AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON
JUNE 24, 1996.
REGISTRATION NO. 333-4402
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SHOWBOAT MARINA CASINO
PARTNERSHIP
(Exact name of registrant as specified in its charter)
INDIANA 7011 35-1978576
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)
2001 EAST COLUMBUS DRIVE
EAST CHICAGO, INDIANA 46312
(219) 392-1111
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
SHOWBOAT MARINA FINANCE CORPORATION
(Exact name of registrant as specified in its charter)
NEVADA 9999 88-0356197
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification
organization) Code Number)
2001 EAST COLUMBUS DRIVE
EAST CHICAGO, INDIANA 46312
(219) 392-1111
(Address, including zip code, and telephone number,
including area code, of registrants' principal executive offices)
JOHN N. BREWER, ESQ.
KUMMER KAEMPFER BONNER & RENSHAW
3800 HOWARD HUGHES PARKWAY
SEVENTH FLOOR
LAS VEGAS, NEVADA 89109
(702) 792-7000
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE
PUBLIC: As promptly as practicable after this Registration
Statement becomes effective.
If the securities being registered on this Form are being
offered in connection with the formation of a holding company and
there is compliance with General Instruction G, check the
following box. [ ]
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON
SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE
DATE UNTIL THE REGISTRANTS 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. A REGISTRATION
STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT
BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME
THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS REGISTRATION
STATEMENT SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION
OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES
LAWS OF ANY SUCH STATE.
SHOWBOAT MARINA CASINO PARTNERSHIP
AND
SHOWBOAT MARINA FINANCE CORPORATION
CROSS REFERENCE TABLE
PURSUANT TO RULE 404(A) AND ITEM 501(B) OF REGULATION S-K
REGISTRATION STATEMENT ITEM PROSPECTUS CAPTION
AND FORM S-4 CAPTION
1. Forepart of the Registration
Statement and Outside Front
Cover Page of Prospectus Outside Front Cover Page
2. Inside Front and Outside
Back Cover Pages of Inside Front and Outside
Prospectus Back Cover Pages
3. Risk Factors, Ratio of
Earnings to Fixed Charges Summary; Risk Factors;
and Other Information Selected Financial Data
4. Terms of the Transaction Summary; The Exchange
Offer; Description of New
Notes; Certain U.S.
Income Tax Considerations
5. Pro Forma Financial
Information Not Applicable
6. Material Contacts with the
Company Being Acquired Not Applicable
7. Additional Information
Required for Reoffering by
Persons and Parties Deemed
to be Underwriters Not Applicable
8. Interests of Named Experts
and Counsel Legal Matters; Experts
9. Disclosure of Commission
Position on Indemnification
for Securities Act Certain Relationships and
Liabilities Related Transactions
10. Information with Respect to
S-3 Registrants Not Applicable
11. Incorporation of Certain
Information by Reference Not Applicable
12. Information with Respect to
S-2 or S-3 Registrants Not Applicable
13. Incorporation of Certain
Information by Reference Not Applicable
14. Information with Respect to Summary; Risk Factors;
Registrants Other than S-3 Capitalization;
or S-2 Registrants Management's Discussion
and Analysis of Financial
Condition and Results of
Operations; Business
15. Information with Respect to
S-3 Companies Not Applicable
16. Information with Respect to
S-2 or S-3 companies Not Applicable
17. Information with Respect to
Companies Other than S-3 or
S-2 companies Not Applicable
18. Information if Proxies,
Consents or Authorizations
are to be Solicited Not Applicable
19. Information if Proxies,
Consents or Authorizations
are not to be Solicited or Management
in an Exchange Offer
[THIS TEXT APPEARS PRINTED ALONG THE RIGHT MARGIN
OF PAGE 1 OF THE PROSPECTUS]
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR
AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES
HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.
THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE
ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY
SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER,
SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO THE REGISTRATION
OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JUNE __, 1996
SHOWBOAT MARINA CASINO PARTNERSHIP
SHOWBOAT MARINA FINANCE CORPORATION
OFFER TO EXCHANGE
ALL OUTSTANDING
13 1/2% SERIES A FIRST MORTGAGE NOTES DUE 2003
AGGREGATE PRINCIPAL AMOUNT OF $140,000,000 OUTSTANDING
FOR
13 1/2% SERIES B FIRST MORTGAGE NOTES DUE 2003
This exchange offer and withdrawal rights will expire at
5:00 p.m., New York City time, on _______________, 1996 (as such
date may be extended, the "Expiration Date").
Showboat Marina Casino Partnership, an Indiana general
partnership (the "Showboat Partnership"), and Showboat Marina
Finance Corporation, a Nevada corporation and a wholly-owned
subsidiary of Showboat Partnership (the "Finance Corporation"
and, together with Showboat Partnership, the "Company") hereby
offer (the "Exchange Offer"), upon the terms and subject to the
conditions set forth in this Prospectus and the accompanying
letter of transmittal (the "Letter of Transmittal"), to exchange
$1,000 in principal amount of its 13 1/2% Series B First Mortgage
Notes due 2003 (the "New Notes") for each $1,000 in principal
amount of its outstanding 13 1/2% Series A First Mortgage Notes
due 2003 (the "Old Notes") (the Old Notes and the New Notes are
collectively referred to herein as the "Notes") of which an
aggregate principal amount of $140.0 million is outstanding. At
June 15, 1996, on a pro forma basis after giving effect to the
Exchange Offer, the Company would have approximately $140.0
million in aggregate principal amount of indebtedness on a
consolidated basis (excluding trade payables and other accrued
liabilities). The Company has no indebtedness which is senior to
or would be on a parity with the New Notes.
The Company will accept for exchange any and all Old Notes
that are validly tendered prior to 5:00 p.m., New York City time,
on the Expiration Date. Tenders of Old Notes may be withdrawn at
any time prior to 5:00 p.m., New York City time, on the
Expiration Date. The Exchange Offer is not conditioned upon any
minimum principal amount of the Old Notes being tendered for
exchange. However, the Exchange Offer is subject to the terms
and provisions of the Registration Rights Agreement dated as of
March 28, 1996 (the "Registration Rights Agreement") among the
Company and Donaldson, Lufkin & Jenrette Securities Corporation,
Nomura Securities International, Inc. and Bear, Stearns & Co.
Inc. (collectively the "Initial Purchasers"). The Old Notes may
be tendered only in multiples of $1,000. See "The Exchange
Offer." The Old Notes were issued by the Company to finance, in
part, the design, development, construction, equipping and
opening of the Company's riverboat casino and supporting
ancillary facilities (the "East Chicago Showboat") on Lake
Michigan in East Chicago, Indiana. East Chicago Showboat will be
managed by Showboat Marina Partnership, an Indiana general
partnership (the "Manager" or the "Parent Partnership"), and an
affiliate of Showboat, Inc., a Nevada corporation ("Showboat").
The Company issued $140.0 million aggregate principal amount
of the Old Notes to the Initial Purchasers on March 28, 1996 (the
"Closing Date") pursuant to a Purchase Agreement dated March 21,
1996 (the "Purchase Agreement") between the Company and the
Initial Purchasers. The Initial Purchasers subsequently resold
the Old Notes in reliance on Rule 144A and certain other
exemptions under the Securities Act of 1933, as amended (the
"Securities Act"). The Company and the Initial Purchasers also
entered into the Registration Rights Agreement, pursuant to which
the Company granted certain registration rights for the benefit
of the holders of the Old Notes ("Holders"). The Exchange Offer
is intended to satisfy certain of the Company's obligations under
the Registration Rights Agreement with respect to the Old Notes.
See "The Exchange Offer - Purpose and Effect."
The Old Notes were, and the New Notes will be, issued under
the Indenture dated as of the Closing Date (the "Indenture")
between the Company and American Bank National Association as
Trustee (in such capacity, the "Trustee" or "Registrar"). The
form and terms of the New Notes will be identical in all material
respects to the form and terms of the Old Notes, except that
(i) the New Notes have been registered under the Securities Act
and, therefore, will not bear legends restricting the transfer
thereof, (ii) holders of New Notes will not be entitled to
Liquidated Damages (as defined on page 28) otherwise payable
under the Registration Rights Agreement in respect of Old Notes
held by such holders during any period in which a registration
statement has not been filed and/or is not effective and
(iii) holders of New Notes will not be, and upon the consummation
of the Exchange Offer, holders of Old Notes will no longer be,
entitled to certain rights under the Registration Rights
Agreement intended for the holders of unregistered securities;
provided, however, that certain holders of the Old Notes shall
have the right to require the Company to file a shelf
registration statement pursuant to Rule 415 under the Securities
Act solely for the benefit of such holders and will be entitled
to receive Liquidated Damages if such shelf registration
statement is not declared effective within 135 days after the
Closing Date, or August 10, 1996. The Exchange Offer shall be
deemed consummated upon the occurrence of the delivery by the
Company to the Registrar of New Notes in the same aggregate
principal amount as the aggregate principal amount of Old Notes
that were tendered by Holders pursuant to the Exchange Offer.
See "The Exchange Offer - Termination of Certain Rights" and "-
Procedures for Tendering Old Notes" and "Description of New
Notes."
SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR INFORMATION THAT
SHOULD BE CONSIDERED BY HOLDERS IN EVALUATING THE EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OF OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
NEITHER THE INDIANA GAMING COMMISSION NOR ANY OTHER GAMING
AUTHORITY HAS PASSED UPON THE ADEQUACY OR ACCURACY OF THIS
PROSPECTUS OR THE INVESTMENT MERITS OF THE NEW NOTES OFFERED
HEREBY. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
THE DATE OF THIS PROSPECTUS IS _____________, 1996
2
The New Notes will bear interest at a rate equal to 13 1/2%
per annum from and including their date of issuance ("New Note
Issuance Date"). Interest on the New Notes is payable
semiannually on each March 15 and September 15 (each, an
"Interest Payment Date") commencing September 15, 1996. Holders
whose Old Notes are accepted for exchange will have the right to
receive interest accrued thereon from the date of issuance of the
Old Notes (the "Issuance Date") or the last Interest Payment
Date, as applicable to, but not including, the New Note Issuance
Date, such interest to be payable with the first interest payment
on the New Notes. Interest on the Old Notes accepted for
exchange will cease to accrue on the day prior to the New Note
Issuance Date. The New Notes will mature on March 15, 2003. See
"Description of New Notes - General."
