements are identified by their use of terms and phrases such as
"anticipate," "believe," "could," "would," "estimate," "expect," "intend,"
"may," "plan," "predict," "project," "will," "likely," "continue" and similar
terms and phrases, including references to assumptions. The forward-looking
information contained in this prospectus is generally located under the headings
"Prospectus Summary," "Risk Factors," "Use of Proceeds," "The Transactions,"
"Capitalization," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business," but may be found in other locations
as well. These forward-looking statements generally relate to our strategies,
plans and objectives for future operations and are based upon management's
current beliefs or estimates of future results or trends. These statements also
include all statements with respect to the Transactions (as defined herein).
Although we believe that our plans, intentions and expectations reflected in or
suggested by such forward-looking statements are reasonable, they are inherently
subject to risks, uncertainties and assumptions. Accordingly, there can be no
assurance that such plans, intentions or expectations will be achieved or that
any trends noted in this prospectus will continue. We caution you that any
forward-looking statement reflects only our belief at the time the statement is
made. You should read this prospectus completely and with the understanding that
actual future results may be materially different from what we expect. We do not
plan to update forward-looking statements even though our situation may change
in the future.
Specific factors that might cause actual results to differ from our
expectations, might cause us to modify our plans or objectives, may affect our
ability to pay timely amounts due under the notes and/or may affect the value of
the notes, include, but are not limited to:
o the loss of any licenses, permits or approvals in the jurisdictions in
which we operate (including gaming, racing, alcoholic beverage and
tobacco licenses), or the limitation, conditioning, suspension or
revocation of any such licenses, permits or approvals;
o our ability to complete construction of the racetrack on schedule and
within budget, the failure of which could result in, among other
things, the cancellation of our gaming license for the racino and our
inability to make payments on the notes;
o uncertainties in starting up new operations at the racino, including
our ability to retain qualified employees and to conduct our gaming
operations;
o the lack of positive earnings from our racino operations and the
uncertainties about its cash flow and overall financial performance
during the completion of its racetrack;
o the loss of any of our gaming facilities or any portion of their
operations due to casualty, weather, mechanical failure or any
extended or extraordinary maintenance or inspection that may be
required;
o our substantial indebtedness and the effect of restrictive covenants
in our debt instruments on our operating and financial flexibility;
o our control by Peninsula Gaming Partners, LLC and potential conflicts
of interest with Peninsula Gaming Partners, LLC and its affiliates;
o competition in our markets and in the gaming industry, including,
without limitation, new or expansion of existing Native American
gaming establishments in the jurisdictions in which we operate and the
availability and success of alternative gaming venues and other
entertainment attractions;
o other risks related to the notes (including the value of the
collateral) and to high-yield securities and gaming securities
generally;
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o risks related to pending legislation and other adverse changes or
developments in laws, regulations, including liquor regulation, or
taxes in the gaming or racing industry or a decline in the public
acceptance of gaming;
o other adverse conditions, such as adverse economic conditions, changes
in general customer confidence or spending, weather-related factors,
factors relating to the current state of world affairs and any further
acts of terrorism or any other destabilizing events, that may
adversely affect the economy in general and/or the casino industry in
particular;
o the availability and adequacy of our cash flow to satisfy our
obligations, including payment of the notes and additional funds
required to support capital improvements and development;
o other economic, competitive, demographic, business and other
conditions in our local and regional markets, including the Dubuque
market and the Lafayette market;
o actions taken or omitted to be taken by third parties, including
customers, suppliers, competitors, members and shareholders, as well
as legislative, regulatory, judicial and other governmental
authorities;
o changes in business strategy, capital improvements, development plans,
including those due to environmental remediation concerns, or changes
in personnel or their compensation, including federal, state and local
minimum wage requirements;
o the termination of our operating agreement with the Dubuque Racing
Association, Ltd. or the failure of the Dubuque Racing Association,
Ltd. to continue as our "qualified sponsoring organization" with
respect to our operation of the Diamond Jo; and
o other factors discussed under the section entitled "Risk Factors" or
elsewhere in this prospectus and factors that may be disclosed from
time to time in our SEC filings or otherwise.
All future written and verbal forward-looking statements attributable to us
or any person acting on our behalf are expressly qualified in their entirety by
the cautionary statements contained or referred to in this section. In light of
these and other risks, uncertainties and assumptions, the forward-looking events
discussed in this prospectus might not occur.
You should read this prospectus completely and with the understanding that
actual future results may be materially different from what we expect. We will
not update forward-looking statements even though our situation may change in
the future.
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You should rely only on the information contained in this prospectus. We have
not authorized any other person to provide you with different or additional
information. If anyone provides you with different or additional information,
you should not rely on it.
PROSPECTUS SUMMARY
This summary highlights selected information from this prospectus and may
not contain all of the information that is important to you. You should
carefully read this entire prospectus, including any information or documents to
which we refer you, before deciding to participate in the offer. This summary is
qualified in its entirety by, and should be read in conjunction with, the more
detailed information and financial data, including the consolidated financial
statements and notes thereto, appearing elsewhere in this prospectus.
Unless the context requires otherwise, references to the "Company" mean
Peninsula Gaming, LLC ("PGL"), and references to "our," "us," and "we" mean
Diamond Jo, LLC ("DJL", formerly known as Peninsula Gaming Company, LLC), The
Old Evangeline Downs, L.L.C. ("OED"), Peninsula Gaming Corp. ("PGC", formerly
known as The Old Evangeline Downs Capital Corp.("OED Corp.")), and PGL. PGC has
no assets or operations and exists to facilitate the offering of the notes in
certain jurisdictions. PGL is a newly formed holding company of DJL, OED and
PGC. Unless otherwise specified herein, references to the "Transactions" shall
mean the transactions described below under "The Transactions."
The Company
We own and operate both the Evangeline Downs pari-mutuel horse racetrack
and casino, or "racino," in Opelousas, Louisiana and the Diamond Jo riverboat
casino in Dubuque, Iowa. Evangeline Downs, located approximately 20 miles north
of Lafayette, Louisiana at the intersection of Interstate 49 and U.S. Highway
190, began casino operations in December 2003. Evangeline Downs' new horse
racetrack is scheduled to establish its schedule of live racing meets commencing
with the 2005 racing season, at which time its existing horse racetrack near
Lafayette will cease operations. We believe, because of its close proximity to
Lafayette and ease of access from major interstates and highways, Evangeline
Downs will become the primary source of gaming entertainment for the Lafayette
area, its primary market.
As one of only two licensed gaming operations in Dubuque, the Diamond Jo
has consistently captured more than 50% of Dubuque's casino gaming revenues
since 1995, its first full year of operations. We believe Evangeline Downs and
the Diamond Jo operate in favorable environments, benefiting from strong market
demographics and limited competition. Both of these operations focus primarily
on local markets, repeat customers and higher margin, less volatile slot machine
play while offering unique and diverse gaming experiences.
The table below provides a summary of our properties.
EVANGELINE DOWNS DIAMOND JO
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PROPERTY DATA:
Size Approx. 120,000 square feet Approx. 48,000 square feet
Location Opelousas, LA Dubuque, IA
Gaming o Approx. 40,000 square feet o Approx. 19,000 square feet
(15,000 of designated gaming o 749 slots
space), excluding OTBs o 17 tables
o 1,627 slots
o Live and simulcast horse
racing with grandstands
o 2 OTBs (one with 100 video
poker machines)
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Amenities o Fine dining restaurant o Fine dining restaurant
o Food court o Buffet
o Buffet o Banquet facility
o Sports bar with screened patio o VIP lounge
o VIP Lounge o Deli
o Gift shop
Parking o Approx. 2,229 spaces o Approx. 1,200 spaces
(including valet) (including valet)
60 semis
5 buses
COMPETITIVE ADVANTAGES
In each of our markets, we offer, or will offer, our customers unique and
diverse gaming entertainment. At the Diamond Jo we offer the only table games,
video poker and video keno within 60 miles of Dubuque. At Evangeline Downs we
will offer live horse racing a minimum of 80 days per year and year-round
simulcast horse racing with pari-mutuel wagering. Since only three other racinos
are legislatively authorized in Louisiana, with the nearest located over 100
miles to the west, we believe that Evangeline Downs' entertainment offerings
will be unrivaled in both its primary market area of Lafayette and its secondary
markets, including Baton Rouge, which is approximately 50 miles to the east. In
addition, a significant portion of the fees imposed on Evangeline Downs' slot
machine revenues is required to be allocated to purses for live horse racing at
the racino. We believe that a substantial increase in purses at Evangeline Downs
will attract higher quality horses to our new horse racetrack, which should in
turn increase the wagering for both on-site and off-track betting.
Evangeline Downs
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Overview. Our new Evangeline Downs Racetrack and Casino ("racino") in
Opelousas has a Southern Louisiana Cajun roadhouse theme on the exterior, with a
complementary regional Acadian atmosphere on the interior. The racino currently
includes a casino with 1,627 slot machines, parking spaces for approximately
2,229 cars, 60 semis and 5 buses, and several dining options. Our dining options
include a 312-seat Cajun Buffet, an 82-seat fine dining Evangeline restaurant, a
192-seat Lagniappe food court and a 202-seat Mojos sports bar with an additional
98-seat screened patio, in addition to a raised bar and lounge area with 120
seats, known as Zydeco's, occupying the center of our casino floor. In
accordance with our regulatory requirements for the racino, we expect to
complete construction of a one-mile dirt track, stables for 980 horses, a
grandstand and clubhouse with seating for 1,295 patrons, and apron and patio
space for an additional 3,000 patrons by the end of fiscal 2004 with related
additional capital expenditures of approximately $15.1 million. Consistent with
our regulatory requirements, we also expect to continue construction on our turf
track during fiscal 2005. Pending completion of our new horse racetrack, horse
racing operations are conducted at our nearby pari-mutuel wagering complex in
Lafayette, Louisiana, whose operations will be transferred to our new horse
racetrack upon completion. Our Evangeline Downs operations also include two
OTBs, one in New Iberia, and one in Port Allen, Louisiana. Our OTB in Port
Allen, located on Interstate 10 across the Mississippi River from Baton Rouge,
Louisiana, also operates 100 video poker machines.
Large Market With Strong Local Demographics. Louisiana generated
approximately $2.0 billion of casino gaming revenue in 2003, excluding Native
American casinos. Such amount has grown at a compounded annual rate of 8.7%
since 1996 and 6.0% since 2001. We believe that our centralized location in
Louisiana will afford us the opportunity to participate in this large and
growing market. There are approximately 300,000 adults living within 35 miles of
the racino site, mostly within the Lafayette metropolitan area, our primary
market. In addition, there are approximately 1.5 million adults living within
100 miles of the racino site. This area includes secondary markets from which we
believe we will attract patrons due to our ease of access from major interstates
and highways compared to our competitors in those areas, as well as our offering
of pari-mutuel live horse racing. Approximately 39,000 vehicles per day pass
through the intersection of Interstate 49 and U.S. Highway 190 where the racino
site is located. In addition, the racino site is located adjacent to a recently
opened shopping center, which currently
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includes a Wal-Mart Supercenter. A Lowe's and a Home Depot are currently also
under construction nearby, affording us an opportunity to attract additional
patrons.
Limited Competition. The nearest competitor to Evangeline Downs is a Native
American casino located approximately 50 miles to the south of Lafayette,
including several miles off the highway. Besides that, patrons in Lafayette need
to drive approximately 50 miles to reach riverboat casinos in Baton Rouge and
approximately 70 miles to reach riverboat casinos in Lake Charles and Native
American casinos in Marksville and Kinder. Because our competition in Marksville
is situated more than 20 miles off the primary highway, we believe that patrons
of the Marksville casino may find the ease of highway access to our racino more
convenient.
The Diamond Jo
- --------------
Overview. The Diamond Jo is a three-story, approximately 48,000 square foot
riverboat casino, replicating a classic 19th century paddlewheel riverboat. The
Diamond Jo has an approved capacity for 1,394 patrons, features a spacious
two-story atrium and a 48-seat capacity deli and offers 749 slot machines and 17
table games on approximately 19,000 square feet of gaming space. Adjacent to the
Diamond Jo is a two-story, approximately 36,000 square foot dockside pavilion,
featuring our 142-seat capacity Lighthouse Grill restaurant, our 140-seat
capacity High Steaks restaurant, our 25-seat capacity Club Wild players lounge
and our 205-seat capacity Harbor View Room, a full service banquet facility.
Approximately 1,200 convenient parking spaces are available to our patrons,
including valet parking.
The Diamond Jo operates from, and the dockside pavilion is located in, the
Port of Dubuque, a waterfront development on the Mississippi River in downtown
Dubuque and is accessible from each of the major highways in the area. On
average, more than 30,000 vehicles pass the Diamond Jo per day. The Port of
Dubuque is the site of the City of Dubuque's $188 million redevelopment project,
known as the America's River Project. The America's River Project is on a
90-acre site on the Dubuque riverfront that features the National Mississippi
River Museum & Aquarium, the Grand River Center for conferences and events, the
Grand Harbor Resort and Waterpark, the Alliant Energy Amphitheater, and the
Mississippi Riverwalk. This project, which was substantially completed in 2003,
was designed to enhance the attractiveness of the Port of Dubuque as a community
center and tourist destination, and has led to, and should continue to generate,
increased foot traffic around the site of, and increased admissions to, the
Diamond Jo.
Strong Dubuque Market. The Diamond Jo currently draws approximately 85% of
its patrons from within a 100-mile radius of Dubuque, an area of approximately
2.4 million residents. Dubuque is situated at the intersection of Illinois, Iowa
and Wisconsin, acts as the region's trade hub and has a diverse employer base.
Casino gaming revenues in Dubuque have grown at a compound annual rate of 7.0%
since 1996, and there are no betting or loss limits in Iowa. In addition to the
America's River Project, Dubuque contains several tourist attractions, drawing
more than one million visitors annually, and Galena, Illinois, a historic
community located 15 miles east of Dubuque, also draws more than one million
visitors annually.
Limited Competition. The Diamond Jo's principal competition is the only
other licensed gaming facility in Dubuque, the Dubuque Greyhound Park (the
"DGP"). The DGP is located approximately three miles north of the Port of
Dubuque and currently offers 600 slot machines, live and simulcast greyhound
racing and, on a limited basis, simulcast horse racing. For a discussion of
DGP's proposed expansion and recent changes in Iowa law, see "Risk Factor--Risks
Relating to Our Business--Competition."
THE TRANSACTIONS
The offering of the notes was conducted as part of a plan to refinance our
existing debt to improve our financial and operating flexibility. In addition,
in connection with this refinancing plan, following our receipt of requisite
approvals from applicable Iowa and Louisiana regulatory authorities, we effected
a series of corporate transactions to, among other things, simplify our
organizational structure.
Refinancing Plan. In addition to the offering of the notes, the elements of
the refinancing plan included the following:
o OED used a portion of the offering proceeds to repurchase a portion of
its outstanding 13% Senior Secured Notes due 2010 with Contingent
Interest (the "OED Notes") that were tendered
5
in the tender offer by OED and to pay related consent payments,
pursuant to the terms and conditions of the Offer to Purchase and
Consent Solicitation Statement, dated March 9, 2004 (the "Statement");
o DJL used a portion of the offering proceeds to redeem all of its
outstanding 12 1/4% Senior Secured Notes due 2006 (the "DJL Notes"),
and to pay accrued distributions on its preferred membership
interests; and
o We refinanced both DJL's and OED's senior secured credit facilities
and OED's FF&E credit facility with Wells Fargo Foothill, Inc. ("Wells
Fargo Foothill") with a new senior secured credit facility.
Corporate Transactions. The corporate transactions consisted of the
following:
o Peninsula Gaming, LLC ("PGL") was formed as a holding company that
owns and operates, through two direct wholly owned subsidiaries, DJL
and OED, the Diamond Jo riverboat casino and the Evangeline Downs
racino, respectively; and
o OED Corp., which was a subsidiary of OED, was renamed Peninsula Gaming
Corp. ("PGC") and is now a direct wholly owned subsidiary of PGL. OED
Acquisition, LLC ("OEDA"), formerly the parent of OED, has become a
direct wholly owned subsidiary of Peninsula Gaming Partners, LLC
("PGP") and a sister company to PGL.
Our corporate structure after giving effect to the corporate transactions
is shown in the chart below.
PGL
Co-Issuer
_________________|___________________
| | |
PGC OED DJL
Co-Issuer Rancino & OTBs Diamond Jo
Guarantor Co-Issuer
The indenture governing the notes permitted DJL and PGC to consummate the
corporate transactions without requiring the consent of any of the holders of
the notes following receipt by DJL and OED of such final regulatory approvals.
For more information about these transactions, see "The Transactions" and
"Description of Senior Credit Facility" in this prospectus.
MANAGER
PGP is the sole managing member of, and the owner of 100% of the common
membership interests in, the Company. Certain affiliates, officers and employees
of Jefferies & Company, Inc. (the "Initial Purchaser") serve as managers and
executive officers of the Company and PGP, and, through their direct and
indirect beneficial ownership or control of voting equity interests of PGP,
beneficially own or control in the aggregate approximately 66.2% of the
Company's equity interests. See "Risk Factors--Risks Relating to Our
Business--Interested Party Matters" and "Certain Relationships and Related Party
Transactions".
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Our principal executive offices are located at 400 East Third Street, P.O.
Box 1750, Dubuque, Iowa, 52001-1750, and our telephone number is (563) 583-7005.
PGL is a Delaware limited liability company, DJL is a Delaware limited liability
company, and PGC is a Delaware corporation. Our websites are
www.evangelinedowns.com and www.diamondjo.com. Information on our websites does
not constitute part of this prospectus.
6
THE EXCHANGE OFFER
We sold $233.0 million of our 8 3/4% Senior Secured Notes due 2012 to the
Initial Purchaser in a private placement of our notes on April 16, 2004. The
Initial Purchaser resold those notes in reliance on Rule 144A and other
exemptions under the Securities Act.
On April 16, 2004, we also entered into a registration rights agreement
with the Initial Purchaser in which we agreed, among other things, to:
o file a registration statement with the Securities and Exchange
Commission relating to the exchange offer on or before July 15, 2004;
o deliver to you this prospectus;
o cause the registration statement, which includes this prospectus, to
become effective on or before October 13, 2004;
o consummate the exchange offer within 45 days after the registration
statement is declared effective;
o keep the exchange offer open for at least 20 business days after the
date on which we mail notice of the exchange offer to you.
You are entitled to exchange your old notes for new registered 8 3/4%
Senior Secured Notes due 2012 with substantially identical terms as your notes,
except for transfer restrictions and registration rights. If we do not offer you
the opportunity to exchange your old notes, or if we commit other "registration
defaults", we may be required to pay you liquidated damages at an amount per
week per $1,000 principal amount equal to $0.05 following the registration
default, increasing by an additional $0.05 per week per $1,000 principal amount
with respect to each subsequent 90-day period, up to a maximum of $0.25 per week
per $1,000 principal amount. As a consquence of our filing this registration
statement with the Securities and Exchange Commission after July 15, 2004, the
date we were required to file this registration statement pursuant to the terms
of the Registration Rights Agreement, you are entitled to receive liquidated
damages in the form of additional interest on the notes. See "The Exchange Offer
- - Purpose and Effect; Registration Rights" and "Specific United States Federal
Income Tax Consequences". As soon as we cure a registration default, the
interest rates on the notes will revert to their original levels. You should
read the discussion under the heading "The Exchange Offer - Purpose and Effect;
Registration Rights" and "Description of Notes" for further information
regarding registration defaults, additional interest and the new notes that we
are offering in exchange for your notes.
We believe that you may resell the new notes issued in the exchange offer
without compliance with the registration and prospectus delivery provisions of
the Securities Act, subject to the conditions described under "The Exchange
Offer". You should read that section for further information regarding the
exchange offer.
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TERMS OF THE EXCHANGE OFFER
We refer to the originally issued 8 3/4% Senior Secured Notes due 2012 as
the "old notes", the registered notes being offered in the exchange offer as the
"new notes", and the old notes and the new notes together as the "notes." The
following summary of the exchange offer is not intended to be complete. For a
more complete description of the terms of the exchange offer, see "The Exchange
Offer" in this prospectus.
Old Notes ..................................... 83/4% Senior Secured Notes due 2012, which we issued on April 16,
2004.
New Notes...................................... 83/4% Senior Secured Notes due 2012, the issuance of which has
been registered under the Securities Act of 1933. The terms of
the registered new notes and your old notes are substantially
identical, except:
o the new notes will be registered under the Securities
Act of 1933;
o the new notes will not bear any legends restricting
transfer; and
o except under limited circumstances, your rights under
the registration rights agreement,including your right
to receive additional interest, will terminate.
The Exchange Offer............................. We are offering to exchange $1,000 in principal amount of the
new notes for each $1,000 in principal amount of your old
notes. As of the date of this prospectus, $233.0 million
aggregate principal amount of the old notes is outstanding.
Expiration Date................................ You have until 5:00 p.m., New York City time, on , 2004 to validly
tender your old notes if you want to exchange your old notes for
new notes. We may extend that date under some conditions.
Conditions of the Exchange Offer;
Extensions; Amendments................ You are not required to tender any minimum principal amount of
your old notes in order to participate in the exchange offer.
If you validly tender and do not validly withdraw your old
notes, your old notes will be exchanged for new notes as long as
the exchange offer does not violate any applicable law or any
interpretation of applicable law by the staff of the Securities
and Exchange Commission.
We may delay or extend the exchange offer and, if either of the
above conditions is not met, we may terminate the exchange offer.
We will notify you of any delay, extension or termination of the
exchange offer.
We may also waive any condition or amend the terms of the exchange offer.
If we materially amend the exchange offer, we will notify you.
8
All conditions to the exchange offer must be satisfied or waived
prior to the expiration of the exchange offer.
Interest....................................... The first interest payment date on your old notes is October 15,
2004. Interest has accrued on your old notes since April 16,
2004, but has not yet been paid. If your old notes are
exchanged for new notes, you will not receive any accrued
interest on your old notes. You will receive interest on your
new notes from April 16, 2004.
Consequences of Failure to Exchange............ Outstanding notes that are not tendered or that are tendered but
not accepted will continue to be subject to the restrictions on
transfer that are described in the legend on those notes. In
general, you may offer or sell your outstanding notes only if
they are registered under, or offered or sold under an exemption
from, the Securities Act of 1933 and applicable state securities
laws. We, however, will have no further obligation to register
the outstanding notes. If you do not participate in the
exchange offer, the liquidity of your notes could be adversely
affected.
Procedures for Tendering Old Notes; Special
Procedures for Beneficial Owners.......... If you want to participate in the exchange offer, you must
transmit a properly completed and signed letter of transmittal,
and all other documents required by the letter of transmittal,
to the exchange agent. Please send these materials to the
exchange agent at the address set orth in the accompanying
letter of transmittal prior to 5:00 p.m., New York City time, on
the expiration date. You must also send one of the following:
o certificates of your old notes;
o a timely confirmation of book-entry transfer of your old
notes into the exchange agent's account at The Depository
Trust Company; or
o the items required by the guaranteed delivery procedures
described below. If you are a beneficial owner of your old
notes and your old notes are registered in the name of a
nominee, such as a broker, dealer, commercial bank or trust
company, and you wish to tender your old notes in the
exchange offer, you should instruct your nominee to promptly
tender the old notes on your behalf. If you are a beneficial
owner and you want to tender your old notes on your own
behalf, you must, before completing and executing the letter
of transmittal and delivering your old notes, make
appropriate arrangements to either register ownership of
your old notes in your name or obtain a properly completed
bond power from the registered holder of your old notes.
By executing the letter of transmittal, you will represent to
us that:
9
o you are not our "affiliate," as defined in Rule 405 under
the Securities Act of 1933;
o you will acquire the new notes in the ordinary course of
your business;
o you are not a broker-dealer that acquired your notes
directly from us in order to resell them in reliance on Rule
144A of the Securities Act of 1933 or any other available
exemption under the Securities Act of 1933;
o if you are a broker-dealer that acquired your notes as a
result of market making or other trading activities, you
will deliver a prospectus in connection with any resale of
new notes; and
o you are not participating,
do not intend to participate and have no arrangement or
understanding with any person to participate in the
distribution of the new notes.
Guaranteed Delivery Procedures................. If you wish to tender your old notes and:
o your old notes are not immediately available; or
o you are unable to deliver on time your old notes or any
other document that you are required to deliver to the
exchange agent;
o then you may tender your old notes according to the
guaranteed delivery procedures that are discussed in the
letter of transmittal and in "The Exchange Offer--Guaranteed
Delivery Procedures."
Acceptance of Old Notes and Delivery
of New Notes............................. We will accept all old notes that you have properly tendered
on time when all conditions of the exchange offer are
satisfied or waived. The new notes will be delivered
promptly after the expiration date.
Withdrawal Rights ............................. Tenders of old notes may be withdrawn at any time prior to 5:00 p.m.,
New York City time, on the expiration date.
Use of Proceeds............................... We will not receive any cash proceeds from the exchange offer.
The Exchange Agent............................ U.S. Bank National Association
is the exchange agent. Its address and telephone number are
set forth in "The Exchange Offer--The Exchange Agent;
Assistance."
Fees and Expenses ............................. We will pay all expenses relating to the exchange offer and
compliance with the registration rights agreement. We will
also pay some kinds of transfer taxes, if applicable,
relating to the exchange offer.
10
Resales of New Notes........................... We believe that the new notes may be offered for resale, resold and
otherwise transferred by you without further compliance with the
registration and prospectus delivery requirements of the Securities
Act of 1933 if:
o you are not our "affiliate," as defined in Rule 405 under
the Securities Act of 1933;
o you acquire the new notes in the ordinary course of your business;
o you are not a broker-dealer that purchased old notes from us to
resell them in reliance on Rule 144A of the Securities Act of 1933 or
any other available exemption under the Securities Act of 1933;
o you are not participating, and have no arrangement or understanding
with any person to participate in a distribution, within the meaning
of the Securities Act of 1933, of the new notes.
You should read the information under the heading "The Exchange
Offer--Resales of the New Notes" for a more complete description of
why we believe that you can freely transfer new notes received in the
exchange offer without registration or delivery of a prospectus.
All broker-dealers that are issued new notes for their own accounts
in exchange for old notes that were acquired as a result of
market-making or other trading activities must acknowledge
that they will deliver a prospectus meeting the requirements of the
Securities Act of 1933 in connection with any resale of the new
notes. If you are a broker-dealer and are required to deliver a
prospectus, you may use this prospectus for an offer to resell, a
resale or other transfer of the new notes.
Federal Income Tax Consequences................ The exchange of old notes for new notes pursuant to the exchange
offer will not constitute a taxable exchange for federal income tax
purposes. You should read the information under the heading "Specific
United States Federal Income Tax Consequences" for a more complete
discussion of the United States federal income tax consequences of an
exchange of old notes for new notes and of holding the notes.
11
Registration Rights Agreement................. In connection with the sale of the old notes, we entered into a
registration rights agreement with the initial purchaser of the old
notes that grants the holders of the old notes registration rights.
As a result of making and consummating this exchange offer, we will
have fulfilled most of our obligations under the registration rights
agreement. If you do not tender your old notes in the exchange offer,
you will not have any further registration rights under the
registration rights agreement or otherwise unless you were not
eligible to participate in the exchange offer or do not receive
freely transferable new notes in the exchange offer. You should read
the information under the heading "The Exchange Offer--Purpose and
Effect; Registration Rights" for a more complete discussion of the
effects the exchange offer will have on your registration rights.
12
SUMMARY TERMS OF THE NEW NOTES
Issuers............................. Diamond Jo, LLC, Peninsula Gaming Corp. and Peninsula Gaming, LLC are co-issuers.
Securities Offered.................. $233,000,000 aggregate principal amount of 83/4% Senior Secured Notes due 2012.
Maturity Date....................... April 15, 2012.
Interest Rate....................... We will pay a fixed annual rate of interest equal to 83/4%.
Interest Payment Dates.............. We will pay interest on the notes semiannually, on each April 15 and
October 15, beginning on October 15, 2004.
Ranking............................. The notes will be our senior secured obligations, will rank equally in right of
payment with all of our existing and future senior indebtedness and will rank
senior in right of payment to all of our existing and future subordinated
indebtedness.
Guarantees.......................... The notes will be guaranteed on a senior secured basis by all of our existing
and future domestic restricted subsidiaries other than DJL and PGC, which
are co-Issuers of the notes.
Security Interest................... The notes and the guarantees will be secured by a security interest in our
current and future assets and in the current and future assets of our
domestic restricted subsidiaries, including a pledge of our equity interests
in our restricted subsidiaries (other than certain excluded assets). The lien
on the collateral that secures the notes and the guarantees will be
contractually subordinated to the liens securing any of our existing or
future senior credit facilities pursuant to an intercreditor agreement.
Optional Redemption................. On or after April 15, 2008, we will have the right to redeem all or some of
the notes at the redemption prices (expressed as percentages of principal
amount) set forth below, plus accrued and unpaid interest, if any, to the
applicable date of redemption, if redeemed during the 12-month period
beginning on April 15 of the years indicated below:
For the period Percentage
-------------- ----------
2008 104.375%
2009 102.917%
2010 101.458%
2011 and thereafter 100.000%
Prior to April 15, 2007, we may redeem from time to time up to 35% of the
aggregate principal amount of the notes at a redemption price equal to 108.75%
plus accrued and unpaid interest with the proceeds of any equity offering.
Required Regulatory Redemption...... The notes will be subject to mandatory disposition or redemption following
certain determinations by applicable racing and gaming regulatory authorities.
13
Change of Control Offer............. If a change of control occurs, the holders of the notes will have the right
to require us to purchase their notes at 101% of the principal amount, plus
accrued and unpaid interest.
Asset Sale Offers................... If we sell assets or an event of loss occurs and the proceeds are not applied
as designated, we may have to use the proceeds to offer to purchase some of
the notes at 100% of the principal amount, plus accrued and unpaid interest.
Certain Indenture Provisions........ The indenture governing the notes will limit our ability and the ability of
our restricted subsidiaries to, among other things:
o incur more debt;
o pay dividends, redeem stock, or make
other distributions;
o issue stock of restricted subsidiaries;
o make investments;
o create liens;
o enter into transactions with affiliates;
o merge or consolidate; and
o transfer or sell assets.
In addition, the indenture governing the notes will prohibit PGC from holding
any assets, becoming liable for any obligations (other than the notes,
remaining OED Notes and borrowings under OED's existing credit facilities) or
engaging in any business activities. These covenants are subject to a number of
important exceptions. See "Description of Notes--Certain Covenants."
Absence of a Public Market.......... The notes are a new issue of securities, and there is currently no established
market for them. The notes will not be listed on any securities exchange or
included in any automated quotation system. Accordingly, there can be no
assurance as to the development or liquidity of any market for the notes. The
notes are eligible for trading in PORTAL. See "Risk Factors--Risks Relating to
this Offering--No Prior Market for the Notes."
RISK FACTORS
Investing in the notes involves substantial risk. Before making an
investment in the notes, you should consider carefully the information included
in the "Risk Factors" section, as well as all other information set forth in
this prospectus.
14
SUMMARY ADJUSTED AND HISTORICAL CONSOLIDATED FINANCIAL DATA
Our summary adjusted and historical consolidated financial data set forth
below for each of the three years in the period ended December 31, 2003, have
been derived from our audited consolidated financial statements included
elsewhere in this prospectus. The summary adjusted and historical consolidated
financial data set forth below as of March 31, 2004 and for each of the three
month periods ended March 31, 2003 and 2004, have been derived from our
unaudited condensed consolidated financial statements included elsewhere in this
prospectus. The data presented below is a summary only and should be read in
conjunction with, and is qualified in its entirety by reference to,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and the notes thereto
appearing elsewhere in this prospectus.
FISCAL YEARS ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
------------------------------ ------------------
2001 2002 2003 2003 2004
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS
DATA:
Net revenues........... $48,117 $65,188 $76,502 $15,670 $35,565
Operating expenses..... 36,304 53,466 64,252 12,504 30,461
Depreciation and
amortization......... 3,963 2,950 3,324 819 2,896
Income from operations. 11,813 11,723 12,250 3,165 5,105
Net income (loss) to
common members'
interests............ 1,819 (732) (12,742) (1,965) (2,621)
OTHER FINANCIAL DATA:
Capital expenditures(1) 1,603 1,695 2,206 511 782
AT MARCH 31, 2004
-----------------
AS
ACTUAL ADJUSTED(2)
------ -----------
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents(3)......................... $40,079 $41,753
Total assets......................................... 258,544 249,640
Total senior debt.................................... 226,945 272,953
Total debt(4)........................................ 230,945 276,953
Total members' deficit(5)............................(14,404) (51,023)
- ----------
(1) Excludes capital expenditures associated with the Racino project.
(2) As Adjusted Balance Sheet Data gives effect to the sale of the notes and
the application of the net proceeds therefrom as described in "Use of
Proceeds" and the consummation of the other Transactions, as if such
transactions had been consummated on March 31, 2004.
(3) Includes cash and cash equivalents, restricted cash--purse settlements,
restricted investments and restricted cash--Racino project.
(4) In May 2003, the Financial Accounting Standards Board ("FASB") issued
Statement No. 150, "Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity (SFAS 150)." This statement
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity.
It requires the issuer to classify a financial instrument that is within
the scope of the standard as a liability if such financial instrument
embodies an obligation of the issuer. As a result of the adoption of SFAS
150 on July 1, 2003, we reclassified our $4 million mandatory redeemable
preferred members' interest from the mezzanine section of the consolidated
balance sheet to long-term debt. Further, preferred member distributions
paid or accrued subsequent to adoption of SFAS 150 are
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required to be presented as interest expense separately from interest due
to other creditors. We are precluded from reclaifying prior period maount
prusuant to this standard.
(5) In connection with the offering of the old notes and the consummation
of our refinancing plan and related corporate transactions as described
in "The Transactions," the Company expensed, among other things,
approximately $11.4 million of deferred financing fees associated with
the repayment of the DJL Notes and the OED Notes, approximately $22.0
million in redemption premiums and consent payments associated with the
DJL Notes and the OED Notes, approximately $0.4 million in unamortized
bond discounts related to the DJL Notes, approximately $2.1 million in
unamortized bond discounts related to the OED Notes and approximately
$0.7 million of interest in respect of the 30 day call period relating
to the redemption of the DJL Notes.
16
RISK FACTORS
An investment in the notes involves a high degree of risk. You should
carefully consider the following risks, as well as other information set forth
in this prospectus, before tendering your old notes in the exchange offer.
RISKS RELATING TO THE EXCHANGE OFFER AND HOLDING THE NEW NOTES
Failure to Exchange Notes --Holders who fail to exchange their old notes will
continue to be subject to restrictions on transfer.
Holders who fail to exchange their old notes will continue to be subject to
restrictions on transfer. If you do not exchange your old notes for new notes in
the exchange offer, you will continue to be subject to the restrictions on
transfer of your old notes described in the legend on the certificates for your
old notes. The restrictions on transfer of your old notes arise because we
issued the old notes under exemptions from, or in transactions not subject to,
the registration requirements of the Securities Act and applicable state
securities laws. In general, you may only offer or sell the old notes if they
are registered under the Securities Act and applicable state securities laws, or
are offered and sold under an exemption from these requirements. We do not plan
to register the old notes under the Securities Act. For further information
regarding the consequences of tendering your old notes in the exchange offer,
see the discussions below under the captions "The Exchange Offer--Consequences
of Not Exchanging Old Notes" and "Specific United States Federal Income Tax
Consequences."
Exchange Offer Procedures --You must comply with the exchange offer procedures
in order to receive new, freely tradable notes.
Delivery of new notes in exchange for old notes tendered and accepted for
exchange pursuant to the exchange offer will be made only after timely receipt
by the exchange agent of the following:
o certificates for old notes or a book-entry confirmation of a
book-entry transfer of old notes into the exchange agent's account at
DTC, New York, New York as a depository, including an agent's message,
as defined in this prospectus, if the tendering holder does not
deliver a letter of transmittal;
o a completed and signed letter of transmittal, or facsimile copy, with
any required signature guarantees, or, in the case of a book-entry
transfer, an agent's message in place of the letter of transmittal;
and
o any other documents required by the letter of transmittal.
Therefore, holders of old notes who would like to tender old notes in
exchange for new notes should be sure to allow enough time for the old notes to
be delivered on time. We are not required to notify you of defects or
irregularities in tenders of old notes for exchange. Old notes that are not
tendered or that are tendered but we do not accept for exchange will, following
consummation of the exchange offer, continue to be subject to the existing
transfer restrictions under the Securities Act and will no longer have the
registration and other rights under the exchange agreement. See "The Exchange
Offer--Procedures for Tendering Old Notes" and "The Exchange Offer--Consequences
of Not Exchanging Old Notes."
Potential Restricted Securities -- Some holders who exchange their old notes may
be deemed to be underwriters and these holders will be required to comply with
the registration and prospectus delivery requirements in connection with any
resale transaction.
If you exchange your old notes in the exchange offer for the purpose of
participating in a distribution of the new notes, you may be deemed to have
received restricted securities. If you are deemed to have received restricted
securities, you will be required to comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction.
17
No Public Market --There is currently no public market for the new notes and you
may find it difficult to sell your new notes.
There is no existing market for the new notes. We do not intend to apply
for listing of the new notes on any securities exchange or for quotation through
the National Association of Securities Dealers Automated Quotation System. The
liquidity of the trading market in the new notes, and the market price quoted
for the new notes, will depend on many factors, including, among other things,
prevailing interest rates, our operating results and the market for similar
securities. We do not know the extent to which investor interest will lead to
the development of a trading market for the new notes or how liquid that market
might be. Historically, the market for non-investment grade debt, such as the
new notes, has been subject to disruptions that have caused substantial
volatility in the prices of securities. Any disruptions may make it more
difficult for holders to sell their new notes and may have an adverse effect on
the price at which the new notes might be sold.
Substantial Indebtedness--Our substantial level of indebtedness could adversely
affect our financial condition and prevent us from fulfilling our obligations
under the notes and our other indebtedness.
We have, and will continue to have after this offering, substantial
indebtedness. In addition to the notes, we and our subsidiaries are permitted
under the indenture governing the notes to incur additional indebtedness
including $35.0 million of indebtedness under a senior secured credit facility,
incur certain indebtedness to purchase furniture, fixtures and equipment, and
certain other additional indebtedness pursuant to the terms of the Indenture and
our new senior secured credit facility. At June 30, 2004, we had $29.6
outstanding under our new senior secured credit facility. Additionally, as a
result of not all the OED Notes being tendered in the tender offer,
approximately $6.9 million of the OED Notes remain outstanding. See "The
Transactions--Repurchase of OED Notes." Additionally, if we satisfy debt
coverage tests, we could issue additional notes and incur further indebtedness.
If new debt were to be incurred in the future, the related risks could
intensify.
Our substantial indebtedness could have important consequences to you and
significant effects on our business. For example, it could:
o make it more difficult for us to satisfy our obligations under the
notes and our other indebtedness;
o result in an event of default if we fail to satisfy our obligations
under the notes or our other indebtedness or fail to comply with the
financial and other restrictive covenants contained in the indenture
or our senior secured credit facility, which event of default could
result in all of our indebtedness becoming immediately due and payable
and could permit our lenders to foreclose on our assets securing such
indebtedness;
o require us to dedicate a substantial portion of our cash flow from our
business operations to pay our indebtedness, thereby reducing the
availability of cash flow to fund working capital, capital
expenditures, development projects, general operational requirements
and other purposes;
o limit our ability to obtain additional financing for working capital,
capital expenditures and other activities;
o limit our flexibility in planning for, or reacting to, changes in our
business and the industry in which we operate;
o increase our vulnerability to general adverse economic and industry
conditions or a downturn in our business; and
o place us at a competitive disadvantage compared to competitors that
are not as highly leveraged.
We expect to obtain the funds to pay our expenses and to pay the amounts
due under the notes, our senior secured credit facility and our other debt
primarily from our operations. Our ability to meet our expenses and make these
payments thus depends on our future performance, which will be affected by
financial, business, economic and
18
other factors, many of which we cannot control. Our business may not generate
sufficient cash flow from operations in the future and our currently anticipated
growth in revenue and cash flow may not be realized, either or both of which
could result in our being unable to pay amounts due under our indebtedness,
including the notes, or to fund other liquidity needs. If we do not have
sufficient cash flow from operations, we may be required to refinance all or
part of our then existing debt (including the notes), sell assets, reduce or
delay capital expenditures or borrow more money. We cannot assure you that we
will be able to accomplish any of these alternatives on terms acceptable to us,
or at all. In addition, the terms of existing or future debt agreements,
including our senior secured credit facility and the indenture governing the
notes, may restrict us from adopting any of these alternatives. The failure to
generate sufficient cash flow or to achieve any of these alternatives could
materially adversely affect the value of the notes and our ability to pay the
amounts due under the notes.
Value of Collateral--The fair market value of the collateral securing the notes
may not be sufficient to pay the amounts owed under the notes. As a result, you
may not receive full payment on your notes if there is an event of default.
The proceeds of any sale of collateral following an event of default with
respect to the notes may not be sufficient to satisfy, and may be substantially
less than, amounts due on the notes. No appraisal has been made of the
collateral. We believe, however, that the total value of the collateral is less
than the amount due on the notes.
The value of the collateral in the event of liquidation will depend upon
market and economic conditions, the availability of buyers and similar factors.
The collateral does not include contracts, agreements, licenses (including
gaming, and liquor licenses) and other rights that by their express terms
prohibit the assignment thereof or the grant of a security interest therein.
Some of these may be material to us and such exclusion could have a material
adverse effect on the value of the collateral. By its nature, some or all of the
collateral may not have a readily ascertainable market value or may not be
saleable or, if saleable, there may be substantial delays in its liquidation. To
the extent that liens, security interests and other rights granted to other
parties (including the lenders under our senior secured credit facilities)
encumber assets owned by us, those parties have or may exercise rights and
remedies with respect to the property subject to their liens that could
adversely affect the value of that collateral and the ability of the trustee
under the indenture or the holders of the notes to realize or foreclose on that
collateral. Consequently, we cannot assure you that liquidating the collateral
securing the notes would produce proceeds in an amount sufficient to pay any
amounts due under the notes after also satisfying the obligations to pay any
creditors with prior claims on the collateral. In addition, under the
intercreditor agreement between the trustee and the lenders under our senior
secured credit facility, described below, the right of the lenders to exercise
remedies with respect to the collateral could delay liquidation of the
collateral. The gaming licensing process, along with bankruptcy laws and other
laws relating to foreclosure and sale, as discussed below, also could
substantially delay or prevent the ability of the trustee or any holder of the
notes to obtain the benefit of any collateral securing the notes. Such delays
could have a material adverse effect on the value of the collateral.
We have not yet received, and may not receive prior to the closing of this
exchange offer, an updated survey for the real property collateral located in
Dubuque, Iowa (the "Dubuque Property"). There can be no assurances that such
survey would not disclose any encumbrances, title defects or liens affecting the
applicable collateral, which could have a material adverse effect on the value
of the applicable collateral or the operation of our business. While the terms
of our Purchase Agreement with the Initial Purchaser for the notes include a
post-closing obligation to provide an indemnity with respect to such defects, if
any, as may be disclosed on such survey as reasonably required by the trustee,
and that failure to do so would be an event of default under the indenture
governing the notes, there can be no assurance that such parties can or will do
so.
The indenture governing the notes and the agreements governing our other
secured indebtedness also permit us, subject to satisfaction of certain
conditions, to designate one or more of our restricted subsidiaries as an
unrestricted subsidiary. If we designate a restricted subsidiary as an
unrestricted subsidiary, all of the liens on any collateral owned by the
unrestricted subsidiary or any of its subsidiaries and any guarantees of the
notes by the unrestricted subsidiary or any of its subsidiaries will be released
under the indenture but not necessarily under our senior secured credit
facility. Designation of an unrestricted subsidiary will reduce the aggregate
value of the collateral securing the notes to the extent that liens on the
assets of the unrestricted subsidiary and its subsidiaries are
19
released. In addition, the creditors of the unrestricted subsidiary and its
subsidiaries will have a prior claim (ahead of the notes) on the assets of such
unrestricted subsidiary and its subsidiaries.
If the proceeds of any sale of collateral are not sufficient to repay all
amounts due on the notes, the holders of the notes (to the extent not repaid
from the proceeds of the sale of the collateral), would have only an unsecured
claim against our remaining assets.
Lien Subordination--Your right to receive payments on the notes or proceeds from
the sale of collateral securing the notes will be contractually subordinated to
payments under our senior secured credit facility to the extent of the
collateral securing such credit facility and subject to the prior claim of
purchase money lenders and holders of mechanics' liens.
The security interests securing the notes and the guarantees are
contractually subordinated to $35.0 million (which may be increased by $15.0
million per gaming property that we acquire or construct or in which we invest)
principal amount of indebtedness that may be incurred under our senior secured
credit facility, pursuant to an intercreditor agreement between the trustee
under the indenture and the lender or lenders under our senior secured credit
facility. In addition, lenders of furniture, fixtures and equipment financing
and other purchase money indebtedness will have a security interest in the
assets securing that indebtedness, although those assets, so long as they secure
only such indebtedness, will not secure the notes. As a result, upon any
distribution to our creditors, whether or not in bankruptcy, liquidation,
reorganization or similar proceedings, or following acceleration of our
indebtedness or an event of default under such indebtedness, the lenders under
our senior secured credit facility and the lenders of furniture, fixtures and
equipment financing and other purchase money indebtedness will be entitled to be
repaid in full from the proceeds of the assets securing such indebtedness before
any payment is made to you from such proceeds. Consequently, it is unlikely that
the liquidation of the collateral securing the notes would produce proceeds in
an amount sufficient to pay the amounts due on the notes after also satisfying
the obligations to pay our senior secured credit facility lenders and purchase
money lenders, even if the fair market value of the collateral securing the
notes would be sufficient, absent our senior secured credit facility and
purchase money indebtedness, to pay all amounts due on the notes. If the
proceeds of any sale of collateral are not sufficient to repay all amounts due
on the notes, the holders of the notes (to the extent not repaid from the
proceeds of the sale of the collateral), would have only an unsecured claim
against our remaining assets.
In addition, Louisiana law provides contractors, subcontractors and
material suppliers with a lien on the property improved by their services or
supplies in order to secure their right to be paid. If these parties are not
paid in full, they may seek foreclosure on their liens. In Louisiana, the
priority of all mechanics' liens related to a particular construction project
relate back to the date on which construction of the project first commenced by
any contractor. Accordingly, contractors, subcontractors and suppliers providing
goods and services in connection with the construction of the racino who after
recordation of the security interests securing the notes otherwise comply with
the applicable requirements of Louisiana law may have a lien on the racino that
is senior in priority to the security interests securing the notes until they
are paid in full. In the event of a liquidation, proceeds from the sale of
collateral will be used to pay the holders of any mechanics' liens then in
existence before holders of the notes.
None of our unrestricted domestic subsidiaries or any foreign subsidiaries
that we may designate, form or acquire will guarantee the notes. If any of our
unrestricted domestic subsidiaries or foreign subsidiaries becomes insolvent,
liquidates, reorganizes, dissolves or otherwise winds up, holders of its
indebtedness and its trade creditors generally will be entitled to payment on
their claims from the assets of such subsidiary before any of those assets would
be made available to us.
Limited Remedies--Your right to exercise remedies with respect to the collateral
will be limited by an intercreditor agreement between the trustee and the
lenders under our senior secured credit facility.
A number of the trustee's rights and remedies with respect to the
collateral to be shared with the lenders under our senior secured credit
facility also will be significantly limited under the intercreditor agreement.
For instance, if the notes become due and payable prior to the stated maturity
or are not paid in full at the stated maturity at a time during which we have
indebtedness outstanding under our senior secured credit facility, the trustee
will not have the right to foreclose upon the collateral unless and until the
lenders under our senior secured credit facility fail to take steps to exercise
remedies with respect to or in connection with the collateral within 180 days
following notice to such lenders of the occurrence of an event of default under
the indenture. In addition, the intercreditor
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agreement will prevent the trustee and the holders of the notes from pursuing
remedies with respect to the collateral in an insolvency proceeding.
Distributions from Subsidiaries--Our ability to make payments under the notes
and service our other debt depends on cash flow from our subsidiaries.
We will depend on distributions or other intercompany transfers of funds
from our subsidiaries to make payments under the notes and service our other
debt. Distributions and intercompany transfers of funds to us from our
subsidiaries will depend on:
o their earnings;
o covenants contained in our and their debt agreements, including our
senior secured credit facilities and the indenture governing the
notes;
o covenants contained in other agreements to which we or our
subsidiaries are or may become subject;
o business and tax considerations; and
o applicable law, including laws regarding the payment of dividends and
distributions.
We cannot assure you that the operating results of our subsidiaries at any
given time will be sufficient to make distributions or other payments to us or
that any distributions and/or payments will be adequate to pay any amounts due
under the notes or our other indebtedness.
Ability to Realize on Collateral--Gaming laws, bankruptcy laws and other factors
may delay or otherwise impede the trustee's ability to foreclose on the
collateral.
In addition to our intercreditor arrangements with lenders under our senior
secured credit facility, described above, the gaming and racing laws of the
States of Iowa and Louisiana and the licensing processes, along with other laws
relating to foreclosure and sale, could substantially delay or prevent the
ability of the trustee or any holder of the notes to obtain the benefit of any
collateral securing the notes. For example, if the trustee sought to operate, or
retain an operator for, the racino, the trustee would be required to obtain
Louisiana gaming and racing licenses. Potential purchasers of the racino or the
gaming equipment would also be required to obtain a Louisiana gaming license as
well as appropriate racing licenses relating to horse racetrack operations. This
could limit the number of potential purchasers in a sale of the racino or gaming
equipment, which may delay the sale of and reduce the price paid for the
collateral.
In addition, the trustee's ability to repossess and dispose of collateral
is subject to the procedural and other restrictions of state real estate,
commercial and gaming law, as well as the prior approval of the lenders under
our senior secured credit facility. Among other things, if the trustee did
conduct a foreclosure sale, and if the proceeds of the sale were insufficient,
after expenses, to pay all amounts due on the notes, the trustee might, under
certain circumstances, be permitted to assert a deficiency claim against us.
There can be no assurance that the trustee would be able to obtain a judgment
for the deficiency or that we would have sufficient other assets to pay a
deficiency judgment.
Federal bankruptcy law also could impair the trustee's ability to foreclose
upon the collateral. If we or a guarantor become a debtor in a case under the
United States Bankruptcy Code, as amended (the "Bankruptcy Code"), the automatic
stay, imposed by the Bankruptcy Code upon the commencement of a case, would
prevent the trustee from foreclosing upon the collateral or (if the trustee has
already taken control of the collateral) from disposing of it, without prior
bankruptcy court approval.
The bankruptcy court might permit us to continue to use the collateral
while the bankruptcy case was pending, even if the notes were then in default.
Under the Bankruptcy Code, you and the trustee would be entitled to "adequate
protection" of your interest in the collateral, if necessary to protect against
any diminution in value during
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the case. Because the Bankruptcy Code does not define "adequate protection," and
because the bankruptcy court has broad discretion, however, there can be no
assurance that the court would require us to provide you with any form of
"adequate protection," or that any protection so ordered would, in fact, be
adequate.
In a bankruptcy case, the court would allow a claim for all amounts due
under the notes, including all accrued and unpaid interest through the date of
bankruptcy. Under the Bankruptcy Code, interest stops accruing on the date of
bankruptcy except under certain specified circumstances, and there can be no
assurance that the court would allow a claim for post-bankruptcy interest. If
the court held that the value of the collateral securing the notes was less than
the amount due, the trustee would be permitted to assert a secured claim in an
amount equal to the collateral's value and an unsecured claim for the
deficiency.
For these and other reasons, if we or our subsidiaries become debtors in
cases under the Bankruptcy Code, there can be no assurance:
o whether any payments under the notes would be made;
o whether or when the trustee could foreclose upon or sell the
collateral;
o whether the term or other conditions of the notes or any rights of the
holders could be altered in a bankruptcy case without the trustee's or
your consent;
o whether the trustee or you would be able to enforce your rights
against the guarantors under their guarantees; or
o whether or to what extent holders of the notes would be compensated
for any delay in payment or decline in the collateral's value.
Finally, the trustee's ability to foreclose on the collateral on your
behalf may be subject to the consent of third parties, prior liens (as discussed
above) and practical problems associated with the realization of the trustee's
security interest in the collateral.
Fraudulent Transfer--Under certain circumstances, a court could cancel the
guarantees of our subsidiaries.
Unless designated as an unrestricted subsidiary, each domestic subsidiary
we form or acquire will be required to guarantee the notes and grant a security
interest in certain of its assets (junior to the security interest granted to
the lenders under our senior secured credit facility) to secure its guarantee.
Although these guarantees will provide you with a direct claim against the
assets of the subsidiary guarantors, under federal bankruptcy law and comparable
provisions of state fraudulent transfer laws, under certain circumstances a
court could void (i.e., cancel) a guarantee and the security interest in the
guarantor's assets and order the return of any payments made thereunder to the
guarantor or to a fund for the benefit of its other creditors.
A court might take these actions if it found that when the guarantor
entered into its guarantee (or, in some jurisdictions, when payments became due
on its guarantee), (i) it received less than reasonably equivalent value or fair
consideration for its guarantee, and (ii) any of the following conditions was
then satisfied:
o the guarantor was insolvent or rendered insolvent by reason of
incurring its obligations under its guarantee;
o the guarantor was engaged in a business or transaction for which its
remaining assets constituted unreasonably small capital; or
o the guarantor intended to incur, or believed (or reasonably should
have believed) that it would incur, debts beyond its ability to pay as
those debts matured.
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In applying these factors, a court would likely find that a subsidiary
guarantor did not receive fair consideration or reasonably equivalent value for
its guarantee, except to the extent that it benefited directly or indirectly
from the notes' issuance. The determination of whether a subsidiary was or was
rendered "insolvent" would vary depending on the law of the jurisdiction being
applied. Generally, an entity would be considered insolvent if the sum of its
debts (including contingent or unliquidated debts) is greater than all of its
property at a fair valuation or if the present fair salable value of its assets
is less than the amount that will be required to pay its probable liability on
its existing debts (including contingent or unliquidated debts) as they become
absolute and matured.
A court might also void a guarantor's guarantee and the security interest
in its assets if the court concluded that the guarantor entered into the
guarantee with actual intent to hinder, delay, or defraud creditors. If a court
avoided a guarantor's guarantee, you would no longer have a claim against that
subsidiary, and the claims of creditors of such subsidiary would be entitled to
be paid in full prior to payments, if any, being made to us to satisfy any
claims under the notes, including, in the case of OED, claims of holders of OED
Notes who elected not to tender their OED Notes. There can be no assurance that
the assets of any guarantor whose guarantee was not voided would be sufficient
to pay amounts then due under the notes.
Bankruptcy Considerations Regarding the Corporate Form of our Member--We are
uncertain how the bankruptcy of our member would affect our ability to continue
to operate.
PGP is our sole managing member. Generally, limited liability companies
("LLCs") are intended to provide both the limited liability of the corporate
form for their members and certain advantages of partnerships, including
"pass-through" income tax treatment for members, and thus have attributes of
both corporations and partnerships. LLCs and their members have been involved in
relatively few bankruptcy cases as debtors, and there has been little reported
judicial authority addressing bankruptcy issues as they pertain to LLCs. There
is some authority that the bankruptcy of a partnership's general partner may
lead to the winding up or dissolution of the partnership. It is possible that a
bankruptcy court might hold, by analogy, that an LLC member's bankruptcy would
have a similar effect on a LLC. In the absence of judicial precedent, there can
be no assurance as to the effect that the bankruptcy of PGP might have on our
ability or the ability of our operating subsidiaries to continue in business.
Restrictive Covenants--The indenture governing the notes and our senior secured
credit facility contains covenants that significantly restrict our operations.
The indenture governing the notes and the agreement governing our senior
secured credit facility contain, and any other future debt agreements may
contain, numerous covenants imposing financial and operating restrictions on our
business. These restrictions may affect our ability to operate our business, may
limit our ability to take advantage of potential business opportunities as they
arise and may adversely affect the conduct of our current business. These
covenants place restrictions on our ability and the ability of our restricted
subsidiaries to, among other things:
o pay dividends, redeem stock or make other distributions or restricted
payments;
o incur indebtedness or issue preferred membership interests;
o make certain investments;
o create liens;
o agree to payment restrictions affecting the subsidiary guarantors;
o consolidate or merge;
o sell or otherwise transfer or dispose of assets, including equity
interests of our restricted subsidiaries;
o enter into transactions with our affiliates;
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o designate our subsidiaries as unrestricted subsidiaries; and
o use the proceeds of permitted sales of our assets.
Our senior secured credit facility also requires us to meet a number of
financial ratios and tests. Compliance with these financial ratios and tests may
adversely affect our ability to adequately finance our operations or capital
needs in the future or to pursue attractive business opportunities that may
arise in the future. Our ability to meet these ratios and tests and to comply
with other provisions governing our indebtedness may be adversely affected by
our operations and by changes in economic or business conditions or other events
beyond our control. Our failure to comply with our debt-related obligations
could result in an event of default under the notes and our other indebtedness
Change of Control--Our ability to repurchase the notes upon a change of control
may be limited.
Upon the occurrence of specific change of control events, we will be
required to offer to repurchase all outstanding notes at 101% of the principal
amount, plus accrued and unpaid interest to the date of repurchase. The lenders
under our senior secured credit facility have a similar right to be repaid upon
a change of control. Any of our future debt agreements may contain a similar
provision. However, we may not have sufficient funds at the time of the change
of control to make the required repurchase of notes or repayment of our other
indebtedness. The terms of our senior secured credit facility also limit our
ability to purchase your notes until all debt under our senior secured credit
facility is paid in full. Any of our future debt agreements may contain similar
restrictions. If we fail to repurchase any notes submitted in a change of
control offer, it would constitute an event of default under the indenture which
would, in turn, constitute an event of default under our senior secured credit
facility and could constitute an event of default under our other indebtedness,
even if the change of control itself would not cause a default. Important
corporate events, such as takeovers, recapitalizations or similar transactions,
may not constitute a change of control under the indenture governing the notes
and thus not permit the holders of the notes to require us to repurchase or
redeem the notes. See "Description of Notes--Redemption," "--Repurchase Upon
Change of Control" and " --Certain Covenants--Limitation on Asset Sales."
Required Regulatory Redemption--Noteholders may be required to be licensed by a
gaming authority and, if not so licensed, their notes will be subject to
redemption.
We are required to notify the Iowa Racing and Gaming Commission (the "Iowa
Gaming Commission") and the Louisiana Gaming Control Board and the Louisiana
State Racing Commission as to the identity of, and may be required to submit
background information regarding, each owner, partner or any other person who
has a beneficial interest of five percent or more, direct or indirect, in the
Company. The Iowa Gaming Commission, the Louisiana Gaming Control Board and the
Louisiana State Racing Commission may also request that we provide them with a
list of persons holding beneficial ownership interests in the Company of less
than five percent. For purposes of these rules, "beneficial interest" includes
all direct and indirect forms of ownership or control, voting power or
investment power held through any contract, lien, lease, partnership,
stockholding, syndication, joint venture, understanding, relationship, present
or reversionary right, title or interest, or otherwise. The Iowa Gaming
Commission, the Louisiana Gaming Control Board and the Louisiana State Racing
Commission may determine that holders of the notes have a "beneficial interest"
in the Company.
If any gaming, racing or liquor agencies, including the Iowa Gaming
Commission, the Louisiana Gaming Control Board or the Louisiana State Racing
Commission, requires any person, including a record or beneficial owner of the
notes, to be licensed, qualified or found suitable, that person must apply for a
license, qualification or finding of suitability within the time period
specified by the gaming authority. The person would be required to pay all costs
of obtaining a license, qualification or finding of suitability. If you are
unable or unwilling to obtain such license, qualification or finding of
suitability, such agencies and authorities may not grant us or, if already
granted, may suspend or revoke our licenses unless we terminate our relationship
with you. Under these circumstances, we would be required to repurchase your
notes. There can be no assurance that we will have sufficient funds or otherwise
will be able to repurchase any or all of your notes. See "Regulatory Matters"
and "Description of Notes--Redemption" for more information about regulatory
redemptions affecting the notes.
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RISKS RELATING TO OUR BUSINESS
Risk of a New Venture--Our racino does not have any operating history or history
of earnings.
We are still completing construction on our racino and have no operating
history or history of earnings with regard to racino operations. In addition,
neither we nor the Operator (as defined herein) of the racino have any
experience in operating or marketing a casino in Opelousas, Louisiana. As a
result, you must evaluate our business prospects in light of the difficulties
frequently encountered by companies in the early stages of substantial real
estate development and gaming projects and the risks inherent in the
establishment of a new business enterprise. There can be no assurance that we or
the Operator will be able to successfully operate the racino, that the racino
will be profitable or that we will generate sufficient cash flow to meet our
payment obligations under the notes and our other indebtedness. Unexpected
changes or concessions required by local, state or federal regulatory
authorities could involve significant additional costs and delay the scheduled
opening of our new horse racetrack.
Failure to Complete New Racetrack on Time and Within Budget--If we fail to
complete construction of the horse racetrack on time and within budget, it could
have a material adverse effect on our business.
There can be no assurance that we will complete the new horse racetrack on
time or within budget. Construction projects are subject to development and
construction risks, any of which could cause unanticipated costs increases and
delays. Unexpected changes or concession required by local, state or federal
regulatory authorities could involve significant additional costs and delay the
scheduled opening of our new horse racetrack.
We expect to meet our regulatory requirements for the racino project for
fiscal 2004 with related additional capital expenditures of approximately $15.1
million. Consistent with our regulatory requirements, we also expect to continue
construction on our turf track during fiscal 2005. We expect to fund these
capital expenditures from borrowings under our senior secured credit facility
and cash flow from operations. If these amounts are not sufficient, or if actual
construction costs exceed expected amounts, we would be required to seek
additional financing, modify our construction plans or use cash from operations
that would otherwise be used for other purposes (including servicing our
indebtedness). There can be no assurances that these alternatives would be
available or that they would not have a material adverse effect on our business,
financial condition and results of operations and our ability to meet our
payment obligations under the notes and our other indebtedness.
Licensing--If a schedule of live racing meets for the 2005 racing season at the
new horse racetrack is not established by January 21, 2005 or if we fail to meet
the minimum live racing day requirements, our gaming license with respect to the
racino will be canceled and all slot machine gaming at the racino must cease.
Our failure to complete construction of the horse racetrack at the racino
and to establish a schedule of live racing meets at the new horse racetrack by
January 21, 2005, will result in the cancellation of our gaming license with
respect to the racino. While Louisiana allows us to operate slot machines at the
racino prior to completion of the new horse racing facility and the commencement
of live racing at the new horse racetrack, Louisiana gaming regulations and our
gaming license require that the racino must be constructed and a schedule of
live racing meets at the new horse racetrack must be established by January 21,
2005, which is within two years from the date of the grant of our gaming license
with respect to the racino. In addition, to maintain our gaming license, we must
remain an "eligible facility" under the Louisiana Pari-Mutuel Live Racing
Facility Economic Redevelopment and Gaming Control Act (the "Pari-Mutuel Act").
This means that we must, among other things, have a minimum of 80 live racing
days in a consecutive 20-week period each year of live horse race meetings at
the new horse racetrack. Live racing days typically vary in number from year to
year and are based on a number of factors, many of which are beyond our control,
including the number of suitable race horses and the occurrence of severe
weather. If either a schedule of live racing meets at the new horse racetrack
has not been established by January 21, 2005 or if we fail to have the minimum
number of live racing days, our gaming license with respect to the racino may be
canceled, and the casino will be required to cease operations. Any cessation of
our operation would have a material adverse affect on our business and financial
condition and ability to meet our payment obligations under the notes and our
other indebtedness.
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Future Operating Performance--Our future operating performance could be
adversely affected by disruptions and reduced patronage of our properties as a
result of economic and other business factors.
Our future operating performance could be adversely affected by disruptions
and reduced patronage of our properties as a result of economic and other
business factors. The impact of these factors will be more significant to us
than it would be to a diversified gaming company or to a gaming company that
does not depend on seasonal earnings from racing. Either the Diamond Jo or the
racino could be completely or partially closed due to, among other things,
severe weather, casualty, mechanical failure, including the failure of our slot
machines, physical damage or extended or extraordinary maintenance or
inspection. Severe weather may also cause the closure of highways which provide
access to the Diamond Jo or the racino and could reduce the number of people
visiting these facilities. In addition, to maintain our gaming license for our
racino, we must have a minimum of 80 live racing days in a consecutive 20-week
period each year of live horse race meetings at the new racetrack, and poor
weather conditions may make it difficult for us to comply with this requirement.
We are also vulnerable to any adverse changes in general political,
financial and economic conditions (including as a result of international
conflict) and any negative economic, competitive, demographic or other
conditions affecting the States of Iowa and Louisiana, the cities of Dubuque,
Iowa and Lafayette and Opelousas, Louisiana and the surrounding areas from which
we expect to attract patrons. If the economy of any of these areas suffers a
downturn or if any of that area's larger employers lays off workers, we may be
adversely affected by the decline in disposable income of consumers in that
area. Any of the foregoing factors could limit or result in a decrease in the
number of patrons at either the Diamond Jo or the racino or a decrease in the
amount that patrons are willing to wager. Although we maintain insurance
policies, insurance proceeds may not adequately compensate us for all economic
consequences of any such event. If either the Diamond Jo or the racino is not
able to generate sufficient cash flow, we may not be able to meet our payment
obligations under the notes and our other indebtedness.
Requirement of a Certificate of Inspection--DJL must hold a Certificate of
Inspection and a Certificate of Documentation from the United States Coast Guard
for the Diamond Jo. Loss of the Certificate of Inspection would result in
discontinuance of operations at the Diamond Jo riverboat casino.
DJL must hold, and currently possesses, a Certificate of Inspection ("COI")
and a Certificate of Documentation from the United States Coast Guard for the
Diamond Jo riverboat. Loss of the COI would preclude its use of the Diamond Jo
as an operating riverboat. The United States Coast Guard requires periodic hull
inspections. A traditional dry dock hull inspection would result in the
temporary loss of service of its riverboat for approximately two weeks. The
United States Coast Guard, upon request and approval of the request, allows for
an underwater hull inspection instead of the traditional out of water dry dock
inspection. An underwater hull inspection does not result in any loss of
services of the riverboat. DJL completed an underwater hull inspection in March
2003 and DJL will be required to perform another hull inspection within sixty
(60) months from the date of the underwater hull inspection. At that time, DJL
may again seek approval from the Coast Guard for an underwater hull inspection
in order to avoid any loss of services of the riverboat. No assurances can be
given that the Coast Guard would again approve DJL's request for an underwater
hull inspection.
Due to changes in Iowa law, we may operate a gaming vessel that is not
required to cruise, without a COI. We have applied to the US Army Corp of
Engineers and the Coast Guard to give up our COI and become a Permanently Moored
Vessel (PMV). The process of becoming a PMV is expected to take at least several
months and, if granted, will allow us to reduce our marine personnel to a level
fitting of a non-cruising vessel.
Reauthorization of Gaming in Dubuque County, Iowa--The Dubuque County electorate
must vote in 2010 and every eight years thereafter whether to continue to allow
riverboat gaming in Dubuque County, Iowa. If riverboat gaming is discontinued,
it is unlikely that DJL will be able to conduct its gaming operations, and, in
that case, DJL may not be able to continue to service our indebtedness,
including the notes.
Under Iowa law, a license to conduct gaming may be issued in a county only
if the county electorate has approved the gaming, and a reauthorization
referendum requiring majority approval must be held every eight years. On
November 5, 2002, the electorate of Dubuque County, Iowa, which includes the
City of Dubuque, approved gaming by approximately 79% of the votes cast. If any
reauthorization referendum is defeated it is unlikely that DJL
26
would be able to conduct gaming operations on the Diamond Jo, and, in that case,
DJL may not be able to continue to service our indebtedness, including the
notes.
Liquor Regulation--Revocation of any of our liquor licenses, which are subject
to extensive regulation, could have a material adverse effect on our gaming
operations and our ability to generate cash to service our indebtedness.
The sale of alcoholic beverages by DJL and OED is subject to licensing,
control and regulation by state and local agencies in Iowa and Louisiana,
respectively. Subject to limited exceptions, all persons who have a financial
interest in DJL, OED, or PGL, by ownership, loan or otherwise, must be disclosed
in an application filed with, and are subject to investigation by, Iowa and
Louisiana liquor agencies. All liquor licenses are subject to annual renewal,
are revocable and are not transferable. Persons who have a direct or indirect
interest in any Iowa liquor licensee, other than hotel and restaurant liquor
licensees, may be prohibited from purchasing or holding the notes. The liquor
agencies have broad powers to limit, condition, suspend or revoke any liquor
license. Any disciplinary action with respect to any of our liquor licenses
could, and any failure to renew or revocation of our liquor licenses would, have
a material adverse effect on our business.
Competition--We face intense competition in our gaming markets and increased
competition may have a material adverse effect on our business, financial
condition and resulting operations.
The gaming industry is intensely competitive. If our existing competitors
expand and/or upgrade their facilities or operate more efficiently than us, or
new gaming firms enter the markets in which we operate, we could lose market
share, our gaming markets could become saturated and new opportunities for
expanding our business could become limited. As a result, increased competition
could have a material adverse effect on our business, financial condition and
resulting operations.
In Iowa, we face competition primarily from the Dubuque Greyhound Park and
Casino ("DGP"), which possesses several competitive strengths. The DGP offers
some amenities that Diamond Jo does not have, including live and simulcast
greyhound racing, and, on a limited basis, simulcast horse racing. As a
not-for-profit organization, the DGP has developed strong relationships with the
local community and city officials by distributing a percentage of its
cash-flow, through contributions, to the City of Dubuque and local charities. In
addition, legislation recently passed allows the DGP to offer table games and
video games that simulate table games, subject to DJL and the DGP filing with
the Iowa Gaming Commission an agreement with respect thereto that also allows
DJL to operate as a barge. Furthermore, the DGP, which currently operates 600
slot machines and is permitted to operate up to 1,000 slot machines, is in the
process of expanding its facilities to accommodate additional slot machines,
which expansion is anticipated to be completed by June 2005. In addition, a
group of private investors is planning to construct a hotel adjacent to the DGP,
which is expected to be completed in June 2005. Besides the DGP, we also
currently face limited competition from other gaming facilities located
approximately 60 to 120 miles from our operations.
In Louisiana, we face competition from several other casinos and
pari-mutuel gaming facilities located 50 to 100 miles from our racino, including
Native American casinos in Marksville and in Kinder, Louisiana, and riverboat
casinos in Baton Rouge and Lake Charles, Louisiana. The nearest horse racetrack
to our racino that is allowed to have gaming operations is located in Vinton,
Louisiana. We also face competition from truck stop video poker parlors and OTBs
in the areas surrounding Lafayette and Opelousas.
We also compete to some extent with other forms of gaming on both a local
and national level, including state-sponsored lotteries, charitable gaming, on-
and off-track wagering, and other forms of entertainment, including motion
pictures, sporting events and other recreational activities. It is possible that
these secondary competitors could reduce the number of visitors to our
facilities or the amount they are willing to wager, which could have a material
adverse effect on our ability to generate revenue or maintain our profitability.
See "Business--Competition."
We could also face additional competition if Louisiana or any of the states
bordering Iowa or Louisiana adopts laws authorizing new or additional gaming.
Iowa recently took steps to begin authorizing an increase in the number of
gaming licenses, and it is likely that new gaming facilities will begin to
compete with us. In Louisiana, in
27
the past legislative session, a bill was introduced in the House of
Representatives to allow live harness or standard bred horse racetracks. If
future legislation authorizes live harness or standard bred horse tracks, our
operations at our racino would likely be adversely effected by the increased
competition. See "--Governmental Regulation."
Increased competition may require us to make substantial capital
expenditures to maintain and enhance the competitive positions of our
properties, including updating slot machines to reflect changing technology,
refurbishing rooms and public service areas periodically, replacing obsolete
equipment on an ongoing basis and making other expenditures to increase the
attractiveness and add to the appeal of our facilities. Because we are highly
leveraged, after satisfying our obligations under our outstanding indebtedness,
there can be no assurance that we will have sufficient funds to undertake these
expenditures or that we will be able to obtain sufficient financing to fund such
expenditures. If we are unable to make such expenditures, our competitive
position could be materially adversely affected.
Governmental Regulation--Extensive gaming and racing-related regulation
continuously impacts our operations and changes in such laws may have a material
adverse effect on our operations by, among other things, prohibiting or limiting
gaming in the jurisdictions in which we operate.
The ownership, management and operation of our gaming facilities are
subject to extensive laws, regulations and ordinances which are administered by
the Iowa Gaming Commission, the Louisiana State Gaming Control Board, the
Louisiana State Racing Commission and various other federal, state and local
government entities and agencies. We are subject to regulations that apply
specifically to the gaming industry and horse racetracks and casinos, in
addition to regulations applicable to businesses generally. If current laws,
regulations or interpretations thereof are modified, or if additional laws or
regulations are adopted, it could have a material adverse effect on our
business. See "--Competition" and "--Liquor Regulation" and "Regulatory
Matters."
Legislative or administrative changes in applicable legal requirements,
including legislation to prohibit casino gaming, have been proposed in the past.
For example, in 1996, the State of Louisiana adopted a statute in connection
with which votes were held locally where gaming operations were conducted and
which, had the continuation of gaming been rejected by the voters, might have
resulted in the termination of operations at the end of their current license
terms. During the 1996 local gaming referendums, Lafayette Parish voted to
disallow gaming in the Parish, whereas St. Landry Parish, the site of our
relocation, voted in favor of gaming. All parishes where riverboat gaming
operations are currently conducted voted to continue riverboat gaming, but there
can be no guarantee that similar referenda might not produce unfavorable results
in the future. Proposals to amend or supplement the Louisiana Riverboat Economic
Development and Gaming Control Act and the Pari-Mutuel Act also are frequently
introduced in the Louisiana State legislature. In the 2001 session, a
representative from Orleans Parish introduced a proposal to repeal the authority
of horse racetracks in Calcasieu Parish (i.e., site of Delta Downs) and St.
Landry Parish (i.e., site of our racino) to conduct slot machine gaming at such
horse racetracks and to repeal the special taxing districts created for such
purposes. If adopted, this proposal would have effectively prohibited us from
operating the casino portion of our racino. In addition, the Louisiana
legislature, from time to time, considers proposals to repeal the Pari-Mutuel
Act.
Similarly, in Iowa, the county electorate must reauthorize gaming every
eight years. See "--Reauthorization of Gaming in Dubuque County, Iowa."
To date, we have obtained all governmental licenses, findings of
suitability, registrations, permits and approvals necessary for the operation of
the Diamond Jo and the racino. However, we can give no assurance that any
additional licenses, permits and approvals that may be required will be given or
that existing ones will be renewed or will not be revoked. Renewal is subject
to, among other things, continued satisfaction of suitability requirements. Any
failure to renew or maintain our licenses or to receive new licenses when
necessary would have a material adverse effect on us.
The approval of the Iowa Gaming Commission, and the approval of applicable
Louisiana regulatory authorities are required for any material debt or equity
financing, including the issuance of the notes, and the corporate transactions.
The Iowa Gaming Commission and the applicable Louisiana regulatory authorities
recently approved the offering of the notes, refinancing of our existing senior
secured credit facilities and the corporate transactions.
28
Environmental Matters--We are subject to environmental laws and potential
exposure to environmental liabilities. This may affect our ability to develop,
sell or rent our property or to borrow money where such property is required to
be used as collateral.
We are subject to various federal, state and local environmental laws,
ordinances and regulations, including those governing discharges to air and
water, the generation, handling, management and disposal of petroleum products
or hazardous substances or wastes, and the health and safety of our employees.
Permits may be required for our operations and these permits are subject to
renewal, modification and, in some cases, revocation. In addition, under
environmental laws, ordinances or regulations, a current or previous owner or
operator of property may be liable for the costs of removal or remediation of
some kinds of hazardous substances or petroleum products on, under, or in its
property, without regard to whether the owner or operator knew of, or caused,
the presence of the contaminants, and regardless of whether the practices that
resulted in the contamination were legal at the time they occurred. The presence
of, or failure to remediate properly, the substances may adversely affect the
ability to sell or rent the property or to borrow funds using the property as
collateral. Additionally, the owner of a site may be subject to claims by third
parties based on damages and costs resulting from environmental contamination
emanating from a site.
We have reviewed environmental assessments, in some cases including soil
and groundwater testing, relating to our currently owned and leased properties
in Dubuque, Iowa, and other properties we may lease from the City of Dubuque or
other parties. As a result, we have become aware that there is contamination
present on some of these properties apparently due to past industrial
activities. With respect to parcels we currently own or lease, we believe, based
on the types and amount of contamination identified, the anticipated uses of the
properties and the potential that the contamination, in some cases, may have
migrated onto our properties from nearby properties, that any cost to clean up
these properties will not result in a material adverse effect on our earnings.
We do not anticipate any material adverse effect on our earnings or
competitive position relating to environmental matters, but it is possible that
future developments could lead to material costs of environmental compliance for
us and that these costs could have a material adverse effect on our business and
financial condition.
Taxation--An increase in the taxes and fees that we pay could have a material
adverse effect on us, and might reduce the cash flow available to service our
indebtedness, including under the notes.
We are subject to significant taxes and fees relating to our gaming
operations, which are subject to increase at any time. Currently, in Iowa, we
are taxed at an effective rate of approximately 22% of our adjusted gross
receipts by the State of Iowa and we pay the City of Dubuque a fee equal to
$0.50 per patron. In addition, there will be two assessments due on June 1, 2005
and June 1, 2006 in an amount equal to 2.152% of the licensee's adjusted gross
receipts for fiscal year 2004. These assessments will be used against future
state gaming taxes paid by the licensee with a credit for 20% of the assessments
paid allowed each year for five consecutive years beginning July 1, 2010. In
addition, all Iowa riverboats share equally in costs of the Iowa Gaming
Commission and related entities to administer gaming in Iowa, which is currently
approximately $600,000 per year per riverboat. Recently enacted legislation
eliminated the cruising requirement and now allows all riverboats licensed in
the state to operate as either a self-propelled excursion gambling boat, an
excursion gambling boat that has been removed from navigation and is designated
as a permanently moored vessel by the United States Coast Guard, or a moored
barge. Currently, in Louisiana, we are taxed at an effective rate of
approximately 36.5% of our adjusted gross slot revenue and pay to the Louisiana
State Racing Commission a fee of $0.25 for each patron who attends a live race
at our horse racetrack, enters the racino during non-racing season, from the
hours of noon to midnight, Thursday through Monday, or enters any one of our
OTBs. In addition, there have been proposals in the past to tax all gaming
establishments, including riverboat casinos, at the federal level. Any material
increase in taxes or fees, or in costs of the Iowa Gaming Commission and related
entities, would have a material adverse affect on us and our ability to service
our indebtedness, including the notes. See "Regulatory Matters" for more
information about the taxes and fees we are required to bear.