The New Notes will not be redeemable, in whole or in part,
prior to March 15, 2000 (except as otherwise required by a Gaming
Authority (as defined on page 92)). On and after March 15, 2000,
the New Notes will be redeemable at the option of the Company, in
whole or in part, at the redemption prices set forth herein, plus
accrued and unpaid interest and Liquidated Damages thereon, if
any, to the redemption date. Upon the occurrence of a Change of
Control (as defined on page 89), each holder of the New Notes
will have the right to require the Company to purchase all or a
portion of such holder's New Notes at 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages thereon, if any, to the repurchase date.
Within 90 days after the end of each Operating Year (as defined
on page 95), the Company will be required to offer to repurchase,
at a price equal to 101% of the aggregate principal amount
thereof, plus accrued and unpaid interest and Liquidated Damages
thereon, if any, the maximum principal amount of New Notes that
may be repurchased with 50% of the Company's Excess Cash Flow (as
defined on page 91) for such Operating Year. In addition, if the
Certificate of Suitability (as defined on page 89) has not been
transferred from the Manager to the Company by July 1, 1996, the
Company will be required to offer to repurchase all or any part
of the New Notes then outstanding at a price equal to 101% of the
aggregate principal amount thereof, plus accrued and unpaid
interest and Liquidated Damages thereon, if any, to the date of
purchase. Until the earlier of the completion of such repurchase
offer or transfer of the Certificate of Suitability from the
Manager to the Company, the Company will cause the amount of
funds remaining in the Escrow Account (as defined on page 91) to
be no less than $147.0 million. On March 27, 1996 the
Certificate of Suitability was transferred to the Company.
The New Notes will be senior secured obligations of the
Company and will rank PARI PASSU, on a parity with, in right of
payment with all other senior indebtedness of the Company. The
New Notes will be secured by a first priority lien, subject to
preferred maritime liens (see "Risk Factors - Preferred Maritime
Liens and Liens Arising During Construction, Payment and
Performance Bond"), on substantially all of the assets of East
Chicago Showboat. The net proceeds from the sale of the Old
Notes, together with the proceeds of the Capital Contribution (as
defined on page 89), to the extent of cash remaining, are held in
the Escrow Account and invested in Cash Equivalents (as defined
on page 89) and disbursed only in accordance with the terms and
conditions of the Escrow and Disbursement Agreement (as defined
on page 91). Pending disbursement of such funds, the Notes will
be secured by a pledge of such funds. Under the Completion
Guarantee (as defined on page 12), Showboat agreed to cause East
Chicago Showboat to become Operating (as defined on page 95) and
guaranteed the payment of all Project Costs (as defined on page
97) owing prior to such completion up to a maximum aggregate
amount of $30.0 million. Showboat also provided the Standby
Equity Commitment (as defined on page 13) pursuant to which it
agreed to cause to be made up to an aggregate of $30.0 million in
additional capital contributions to the Company during the first
three Operating Years if the Company's Combined Cash Flow (as
defined on page 89) is less than $35.0 million for any one such
Operating Year; however, in no event will Showboat be required to
cause to be contributed more than $15.0 million to the Company in
respect of any one such Operating Year. The Completion Guarantee
and the Standby Equity Commitment are subject to a number of
limitations, qualifications and exceptions.
Based on an interpretation by the staff of the Securities
and Exchange Commission (the "Commission") set forth in no-action
letters issued to third parties, the Company believes that the
New Notes issued pursuant to the Exchange Offer to a Holder in
exchange for Old Notes may be offered for resale, resold and
otherwise transferred by such Holder (other than (i) a broker-
dealer who purchased Old Notes directly from the Company for
resale pursuant to Rule 144A under the Securities Act or any
other available exemption under the Securities Act or (ii) a
person who is an affiliate of the Company within the meaning of
Rule 405 of the Securities Act), without compliance with the
registration and prospectus delivery provisions of the Securities
Act, provided that the Holder is acquiring the New Notes in the
ordinary course of business and is not participating, and has no
arrangement or understanding with any person to participate, in a
distribution of the New Notes. Holders wishing to accept the
Exchange Offer must represent to the Company, as required
3
by the Registration Rights Agreement, that such conditions have
been met. Each broker-dealer that receives New Notes for its own
account in exchange for Old Notes, where such Old Notes were
acquired by such broker-dealer as a result of market-making or
other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. See
"The Exchange Offer - Resales of the New Notes." 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 such Old
Notes were acquired by such broker-dealer as a result of market-
making or other trading activities.
The Company will not receive any proceeds from any sale of
the New Notes. New Notes received by any broker-dealer may be
sold from time to time in one or more transactions in the over-
the-counter market, in negotiated transactions, through the
writing of options on the New Notes or a combination of such
methods of sale, at market prices prevailing at the time of sale,
at prices related to such prevailing market prices or negotiated
prices. Any such sale may be made directly to purchasers or to
or through brokers or dealers who may receive compensation in the
form of commissions or concessions from any such broker-dealers
and/or the purchasers of any such New Notes. Any broker-dealer
that sells the New Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker-dealer that
participates in a distribution of such New Notes may be deemed to
be an "underwriter" within the meaning of the Securities Act and
any profit on any such sale of the New Notes and any commissions
or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. Each broker-
dealer that receives the 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 such New Notes. The
Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the
Securities Act. 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 such Old Notes were acquired by such broker-dealer as
a result of market-making activities or other trading activities.
The Company has agreed that, starting on the Expiration Date and
ending on the close of business on the first anniversary of the
Expiration Date, it will make this Prospectus available to any
broker-dealer for use in connection with any such sale. See
"Plan of Distribution."
As of April 30, 1996, Cede & Co. ("Cede"), as nominee for
The Depository Trust Company, New York, New York ("DTC"), was the
only registered Holder of the Old Notes, holding Old Notes for
its participants. There has previously been only a limited
secondary market and no public market for the Old Notes. The Old
Notes are eligible for trading in the Private Offering, Resales
and Trading through Automatic Linkages ("PORTAL") market. The
Initial Purchasers have advised the Company that they currently
intend to make a market in the New Notes; however, none is
obligated to do so and any market making activities may be
discontinued by any of the Initial Purchasers at any time.
Therefore, there can be no assurance that an active market for
the New Notes will develop. If such a trading market develops
for the New Notes, future trading prices will depend on many
factors, including, among other things, prevailing interest
rates, the Company's results of operations and the market for
similar securities. Depending on such factors, the New Notes may
trade at a discount from their face value. See "Risk Factors -
Absence of Public Trading Market; Restrictions on Transfer."
The Company will not receive any proceeds from the Exchange
Offer, but, pursuant to the Registration Rights Agreement, the
Company will bear certain registration expenses, estimated to be
approximately $100,000. No underwriter is being utilized in
connection with the Exchange Offer.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE
COMPANY ACCEPT SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES
IN ANY JURISDICTION IN WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE
THEREOF WOULD NOT BE IN COMPLIANCE WITH THE SECURITIES OR BLUE
SKY LAWS OF SUCH JURISDICTION. IN ADDITION, HOLDERS OF THE NEW
NOTES FOLLOWING THE EXCHANGE OFFER SHALL BE PROHIBITED FROM
SELLING THE NEW NOTES TO NON-INSTITUTIONAL BUYERS IN THE STATES
OF ALABAMA, CALIFORNIA AND WISCONSIN IN THE ABSENCE OF
REGISTRATION OF THE NEW NOTES (OR A VALID EXEMPTION THEREFROM)
UNDER THE SECURITIES LAWS OF SUCH STATES.
The Old Notes were issued originally in global form (the
"Global Old Note"). The Global Old Note was deposited with, or
on behalf of, DTC, as the initial depository with respect to the
Old Notes (in such capacity, the
4
"Depository"). The Global Old Note is registered in the name of
Cede, as nominee of DTC, and beneficial interests in the Global
Old Note are shown on, and transfers thereof are effected only
through, records maintained by the Depository and its
participants. The use of the Global Old Note to represent the
Old Notes permits the Depository's participants, and anyone
holding a beneficial interest in an Old Note registered in the
name of such a participant, to transfer interests in the Old
Notes electronically in accordance with the Depository's
established procedures without the need to transfer a physical
certificate. Except as provided below, the New Notes will also
be issued initially as a note in global form (the "Global New
Note," and together with the Global Old Note, the "Global Notes")
and deposited with, or on behalf of, the Depository.
Notwithstanding the foregoing, holders of Old Notes that were
held, at any time, by a person that is not a qualified
institutional buyer under Rule 144A (a "QIB"), and any Holder
that is not a QIB that exchanges Old Notes in the Exchange Offer,
will receive the New Notes in certificated form and is not, and
will not be, able to trade such securities through the Depository
unless the New Notes are resold to a QIB. After the initial
issuance of the Global New Note, New Notes in certificated form
will be issued in exchange for a holder's proportionate interest
in the Global New Note only as set forth in the Indenture.
AVAILABLE INFORMATION
The Company has filed a registration statement on Form S-4
(together with any amendments thereto, the "Registration
Statement") with the Commission under the Securities Act with
respect to the New Notes. This Prospectus, which constitutes a
part of the Registration Statement, omits certain information
contained in the Registration Statement and reference is made to
the Registration Statement and the exhibits and schedules thereto
for further information with respect to the Company and the New
Notes offered hereby. This Prospectus contains summaries of the
material terms and provisions of certain documents and in each
instance reference is made to the copy of such document filed as
an exhibit to the Registration Statement. Each such summary is
qualified in its entirety by such reference.
Upon effectiveness of the Registration Statement, the
Company will be subject to the informational reporting
requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). The Company has agreed that, whether or
not it is required to do so by the rules and regulations of the
Commission (and within the time periods that are or would be
prescribed thereby), for so long as any of the Notes remain
outstanding, it will furnish to the holders of the Notes and file
with the Commission (unless the Commission will not accept such a
filing) (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 was required to file such
forms, including 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
certified independent accountants and (ii) all reports that would
be required to be filed with the Commission on Form 8-K if the
Company was required to file such reports. In addition, for so
long as any of the Old Notes remain outstanding, the Company has
agreed to make available, upon request, to any prospective
purchaser or beneficial owner of the Old Notes in connection with
any sale thereof the information required by Rule 144A(d)(4)
under the Securities Act. Information may be obtained from the
Company at 2001 East Columbus Drive, East Chicago, Indiana 46312
(telephone number: 219-392-1111), Attention: Vice President-
Finance and Administration.
The Registration Statement (including the exhibits and
schedules thereto) and the periodic reports, proxy and
information statements and other information may be inspected and
copied at the public reference facilities of the Commission, Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, as well as at the following Regional Offices: 7 World
Trade Center, Suite 1300, New York, New York 10048 and Suite
1400, Citicorp Center, 500 West Madison Street, Chicago, Illinois
60661. Copies of such material can be obtained from the
Commission by mail at prescribed rates. Requests should be
directed to the Commission's Public Reference Section, Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549.
5
TABLE OF CONTENTS
PAGE
AVAILABLE INFORMATION 5
PROSPECTUS SUMMARY 7
RISK FACTORS 15
THE EXCHANGE OFFER 26
CAPITALIZATION 33
SELECTED FINANCIAL DATA 34
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 35
BUSINESS 38
MATERIAL AGREEMENTS 46
REGULATION 53
MANAGEMENT 56
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 59
PRINCIPAL SECURITY HOLDERS 60
DESCRIPTION OF NEW NOTES 62
CERTAIN U.S. INCOME TAX CONSIDERATIONS 99
PLAN OF DISTRIBUTION 101
LEGAL MATTERS 102
EXPERTS 102
INDEX TO FINANCIAL STATEMENTS F-1
SELECTED CONSOLIDATED FINANCIAL DATA OF SHOWBOAT, INC. S-1
6
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE
MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS CONTAINED
ELSEWHERE HEREIN. UNLESS OTHERWISE INDICATED, THE TERM "SHOWBOAT"
REFERS TO SHOWBOAT, INC., ITS PREDECESSORS AND ITS SUBSIDIARIES
AND THE TERM THE "COMPANY" REFERS TO SHOWBOAT MARINA CASINO
PARTNERSHIP, ITS PREDECESSORS AND ALL OF ITS SUBSIDIARIES,
INCLUDING FINANCE CORPORATION. THE TERM SHOWBOAT PARTNERSHIP
REFERS TO SHOWBOAT MARINA CASINO PARTNERSHIP. THE INFORMATION
CONTAINED HEREIN RELATING TO THE PROPOSED DESIGN, LAYOUT,
CONSTRUCTION AND OPERATIONS OF EAST CHICAGO SHOWBOAT IS BASED
UPON THE SHOWBOAT PARTNERSHIP'S CURRENT PLANS RELATING THERETO,
WHICH MAY CHANGE FROM TIME TO TIME IN ACCORDANCE WITH THE ESCROW
AND DISBURSEMENT AGREEMENT. SHOWBOAT MARINA PARTNERSHIP, WHICH
IS REFERRED TO HEREIN AS THE "MANAGER" OR "PARENT PARTNERSHIP"
WAS ORGANIZED ON JANUARY 31, 1994 FOR THE PURPOSE OF DEVELOPING
EAST CHICAGO SHOWBOAT AND INITIALLY RECEIVED THE CERTIFICATE OF
SUITABILITY GRANTED BY THE INDIANA GAMING COMMISSION (THE
"INDIANA COMMISSION"). THE INDIANA COMMISSION APPROVED THE
TRANSFER OF THE CERTIFICATE OF SUITABILITY FROM THE MANAGER TO
SHOWBOAT PARTNERSHIP, WHICH WAS ORGANIZED AS OF MARCH 1, 1996.
FINANCE CORPORATION WAS INCORPORATED ON MARCH 7, 1996 TO ASSIST
SHOWBOAT PARTNERSHIP IN FINANCING EAST CHICAGO SHOWBOAT. AS OF
MARCH 28, 1996, THE ASSETS AND LIABILITIES OF THE PARENT
PARTNERSHIP OTHER THAN THE STOCK OF EAST CHICAGO SECOND CENTURY,
INC., WERE TRANSFERRED TO THE SHOWBOAT PARTNERSHIP. SEE "RISK
FACTORS" FOR CERTAIN FACTORS A HOLDER SHOULD CONSIDER IN
EVALUATING THE EXCHANGE OFFER.
THE COMPANY
The Showboat Partnership is developing and will own and
operate East Chicago Showboat, the sole licensed gaming facility
located in East Chicago, Indiana on Lake Michigan. Showboat,
which owns a controlling interest in the Showboat Partnership,
will design, develop, construct, equip and operate East Chicago
Showboat. Showboat is an international casino entertainment
company which owns and operates casino hotels in Las Vegas,
Nevada and Atlantic City, New Jersey and operates and is the
largest shareholder of the Sydney Harbour Casino in Sydney,
Australia. East Chicago Showboat will be strategically located
approximately 12 miles from downtown Chicago, Illinois. The
Showboat Partnership believes that East Chicago Showboat will
have the most direct and convenient access to the Interstate
Highway system of any of the currently existing or proposed
northern Indiana gaming operations. East Chicago Showboat will be
located adjacent to the off-ramp of Indiana State Highway 912, a
divided six-lane highway which connects to Interstate Highways 90
and 80/94. On March 20, 1996, the Indiana Commission approved
the transfer of the Certificate of Suitability from the Manager
to the Showboat Partnership and the transfer of the Certificate
of Suitability to the Showboat Partnership occurred on March 27,
1996. The Showboat Partnership expects to receive a riverboat
owner's license and to open East Chicago Showboat by July 1,
1997.
East Chicago Showboat will consist of an approximately
100,000 square foot, state-of-the-art, five level riverboat
casino (the "Casino"), an approximately 100,000 square foot, land-
based pavilion (the "Pavilion") and an approximately 1,000 space
parking garage. The Casino will include approximately 51,000
square feet of gaming space on four of its five levels, feature
approximately 1,700 slot machines and approximately 86 table
games and accommodate approximately 3,750 customers. The Showboat
Partnership believes that, upon completion, East Chicago Showboat
will offer more gaming square feet and more gaming positions than
any of the riverboat casinos currently operating or proposed
within a 120 mile radius of East Chicago Showboat (the "Chicago
Gaming Market"). The Casino will offer approximately 26% more
gaming positions than the larger of the six casinos currently
operating in the Chicago Gaming Market. Of the six casinos, four
are located in Illinois and the Illinois casinos are currently
limited by Illinois gaming law to 1,200 gaming positions. East
Chicago Showboat will incorporate a festive Mardi Gras theme
similar to the themes Showboat has successfully utilized at its
Atlantic City and Las Vegas properties. East Chicago Showboat is
expected to offer gaming 365 days per year and will offer its
customers a wide variety of table games and slot machines of
varying denominations. The Showboat Partnership expects to
operate the Casino approximately 20 hours each day in a series of
excursions lasting two to three hours each. The Pavilion will
offer a variety of amenities, including live entertainment, a
coffee shop/buffet, a food court, a cocktail lounge and retail
space. East Chicago Showboat will provide secure, well-lit
customer parking for approximately 2,500 vehicles, which will
include an approximately 1,000 space parking garage and surface
parking for approximately 1,500 vehicles.
7
The Showboat Partnership believes that customers will be
attracted to East Chicago Showboat due to its convenient and
direct access from state and federal highways and the size of its
facilities, which will offer more gaming positions than any
casinos operating or proposed in the Chicago Gaming Market. The
Company believes East Chicago Showboat's primary patrons will be
day trip customers from the Chicago metropolitan area, the third
most populated metropolitan area in the United States. According
to the United States Census Bureau's 1994 statistics, there are
approximately 9.6 million adults residing within 120 miles,
approximately 5.9 million adults residing within 60 miles and
approximately 3.6 million adults residing within 30 miles of East
Chicago Showboat. East Chicago Showboat will primarily target
customers from downtown Chicago, Chicago's southern and
southeastern suburbs and northern Indiana.
The Chicago Gaming Market includes six riverboat casinos
currently operating (two of which commenced gaming operations in
June 1996) and three additional casinos (including East Chicago
Showboat) which have been proposed or are under construction.
One of the three casinos which has been proposed or is being
constructed is expected to commence gaming operations in July
1996. The Company believes the Chicago Gaming Market is an
undersupplied gaming market and, as a result, presents a
significant opportunity for East Chicago Showboat. The Chicago
Gaming Market currently has, and after giving effect to the
casinos which have been proposed or are currently under
construction in the Chicago Gaming Market, will continue to have
one of the highest ratios of adults to casino square feet of any
of the major day trip gaming markets in the United States. In
addition, the Chicago Gaming Market is currently generating one
of the highest levels of win per slot per day and win per table
per day of any of the gaming markets in the United States. Based
on publicly available tax information, for the twelve months
ended December 31, 1995, the four riverboat casinos then
operating in the Chicago Gaming Market generated an average win
per slot per day of $364 and an average win per table per day of
$3,049.
SHOWBOAT, INC.
Showboat, an international gaming company with 40 years of
gaming experience, beneficially owns 55% of the partnership
interests of the Showboat Partnership, and Waterfront
Entertainment and Development, Inc., an Indiana company owned
primarily by Indiana businessmen ("Waterfront"), beneficially
owns the remaining partnership interests. Showboat, through its
subsidiaries, will design, develop, construct, equip, and operate
East Chicago Showboat. Showboat currently owns and operates the
Atlantic City Showboat Casino and Hotel (the "Atlantic City
Showboat") and the Las Vegas Showboat Hotel, Casino and Bowling
Center (the "Las Vegas Showboat") and owns a 26.3% interest in
and manages through subsidiaries the Sydney Harbour Casino
located in Sydney, Australia. As of December 31, 1995, Showboat
managed casino properties containing a total of approximately
231,000 square feet of casino space, 5,450 slot machines, 258
table games, 1,253 hotel rooms, 41,000 square feet of convention
space, 18 restaurants and 2 showrooms. Showboat had revenues and
EBITDA (1) of $428.6 million and $78.2 million, respectively, for
the year ended December 31, 1995. The Showboat Partnership will
pay the Manager a management fee for managing East Chicago
Showboat, subject to the limitations set forth under the
"Restricted Payments" covenant of the Indenture.