29
Difficulty in Attracting and Retaining Qualified Employees--If we are unable to
attract and retain a sufficient number of qualified employees or are required to
substantially increase our labor costs, our business, results of operations and
financial condition will be materially adversely affected.
The operation of our business requires qualified executives, managers and
skilled employees with gaming industry experience and qualifications to obtain
the requisite licenses. We may have difficulty attracting and retaining a
sufficient number of qualified employees and may be required to pay higher
levels of compensation than we have estimated in order to do so. If we are
unable to attract and retain a sufficient number of qualified employees or are
required to substantially increase our labor costs, we may not be able to
operate our business in a cost effective manner or at all.
We are dependent upon the available labor pool of unskilled and
semi-skilled employees. We are also subject to the Fair Labor Standards Act,
which governs matters such as minimum wage, overtime and other working
conditions. In addition, Iowa law effectively requires that we pay Iowa
employees 25% more than the federally mandated minimum wage rates. Changes in
applicable state or federal laws and regulations, particularly those governing
minimum wages, could increase labor costs, which could have a material adverse
effect on the cash flow available to service our indebtedness.
Interested Party Matters--All of the Company's voting equity interests are
indirectly beneficially owned in the aggregate by managers and executive
officers of PGP, and such ownership may give rise to conflicts of interest.
All of the Company's voting equity interests are indirectly beneficially
owned or controlled in the aggregate by Messrs. Stevens, Luzich, Oliver and
Whittaker. Specifically, M. Brent Stevens, our Chief Executive Officer, is also
the Chairman of the Board of Managers of PGP and the Chief Executive Officer of
PGP, DJL, OED and PGL. Mr. Stevens indirectly beneficially owns or controls
(through his beneficial ownership or control of voting equity interests in PGP)
approximately 66.2% of the Company's equity interests. Michael Luzich, our
President and Secretary, is also a Manager of PGP and the President and
Secretary of PGP, DJL, OED and PGL. Mr. Luzich indirectly beneficially owns
(through his ownership of voting equity interests in PGP) approximately 32.3% of
the Company's equity interests. Terrance W. Oliver, a Manager of PGP, indirectly
beneficially owns (through his direct ownership of interests in The Oliver
Family Trust) approximately 1.5% of the Company's equity interests. Andrew
Whittaker, a Manager of PGP, indirectly beneficially owns (through his indirect
ownership of voting equity interests in PGP) approximately 4.2% (which is
included in the calculation of the 66.2% owned or controlled by Mr. Stevens) of
the Company's equity interests. In addition Mr. Stevens has the right to
designate three of the five members of PGP's board of managers, including one of
the two independent managers, and Mr. Luzich has the right to designate two of
the five members of PGP's board of managers, including one of the two
independent managers, for so long as Mr. Stevens and Mr. Luzich, respectively,
beneficially hold at least 5% of the voting equity interests of PGP. See
"Management," "Security Ownership of Certain Beneficial Owners and Management,"
and "Certain Relationships and Related Party Transactions."
Mr. Stevens also is an Executive Vice President of the Initial Purchaser,
and Mr. Whittaker also is a Vice Chairman of the Initial Purchaser. Certain
affiliates, officers and employees of the Initial Purchaser also are members of
PGP Investors, LLC, a Delaware limited liability company, which beneficially
owns approximately 41.3% (which is included in the calculation of the 66.2%
owned or controlled by Mr. Stevens) of the Company's equity interests. See "Plan
of Distribution."
There can be no assurance that the interests of these individuals or PGP
will not conflict with your interests as a holder of notes. Because of their
controlling interests, these individuals have the power to elect a majority of
our managers, appoint new management and approve any action requiring the
approval of holders of our equity interests, including adopting amendments to
our certificate of formation, approving mergers or sales of substantially all of
our assets or changes to our capital structure, or pursuing other transactions
which may increase the value of their or PGP's equity investment even though
these transactions may involve risks to you as a holder of notes.
PGP is primarily responsible for managing the Diamond Jo and the racino, as
well as supervising the construction of the racino. Neither PGP nor any of its
affiliates is restricted from managing other gaming operations, including new
gaming ventures or facilities that may compete with ours, except that certain
restrictions under the
30
DRA Operating Agreement will terminate if we or any of our affiliates operate
another facility in Dubuque County or the adjoining counties of Illinois or
Wisconsin. If PGP or any of its affiliates decides to manage other gaming
operations, such activities could require a significant amount of attention from
PGP's officers and managers and require them to devote less time to managing our
operations. While we believe that any new ventures will not detract from PGP's
ability to manage and operate the Diamond Jo or the racino, there can be no
assurance that such ventures would not have a material adverse effect on us or
on PGP.
31
THE TRANSACTIONS
The offering of the notes was conducted as part of our plan to refinance
our existing debt to improve our financial and operating flexibility (the
"Refinancing Plan"). In addition, in connection with the Refinancing Plan, we
effected a series of corporate transactions (the "Corporate Transactions" and,
together with the Refinancing Plan, the "Transactions") to, among other things,
simplify our organizational structure.
REFINANCING PLAN
The elements of the Refinancing Plan included the following:
Repurchase of OED Notes. In March 2004, OED commenced a tender offer and
consent solicitation to repurchase all of its outstanding OED Notes and to
solicit consents to certain proposed amendments to the indenture governing the
OED Notes (the "Amendments") and to terminate the related collateral agreements
and release the liens on the collateral that secures the OED Notes (the
"Collateral Release" and, together with the Amendments, the "Proposals"). The
Amendments eliminated substantially all of the restrictive covenants and events
of default under the indenture governing the OED Notes, other than those
relating to the payment of principal and interest. The Amendments required for
adoption the consent of the holders of a majority in aggregate principal amount
of the outstanding OED Notes (excluding for such purpose any OED Notes owned by
OED or any of its affiliates) (the "Requisite Consents"). The tender offer and
consent solicitation was conditioned on, among other things, there being validly
tendered (and not withdrawn) of a majority of the aggregate principal amount of
the outstanding OED Notes. OED received the Requisite Consents for the
Amendments in its consent solicitation and tenders of a majority of the
aggregate principal amount of the outstanding OED Notes. We used a portion of
the net proceeds from the offering of the notes to redeem approximately $116
million principal amount of the outstanding OED Notes in the tender offer and to
pay the related consent payments. OED Notes not purchased in the tender offer
remain outstanding and do not have the benefit of substantially all of the
restrictive covenants in the indenture or the liens on the collateral.
Repurchase of DJL Notes. Under the indenture governing DJL's 12 1/4% Senior
Secured Notes due 2006 (the "DJL Notes"), DJL had the right to redeem all of the
DJL Notes at the redemption price set forth in such indenture. On the issue date
of the notes, DJL deposited a portion of the net proceeds from the offering of
the notes with the trustee for the purpose of defeasing the covenants and
releasing the liens on the collateral that secure the DJL Notes. On May 17,
2004, the DJL Notes were redeemed. DJL used a portion of the proceeds from the
offering of the notes to pay accrued distributions on its preferred membership
interests. DJL was required to pay all accrued distributions on the preferred
membership interests upon a refinancing of the DJL Notes.
Refinancing of Existing Senior Secured Credit Facilities. On June 16, 2004,
DJL and OED jointly entered into a Loan and Security Agreement with Wells Fargo
Foothill, Inc. as the Arranger and Agent (the "PGL Credit Facility"). The PGL
Credit Facility consists of a revolving credit facility which permits DJL and
OED to request advances and letters of credit up to the lesser of the maximum
revolver amount of $35 million (less amounts outstanding under letters of
credit) and a specified borrowing base (the "Borrowing Base"). For the purposes
of the PGL Credit Facility, the Borrowing Base is the lesser of the Combined
EBITDA (as defined in the PGL Credit Facility) of OED and DJL for the twelve
months immediately preceding the current month end multiplied by 150% and the
Combined EBITDA of OED and DJL for the most recent quarterly period annualized
multiplied by 150%. Immediately upon the closing of the PGL Credit Facility, DJL
borrowed approximately $11.1 million to refinance outstanding obligations under
the DJL Credit Facility and pay financing related fees and expenses and OED
borrowed approximately $4.8 million to refinance outstanding obligations under
the OED Credit Facility and pay financing related fees and expenses. Advances
under the PGL Credit Facility bear an interest rate based on the borrower's
option of LIBOR plus a margin of 3% -3.5% or Wells Fargo prime rate plus a
margin of .5% -1% (current rate of 5.0%); provided that at no time shall the
interest rate be lower than 4%.
The PGL Credit Facility also contains a term loan in the amount of
$14,666,667 (the "Term Loan"). The proceeds from the Term Loan were used to
repay outstanding obligations under the OED FF&E Credit Facility. The Term Loan
is secured by certain assets of OED and requires monthly payments of $333,333
starting July 1, 2004 until the full balance is paid, with a maturity no later
than June 15, 2008. The Term Loan has an interest rate equal to
32
the Wells Fargo prime rate plus 2.5% (current rate of 6.5%); provided that at no
time shall the interest rate be lower than 6%. Under the terms of the PGL Credit
Facility, OED was required to issue a letter of credit in the amount of $3.2
million in favor of Wells Fargo related to the Term Loan.
DJL and OED are jointly and severally liable under the PGL Credit Facility,
other than for borrowings under the Term Loan. Borrowings under the PGL Credit
Facility, other than borrowings under the Term Loan, are collateralized by
substantially all assets of OED and DJL. Borrowings under the Term Loan will be
secured by a separate lien on the furniture, fixtures and equipment of OED
financed pursuant to the terms of the OED FF&E Facility. Borrowings under the
PGL Credit Facility are guaranteed by Peninsula Gaming, LLC and Peninsula Gaming
Corp. (formerly known as OED Capital Corp.).
CORPORATE TRANSACTIONS
The Corporate Transactions consisted of the following:
Creation of New Parent Holding Company. On June 16, 2004, PGL became a new
direct parent company of DJL and a direct wholly owned subsidiary of PGP. As
part of the Corporate Transactions, PGL became an additional co-issuer of the
notes, together with DJL and PGC. In addition, OED Corp. was renamed Peninsula
Gaming Corp. ("PGC") and became a direct wholly owned subsidiary of PGL. PGC
does not have any operations and is a co-issuer of the OED Notes. Following the
redemption of the DJL Notes, Peninsula Gaming Corp. ("PGC Corp"), a subsidiary
of DJL, was dissolved.
Following the formation of PGL, DJL and OED became sister subsidiaries and
continue to own and manage their respective gaming operations, the Diamond Jo
riverboat casino in Dubuque, Iowa and the Evangeline Downs racino located near
Lafayette, Louisiana, respectively. OEDA, formerly the parent of OED, became a
direct wholly owned subsidiary of PGP and a sister company of PGL.
33
CORPORATE STRUCTURE
Our corporate structure immediately following the offering of the old
notes, and prior to the consummation of the Transactions, was as follows:
DJL
Diamond Jo
Issuer of
DJL Notes
|
___________|____________
| |
| |
OEDA PGC Corp.
Unrestricted Co-Issuer of
Subsidiary DJL Notes
|
|
OED
Racino & OTBs
Issuer of
OED Notes
|
|
OED Corp.
Co-Issuer of
OED Notes
Our current corporate structure is as follows:
PGL
Co-Issuer
___________________|____________________
| | |
PGC OED DJL
Co-Issuer Rancino & OTBs Diamond Jo
Guarantor Co-Issuer
As part of the Transactions, PGL became an additional co-issuer of the
notes at the time we entered into the PGL Credit Facility and PGC Corp. was
dissolved. DJL is a co-issuer (and not a guarantor) of the notes.
The indenture governing the notes permitted DJL and PGC to consummate the
Corporate Transactions without requiring the consent of any of the holders of
the notes following receipt by DJL and OED of requisite final regulatory
approvals.
34
USE OF PROCEEDS
This exchange offer is intended to satisfy our obligations under the
registration rights agreement entered into in connection with the issuance of
the old notes. We will not receive any proceeds from the issuance of the new
notes in the exchange offer. You will receive, in exchange for old notes
tendered by you and accepted by us in the exchange offer, new notes in the same
principal amount. The old notes surrendered in exchange for the new notes will
be retired and cancelled and cannot be reissued. Accordingly, the issuance of
the new notes will not result in any increase of our existing debt.
We used the net proceeds of the offering of the original notes to redeem
all of DJL's outstanding 12 1/4% Senior Secured Notes due 2006 (including
accrued interest and resulting call premium), to repay approximately $116.3
million aggregate principal amount of OED's 13% Senior Secured Notes due 2010
with Contingent Interest, to pay certain accrued distributions on DJL's
outstanding preferred membership interests, to pay related fees and expenses and
for other corporate purposes.
35
CAPITALIZATION
The following table sets forth our cash and investments and capitalization
at March 31, 2004 on an actual basis and on an adjusted basis to give effect to
the offering of the Notes and the application of the net proceeds therefrom as
set forth under the section entitled "Use of Proceeds" and the consummation of
the other Transactions as set forth in the section entitled "The Transactions,"
as if such transactions had occurred on March 31, 2004. The following table
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements and notes thereto included elsewhere in this prospectus.
AT MARCH 31, 2004
-----------------
AS
ACTUAL ADJUSTED
------ -----------
(DOLLARS IN THOUSANDS)
Cash, cash equivalents, restricted cash and restricted
investments(1)............................................ $40,079 $41,753
======= =======
DEBT:
New Senior Secured Credit Facility(2)....................... $-- $32,148
DJL Credit Facility......................................... 11,100 --
OED Credit Facility......................................... 4,254 --
The Notes, net of discount.................................. -- 229,729
DJL Notes, net of discount.................................. 70,650 --
OED Notes, net of discount.................................. 120,984 6,786
OED FF&E Facility........................................... 15,667 --
Other debt.................................................. 4,290 4,290
------- -------
Total senior debt........................................... 226,945 272,953
Preferred members' interests redeemable..................... 4,000 4,000
------- -------
Total debt.................................................. 230,945 276,953
MEMBERS' EQUITY (DEFICIT):
Common members' interests................................... 9,000 9,000
Accumulated deficit(3)...................................... (23,404) (60,023)
------- -------
Total members' (deficit).................................... (14,404) (51,023)
------- -------
Total capitalization........................................ $216,541 $225,930
======== ========
- ----------
(1) Includes restricted cash and cash equivalents, purse settlements,
restricted investments and restricted cash - Racino project.
(2) On June 16, 2004, DJL and OED jointly entered into a Loan and Security
Agreement with Wells Fargo Foothill, Inc. as the Arranger and Agent (the
"PGL Credit Facility"). The PGL Credit Facility consists of a revolving
credit facility which permits DJL and OED to request advances and letters
of credit up to the lesser of the maximum revolver amount of $35 million
(less amounts outstanding under letters of credit) and a specified
borrowing base (the "Borrowing Base"). For the purposes of the PGL Credit
Facility, the Borrowing Base is the lesser of the Combined EBITDA (as
defined in the PGL Credit Facility) of OED and DJL for the twelve months
immediately preceding the current month end multiplied by 150% and the
Combined EBITDA of OED and DJL for the most recent quarterly period
annualized multiplied by 150%. Advances under the PGL Credit Facility bear
an interest rate based on the borrower's option of LIBOR plus a margin of
3% -3.5% or Wells Fargo prime rate plus a margin of .5% -1% (current rate
of 5.0%); provided that, at no time shall the interest rate be lower than
4%. The PGL Credit Facility also contains a Term Loan in the amount of
$14,666,667. The proceeds from the Term Loan were used to repay
outstanding obligations under the FF&E Credit Facility. The Term Loan is
secured by certain assets of OED and requires monthly payments
36
of $333,333 starting July 1, 2004 until the full balance is paid, with a
maturity no later than June 15, 2008. The Term Loan has an interest rate
equal to the Wells Fargo prime rate plus 2.5% (current rate of 6.5%);
provided that, at no time shall the interest rate be lower than 6%. Under
the terms of the PGL Credit Facility, at closing OED was required to issue
a letter of credit in the amount of $3.2 million in favor of Wells Fargo
related to the Term Loan. The proceeds of the PGL Credit Facility were
used to repay the DJL Credit Facility, the OED Credit Facility, the OED
FF&E Credit Facility and the remaining proceeds of $1.1 million were used
to pay the fees and costs associated with the new facility and accrued
interest on the prior borrowings.
(3) In connection with the offering of the old notes and the consummation
of our refinancing plan and the related corporate transaction as described in
"The Transactions," the Company expensed, among other things, approximately
$11.4 million of deferred financing fees associated with the repayment of the
DJL Notes, the OED Notes, DJL's and OED's existing senior secured credit
facilities and OED's FF&E credit facility, approximately $22.0 million in
redemption premiums and consent payments associated with the DJL Notes and the
OED Notes, approximately $0.4 million in unamortized bond discounts related to
the DJL Notes, approximately $2.1 million in unamortized bond discounts related
to the OED Notes and approximately $0.7 million of interest in respect of the 30
day call period relating to the redemption of the DJL Notes.
37
SELECTED CONSOLIDATED FINANCIAL DATA
The selected historical consolidated financial data of PGL as of December
31, 2003 and 2002 and for each of the three years in the period ended December
31, 2003 have been derived from PGL's audited consolidated financial statements
included elsewhere in this prospectus. The selected historical consolidated
financial data of PGL as of December 31, 2001, 2000 and 1999 and for both the
year ended December 31, 2000 and the period July 15, 1999 to December 31, 1999
have been derived from audited financial statements not included elsewhere in
this prospectus. The selected historical financial data as of March 31, 2004 and
for the three months ended March 31, 2004 and 2003 have been derived from our
unaudited financial statements included elsewhere in this prospectus. The
unaudited financial statements have been prepared by us on a basis consistent
with the audited financial statements and include all normal recurring
adjustments necessary for a fair presentation of information set forth therein.
The data presented below is summary only, should be read in conjunction with,
and is qualified in its entirety by reference to, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements and the notes thereto appearing elsewhere in this
prospectus.
PERIOD FROM THREE THREE
JULY 15, MONTHS MONTHS
1999 TO ENDED ENDED
DECEMBER 31, MARCH 31, MARCH 31,
1999 2000 2001 2002 2003 2003 2004
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS
DATA:
Revenues:
Casino ...................... $21,153 $45,519 $47,710 $48,262 $56,795 $11,782 $30,193
Racing ...................... -- -- -- 15,510 17,774 3,644 4,365
Food and beverage ........... 1,235 2,663 2,745 3,886 4,565 839 2,818
Other ....................... 122 169 132 145 589 58 201
Less: Promotional
allowances ................ (1,017) (2,599) (2,470) (2,615) (3,221) (654) (2,012)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net revenues ................ 21,493 45,752 48,117 65,188 76,502 15,669 35,565
---------- ---------- ---------- ---------- ---------- ---------- ----------
Expenses:
Casino ...................... 8,599 19,517 20,375 20,555 23,533 5,014 15,054
Racing ...................... -- -- -- 12,651 14,646 2,847 3,504
Food and beverage ........... 1,328 2,856 2,857 3,820 4,282 731 2,282
Boat operations ............. 991 2,242 2,259 2,296 2,322 567 573
Other ....................... 16 37 22 27 443 8 125
Selling, general and
administrative ............ 3,736 6,459 6,681 8,740 12,343 2,518 5,528
Depreciation and
amortization .............. 1,541 3,571 3,963 2,950 3,324 819 2,896
Pre-opening expense ......... -- -- -- -- 3,257 -- 221
Development costs ........... -- -- -- -- 102 -- 21
Management fee .............. -- -- -- -- -- -- 256
Litigation settlement ....... -- -- -- 1,600 -- -- --
Referendum .................. -- -- -- 771 -- -- --
State of Wisconsin
government relations ...... -- -- 147 55 -- -- --
Non-recurring expenses ...... 3,134 -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total expenses .............. 19,345 34,682 36,304 53,465 64,252 12,504 30,460
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income From Operations ...... 2,148 11,070 11,813 11,723 12,250 3,165 5,105
38
PERIOD FROM THREE THREE
JULY 15, MONTHS MONTHS
1999 TO ENDED ENDED
DECEMBER 31, MARCH 31, MARCH 31,
1999 2000 2001 2002 2003 2003 2004
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
Other income (expense):
Interest income ............. 155 434 184 46 490 80 57
Interest expense, net
of amounts capitalized .... (4,383) (9,507) (9,640) (11,888) (25,072) (5,032) (7,693)
Loss on sale of assets ...... (68) (122) (152) (8) (50) (87)
Interest expense
related to preferred
members' interest,
redeemable(1) ............. -- -- -- -- (180) -- (90)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total other expense ......... (4,296) (9,195) (9,608) (11,850) (24,812) (5,039) (7,726)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Preferred member
distributions(1) .......... (289) (630) (386) (373) (180) (91)
Minority Interest ........... -- -- -- (232) -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) to
common interests .......... $(2,437) $1,245 $1,819 $(732) $(12,742) $(1,965) $(2,621)
========== ========== ========== ========== ========== ========== ==========
Ratio of earnings to
fixed charges(2) ............ 0.4x 1.1x 1.2x 0.9x 0.5x 0.6x 0.7x
AS OF DECEMBER 31
--------------------------------------------------------------- AT MARCH 31,
1999 2000 2001 2002 2003 2004
---- ---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:
Current assets ............................... $8,765 $9,134 $8,034 $12,160 $40,227 $35,111
Total assets ................................. 88,175 86,788 84,374 126,448 261,519 258,544
Current liabilities .......................... 4,370 3,533 3,964 35,358 46,321 46,821
Total debt(1) ................................ 70,680 70,764 70,860 102,944 228,825 230,945
Preferred members' interest, redeemable(1) ... 7,000 7,000 4,000 4,000 -- --
Total members' equity (deficit) .............. 6,277 5,604 5,663 3,671 (10,629) (14,404)
- ----------
(1) In May 2003, the FASB issued Statement No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity." This statement establishes standards for how an issuer classifies
and measures certain financial instruments with characteristics of both
liabilities and equity. It requires the issuer to classify a financial
instrument that is within the scope of the standard as a liability if such
financial instrument embodies an obligation of the issuer. As a result of
the adoption of SFAS No. 150 on July 1, 2003, we reclassified our $4
million mandatory redeemable preferred members' interest from the
mezzanine section of the consolidated balance sheet to long-term debt.
Further, preferred member distributions paid or accrued subsequent to
adoption of SFAS No. 150 are required to be presented as interest expense
separately from interest due to other creditors. We are precluded from
reclassifying prior period amounts pursuant to this standard.
39
(2) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as income before income taxes plus fixed charges.
Fixed charges include interest expense on all indebtedness and
amortization of deferred financing costs. Earnings were insufficient to
cover fixed charges for the period from July 15, 1999 to December 31,
1999, the fiscal years ended December 31, 2002 and 2003 and the three
months ended March 31, 2003 and 2004 by $2.4 million, $0.7 million, $12.7
million, $2.0 million and $2.6 million, respectively.
40
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the "Selected Consolidated Financial Data" and the consolidated financial
statements and the related notes thereto appearing elsewhere in this prospectus.
Certain statements contained in Management's Discussion and Analysis of
Financial Condition and Results of Operations constitute "forward-looking
statements" which involve risks and uncertainties. See "Forward-Looking
Statements."
OVERVIEW
We own and operate (1) the Diamond Jo riverboat casino in Dubuque, Iowa
with 749 slot machines and 17 table games, (2) the new Evangeline Downs racino
development with 1,627 slot machines in Opelousas, Louisiana, (3) two OTBs, one
in Port Allen, Louisiana and one in New Iberia, Louisiana, and (4) an existing
horse racetrack near Lafayette, Louisiana. In December 2003 we began casino
operations at the new racino and expect to begin scheduling live races at our
new racetrack by the end of 2004. Upon the opening of the horse racing
facilities at the new racino, we will close operations at the existing horse
racetrack. During 2003, we also renovated our Port Allen OTB and began offering
100 video poker machines in May 2003. Through December 2003, these video poker
machines were operated by a third-party until we received a license to operate
them ourselves.
Our operations began with the acquisition of the Diamond Jo in 1999 for
$77.0 million. The Diamond Jo opened in May 1994 and was doubled in size by the
replacement of the original smaller riverboat casino with the current riverboat
casino in October 1995.
During 2002, through a series of related transactions, we acquired OED for
approximately $30.5 million. At that time, OED's operations consisted of the
existing horse racetrack near Lafayette and the two OTBs. We situated the racino
in Opelousas, which is in St. Landry Parish, because St. Landry Parish permits
slot machines while Lafayette Parish, where the existing horse racetrack is
located, does not permit slot machines.
From 2000 to 2003, our net revenues have grown from $45.8 million to $76.5
million. During 2003, $22.5 million of net revenues were derived from our
operations in Louisiana. Such operations were comprised largely of racing
operations at the existing horse racetrack near Lafayette and the two OTBs. We
attribute the remaining increase at the Diamond Jo to, among other things, our
successful operating strategies that focus on maintaining a loyal customer base,
maximizing game play and profitability through targeted marketing, and
attracting new customers. In addition, during 2003 the City of Dubuque
substantially completed its $188 million redevelopment project in the Port of
Dubuque, where the Diamond Jo is located. We expect our operations to continue
to benefit from this redevelopment project, which was designed to enhance the
attractiveness of the Port of Dubuque as a convention center and tourist
destination, by generating increased foot traffic around the site of, and
increased admissions to, the Diamond Jo.
DIAMOND JO OED
THREE MONTHS ENDED MARCH 31, THREE MONTHS ENDED MARCH 31,
2004 2003 2004 2003
------------ ------------ ------------ ------------
Revenues:
Casino $12,094,244 $11,782,204 $18,099,105 --
Racing -- -- 4,365,603 $3,644,330
Food and beverage 687,409 686,837 2,130,391 152,441
Other 58,869 37,415 142,248 20,562
Less promotional allowances (662,522) (654,226) (1,349,951) --
------------ ------------ ------------ ------------
41
DIAMOND JO OED
THREE MONTHS ENDED MARCH 31, THREE MONTHS ENDED MARCH 31,
2004 2003 2004 2003
------------ ------------ ------------ ------------
Net revenues 12,178,000 11,852,230 23,387,396 3,817,333
------------ ------------ ------------ ------------
Expenses:
Casino 5,258,640 5,013,716 9,795,100 --
Racing -- -- 3,504,387 2,846,747
Food and beverage 630,871 655,485 1,650,494 75,554
Boat operations 573,061 567,348 -- --
Other 23,162 3,174 101,831 5,500
Selling, general and administrative 1,987,323 1,983,745 3,540,724 534,174
Depreciation and amortization 577,034 751,905 2,319,029 67,110
Pre-opening expense -- -- 221,283 --
Development costs 21,270 -- -- --
Management fee -- -- 256,375 --
------------ ------------ ------------ ------------
Total expenses 9,071,361 8,975,373 21,389,223 3,529,085
============ ============ ============ ============
Income from operations $3,106,639 $2,876,857 $1,998,173 $288,248
THREE MONTHS ENDED MARCH 31, 2004 COMPARED TO THREE MONTHS ENDED MARCH 31, 2003
Net revenues increased 127.0% to $35.6 million for the three months ended
March 31, 2004 from $15.7 million for the three months ended March 31, 2003. Net
revenues at OED increased $19.6 million to $23.4 million for the three months
ended March 31, 2004 from $3.8 million for the three months ended March 31,
2003. Net revenues at OED increased due primarily to an increase in casino
revenue of $18.1 million derived from OED's new racino which opened on December
19, 2003 and an increase in racing revenues of $0.7 million due to an increase
in video poker revenues of approximately $0.8 million at OED's renovated OTB in
Port Allen, Louisiana. Net revenues at the Diamond Jo increased $0.3 million to
$12.2 million for the three months ended March 31, 2004 from $11.9 million for
the three months ended March 31, 2003. This increase in net revenues at the
Diamond Jo is due to an increase in slot revenue of 3.1%, or $0.3 million, for
the three months ended March 31, 2004 compared to the three months ended March
31, 2003, primarily due to an increase in coin-in of 2.7% over the same period.
We believe this increase in slot revenue was attributable to internal factors
such as targeted promotions to capitalize on opportunities related to the recent
economic development in the Port of Dubuque known as the America's River
Project, where the Diamond Jo is located, which includes the opening of a new
riverwalk and related amenities, a new riverfront hotel, which includes an
indoor water park, and the National Mississippi River Museum and Aquarium as
well as our continued focus on targeted players club promotions and maintenance
of our slot mix, which includes the addition of 22 multi-denomination slot
machines.
Overall casino revenues increased $18.4 million to $30.2 million for the
three months ended March 31, 2004 from $11.8 million for the three months ended
March 31, 2003. Casino revenues of $18.1 million at OED consisted solely of
revenues from slot machines at OED's recently opened racino. Casino win per
gaming position per day at OED was $130 for the three months ended March 31,
2004. Casino revenues at the Diamond Jo increased 2.6% to $12.1 million for the
three months ended March 31, 2004 from $11.8 million for the three months ended
March 31, 2003. This increase was due to a 3.1% increase in slot revenues as
discussed above. Casino revenues at the Diamond Jo were derived 87.7% from slot
machines and 12.3% from table games for the three months ended March 31, 2004
compared to 87.2% from slot machines and 12.8% from table games for the three
months ended March 31, 2003. Our slot win per unit per day at the Diamond Jo
decreased 1.9% to $156 for the three months ended March 31, 2004 from $159 for
the three months ended March 31, 2003. Our admissions at the Diamond Jo for the
three months ended March 31, 2004 increased 1.2% to 232,000 from 229,000 for the
three months ended March 31,
42
2003. For the three months ended March 31, 2004 our casino win per admission at
the Diamond Jo increased 1.4% to $52 from $51 for the three months ended March
31, 2003.
Racing revenues at OED increased $0.7 million to $4.4 million for the
three months ended March 31, 2004 from $3.7 million for the three months ended
March 31, 2003. The increase in racing revenues is due to an increase in video
poker revenues of $0.8 million resulting from OED's Port Allen OTB facility
renovation and the installation of 100 video poker machines during the second
quarter of 2003.
Net food and beverage revenues, other revenues and promotional allowances
increased $0.8 million during the three months ended March 31, 2004 compared to
the three months ended March 31, 2003 due primarily to food and beverage
revenues generated from OED's new racino.
Overall casino expenses increased $10.1 million to $15.1 million for the
three months ended March 31, 2004 from $5.0 million for the three months ended
March 31, 2003. Casino expenses of $9.8 million at OED primarily related to
purse supplements and gaming taxes, which are based on net casino revenues, and
casino related payroll. Casino operating expenses at the Diamond Jo increased
4.9%, or $0.3 million, to $5.3 million for the three months ended March 31, 2004
from $5.0 million for the three months ended March 31, 2003 due primarily to an
increase in gaming taxes at the Diamond Jo of approximately $0.1 million
associated with our increased casino revenues and an increase in players club
promotions of approximately $0.1 million.
Racing expenses increased 23.1% to $3.5 million for the three months ended
March 31, 2004 from $2.8 million for the three months ended March 31, 2003 due
primarily to (i) an increase in franchise fees, purse supplements and operating
expenses of $0.5 million related to OED's video gaming devices at its renovated
OTB in Port Allen, Louisiana and (ii) admission fees related to the OTB located
at the racino of approximately $0.1 million (under current Louisiana law, OED
must pay $0.25 to the Louisiana State Racing Commission per patron entering a
building in which OED has an OTB, including the new racino).
Food and beverage expenses increased $1.6 million to $2.3 million for the
three months ended March 31, 2004 from $0.7 million for the three months ended
March 31, 2003 due primarily to food and beverage expenses at OED of $1.7
million related to the opening of OED's new racino. Boat operation expenses at
the Diamond Jo were substantially unchanged at $0.6 million for the three months
ended March 31, 2004 and 2003.
Selling, general and administrative expenses increased $3.1 million to
$5.6 million for the three months ended March 31, 2004 from $2.5 million for the
three months ended March 31, 2003. This increase was due primarily to an
increase in general and administrative expenses at OED of $3.0 million due
primarily to payroll, marketing and other general and administrative expenses
associated with the new racino.
Pre-opening expenses of $0.2 million for the three months ended March 31,
2004 relate to expenses incurred by OED with respect to start-up activities
surrounding the racino project, including pre-opening costs associated with the
continued construction of the racetrack portion of the project. Management fees
of $0.3 million during the three months ended March 31, 2004 relate to
management fees and board of director fees paid to related parties.
Depreciation and amortization expenses increased $2.1 million to $2.9
million for the three months ended March 31, 2004 from $0.8 million for the
three months ended March 31, 2003 due to depreciation of property and equipment
at OED's racino of approximately $2.1 million during the three months ended
March 31, 2004. During the first quarter of 2004, we performed our annual
impairment test on goodwill and indefinite life intangible assets in accordance
with SFAS No. 142. Based on that review, management determined that there was no
impairment of goodwill and indefinite life intangible assets.
Net interest expense, including interest expense related to our redeemable
preferred member interests, increased 56.0% to $7.7 million for the three months
ended March 31, 2004 from $5.0 million for the three months ended March 31,
2003. This increase is primarily due to (i) timing of the offering of the OED
Notes, which occurred on February 25, 2003, resulting in approximately three
months of interest expense during the three months ended March 31, 2004 compared
to just over one month during the three months ended March 31, 2003 and (ii) our
43
adoption of FASB Statement No. 150 on July 1, 2003 which requires that interest
expense associated with our redeemable preferred members interest be included in
interest expense (prior to July 1, 2003, this amount was included as a separate
line item above "Net income for common members' interest" and not included in
"Total other expenses" with interest expense). Interest expense of approximately
$0.2 million and $0.1 million was capitalized as part of our construction of the
racino during the three months ended March 31, 2004 and 2003, respectively.
DIAMOND JO
YEARS ENDED DECEMBER 31, EVANGELINE DOWNS
-------------------------------------------- ----------------------------
PERIOD FROM
FEBRUARY 15,
YEAR ENDED 2002 TO
DECEMBER 31, DECEMBER 31,
2003 2002 2001 2003 2002
Revenues:
Casino $ 53,567,052 $ 48,262,485 $ 47,710,208 $ 3,227,477 --
Racing 17,773,481 $ 15,509,989
Food and beverage 3,027,064 2,806,118 2,745,333 1,538,374 1,080,208
Other 421,907 144,817 131,916 167,361 --
Less promotional allowances (3,011,987) (2,615,355) (2,470,310) (209,147) --
------------ ------------ ------------ ------------ ------------
Net revenues 54,004,036 48,598,065 48,117,147 22,497,546 16,590,197
------------ ------------ ------------ ------------ ------------
Expenses:
Casino 21,624,237 20,554,920 20,375,265 1,908,730 --
Racing 14,646,351 12,650,996
Food and beverage 2,781,945 2,822,160 2,856,568 1,500,065 998,205
Boat operations 2,322,126 2,295,771 2,259,314 -- --
Other 383,030 27,471 21,801 59,934 --
Selling, general and administrative 8,890,080 7,285,166 6,680,581 3,452,507 1,454,476
Depreciation and amortization 2,499,597 2,766,543 3,963,350 823,944 183,826
Pre-opening expense -- -- -- 3,256,963 --
Development costs 102,272 -- -- -- --
Litigation settlement -- -- -- -- 1,600,000
Referendum -- 771,111 -- -- --
State of Wisconsin government relations -- 55,000 147,163 -- --
------------ ------------ ------------ ------------ ------------
Total expenses 38,603,287 36,578,142 36,304,042 25,648,494 16,887,503
------------ ------------ ------------ ------------ ------------
Income from operations $ 15,400,749 $ 12,019,923 $ 11,813,105 $ (3,150,948) $ (297,306)
TWELVE MONTHS ENDED DECEMBER 31, 2003 COMPARED TO TWELVE MONTHS ENDED
DECEMBER 31, 2002
Net revenues increased 17.4% to $76.5 million for the year ended December
31, 2003 from $65.2 million for the year ended December 31, 2002. The majority
of this increase is due to an increase in the Diamond Jo's slot revenue of
10.7%, or $4.5 million, for the year ended December 31, 2003 compared to the
year ended December 31, 2002, primarily due to an increase in coin-in of 9.5%
over the same period. We believe this increase in slot revenue was largely
attributable to the recent economic development in the Port of Dubuque known as
the America's River Project, where the Diamond Jo is located, which includes the
opening of a new riverwalk and related amenities, a new riverfront hotel, which
includes an indoor water park and the National Mississippi River Museum and
Aquarium. The increase in slot revenue was also attributable to (i) the
construction of our new outdoor entertainment venue featuring nationally
recognized musicians weekly from June through September, (ii) a decrease in
competition in the Eastern Iowa market due to the temporary closing of a Native
American casino approximately 125 miles southwest of the Diamond Jo and (iii)
internal factors such as targeted promotions to capitalize on opportunities
related to the Port of Dubuque development and reduced competition noted above
as well as our continued focus on targeted players club promotions and
maintenance of our slot mix, which includes the addition of 47 nickel slot
machines. In addition, our table game revenue at the Diamond Jo increased 13.3%,
or $0.8 million, for the year ended December 31, 2003 compared to the year ended
December 31, 2002, primarily due to an increase in
44
the total table game drop of 6.0% and a 1.3 percentage point increase in our
table game hold percentage over the same period. The majority of the remaining
increase in our net revenues was due to an increase in net revenues at OED. Net
revenues at OED increased due primarily to an increase in casino revenue of $3.2
million derived from OED's newly opened racino which opened its doors to the
public on December 19, 2003 and an increase in racing revenues of $2.3 million
due primarily to the fact that we did not acquire a 50% interest in OED until
February 15, 2002, as well as an increase in video poker revenues of
approximately $0.6 million at OED's renovated OTB in Port Allen, Louisiana. Our
results of operations during the period ended December 31, 2002 only include ten
and one-half months of OED operations compared to a full twelve months of
operations during the year ended December 31, 2003.
Casino gaming win in the Dubuque market increased 9.6% to $97.2 million
for the year ended December 31, 2003 from $88.7 million for the year ended
December 31, 2002. We believe this increase was primarily due to our ability to
capitalize on the recent economic development in the Port of Dubuque, a decrease
in competition in the Eastern Iowa market, strategic use of targeted players
club promotions and a continued focus on maintenance of our slot mix as noted
above combined with a continued focus by operators at the DGP on maintenance of
their slot mix during such periods as well as benefiting from the reduced
competition in the Eastern Iowa market as noted above. Our share of the Dubuque
market casino gaming win increased to 55.1% for the year ended December 31, 2003
from 54.4% for the year ended December 31, 2002. Our casino revenues at the
Diamond Jo increased 11.0% to $53.6 million for the year ended December 31, 2003
from $48.3 million for the year ended December 31, 2002. This percentage
increase was the third highest percentage increase in casino revenues for all
thirteen casinos in the State of Iowa as reported to the Iowa Gaming Commission
for the year ended December 31, 2003 compared to the year ended December 31,
2002. This increase was due to a 10.7% increase in slot revenues and a 13.3%
increase in table game revenues as discussed above. Casino revenues at the
Diamond Jo were derived 87.6% from slot machines and 12.4% from table games for
the year ended December 31, 2003 compared to 87.8% from slot machines and 12.2%
from table games for the year ended December 31, 2002. Consistent with an
increase in casino revenue, our casino win per gaming position per day at the
Diamond Jo increased 9.1% to $171 for the year ended December 31, 2003 from $157
for the year ended December 31, 2002. Admissions to the casinos in the Dubuque
market increased 6.1% to 2,080,000 for the year ended December 31, 2003 from
1,960,000 for the year ended December 31, 2002. For the year ended December 31,
2003, our share of the Dubuque market casino admissions increased to 50.7% from
50.5% for the year ended December 31, 2002. Our admissions at the Diamond Jo for
the year ended December 31, 2003 increased 6.5% to 1,054,000 from 990,000 for
the year ended December 31, 2002. For the year ended December 31, 2003 our
casino win per admission at the Diamond Jo increased 4.2% to $50.81 from $48.76
for the year ended December 31, 2002. Casino revenues of $3.2 million at OED
consisted solely of revenues from slot machines at OED's recently opened racino.
Casino win per position at OED was $236 for the year ended December 31, 2003.
Racing revenues at OED for the year ended December 31, 2003 were $17.8
million compared to $15.5 million for the period February 15, 2002 (the date OED
was acquired) to December 31, 2003. The increase in racing revenues was directly
related to the timing of the acquisition of OED as discussed above and an
increase in video poker revenues of $0.6 million resulting from OED's Port Allen
OTB facility renovation and the installation of 100 video poker machines during
the second quarter of 2003.
Net food and beverage revenues, other revenues and promotional allowances
increased $0.5 million during the year ended December 31, 2003 compared to the
year ended December 31, 2002 due primarily to food & beverage revenues generated
from OED's new racino and revenues from the Diamond Jo's new outdoor
entertainment venue as discussed above.
Casino operating expenses increased 14.5%, or $3.0 million, to $23.5
million for the year ended December 31, 2003 from $20.6 million for the year
ended December 31, 2002 due primarily to (i) casino expenses at OED of $1.9
million primarily related to purse supplements and gaming taxes which are based
on net casino revenues and casino related payroll and (ii) an increase in gaming
taxes at the Diamond Jo of $1.1 million associated with our increased casino
revenues. Racing expenses increased 15.8% to $14.6 million for the year ended
December 31, 2003 from $12.7 million for the period ended December 31, 2002 due
primarily to (i) timing of the acquisition of OED in 2002 as discussed above and
(ii) an increase in operating expenses of $0.6 million related to the addition
of 100 new video gaming devices at OED's renovated OTB in Port Allen, Louisiana.
Food and beverage expenses increased 12.1%, or $0.5 million, to $4.3 million for
the year ended December 31, 2003 from
45
$3.8 million for the year ended December 31, 2002 due primarily to food and
beverage expenses at OED related to the opening of OED's new racino. Boat
operation expenses at the Diamond Jo were substantially unchanged at $2.3
million for the year ended December 31, 2003 and 2002. Other expenses increased
$0.4 million primarily due to costs associated with the Diamond Jo's new outdoor
entertainment venue as discussed above.
Selling, general and administrative expenses increased 41.2% to $12.3
million for the year ended December 31, 2003 from $8.7 million for the year
ended December 31, 2002. This increase was due to (i) an increase in general and
administrative expenses at OED of $2.0 million due primarily to payroll,
marketing and other general and administrative expenses associated with the new
racino and the timing of the acquisition of OED (as discussed above), including
an increase in professional fees at OED of approximately $0.2 million and an
increase in insurance expense at OED of approximately $0.2 million, and (ii) an
increase in general and administrative expenses at the Diamond Jo of
approximately $1.6 million due primarily to an increase in management
compensation at the Diamond Jo of $0.6 million, an increase in donations of $0.3
million related to a charitable giving agreement with an Iowa non-for-profit
organization and an increase in insurance expense at the Diamond Jo of $0.1
million.
Pre-opening expenses of $3.3 million for the year ended December 31, 2003
relate to payroll and other expenses incurred by OED with respect to start-up
activities surrounding the racino project. Development costs of approximately
$0.1 million related to expenses incurred relative to us entering into an
exclusive agreement with the Worth County Development Authority pursuant to
which the parties agreed to jointly submit an application for a license to
operate a gaming facility in Worth County, Iowa. Under this agreement, we have
agreed to design, construct, operate and manage a casino with no less than 700
gaming positions, a waterway, if necessary, a recreational vehicle park with a
minimum capacity of 200 spaces, and, upon reaching a targeted rate of return on
invested capital, a 100-room hotel development. Litigation settlement of $1.6
million for the year ended December 31, 2002 relates to OED's settlement with
the Louisiana Horsemen's Benevolent and Protective Association 1993, Inc. (the
"LHBPA") in February 2003. Referendum costs of $0.8 million during the year
ended December 31, 2002 relate to various advertising and promotional expenses
to promote the approval of continued gaming on riverboats in Dubuque County in
2002. During 2002, DJL incurred expenses of $55,000 related to a governmental
relations services agreement with respect to gaming issues and developments in
the State of Wisconsin which might affect DJL and its gaming operations.
Depreciation and amortization expenses increased 12.6% to $3.3 million for
the year ended December 31, 2003 from $3.0 million for the year ended December
31, 2002 due primarily to depreciation of property and equipment at OED's racino
of approximately $0.3 million during the period December 19, 2003 (date at which
the racino was opened to the public) through December 31, 2003. During the first
quarter of 2002, DJL performed a transitional impairment test on goodwill in
accordance with SFAS No. 142 "Goodwill and Other Intangible Assets" and
determined the estimated fair value of DJL exceeded its carrying value as of
that date. During the first quarter of 2003, DJL performed its annual impairment
test on goodwill in accordance with SFAS No. 142 and determined that the
estimated fair value of DJL exceeded its carrying value as of that date. Based
on that review, management determined that there was no impairment of goodwill.
Net interest expense, including interest expense related to our redeemable
preferred member interests, increased 109.1% to $24.8 million for the year ended
December 31, 2003 from $11.8 million for the year ended December 31, 2002. This
increase is due to (i) an increase in net interest expense at OED of $12.7
million primarily associated with interest on the OED Notes and on OED's senior
credit facilities with Wells Fargo Foothill, the amortization and write-off of
deferred financing costs associated with OED's term loan with Wells Fargo
Foothill, the PGP Note (as defined below) and the WET2 Note (as defined below)
(all of which were repaid in February 2003 with the proceeds of the offering of
the OED Notes) and timing of the OED acquisition as discussed above, (ii) DJL's
adoption of FASB Statement No. 150 on July 1, 2003 which requires that interest
expense associated with our redeemable preferred members interest be included in
interest expense (prior to July 1, 2003, this amount was included as a separate
line item above "Net income for common members' interest" and not included in
"Total other expenses" with interest expense) and (iii) interest associated with
DJL's senior secured credit facility with Wells Fargo Foothill dated February
23, 2001 (the "DJL Credit Facility"), $12.0 million of which was drawn down by
DJL on February 15, 2002 to consummate the acquisition of OED, resulting in
twelve months of interest during the year ended December 31, 2003 compared to
only ten and one-half months of interest during the year ended December 31,
2002. Interest expense of approximately $2.2 million and $0.1 million was
capitalized as part of our construction of
46
the racino during 2003 and 2002, respectively. The "PGP Note" means the note
payable to PGP, issued by OEDA, bearing interest at a rate of 7% until January
31, 2003, thereafter at 8% until February 28, 2003, thereafter at 9% until March
31, 2003, and thereafter at the greater of 12% or the fixed rate on the OED
Notes, and maturing on June 30, 2003. The "WET2 Note" means the note payable to
WET2, bearing interest at a rate of 7% until March 31, 2003, and thereafter at
the greater of 12% or the fixed rate on the OED Notes, and maturing on June 30,
2003.
TWELVE MONTHS ENDED DECEMBER 31, 2002 COMPARED TO TWELVE MONTHS ENDED DECEMBER
31, 2001
Net revenues increased 35.5% to $65.2 million for 2002 from $48.1 million
for 2001 primarily due to net revenues from OED of $16.6 million and an increase
in the Diamond Jo's casino revenues of $0.6 million. This increase in casino
revenue was due to an increase in slot revenue of 3.8%, or $1.6 million for 2002
compared to 2001. This increase in slot revenues was a result of an increased
marketing focus on the addition of new players club members as well as on
targeting players club promotions towards more profitable market segments and an
increase in the number of slot machines on the gaming floor. This increase in
slot revenues was offset by a decrease in table games revenue at the Diamond Jo
of $1.0 million. This decrease was a direct result of a 0.9 percentage point
decrease in our table game hold percentage and a 10.4% decrease in table game
drop.
Casino gaming win in the Dubuque market increased 2.8% to $88.7 million
for 2002 from $86.3 million for 2001. We believe this increase was primarily due
to targeted players club promotions and a continued focus on maintenance of our
slot mix as well as a continued focus by operators at the DGP on maintenance of
their slot mix during such period. Our share of the Dubuque market casino gaming
win decreased slightly to 54.4% for 2002 from 55.3% for 2001. This decrease was
attributed to a decrease in our table game revenue as discussed above. Our
casino revenues increased 1.2% to $48.3 million for 2002 from $47.7 million for
2001. This increase was due to an increase in slot revenue offset by a decrease
in table game revenues as discussed above. Casino revenues were derived 87.8%
from slot machines and 12.2% from table games for 2002 compared to 85.6% from
slot machines and 14.4% from table games for 2001. Consistent with an increase
in casino revenue, our casino win per gaming position per day at the Diamond Jo
increased 4.0% to $157 for 2002 from $151 for 2001. Admissions to the casinos in
the Dubuque market increased slightly to 1,959,709 for 2002 from 1,946,326 for
2001. For 2002, our share of the Dubuque market casino admissions decreased to
50.5% from 51.7% for 2001. We believe this decrease was primarily attributable
to our targeted use of marketing dollars directed primarily towards more
profitable market segments during 2002 compared to 2001. Our admissions at the
Diamond Jo for 2002 decreased slightly to 989,865 for 2002 from 1,006,237 for
2001. For 2002 our casino win per admission at the Diamond Jo increased 2.8% to
$48.76 from $47.41 for 2001.
Racing revenues of $15.5 million related solely to revenues at OED for the
period February 15, 2002 (the date OED was acquired) to December 31, 2002. Net
food and beverage revenues, other revenues and promotional allowances increased
to $1.4 million for 2002 from $0.4 million for 2001 due to food and beverage
revenues at OED of $1.0 million.
Casino operating expenses at the Diamond Jo increased slightly to $20.6
million for 2002 from $20.4 million for 2001 due mainly to an increase in gaming
taxes paid, as a result of an increase in gaming revenues, of $0.1 million and
an increase in the state admission fee imposed by the State of Iowa of $0.1
million. Racing expenses at OED were $12.7 million for the period February 15,
2002 (the date OED was acquired) to December 31, 2002. Food and beverage
expenses increased to $3.8 million for 2002 from $2.9 million for 2001 due
primarily to food and beverage expenses from OED of $0.9 million. Boat operation
expenses and other expenses were $2.3 million for 2002 and 2001. Selling,
general and administrative expenses increased to $8.7 million for 2002 from $6.7
million for 2001. This increase in such expenses resulted from selling, general
and administrative expenses at OED of $1.5 million, an increase in legal
expenses of approximately $0.3 million (resulting primarily from a credit of
$0.2 million in legal expense during the prior year), and an increase in
management bonuses of $0.2 million. Depreciation and amortization expenses
decreased 25.6% to $3.0 million for 2002 from $4.0 million for 2001. This
decrease was due to adoption of SFAS 142 which provides that goodwill and
certain indefinite lived intangible assets will no longer be amortized but will
be reviewed at least annually for impairment and written down and charged to
income when their recorded value exceeds their estimated fair value. Goodwill
amortization during 2001 was approximately $1.4 million. This decrease was
offset by an increase in depreciation at the Diamond Jo of $0.2 million and at
OED of $0.2 million. Litigation settlement of $1.6 million relates to OED's
settlement with the LHBPA in February 2003. Although the settlement occurred
after the date of the financial statements, Statement of
47
Financial Accounting Standards No. 5 "Accounting for Contingencies" requires DJL
to accrue the loss contingency during 2002. During 2002, DJL incurred various
advertising, promotional and other referendum related expenses totaling $0.8
million to promote the approval of continued gaming on riverboats in Dubuque
County. During 2002 and 2001, DJL incurred expenses of $55,000 and $147,163,
respectively, related to a governmental relations services agreement with
respect to gaming issues and developments in the State of Wisconsin which might
affect DJL and its gaming operations.
Net interest expense increased 25.2% to $11.8 million for 2002 from $9.5
million for 2001. This increase was due to an increase in interest expense of
$1.2 million associated with DJL's senior credit facility with Wells Fargo
Foothill providing for commitments of up to $12.5 million which terminate in
2005, $12.0 million of which was drawn down by DJL on February 15, 2002 to
consummate an investment in OED and net interest expense at OED of $1.1 million.
Interest expense of approximately $0.1 million was capitalized as part of our
construction of the racino during 2002.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS FROM OPERATING, INVESTING AND FINANCING ACTIVITIES FOR THE THREE
MONTHS ENDED MARCH 31, 2004
Our cash balance decreased $0.3 million during the three months ended
March 31, 2004 to $20.8 million from $21.2 million at December 31, 2003.
Cash flows used in operating activities of $4.4 million for the three
months ended March 31, 2004 consisted of a net loss of $2.6 million increased by
non-cash charges of $3.7 million, principally depreciation and amortization and
amortization of deferred financing costs and a decrease in working capital of
$5.5 million. The change in working capital is primarily due to a decrease in
accrued interest of approximately $6.0 million related primarily to interest
payments on the DJL Notes and the OED Notes during the three months ended March
31, 2004.
Cash flows from investing activities for the three months ended March 31,
2004 was $3.2 million consisting of (i) draws from restricted cash accounts held
by the trustee of the OED Notes of approximately $13.0 million, the proceeds of
which were used to pay construction, architecture fees and other development
costs associated with the racino project and (ii) cash proceeds from the
maturity of restricted investments of $7.9 million, the proceeds of which were
used to make the second interest payment on the OED Notes due March 1, 2004.
These cash inflows were offset by (i) payments of approximately $16.9 million
for construction, architecture fees and other development costs associated with
the racino project and (ii) cash outflows of approximately $0.8 million used for
capital expenditures mainly related to the purchase of new slot machines at the
Diamond Jo and conversions of slot machines at OED to incorporate ticket-in,
ticket-out technology, which we believe enhances customer service, produces
operating efficiencies and eliminates hopper fills and the down time associated
with them. We expect additional capital expenditures at the Diamond Jo and OED
(other than the capital expenditures related to the racino project) to be
approximately $2.6 million and $1.6 million, respectively, for the year ended
December 31, 2004. We expect to meet our regulatory requirements for the racino
project for fiscal 2004 with related additional capital expenditures of
approximately $15.1 million. Consistent with our regulatory requirements, we
also expect to continue construction on our turf track during fiscal 2005.
Cash flows from financing activities for the three months ended March 31,
2004 of $0.9 million reflects the proceeds from OED's draws under its $16.0
million FF&E credit facility with Wells Fargo Foothill dated September 22, 2003
(the "OED FF&E Facility") of $3.5 million. These proceeds were offset by (i)
aggregate principal payments on borrowings under our senior secured credit
facility dated February 23, 2001 (as amended, the "DJL Credit Facility") of $0.2
million, (ii) aggregate principal payments on borrowings under OED's $15.0
million senior secured credit facility with Wells Fargo Foothill dated June 24,
2003 (as amended, the "OED Credit Facility") of $0.9 million, (iii) aggregate
principal payments on borrowings under the OED FF&E Facility of $0.3 million and
(iv) member distributions of $1.2 million.
In March 2004, DJL amended its senior secured credit facility dated
February 23, 2001 (the "DJL Credit Facility Amendment"). Under the terms of the
DJL Credit Facility Amendment, the minimum interest rate on all outstanding
borrowings under the DJL Credit Facility less than $10.0 million was reduced to
5.5% and the term of the DJL Credit Facility was extended by one year to March
12, 2006.
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As of March 31, 2004, DJL had $11.1 million outstanding under the DJL
Credit Facility and OED had $4.3 million and $15.7 million outstanding under the
OED Credit Facility and the OED FF&E Facility, respectively.
CASH FLOWS FROM OPERATING, INVESTING AND FINANCING ACTIVITIES FOR THE TWELVE
MONTHS ENDED DECEMBER 31, 2003
Our cash balance increased $10.6 million during the year ended December
31, 2003 to $21.2 million from $10.5 million at December 31, 2002.
Cash flows used in operating activities of $0.8 million for the year ended
December 31, 2003 consisted of a net loss of $12.7 million increased by non-cash
charges of $6.7 million, principally depreciation and amortization and write-off
and amortization of deferred financing costs and an increase in working capital
of $6.8 million. The change in working capital is primarily due to an increase
in accrued interest of approximately $5.3 million related to the OED Notes and
an increase in accrued payroll of $1.5 million primarily related to the opening
of OED's racino in December 2003.
Cash flows used in investing activities for the year ended December 31,
2003 was $94.7 million consisting of (i) an increase in restricted cash--racino
project and restricted investments of $43.9 million related to the investment of
unused proceeds from the OED Notes into interest bearing cash equivalents and
investments whose distribution is restricted as outlined in the Cash Collateral
and Disbursement Agreement, (ii) approximately $55.3 million for construction,
architecture fees and other development costs associated with the racino project
and the purchase of land at St. Landry Parish where the racino is being
developed, (iii) approximately $1.8 million in development costs related to the
OED acquisition and OED's racing and gaming licenses and (iv) cash outflows of
approximately $2.2 million used for capital expenditures mainly related to the
purchase of new slot machines at the Diamond Jo and video poker machines at
OED's Port Allen OTB, the construction of our concert area adjacent to the
Diamond Jo which hosts weekly concerts throughout the summer months and the
renovation of OED's Port Allen OTB to accommodate the purchase and installation
of 100 video poker machines. These cash outflows were offset by (i) cash
proceeds from the maturity of restricted investments of $8.1 million, the
proceeds of which were used to make the first interest payment on the OED Notes
due September 1, 2003 and (ii) cash proceeds from the sale of assets of $0.4
million.
Cash flows from financing activities for the year ended December 31, 2003
of $104.6 million reflects the net proceeds from the offering of the OED Notes
of $120.7 million, proceeds from OED's draws under the OED Credit Facility and
the OED FF&E Facility of $17.6 million. These proceeds were partially offset by
(i) principal payments to extinguish OED's obligations under OED's term loan
with Wells Fargo Foothill, the PGP Note and the WET2 Note totaling $20.1
million, (ii) deferred financing costs paid of $11.5 million associated with the
issuance of the OED Notes, the OED Credit Facility and the OED FF&E Credit
Facility, (iii) member distributions of $1.6 million and (iv) aggregate
principal payments on borrowings under the DJL Credit Facility of $0.6 million.
As of December 31, 2003, DJL had $11.3 million outstanding under the DJL
Credit Facility and OED had $5.1 million and $12.5 million outstanding under the
OED Credit Facility and the OED FF&E Facility, respectively. Approximately $24.2
million of the net proceeds from the sale of the OED Notes were deposited into
an interest reserve account in order to pay the first three payments of fixed
interest on the OED Notes. Although OED's earnings for the year ended December
31, 2003 were not sufficient to cover their current fixed charges (which consist
of interest on the OED Notes, including capitalized interest), OED does have
sufficient funds deposited in the interest reserve account to satisfy its
obligations under the OED Notes until March 1, 2005, after which, OED
anticipates satisfying its interest obligations out of earnings from operations.
In September 2003, $8.1 million of the initial proceeds deposited into the
interest reserve account, along with interest earned on those proceeds, were
used to pay the first fixed interest payment on the OED Notes.
FINANCING ACTIVITIES
The obligations of DJL under the DJL Credit Facility are senior to DJL's
obligations under the DJL Notes. The DJL Credit Facility contains, among other
things, covenants, representations and warranties and events of default
customary for loans of this type. The most significant covenants include a
minimum "EBITDA" (as defined
49
therein) requirement and the maintenance of certain financial ratios that limit
our ability to make distributions and incur debt. At March 31, 2004, December
31, 2003 and 2002, DJL was in compliance with all such covenants. At March 31,
2004, DJL had outstanding borrowings of $11.1 million and outstanding letters of
credit of $0.3 million under the DJL Credit Facility.
In March 2004, DJL amended the DJL Credit Facility (the "DJL Credit
Facility Amendment"). Under the terms of the DJL Credit Facility Amendment, the
minimum interest rate on all outstanding borrowings under the DJL Credit
Facility less than $10.0 million was reduced to 5.5% and the term of the DJL
Credit Facility was extended by one year to March 12, 2006. The DJL Credit
Facility was terminated and replaced with the PGL Credit Facility on June 16,
2004.
On June 24, 2003, OED entered into the OED Credit Facility. The OED
Credit Facility was terminated and replaced with the PGL Credit Facility on June
16, 2004. OED's obligations under the OED Credit Facility were secured by a lien
on substantially all of its and its subsidiaries' current and future assets,
other than the construction disbursement, interest reserve, completion reserve
and excess cash flow accounts and certain other excluded assets as well as a
pledge by OEDA of the capital stock of OED. Pursuant to the intercreditor
agreement described below, the lien on the collateral securing the OED Credit
Facility was senior to the lien on such collateral securing the OED Notes.
The OED Credit Facility contained, among other things, covenants,
representations and warranties and events of default customary for loans of this
type. At March 31, 2004, OED was in compliance with all such covenants.
Concurrently with the closing of the OED Credit Facility, the trustee
under the indenture for the OED Notes (as secured party) entered into an
intercreditor agreement with Wells Fargo Foothill as the lender under such
credit facility, providing, among other things, that the lien securing the
indebtedness under the OED Credit Facility was senior to the lien securing the
indebtedness under the OED Notes (except that the construction disbursement,
interest reserve, completion reserve and excess cash flow accounts were security
only for the OED Notes).
On September 22, 2003, OED entered into the OED FF&E Facility. Under
the OED FF&E Facility, the lender agreed to make a series of term loans, up to a
maximum amount of $16.0 million, to finance the purchase of gaming equipment and
other furniture, fixtures and equipment. OED's obligations under the OED FF&E
Facility were, subject to certain limitations, secured by a first priority lien
on all of the furniture, fixtures and equipment, and all proceeds and products
thereof. At March 31, 2004, OED had outstanding borrowings of $15.7 million
under the OED FF&E Facility. The OED FF&E Facility was terminated and replaced
by the Term Loan under the PGL Credit Facility on June 16, 2004.
The OED FF&E Facility contained, among other things, covenants,
representations and warranties and events of default customary for loans of this
type. At December 31, 2003 OED was in compliance with all such covenants.
In October 2003, OED entered into a purchase agreement to acquire 93
acres of land, divided into seven approximately equal parcels, for a total
purchase price of $3,850,000. The purchase price under this second purchase
agreement was financed by the seller with OED issuing a $3,850,000 note payable
to the seller. The note is payable in seven equal annual installments of
$550,000 beginning October 24, 2004 and bears interest at a rate of 4.75% of the
unpaid balance due monthly in arrears on the fifth day of each month beginning
on December 5, 2003. The note is collateralized by a mortgage on the property.
Simultaneously with the payment of each $550,000 annual installment discussed
above, the seller agrees to release one of the remaining parcels from the
mortgage.
In March 2003, OED entered into a participation agreement with a third
party operator to own and operate 100 video poker machines at OED's OTB in Port
Allen, Louisiana. In December 2003, OED obtained its license to own and operate
video poker machines. In accordance with the participation agreement, OED
assumed the remaining balance of an original $663,700 promissory note payable in
exchange for ownership of the 100 video poker machines. The note bears interest
at 9.5% and is payable in monthly installments of principal and interest of
$31,250 with the last payment due July 1, 2005. The note is collateralized by a
security interest in the machines.
50
On July 15, 1999, DJL authorized and issued $7.0 million of preferred
membership units. The holders of all of DJL's preferred membership interests are
entitled to receive, subject to certain restrictions contained in the indenture
governing the DJL Notes, out of funds legally available therefor, cumulative
preferred distributions payable semiannually at an annual rate of 9% of the
original face amount thereof. Other than certain limited consent rights and as
required by law, holders of DJL's preferred membership interests have no voting
rights.
DJL redeemed $3.0 million in original face amount of its preferred
membership interests on January 19, 2001 at a redemption price of $3.0 million,
plus a portion of accrued and unpaid distributions thereon of $170,000, the
balance of which, in an amount equal to $145,000 plus accrued interest on such
amount (the "Accrued Preferred Distribution"), was agreed to be paid by DJL at
such time that such payment is permitted to be made pursuant to DJL's existing
financing arrangements, but in no event later than January 15, 2003. The Accrued
Preferred Distribution totaling $171,100 was paid on January 15, 2003. The
balance of preferred membership interests not redeemed by DJL must be redeemed
by DJL on or prior to October 13, 2006 at a redemption price of $4.0 million,
plus any accrued and unpaid preferred distributions through the date of
redemption. At March 31, 2004, accrued distributions related to the preferred
membership interests was approximately $1.1 million.
On March 9, 2004, OED commenced a tender offer and consent solicitation
to repurchase all of its outstanding OED Notes and to solicit consents to
certain proposed amendments to the indenture governing the OED Notes as set
forth in OED's Offer to Purchase and Consent Solicitation Statement, dated March
9, 2004. On March 19, 2004, the expiration date of the consent solicitation, OED
received the requisite consents and tenders from holders of a majority of the
aggregate principal amount of the outstanding OED Notes. The tender offer
expired on April 5, 2004, and OED redeemed approximately $116.3 million
principal amount of OED Notes.
On April 16, 2004, DJL and Old Evangeline Downs Capital Corp. completed a
Rule 144A private placement of $233 million principal amount of 8 3/4% Senior
Secured Notes due 2012 (the "Peninsula Gaming Notes"). The Peninsula Gaming
Notes were issued at a discount of approximately $3.3 million. Interest on the
Peninsula Gaming Notes is payable semi-annually on April 15 and October 15 of
each year, beginning on October 15, 2004.
We used the net proceeds from the sale of the Peninsula Gaming Notes as
follows (all payments based on outstanding balances as of April 16, 2004): (1)
to irrevocably deposit funds into an escrow account to redeem all of the DJL
Notes in an amount (including call premium and accrued interest) of
approximately $79.9 million; (2) to repurchase approximately $116.3 million
principal amount of OED Notes for an aggregate amount (including tender premium,
accrued interest and contingent interest) of approximately $134.6 million; (3)
to pay accrued distributions on DJL's outstanding preferred membership
interests-redeemable of approximately $1.1 million; (4) to pay related fees and
expenses of approximately $13.4 million; and (5) for general corporate purposes.
As a result of the issuance of the Peninsula Gaming Notes, DJL incurred a loss
of approximately $8.9 million consisting of the write-off of deferred financing
fees of approximately $2.1 million, the payment of a call premium on the DJL
Notes of approximately $5.7 million, interest on the DJL Notes of approximately
$0.7 million and write-off of bond discount of approximately $0.4 million. In
connection therewith, OED also incurred a loss of approximately $26.8 million
consisting of the write-off of deferred financing fees of approximately $8.4
million, the payment of a tender premium on the OED Notes of approximately $16.3
million and write-off of bond discount of approximately $2.1 million.
In May 2004, PGP repurchased 147,553 of its convertible preferred
membership interests from an unrelated third party for approximately $4.5
million. The repurchase was funded by a distribution of cash to PGP from DJL,
its wholly-owned subsidiary.
On June 16, 2004, DJL and OED jointly entered into a Loan and Security
Agreement with Wells Fargo Foothill, Inc. as the Arranger and Agent (the "PGL
Credit Facility"). The PGL Credit Facility consists of a revolving credit
facility which permits DJL and OED to request advances and letters of credit up
to the lesser of the maximum revolver amount of $35 million (less amounts
outstanding under letters of credit) and a specified borrowing base (the
"Borrowing Base"). For the purposes of the PGL Credit Facility, the Borrowing
Base is the lesser of the Combined EBITDA (as defined in the PGL Credit
Facility) of OED and DJL for the twelve months immediately preceding the current
month end multiplied by 150% and the Combined EBITDA of OED and DJL for the most
recent quarterly period annualized multiplied by 150%. Immediately upon the
closing of the PGL Credit Facility,
51
DJL borrowed approximately $11.1 million to refinance outstanding obligations
under the DJL Credit Facility and pay financing related fees and expenses and
OED borrowed approximately $4.8 million to refinance outstanding obligations
under the OED Credit Facility and pay financing related fees and expenses.
Advances under the PGL Credit Facility bear an interest rate based on the
borrower's option of LIBOR plus a margin 3% -3.5% or Wells Fargo prime rate plus
a margin of .5% -1% (current rate of 5.0%) however, at no time shall the
interest rate be lower than 4%.
The PGL Credit Facility also contains a Term Loan in the amount of
$14,666,667. The proceeds from the Term Loan were used to repay outstanding
obligations under the FF&E Credit Facility. The Term Loan is secured by certain
assets of OED and requires monthly payments of $333,333 starting July 1, 2004
until the full balance is paid, with a maturity no later than June 15, 2008. The
Term Loan has an interest rate equal to the Wells Fargo prime rate plus 2.5%
(current rate of 6.5%) however, at no time shall the interest rate be lower than
6%. Under the terms of the PGL Credit Facility, at closing OED was required to
issue a letter of credit in the amount of $3.2 million in favor of Wells Fargo
related to the Term Loan.
In addition, following the closing of the offering of the old notes, we
effected a series of corporate transactions to, among other things, simplify our
organizational structure. See "The Transactions".
GENERAL
We currently have the following sources of funds for our business: (i)
cash flows from OED's existing racetrack operations and casino operations, (ii)
cash flows from DJL's existing casino operations, and (iii) available borrowings
under the PGL Credit Facility.
Our level of indebtedness will have several important effects on our
future operations including, but not limited to, the following: (i) a
significant portion of our cash flow from operations will be required to pay
interest on our indebtedness and the indebtedness of our subsidiaries; (ii) the
financial covenants contained in certain of the agreements governing such
indebtedness will require us and/or our subsidiaries to meet certain financial
tests and may limit our respective abilities to borrow additional funds or to
dispose of assets; (iii) our ability to obtain additional financing in the
future for working capital, capital expenditures, acquisitions or general
corporate purposes may be impaired; and (iv) our ability to adapt to changes in
the gaming industry which affect the markets in which we operate could be
limited.
Subject to the foregoing, we believe that cash and cash equivalents
on-hand, cash generated from operations and available borrowings under our new
credit facility will be sufficient to satisfy our working capital and capital
expenditure requirements, and satisfy our other current debt service
requirements, including interest payments on the Peninsula Gaming Notes and the
OED Notes, for the next twelve months. If cash and cash equivalents on-hand or
cash we are able to generate or borrow are insufficient to meet our obligations,
we may have to refinance our debt or sell some or all of our assets to meet our
obligations.
CONTRACTUAL OBLIGATIONS AND CONTINGENT LIABILITIES AND COMMITMENTS
Our future contractual obligations related to long-term debt, capital
leases and operating leases at March 31, 2004 were as follows (in millions of
dollars):
PAYMENTS DUE BY PERIOD
----------------------
LESS THAN 1-3 4-5
CONTRACTUAL OBLIGATIONS TOTAL 1 YEAR YEARS YEARS THEREAFTER
- ----------------------- ----- ------ ----- ----- ----------
Long-Term Debt................$233.5 $5.5 $98.9 $4.8 $124.3
Operating Leases.............. 1.1 0.6 0.5 -- --
Litigation Settlement......... 0.8 0.4 0.4 -- --
Total Contractual Cash
Obligations.................$235.4 $6.5 $99.8 $4.8 $124.3
52
The following shows our other contingent obligations at March 31, 2004
based on expiration dates (in millions):
LESS THAN 1-3 4-5
1 YEAR YEARS YEARS THEREAFTER
------ ----- ----- ----------
Standby letters of credit........... $3.5 -- -- --
OFF-BALANCE SHEET TRANSACTIONS
DJL and OED do not maintain any off-balance sheet transactions,
arrangements, obligations or other relationships with unconsolidated entities or
others that are reasonable likely to have a material current or future effect on
DJL's or OED's financial condition, changes in financial condition, revenues or
expenses, results of operations, liquidity, capital expenditures or capital
resources.
SEASONALITY AND INFLATION
Our operations are subject to seasonal fluctuations. Our Iowa operations
are typically weaker from November through February as a result of adverse
weather conditions, and are typically stronger from March through October. Our
Louisiana operations are also subject to seasonal fluctuations. Although we are
currently in our first year of casino operations in Louisiana, our horse racing
operations are usually stronger during live racing season which runs from April
through October. In general, our payroll and general and administrative expenses
are affected by inflation. Although inflation has not had a material effect on
our business to date, we could experience more significant effects of inflation
in future periods.
RECENT ACCOUNTING PRONOUNCEMENTS
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS No. 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
This statement supersedes SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and the
accounting and reporting provisions of APB Opinion No. 30, "Reporting the
Results of Operations--Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions." This new pronouncement also amends ARB No. 51 "Consolidated
Financials Statements," to eliminate the exception to consolidation for a
subsidiary for which control is likely to be temporary. SFAS No. 144 requires
that one accounting model be used for long-lived assets to be disposed of by
sale, whether previously held and used or newly acquired and also broadens the
presentation of discontinued operations to include more disposal transactions.
SFAS No. 144 is effective for fiscal years beginning after December 15, 2001 and
interim periods within those fiscal years. Adoption of SFAS No. 144 on January
1, 2002, did not have any impact on our financial position or results of
operations for the years ended December 31, 2003 and 2002.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". This statement addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies the previous guidance on the subject. This statement requires,
among other things, that a liability for a cost associated with an exit or
disposal activity be recognized when the liability is incurred. The provisions
for this statement are effective for exit or disposal activities that are
initiated after December 31, 2002. The adoption of SFAS No. 146 did not have a
material effect on DJL results of operations or financial position for the year
ended December 31, 2003.
In November 2002, the FASB issued Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others (FIN 45). FIN 45 expands the disclosure
requirements related to certain guarantees, including product warranties, and
requires DJL to recognize a liability for the fair value of all guarantees
issued or modified after December 31, 2002. FIN 45 did not impact DJL's
financial position or net income.
53
In May 2003, the FASB issued Statement No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." This
statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. It requires the issuer to classify a financial instrument that is within
the scope of the standard as a liability if such financial instrument embodies
an obligation of the issuer. As a result of the adoption of SFAS No. 150 on July
1, 2003, DJL reclassified its $4 million mandatorily redeemable preferred
members' interest from the mezzanine section of the Condensed Consolidated
Balance Sheet to long-term debt. Further, preferred member distributions paid or
accrued subsequent to adoption of SFAS No. 150 are required to be presented as
interest expense separately from interest due to other creditors. DJL was not
required to record a cumulative effect of change in an accounting principle as
the redeemable preferred members' interest was recorded at fair value prior to
July 1, 2003. We are precluded from reclassifying prior period amounts pursuant
to this standard.
In 2003, the FASB issued Interpretation (FIN) No. 46, Consolidation of
Variable Interest Entities, which addresses the consolidation and related
disclosures of these entities by business enterprises. These are entities in
which either the equity investment at risk is not sufficient to absorb the
probable loss without additional subordinated financial support from other
parties, or the investors with equity at risk lack certain essential
characteristics of a controlling interest. Under the Interpretation, DJL must
consolidate any variable interest entities (VIEs) in which DJL holds variable
interests and DJL is deemed the primary beneficiary. The effective date for the
adoption of FIN 46 for interests in VIEs created prior to February 1, 2003 was
July 1, 2003 and applies immediately to variable interest entities created after
January 31, 2003, and to variable interest entities in which DJL obtains an
interest after that date. The adoption of FIN 46 did not impact DJL's financial
position or net loss available to common members' interest.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amount of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from those
estimates. We periodically evaluate our policies and the estimates and
assumptions related to such policies. We also periodically evaluate the carrying
value of our assets in accordance with generally accepted accounting principles.
We and our subsidiaries operate in a highly regulated industry and are subject
to regulations that describe and regulate operating and internal control
procedures. The majority of our revenues are in the form of cash, which by its
nature, does not require complex estimations. In addition, we made certain
estimates surrounding our application of purchase accounting related to the
acquisition and the related assignment of costs to goodwill and other intangible
assets.
In addition, contingencies are accounted for in accordance with SFAS No.
5, "Accounting for Contingencies." SFAS No. 5 requires that we record an
estimated loss from a loss contingency when information available prior to
issuance of our financial statements indicates that it is probable that a
liability has been incurred at the date of the financial statements and the
amount of the loss can be reasonably estimated. Accounting for contingencies
such as legal matters requires us to use judgment. Many of these legal
contingencies can take years to be resolved. Generally, as the time period
increases over which the uncertainties are resolved, the likelihood of changes
to the estimate of the ultimate outcome increases. However, an adverse outcome
could have a material impact on our financial condition and operating results.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to certain market risks which are inherent in our financial
instruments which arise from transactions entered into in the normal course of
business. Market risk is the risk of loss from adverse changes in market prices
and interest rates. We do not currently utilize derivative financial instruments
to hedge market risk. We also do not hold or issue derivative financial
instruments for trading purposes.
We are exposed to interest rate risk due to changes in interest rates with
respect to our long-term variable interest rate debt borrowing under our and
OED's credit facilities. As of March 31, 2004, DJL and OED had $11.1 million and
$19.9 million, respectively, in borrowings under loan and security agreements
with Wells Fargo
54
Foothill that have variable interest rates. We have estimated our market
risk exposure using sensitivity analysis. We have defined our market risk
exposure as the potential loss in future earnings and cash flow with respect to
interest rate exposure of our market risk sensitive instruments assuming a
hypothetical increase in market rates of interest of one percentage point.
Assuming DJL and OED borrow the maximum amount allowed under the current loan
and security agreements with Wells Fargo Foothill (currently an aggregate amount
of $42.6 million), if market rates of interest on our variable rate debt
increased by one percentage point, the estimated consolidated market risk
exposure under the credit facilities would be approximately $0.4 million.
We are also exposed to fair value risk due to changes in interest rates
with respect to our long-term fixed interest rate debt borrowings. Our fixed
rate debt instruments are not generally affected by a change in the market rates
of interest, and therefore, such instruments generally do not have an impact on
future earnings. However, future earnings and cash flows may be impacted by
changes in interest rates related to indebtedness incurred to fund repayments as
such fixed rate debt matures. The following table contains information relating
to our fixed rate debt borrowings as of March 31, 2004 (dollars in millions):
FIXED
INTEREST CARRYING
DESCRIPTION MATURITY RATE VALUE FAIR VALUE
- ----------- -------- ---- ----- ----------
13% Senior Secured Notes with Contingent
Interest of OED............................ March 1, 2010 13% $123.2 $ 140.4*
12 1/4% Senior Secured Notes of DJL........... July 1, 2006 12 1/4% 71.0 76.7*
Note Payable.................................. October 1, 2010 4 3/4% 3.9 3.9
Note Payable.................................. July 1, 2005 9 1/2% 0.4 0.4
Preferred Membership Interests -
Redeemable ................................ October 16, 2006 9% 4.0 4.0
* Represents fair value as of March 31, 2004 based on information provided
by an independent investment banking firm.