Showboat, through its subsidiaries, has contributed $36.9
million of the $39.0 million capital contribution (the "Capital
Contribution") to the Showboat Partnership, which will be used to
design, develop, construct, equip and open, in part, East Chicago
Showboat. The Showboat Partnership has entered into a fixed price
contract for construction of the Casino vessel and the Showboat
Partnership expects to enter into fixed or guaranteed maximum
price contracts with specific completion dates for the
construction of substantial portions of the Pavilion, parking
garage and infrastructure comprising East Chicago Showboat. Such
contracts, however, are subject to price adjustments if the plans
and specifications are changed. Showboat has provided the
Completion Guarantee to the Showboat Partnership, pursuant to
which it agreed to cause East Chicago Showboat to become Operating
and guaranteed the payment of all Project Costs owing prior to
such completion up to a maximum aggregate amount of $30.0
million. Showboat has also provided to the
_________________
(1) EBITDA is defined as income from operations before
depreciation and amortization. EBITDA should not be
construed as a substitute for income from operations,
net earnings (loss) and cash flows from operating
activities determined in accordance with Generally
Accepted Accounting Principles ("GAAP"). The
Company has included EBITDA because it believes
it is commonly used by certain investors and analysts
to analyze and compare gaming companies on the basis
of operating performance, leverage and liquidity and
to determine a company's ability to service debt.
EBITDA is not used as a measure in determining
compliance with any provision or covenant of the
Indenture.
8
Showboat Partnership a Standby Equity Commitment pursuant to which
it agreed to cause to be made up to an aggregate of $30.0
million in additional capital contributions to the Showboat
Partnership during the first three Operating Years if the
Company's Combined Cash Flow is less than $35.0 million for any
one such Operating Year; however, in no event will Showboat be
required to cause to be contributed more than $15.0 million to
the Showboat Partnership in respect of any one such Operating
Year. The Completion Guarantee and the Standby Equity Commitment
are subject to certain limitations, qualifications and exceptions.
ISSUANCE OF THE OLD NOTES
The Old Notes were sold (the "Offering") by the Company to
the Initial Purchasers on the Closing Date pursuant to the
Purchase Agreement. The Initial Purchasers subsequently resold
the Old Notes in reliance on Rule 144A under the Securities Act
and other available exemptions under the Securities Act. The
Company and the Initial Purchasers also entered into the
Registration Rights Agreement, pursuant to which the Company
granted certain registration rights for the benefit of the
Holders. The Exchange Offer is intended to satisfy certain of
the Company's obligations under the Registration Rights Agreement
with respect to the Old Notes. See "The Exchange Offer - Purpose
and Effect."
THE EXCHANGE OFFER
The Exchange Offer The Company is offering upon the terms
and subject to the conditions set forth
herein and in the accompanying Letter of
Transmittal, to exchange $1,000 in
principal amount of its 13 1/2% Series B
First Mortgage Notes Due 2003 for each
$1,000 in principal amount of the
outstanding Old Notes. As of the date of
this Prospectus, $140.0 million in
aggregate principal amount of the Old
Notes are outstanding. As of April 30,
1996, there was one registered Holder,
Cede, which holds the Old Notes for its
participants. See "The Exchange Offer -
Terms of the Exchange Offer."
Expiration Date 5:00 p.m., New York City time, on
_______________, 1996 as the same may be
extended. See "The Exchange Offer -
Expiration Date; Extensions; Amendments."
Termination of Pursuant to the Registration Rights
Liquidated Damages Agreement and the Old Notes, Holders have
rights to receive Liquidated Damages upon
the occurrence of certain events. If a
registration statement for the Exchange
Offer is not (i) filed within 45 days
after the date of original issuance of
the Old Notes (the "Issuance Date") or
(ii) declared effective within 105 days
after the Issuance Date, Liquidated
Damages will accrue and be payable
semiannually until such time as a
registration statement for the Exchange
Offer is filed or becomes effective, as
the case may be. In addition, if the
Exchange Offer is not consummated, or for
certain Holders and under certain
circumstances a resale shelf registration
statement is not declared effective,
within 135 days after the Issuance Date,
Liquidated Damages will accrue and be
payable semiannually until such time as
the Exchange Offer is consummated or a
resale shelf registration is declared
effective, as the case may be.
Accrued Interest on The New Notes will bear interest at a
the Old Notes rate equal to 13 1/2% per annum from and
including the New Note Issuance Date.
Holders whose Old Notes are accepted for
exchange will have the right to receive
interest accrued thereon from the Issuance
Date or the last Interest Payment Date,
as applicable, to, but not including, the
New Note Issuance Date, such interest to
be payable with the first interest payment
on the New Notes. Interest on the Old Notes
accepted for exchange, which accrued at the
rate of 13 1/2% per annum, will cease
9
to accrue on the day prior to the New Note
Issuance Date.
Procedures for Unless a tender of Old Notes is effected
Tendering Old Notes pursuant to the procedures for book-entry
transfer as provided herein, each Holder
desiring to accept the Exchange Offer
must complete and sign the Letter of
Transmittal, have the signature thereon
guaranteed if required by the Letter of
Transmittal, and mail or deliver the
Letter of Transmittal, together with the
Old Notes or a notice of guaranteed
delivery and any other required documents
(such as evidence of authority to act, if
the Letter of Transmittal is signed by
someone acting in a fiduciary or
representative capacity), to the Exchange
Agent (as defined on page 11) as set
forth in this Prospectus prior to
5:00 p.m., New York City time, on the
Expiration Date. Any Beneficial Owner
(as defined on page 29) of the Old Notes
whose Old Notes are registered in the
name of a nominee, such as a broker,
dealer, commercial bank or trust company
and who wishes to tender Old Notes in the
Exchange Offer, should instruct such
entity or person to promptly tender on
such Beneficial Owner's behalf. See "The
Exchange Offer - Procedures for Tendering
Old Notes."
Consequences of Holders who do not tender their Old Notes
Failure to Tender by the Expiration Date will be unable to
Old Notes by exchange Old Notes for New Notes pursuant
Expiration Date to the Exchange Offer. Certain Holders
who acquired Old Notes pursuant to the
Offering and who do not participate in
the Exchange Offer can, under certain
circumstances, require the Company to
file as promptly as practicable after so
requested a shelf registration statement
relating to the Old Notes and cause such
shelf registration statement to be
declared effective by the 135th day
following original issuance of the Old
Notes. Old Notes held by Holders who do
not tender their Old Notes pursuant to
the Exchange Offer or who do not request
that a shelf registration statement be
filed with respect to such Old Notes may
not be offered or sold in the United
States or to, or for the account or
benefit of, U.S. persons except in
accordance with an applicable exemption
from the registration requirements of the
Securities Act.
Guaranteed Delivery Holders of Old Notes who wish to tender
Procedures their Old Notes and (i) whose Old Notes
are not immediately available or (ii) who
cannot deliver their Old Notes or any
other documents required by the Letter of
Transmittal to the Exchange Agent prior
to the Expiration Date (or complete the
procedure for book-entry transfer on a
timely basis), may tender their Old Notes
according to the guaranteed delivery
procedures set forth in the Letter of
Transmittal. See "The Exchange Offer -
Guaranteed Delivery Procedures."
Acceptance of Old Upon satisfaction or waiver of all
Notes and Delivery conditions of the Exchange Offer, the
of New Notes Company will accept any and all Old Notes
that are properly tendered in the
Exchange Offer prior to 5:00 p.m., New
York City time, on the Expiration Date.
The New Notes issued pursuant to the
Exchange Offer will be delivered promptly
after acceptance of the Old Notes. See
"The Exchange Offer - Acceptance of Old
Notes for Exchange; Delivery of New Notes."
Withdrawal Rights Tenders of Old Notes may be withdrawn at
any time prior to 5:00 p.m., New York
City time, on the Expiration Date. See
"The Exchange Offer - Withdrawal Rights."
10
The Exchange Agent American Bank National Association is the
exchange agent (in such capacity, the
"Exchange Agent"). The address and
telephone number of the Exchange Agent
are set forth in "The Exchange Offer -
The Exchange Agent; Assistance."
Fees and Expenses All expenses incident to the Company's
consummation of the Exchange Offer and
compliance with the Registration Rights
Agreement will be borne by the Company.
The Company will also pay certain
transfer taxes applicable to the Exchange
Offer. See "The Exchange Offer - Fees
and Expenses."
Resales of the New Based on an interpretation by the staff
Notes of the Commission set forth in no-action
letters issued to third parties, the
Company believes that New Notes issued
pursuant to the Exchange Offer to a
Holder in exchange for Old Notes may be
offered for resale, resold and otherwise
transferred by such Holder (other than
(i) a broker-dealer who purchased Old
Notes directly from the Company for
resale pursuant to Rule 144A under the
Securities Act or any other available
exemption under the Securities Act, or
(ii) a person that is an affiliate of the
Company (within the meaning of Rule 405
under the Securities Act)), without
compliance with the registration and
prospectus delivery provisions of the
Securities Act, provided that the Holder
is acquiring the New Notes in the
ordinary course of business and is not
participating, and has no arrangement or
understanding with any person to
participate, in a distribution of the New
Notes. Each broker-dealer that receives
New Notes for its own account in exchange
for Old Notes, where such Old Notes were
acquired by such broker-dealer as a
result of market-making or other trading
activities, must acknowledge that it will
deliver a prospectus in connection with
any resale of such New Notes. See "The
Exchange Offer-Resales of the New Notes"
and "Plan of Distribution."