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BUSINESS
THE COMPANY
We own and operate both the Evangeline Downs pari-mutuel horse racetrack
and casino, or "racino," near Lafayette, Louisiana and the Diamond Jo riverboat
casino in Dubuque, Iowa. Evangeline Downs, located approximately 20 miles north
of Lafayette, Louisiana at the intersection of Interstate 49 and U.S. Highway
190, began casino operations in December 2003. Evangeline Downs' new horse
racetrack is expected to begin scheduling live racing meets in the second half
of 2004, at which time its existing horse racetrack will cease operations. We
believe, because of its close proximity to Lafayette and ease of access from
major interstates and highways, Evangeline Downs will become the primary source
of gaming entertainment for Lafayette, its primary market.
As one of only two licensed gaming operations in Dubuque, the Diamond Jo
has consistently captured more than 50% of Dubuque's casino gaming revenues
since 1995, its first full year of operations. We believe Evangeline Downs and
the Diamond Jo operate in favorable environments, benefiting from strong market
demographics and limited competition. Both of these operations primarily focus
on local markets, repeat customers and higher margin, less volatile slot machine
play while offering unique and diverse gaming experiences.
PROPERTIES
Evangeline Downs. Our new Evangeline Downs racino in Opelousas has a
Southern Louisiana Cajun roadhouse theme on the exterior, with a complementary
regional Acadian atmosphere on the interior. The racino currently includes a
casino with 1,627 slot machines, parking spaces for approximately 2,229 cars, 60
semis and 5 buses, and several dining options. Our dining options include a
312-seat Cajun buffet, an 82-seat fine dining Evangeline's restaurant, a
192-seat Lagniappe food court and a 202-seat Mojo's sports bar with an
additional 98-seat screened patio, in addition to a raised bar and lounge area
with 120 seats, known as Zydeco's, occupying the center of our casino floor. The
single floor casino contains 15,000 square feet of designated gaming space,
which equates to a casino floor area of approximately 40,000 square feet
(excluding OTBs, see below). In accordance with our regulatory requirements for
the racino, we expect to complete construction of a one-mile dirt track, stables
for 980 horses, a grandstand and clubhouse with seating for 1,295 patrons, and
apron and patio space for an additional 3,000 patrons by the end of fiscal 2004
with related additional capital expenditures of approximately $____ million.
Consistent with our regulatory requirements, we also expect to continue
construction on our turf track during fiscal 2005.
Diamond Jo. The Diamond Jo is a three-story, approximately 48,000 square foot
riverboat casino, replicating a classic 19th century paddlewheel riverboat. The
Diamond Jo has an approved capacity for 1,394 patrons, features a spacious
two-story atrium and a 48-seat capacity deli and offers 749 slot machines and 17
table games on approximately 19,000 square feet of gaming space. Adjacent to the
Diamond Jo is a two-story, approximately 36,000 square foot dockside pavilion,
featuring our 142-seat capacity Lighthouse Grill restaurant, our 140-seat
capacity High Steaks restaurant, our 25-seat capacity Club Wild players lounge
and our 205-seat capacity Harbor View Room, a full service banquet facility. We
share our dockside pavilion with the Spirit of Dubuque dinner-boat.
Approximately 1,200 convenient parking spaces are available to our patrons,
including valet parking. The Diamond Jo operates from, and the dockside pavilion
is located in, the Port of Dubuque, a waterfront development on the Mississippi
River in downtown Dubuque.
OTBs. We currently operate two OTBs, one in Port Allen, Louisiana and one in New
Iberia, Louisiana. Each of these OTBs offers simulcast pari-mutuel wagering
seven days a week and is equipped with a bar to serve alcoholic and
non-alcoholic beverages and kitchen that prepares short order food. The Port
Allen OTB is located immediately off Interstate 10, across the Mississippi River
from Baton Rouge. The two-story Port Allen facility offers off-track betting,
100 video poker machines which began operating in May 2003, a newly renovated
bar, a cafe and a VIP lounge. The New Iberia OTB, located on U.S. Highway 182,
approximately 20 miles outside Lafayette, Louisiana, offers off-track betting
and a limited food offering. Under Louisiana's racing and off-track betting
laws, we have a right of prior approval with respect to any applicant seeking a
permit to operate an OTB within a 55-mile radius of our horse racetrack. This
effectively gives us the exclusive right, at our option, to operate OTBs within
a 55-mile radius of our horse racetrack, provided that such OTB is not also
within a 55-mile radius of another horse racetrack.
56
Existing horse racetrack. Our existing horse racetrack facility is located
approximately five miles north of Lafayette off Interstate 49 and is comprised
of a 94,200 square foot pari-mutuel wagering complex, an approximate 2,000-space
parking lot, 7/8-mile dirt track and stables for approximately 1,000 horses. The
complex features an approximate 750-seat grandstand, an approximate 3,000-person
capacity apron and patio, an approximately 850-seat restaurant, four concession
stands and four bars. The horse racetrack offers live thoroughbred and quarter
horse races a minimum of 80 days a year from mid-April through October. The
horse racetrack also offers simulcast pari-mutuel wagering seven days a week
year-round.
MARKETS
Dubuque. The Diamond Jo operates next to the dockside pavilion which is
located in the Port of Dubuque, a waterfront development on the Mississippi
River in downtown Dubuque and is accessible from each of the major highways in
the area. On average, more than 30,000 vehicles pass by the Diamond Jo per day.
Dubuque has a diverse employer base, which includes John Deere Dubuque Works,
Flexsteel Industries, and Eagle Window and Door, Prudential and McKesson, as
well as local schools and hospitals. The Diamond Jo currently draws
approximately 85% of its patrons from within a 100-mile radius of Dubuque, an
area of approximately 2.4 million residents. Dubuque is situated at the
intersection of Illinois, Iowa and Wisconsin and acts as the region's trade hub.
Casino gaming revenues in Dubuque have grown at a compound annual rate of 7.0%
since 1996, and there are no betting or loss limits in Iowa. In addition to the
America's River Project, Dubuque contains several tourist attractions, drawing
more than one million visitors annually, and Galena, Illinois, a historic
community located 15 miles east of Dubuque, draws more than one million visitors
annually.
During 2003, the City of Dubuque substantially completed a $188 million
redevelopment project of the Port of Dubuque, where the Diamond Jo is located.
This redevelopment project, known as the America's River Project, is designed to
enhance the attractiveness of the Port of Dubuque as a community center and
tourist destination. The America's River Project is the result of a partnership
between city, state and private enterprises including the City of Dubuque, the
Dubuque Area Chamber of Commerce, the Dubuque County Historical Society, Dubuque
County, the State of Iowa Vision Iowa Fund and Platinum Hospitality Group. The
America's River Project is the only place along the entire 2,400-mile stretch of
the Mississippi River offering a multi-faceted campus celebrating the
historical, environmental, educational and recreational majesty of the
Mississippi River. Components of the America's River Project include:
(1) The Grand Harbor Resort and Waterpark featuring 194 guest rooms, including
31 suites, 2,500 square feet of meeting space and a 25,000-square foot
themed indoor waterpark;
(2) The Grand River Center with 86,000 square feet of state-of-the-art
conference and event space that is connected by an enclosed walkway to the
Grand Harbor Resort;
(3) The National Mississippi River Museum & Aquarium featuring, among other
things, several large aquariums, working riverboats, a wetland nature
trail, barge theater, touch pools, live animals, and living history
presentations, and
(4) The Mississippi Riverwalk area featuring the Alliant Energy Amphitheater
for special events, music and live entertainment, the Mississippi
Riverwalk trail, and the 5,000-square foot River's Edge Plaza that will
serve as the docking site for the Delta Queen Company riverboats and other
large excursion vessels.
Lafayette and Surrounding Areas. Louisiana generated approximately $2.0 billion
of casino gaming revenue in 2003, excluding Native American casinos. Such amount
grew at a compound annual rate of 8.7% since 1996 and 6.0% since 2001. We
believe that our centralized location in Louisiana will afford us the
opportunity to participate in this large and growing market. There are
approximately 300,000 adults living within 35 miles of the racino site, mostly
within the Lafayette metropolitan area, our primary market. In addition, there
are 1.5 million adults living within 100 miles of the racino site. This area
includes secondary markets from which we believe we will attract patrons due to
our ease of access from major interstates or highways compared to our
competitors in those areas, as well as our offering of pari-mutuel live horse
racing. Approximately 39,000 vehicles per day pass through the intersection of
Interstate 49 and U.S. Highway 190 where the racino site is located. In
addition, the racino site is
57
located adjacent to a recently opened shopping center, which currently includes
a Wal-Mart Supercenter. A Lowe's and a Home Depot are currently under
construction nearby, affording us an opportunity to attract additional patrons.
OPERATING STRATEGY
Maintain/Develop Loyal Local Customer Base. We believe that the Diamond Jo is
among the principal entertainment venues for residents in and around Dubuque. In
order to maintain and enhance goodwill within the Dubuque area, we sponsor
numerous community events. We believe we are Dubuque's largest sponsor of such
events, which include air shows, concerts and holiday celebrations, such as 4th
of July fireworks. We have also implemented employee incentives and training
programs designed to provide a high level of personalized service to our
customers. Because we believe that Evangeline Downs will become one of the
principal entertainment venues for the residents of the Acadian region, which
includes Lafayette, Opelousas and their surrounding communities, we intend to
utilize these proven strategies for developing a similar loyal local customer
base for Evangeline Downs.
Maximize Profitability Through Target Marketing. We have developed marketing and
promotional strategies designed to target and reward frequent gaming customers
in our players' club through mailings, gaming incentives, and food and beverage
discounts. Our state-of-the-art electronic player tracking system allows us to
monitor slot machine activity in real time, as well as the frequency and level
of play for our players' club members, of which there are more than 100,000 at
the Diamond Jo and already over 50,000 at Evangeline Downs. This system enables
us to focus our marketing efforts on our most valued customers, regularly adjust
our overall game mix to appeal to our target market, and increase revenues from
our existing customer base.
Focus on Slot Machine Play. Approximately 88% of the Diamond Jo's gaming revenue
is generated from slot machines, and all of Evangeline Downs casino gaming
revenues are generated from slot machines. Slot machines are typically both the
highest margin and most predictable component of the gaming industry. Slot
machines do not have the staffing requirements of table games nor do they have
the variation in hold percentages attributable to "luck" which characterize the
table game side of the casino business. We believe that this affords us a more
stable and predictable revenue stream, as well as consistently higher margins
than those facilities that have significant table game operations. In addition,
due to our local market focus and limited competition within our markets, we
believe our marketing costs are much less compared to casinos which focus
primarily on patrons outside of their local markets and/or who face more
competition in their markets. The Diamond Jo has added ticket-in ticket-out
technology to over 300 slot machines and Evangeline Downs currently has over
1,040 slot machines with this technology. We believe this technology enhances
customer service, produces operating efficiencies, allows for players to
continue play during most jackpots and eliminates hopper fills and the down time
associated with them.
COMPETITION
Diamond Jo. The Diamond Jo's principal competitor is the DGP, the only other
licensed gaming facility in Dubuque. The DGP, which opened its casino in 1995,
is located three miles north of the Diamond Jo and currently offers 600 slot
machines and live greyhound racing from May through October with simulcasts from
other greyhound tracks. Furthermore, the DGP is permitted to operate up to 1,000
slot machines and is in the process of expanding its facilities to accommodate
additional machines, which expansion is anticipated to be completed by June
2005. In addition, a group of private investors is planning to construct a hotel
adjacent to the DGP, which is expected to be completed in June 2005. The DGP
also offers, on a limited basis, simulcasts of horse races. The DGP is owned and
operated by the DRA. As a not-for-profit organization, the DRA distributes a
percentage of its cash flow to the City of Dubuque and local charities. Although
Iowa law currently prohibits the DGP from conducting some kinds of gaming
operations, including table games, video poker, video keno and other electronic
games of skills, legislation has been enacted that would allow the DGP to offer
table games and video games that simulate table games, subject to DJL and the
DGP filing with the Iowa Gaming Commission an agreement with respect thereto
that also allows DJL to operate as a barge. See "Risk Factor--Risks Relating to
Our Business--Competition."
Riverboat gaming licenses in the State of Iowa are granted to
not-for-profit "qualified sponsoring organizations" and can be issued jointly to
a not-for-profit qualified sponsoring organization and a boat operator. The
granting of new licenses requires regulatory approval, which includes, among
other things, satisfactory
58
feasibility studies. The DRA is the not-for-profit qualified sponsoring
organization that, pursuant to a contract between the parties, holds the
excursion riverboat gaming license together with us as the boat operator.
The Iowa Gaming Commission recently rescinded its rule limiting riverboat
gaming licenses in Iowa to its existing number. However, a rule still exists
that prohibits existing licensees from increasing the number of gaming positions
at their gaming facilities without prior Iowa Gaming Commission approval.
The Dubuque gaming market borders other neighboring gaming markets. These
neighboring markets include:
(1) Elgin and Aurora, Illinois to the east;
(2) Marquette, Iowa and Native American gaming in Wisconsin and Minnesota to
the north;
(3) Des Moines, Iowa and Native American gaming in Tama, Iowa to the west; and
(4) Clinton, Iowa and the Quad Cities (Bettendorf and Davenport, Iowa and
Moline and Rock Island, Illinois) to the south.
We believe that the Diamond Jo competes only indirectly with gaming
facilities in these neighboring markets. Illinois enacted legislation providing
for dockside gaming in 1999. Illinois limits the number of dockside gaming
licenses to ten. Nine of the ten licenses have already been issued--the tenth is
currently pending for a dockside gaming facility in the Chicago area.
Evangeline Downs. The nearest competitor to Evangeline Downs is a Native
American casino located approximately 50 miles to the south of Lafayette,
including several miles off the highway in Marksville. Beyond that, patrons in
Lafayette need to drive approximately 50 miles to reach riverboat casinos in
Baton Rouge and approximately 70 miles to reach riverboat casinos in Lake
Charles and Native American casinos in Marksville and Kinder. Because our
competition in Marksville is situated more than 20 miles off the highway, we
believe that patrons of the Marksville casino may find the ease of highway
access to our racino more convenient.
Louisiana law currently places limitations on the number and types of
gaming facilities that may operate in the State. Currently, there are only four
horse racetracks in Louisiana with licenses to conduct live racing. Under the
Pari-Mutuel Act, each of the four horse racetracks (including our racino) are
permitted to install slot machines at their facilities. The horse racetrack
nearest to the racino site that is allowed to have gaming operations is located
in Vinton, Louisiana, near Lake Charles, which is over 100 miles away. In
addition, current Louisiana law permits only 15 riverboat gaming licenses to be
awarded. The fifteenth and last license was recently awarded to operate a
riverboat casino to be constructed in Lake Charles. Also, under current
Louisiana law, the only non-Native American land-based casino permitted to
operate in the State is the land-based casino currently operating in New
Orleans, over 100 miles from Lafayette. Native American gaming facilities
operate pursuant to compacts with the State of Louisiana. There currently are
only four federally-recognized Native American tribes in Louisiana and only
three Native American casinos currently operating in Louisiana, the closest
being in Marksville and Kinder which are approximately 50 miles from the racino
site. The fourth tribe, which does not have a compact with the State of
Louisiana as of the date of this prospectus, has proposed to develop a casino in
DeSoto Parish, over 150 miles from the racino.
WORTH COUNTY, IOWA
On November 11, 2003, we entered into an exclusive agreement with the
Worth County Development Authority pursuant to which the parties agreed to
jointly submit an application for a license to operate a gaming facility in
Worth County, Iowa. Under this agreement, we have agreed to design, construct,
operate and manage a casino with no less than 700 gaming positions, a waterway,
if necessary, a recreational vehicle park with a minimum capacity of 200 spaces,
and, upon reaching a targeted rate of return on invested capital, a 100-room
hotel development. Worth County is located on the border of Minnesota,
approximately 200 miles from the Diamond Jo.
59
EMPLOYEES
We maintain a staff of approximately 400 to 420 full-time equivalent
employees at the Diamond Jo and staff approximately 700 to 800 full-time
equivalent employees at Evangeline Downs, depending upon the time of the year.
None of our employees are covered by a collective bargaining agreement. We have
not experienced any labor problems resulting in a work stoppage, and believe we
maintain good relations with our employees.
PROPERTIES
We own a fee interest in the dockside pavilion, consisting of
approximately 36,000 square feet, a surface parking lot within close proximity
to the dockside pavilion, and the walkway connecting the dockside pavilion to
the ramp, which leads to where the Diamond Jo is moored.
In addition to the properties we purchased, we currently lease property
used as surface parking consisting of approximately 194 parking spaces that are
in close proximity to the Diamond Jo. This leased property is currently owned by
the City of Dubuque and leased to DRA, which in turn subleases this property to
us. The sublease requires us to pay one dollar per year as rent. The terms of
the DRA lease with the City of Dubuque and our sublease with the DRA have each
been extended through December 31, 2008.
We are also party to a parking agreement by and among the City of Dubuque,
DRA, the Dubuque County Historical Society and the Spirit of Dubuque, which
governs the use of additional parking spaces we currently use. This parking
agreement gives our patrons the right to use the approximately 194 parking
spaces currently subleased from DRA. The agreement also gives our patrons and
employees the non-exclusive right to use approximately 633 additional parking
spaces that are owned by the City of Dubuque and the Dubuque County Historical
Society and are located in close proximity to the Diamond Jo. In exchange for
these parking rights and the extension of the sublease with the DRA, we are
required, under some circumstances, to share costs of maintaining the subleased
parking lots.
We lease the land on which our existing horse racetrack in Lafayette is
located and own the related building and improvements. The ground lease annual
rental is $0 per year, and the lease term expires on the earlier of December 31,
2004 or the first day OED opens a new racetrack facility for business in St.
Landry Parish, Louisiana.
Our new racino sits on and is bounded by approximately 649 acres of owned
land located in Opelousas that we purchased in 2002 and 2003.
Subsequent to the initial acquisition of approximately 532 aces of land in
2002, in May 2003 we executed three separate purchase agreements to purchase
approximately 10.78 acres of land adjacent to the new racino for a total cost of
$842,466.
In October 2003, we executed two separate purchase agreements to purchase
approximately 106 acres of land adjacent to the new racino. Under the first
purchase agreement, we purchased approximately 13 acres for a total purchase
price of $550,000. The source of funds for the purchase price included a $50,000
deposit paid in February 2003 and $500,000 from the construction disbursement
account paid on October 24, 2003.
Under the second purchase agreement, we purchased an additional 93 acres
of land, divided into seven approximately equal parcels, for a total purchase
price of $3,850,000. The purchase price under this second purchase agreement was
financed by the seller with our issuing a $3,850,000 note payable to the seller.
The note is payable in seven equal annual installments of $550,000 beginning
October 24, 2004 and bears interest at a rate of 4.75% of the unpaid balance due
monthly in arrears on the fifth day of each month beginning on December 5, 2003.
The note is collateralized by a mortgage on the property. Simultaneously with
the payment of each $550,000 annual installment discussed above, seller agrees
to release one of the remaining parcels from the mortgage.
In addition to our existing horse racetrack and new racino, we own the
land, building and improvements of our Port Allen OTB and lease the facility
that comprises our New Iberia OTB.
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LEGAL PROCEEDINGS
Neither we nor our subsidiaries are a party to, and none of our nor our
subsidiaries' property is the subject of, any pending legal proceedings other
than litigation arising in the normal course of business. We do not believe that
adverse determinations in any or all such other litigation would have a material
adverse effect on our financial condition, results of operations or cash flows.
61
REGULATORY MATTERS
We and our subsidiaries are subject to regulation by the State of Iowa,
the State of Louisiana, and, to a lesser extent, by federal law. We and our
subsidiaries are subject to regulations that apply specifically to live racing
facilities and the gaming and pari-mutuel industry, in addition to regulations
applicable to businesses generally. Our racino is subject to the Pari-Mutuel Act
and the Louisiana Horse Racing Act. Laws and regulations applicable to our
current racetrack and our racino are administered by the Louisiana State Gaming
Control Board and the Louisiana State Racing Commission. Legislative or
administrative changes in applicable legal requirements, including legislation
to prohibit casino gaming, have been proposed in the past. It is possible that
the applicable requirements to operate an Iowa gaming facility will become more
stringent and burdensome, and that taxes, fees and expenses may increase. It is
also possible that the number of authorized gaming licenses in Iowa may
increase, which would intensify the competition that we face. Our failure to
comply with detailed regulatory requirements may be grounds for the suspension
or revocation of one or more of our respective licenses which would have a
material adverse effect on our respective businesses.
IOWA RIVERBOAT GAMING REGULATION
Our Diamond Jo operations are subject to Chapter 99F of the Iowa Code and
the regulations promulgate under that Chapter and the licensing and regulatory
control of the Iowa Gaming Commission.
Under Iowa law, the legal age for gaming is 21, and wagering on a
"gambling game" is legal when conducted by a licensee on an "excursion gambling
boat." An "excursion gambling boat" is an excursion boat or moored barge and a
"gambling game" is any game of chance authorized by the Iowa Gaming Commission.
Permanent dockside casino gaming was recently authorized by the Iowa
Legislature.
The legislation permitting riverboat gaming in Iowa authorizes the
granting of licenses to "qualified sponsoring organizations." A "qualified
sponsoring organization" is defined as a nonprofit corporation organized under
Iowa law, whether or not exempt from federal taxation, or a person or
association that can show to the satisfaction of the Iowa Gaming Commission that
the person or association is eligible for exemption from federal income taxation
under sections 501(c)(3), (4), (5), (6), (7), (8), (10) or (19) of the Internal
Revenue Code. Such nonprofit corporation may operate the riverboat itself, or it
may enter into an agreement with another boat operator to operate the riverboat
on its behalf. A boat operator must be approved and licensed by the Iowa Gaming
Commission. DRA, a not-for-profit corporation organized for the purpose of
operating a pari-mutuel greyhound racing facility in Dubuque, Iowa, first
received a riverboat gaming license in 1990 and has served as the "qualified
sponsoring organization" of the Diamond Jo since March 18, 1993. DRA
subsequently entered into the DRA Operating Agreement with Greater Dubuque
Riverboat Entertainment Company, the previous owner and operator of the Diamond
Jo, authorizing Greater Dubuque Riverboat Entertainment Company to operate
riverboat gaming operations in Dubuque. The DRA Operating Agreement was approved
by the Iowa Gaming Commission on March 18, 1993. The term of the DRA Operating
Agreement expires on December 31, 2008. We assumed the rights and obligations of
Greater Dubuque Riverboat Entertainment Company under the DRA Operating
Agreement.
Under Iowa law, a license to conduct gaming may be issued in a county only
if the county electorate has approved the gaming. The electorate of Dubuque
County, Iowa, which includes the City of Dubuque, approved gaming on May 17,
1994 by referendum, including gaming conducted by the Diamond Jo. In addition, a
referendum must be held every eight years in each of the counties where gambling
games are conducted and the proposition to continue to allow gambling games in
such counties must be approved by a majority of the county electorate voting on
the proposition. Such a referendum took place on November 5, 2002 with 79% of
the electorate voting on the proposition favoring continued gaming on riverboats
in Dubuque County. The next referendum is scheduled for 2010. If any
reauthorization referendum is defeated, Iowa law provides that any previously
issued gaming license will remain valid and subject to renewal for a total of
nine years from the date of original issuance of the license, subject to earlier
non-renewal or revocation under Iowa law and regulations applicable to all
licenses.
Proposals to amend or supplement Iowa's gaming statutes are frequently
introduced in the Iowa state legislature. In addition, the state legislature
sometimes considers proposals to amend or repeal Iowa law and regulations, which
could effectively prohibit riverboat gaming in the State of Iowa, limit the
expansion of existing operations or otherwise affect our operations. Although we
do not believe that a prohibition of riverboat gaming in
62
Iowa is likely, we can give no assurance that changes in Iowa gaming laws will
not occur or that the changes will not have a material adverse effect on our
business.
The Gaming Commission adopted in 1998 a rule that prohibits licensees,
including the Diamond Jo, from increasing the number of gaming positions without
Iowa Gaming Commission approval. This approval is based on several factors,
including whether the increase will:
(1) positively impact the community in which the licensee operates,
(2) result in permanent improvements and land-based developments, and
(3) have a detrimental impact on the financial viability of other
licensees operating in the same market.
As a result of this rule, we may be unable to increase the number of
gaming positions on the Diamond Jo.
Substantially all of the Diamond Jo's material transactions are subject to
review and approval by the Iowa Gaming Commission. All contracts or business
arrangements, verbal or written, with any related party or in which the term
exceeds three years or the total value of the contract exceeds $100,000 are
agreements that qualify for submission to and approval by the Iowa Gaming
Commission subject to certain limited exceptions. The agreement must be
submitted within 30 days of execution and approval must be obtained prior to
implementation unless the agreement contains a written clause stating that the
agreement is subject to commission approval. Additionally, contracts negotiated
between the Diamond Jo and a related party must be accompanied by economic and
qualitative justification.
We must submit detailed financial, operating and other reports to the Iowa
Gaming Commission. We must file weekly gaming reports indicating adjusted gross
receipts received from gambling games. Additionally, we must file annual
financial statements covering all financial activities related to our operations
for each fiscal year. We must also keep detailed records regarding our equity
structure and owners.
Iowa has a graduated wagering tax on riverboat gambling equal to five
percent of the first one million dollars of adjusted gross receipts, ten percent
on the next two million dollars of adjusted gross receipts and twenty two
percent on adjusted gross receipts of more than three million dollars. In
addition, there will be two assessments due on June 1, 2005 and June 1, 2006 in
an amount equal to 2.152% of the licensee's adjusted gross receipts for fiscal
year 2004. These assessments will be used against future state gaming taxes paid
by the licensee with a credit for 20% of the assessments paid allowed each year
for five consecutive years beginning July 1, 2010. In addition, Iowa riverboats
share equally in costs of the Iowa Gaming Commission and related entities to
administer gaming in Iowa. For the fiscal year ended December 31, 2003, our
share of such expenses was approximately $605,000. Further, the Diamond Jo pays
to the City of Dubuque a fee equal to $.50 per passenger.
If the Iowa Gaming Commission decides that a gaming law or regulation has
been violated, the Iowa Gaming Commission has the power to assess fines, revoke
or suspend licenses or to take any other action as may be reasonable or
appropriate to enforce the gaming rules and regulations. In addition, renewal is
subject to, among other things, continued satisfaction of suitability
requirements.
We are required to notify the Iowa Gaming Commission as to the identity
of, and may be required to submit background information regarding, each
director, corporate officer and owner, partner, joint venture, trustee or any
other person who has a beneficial interest of five percent or more, direct or
indirect, in DJL. The Iowa Gaming Commission may also request that we provide
them with a list of persons holding beneficial ownership interests in DJL of
less than five percent. For purposes of these rules, "beneficial interest"
includes all direct and indirect forms of ownership or control, voting power or
investment power held through any contract, lien, lease, partnership,
stockholding, syndication, joint venture, understanding, relationship, present
or reversionary right, title or interest, or otherwise. The Iowa Gaming
Commission may determine that holders of the DJL Notes, DJL's common membership
interests and preferred membership interests, and PGP's common membership
interests and convertible preferred membership interests have a "beneficial
interest" in us. The Iowa Gaming Commission may limit, make conditional, suspend
or revoke the license of a licensee in which a director, corporate officer or
holder of
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a beneficial interest in the person includes or involves any person or entity
which is found to be ineligible as a result of want of character, moral fitness,
financial responsibility, or professional qualifications or due to failure to
meet other criteria employed by the Iowa Gaming Commission.
If any gaming authority, including the Iowa Gaming Commission, requires
any person, including a record or beneficial owner of the securities, to be
licensed, qualified or found suitable, the person must apply for a license,
qualification or finding of suitability within the time period specified by the
gaming authority. The person would be required to pay all costs of obtaining the
license, qualification or finding of suitability. If a record or beneficial
owner of any of the DJL Notes or any membership interest of PGP or DJL is
required to be licensed, qualified or found suitable and is not licensed,
qualified or found suitable by the gaming authority within the applicable time
period, the DJL Notes or membership interests will be subject to regulatory
redemption procedures. The DJL Notes to be redeemed under a required regulatory
redemption are redeemable by us, in whole or in part, at any time upon not less
than 20 business days nor more than 60 days notice, or such earlier date as may
be ordered by any governmental authority.
As of the date of this report, the Iowa Gaming Commission has not required
the security holders to apply for a finding of suitability to own the
securities. However, the Iowa Gaming Commission could require a holder of the
securities to submit an application in the future.
THE HORSE RACING ACT AND THE PARI-MUTUEL ACT
The Horse Racing Act has been in effect since 1968 and is the basis for
the current statutory scheme regulating live and off-track betting for horse
racing. The Horse Racing Act states, among other things, that certain policies
of Louisiana with respect to horse racing are to encourage the development of
the business of horse racing with pari-mutuel wagering on a high plane; to
encourage the development of the breeding and ownership of race horses; to
regulate the business of horse racing by licensed horse racing tracks in the
state and to provide the orderly conduct of racing; to provide financial
assistance to encourage the business of racing horses; and to provide a program
for the regulation, ownership, possession, licensing, keeping and inoculation of
horses.
The Pari-Mutuel Act became effective on July 9, 1997, and provides for
numerous controls and supervision over the operation of slot facilities and
requires us to comply with complex and extensive requirements. Failure to adhere
to these statutes and regulations will result in serious disciplinary action
against us, including monetary fines and suspension or revocation of our
licenses.
The Pari-Mutuel Act allows only one facility in each of St. Landry Parish,
Bossier Parish, Calcasieu Parish and Orleans Parish to be licensed to operate
slot machines at a live horse racing facility. OED is presently the only
"eligible facility" in St. Landry Parish under the Pari-Mutuel Act. The
Pari-Mutuel Act requires (among other things) that two conditions be met prior
to the opening and operation of a slot machine casino at a live racing venue.
First, a parish-wide election must approve the operation. In 1997, voters in St.
Landry Parish voted to approve the slot machine casino at the racino site.
Secondly, the Pari-Mutuel Act requires that an appropriate tax be levied on the
slot machine operation. In 2000, an 18.5% license tax was levied upon taxable
net slot machine proceeds. Therefore, we believe that both of the conditions
required by the Pari-Mutuel Act have been met with respect to the racino at our
site in Opelousas within St. Landry Parish.
The Pari-Mutuel Act also provides that the "designated gaming space" in
any eligible facility cannot exceed 15,000 ft2, that the licensee will not allow
underage gaming and that notice of toll-free telephone assistance for compulsive
gamblers will be posted at the facility.
The Pari-Mutuel Act requires that licensees supplement horse racing purses
and pay certain other fees from slot machine proceeds. The Pari-Mutuel Act also
levies taxes on the net slot machine proceeds. Licensees must pay fifteen (15%)
percent of gross slot machine proceeds to supplement purses at their facilities,
pay two (2%) percent to the Louisiana Thoroughbred Breeders Association and also
pay one (1%) percent to the Louisiana Quarter Horse Breeders Association. In
addition to these payments, we will pay eighteen and one-half (18.5%) percent of
the net slot machine proceeds (net of the payments described above) as state
taxes and four (4%) percent as local taxes. The effective rate of total taxes
and fees is therefore approximately 36.5% of our adjusted gross slot revenue.
Additionally, we will also have to pay $0.25 for each patron who attends a live
race at our horse racetrack, enters the
64
racino during non-racing season, from the hours of noon to midnight, Thursday
through Monday, or enters any one of our OTBs.
To remain an "eligible facility" under the Pari-Mutuel Act, we must, among
other things, have a minimum of 80 live racing days in a consecutive 20-week
period each year of live horse race meetings at the new horse racetrack.
THE LOUISIANA STATE GAMING CONTROL BOARD
In 1996, Louisiana created the Louisiana Gaming Control Board, which was
granted all of the regulatory authority, control and jurisdiction to license and
monitor gaming facilities in Louisiana, including our planned racino. To receive
a gaming license an applicant and its management must apply to the Louisiana
Gaming Control Board and be investigated by the Louisiana State Police prior to
licensing. The Louisiana Gaming Control Board and Louisiana State Police must
determine that the applicant is suitable to conduct the gaming operations,
including that the applicant (and its owners, officers, directors and key
employees) is of good character, honesty and integrity, that its prior
activities, reputation and associations pose no threat to the public interest or
to the effective regulation of the industry and that the applicant is capable of
conducting the operation of the slot machine facility. The Louisiana Gaming
Control Board must also determine that the applicant has adequate financing from
a source suitable and acceptable to the Louisiana Gaming Control Board.
The applicant for a gaming license, its directors, officers, key
personnel, partners, and persons holding a five (5%) percent or greater equity
or economic interest in the applicant will be required to be found suitable by
the Louisiana Gaming Control Board. To receive a license the applicant must file
an extensive application with the Louisiana Gaming Control Board, disclosing
personal, financial, criminal, business and other information. The applicant is
required to pay all costs of investigation. An application for a finding of
suitability of a person may be denied for any cause deemed reasonable by the
Louisiana Gaming Control Board. Any other person who is found to have a material
relationship to or a material involvement with a gaming company also may be
required to be investigated in order to be found suitable or be licensed as a
business associate of an applicant. Key employees, controlling persons or others
who exercise significant influence upon the management or affairs of a gaming
company may be deemed to have such a relationship or involvement.
If the Louisiana Gaming Control Board were to find a director, officer or
key employee of an applicant unsuitable for licensing purposes or unsuitable to
continue having a relationship with an applicant, the applicant would have to
dismiss and sever all relationships with such person. The applicant would have
similar obligations with regard to any person who refuses to file appropriate
applications. Each gaming employee must obtain a gaming employee permit which
may be revoked upon the occurrence of certain specified events.
An applicant must also demonstrate that the proposed gaming operation has
adequate financial resources generated from suitable sources and adequate
procedures to comply with the operating controls and requirements imposed by the
laws and regulations in the State of Louisiana. Additionally, the applicant must
submit plans and specifications of the gaming premises specifying the layout and
design of the gaming space. Proof of tax compliance, both state and federal, is
also required. This submission is followed by a thorough investigation by the
regulatory authorities of the applicant, its business probity, the premises and
other matters. An application for any gaming license, approval or finding of
suitability may be denied for any cause that the regulatory authorities deem
reasonable.
We received our gaming license to operate slot machines at our racino from
the Louisiana Gaming Control Board on January 21, 2003. Our license has a term
of five years and is renewable for succeeding five year periods upon application
for such renewal. The Louisiana Gaming Control Board retains absolute discretion
over the right to renew our license upon the termination of its initial term.
OED's gaming license authorizes the use of 15,000 square feet of
designated gaming space. On February 18, 2003, OED submitted for approval its
layout for the casino, which incorporated 1,631 slot machines. OED's layout was
approved based on the type of machines which were all upright machines. Should
OED change the manufacturer, type and/or design of its slot machines prior to
installation, it must once again go before the Louisiana Gaming Control Board to
obtain approval for the new machines. Once the machines are installed, they
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must be inspected by regulators and tested prior to the approval of their
operation. The moving of the machines also requires the approval of the
Louisiana Gaming Control Board.
Maintaining our gaming license is contingent in certain respects on our
horse racetrack operations at our planned racino. First, our failure to complete
construction of the horse racetrack at the racino or to establish a schedule of
live racing meets at the new horse racetrack by January 21, 2005, will result in
the cancellation of our gaming license. While Louisiana allows us to operate
slot machines at the racino prior to completion of the new horse racing facility
and the commencement of live racing at the new horse racetrack, Louisiana gaming
regulations and our gaming license require that the racino must be constructed
and a schedule of live racing meets at the new horse racetrack be established by
January 21, 2005, which is within two years from the date of the grant of our
gaming license. Second, to maintain our gaming license, we must remain an
"eligible facility" under the Pari-Mutuel Act. This means that we must, among
other things, have a minimum of 80 live racing days in a consecutive 20-week
period each year of live horse race meetings at the new horse racetrack and must
be a licensed racing association.
Although we have obtained our license to conduct slot machine operations,
we continue to be subject to ongoing monitoring and compliance requirements by
the Louisiana Gaming Control Board and the Louisiana State Police. We have
obtained from the Louisiana Gaming Control Board a video draw poker
establishment license and owner device license. The video draw poker
establishment license allows us to operate video draw poker devices at our
approved OTB locations but not the racino, and the owner device license allows
us to own those machines. Regulations require us to comply with rigorous
accounting and operating procedures, including the submission of detailed
financial and operating reports. Our accounting records must include accurate,
complete and permanent records of all transactions pertaining to revenue.
Detailed ownership records must be kept on site available for inspection. All
records must be retained for a period of five years. Audited financial
statements are required to be submitted to the Louisiana State Police. Internal
controls have been approved and in place beginning the first day of operation.
These controls will include handling of cash, tips and gratuities, slot
operations, and count room procedures and management information systems. Each
licensed facility is required by the Louisiana Gaming Control Board to maintain
cash or cash equivalent amounts on site sufficient to protect patrons against
defaults in gaming debts owed by the licensee. In addition, licensees are
subject to currency transaction report regulations.
We must also strictly comply with mandated operating procedures and supply
detailed reports disclosing such compliance. Regulation of a casino's methods of
operations is extensive and will include substantially all aspects of our casino
operation. Operating procedures that are subject to regulation include slot
machine maintenance and operation, cash management and cash procedures, cage
procedures, drop procedures, regulation of weapons in the casino, parking,
access to the premises and records by regulators, gaming credit and advertising,
surveillance and security standards, safeguards against underage gambling,
compulsive gambling programs, physical layout and progressive jackpots.
The Louisiana Gaming Control Board retains the power to suspend, revoke,
condition, limit or restrict our license to conduct slot machine operations as a
sanction for violating licensing terms or for any cause they deem reasonable. In
addition, monetary fines for violations may be levied against us, and our gaming
operation revenues may be forfeited to the state under certain circumstances.
Initial enforcement actions against a licensee are brought by the Louisiana
State Police and are heard before an administrative law judge to whom the
Louisiana Gaming Control Board has delegated decision making power. Either party
may appeal the ruling of the administrative law judge before the full Louisiana
Gaming Control Board. Either party may further appeal the ruling of the
Louisiana Gaming Control Board in state court. The laws, regulations and
procedures pertaining to gaming are subject to the interpretation of the
regulatory authorities and may be amended. Any changes in such laws or
regulations, or their current interpretations, could have a material adverse
effect on our business, financial condition, results of operations and ability
to meet our payment obligations under the Notes and our other indebtedness.
The Louisiana Gaming Control Board has broad regulatory power over
securities issuances and incurrence of indebtedness by gaming facilities.
Substantially all loans, leases, private sales of securities, extensions of
credit, refinancings and similar financing transactions entered into by a
licensee must be approved by the Louisiana Gaming Control Board. Pursuant to a
letter dated January 31, 2003, the Louisiana Gaming Control Board exempted the
notes offering from any requirement for prior approval by the Louisiana Gaming
Control Board. However, at any time, any holder of the notes may be called
before the Louisiana Gaming Control Board to undergo a suitability
66
investigation in the event the Louisiana Gaming Control Board determines that
such holder exercises a material influence over us or our operations.
At any time the Louisiana Gaming Control Board may investigate and require
the finding of suitability of any shareholder or beneficial shareholder (and if
the shareholder is a corporate or partnership entity, then the shareholders or
partners of the entity), officer, partner, member, manager or director of a
licensee if the Louisiana Gaming Control Board believes such holder exercises a
material influence over the licensee. Furthermore, all holders of more than a 5%
interest in the licensee, or proposed purchasers of more than a 5% interest are
automatically investigated and are required to submit to suitability
requirements of the Louisiana Gaming Control Board. Any sale or transfer of more
than a 5% interest in any riverboat or slot project is subject to the approval
of the Louisiana Gaming Control Board.
Although the Pari-Mutuel Act does not specifically require debt holders to
be licensed or to be found suitable, the Louisiana Gaming Control Board, in its
sole discretion, may require the holders of debt securities to file applications
and obtain suitability certificates from it. Furthermore, if the Louisiana
Gaming Control Board finds that any holder exercises a material influence over
the gaming operations, a suitability certificate will be required.
If the Louisiana Gaming Control Board finds that any security holder or
proposed security holder, including a holder of the notes, is not qualified
pursuant to the existing laws, rules and regulations, and if as a result it
determines that the licensee is no longer qualified to continue as a licensee,
it can propose action necessary to protect the public interest, including the
suspension or revocation of a license or permit. It may also issue, under
penalty of revocation of license, a condition of disqualification naming the
person and declaring that such person may not (a) receive dividends or interest
on securities of the licensee, (b) exercise any right conferred by securities of
the licensee, (c) receive remuneration or any other economic benefit from the
licensee or (d) continue in an ownership or economic interest in the licensee or
remain as a director, partner, officer, or manager of the licensee. A security
issued by a licensee must generally disclose these restrictions.
LOUISIANA STATE RACING COMMISSION
Pari-mutuel betting and the conducting of live horse race meets in
Louisiana are strictly regulated by the Louisiana State Racing Commission, which
was created pursuant to the Horse Racing Act. The Louisiana Racing Commission is
comprised of ten members and is domiciled in New Orleans, Louisiana. In order to
be approved to conduct a live race meet and to operate pari-mutuel wagering
(including off-track betting), an applicant must show, among other things:
racing experience; financial qualifications; moral and financial qualifications
of applicant and applicant's partners, officers and officials; the expected
effect on the breeding and horse industry; and the expected effect on the
State's economy.
In 2000, we received from the Louisiana State Racing Commission a license
to conduct live race meets and to operate pari-mutuel wagering at our existing
facility. The initial term of this license is ten years subject to renewal in
2010. On December 19, 2002, we received approval to transfer our operations
under our license from Lafayette Parish to St. Landry Parish upon completion of
the new horse racetrack. As a condition to the approval of our racing license,
we are required to offer pari-mutuel wagering in the defined casino gaming space
at the time we begin conducting slot machine gaming. Our racino includes
monitors and other equipment to facilitate live and simulcast wagering within
the casino area in compliance with this condition.
The Louisiana State Racing Commission promulgates rules, regulations and
conditions for the holding, conducting and operating of all racetracks in the
state. Failure to adhere to these regulations may result in substantial fines or
the suspension or revocation of our racing license. A revocation or suspension
of the racing license would, in turn, result in the revocation or suspension of
our gaming license to conduct slot machine operations. Any alteration in the
regulation of these activities could have a material adverse effect on our
operations.
FEDERAL REGULATION OF SLOT MACHINES
We are required to make annual filings with the U.S. Attorney General in
connection with the sale, distribution or operation of slot machines. We are
currently in compliance with such filing requirements.
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POTENTIAL CHANGES IN TAX AND REGULATORY REQUIREMENTS
In the past, federal and state legislators and officials have proposed
changes in tax law, or in the administration of the laws, affecting the gaming
industry. Regulatory commissions and state legislatures sometimes consider
limitations on the expansion of gaming in jurisdictions where we operate and
other changes in gaming laws and regulations. Proposals at the national level
have included a federal gaming tax and limitations on the federal income tax
deductibility of the cost of furnishing complimentary promotional items to
customers, as well as various measures which would require withholding on
amounts won by customers or on negotiated discounts provided to customers on
amounts owed to gaming companies. It is not possible to determine with certainty
the likelihood of possible changes in tax or other laws or in the administration
of the laws. The changes, if adopted, could have a material adverse effect on
our financial results.
LIQUOR REGULATIONS
The sale of alcoholic beverages by us in Iowa is or will be subject to the
licensing, control and regulation by liquor agencies, which include the City of
Dubuque and the Alcohol Beverage Control Division of the Iowa Department of
Commerce. The applicable Iowa liquor laws allow the sale of liquor during legal
hours which are Monday through Saturday from 6 a.m. to 2 a.m. the next day and
Sunday from 8 a.m. to 2 a.m. on Monday. Subject to few exceptions, all persons
who have a financial interest in us, by ownership, loan or otherwise, must be
disclosed in an application filed with, and are subject to investigation by,
Iowa's liquor agencies. Persons who have a direct or indirect interest in any
Iowa liquor license, other than hotel or restaurant liquor licenses, may be
prohibited from purchasing or holding our Existing Notes. All licenses are
subject to annual renewal, are revocable and are not transferable. The liquor
agencies have the full power to limit, condition, suspend or revoke any license
or to place a liquor licensee on probation with or without conditions. Any
disciplinary action could, and revocation would, have a material adverse effect
upon the operations of our business. Many of our owners, officers and managers
must be investigated by the liquor agencies in connection with our liquor
permits. Changes in licensed positions must be approved by the liquor agencies.
The sale of alcoholic beverages by us in Louisiana is subject to the
licensing, control and regulation by the State of Louisiana, Department of
Revenue, Office of Alcohol and Tobacco Control, as well as the cities of
Opelousas, Carencro, Port Allen, New Iberia and the parish of West Baton Rouge.
The applicable liquor laws in the city of Opelousas where the racino is located
allow the sale of liquor 24 hours a day 7 days a week.
UNITED STATES COAST GUARD
The Diamond Jo is also regulated by the United States Coast Guard, whose
regulations affect boat design and stipulate on-board facilities, equipment and
personnel, including requirements that each vessel be operated by a minimum
complement of licensed personnel, in addition to restricting the number of
persons who can be aboard the boat at any one time. Our riverboat must hold, and
currently possesses, a Certificate of Inspection ("COI") and a Certificate of
Documentation from the United States Coast Guard. Loss of the COI would preclude
our use of the Diamond Jo as an operating riverboat. In addition, the riverboat
is subject to United States Coast Guard regulations requiring periodic hull
inspections. The United States Coast Guard, upon our request, allowed us to
conduct an underwater hull inspection instead of the traditional out of water
dry dock inspection. We completed the underwater inspection in March 2003. The
underwater hull inspection did not result in any loss of services of the
riverboat. We will be required to perform another hull inspection within 60
months from the date of the completion of the underwater hull inspection. At
that time, we may again seek approval from the Coast Guard for an underwater
hull inspection in order to avoid any loss of services of the riverboat,
although no assurances can be given that the Coast Guard will agree to our
request.
Due to changes in Iowa law, we may operate a gaming vessel that is not
required to cruise, without a COI. We have applied to the US Army Corp of
Engineers and the Coast Guard to give up our COI and become a Permanently Moored
Vessel (PMV). The process of becoming a PMV is expected to take at least several
months and, if granted, will allow us to reduce our marine personnel to a level
fitting of a non-cruising vessel.
All of our marine employees employed on United States Coast Guard
regulated vessels, even those who have nothing to do with the actual operation
of the vessel, such as dealers, cocktail hostesses and security personnel,
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may be subject to maritime law at certain times of the year, which, among other
things, exempts those employees from state limits on workers' compensation
awards. We maintain workers' compensation insurance in compliance with
applicable Iowa law.
THE MARITIME TRANSPORTATION SECURITY ACT AND HOMELAND SECURITY
The Maritime Transportation Security Act was passed and signed into law
following the September 11 attacks. The Coast Guard has published regulations
implementing the Act, requiring covered vessels and associated shore facilities
to develop and implement comprehensive security plans for preventing and
responding to potential terrorist threats. We are in the process of implementing
an Alternative Security Plan at the Diamond Jo developed by the American Gaming
Association to satisfy the Coast Guard regulations. However, it is not possible
to predict the precise impact of these regulations, or other regulations
relating to homeland security contemplated by the Coast Guard, upon access to
our facility or gaming operations.
THE SHIPPING ACT OF 1916; THE MERCHANT MARINE ACT OF 1936
The Shipping Act of 1916, and the Merchant Marine Act of 1936, and
applicable regulations contain provisions which would prevent persons who are
not citizens of the United States from holding in the aggregate more than 25% of
our outstanding membership interests, directly or indirectly. DJL's and PGP's
respective operating agreements contain prohibitions against any purchase or
transfer of the Company's, DJL's or PGP's respective membership interests to any
person or entity if, following the purchase or transfer, more than 25% of DJL's
membership interests are owned, directly or indirectly, by persons who are not
citizens of the United States. Any such purchase or transfer in violation of the
Company's, DJL's or PGP's respective operating agreements is null and void, and
the Company's, DJL and PGP will not recognize the purchaser, transferee or
purported beneficial owner as a direct or indirect holder of an interest in the
Company, DJL or PGP, respectively, for any purpose. To the extent required by
maritime laws, the managing member, managers and the officers of the Company,
DJL and PGP must be citizens of the United States.
OTHER REGULATIONS
We and our subsidiaries are subject to federal, state and local
environmental and safety and health laws, regulations and ordinances that apply
to non-gaming businesses generally, such as the Clean Air Act, Federal Water
Pollution Control Act, Occupational Safety and Health Act, Resource Conservation
Recovery Act, Oil Pollution Act of 1990 and Comprehensive Environmental
Response, Compensation and Liability Act, each as amended. We have not incurred,
and do not expect to incur, material expenditures with respect to these laws.
There can be no assurances, however, that we will not incur material liability
under these laws in the future.
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MANAGEMENT
EXECUTIVE OFFICERS AND MANAGERS
PGP is the Company's sole managing member. The following table sets forth
the names and ages of the executive officers of the Company and of the managers
of PGP.
NAME AGE POSITION
M. Brent Stevens......... 43 Chief Executive Officer of the Company and
Chairman of the Board of Managers of PGP
Jonathan Swain........... 36 Chief Operating Officer of the Company
Michael S. Luzich........ 50 President and Secretary of the Company and
Manager of PGP
Natalie A. Schramm....... 34 Chief Financial Officer of the Company
Terrance W. Oliver....... 54 Manager of PGP
Andrew Whittaker......... 42 Manager of PGP
MANAGEMENT PROFILES
Following is a brief description of the business experience of each of the
executive officers of PGL and of the managers of PGP listed in the preceding
table. Presently, PGP's board of managers is comprised of five managers;
however, the fifth manager has not been appointed.
M. Brent Stevens. Mr. Stevens is our Chief Executive Officer and is the
Chairman of the Board of Managers of PGP. Mr. Stevens also serves as Chief
Executive Officer of DJL and OED. Since 1990, Mr. Stevens has been employed by
the Initial Purchaser, and presently is an Executive Vice President in the
Investment Banking department.
Jonathan Swain. Mr. Swain was hired as Chief Operating Officer of PGL in
July 2004. Mr. Swain served from 2000 through July 2004 as Vice President and
General Manager of three Station Casinos properties including, Palace Station,
Santa Fe Station and Sunset Station, the largest property of Station Casinos
Inc., a hotel and gaming company headquartered in Las Vegas, Nevada. In 1999 and
2000, Mr. Swain served as Vice President and General Manager of the Hard Rock
Hotel and Casino in Las Vegas. From 1995 through 1999, Mr. Swain worked for the
Aztar Resorts Inc. serving as the Corporate Vice President of Marketing and
President of the Las Vegas Tropicana. Aztar Resorts, Inc. is a hotel and gaming
company headquartered in Phoenix Arizona. From 1993 to 1995, Mr. Swain served as
Vice President of Marketing and as Executive Director of International Marketing
with the Trump Taj Mahal in Atlantic City, New Jersey.
Michael S. Luzich. Mr. Luzich is our President and Secretary and a manager
of PGP. Mr. Luzich also serves as President and Secretary of DJL and OED. Mr.
Luzich is the founder and President of the Cambridge Investment Group, LLC, an
investment and development company located in Las Vegas, Nevada. Prior to
October 1995, Mr. Luzich was a founding partner and director of Fitzgeralds New
York, Inc. and Fitzgeralds Arizona Management, Inc., which are development
companies responsible for the Turning Stone Casino near Syracuse, New York for
the Oneida Tribe and the Cliff Castle Casino near Sedona, Arizona for the
Yavapai-Apachi Tribe, respectively.
Natalie A. Schramm. Ms. Schramm is our Chief Financial Officer. Ms.
Schramm also serves as Chief Financial Officer of DJL and OED. Ms. Schramm
served as Assistant General Manager of DJL from April 1, 2000 to December 31,
2002. On January 1, 2003, Ms. Schramm was appointed General Manager of DJL. Ms.
Schramm joined our predecessor, Greater Dubuque Riverboat Entertainment Company,
L.C., in November 1996 and was formerly employed by Aerie Hotels and Resorts in
Oak Brook, Illinois as Corporate Accounting Manager since 1992. She was
responsible for the corporate accounting functions of the Silver Eagle, the
Eagle Ridge Inn and Resorts, located in Galena, Illinois and the Essex Hotel,
located in Chicago, Illinois. She served as Internal Audit Manager for the
Silver Eagle and was a member of a development team that successfully pursued a
riverboat gaming license in Indiana.
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Terrance W. Oliver. Mr. Oliver is a manager of PGP. Since 1993, Mr. Oliver
has served as a director of and consultant to Mikohn Gaming Corporation, a
gaming equipment manufacturer headquartered in Las Vegas. From 1988 until 1993,
Mr. Oliver served as Chairman of the Board to the predecessor company of Mikohn.
From 1984 until 1996, Mr. Oliver was a founding shareholder, board member and
executive officer of Fitzgeralds Gaming Corporation. Mr. Oliver retired as the
Chief Operating Officer of Fitzgeralds Gaming Corporation in 1996.
Andrew Whittaker. Mr. Whittaker is a manager of PGP. Since 1990 Mr.
Whittaker has been employed by the Initial Purchaser, where he is presently a
Vice Chairman.
Upon consummation of the Transactions, each person holding a position as
an officer of DJL and OED was appointed to the same position as an officer of
PGL. We hired Jonathan Swain as our new Chief Operating Officer as of July 15,
2004. George T. Papanier resigned from his position as our Chief Operating
Officer effective June 20, 2004. We do not expect our transition to a new chief
operating officer to cause any disruptions in our operations.
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EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information for the years indicated
concerning the compensation awarded to, earned by or paid to our Chief Executive
Officer and our four other most highly paid executive officers, who each served
as executive officers of DJL or OED during 2003, for services rendered in all
capacities to DJL and OED, as applicable, during such periods.
ANNUAL COMPENSATION
-------------------
OTHER ANNUAL ALL OTHER
NAME AND FISCAL SALARY BONUS COMPENSATION LONG-TERM COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($) COMPENSATION ($)
------------------ ---- --- --- --- ------------ ---
M. Brent Stevens(1) 2003 -- -- -- -- --
Chief Executive 2002 -- -- -- -- --
Officer 2001 -- -- -- -- --
George T. Papanier 2003 $375,000 $630,000 $9,350(2) -- $6,000(8)
Chief Operating 2002 350,046 190,000 12,465(3)(4) -- $5,500(8)
Officer 2001 299,489 -- 13,150(4)(5) 5,250(8)
Natalie A. Schramm 2003 $149,531 $42,500 $3,360(6) -- $6,000(8)
Chief Financial 2002 136,955 40,000 3,408(7) -- 5,500(8)
Officer 2001 129,567 19,328 4,200(7) 5,082(8)
Michael S. Luzich 2003 -- -- -- -- --
President and 2002 -- -- -- -- --
Secretary 2001 -- -- -- -- --
- ----------
(1) Mr. Stevens receives board of manager fees for his services as a manager
on the board of managers of PGP. See " --Compensation of
Managers."
(2) Represents automobile allowances.
(3) Includes $3,115 in club membership fees and $9,350 in automobile
allowances.
(4) In connection with his relocation in 2000, DJL acquired Mr. Papanier's
current residence for which he paid all property taxes, utility expenses
and other out-of-pocket costs related to maintaining such residence,
excluding the fair market value equivalent of rental expense.
(5) Includes $2,950 in club membership fees and $10,200 in automobile
allowances.
(6) Represents club membership fees.
(7) Represents club membership fees.
(8) Represents matching contributions made by DJL to our 401(k) plan.
72
EMPLOYMENT AND CONSULTING AGREEMENTS
NATALIE A. SCHRAMM--CHIEF FINANCIAL OFFICER
In July 2004, Ms. Schramm entered into an employment agreement with PGL.
Under the terms of this employment agreement, Ms. Schramm is entitled to receive
from PGL a base annual salary of $230,000 in the twelve months beginning July 1,
2004, which will be adjusted upward annually by not less than five percent (5%)
of the prior year's compensation. In addition to the base salary, Ms. Schramm is
entitled to receive an annual cash bonus payable by PGL based on her performance
during the previous fiscal year, which shall be consistent with the bonus plan
in place for similarly situated executive officers of PGL. Ms. Schramm was paid
a bonus of $80,000 in February of 2004 for her performance in the 2003 fiscal
year. The employment agreement has an initial term of three years.
MICHAEL S. LUZICH--PRESIDENT AND SECRETARY
Mr. Luzich is party to a consulting agreement with PGP and OED pursuant to
which he is entitled to receive compensation in an aggregate annual amount equal
to (a) 2% of DJL's unconsolidated earnings before interest, taxes, depreciation,
amortization and other non-recurring charges during the preceding calendar year,
plus (b) 2.5% of OED's earnings before interest, taxes, depreciation,
amortization and other non-recurring charges during the preceding calendar year
commencing on the first day of the month succeeding the month in which OED
commences gaming operations. Mr. Luzich is also entitled to additional
commercially reasonable compensation consistent with the level of compensation
payable under his agreement for consulting services rendered in respect of each
riverboat or land-based casino or gaming operation acquired, directly or
indirectly, by PGP in the future. The consulting agreement has a one-year term
and, subject to the occurrence of various termination events, is renewable
automatically for successive one-year terms. Under this agreement, Mr. Luzich is
also entitled to reimbursement of reasonable business expenses as approved by
the board of managers of PGP. For the three months ended March 31, 2004 and the
years ended 2003, 2002 and 2001, Mr. Luzich received $171,018, $289,153,
$336,829 and $327,128, respectively, from PGP and $283,500 from OED during the
three months ended March 31, 2004 under his consulting agreements.
GEORGE T. PAPANIER--FORMER CHIEF OPERATING OFFICER
In July 2000, Mr. Papanier commenced employment with DJL. Under the terms
of his employment, Mr. Papanier was entitled to receive a base annual salary in
an amount determined by the Board of Managers of PGP each year. Mr. Papanier's
base annual salary for the 2003 fiscal year was $375,000. In addition to his
base salary, Mr. Papanier was entitled to receive an annual cash bonus based on
specified performance criteria with respect to the prior fiscal year and
determined by the Board of Managers of PGP. Mr. Papanier was paid a bonus of
$200,000 in February of 2004 in respect of performance in the 2003 fiscal year.
Mr. Papanier was not party to a written employment agreement with us. Mr.
Papanier resigned from DJL effective June 20, 2004, and he received a pro rata
portion of his annual base salary for the 2003 fiscal year from the beginning of
the 2004 fiscal year through June 20, 2004.
JONATHAN SWAIN--CHIEF OPERATING OFFICER
In July 2004, Mr. Swain entered into an employment agreement with PGL to
serve as Chief Operating Officer. Under the terms of his employment agreement,
Mr. Swain is entitled to receive from PGL a base annual salary of $400,000 in
the first twelve months of his employment, plus a cash bonus of $30,000 upon
commencing his employment and an additional $30,000 in October 2004. In addition
to the base salary, Mr. Swain is entitled to receive an annual cash bonus
payable by PGL based on his performance during the previous fiscal year, which
shall be consistent with the bonus plan in place for similarly situated
executive officers of PGL. Mr. Swain was also granted 2% of PGL's outstanding
capital interests which will vest over the term of his employment agreement. The
employment agreement has an initial term of three years.
73
COMPENSATION OF MANAGERS
All managers serving on the board of managers of PGP are reimbursed for
their travel and out-of-pocket expenses related to their attendance at board of
managers meetings and receive annual payments of $25,000 (other than Mr. Stevens
who receives $175,000 annually per gaming property).
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
We have no standing compensation committees. All compensation decisions
are made by the executive committee of the board of managers of PGP. See
"Certain Relationships and Related Party Transactions--Operating Agreement of
PGP."
PGP INCENTIVE UNIT PLAN
Concurrently with the consummation of the Transactions, PGP amended its
operating agreement and adopted an incentive units plan (the "Plan") to provide
for the grant of profits interests to existing and future executive officers,
managers, employees, and members of PGP and its subsidiaries. Generally, profits
interests granted under the Plan will be subject to terms and conditions
customary for such plans, including vesting requirements, transfer restrictions,
satisfaction of budget related performance criteria and similar conditions and
qualifications, in each case, as approved by PGP's board of managers or a
subcommittee thereof. Holders of profits interests issued under the Plan will be
entitled to receive distributions from operating profits on a pro rata basis
with holders of all other capital interests of PGP. Holders of profits interests
are entitled to receive distributions on liquidation only to the extent of their
pro rata share of appreciation in the fair market value of capital interests
after the date of grant. Under the Plan, PGP may grant profits interest
representing up to ten percent of its outstanding capital interests on a fully
diluted basis.
74
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PGP currently owns all of the Company's outstanding common membership
interests of the Company and is the sole managing member of the Company. See
"Risk Factors--Risks Relating to Our Business--Interested Party Matters."
Greater Dubuque Riverboat Entertainment Company holds 100% of DJL's issued
and outstanding preferred membership interests, which, subject to limited
exceptions, have no voting rights, except as required by applicable law. On July
15, 1999, PGP issued 499,982 convertible preferred membership interests, each of
which is initially convertible into one PGP non-voting common membership
interest, representing 33.33% of the fully diluted common membership interests
of PGP on such date. In May 2004, PGP repurchased 147,553 of its convertible
preferred membership inerest from an unrelated third party. PGP does not have
outstanding any of its non-voting common membership interests.
Unless otherwise indicated, the address of each manager or executive
officer of PGP is c/o Diamond Jo, LLC, 400 East Third Street, P.O. Box 1750,
Dubuque, Iowa, 52001-1750.
The table below sets forth, as of June 30, 2004, information regarding the
beneficial ownership of the voting common membership interests of PGP by:
(a) each person or entity known by us to own beneficially 5% or more of
the common membership interests of PGP;
(b) each manager and executive officer of PGP; and
(c) all managers and executive officers of PGP as a group.
The following information is helpful to an understanding of, and qualifies
the beneficial ownership data contained in, the table set forth below. Mr.
Stevens holds 248,334 PGP common membership interests directly and 413,333 PGP
common membership interests indirectly through PGP Investors, LLC. Mr. Stevens
is the sole managing member of PGP Investors, LLC and exercises voting and
investment power over the PGP common membership interests owned by PGP
Investors, LLC. Mr. Stevens and Mr. Whittaker, managers of PGP, are an Executive
Vice President and a Vice Chairman, respectively, of the Initial Purchaser. In
addition, the Initial Purchaser and some of its affiliates, officers and
employees are members of PGP Investors, LLC. Mr. Whittaker holds an economic
interest in approximately 41,667 PGP common membership interests indirectly
through his membership in PGP Investors, LLC, but does not exercise voting or
investment power with respect to these PGP common membership interests. Mr.
Oliver holds his interest through The Oliver Family Trust. The total holdings of
all managers and executive officers as a group includes the 413,333 PGP common
membership interests held by PGP Investors, LLC, over which Mr. Stevens
exercises voting and investment power.
75
VOTING COMMON
MEMBERSHIP
NAME AND ADDRESS INTERESTS PERCENT OF
OF BENEFICIAL OWNER BENEFICIALLY OWNED CLASS
- ------------------- ------------------ -----
M. Brent Stevens.............................. 661,667 66.17%
c/o Diamond Jo, LLC
3rd Street Ice Harbor
P.O. Box 1750
Dubuque, Iowa 52004
PGP Investors, LLC(1)......................... 413,333 41.33%
11100 Santa Monica, 10th Floor
Los Angeles, CA 90071
Michael S. Luzich............................. 323,333 32.33%
c/o Diamond Jo, LLC
3rd Street Ice Harbor
P.O. Box 1750
Dubuque, Iowa 52004
Terrance Oliver............................... 15,000 1.50%
c/o Diamond Jo, LLC
3rd Street Ice Harbor
P.O. Box 1750
Dubuque, Iowa 52004
Andrew Whittaker(1)........................... 41,667 4.17%
c/o Diamond Jo, LLC
3rd Street Ice Harbor
P.O. Box 1750
Dubuque, Iowa 52004
All managers and executive officers as a
group (6 persons)............................. 1,000,000 100.00%
- ----------
(1) These interests are attributable to Mr. Stevens and are included in the
calculation of his beneficial ownership and percentage of ownership data.
77
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
RELATIONSHIP WITH INITIAL PURCHASER
Andrew Whittaker, a Vice Chairman of the Initial Purchaser, is a manager
of PGP. M. Brent Stevens, our Chief Executive Officer and an Executive Vice
President of the Initial Purchaser, is also a manager of PGP and Chairman of the
Board of Managers of PGP. Due to these relationships, those individuals may
receive money from us or our affiliates for management fees and other amounts
paid by us to PGP. See the sections entitled "Risk Factors--Risks Relating to
Our Business--Interested Party Matters".
RELATIONSHIP WITH DUBUQUE RACING ASSOCIATION
The DRA is a not-for-profit corporation organized for the purpose of
operating DGP, a pari-mutuel greyhound racing facility in Dubuque, Iowa. On
February 22, 1993, DRA entered into the DRA Operating Agreement which authorizes
us to operate riverboat gaming operations in Dubuque. The DRA Operating
Agreement has since been amended several times and expires by its terms on March
31, 2008.
Under the DRA Operating Agreement, subject to limited conditions, we are
also required to pay the DRA, for the right to operate the Diamond Jo, an amount
equal to the excess of 32% of the first $30 million of the combined gaming
revenues of the DRA and the Diamond Jo, plus 8% of the next $12 million of these
total gaming revenues, plus, if there are no competing gaming operations in
neighboring counties of Illinois and Wisconsin, 8% of the next $4 million of
total gaming revenues, over the DRA's gaming revenues from DGP. Gaming revenues
under this contract means adjusted gross receipts less gaming taxes. This
formula is subject to change if the DRA ceases to operate DGP or if we operate a
riverboat smaller than the current Diamond Jo. We are currently not required to
make any such payments to the DRA because the DRA's revenues from DGP are
greater than the specified percentage of DJL's total gaming revenues. However,
we do pay a fee to the DRA equal to $0.50 per patron.
MANAGING MEMBER INDEMNIFICATION
Under our operating agreement and the operating agreement of PGP, we and
PGP have agreed, subject to few exceptions, to indemnify and hold harmless PGP
and the members of PGP, as the case may be, from liabilities incurred as a
result of their positions as our sole manager and as members of PGP.
OPERATING AGREEMENT OF PGP
Under PGP's operating agreement, the management of PGP is vested in an
executive committee consisting of Messrs. Michael Luzich and M. Brent Stevens.
The executive committee of PGP manages our operations. The executive committee
meets weekly or as otherwise agreed upon between Messrs. Luzich and Stevens.
In accordance with PGP's operating agreement, the board of managers of PGP
is composed of five individuals, two of whom must be independent managers. At
any time that M. Brent Stevens, together with any entity controlled by Mr.
Stevens, beneficially holds at least 5% of the voting common membership
interests of PGP, Mr. Stevens is entitled to designate three of PGP's managers,
including one of the two independent managers. The two independent managers are
required to serve as members of the independent committee. Under PGP's operating
agreement, PGP Advisors, LLC, a Delaware limited liability company, of which Mr.
Stevens is the sole managing member, may render financial advisory and
consulting services to PGP and is entitled to receive commercially reasonable
fees for the services consistent with industry practices. To date, PGP has not
entered into any such arrangements with Mr. Stevens. At any time that Michael
Luzich, together with any entity controlled by Mr. Luzich, beneficially holds at
least 5% of the voting common membership interests of PGP, Mr. Luzich is
entitled to designate two of PGP's managers, including the other independent
manager. In consideration for their execution of personal guarantees to provide
credit support for OED's credit facilities, each of Messrs. Luzich and Stevens
were granted profits interests of 1.5% of PGP's fully diluted membership
interests by PGP's board of managers. Messrs. Stevens and Luzich are entitled to
receive distributions on liquidation in respect of such profits interests
77
only to the extent of any appreciation in the fair market value of PGP interests
since the date of grant of such profits interests.
Presently, PGP's board of managers is composed of four managers. If not
appointed earlier, a fifth manager will be appointed by Mr. Stevens at a future
meeting of managers. A manager may resign at any time, and the member who
designates a manager may remove or replace that manager from the board of
managers at any time.
MANAGEMENT SERVICES AGREEMENT
DJL and OEDA (together, the "Operator") manage and operate OED's racino
near Lafayette, Louisiana and OED's OTBs in New Iberia and Port Allen, Louisiana
pursuant to a management services agreement. Although the Operator may obtain
services from affiliates to the extent necessary to perform its obligations, the
Operator is fully responsible for all obligations under the agreement. OED, a
guarantor, pays 75% of the Operator fees (described below) under the management
services agreement to DJL, a co-issuer of the Notes. OED pays 25% of the
Operator fees under the management services agreement to OEDA, which fees will
be subject to the limitation on "Management Arrangements" under the indenture
governing the Notes.
Pursuant to the terms of the management services agreement, the Operator
is entitled to receive pre-opening service fees equal to $40,000 per month,
commencing June 27, 2001. Payments in respect of these pre-opening service fees
have been accrued but not yet been paid. The Operator is also entitled to be
reimbursed for all reasonable and documented out-of-pocket expenses permitted to
be incurred under the management services agreement, including, but not limited
to, tax preparation, accounting, legal and administrative fees and expenses. The
Operator is also entitled to receive a basic management fee equal to 1.75% of
net revenue (less net food and beverage revenue) and an incentive fee equal to:
o 3.0% of the first $25.0 million of EBITDA (as defined below);
o 4.0% of the amount in excess of $25.0 million but less than
$30.0 million of EBITDA; and
o 5.0% of the amount in excess of $30.0 million of EBITDA.
Under the management services agreement, "EBITDA" is defined as earnings
before interest, income taxes, depreciation and amortization. In calculating
earnings, the basic management fee, the incentive fee and reimbursables payable
under the management services agreement are excluded.
78
DESCRIPTION OF SENIOR SECURED CREDIT FACILITY
The following summary of certain provisions of the instruments evidencing
our material indebtedness does not purport to be complete and is subject to, and
qualified in its entirety by reference to, all of the provisions of the
corresponding agreements, including the definitions of certain terms therein
that are not otherwise defined in this prospectus.
NEW SENIOR SECURED CREDIT FACILITY
General. On June 16, 2004, DJL and OED jointly entered into a Loan and
Security Agreement with Wells Fargo Foothill, Inc. as the Arranger and Agent
(the "PGL Credit Facility"). The PGL Credit Facility consists of a revolving
credit facility which permits DJL and OED to request advances and letters of
credit up to the lesser of the maximum revolver amount of $35 million (less
amounts outstanding under letters of credit) and a specified borrowing base (the
"Borrowing Base"). For the purposes of the PGL Credit Facility, the Borrowing
Base is the lesser of the Combined EBITDA (as defined in the PGL Credit
Facility) of OED and DJL for the twelve months immediately preceding the current
month end multiplied by 150% and the Combined EBITDA of OED and DJL for the most
recent quarterly period annualized multiplied by 150%. Immediately upon the
closing of the PGL Credit Facility, DJL borrowed approximately $11.1 million to
refinance outstanding obligations under the DJL Credit Facility and pay
financing related fees and expenses and OED borrowed approximately $4.8 million
to refinance outstanding obligations under the OED Credit Facility and pay
financing related fees and expenses. Advances under the PGL Credit Facility bear
an interest rate based on the borrower's option of LIBOR plus a margin of 3%
- -3.5% or Wells Fargo prime rate plus a margin of .5% -1% (current rate of 5.0%);
provideed that at no time shall the interest rate be lower than 4%. Interest
payments under the prime rate option are due monthly and interest payments under
the LIBOR option are due the last month of the respective LIBOR period. The
respective margins are determined by the Combined EBITDA of OED and DJL as of
the end of each fiscal quarter.
The PGL Credit Facility also contains a term loan in the amount of
$14,666,667 (the "Term Loan"). The proceeds from the Term Loan were used to
repay outstanding obligations under the FF&E Credit Facility. The Term Loan is
secured by certain assets of OED and requires monthly payments of $333,333
starting July 1, 2004 until the full balance is paid, with a maturity no later
than June 15, 2008. The Term Loan has an interest rate equal to the Wells Fargo
prime rate plus 2.5% (current rate of 6.5%); provideed that at no time shall the
interest rate be lower than 6%. Under the terms of the PGL Credit Facility, at
closing OED was required to issue a letter of credit in the amount of $3.2
million in favor of Wells Fargo related to the Term Loan.
Guarantees and Collateral. DJL and OED are jointly and severally liable under
the PGL Credit Facility, other than borrowings under the Term Loan, and
borrowings under the PGL Credit Facility are collateralized by substantially all
the tangible and intangible assets of OED and DJL. Borrowings under the Term
Loan will be secured by a separate lien on the furniture, fixtures and equipment
of OED financed pursuant to the terms of the OED FF&E Facility. The lien on the
collateral that secures the notes and the guarantees are contractually
subordinated to the liens securing the PGL Credit Facility pursuant to an
intercreditor agreement. Borrowings under the PGL Credit Facility are guaranteed
by PGL and PGC
Covenants, Conditions and Events of Default. The PGL Credit Facility contains a
number of restrictive covenants and agreements, including covenants that limit
DJL's and OED's ability to, among other things: (1) incur more debt; (2) create
liens; (3) enter into any merger, consolidation, reorganization, or
recapitalization, or reclassify its capital stock; (4) dispose of certain
assets; (5) guarantee debt of others; (6) pay dividends or make other
distributions; (7) make investments; (8) enter into transactions with
affiliates. The PGL Credit Facility also contains financial covenants including
a minimum Combined EBITDA of OED and DJL, limitations to capital expenditure
amounts at OED and DJL and minimum OED EBITDA plus the premium paid in
connection with the April 2004 repurchase of a portion of the OED Notes. The PGL
Credit Facility also contains, among other things, representations and
warranties, conditions to the extension of credit, and events of default
customary for loans of this type. The description is not intended to be
exhaustive and is qualified in its entirety by reference to the provisions of
the definitive PGL Credit Facility documentation.
79
THE EXCHANGE OFFER
PURPOSE AND EFFECT; REGISTRATION RIGHTS
On April 16, 2004 (the "Issue Date"), we sold 8 3/4% Senior Secured Notes
due 2012 in a private placement to Jefferies & Company, Inc., as the initial
purchaser. The initial purchaser then resold those notes under an offering
circular dated March 31, 2004 in reliance on Rule 144A and other available
exemptions under the Securities Act of 1933, as amended. On April 16, 2004, we,
the guarantors and the initial purchasers also entered into a registration
rights agreement (the "Registration Rights Agreement") pursuant to which each of
us and the guarantors agreed that we will, at our expense, for the benefit of
the holders of the notes, subject to certain exceptions:
o file a registration statement (the "Exchange Offer Registration
Statement") with the Securities and Exchange Commission (the
"Commission") promptly, but no later than 90 days after the Issue Date;
o will use our reasonable best efforts to cause the Exchange Offer
Registration Statement to become effective under the Securities Act
promptly, but no later than 180 days after the Issue Date;
o will keep the Exchange Offer Registration Statement effective until the
consummation of the exchange offer; and
o will use our reasonable best efforts to commence and complete the
exchange offer promptly, but no later than 45 days after the date on
which the Exchange Offer Registration Statement has become effective,
and hold the exchange offer open for not less than 20 business days and
exchange notes for all Registrable Securities that have been properly
tendered and not withdrawn on or prior to the expiration of the
exchange offer.
"Registrable Securities" means the notes (together with the guarantees
thereon); provided, however, that any such security shall cease to be a
Registrable Security when (i) it has been exchanged for an exchange note in an
exchange offer as contemplated in Section 2(a) of the Registration Rights
Agreement (provided, that any exchange note that, as described in the following
paragraph, is included in a prospectus for use in connection with resales by
broker-dealers shall be deemed to be a Registrable Security with respect to
specified sections of the Registration Rights Agreement until resale of such
Registrable Security has been effected within the period referred to in the
following paragraph); (ii) a Shelf Registration Statement registering such
security under the Securities Act has been declared or becomes effective and
such security has been sold or otherwise transferred by the holder thereof
pursuant to and in a manner contemplated by such effective Shelf Registration
Statement; (iii) such security is sold pursuant to Rule 144 under the Securities
Act under circumstances in which any legend borne by such security relating to
restrictions on transferability thereof, under the Securities Act or otherwise,
is removed by the Issuers or pursuant to the Indenture; (iv) such security is
eligible to be sold pursuant to paragraph (k) of Rule 144 under the Securities
Act; or (v) such security shall cease to be outstanding.
Under existing Commission interpretations, we believe that the exchange
notes would in general be freely transferable after the exchange offer without
further registration under the Securities Act, except that broker-dealers
receiving exchange notes in the exchange offer will be subject to a prospectus
delivery requirement with respect to resales of those exchange notes. The
Commission has taken the position that such broker-dealers may fulfill their
prospectus delivery requirements with respect to the exchange notes (other than
a resale of an unsold allotment from the original sale of the notes) by delivery
of the prospectus contained in the Exchange Offer Registration Statement. Under
the Registration Rights Agreement, the Issuers have agreed to allow such
broker-dealers to use the prospectus contained in the Exchange Offer
Registration Statement in connection with the resale of the exchange notes. The
Issuers and the Guarantors will use their respective reasonable best efforts to
keep the Exchange Offer Registration Statement effective for such period of time
as such Persons must comply with such requirements in order to resell the
Exchange Securities, the "Applicable Period").
If (i) prior to the time the exchange offer is completed (A) existing
Commission interpretations are changed such that the exchange notes received in
the exchange offer would not in general be, upon receipt, transferable by
holders thereof without restrictions under the Securities Act or (B) the
interests of the Holders, taken as a whole,
80
would be materially adversely affected by the consummation of the exchange
offer; (ii) the exchange offer has not been completed within 225 days following
the Issue Date; or (iii) the exchange offer is not available to any holder of
the notes, the Issuers and the Guarantors shall, in lieu of (or, in the case of
clause (iii), in addition to) conducting the exchange offer, file under the
Securities Act a "shelf" registration statement providing for the registration
of, and the sale on a continuous or delayed basis by the holders of, all of the
Registrable Securities (the "Shelf Registration Statement").
The Registration Rights Agreement will provide that the Issuers:
o will file the Shelf Registration Statement with the Commission as soon
as practicable, but no later than 30 days after the time such
obligation to file arises;
o will use their reasonable best efforts to cause the Shelf Registration
Statement to become or be declared effective under the Securities Act
no later than 60 days after the date such Shelf Registration Statement
is filed; and
o will use their reasonable best efforts to keep such Shelf Registration
Statement continuously effective for a period ending on the earlier of
the second anniversary of the date such Shelf Registration Statement
became or was declared effective or such time as all Registrable
Securities covered by the Shelf Registration have been sold or there
are no longer any Registrable Securities outstanding.