DESCRIPTION OF THE NEW NOTES
The form and terms of the New Notes will be identical in all
material respects to the form and terms of the Old Notes, except
that (i) the New Notes have been registered under the Securities
Act and, therefore, will not bear legends restricting the
transfer thereof, (ii) holders of the New Notes will not be
entitled to Liquidated Damages and (iii) holders of the New Notes
will not be, and upon consummation of the Exchange Offer, Holders
of the Old Notes will no longer be, entitled to certain rights
under the Registration Rights Agreement intended for the holders
of unregistered securities, except in certain limited
circumstances. See "Exchange Offer-Termination of Certain
Rights." The Exchange Offer shall be deemed consummated upon the
delivery by the Company to the Registrar of New Notes under the
Indenture in the same aggregate principal amount as the aggregate
principal amount of Old Notes that were tendered by holders
thereof pursuant to the Exchange Offer. See "The Exchange Offer
- - Termination of Certain Rights" and "- Procedures for Tendering
Old Notes;" and "Description of New Notes."
New Notes $140.0 million aggregate principal
amount of 13 1/2% Series B First
Mortgage Notes due 2003.
Maturity Date March 15, 2003.
Interest 13 1/2% per annum.
Interest Payment March 15 and September 15 of each year,
Dates commencing September 15, 1996.
11
Ranking The New Notes will be senior secured
obligations of the Company. The New
Notes will rank PARI PASSU, or on a
parity with, in right of payment with
all existing and future senior
indebtedness of the Company and senior
in right of payment to all future
Subordinated Indebtedness (as defined on
page 97) of the Company. The New Notes
will be without recourse to the general
partners of the Company or to Showboat.
Security The New Notes will be secured by a first
priority lien, subject to preferred
maritime liens, on substantially all of
the assets of East Chicago Showboat,
including: (i) a leasehold mortgage on
the dockside facilities; (ii) upon
completion of construction, a first
preferred ship mortgage on the Casino
vessel; (iii) a pledge of the funds held
in the Escrow Account, including,
without limitation, the net proceeds
from the issuance of the Old Notes; and
(iv) a collateral assignment of all
material agreements and permits entered
into by, or granted to, the Company in
connection with the design, development,
construction, ownership, equipping and
operation of East Chicago Showboat
(collectively, the "New Note
Collateral"). In addition, the Trustee
for the benefit of the holders of the
New Notes, will be named as an
additional obligee on a payment and
performance bond (the "Payment and
Performance Bond") relating to the
construction of the Casino vessel. See
"Description of New Notes-Security."
Note Guarantee The New Notes will be unconditionally
guaranteed on a senior basis by each
Guarantor (as defined on page 80). See
"Description of New Notes-Note
Guarantees."
Completion Guarantee The completion of East Chicago Showboat
so that it becomes Operating and payment
of all Project Costs owing prior to such
completion have been, subject to certain
limitations, qualifications and
exceptions, guaranteed (the "Completion
Guarantee") by Showboat. Showboat's
obligation to complete East Chicago
Showboat so that it becomes Operating
will not take effect unless there are
insufficient funds in the Escrow Account
pursuant to the Escrow and Disbursement
Agreement to meet the costs of
designing, developing, constructing,
equipping and opening East Chicago
Showboat. In addition, Showboat's
obligations under the Completion
Guarantee are limited to $30.0 million
in the aggregate. Showboat's obligations
under the Completion Guarantee will be
suspended during the pendency of any
Force Majeure Event (as defined on page
51) or other event outside the control
of the Company which makes the
completion of the Minimum Facilities (as
defined on page 94) physically
impossible or unlawful. If Showboat is
called upon and unable to perform its
obligations under the Completion
Guarantee and the Company cannot obtain
additional financing to complete the
Minimum Facilities, it will result in an
Event of Default (as defined on page 81)
under the Indenture. See "Risk Factors-
Completion Guarantee" and "Description
of New Notes-Completion Guarantee."
Standby Equity Subject to certain terms and conditions,
Commitment if during any of the first three
Operating Years the Showboat
Partnership's Combined Cash Flow is less
than $35.0 million for any one such
Operating Year, Showboat is required to
cause to be made up to an aggregate of
$30.0 million in additional capital
contributions to the Showboat
Partnership in an amount equal to not
less than the difference between $35.0
million and the Showboat Partnership's
Combined Cash Flow for such Operating
Year; PROVIDED, HOWEVER, that in no
event is Showboat required to contribute
more than $15.0 million in
12
respect of any one such Operating Year
(the "Standby Equity Commitment"). Such
contribution shall be made to the
Company no later than 60 days after the
end of such Operating Year. If Showboat
is called upon and unable to perform its
obligations under the Standby Equity
Commitment, it will result in an Event
of Default under the Indenture and the
Showboat Partnership may not have
sufficient funds for its operations. See
"Risk Factors-Standby Equity
Commitment," and "Description of New
Notes-Standby Equity Commitment."
Mandatory Redemption None.
Optional Redemption On and after March 15, 2000, the New
Notes will be redeemable at the option
of the Company, in whole or in part, at
the redemption prices set forth herein,
plus accrued and unpaid interest and
Liquidated Damages thereon, if any, to
the date of redemption. Presently there
are no other liabilities of the Company
that would have to be repaid nor any
consents or waivers that would have to
be obtained prior to or concurrently
with such a redemption. The Company's
ability to redeem Notes may be limited
by other factors including the Company's
financial condition or bank or equipment
financing covenants. See "Description
of New Notes-Optional Redemption."
Certificate of If the Certificate of Suitability has
Suitability Transfer not been transferred from the Manager to
Offer the Showboat Partnership by July 1,
1996, the Company will be required to
offer to repurchase all or any part of
the New Notes then outstanding at a
price equal to 101% of the aggregate
principal amount thereof, plus accrued
and unpaid interest and Liquidated
Damages thereon, if any, to the date of
repurchase. Until the earlier of (i) the
completion of such repurchase offer or
(ii) transfer of the Certificate of
Suitability from the Manager to the
Showboat Partnership, the Company will
cause the amount of funds remaining in
the Escrow Account to be no less than
$147.0 million. The Certificate of
Suitability was transferred to the
Showboat Partnership on March 27, 1996.
See "Description of New Notes-Repurchase
at the Option of Holders-Certificate of
Suitability Transfer Offer."
Excess Cash Flow Within 90 days after the end of each
Offer to Repurchase Operating Year the Company will be
required to offer to repurchase, at a
price equal to 101% of the aggregate
principal amount thereof, plus accrued
and unpaid interest and Liquidated
Damages thereon, if any, the maximum
principal amount of New Notes that may
be purchased with 50% of the Company's
Excess Cash Flow for such Operating
Year. See "Description of New Notes-
Repurchase at the Option of Holders-
Excess Cash Flow Offer."
Change of Control Upon the occurrence of a Change of
Control, holders of the New Notes will
have the right to require the Company to
repurchase their New Notes, in whole or
in part, at a price equal to 101% of the
aggregate principal amount thereof, plus
accrued and unpaid interest and Liquidated
Damages thereon, if any, to the date of
repurchase. Presently there are no other
liabilities of the Company that would have
to be repaid nor any consents or waivers
that would have to be obtained prior to
or concurrently with such a repurchase.
The Company's ability to repurchase
Notes may be limited by other factors
including the Company's financial
condition or bank or equipment financing
covenants. The Company may not waive or
modify the right of holders of the New
Notes to require the Company to
repurchase the New Notes upon the
occurrence of a Change of Control. The
right of repurchase
13
of the holders of the New Notes would not
be limited in the event of a leveraged
buyout of the Company initiated or supported
by the Company, the Company's management, an
affiliate of the Company, or an
affiliate of the Company's management
other than a leveraged buyout by
Showboat or one of its wholly owned
subsidiaries. See "Description of New
Notes-Repurchase at the Option of
Holders-Change of Control."
Certain Covenants The Indenture, pursuant to which the New
Notes will be issued, contains certain
covenants that, among other things,
limit the ability of the Company and its
subsidiaries to incur additional
Indebtedness (as defined on page 93) and
issue Disqualified Stock (as defined on
page 90), pay dividends or make other
distributions, repurchase Equity
Interests (as defined on page 91) or
Subordinated Indebtedness, engage in
certain lease transactions, create
certain liens, enter into transactions
with affiliates, sell assets, issue or
sell certain Equity Interests of the
Company's subsidiaries or enter into
certain mergers and consolidations. See
"Description of New Notes-Certain
Covenants." In addition, under certain
circumstances, the Company will be
required to offer to repurchase New
Notes at a price equal to 101% of the
principal amount thereof, plus accrued
and unpaid interest and Liquidated
Damages thereon, if any, to the date of
the repurchase, with the proceeds of
certain Asset Sales (as defined on page
88). See "Description of New Notes-
Repurchase at the Option of Holders-
Asset Sales."
Escrow and The net proceeds from the issuance of
Disbursement the Old Notes, together with the
Agreement remaining Capital Contribution, have
been placed by the Company in the Escrow
Account. Pending disbursement of the
Escrow Funds, the Escrow Funds will be
invested in Cash Equivalents. Showboat
serves as Escrow Agent and Disbursement
Agent under the Escrow and Disbursement
Agreement. See "Description of First
Mortgage Notes-Escrow and Disbursement
Agreement."
Absence of a Public The New Notes are a new issue of
Market for the New securities with no established market.
Notes Accordingly, there can be no assurance
as to the development or liquidity of
any market for the New Notes. The
Initial Purchasers have advised the
Company that they currently intend to
make a market in the New Notes.
However, none of the Initial Purchasers
is obligated to do so, and any market
making with respect to the New Notes may
be discontinued at any time without
notice. The Company does not intend to
apply for a listing of the New Notes on
a securities exchange or to seek the
admission thereof to trading on the
National Association of Securities
Dealers' interdealer quotation system.
14
RISK FACTORS
HOLDERS SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS IN
ADDITION TO THE OTHER INFORMATION CONTAINED HEREIN IN EVALUATING
THE COMPANY, EAST CHICAGO SHOWBOAT AND THE EXCHANGE OFFER.
SUBSTANTIAL LEVERAGE; INABILITY TO SERVICE INDEBTEDNESS
The Company is highly leveraged, with substantial annual
debt service along with other operating expenses. As of March 31,
1996, after giving pro forma effect to the capital lease
financing (the "Capital Lease Financing), the Company's total
indebtedness would have been approximately $156.0 million, which
includes the Notes and approximately $16.0 million under the
Capital Lease Financing, and no Subordinated Indebtedness. Since
inception, the Company's activities have been limited to
development activities and applying for appropriate gaming
licenses. As a result, the Company has no revenues or earnings to
date. See "Capitalization" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
The ability of the Company to make scheduled payments of
principal of and interest on the Notes depends entirely on East
Chicago Showboat's future performance, which, to a certain
extent, is subject to general economic, financial, competitive,
legislative, regulatory and other factors beyond the Company's
control, such as weather conditions, labor conflicts and changing
customer preferences. Moreover, the Company will be entirely
dependent on East Chicago Showboat for its revenues.
Based upon the Company's anticipated future operations,
management believes that available cash flow from East Chicago
Showboat's future operations, together with the net proceeds from
the issuance of the Old Notes and the remaining Capital
Contribution, will be adequate to meet the Company's anticipated
future requirements for working capital, capital expenditures and
scheduled payments of principal and interest and Liquidated
Damages, if any on the New Notes for the foreseeable future.
There can be no assurance, however, that East Chicago Showboat
will be profitable or will generate sufficient cash flow from
operations to enable the Company to (i) service its indebtedness,
including the New Notes or (ii) purchase New Notes tendered
pursuant to an offer to repurchase required by the terms of the
Indenture. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Liquidity and Capital
Resources" and "Description of New Notes-Repurchase at the Option
of Holders." The Company also intends to obtain the Capital Lease
Financing, the sources of which may be required to obtain an
appropriate license from the Indiana Commission. Failure of the
Company to obtain the Capital Lease Financing on favorable terms,
or at all, could have a material adverse effect on its financial
condition or results of operations.
The level of the Company's indebtedness could have important
consequences to holders of the New Notes, including, but not
limited to, the following: (i) if the Company is unable to
construct and open East Chicago Showboat within budget and
achieve satisfactory operating results, the Company could be
unable to make payments of principal of and interest on the New
Notes; (ii) a substantial portion of the Company's cash flow from
operations will be dedicated to debt service and will not be
available for other purposes, such as maintaining or improving
East Chicago Showboat; and (iii) the Company's flexibility in
planning for, or reacting to, changes in its industry and market,
including its ability to obtain additional financing in the
future for working capital or capital expenditures, could be
limited. There can be no assurance that any such additional
financing will be available in the future on terms satisfactory
to the Company, if at all. Failure by the Company to obtain any
required additional financing in the future could have a material
adverse effect on its financial condition and results of
operations.
RISKS OF LICENSURE AND PERMITTING
The Showboat Partnership must receive and maintain an
owner's license from the Indiana Commission ("owner's license")
in order to operate East Chicago Showboat. No assurance can be
given that the Showboat Partnership will receive an owner's
license. The Showboat Partnership received the Certificate of
Suitability on March 27, 1996. Prior to March 27, 1996 the
Manager held the Certificate of Suitability. A certificate of
suitability indicates that the recipient has been chosen for
licensure and is valid for 180 days, unless extended by the
Indiana Commission. The Showboat Partnership applied to the
Indiana Commission to extend the effectiveness of the Certificate
of Suitability beyond its initial
15
180 days. An initial extension of the certificate of suitability
was granted until June 21, 1996. The Indiana Commission will
consider the Showboat Partnership's application for a further
extension on June 21, 1996. Although the Indiana Commission has
extended the effectiveness of certificates of suitability held by
other gaming operators, no assurance can be given that the
Indiana Commission will extend the effectiveness of the
Certificate of Suitability beyond 180 days from the date of
issuance, January 8, 1996. During the 180 day (or subsequently
extended) interim compliance period, the Showboat Partnership
must expend $154.5 million in project development costs for the
Casino, Pavilion, parking garage, marine improvements, site
improvements, pre-opening expenses and contingency, subject to
reasonable reallocation as approved by the Indiana Commission;
obtain all permits, licenses and certificates required for the
lawful operation of the Casino, including those related to
zoning, building, fire safety and health; obtain permits from the
Indiana Alcoholic Beverage Commission and the United States Army
Corps of Engineers (the "Corps of Engineers"); obtain any
required financing; post a bond in an amount the local community
will spend for infrastructure and any other facilities associated
with East Chicago Showboat, as determined by the Indiana
Commission; obtain insurance; and obtain licensure for gaming
equipment. The Showboat Partnership must begin to comply with
these conditions during the interim compliance period and must
have fulfilled or substantially initiated fulfillment of these
requirements to the satisfaction of the Indiana Commission in
order to receive an owner's license. Failure to have
substantially complied with all of the requirements of the
Certificate of Suitability by the end of the 180 day interim
compliance period (or as subsequently extended) may result in the
Indiana Commission not extending the Certificate of Suitability
beyond the initial 180 days. The Certificate of Suitability also
provides that failure to commence excursions within twelve months
of January 8, 1996, may result in the revocation of the
Certificate of Suitability; however, to date, the Indiana
Commission has not revoked the effectiveness of any gaming
operator's certificate of suitability for failure to commence
excursions within 12 months of issuance. There can be no
assurance, however, that the Indiana Commission will not revoke
the Certificate of Suitability if the Showboat Partnership fails
to commence excursions within 12 months of the date of issuance
thereof. If the Indiana Commission determines that the Showboat
Partnership has complied with the requirements of the Certificate
of Suitability and all other applicable statutory and regulatory
requirements required during the interim compliance period, it
may issue an owner's license.
In addition to the owner's license required to be maintained
by the Showboat Partnership, the Manager must receive and
maintain a supplier's license from the Indiana Commission to
manage East Chicago Showboat. Furthermore in connection with the
Showboat Partnership's license application, certain executive
officers and key persons of Showboat and Waterfront must file
personal disclosure forms and be found suitable by the Indiana
Commission. Moreover, all employees of the Showboat Partnership
who are involved in gaming operations must file applications for
and receive Indiana gaming occupational licenses before they may
participate in gaming operations, thereby increasing costs and
time required for hiring gaming personnel. The Manager has
submitted the necessary applications for an owner's license for
the operation of East Chicago Showboat to the Indiana Commission
and is preparing to submit an application for a supplier's
license. There can be no assurance that the Showboat Partnership
will receive an owner's license or that the Manager will receive
a supplier's license or that the appropriate persons will be
found suitable or, if an owner's license or a supplier's license
is granted, that it will not be suspended or revoked at any time
or fail to be renewed upon expiration. However, in connection
with the issuance of the Certificate of Suitability, principals
of Waterfront and Showboat were investigated by the Indiana
Commission and were found suitable to hold the Certificate of
Suitability. In addition, Showboat and certain of its
subsidiaries or affiliates have been investigated by and received
licenses from the gaming authorities of the States of Nevada, New
Jersey, Louisiana and New South Wales (Australia).
In the event that an owner's license is granted to the
Showboat Partnership, the license will be for an initial term of
five years and thereafter will be subject to annual renewal by
the Indiana Commission. In addition, a holder of an owner's
license must undergo a complete investigation every three years.
As a condition to maintaining a license, the Showboat Partnership
would be required to, among other things, submit detailed
financial and other information to the Indiana Commission, which
has broad powers to suspend or revoke gaming licenses. Failure to
comply with these and other regulations of the Indiana Commission
could result in suspension, revocation or nonrenewal of the
Showboat Partnership's owner's license, if granted.
The granting and maintenance of the owner's license will
depend upon compliance with regulations of the Indiana Commission
and the terms of the Certificate of Suitability. The Showboat
Partnership will have expended significant sums of money for the
development and construction of East Chicago Showboat prior to
the Indiana Commission's determination of whether to issue an
owner's license to the Showboat Partnership. The failure of the
16
Showboat Partnership to receive an owner's license or of the
appropriate persons to be found suitable by the Indiana
Commission or the suspension or revocation of or failure to renew
an owner's license, if granted, would preclude the Showboat
Partnership from commencing, or cause it to cease, its gaming
operations and, therefore, would have a material adverse effect
on the Showboat Partnership's financial condition and results of
operations.
In connection with its application for an owner's license,
the Manager, Showboat, Waterfront, and their affiliates declared
to the Indiana Commission that if the Showboat Partnership
receives an owner's license for East Chicago, Indiana, they shall
not commence more than one other casino gaming operation within a
fifty-mile radius of East Chicago Showboat for a period of five
years beginning on the date of issuance of an owner's license by
the Indiana Commission to the Showboat Partnership.
In addition to required gaming licenses, many other permits,
licenses and approvals necessary for the proposed construction
and operation of East Chicago Showboat have not yet been
obtained. The scope of the approvals required for East Chicago
Showboat is extensive, including, without limitation, state and
local land-use permits, building and zoning permits and liquor
licenses. On December 6, 1995 the City of East Chicago received
its permit from the Corps of Engineers permitting the
construction and operation of East Chicago Showboat. In addition,
because the Casino is anticipated to be a cruising vessel on Lake
Michigan, the design, construction, operation and maintenance of
the Casino is subject to regulation, inspection and approval of
the United States Coast Guard (the "Coast Guard"). The Casino
cannot operate without a Coast Guard certificate of inspection
which must be renewed annually. The Casino's hull must be
inspected in a drydock facility by the Coast Guard at five year
intervals. The closest drydocking facility that is capable of
permitting inspection of the Casino is located at Sturgeon Bay,
Wisconsin. During the period of the voyage to and from the
drydocking facility and the inspection of the Casino, the Casino
will be taken out of service. Complying with such requirement
could take an indeterminate amount of time and there can be no
assurance that an adequate interim vessel will be available to
the Showboat Partnership for use on favorable terms, if at all.
Loss of the Casino from service for an extended period of time
for any reason could have a material adverse effect on the
Showboat Partnership. There can be no assurance that the Showboat
Partnership will receive or maintain the necessary permits,
licenses and approvals or that such permits, licenses and
approvals will be obtained within the anticipated time frame.