A Holder that sells notes pursuant to the Shelf Registration Statement
generally would be required to be named as a selling security-holder in the
related prospectus and to deliver a prospectus to purchasers, will be subject to
certain of the civil liability provisions under the Securities Act in connection
with such sales and will be bound by the provisions of the Registration Rights
Agreement which are applicable to such a Holder (including certain
indemnification obligations). The Issuers will provide a copy of the
Registration Rights Agreement to prospective investors upon request.
In the event that:
o the Issuers have not filed the Exchange Offer Registration Statement or
Shelf Registration Statement on or before the date on which such
registration statement is required to be filed, or
o such Exchange Offer Registration Statement or Shelf Registration
Statement has not become effective or been declared effective by the
Commission on or before the date on which such registration statement
is required to become or be declared effective, or
o the exchange offer has not been completed within 30 days after the
initial effective date of the Exchange Offer Registration Statement
relating to the exchange offer (if the exchange offer is then required
to be made), or
o any Exchange Offer Registration Statement or Shelf Registration
Statement is filed and declared effective but shall thereafter either
be withdrawn by the Issuers or shall become subject to an effective
stop order suspending the effectiveness of such registration statement
without being succeeded within 30 days by an additional registration
statement filed and declared effective
(each such event referred to in clauses (a) through (d), a "Registration
Default" and, each period during which a Registration Default has occurred and
is continuing, a "Registration Default Period"), then, in addition to the
interest on the notes, liquidated damages ("Liquidated Damages") shall accrue at
an amount per week per $1,000 principal amount of Registrable Securities equal
to $0.05 for the first 90 days of the Registration Default Period, increasing by
an additional $0.05 per week per $1,000 principal amount of Registrable
Securities with respect to each subsequent 90-day period, up to a maximum of
$0.25 per week per $1,000 principal amount of Registrable Securities. Liquidated
Damages shall be paid on interest payment dates to holders of record for the
payment of interest.
81
Holders of notes will be required to make certain representations to us
and to deliver information to be used in connection with the Shelf Registration
Statement (in each case, as described in the Registration Rights Agreement) and
will be required to provide comments on the Shelf Registration Statement within
the time periods set forth in the Registration Rights Agreement in order to have
their notes included in the Shelf Registration Statement and benefit from the
provisions regarding Liquidated Damages set forth above.
The notes and the exchange notes will be considered collectively to be a
single class for all purposes under the Indenture, including, without
limitation, waivers, amendments, redemptions and offers to purchase, and for
purposes of "The Exchange Offer" section (except with respect to liquidated
damages above), all references herein to "notes" shall be deemed to refer
collectively to notes and any exchange notes, unless the context otherwise
requires.
EXPIRATION DATE; EXTENSIONS
The expiration date of the exchange offer is , 2004 at 5:00 p.m.,
New York City time. We may extend the exchange offer in our sole discretion. If
we extend the exchange offer, the expiration date will be the latest date and
time to which the exchange offer is extended. We will notify the exchange agent
of any extension by oral or written notice and will make a public announcement
of the extension no later than 9:00 a.m., New York City time, on the next
business day after the previously scheduled expiration date.
We expressly reserve the right, in our sole and absolute discretion:
o to delay accepting any notes;
o to extend the exchange offer;
o if any of the conditions under "--Conditions of the Exchange Offer"
have not been satisfied, to terminate the exchange offer; and
o to waive any condition or otherwise amend the terms of the exchange
offer in any manner.
If the exchange offer is amended in a manner we deem to constitute a
material change, we will promptly disclose the amendment by means of a
prospectus supplement that will be distributed to the registered holders of the
notes. Any delay in acceptance, extension, termination or amendment will be
followed promptly by an oral or written notice of the event to the exchange
agent. We will also make a public announcement of the event. Without limiting
the manner in which we may choose to make any pubic announcement and subject to
applicable law, we have no obligation to publish, advertise or otherwise
communicate any pubic announcement other than by issuing a release to a national
news service.
TERMS OF THE EXCHANGE OFFER
We are offering, upon the terms and subject to the conditions set forth in
this prospectus and in the accompanying letter of transmittal, to exchange
$1,000 in principal amount of the new notes for each $1,000 in principal amount
of outstanding notes. We will accept for exchange any and all old notes that are
validly tendered on or before 5:00 p.m., New York City time, on the expiration
date. Tenders of the old notes may be withdrawn at any time before 5:00 p.m.,
New York City time, on the expiration date. The exchange offer is not
conditioned upon any minimum principal amount of old notes being tendered for
exchange. However, the exchange offer is subject to the terms of the
registration rights agreement and the satisfaction of the conditions described
under "--Conditions of the Exchange Offer." Old notes may be tendered only in
multiples of $1,000. Holders of notes may tender less than the aggregate
principal amount represented by their old notes if they appropriately indicate
this fact on the letter of transmittal accompanying the tendered old notes or
indicate this fact under the procedures for book-entry transfer described below.
As of the date of this prospectus, $233.0 million in aggregate principal
amount of the old notes were outstanding. Solely for reasons of administration,
we have fixed the close of business on , 2004 as the
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record date for purposes of determining the persons to whom this prospectus and
the letter of transmittal will be mailed initially. There will be no fixed
record date for determining the eligible holders of the old notes who are
entitled to participate in the exchange offer. We believe that, as of the date
of this prospectus, no holder of notes (other than Jefferies & Company, Inc.,
which may be our affiliate) is our "affiliate," as defined in Rule 405 under the
Securities Act of 1933.
We will be deemed to have accepted validly tendered old notes when, as and
if we give oral or written notice of our acceptance to the exchange agent. The
exchange agent will act as agent for the tendering holders of old notes and for
purposes of receiving the new notes from us. If any tendered old notes are not
accepted for exchange because of an invalid tender or otherwise, certificates
for the unaccepted old notes will be returned, without expense, to the tendering
holder promptly after the expiration date.
Holders of old notes do not have appraisal or dissenters' rights under
applicable law or the indenture as a result of the exchange offer. We intend to
conduct the exchange offer in accordance with the applicable requirements of the
Securities Exchange Act of 1934 and the rules and regulations under the
Securities Exchange Act of 1934, including Rule 14e-1.
Holders who tender their old notes in the exchange offer will not be
required to pay brokerage commissions or fees or, following the instructions in
the letter of transmittal, transfer taxes with respect to the exchange of old
notes under the exchange offer. We will pay all charges and expenses, other than
transfer taxes in some circumstances, in connection with the exchange offer. See
"--Fees and Expenses" for more information about the costs of the exchange
offer.
We do not make any recommendation to holders of old notes as to whether to
tender any of their old notes under the exchange offer. In addition, no one has
been authorized to make any recommendation. Holders of old notes must make their
own decision whether to participate in the exchange offer and, if the holder
chooses to participate in the exchange offer, the aggregate principal amount of
old notes to tender, after reading carefully this prospectus and the letter of
transmittal and consulting with their advisors, if any, based on their own
financial position and requirements.
CONDITIONS OF THE EXCHANGE OFFER
You must tender your old notes in accordance with the requirements of this
prospectus and the letter of transmittal in order to participate in the exchange
offer.
Notwithstanding any other provision of the exchange offer, or any
extension of the exchange offer, we will not be required to accept for exchange
any old notes, and we may terminate or amend the exchange offer, if we are not
permitted to effect the exchange offer under applicable law or any
interpretation of applicable law by the staff of the Securities and Exchange
Commission. If we determine in our sole discretion that any of these events or
conditions has occurred, we may, subject to applicable law, terminate the
exchange offer and return all old notes tendered for exchange or may waive any
condition or amend the terms of the exchange offer.
We expect that the above conditions will be satisfied. The above
conditions are for our sole benefit and may be waived by us at any time in our
sole discretion. Our failure at any time to exercise any of the above rights
will not be a waiver of those rights and each right will be deemed an ongoing
right that may be asserted at any time, provided that all conditions to the
exchange offer, other than any involving governmental approval, must be
satisfied or waived before the expiration of the exchange offer. Any
determination by us concerning the events described above will be final and
binding upon all parties.
INTEREST AND LIQUIDATED DAMAGES
Each new note will bear interest from the most recent date to which
interest has been paid or duly provided for on the old note surrendered in
exchange for the new note or, if no interest has been paid or duly provided for
on the old note, from April 16, 2004. Holders of the old notes whose old notes
are accepted for exchange will not receive accrued interest on their old notes
for any period from and after the last interest payment date to which
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interest has been paid or duly provided for on their old notes prior to the
original issue date of the new notes or, if no interest has been paid or duly
provided for, will not receive any accrued interest on their old notes, and will
be deemed to have waived the right to receive any interest on their old notes
accrued from and after such interest payment date or, if no such interest has
been paid or duly provided for, from and after April 16, 2004.
As a consequence of our filing this registration statement with the
Securities and Exchange Commission after the date we were required to do so
under the Registration Rights Agreement, record holders of the notes will be
entitled to receive liquidated damages in the form of additional interest on
October 15, 2004. See "The Exchange Offer - Purpose and Effect; Registration
Rights".
PROCEDURES FOR TENDERING OLD NOTES
The tender of a holder's old notes and our acceptance of old notes will
constitute a binding agreement between the tendering holder and us upon the
terms and conditions of this prospectus and the letter of transmittal. Unless a
holder tenders old notes according to the guaranteed delivery procedures or the
book-entry procedures described below, the holder must transmit the old notes,
together with a properly completed and executed letter of transmittal and all
other documents required by the letter of transmittal, to the exchange agent at
its address before 5:00 p.m., New York City time, on the expiration date. The
method of delivery of old notes, letters of transmittal and all other required
documents is at the election and risk of the tendering holder. If delivery is by
mail, we recommend delivery by registered mail, properly insured, with return
receipt requested. Instead of delivery by mail, we recommend that each holder of
notes use an overnight or hand delivery service. In all cases, sufficient time
should be allowed to assure timely delivery.
Any beneficial owner of the old notes whose old notes are registered in
the name of a broker, dealer, commercial bank, trust company or other nominee
and who wishes to tender old notes in the exchange offer should contact that
registered holder promptly and instruct that registered holder to tender on its
behalf. If the beneficial owner wishes to tender directly, it must, prior to
completing and executing the letter of transmittal and tendering old notes, make
appropriate arrangements to register ownership of the old notes in its name.
Beneficial owners should be aware that the transfer of registered ownership may
take considerable time.
Any financial institution that is a participant in DTC's Book-Entry
Transfer Facility system may make book-entry delivery of the old notes by
causing DTC to transfer the old notes into the exchange agent's account in
accordance with DTC's procedures for the transfer. To be timely, book-entry
delivery of old notes requires receipt of a confirmation of a book-entry
transfer before the expiration date. Although delivery of the old notes may be
effected through book-entry transfer into the exchange agent's account at DTC,
the letter of transmittal, properly completed and executed, with any required
signature guarantees and any other required documents or an agent's message, as
described below, must in any case be delivered to and received by the exchange
agent at its address on or before the expiration date, or the guaranteed
delivery procedure set forth below must be complied with.
DTC has confirmed that the exchange offer is eligible for DTC's Automated
Tender Offer Program. Accordingly, participants in DTC's Automated Tender Offer
Program may, instead of physically completing and signing the applicable letter
of transmittal and delivering it to the exchange agent, electronically transmit
their acceptance of the exchange offer by causing DTC to transfer old notes to
the exchange agent in accordance with DTC's Automated Tender Offer Program
procedures for transfer. DTC will then send an agent's message to the exchange
agent.
The term "agent's message" means a message transmitted by DTC, received by
the exchange agent and forming part of the book-entry confirmation, which states
that DTC has received an express acknowledgment from a participant in DTC's
Automated Tender Offer Program that is tendering old notes that are the subject
of the book-entry confirmation; that the participant has received and agrees to
be bound by the terms of the applicable letter of transmittal or, in the case of
an agent's message relating to guaranteed delivery, that the participant has
received and agrees to be bound by the applicable notice of guaranteed delivery;
and that we may enforce the agreement against that participant.
Each signature on a letter of transmittal or a notice of withdrawal must
be guaranteed unless the old notes are tendered:
o by a registered holder who has not completed the box entitled
"Special Delivery Instructions;" or
o for the account of an eligible institution, as described below.
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If a signature on a letter of transmittal or a notice of withdrawal is
required to be guaranteed, the signature must be guaranteed by a participant in
a recognized medallion signature program. If the letter of transmittal is signed
by a person other than the registered holder of the old notes, the old notes
surrendered for exchange must be endorsed by the registered holder, with the
signature guaranteed by a medallion signature guarantor. If any letter of
transmittal, endorsement, bond power, power of attorney or any other document
required by the letter of transmittal is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other
person acting in a fiduciary or representative capacity, that person should sign
in that capacity when signing. The person must submit to us evidence
satisfactory, in our sole discretion, of his or her authority to so act unless
we waive the requirement.
As used in this prospectus with respect to the old notes, a "registered
holder" is any person in whose name the old notes are registered on the books of
the registrar. An "eligible institution" is a firm that is a member of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or any other "eligible guarantor institution"
as such term is defined in Rule 17Ad-15 under the Securities Exchange Act of
1934.
We will determine in our sole discretion all questions as to the validity,
form, eligibility, including time of receipt, acceptance and withdrawal of old
notes tendered for exchange. Our determination will be final and binding. We
reserve the absolute right to reject old notes not properly tendered and to
reject any old notes if acceptance might, in our judgment or our counsel's
judgment, be unlawful. We also reserve the absolute right to waive any defects
or irregularities or conditions of the exchange offer as to particular old notes
at any time, including the right to waive the ineligibility of any holder who
seeks to tender old notes in the exchange offer.
Our interpretation of the terms and conditions of the exchange offer,
including the letter of transmittal and its instructions, will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of old notes for exchange must be cured within the
period of time as we determine. Neither our company nor the exchange agent is
under any duty to give notification of defects in the tenders or will incur any
liability for failure to give the notification. The exchange agent will use
reasonable efforts to give notification of defects or irregularities with
respect to tenders of old notes for exchange but will not incur any liability
for failure to give the notification. Tenders of old notes will not be deemed to
have been made until the irregularities have been cured or waived.
By tendering, you will represent to us that, among other things:
o you are not our "affiliate," as defined in Rule 405 under the
Securities Act of 1933;
o you will acquire the new notes in the ordinary course of your
business;
o you are not a broker-dealer that acquired your notes directly from us
in order to resell them in reliance on Rule 144A of the Securities Act
of 1933 or any other available exemption under the Securities Act of
1933;
o if you are a broker-dealer that acquired your notes as a result of
market-making or other trading activities, you will deliver a
prospectus in connection with any resale of new notes; and
o you are not participating, do not intend to participate and have no
arrangement or understanding with any person to participate in the
distribution of the new notes.
In connection with a book-entry transfer, each participant will confirm
that it makes the representations and warranties contained in the letter of
transmittal.
GUARANTEED DELIVERY PROCEDURES
If you wish to tender your old notes and:
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o your old notes are not immediately available;
o you are unable to deliver on time your old notes or any other
document that you are required to deliver to the exchange agent; or
o you cannot complete the procedures for delivery by book-entry
transfer on time;
you may tender your old notes according to the guaranteed delivery procedures
described in the letter of transmittal. Those procedures require that:
o tender must be made by or through an eligible institution and a
notice of guaranteed delivery must be signed by the holder;
o on or before the expiration date, the exchange agent must receive from
the holder and the eligible institution on a properly completed and
executed notice of guaranteed delivery by facsimile, mail or hand
delivery containing the name and address of the holder, the certificate
number or numbers of the tendered old notes, the principal amount of
tendered old notes, a statement that the tender is being made, and a
guarantee that within three business days after the expiration date,
the certificates representing the old notes in proper form for transfer
or a book-entry confirmation and any other documents required by the
letter of transmittal will be deposited by the eligible institution
with the exchange agent; and
o properly completed and executed documents required by the letter of
transmittal and the tendered old notes in proper form for transfer or
confirmation of a book-entry transfer of the old notes into the
exchange agent's account at DTC must be received by the exchange agent
within three business days after the expiration date of the exchange
offer.
Any holder who wishes to tender old notes under the guaranteed delivery
procedures must ensure that the exchange agent receives the notice of guaranteed
delivery and letter of transmittal relating to the old notes before 5:00 p.m.,
New York City time, on the expiration date.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all the conditions to the exchange offer,
we will accept old notes that are properly tendered in the exchange offer prior
to 5:00 p.m., New York City time, on the expiration date. The new notes will be
delivered promptly after acceptance of the old notes. For purposes of the
exchange offer, we will be deemed to have accepted validly tendered old notes
when, as and if we have given notice to the exchange agent.
WITHDRAWAL RIGHTS
Tenders of the old notes may be withdrawn by delivery of a written or
facsimile transmission notice to the exchange agent at its address set forth
under "--The Exchange Agent; Assistance" at any time before 5:00 p.m., New York
City time, on the expiration date. Any such notice of withdrawal must:
o specify the name of the person having deposited the old notes to be
withdrawn;
o identify the old notes to be withdrawn, including the certificate
number or numbers and principal amount of the old notes, or, in the
case of old notes transferred by book-entry transfer, the name and
number of the account at DTC to be credited;
o be signed by the holder in the same manner as the original signature on
the letter of transmittal by which old notes were tendered, including
any required signature guarantees, or be accompanied by a bond power in
the name of the person withdrawing the tender, in satisfactory form as
determined by us in our sole discretion, executed by the registered
holder, with the signature guaranteed by a medallion signature
guarantor, together with the other documents required upon transfer by
the indenture; and
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o specify the name in which the old notes are to be re-registered, if
different from the person who deposited the old notes.
All questions as to the validity, form and eligibility, including time of
receipt, of the notices will be determined by us, in our sole discretion. Any
old notes withdrawn will be deemed not to have been validly tendered for
exchange for purposes of the exchange offer and will be returned to the holder
without cost as promptly after withdrawal. Properly withdrawn old notes may be
retendered following the procedures described under "--Procedures for Tendering
Old Notes" at any time on or before the expiration date.
THE EXCHANGE AGENT; ASSISTANCE
U.S. Bank, N.A. is the exchange agent. All tendered old notes, executed
letters of transmittal and other related documents should be directed to the
exchange agent. Questions and requests for assistance and requests for
additional copies of the prospectus, the letter of transmittal and other related
documents should be addressed to the exchange agent as follows:
BY REGISTERED OR CERTIFIED MAIL: BY HAND OR OVERNIGHT COURIER: BY TELEPHONE OR FACSIMILE:
U.S. Bank National Association U.S. Bank National Association Phone: (651) 244-8677
180 East Fifth Street 180 East Fifth Street Facsimile: (651) 244-0711
St. Paul, MN 55101 St. Paul, MN 55101
Attn. Corporate Trust-- Attn. Corporate Trust--
Specialized Finance Specialized Finance
FEES AND EXPENSES
We will bear the expenses of soliciting old notes for exchange. The
principal solicitation is being made by mail by the exchange agent. Additional
solicitation may be made by telephone, facsimile or in person by officers and
regular employees of our company and our affiliates and by persons so engaged by
the exchange agent.
We will pay the exchange agent reasonable and customary fees for its
services and will reimburse the exchange agent for its reasonable out-of-pocket
expenses in connection with its services and pay other registration expenses,
including fees and expenses of the trustee under the indenture, filing fees,
blue sky fees and printing and distribution expenses.
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to brokers, dealers or others soliciting
acceptance of the exchange offer.
We will pay all transfer taxes, if any, applicable to the exchange of old
notes under the exchange offer. If, however, a transfer tax is imposed for any
reason other than the exchange of old notes under the exchange offer, then the
amount of those transfer taxes, whether imposed on the registered holder or any
other persons, will be payable by the tendering holder. If satisfactory evidence
of payment of those taxes or exemption is not submitted with the letter of
transmittal, the amount of those transfer taxes will be billed directly to the
tendering holder.
ACCOUNTING TREATMENT
The new notes will be recorded at the same carrying value as the old
notes, as reflected in our accounting records on the date of the exchange.
Accordingly, we will recognize no gain or loss for accounting purposes. The
expenses of the exchange offer will be amortized over the term of the new notes.
CONSEQUENCES OF NOT EXCHANGING OLD NOTES
As a result of this exchange offer, we will have fulfilled most of our
obligations under the registration rights agreement. Holders who do not tender
their old notes, except for limited instances involving the initial purchasers
or holders of old notes who are not eligible to participate in the exchange
offer or who do not receive
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freely transferable new notes under the exchange offer, will not have any
further registration rights under the registration rights agreement or otherwise
and will not have rights to receive additional interest. Accordingly, any holder
who does not exchange its old notes for new notes will continue to hold the
untendered old notes and will be entitled to all the rights and subject to all
the limitations applicable under the indenture, except to the extent that the
rights or limitations, by their terms, terminate or cease to have further
effectiveness as a result of the exchange offer.
Any old notes that are not exchanged for new notes under the exchange
offer will remain restricted securities within the meaning of the Securities Act
of 1933. In general, the old notes may be resold only:
o to us or any of our subsidiaries;
o inside the United States to a "qualified institutional buyer" in
compliance with Rule 144A under the Securities Act of 1933;
o inside the United States to an institutional "accredited investor," as
defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act of
1933, or an "accredited investor" that, prior to the transfer,
furnishes or has furnished on its behalf by a U.S. broker-dealer to the
trustee under the indenture a signed letter containing various
representations and agreements relating to the restrictions on transfer
of the new notes, the form of which letter can be obtained from the
trustee;
o outside the United States in compliance with Rule 904 under the
Securities Act of 1933;
o in reliance on the exemption from registration provided by Rule 144
under the Securities Act of 1933, if available; or
o under an effective registration statement under the Securities Act of
1933.
Each accredited investor that is not a qualified institutional buyer and
that is an original purchaser of any of the old notes from the initial
purchasers will be required to sign a letter confirming that it is an accredited
investor under the Securities Act of 1933 and that it acknowledges the transfer
restrictions summarized above.
RESALES OF THE NEW NOTES
We are making the exchange offer in reliance on the position of the staff
of the Securities and Exchange Commission as set forth in interpretive letters
addressed to third parties in other transactions. However, we have not sought
our own interpretive letter. Although there has been no indication of any change
in the staff's position, we cannot assure you that the staff of the Securities
and Exchange Commission would make a similar determination with respect to the
exchange offer as it has in its interpretive letters to third parties. Based on
these interpretations by the staff, and except as provided below, we believe
that new notes may be offered for resale, resold and otherwise transferred by a
holder who participates in the exchange offer and is not a broker-dealer without
further compliance with the registration and prospectus delivery provisions of
the Securities Act of 1933. In order to receive new notes that are freely
tradeable, a holder must acquire the new notes in the ordinary course of its
business and may not participate, or have any arrangement or understanding with
any person to participate, in the distribution, within the meaning of the
Securities Act of 1933, of the new notes. Holders wishing to participate in the
exchange offer must make the representations described in "--Procedures for
Tendering Old Notes" above.
Any holder of old notes:
o who is our "affiliate," as defined in Rule 405 under the Securities
Act of 1933;
o who did not acquire the new notes in the ordinary course of its
business;
o who is a broker-dealer that purchased old notes from us to resell them
under Rule 144A of the Securities Act of 1933 or any other available
exemption under the Securities Act of 1933; or
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o who intends to participate in the exchange offer for the purpose of
distributing, within the meaning of the Securities Act of 1933, new
notes;
will be subject to separate restrictions. Each holder in any of the above
categories:
o will not be able to rely on the interpretations of the staff of the
Securities Act of 1933 in the above-mentioned interpretive letters;
o will not be permitted or entitled to tender old notes in the
exchange offer; and
o must comply with the registration and prospectus delivery requirements
of the Securities Act of 1933 in connection with any sale or other
transfer of old notes, unless the sale is made under an exemption from
such requirements.
In addition, if you are a broker-dealer holding old notes acquired for
your own account, then you may be deemed a statutory "underwriter" within the
meaning of the Securities Act of 1933 and must deliver a prospectus meeting the
requirements of the Securities Act of 1933 in connection with any resales of
your new notes. Each broker-dealer that receives new notes for its own account
pursuant to the exchange offer must acknowledge that it acquired the old notes
for its own account as a result of market-making activities or other trading
activities and must agree that it will deliver a prospectus meeting the
requirements of the Securities Act of 1933 in connection with any resale of
those new notes. The letter of transmittal states that, by making the above
acknowledgment and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act of 1933.
Based on the position taken by the staff of the Securities and Exchange
Commission in the interpretive letters referred to above, we believe that
"participating broker-dealers," or broker-dealers that acquired old notes for
their own accounts, as a result of market-making or other trading activities,
may fulfill their prospectus delivery requirements with respect to the new notes
received upon exchange of old notes, other than old notes that represent an
unsold allotment from the original sale of the old notes, with a prospectus
meeting the requirements of the Securities Act of 1933, which may be the
prospectus prepared for an exchange offer so long as it contains a description
of the plan of distribution with respect to the resale of the new notes.
Accordingly, this prospectus, as it may be amended or supplemented, may be used
by a participating broker-dealer during the period referred to below in
connection with resales of new notes received in exchange for old notes where
the old notes were acquired by the participating broker-dealer for its own
account as a result of market-making or other trading activities. Subject to the
provisions of the registration rights agreement, we have agreed that this
prospectus may be used by a participating broker-dealer in connection with
resales of the new notes. See "Plan of Distribution." However, a participating
broker-dealer that intends to use this prospectus in connection with the resale
of new notes received in exchange for old notes pursuant to the exchange offer
must notify us, or cause us to be notified, on or before the expiration date of
the exchange offer, that it is a participating broker-dealer. This notice may be
given in the space provided for that purpose in the letter of transmittal or may
be delivered to the exchange agent at the address set forth under "--The
Exchange Agent; Assistance." Any participating broker-dealer that is our
"affiliate" may not rely on these interpretive letters and must comply with the
registration and prospectus delivery requirements of the Securities Act of 1933
in connection with any resale transaction.
Each participating broker-dealer that tenders old notes pursuant to the
exchange offer will be deemed to have agreed, by execution of the letter of
transmittal, that upon receipt of notice from us of the occurrence of any event
or the discovery of any fact that makes any statement contained in this
prospectus untrue in any material respect or that causes this prospectus to omit
to state a material fact necessary in order to make the statements contained in
this prospectus, in light of the circumstances under which they were made, not
misleading or of the occurrence of other events specified in the registration
rights agreement, the participating broker-dealer will suspend the sale of new
notes pursuant to this prospectus until we have amended or supplemented this
prospectus to correct the misstatement or omission and have furnished copies of
the amended or supplemented prospectus to the participating broker-dealer or we
have given notice that the sale of the new notes may be resumed, as the case may
be.
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DESCRIPTION OF NOTES
GENERAL
The old notes were, and the new notes will be, issued pursuant to an
indenture (the "Indenture") among the Issuers, the Subsidiary Guarantors and
U.S. Bank National Association, as trustee (the "Trustee"). The old notes and
the new notes are together referred to as the "Notes". The terms of the Notes
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"). The Notes are subject to all such terms, and the Holders are referred to
the Indenture and the Trust Indenture Act for a statement thereof. The form and
terms of the new notes are substantially identical to the form and terms of the
old notes, except that the new notes:
o will be registered under the Securities Act; and
o will not bear any legends restricting transfer.
We will issue the new notes solely in exchange for an equal principal
amount of old notes in denominations of $1,000 and integral multiples of $1,000.
The following summary of certain provisions of the Indenture, the Security
Documents (defined below), the Intercreditor Agreement (defined below) and the
Registration Rights Agreement among the Issuers, the Subsidiary Guarantors and
the Initial Purchaser (the "Registration Rights Agreement") is not purported to
be complete and is qualified in its entirety by reference to the Indenture, the
Security Documents, the Intercreditor Agreement and the Registration Rights
Agreement, respectively, including the definitions therein of certain terms used
below. Copies of the forms of Indenture, the Security Documents, the
Intercreditor Agreement and the Registration Rights Agreement are available from
the Issuers upon request as described below under the section of this Prospectus
entitled "Available Information." You can find the definitions of certain terms
used in this Description of Notes under "Certain Definitions" and throughout
this Description of Notes.
The Notes are senior secured obligations of the Issuers and rank senior in
right of payment to all existing and future subordinated Indebtedness of the
Issuers and pari passu in right of payment with all existing and future senior
Indebtedness of the Issuers. The Notes are unconditionally guaranteed by the
Subsidiary Guarantors, as described below under "Subsidiary Guarantors," and the
Notes and the Subsidiary Guaranties are secured by a security interest in
substantially all of our and the Subsidiary Guarantors' current and future
assets, other than the Excluded Assets, as described below under "Security." The
Notes are without recourse to the Members.
Our new senior secured credit facility (the "New Senior Credit Facility"),
also is secured by substantially all of our and the Subsidiary Guarantors'
current and future assets (including the Collateral that secures the Notes and
the Subsidiary Guaranties), other than certain excluded assets. The collateral
securing the New Senior Credit Facility also includes some assets that are not
part of the Collateral securing the Notes. See "Senior Credit Facility" below.
The lenders under the New Senior Credit Facility, the Trustee and the Issuers
and the Subsidiary Guarantors party to the New Senior Credit Facility have
entered into the Intercreditor Agreement, as described below under
"Intercreditor Agreement," setting forth their respective rights and obligations
with respect to the Collateral. Pursuant to the Intercreditor Agreement, the
Lien on the collateral securing the New Senior Credit Facility is contractually
senior to the Lien on the Collateral securing the Notes and the Subsidiary
Guaranties.
Under certain circumstances, the Issuers may designate certain
Subsidiaries formed or acquired after the Issue Date as Unrestricted
Subsidiaries. Unrestricted Subsidiaries are not subject to any of the
restrictive covenants set forth in the Indenture. As of the Issue Date, none of
our subsidiaries is an Unrestricted Subsidiary.
The Notes were issued in registered form, without coupons, and in
denominations of $1,000 and integral multiples thereof.
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ISSUERS
As used in this Description of Notes, all references to the "Issuers,"
"we," "our" or "us" mean Peninsula Gaming, LLC ("PGL"), Diamond Jo, LLC ("DJL")
and Peninsula Gaming Corp. ("PGC", formerly known as The Old Evangeline Downs
Capital Corp.) and their respective successors in accordance with the terms of
the Indenture, and not any of their respective subsidiaries.
PGC is a wholly owned subsidiary of the Company and serves as a co-issuer
of the Notes in order to facilitate the offering of the Notes. PGC does not have
any operations or assets and will not have any revenues. As a result,
prospective investors should not expect PGC to participate in servicing the
principal, interest, liquidated damages, if any, premium or any other payment
obligations on the Notes. See "Certain Covenants--Restrictions on Activities of
PGC"
PRINCIPAL, MATURITY AND INTEREST
The Indenture does not limit the aggregate principal amount of Notes that
may be issued thereunder. We initially issued Notes in an aggregate principal
amount of $233,000,000. In addition, the Indenture provides that, subject to the
covenant in the Indenture described under "Certain Covenants--Limitation on
Incurrence of Indebtedness," additional Notes may be issued thereunder from time
to time, without the consent of the Holders of previously issued Notes, in an
aggregate principal amount to be determined from time to time by the Issuers.
The terms of the Notes being offered in this offering and the terms of any
additional Notes that may be subsequently issued under the Indenture will be
substantially identical other than the issuance dates and the dates from which
interest will accrue. Because, however, any additional Notes may not be fungible
with the Notes for federal income tax purposes, they may have a different CUSIP
number or numbers, be represented by a different Global Note or Notes, and
otherwise be treated as a separate class or classes of Notes for other purposes.
Unless the context otherwise requires, for all purposes of the Indenture and
this "Description of the Notes," references to the "Notes" include any
additional Notes actually issued. The Notes being offered in this offering and
any such additional Notes, would be treated as a single series of notes under
the Indenture and would vote together as one series on all matters with respect
to the Notes, including with respect to the provisions of the Indenture
described below under "Amendment, Supplement and Waiver." Any additional Notes
would be secured, equally and ratably with the Notes being offered in this
offering, and as a result, the issuance of additional Notes would have the
effect of diluting the security interest of the Collateral for the then
outstanding Notes.
The Notes will mature on April 15, 2012. Interest on the Notes will be
payable semiannually on April 15 and October 15 of each year, commencing on
October 15, 2004, to Holders of record on the immediately preceding April 1 and
October 1, respectively. The Notes will bear interest at 8 3/4% per annum from
the date of original issuance. Interest on the Notes will accrue from the most
recent date to which interest has been paid or, if no interest has been paid,
from the date of original issuance. Interest will be computed on the basis of a
360-day year comprised of twelve 30-day months. The Notes will be payable both
as to principal and interest at the office or agency of the Issuers maintained
for such purpose within the City of New York; provided, that at the option of
the Issuers, payment of interest may be made by check mailed to the Holders at
their respective addresses set forth in the register of the Notes. Until
otherwise designated by the Issuers, the Issuers' office or agency will be the
office of the Trustee maintained for such purpose. If a payment date is a Legal
Holiday, payment may be made at that place on the next succeeding day that is
not a Legal Holiday, and no interest shall accrue for the intervening period.
The Trustee will initially act as Paying Agent and Registrar. The Issuers
may change the Paying Agent or Registrar without prior notice to Holders and,
subject to certain exceptions, the Issuers or any of their respective
Subsidiaries may act as Paying Agent or Registrar.
REDEMPTION
At the Option of the Issuers. Except as set forth below, the Notes are not
redeemable at the Issuers' option prior to April 15, 2008. Thereafter, the Notes
will be subject to redemption at the option of the Issuers, in whole or in part,
upon not less than 30 nor more than 60 days' notice, at the redemption prices
(expressed as percentages of principal amount) set forth below, plus accrued and
unpaid interest thereon, if any, to the applicable date of redemption, if
redeemed during the 12-month period beginning on April 15 of the years indicated
below:
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YEAR PERCENTAGE
- ---- ----------
2008.......................................................... 104.375%
2009.......................................................... 102.917%
2010.......................................................... 101.458%
2011 and thereafter........................................... 100.000%
Notwithstanding the foregoing, at any time or from time to time, prior to
April 15, 2007, we may redeem up to 35% of the aggregate principal amount of the
outstanding Notes at a redemption price of 108.75% of their principal amount,
plus accrued and unpaid interest, if any, through the date of redemption, with
the net cash proceeds of one or more Equity Offerings; provided, that (i) the
redemption occurs within 60 days of the date of closing of such Equity Offering
and (ii) at least 65% of the aggregate principal amount of Notes issued under
the Indenture remains outstanding immediately after giving effect to each such
redemption.
The restrictions on the optional redemption contained in the Notes do not
limit the right of the Issuers or any of the Subsidiaries to separately make
open market, privately negotiated or other purchases of the Notes from time to
time.
Required Regulatory Redemption. Notwithstanding any other provisions hereof,
Notes to be redeemed pursuant to a Required Regulatory Redemption will be
redeemable by the Issuers, in whole or in part, at any time upon not less than
20 Business Days nor more than 60 days notice (or such earlier date as may be
ordered by any applicable Governmental Authority) at a price equal to the lesser
of (i) the Holder's cost thereof and (ii) 100% of the principal amount thereof,
plus in either case accrued and unpaid interest thereon, if any, to the date of
redemption (or such earlier period as ordered by such Governmental Authority).
Under the Indenture, the Issuers are not required to pay or reimburse any Holder
or beneficial owner of the Notes for the expenses of any such Holder or
beneficial owner related to the application for any Gaming License,
qualification or finding of suitability in connection with a Required Regulatory
Redemption. Such expenses of any such Holder or beneficial owner will,
therefore, be the obligation of such Holder or beneficial owner.
Mandatory. The Notes will not be entitled to any mandatory redemption (except
for a Required Regulatory Redemption) or have the benefit of any sinking fund.
Redemption Procedures. If less than all of the Notes are to be redeemed at any
time, selection of Notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which the Notes are listed, or, if the Notes are not so listed, on a
pro rata basis, by lot or by such method as the Trustee deems to be fair and
appropriate; provided, that Notes in denominations of $1,000 or less may not be
redeemed in part. Except in the case of a Required Regulatory Redemption
requiring less notice, notice of redemption will be mailed by first-class mail
at least 30 but not more than 60 days before the redemption date to each Holder
to be redeemed at such Holder's registered address. If any Note is to be
redeemed in part only, the notice of redemption that relates to such Note will
state the portion of the principal amount thereof to be redeemed. A new Note in
principal amount equal to the unredeemed portion thereof will be issued in the
name of the Holder thereof upon cancellation of the original Note. On and after
the date of redemption, interest will cease to accrue on Notes or portions
thereof called for redemption, unless the Issuers default in making such
redemption payment.
SUBSIDIARY GUARANTORS
The repayment of the Notes will be unconditionally and irrevocably
guaranteed, jointly and severally, on a senior secured basis by each of our
present and future Restricted Subsidiaries, other than Foreign Subsidiaries and
other than any Restricted Subsidiary which is a co-Issuer of the Notes. On the
Issue Date, we did not have any Foreign Subsidiaries, and each of the
Subsidiaries (other than PGC and DJL, which are co-Issuers of the Notes) will be
a Subsidiary Guarantor. See "The Transactions" for information regarding the
corporate structure of the Issuers and the Subsidiaries as of the Issue Date.
The Indenture will provide that, so long as any Notes remain outstanding, any
and all future Restricted Subsidiaries, other than Foreign Subsidiaries and
other than any Restricted Subsidiary which is a co-Issuer of the Notes, shall
enter into a Subsidiary Guaranty. For additional information on the
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Subsidiary Guaranties, see "Certain Covenants--Subsidiary Guarantors" and
"--Release of Subsidiary Guarantors" below.
The Subsidiary Guaranties will be secured by a security interest in
substantially all of the assets (other than the Excluded Assets) of the
Subsidiary Guarantors, as described below under "Security." However, the
Obligations of each Subsidiary Guarantor under its Subsidiary Guaranty will be
limited to the maximum amount as will, after giving effect to all other
contingent and fixed liabilities of such Subsidiary Guarantor and after giving
effect to any collections from or payments made by or on behalf of any other
Subsidiary Guarantor in respect of the Obligations of such other Subsidiary
Guarantor under the Subsidiary Guaranty, result in the Obligations of such
Subsidiary Guarantor under the Subsidiary Guaranty not constituting a fraudulent
conveyance or fraudulent transfer under federal or state law and not rendering a
Subsidiary Guarantor insolvent. See "Security--Certain Bankruptcy Limitations"
below.
SECURITY
The Issuers and the Subsidiary Guarantors will pledge, and will cause any
and all future Subsidiary Guarantors to pledge, as collateral (the "Collateral")
to the Trustee, for the benefit of the Trustee and the Holders, as security for
the Issuers' obligations with respect to the Notes and the Subsidiary
Guarantors' obligations with respect to the Subsidiary Guaranties, respectively,
all of their respective existing and future interests in the following:
o the riverboat and the land-based facility comprising the Diamond Jo,
including without limitation all leased property;
o the assets of the horse racetrack and casino owned and operated by OED,
including without limitation all leased property;
o the assets relating to the OTB Operations;
o all owned real property and leasehold interests in all leased real
property and all additions and improvements to real property;
o substantially all furniture, fixtures and equipment, inventory,
accounts receivable, contract rights and other general intangibles,
trademarks and trade names;
o all licenses and permits, other than any Gaming License or Racing
License,
o certain designated deposit accounts and cash that is deposited in
such accounts;
o the Equity Interests of the Restricted Subsidiaries;
o all other existing and future property of the Issuers and the
Restricted Subsidiaries that does not constitute Excluded Assets;
and
o all proceeds and products of any of the foregoing.
Notwithstanding the foregoing, the Collateral will not include the
following (collectively, the "Excluded Assets"):
o cash, other than cash deposited in deposit accounts;
o assets securing FF&E Financing, Purchase Money Obligations or Capital
Lease Obligations permitted to be incurred under the Indenture to the
extent acquired or refinanced with the proceeds of such FF&E Financing,
Purchase Money Obligations and Capital Lease Obligations;
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o all Gaming Licenses and Racing Licenses;
o any of the parcels of the Warner Land that are subject to the mortgage
granted by OED to the seller of such land, unless OED or the Company
has obtained the consent of such seller to subject such parcels to a
Lien under the Security Documents;
o any motor vehicles;
o any agreements, permits, licenses or the like that cannot be subject to
a Lien under the Security Documents without the consent of third
parties (including any Governmental Authority), which consent is not
obtained by the Issuers;
o Equity Interests of each Foreign Restricted Subsidiary directly owned
by the Company or any of the Domestic Restricted Subsidiaries to the
extent that such Equity Interests held by the Company or such Domestic
Restricted Subsidiary, as the case may be, exceed 65% of the total
combined voting power of all classes of voting Equity Interests of such
Foreign Restricted Subsidiary, provided, however, such excess of any
class of Capital Stock of such Foreign Subsidiary shall not be an
Excluded Asset to the extent the Company is able to receive an opinion
of counsel nationally recognized in tax matters to the effect that the
pledge of such excess will not result in an income inclusion under
section 951 et. seq. of the Code; and
o OEDA's rights under or in respect of the Management Services Agreement
and proceeds thereof (including fees paid to OEDA pursuant thereto);
provided, that Excluded Assets does not include the proceeds of assets under
clause (ii), (iii), (iv), (v), (vi), (vii) or (viii) or of any other Collateral
to the extent such proceeds do not constitute Excluded Assets. In addition,
there can be no assurance that the security interest in the designated deposit
accounts and the cash deposited therein can be perfected under applicable laws.
The security interest in favor of the Trustee and the Holders will be
created in the riverboat Collateral pursuant to a first preferred ship mortgage
(the "Ship Mortgage"), in real property Collateral pursuant to a mortgage (the
"Shore Mortgage" and, together with the Ship Mortgage, the "Mortgages"), and in
all other Collateral pursuant to a security agreement from the Issuers (and any
future Subsidiary Guarantors) in favor of the Trustee (the "Security
Agreement").
Other than during the continuance of an Event of Default, and subject to
certain terms and conditions in the Indenture and the Security Documents, each
of the Company and the Subsidiary Guarantors will be entitled to receive all
cash dividends, interest and other payments made upon or with respect to the
Equity Interests of any of the Restricted Subsidiaries and to exercise any
voting, consensual rights and other rights pertaining to such Collateral. Upon
the occurrence and during the continuance of an Event of Default, subject to the
terms of the Intercreditor Agreement, upon notice from the Trustee, (a) all
rights of the Company or such Subsidiary Guarantor, as the case may be, to
exercise such voting, consensual rights, or other rights shall cease and all
such rights shall become vested in the Trustee, which, to the extent permitted
by law, shall have the sole right to exercise such voting, consensual rights or
other rights, (b) all rights of the Company or such Subsidiary Guarantor, as the
case may be, to receive all cash dividends, interest and other payments made
upon or with respect to the Collateral shall cease, and such cash dividends,
interest and other payments shall be paid to the Trustee, and (c) the Trustee
may sell the Collateral or any part thereof in accordance with, and subject to
the terms of, the Security Documents. All funds distributed under, and pursuant
to, the Security Documents and received by the Trustee for the ratable benefit
of the holders of the Notes shall be distributed by the Trustee in accordance
with the provisions of the Indenture.
Certain Limitations With Respect to the Collateral. Pursuant to the terms of the
Intercreditor Agreement, the Trustee's security interest in the Collateral will
be contractually subordinated to a Lien securing Indebtedness outstanding under
the Senior Credit Facility. The Trustee's ability to exercise rights and
remedies in respect of the Collateral also will be subject to the terms of the
Intercreditor Agreement. For a discussion of some of the risks
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related to the Collateral, see "Intercreditor Agreement" and "Senior Credit
Facility" below and "Risk Factors--Risks Relating to this Offering."
If an Event of Default occurs and is continuing, the Trustee, on behalf of
itself and the Holders, in addition to any rights or remedies available to it
under the Indenture and the Security Documents, may, subject to the
Intercreditor Agreement, take such action as it deems advisable to protect and
enforce its rights in the Collateral, including the institution of sale or
foreclosure proceedings. While Indebtedness under the Senior Credit Facility has
not been fully paid, rights of the Holders and the Trustee will be subject to
the terms of the Intercreditor Agreement. The proceeds received by the Trustee
from any such sale or foreclosure will, subject to the Intercreditor Agreement,
be applied by the Trustee first to pay the expenses of such sale or foreclosure
and fees and other amounts then payable to the Trustee under the Indenture, and
thereafter to pay amounts due and payable with respect to the Notes.
Release of Collateral. Upon the full and final payment and performance of all
our and the Subsidiary Guarantors' Obligations under the Indenture, the Notes
and the Subsidiary Guaranties, the Security Documents will terminate, and all of
the Collateral will be released. In addition, the Trustee shall release from the
Lien created by the Indenture and the Security Documents:
(a) Collateral that is sold, transferred, disbursed or otherwise
disposed of in accordance with the provisions of the Indenture and
the Security Documents; provided that the Trustee, as collateral
agent, will not release such liens in the event that the transaction
is subject to the covenant "Limitation on Merger, Sale or
Consolidation;"
(b) Collateral that is released with the consent of the Holders of not
less than 75% of the outstanding Notes as provided under
"Amendments, Supplements and Waivers;"
(c) all Collateral upon defeasance of the Indenture in accordance with
the provisions under "Legal Defeasance and Covenant Defeasance" or
discharge of the Indenture in accordance with the provisions under
"Satisfaction and Discharge;" provided that the funds deposited with
the Trustee, in trust, for the benefit of the Holders as required by
such provisions shall not be released; and
(d) Collateral of a Subsidiary Guarantor whose Subsidiary Guaranty is
released in accordance with the Indenture and the Security
Documents;
provided, that the Trustee, as collateral agent, has received all documentation
required by the Trust Indenture Act in connection therewith.
Certain Gaming Law Limitations. The Trustee's ability to foreclose upon the
Collateral will be limited by relevant gaming and racing laws, which generally
require that Persons who own or operate a casino or a horse racetrack or who
purchase or sell gaming equipment hold a valid Gaming License, and require the
approval of the relevant Gaming Authorities for any transfer of a Gaming
License. No Person can hold a Gaming License in the State of Iowa or the State
of Louisiana unless that Person is found qualified and suitable by the relevant
Gaming Authorities. In order for the Trustee to be found qualified and suitable,
such Gaming Authorities would have discretionary authority to require the
Trustee and any or all of the Holders to file applications, be investigated and
be found qualified or suitable as an owner or operator of gaming establishments.
The applicant for qualification, a finding of suitability or licensing must pay
all costs of such investigation. If the Trustee is unable or chooses not to
qualify, is not found to be suitable, or is unable or chooses not be licensed to
own or operate such assets, it would have to retain an entity so qualified,
suitable or licensed to own or operate such assets or another entity that could
obtain the appropriate license to own or operate such assets. This licensing
process requires a considerable amount of time, taking several months at a
minimum. In addition, in any foreclosure sale or subsequent resale by the
Trustee, licensing requirements under the relevant gaming laws may limit the
number of potential bidders and may delay any sale, either of which events could
have an adverse effect on the sale price of such Collateral. Therefore, the
practical value of realizing on the Collateral may, without the appropriate
Gaming Authority approval or timeliness, be limited. Moreover, if an Event of
Default occurs after a disapproval of gaming in Iowa in the 2010 Referendum, a
foreclosure of the Collateral relating to the Diamond Jo may be limited or
impaired as the Iowa Gaming Commission might be legally prohibited from
permitting the existing Iowa Gaming License to be
95
transferred or from issuing a new Gaming License for the Diamond Jo. See "Risk
Factors--Risks Relating to Our Business--Reauthorization of Gaming in Dubuque
County, Iowa."
Certain Bankruptcy and Other Limitations. The right of the Trustee to repossess
and dispose of the Collateral upon the occurrence and during the continuance of
an Event of Default is likely to be significantly impaired by applicable
bankruptcy laws if a bankruptcy proceeding were to be commenced by or against
any of the Issuers prior to the Trustee having repossessed and disposed of the
Collateral. Under the Bankruptcy Code, a secured creditor is prohibited from
repossessing its security from a debtor in a bankruptcy case, or from disposing
of security repossessed from such debtor, without bankruptcy court approval.
Moreover, the Bankruptcy Code permits the debtor to continue to retain and to
use collateral owned as of the date of the bankruptcy filing (and collateral
consisting of the proceeds, products, offspring, rents or profits of such
collateral to the extent provided by the security documents and by applicable
nonbankruptcy law) even though the debtor is in default under the applicable
debt instruments; provided, that the secured creditor is given "adequate
protection." The meaning of the term "adequate protection" may vary according to
circumstances. In view of the lack of a precise definition of the term "adequate
protection" and the broad discretionary powers of a bankruptcy court, it is
impossible to predict how long payments under the Notes could be delayed
following commencement of a bankruptcy case, whether or when the Trustee could
repossess or dispose of the Collateral or whether or to what extent Holders
would be compensated for any delay in payment or loss of value of the Collateral
through the requirement of "adequate protection." Furthermore, in the event a
bankruptcy court determines the value of the Collateral is not sufficient to
repay all amounts due on the Notes, the Holders would hold secured claims only
to the extent of the value of the Collateral to which the Holders are entitled,
and would hold unsecured claims with respect to such shortfall. Applicable
federal bankruptcy laws do not permit the payment and/or accrual of
post-petition interest, costs and attorneys' fees during a debtor's bankruptcy
case unless the claims are oversecured or the debtor is solvent at the time of
reorganization. In addition, if any Issuer becomes the subject of a bankruptcy
case, the bankruptcy court, among other things, may avoid certain transfers made
by the entity that is the subject of the bankruptcy filing, including, without
limitation, transfers held to be fraudulent conveyances or preferences.
Further, certain limitations exist under the Merchant Marine Act of 1936
on the ability of non-U.S. citizens to realize upon collateral consisting of
vessels documented under the laws of the United States. To the extent that the
Holders are non-U.S. citizens, such limitation could adversely affect the
ability of the Trustee to complete a foreclosure on the riverboat Collateral.
This ownership limitation may also reduce the number of potential purchasers of
the riverboat Collateral if the Trustee seeks to sell the riverboat Collateral
as a means of repaying the Notes. The Trustee may be required to foreclose
through a federal admiralty court proceeding. Such a proceeding would entail
compliance with notice and other procedural requirements, and could require
posting of a substantial bond.
In addition, because a portion of the Collateral may, in the future,
consist of pledges of a portion of the Equity Interests of certain of our
Foreign Restricted Subsidiaries, the validity of those pledges under applicable
foreign law, and the ability of the Holders to realize upon that Collateral
under applicable foreign law, may be limited by such law, which limitations may
or may not affect such Liens.
SENIOR CREDIT FACILITY
The New Senior Secured Credit Facility is secured by substantially the
same assets that secure the Notes and the Subsidiary Guaranties, other than
certain excluded assets. However, to the extent that portions of the collateral
securing borrowings under the New Senior Secured Credit Facility consist of
assets that are not perfected by filing a UCC financing statement, or that
require that we or any Subsidiary Guarantor, as applicable, cause the Trustee to
obtain "control" (as defined in the Uniform Commercial Code) or possession of
such assets (and, after commercially reasonable efforts, we or such Subsidiary
Guarantor, as applicable, are unable to cause the Trustee to obtain such control
or possession), such portions of the collateral securing borrowings under the
New Senior Secured Credit Facility may not constitute part of the Collateral
securing the Notes.
The lenders under the New Senior Secured Credit Facility, the Trustee and
the Issuers and the Subsidiary Guarantors party to such New Senior Secured
Credit Facility have entered into the Intercreditor Agreement, as described
below under "Intercreditor Agreement," setting forth their respective rights and
obligations with respect to
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the Collateral. Pursuant to the Intercreditor Agreement, the Lien on the
collateral securing the Senior Credit Facility is contractually senior to the
Lien on the Collateral securing the Notes and the Subsidiary Guaranties.
INTERCREDITOR AGREEMENT
The lenders under the New Senior Secured Credit Facility, the Trustee and
the Issuers and the Subsidiary Guarantors party to such Senior Credit Facility
have entered into an intercreditor agreement (the "Intercreditor Agreement"), in
substantially the form attached as an exhibit to the Indenture, setting forth
their respective rights and obligations with respect to the Collateral. The
following description of the principal terms of the Intercreditor Agreement is
subject to and qualified entirely by reference to the definitive Intercreditor
Agreement.
The Intercreditor Agreement provides that the Liens securing the Notes and
the Subsidiary Guaranties on any Collateral that also secure the obligations
under the New Senior Secured Credit Facility will be subordinated to the Liens
securing up to the maximum amount of indebtedness under the Senior Credit
Facility and related interest, fees, indemnities, costs and expenses. Under the
Intercreditor Agreement, if the Notes become due and payable prior to the stated
maturity thereof for any reason or are not paid in full at the stated maturity
thereof at a time during which Indebtedness under the New Senior Secured Credit
Facility has not been fully paid, the Trustee, as collateral agent under the
Security Documents, will only have the right to foreclose upon any Collateral
that also secures the obligations under the New Senior Secured Credit Facility
if the lender[s] under the New Senior Secured Credit Facility either (i) fail to
take steps to exercise remedies with respect to or in connection with such
collateral within 180 days following notice to such lenders of the occurrence of
an Event of Default under the Indenture or (ii) fail to continue to pursue any
such exercise of remedies while such Event of Default is then continuing and no
insolvency proceeding is pending. The Intercreditor Agreement will prevent the
Trustee, as collateral agent under the Security Documents, and the holders of
the Notes from pursuing remedies with respect to such collateral in all other
instances during which indebtedness under the New Senior Secured Credit Facility
has not be fully paid, including during any insolvency proceeding. The
Intercreditor Agreement provides that the net proceeds from any disposition of
the shared collateral will first be applied to repay Indebtedness outstanding
under the New Senior Secured Credit Facility and thereafter to repay all of our
and the Subsidiary Guarantors' Obligations under the Indenture, the Notes and
the Subsidiary Guaranties.
REPURCHASE UPON CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Issuers will offer to
repurchase all of the Notes then outstanding (the "Change of Control Offer") at
a purchase price equal to 101% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the date of repurchase (the "Change of Control
Payment"). Within 30 days following any Change of Control, the Issuers must mail
or cause to be mailed a notice to each Holder stating, among other things:
o the purchase price and the purchase date, which will be no earlier than
30 days nor later than 45 days from the date such notice is mailed (the
"Change of Control Payment Date");
o that any Holder electing to have Notes purchased pursuant to a Change
of Control Offer will be required to surrender the Notes, with the form
entitled "Option of Holder to Elect Purchase" on the reverse of the
Notes completed, to the paying agent with respect to the Notes (the
"Paying Agent") at the address specified in the notice prior to the
close of business on the third Business Day preceding the Change of
Control Payment Date; and
o that the Holder will be entitled to withdraw such election if the
Paying Agent receives, not later than the close of business on the
second Business Day preceding the Change of Control Payment Date, a
telegram, telex, facsimile transmission or letter setting forth the
name of the Holder, the principal amount of Notes delivered for
purchase, and a statement that such Holder is withdrawing his election
to have such Notes purchased.
The Issuers will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with
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the repurchase of the Notes in connection with a Change of Control. To the
extent that the provisions of any securities laws or regulations conflict with
the "Change of Control" provisions of the Indenture, the Issuers will comply
with the applicable securities laws and regulations and shall not be deemed to
have breached their obligations under the "Change of Control" provisions of the
Indenture by virtue thereof.
On the Change of Control Payment Date, the Issuers will, to the extent
lawful, (i) accept for payment the Notes or portions thereof tendered pursuant
to the Change of Control Offer, (ii) deposit with the Paying Agent an amount
equal to the Change of Control Payment in respect of all Notes or portions
thereof so tendered and not withdrawn, and (iii) deliver or cause to be
delivered to the Trustee the Notes so accepted, together with an Officers'
Certificate stating that the Notes or portions thereof tendered to the Issuers
are accepted for payment. The Paying Agent will promptly mail to each Holder of
Notes so accepted payment in an amount equal to the purchase price for such
Notes, and the Trustee will authenticate and mail (or cause to be transferred by
book entry) to each Holder a new Note equal in principal amount to any
unpurchased portion of the Notes surrendered, if any; provided, that each such
new Note will be in the principal amount of $1,000 or an integral multiple
thereof. The Issuers will announce the results of the Change of Control Offer on
or as soon as practicable after the Change of Control Payment Date.
Except as described above with respect to a Change of Control, the
Indenture does not contain provisions that permit the Holders to require that
the Issuers repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar restructuring.
There can be no assurance that sufficient funds will be available at the
time of any Change of Control Offer to make required repurchases.
The Issuers will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Issuers,
and purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
The use of the term "all or substantially all" in provisions of the
Indenture such as in the definition of "Change of Control" and under "Merger,
Consolidation or Sale of Assets" has no clearly established meaning under New
York law (which governs the Indenture) and has been the subject of limited
judicial interpretation in only a few jurisdictions. Accordingly, there may be a
degree of uncertainty in ascertaining whether any particular transaction would
involve a disposition of "all or substantially all" of the assets of a Person.
As a consequence, in the event the Holders elect to exercise their rights under
the Indenture and the Issuers elect to contest such election, there could be no
assurance as to how a court would interpret the phrase under New York law, which
may have the effect of preventing the Trustee or the Holders from successfully
asserting that a Change of Control has occurred.
Management of the Company has no present intention to engage in a
transaction involving a Change of Control, although it is possible that the
Company could determine to do so in the future. Subject to the limitations
discussed below, the Company could, in the future, enter into certain
transactions, including acquisitions, refinancings or other recapitalizations,
that would not constitute a Change of Control under the Indenture, but that
would increase the amount of Indebtedness outstanding at such time or otherwise
affect the Company's capital structure or credit ratings. Restrictions on the
ability of the Issuers and the Restricted Subsidiaries to incur additional
Indebtedness are contained in the covenant described under "Limitation on
Incurrence of Indebtedness." Such restrictions can only be waived with the
consent of the holders of a majority in principal amount of the Notes then
outstanding. Except for the limitations contained in such covenant, however, the
Indenture will not contain any covenants or protections that may afford Holders
protection in the event of a highly leveraged transaction.
Each Change of Control Offer will be conducted in compliance with
applicable regulations under the Federal securities laws, including Exchange Act
Rule 14e 1. To the extent that the provisions of any securities laws or
regulations conflict with the Change of Control Offer provisions of the
Indenture, the Issuers will comply with the applicable securities laws and
regulations and shall not be deemed to have breached their obligations under the
Change of Control Offer provisions of the Indenture by virtue thereof.
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CERTAIN COVENANTS
Limitation on Restricted Payments. The Issuers will not, and will not permit any
of the Restricted Subsidiaries to, directly or indirectly make a Restricted
Payment unless, at the time of such Restricted Payment:
(a) no Default or Event of Default has occurred and is continuing or
would occur as a consequence thereof, and
(b) immediately after giving effect to such Restricted Payment on a pro
forma basis, the Company could incur at least $1.00 of additional
Indebtedness under the Interest Coverage Ratio test set forth in the
covenant described under "Limitation on Incurrence of Indebtedness,"
and
(c) such Restricted Payment (the value of any such payment, if other
than cash, being determined in good faith by the Managers of the
Company and evidenced by a resolution set forth in an Officers'
Certificate delivered to the Trustee), together with the aggregate
of all other Restricted Payments made after the Issue Date
(including Restricted Payments permitted by clauses (i), (ii), (ix)
and (x) of the next following paragraph and excluding Restricted
Payments permitted by the other clauses therein), is less than the
sum of:
(1) 50% of the Consolidated Net Income of the Company for the
period (taken as one accounting period) from the beginning of
the first full fiscal quarter immediately following the Issue
Date to the end of the Company's most recently ended fiscal
quarter for which internal financial statements are available
at the time of such Restricted Payment (or, if such
Consolidated Net Income for such period is a deficit, 100% of
such deficit), plus
(2) 100% of the aggregate net cash proceeds (or of the net cash
proceeds received upon the conversion of non-cash proceeds
into cash) received by the Company from (x) the issuance or
sale, other than to a Subsidiary, of Equity Interests of the
Company (other than Disqualified Capital Stock) and (y) any
equity contribution from a holder of the Company's Capital
Stock (other than a Subsidiary), in each case, after the Issue
Date and on or prior to the time of such Restricted Payment,
plus
(3) 100% of the aggregate net cash proceeds (or of the net cash
proceeds received upon the conversion of non-cash proceeds
into cash) received by the Company from the issuance or sale,
other than to a Subsidiary, of any convertible or exchangeable
debt security of the Company that has been converted or
exchanged into Equity Interests of the Company (other than
Disqualified Capital Stock) pursuant to the terms thereof
after the Issue Date and on or prior to the time of such
Restricted Payment (including any additional net cash proceeds
received by the Company upon such conversion or exchange),
plus
(4) the aggregate Return from Unrestricted Subsidiaries after the
Issue Date and on or prior to the time of such Restricted
Payment.
The foregoing provisions will not prohibit:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment
would not have been prohibited by the provisions of the Indenture;
(ii) the redemption, purchase, retirement or other acquisition of any
Equity Interests of the Company or Indebtedness of the Company or
any Restricted Subsidiary in exchange for, or out of the proceeds
of, the substantially concurrent sale (other than to a Subsidiary)
of, other Equity Interests of the Company (other than Disqualified
Capital Stock);
99
(iii) with respect to each tax year or portion thereof that the Company
qualifies as a Flow Through Entity and so long as clause (a) above
is satisfied, the payment of Permitted Tax Distributions (whether
paid in such tax year or portion thereof, or any subsequent tax
year); provided, that (A) prior to the first payment of Permitted
Tax Distributions during any particular calendar year the Company
provides an Officers' Certificate and an Opinion of Counsel to the
effect that the Company and each other Flow Through Entity in
respect of which such distributions are being made qualify as Flow
Through Entities for Federal income tax purposes and for the states
in respect of which such distributions are being made for such tax
year or portion thereof, (B) at the time of such distribution, the
most recent audited financial statements of the Company for periods
including such tax year or portion thereof provided to the Trustee
pursuant to the covenant described under the caption "Reports"
provide that the Company and each subsidiary of the Company in
respect of which such distributions are being made was treated as a
Flow Through Entity for the period of such financial statements, and
(C) in the case of the portion, if any, of any Permitted Tax
Distribution that is proposed to be distributed for a particular
taxable period or portion thereof, which portion of such Permitted
Tax Distribution is attributable to a Flow Through Entity that is
not a Restricted Subsidiary, such portion of such proposed Permitted
Tax Distribution shall be limited to the Excess Cash Distribution
Amount for Taxes;
(iv) the redemption, repurchase or payoff of any Indebtedness of the
Company or a Restricted Subsidiary with proceeds of any Refinancing
Indebtedness permitted to be incurred pursuant to clause (xi) of the
provision described under "Limitation on Incurrence of
Indebtedness;"
(v) distributions or payments to PGP for or in respect of (A) tax
preparation, accounting, licensure, legal and administrative fees
and expenses, including travel and similar reasonable expenses,
incurred on behalf of the Issuers or their respective Subsidiaries
or in connection with PGP's ownership of the Issuers or their
respective Subsidiaries, consistent with industry practice, (B) so
long as clause (a) above is satisfied, distributions pursuant to,
and in accordance with, Management Arrangements and (C) so long as
clause (a) above is satisfied, reasonable and customary directors'
or managers' fees to, and indemnity provided on behalf of, the
Managers of PGP and the Company, and reimbursement of customary and
reasonable travel and similar expenses incurred in the ordinary
course of business;
(vi) (A) the repurchase, redemption or other retirement or acquisition of
Equity Interests of the Company or any Restricted Subsidiary from
our employees, members or managers (or their heirs or estates) or
employees, members or managers (or their heirs or estates) of the
Restricted Subsidiaries or (B) any dividend, distribution or other
payment to PGP to enable PGP to repurchase, redeem, or otherwise
retire or acquire Equity Interests of PGP from any of its employees,
members or managers (or their heirs or estates) or employees,
members or managers (or their heirs or estates) of any of their
respective subsidiaries, in the case of each of the preceding
clauses (A) and (B) upon the death, disability or termination of
employment or pursuant to the terms of any subscription, stock
option, stockholder or other agreement or plan in effect on the
Issue Date in an aggregate amount pursuant to this clause (vi) to
all such employees, members or managers (or their heirs or estates)
not to exceed $750,000 in any twelve month period on and after the
Issue Date (provided, however, that any amounts not used in any such
twelve month period may be carried forward to the next succeeding
twelve month period until used);
(vii) the redemption and repurchase of any Equity Interests or
Indebtedness of PGP, the Company or any of the Restricted
Subsidiaries to the extent required by any Gaming Authority or
Racing Authority;
(viii)the payment of (i) accrued distributions under the Seller Preferred
in accordance with its terms and (ii) an amount not in excess of the
face amount of the Seller Preferred outstanding on the Issue Date,
plus accrued and unpaid distributions thereon as of the redemption
date;
(ix) any dividend, distribution or other payment by any of the Restricted
Subsidiaries on its Equity Interests that is paid pro rata to all
holders of such Equity Interests;
100
(x) the declaration and payment of dividends and distributions to
holders of Disqualified Equity Interests of the Company or any of
the Restricted Subsidiaries issued or incurred in accordance with
the covenant "--Limitation on Incurrence of Additional
Indebtedness;"
(xi) consummation on the Issue Date of the Transactions as described in
this prospectus in the section entitled "The Transactions;" and
(xii) so long as clause (a) above is satisfied, Restricted Payments not
otherwise permitted by this covenant in an aggregate amount pursuant
to this clause (xii) not to exceed $15.0 million.
Promptly following the end of each fiscal quarter during which any
Restricted Payment was made pursuant to clause (c) above, the Company will
deliver to the Trustee an Officers' Certificate stating that each such
Restricted Payment was permitted and setting forth the basis upon which the
calculations required by this covenant were computed, which calculations may be
based upon the Company's latest available internal financial statements. For
purposes of this covenant, the amount of any Restricted Payment made or
returned, if other than in cash, shall be the fair market value thereof, as
determined in the reasonable good faith judgment of the Managers of the Company,
unless stated otherwise, at the time made or returned, as applicable.
For purposes of determining compliance with this covenant, if a Restricted
Payment meets the criteria of more than one of the exceptions described in
clauses (i) through (x) and (xii) above or is entitled to be made according to
the first paragraph of this covenant, the Company may, in its sole discretion,
classify the Restricted Payment in any manner that complies with this covenant.
Limitation on Incurrence of Indebtedness. The Issuers will not, and will not
permit any of the Restricted Subsidiaries to, directly or indirectly, (x)
create, incur, issue, assume, guaranty or otherwise become directly or
indirectly liable with respect to, contingently or otherwise (collectively,
"incur"), any Indebtedness (including, without limitation, Acquired Debt) or (y)
issue any Disqualified Capital Stock; provided, that the Company and the
Restricted Subsidiaries may incur Indebtedness (including, without limitation,
Acquired Debt) and issue shares of Disqualified Capital Stock if (a) no Default
or Event of Default shall have occurred and be continuing at the time of, or
would occur after giving effect on a pro forma basis to such incurrence or
issuance, and (b) the Interest Coverage Ratio for the Company's most recently
ended four full fiscal quarters for which internal financial statements are
available immediately preceding the date on which such additional Indebtedness
is incurred or such Disqualified Capital Stock is issued would have been not
less than 2.0 to 1.0 determined on a pro forma basis (including a pro forma
application of the net proceeds therefrom), as set forth in the definition of
Interest Coverage Ratio, as if the additional Indebtedness had been incurred, or
the Disqualified Capital Stock had been issued, as the case may be, at the
beginning of such four-quarter period.
Notwithstanding the foregoing, the foregoing limitations will not prohibit
the incurrence of:
(i) Indebtedness under a Senior Credit Facility; provided, that the
aggregate principal amount of Indebtedness so incurred on any date,
together with all other Indebtedness incurred pursuant to this
clause (i) and outstanding on such date, shall not exceed $35.0
million, less the aggregate amount of commitment reductions
contemplated by clause (iii)(c) under the caption "Limitation on
Asset Sales;" provided, however, that Indebtedness permitted to be
incurred pursuant to this clause (i) shall be increased by $15.0
million (A) upon the acquisition of any Gaming Property or (B) to
effectuate a Gaming Property Financing, provided further, that any
increase pursuant to this proviso shall be reduced dollar-for-dollar
by the amount of Acquired Debt secured by the assets of such Gaming
Property (unless such Acquired Debt could have been incurred under,
and reduces the amount available under, clause (ii) below);
(ii) FF&E Financing and Indebtedness represented by Capital Lease
Obligations, mortgage financings or other Purchase Money
Obligations; provided, that (1) no Indebtedness incurred under the
Notes is utilized for the purchase or lease of FF&E financed with
such FF&E Financing or such other Indebtedness, and (2) the
aggregate principal amount of such Indebtedness (including any
Acquired Debt referred to in the parenthetical in clause (i) above
and including any Refinancing Indebtedness and any other
Indebtedness incurred to repay, redeem, discharge, retire, defease,
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refund, refinance or replace any Indebtedness pursuant to this
clause (ii)) outstanding at any time (excluding any Gaming FF&E
Financing incurred pursuant to this clause (ii)) does not exceed the
product of (x) $7.5 million times (y) the number of Gaming
Properties owned and controlled after the Issue Date by any of the
Company and the Restricted Subsidiaries on the date of such
incurrence;
(iii) Indebtedness solely in respect of bankers acceptances, letters of
credit payment obligations in connection with self-insurance or
similar requirements, security for workers' compensation claims,
appeal bonds, surety bonds, insurance obligations or bonds, and
performance bonds, and similar bonds or obligations, all incurred in
the ordinary course of business (including, without limitation, to
maintain any license or permits) in accordance with customary
industry practices;
(iv) Hedging Obligations incurred to fix or hedge interest rate risk with
respect to any fixed or variable rate Indebtedness otherwise
permitted by the Indenture; provided, that the notional principal
amount of each such Hedging Obligation does not exceed the principal
amount of the Indebtedness to which such Hedging Obligation relates;
(v) Indebtedness of any Issuer, any Subsidiary Guarantor or any
Restricted Subsidiary owed to and held by a Subsidiary Guarantor or
an Issuer, as the case may be, that is unsecured and subordinated in
right of payment to the Notes and the Subsidiary Guaranties, as the
case may be; provided, that any subsequent issuance or transfer of
any Capital Stock that results in any such Subsidiary Guarantor or
Restricted Subsidiary, as the case may be, ceasing to be a
Subsidiary Guarantor or a Restricted Subsidiary, or any transfer of
such Indebtedness (other than to an Issuer or a Subsidiary
Guarantor) shall be deemed, in each case, to constitute the
incurrence of such Indebtedness by such Issuer, such Subsidiary
Guarantor or such Restricted Subsidiary, as the case may be;
(vi) Indebtedness outstanding on the Issue Date, including the Notes
outstanding on the Issue Date, but excluding Indebtedness under any
Senior Credit Facility (other than the OED FF&E Facility)
outstanding on the Issue Date;
(vii) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently
(except in the case of daylight overdrafts) drawn against
insufficient funds in the ordinary course of business;
(viii)the accrual of interest, the accretion or amortization of original
issue discount and the payment of interest on any Indebtedness in
the form of additional Indebtedness with the same terms;
(ix) Indebtedness arising from agreements for indemnification, adjustment
of purchase price or similar obligations, in each case, incurred in
connection with the disposition of any business or assets of the
Company, any of the Subsidiary Guarantors or any of the Restricted
Subsidiaries; provided that the maximum aggregate liability in
respect of all such Indebtedness shall at no time exceed the gross
proceeds actually received by the Company or the applicable
Subsidiary Guarantor or Restricted Subsidiary in connection with
such disposition;
(x) any Subsidiary Guaranty of the Notes;
(xi) Indebtedness issued in exchange for, or the proceeds of which are
substantially contemporaneously used to extend, repay, redeem,
discharge, refinance, renew, replace, or refund (collectively,
"Refinance"), Indebtedness incurred pursuant to the Interest
Coverage Ratio test set forth in the immediately preceding
paragraph, clause (vi) above, this clause (xi) or clause (xiii)
below (the "Refinancing Indebtedness"); provided, that (a) the
principal amount of such Refinancing Indebtedness does not exceed
the principal amount of Indebtedness so Refinanced (plus any
required premiums and out-of-pocket expenses reasonably incurred in
connection therewith), (b) the Refinancing Indebtedness has a final
scheduled maturity that equals or exceeds
102
the final stated maturity, and a Weighted Average Life to Maturity
that is equal to or greater than the Weighted Average Life to
Maturity, of the Indebtedness being Refinanced and (c) the
Refinancing Indebtedness ranks, in right of payment, no more
favorable to the Notes or applicable Subsidiary Guaranty, as the
case may be, than the Indebtedness being Refinanced;
(xii) guarantees by Restricted Subsidiaries of Indebtedness of any
Restricted Subsidiary or the Company or guarantees by the Company of
Indebtedness of any Restricted Subsidiaries if the Indebtedness so
guaranteed is permitted under another provision of this covenant and
so long as such guarantee otherwise complies with the Indenture;
(xiii)Indebtedness (including, without limitation, Acquired Debt) to
acquire one or more Gaming Properties if: (a) no Default or Event of
Default shall have occurred and be continuing at the time of, or
would occur after giving effect on a pro forma basis to such
incurrence, and (b) the Interest Coverage Ratio for the Company's
most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on
which such additional Indebtedness is to be incurred (the "Four
Quarter Reference Period") would have been greater than (x) 1.5 to
1.0 if the last fiscal quarter in the Four Quarter Reference Period
is either the first or second fiscal quarter of 2004, (y) 1.75 to
1.0 if the last fiscal quarter in the Four Quarter Reference Period
is either in the third or fourth fiscal quarter of 2004 and (z) 2.0
to 1.0 otherwise, in each case determined on a pro forma basis
(including a pro forma application of the net proceeds therefrom),
as set forth in the definition of Interest Coverage Ratio, as if
such additional Indebtedness had been incurred at the beginning of
such four-quarter period; and
(xiv) Indebtedness not otherwise permitted by clauses (i) through (xiii)
above in an aggregate principal amount (or accreted value, as
applicable) at any time outstanding pursuant to this clause (xiv),
including all Refinancing Indebtedness incurred to repay, redeem,
discharge, retire, defease, refund, refinance or replace any
Indebtedness incurred pursuant to this clause (xiv), not to exceed
$10.0 million.
Upon each incurrence of Indebtedness, if such Indebtedness could have been
incurred under more than one provision of this covenant, (i) the Company may
designate pursuant to which provision of this covenant such Indebtedness is
being incurred, (ii) the Company may subdivide an amount of Indebtedness and
designate more than one provision pursuant to which such amount of Indebtedness
is being incurred and shall be permitted to classify such item of Indebtedness
on the date of its incurrence, or later reclassify, all or a portion of such
item of Indebtedness, in any manner that complies with this covenant, and (iii)
such Indebtedness shall not be deemed to have been incurred or outstanding under
any other provision of this covenant except that all incurrences under the
Notes, the Subsidiary Guaranties and the Indenture shall be deemed to have been
incurred pursuant to clause (vi) above.
Limitation on Asset Sales. The Issuers will not, and will not permit any
Restricted Subsidiary to, make any Asset Sale unless:
(i) such Issuer or such Restricted Subsidiary receives consideration at
the time of such Asset Sale not less than the fair market value of
the assets subject to such Asset Sale (as determined by the
Company's Managers in good faith);
(ii) at least 75% of the consideration for such Asset Sale is in the form
of either (a) cash or Cash Equivalents or liabilities of the Company
or any Restricted Subsidiary (other than liabilities that are by
their terms subordinated to the Notes or any Subsidiary Guaranty)
that are assumed by the transferee of such assets (provided, that
following such Asset Sale, there is no further recourse to the
Company or the Restricted Subsidiaries or the Company and the
Restricted Subsidiaries are fully indemnified with respect to such
liabilities; provided, further, that the 75% limitation set forth in
this clause (ii) of this paragraph shall not apply to any proposed
Asset Sale for which an independent certified accounting firm has
certified to the Managers of the Company and the Trustee that the
after-tax cash portion of the consideration to be received by the
Company or such Restricted Subsidiary in such proposed Asset Sale is
equal to or greater than what the net after-tax
103
cash proceeds would have been had such proposed Asset Sale complied
with the 75% limitation set forth in this clause (ii) of this
paragraph), or (b) assets of the type described in clause (iii)(a)
below; and
(iii) within 360 days of such Asset Sale, the Net Proceeds thereof are (a)
invested in assets related to the business of the Company or the
Restricted Subsidiaries (which, in the case of an Asset Sale of the
Diamond Jo or any replacement Gaming Vessel (a "Replacement
Vessel"), must be a Gaming Vessel having a fair market value, as
determined by an independent appraisal, at least equal to the fair
market value of the Diamond Jo or such Replacement Vessel
immediately preceding such Asset Sale), (b) applied to repay
Indebtedness under Purchase Money Obligations incurred in connection
with the assets so sold, (c) applied to repay Indebtedness under the
Senior Credit Facility and permanently reduce the commitment
thereunder in the amount of the Indebtedness so repaid or (d) to the
extent not used as provided in clauses (a), (b), or (c) or any
combination thereof, applied to make an offer to purchase Notes as
described below (an "Excess Proceeds Offer"); provided, that the
Company will not be required to make an Excess Proceeds Offer until
the amount of Excess Proceeds is greater than $10.0 million.
All Net Proceeds from an Event of Loss shall be used as follows: (1)
first, the Company shall use such net cash proceeds to the extent necessary to
rebuild, repair, replace or restore the assets subject to such Event of Loss
with comparable assets and (2) then, to the extent any Net Proceeds from an
Event of Loss are not used as described in the preceding clause (1), all such
remaining Net Proceeds shall be reinvested or used as provided in the
immediately preceding clause (iii).
Pending the final application of any Net Proceeds, the Company may
temporarily reduce Indebtedness under the Senior Credit Facility or temporarily
invest such Net Proceeds in Cash Equivalents.
Net Proceeds not invested or applied as set forth in any of the preceding
subclause (a), (b) or (c) of clause (iii) above constitute "Excess Proceeds." If
the Company elects, or becomes obligated to make an Excess Proceeds Offer, the
Issuers will offer to purchase Notes having an aggregate principal amount equal
to the Excess Proceeds (the "Purchase Amount"), at a purchase price equal to
100% of the aggregate principal amount thereof, plus accrued and unpaid
interest, if any, to the purchase date. The Issuers must commence such Excess
Proceeds Offer not later than 30 days after the expiration of the 360 day period
following the Asset Sale that produced such Excess Proceeds. If the aggregate
purchase price for the Notes tendered pursuant to the Excess Proceeds Offer is
less than the Excess Proceeds, the Company and the Restricted Subsidiaries may
use the portion of the Excess Proceeds remaining after payment of such purchase
price for general corporate purposes.
The Indenture will provide that each Excess Proceeds Offer will remain
open for a period of 20 Business Days and no longer, unless a longer period is
required by law (the "Excess Proceeds Offer Period"). Promptly after the
termination of the Excess Proceeds Offer Period, the Issuers will purchase and
mail or deliver payment for the Purchase Amount for the Notes or portions
thereof tendered, pro rata or by such other method as may be required by law,
or, if less than the Purchase Amount has been tendered, all Notes tendered
pursuant to the Excess Proceeds Offer. The principal amount of Notes to be
purchased pursuant to an Excess Proceeds Offer may be reduced by the principal
amount of Notes acquired by the Issuers through purchase or redemption (other
than pursuant to a Change of Control Offer) subsequent to the date of the Asset
Sale and surrendered to the Trustee for cancellation.
Each Excess Proceeds Offer will be conducted in compliance with applicable
regulations under the Federal securities laws, including Exchange Act Rule
14e-1. To the extent that the provisions of any securities laws or regulations
conflict with the "Asset Sale" provisions of the Indenture, the Issuers will
comply with the applicable securities laws and regulations and shall not be
deemed to have breached their obligations under the "Asset Sale" provisions of
the Indenture by virtue thereof.
The Indenture will provide that the Issuers will not, and will not permit
any of the Restricted Subsidiaries to, create or suffer to exist or become
effective any restriction that would impair the ability of the Issuers to make
an Excess Proceeds Offer upon an Asset Sale or, if such Excess Proceeds Offer is
made, to pay for the Notes tendered for purchase.
104
There can be no assurance that sufficient funds will be available at the
time of any Excess Proceeds Offer to make required repurchases.
Limitation on Liens. The Issuers will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, create, incur, assume or suffer to exist
any Lien on any asset (including, without limitation, all real, tangible or
intangible property) of the Company or any Restricted Subsidiary, whether now
owned or hereafter acquired, or on any income or profits therefrom, or assign or
convey any right to receive income therefrom, except Permitted Liens.
Limitation on Restrictions on Subsidiary Dividends. The Issuers will not, and
will not permit any Restricted Subsidiary to, directly or indirectly, create or
otherwise cause or suffer to exist or become effective any encumbrance or
restriction on the ability of any Restricted Subsidiary to:
(i) pay dividends or make any other distributions to the Company or any
of the Restricted Subsidiaries (a) on such Restricted Subsidiary's
Capital Stock or (b) with respect to any other interest or
participation in, or measured by, such Restricted Subsidiary's
profits, or
(ii) pay any Indebtedness owed to the Company or any of the Restricted
Subsidiaries, or
(iii) make loans or advances to the Company or any of the Restricted
Subsidiaries, or
(iv) transfer any of its assets to the Company or any of the Restricted
Subsidiaries,
except, with respect to clauses (i) through (iv) above, for such encumbrances or
restrictions existing under or by reason of:
(a) a Senior Credit Facility containing dividend or other payment
restrictions that are not more restrictive in any material respect
than those contained in the Indenture on the Issue Date;
(b) the Indenture, the Security Documents and the Notes;
(c) applicable law or any applicable rule or order of any Governmental
Authority;
(d) Acquired Debt; provided, that such encumbrances and restrictions are
not applicable to any Person, or the properties or assets of any
Person, other than the Person, or the property or assets of the
Person, so acquired;
(e) customary non-assignment and net worth provisions of any contract,
lease or license entered into in the ordinary course of business;
(f) customary restrictions on the transfer of assets subject to a
Permitted Lien imposed by the holder of such Lien;
(g) the agreements governing Refinancing Indebtedness; provided, that
such restrictions contained in any agreement governing such
Refinancing Indebtedness are no more restrictive in any material
respect than those contained in any agreements governing the
Indebtedness being refinanced;
(h) the provisions of any Indebtedness or other agreements existing on
the Issue Date, as such agreements are in effect on the Issue Date,
without giving effect to any amendment or supplement thereto or
modification thereof, in each case, to the extent not more
restrictive in any material respect than such provisions as in
effect on the Issue Date;
(i) any restrictions with respect to a Restricted Subsidiary imposed
pursuant to a binding agreement that has been entered into for the
sale or disposition of all or substantially all of the Equity
105
Interests or assets of such Restricted Subsidiary; provided, that
such restrictions only apply to the Equity Interests or assets of
such Restricted Subsidiary being sold; and
(j) customary restrictions imposed on the transfer of copyrighted,
trademarked or patented materials.
Merger, Consolidation or Sale of Assets. No Issuer may consolidate or merge with
or into (regardless of whether such Issuer is the surviving corporation), or
sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its properties or assets (determined on a consolidated
basis for such Issuer and its Restricted Subsidiaries) in one or more related
transactions to, any other Person, unless:
(i) either (A) such Issuer is the surviving Person or (B) the Person
formed by or surviving any such consolidation or merger (if other
than such Issuer) or to which such sale, assignment, transfer,
lease, conveyance or other disposition has been made is either (x) a
corporation organized and existing under the laws of the United
States of America, any state thereof or the District of Columbia or
(y) if at least one Issuer following any such consolidation, merger,
sale, assignment, transfer, lease, conveyance or other disposition
is a corporation organized and existing under the laws of the United
States of America, any state thereof or the District of Columbia, a
limited liability company formed and existing under the laws of the
United States of America, any state thereof or the District of
Columbia;
(ii) the Person formed by or surviving any such consolidation or merger
(if other than such Issuer) or the Person to which such sale,
assignment, transfer, lease, conveyance or other disposition has
been made assumes all the Obligations of such Issuer under the
Notes, the Indenture, the Security Documents, the Intercreditor
Agreement and the Registration Rights Agreement, pursuant to a
supplemental indenture to the Indenture and joinders, as applicable,
to the Security Documents, the Intercreditor Agreement and the
Registration Rights Agreement, each in a form reasonably
satisfactory to the Trustee,
(iii) immediately after giving effect to such transaction on a pro forma
basis, no Default or Event of Default exists;
(iv) such transaction would not result in the loss or suspension or
material impairment of any Gaming License unless a comparable
replacement Gaming License is effective prior to or simultaneously
with such loss, suspension or material impairment; and
(v) such Issuer, or any Person formed by or surviving any such
consolidation or merger, or to which such sale, assignment,
transfer, lease, conveyance or other disposition has been made, will
be permitted, at the time of such transaction and after giving pro
forma effect thereto as if such transaction had occurred at the
beginning of the applicable four-quarter period, to incur at least
$1.00 of additional Indebtedness pursuant to the applicable Interest
Coverage Ratio test set forth in the first paragraph of or in clause
(xiii) of the covenant described under "Limitation on Incurrence of
Indebtedness."
In the event of any transaction (other than a lease or a transfer of less
than all of the Issuers' assets) described in and complying with the conditions
listed in the immediately preceding paragraph in which such Issuer is not the
surviving Person, such surviving Person or transferee shall succeed to, and be
substituted for, and may exercise every right and power of, such Issuer under,
and such Issuer shall be discharged from its Obligations under, the Indenture,
the Notes, the Security Documents and the Registration Rights Agreement, with
the same effect as if such successor Person had been named as such Issuer herein
or therein.
Limitation on Transactions with Affiliates. The Issuers will not, and will not
permit any of the Restricted Subsidiaries to, directly or indirectly, sell,
lease, transfer or otherwise dispose of any of its properties or assets to, or
purchase any property or assets from, or enter into any contract, agreement,
understanding, loan, advance or guaranty with, or for the benefit of, any
Affiliate of the Issuers or any of the Restricted Subsidiaries (each of the
foregoing, an "Affiliate Transaction"), except for:
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(i) Affiliate Transactions that, together with all related Affiliate
Transactions, have an aggregate value of not more than $1.0 million;
provided, that such transactions are conducted in good faith
and on terms that are no less favorable to such Issuer or the
relevant Restricted Subsidiary than those that would have been
obtained in a comparable transaction at such time by such Issuer or
such Restricted Subsidiary on an arm's-length basis from a Person
that is not an Affiliate of such Issuer or such Restricted
Subsidiary;
(ii) Affiliate Transactions that, together with all related Affiliate
Transactions, have an aggregate value of not more than $5.0 million;
provided, that (a) a majority of the disinterested Managers of the
Company or, if none, a disinterested committee appointed by the
Managers of the Company for such purpose, determine that such
transactions are conducted in good faith and on terms that are no
less favorable to such Issuer or the relevant Restricted Subsidiary
than those that would have been obtained in a comparable transaction
at such time by such Issuer or such Restricted Subsidiary on an
arm's-length basis from a Person that is not an Affiliate of such
Issuer or such Restricted Subsidiary and (b) prior to entering into
such transaction the Company shall have delivered to the Trustee an
Officers' Certificate certifying to such effect; or
(iii) Affiliate Transactions for which the Company delivers to the Trustee
an opinion issued by an accounting, appraisal or investment banking
firm of national standing (other than Jefferies & Company, Inc. or
any of its Affiliates) as to the fairness of such transaction to
such Issuer or such Restricted Subsidiary from a financial point of
view.
Notwithstanding the foregoing, the following will be deemed not to be Affiliate
Transactions:
(a) transactions between or among the Issuers and/or any or all of the
Restricted Subsidiaries;
(b) Restricted Payments permitted by the provisions of the Indenture
described above under "Limitations on Restricted Payments;"
(c) reasonable and customary compensation (including directors' fees)
paid to, and indemnity and customary employee benefit arrangements
(including directors' and officer's liability insurance) provided
for the benefit of, any director, officer, employee or consultant of
the Company or any Restricted Subsidiary, or Manager of PGP, in each
case entered into in the ordinary course of business and for
services provided to the Company, such Restricted Subsidiary or PGP,
respectively, as determined in good faith by the Managers of the
Company;
(d) any agreement or arrangement as in effect on the Issue Date among
the Issuers and/or one or more Restricted Subsidiaries, on the one
hand, and any officers or Managers thereof and/or any Affiliates of
the Company, on the other hand (without giving effect to any
amendment or supplement thereto or modification thereof, except for
any such amendment, supplement, modification or replacement
agreement that is not more disadvantageous to the Holders in any
material respect than the original agreement thereof as in effect on
the Issue Date), and any transactions contemplated thereby;
(e) Permitted Investments (other than Permitted Investments pursuant to
clause (xiv) of the definition thereof); and
(f) transactions with a joint venture engaged in a Related Business;
provided, that all the outstanding ownership interests of such joint
venture are controlled only by the Company or the Restricted
Subsidiaries and Persons who are not Affiliates of the Company.
Restriction on Sale and Issuance of Subsidiary Stock. The Issuers will
not, and will not permit any Restricted Subsidiary to, issue or sell any Equity
Interests (other than directors' qualifying shares) of any Restricted Subsidiary
to any Person other than the Company or a Wholly Owned Subsidiary of the
Company; provided, that the Company and the Restricted Subsidiaries may sell all
(but not less than all) of the Capital Stock of a Restricted Subsidiary
107
owned by the Company and the Restricted Subsidiaries if the Net Proceeds from
such Asset Sale are used in accordance with the terms of the covenant described
under "Limitation on Asset Sales."
Rule 144A Information Requirement. The Issuers (and the Subsidiary Guarantors)
will furnish to the Holders or beneficial holders of Notes, upon their written
request, and to prospective purchasers thereof designated by such Holders or
beneficial holders, the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act for so long as is required for an offer or
sale of the Notes to qualify for an exemption under Rule 144A.
Subsidiary Guarantors. The Issuers will cause each Restricted Subsidiary (other
than a Foreign Subsidiary and other than a Restricted Subsidiary which is a
co-Issuer) to (i) execute and deliver to the Trustee a supplemental indenture in
form reasonably satisfactory to the Trustee, pursuant to which such Restricted
Subsidiary shall unconditionally guarantee all of the Issuers' Obligations under
the Notes and the Indenture on the terms set forth in the Indenture and (ii)
deliver to the Trustee an Opinion of Counsel that such supplemental indenture
has been duly authorized, executed and delivered by such Restricted Subsidiary
and constitutes a legal, valid, binding and enforceable obligation, of such
Restricted Subsidiary, in each case subject to customary qualifications.
Thereafter, such Restricted Subsidiary shall be a Subsidiary Guarantor for all
purposes of the Indenture.
Release of Subsidiary Guarantors. Upon the sale or disposition (including by
merger or sale or transfer of all of the Equity Interests) of a Subsidiary
Guarantor (as an entirety) to a Person which is not and is not required to
become a Subsidiary Guarantor, or the designation of a Restricted Subsidiary as
an Unrestricted Subsidiary, which transaction is otherwise in compliance with
the Indenture (including, without limitation, the provisions of the covenants
"--Limitation on Asset Sales" and "--Restriction on Sale and Issuance of
Subsidiary Stock"), such Subsidiary Guarantor will be deemed released from its
Obligations under its Subsidiary Guaranty and the Security Agreements; provided,
however, that any such termination shall occur only to the extent that all
obligations of such Subsidiary Guarantor under all of its guarantees of, and
under all of its pledges of assets or other security interests which secure, any
Indebtedness of the Issuers or any Indebtedness of any other of the Restricted
Subsidiaries shall also terminate upon such release, sale or transfer and none
of its Equity Interests are pledged for the benefit of any holder of any
Indebtedness of the Issuers or any Indebtedness of any of the Restricted
Subsidiaries.
Additional Collateral. The Issuers will, and will cause each of the Subsidiary
Guarantors to, grant to the Trustee a first priority security interest in all
Collateral, whether owned on the Issue Date or thereafter acquired, and to
execute and deliver all documents and to take all action reasonably necessary to
perfect and protect such a security interest in favor of the Trustee, in each
case, subject to the terms of the Intercreditor Agreement.
Restrictions on Activities of PGC PGC may not hold any assets, become liable for
any obligations or engage in any business activities; provided, that PGC may be
a co-obligor of the Notes pursuant to the terms of the Indenture, may be a
co-obligor of the OED 13% Senior Secured Notes due 2010 pursuant to the terms of
the OED Indenture, may be a co-obligor under the OED Credit Facility and the OED
FF&E Facility, to the extent they remain outstanding after the Issue Date, and
may engage in any activities directly related or necessary in connection
therewith.
Entity Classification. The Company is classified as a Flow Through Entity and
will not take, or fail to take, any action which would result in the Company no
longer being classified as a Flow Through Entity except (i) pursuant to a
Permitted C-Corp Conversion or (ii) any transaction permitted under the covenant
"Merger, Consideration or Sale of Assets."
Reports. Regardless of whether required by the rules and regulations of the
Securities and Exchange Commission (the "Commission"), so long as any Notes are
outstanding, the Company will furnish to the Trustee and Holders, within 15 days
after the Company is or would have been required to file such with the
Commission, (i) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms 10-Q and 10-K
if the Company were required to file such Forms, including for each a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report thereon
by the Company's independent certified public accountants and (ii) all
information that would be required to be contained in a filing with the
Commission on Form 8-K if the Company were required to file such reports. From
and after the time the Company files a registration statement with the
108
Commission with respect to the Notes, the Company shall, in lieu of providing
such information to the Trustee and the Holders, file such information with the
Commission so long as the Commission will accept such filings.
EVENTS OF DEFAULT AND REMEDIES
Each of the following will constitute an Event of Default under the
Indenture:
(i) default for 30 days in the payment when due of interest on the
Notes;
(ii) default in payment of principal (or premium, if any) on the Notes
when due at maturity, redemption, by acceleration or otherwise;
(iii) default in the performance or breach of the covenants in the
Indenture described under "Repurchase Upon Change of Control," or
"Limitation on Asset Sales," or "Merger, Consolidation or Sale of
Assets;"
(iv) failure by the Issuers or any Restricted Subsidiary for 60 days
after written notice is given to the Issuers by the Trustee or to
the Issuers and the Trustee by the Holders of at least 25% in
aggregate principal amount of the Notes outstanding to comply with
any other agreements in the Indenture or the Notes;
(v) an event of default occurs under (after giving effect to any
waivers, amendments, applicable grace periods or any extension of
any maturity date) any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced
any Indebtedness for money borrowed by the Issuers or any Restricted
Subsidiary (or the payment of which is guaranteed by the Issuers or
any Restricted Subsidiary), whether such Indebtedness or guaranty
now exists or is created after the Issue Date, if (a) either (1)
such default results from the failure to pay principal of or
interest on such Indebtedness or (2) as a result of such event of
default the maturity of such Indebtedness has been accelerated, and
(b) the principal amount of such Indebtedness, together with the
principal amount of any other such Indebtedness with respect to
which such a payment event of default (after the expiration of any
applicable grace period or any extension of the maturity date) has
occurred, or the maturity of which has been so accelerated, exceeds
$5.0 million in the aggregate;
(vi) failure by the Issuers or any Restricted Subsidiary to pay final
judgments (other than to the extent of any judgment as to which a
reputable insurance company has accepted liability) aggregating in
excess of $5.0 million, which judgments are not discharged, bonded
or stayed within 60 days after their entry;
(vii) the cessation of substantially all gaming operations of the Company
and the Restricted Subsidiaries, taken as a whole, for more than 90
days, except as a result of an Event of Loss;
(viii)any revocation, suspension, expiration (without previous or
concurrent renewal) or loss of any Gaming License of the Company or
any Restricted Subsidiary for more than 90 days;
(ix) any Subsidiary Guaranty of a Subsidiary Guarantor which is a
Significant Subsidiary ceases to be in full force and effect or
shall be held in any judicial proceeding to be unenforceable or
invalid or is declared null and void (other than in accordance with
the terms of the Subsidiary Guaranty and the Indenture) or any
Subsidiary Guarantor which is a Significant Subsidiary denies or
disaffirms its Obligations under its Subsidiary Guaranty or the
Security Documents (in each case, other than by reason of the
termination of the Indenture or the release of any such Subsidiary
Guaranty in accordance with the Indenture);
(x) (A) any event of default under a Security Document (after giving
effect to any applicable grace periods, applicable notice periods,
waivers or amendments) or (B) the failure of the Issuers or any
109
Restricted Subsidiary to comply with any material agreement or
covenant in, or material provision of, any of the Security
Documents, or any breach in any material respect of any material
representation or warranty made by the Issuers or any Restricted
Subsidiary in any Security Document, and the continuance of such
failure or breach for a period of 30 days after written notice is
given to the Issuers by the Trustee or to the Issuers and the
Trustee by the Holders of at least 25% in aggregate principal amount
of the Notes outstanding;
(xi) any of the Security Documents ceases to be in full force and effect
or any of the Security Documents ceases to give the Trustee (or, in
the case of a mortgage, ceases to give the Trustee or any other
trustee under such mortgage) any of the Liens, rights, powers or
privileges purported to be created thereby, or any of the Security
Documents is declared null and void, or any of the Issuers or any
Subsidiary Guarantor denies that it has any further liability under
any Security Document to which it is a party or gives notice of such
effect (in each case other than by reason of the termination of the
Indenture or any such Security Document in accordance with its terms
or the release of any Subsidiary Guarantor in accordance with the
Indenture) and the continuance of such failure for a period of 30
days after written notice is given to the Issuers by the Trustee or
to the Issuers and the Trustee by the Holders of at least 25% in
aggregate principal amount of the Notes outstanding; and
(xii) certain events of bankruptcy or insolvency with respect to the
Issuers, any of the Subsidiary Guarantors or any Restricted
Subsidiary that is a Significant Subsidiary.
If an Event of Default occurs and is continuing, the Trustee may declare
by written notice to the Issuers, or the Holders of at least 25% in principal
amount of the then outstanding Notes may declare by written notice to the
Issuers and the Trustee all the Notes to be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default arising under
paragraph (xii) above, all outstanding Notes will become due and payable without
further action or notice. Holders may not enforce the Indenture or the Notes
except as provided in the Indenture. Subject to certain limitations, Holders of
a majority in principal amount of the then outstanding Notes may direct the
Trustee in its exercise of any trust or power.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding, by written notice to the Trustee, may on behalf of the Holders of
all of the Notes (i) waive any existing Default or Event of Default and its
consequences under the Indenture (x) except a continuing Default or Event of
Default in the payment of interest on, or the principal of, the Notes or (y) a
Default or an Event of Default with respect to any covenant or provision which
cannot be modified or amended without the consent of the Holder of each
outstanding Note affected or supermajority approval, which Default or Event of
Default may be waived only with the consent of each outstanding Note affected or
such supermajority approval, respectively, and/or (ii) rescind an acceleration
and its consequences if the rescission would not conflict with any judgment or
decree if all existing Events of Default (except nonpayment of principal or
interest that has become due solely because of the acceleration) have been cured
or waived.
The Issuers are required, upon becoming aware of any Default or Event of
Default, to deliver to the Trustee a statement specifying such Default or Event
of Default and what action the Issuers are taking or propose to take with
respect thereto.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator, stockholder, member or
controlling person of any of the Issuers or any Subsidiary Guarantor, as such,
will have any liability for any obligations of any of the Issuers or any
Subsidiary Guarantor under the Notes, the Indenture, the Security Documents or
the Registration Rights Agreement or for any claim based on, in respect of, or
by reason of, such obligations or their creation. Each Holder by accepting a
Note waives and releases all such liability. The waiver and release will be part
of the consideration for issuance of the Notes and the Subsidiary Guaranties.
Such waiver may not be effective to waive liabilities under the federal
securities laws, and it is the view of the Commission that such a waiver is
against public policy.
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LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Issuers may, at their option and at any time, elect to have all of
their obligations discharged with respect to the outstanding Notes and the
Subsidiary Guarantors' obligations discharged with respect to the
Subsidiary Guaranties ("Legal Defeasance") (whereupon the Security Documents
shall terminate and the Trustee shall release the Collateral from the Liens
created by the Security Documents as provided above under "Security") except for
(i) the rights of Holders of outstanding Notes to receive payments in respect of
the principal of, premium, if any, and interest on such Notes when such payments
are due from the trust referred to below, (ii) the Issuers' obligations
concerning issuing temporary Notes, registration of Notes, mutilated, destroyed,
lost or stolen Notes and the maintenance of an office or agency for payment and
money for security payments held in trust, (iii) the rights, powers, trusts,
duties and immunities of the Trustee, and the Issuers' and the Subsidiary
Guarantors' obligations in connection therewith and (iv) the Legal Defeasance
provisions of the Indenture.
In addition, the Issuers may, at their option and at any time, elect to
have their obligations released with respect to certain material covenants that
are described herein and the Subsidiary Guarantors' obligations discharged with
respect to the Subsidiary Guaranties ("Covenant Defeasance") (whereupon the
Security Documents shall terminate and the Trustee shall release the Collateral
from the Liens created by the Security Documents as provided above under
"Security") and thereafter any omission to comply with such obligations shall
not constitute a Default or Event of Default with respect to the Notes. In the
event Covenant Defeasance occurs, certain events (not including non-payment,
bankruptcy, receivership, rehabilitation and insolvency events) described under
"Events of Default" will no longer constitute an Event of Default with respect
to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance,
(i) the Issuers must irrevocably deposit or cause to be irrevocably
deposited with the Trustee, in trust, for the benefit of the
Holders, cash in U.S. dollars, non-callable Government Securities,
or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest
on the outstanding Notes on the stated maturity or on the applicable
redemption date, as the case may be, and the Issuers must specify
whether the Notes are being defeased to maturity or to a particular
redemption date;
(ii) in the case of Legal Defeasance, the Issuers shall have delivered to
the Trustee an Opinion of Counsel confirming that (a) the Issuers
have received from, or there has been published by, the Internal
Revenue Service a ruling or (b) since the Issue Date, there has been
a change in the applicable federal income tax law, in either case to
the effect that, and based thereon such Opinion of Counsel shall
confirm that, the Holders of the outstanding Notes will not
recognize income, gain or loss for federal income tax purposes as a
result of such Legal Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Legal Defeasance had not
occurred;
(iii) in the case of Covenant Defeasance, the Issuers shall have delivered
to the Trustee an Opinion of Counsel confirming that the Holders of
the outstanding Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Covenant Defeasance
and will be subject to federal income tax on the same amounts, in
the same manner and at the same times as would have been the case if
such Covenant Defeasance had not occurred;
(iv) no Default or Event of Default shall have occurred and be continuing
on the date of such deposit (other than a Default or Event of
Default resulting from the borrowing of funds to be applied to such
deposit);
(v) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material
agreement or instrument (other than the Indenture) to which the
Issuers or any of the Subsidiaries is a party or by which the
Issuers or any of the Subsidiaries is bound;
111
(vi) the Issuers must deliver to the Trustee an Officers' Certificate
stating that the deposit was not made by the Issuers with the intent
of preferring the Holders over the other creditors of the Issuers
with the intent of defeating, hindering, delaying or defrauding
creditors of the Issuers or others; and
(vii) each of the Issuers must deliver to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating, subject to
certain factual assumptions and bankruptcy and insolvency
exceptions, that all conditions precedent provided for in the
Indenture relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
SATISFACTION AND DISCHARGE
The Indenture provides that the Issuers may terminate their obligations
and the obligations of the Subsidiary Guarantors under the Indenture, the Notes,
the Subsidiary Guaranties and the Security Documents (except as described below)
(whereupon the Trustee shall release the Collateral from the Liens created by
the Security Documents as provided above under "Security") when:
(1) either:
(a) all the Notes previously authenticated and delivered (except
lost, stolen or destroyed Notes which have been replaced and
Notes for whose payment money has theretofore been deposited
with the Trustee or the paying agent in trust or segregated
and held in trust by the Issuers and thereafter repaid to the
Issuers or a Subsidiary Guarantor or discharged from such
trust) have been delivered to the Trustee for cancellation; or
(b) all Notes have been called for redemption pursuant to the
provisions under "Redemption--At the Option of the Issuers" by
mailing to holders a notice of redemption or all Notes
otherwise have become due and payable; and
(i) the Issuers have irrevocably deposited or caused to be
irrevocably deposited with the Trustee, in trust, for
the benefit of the Holders, cash in U.S. dollars,
non-callable Government Securities, or a combination
thereof, in an amount sufficient to pay and discharge
the entire Indebtedness on the Notes not theretofore
delivered to the Trustee for cancellation, for principal
of, and interest and liquidated damages, if any, on the
Notes to the date of redemption or maturity, as the case
may be, together with irrevocable instructions from the
Issuers directing the Trustee to apply such funds to the
payment thereof at maturity or redemption, as the case
may be;
(ii) no Default or Event of Default shall have occurred and
be continuing on the date of such deposit (other than a
Default or Event of Default resulting from the borrowing
of funds to be applied to such deposit);
(iii) such deposit shall not result in a breach or violation
of, or constitute a default under, any material
agreement or instrument (other than the Indenture) to
which we, any of the Subsidiary Guarantors or any of the
Restricted Subsidiaries are a party or by which we, any
of the Subsidiary Guarantors or any of the Restricted
Subsidiaries are bound; and
(2) each of the Issuers and the Subsidiary Guarantors has paid all other
sums payable by it under the Indenture, the Notes, the Subsidiary
Guaranties, the Intercreditor Agreement and the Security Documents;
and
(3) we shall have delivered to the Trustee an Officers' Certificate and
an Opinion of Counsel confirming the satisfaction of all conditions
set forth in clauses (1) and (2) above.
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TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents, and the
Issuers may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Issuers will not be required to transfer or
exchange any Note selected for redemption. The Issuers will not be required to
transfer or exchange any Note for a period of 15 days before a selection of
Notes to be redeemed.
The registered holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the three succeeding paragraphs, the Indenture, the
Notes and, subject to the Intercreditor Agreement, the Security Documents may be
amended or supplemented with the consent of the Holders of at least a majority
in aggregate principal amount of the Notes then outstanding (including consents
obtained in connection with a tender offer or exchange offer for Notes) and any
existing Default or Event of Default (except certain payment defaults) or
compliance with any provision of the Indenture, the Notes or, subject to the
Intercreditor Agreement, the Security Documents may be waived with the consent
of the Holders of a majority in aggregate principal amount of the then
outstanding Notes (including consents obtained in connection with a tender offer
or exchange offer for Notes).
Without the consent of each Holder affected, an amendment or waiver may
not (with respect to any Notes held by a non-consenting Holder):
(i) reduce the principal amount of Notes whose Holders must consent to
an amendment, supplement or waiver;
(ii) reduce the principal of, or the premium (including, without
limitation, redemption premium but not including, except as
described in clause (iii) below, any redemption premium relating to
the covenants "--Repurchase Upon Change of Control" and
"--Limitation on Asset Sales") on, or change the fixed maturity of,
any Note;
(iii) alter the price at which repurchases of the Notes may be made
pursuant to an Excess Proceeds Offer or Change of Control Offer
after the corresponding Asset Sale or Change of Control has
occurred;
(iv) reduce the rate of or change the time for payment of interest,
including default interest, on any Note (other than any advance
notice requirement with respect to any redemption of the Notes);
(v) waive a Default or Event of Default in the payment of principal of
or premium, if any, or interest on, or redemption payment with
respect to, any Note (except a rescission of acceleration of the
Notes by the Holders of at least a majority in aggregate principal
amount of the Notes and a waiver of the payment default that
resulted from such acceleration);
(vi) make any Note payable in money other than that stated in the Notes;
(vii) make any change in the provisions of the Indenture relating to
waivers of past Defaults with respect to, or the rights of Holders
to receive, payments of principal of or interest on the Notes;
(viii)waive a redemption payment with respect to any Note (other than,
except as described in clause (iii) above, provisions relating to or
payments required by the covenants described under the covenants
"--Repurchase Upon Change of Control" and "--Limitation on Asset
Sales");
(ix) adversely affect the contractual ranking of the Notes or Subsidiary
Guaranties; or
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(x) make any change in the foregoing amendment and waiver provisions.
Notwithstanding the foregoing and subject to the Intercreditor Agreement,
no portion of the collateral may be released from the Lien of the Security
Documents (except in accordance with the provisions of the Indenture and the
Security Documents), and none of the Security Documents or the provisions of the
Indenture relating to the Collateral may be amended or supplemented, and the
rights of any Holders thereunder may not be waived or modified, without, in each
case, the consent of the Holders of at least 75% in aggregate principal amount
of the then outstanding Notes.
Notwithstanding the foregoing and subject to the Intercreditor Agreement,
without the consent of the Holders, the Issuers, the Subsidiary Guarantors and
the Trustee may amend or supplement the Indenture, the Notes, the Registration
Rights Agreement or, subject to the Intercreditor Agreement, the Security
Documents to cure any ambiguity, defect or inconsistency, to provide for
uncertificated Notes in addition to or in place of certificated Notes, to
provide for the assumption of any of the Issuers' or the Subsidiary Guarantors'
obligations to Holders in the case of a merger or consolidation, to provide for
the issuance of additional Notes in accordance with the terms of the Indenture,
to make any change that would provide any additional rights or benefits to the
Holders or that does not adversely affect the legal rights of any such Holder
under the Indenture or the Notes, to release any Subsidiary Guaranty permitted
to be released under the terms of the Indenture, or to comply with requirements
of the Commission in order to effect or maintain the qualification of the
Indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Issuers, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; provided, that, if the Trustee acquires any conflicting interest,
it must eliminate such conflict within 90 days, apply to the Commission for
permission to continue, or resign.
The Holders of a majority in principal amount of the then outstanding
Notes will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
occurs (and is not cured), the Trustee will be required, in the exercise of its
power, to use the degree of care of a prudent person in the conduct of his or
her own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any Holder, unless such Holder shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full definition of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"2010 Referendum" means a gaming reauthorization referendum to be
submitted to the Dubuque County, Iowa electorate in the general election to be
held in 2010.
"Acquired Debt" means Indebtedness of a Person or any of its subsidiaries
existing at the time such Person is merged with or into the Company or a
Restricted Subsidiary, becomes a Restricted Subsidiary or Indebtedness assumed
in connection with the acquisition of assets from such Person other than
Indebtedness incurred in connection with, or in contemplation of, such Person
merging with or into the Company or a Restricted Subsidiary or becoming a
Restricted Subsidiary or such acquisition of assets.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, will mean
(a) the possession, directly or indirectly, of the power to direct or
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cause the direction of the management or policies of such Person, whether
through the ownership of voting securities, by agreement or otherwise or (b)
beneficial ownership of 10% or more of the voting securities of such Person.
Notwithstanding the foregoing, the Initial Purchaser shall be deemed not to be
an Affiliate of PGP, the Company or any Restricted Subsidiary.
"Applicable Capital Gain Tax Rate" means a rate equal to the sum of:
(a) the highest marginal Federal income tax rate applicable to net
capital gain of an individual who is a citizen of the United States,
plus
(b) (x) the greatest of (i) an amount equal to the sum of the highest
marginal state and local income tax rates applicable to net capital
gain of an individual who is a resident of the State of California,
(ii) an amount equal to the sum of the highest marginal state and
local income tax rates applicable to net capital gain of an
individual who is a resident of the State of Louisiana, and (iii) an
amount equal to the sum of the highest marginal state and local
income tax rates applicable to net capital gain of an individual who
is a resident of the State of Iowa, multiplied by (y) a factor equal
to 1 minus the highest marginal Federal income tax rate described in
clause (a) above.
"Applicable Income Tax Rate" means a rate equal to the sum of:
(a) the highest marginal Federal ordinary income tax rate applicable to
an individual who is a citizen of the United States, plus
(b) (x) the greatest of (i) an amount equal to the sum of the highest
marginal state and local ordinary income tax rates applicable to an
individual who is a resident of the State of California, (ii) an
amount equal to the sum of the highest marginal state and local
ordinary income tax rates applicable to an individual who is a
resident of the State of Louisiana, and (iii) an amount equal to the
sum of the highest marginal state and local income tax rates
applicable to net capital gain of an individual who is a resident of
the State of Iowa, multiplied by (y) a factor equal to 1 minus the
highest marginal Federal income tax rate described in clause (a)
above.
"Asset Sale" means:
(i) any direct or indirect sale, assignment, transfer, lease,
conveyance, or other disposition (including, without limitation, by
way of merger or consolidation) (collectively, a "transfer"), other
than in the ordinary course of business, of any assets of the
Company or any Restricted Subsidiary; or
(ii) direct or indirect issuance or sale of any Equity Interests of any
Restricted Subsidiary (other than directors' qualifying shares), in
each case to any Person (other than the Company or a Restricted
Subsidiary).
For purposes of this definition, (a) any series of transactions that are
part of a common plan shall be deemed a single Asset Sale and (b) the term
"Asset Sale" shall not include:
(1) any exchange of gaming equipment or furniture, fixtures or other
equipment for replacement items in the ordinary course of business,
(2) any transaction or series of transactions that have a fair market
value (or result in gross proceeds) of less than $1.0 million,
(3) any disposition of all or substantially all of the assets of the
Company that is governed under and complies with the terms of the
Indenture as described under "--Repurchase Upon Change of Control"
and "Certain Covenants--Merger, Consolidation or Sale of Assets,"
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(4) any Investments that are not prohibited by the covenant described
under "Certain Covenants--Limitation on Restricted Payments,"
(5) (A) any transfer of inventory, equipment, receivables or other
assets acquired and held for resale in the ordinary course of
business or (B) any transfer or liquidation of Cash Equivalents,
(6) any transfer of damaged, worn out or other obsolete personal
property so long as such property is no longer necessary for the
proper conduct of the business of the Company or such Restricted
Subsidiary, as applicable,
(7) any grant of any Liens not otherwise prohibited by the Indenture, or
(8) any transfer of properties or assets by the Company or a Restricted
Subsidiary to the Company or any other Restricted Subsidiary.
"Bankruptcy Code" means the United States Bankruptcy Code, codified at 11
U.S.C. ss.101-1330, as amended.
"beneficial owner" has the meaning attributed to it in Rules 13d-3 and
13d-5 under the Exchange Act (as in effect on the Issue Date), whether or not
applicable, except that a "person" shall be deemed to have "beneficial
ownership" of all shares that any such person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time.
"Business Day" means any day other than a Legal Holiday.
"Capital Lease Obligation" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP, and the amount of such obligations at
any date shall be the capitalized amount of such obligations at such date,
determined in accordance with GAAP.
"Capital Stock" means, (i) with respect to any Person that is a
corporation, any and all shares, interests, participations, rights or other
equivalents (however designated) of corporate stock, (ii) with respect to a
limited liability company, any and all membership interests, (iii) with respect
to any other Person, any and all partnership or other equity interests of such
Person.
"Cash Equivalent" means (i) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof); (ii) time deposits and
certificates of deposit and commercial paper issued by the parent corporation of
any domestic commercial bank of recognized standing having capital and surplus
in excess of $250.0 million and commercial paper issued by others rated at least
A-2 or the equivalent thereof by Standard & Poor's Corporation or at least P-2
or the equivalent thereof by Moody's Investors Service, Inc. and in each case
maturing within one year after the date of acquisition; (iii) investments in
money market funds substantially all of whose assets comprise securities of the
type described in clauses (i) and (ii) above and (iv) repurchase obligations for
underlying securities of the types and with the maturities described above.
"Change of Control" means the occurrence of any of the following events:
(a) any merger or consolidation of the Company or PGP with or into any
Person or any sale, transfer or other conveyance, whether direct or
indirect, of all or substantially all of the assets of the Company
or PGP, on a consolidated basis, in one transaction or a series of
related transactions, if, immediately after giving effect to such
transaction(s), any "person" or "group" (as such terms are used for
purposes of Sections 13(d) and 14(d) of the Exchange Act, whether or
not applicable) (other than an Excluded Person) is or becomes the
"beneficial owner," directly or indirectly, of more than 50% of the
total voting power in the aggregate of the Voting Stock of the
transferee(s) or surviving entity or entities;
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(b) any "person" or "group" (as such terms are used for purposes of
Sections 13(d) and 14(d) of the Exchange Act, whether or not
applicable) (other than an Excluded Person) is or becomes the
"beneficial owner," directly or indirectly, of more than 50% of the
total voting power in the aggregate of the Voting Stock of the
Company or PGP;
(c) after any bona fide underwritten registered public offering of
Capital Stock of the Company, during any period of 24 consecutive
months after the Issue Date, individuals who at the beginning of any
such 24-month period constituted the Managers of the Company
(together with any new Managers whose election by such Managers or
whose nomination for election by the Members was approved by a vote
of a majority of the Managers then still in office who were either
Managers at the beginning of such period or whose election or
nomination for election was previously so approved, including new
Managers designated in or provided for in an agreement regarding the
merger, consolidation or sale, transfer or other conveyance, of all
or substantially all of the assets of the Company, if such agreement
was approved by a vote of such majority of Managers) cease for any
reason to constitute a majority of the Managers of the Company then
in office, provided, however, that there shall be no Change of
Control pursuant to this clause (iii) if during such 24-month period
any of the Excluded Persons continues to control or manage, directly
or indirectly, the day-to-day operations of the Company;
(d) the Company adopts a plan of liquidation or dissolution; or
(e) the first day on which the Company fails to own 99% of the issued
and outstanding Equity Interests of PGC;
provided, that a "Change of Control" shall not occur solely by reason of a
Permitted C-Corp Conversion.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" means Peninsula Gaming, LLC, a Delaware limited liability
company, and its successors in accordance with the terms of the Indenture, and
not any of its subsidiaries.
"Consolidated EBITDA" means, with respect to any Person (the referent
Person) for any period, the sum of Consolidated Net Income of such Person and
the Restricted Subsidiaries for such period, without duplication;
plus (i) consolidated income tax expense of such Person and the
Restricted Subsidiaries paid or accrued in accordance with GAAP for such
period and the amount of Permitted Tax Distributions subtracted from Net
Income in the determination of the Consolidated Net Income of such Person
for such period;
plus (ii) Consolidated Interest Expense, to the extent that such
Consolidated Interest Expense was deducted in computing such Consolidated
Net Income;
plus (iii) Consolidated Non-Cash Charges, to the extent deducted in
computing such Consolidated Net Income;
plus (iv) pre-opening costs and expenses, to the extent deducted in
computing such Consolidated Net Income, with respect to any Gaming
Property that was, or is under, construction;
minus (v) (x) extraordinary non-cash charges increasing such
Consolidated Net Income and (y) the amount of all cash payments made by
such Person or any of the Restricted Subsidiaries during such period to
the extent such payments relate to non-cash charges that were added back
in determining Consolidated EBITDA for such period or any prior period;
provided, however, that in determining Consolidated EBITDA with respect to OED
for any period ending on or about: (A) March 31, 2004, Consolidated EBITDA of
OED for such period shall be deemed to be equal to the
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product of (x) Consolidated EBITDA of OED for the period from January 1, 2004 to
the last day of such period and (y) 4, (B) June 30, 2004, Consolidated EBITDA of
OED for such period shall be deemed to be equal to the product of (x)
Consolidated EBITDA of OED for the period from January 1, 2004 to the last day
of such period and (y) 2, and (C) September 30, 2004, Consolidated EBITDA of OED
for such period shall be deemed to be equal to the product of (x) Consolidated
EBITDA of OED for the period from January 1, 2004 to the last day of such period
and (y) 1.333.
"Consolidated Interest Expense" means, with respect to any Person for any
period, (a) the consolidated interest expense of such Person and the Restricted
Subsidiaries for such period, net of interest income, whether capitalized, paid,
accrued or scheduled to be paid or accrued (including amortization of original
issue discount, noncash interest payment, the interest component of Capital
Lease Obligations and all commissions, discounts and other fees and charges owed
with respect to bankers' acceptances and letters of credit financings), to the
extent such expense was deducted in computing Consolidated Net Income of such
Person for such period less (b) amortization expense, write-off of deferred
financing costs and any charge related to any premium or penalty paid, in each
case accrued during such period in connection with redeeming or retiring any
Indebtedness before its stated maturity, as determined in accordance with GAAP,
to the extent such expense, cost or charge was included in the calculation made
pursuant to clause (a) above, provided, that any premiums, fees and expenses
(including the amortization thereof) payable in connection with the offering of
the Notes and the application of the net proceeds therefrom or any other
refinancing of Indebtedness will be excluded.
"Consolidated Net Income" means, with respect to any Person (the referent
Person) for any period, the sum of (a) the aggregate of the Net Income of such
Person and the Restricted Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP; provided, that (i) the Net Income of
any other Person (other than a Restricted Subsidiary of the referent Person)
shall be included only to the extent of the amount of dividends or distributions
paid to the referent Person or a Wholly Owned Subsidiary of the referent Person,
and (ii) the Net Income of any Restricted Subsidiary will not be included to the
extent that declarations of dividends or similar distributions by that
Restricted Subsidiary are not at the time permitted, directly or indirectly, by
operation of the terms of its organizational documents or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to that Restricted Subsidiary or its owners, and (b) Consolidated
Non-Cash Charges described in clauses (ii) and (iv) of the definition of
"Consolidated Non-Cash Charges," of such Person and the Restricted Subsidiaries
to the extent deducted in computing such Net Income.
"Consolidated Net Worth" means, with respect to any Person, the total
stockholders' (or members') equity of such Person determined on a consolidated
basis in accordance with GAAP, adjusted to exclude (to the extent included in
calculating such stockholders' (or members') equity), (i) the amount of any such
stockholders' (or members') equity attributable to Disqualified Capital Stock or
treasury stock of such Person and its consolidated subsidiaries, and (ii) all
upward revaluations and other write-ups in the book value of any asset of such
Person or a consolidated subsidiary of such Person subsequent to the Issue Date,
and (iii) all Investments in subsidiaries of such Person that are not
consolidated subsidiaries and in Persons that are not subsidiaries of such
Person.
"Consolidated Non-Cash Charges" means, with respect to any Person for any
period, (a) the aggregate depreciation and amortization expense for such Person
and the Restricted Subsidiaries for such period determined on a consolidated
basis in accordance with GAAP and (b) all other non-cash charges of such Person
and the Restricted Subsidiaries for such period, in each case, determined on a
consolidated basis in accordance with GAAP, including, without limitation,
non-cash charges related to (i) Management Arrangements or the pricing or
repricing or issuances of Equity Interests of the Company or PGP to employees of
the Company (whether accruing at or subsequent to the time of such repricing or
issuance), (ii) impairment of goodwill, intangibles or fixed assets, (iii)
purchase accounting adjustments, and (iv) restructuring charges, non-capitalized
transaction costs and other non-cash charges incurred in connection with actual
or proposed financings, acquisitions or divestitures (including, without
limitation, the issuance of the Notes, borrowings under the Senior Credit
Facility, refinancing of the Company's 12 1/4% Senior Secured Notes due 2006 and
the OED 13% Senior Secured Notes due 2010 with Contingent Interest or otherwise)
of such Person and the Restricted Subsidiaries for such period; but, in each
case, excluding (x) any such charges constituting an extraordinary item or loss,
and (y) any such charge which requires an accrual of or a reserve for cash
charges for any future period.
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"Default" means any event that is, or after notice or the passage of time
or both would be, an Event of Default.
"Disqualified Capital Stock" means any Equity Interest that (i) either by
its terms (or by the terms of any security into which it is convertible or for
which it is exchangeable) is or upon the happening of an event would be required
to be redeemed or repurchased prior to the final stated maturity of the Notes or
is redeemable at the option of the holder thereof at any time prior to such
final stated maturity, or (ii) is convertible into or exchangeable at the option
of the issuer thereof or any other Person for debt securities that are pari
passu or senior in respect of payment to the Notes. Notwithstanding the
foregoing, any Equity Interests that would constitute Disqualified Capital Stock
solely because such Equity Interests mature or become mandatorily redeemable, or
give the holders thereof the right to require the Company to repurchase such
Equity Interests, in each case, upon the occurrence of a change of control or an
asset sale shall not constitute Disqualified Capital Stock if the terms of such
Equity Interests provide that the Company may not repurchase or redeem any such
Equity Interests pursuant to such provisions prior to the Company's purchase of
the Notes as are required to be purchased pursuant to the provisions of the
Indenture as described under "--Repurchase Upon Change of Control" and
"--Certain Covenants--Limitation on Asset Sales."
"DJL" means Diamond Jo, LLC (formerly named Peninsula Gaming Company,
LLC), a Delaware limited liability company.
"Domestic Restricted Subsidiary" means any Restricted Subsidiary other
than a Foreign Subsidiary.
"Equity Holder" means (a) with respect to a corporation, each holder of
stock of such corporation, (b) with respect to a limited liability company or
similar entity, each member of such limited liability company or similar entity,
(c) with respect to a partnership, each partner of such partnership, (d) with
respect to any entity described in clause (a)(iv) of the definition of "Flow
Through Entity," the owner of such entity, and (e) with respect to a trust
described in clause (a)(v) of the definition of "Flow Through Entity," an owner
thereof.
"Equity Interests" means Capital Stock or warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Equity Offering" means (i) an underwritten offering of Qualified Capital
Stock of the Company pursuant to a registration statement filed with and
declared effective by the Commission in accordance with the Securities Act or
(ii) an offering of Qualified Capital Stock of the Company pursuant to an
exemption from the registration requirements of the Securities Act.
"Event of Loss" means, with respect to any property or asset, any (i)
loss, destruction or damage of such property or asset or (ii) any condemnation,
seizure or taking, by exercise of the power of eminent domain or otherwise, of
such property or asset, or confiscation or requisition of the use of such
property or asset.
"Excess Cash Distribution Amount for Taxes" means the excess of (x) the
aggregate actual cash distributions received by the Company or a Restricted
Subsidiary from all Flow Through Entities that are not Restricted Subsidiaries
of the Company during the period commencing with the Issue Date and continuing
to and including the date on which a proposed Permitted Tax Distribution is to
be made under clause (iii) of the second sentence contained in the description
of "--Certain Covenants--Limitations on Restricted Payments" over (y) the
aggregate amount of such cash distributions described in the immediately
preceding clause (x) that have already been taken into account for purposes of
making (I) Permitted Tax Distributions previously made and which was
attributable to a Flow Through Entity that was not a Restricted Subsidiary at
the time such Permitted Tax Distribution was made plus (II) Restricted Payments
permitted by clause (1) or (4) of clause (c) of the first sentence contained in
the description of "--Certain Covenants--Limitations on Restricted Payments"
(treating such cash distributions described in this clause (y)(II) as used to
make a Restricted Payment during such period only to the extent that in such
period, the total amount of Restricted Payments actually made during such period
exceeded the excess of (m) the total amount of Restricted Payments permitted to
be made in such period over (n) the amount of such cash distributions described
in the immediately preceding clause (x) that were actually received by the
Company or a Restricted Subsidiary during such period and that were not
previously used to make a Permitted Tax Distribution.
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"Excluded Person" means (i) PGP, (ii) PGP Investors, LLC, (iii) M. Brent
Stevens, (iv) Michael S. Luzich, (v) OEDA, (vi) any Affiliate or Manager of PGP,
PGP Investors, LLC, OEDA, M. Brent Stevens or Michael S. Luzich (collectively,
the "Existing Holders"), (vii) any trust, corporation, partnership or other
entity (a) controlled by the Existing Holders and members of the immediate
family of the Existing Holders or (b) 80% of the beneficiaries, stockholders,
partners or owners of which consist solely of the Existing Holders and members
of the immediate family of the Existing Holders or (viii) any partnership the
sole general partners of which consist solely of the Existing Holders and
members of the immediate family of the Existing Holders.
"FF&E" means furniture, fixtures and equipment (including Gaming
Equipment) acquired by the Issuers and the Restricted Subsidiaries in the
ordinary course of business for use in the construction and business operations
of the Company or the Restricted Subsidiaries.
"FF&E Financing" means Indebtedness, the proceeds of which are used solely
by the Issuers and the Restricted Subsidiaries (and concurrently with the
incurrence of such Indebtedness) to acquire or lease or improve or refinance,
respectively, FF&E; provided, that (x) the principal amount of such FF&E
Financing does not exceed the cost (including sales and excise taxes,
installation and delivery charges, capitalized interest and other direct fees,
costs and expenses) of the FF&E purchased or leased with the proceeds thereof or
the cost of such improvements, as the case may be, and (y) such FF&E Financing
is secured only by the assets so financed and assets which, immediately prior to
the incurrence of such FF&E Financing, secured other Indebtedness of the Issuers
and the Restricted Subsidiaries (to the extent such other Indebtedness and the
Liens securing such other Indebtedness are permitted under the Indenture) to the
lender of such FF&E Financing.
"Flow Through Entity" means an entity that (a) for Federal income tax
purposes constitutes (i) an "S corporation" (as defined in Section 1361(a) of
the Code), (ii) a "qualified subchapter S subsidiary" (as defined in Section
1361(b)(3)(B) of the Code), (iii) a "partnership" (within the meaning of Section
7701(a)(2) of the Code) other than a "publicly traded partnership" (as defined
in Section 7704 of the Code), (iv) an entity that is disregarded as an entity
separate from its owner under the Code, the Treasury regulations or any
published administrative guidance of the Internal Revenue Service, or (v) a
trust, the income of which is includible in the taxable income of the grantor or
another person under sections 671 through 679 of the Code (the entities
described in the immediately preceding clauses (i), (ii), (iii), (iv) and (v), a
"Federal Flow Through Entity") and (b) for state and local jurisdictions in
respect of which Permitted Tax Distributions are being made, is subject to
treatment on a basis under applicable state or local income tax law
substantially similar to a Federal Flow Through Entity.
"Foreign Restricted Subsidiary" means any Restricted Subsidiary that is
also a Foreign Subsidiary.
"Foreign Subsidiary" means any Subsidiary which (i) is not organized under
the laws of the United States, any state thereof or the District of Columbia and
(ii) conducts substantially all of its business operations outside the United
States of America.
"GAAP" means generally accepted accounting principles, as in effect from
time to time, set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as approved by a significant segment
of the accounting profession, and in the rules and regulations of the
Commission.
"Gaming Authorities" means any agency, authority, board, bureau,
commission, department, office or instrumentality of any nature whatsoever of
the United States Federal government, any foreign government, any state,
province or city or other political subdivision or otherwise, whether now or
hereafter existing, or any officer or official thereof, including, without
limitation, the Iowa Gaming Commission, the Louisiana Gaming Control Board, the
Louisiana State Racing Commission and any other agency, in each case, with
authority to regulate any gaming or racing operation (or proposed gaming or
racing operation) owned, managed or operated by the Company or any of the
Subsidiaries.
"Gaming Equipment" means slot machines, video poker machines, and all
other gaming equipment and related signage, accessories and peripheral
equipment.
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"Gaming FF&E Financing" means FF&E Financing, the proceeds of which are
used solely by the Issuers and the Restricted Subsidiaries to acquire or lease
FF&E that constitutes Gaming Equipment.
"Gaming Licenses" means every material license, material franchise,
material registration, material qualification, findings of suitability or other
material approval or authorization required to own, lease, operate or otherwise
conduct or manage riverboat, dockside or land-based gaming or racing activities
in any state or jurisdiction in which the Company or any of the Restricted
Subsidiaries conducts business (including, without limitation, all such licenses
granted by the Gaming Authorities), and all applicable liquor and tobacco
licenses.
"Gaming Property" means: (i) the Diamond Jo and the Evangeline Downs horse
racetrack and casino, in each case, so long as it is owned by the Company or a
Restricted Subsidiary and (ii) any other gaming facility or gaming operation
owned and controlled or to be owned and controlled after the Issue Date by the
Company or a Restricted Subsidiary and that contains, or that based upon a plan
approved by the Company's Managers will contain upon the completion of the
construction or development thereof, an aggregate of at least 500 slot machines
or other gaming devices; provided, in each case, that the property and assets
(other than Excluded Assets) of such Gaming Property constitute Collateral.
"Gaming Property Financing" means a financing, in whole or in part, of (x)
the acquisition of any Gaming Property, (y) the construction of any Gaming
Property (but only to the extent that the proceeds of such Indebtedness are used
to acquire land, furniture, fixtures and equipment, prepare the site or
construct improvements thereon) or (z) an investment in any Gaming Property.
"Gaming Vessel" means a riverboat casino (i) which is substantially
similar in size and space to the Diamond Jo, (ii) with at least the same overall
qualities and amenities as the Diamond Jo, and (iii) that is developed,
constructed and equipped to be in compliance with all federal, state and local
laws, including, without limitation, the cruising requirements of Chapter 99F of
the Iowa Code. In the event the laws of the State of Iowa change to permit the
development and operation of additional land-based casinos, the term "Gaming
Vessel" shall be deemed to include a land-based casino meeting the requirements
of clauses (i), (ii) and (iii) above.
"Government Securities" means (i) direct obligations of the United States
of America for the timely payment of which its full faith and credit is pledged
or (ii) obligations of a Person controlled or supervised by and acting as an
agency or instrumentality of the United States of America the timely payment of
which is unconditionally guaranteed as a full faith and credit obligation by the
United States of America, which, in either case, are not callable or redeemable
at the option of the issuer thereof, and shall also include a depository receipt
issued by a bank (as defined in Section 3(a)(2) of the Securities Act), as
custodian with respect to any such Government Security or a specific payment of
principal of or interest on any such Government Security held by such custodian
for the account of the holder of such depository receipt; provided, that (except
as required by law) such custodian is not authorized to make any deduction from
the amount payable to the holder of such depository receipt from any amount
received by the custodian in respect of the Government Security or the specific
payment of principal of or interest on the Government Security evidenced by such
depository receipt.
"Governmental Authority" means any agency, authority, board, bureau,
commission, department, office or instrumentality of any nature whatsoever of
the United States or foreign government, any state, province or any city or
other political subdivision or otherwise and whether now or hereafter in
existence, or any officer or official thereof, and any maritime authority.
"guaranty" or "guarantee," used as a noun, means any guaranty (other than
by endorsement of negotiable instruments for collection in the ordinary course
of business), direct or indirect, in any manner (including, without limitation,
letters of credit and reimbursement agreements in respect thereof), of all or
any part of any Indebtedness or other Obligation. "guarantee" or "guaranty" used
as a verb, has a correlative meaning.
"Hedging Obligations" means, with respect to any Person, the Obligations
of such Person under (i) interest rate swap agreements, interest rate cap
agreements, interest rate exchange agreements and interest rate collar
agreements and (ii) other agreements or arrangements designed to protect such
Person against fluctuations in interest rates, including any arrangement
whereby, directly or indirectly, such Person is entitled to receive from time to
time periodic payments calculated by applying either a fixed or floating rate of
interest on a stated notional amount in
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exchange for periodic payments made by such Person calculated by applying a
fixed or floating rate of interest on the same notional amount.
"Holder" means the Person in whose name a Note is registered in the
register of the Notes.
"Indebtedness" of any Person means (without duplication) (i) all
liabilities and obligations, contingent or otherwise, of such Person (a) in
respect of borrowed money (regardless of whether the recourse of the lender is
to the whole of the assets of such Person or only to a portion thereof), (b)
evidenced by bonds, debentures, notes or other similar instruments, (c)
representing the deferred purchase price of property or services (other than
trade payables on customary terms incurred in the ordinary course of business),
(d) created or arising under any conditional sale or other title retention
agreement with respect to property acquired by such Person (even though the
rights and remedies of the seller or lender under such agreement in the event of
default are limited to repossession or sale of such property), (e) representing
Capital Lease Obligations, (f) under bankers' acceptance and letter of credit
facilities, (g) to purchase, redeem, retire, defease or otherwise acquire for
value any Disqualified Capital Stock, or (h) in respect of Hedging Obligations;
(ii) all Indebtedness of others that is guaranteed by such Person; and (iii) all
Indebtedness of others that is secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien on property (including, without limitation, accounts and contract
rights) owned by such Person, even though such Person has not assumed or become
liable for the payment of such Indebtedness; provided, that the amount of such
Indebtedness shall (to the extent such Person has not assumed or become liable
for the payment of such Indebtedness) be the lesser of (1) the fair market value
of such property at the time of determination and (2) the amount of such
Indebtedness. The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and the maximum liability, upon the occurrence of the contingency giving
rise to the obligation, of any contingent obligations at such date. The
principal amount outstanding of any Indebtedness issued with original issue
discount is the accreted value of such Indebtedness.
"Interest Coverage Ratio" means, for any period, the ratio of (i)
Consolidated EBITDA of the Company for such period, to (ii) Consolidated
Interest Expense of the Company for such period. In calculating Interest
Coverage Ratio for any period, (a) pro forma effect shall be given to the
incurrence, repayment or retirement by the Company or any of the Restricted
Subsidiaries of any Indebtedness (other than Indebtedness incurred in the
ordinary course of business for general corporate purposes pursuant to working
capital facilities) subsequent to the commencement of the period for which the
Interest Coverage Ratio is being calculated, as if the same had occurred at the
beginning of the applicable period; (b) acquisitions that have been made by the
Company or any of the Restricted Subsidiaries, including all mergers and
consolidations, subsequent to the commencement of such period shall be
calculated on a pro forma basis, assuming that all such acquisitions, mergers
and consolidations had occurred on the first day of such period, including
giving effect to reductions in costs for such period that are directly
attributable to the elimination of duplicative functions and expenses
(regardless of whether such cost savings could then be reflected in pro forma
financial statements under GAAP, Regulation S-X promulgated by the SEC or any
other regulation or policy of the SEC) as a result of such acquisition, merger
or consolidation, provided that (x) such cost savings were identified and
quantified in an Officers' Certificate delivered to the Trustee at the time of
the consummation of such acquisition, merger or consolidation and such Officers'
Certificate states that such officers believe in good faith that actions will be
commenced or initiated within 90 days of the consummation of such acquisition,
merger or consolidation to effect such cost savings and sets forth the specific
steps to be taken within the 90 days after such acquisition, merger or
consolidation to accomplish such cost savings, and (y) with respect to each
acquisition, merger or consolidation completed prior to the 90th day preceding
such date of determination, actions were commenced or initiated by the Company
or any of its Restricted Subsidiaries within 90 days of such acquisition, merger
or consolidation to effect the cost savings identified in such Officers'
Certificate (regardless, however, of whether the corresponding cost savings have
been achieved). Without limiting the foregoing, the financial information of the
Company with respect to any portion of such period that falls before the Issue
Date shall be adjusted to give pro forma effect to the issuance of the Notes and
the application of the proceeds therefrom as if they had occurred at the
beginning of such period.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of loans,
guarantees, advances or capital contributions (excluding (i), payroll
commission, travel and similar advances to officers and employees of such Person
made in the ordinary course of business and (ii) bona fide accounts receivable
arising from the sale of goods or services in the ordinary course of
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business consistent with past practice), purchases or other acquisitions for
consideration of Indebtedness, Equity Interests or other securities, and any
other items that are or would be classified as investments on a balance sheet
prepared in accordance with GAAP.
"Iowa Code" means the Code of Iowa (2003), as amended from time to time.
"Iowa Gaming Commission" means the Iowa Racing and Gaming Commission, or
any successor Gaming Authority.
"Issue Date" means the date upon which the Notes are first issued.
"Issuers" means PGL, DJL and PGC and their respective successors in
accordance with the terms of the Indenture, and not any of their respective
subsidiaries.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York or at a place of payment are authorized by
law, regulation or executive order to remain closed.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind, regardless of whether
filed, recorded or otherwise perfected under applicable law (including any
conditional sale or other title retention agreement, any lease in the nature
thereof, any option or other agreement to sell or give a security interest in
and any filing of or agreement to give any financing statement under the Uniform
Commercial Code (or equivalent statutes) of any jurisdiction).
"Management Arrangements" means profits interests grants or similar equity
interest arrangements, employment agreements, consulting agreements, management
agreements and other similar arrangements between the Company or any of its
Affiliates and any manager, officer, member or employee thereof or consultant
thereto and such or similar agreements as may be modified, supplemented,
amended, entered into or restated from time to time consistent with industry
practice and approved by the Managers of PGP or the Company, provided that the
aggregate amount of payments made to an Excluded Person (other than the Company
or any of the Restricted Subsidiaries) pursuant to any such equity interest,
employment, consulting, management or similar agreements or arrangements for any
fiscal year shall not exceed 4.0% of the Consolidated EBITDA of the Company for
the immediately preceding fiscal year.
"Management Services Agreement" means the Amended and Restated Management
Services Agreement, dated as of February 25, 2003, by and among DJL, OEDA and
OED, as in effect on the Issue Date, without giving effect to any amendment or
supplement thereto or modification thereof, except to the extent that such
amendment, supplement or modification would otherwise have been permitted under
the covenant "Limitation on Transactions with Affiliates" if OEDA were not a
Restricted Subsidiary.
"Managers" means, with respect to any Person (i) if such Person is a
limited liability company, the board member, board members, manager or managers
appointed pursuant to the operating agreement of such Person as then in effect
or (ii) otherwise, the members of the board of directors or other governing body
of such Person.
"Members" means the holders of all of the Voting Stock of the Company.
"Net Income" means, with respect to any Person for any period, (a) the net
income (or loss) of such Person for such period, determined in accordance with
GAAP, excluding (to the extent included in calculating such net income) (i) any
gain or loss, together with any related taxes paid or accrued on such gain or
loss, realized in connection with any Asset Sales and dispositions pursuant to
sale-leaseback transactions and (ii) any extraordinary gain or loss, together
with any taxes paid or accrued on such gain or loss, reduced by (b) the maximum
amount of Permitted Tax Distributions attributable to such net income for such
period.
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"Net Proceeds" means the aggregate proceeds received in the form of cash
or Cash Equivalents in respect of any Asset Sale (including issuance or other
payments in an Event of Loss and payments in respect of deferred payment
obligations and any cash or Cash Equivalents received upon the sale or
disposition of any non-cash consideration received in any Asset Sale, in each
case when received), net of:
(a) the reasonable and customary direct out-of-pocket costs relating to
such Asset Sale (including, without limitation, legal, accounting
and investment banking fees and sales commissions), other than any
such costs payable to an Affiliate of the Company,
(b) taxes required to be paid by the Company, any of the Subsidiaries,
or any Equity Holder of the Company (or, in the case of any Company
Equity Holder that is a Flow Through Entity, the Upper Tier Equity
Holder of such Flow Through Entity) in connection with such Asset
Sale in the taxable year that such sale is consummated or in the
immediately succeeding taxable year, the computation of which shall
take into account the reduction in tax liability resulting from any
available operating losses and net operating loss carryovers, tax
credits and tax credit carryforwards, and similar tax attributes,
(c) amounts required to be applied to the permanent repayment of
Indebtedness in connection with such Asset Sale, and
(d) appropriate amounts provided as a reserve by the Company or any
Restricted Subsidiary, in accordance with GAAP, against any
liabilities associated with such Asset Sale and retained by the
Company or such Restricted Subsidiary, as the case may be, after
such Asset Sale (including, without limitation, as applicable,
pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any
indemnification obligations arising from such Asset Sale).
"Obligation" means any principal, premium, interest, penalty, fee,
indemnification, reimbursement, damage (including, without limitation,
liquidated damages) and other obligation and liability payable under the
documentation governing any liability.
"OED" means The Old Evangeline Downs, L.L.C., a Louisiana limited
liability company.
"OED 13% Senior Secured Notes due 2010" means the 13% Senior Secured Notes
due 2010 with Contingent Interest issued under the OED Indenture.
"OED Indenture" means that certain Indenture, dated as of February 25,
2003, among OED, The Old Evangeline Downs Capital Corp., the Guarantors (as
defined therein) and U.S. Bank National Association, as trustee.
"OEDA" means OED Acquisition, LLC, a Delaware limited liability company.
"Officers' Certificate" means the officers' certificate to be delivered
upon the occurrence of certain events as set forth in the Indenture.
"Opinion of Counsel" means an opinion from legal counsel who is reasonably
acceptable to the Trustee. Such counsel may be an employee of or counsel to any
of the Issuers, any Subsidiary of any of the Issuers or the Trustee.
"OTB Operations" means all of the assets and properties of the Company and
its subsidiaries (including, but not limited to, all Gaming Licenses) related to
the business operation of any off-track betting parlor or similar facility
operated or owned by the Company or such subsidiary.
"Permitted C-Corp Conversion" means a transaction resulting in the Company
becoming subject to tax under the Code as a corporation (a "C Corporation");
provided, that:
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(1) the C Corporation resulting from such transaction, if a successor to
Peninsula Gaming, LLC, (a) is a corporation, limited liability
company or other entity organized and existing under the laws of any
state of the United States or the District of Columbia, (b) assumes
all of the obligations of the Company under the Notes, the Security
Documents and the Indenture pursuant to a supplemental indenture in
form reasonably satisfactory to the Trustee and (c) will have
Consolidated Net Worth immediately after the transaction equal to or
greater than the Consolidated Net Worth of the Company immediately
preceding the transaction;
(2) after giving effect to such transaction no Default or Event of
Default exists;
(3) prior to the consummation of such transaction, the Company shall
have delivered to the Trustee (a) an Opinion of Counsel to the
effect that the holders of the outstanding Notes will not recognize
income gain or loss for Federal income tax purposes as a result of
such Permitted C-Corp Conversion and will be subject to Federal
income tax on the same amounts, in the same manner, and at the same
times as would have been the case if such Permitted C-Corp
Conversion had not occurred and (b) an Officer's Certificate as to
compliance with all of the conditions set forth in paragraphs (1),
(2) and (3)(a) above; and
(4) such transaction would not (a) result in the loss or suspension or
material impairment of any Gaming License unless a comparable
replacement Gaming License is effective prior to or simultaneously
with such loss, suspension or material impairment or (b) require any
holder or beneficial owner of Notes to obtain a Gaming License or be
qualified or found suitable under any applicable gaming or racing
laws.
"Permitted Investments" means:
(i) Investments in the Company or in any Wholly Owned Subsidiary;
(ii) Investments in Cash Equivalents;
(iii) Investments in a Person, if, as a result of such Investment, such
Person (a) becomes a Wholly Owned Subsidiary, or (b) is merged,
consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the
Company or a Wholly Owned Subsidiary;
(iv) Hedging Obligations;
(v) Investments as a result of consideration received in connection with
an Asset Sale made in compliance with the covenant described under
the caption "Limitation on Asset Sales;"
(vi) Investments existing on the Issue Date;
(vii) Investments paid for solely with CapitaL Stock (other than
Disqualified Capital Stock) of the Company;
(viii)credit extensions to gaming customers in the ordinary course of
business, consistent with industry practice;
(ix) stock, obligations or securities received in settlement of debts
created in the ordinary course of business and owing to the Company
(a) in satisfaction of judgments or (b) pursuant to any plan of
reorganization or similar arrangement upon the bankruptcy or
insolvency of trade creditors or customers; and
(x) loans or other advances to employees of the Company and the
Subsidiaries made in the ordinary course of business in an aggregate
amount not to exceed $500,000 at any one time outstanding;
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(xi) intercompany Indebtedness incurred pursuant to clause (v) of the
covenant "Limitation on Incurrence of Indebtedness;"
(xii) Investments in the Notes or any Additional Notes;
(xiii)Investments not otherwise permitted by clauses (i) through (xii)
above, not to exceed $10.0 million.
"Permitted Liens" means:
(i) Liens securing Indebtedness of the Company or any of the Restricted
Subsidiaries incurred pursuant to clause (i) under the caption
"Limitation on Incurrence of Indebtedness;"
(ii) Liens arising by reason of any judgment, decree or order of any
court for an amount and for a period not resulting in an event of
default with respect thereto, so long as such Lien is being
contested in good faith and is adequately bonded, and any
appropriate legal proceedings that may have been duly initiated for
the review of such judgment, decree or order shall not have been
finally adversely terminated or the period within which such
proceedings may be initiated shall not have expired;
(iii) security for the performance of bids, tenders, trade, contracts
(other than contracts for the payment of borrowed money) or leases,
surety and appeal bonds, performance and return-of-money bonds and
other obligations of a like nature incurred in the ordinary course
of business, consistent with industry practice;
(iv) Liens for taxes, assessments or other governmental charges either
(a) not yet delinquent or (b) that are being contested in good faith
and by appropriate proceedings if adequate reserves with respect
thereto are maintained on the books of the Company or the Restricted
Subsidiaries in accordance with GAAP;
(v) Liens of carriers, warehousemen, mechanics, landlords, material men,
suppliers, repairmen or other like Liens arising by operation of law
in the ordinary course of business consistent with industry
practices and Liens on deposits made to obtain the release of such
Liens if (a) the underlying obligations are not overdue for a period
of more than 30 days or (b) such Liens are being contested in good
faith and by appropriate proceedings and adequate reserves with
respect thereto are maintained on the books of the Company or the
Restricted Subsidiaries in accordance with GAAP;
(vi) easements, rights of way, zoning and similar restrictions and other
similar encumbrances or title defects incurred in the ordinary
course of business, and that do not materially detract from the
value of the property subject thereto (as such property is used by
the Company or a Restricted Subsidiary) or materially interfere with
the ordinary conduct of the business of the Company or any of the
Restricted Subsidiaries;
(vii) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and
other types of social security legislation or otherwise arising from
statutory or regulatory requirements of the Company or any of the
Restricted Subsidiaries;
(viii)Liens securing Refinancing Indebtedness incurred in compliance with
the Indenture to refinance Indebtedness secured by Liens; provided,
(a) such Liens do not extend to any additional property or assets;
(b) if the Liens securing the Indebtedness being refinanced were
subordinated to or pari passu with the Liens securing the Notes, the
Subsidiary Guaranties or any intercompany loan, as applicable, such
new Liens are subordinated to or pari passu with such Liens to the
same extent,
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and any related subordination or intercreditor agreement is
confirmed; and (c) such Liens are no more adverse to the interests
of Holders than the Liens replaced or extended thereby;
(ix) Liens that secure Acquired Debt or Liens on property of a Person
existing at the time such Person is merged into or consolidated
with, or such property was acquired by, the Company or any
Restricted Subsidiary; provided, that such Liens do not extend to or
cover any other property or assets and were not put in place in
anticipation of such acquisition, merger or consolidation;
(x) any interest or title of a lessor under any Capital Lease Obligation
or operating lease; provided that such Liens do not extend to any
property or assets which are not leased property subject to such
Capital Lease Obligation;
(xi) Liens that secure Purchase Money Obligations, Capital Lease
Obligations or FF&E Financing permitted to be incurred under the
Indenture; provided that such Liens do not extend to or cover any
property or assets other than those being acquired, leased or
developed and property and assets which, immediately prior to the
incurrence of such Purchase Money Obligations, Capital Lease
Obligations or FF&E Financing, secured other Indebtedness of the
Issuers and the Restricted Subsidiaries (to the extent such other
Indebtedness and the Liens securing such other Indebtedness are
permitted under the Indenture) to the lender of such Purchase Money
Obligations, Capital Lease Obligations or FF&E Financing;
(xii) whether or not existing on the Issue Date, Liens securing
Obligations under the Indenture, the Notes, the Subsidiary
Guaranties or the Security Documents;
(xiii) with respect to any vessel included in the Collateral, certain
maritime liens, including liens for crew's wages and salvage;
(xiv) Liens in favor of the Company or any Subsidiary Guarantor, in which
a security interest has been granted to the Trustee to secure the
payment of the Notes or a Subsidiary Guaranty, respectively;
(xv) Liens arising from precautionary Uniform Commercial Code financing
statement filing regarding operating leases entered into by the
Company or any of the Subsidiaries in the ordinary course of
business;
(xvi) Liens incurred in the ordinary course of business securing Hedging
Obligations, which Hedging Obligations relate to Indebtedness that
is otherwise permitted under the Indenture;
(xvii) Liens existing on the Issue Date to the extent and in the manner
such Liens are in effect on the Issue Date;
(xviii) Liens on a pledge of the Capital Stock of any Unrestricted
Subsidiary securing any Indebtedness of such Unrestricted
Subsidiary;
(xix) leases or subleases granted to others not interfering in any
material respect with the business of the Company or any of the
Restricted Subsidiaries or materially detracting from the value of
the relative assets of the Company or any Restricted Subsidiary;
(xx) Liens securing reimbursement obligations with respect to commercial
letters of credit that encumber documents and other property
relating to such letters of credit and the products and proceeds
thereof;
(xxi) Liens securing intercompany Indebtedness incurred pursuant to clause
(v) of the covenant "Limitation on Incurrence of Indebtedness;"
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(xxii) Liens securing guarantees by Subsidiary Guarantors of Indebtedness
issued by the Company if such guarantees are permitted by the
covenant "Limitation on Incurrence of Indebtedness;"
(xxiii) Liens upon specific items of inventory or other goods and proceeds
of any Person securing such Person's obligations in respect of
bankers' acceptances issued or created for the account of such
Person to facilitate the purchase, shipment or storage of such
inventory or other goods; and
(xxiv) Liens securing Indebtedness of the Company or any of the Restricted
Subsidiaries incurred pursuant to clause (xiii) under the caption
"Limitation on Incurrence of Indebtedness;" provided that (a) such
Liens do not extend to or cover any property or assets other than
those of the Gaming Property being acquired and (b) such Liens are
contractually subordinated to the Liens securing the Senior Credit
Facility, the Notes and the Subsidiary Guaranties.
"Permitted Tax Distributions" in respect of the Company means, with
respect to any taxable year or portion thereof in which the Company is a Flow
Through Entity, the sum of: (i) the product of (a) the excess of (1) all items
of taxable income or gain (other than capital gain) of the Company for such year
or portion thereof over (2) all items of taxable deduction or loss (other than
capital loss) of the Company for such year or portion thereof and (b) the
Applicable Income Tax Rate, plus (ii) the product of (a) the net capital gain
(i.e., net long-term capital gain over net short-term capital loss), if any, of
the Company for such year or portion thereof and (b) the Applicable Capital Gain
Tax Rate, plus (iii) the product of (a) the net short-term capital gain (i.e.,
net short-term capital gain in excess of net long-term capital loss), if any, of
the Company for such year or portion thereof and (b) the Applicable Income Tax
Rate, minus (iv) the aggregate Tax Loss Benefit Amount for the Company for such
year or portion thereof; provided, that in no event shall the Applicable Income
Tax Rate or the Applicable Capital Gain Tax Rate exceed the greater of (i) the
greater of (a) the highest aggregate applicable effective marginal rate of
Federal, state, and local income tax to which a corporation doing business in
the state of California and (b) the highest aggregate applicable effective
marginal rate of Federal, state, and local income tax to which a corporation
doing business in the state of Louisiana, would be subject to in the relevant
year of determination (as certified to the Trustee by a nationally recognized
tax accounting firm) plus 5% and (ii) 60%. For purposes of calculating the
amount of the Permitted Tax Distributions the items of taxable income, gain,
deduction or loss (including capital gain or loss) of any Flow Through Entity of
which the Company is treated for Federal income tax purposes as a member (but
only for periods for which such Flow Through Entity is treated as a Flow Through
Entity), which items of income, gain, deduction or loss are allocated to or
otherwise treated as items of income, gain, deduction or loss of the Company for
Federal income tax purposes, shall be included in determining the taxable
income, gain, deduction or loss (including capital gain or loss) of the Company.
Estimated tax distributions may be made within thirty days following March
15, May 15, August 15, and December 15 based upon an estimate of the excess of
(x) the tax distributions that would be payable for the period beginning on
January 1 of such year and ending on March 31, May 31, August 31, and December
31 if such period were a taxable year (computed as provided above) over (y)
distributions attributable to all prior periods during such taxable year.
The amount of the Permitted Tax Distribution for a taxable year shall be
re-computed promptly after (i) the filing by the Company and each subsidiary of
the Company that is treated as a Flow Through Entity of their respective annual
income tax returns and (ii) an appropriate Federal or state taxing authority
finally determines that the amount of the items of taxable income, gain,
deduction, or loss of the Company or any such subsidiary that is treated as a
Flow Through Entity for such taxable year or the aggregate Tax Loss Benefit
Amount carried forward to such taxable year should be adjusted (each of clauses
(i) and (ii) a "Tax Calculation Event"). To the extent that the Permitted Tax
Distributions previously distributed in respect of any taxable year are either
greater than (a "Tax Distribution Overage") or less than (a "Tax Distribution
Shortfall") the Permitted Tax Distributions with respect to such taxable year,
as determined by reference to the computation of the amount of the items of
income, gain, deduction, or loss of the Company and each such subsidiary in
connection with a Tax Calculation Event, the amount of the estimated Permitted
Tax Distributions that may be made on the estimated tax distribution date
immediately following such Tax Calculation Event shall be reduced or increased
as appropriate to the extent of the Tax Distribution Overage or the Tax
Distribution Shortfall. To the extent that a Tax Distribution Overage remains
after the estimated tax distribution date immediately following such Tax
Calculation Event, the amount of the estimated
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Permitted Tax Distribution that may be made on the subsequent estimated tax
distribution date shall be reduced to the extent of such Tax Distribution
Overage.