In October 1994, the United States Attorney's office in
Indiana notified the Indiana Commission that a federal law
commonly known as the Johnson Act prohibits gaming vessels from
cruising anywhere on the Great Lakes, including portions of Lake
Michigan falling within Indiana's borders and jurisdiction. The
Indiana Commission has stated that the Johnson Act prevents
gaming vessels from cruising on Lake Michigan and permitted the
recently opened gaming boat in Gary, Indiana to conduct gaming
during mock cruises at the dock. The Indiana Commission is in
the process of promulgating new rules for cruising of licensed
riverboats, including on Lake Michigan.
On March 16, 1996, THE INDIANAPOLIS STAR reported that a
Marion County, Indiana grand jury issued subpoenas to several
persons as part of an investigation into the awarding of a
certificate of suitability to Indiana Gaming Company, L.P.
("Indiana Gaming Company") for a gaming site on the Ohio River in
Lawrenceburg, Indiana. On March 18, 1996, Argosy Gaming Company
("Argosy"), a partner in Indiana Gaming Company, issued a press
release denying wrongdoing and stating that Argosy believes the
"grand jury is investigating whether there was any unlawful
conduct in the pursuit or awarding of gaming licenses in the
State of Indiana, including the awarding of the certificate of
suitability to Indiana Gaming Company." The Company believes that
it is neither a target nor a subject of this investigation.
RISK OF NEW VENTURE; LACK OF PRIOR OPERATING HISTORY
The Showboat Partnership has no history of earnings, has a
limited history of operations, and has not previously been
involved in constructing or operating a riverboat casino or any
other type of gaming establishment. Moreover, East Chicago
Showboat is a start-up development and, as such, will be subject
to all of the risks inherent in establishing a new business
enterprise, including, but not limited to, unanticipated
construction, licensing, permitting or operating problems as well
as the ability of the Showboat Partnership to market and operate
a new venture in a new gaming jurisdiction (northern Indiana).
The success of gaming in a market that has not previously
supported gaming operations cannot be guaranteed or accurately
predicted. There can be no assurance that the Showboat
Partnership will be able to market
17
successfully East Chicago Showboat or that the operations thereof
will be profitable or will generate sufficient cash flow from
operations to enable the Company to make payments of principal of
and interest on the New Notes.
CONSTRUCTION RISKS
East Chicago Showboat is currently scheduled to open,
subject to licensing and other requisite permits and
authorizations, by July 1, 1997. Construction of East Chicago
Showboat entails significant risks, including shortages of
materials or skilled labor, engineering, environmental,
geological or regulatory problems, availability of financing,
work stoppages, weather interference and unanticipated cost
increases. Construction, equipment or staffing problems or
difficulties in obtaining any of the requisite licenses, permits
or authorizations from regulatory authorities could increase the
cost of, delay or prohibit the construction or opening of East
Chicago Showboat. Additionally, adverse weather or water
conditions and water traffic could damage the Casino or delay the
transportation of the Casino from its construction site in
Jacksonville, Florida to East Chicago, Indiana and thereby delay
the commencement of operations of East Chicago Showboat.
Furthermore, the Pavilion will be constructed on landfill
consisting partially of slag, which may increase construction
costs because slag is more difficult to excavate and must be
disposed of in accordance with applicable environmental laws. No
assurance can be given that East Chicago Showboat will open on
schedule or that the budgeted procurement and construction costs
will not be exceeded. If construction costs exceed funds
available to the Showboat Partnership, including funds available
through the Completion Guarantee, construction of East Chicago
Showboat may not be feasible. In such a circumstance, the Company
would likely become involved in a bankruptcy proceeding. See "-
Bankruptcy Considerations."
The anticipated costs and opening dates for East Chicago
Showboat are based on budgets, conceptual design documents and
schedule estimates prepared by the Showboat Partnership. Except
for the Casino vessel construction contract, the Showboat
Partnership has not entered into firm contracts for construction
of any part of East Chicago Showboat; however, the Showboat
Partnership has selected a general contractor and such contractor
has indicated a willingness to enter into a contract on terms
acceptable to the Showboat Partnership. The Showboat Partnership
intends to require such general contractor to enter into a fixed
price or guaranteed maximum price contract; however the final
amount of such contract will be subject to modification based
upon the occurrence of certain events such as certain design
change orders and costs associated with certain types of
construction delays, including in certain cases, force majeure
events including strikes or other labor trouble; fire or other
casualty; breakdown, accident, or other acts of God; any statute,
rule, order or regulation of any legislature or governmental
agency or any department or subdivision thereof; litigation not
caused by the Company; or any other event outside the control of
the Company. No assurance can be given that the Showboat
Partnership will be able to enter into fixed price or guaranteed
maximum price contracts, that East Chicago Showboat will commence
operations on schedule or that construction costs for East
Chicago Showboat, including the Casino, will not exceed budgeted
amounts. In the event that a subcontractor for East Chicago
Showboat files for bankruptcy, Showboat may have to pay for a
replacement subcontractor under the Completion Guarantee. The
design and construction of the Casino are subject to regulation
and approval by the Coast Guard. As a condition of the issuance
of such approvals, the Coast Guard may require, among other
things, changes in the design or construction of the Casino that
could materially increase the cost of construction and/or
materially delay the completion of construction of the Casino and
the commencement of operations of East Chicago Showboat.
Furthermore, maritime construction is susceptible to certain
difficulties in addition to ordinary construction difficulties
which could have a material adverse effect on the ability of the
Showboat Partnership to complete construction on schedule or
within the contemplated construction budget. Failure to complete
East Chicago Showboat within budget or on schedule could have a
material adverse effect on the Showboat Partnership. See "-
Preferred Maritime Liens and Liens arising during Construction;
Payment and Performance Bond" and "Business-Design and
Construction."
RISKS OF OPERATION ON LAKE MICHIGAN
It is anticipated that East Chicago Showboat will ordinarily
conduct gaming operations while the Casino is berthed. Should
the Johnson Act be determined to not prevent gaming activities,
the Casino would be required to cruise in open water in Lake
Michigan, subject to the rules of the Indiana Gaming Commission.
The open water of Lake Michigan is subject to a variety of
changing weather and water conditions similar to those found in
the open ocean. The operation of any ship carries an inherent
risk of catastrophic marine disaster and property losses due to
adverse weather
18
and water conditions, mechanical failures, human error, labor
stoppages and other circumstances or events. It is not
anticipated that gaming will altogether cease due to severe
weather and water conditions because Indiana law authorizes
dockside gaming if the master of the Casino reasonably determines
that the Casino should not cruise due to dangerous weather or
water conditions. While the Company intends to operate the Casino
in compliance with all applicable governmental statutes and
regulations, including Coast Guard regulations, there can be no
assurance that the Casino will not encounter weather or water
conditions which could jeopardize the structure of the Casino or
the safety of the patrons or crew members aboard the Casino.
Damage to the Casino or injury to patrons or crew members aboard
the Casino could force a temporary or extended cessation of
gaming activities or otherwise have a material adverse effect on
the Company's results of operations. Furthermore, there can be no
assurance that any anticipated insurance coverage against such
events discussed above would adequately compensate the Company
for losses, including lost profits, resulting therefrom. See
"Description of New Notes-Certain Covenants-Insurance."
COMPLETION GUARANTEE
Showboat has entered into the Completion Guarantee for the
benefit of the Company, under which Showboat has agreed to
complete East Chicago Showboat so that it becomes Operating and
has guaranteed the payment of all Project Costs owing prior to
such completion up to an aggregate of $30.0 million. However,
Showboat's obligation to complete East Chicago Showboat so that
it becomes Operating will not take effect unless there are
insufficient funds in the Escrow Account to meet the costs of
designing, developing, constructing, equipping and opening East
Chicago Showboat. Moreover, Showboat's obligations under the
Completion Guarantee will be limited to $30.0 million in the
aggregate. In addition, Showboat's obligations under the
Completion Guarantee may be suspended during the pendency of
certain Force Majeure Events. There can be no assurance that
performance by Showboat of its obligations under the Completion
Guarantee would be adequate to complete East Chicago Showboat so
that it becomes Operating. Failure of Showboat to perform its
obligations under the Completion Guarantee will result in an
Event of Default. See "Material Agreements-Completion Guarantee"
and "Description of New Notes-Completion Guarantee."
STANDBY EQUITY COMMITMENT
Pursuant to the Standby Equity Commitment from Showboat to
the Showboat Partnership, if during any of the Company's first
three Operating Years the Showboat Partnership's Combined Cash
Flow is less than $35.0 million for any one such Operating Year,
Showboat will cause to be made additional capital contributions
to the Showboat Partnership up to the lesser of such shortfall or
a maximum of $15.0 million in respect of any one such Operating
Year. While Showboat has informed the Showboat Partnership that
it believes it will be able to perform its obligations under the
Standby Equity Commitment, no assurance can be given that
Showboat will have available the financial resources if it is
called on to perform its obligations under the Standby Equity
Commitment. See "Selected Consolidated Financial Data of
Showboat, Inc." Furthermore, Showboat is subject to a number of
financial and other covenants pursuant to its indentures and
other similar debt agreements which may limit its ability to make
payments under the Standby Equity Commitment. If Showboat is
called upon and unable to perform its obligations under the
Standby Equity Commitment, it will result in an Event of Default
under the Indenture. See "Material Agreements-Standby Equity
Commitment" and "Description of New Notes-Standby Equity
Commitment."
REGULATION
The ownership and operation of an Indiana riverboat gaming
operation is subject to extensive regulation and supervision by
various governmental authorities, including the Indiana
Commission. The powers and duties of the Indiana Commission
include authority to: (1) thoroughly investigate all applicants
for riverboat gaming licenses, as well as all directors, officers
and persons holding direct or indirect beneficial interests in an
applicant; (2) select among competing applicants those that
promote the most economic development in a home dock area and
that best serve the interest of the citizens of Indiana; (3) take
appropriate administrative enforcement or disciplinary action
against a licensee; (4) investigate alleged violations of Indiana
gaming law; (5) establish fees for licenses; and (6) prescribe
all forms used by applicants. The Indiana Commission is empowered
to adopt rules pursuant to statute for administering the gaming
statute and the conditions under which riverboat gaming may be
conducted in Indiana. The Indiana Commission has promulgated
certain final rules and has proposed additional rules governing
the application procedure and all aspects of
19
riverboat gaming in Indiana. The Indiana Commission may, without
notice or a hearing under certain circumstances, suspend or
revoke the license of a licensee or a certificate of suitability
or impose civil penalties for any act in violation of the Indiana
Riverboat Gambling Act or for any fraudulent act, or if the
licensee or holder of such certificate of suitability has not
begun regular riverboat excursions prior to the end of the twelve
month period following the Indiana Commission's approval of the
application for an owner's license. The owner's license runs for
a period of five years, after which it is subject to renewal on
an annual basis upon a determination that the licensee remains
eligible for an owner's license. A holder of an owner's license
must undergo a complete investigation every three years. The
Indiana Commission will (1) authorize the route of the riverboat
and stops that the riverboat may make, (2) establish minimum
amounts of insurance and (3) after consulting with the Corps of
Engineers, determine which waterways are navigable waterways for
purposes of the Indiana Riverboat Gambling Act and determine
which navigable waterways are suitable for the operation of
riverboats. See "Regulation-Indiana."