Prior to making any Permitted Tax Distributions, the Company shall require
each Equity Holder to agree that promptly after the second estimated tax
distribution date following a Tax Calculation Event, such Equity Holder shall
reimburse the Company to the extent of its pro rata share (based on the portion
of Permitted Tax Distributions distributed to such Equity Holder for the taxable
year) of any remaining Tax Distribution Overage.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint stock company, trust,
unincorporated organization, government or any agency or political subdivision
thereof, or any other entity.
"PGC" means Peninsula Gaming Corp. (formerly named The Old Evangeline
Downs Capital Corp.), a Delaware corporation, and its successors in accordance
with the terms of the Indenture, and not any of its subsidiaries.
"PGL" means Peninsula Gaming, LLC, a Delaware limited liability company.
"PGP" means Peninsula Gaming Partners, LLC, a Delaware limited liability
company, the direct parent and sole manager of the Company, and the indirect
parent of PGC.
"Purchase Money Obligations" means Indebtedness representing, or incurred
to finance (or to Refinance Indebtedness incurred to finance), the cost (i) of
acquiring any assets (including FF&E) and (ii) of construction or build-out of
facilities (including Purchase Money Obligations of any other Person at the time
such other Person is merged with or into or is otherwise acquired by the
Issuers); provided, that (a) the principal amount of such Indebtedness does not
exceed 75% of such cost, including construction charges, (b) any Lien securing
such Indebtedness does not extend to or cover any other asset or property other
than the asset or property being so acquired, constructed or built and assets
which, immediately prior to the incurrence of such Purchase Money Obligations,
secured other Indebtedness of the Issuers and the Restricted Subsidiaries (to
the extent such other Indebtedness and the Liens securing such other
Indebtedness are permitted under the Indenture) to the lender of such Purchase
Money Obligations, and (c) such Indebtedness is (or the Indebtedness being
Refinanced was) incurred, and any Liens with respect thereto are granted, within
180 days of the acquisition or commencement of construction or build-out of such
property or asset.
"Qualified Capital Stock" means, with respect to any Person, Capital Stock
of such Person other than Disqualified Capital Stock.
"Related Business" means any business in which PGP, the Company or any
Subsidiary of the Company was engaged on the Issue Date and any and all other
businesses that in the good faith judgment of the Managers of the Company are
similar, related, ancillary or complementary to such business, including, but
not limited to, the entertainment and hotel businesses and food and beverage
distribution operations.
"Related Person" means any Person who controls, is controlled by or is
under common control with an Excluded Person; provided, that for purposes of
this definition "control" means the beneficial ownership of more than 50% of the
total voting power of the Voting Stock of a Person.
"Reorganization Transactions" means the following transactions, satisfying
all of the following requirements:
(a) the transfer or contribution by PGP of all of the Equity Interests
of DJL to PGL, provided that:
(1) immediately prior to such transfer or contribution, PGL is a
wholly owned subsidiary of PGP and does not hold any assets,
is not liable for any obligations and has not previously
engaged in any business activities;
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(2) concurrently with such transfer or contribution, PGL executes
(w) a supplemental indenture, in substantially the form
attached as an exhibit to the Indenture, pursuant to which PGL
becomes a party to the Indenture and an "Issuer" for all
purposes under the Notes, the Indenture, the Security
Documents, the Intercreditor Agreement and the Registration
Rights Agreement and liable for all Obligations of an "Issuer"
thereunder, (x) a joinder to each of the Purchase Agreement,
the Registration Rights Agreement and the Intercreditor
Agreement, in substantially the form attached as an exhibit
thereto, (y) a supplement to the applicable Security
Documents, in substantially the form attached as an exhibit
thereto, and (z) such other documents as may be necessary to
reflect the PGL becoming an "Issuer" of the Notes; and
(3) immediately after giving effect to such transfer or
contribution, DJL is a direct, Wholly Owned Subsidiary of PGL,
a Restricted Subsidiary and a co-Issuer of the Notes;
(b) following the transfer or contribution described in paragraph (a)
above, PGL causing each of its Wholly Owned Subsidiaries to transfer
or distribute all of the Equity Interests of PGC to PGL, with the
result that immediately after giving effect to such transfer or
distribution, PGC is a direct, wholly owned subsidiary of PGL and
remains a co-Issuer of the Notes;
(c) following the transfer or distribution described in paragraph (b)
above, PGL causing each of its Wholly Owned Subsidiaries to transfer
or distribute all of the Equity Interests of OED to PGL, with the
result that:
(1) OED shall remain a Subsidiary Guarantor, notwithstanding the
provisions of the Indenture governing the release of
Subsidiary Guarantors upon their sale or disposition; and
(2) immediately after giving effect to such transfer or
distribution, OED is a direct, wholly owned subsidiary of PGL,
a Subsidiary Guarantor and a Restricted Subsidiary;
(d) following the transfer or distribution described in paragraph (c)
above, the designation of OEDA as an Unrestricted Subsidiary, and
PGL causing its Wholly Owned Subsidiary DJL, to transfer or
distribute all of the Equity Interests of OEDA to PGP with the
result that OEDA becomes a sister entity to PGL; provided, however,
that the transactions described in this paragraph (d) shall be
excluded from the definition of an Asset Sale, an Affiliate
Transaction or a Restricted Payment and shall not be subject to any
covenant in the Indenture to the extent, and only to the extent,
that such transactions could have been consummated on the Issue Date
prior to issuance of the Notes, assuming that the requisite
regulatory approvals had been obtained prior to the Issue Date, and
assuming that the transfer or distribution described in paragraph
(c) above had occurred prior to the transactions described in this
paragraph (d) (it being understood and agreed, for the avoidance of
doubt, that no such transaction that could have been consummated on
the Issue Date could have included any assets acquired by OEDA
subsequent to the Issue Date (other than as a result of the
Management Services Agreement)); and
(e) the liquidation or dissolution of Peninsula Gaming Capital Corp.
("PGC Corp."), a Delaware corporation and a co-obligor of DJL's
12 1/4% Senior Secured Notes due 2006 (the "DJL Notes"); provided,
that (i) none of the DJL Notes are outstanding and (ii) PGC Corp.
does not hold any assets, is not liable for any obligations and has
not engaged in any business activities other than being a co-obligor
of the DJL Notes;
provided further that (i) immediately prior to the foregoing transactions, no
Event of Default exists, and (ii) the foregoing transactions would not result in
the loss or suspension or material impairment of any Gaming License unless a
comparable replacement Gaming License is effective prior to or simultaneously
with such loss, suspension or material impairment.
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For the avoidance of doubt, an agreement or arrangement shall not cease to
constitute an agreement or arrangement "as in effect on the Issue Date" solely
because PGL has been substituted for DJL or OED as a party thereto, or has
otherwise become a party thereto, in each case solely as a result of or in
connection with the Reorganization Transactions.
"Required Regulatory Redemption" means a redemption by the Issuers of any
Holder's Notes pursuant to, and in accordance with, any order of any
Governmental Authority with appropriate jurisdiction and authority relating to a
Gaming License, or to the extent necessary in the reasonable, good faith
judgment of the Managers of the Company to prevent the loss, failure to obtain
or material impairment or to secure the reinstatement of, any Gaming License,
where such redemption or acquisition is required because the Holder or
beneficial owner of Notes is required to be found suitable or to otherwise
qualify under any gaming or similar laws and is not found suitable or so
qualified within 30 days after being requested to do so (or such lesser period
that may be required by any Governmental Authority).
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Payments" means:
(i) any dividend or other distribution declared or paid on account of
any Equity Interests of the Company or any of the Restricted
Subsidiaries or any other payment to any Excluded Person of
Affiliate thereof (other than, in each case, (a) dividends or
distributions payable in Equity Interests (other than Disqualified
Capital Stock) of the Company or (b) amounts payable to the Company
or any Restricted Subsidiary);
(ii) any payment to purchase, redeem or otherwise acquire or retire for
value any Equity Interest of the Company, any Restricted Subsidiary
or any other Affiliate of the Company (other than any such Equity
Interest owned by the Company or any Restricted Subsidiary);
(iii) any principal payment on, or purchase, redemption, defeasance or
other acquisition or retirement for value of, any Indebtedness of
the Company or any Subsidiary Guarantor that is contractually
subordinated in right of payment to the Notes or such Subsidiary
Guarantor's Subsidiary Guaranty thereof, as the case may be, prior
to any scheduled principal payment, sinking fund payment or other
payment at the stated maturity thereof; or
(iv) any Restricted Investment.
"Restricted Subsidiary" means any Subsidiary which at the time of
determination is not an Unrestricted Subsidiary.
"Return from Unrestricted Subsidiaries" means (a) 50% of any dividends or
distributions received by the Company or a Restricted Subsidiary from an
Unrestricted Subsidiary, to the extent that such dividends or distributions were
not otherwise included in Consolidated Net Income of the Company, plus (b) to
the extent not otherwise included in Consolidated Net Income of the Company, an
amount equal to the net reduction in Investments in Unrestricted Subsidiaries
resulting from (i) repayments of the principal of loans or advances or other
transfers of assets to the Company or any Restricted Subsidiary from
Unrestricted Subsidiaries or (ii) the sale or liquidation of any Unrestricted
Subsidiaries, plus (c) to the extent that any Unrestricted Subsidiary of the
Company is designated to be a Restricted Subsidiary, the fair market value of
the Company's Investment in such Subsidiary on the date of such designation.
"Security Documents" means, collectively, the Security Agreement, the
Mortgages and all mortgages, deeds of trust, security agreements, pledge
agreements, control agreements, collateral assignment agreements and other
agreements, instruments, financing statements and other documents evidencing,
creating, setting forth or limiting any Lien on Collateral in favor of the
Trustee (or, in the case of mortgages, deeds of trust or similar agreements, in
favor of the Trustee or another trustee thereunder), for the benefit of the
Holders.
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"Seller Preferred" means $4.0 million face amount of DJL's redeemable
preferred membership interests held by Greater Dubuque Riverboat Entertainment
Company, L.C. on the Issue Date (without giving effect to any amendment or
supplement thereto or modification thereof, except for any such amendment,
supplement or modification that is not more disadvantageous to the Holders in
any material respect than the original terms thereof as in effect on the Issue
Date).
"Senior Credit Facility" means any one or more revolving credit agreements
or similar instruments, including, without limitation, working capital,
construction financing or equipment purchase lines of credit, entered into by
the Company or any of the Restricted Subsidiaries governing the terms of a bona
fide borrowing from (i) a third party financial institution that is primarily
engaged in the business of commercial lending or (ii) a vendor or other provider
of financial accommodations in connection with the purchase of equipment, in
either case for valid business purposes, including any related notes,
guarantees, collateral documents, instruments and agreements executed in
connection therewith and, in each case, as amended, renewed, refunded, replaced
or refinanced from time to time, whether in whole or in part; provided, that
such agreements or instruments do not permit the Company and the Restricted
Subsidiaries, taken as a whole, to incur Indebtedness under all such agreements
or instruments in an aggregate principal amount at any time outstanding in
excess of the maximum aggregate principal amount of Indebtedness permitted to be
incurred pursuant to clause (i) of the covenant "Limitation on Incurrence of
Indebtedness."
"Significant Subsidiary" shall have the meaning provided under Regulation
S-X of the Securities Act, as in effect on the Issue Date.
"subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity (including a limited liability company) of
which more than 50% of the total voting power of shares of Voting Stock thereof
is at the time owned or controlled, directly or indirectly, by such Person or
one or more of the other subsidiaries of that Person or a combination thereof
and (ii) any partnership in which such Person or any of its subsidiaries is a
general partner.
"Subsidiary" means any subsidiary of the Company.
"Subsidiary Guarantor" means any Subsidiary that has executed and
delivered in accordance with the Indenture a Subsidiary Guaranty, and such
Person's successors and assigns.
"Subsidiary Guaranty" means an unconditional and irrevocable guaranty by a
Subsidiary Guarantor of the Obligations of the Issuers under the Notes and the
Indenture, on a senior unsecured basis, as set forth in the Indenture, as
amended from time to time in accordance with the terms thereof.
"Tax Loss Benefit Amount" means with respect to any taxable year, the
amount by which the Permitted Tax Distributions would be reduced were a net
operating loss or net capital loss from a prior taxable year of the Company
ending subsequent to the Issue Date carried forward to the applicable taxable
year; provided, that for such purpose the amount of any such net operating loss
or net capital loss shall be used only once and in each case shall be carried
forward to the next succeeding taxable year until so used. For purposes of
calculating the Tax Loss Benefit Amount, the proportionate part of the items of
taxable income, gain, deduction, or loss (including capital gain or loss) of any
Subsidiary that is a Flow Through Entity for a taxable year of such Subsidiary
ending subsequent to the Issue Date shall be included in determining the amount
of net operating loss or net capital loss of the Company.
"Unrestricted Subsidiary" means any Subsidiary that, at or prior to the
time of determination, shall have been designated by the Managers of the Company
as an Unrestricted Subsidiary and each subsidiary of such Subsidiary; provided,
that such Subsidiary or any of its subsidiaries does not hold any Indebtedness
or Capital Stock of, or any Lien on any assets of, the Company or any Restricted
Subsidiary. If, at any time, any Unrestricted Subsidiary would fail to meet the
foregoing requirements as an Unrestricted Subsidiary, it shall thereafter cease
to be an Unrestricted Subsidiary for purposes of the Indenture and any
Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted
Subsidiary as of such date. The Managers of the Company may at any time
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided,
that such designation shall be deemed to be an incurrence of Indebtedness by a
Restricted Subsidiary of any outstanding Indebtedness of such Unrestricted
132
Subsidiary and such designation shall only be permitted if (i) such Indebtedness
is permitted under the Interest Coverage Ratio test set forth in the covenant
described under the caption "Limitation on Incurrence of Indebtedness"
calculated on a pro forma basis as if such designation had occurred at the
beginning of the four-quarter reference period, and (ii) no Default or Event of
Default would be in existence following such designation. The Company shall be
deemed to make an Investment in each Subsidiary designated as an Unrestricted
Subsidiary immediately following such designation in an amount equal to the
Investment in such Subsidiary and its subsidiaries immediately prior to such
designation. Any such designation by the Managers of the Company shall be
evidenced to the Trustee by filing with the Trustee a certified copy of the
resolution of the Managers giving effect to such designation and an Officers'
Certificate certifying that such designation complies with the foregoing
conditions and is permitted by the covenant described above under the caption
"Limitation on Incurrence of Indebtedness."
"Upper Tier Equity Holder" means, in the case of any Flow Through Entity
the Equity Holder of which is, in turn, a Flow Through Entity, the person that
is ultimately subject to tax on a net income basis on the items of taxable
income, gain, deduction, and loss of the Company and the Subsidiaries that are
Flow Through Entities.
"Voting Stock" means, with respect to any Person, (i) one or more classes
of the Capital Stock of such Person having general voting power to elect at
least a majority of the Board of Directors, managers or trustees of such Person
(regardless of whether at the time Capital Stock of any other class or classes
have or might have voting power by reason of the happening of any contingency)
and (ii) any Capital Stock of such Person convertible or exchangeable without
restriction at the option of the holder thereof into Capital Stock of such
Person described in clause (i) above.
"Warner Land" means the 93-acres of land adjacent to the racino acquired
by OED from Bart C. Warner pursuant to the Sale with Mortgage, dated October 24,
2003.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years (rounded to the nearest
one-twelfth) obtained by dividing (i) the then outstanding principal amount of
such Indebtedness into (ii) the total of the product obtained by multiplying (a)
the amount of each then remaining installment, sinking fund, serial maturity or
other required payments of principal, including payment at final maturity, in
respect thereof, by (b) the number of years (calculated to the nearest
one-twelfth) that will elapse between such date and the making of such payment.
"Wholly Owned Subsidiary" of any Person means a subsidiary of such Person
all the Capital Stock of which (other than directors' qualifying shares and, in
the case of DJL, other than the Seller Preferred) is owned directly or
indirectly by such Person; provided, that with respect to the Company, the term
Wholly Owned Subsidiary shall exclude Unrestricted Subsidiaries.
133
BOOK-ENTRY; DELIVERY AND FORM
The old notes offered and sold to qualified institutional buyers of the
old notes are currently represented by one or more fully registered global notes
without interest coupons. The new notes issued in exchange for the old notes
will be represented by one or more fully registered global notes, without
interest coupons and will be deposited upon issuance with the Trustee as
custodian for The Depository Trust Company ("DTC"), in New York, New York, and
registered in the name of DTC or its nominee, in each case, for credit to an
account of a direct or indirect participant as described below.
Except as described below, the global notes may be transferred, in whole
and not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the global notes may not be exchanged for notes
in certificated form except in limited circumstances. See "--Certificated
Securities" for more information about the circumstances in which certificated
notes may be issued.
Transfers of beneficial interests in the global notes are subject to the
applicable rules and procedures of DTC and its direct or indirect participants,
which may change.
The notes may be presented for registration of transfer and exchange at
the offices of the Registrar.
DEPOSITORY PROCEDURES
DTC has advised the Issuers that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between Participants through electronic
book-entry changes in accounts of Participants. The Participants include
securities brokers and dealers (including the Initial Purchaser), banks, trust
companies, clearing corporations and certain other organizations. Access to
DTC's system is also available to other entities such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a Participant, either directly or indirectly (collectively, the "Indirect
Participants"). Persons who are not Participants may beneficially own securities
held by or on behalf of DTC only through the Participants or Indirect
Participants. The ownership interest and transfer of ownership interest of each
actual purchaser of each security held by or on behalf of DTC are recorded on
the records of the Participants and Indirect Participants.
DTC has also advised the Issuers that pursuant to procedures established
by it, (i) upon deposit of the Global Notes, DTC will credit the accounts of
Participants designated by the Initial Purchaser with portions of the principal
amount of Global Notes and (ii) ownership of such interests in the Global Notes
will be shown on, and the transfer of ownership thereof will be effected only
through, records maintained by DTC (with respect to Participants) or by
Participants and the Indirect Participants (with respect to other owners of
beneficial interests in the Global Notes).
Investors in the Global Notes may hold their interests therein directly
through DTC, if they are Participants in such system, or indirectly through
organizations that are Participants in such system. All interests in a Global
Note may be subject to the procedures and requirements of DTC.
The laws of some states require that certain persons take physical
delivery in definitive form of securities that they own. Consequently, the
ability to transfer beneficial interest in a Global Note to such persons may be
limited to that extent. Because DTC can act only on behalf of Participants,
which in turn act on behalf of Indirect Participants and certain banks, the
ability of a person having a beneficial interest in a Global Note to pledge such
interest to persons or entities that do not participate in the DTC system, or
otherwise take actions in respect of such interest, may be affected by the lack
of a physical certificate evidencing such interest. For certain other
restrictions on the transferability of the Notes, see "Exchange of Book-Entry
Notes for Certificated Notes."
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL NOTES WILL
NOT HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF
NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR
HOLDERS THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
134
Payments in respect of the principal, premium, liquidated damages, if any,
and interest on a Global Note registered in the name of DTC or its nominee will
be payable by the Trustee to DTC or its nominee in its capacity as the
registered Holder under the Indenture. Under the terms of the Indenture, the
Issuers and the Trustee will treat the persons in whose names the Notes,
including the Global Notes, are registered as the owners thereof for the purpose
of receiving such payments and for any and all other purposes whatsoever.
Consequently, none of the Issuers, the Trustee or any agent of the Issuers or
the Trustee have or will have any responsibility or liability for (i) any aspect
of DTC's records or any Participant's or Indirect Participant's records relating
to or payments made on account of beneficial ownership interests in the Global
Notes, or for maintaining, supervising or reviewing any of DTC's records or any
Participant's or Indirect Participant's records relating to the beneficial
ownership interests in the Global Notes or (ii) any other matter relating to the
actions and practices of DTC or any of its Participants or Indirect
Participants.
DTC has advised the Issuers that its current practices, upon receipt of
any payment in respect of securities such as the Notes (including principal and
interest), is to credit the accounts of the relevant Participants with the
payment on the payment date, in amounts proportionate to their respective
holdings in principal amount of beneficial interests in the relevant security
such as the Global Notes as shown on the records of DTC. Payments by
Participants and the Indirect Participants to the beneficial owners of Notes
will be governed by standing instructions and customary practices and will not
be the responsibility of DTC, the Trustee or the Issuers. None of the Issuers or
the Trustee will be liable for any delay by DTC or its Participants in
identifying the beneficial owners of the Notes, and the Issuers and the Trustee
may conclusively rely on and will be protected in relying on instructions from
DTC or its nominee as the registered owner of the Notes for all purposes.
Interests in the Global Notes will trade in DTC's Same-Day Funds
Settlement System and secondary market trading activity in such interests will,
therefore, settle in immediately available funds, subject in all cases to the
rules and procedures of DTC and its Participants. Transfers between Participants
in DTC will be effected in accordance with DTC's procedures, and will be settled
in same-day funds.
DTC has advised the Issuers that it will take any action permitted to be
taken by a Holder of Notes only at the direction of one or more Participants to
whose account DTC interests in the Global Notes are credited and only in respect
of such portion of the aggregate principal amount of the Notes as to which such
Participant or Participants has or have given direction. However, if there is an
Event of Default under the Notes, DTC reserves the right to exchange Global
Notes for legended Notes in certificated form, and to distribute such Notes to
its Participants.
The information in this section concerning DTC and its book-entry system
has been obtained from sources believed to be reliable, but the Issuers take no
responsibility for the accuracy thereof.
Although DTC has agreed to the foregoing procedures to facilitate
transfers of interests in the Global Notes among Participants in DTC, it is
under no obligation to perform or to continue to perform such procedures, and
such procedures may be discontinued at any time. Neither the Initial Purchaser
nor the Trustee will have any responsibility for the performance by DTC or its
Participants or Indirect Participants of their respective obligations under the
rules and procedures governing their operations.
EXCHANGE OF BOOK-ENTRY NOTES FOR CERTIFICATED NOTES
A Global Note is exchangeable for definitive Notes in registered
certificated form if (i) DTC (a) notifies the Issuers that it is unwilling or
unable to continue as depositary for the Global Note and the Issuers thereupon
fail to appoint a successor depositary within 90 days or (b) has ceased to be a
clearing agency registered under the Exchange Act, or (ii) the Issuers, at their
option, notify the Trustee in writing that they elect to cause the issuance of
the Notes in certificated form. In addition, beneficial interests in a Global
Note may be exchanged for certificated Notes upon request but only upon at least
20 days' prior written notice given to the Trustee by or on behalf of DTC in
accordance with customary procedures. In all cases, certificated Notes delivered
in exchange for any Global Note or beneficial interest therein will be
registered in the names, and issued in any approved denominations, requested by
or on behalf of the depositary (in accordance with its customary procedures) and
will bear the restrictive legend referred to in "Notice to Investors" unless the
Issuers determine otherwise in compliance with applicable law.
135
CERTIFICATED NOTES
Subject to certain conditions, any person having a beneficial interest in
a Global Note may, upon request to the Trustee, exchange such beneficial
interest for Notes in certificated form (a "Certificated Note"). Upon any such
issuance, the Trustee is required to register such Certificated Notes in the
name of, and cause the same to be delivered to, such person or persons (or the
nominee of any thereof). All such Certificated Notes would be subject to the
legend requirements described herein under "Notice to Investors." In addition,
if (i) the Issuers notify the Trustee in writing that DTC (x) is no longer
willing or able to act as a depositary and the Issuers are unable to locate a
qualified successor within 90 days or (y) has ceased to be a clearing agency
registered under the Exchange Act or (ii) the Issuers, at their option, notify
the Trustee in writing that they elect to cause the issuance of Notes in the
form of Certificated Notes under the Indenture, then, upon surrender by the
Global Note Holder of its Global Note, Notes in such form will be issued to each
person that the Global Note Holder and the DTC identify as being the beneficial
owner of the related Notes.
None of the Issuers or the Trustee will be liable for any delay by the
Global Note Holder or the DTC in identifying the beneficial owners of Notes and
the Trustee may conclusively rely on, and will be protected in relying on,
instructions from the Global Note Holder or the DTC for all purposes.
136
SPECIFIC UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
Except to the extent stated herein, the following constitutes the opinion
of Mayer, Brown, Rowe & Maw LLP, counsel to Peninsula Gaming, LLC, as to the
material United States federal income tax consequences of the issuance of the
new notes and the exchange offer, and of the acquisition, ownership and
disposition of the notes. This summary is based on the Internal Revenue Code of
1986, as amended (the "Code"), United States Treasury regulations, judicial
decisions, published positions of the Internal Revenue Service ("IRS") and other
applicable authorities, all as in effect as of the date hereof, all of which may
be repealed, revoked or modified with possible retroactive effect. No IRS ruling
has been or will be sought regarding any matter discussed herein. No assurance
can be given that the IRS would not assert, or that a court would not sustain, a
position contrary to any of the tax aspects set forth below.
Although this discussion summarizes the material United States federal
income tax consequences of the issuance of the new notes and the exchange offer,
and of the ownership and disposition of the notes, the United States federal
income tax consequences to a holder of notes may vary from those set forth below
depending upon the holder's particular situation. This summary does not deal
with holders that may be subject to special tax rules (including, but not
limited to, insurance companies, tax-exempt organizations or private
foundations, financial institutions, dealers in securities or currencies,
holders whose functional currency is not the United States dollar, holders that
hold the notes as a hedge against currency risks or as part of a straddle,
synthetic security, conversion transaction or other integrated investment
comprised of the notes and one or more other investments, or certain expatriates
or former long-term residents of the United States). This summary deals only
with persons that hold the notes as capital assets within the meaning of Section
1221 of the Code.
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR TAX ADVISORS AS TO THE
PARTICULAR TAX CONSEQUENCES TO THEM OF THE EXCHANGE OF OLD NOTES FOR NEW NOTES,
AND OF THE OWNERSHIP AND DISPOSITION OF THE NOTES, INCLUDING THE APPLICABILITY
AND EFFECT OF ANY STATE, LOCAL, OR FOREIGN TAX LAWS.
CONSEQUENCES OF THE EXCHANGE OFFER TO EXCHANGING HOLDERS
For United States federal income tax purposes, the exchange of a new note
for an old note pursuant to the exchange offer will not be a taxable event for
an exchanging holder; the new note will in effect be treated as the continuation
of the old note. As a result, for United States federal income tax purposes, (i)
an exchanging holder will not recognize any gain or loss on the exchange, (ii)
an exchanging holder will be required to include interest on a new note in gross
income in the manner described below, (iii) the holding period for the new note
will include the holding period for the old note, and (iv) the holder's adjusted
tax basis in the new note will be the same as its basis in the old note
immediately before the exchange.
LIQUIDATED DAMAGES
Under the Registration Rights Agreement, Liquidated Damages have begun to
accrue. We believe and intend to take the position that the total amount of
Liquidated Damages that is payable is "incidental" and that the possibility of
our being obligated to pay additional Liquidated Damages is "remote," as such
terms are defined in United States Treasury regulations. Under such regulations,
a payment on a debt instrument, such as a note, is "incidental" if under all
reasonably expected market conditions the potential amount of the payment is
insignificant relative to the total expected amount of the remaining payments on
the instrument; a payment is "remote" if there is a remote likelihood that such
payment will occur. Furthermore, under such regulations, our determination that
such contingencies are "incidental" and "remote" is binding on all holders of
the notes, except such holders that disclose a contrary position on their tax
returns. Since we believe these payments to be "incidental" and "remote,"
respectively, we therefore believe and intend to take the position that the
notes are not treated as contingent payment debt instruments ("CPDIs") under
United States Treasury regulations. However, because of a lack of authority on
point, our counsel, Mayer, Brown, Rowe & Maw LLP, is unable to opine as to any
of the consequences of our obligation to pay Liquidated Damages.
Moreover, our determinations are not binding on the IRS, and if the IRS
successfully challenged any of the foregoing positions, the notes would be
treated as CPDIs and the tax consequences for a holder of notes would be
different than those described herein. Under rules applicable to CPDIs, holders
that use the cash method of accounting would be put on the accrual method with
respect to stated interest on the notes. These rules would also require that a
portion of the Liquidated Damages be includible in income as ordinary income
when paid, and, upon a taxable disposition of the notes, that the portion of the
amount realized allocable to the Liquidated Damages be treated in part as
ordinary income. Holders of notes should consult their own tax advisors as to
the consequences of our obligation to pay Liquidated Damages.
The remainder of this "Specific United States Federal Income Tax
Consequences" assumes the correctness of our position that the amounts of
Liquidated Damages payable are "incidental," that the possibility of our having
to pay additional Liquidated Damages is "remote," and that the notes are not
CPDIs.
UNITED STATES HOLDERS
As used herein, the term "United States Holder" means a beneficial owner
of a note that is or is treated for United States federal income tax purposes as
(i) a citizen or resident of the United States, (ii) a corporation or
partnership created or organized in or under the laws of the United States, any
state thereof or the District of Columbia, (iii) an estate the income of which
is subject to United States federal income tax without regard to its source or
(iv) a trust if (x) a court within the United States is able to exercise primary
supervision over the administration of the trust and one or more United States
persons have the authority to control all substantial decisions of the trust or
(y) the trust has a valid election in effect under applicable United States
Treasury regulations to be treated as a United States person. If a partnership
(including any entity treated as a partnership or other pass through entity for
United States federal income tax purposes) is a holder of the notes, the United
States federal income tax treatment of a partner in such a partnership will
generally depend on the status of the partner and the activities of the
partnership. Partners and partnerships should consult their own tax advisors as
to the particular United States federal income tax consequences applicable to
them of the partnership's acquisition of the new notes under the exchange offer,
and the ownership and disposition of notes.
Payments of Interest. Payments of stated interest on the notes generally
will be taxable to a United States Holder as ordinary interest income at the
time such payments are accrued or received (in accordance with the United States
Holder's method of accounting for United States federal income tax purposes).
United States Treasury regulations appear to require treatment of a payment of
Liquidated Damages to a United States Holder as a repayment of principal and
thus not subject to United States federal income tax. However, our counsel is
unable to opine on the matter, and some or all of the payments of Liquidated
Damages could be includible in income when paid. Holders of notes should consult
their own tax advisors as to the proper treatment of payments of Liquidated
Damages in their particular circumstances.
137
Disposition of Notes. Upon the sale, redemption, retirement or other disposition
of a note, a United States Holder will generally recognize capital gain or loss
equal to the difference between the amount realized on the sale, redemption,
retirement or other disposition and the United States Holder's adjusted tax
basis in the note. For these purposes, the amount realized on the sale,
redemption, retirement or other disposition of a note does not include any
amount received that is attributable to accrued but unpaid interest, which will
be taxable as ordinary income as described above unless previously taken into
account. Prior to the receipt of Liquidated Damages, a United States Holder's
adjusted tax basis in the note will equal the cost to such holder of acquiring
the note. United States Treasury regulations appear to require treatment of the
amount of Liquidated Damages received by such United States Holder as reducing
the holder's adjusted tax basis in the note, but our counsel is unable to opine
on the matter. If some or all of the payments of Liquidated Damages were
includible in income when paid as described in "--Payments of Interest" above,
such includible amount would not reduce the holder's basis. Holders of notes
should consult their own tax advisors as to the effect of payments of Liquidated
Damages on their adjusted tax bases. Capital gain or loss on the sale,
redemption, retirement or other disposition of a note will be long-term if the
United States Holder's holding period for the note is more than one year at the
time. See "--Consequences of the Exchange Offer to Exchanging Holders" above
with regard to the holder's holding period in a note.
Purchasers of Notes at Other Than Original Issuance. The above summary does not
discuss special rules that may affect the treatment of United States Holders
that acquired old notes other than at original issuance, including those
provisions of the Code relating to the treatment of "market discount" and
"acquisition premium." Any United States Holder should consult its tax advisor
as to the consequences to the holder of the acquisition, ownership and
disposition of notes.
NON-UNITED STATES HOLDERS
A "Non-United States Holder" is any beneficial holder of a note that is
not a United States Holder.
Under present United States federal income tax law, subject to the
discussion of backup withholding and information reporting below:
(a) payments on the notes to any Non-United States Holder will not be
subject to United States federal income, branch profits or withholding
tax, provided that (i) the Non-United States Holder does not actually
or constructively own 10% or more of our capital or profits interests
or 10% or more of the capital or profits interest in PGP, (ii) the
Non-United States Holder is not a controlled foreign corporation that
is related to us or PGP (directly or indirectly) through stock
ownership, (iii) such interest payments are not effectively connected
with a United States trade or business and (iv) certain certification
requirements are met. Such certification will be satisfied if the
beneficial owner of the note certifies on IRS Form W-8BEN or a
substantially similar substitute form, under penalties of perjury,
that it is not a United States person and provides its name and
address and, prior to the payment of interest, (x) such beneficial
owner delivers such form to the withholding agent or (y) in the case
of a note held through a foreign partnership or intermediary, the
beneficial owner and the foreign partnership or intermediary satisfy
certification requirements of applicable United States Treasury
regulations; and
(b) a Non-United States Holder will not be subject to United States
federal income or branch profits tax on gain realized on the sale,
exchange, redemption, retirement or other disposition of a note,
unless (i) the gain is effectively connected with a trade or business
carried on by such holder within the United States and, if a treaty
applies (and the holder complies with applicable certification and
other requirements to claim treaty benefits), is generally
attributable to a United States permanent establishment maintained by
the holder, or (ii) the holder is an individual who is present in the
United States for 183 days or more in the taxable year of disposition
and certain other requirements are met.
BACKUP WITHHOLDING AND INFORMATION REPORTING
In general, proceeds of the sale, exchange, redemption, retirement or
other disposition of the notes payable by a United States paying agent or other
United States intermediary, as well as interest payments on the notes, will be
subject to information reporting (except in the case of certain exempt
recipients, including corporations, or Non-United States Holders that provide
the certification on IRS Form W-8BEN described above or otherwise provide
evidence of exempt status). In addition, backup withholding at the applicable
rate (currently 28%) will generally apply to these amounts if (i) in the case of
a United States Holder, the holder fails to provide an accurate United States
taxpayer identification number, or fails to certify that such holder is not
subject to backup withholding or fails to report all interest and dividends
required to be shown on its United States federal income tax returns, or (ii) in
the
138
case of a Non-United States Holder, the holder fails to provide the
certification on IRS Form W-8BEN described above or otherwise does not provide
evidence of exempt status. Certain United States Holders (including, among
others, corporations) are not subject to backup withholding. Any amount paid as
backup withholding will be creditable against the holder's United States federal
income tax liability, provided that the required information is timely furnished
to the IRS. Holders of notes should consult their tax advisors as to their
qualification for exemption from backup withholding and the procedure for
obtaining such an exemption.
139
PLAN OF DISTRIBUTION
Each broker-dealer that receives new notes for its own account as a result
of market-making activities or other trading activities in connection with the
exchange offer must acknowledge that it will deliver a prospectus in connection
with any resale of new notes. This prospectus, as it may be amended or
supplemented, may be used by a broker-dealer in connection with resales of new
notes received in exchange for old notes where such old notes were acquired as a
result of market-making activities or other trading activities. Until
, 2004 (90 days after the date of this prospectus), all dealers
effecting transactions in the new notes may be required to deliver a prospectus.
We will receive no proceeds in connection with the exchange offer or any
sale of new notes by broker-dealers.
New notes received by broker-dealers for their own account pursuant to the
exchange offer may be sold in one or more transactions in the over-the-counter
market, in negotiated transactions, through the writing of options on the new
notes or a combination of these methods of resale, at market prices prevailing
at the time of resale, at prices related to prevailing market prices or at
negotiated prices. Any such resale may be made directly to purchasers or to or
through brokers or dealers that may receive compensation in the form of
commissions or concessions from the broker-dealers or the purchasers of any new
notes. Any broker-dealer that resells new notes that were received by it for its
own account pursuant to the exchange offer and any broker or dealer that
participates in a distribution of new notes may be deemed to be an "underwriter"
within the meaning of the Securities Act of 1933, and any profit on any resale
of new notes and any commissions or concessions received by any such persons may
be deemed to be underwriting compensation under the Securities Act of 1933. The
letter of transmittal states that by acknowledging that it will deliver, and by
delivering, a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act of 1933. See "The
Exchange Offer--Resales of the New Notes" for additional information on resales
of the new notes.
LEGAL MATTERS
The validity of the new notes will be passed upon for us by Mayer, Brown,
Rowe & Maw LLP, New York, New York.
EXPERTS
The consolidated financial statements of Peninsula Gaming, LLC as of
December 31, 2003 and 2002, and for each of the three years in the period ended
December 31, 2003 and the related financial statement schedule; the financial
statements of The Old Evangeline Downs, L.L.C., a wholly owned subsidiary of
Peninsula Gaming LLC, as of December 31, 2003 and 2002, and for the year ended
December 31, 2003 and the period August 31, 2002 through December 31, 2002; and
the financial statements of The Old Evangeline Downs, L.C. for the period
January 1, 2002 through August 30, 2002 and the year ended December 31, 2001
included in this prospectus have been audited by Deloitte & Touche LLP, an
independent registered public accounting firm, as stated in their reports
appearing herein (the reports for Peninsula Gaming, LLC and The Old Evangeline
Downs, L.C. express an unqualified opinion and include an explanatory paragraph
referring to Peninsula Gaming, LLC and The Old Evangeline Downs, L.C. changing
their method of accounting for goodwill and intangible assets to conform to
Statement of Financial Accounting Standards No. 142 Goodwill and Other
Intangible Assets), and have been so included in reliance upon the reports of
such firm given upon their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Commission a registration statement pursuant to the
Securities Act, and the rules and regulations promulgated thereunder, covering
the new notes being offered hereby. This prospectus does not contain all the
information set forth in the registration statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. For
further information with respect to us and the new notes, reference is hereby
made to the registration statement. Statements made in this prospectus as to the
contents of any contract, agreement or other document referred to in the
registration statement are not necessarily complete. With respect to each such
contract, agreement or other document filed as an exhibit to the registration
statement, reference
140
is made to the exhibit for a more complete description of the matter involved,
and each such statement shall be deemed qualified in its entirety by such
reference. We will continue to be subject to the periodic and other
informational requirements of the Exchange Act. Periodic reports and other
information filed by us with the Commission may inspected at the Commission's
Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may
obtain information as to the operation of the Public Reference Room by calling
the Commission at 1-800-SEC-0330. Such materials may also be accessed
electronically by means of the Commission's home page on the Internet at
http://www.sec.gov.
141
INDEX TO FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS OF PENINSULA GAMING, LLC:
Report of Independent Registered Public Accounting Firm......................F-2
Consolidated Balance Sheets December 31, 2003 and 2002.......................F-3
Consolidated Statements of Operations Years Ended December 31, 2003,
2002 and 2001..........................................................F-4
Consolidated Statements of Changes in Members' Equity (Deficit) Years
Ended December 31, 2003, 2002 and 2001.................................F-5
Consolidated Statements of Cash Flows Years Ended December 31, 2003,
2002 and 2001..........................................................F-6
Notes to Consolidated Financial Statements...................................F-7
INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF PENINSULA GAMING, LLC:
Condensed Consolidated Balance Sheets (Unaudited) March 31, 2004 and
December 31, 2003.....................................................F-23
Condensed Consolidated Statements of Operations (Unaudited) Three
Months Ended March 31, 2004 and 2003..................................F-24
Condensed Consolidated Statements of Cash Flows (Unaudited) Three
Months Ended March 31, 2004 and 2003..................................F-25
Notes to Condensed Consolidated Financial Statements (Unaudited)............F-26
FINANCIAL STATEMENTS OF THE OLD EVANGELINE DOWNS, L.L.C.:
Report of Independent Registered Public Accounting Firm.....................F-37
Report of Independent Registered Public Accounting Firm.....................F-38
Balance Sheets December 31, 2003 and 2002...................................F-39
Statements of Operations
The Year Ended December 31, 2003 and the Period August 31 to
December 31, 2002 (Successor Company) the Period January 1 to
August 30, 2002 and the Year Ended December 31, 2001 (Predecessor
Company)..............................................................F-41
Statements of Changes In Members' Equity (Deficit)
The Year Ended December 31, 2003 and the Period August 31 to
December 31, 2002 (Successor Company) the Period January 1 to
August 30, 2002 and the Year Ended December 31, 2001 (Predecessor
Company)..............................................................F-42
Statements of Cash Flows
The Year Ended December 31, 2003 and the Period August 31 to
December 31, 2002 (Successor Company) the Period January 1 to
August 30, 2002 and the Year Ended December 31, 2001 (Predecessor
Company)..............................................................F-43
Notes to Financial Statements...............................................F-45
FINANCIAL STATEMENT SCHEDULE OF PENINSULA GAMING, LLC:
Valuation and Qualifying Accounts for the Years Ended
December 31, 2003, 2002, and 2001...........................................F-57
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Members of
Peninsula Gaming, LLC
Dubuque, Iowa
We have audited the accompanying consolidated balance sheets of Peninsula
Gaming, LLC and subsidiaries (the "Company") as of December 31, 2003 and 2002,
and the related consolidated statements of operations, changes in members'
equity (deficit), and cash flows for the years ended December 31, 2003, 2002 and
2001. Our audits also included the financial statement schedule listed in the
Index to Financial Statements. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (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, such financial statements present fairly, in all material
respects, the financial position of Peninsula Gaming, LLC and subsidiaries as of
December 31, 2003 and 2002, and the results of their operations and their cash
flows for the years ended December 31, 2003, 2002 and 2001 in conformity with
accounting principles generally accepted in the United States of America. Also,
in our opinion, such financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
As discussed in Note 2 to the consolidated financial statements, effective
January 1, 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
Cedar Rapids, Iowa
March 10, 2004
(June 16, 2004 as to Note 1)
F-2
PENINSULA GAMING, LLC
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2003 AND 2002
DECEMBER 31, 2003 DECEMBER 31, 2002
----------------- -----------------
CURRENT ASSETS:
Cash and cash equivalents ............................................... $ 21,158,295 $ 10,510,205
Restricted cash--purse settlements ...................................... 1,589,125 840,366
Restricted investments .................................................. 15,778,883
Accounts receivable, less allowance for doubtful accounts of $61,922
and $45,648, respectively ............................................. 309,188 275,822
Interest receivable ..................................................... 173,034
Inventory ............................................................... 403,376 138,405
Prepaid expenses ........................................................ 815,009 395,056
-------------- --------------
Total current assets ............................................ 40,226,910 12,159,854
-------------- --------------
RESTRICTED CASH--RACINO PROJECT .............................................. 20,013,291
-------------- --------------
PROPERTY AND EQUIPMENT, NET .................................................. 102,477,345 25,702,742
-------------- --------------
OTHER ASSETS:
Deferred financing costs, net of amortization of $5,288,572 and
$3,229,782, respectively .............................................. 12,702,387 4,064,987
Goodwill ................................................................ 53,083,429 53,083,429
Other intangibles ....................................................... 32,257,963 31,329,834
Deposits and other assets ............................................... 757,789 106,938
-------------- --------------
Total other assets .............................................. 98,801,568 88,585,188
-------------- --------------
TOTAL ........................................................................ $ 261,519,114 $ 126,447,784
============== ==============
LIABILITIES AND MEMBERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable ........................................................ $ 2,972,608 $ 1,960,200
Construction payable--St. Landry Parish ................................. 20,156,591 2,376,494
Purse settlement payable ................................................ 1,589,125 846,778
Accrued payroll and payroll taxes ....................................... 2,788,224 1,340,395
Accrued interest ........................................................ 9,904,778 4,763,919
Other accrued expenses .................................................. 4,811,106 3,345,294
Current maturity of long-term debt ...................................... 4,098,222 600,000
Notes payable ........................................................... 4,500,000
Term loan payable ....................................................... 8,300,000
Note payable to parent .................................................. 7,325,000
-------------- --------------
Total current liabilities ....................................... 46,320,654 35,358,080
-------------- --------------
LONG-TERM LIABILITIES:
12 1/4% Senior secured notes, net of discount ........................... 70,616,221 70,493,155
13% Senior secured notes, net of discount ............................... 120,923,436
Senior secured facilities ............................................... 15,754,301 11,250,000
FF&E credit facility .................................................... 9,921,557
Capital lease obligations ............................................... 475,781
Notes payable ........................................................... 3,511,654
Other accrued expenses .................................................. 1,100,000 1,200,000
Preferred members' interest, redeemable ................................. 4,000,000
-------------- --------------
Total long-term liabilities ..................................... 225,827,169 83,418,936
-------------- --------------
Total liabilities ............................................... 272,147,823 118,777,016
COMMITMENTS AND CONTINGENCIES
PREFERRED MEMBERS' INTEREST, REDEEMABLE ...................................... 4,000,000
MEMBERS' EQUITY (DEFICIT)
Common members' interest ................................................ 9,000,000 9,000,000
Accumulated deficit ..................................................... (19,628,709) (5,329,232)
-------------- --------------
Total members' equity (deficit) ................................. (10,628,709) 3,670,768
-------------- --------------
TOTAL ......................................................................... $ 261,519,114 $ 126,447,784
============== ==============
See notes to consolidated financial statements.
F-3
PENINSULA GAMING, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
2003 2002 2001
------------ ------------ ------------
REVENUES:
Casino ............................................................................ $ 56,794,529 $ 48,262,485 $ 47,710,208
Racing ............................................................................ 17,773,481 15,509,989
Food and beverage ................................................................. 4,565,438 3,886,326 2,745,333
Other ............................................................................. 589,268 144,817 131,916
Less promotional allowances ....................................................... (3,221,134) (2,615,355) (2,470,310)
------------ ------------ ------------
Total net revenues ........................................................... 76,501,582 65,188,262 48,117,147
------------ ------------ ------------
EXPENSES:
Casino ............................................................................ 23,532,967 20,554,920 20,375,265
Racing ............................................................................ 14,646,351 12,650,996
Food and beverage ................................................................. 4,282,010 3,820,365 2,856,568
Boat operations ................................................................... 2,322,126 2,295,771 2,259,314
Other ............................................................................. 442,964 27,471 21,801
Selling, general and administrative ............................................... 12,342,587 8,739,642 6,680,581
Depreciation and amortization ..................................................... 3,323,541 2,950,369 3,963,350
Pre-opening expense ............................................................... 3,256,963
Development costs ................................................................. 102,272
Litigation settlement ............................................................. 1,600,000
Referendum ........................................................................ 771,111
State of Wisconsin government relations ........................................... 55,000 147,163
------------ ------------ ------------
Total expenses ............................................................... 64,251,781 53,465,645 36,304,042
------------ ------------ ------------
INCOME FROM OPERATIONS ............................................................ 12,249,801 11,722,617 11,813,105
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest income ................................................................... 489,800 46,475 183,912
Interest expense, net of amounts capitalized ...................................... (25,071,656) (11,887,979) (9,639,947)
Interest expense related to preferred members' interest, redeemable ............... (180,000)
Loss on sale of assets ............................................................ (49,735) (8,000) (151,415)
------------ ------------ ------------
Total other expense .......................................................... (24,811,591) (11,849,504) (9,607,450)
------------ ------------ ------------
NET INCOME (LOSS) BEFORE PREFERRED MEMBER DISTRIBUTIONS AND MINORITY INTEREST ..... (12,561,790) (126,887) 2,205,655
LESS PREFERRED MEMBER DISTRIBUTIONS ............................................... (180,544) (373,050) (386,174)
LESS MINORITY INTEREST ............................................................ (232,056)
------------ ------------ ------------
NET INCOME (LOSS) TO COMMON MEMBERS' INTEREST ..................................... $(12,742,334) $ (731,993) $ 1,819,481
============ ============ ============
See notes to consolidated financial statements.
F-4
PENINSULA GAMING, LLC
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
TOTAL
COMMON MEMBERS'
MEMBERS' ACCUMULATED EQUITY
INTEREST DEFICIT (DEFICIT)
------------ ------------ ------------
BALANCE, DECEMBER 31, 2000 ................ $ 9,000,000 $ (3,395,800) $ 5,604,200
Net income to common members' interest .... 1,819,481 1,819,481
Member distributions ...................... (1,760,908) (1,760,908)
------------ ------------ ------------
BALANCE, DECEMBER 31, 2001 ................ 9,000,000 (3,337,227) 5,662,773
Net loss to common members' interest ...... (731,993) (731,993)
Member distributions ...................... (1,260,012) (1,260,012)
------------ ------------ ------------
BALANCE, DECEMBER 31, 2002 ................ 9,000,000 (5,329,232) 3,670,768
Net loss to common members' interest ...... (12,742,334) (12,742,334)
Member distributions ...................... (1,557,143) (1,557,143)
------------ ------------ ------------
BALANCE, DECEMBER 31, 2003 ................ $ 9,000,000 $(19,628,709) $(10,628,709)
============ ============ ============
See notes to consolidated financial statements.
F-5
PENINSULA GAMING, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
2003 2002 2001
------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ....................................................... $ (12,742,334) $ (731,993) $ 1,819,481
Adjustments to reconcile net income (loss) to net cash flows provided
by operating activities:
Depreciation and amortization ................................... 3,323,541 2,950,369 3,963,350
Provision for doubtful accounts ................................. 149,214 138,751 152,158
Amortization of deferred financing costs and bond discount ...... 3,161,023 1,493,671 911,272
Loss on sale of assets .......................................... 49,735 8,000 151,415
Minority interest ............................................... 232,056
Changes in operating assets and liabilities:
Restricted cash - purse settlements ............................. (748,759) 639,655
Receivables ..................................................... (355,614) (91,398) (183,479)
Inventory ....................................................... (264,972) 5,285 15,906
Prepaid expenses and other assets ............................... (1,071,419) (27,301) 326,699
Accounts payable ................................................ 2,183,072 60,088 (375,121)
Accrued expenses ................................................ 7,485,459 5,506,627 468,743
Litigation settlement ........................................... (400,000) 1,600,000
------------- ------------- -------------
Net cash flows from operating activities ............... 768,946 11,783,810 7,250,424
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of subsidiary, net of cash acquired ......................... (29,275,862) (500,000)
Business acquisition and licensing costs ................................ (1,781,746) (1,503,944) (518,047)
Racino project development costs ........................................ (55,303,006) (5,315,279) (246,753)
Restricted cash--racino project ......................................... (20,013,291)
Purchase of restricted investments ...................................... (23,922,971)
Maturity of restricted investments ...................................... 8,144,088
Purchase of property and equipment ...................................... (2,206,388) (1,695,075) (1,602,930)
Proceeds from sale of property and equipment ............................ 387,906 51,378
------------- ------------- -------------
Net cash flows from investing activities ........................ (94,695,408) (37,790,160) (2,816,352)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Deferred financing costs ................................................ (11,516,099) (1,703,706) (511,634)
Preferred members' interest redeemed .................................... (3,000,000)
Principal payments on debt .............................................. (20,725,000) (318,379)
Proceeds from senior secured notes ...................................... 120,736,000
Proceeds from senior credit facilities .................................. 5,104,301 20,450,000
Proceeds from FF&E credit facility ...................................... 12,532,493
Proceeds from notes payable ............................................. 11,825,000
Member distributions .................................................... (1,557,143) (1,260,012) (1,760,908)
------------- ------------- -------------
Net cash flows from financing activities ........................ 104,574,552 28,992,903 (5,272,542)
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH .............................................. 10,648,090 2,986,553 (838,470)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ............................. 10,510,205 7,523,652 8,362,122
------------- ------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ................................... $ 21,158,295 $ 10,510,205 $ 7,523,652
============= ============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest ....................................... $ 18,331,536 $ 5,701,057 $ 8,728,788
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Property additions acquired on construction payable which were accrued, but
not paid ................................................................... $ 19,681,300 $ 2,376,494
Property and equipment purchased in exchange for indebtedness ................ $ 4,398,940
Exchange of Private OED Notes for Registered OED Notes ....................... $ 123,200,000
See notes to consolidated financial statements
F-6
PENINSULA GAMING, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION, BUSINESS PURPOSE AND BASIS OF PRESENTATION
Diamond Jo, LLC, a Delaware limited liability company ("DJL"), owns and
operates the Diamond Jo riverboat casino in Dubuque, Iowa, and was a wholly
owned subsidiary of Peninsula Gaming Partners, LLC, a Delaware limited liability
company ("PGP"). DJL had two direct wholly owned subsidiaries, (i) Penninsula
Gaming Corp., which had no assets or operations and was formed solely to
facilitate the offering of DJL's 12 1/4% Senior Secured Notes due 2006 (the "DJL
Notes"), and (ii) OED Acquisition, LLC, a Delaware limited liability company
("OEDA"), and the parent company of The Old Evangeline Downs, L.L.C., a
Louisiana limited liability company ("OED"), that currently owns and operates a
horse track in Lafayette, Louisiana and is constructing a new casino and
racetrack facility in St. Landry Parish, Louisiana (the "racino project"). The
Old Evangeline Downs Capital Corp. was a wholly owned subsidiary of OED which
has no assets or operations and was formed solely to facilitate the offering by
OED of its 13% Senior Secured Notes due 2010 with Contingent Interest (the "OED
Notes").
On June 16, 2004, a corporate restructuring occurred, which is reflected
in these consolidated financial statements, pursuant to which Peninsula Gaming,
LLC, a Delaware limited liability company (the "Company"), became a new direct
parent company of DJL, OED and Peninsula Gaming Corp. ("PGC", formerly known as
The Old Evangeline Downs Capital Corp.), a Delaware limited liability company.
The Company is a wholly owned subsidiary of PGP. In connection with the
corporate restructuring, OEDA became a sister company to the Company and a
wholly owned subsidiary of PGP in a corporate spin-off which was recorded as a
distribution on June 16, 2004.
OED's results of operations and cash flows for the year ended December 31,
2003 and the period February 15, 2002 (date of acquisition) to December 31, 2002
have been consolidated into the Company's consolidated financial statements.
During the period February 15, 2002 to August 30, 2002, the Company had
substantive control of OED and recorded a minority interest related to the
portion not owned. On August 31, 2002, OED became a wholly owned subsidiary of
the Company. All intercompany transactions have been eliminated.
RACINO DEVELOPMENT
In order to provide funding for the racino project and to repay certain
then existing indebtedness, on February 25, 2003, OED completed a private
placement of $123.2 million of its 13% Senior Secured Notes due 2010 with
Contingent Interest (the "Private OED Notes"). On September 10, 2003, OED
exchanged the Private OED Notes for notes registered with the Securities and
Exchange Commission otherwise identical in all respects to the Private OED Notes
(the "Registered OED Notes," and together with the Private OED Notes, the "OED
Notes").
The construction and development of the racino project is expected to be
completed in two phases. The first phase involves the construction of the casino
and related casino amenities which was substantially completed and opened to the
public on December 19, 2003. Construction of the second phase, which involves
the construction of the horse racetrack and related facilities, is currently
underway. OED expects to begin scheduling live racing meets at the racino in
December 2004, at which time it expects to cease operations at its existing
horse racetrack.
The total remaining capital expenditures expected to complete the racino
project as of December 31, 2003 is approximately $17.5 million. The source of
funds to complete construction and development of the racino will be (i) a
portion of the proceeds from the offering of the OED Notes, (ii) available
borrowings under OED's $15.0 million senior secured credit facility, (iii)
available borrowings under OED's $16.0 million furniture, fixtures and equipment
financing facility and (iv) cash flows from existing racetrack operations and
future cash flows from future racino operations. See Note 4 for further
information about the OED Notes, the senior credit facility and the furniture,
fixtures and equipment financing facility.
F-7
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION--The consolidated financial statements include the financial
information of the Company and its wholly owned subsidiaries DJL, OEDA, OED and
PGC. All significant intercompany transactions have been eliminated.
CASH AND CASH EQUIVALENTS--The Company considers all cash on hand and in
banks, certificates of deposit and other highly liquid debt instruments
purchased with original maturities of three months or less to be cash
equivalents.
RESTRICTED CASH--Restricted cash represents amounts for purses to be paid
during the live meet racing season at OED. Additionally, restricted cash
includes entrance fees for a special futurity race during the racing season,
plus any interest earnings. These funds will be used to pay the purse for the
race. A separate interest bearing bank account is required for these funds.
RESTRICTED INVESTMENTS--As of December 31, 2003, OED had approximately
$15.8 million invested in government securities with original maturities of
greater than 90 days from the date of initial investment. These investments have
been classified as held-to-maturity and have contractual maturities of $8.0
million on both February 15, 2004 and August 15, 2004. Proceeds from the
maturity of these investments will be used to help make payments of fixed
interest on the OED Notes due March 1, 2004 and September 1, 2004 in accordance
with the terms of the Cash Collateral and Disbursement Agreement, dated February
25, 2003, among OED, U.S. Bank National Association (as trustee and disbursement
agent) and an independent construction consultant (the "Cash Collateral and
Disbursement Agreement").
ALLOWANCE FOR DOUBTFUL ACCOUNTS--The allowance for doubtful accounts is
maintained at a level considered adequate to provide for possible future losses.
The provision for doubtful accounts of $184,179, $138,751 and $152,158 were
recorded in 2003, 2002 and 2001, respectively.
INVENTORIES--Inventories consisting principally of food, beverage, retail
items, and operating supplies are stated at the lower of first-in, first-out
cost or market.
RESTRICTED CASH--RACINO PROJECT--"Restricted cash--racino project"
represents unused proceeds from the sale of the OED Notes, the use and
disbursement of which are restricted to the design, development, construction,
equipping and opening of the racino in accordance with the Cash Collateral and
Disbursement Agreement. As of December 31, 2003, OED had $14.4 million in cash
equivalents deposited in a construction disbursement account, $0.2 million in
cash equivalents deposited in an interest reserve account that will be used
toward payment of fixed interest on the OED Notes, $5.0 million in cash
equivalents deposited in a completion reserve account that will be used to fund
potential cost overruns and contingency amounts with respect to the design,
development, construction, equipping and opening of the racino and $0.4 million
in cash in a local financial institution. The funds deposited in these accounts
are invested in cash or securities that are readily convertible to cash.
PROPERTY AND EQUIPMENT--Property and equipment are recorded at cost and
capitalized lease assets are recorded at their fair market value at the
inception of the lease. Major renewals and improvements are capitalized, while
maintenance and repairs are expensed as incurred. Depreciation and amortization
are computed on a straight-line basis over the following estimated useful lives:
F-8
Land improvements............................................ 20-40 years
Building and building improvements........................... 9-40 years
Riverboat and improvements................................... 5-20 years
Furniture, fixtures and equipment............................ 3-10 years
Computer equipment........................................... 3-5 years
Vehicles..................................................... 5 years
* OED currently leases the land on which the OED building and leasehold
improvements are located. The ground lease annual rental is $0 per year
and the lease term expires on the earlier of December 31, 2004 or the
first day OED opens a new racetrack facility for business in St. Landry
Parish, Louisiana.
LONG-LIVED ASSETS--Effective January 1, 2002, the Company assesses the
impairment of long-lived assets, excluding goodwill and indefinite-lived
intangible assets, in accordance with SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS No. 144 addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
This statement supersedes SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and the
accounting and reporting provisions of APB Opinion No. 30, "Reporting the
Results of Operations--Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions." This new pronouncement also amends ARB No. 51 "Consolidated
Financials Statements," to eliminate the exception to consolidation for a
subsidiary for which control is likely to be temporary. SFAS No. 144 requires
that one accounting model be used for long-lived assets to be disposed of by
sale, whether previously held and used or newly acquired and also broadens the
presentation of discontinued operations to include more disposal transactions.
The Company evaluates the carrying value of long-lived assets when events and
circumstances warrant such a review. If the carrying value of the long-lived
asset is considered impaired, a loss is recognized based on the amount by which
the carrying value exceeds the fair market value of the asset. The adoption of
SFAS No. 144 did not have an impact on our financial position or results of
operations for the years ended December 31, 2003 and 2002.
CAPITALIZED INTEREST--The Company capitalizes interest costs associated
with debt incurred in connection with the racino project. When debt is
specifically identified as being incurred in connection with the development of
the racino project, the Company capitalizes interest on amounts expended on the
racino project at the Company's average cost of borrowed money. Capitalization
of interest will cease when the project is substantially complete. The amount
capitalized during 2003 and 2002 was $2.2 million and $0.1 million,
respectively.
DEFERRED FINANCING COSTS--Costs associated with the issuance of debt (see
Note 4) have been deferred and are being amortized over the life of the related
indenture/agreement using the effective interest method.
GOODWILL AND OTHER INTANGIBLE ASSETS--At December 31, 2003 and 2002,
"Goodwill" and "Other intangibles" consists of goodwill, licensing costs and the
acquired tradename associated with the purchase of the Diamond Jo and OED. To
the extent the purchase price exceeded the fair value of the net identifiable
assets acquired, such excess has been recorded as goodwill. SFAS No. 142
"Goodwill and Other Intangible Assets" provides that goodwill and certain
indefinite lived intangible assets will no longer be amortized but will be
reviewed at least annually for impairment and written down and charged to income
when their recorded value exceeds their estimated fair value. During the first
quarter of 2002, the Company performed a transitional impairment test on
goodwill, recorded within the Diamond Jo segment, in accordance with SFAS No.
142 and determined that the estimated fair value of the Diamond Jo exceeded its
carrying value as of that date. During the first quarter of 2003, the Company
performed its annual impairment test on goodwill in accordance with SFAS No. 142
and determined that the estimated fair value of the Diamond Jo exceeded its
carrying value as of that date. Based on that review, management determined that
there was no impairment of goodwill. Goodwill amortization during 2001 was
$1,413,987. Assuming the non-amortization provisions of these standards had been
adopted at the beginning of 2001, the Company's adjusted net income for 2001
would have been $3,233,468.
As of December 31, 2003, the Company had recorded approximately $3.8
million on its balance sheet for directly related legal and other incremental
costs associated with the acquisition of OED and obtaining the relevant gaming
licenses to conduct gaming operations associated with the racino project in
Louisiana. These costs are included as a cost of the acquisition and have been
evaluated under SFAS No. 141 "Business Combinations" and
F-9
SFAS No. 142. Intangible assets of $28.4 million acquired as part of the OED
acquisition were identified and valued as follows (in millions):
Slot Machine and Electronic Video Game Licenses........... $24.6
Tradename................................................. $ 2.5
Horse Racing Licenses..................................... $ 1.3
-----
Total..................................................... $28.4
For purposes of the valuations set forth above, each of the identified
intangible assets were treated as having indefinite lives and valued separately.
The methodology employed by an independent valuation specialist to arrive at
such valuations required evaluating the fair market value of the existing horse
racing business on a stand-alone basis without taking into account any right to
obtain slot machine and electronic video game licenses. Such valuation was based
in part upon other transactions in the industry and OED's historical results of
operations. A value was also derived for the tradename using market based
royalty rates. A significant portion of the purchase price is attributable to
the slot machine and electronic video game license rights, which were valued
based upon the market value paid by other operators and upon projected cash
flows from operations. These valuations and related intangible assets are
subject to impairment by, among other things, significant changes in the gaming
tax rates in Louisiana, significant new competition which could substantially
reduce profitability, non-renewal of OED's racing or gaming licenses due to
regulatory matters, changes to OED's tradename or the way OED's tradename is
used in connection with its business and regulatory changes that could adversely
affect OED's business by, for example, limiting or reducing the number of slot
machines or video poker machines that they are permitted to operate.
CONSTRUCTION PAYABLE--ST. LANDRY PARISH--At December 31, 2003 and 2002,
OED had $20.2 million and $2.4 million, respectively, in payables and accruals
related to construction and development costs associated with the racino
project.
FINANCIAL INSTRUMENTS--The carrying amount for financial instruments
included among cash and cash equivalents, accounts receivable, restricted cash,
accounts payable and security deposits approximates their fair value based on
the short maturity of those instruments.
REVENUE RECOGNITION--In accordance with common industry practice, our
casino revenue is the net win from gaming activities, which is the difference
between gaming wins and losses. Racing revenues include our share of pari-mutuel
wagering on live races after payment of amounts returned as winning wagers, and
our share of wagering from import and export simulcasting as well as our share
of wagering from our off-track betting parlors.
PROMOTIONAL ALLOWANCES--Food, beverage, and other items furnished without
charge to customers are included in gross revenues at a value which approximates
retail and then deducted as promotional allowances to arrive at net revenues.
The cost of such complimentary services have been included as casino expenses on
the accompanying statements of operations. Such estimated costs of providing
complimentary services allocated from the food and beverage and other operating
departments to the casino department were $689,972 and $35,642 for food and
beverage and other, respectively, in 2003, $592,539 and $4,672, respectively, in
2002 and $568,098 and $8,977, respectively, in 2001.
SELLING, GENERAL AND ADMINISTRATIVE--In October 2002, DJL entered into a
charitable giving agreement with an Iowa non-for-profit organization in which
DJL has agreed, subject to certain contingencies, to give such organization a
total contribution of $450,000. The agreement calls for a payment of $50,000
upon the signing of the agreement and $50,000 on March 1 of each of the next
seven years beginning on March 1, 2003. The first two payments were made by the
Company in October 2002 and March 2003, respectively. As all significant
contingencies surrounding the agreement were met during the third quarter of
2003, DJL expensed the remaining unpaid contribution of $350,000. Such expense
is included in "Selling, general and administrative" expenses in the
Consolidated Statement of Operations.
DEVELOPMENT EXPENSE--During 2003, DJL entered into an exclusive agreement
with the Worth County Development Authority pursuant to which the parties agreed
to jointly submit an application for a license to operate a gaming facility in
Worth County, Iowa. Under this agreement, DJL has agreed to design, construct,
operate and manage a casino with no less than 700 gaming positions, a waterway,
if necessary, a recreational vehicle park with a
F-10
minimum capacity of 200 spaces, and, upon reaching a targeted rate of return on
invested capital, a 100-room hotel development. During 2003, DJL incurred
expenses of $102,272 related to its entering into this agreement.
REFERENDUM EXPENSES--In accordance with Iowa law, a referendum must be
held every eight years in each of the counties where gambling games are
conducted and the proposition to continue to allow gambling games in such
counties must be approved by a majority of the county electorate voting on the
proposition. Such a referendum took place on November 5, 2002. During 2002, DJL
incurred various advertising, promotional and other referendum related expenses
totaling $771,111 to promote the approval of continued gaming in Dubuque County.
The measure was approved on November 5, 2002 with 79% of the electorate voting
on the proposition favoring continued gaming on riverboats in Dubuque County. As
DJL will not be required to be a part of another referendum until 2010, such
referendum related costs are not expected to be incurred in the future until
that time.
STATE OF WISCONSIN GOVERNMENT RELATIONS--During 2002 and 2001, DJL
incurred expenses for a governmental relations services agreement with respect
to gaming issues and developments in Wisconsin which might affect the Company
and its gaming operations. Such expenses in 2002 and 2001 totaled $55,000 and
$147,163, respectively.
MINORITY INTEREST--Minority interest on the Consolidated Statement of
Operations represents the 50% portion of net income from OED allocated to the
remaining 50% membership interest holder in OED during the period February 15,
2002 through August 30, 2002.
INCOME TAXES--The Company is a limited liability company. In lieu of
corporate income taxes, the members of a limited liability company are taxed on
their proportionate share of the Company's taxable income. Therefore, no
provision or liability for federal income taxes has been included in the
financial statements.
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 periods. Actual results could differ
from those estimates. We periodically evaluate our policies and the estimates
and assumptions related to these policies. We also periodically evaluate the
carrying value of our assets in accordance with generally accepted accounting
principles. We operate in a highly regulated industry and are subject to
regulations that describe and regulate operating and internal control
procedures. The majority of our revenues are in the form of cash, which by its
nature, does not require complex estimates. In addition, we made certain
estimates surrounding our application of purchase accounting related to the
acquisition and the related assignment of costs to goodwill and other intangible
assets.
In addition, contingencies are accounted for in accordance with SFAS No.
5, "Accounting for Contingencies." SFAS No. 5 requires that we record an
estimated loss from a loss contingency when information available prior to
issuance of our financial statements indicates that it is probable that a
liability has been incurred at the date of the financial statements and the
amount of the loss can be reasonably estimated. Accounting for contingencies
such as legal matters requires us to use judgment. Many of these legal
contingencies can take years to be resolved. Generally, as the time period
increases over which the uncertainties are resolved, the likelihood of changes
to the estimate of the ultimate outcome increases. However, an adverse outcome
could have a material impact on our financial condition and operating results.
CONCENTRATIONS OF RISK--The Company's customer base consists of eastern
Iowa and southwest Louisiana. Although the Company is directly affected by the
economic viability of the area, management does not believe significant risk
exists at December 31, 2003.
The Company maintains deposit accounts at three banks. At December 31,
2003 and 2002, and various times during the years then ended, the balance at the
banks exceeded the maximum amount insured by the FDIC. Management believes any
credit risk related to the uninsured balance is minimal.
F-11
RECLASSIFICATIONS--Certain prior year amounts have been reclassified to
conform with current year presentation.
RECENTLY ISSUED ACCOUNTING STANDARDS--In July 2002, the FASB issued SFAS
No. 146, "Accounting for Costs Associated with Exit or Disposal Activities".
This statement addresses financial accounting and reporting for costs associated
with exit or disposal activities and nullifies the previous guidance on the
subject. This statement requires, among other things, that a liability for a
cost associated with an exit or disposal activity be recognized when the
liability is incurred. The provisions for this statement are effective for exit
or disposal activities that are initiated after December 31, 2002. The adoption
of SFAS No. 146 did not have a material effect on the Company's results of
operations or financial position of the Company for the year ended December 31,
2003.
In November 2002, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN 45).
FIN 45 expands the disclosure requirements related to certain guarantees,
including product warranties, and requires the Company to recognize a liability
for the fair value of all guarantees issued or modified after December 31, 2002.
FIN 45 did not impact the Company's financial position or net income.
In 2003, the FASB issued Interpretation (FIN) No. 46, Consolidation of
Variable Interest Entities, which addresses the consolidation and related
disclosures of these entities by business enterprises. These are entities in
which either the equity investment at risk is not sufficient to absorb the
probable loss without additional subordinated financial support from other
parties, or the investors with equity at risk lack certain essential
characteristics of a controlling interest. Under the Interpretation, the Company
must consolidate any variable interest entities (VIEs) in which the Company
holds variable interests and the Company is deemed the primary beneficiary. The
effective date for the adoption of FIN 46 for interests in VIEs created prior to
February 1, 2003 was July 1, 2003 and applies immediately to variable interest
entities created after January 31, 2003, and to variable interest entities in
which the Company obtains an interest after that date. The adoption of FIN 46
did not impact the Company's financial position or net loss available to common
members' interest.
In May 2003, the FASB issued Statement No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." This
statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. It requires the issuer to classify a financial instrument that is within
the scope of the standard as a liability if such financial instrument embodies
an obligation of the issuer. As a result of the adoption of SFAS No. 150 on July
1, 2003, DJL reclassified its $4 million mandatorily redeemable preferred
members' interest from the mezzanine section of the consolidated balance sheet
to long-term debt. Further, preferred member distributions paid or accrued
subsequent to adoption of SFAS No. 150 are required to be presented as interest
expense separately from interest due to other creditors. DJL was not required to
record a cumulative effect of change in an accounting principle as the
redeemable preferred members' interest was recorded at fair value prior to July
1, 2003. We are precluded from reclassifying prior period amounts pursuant to
this standard.
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31 is summarized as follows:
2003 2002
-------------- --------------
Land and land improvements ......................... $ 13,686,570 $ 1,110,000
Building and improvements .......................... 51,991,698 8,387,134
Riverboats and improvements ........................ 8,305,022 8,300,776
Furniture, fixtures and equipment .................. 28,472,602 7,942,095
Computer equipment ................................. 5,196,966 962,700
Vehicles ........................................... 176,235 130,753
Equipment held under capital lease obligations ..... 704,527
Construction in progress ........................... 6,034,867 7,455,885
-------------- --------------
Subtotal ........................................... 113,863,960 34,993,870
Accumulated depreciation ........................... (11,386,615) (9,291,128)
-------------- --------------
Property and equipment, net ........................ $ 102,477,345 $ 25,702,742
============== ==============
F-12
4. DEBT
The debt of the Company's and its subsidiaries consists of the following at
December 31:
2003 2002
------------- -------------
12 1/4% Senior Secured Notes of DJL due July 1, 2006, net of discount of $383,779
and $506,845, respectively, secured by assets of the Diamond Jo .......................... $ 70,616,221 $ 70,493,155
13% Senior Secured Notes of OED due March 1, 2010 with Contingent Interest, net of
discount of $2,276,564, secured by certain assets of OED ................................. 120,923,436
Line of Credit of DJL with Wells Fargo Foothill, Inc., interest rate at greater of
LIBOR + 3% or Prime + .75%, however, at no time shall the interest rate be lower
than 8.5%, (current rate of 8.5%) principal payments of $50,000 due monthly
beginning October 2002 through February 2005, maturing March 12, 2005, secured by
assets of the Diamond Jo ................................................................. 11,250,000 11,850,000
$15.0 million Loan and Security Agreement of OED with Wells Fargo Foothill, Inc.,
interest rate at Prime + 2.50% (current rate of 6.5%), maturing June 24, 2006,
secured by certain assets of OED ......................................................... 5,104,301
$16.0 million Loan and Security Agreement of OED with Wells Fargo Foothill, Inc.,
interest rate at Prime + 2.50% (current rate of 6.5%), due in 48 equal monthly
principal payments beginning on March 1, 2004, secured by certain assets of OED .......... 12,532,493
Promissory note payable to third party, interest at 4.75% payable monthly in arrears,
annual principal payments of $550,000 due each October beginning in 2004, secured
by mortgage on certain real property of OED .............................................. 3,850,000
Note payable to IGT, interest rate at 9.5%, monthly payments of principal and interest
of $31,250, with final payment due July 1, 2005, secured by certain assets of OED ........ 548,940
Preferred membership interests--redeemable, interest at 9%, due October 13, 2006 ............ 4,000,000
Term loan with Foothill Capital Corporation, interest at Prime + 3.75%, however, at
no time shall the interest rate be lower than 7.5% (current rate of 8.0%),
maturing the earlier of (a) June 30, 2003 or (b) the date on which OED
consummates its financing of the racino project, secured by substantially all the
assets of OED ............................................................................ 8,300,000
Note payable to PGP, issued by OEDA, interest rate of 7% until January 31, 2003,
thereafter 8% until February 28, 2003, thereafter 9% until March 31, 2003,
thereafter the greater of 12% or the fixed rate on the notes expected to be
issued to finance the racino project, maturing on June 30, 2003 .......................... 7,325,000
Note payable to WET2, interest rate of 7% until March 31, 2003, thereafter the
greater of 12% or the fixed rate on the notes expected to be issued to finance
the racino project, maturing on June 30, 2003 ............................................ 4,500,000
------------- -------------
Total debt .................................................................................. 228,825,391 102,468,155
Less current portion ........................................................................ (4,098,222) (20,725,000)
------------- -------------
Total long term debt ........................................................................ $ 224,727,169 $ 81,743,155
============= =============
On July 15, 1999, DJL completed a private placement of $71 million
aggregate principal amount of DJL Notes. The DJL Notes bear interest at a rate
of 12 1/4% per year which is payable semi-annually on January 1 and July 1 of
each year. The DJL Notes are secured by all of our current and future tangible
and intangible assets (with the exception of certain excluded assets). OEDA is
an unrestricted subsidiary of the Company under the DJL Notes pursuant to the
indenture governing the DJL Notes, and therefore is not an obligor with respect
to the DJL Notes and does not otherwise provide credit support with respect to
DJL's payment obligations under such notes. The DJL Notes, which mature on July
1, 2006, are redeemable at DJL's option, in whole or in part at any time or from
time to time, on and after July 1, 2003 at certain specified redemption prices
set forth in the indenture governing the DJL Notes.
The indenture governing the DJL Notes contains a number of restrictive
covenants and agreements, including covenants that limit DJL's ability to, among
other things: (1) incur more debt; (2) pay dividends, redeem stock or make other
distributions; (3) issue stock of subsidiaries; (4) make investments; (5) create
liens; (6) enter into transactions with affiliates; (7) merge or consolidate;
and (8) transfer or sell assets. At December 31, 2003, DJL was in compliance
with all such covenants. The events of default under the indenture include
provisions that are typical of senior debt financings. Upon the occurrence and
continuance of certain events of default, the trustee or the holders of not less
than 25% in aggregate principal amount of outstanding DJL Notes may declare all
unpaid
F-13
principal and accrued interest on all of the DJL Notes to be immediately due and
payable. Upon the occurrence of a change of control (as defined in the indenture
governing the DJL Notes), each holder of DJL Notes will have the right to
require DJL to purchase all or a portion of such holder's DJL Notes pursuant to
the offer described in the indenture at a purchase price equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of repurchase.
On February 25, 2003, OED completed the private placement of $123.2
million aggregate principal amount of OED Notes. The OED Notes bear interest at
a rate of 13% per year which is payable semi-annually on March 1 and September 1
of each year, beginning September 1, 2003. Contingent interest will accrue on
the OED Notes beginning in the first full fiscal year after the casino begins
operations. The amount of contingent interest will be equal to 5.0% of OED's
cash flow for the applicable period, subject to certain limitations. OED may
defer paying a portion of contingent interest under certain circumstances set
forth in the indenture governing the OED Notes. Neither the Company nor any of
its direct subsidiaries is an obligor under the OED Notes or is required to
provide credit support with respect to OED's payment obligations thereunder.
At the end of each six-month period after the casino portion of the racino
begins operations, OED is required under the indenture governing the OED Notes
to offer to purchase the maximum principal amount of OED Notes that may be
purchased, with an amount equal to the sum of (i) 50% of OED's excess cash flow
for such period (if any) and (ii) the then available balance in an excess cash
flow account, which account at any time shall not exceed $10.0 million. For 45
days following the expiration of each initial excess cash flow offer to
purchase, the holders of the OED Notes have the right to request that OED make
an offer to purchase OED Notes with the funds in the excess cash flow account
subject to certain limitations, including that OED shall not be required to make
more than one offer at any one time. All such offers to purchase OED Notes shall
be made at 101% of the principal amount, plus accrued and unpaid interest.
The OED Notes are secured by all of OED's current and future assets (with
the exception of certain excluded assets), including the remaining unused
proceeds from the offering of the OED Notes which have been deposited into OED's
construction disbursement, interest reserve and completion reserve accounts. The
OED Notes, which mature on March 1, 2010, are redeemable at OED's option, in
whole or in part at any time or from time to time, on and after March 1, 2007 at
certain specified redemption prices set forth in the indenture governing the OED
Notes. The indenture governing the OED Notes contains a number of restrictive
covenants and agreements, including covenants that limit the ability of OED and
its subsidiaries to, among other things: (1) pay dividends, redeem stock or make
other distributions or restricted payments; (2) incur indebtedness or issue
preferred shares; (3) make certain investments; (4) create liens; (5) agree to
payment restrictions affecting the subsidiary guarantors; (6) consolidate or
merge; (7) sell or otherwise transfer or dispose of assets, including equity
interests of subsidiaries; (8) enter into transactions with affiliates; (9)
designate subsidiaries as unrestricted subsidiaries; (10) use proceeds of
permitted asset sales and (11) change its line of business. At December 31,
2003, OED was in compliance with all such covenants. The events of default under
the indenture include provisions that are typical of senior debt financings.
Upon the occurrence and continuance of certain events of default, the trustee or
the holders of not less than 25% in aggregate principal amount of outstanding
OED Notes may declare all unpaid principal and accrued interest on all of the
OED Notes to be immediately due and payable. Upon the occurrence of a change of
control (as defined in the indenture governing the OED Notes), each holder of
OED Notes will have the right to require OED to purchase all or a portion of
such holder's OED Notes at a purchase price equal to 101% of the principal
amount thereof plus accrued and unpaid interest, if any, to the date of
repurchase.
The obligations of DJL under it's senior secured credit facility dated
February 23, 2001 (the "DJL Credit Facility") are senior to DJL's obligations
under the DJL Notes. The DJL Credit Facility contains, among other things,
covenants, representations and warranties and events of default customary for
loans of this type. The most significant covenants include a minimum EBITDA
requirement and the maintenance of certain financial ratios that limit our
ability to make distributions and incur debt. At December 31, 2003 and 2002, DJL
was in compliance with all such covenants. At December 31, 2003, DJL had
outstanding borrowings of $11.3 million and outstanding letters of credit of
$0.5 million under the DJL Credit Facility.
On June 24, 2003, OED entered into a new $15.0 million senior secured
credit facility with Wells Fargo Foothill, Inc. as lender (the "OED Credit
Facility"). The OED Credit Facility was amended by the parties thereto on
September 22, 2003, December 10, 2003 and December 24, 2003 (the "OED Credit
Facility Amendments"). OED's
F-14
obligations under the OED Credit Facility are secured by a lien on substantially
all of its and its subsidiaries' current and future assets, other than the
construction disbursement, interest reserve, completion reserve and excess cash
flow accounts and certain other excluded assets as well as a pledge by OEDA of
the capital stock of OED. Pursuant to the intercreditor agreement described
below, the lien on the collateral securing the OED Credit Facility is senior to
the lien on such collateral securing the OED Notes.
The OED Credit Facility consists of a revolving credit facility which
permits OED to request advances and letters of credit to finance working capital
and other general corporate needs. Pursuant to the OED Credit Facility
Amendments, OED had the ability to borrow up to $8.5 million (less amounts
outstanding under letters of credit) at any one time outstanding during the
period before the date that the casino portion of the racino has been completed
and, among other things, is open for business to the general public and
construction costs for the casino have been paid in full or, if such payments
are not yet due on such date, that sufficient funds remain in the construction
disbursement account to satisfy such payments in full (the "Phase I Completion
Date"). All requirements under the definition of the Phase I Completion Date
were met on January 9, 2004. For the period after the Phase I Completion Date
but before the second anniversary of the Phase I Completion Date (the "Second
Anniversary"), the total amount of credit that will be available to OED will be
the lesser of $15.0 million and a specified borrowing base (the "Borrowing
Base"). For the purposes of the OED Credit Facility, the Borrowing Base is the
lesser of 30% of the amount of certain costs incurred by OED in connection with
the construction of the racino project and 20% of the amount of the
distressed-sale valuation of its and its subsidiaries' operations and assets.
After the Second Anniversary, the total amount of credit that will be available
to OED will be the greater of (i) the lesser of $10.0 million and the Borrowing
Base or (ii) the aggregate principal amount of all advances outstanding as of
the Second Anniversary. At December 31, 2003, OED had outstanding borrowings of
$5.1 million and outstanding letters of credit of $3.2 million under the OED
Credit Facility.
All revolving loans and letters of credit issued under the OED Credit
Facility will mature on June 24, 2006. Prior to the maturity date, funds
borrowed under the OED Credit Facility may be borrowed, repaid and reborrowed,
without premium or penalty. OED's borrowings under the OED Credit Facility will
bear interest at a base rate (a Wells Fargo prime rate) plus a margin of 2.50%.
The interest rate payable under the OED Credit Facility will increase by 2% per
annum during the continuance of an event of default. Under the OED Credit
Facility, OED is also required to pay to the lender a letter of credit fee equal
to 2% per annum on the daily balance of the undrawn amount of all outstanding
letters of credit and to the institution issuing a letter of credit a fronting
fee, in each case payable in arrears on a monthly basis.
The OED Credit Facility contains, among other things, covenants,
representations and warranties and events of default customary for loans of this
type. The most significant covenants include a minimum EBITDA requirement and a
maximum capital expenditure requirement. At December 31, 2003, OED was in
compliance with all such covenants.
Concurrently with the closing of the OED Credit Facility, the trustee
under the indenture for the OED Notes (as secured party) entered into an
intercreditor agreement with Wells Fargo Foothill, Inc. as the lender under such
credit facility, providing, among other things, that the lien securing the
indebtedness under the OED Credit Facility is senior to the lien securing the
indebtedness under the OED Notes (except that the construction disbursement,
interest reserve, completion reserve and excess cash flow accounts are security
only for the OED Notes).
On September 22, 2003, OED entered into a new $16.0 million senior secured
credit facility with Wells Fargo Foothill, Inc. as lender (the "OED FF&E
Facility"). Under the OED FF&E Facility, the lender agrees to make a series of
term loans, up to a maximum amount of $16.0 million, to finance the purchase of
gaming equipment and other furniture, fixtures and equipment. OED's obligations
under the OED FF&E Facility are, subject to certain limitations, secured by a
first priority lien on all of the furniture, fixtures and equipment, and all
proceeds and products thereof. At December 31, 2003, OED had outstanding
borrowings of $12.5 million under the OED FF&E Facility.
Loans under the OED FF&E Facility shall be repayable in 48 equal monthly
installments of principal, commencing on March 1, 2004, and continuing on the
first day of each month thereafter until the unpaid balance of all loans are
paid in full. The outstanding principal balance and all accrued and unpaid
interest under all loans shall
F-15
also be due and payable in full on March 1, 2008. Once borrowed, all loans may
be prepaid in whole or in part without penalty or premium at any time during the
term of this agreement. Amounts borrowed and repaid may not be reborrowed. OED's
borrowings under the OED FF&E Facility will bear interest at a base rate (a
Wells Fargo prime rate) plus a margin of 2.50%, but at no time shall the
interest rate be less than 6%. The interest rate payable under the OED FF&E
Facility will increase by 2% per annum during the continuance of an event of
default.
The OED FF&E Facility contains, among other things, covenants,
representations and warranties and events of default customary for loans of this
type. The most significant covenants include a minimum EBITDA requirement and a
maximum capital expenditure requirement. At December 31, 2003 OED was in
compliance with all such covenants.
In October 2003, OED entered into a purchase agreement to acquire 93 acres
of land, divided into seven approximately equal parcels, for a total purchase
price of $3,850,000. The purchase price under this purchase agreement was
financed by the seller with OED issuing a $3,850,000 note payable to the seller.
The note is payable in seven equal annual installments of $550,000 beginning
October 24, 2004 and bears interest at a rate of 4.75% of the unpaid balance due
monthly in arrears on the fifth day of each month beginning on December 5, 2003.
The note is collateralized by a mortgage on the property. Simultaneously with
the payment of each $550,000 annual installment discussed above, seller agrees
to release one of the remaining parcels from the mortgage.
In March 2003, OED entered into a participation agreement with a third
party operator to own and operate 100 video poker machines at OED's OTB in Port
Allen, Louisiana. In December 2003, OED obtained its license to own and operate
video poker machines. In accordance with the participation agreement, OED
assumed the remaining balance of an original $663,700 promissory note payable in
exchange for ownership of the 100 video poker machines. The note bears interest
at 9.5% and is payable in monthly installments of principal and interest of
$31,250 with the last payment due July 1, 2005. The note is collateralized by a
security interest in the machines.
On July 15, 1999, DJL authorized and issued $7.0 million of preferred
membership units. The holders of all of DJL's preferred membership interests are
entitled to receive, subject to certain restrictions contained in the indenture
governing the DJL Notes, out of funds legally available therefor, cumulative
preferred distributions payable semiannually at an annual rate of 9% of the
original face amount thereof. Other than certain limited consent rights and as
required by law, holders of DJL's preferred membership interests have no voting
rights.
DJL redeemed $3.0 million in original face amount of its preferred
membership interests on January 19, 2001 at a redemption price of $3.0 million,
plus a portion of accrued and unpaid interest thereon of $170,000, the balance
of which, in an amount equal to $145,000 plus accrued interest on such amount
(the "Accrued Preferred Distribution"), was agreed to be paid by DJL at such
time that such payment is permitted to be made pursuant to DJL's existing
financing arrangements, but in no event later than January 15, 2003. The Accrued
Preferred Distribution totaling $171,100 was paid on January 15, 2003. The
balance of preferred membership interests not redeemed by DJL must be redeemed
by DJL 90 days after the seventh anniversary of the closing date of the
acquisition at a redemption price of $4.0 million, plus any accrued and unpaid
preferred interest through the date of redemption. Interest for the years ended
December 31, 2003, 2002 and 2001 (other than the Accrued Preferred Distribution)
was $360,544, $373,050 and $386,174, respectively. At December 31, 2003 and
2002, accrued interest related to the preferred membership interests was
approximately $1.1 million and $0.9 million respectively. In accordance with the
adoption of SFAS 150 on July 1, 2003, interest associated with preferred
membership interests after July 1, 2003 has been recorded as "Interest expense
related to preferred members' interest, redeemable" on the Consolidated
Statement of Operations.
Concurrently with the issuance of the OED Notes, our obligations under the
Term Loan, the PGP Note and the WET2 Note were repaid in February 2003.
F-16
5. CAPITAL LEASE OBLIGATION
Capital lease obligations at December 31 are as follows:
2003 2002
---- ----
Liability under capital leases............... $ 0 $475,781
Less current portion.........................
---- --------
$ 0 $475,781
==== ========
On September 6, 2002, DJL entered into a purchase and license agreement
(the "CDS Agreement") with Casino Data Systems ("CDS"). The CDS Agreement
contains various requirements including upgrades to Diamond Jo's current slot
information system, installation of the CDS slot information system as part of
the racino project and equipment purchases. If and when such requirements are
met, CDS agreed to waive any claimed liability or responsibility of DJL for
payment of the outstanding capital lease liability of $475,781. As DJL
substantially met all of the requirements included in the CDS Agreement as of
December 31, 2003, DJL no longer has any obligation to CDS related to this
capital lease. The capital lease liability was primarily offset against the
capital assets acquired under the original capital lease as well as assets
acquired under the CDS Agreement. Amortization of the capital lease asset was
included in depreciation expense for the years ended December 31, 2003, 2002 and
2001.
6. LITIGATION SETTLEMENT
On November 8, 1994, the Louisiana Horsemen's Benevolent and Protective
Association 1993, Inc. ("LHBPA") filed a lawsuit against all licensed horse
racetracks in the State of Louisiana. The lawsuit alleged that LHBPA did not
receive the appropriate share of net revenues from video poker devices located
at licensed horse racetracks. In February 2003, OED entered into a settlement
agreement with LHBPA for $1.6 million. The terms of the settlement agreement
requires OED to make payments of $400,000 annually beginning in March 2003, with
additional $400,000 payments due in March 2004 through 2006.
In accordance with Statement of Financial Accounting Standards No. 5
"Accounting for Contingencies," the Company recorded an expense and related
accrual of $1.6 million in the financial statements as of December 31, 2002. Of
the total $1.6 million accrual, $0.4 million has been included in "Other accrued
expenses" in the "Current Liabilities" section with the remaining $1.2 million
recorded under "Other accrued expenses" in the "Long-term liabilities" section
of the Consolidated Balance Sheet.
7. EMPLOYEE BENEFIT PLAN
Each of DJL and OED has a qualified defined contribution plan under
section 401(k) of the Internal Revenue Code for employees of the Diamond Jo and
Evangeline Downs, respectively. Under the plans, eligible employees may elect to
defer up to 60% of their salary, subject to Internal Revenue Service limits. The
Company may make a matching contribution to each participant based upon a
percentage set by the Company, prior to the end of each plan year. Company
matching contributions to the plans at the Diamond Jo and Evangeline Downs were
$234,002, $227,351 and $227,596 in 2003, 2002 and 2001, respectively.
8. LEASING ARRANGEMENTS
Ground Lease--Lafayette--OED currently leases the land on which the OED
racetrack is located. The ground lease annual rental is $0 per year and the
lease term expires on the earlier of December 31, 2004 or the first day the
Company opens a new racetrack facility for business in St. Landry Parish,
Louisiana.
New Iberia--OED is under a twelve-month lease which runs from September 1,
2002 through August 31, 2003 with lease payments of $5,000 due each month, after
which the lease will revert to a month-to-month contract for $5,000 per month to
lease the New Iberia off-track betting parlor. The lease requires payment of
property taxes, maintenance and insurance on the property. During the year ended
December 31, 2003 and the period February 15, 2002 (date of acquisition) to
December 31, 2002, OED paid $60,000 and $52,321, respectively, in rent for the
New Iberia off-track betting parlor.
F-17
PARI-MUTUEL PROCESSING EQUIPMENT--OED entered into a five-year lease
agreement commencing on February 15, 2001 for computerized pari-mutuel central
processing equipment, terminals and certain associated equipment at OED.
Additionally, the lease agreement provides the Company with pari-mutuel services
whereby the leased equipment automatically registers and totals the amounts
wagered on the races held at the race track or simulcast to it and to its
respective off-track wagering parlors, and displays the win pool odds, payoffs,
and other pertinent horse racing information needed to operate live meet horse
racing and off-track betting. The Company pays 0.43% of the handle for the
services provided during both live meet racing days and off-track betting racing
days. The charges are subject to a minimum of $1,950 per live meet race day and
$1,150 per off-track betting race day. Additionally, if a race day is not
completed, the Company must pay 50% of the minimum if less than four races are
declared official and 100% of the minimum if four or more races are declared
official. In 2003, OED had 87 live meet racing days and 223 off-track betting
days. OED paid $466,923 and $378,204 during the year ended December 31, 2003 and
the period February 15, 2002 (date of acquisition) to December 31, 2002,
respectively, related to the pari-mutuel processing equipment lease.
In 2004, OED is scheduled to run 116 live meet racing days and 249
off-track betting days. The total minimum rental payments for the lease
mentioned in the preceding paragraph assuming 116 live meet racing days and 249
off-track betting days for each of the years ended December 31 are summarized as
follows:
2004...................................................... $512,550
2005...................................................... 512,550
2006...................................................... 51,750
----------
$1,076,850
==========
The Company leases various other equipment under noncancelable operating
leases. The leases require fixed monthly payments to be made ranging from $60 to
$2,553 and certain other gaming machines and tables require contingent monthly
rental payments based on usage of the equipment. The leases expire on various
dates through 2008. Rent expense in 2003, 2002 and 2001 was $1,123,459,
$1,236,088 and $1,348,670, respectively.
The future minimum rental payments required under these leases for the
years ended December 31 are summarized as follows:
2004..................................................... $ 63,561
2005..................................................... 30,630
2006..................................................... 30,630
2007..................................................... 12,763
----------
$137,584
==========
9. COMMITMENTS AND CONTINGENCIES
Under the Company's and PGP's operating agreements, the Company and PGP
have agreed, subject to few exceptions, to indemnify and hold harmless the
Company's members, PGP and PGP's members, as the case may be, from liabilities
incurred as a result of their positions as sole manager of the Company and as
members of the Company or PGP, as the case may be.
On June 25, 2002, PGP entered into an agreement with William E. Trotter,
II ("Trotter") and William E. Trotter, II Family L.L.C., a Louisiana limited
liability company ("WET2LLC") to acquire (i) all of Trotter's interests in two
promissory notes issued by OED in connection with DJL's acquisition of OED, and
(ii) all of Trotter's membership interests owned by WET2LLC (together, the
"Trotter Purchase"). On August 30, 2002, OEDA consummated the Trotter Purchase
for a purchase price consisting of cash of $15,546,000, plus a contingent fee of
one half of one percent (0.5%) of the net slot revenues generated by OED's
racino located in St. Landry Parish, Louisiana, for a period of ten years
commencing on December 19, 2003, the date the racino's casino opened to the
general public.
DJL is involved in a lawsuit with a former employee. Management believes
that such lawsuit is without merit and that the ultimate disposition of this
action should not have a material adverse effect on the financial condition of
the Company; however, no assurance can be given as to the ultimate disposition
of such action.
F-18
Other than as noted above, the Company is not a party to, and none of
its property is the subject of, any other pending legal proceedings other than
litigation arising in the normal course of business. Management does not believe
that adverse determinations in any or all such other litigation would have a
material adverse effect on DJL's financial condition, results of operations or
cash flows.
10. MEMBERS' EQUITY
On July 15, 1999, DJL authorized and issued $9.0 million of common
membership units. PGP, as the holder of all of the Company's issued and
outstanding common membership interests, is entitled to vote on all matters to
be voted on by holders of common membership interests of the Company and,
subject to certain limitations contained in the Company's operating agreement
and the indenture governing the DJL Notes, is entitled to dividends and other
distributions if, as and when declared by the Company's managers out of funds
legally available therefor.
11. DUBUQUE RACING ASSOCIATION, LTD. CONTRACT
Dubuque Racing Association, Ltd. (the "Association"), a qualified
sponsoring organization, presently holds a license to conduct gambling games
under Chapter 99F and other Iowa statutes. The Association owns Dubuque
Greyhound Park, a traditional greyhound racetrack with 600 slot machines and
amenities including a gift shop, restaurant and clubhouse. DJL entered into a
contract (the "Operating Agreement") with the Association relating to the
operation of an excursion gambling riverboat for excursion seasons through
December 31, 2008, under gambling licenses held jointly. Under the terms of the
Operating Agreement, subject to certain conditions, the Association shall
receive the greater of the Association's gaming revenues from the greyhound park
for the period, or a percentage of the total combined gaming revenues of the
Association from the greyhound park and DJL as follows:
o 32% of the first $30,000,000 of total combined gaming revenues, plus
o 8% of the total combined gaming revenues over $30,000,000, but less
than $42,000,000, plus
o 8% of total combined gaming revenues between $42,000,000 and $46,000,000
during any period for which no excursion boat gambling or land based
gambling operation is carried on from a Wisconsin or Illinois gambling
operation in Grant County, Wisconsin, or Joe Davies County, Illinois.
Gaming revenues under this contract means adjusted gross receipts, less
gaming taxes.
The Association's gaming revenues from the greyhound park in 2003, 2002
and 2001 were $34,688,572, $30,041,841, and $27,108,884, respectively, which are
higher than the previously described thresholds, therefore, no payments have
been made to the Association in 2003, 2002 and 2001 under the Operating
Agreement.
Commencing April 1, 2000, DJL had been obligated to pay, and has paid, the
Association the sum of $.50 for each patron admitted on the boat, which, based
upon recent annual attendance, approximates $500,000 annually. During 2003, 2002
and 2001, these payments approximated $527,000, $495,000 and $503,000,
respectively.
In the event DJL elects to sell or lease the excursion gambling boat, its
furnishings and gambling equipment and/or its interest in any ticket sale
facility or other buildings located in the Dubuque Ice Harbor used in connection
with the operation of an excursion gambling boat to a third party that does not
agree to operate these assets subject to the terms and conditions of the
Operating Agreement, and obtains an acceptable offer from such third party for
the purchase or lease thereof, the Association shall have the option to purchase
or lease these assets on the same terms as those offered by such third party.
12. TRANSACTIONS WITH RELATED PARTIES
During 2003, 2002 and 2001, DJL paid $1,557,143, $1,260,012 and
$1,760,908, respectively, to PGP primarily in respect of (i) certain consulting
and financial advisory services, (ii) board fees and expenses paid to the
F-19
members of the board of managers of PGP and (iii) tax, accounting, legal and
administrative costs and expenses of PGP.
During 2003, OEDA accrued board fees payable to a member of the board of
managers of the Company of $175,000. This amount was paid in January 2004.
During the period February 15, 2002 through December 31, 2002, OED paid
principal of $18,379 and interest of $297,536 to WET2 related to WET2's 50%
interest in the Old OED Notes. WET2, through its affiliate WET2LLC, owned 50% of
the membership interests of OED until August 30, 2002.
13. SEGMENT INFORMATION
Pursuant to the provisions of SFAS No. 131 "Disclosures About Segments of
an Enterprise and Related Information," the Company has determined that, in
connection with the acquisition of OED, the Company currently operates two
reportable segments: (1) Iowa operations, which comprise the Diamond Jo
riverboat casino in Iowa and (2) Louisiana operations, which comprise the
casino, racetrack and OTB's operated by OED in Louisiana. Prior to the
acquisition of OED, during 2002, the Company operated under one reportable
segment.
The accounting policies for each segment are the same as those described
in Note 2 above. The Company and the gaming industry use earnings before
interest, taxes, depreciation and amortization ("EBITDA") as a means to evaluate
performance. EBITDA should not be considered as an alternative to, or more
meaningful than, net income (as determined in accordance with accounting
principles generally accepted in the United States of America).
The table below presents information about reported segments as of and for
the years ended (in thousands):
NET REVENUES
------------------------
2003 2002
---------- ----------
Diamond Jo(1) ............................. $ 54,004 $ 48,598
OED(2) .................................... 22,498 16,590
---------- ----------
Total ..................................... $ 76,502 $ 65,188
========== ==========
ADJUSTED EBITDA(3)
------------------------
2003 2002
---------- ----------
Diamond Jo(1) ............................. $ 18,353 $ 15,558
OED(2) .................................... 930 1,486
---------- ----------
Total Adjusted EBITDA(3) .................. 19,283 17,044
Diamond Jo:
Development costs ...................... (103)
Charitable giving agreement ............ (350)
Referendum expense ..................... (771)
Depreciation and amortization .......... (2,500) (2,767)
Interest expense, net .................. (11,050) (10,466)
Loss on sale of assets ................. (50) (8)
Preferred member distributions ......... (181) (373)
OED:
Pre-opening expense .................... (3,257)
Litigation settlement .................. (1,600)
Depreciation and amortization .......... (824) (184)
Interest expense, net .................. (13,710) (1,375)
Minority interests ..................... (232)
---------- ----------
Net loss to common members' interest ...... $ (12,742) $ (732)
========== ==========
Net Cash flow from operating activity ..... 769 11,784
Net Cash flow from investing activity ..... (94,695) (37,790)
Net Cash flow from financing activity ..... 104,575 28,993
F-20
TOTAL ASSETS
------------------------
2003 2002
---------- ----------
Diamond Jo ................................ $ 84,704 $ 83,706
OED ....................................... 176,815 42,742
---------- ----------
Total ..................................... $ 261,519 $ 126,448
========== ==========
- ----------
(1) Reflects results of operations of the Diamond Jo for the years ended
December 31, 2003 and 2002.
(2) Reflects results of operations of OED for the year ended December
31, 2003 and the period February 15, 2002 (date of acquisition) to
December 31, 2002.
(3) Adjusted EBITDA is defined as net loss to common members' interest
plus depreciation and amortization, pre-opening expense, expenses
associated with the charitable giving agreement, development
expense, referendum expense, minority interests and litigation
settlement (see Note 2 for discussion on development costs and
expenses associated with the charitable giving agreement and
referendum expense and Note 6 for discussion on litigation
settlement).
14. SUBSEQUENT EVENTS (UNAUDITED)
On March 11, 2004, DJL and OED announced that they intend to refinance the
DJL and the OED Notes with a proposed offering of $230 million (which
subsequently has been increased to $233 million) of senior secured notes due
2012 and a new credit facility. As part of this note offering, they are also
seeking requisite regulatory approvals to effect a series of corporate
transactions, including the creation of a new holding company to be the new
direct parent of DJL and OED and a co-issuer of the new senior secured notes. In
the event regulatory approval of the corporate transactions is not obtained, DJL
and OED will still consummate the note offering and use the proceeds of the
offering to repurchase and redeem the OED Notes and DJL Notes, respectively. In
such event, however, they will not at such time effect the corporate
transactions or enter into the new credit facility.
On March 9, 2004, OED commenced a tender offer and consent solicitation to
repurchase all of its outstanding OED Notes and to solicit consents to certain
proposed amendments to the indenture governing the OED Notes as set forth in the
Company's Offer to Purchase and Consent Solicitation Statement, dated March 9,
2004 (the "Statement"). As of March 19, 2004, the expiration date of the consent
solicitation, OED had received the requisite consents and tenders from holders
of a majority of the aggregate principal amount of the outstanding OED Notes,
which consents and tenders are irrevocable subject to certain limited exceptions
set forth in the Statement. The tender offer is scheduled to expire on April 5,
2004, unless extended or earlier terminated.
In March 2004, DJL amended the DJL Credit Facility (the "DJL Credit
Facility Amendment"). Under the terms of the DJL Credit Facility Amendment, the
minimum interest rate on all outstanding borrowings under the DJL Credit
Facility less than $10.0 million is reduced to 5.5% and the term of the DJL
Credit Facility was extended by one year to March 12, 2006.
15. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
2003 QUARTERS ENDED
(DOLLARS IN THOUSANDS)
----------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
---------- ---------- ---------- ----------
Net revenues ................................................. $15,670 $19,559 $20,993 $20,280
Income from Operations ....................................... 3,165 3,679 4,479 927
Net income (loss) before preferred member
distributions ............................................. (1,874) (2,923) (2,170) (5,595)
Net income (loss) ............................................ $(1,965) $(3,013) $(2,170) $(5,594)
F-21
2002 QUARTERS ENDED
(DOLLARS IN THOUSANDS)
----------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
---------- ---------- ---------- ----------
Net revenues ................................................. $13,308 $18,474 $18,180 $15,226
Income from Operations ....................................... 2,949 3,923 4,201 650
Net income (loss) before preferred member distributions ...... 322 1,049 1,159 (2,657)
Net income (loss) ............................................ $194 $795 $969 $(2,690)
F-22
PENINSULA GAMING, LLC
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
MARCH 31, DECEMBER 31,
2004 2003
------------- -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ...................................................... $ 20,826,308 $ 21,158,295
Restricted cash - purse settlements ............................................ 4,390,971 1,589,125
Restricted investments ......................................................... 7,859,532 15,778,883
Accounts receivable, less allowance for doubtful accounts of $55,268 and
$61,922, respectively ....................................................... 233,811 309,188
Interest receivable ............................................................ 104,608 173,034
Inventory ...................................................................... 386,695 403,376
Prepaid expenses ............................................................... 1,308,712 815,009
------------- -------------
Total current assets .................................................... 35,110,637 40,226,910
------------- -------------
RESTRICTED CASH - RACINO PROJECT .................................................. 7,002,118 20,013,291
------------- -------------
PROPERTY AND EQUIPMENT, NET ....................................................... 104,871,255 102,477,345
------------- -------------
OTHER ASSETS:
Deferred financing costs, net of amortization of $6,001,462 and $5,288,572,
respectively ................................................................ 25,370,354 12,702,387
Goodwill ....................................................................... 53,083,429 53,083,429
Other intangibles .............................................................. 32,338,689 32,257,963
Deposits and other assets ...................................................... 767,652 757,789
------------- -------------
Total other assets ...................................................... 111,560,124 98,801,568
------------- -------------
TOTAL ............................................................................. $ 258,544,134 $ 261,519,114
============= =============
LIABILITIES AND MEMBERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable ............................................................... $ 2,739,309 $ 2,972,608
Construction payable - St. Landry Parish ....................................... 8,222,318 20,156,591
Purse settlement payable ....................................................... 5,484,725 1,589,125
Accrued payroll and payroll taxes .............................................. 2,070,381 2,788,224
Accrued interest ............................................................... 3,920,748 9,904,778
Other accrued expenses ......................................................... 18,916,108 4,811,106
Current maturity of long-term debt ............................................. 5,467,810 4,098,222
------------- -------------
Total current liabilities ............................................... 46,821,399 46,320,654
------------- -------------
LONG-TERM LIABILITIES:
12 1/4% Senior secured notes, net of discount .................................. 70,649,455 70,616,221
13% Senior secured notes, net of discount ...................................... 120,983,861 120,923,436
Senior secured credit facilities ............................................... 14,754,301 15,754,301
FF&E credit facility ........................................................... 11,666,667 9,921,557
Notes payable .................................................................. 3,422,437 3,511,654
Other accrued expenses ......................................................... 650,000 1,100,000
Preferred members' interest, redeemable ........................................ 4,000,000 4,000,000
------------- -------------
Total long-term liabilities ............................................. 226,126,721 225,827,169
------------- -------------
Total liabilities ....................................................... 272,948,120 272,147,823
COMMITMENTS AND CONTINGENCIES
MEMBERS' DEFICIT .................................................................. (14,403,986) (10,628,709)
------------- -------------
TOTAL ............................................................................. $ 258,544,134 $ 261,519,114
============= =============
See notes to condensed consolidated financial statements (unaudited).
F-23
PENINSULA GAMING, LLC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 2004 MARCH 31, 2003
-------------- --------------
REVENUES:
Casino ................................................................... $ 30,193,349 $ 11,782,204
Racing ................................................................... 4,365,603 3,644,330
Food and beverage ........................................................ 2,817,800 839,278
Other .................................................................... 201,117 57,977
Less promotional allowances .............................................. (2,012,473) (654,226)
-------------- --------------
Total net revenues ................................................ 35,565,396 15,669,563
-------------- --------------
EXPENSES:
Casino ................................................................... 15,053,740 5,013,716
Racing ................................................................... 3,504,387 2,846,747
Food and beverage ........................................................ 2,281,365 731,039
Boat operations .......................................................... 573,061 567,348
Other .................................................................... 124,993 8,674
Selling, general and administrative ...................................... 5,528,047 2,517,919
Depreciation and amortization ............................................ 2,896,063 819,015
Pre-opening expense ...................................................... 221,283
Development costs ........................................................ 21,270
Management fee ........................................................... 256,375
-------------- --------------
Total expenses .................................................... 30,460,584 12,504,458
-------------- --------------
INCOME FROM OPERATIONS ...................................................... 5,104,812 3,165,105
-------------- --------------
OTHER INCOME (EXPENSE):
Interest income .......................................................... 57,085 80,008
Interest expense, net of amounts capitalized ............................. (7,692,728) (5,031,903)
Interest expense related to preferred members' interest, redeemable ...... (90,000)
Loss on disposal of assets ............................................... (87,263)
-------------- --------------
Total other expense ............................................... (7,725,643) (5,039,158)
-------------- --------------
NET LOSS BEFORE PREFERRED MEMBER DISTRIBUTIONS .............................. (2,620,831) (1,874,053)
LESS PREFERRED MEMBER DISTRIBUTIONS ......................................... (90,544)
-------------- --------------
NET LOSS TO COMMON MEMBERS' INTEREST ........................................ $ (2,620,831) $ (1,964,597)
============== ==============
See notes to condensed consolidated financial statements (unaudited).
F-24
PENINSULA GAMING, LLC
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 2004 MARCH 31, 2003
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................................... $ (2,620,831) $ (1,964,597)
Adjustments to reconcile net loss to net cash flows
from operating activities:
Depreciation and amortization .......................................... 2,896,063 819,015
Provision for doubtful accounts ........................................ 31,481 30,251
Amortization and write-off of deferred financing costs and discount
on notes ............................................................ 806,549 884,020
Loss on disposal of assets ............................................. 87,263
Changes in operating assets and liabilities:
Restricted cash - purse settlements .................................... (2,801,846) (926,970)
Receivables ............................................................ 112,322 (782,756)
Inventory .............................................................. 16,681 14,394
Prepaid expenses and other assets ...................................... (503,566) (375,397)
Accounts payable ....................................................... 3,356,344 1,843,247
Accrued expenses ....................................................... (5,687,987) (1,523,398)
------------- -------------
Net cash flows from operating activities ........................... (4,394,790) (1,894,928)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisition and licensing costs ............................... (68,504) (1,173,847)
Racino project development costs ....................................... (16,888,572) (2,341,650)
Restricted cash - racino project, net .................................. 13,011,173 (63,799,585)
Maturity of restricted investments ..................................... 7,919,351
Purchase of restricted investments ..................................... (23,922,971)
Purchase of property and equipment ..................................... (781,680) (511,332)
Proceeds from sale of property and equipment ........................... 380,156
------------- -------------
Net cash flows from investing activities ........................... 3,191,768 (91,369,229)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Deferred financing costs ............................................... (9,140,404)
Principal payments on debt ............................................. (1,442,026) (20,275,000)
Proceeds from FF&E credit facility ..................................... 3,467,507
Proceeds from senior secured notes ..................................... 120,736,000
Member distributions ................................................... (1,154,446) (268,719)
------------- -------------
Net cash flows from financing activities ........................... 871,035 91,051,877
------------- -------------
NET DECREASE IN CASH AND CASH EQUIVALENTS ..................................... (331,987) (2,212,280)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD .............................. 21,158,295 10,510,205
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD .................................... $ 20,826,308 $ 8,297,925
============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest ...................................... $ 13,068,734 $ 5,270,100
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Property additions acquired on construction payable which were accrued,
but not paid ............................................................... $ 2,594,332 $ 3,342,721
Deferred financing costs which were accrued, but not paid ..................... $ 13,380,855 $ 707,377
See notes to condensed consolidated financial statements (unaudited).
F-25
PENINSULA GAMING, LLC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
Diamond Jo, LLC, a Delaware limited liability company ("DJL"), owns and
operates the Diamond Jo riverboat casino in Dubuque, Iowa, and was a wholly
owned subsidiary of Peninsula Gaming Partners, LLC, a Delaware limited liability
company ("PGP"). DJL had two direct wholly owned subsidiaries, (i) Penninsula
Gaming Corp., which had no assets or operations and was formed solely to
facilitate the offering of DJL's 12 1/4% Senior Secured Notes due 2006 (the "DJL
Notes"), and (ii) OED Acquisition, LLC, a Delaware limited liability company
"OEDA"), and the parent company of The Old Evangeline Downs, L.L.C., a Louisiana
limited liability company ("OED"), that currently owns and operates a horse
track in Lafayette, Louisiana and is constructing a new casino and racetrack
facility in St. Landry Parish, Louisiana (the "racino project"). The Old
Evangeline Downs Capital Corp. was a wholly owned subsidiary of OED which has no
assets or operations and was formed solely to facilitate the offering by OED of
its 13% Senior Secured Notes due 2010 with Contingent Interest (the "OED
Notes").
On June 16, 2004, a corporate restructuring occurred, which is reflected
in these financial statements, pursuant to which Peninsula Gaming, LLC, a
Delaware limited liability company (the "Company"), became a new direct parent
company of DJL, OED and Peninsula Gaming Corp. (formerly known as The Old
Evangeline Downs Capital Corp.), a Delaware limited liability company ("PGC").
The Company is a wholly owned subsidiary of PGP. In connection with the
corporate restructuring, OEDA became a sister company to the Company and a
wholly owned subsidiary of PGP in a corporate spin-off which was recorded as a
distribution on June 16, 2004.
OED's results of operations and cash flows for the year ended December 31,
2003 and the period February 15, 2002 (date of acquisition) to December 31, 2002
have been consolidated into the Company's consolidated financial statements.
During the period February 15, 2002 to August 30, 2002, the Company had
substantive control of OED and recorded a minority interest related to the
portion not owned. On August 31, 2002, OED became a wholly owned subsidiary of
the Company. All intercompany transactions have been eliminated.
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments, consisting only of normal
recurring entries unless otherwise disclosed, necessary to present fairly the
financial information of the Company for the interim periods presented and have
been prepared in accordance with accounting principles generally accepted in the
United States of America. The interim results reflected in the financial
statements are not necessarily indicative of results expected for the full year
or other periods.
The financial statements contained herein should be read in conjunction
with the audited financial statements and accompanying notes to the financial
statements included in the Company's Annual Report on Form 10-K for the period
ended December 31, 2003. Accordingly, footnote disclosure which would
substantially duplicate the disclosure in the audited financial statements has
been omitted in the accompanying unaudited financial statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Deferred Financing Costs--As of March 31, 2004, the Company incurred
approximately $13.4 million of fees and expenses related to the refinancing of
the senior secured notes of its subsidiaries, which was subsequently consummated
in April 2004 (see Note 8 for further discussion on the refinancing). The amount
was recorded as "Deferred financing costs" within the "Other Assets" section of
the condensed consolidated balance sheet with a corresponding accrual included
in "Other accrued expenses" within the "Current Liabilities" section of the
condensed consolidated balance sheet.
GOODWILL AND OTHER INTANGIBLE ASSETS--At March 31, 2004 and December 31,
2003, "Goodwill" and "Other intangibles" consists of goodwill, licensing costs
and the acquired trade name associated with the purchase of the Diamond Jo and
OED. To the extent the purchase price exceeded the fair value of the net
identifiable assets acquired, such excess has been recorded as goodwill. SFAS
No. 142 "Goodwill and Other Intangible Assets" provides that goodwill and
indefinite lived intangible assets will no longer be amortized but will be
reviewed at least
F-26
annually for impairment and written down and charged to income when their
recorded value exceeds their estimated fair value.
During the first quarter of 2004 and 2003, the Company performed its
annual impairment test on goodwill in accordance with SFAS No. 142 and
determined that the estimated fair value of the Diamond Jo exceeded its carrying
value as of that date. Based on that review, management determined that there
was no impairment of goodwill.
As of March 31, 2004 and December 31, 2003, the Company had approximately
$32.3 million of "Other intangibles" on its balance sheet summarized as follows
(in millions):
MARCH 31, 2004 DECEMBER 31, 2003
-------------- -----------------
Slot Machine and Electronic Video Game Licenses........... $ 28.5 $ 28.5
Trade name................................................ 2.5 2.5
Horse Racing Licenses..................................... 1.3 1.3
--------- ---------
Total..................................................... $ 32.3 $ 32.3
========= =========
Each of the identified intangible assets were treated as having indefinite
lives and valued separately. The methodology employed by an independent
valuation specialist to arrive at the initial valuations required evaluating the
fair market value of the existing horse racing business on a stand-alone basis
without taking into account any right to obtain slot machine and electronic
video game licenses. Such valuation was based in part upon other transactions in
the industry and OED's historical results of operations. A value was also
derived for the trade name using market based royalty rates. A significant
portion of the purchase price is attributable to the slot machine and electronic
video game license rights, which were valued based upon the market value paid by
other operators and upon projected cash flows from operations. The valuations
were updated by management in the first quarter indicating no impairment. These
valuations and related intangible assets are subject to impairment by, among
other things, significant changes in the gaming tax rates in Louisiana,
significant new competition which could substantially reduce profitability,
non-renewal of OED's racing or gaming licenses due to regulatory matters,
changes to OED's trade name or the way OED's trade name is used in connection
with its business and regulatory changes that could adversely affect OED's
business by, for example, limiting or reducing the number of slot machines or
video poker machines that they are permitted to operate.
On June 25, 2002, PGP entered into an agreement with William E. Trotter,
II ("Trotter") and William E. Trotter, II Family L.L.C., a Louisiana limited
liability company ("WET2LLC") to acquire (i) all of Trotter's interests in two
promissory notes issued by OED in connection with DJL's acquisition of OED, and
(ii) all of Trotter's membership interests owned by WET2LLC (together, the
"Trotter Purchase"). On August 30, 2002, OEDA consummated the Trotter Purchase
for a purchase price consisting of cash of $15,546,000, plus a contingent fee of
one half of one percent (0.5%) of the net slot revenues generated by OED's
racino located in St. Landry Parish, Louisiana, for a period of ten years
commencing on December 19, 2003, the date the racino's casino opened to the
general public. This contingent fee is payable monthly in arrears and is
recorded as an adjustment to "Other intangibles" on the Condensed Consolidated
Balance Sheet.
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 periods. Actual results could differ
from those estimates. We periodically evaluate our policies and the estimates
and assumptions related to these policies. We also periodically evaluate the
carrying value of our assets in accordance with generally accepted accounting
principles. We operate in a highly regulated industry and are subject to
regulations that describe and regulate operating and internal control
procedures. The majority of our revenues are in the form of cash, which by its
nature, does not require complex estimates. In addition, we made certain
estimates surrounding our application of purchase accounting related to the
acquisition and the related assignment of costs to goodwill and other intangible
assets.
CONCENTRATIONS OF RISK--The Company and its subsidiaries maintain deposit
accounts at three banks. At March 31, 2004 and December 31, 2003, and various
times during the periods then ended, the balance at the banks
F-27
exceeded the maximum amount insured by the Federal Deposit Insurance
Corporation. Credit risk is managed by monitoring the credit quality of the
banks.
The Company's customer base consists of eastern Iowa and southwest
Louisiana.
RECLASSIFICATIONS--Certain prior year amounts have been reclassified to
conform with current period presentation.
3. PROPERTY AND EQUIPMENT
Property and equipment of the Company and its subsidiaries at March 31,
2004 and December 31, 2003 is summarized as follows:
MARCH 31, DECEMBER 31,
2004 2003
-------------- --------------
Land and land improvements ............... $ 13,841,117 $ 13,686,570
Buildings and improvements ............... 51,013,360 51,991,698
Riverboats and improvements .............. 8,305,022 8,305,022
Furniture, fixtures and equipment ........ 29,123,820 28,472,602
Computer equipment ....................... 5,507,135 5,196,966
Vehicles ................................. 176,235 176,235
Construction in progress ................. 11,187,245 6,034,867
-------------- --------------
Subtotal ................................. 119,153,934 113,863,960
Accumulated depreciation ................. (14,282,679) (11,386,615)
-------------- --------------
Property and equipment, net .............. $ 104,871,255 $ 102,477,345
============== ==============
4. DEBT
The debt of the Company and its subsidiaries consists of the following:
MARCH 31, DECEMBER 31,
2004 2003
------------- -------------
12 1/4% Senior Secured Notes of DJL due July 1, 2006, net of discount of $350,545
and $383,779, respectively, secured by assets of the Diamond Jo ...................... $ 70,649,455 $ 70,616,221
13% Senior Secured Notes of OED due March 1, 2010 with Contingent Interest, net
of discount of $2,216,139 and $2,276,564, secured by certain assets of OED ........... 120,983,861 120,923,436
Line of Credit of DJL with Wells Fargo Foothill, Inc., interest rate at greater
of LIBOR + 3% or Prime + .75%, however, at no time shall the interest rate be
lower than 5.5% on outstanding balances of $10.0 million or less and 8.5% on
outstanding balances greater than $10.0 million (current rate at above
mentioned interest rate floors), principal payments of $50,000 due monthly
through February 2005, maturing March 12, 2006, secured by assets of the
Diamond Jo ........................................................................... 11,100,000 11,250,000
$15.0 million Loan and Security Agreement of OED with Wells Fargo Foothill,
Inc., interest rate at Prime + 2.50% (current rate of 6.5%), maturing
June 24, 2006, secured by certain assets of OED ...................................... 4,254,301 5,104,301
F-28
$16.0 million Loan and Security Agreement of OED with Wells Fargo Foothill, Inc.
("FF&E Credit Facility"), interest rate at Prime + 2.50% (current rate of
6.5%), due in 48 equal monthly principal payments beginning on March 1, 2004,
secured by certain assets of OED ..................................................... 15,666,667 12,532,493
Promissory note payable to third party, interest at 4.75% payable monthly in
arrears, annual principal payments of $550,000 due each October beginning in
2004, secured by mortgage on certain real property of OED ............................ 3,850,000 3,850,000
Note payable to IGT, interest rate at 9.5%, monthly payments of principal and
interest of $31,250, with final payment due July 1, 2005, secured by certain
assets of OED ........................................................................ 440,247 548,940
Preferred membership interests-redeemable, interest at 9%, due October 13, 2006 ......... 4,000,000 4,000,000
------------- -------------
Total debt .............................................................................. 230,944,531 228,825,391
Less current portion .................................................................... (5,467,810) (4,098,222)
------------- -------------
Total long term debt .................................................................... $ 225,476,721 $ 224,727,169
============= =============
In March 2004, DJL amended it's senior secured credit facility dated
February 23, 2001 (the "DJL Credit Facility Amendment"). Under the terms of the
DJL Credit Facility Amendment, the minimum interest rate on all outstanding
borrowings under the DJL Credit Facility less than $10.0 million was reduced to
5.5% and the term of the DJL Credit Facility was extended by one year to March
12, 2006.
In April 2004, DJL exercised its rights to redeem all of the outstanding
DJL Notes, and OED redeemed a portion of the OED Notes (see Note 8).
5. COMMITMENTS AND CONTINGENCIES
Under the Company's and PGP's operating agreements, the Company and PGP
have agreed, subject to few exceptions, to indemnify and hold harmless the
Company's members, PGP and PGP's members, as the case may be, from liabilities
incurred as a result of their positions as sole manager of the Company and as
members of the Company or PGP, as the case may be.
As discussed in Note 2, in connection with the Trotter Purchase, OED is
obligated to pay a contingent fee of one half of one percent (0.5%) of the net
slot revenues generated by OED's racino located in St. Landry Parish, Louisiana,
for a period of ten years commencing on December 19, 2003, the date the racino's
casino opened to the general public.
DJL is involved in a lawsuit with a former employee. Management believes
that such lawsuit is without merit and that the ultimate disposition of this
action should not have a material adverse effect on the financial condition,
results of operations or cash flows of the Company; however, no assurance can be
given as to the ultimate disposition of such action.
Other than as noted above, the Company is not a party to, and none of its
property is the subject of, any other pending legal proceedings other than
litigation arising in the normal course of business. Management does not believe
that adverse determinations in any or all such other litigation would have a
material adverse effect on our financial condition, results of operations or
cash flows.
6. RELATED PARTY TRANSACTIONS
OED is a party to a consulting agreement with a board member of PGP. Under
the consulting agreement, OED must pay to the board member a fee equal to 2.5%
of OED's earnings before interest, taxes, depreciation, amortization and other
non-recurring charges during the preceding calendar year commencing on January
1, 2004. Under the consulting agreement, the board member is also entitled to
reimbursement of reasonable business expenses as approved by the board of
managers of PGP. During the three months ended March 31, 2004, the board
F-29
member received $212,626 under his consulting agreement. Such amount has been
included in "Management fees" in the "Condensed Consolidated Statement of
Operations".
A board member of PGP is entitled to receive from OEDA board fees of
$175,000 per year for services performed in his capacity as a board member. For
the three months ended March 31, 2004, OEDA expensed $43,749 related to these
board fees which has been included in "Management fees" in the "Condensed
Consolidated Statement of Operations".
At March 31, 2004, the Company had accrued approximately $11.2 million in
fees payable to the initial purchaser in connection with the Company's offering
of its 8 3/4% Senior Secured Notes due 2012 (see Note 8 for a discussion of this
offering). Two of the Company's board members serve as Vice Chairman and
Executive Vice President, respectively, of the initial purchaser.
7. SEGMENT INFORMATION
Pursuant to the provisions of SFAS No. 131 "Disclosures About Segments of
an Enterprise and Related Information," the Company has determined that it
currently operates two reportable segments: (1) Iowa operations, which comprise
the Diamond Jo riverboat casino in Iowa and (2) Louisiana operations, which
comprise the casino, racetrack and off-track betting facilities operated by OED
in Louisiana.
Adjusted EBITDA is defined as operating income plus depreciation and
amortization, pre-opening expense, development expense and management fees.
Adjusted EBITDA is presented to enhance the understanding of the Company's
financial performance and its ability to service its indebtedness. Although
Adjusted EBITDA is not necessarily a measure of the Company's ability to fund
its cash needs, the Company understands that Adjusted EBITDA is used by certain
investors as a measure of financial performance and to compare the Company's
performance with the performance of other companies that report EBITDA or
Adjusted EBITDA. Adjusted EBITDA is not a measurement determined in accordance
with accounting principles generally accepted in the Unites States of America
("GAAP") and should not be considered as an alternative to, or more meaningful
than, the Company's net loss or income from operations, as indicators of its
operating performance, or its cash flows from operating activities, as a measure
of its liquidity or any other measure determined in accordance with GAAP. This
definition of Adjusted EBITDA may not be the same as that of similarly named
measures used by other companies and is not the same as the definition used in
the indenture governing the Notes or any of the Company's other debt agreements.
The table below presents information about reported segments as of and for
the periods ended (in thousands):
NET REVENUES
THREE MONTHS ENDED MARCH 31,
----------------------------
2004 2003
------------ ------------
Diamond Jo .................................. $ 12,178 $ 11,852
OED ......................................... 23,387 3,818
------------ ------------
Total ............................... $ 35,565 $ 15,670
============ ============
THREE MONTHS ENDED MARCH 31,
----------------------------
2004 2003
------------ ------------
Diamond Jo .................................. $ 3,705 $ 3,629
OED ......................................... 4,795 355
------------ ------------
Total Adjusted EBITDA(1) .................... 8,500 3,984
Diamond Jo:
Development costs ........................ (21)
Depreciation and amortization ............ (577) (752)
Interest expense, net .................... (2,808) (2,731)
Loss on sale of assets ................... (87)
Preferred member distributions ........... (91)
F-30
OED:
Depreciation and amortization ............ (2,319) (67)
Pre-opening expense ...................... (221)
Management fee ........................... (257)
Interest expense, net .................... (4,918) (2,221)
------------ ------------
Net loss to common members' interest ........ $ (2,621) $ (1,965)
============ ============
(1) Adjusted EBITDA is defined as net loss to common members' interest plus
depreciation and amortization, pre-opening expense, interest expense,
development expense, loss on sale of assets and management fees.
8. SUBSEQUENT EVENTS
On March 9, 2004, OED commenced a tender offer and consent solicitation to
repurchase all of its outstanding OED Notes and to solicit consents to certain
proposed amendments to the indenture governing the OED Notes as set forth in
OED's Offer to Purchase and Consent Solicitation Statement, dated March 9, 2004.
On March 19, 2004, the expiration date of the consent solicitation, OED received
the requisite consents and tenders from holders of a majority of the aggregate
principal amount of the outstanding OED Notes. The tender offer expired on April
5, 2004, and OED redeemed approximately $116.3 million principal amount of OED
Notes.
On April 16, 2004, DJL and PGC completed a Rule 144A private placement of
$233 million principal amount of 8 3/4% Senior Secured Notes due 2012 (the
"Peninsula Gaming Notes"). The Peninsula Gaming Notes were issued at a discount
of approximately $3.3 million. Interest on the Peninsula Gaming Notes is payable
semi-annually on April 15 and October 15 of each year, beginning on October 15,
2004.
DJL and PGC used the net proceeds from the sale of the Peninsula Gaming
Notes as follows (all payments based on outstanding balances as of April 16,
2004): (1) to irrevocably deposit funds into an escrow account to redeem all of
the DJL Notes in an amount (including call premium and accrued interest) of
approximately $79.9 million; (2) to repurchase approximately $116.3 million
principal amount of OED Notes for an aggregate amount (including tender premium,
accrued interest and contingent interest) of approximately $134.6 million; (3)
to pay accrued distributions on DJL's outstanding preferred membership
interests-redeemable of approximately $1.1 million; (4) to pay related fees and
expenses of approximately $13.4 million; and (5) for general corporate purposes.
As a result of the issuance of the Peninsula Gaming Notes, DJL incurred a loss
of approximately $8.9 million consisting of the write-off of deferred financing
fees of approximately $2.1 million, the payment of a call premium on the DJL
Notes of approximately $5.7 million, interest on the DJL Notes of approximately
$0.7 million and write-off of bond discount of approximately $0.4 million. In
connection therewith, OED also incurred a loss of approximately $26.8 million
consisting of the write-off of deferred financing fees of approximately $8.4
million, the payment of a tender premium on the OED Notes of approximately $16.3
million and write-off of bond discount of approximately $2.1 million.
The indenture governing the Peninsula Gaming Notes limits the Company's
ability and the ability of its restricted subsidiaries to, among other things:
o incur more debt;
o pay dividends, redeem stock, or make other distributions;
o issue stock of restricted subsidiaries;
o make investments;
o create liens;
o enter into transactions with affiliates;
o merge or consolidate; and
F-31
o transfer or sell assets.
The Peninsula Gaming Notes are full and unconditional obligations of DJL
as a co-issuer. The Company and PGC, also co-issuers, have no independent assets
or operations. The Peninsula Gaming Notes are also guaranteed, subject to the
prior lien of the Company's credit facility discussed below, by OED and OED has
pledged its equity interests as collateral. The PGL Credit Facility and the
Peninsula Gaming Notes do not limit OED's ability to transfer net assets to the
Company, however, any transfer is subject to standard regulatory approval. See
the separate financial statements of OED included in this prospectus. OEDA,
which was spun-off on June 16, 2004, comprises less than 2% of the consolidated
assets, members' deficit, net revenues, and net loss for 2003.
F-32
The following unaudited pro forma condensed consolidated financial
information of the Company has been derived from the application of pro forma
adjustments to the combined historical financial statements after giving effect
to the offering of the Peninsula Gaming Notes. The unaudited pro forma condensed
consolidated financial information gives effect to the offering of the Peninsula
Gaming Notes as if such event had occurred on March 31, 2004 for purposes of the
unaudited pro forma condensed consolidated balance sheet at March 31, 2004 and
on December 31, 2003 for purposes of the unaudited pro forma condensed
consolidated statement of operations for the three month period ended March 31,
2004. The pro forma adjustments are described in the accompanying notes.
PENINSULA GAMING, LLC
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AT MARCH 31, 2004
------------------------------------------------------
PRO FORMA
HISTORICAL (1) ADJUSTMENTS PRO FORMA
------------- ------------- -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ......................... $ 20,826,308 $ 16,535,643(2) $ 37,361,951
Restricted cash ................................... 4,390,971 4,390,971
Restricted investments ............................ 7,859,532 (7,859,532)(3)
Other current assets .............................. 2,033,826 2,033,826
------------- ------------- -------------
Total current assets ........................... 35,110,637 8,676,111 43,786,748
------------- ------------- -------------
RESTRICTED CASH - RACINO PROJECT ..................... 7,002,118 (7,002,118)(3)
------------- -------------
PROPERTY AND EQUIPMENT, NET .......................... 104,871,255 104,871,255
------------- ------------- -------------
OTHER ASSETS ......................................... 111,560,124 (10,495,696)(4) 101,064,428
------------- ------------- -------------
TOTAL ................................................ $ 258,544,134 $ (8,821,703) $ 249,722,431
============= ============= =============
LIABILITIES AND MEMBERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable .................................. $ 2,739,309 $ 2,739,309
Construction payable .............................. 8,222,318 8,222,318
Purse settlement payable .......................... 5,484,725 5,484,725
Accrued payroll and payroll taxes ................. 2,070,381 2,070,381
Accrued interest .................................. 3,920,748 $ (3,616,299)(5) 304,449
Other accrued expenses ............................ 18,916,108 (14,462,996)(6) 4,453,112
Current maturity of long-term debt ................ 5,467,810 5,467,810
------------- ------------- -------------
Total current liabilities ...................... 46,821,399 (18,079,295) 28,742,104
------------- ------------- -------------
LONG TERM LIABILITIES:
8 3/4% senior secured notes, net of discount ...... 229,728,680(7) 229,728,680
12 1/4% senior secured notes, net of discount ..... 70,649,455 (70,649,455)(8)
13% senior secured notes, net of discount ......... 120,983,861 (114,198,159)(9) 6,785,702
Other long-term liabilities ....................... 34,493,405 34,493,405
------------- ------------- -------------
Total long-term liabilities .................... 226,126,721 44,881,066 271,007,787
------------- ------------- -------------
Total liabilities .............................. 272,948,120 26,801,771 299,749,891
------------- ------------- -------------
MEMBERS' DEFICIT ..................................... (14,403,986) (35,623,474)(10) (50,027,460)
------------- ------------- -------------
TOTAL ................................................ $ 258,544,134 $ (8,821,703) $ 249,722,431
============= ============= =============
F-33
(1) Represents the historical unaudited condensed consolidated balance sheet
of the Company.
(2) Represents net proceeds from new notes of $229.7 million issued at a
discount of 1.404% less (i) $79.6 million to redeem the DJL Notes
(including a call premium of approximately $5.7 million, accrued interest
of $2.2 million and interest due on the DJL Notes during the 30 day call
period of $0.7 million), (ii) $134.0 million to repurchase approximately
$116.3 million principal amount of OED Notes (including a tender premium
of approximately $16.3 million and accrued interest of approximately $1.4
million), (iii) repayment of accrued interest related to redeemable
preferred member interests of approximately $1.1 million and (iv)
capitalizable fees and expenses associated with the offering of the new
notes of approximately $13.4 million, plus release of restricted
investments of $7.9 million and restricted cash of $7.0 million.
(3) Represents release of restricted cash and restricted investments held by
the trustee of the OED Notes whose use was restricted to paying
construction costs and semi-annual interest payments under the indenture
governing the OED Notes.
(4) Represents write-off of deferred financing costs associated with the
DJL Notes and OED Notes redeemed of $2.1 million and $8.4
million, respectively.
(5) Represents payment of accrued interest associated with the DJL Notes and
OED Notes of approximately $2.2 million and $1.4 million, respectively.
(6) Represents payment of (i) accrued interest associated with the redeemable
preferred member interests of approximately $1.1 million and (ii) accrued
deferred financing costs of approximately $13.4 million.
(7) Represents net proceeds from issuance of new notes.
(8) Represents payment of principal obligations under the DJL Notes of $71.0
million offset by write-off of remaining unamortized discount of
approximately $0.4 million.
(9) Represents payment of principal obligations under the OED Notes of $116.3
million offset by write-off of remaining unamortized discount of
approximately $2.1 million.
(10) Represents (i) the call premium on the DJL Notes of approximately $5.7
million, (ii) the tender premium on the OED Notes of approximately $16.3
million (iii) write-off of deferred financing costs associated with the
DJL Notes and the OED Notes of approximately $10.5 million (iv) write-off
of remaining unamortized discount of the Existing Peninsula Notes and the
OED Notes of approximately $2.4 million and (v) interest on the DJL Notes
during the 30 day call period of $0.7 million.
F-34
PENINSULA GAMING, LLC
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2004
------------------------------------------------
PRO FORMA
HISTORICAL (1) ADJUSTMENTS PRO FORMA
------------ ------------ ------------
NET REVENUES ................................................... $ 35,565,396 $ 35,565,396
EXPENSES ....................................................... 30,460,584 30,460,584
------------ ------------ ------------
INCOME FROM OPERATIONS ......................................... 5,104,812 5,104,812
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest income ............................................. 57,085 57,085
Interest expense, net of amounts capitalized ................ (7,692,728) $ 1,028,034(1) (6,664,694)
Interest expense related to preferred members' interest,
redeemable ............................................... (90,000) (90,000)
------------ ------------ ------------
Total other expense ......................................... (7,725,643) 1,028,034 (6,697,609)
------------ ------------ ------------
NET LOSS TO COMMON MEMBERS' INTEREST ........................... (2,620,831) $ 1,028,034 (1,592,797)
============ ============ ============
(1) Represents elimination of interest expense (including contingent interest
and amortization of deferred financing costs and bond discount) related to
the DJL Notes and OED Notes of approximately $2.5 million and $4.1
million, respectively, plus interest expense (including amortization of
deferred financing costs and bond discount) on the Peninsula Gaming Notes
of approximately $5.6 million.
In May 2004, PGP repurchased 147,553 of its convertible preferred
membership interests from an unrelated third party for approximately $4.5
million. The repurchase was funded by a distribution of cash to PGP from DJL,
its wholly-owned subsidiary.
On June 16, 2004, DJL and OED jointly entered into a Loan and Security
Agreement with Wells Fargo Foothill, Inc. as the Arranger and Agent (the "PGL
Credit Facility"). The PGL Credit Facility consists of a revolving credit
facility which permits DJL and OED to request advances and letters of credit up
to the lesser of the maximum revolver amount of $35 million (less amounts
outstanding under letters of credit) and a specified borrowing base (the
"Borrowing Base"). For the purposes of the PGL Credit Facility, the Borrowing
Base is the lesser of the Combined EBITDA (as defined in the PGL Credit
Facility) of OED and DJL for the twelve months immediately preceding the current
month end multiplied by 150% and the Combined EBITDA of OED and DJL for the most
recent quarterly period annualized multiplied by 150%. Immediately upon the
closing of the PGL Credit Facility, DJL borrowed approximately $11.1 million to
refinance outstanding obligations under the DJL Credit Facility and pay
financing related fees and expenses and OED borrowed approximately $4.8 million
to refinance outstanding obligations under the OED Credit Facility and pay
financing related fees and expenses. Advances under the PGL Credit Facility bear
an interest rate based on the borrower's option of LIBOR plus a margin of 3%
- -3.5% or Wells Fargo prime rate plus a margin of .5% -1% (current rate of 5.0%);
provided that at no time shall the interest rate be lower than 4%. Interest
payments under the prime rate option are due monthly and interest payments under
the LIBOR option are due the last month of the respective LIBOR period. The
respective margins are determined by the Combined EBITDA of OED and DJL as of
the end of each fiscal quarter.
The PGL Credit Facility also contains a term loan in the amount of
$14,666,667 (the "Term Loan"). The proceeds from the Term Loan were used to
repay outstanding obligations under the FF&E Credit Facility. The Term Loan is
secured by certain assets of OED and requires monthly payments of $333,333
starting July 1, 2004 until the full balance is paid, with a maturity no later
than June 15, 2008. The Term Loan has an interest rate equal to the Wells Fargo
prime rate plus 2.5% (current rate of 6.5%); provided that at no time shall the
interest rate be lower than 6%. Under the terms of the PGL Credit Facility, at
closing OED was required to issue a letter of credit in the amount of $3.2
million in favor of Wells Fargo related to the Term Loan.
F-35
DJL and OED are jointly and severally liable under the PGL Credit
Facility, other than borrowings under the Term Loan. Borrowings under the PGL
Credit Facility, other than borrowings under the Term Loan, are collateralized
by substantially all assets of OED and DJL. Borrowings under the Term Loan will
be secured by a separate lien on the furniture, fixtures and equipment of OED
financed pursuant to the terms of the OED FF&E Facility. Borrowings under the
PGL Credit Facility are guaranteed by Peninsula Gaming, LLC and Peninsula Gaming
Corp. (formerly known as OED Capital Corp.).
The PGL Credit Facility contains a number of restrictive covenants and
agreements, including covenants that limit DJL's and OED's ability to, among
other things: (1) incur more debt; (2) create liens; (3) enter into any merger,
consolidation, reorganization, or recapitalization, or reclassify its capital
stock; (4) dispose of certain assets; (5) guarantee debt of others; (6) pay
dividends or make other distributions; (7) make investments; (8) enter into
transactions with affiliates. The PGL Credit Facility also contains financial
covenants including a minimum Combined EBITDA of OED and DJL, limitations to
capital expenditure amounts at OED and DJL and minimum OED EBITDA plus the
premium paid in connection with the April 2004 repurchase of a portion of the
OED Notes. The PGL Credit Facility also contains, among other things,
representations and warranties and events of default customary for loans of this
type.
F-36
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Members of
The Old Evangeline Downs, L.L.C.
Opelousas, Louisiana
We have audited the accompanying balance sheets of The Old Evangeline
Downs, L.L.C. (the "Successor Company"), a wholly owned subsidiary of Peninsula
Gaming, LLC as of December 31, 2003 and 2002, and the related statements of
operations, changes in members' equity (deficit), and cash flows for the year
ended December 31, 2003 and the period August 31, 2002 through December 31,
2002. These financial statements are the responsibility of the Successor
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 standards of the Public Company
Accounting Oversight Board (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, such financial statements present fairly, in all material
respects, the financial position of The Old Evangeline Downs, L.L.C. as of
December 31, 2003 and 2002, and the results of its operations and its cash flows
for the year ended December 31, 2003 and the period August 31, 2002 through
December 31, 2002 in conformity with accounting principles generally accepted in
the United States of America.
/s/DELOITTE & TOUCHE LLP
Cedar Rapids, Iowa
March 10, 2004
(June 16, 2004 as to Note 1)
F-37
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Members of
The Old Evangeline Downs, L.C.
Lafayette, Louisiana
We have audited the accompanying statements of operations, changes in members'
equity (deficit), and cash flows for the period January 1, 2002 through August
30, 2002 and the year ended December 31, 2001 of The Old Evangeline Downs, L.C.
(the "Predecessor Company"). These financial statements are the responsibility
of the Predecessor 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 standards of the Public Company
Accounting Oversight Board (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 results of the Predecessor Company operations and its
cash flows for the period January 1, 2002 through August 30, 2002 and the year
ended December 31, 2001 in conformity with accounting principles generally
accepted in the United States of America.
As described in Note 2 to the financial statements, in 2002 the Predecessor
Company changed its method of accounting for goodwill and intangible assets to
conform to Statement of Accounting Standard No. 142 Goodwill and Other
Intangible Assets.
/s/DELOITTE & TOUCHE LLP
Cedar Rapids, Iowa
March 10, 2004
(June 16, 2004 as to Note 1)
F-38
THE OLD EVANGELINE DOWNS, L.L.C.
BALANCE SHEETS
DECEMBER 31, 2003 AND 2002
DECEMBER 31,
2003 2002
-------------- --------------
CURRENT ASSETS:
Cash and cash equivalents ........................................... $ 8,502,654 $ 962,652
Restricted cash-purse settlements ................................... 1,589,125 840,366
Restricted investments .............................................. 15,778,883
Accounts receivable ................................................. 229,099 176,120
Interest receivable ................................................. 173,034
Inventory ........................................................... 290,107 29,736
Prepaid expenses .................................................... 244,446 48,885
-------------- --------------
Total current assets ................................................ 26,807,348 2,057,759
-------------- --------------
RESTRICTED CASH-RACINO PROJECT ...................................... 20,013,291
-------------- --------------
PROPERTY AND EQUIPMENT, NET ......................................... 87,463,052 8,796,268
-------------- --------------
OTHER ASSETS:
Deferred financing costs, net of amortization of $1,335,172 and
$339,937, respectively .............................................. 10,185,806 484,851
Other intangibles ................................................... 32,257,963 31,329,834
Deposits and other assets ........................................... 87,767 73,131
-------------- --------------
Total other assets .................................................. 42,531,536 31,887,816
-------------- --------------
TOTAL ............................................................... $ 176,815,227 $ 42,741,843
============== ==============
LIABILITIES AND MEMBERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable .................................................... $ 2,168,027 $ 1,237,603
Construction payable-St. Landry Parish .............................. 20,156,591 2,376,494
Purse settlement payable ............................................ 1,589,125 846,778
Accrued payroll and payroll taxes ................................... 1,219,000 131,170
Accrued interest .................................................... 5,472,306 327,953
Other accrued expenses .............................................. 2,067,312 187,253
Current maturity of long-term debt .................................. 3,498,222
Accounts payable to DJL and OEDA .................................... 4,855,204 3,038,992
Notes payable ....................................................... 4,500,000
Term loan payable ................................................... 8,300,000
Note payable to parent .............................................. 7,325,000
-------------- --------------
Total current liabilities ........................................... 41,025,787 28,271,243
-------------- --------------
LONG-TERM LIABILITIES:
13% Senior secured notes, net of discount ........................... 120,923,436
Senior secured facility ............................................. 5,104,301
FF&E credit facility ................................................ 9,921,557
Notes payable ....................................................... 3,511,654
Other accrued expenses .............................................. 800,000
-------------- --------------
Total long-term liabilities ......................................... 140,260,948
-------------- --------------
Total liabilities ................................................... 181,286,735 28,271,243
============== ==============
COMMITMENTS AND CONTINGENCIES
MEMBERS' EQUITY (DEFICIT)
Common members' interest ............................................ 15,232,056 15,232,056
Accumulated deficit ................................................. (19,703,564) (761,456)
See notes to financial statements.
F-39
Total members' equity (deficit) ..................................... (4,471,508) 14,470,600
-------------- --------------
TOTAL ............................................................... $ 176,815,227 $ 42,741,843
============== ==============
See notes to financial statements.
F-40
THE OLD EVANGELINE DOWNS, L.L.C.
STATEMENTS OF OPERATIONS
THE YEAR ENDED DECEMBER 31, 2003 AND THE PERIOD AUGUST 31 TO
DECEMBER 31, 2002 (SUCCESSOR COMPANY)
THE PERIOD JANUARY 1 TO AUGUST 30, 2002 AND THE YEAR ENDED DECEMBER 31, 2001
(PREDECESSOR COMPANY)
SUCCESSOR PREDECESSOR
---------------------------- ----------------------------
PERIOD FROM PERIOD FROM
AUGUST 31 JANUARY 1
THROUGH THROUGH
DECEMBER 31, AUGUST 30,
2003 2002 2002 2001
------------ ------------ ------------ ------------
REVENUES:
Casino ................................................ $ 3,227,477
Racing ................................................ 17,773,481 $ 3,947,568 $ 13,349,589 $ 18,211,237
Food and beverage ..................................... 1,538,374 185,215 971,238 1,113,044
Other ................................................. 167,361
Less promotional allowances ........................... (209,147)
------------ ------------ ------------ ------------
Total net revenues .................................... 22,497,546 4,132,783 14,320,827 19,324,281
------------ ------------ ------------ ------------
EXPENSES:
Casino ................................................ 1,908,730
Racing ................................................ 14,646,351 3,224,763 10,725,678 14,364,494
Food and beverage ..................................... 1,500,065 187,438 886,708 1,131,499
Other ................................................. 59,934
Selling, general and administrative ................... 3,277,507 490,466 1,169,074 1,714,532
Depreciation and amortization ......................... 823,944 77,806 138,166 655,194
Pre-opening expense ................................... 3,256,963
Management fee ........................................ 480,000 160,000 64,644
Litigation settlement ................................. 1,600,000
Relocation expense .................................... 404,738
Impairment charges on long-lived assets ............... 4,361,134
------------ ------------ ------------ ------------
Total expenses ........................................ 27,553,494 4,140,473 12,984,270 22,631,591
------------ ------------ ------------ ------------
INCOME (LOSS) FROM OPERATIONS ......................... (5,055,948) (7,690) 1,336,557 (3,307,310)
OTHER INCOME (EXPENSE):
Earnings from equity affiliate ........................ 58,862
Interest income ....................................... 440,003 (4,979) 9,243 10,720
Interest expense, net of amounts capitalized .......... (14,151,163) (748,787) (769,163) (1,121,835)
------------ ------------ ------------ ------------
Total other expense ................................... (13,711,160) (753,766) (759,920) (1,052,253)
------------ ------------ ------------ ------------
NET INCOME (LOSS) TO COMMON MEMBERS' INTEREST ......... $(18,767,108) $ (761,456) $ 576,637 $ (4,359,563)
------------ ------------ ------------ ------------
See notes to financial statements.
F-41
THE OLD EVANGELINE DOWNS, L.L.C.
STATEMENTS OF CHANGES IN MEMBERS' EQUITY (DEFICIT)
THE YEAR ENDED DECEMBER 31, 2003 AND THE PERIOD AUGUST 31 TO
DECEMBER 31, 2002 (SUCCESSOR COMPANY)
THE PERIOD JANUARY 1 TO AUGUST 30, 2002 AND THE YEAR ENDED DECEMBER 31, 2001
(PREDECESSOR COMPANY)
PREDECESSOR
TOTAL
MEMBERS'
EQUITY
(DEFICIT)
-------------
BALANCE, DECEMBER 31, 2000.................................................... $ (1,541,083)
Net loss to common members' interest.......................................... (4,359,563)
-------------
BALANCE, DECEMBER 31, 2001.................................................... (5,900,646)
Net income to common members' interest........................................ 576,637
-------------
BALANCE, AUGUST 30, 2002...................................................... $ (5,324,009)
=============
SUCCESSOR SUCCESSOR
COMMON SUCCESSOR TOTAL
MEMBERS' ACCUMULATED MEMBERS'
INTEREST DEFICIT EQUITY
------------- ------------- -------------
BALANCE, AUGUST 31, 2002 ................... $ 15,232,056 $ 15,232,056
Net loss to common members' interest ....... $ (761,456) (761,456)
------------- ------------- -------------
BALANCE DECEMBER 31, 2002 .................. 15,232,056 (761,456) 14,470,600)
------------- ------------- -------------
Net loss to common members' interest ....... (18,767,108) (18,767,108)
Member distributions ....................... (175,000) (175,000)
------------- ------------- -------------
BALANCE DECEMBER 31, 2003 .................. $ 15,232,056 $ (19,703,564) $ (4,471,508)
============= ============= =============
See notes to financial statements.
F-42
THE OLD EVANGELINE DOWNS, L.L.C.
STATEMENTS OF CASH FLOWS
THE YEAR ENDED DECEMBER 31, 2003 AND THE PERIOD AUGUST 31 TO
DECEMBER 31, 2002 (SUCCESSOR COMPANY)
THE PERIOD JANUARY 1 TO AUGUST 30, 2002 AND THE YEAR ENDED DECEMBER 31, 2001
(PREDECESSOR COMPANY)
SUCCESSOR PREDECESSOR
------------------------------ ------------------------------
PERIOD FROM PERIOD FROM
AUGUST 31 JANUARY 1
THROUGH THROUGH
DECEMBER 31, AUGUST 30,
2003 2002 2002 2001
------------- ------------- ------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .............................................. $ (18,767,108) (761,456) $ 576,637 $ (4,359,563)
Adjustments to reconcile net income (loss) to net cash flows
provided by operating activities:
Depreciation and amortization ............................ 823,944 77,806 138,166 655,194
Amortization of deferred financing costs and bond
discount .............................................. 1,974,401 339,937
Loss on sale of assets ................................... 12,801
Impairment charge on long-lived assets ................... 4,361,134
Changes in operating assets and liabilities:
Restricted cash .......................................... (748,759) (832,297) 1,093,687 (24,426)
Receivables .............................................. (226,013) 1,305,897 (1,394,560) 33,489
Inventory ................................................ (260,371) 11,105 5,439 (2,782)
Prepaid expenses and other assets ........................ (210,197) 87,334 (97,903) (62,339)
Accounts payable ......................................... 2,124,402 580,388 (255,764) (27,414)
Accrued expenses ......................................... 6,844,704 260,949 390,424 (154,141)
Accounts payable to DJL and OEDA ......................... 1,641,211
Litigation settlement .................................... 1,200,000
------------- ------------- ------------- -------------
Net cash flows from operating activities .............. (5,603,786) 1,069,663 456,126 431,953
------------- ------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Business acquisition and licensing costs ................. (1,781,746) (438,932) (269,680)
Racino project development costs ......................... (55,303,006) (4,280,112) (382,159)
Restricted cash-racino project ........................... (20,013,291)
Purchase of restricted investments ....................... (23,922,971)
Maturity of restricted investments ....................... 8,144,088
Purchase of property and equipment ....................... (710,981) (75,602) (54,289) (68,621)
------------- ------------- ------------- -------------
Net cash flows from investing activities ........ (93,587,907) (4,794,646) (706,128) (68,621)
------------- ------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Deferred financing costs ................................. (11,516,099) (316,206)
Principal payments on debt ............................... (20,125,000) (150,000)
Principal payments on debt to related party .............. (90,987) (411,230)
Proceeds from senior secured notes ....................... 120,736,000
Proceeds from senior credit facility ..................... 5,104,301
Proceeds from FF&E credit facility ....................... 12,532,493
Proceeds from notes payable .............................. 4,500,000
------------- ------------- ------------- -------------
Net cash flows from financing activities ........ 106,731,695 4,033,794 (90,987) (411,230)
------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH ................................ 7,540,002 308,811 (340,989) (47,898)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ............... 962,652 653,841 994,830 1,042,728
------------- ------------- ------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ..................... $ 8,502,654 $ 962,652 $ 653,841 $ 994,830
============= ============= ============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest ......................... $ 8,594,283 $ 267,995 $ 432,812 $ 1,125,262
Cash paid during the year for income taxes ..................... $ 123,043
F-43
SUCCESSOR PREDECESSOR
------------------------------ ------------------------------
PERIOD FROM PERIOD FROM
AUGUST 31 JANUARY 1
THROUGH THROUGH
DECEMBER 31, AUGUST 30,
2003 2002 2002 2001
------------- ------------- ------------- -------------
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Property additions acquired on construction payable which were
accrued, but not paid ....................................... $ 19,681,300 $ 2,376,494
Property and equipment purchased in exchange for indebtedness .. $ 4,398,940
Exchange of Private OED Notes for Registered OED Notes ......... $ 123,200,000
Push down of OEDA note payable to PGP .......................... $ 7,325,000
Assignment from OEDA of term loan payable to Wells Fargo
Foothill, Inc. (formerly known as Foothill Capital
Corporation) ................................................ $ 8,450,000
Push down of OEDA intercompany accounts payable to DJL ......... $ 2,484,140
Push down of deferred financing costs, Racino Project
development costs, and business acquisition and licensing
costs paid by OEDA .......................................... $ 2,934,140
See notes to financial statements.
F-44
THE OLD EVANGELINE DOWNS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION, BUSINESS PURPOSE AND BASIS OF PRESENTATION
In 2002, The Old Evangeline Downs, L.C. was purchased by OED Acquisition,
LLC ("OEDA"), a wholly owned subsidiary of Diamond Jo, LLC (formerly known as
Peninsula Gaming Company, LLC) ("DJL") and was renamed The Old Evangeline Downs,
L.L.C. (the "LLC"), a Louisiana limited liability company (the "Company").
Unless the context requires otherwise, references to the "Company," "we," "us"
or "our" refer to The Old Evangeline Downs, LLC.
Peninsula Gaming LLC, a Delaware limited liability company ("PGL"), was
formed on June 16, 2004 and a corporate restructuring occurred on the same date
and is reflected in these financial statements. As a result of the corporate
restructuring, PGL was formed as a new direct parent company of DJL, the Company
and Peninsula Gaming Corp. (formerly known as the Old Evangeline Downs Capital
Corp.), a Delaware limited liability company ("PGC"). Prior to June 16, 2004,
PGC, which has no assets or operations and was formed solely to facilitate the
offering by the Company of its 13% Senior Secured Notes due 2010 with Contingent
Interest, was a direct wholly owned subsidiary of the Company. PGL is a wholly
owned subsidiary of Peninsula Gaming Partners, LLC, a Delaware limited liability
company ("PGP"). In addition, upon the corporate restructuring, OEDA became a
sister company to PGL and a wholly owned subsidiary of PGP in a corporate
spin-off which was recorded as a distribution by PGL on June 16, 2004.
OED currently owns and operates the Evangeline Downs Racetrack and Casino,
or racino. OED's new racino in Opelousas has a Southern Louisiana Cajun
roadhouse theme on the exterior, with a complementary regional Acadian
atmosphere on the interior. The racino currently includes a casino with 1,627
slot machines, parking spaces for approximately 2,229 cars, 60 semis, and 5
buses, and several dining options. OED's dining options include a 312-seat Cajun
Buffet, an 82-seat fine dining Evangeline restaurant, a 192-seat Lagniappe food
court and a 202-seat Mojos sports bar with an additional 98-seat screened patio,
in addition to a raised bar and lounge area with 120 seats, known as Zydeco's,
occupying the center of OED's casino floor. In accordance with its regulatory
requirements for the racino, OED expects to complete construction of a one-mile
dirt track, stables for 980 horses, a grandstand and clubhouse with seating for
1,295 patrons, and apron and patio space for an additional 3,000 patrons by the
end of fiscal 2004 with related additional capital expenditures of approximately
$17.5 million as of December 31, 2003. Consistent with its regulatory
requirements, OED also expects to continue construction on its turf track during
fiscal 2005. Pending completion of OED's new horse racetrack, horse racing
operations are conducted at OED's nearby pari-mutuel wagering complex in
Lafayette, Louisiana, whose operations will be transferred to OED's new horse
racetrack upon completion. OED's operations also include two off-track betting
parlors ("OTB"), one in New Iberia, and one in Port Allen, Louisiana. OED's OTB
in Port Allen, located on Interstate 10 across the Mississippi River from Baton
Rouge, Louisiana, also operates 100 video poker machines.
Predecessor Company for the period January 1 to August 30, 2002 and the
year ended 2001--The accompanying financial statements include the accounts of
The Old Evangeline Downs, L.C. (the "L.C."). The L.C. was organized as a limited
liability company under the provisions of the laws of the State of Louisiana in
October 1994 for the purpose of both acquiring through the Bankruptcy Plan of
Reorganization, and operating the Evangeline Downs Racetrack.
RACINO DEVELOPMENT
In order to provide funding for the racino project and to repay certain
then existing indebtedness, on February 25, 2003, OED completed a private
placement of $123.2 million 13% Senior Secured Notes due 2010 with Contingent
Interest (the "Private OED Notes"). On September 10, 2003, OED exchanged the
Private OED Notes for notes registered with the Securities and Exchange
Commission otherwise identical in all respects to the Private OED Notes (the
"Registered OED Notes," and together with the Private OED Notes, the "OED
Notes").
The construction and development of the racino project is expected to be
completed in two phases. The first phase involves the construction of the casino
and related casino amenities which was substantially completed and
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opened to the public on December 19, 2003. Construction of the second phase,
which involves the construction of the horse racetrack and related facilities,
is currently underway. OED expects to begin scheduling live racing meets at the
racino in December 2004, at which time it expects to cease operations at OED's
existing horse racetrack.
The total remaining capital expenditures expected to complete the racino
project as of December 31, 2003 is approximately $17.5 million. The source of
funds to complete construction and development of the racino will be (i) a
portion of the proceeds from the offering of the OED Notes, (ii) available
borrowings under OED's $15.0 million senior secured credit facility, (iii)
available borrowings under OED's $16.0 million furniture, fixtures and equipment
financing facility and (iv) cash flows from existing racetrack operations and
future cash flows from future racino operations. See Note 4 for further
information about the OED Notes, the senior credit facility and the furniture,
fixtures and equipment financing facility.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents--OED considers all cash on hand and in banks,
certificates of deposit and other highly liquid debt instruments purchased with
original maturities of three months or less to be cash equivalents.
RESTRICTED CASH--Restricted cash represents amounts for purses to be paid
during the live meet racing season. Additionally, restricted cash includes
entrance fees for a special futurity race during the racing season, plus any
interest earnings. These funds will be used to pay the purse for the race. A
separate interest bearing bank account is required for these funds.
RESTRICTED INVESTMENTS--As of December 31, 2003, we had approximately
$15.8 million invested in government securities with original maturities of
greater than 90 days from the date of initial investment. These investments have
been classified as held-to-maturity and have contractual maturities of $8.0
million on both February 15, 2004 and August 15, 2004. Proceeds from the
maturity of these investments will be used to help make payments of fixed
interest on the OED Notes due March 1, 2004 and September 1, 2004 in accordance
with the terms of the Cash Collateral and Disbursement Agreement, dated February
25, 2003, among us, U.S. Bank National Association (as trustee and disbursement
agent) and an independent construction consultant (the "Cash Collateral and
Disbursement Agreement").
INVENTORIES--Inventories consisting principally of food, beverage, retail
items, and operating supplies are stated at the lower of first-in, first-out
cost or market.
RESTRICTED CASH-RACINO PROJECT--"Restricted cash-racino project"
represents unused proceeds from the sale of the OED Notes, the use and
disbursement of which are restricted to the design, development, construction,
equipping and opening of the racino in accordance with the Cash Collateral and
Disbursement Agreement. As of December 31, 2003, we had $14.4 million in cash
equivalents deposited in a construction disbursement account, $0.2 million in
cash equivalents deposited in an interest reserve account that will be used
toward payment of fixed interest on the OED Notes, $5.0 million in cash
equivalents deposited in a completion reserve account that will be used to fund
potential cost overruns and contingency amounts with respect to the design,
development, construction, equipping and opening of the racino and $0.4 million
in cash in a local financial institution. The funds deposited in these accounts
are invested in cash or securities that are readily convertible to cash.
PROPERTY AND EQUIPMENT--Property and equipment are recorded at cost and
capitalized lease assets are recorded at their fair market value at the
inception of the lease. Major renewals and improvements are capitalized, while
maintenance and repairs are expensed as incurred. Depreciation and amortization
are computed on a straight-line basis over the following estimated useful lives:
Land improvements........................................... 20-40 years
Building and building improvements.......................... 9-40 years
Furniture, fixtures and equipment........................... 3-10 years
Computer equipment.......................................... 3-5 years
Vehicles.................................................... 5 years
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* OED currently leases the land on which the building and leasehold
improvements associated with the old racetrack are located. The ground
lease annual rental is $0 per year and the lease term expires on the
earlier of December 31, 2004 or the first day we open a new racetrack
facility for business in St. Landry Parish, Louisiana.
LONG-LIVED ASSETS--Effective January 1, 2002, OED assessed the impairment
of long-lived assets, excluding goodwill and indefinite-lived intangible assets,
in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets". SFAS No. 144 addresses financial accounting and reporting
for the impairment or disposal of long-lived assets. This statement supersedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," and the accounting and reporting
provisions of APB Opinion No. 30, "Reporting the Results of Operations-Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions." This new pronouncement also
amends ARB No. 51 "Consolidated Financials Statements," to eliminate the
exception to consolidation for a subsidiary for which control is likely to be
temporary. SFAS No. 144 requires that one accounting model be used for
long-lived assets to be disposed of by sale, whether previously held and used or
newly acquired and also broadens the presentation of discontinued operations to
include more disposal transactions. OED evaluates the carrying value of
long-lived assets when events and circumstances warrant such a review. If the
carrying value of the long-lived asset is considered impaired, a loss is
recognized based on the amount by which the carrying value exceeds the fair
market value of the asset. The adoption of SFAS No. 144 did not have an impact
on OED's financial position or results of operations for the years ended
December 31, 2003 and 2002.
CAPITALIZED INTEREST--OED capitalizes interest costs associated with debt
incurred in connection with the racino project. When debt is specifically
identified as being incurred in connection with the development of the racino
project, OED capitalizes interest on amounts expended on the racino project at
OED's average cost of borrowed money. Capitalization of interest will cease when
the project is substantially complete. The amount capitalized during 2003 was
$2.2 million and during the period August 31, 2002 through December 31, 2002 was
$0.1 million.
DEFERRED FINANCING COSTS--Costs associated with the issuance of debt (see
Note 4) have been deferred and are being amortized over the life of the related
indenture/agreement using the effective interest method.
GOODWILL AND OTHER INTANGIBLE ASSETS--Prior to the purchase of the
predecessor company by the successor company during 2002, the predecessor
company had goodwill associated with the predecessor company's adoption of
"fresh-start" reporting in 1994. The goodwill was being amortized on a straight
line basis over a period of 15 years. Upon the predecessor company's adoption of
SFAS No. 142 "Goodwill and Other Intangible Assets" on January 1, 2002,
amortization of the goodwill ceased. Assuming the non-amortization provision of
SFAS No. 142 had been adopted at the beginning of 2001, the predecessor
company's net loss to common members interest would have been $(3,933,736).
At December 31, 2003 and 2002, Other Intangible Assets consists of
licensing costs and the acquired tradename associated with the purchase of OED.
As of December 31, 2003, OED had recorded approximately $3.8 million on OED's
balance sheet for directly related legal and other incremental costs associated
with the acquisition of OED and obtaining the relevant gaming licenses to
conduct gaming operations associated with the racino project in Louisiana. These
costs are included as a cost of the acquisition and have been evaluated under
SFAS No. 141 "Business Combinations" and SFAS No. 142. Intangible assets of
$28.4 million acquired as part of the acquisition were identified and valued as
follows (in millions):
Slot Machine and Electronic Video Game Licenses............. $24.6
Tradename................................................... $2.5
Horse Racing Licenses....................................... $1.3
-----
Total....................................................... $28.4
=====
For purposes of the valuations set forth above, each of the identified
intangible assets were treated as having indefinite lives and valued separately.
The methodology employed by an independent valuation specialist to arrive at
such valuations required evaluating the fair market value of the existing horse
racing business on a stand-
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alone basis without taking into account any right to obtain slot machine and
electronic video game licenses. Such valuation was based in part upon other
transactions in the industry and OED's historical results of operations. A value
was also derived for the tradename using market based royalty rates. A
significant portion of the purchase price is attributable to the slot machine
and electronic video game license rights, which were valued based upon the
market value paid by other operators and upon projected cash flows from
operations. These valuations and related intangible assets are subject to
impairment by, among other things, significant changes in the gaming tax rates
in Louisiana, significant new competition which could substantially reduce
profitability, non-renewal of OED's racing or gaming licenses due to regulatory
matters, changes to OED's tradename or the way OED's tradename is used in
connection with OED's business and regulatory changes that could adversely
affect OED's business by, for example, limiting or reducing the number of slot
machines or video poker machines that we are permitted to operate.
CONSTRUCTION PAYABLE-ST. LANDRY PARISH--At December 31, 2003 and 2002, OED
had $20.2 million and $2.4 million, respectively, in payables and accruals
related to construction and development costs associated with the racino
project.
FINANCIAL INSTRUMENTS--The carrying amount for financial instruments
included among cash and cash equivalents, accounts receivable, restricted cash,
accounts payable and security deposits approximates their fair value based on
the short maturity of those instruments.
REVENUE RECOGNITION--In accordance with common industry practice, OED's
casino revenue is the net win from gaming activities, which is the difference
between gaming wins and losses. Racing revenues include OED's share of
pari-mutuel wagering on live races after payment of amounts returned as winning
wagers, and OED's share of wagering from import and export simulcasting as well
as OED's share of wagering from OED's off-track betting parlors.
PROMOTIONAL ALLOWANCES--Food, beverage, and other items furnished without
charge to customers are included in gross revenues at a value which approximates
retail and then deducted as promotional allowances to arrive at net revenues.
The cost of such complimentary services have been included as casino expenses on
the accompanying statements of operations. Such estimated costs of providing
complimentary services allocated from the food and beverage and other operating
departments to the casino department were $71,222 and $792 for food and beverage
and other, respectively, in 2003.
INCOME TAXES--OED is a limited liability company. In lieu of corporate
income taxes, the members of a limited liability company are taxed on their
proportionate share of OED's taxable income. Therefore, no provision or
liability for federal income taxes has been included in the financial
statements.
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 periods. Actual results could differ
from those estimates. OED periodically evaluates its policies and the estimates
and assumptions related to these policies. OED also periodically evaluates the
carrying value of its assets in accordance with generally accepted accounting
principles. OED operates in a highly regulated industry and is subject to
regulations that describe and regulate operating and internal control
procedures. The majority of OED's revenues are in the form of cash, which by its
nature, does not require complex estimates. In addition, OED made certain
estimates surrounding its application of purchase accounting related to the
acquisition and the related assignment of costs to goodwill and other intangible
assets.
In addition, contingencies are accounted for in accordance with SFAS No.
5, "Accounting for Contingencies." SFAS No. 5 requires that OED records an
estimated loss from a loss contingency when information available prior to
issuance of OED's financial statements indicates that it is probable that a
liability has been incurred at the date of the financial statements and the
amount of the loss can be reasonably estimated. Accounting for contingencies
such as legal matters requires us to use judgment. Many of these legal
contingencies can take years to be resolved. Generally, as the time period
increases over which the uncertainties are resolved, the likelihood of changes
to the estimate of the ultimate outcome increases. However, an adverse outcome
could have a material impact on OED's financial condition and operating results.
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CONCENTRATIONS OF RISK--OED's customer base consists of southwest
Louisiana. Although OED is directly affected by the economic viability of the
area, management does not believe significant risk exists at December 31, 2003.
OED maintains deposit accounts at two banks. At December 31, 2003 and
2002, and various times during the years then ended, the balance at the banks
exceeded the maximum amount insured by the FDIC. Management believes any credit
risk related to the uninsured balance is minimal.
RECLASSIFICATIONS--Certain prior year amounts have been reclassified to
conform with current year presentation.
RECENTLY ISSUED ACCOUNTING STANDARDS--In July 2002, the FASB issued SFAS
No. 146, "Accounting for Costs Associated with Exit or Disposal Activities".
This statement addresses financial accounting and reporting for costs associated
with exit or disposal activities and nullifies the previous guidance on the
subject. This statement requires, among other things, that a liability for a
cost associated with an exit or disposal activity be recognized when the
liability is incurred. The provisions for this statement are effective for exit
or disposal activities that are initiated after December 31, 2002. The adoption
of SFAS No. 146 did not have a material effect on OED's results of operations or
financial position for the year ended December 31, 2003.
In November 2002, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 45, Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN 45).
FIN 45 expands the disclosure requirements related to certain guarantees,
including product warranties, and requires OED to recognize a liability for the
fair value of all guarantees issued or modified after December 31, 2002. FIN 45
did not impact OED's financial position or net income.
In 2003, the FASB issued Interpretation (FIN) No. 46, Consolidation of
Variable Interest Entities, which addresses the consolidation and related
disclosures of these entities by business enterprises. These are entities in
which either the equity investment at risk is not sufficient to absorb the
probable loss without additional subordinated financial support from other
parties, or the investors with equity at risk lack certain essential
characteristics of a controlling interest. Under the Interpretation, OED must
consolidate any variable interest entities (VIEs) in which OED holds variable
interests and OED is deemed the primary beneficiary. The effective date for the
adoption of FIN 46 for interests in VIEs created prior to February 1, 2003 was
July 1, 2003 and applies immediately to variable interest entities created after
January 31, 2003, and to variable interest entities in which OED obtains an
interest after that date. The adoption of FIN 46 did not impact OED's financial
position or net loss available to common members' interest.
In May 2003, the FASB issued Statement No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." This
statement establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. It requires the issuer to classify a financial instrument that is within
the scope of the standard as a liability if such financial instrument embodies
an obligation of the issuer. The adoption of SFAS No. 150 did not impact OED's
financial position or net loss available to common members' interest.
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31 is summarized as follows:
2003 2002
------------ ------------
Land and land improvements ............... $ 12,886,570 $ 310,000
Building and improvements ................ 45,611,018 1,822,508
Furniture, fixtures and equipment ........ 21,212,716 1,169,935
Computer equipment ....................... 4,603,839
Vehicles ................................. 70,571
Construction in progress ................. 5,864,340 7,455,885
Subtotal ................................. 90,249,054 10,758,328
Accumulated depreciation ................. (2,786,002) (1,962,060)
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Property and equipment, net .............. $ 87,463,052 $ 8,796,268
* In December 2001, OED recorded property impairment charges of $4,361,134
related to OED's horse racing facility, see Note 10.
4. DEBT
Debt at December 31 is summarized as follows:
2003 2002
------------- -------------
13% Senior Secured Notes due March 1, 2010 with Contingent Interest, net of
discount of $2,276,564, secured by certain assets of OED ............................... 120,923,436
$15.0 million Loan and Security Agreement with Wells Fargo Foothill, Inc.,
interest rate at Prime + 2.50% (current rate of 6.5%), maturing June 24, 2006,
secured by certain assets of OED ....................................................... 5,104,301
$16.0 million Loan and Security Agreement with Wells Fargo Foothill, Inc.,
interest rate at Prime + 2.50% (current rate of 6.5%), due in 48 equal monthly
principal payments beginning on March 1, 2004, secured by certain assets of OED ........ 12,532,493
Promissory note payable to third party, interest at 4.75% payable monthly in
arrears, annual principal payments of $550,000 due each October beginning in
2004, secured by mortgage on certain real property of OED .............................. 3,850,000
Note payable to IGT, interest rate at 9.5%, monthly payments of principal and
interest of $31,250, with final payment due July 1, 2005, secured by certain
assets of OED .......................................................................... 548,940
Term loan with Foothill Capital Corporation, interest at Prime + 3.75%, however,
at no time shall the interest rate be lower than 7.5% (current rate of 8.0%),
maturing the earlier of (a) June 30, 2003 or (b) the date on which we consummate
OED's financing of the racino project, secured by substantially all the assets
of OED ................................................................................. 8,300,000
Note payable to PGP, issued by OEDA, interest rate of 7% until January 31, 2003,
thereafter 8% until February 28, 2003, thereafter 9% until March 31, 2003,
thereafter the greater of 12% or the fixed rate on the notes expected to be
issued to finance the racino project, maturing on June 30, 2003 ........................ 7,325,000
------------- -------------
Note payable to WET2, interest rate of 7% until March 31, 2003, thereafter the
greater of 12% or the fixed rate on the notes expected to be issued to finance
the racino project, maturing on June 30, 2003 .......................................... 4,500,000
------------- -------------
Total debt ............................................................................. 142,959,170 20,125,000
Less current portion ................................................................... (3,498,222) (20,125,000)
------------- -------------
Total long term debt ................................................................... $ 139,460,948 $ 0
============= =============
On February 25, 2003, OED completed the private placement of $123.2
million aggregate principal amount of OED Notes. The OED Notes bear interest at
a rate of 13% per year which is payable semi-annually on March 1 and September 1
of each year, beginning September 1, 2003. Contingent interest will accrue on
the OED Notes
F-50
beginning in the first full fiscal year after the casino begins operations. The
amount of contingent interest will be equal to 5.0% of OED's cash flow for the
applicable period, subject to certain limitations. OED may defer paying a
portion of contingent interest under certain circumstances set forth in the
indenture governing the OED Notes.
At the end of each six-month period after the casino portion of the racino
begins operations, OED is required under the indenture governing the OED Notes
to offer to purchase the maximum principal amount of OED Notes that may be
purchased, with an amount equal to the sum of (i) 50% of OED's excess cash flow
for such period (if any) and (ii) the then available balance in an excess cash
flow account, which account at any time shall not exceed $10.0 million. For 45
days following the expiration of each initial excess cash flow offer to
purchase, the holders of the OED Notes have the right to request that OED make
an offer to purchase OED Notes with the funds in the excess cash flow account
subject to certain limitations, including that OED shall not be required to make
more than one offer at any one time. All such offers to purchase OED Notes shall
be made at 101% of the principal amount, plus accrued and unpaid interest.
The OED Notes are secured by all of OED's current and future assets (with
the exception of certain excluded assets), including the remaining unused
proceeds from the offering of the OED Notes which have been deposited into OED's
construction disbursement, interest reserve and completion reserve accounts. The
OED Notes, which mature on March 1, 2010, are redeemable at OED's option, in
whole or in part at any time or from time to time, on and after March 1, 2007 at
certain specified redemption prices set forth in the indenture governing the OED
Notes. The indenture governing the OED Notes contains a number of restrictive
covenants and agreements, including covenants that limit the ability of us and
OED's subsidiaries to, among other things: (1) pay dividends, redeem stock or
make other distributions or restricted payments; (2) incur indebtedness or issue
preferred shares; (3) make certain investments; (4) create liens; (5) agree to
payment restrictions affecting the subsidiary guarantors; (6) consolidate or
merge; (7) sell or otherwise transfer or dispose of assets, including equity
interests of subsidiaries; (8) enter into transactions with affiliates; (9)
designate subsidiaries as unrestricted subsidiaries; (10) use proceeds of
permitted asset sales and (11) change its line of business. At December 31,
2003, OED was in compliance with all such covenants. The events of default under
the indenture include provisions that are typical of senior debt financings.
Upon the occurrence and continuance of certain events of default, the trustee or
the holders of not less than 25% in aggregate principal amount of outstanding
OED Notes may declare all unpaid principal and accrued interest on all of the
OED Notes to be immediately due and payable. Upon the occurrence of a change of
control (as defined in the indenture governing the OED Notes), each holder of
OED Notes will have the right to require OED to purchase all or a portion of
such holder's OED Notes at a purchase price equal to 101% of the principal
amount thereof plus accrued and unpaid interest, if any, to the date of
repurchase.
On June 24, 2003, OED entered into a new $15.0 million senior secured
credit facility with Wells Fargo Foothill, Inc. as lender (the "Credit
Facility"). The Credit Facility was amended by the parties thereto on September
22, 2003, December 10, 2003 and December 24, 2003 (the "Credit Facility
Amendments"). OED's obligations under the Credit Facility are secured by a lien
on substantially all of OED's and OED's subsidiaries' current and future assets,
other than the construction disbursement, interest reserve, completion reserve
and excess cash flow accounts and certain other excluded assets as well as a
pledge by OEDA of OED's capital stock. Pursuant to the intercreditor agreement
described below, the lien on the collateral securing the Credit Facility is
senior to the lien on such collateral securing the OED Notes.
The Credit Facility consists of a revolving credit facility which Ipermits
us to request advances and letters of credit to finance working capital and
other general corporate needs. Pursuant to the Credit Facility Amendments, OED
had the ability to borrow up to $8.5 million (less amounts outstanding under
letters of credit) at any one time outstanding during the period before the date
that the casino portion of the racino was completed and, among other things, is
open for business to the general public and construction costs for the casino
have been paid in full or, if such payments are not yet due on such date, that
sufficient funds remain in the construction disbursement account to satisfy such
payments in full (the "Phase I Completion Date"). All requirements under the
definition of the Phase I Completion Date were met on January 9, 2004. For the
period after the Phase I Completion Date but before the second anniversary of
the Phase I Completion Date (the "Second Anniversary"), the total amount of
credit that will be available to OED will be the lesser of $15.0 million and a
specified borrowing base (the "Borrowing Base"). For the purposes of the Credit
Facility, the Borrowing Base is the lesser of 30% of the amount of certain costs
incurred by us in connection with the construction of the racino project and 20%
of the amount of the distressed-sale valuation of OED's and OED's subsidiaries'
operations and assets. After the Second Anniversary, the total amount
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of credit that will be available to OED will be the greater of (i) the lesser of
$10.0 million and the Borrowing Base or (ii) the aggregate principal amount of
all advances outstanding as of the Second Anniversary. At December 31, 2003, OED
had outstanding borrowings of $5.1 million and outstanding letters of credit of
$3.2 million under the Credit Facility.
All revolving loans and letters of credit issued under the Credit Facility
will mature on June 24, 2006. Prior to the maturity date, funds borrowed under
the Credit Facility may be borrowed, repaid and reborrowed, without premium or
penalty. OED's borrowings under the Credit Facility will bear interest at a base
rate (a Wells Fargo prime rate) plus a margin of 2.50%. The interest rate
payable under the Credit Facility will increase by 2% per annum during the
continuance of an event of default. Under the Credit Facility, OED is also
required to pay to the lender a letter of credit fee equal to 2% per annum on
the daily balance of the undrawn amount of all outstanding letters of credit and
to the institution issuing a letter of credit a fronting fee, in each case
payable in arrears on a monthly basis.
The Credit Facility contains, among other things, covenants,
representations and warranties and events of default customary for loans of this
type. The most significant covenants include a minimum EBITDA requirement and a
maximum capital expenditure requirement. At December 31, 2003, OED was in
compliance with all such covenants.
Concurrently with the closing of the Credit Facility, the trustee under
the indenture for the OED Notes (as secured party) entered into an intercreditor
agreement with Wells Fargo Foothill, Inc. as the lender under such credit
facility, providing, among other things, that the lien securing the indebtedness
under the Credit Facility is senior to the lien securing the indebtedness under
the OED Notes (except that the construction disbursement, interest reserve,
completion reserve and excess cash flow accounts are security only for the OED
Notes).
On September 22, 2003, OED entered into a new $16.0 million senior secured
credit facility with Wells Fargo Foothill, Inc. as lender (the "FF&E Facility").
Under the FF&E Facility, the lender agrees to make a series of term loans, up to
a maximum amount of $16.0 million, to finance the purchase of gaming equipment
and other furniture, fixtures and equipment. OED's obligations under the FF&E
Facility are, subject to certain limitations, secured by a first priority lien
on all of the furniture, fixtures and equipment, and all proceeds and products
thereof. At December 31, 2003, OED had outstanding borrowings of $12.5 million
under the FF&E Facility.
Loans under the FF&E Facility shall be repayable in 48 equal monthly
installments of principal, commencing on March 1, 2004, and continuing on the
first day of each month thereafter until the unpaid balance of all loans are
paid in full. The outstanding principal balance and all accrued and unpaid
interest under all loans shall also be due and payable in full on March 1, 2008.
Once borrowed, all loans may be prepaid in whole or in part without penalty or
premium at any time during the term of this agreement. Amounts borrowed and
repaid may not be reborrowed. OED's borrowings under the FF&E Facility will bear
interest at a base rate (a Wells Fargo prime rate) plus a margin of 2.50%, but
at no time shall the interest rate be less than 6%. The interest rate payable
under the FF&E Facility will increase by 2% per annum during the continuance of
an event of default.
The FF&E Facility contains, among other things, covenants, representations
and warranties and events of default customary for loans of this type. The most
significant covenants include a minimum EBITDA requirement and a maximum capital
expenditure requirement. At December 31, 2003 OED was in compliance with all
such covenants.
In October 2003, OED entered into a purchase agreement to acquire 93 acres
of land, divided into seven approximately equal parcels, for a total purchase
price of $3,850,000. The purchase price under this purchase agreement was
financed by the seller with us issuing a $3,850,000 note payable to the seller.
The note is payable in seven equal annual installments of $550,000 beginning
October 24, 2004 and bears interest at a rate of 4.75% of the unpaid balance due
monthly in arrears on the fifth day of each month beginning on December 5, 2003.
The note is collateralized by a mortgage on the property. Simultaneously with
the payment of each $550,000 annual installment discussed above, seller agrees
to release one of the remaining parcels from the mortgage.
In March 2003, OED entered into a participation agreement with a third
party operator to own and operate 100 video poker machines at OED's OTB in Port
Allen, Louisiana. In December 2003, OED obtained its license to
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own and operate video poker machines. In accordance with the participation
agreement, OED assumed the remaining balance of an original $663,700 promissory
note payable in exchange for ownership of the 100 video poker machines. The note
bears interest at 9.5% and is payable in monthly installments of principal and
interest of $31,250 with the last payment due July 1, 2005. The note is
collateralized by a security interest in the machines.
Concurrently with the issuance of the OED Notes, OED's obligations under
the Term Loan, the PGP Note and the WET2 Note were repaid in February 2003.
5. LITIGATION SETTLEMENT
On November 8, 1994, the Louisiana Horsemen's Benevolent and Protective
Association 1993, Inc. ("LHBPA") filed a lawsuit against all licensed horse
racetracks in the State of Louisiana. The lawsuit alleged that LHBPA did not
receive the appropriate share of net revenues from video poker devices located
at licensed horse racetracks. In February 2003, OED entered into a settlement
agreement with LHBPA for $1.6 million. The terms of the settlement agreement
requires OED to make payments of $400,000 annually beginning in March 2003, with
additional $400,000 payments due in March 2004 through 2006.
In accordance with Statement of Financial Accounting Standards No. 5
"Accounting for Contingencies," OED recorded an expense and related accrual of
$1.6 million in the financial statements as of December 31, 2003. Of the total
$1.6 million accrual, $0.4 million was paid in March 2003, $0.4 million has been
included in "Other accrued expenses" in the "Current Liabilities" section with
the remaining $0.8 million recorded under "Other accrued expenses" in the
"Long-term liabilities" section of the Balance Sheet.
6. EMPLOYEE BENEFIT PLAN
On June 1, 2002, OED implemented a new 401(k) Plan that covers any
employee who wishes to participate, who was over age 21 and has given one year
of service to OED. Contributions to the plan made by the employees are limited
to 60% of their compensation and are partially matched by OED based on a formula
providing for 50% matching on the first 4% of compensation contributed. OED's
contributions to the plan for the year ended December 31, 2003, the period
August 31, 2002 to December 31, 2002 the period June 1, 2002 (date of plan
implementation) to August 30, 2002 were $21,673, $5,954 and $3,635,
respectively.
During 2001 and through February 2002, OED participated in a profit
sharing 401(k) Plan sponsored by the Moody Company which was implemented during
1996 that covered any employee who wished to participate, who was over age 21
and had given one year of service to OED. Contributions to the plan made by the
employees were limited to 15% of their compensation and were partially matched
by OED based on a formula providing for 1) 50% matching on the first 4% of
compensation, and 2) an optional contribution of up to 15% of compensation,
based on an annual decision of OED's managers. OED's contributions to the plan
were $2,995 and $18,895 for the period January 1 through the end of OED's
participation in the plan in February 2002 and the year ended December 31, 2001,
respectively.
7. LEASING ARRANGEMENTS
GROUND LEASE-LAFAYETTE--OED currently leases the land on which the current
racetrack is located. The ground lease annual rental is $0 per year and the
lease term expires on the earlier of December 31, 2004 or the first day OED
opens a new racetrack facility for business in St. Landry Parish, Louisiana.
NEW IBERIA--OED is under a month-to-month contract for $5,000 per month
to lease the New Iberia off-track betting parlor. The lease requires payment of
property taxes, maintenance and insurance on the property. During the year ended
December 31, 2003, the period August 31 through December 31, 2002, the period
January 1 through August 30, 2002 and the year ended December 31, 2001, OED paid
$60,000, $20,000, $40,000 and $60,000, respectively, in rent for the New Iberia
off-track betting parlor.
PARI-MUTUEL PROCESSING EQUIPMENT--OED entered into a five-year lease
agreement commencing on February 15, 2001 for computerized pari-mutuel central
processing equipment, terminals and certain associated
F-53
equipment. Additionally, the lease agreement provides us with pari-mutuel
services whereby the leased equipment automatically registers and totals the
amounts wagered on the races held at the race track or simulcast to it and to
its respective off-track wagering parlors, and displays the win pool odds,
payoffs, and other pertinent horse racing information needed to operate live
meet horse racing and off-track betting. OED pays 0.43% of the handle for the
services provided during both live meet racing days and off-track betting racing
days. The charges are subject to a minimum of $1,950 per live meet race day and
$1,150 per off-track betting race day. Additionally, if a race day is not
completed, OED must pay 50% of the minimum if less than four races are declared
official and 100% of the minimum if four or more races are declared official. In
2003, OED had 87 live meet racing days and 223 off-track betting days. OED paid
$466,923, $116,308, $308,972 and $429,357 during the year ended December 31,
2003, the period August 31 through December 31, 2002, the period January 1
through August 30, 2002 and the year ended December 31, 2001, respectively,
related to the pari-mutuel processing equipment lease.
In 2004, OED is scheduled to run 116 live meet racing days and 249
off-track betting days. The total minimum rental payments for the lease
mentioned in the preceding paragraph assuming 116 live meet racing days and 249
off-track betting days for each of the years ended December 31 are summarized as
follows:
2004....................................... $ 512,550
2005....................................... 512,550
2006....................................... 51,750
------------
$ 1,076,850
============
OED leases various other equipment under noncancelable operating leases.
The leases require fixed monthly payments to be made ranging from $1,600 to
$2,553 and certain other gaming machines require contingent monthly rental
payments based on usage of the equipment. The leases expire on various dates
through 2007. Rent expense was $211,721, $8,208, $9,718 and $32,091 during the
year ended December 31, 2003, the period August 31 through December 31, 2002,
the period January 1 through August 30, 2002 and the year ended December 31,
2001, respectively.
The future minimum rental payments required under these leases for the
years ended December 31 are summarized as follows:
2004....................................... $ 47,110
2005....................................... 30,630
2006....................................... 30,630
2007....................................... 12,763
------------
$ 121,133
============
8. COMMITMENTS AND CONTINGENCIES
On June 25, 2002, Peninsula Gaming Partners, LLC, a Delaware limited
liability company which holds all of the membership interests of DJL ("PGP")
entered into an agreement with William E. Trotter, II ("Trotter") and William E.
Trotter, II Family L.L.C., a Louisiana limited liability company ("WET2LLC") to
acquire (i) all of Trotter's interests in two promissory notes issued by us in
connection with DJL's acquisition of us, and (ii) all of Trotter's membership
interests owned by WET2LLC (together, the "Trotter Purchase"). On August 30,
2002, OEDA consummated the Trotter Purchase for a purchase price consisting of
cash of $15,546,000, plus a contingent fee of one half of one percent (0.5%) of
the net slot revenues generated by OED's racino located in St. Landry Parish,
Louisiana, for a period of ten years commencing on December 19, 2003, the date
the racino's casino opened to the general public.
OED is not a party to, and none of OED's property is the subject of, any
other pending legal proceedings other than litigation arising in the normal
course of business. Management does not believe that adverse determinations in
any or all such other litigation would have a material adverse effect on OED's
financial condition, results of operations or cash flows.
F-54
9. TRANSACTIONS WITH RELATED PARTIES
During 2003, OED had accrued member distributions of $175,000 payable to
OEDA. This amount was paid in January 2004.
At December 31, 2003 and 2002, OED had accrued interest recorded of
$330,209 payable to OEDA primarily related to OEDA's purchase of a 50% interest
in OED's long-term notes payable on February 15, 2002. Interest was accrued from
the date of purchase of the notes until August 30, 2002, at which time the
interest in the notes was converted to members' equity of OED.
At December 31, 2003 and 2002, OED had intercompany accounts payable to
DJL of $3,645,351 and $2,484,140 related to Racino Project development costs
paid by DJL on behalf of us.
Management Services Agreement - In 2002, OED entered into a management
services agreement ("MSA") with DJL and OEDA (together the "Operator"). Pursuant
to the terms of that agreement, the Operator will manage and operate OED's
existing horse racetrack and design, develop, construct, manage and operate the
new racino and provide certain pre-opening services in connection therewith.
Under the management services agreement, the Operator is entitled to receive a
pre-opening service fee equal to $40,000 per month, retroactive to June 27, 2001
which is not required to be paid until the earlier to occur of commencement of
the operations of the casino or the Operating Deadline (as defined in the MSA
and applicable to the casino). The Operator is also entitled to be reimbursed
for all reasonable and documented out-of-pocket expenses permitted to be
incurred under the management services agreement, including, but not limited to
tax preparation, accounting, legal and administrative fees and expenses incurred
in connection with the Operator's ownership of us. The Operator will also
receive a basic management fee equal to 1.75% of net revenue (less net food and
beverage revenue) and an incentive fee equal to:
o 3.0% of the first $25.0 million of EBITDA (as defined below);
o 4.0% of EBITDA in excess of $25.0 million but less than $30.0
million of EBITDA; and
o 5.0% of EBITDA in excess of $30.0 million.
"EBITDA" is defined in the management services agreement as earnings
before interest, income taxes, depreciation and amortization; provided,
however, that in calculating earnings, the basic management fee, the
incentive fee and reimbursables payable under the management services
agreement shall not be deducted.
The management services agreement will terminate on the later of (i) the
date that is eight years after the first date a revenue paying customer is
admitted to the new racino and (ii) the date of sale by DJL of its beneficial
ownership of OED's membership interests.
During the year ended December 31, 2003, the period August 31 to December
31, 2002 and the period January 1 to August 30, 2002, we accrued management fee
expenses of $480,000, $160,000 and $64,644, respectively.
Certain members of OED are also managers of PGP. Due to these
relationships, those individuals may indirectly receive money from us for
management fees and other amounts paid by us to DJL.
During the period August 31 through December 31, 2002, the period January
1 through August 30, 2002 and the year ended December 31, 2001, interest was
paid to Moody-Trotter Investments and William E. Trotter in the amount of
$96,156, $432,812 and $1,125,262, respectively.
10. IMPAIRMENT CHARGE
In connection with OED's assessment of the events enumerated in Note 1
surrounding the Racino Project, a review was performed of the carrying values of
long-lived assets, including the recorded balance of the line item "Other
intangibles". We determined that the sale of a 50% interest of OED to OEDA,
which was consummated on
F-55
February 15, 2002, significantly changed the time period over which the horse
racing facility in Lafayette, Louisiana would be used. This review was performed
pursuant to the provisions of SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets to Be Disposed Of. As a result of this review, we recorded a
charge of $4,361,134 in 2001 to record the related assets at fair value based on
the present value of estimated expected future cash flows using a discount rate
commensurate with the risks involved.
11. SUBSEQUENT EVENTS (UNAUDITED)
On March 11, 2004, OED and DJL announced that they intend to refinance the
OED Notes and DJL's 12 1/4 % Senior Secured Notes due 2006 (the "DJL Notes")
with a proposed offering of $230 million (which subsequently has been increased
to $233 million) of senior secured notes due 2012 and a new credit facility. As
part of this note offering, they are also seeking requisite regulatory approvals
to effect a series of corporate transactions, including the creation of a new
holding company to be the new direct parent of OED and DJL and a co-issuer of
the new senior secured notes. In the event regulatory approval of the corporate
transactions is not obtained, OED and DJL will still consummate the note
offering and use the proceeds of the offering to repurchase and redeem the OED
Notes and DJL Notes, respectively. In such event, however, they will not at such
time effect the corporate transactions or enter into the new credit facility.
On March 9, 2004, OED commenced a tender offer and consent solicitation to
repurchase all of its outstanding OED Notes and to solicit consents to certain
proposed amendments to the indenture governing the OED Notes as set forth in
OED's Offer to Purchase and Consent Solicitation Statement, dated March 9, 2004
(the "Statement"). As of March 19, 2004, the expiration date of the consent
solicitation, OED had received the requisite consents and tenders from holders
of a majority of the aggregate principal amount of the outstanding OED Notes,
which consents and tenders are irrevocable subject to certain limited exceptions
set forth in the Statement. The tender offer is scheduled to expire on April 5,
2004, unless extended or earlier terminated.
12. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
2003 QUARTERS ENDED
--------------------------------------------------------
(DOLLARS IN THOUSANDS)
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------- ----------- ------------ -----------
Net revenues $ 3,817 $ 6,333 $ 5,542 $ 6,806
Income from Operations (1,432) 4 (640) (2,988)
Net income (loss) $ (3,653) $ (3,858) $ (4,489) $ (6,767)
2002 QUARTERS ENDED
--------------------------------------------------------
(DOLLARS IN THOUSANDS)
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------- ----------- ------------ -----------
Net revenues $ 3,710 $ 6,222 $ 5,348 $ 3,174
Income from Operations 447 582 271 29
Net income (loss) $ 182 $ 323 $ (156) $ (534)
F-56
SCHEDULE II
PENINSULA GAMING, LLC
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2003, 2002 AND 2001
(IN THOUSANDS)
BALANCE AT CHARGED TO
BEGINNING COSTS AND BALANCE AT
DESCRIPTION OF YEAR EXPENSES DEDUCTIONS(1) END OF YEAR
----------- ----------- ----------- ------------- -----------
Year ended December 31, 2003:
Allowance for doubtful accounts $ 46 $ 184 $ (168) $ 62
Year ended December 31, 2002:
Allowance for doubtful accounts $ 57 $ 139 $ (150) $ 46
Year ended December 31, 2001:
Allowance for doubtful accounts $ 43 $ 152 $ (138) $ 57
- ----------
(1) Amounts written off.
F-57
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN OUR AFFAIRS SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
DIAMOND JO, LLC
PENINSULA GAMING CORP.
PENINSULA GAMING, LLC
OFFER TO EXCHANGE
$233,00,000
8 3/4% Senior Secured Notes Due 2010
, 2004
UNTIL , 2004, ALL DEALERS EFFECTING TRANSACTIONS IN THE OLD NOTES OR
THE NEW NOTES, WHETHER OR NOT PARTICIPATING IN THE EXCHANGE OFFER, MAY BE
REQUIRED TO DELIVER A PROSPECTUS. THIS REQUIREMENT IS IN ADDITION TO THE
DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH
RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
A-1
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF MEMBERS AND MANAGERS
(a) Peninsula Gaming Corp. ("PGC") is a corporation organized under the
laws of the State of Delaware pursuant to the Delaware General Corporation Law.
PGC is empowered under Section 145 of the Delaware General Corporation Law (the
"DGCL"), subject to the procedures and limitations set forth in its Certificate
of Incorporation (the "Certificate of Incorporation") and its By-Laws (the
"By-Laws"), to indemnify directors, officers, employees and other individuals
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement in connection with specified actions, suits or proceedings,
whether civil, criminal, administrative or investigative (other than a
derivative action) if they acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best interests of PGC and, with respect
to any criminal action or proceeding, had no reasonable cause to believe their
conduct was unlawful. A similar standard of care is applicable in the case of a
derivative action, except that indemnification only extends to expenses
(including attorneys' fees) incurred in connection with the defense or
settlement of such an action, and the DGCL requires court approval before there
can be any indemnification of expenses where the person seeking indemnification
has been found liable to PGC.
Article Eighth of PGC's Certificate of Incorporation provides that, to the
fullest extent permitted by the DGCL as the same exists or may hereafter be
amended, a director of PGC shall not be liable to PGC or its stockholders for
monetary damages for a breach of fiduciary duty as a director. Any repeal or
modification of Article Eighth of the Certificate of Incorporation shall not
adversely affect any right or protection of a director of PGC existing at the
time of such repeal or modification.
Section 9.1 of PGC's By-Laws provides that every person who was or is
threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that he or a person of whom he is the legal representative is or was
a director or officer of PGC or is or was serving at the request of PGC or for
its benefit as a director or officer of another corporation, or as its
representative in a partnership, joint venture, trust or other enterprise, shall
be indemnified and held harmless to the fullest extent legally permissible under
and pursuant to any procedure specified in the Delaware Code, against all
expenses, liabilities and losses (including attorneys' fees, judgments, fines
and amounts paid or to be paid in settlement) reasonably incurred or suffered by
him in connection therewith. Such right of indemnification shall be a contract
right which may be enforced in any manner desired by such person. Such right of
indemnification shall not be exclusive of any other right which such directors,
officers or representatives may have or hereafter acquire and, without limiting
the generality of such statement, they shall be entitled to their respective
rights of indemnification under any by-law, agreement, vote of stockholders,
provision of law or otherwise, as well as their rights under Article 9 of the
By-Laws.
Section 9.2 of PGC's By-Laws provides that its Board may cause PGC to
purchase and maintain insurance on behalf of any person who is or was a director
or officer of PGC, or is or was serving at the request of PGC as a director or
officer of another corporation, or as its representative in a partnership, joint
venture, trust or other enterprise against any liability asserted against such
person and incurred in any such capacity or arising out of such status, whether
or not PGC would have the power to indemnify such person.
Section 9.3 of PGC's By-Laws provides that its Board may from time to time
adopt further by-laws with respect to indemnification and may amend the current
By-Laws and such by-laws to provide at all times the fullest indemnification
permitted by the Delaware Code.
Section 9.4 of PGC's By-Laws provides that expenses incurred in defending
a civil or criminal action or proceeding of the type described in Section 9.1 of
the By-Laws shall be paid by PGC in advance of the final disposition of such
action or proceeding upon receipt of an undertaking by or on behalf of the
person requesting such advance to repay such amount in the event that such
person is ultimately found not to be entitled to indemnification or, where
indemnification is granted, to the extent the expenses so advanced by PGC or
allowed by a court exceed the indemnification to which such person is entitled.
(b) Peninsula Gaming, LLC ("PGL") is a limited liability company formed
under the laws of the State of Delaware under the Delaware Limited Liability
Company Act, 6 Del. C. Sections 18-101, et. seq., (as amended from time to time,
the "Delaware Act"). PGL is empowered by Section 18-108 Delaware Act, subject to
the
II-1
standards and restrictions set forth in PGL's Amended and Restated Operating
Agreement (the "PGL Operating Agreement"), to indemnify and hold harmless any
member or manager or other person from and against any and all claims and
demands whatsoever.
Section 8(c) of the PGL Operating Agreement provides that, to the fullest
extent permitted under applicable law, neither the sole member nor any officer
of PGL shall be deemed to violate the PGL Operating Agreement or be liable,
responsible or accountable in damages or otherwise to any other member or
officer or PGL for any action or failure to act, including but not limited to,
under any theory of fiduciary duty or obligation, unless such violation or
liability is attributable to the sole member or such officer's gross negligence,
willful misconduct, bad faith or a continuing material breach of the PGL
Operating Agreement. Without limiting the generality of the foregoing, the sole
member and each such officer shall, in the performance of his or its duties, be
fully protected in relying in good faith upon the records of PGL and upon
information, opinions, reports or statements presented to the sole member of
such officer by any other person or entity as to matters the sole member or such
officer reasonably believes are within the other person's or entity's
professional or expert competence and that has been selected with reasonable
care by or on behalf of PGL. The sole member shall be deemed by the execution of
the PGL Operating Agreement to acknowledge and agree that each officer, in
accepting its duties thereunder, disclaims, to the maximum extent permitted
under applicable law, any fiduciary duty or obligation it may have to PGL and
the sole member as a result of its acceptance of its duties, responsibilities
and obligations thereunder.
Section 8(d) of the PGL Operating Agreement provides that, to the fullest
extent permitted under applicable law, PGL shall severally indemnify and hold
harmless any person or entity who was or is a party, or is threatened to be made
a party, to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (including any action
by or in the right of PGL) by reason of or arising from any acts or omissions
(or alleged acts or omissions) on behalf of PGL or in furtherance of the
interests of PGL arising out of the indemnified party's activities as a member,
officer, employee, trustee or agent of PGL against losses, damages or expenses
(including attorney's fees, judgments, fines and amounts paid in settlement)
actually and reasonably incurred by such indemnified party in connection with
such action, suit or proceeding and for which such indemnified party has not
otherwise been reimbursed, so long as such indemnified party did not act in bad
faith or in a manner constituting gross negligence or willful misconduct or
materially breach the PGL Operating Agreement. The termination of any action,
suit or proceeding by judgment, order, settlement or upon a plea of nolo
contendere or its equivalent shall not of itself (except insofar as judgment,
order, settlement or plea shall itself specifically provide) create a
presumption that the indemnified party acted in bad faith or in a manner
constituting gross negligence or willful misconduct or materially breached the
PGC Operating Agreement.
Section 14 of the PGL Operating Agreement provides that, except as
otherwise expressly provided in the applicable law, the debts, obligations and
liabilities of PGL, whether arising in contract, tort or otherwise, shall be
solely the debts, obligations and liabilities of PGL, and the sole member shall
not be obligated personally for any such debt, obligation or liability of PGL
solely by reason of being the sole member. Except as otherwise expressly
provided in applicable law, the liability of the sole member shall be limited to
the amount of capital contributions, if any, required to be made by the sole
member in accordance with the provisions of the PGL Operating Agreement, but
only when and to the extent the same shall become due pursuant to the provisions
of the PGL Operating Agreement.
(c) Diamond Jo, LLC. ("DJL") is a limited liability company formed under
the laws of the State of Delaware under the Delaware Act. DJL is empowered by
Section 18-108 Delaware Act, subject to the standards and restrictions set forth
in DJL's Amended and Restated Limited Liability Company Agreement (the "DJL LLC
Agreement"), to indemnify and hold harmless any member or manager or other
person from and against any and all claims and demands whatsoever.
Section 2.2 of the DJL LLC Agreement provides that members shall not be
liable under a judgment, decree or order of any court, or in any other manner,
for a debt, obligation or liability of DJL, except as provided under applicable
law. No member shall be required to make any contribution to DJL by reason of
any negative balance in the member's capital account nor shall any negative
balance in a member's capital account create any liability on the party of the
member to any third party.
Section 4.2 of the DJL LLC Agreement provides that, to the fullest extent
permitted under applicable law, no member or managing member shall be deemed to
violate the DJL LLC Agreement or be liable, responsible or accountable in
damages or otherwise to any other member or managing member or DJL for any
action or failure to act, unless such violation or liability is attributable to
such member's or managing member's gross negligence,
II-2
willful misconduct, bad faith or a continuing material breach of the DJL LLC
Agreement. Without limiting the generality of the foregoing, each such member or
managing member shall, in the performance of its duties, be fully protected in
relying in good faith upon the records of DJL and upon information, opinions,
reports or statements presented to such member or managing member by any other
person or entity as to matters such member or managing member reasonably
believes are within the other person's or entity's professional or expert
competence and that has been selected with reasonable care by or on behalf of
DJL. The sole member shall be deemed by the execution of the DJL Operating
Agreement to acknowledge and agree that each officer, in accepting its duties
thereunder, disclaims, to the maximum extent permitted under applicable law, any
fiduciary duty or obligation it may have to DJL and the sole member as a result
of its acceptance of its duties, responsibilities and obligations thereunder.
Section 4.4 of the DJL LLC Agreement provides that, to the fullest extent
permitted under applicable law, DJL shall severally indemnify and hold harmless
any person or entity who was or is a party, or is threatened to be made a party,
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (including any action by or in
the right of DJL) by reason of or arising from any acts or omissions (or alleged
acts or omissions) on behalf of DJL or in furtherance of the interests of DJL
arising out of the indemnified party's activities as a member, managing member,
officer, employee, trustee or agent of DJL against losses, damages or expenses
(including attorney's fees, judgments, fines and amounts paid in settlement)
actually and reasonably incurred by such indemnified party in connection with
such action, suit or proceeding and for which such indemnified party has not
otherwise been reimbursed, so long as such indemnified party did not act in bad
faith or in a manner constituting gross negligence or willful misconduct. The
termination of any action, suit or proceeding by judgment, order, settlement or
upon a plea of nolo contendere or its equivalent shall not of itself (except
insofar as judgment, order, settlement or plea shall itself specifically
provide) create a presumption that the indemnified party acted in bad faith or
in a manner constituting gross negligence or willful misconduct.
Section 5.4(a) of the DJL LLC Agreement provides that no officer of DJL
shall be liable to DJL or to the members for acts or omissions of such officer
of DJL in connection with the business or affairs of DJL, including, without
limitation, any breach of fiduciary duty of such officer as an officer of DJL,
any mistake of judgment of such officer as an officer of DJL and any business
decision of such officer as an officer of DJL, except for acts or omissions of
such officer of DJL that a final adjudication establishes involved breach of
such officer's duty of loyalty to DJL or its members, intentional misconduct,
fraud or a knowing violation of the law that was material to the cause of action
subject to such final adjudication.
Section 5.5(b) of the DJL LLC Agreement provides that DJL and/or its
successor, trustee or receiver may indemnify, defend and hold harmless every
officer of DJL and every individual who at any time was but ceased to be an
officer of DJL, and the heirs and personal representative of every officer of
DJL and of every such individual, against all claims, demands, actions, losses,
liabilities, damages, costs and expenses, which after the date of the DJL LLC
Agreement arise out of DJL or its business or affairs, including reasonable
attorneys' fees incurred in defending such matters.
Section 5.5(c) of the DJL LLC Agreement provides that the satisfaction of
the indemnification obligations of DJL shall be from and limited to the assets
of DJL, and no member shall have any personal liability for the satisfaction of
any such indemnification obligation.
Section 5.5(d) of the DJL LLC Agreement provides that no amendment or
repeal of any term or provision of the indemnification provisions in the DJL LLC
Agreement that otherwise would restrict or limit any right or protection of an
officer of DJL or other indemnified individuals shall apply to or have any
effect on any such right or protection of any officer of DJL existing at the
time of such amendment or repeal or of any individual who at any time before
such amendment or repeal was but ceased to be an officer of DJL, or of the heirs
and personal representative of any such officer of DJL or other individual.
Section 15 of DJL's Operating Agreement provides that except as otherwise
expressly provided in the Delaware Act, the debts, obligations and liabilities
of DJL, whether arising in contract, tort or otherwise, shall be solely the
debts, obligations and liabilities of DJL, and no member shall be obligated
personally for any such debt, obligation or liability of DJL solely by reason of
being a member. And, except as otherwise expressly provided in the Delaware Act,
the liability of each member shall be limited to the amount of capital
contributions, if any, required to be made by such member in accordance with the
provisions of DJL's Operating Agreement, but only when and to the extent the
same shall become due pursuant to the provisions of that agreement.
II-3
ITEM 21. Exhibits and Financial Statement Schedules
See Index to Exhibits, which is incorporated by reference.
ITEM 22. Undertakings
Each of the undersigned registrants hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement, or the most
recent post-effective amendment thereof, which, individually or in
the aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered, if the
total dollar value of securities offered would not exceed that which
was registered, and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Securities and Exchange Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered that remain unsold at the
termination of the offering.
(4) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the provisions described
in Item 20 or otherwise, the registrant has been advised that, in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities, other than the payment by the registrant of
expenses incurred or paid by a director, officer or controlling person of
the registrant in the successful defense of any action, suit or
proceeding, is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
(5) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this
form within one business day of receipt of such request and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of this registration statement through the date of
responding to the request.
(6) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in this registration statement
when it became effective.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Diamond Jo,
LLC has duly caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Lafayette, State of
Louisiana, on July 30, 2004.
DIAMOND JO, LLC
By: /S/ NATALIE A. SCHRAMM
--------------------------------
Natalie A. Schramm
Chief Financial Officer
Each person whose signature appears below constitutes and appoints M.
Brent Stevens and Natalie A. Schramm, the true and lawful attorneys-in-fact and
agents of the undersigned, with full power of substitution and resubstitution,
for and in the name, place and stead of the undersigned, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this registration statement and to file the same, with all exhibits thereto,
and any and all documents in connection therewith, with the Securities and
Exchange Commission, and hereby grants unto said attorneys-in-fact and agents,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as the
undersigned might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or their substitute or substitutes, may
lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on July 30, 2004.
By: /S/ M. BRENT STEVENS
--------------------------------
M. Brent Stevens
Chief Executive Officer and Manager
By: /S/ MICHAEL LUZICH
--------------------------------
Michael Luzich
President and Secretary
By: /S/ TERRANCE W. OLIVER
--------------------------------
Terrance W. Oliver
Manager
By: /S/ ANDREW R. WHITAKER
--------------------------------
Andrew R. Whitaker
Manager
By: /S/ NATALIE A. SCHRAMM
--------------------------------
Natalie A. Schramm
Chief Financial Officer
(Principal Accounting Officer)
S-1
Pursuant to the requirements of the Securities Act of 1933, Peninsula
Gaming Corp. has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in City of Lafayette,
State of Louisiana, on July 30, 2004.
PENINSULA GAMING CORP.
By: /S/ NATALIE A. SCHRAMM
--------------------------------
Natalie A. Schramm
Chief Financial Officer
Each person whose signature appears below constitutes and appoints M.
Brent Stevens and Natalie A. Schramm, the true and lawful attorneys-in-fact and
agents of the undersigned, with full power of substitution and resubstitution,
for and in the name, place and stead of the undersigned, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this registration statement and to file the same, with all exhibits thereto,
and any and all documents in connection therewith, with the Securities and
Exchange Commission, and hereby grants unto said attorneys-in-fact and agents,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as the
undersigned might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or their substitute or substitutes, may
lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on July 30, 2004.
By: /S/ M. BRENT STEVENS
--------------------------------
M. Brent Stevens
Chief Executive Officer and Manager
By: /S/ MICHAEL LUZICH
--------------------------------
Michael Luzich
President and Secretary
By: /S/ NATALIE A. SCHRAMM
--------------------------------
Natalie A. Schramm
Chief Financial Officer
(Principal Accounting Officer)
S-2
Pursuant to the requirements of the Securities Act of 1933, Peninsula
Gaming LLC has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in City of Lafayette,
State of Louisiana, on July 30, 2004.
PENINSULA GAMING, LLC
By: /S/ NATALIE A. SCHRAMM
--------------------------------
Natalie A. Schramm
Chief Financial Officer
Each person whose signature appears below constitutes and appoints M.
Brent Stevens and Natalie A. Schramm, the true and lawful attorneys-in-fact and
agents of the undersigned, with full power of substitution and resubstitution,
for and in the name, place and stead of the undersigned, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this registration statement and to file the same, with all exhibits thereto,
and any and all documents in connection therewith, with the Securities and
Exchange Commission, and hereby grants unto said attorneys-in-fact and agents,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as the
undersigned might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or their substitute or substitutes, may
lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on July 30, 2004.
By: /S/ M. BRENT STEVENS
--------------------------------
M. Brent Stevens
Chief Executive Officer and Manager
By: /S/ MICHAEL LUZICH
--------------------------------
Michael Luzich
President and Secretary
By: /S/ NATALIE A. SCHRAMM
--------------------------------
Natalie A. Schramm
Chief Financial Officer
(Principal Accounting Officer)
S-3
Pursuant to the requirements of the Securities Act of 1933, Peninsula
Gaming LLC has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in City of Lafayette,
State of Louisiana, on July 30, 2004.
THE OLD EVANGELINE DOWNS, L.L.C.
By: /S/ NATALIE A. SCHRAMM
--------------------------------
Natalie A. Schramm
Chief Financial Officer
Each person whose signature appears below constitutes and appoints M.
Brent Stevens and Natalie A. Schramm, the true and lawful attorneys-in-fact and
agents of the undersigned, with full power of substitution and resubstitution,
for and in the name, place and stead of the undersigned, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this registration statement and to file the same, with all exhibits thereto,
and any and all documents in connection therewith, with the Securities and
Exchange Commission, and hereby grants unto said attorneys-in-fact and agents,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as the
undersigned might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents, or their substitute or substitutes, may
lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on July 30, 2004.
By: /S/ M. BRENT STEVENS
--------------------------------
M. Brent Stevens
Chief Executive Officer and Manager
By: /S/ MICHAEL LUZICH
--------------------------------
Michael Luzich
President and Secretary
By: /S/ NATALIE A. SCHRAMM
--------------------------------
Natalie A. Schramm
Chief Financial Officer
(Principal Accounting Officer)
S-4
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- -------- ----------------------
1.1 Purchase Agreement, dated March 25, 2004, between Diamond Jo, LLC, The
Old Evangeline Downs Capital Corp. and Jefferies & Company, Inc.
1.2 Joinder of Peninsula Gaming, LLC, dated June 16, 2004, to the Purchase
Agreement, dated March 25, 2004, between Diamond Jo, LLC, The Old
Evangeline Downs Capital Corp. and Jefferies & Company, Inc.
2.1 Certificate of Dissolution of Peninsula Gaming Corporation, dated June
17, 2004.
3.1A Certificate of Formation of Peninsula Gaming Company, LLC -
incorporated herein by reference to Exhibit 3.1A of Peninsula Gaming
Company, LLC's Form S-4 filed October 12, 1999. (With regard to
applicable cross-references in this registration statement, Peninsula
Gaming Company, LLC's Form S-4, Current, Quarterly and Annual Reports
were filed with the SEC under File No. 333-88829).
3.1B Amendment to Certificate of Formation of Peninsula Gaming Company, LLC
- incorporated by reference to Exhibit 3.1B of Peninsula Gaming
Company, LLC's Form S-4 filed October 12, 1999.
3.1C Certificate of Amendment to the Certificate of Formation of Peninsula
Gaming Company, LLC, dated March 10, 2004 - incorporated herein by
reference to Peninsula Gaming Company, LLC's Quarterly Report on Form
10-Q filed May 14, 2004.
3.2 Amended and Restated Operating Agreement of Peninsula Gaming Company,
LLC - incorporated herein by reference to Exhibit 3.2 of Peninsula
Gaming Company, LLC's Form S-4 filed on October 12, 1999.
3.3A Certificate of Formation of Peninsula Casinos, LLC, dated February 27,
2004.
3.3B Certificate of Amendment to the Certificate of Formation of Peninsula
Casinos, LLC, dated March 10, 2004.
3.4 Operating Agreement of Peninsula Gaming, LLC (formerly known as
Peninsula Casinos, LLC), dated June 14, 2004.
3.5A Certificate of Incorporation of The Old Evangeline Downs Capital Corp.,
dated January 20, 2003- incorporated herein by reference to Exhibit 3.4
of The Old Evangeline Downs Capital Corp.'s Form S-4 filed May 28,
2003. (With regard to applicable cross-references in this registration
statement, The Old Evangeline Downs Capital Corp.'s Form S-4, Current,
Quarterly and Annual Reports were filed with the SEC under File No.
333-105587).
3.5B Certificate of Amendment to the Certificate of Incorporation of The Old
Evangeline Downs Capital Corp., dated June 17, 2004.
3.6 By-laws of The Old Evangeline Downs Capital Corp. - incorporated herein
by reference to Exhibit 3.5 of The Old Evangeline Downs Capital Corp.'s
Form S-4 filed May 28, 2003.
3.7 Amended and Restated Articles of Organization of The Old Evangeline
Downs, L.L.C. (formerly The Old Evangeline Downs, L.C.), dated February
19, 2003- incorporated herein by reference to Exhibit 3.1 of The Old
Evangeline Downs, L.L.C.'s Form S-4 filed May 28, 2003.
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- -------- ----------------------
(With regard to applicable cross-references in this registration
statement, The Old Evangeline Downs, L.L.C.'s Form S-4 was filed with
the SEC under File No. 333-105587).
3.8A Amended and Restated Operating Agreement of The Old Evangeline Downs,
L.L.C., dated as of January 30, 2003- incorporated herein by reference
to Exhibit 3.2 of The Old Evangeline Downs, L.L.C.'s Form S-4 filed May
28, 2003.
3.8B First Amendment to Amended and Restated Operating Agreement of The Old
Evangeline Downs, L.L.C., dated as of May 21, 2003- incorporated herein
by reference to Exhibit 3.3 of The Old Evangeline Downs, L.L.C.'s Form
S-4 filed May 28, 2003.
4.1 Specimen Certificate of Common Stock of Peninsula Gaming Corp.
(formerly known as The Old Evangeline Downs Capital Corp.).
4.2A Indenture, dated July 15, 1999, by and among Peninsula Gaming Company,
LLC, Peninsula Gaming Corporation and Firstar Bank of Minnesota, N.A.,
as trustee - incorporated herein by reference to Exhibit 4.2 of
Peninsula Gaming Company, LLC's Form S-4 filed October 12, 1999.
4.2B First Supplemental Indenture, dated January 14, 2002, by and among
Peninsula Gaming Company, LLC and Peninsula Gaming Corporation, as
Issuers, the Subsidiary Guarantors referred to therein and U.S. Bank
National Association, as trustee - incorporated herein by reference to
Exhibit 4.3 of Peninsula Gaming Company, LLC's Form S-4 filed October
21, 1999.
4.3A Indenture, dated February 25, 2003, by and among The Old Evangeline
Downs, L.L.C., The Old Evangeline Downs Capital Corp. and U.S. Bank
National Association- incorporated herein by reference to Exhibit 4.1
of The Old Evangeline Downs, L.L.C.'s Form S-4 filed May 28, 2003.
4.3B Supplemental Indenture, dated as of March 25, 2004, by and among The
Old Evangeline Downs, L.L.C., The Old Evangeline Downs Capital Corp.
and U.S. Bank National Association.
4.4A Indenture, dated as of April 16, 2004, by and among Diamond Jo, LLC
(formerly known as Peninsula Gaming Company, LLC), The Old Evangeline
Downs Capital Corp., the Subsidiary Guarantors named therein and U.S.
Bank National Association.
4.4B Supplemental Indenture among Peninsula Gaming, LLC, Diamond Jo, LLC
(formerly known as Peninsula Gaming Company, LLC), The Old Evangeline
Downs Capital Corp. and U.S. Bank National Association, dated as of
June 16, 2004.
4.5A Registration Rights Agreement, dated April 16, 2004, by and among
Diamond Jo, LLC (formerly known as Peninsula Gaming Company, LLC), The
Old Evangeline Downs Capital Corp., the Guarantors named therein and
Jefferies & Company, Inc.
4.5B Joinder of Peninsula Gaming, LLC, dated June 16, 2004, to the
Registration Rights Agreement, dated April 16, 2004, by and among
Diamond Jo, LLC (formerly known as Peninsula Gaming Company, LLC), The
Old Evangeline Downs Capital Corp., the Guarantors named therein and
Jefferies & Company, Inc.
4.6A Pledge and Security Agreement, dated as of April 16, 2004, among
Diamond Jo, LLC
2
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- -------- ----------------------
(formerly known as Peninsula Gaming Company, LLC), The Old Evangeline
Downs Capital Corp., OED Acquisition, LLC, Peninsula Gaming
Corporation, The Old Evangeline Downs, L.L.C. and U.S. Bank National
Association.
4.6B Supplement to Security Agreement by Peninsula Gaming, LLC, dated June
16, 2004.
4.7 Trademark Security Agreement, dated April 16, 2004, by Diamond Jo, LLC
in favor of U.S. Bank National Association.
4.8 Form of 8 3/4% Senior Secured Notes due 2012.
4.9A Intercreditor Agreement between U.S. Bank National Association and
Wells Fargo Foothill, Inc., dated April 16, 2004.
4.9B Acknowledgement of Peninsula Gaming, LLC, dated June 16, 2004, to the
Intercreditor Agreement between U.S. Bank National Association and
Wells Fargo Foothill, Inc., dated April 16, 2004.
5.1 Opinion of Mayer, Brown, Rowe & Maw LLP.
10.1A Employment Agreement, dated July 29, 2004, by and between Natalie
Schramm and Peninsula Gaming, LLC.
10.1B Employment Agreement, dated July 14, 2004, by and between Jonathan
Swain and Peninsula Gaming, LLC.
10.2 Indemnification Agreement, dated June 7, 1999, by and among Natalie
Schramm and AB Capital, L.L.C. and Peninsula Gaming Company, LLC -
incorporated herein by reference to Exhibit 10.2 of Peninsula Gaming
Company, LLC's Form S-4 filed October 12, 1999.
10.3A Operating Agreement, dated February 22, 1993, by and among Dubuque
Racing Association, Ltd. and Greater Dubuque Riverboat Entertainment
Company, L.C. - incorporated herein by reference to Exhibit 10.9A of
Peninsula Gaming Company, LLC's Form S-4 filed October 12, 1999.
10.3B Amendment to Operating Agreement, dated February 22, 1993, by and among
Dubuque Racing Association, Ltd. and Greater Dubuque Riverboat
Entertainment Company, L.C. - incorporated herein by reference to
Exhibit 10.9B of Peninsula Gaming Company, LLC's Form S-4 filed October
12, 1999.
10.3C Amendment to Operating Agreement, dated March 4, 1993, by and among
Dubuque Racing Association, Ltd. and Greater Dubuque Riverboat
Entertainment Company, L.C. - incorporated herein by reference to
Exhibit 10.9C of Peninsula Gaming Company, LLC's Form S-4 filed October
12, 1999.
10.3D Third Amendment to Operating Agreement, dated March 11, 1993, by and
among Dubuque Racing Association, Ltd. and Greater Dubuque Riverboat
Entertainment Company, L.C. - incorporated herein by reference to
Exhibit 10.9D of Peninsula Gaming Company, LLC's Form S-4 filed October
12, 1999.
10.3E Fourth Amendment to Operating Agreement, dated March 11, 1993, by and
among Dubuque
3
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- -------- ----------------------
Racing Association, Ltd. and Greater Dubuque Riverboat Entertainment
Company, L.C. - incorporated herein by reference to Exhibit 10.9E of
Peninsula Gaming Company, LLC's Form S-4 filed October 12, 1999.
10.3F Fifth Amendment to Operating Agreement, dated April 9, 1993, by and
among Dubuque Racing Association, Ltd. and Greater Dubuque Riverboat
Entertain- ment Company, L.C. - incorporated herein by reference to
Exhibit 10.9F of Peninsula Gaming Company, LLC's Form S-4 filed October
12, 1999.
10.3G Sixth Amendment to Operating Agreement, dated November 29, 1993, by and
among Dubuque Racing Association, Ltd. and Greater Dubuque Riverboat
Entertainment Company, L.C. - incorporated herein by reference to
Exhibit 10.9G of Peninsula Gaming Company, LLC's Form S-4 filed October
12, 1999.
4
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- -------- ----------------------
10.3H Seventh Amendment to Operating Agreement, dated April 6, 1994, by and
among Dubuque Racing Association, Ltd. and Greater Dubuque Riverboat
Entertainment Company, L.C. - incorporated herein by reference to
Exhibit 10.9H of Peninsula Gaming Company, LLC's Form S-4 filed October
12, 1999.
10.3I Eighth Amendment to Operating Agreement, dated April 29, 1994, by and
among Dubuque Racing Association, Ltd. and Greater Dubuque Riverboat
Entertainment Company, L.C. - incorporated herein by reference to
Exhibit 10.9I of Peninsula Gaming Company, LLC's Form S-4 filed October
12, 1999.
10.3J Ninth Amendment to Operating Agreement, dated July 11, 1995, by and
among Dubuque Racing Association, Ltd. and Greater Dubuque Riverboat
Entertainment Company, L.C. - incorporated herein by reference to
Exhibit 10.9J of Peninsula Gaming Company, LLC's Form S-4 filed October
12, 1999.
10.3K Tenth Amendment to Operating Agreement, dated July 15, 1999, by and
among Dubuque Racing Association, Ltd. and Greater Dubuque Riverboat
Entertainment Company, L.C. - incorporated herein by reference to
Exhibit 10.9K of Peninsula Gaming Company, LLC's Form S-4 filed October
12, 1999.
10.4 Operating Agreement Assignment, dated July 15, 1999, by and among
Greater Dubuque Riverboat Entertainment Company, L.C. and Peninsula
Gaming Company, LLC - incorporated herein by reference to Exhibit 10.10
of Peninsula Gaming Company, LLC's Form S-4 filed October 12, 1999.
10.5 First Preferred Ship Mortgage, dated July 15, 1999, by Peninsula Gaming
Company, LLC in favor of Firstar Bank of Minnesota, N.A., as
trustee--incorporated herein by reference to Exhibit 10/11 of Peninsula
Gaming Company, LLC's Form S-4 filed October 12, 1999.
10.6 Mortgage, Leasehold Mortgage, Assignment of Rents, Security Agreement
and Fixture Financing Statement dated July 15, 1999, by Peninsula
Gaming Company, LLC in favor of Firstar Bank of Minnesota, N.A., as
trustee--incorporated herein by reference to Exhibit 10.12 of Peninsula
Gaming Company, LLC's Form S-4 filed October 12, 1999.
10.7 Ice Harbor Parking Agreement Assignment dated July 15, 1999, by and
among Greater Dubuque Riverboat Entertainment Company, L.C. and
Peninsula Gaming Company, LLC--incorporated herein by reference to
Exhibit 10.13 of Peninsula Gaming Company, LLC's Form S-4 filed October
12, 1999.
10.8 First Amendment to Sublease Agreement, dated July 15, 1999, by and
among Dubuque Racing Association, Ltd. and Greater Dubuque Riverboat
Entertainment Company, L.C.--incorporated herein by reference to
Exhibit 10.14 of Peninsula Gaming Company, LLC's Form S-4 filed October
12, 1999.
10.9 Sublease Assignment, dated July 15, 1999, by and among Greater Dubuque
Entertainment Company, L.C. and Peninsula Gaming Company,
LLC--incorporated herein by reference to Exhibit 10.15 of Peninsula
Gaming Company, LLC's Form S-4 filed October 12, 1999.
10.10 Iowa Racing and Gaming Commission Gaming License, dated July 15,
1999 -- incorporated herein by reference to Exhibit 10.16 of Peninsula
Gaming Company, LLC's Form S-4 filed October 12, 1999.
5
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- -------- ----------------------
10.11 Assignment of Iowa IGT Declaration and Agreement of Trust, dated July
15, 1999 by and among Greater Dubuque Riverboat Entertainment Company,
L.C. and Peninsula Gaming Company, LLC--incorporated herein by
reference to Exhibit 10.17 of Peninsula Gaming Company, LLC's Form S-4
filed October 12, 1999.
10.12 Agreement of Sale, dated August 30, 2002, by and among Peninsula Gaming
Partners, LLC, OED Acquisition, LLC, William E. Trotter II and William
E. Trotter II Family, LLC--incorporated herein by reference to Exhibit
10.3 of Peninsula Gaming Company, LLC's Form 10-Q Quarterly Report for
the quarter ended September 30, 2002.
10.13A Loan and Security Agreement, dated February 23, 2001, by and between
Foothill Capital Corporation and Peninsula Gaming Company,
LLC--incorporated herein by reference to Exhibit 10.13 of Peninsula
Gaming Company, LLC's Form 10-K Annual Report for the year ended
December 31, 2002.
10.13B Amendment Number One to Loan and Security Agreement, dated February 15,
2002, by and between Foothill Capital Corporation and Peninsula Gaming
Company, LLC--incorporated herein by reference to Exhibit 10.1 of
Peninsula Gaming Company, LLC's Form 10-Q Quarterly Report for the
quarter ended September 30, 2002.
10.13C Amendment Number Two to Loan and Security Agreement, dated October 16,
2002, by and between Foothill Capital Corporation and Peninsula Gaming
Company, LLC--incorporated herein by reference to Exhibit 10.2 of
Peninsula Gaming Company, LLC's Form 10-Q Quarterly Report for the
quarter ended September 30, 2002.
10.13D Amendment Number Three to Loan and Security Agreement, dated February
14, 2003, by and between Foothill Capital Corporation and Peninsula
Gaming Company, LLC--incorporated herein by reference to Exhibit 10.14
of Peninsula Gaming Company, LLC's Form 10-Q Quarterly Report for the
quarter ended September 30, 2003.
10.13E Amendment Number Four to Loan and Security Agreement dated November 6,
2003, by and between Peninsula Gaming Company, LLC and Wells Fargo
Foothill, Inc.--incorporated herein by reference to Exhibit 10.19 of
Peninsula Gaming Company, LLC's Form 10-Q Quarterly Report for the
quarter ended September 30, 2003.
10.14 Purchase Agreement, dated June 27, 2002, by and among Peninsula Gaming
Partners, LLC, a Delaware limited liability company, The Old Evangeline
Downs, L.C., a Louisiana limited company and BIM3 Investments, a
Louisiana partnership--incorporated herein by reference to Exhibit 1.1
of Peninsula Gaming Company, LLC's Form 8-K Current Report filed March
4, 2002.
10.15 First Amendment to Purchase Agreement, dated January 1, 2002, by and
among BIM3 Investments, a Louisiana partnership, The Old Evangeline
Downs, L.C., a Louisiana limited company and OED Acquisition, LLC, a
Delaware limited liability company--incorporated herein by reference to
Exhibit 1.3 of Peninsula Gaming Company, LLC's Form 8-K Current Report
filed March 4, 2002.
10.16 Assignment Agreement, dated October 23, 2001, by and between Peninsula
Gaming Partners and OED Acquisition, LLC--incorporated herein by
reference to Exhibit 1.2 of Peninsula Gaming Company, LLC's Form 8-K
Current Report filed March 4, 2002.
10.17A Loan and Security Agreement, dated June 24, 2003, by and among The Old
Evangeline Downs,
6
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- -------- ----------------------
L.L.C., The Old Evangeline Downs Capital Corp., and Wells Fargo
Foothill, Inc.--incorporated herein by reference to Exhibit 10.16 of
Peninsula Gaming Company, LLC's Form 10-Q Quarterly Report for the
quarter ended September 30, 2003.
10.17B First Amendment, dated September 22, 2003, to Loan and Security
Agreement, dated June 24, 2003, by and among The Old Evangeline Downs,
L.L.C., The Old Evangeline Downs Capital Corp., and Wells Fargo
Foothill, Inc.--incorporated herein by reference to Exhibit 10.18 of
Peninsula Gaming Company, LLC's Form 10-Q Quarterly Report for the
quarter ended September 30, 2003.
10.18 Loan and Security Agreement, dated September 22, 2003, by and among The
Old Evangeline Downs, L.L.C., The Old Evangeline Downs Capital Corp.,
and Wells Fargo Foothill, Inc.-- incorporated herein by reference to
Exhibit 10.17 of Peninsula Gaming Company, LLC's Form 10-Q Quarterly
Report for the quarter ended September 30, 2003.
10.19 Loan and Security Agreement, dated as of June 16, 2004, by and among
Diamond Jo, LLC (formerly known as Peninsula Gaming Company, LLC), The
Old Evangeline Downs, L.L.C. and Wells Fargo Foothill, Inc.
10.20 Guarantor Security Agreement, dated as of June 16, 2004, by and among
Peninsula Gaming, LLC, The Old Evangeline Downs Capital Corp. and Wells
Fargo Foothill, Inc.
10.21 Intercompany Subordination Agreement, dated as of June 16, 2004, by and
among The Old Evangeline Downs, L.L.C., Diamond Jo, LLC (formerly known
as Peninsula Gaming Company, LLC), The Old Evangeline Downs Capital
Corp., Peninsula Gaming, LLC and Wells Fargo Foothill, Inc.
10.22 Management Fees Subordination Agreement, dated as of June 16, 2004, by
and among The Old Evangeline Downs, L.L.C., The Old Evangeline Downs
Capital Corp., Diamond Jo, LLC (formerly known as Peninsula Gaming
Company, LLC), OED Acquisition, LLC and Wells Fargo Foothill, Inc.
10.23 Post Closing Letter, dated June 16, 2004, from Wells Fargo Foothill,
Inc. to The Old Evangeline Downs, L.L.C. and Diamond Jo, LLC (formerly
known as Peninsula Gaming Company, LLC).
10.24 Amended and Restated Management Services Agreement, dated as of
February 25, 2003, by and among The Old Evangeline Downs, L.L.C., OED
Acquisition, LLC and Peninsula Gaming Company, LLC--incorporated herein
by reference to Exhibit 10.15 of Peninsula Gaming Company, LLC's Form
10-Q Quarterly Report for the quarter ended September 30, 2003.
10.25 Guaranty by The Old Evangeline Downs Capital Corp. in favor of Wells
Fargo Foothill, Inc., dated June 16, 2004.
12.1 Computation of ratio of earnings to fixed charges.
7
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- -------- ----------------------
21.1 Subsidiaries of the Registrants.
23.1 Consents of Deloitte & Touche LLP dated July 27, 2004.
23.2 Consent of Mayer, Brown, Rowe & Maw LLP (included in Exhibit 5.1).
24.1 Power of Attorney (included as part of signature page hereto).
25.1 Form T-1 of U.S. National Bank Association, Trustee.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Letter to Clients.
99.4 Form of Letter to DTC Participants.
8