Minimum and maximum wagers on games are not established by
regulation but are left to the discretion of the licensee.
Wagering may not be conducted with money or other negotiable
currency. Riverboat gaming excursions are limited to a duration
of four hours unless expressly approved by the Indiana
Commission. No gaming may be conducted while the boat is docked
except (1) for 30-minute time periods at the beginning and end of
a cruise while the passengers are embarking and disembarking, (2)
if the master of the riverboat reasonably determines that
specific weather or water conditions present a danger to the
riverboat, its passengers and crew, (3) if either the vessel or
the docking facility is undergoing mechanical or structural
repair, (4) if water traffic conditions present a danger to (A)
the riverboat, riverboat passengers, and crew, or (B) other
vessels on the water, or (5) if the master has been notified that
a condition exists that would cause a violation of federal law if
the riverboat were to cruise. The Indiana Commission is in the
process of promulgating new rules for cruising of licensed
riverboats, including on Lake Michigan.
Bills have been introduced in the United States House of
Representatives and the United States Senate that would establish
a National Gambling Impact and Policy Commission to study the
economic impact of gambling on the United States, the individual
States and Native American tribes. Additional federal regulation
may occur due to the initiation of hearings by the committee. A
bill was also introduced in the Indiana State Legislature that
would have established a committee to evaluate gaming in the
State of Indiana, but the bill did not pass before the Indiana
State Legislature adjourned. Any new federal or state
legislation could have a material adverse effect on the Company.
Each cruising riverboat also is regulated by the Coast
Guard, whose regulations affect vessel design, construction,
operation (including requirements that each vessel be operated by
a minimum complement of licensed personnel) and maintenance in
addition to limiting the number of passengers/customers. The
Casino must hold a valid Coast Guard-issued certificate of
inspection and loss or suspension of such certificate could
preclude the use of the Casino. The Casino is subject to annual
as well as unannounced inspection by the Coast Guard and must be
drydocked every five years for inspection of the hull. Such
drydockings remove the Casino from service for a period of time
and can result in required repairs. The Company believes that
Coast Guard regulations, and the requirements of operating and
managing cruising gaming vessels generally, make it more
difficult and more expensive to conduct riverboat gaming than to
operate land-based casinos. See "Regulation-Coast Guard."
In order for the Casino to be able to operate in the United
States coastwise trade, the Showboat Partnership must be a
"citizen of the United States," as defined in the Merchant Marine
Act, 1920, as amended, and the Shipping Act, 1916, as amended. A
partnership owning any vessel engaged in the United States
coastwise trade, such as the Showboat Partnership, is considered
a United States citizen for purposes of United States coastwise
requirements if at least 75% of the equity interest in the
partnership is owned by United States citizens and all general
partners are United States citizens.
Certain federal, state and local legislation and regulations
affecting safety, health and environmental matters that apply to
businesses generally are applicable to the Showboat Partnership.
However, management believes the Showboat Partnership is in
compliance with all such material legislation and regulations.
20
COMPETITION
East Chicago Showboat will be highly dependent on the
Chicago metropolitan area gaming market. While the Indiana gaming
statutes allocate only one riverboat owner's license to East
Chicago, four additional, existing or proposed, riverboat casino
operations are authorized in northern Indiana on Lake Michigan by
the Indiana statute and local referenda, and six additional
licenses have been authorized in southern Indiana. These numbers
could be changed through subsequent legislation. Certificates of
suitability have been issued for four applicants in northern
Indiana other than the Company, and gambling operations are
expected to commence at three of these sites prior to the opening
of East Chicago Showboat. There are currently four riverboat
casinos operating in Illinois within 50 miles of East Chicago.
Illinois has issued all ten riverboat casino gaming licenses
authorized by existing Illinois law permitting each licensee to
operate riverboat casinos containing a total of 1,200 gaming
positions per license. There can be no assurance that Illinois
gaming law will not be revised to permit a greater number of
gaming positions per license. An increase in the number of gaming
positions per license permitted by Illinois gaming law could
reduce the percentage amount by which the Company's gaming
positions exceed the gaming positions of individual casinos
operating in Illinois within the Chicago Gaming Market.
Additionally, certain Illinois licensees operate two riverboats
from one location permitting more regular access to those
Illinois riverboats. Legislation has been introduced on numerous
occasions in recent years to expand riverboat gaming in Illinois,
including by authorizing new sites in the Chicago metropolitan
area with which East Chicago Showboat would compete and by
otherwise modifying existing regulations to decrease or eliminate
certain restrictions such as gaming position limitations. To
date, no such legislation has been enacted. It is impossible to
predict whether any such legislation, in Illinois or elsewhere,
will be enacted or whether, if passed, such legislation would
have a material adverse effect on the Company. There can be no
assurance that the metropolitan Chicago market can support the
number of riverboat casinos which have been proposed or may be
operating at any time. See "Business-Description of the Chicago
Gaming Market."
The Company also will compete with gaming facilities
nationwide, including riverboat gaming in Illinois, Indiana,
Iowa, Louisiana, Missouri and Mississippi and land-based casinos
in Colorado, Louisiana, Nevada, New Jersey, and South Dakota, as
well as various gaming operations on Native American land,
including those located in Arizona, Connecticut, Louisiana,
Michigan, Minnesota, New York and Wisconsin and possibly in
northern Indiana. Other jurisdictions may legalize various forms
of gaming and wagering that may compete with East Chicago
Showboat in the future, including those jurisdictions in close
proximity to East Chicago, Indiana. Gaming and wagering includes
on-line computer gambling, bingo, pull tab games, card clubs,
pari-mutuel betting on horse racing and dog racing, state
sponsored lotteries, video lottery terminals and video poker
terminals, as well as other forms of entertainment. The Pokagon
Band of Potawatomi Indians (the "Pokagon Band") of southern
Michigan and northern Indiana has been federally recognized as an
Indian tribe. In February 1995, the Pokagon Band voted to build
at least one land-based casino in southern Michigan and in April
1995 voted to accept a casino development proposal from a
national casino operator. The Governor of Michigan signed a
compact with the Pokagon Band in November 1995. Published reports
indicate that the Pokagon Band has asked the Governor of Indiana
to begin negotiating with regard to a land-based casino in
Indiana and that the governor has declined to do so at this time.
Further, the city of Gary, Indiana has been reported to have
undertaken negotiations with the Miami Indians of Oklahoma, which
lack federal recognition, to bring a land-based casino to Gary.
The Miami Indians are currently undertaking an appeal to the U.S.
Department of the Interior's Bureau of Indian Affairs regarding
the denial of their request to designate approximately 350 acres
near Thorntown, Indiana (approximately 30 miles northwest of
Indianapolis and approximately 125 miles southwest of East
Chicago) as "federal trust" land. The Indiana Horse Racing
Commission has issued a permit for pari-mutuel wagering on a
horse racetrack in Anderson, Indiana, and that permit holder also
has been issued licenses for three satellite wagering facilities,
including one in Merrillville, Indiana in the same county as East
Chicago Showboat. The legalization of casino gaming operations in
jurisdictions in close proximity to East Chicago Showboat would
have a material adverse effect on the Company. Other changes in
legislation could increase tax or other burdens on the Company or
could lessen restrictions on competitors of the Company in other
jurisdictions, either of which could have a material adverse
effect on the operating results of the Company.
The Company expects that certain of its competitors may have
significantly greater financial and other resources than the
Company. Given all of the foregoing factors, it is possible that
substantial competition could have a material adverse effect on
the Company's results of operations. See "Business-Competition."
21
RELIANCE ON SINGLE MARKET
The Company does not intend to have operations other than
East Chicago Showboat and therefore will be entirely dependent
upon East Chicago Showboat for its revenues. Because the Company
will be entirely dependent on a single gaming site for its
revenues, it will consequently be subject to greater risks than a
more geographically diversified gaming operation, including, but
not limited to, risks related to local economic and competitive
conditions, changes in local governmental regulations and natural
and other disasters. Any decline in the number of residents in
the Chicago Gaming Market, a downturn in the overall economy of
the Chicago Gaming Market, a decrease in gaming activities in the
Chicago Gaming Market, or an increase in competition, could have
a material adverse effect on the Company. See "Business-
Description of the Chicago Gaming Market."
INDIANA GAMING TAXES
An admission tax of $3.00 for each person admitted to the
gaming excursion is imposed upon the gaming operation. An
additional 20% tax is imposed on the adjusted gross receipts
received from gaming operations, which is defined as the total of
all cash and property (including checks received by the licensee
whether collected or not) received, less the total of all cash
paid out as winnings to patrons and uncollected gaming
receivables (not to exceed 2%). The gaming license owner shall
remit the admission and wagering taxes before the close of
business on the day following the day on which the taxes were
incurred. Legislation was enacted in 1995 in Indiana permitting
the imposition of property taxes on the riverboats at rates to be
determined by local taxing authorities of the jurisdiction in
which a riverboat operates. The imposition of the property tax
was part of an omnibus property tax reform legislation which is
being challenged in court. However, the property tax on
riverboats is not being challenged. Pursuant to agreements with
the City of East Chicago, and as reflected in the Certificate of
Suitability issued by the Indiana Commission, the Company has
agreed to (1) provide fixed incentives of approximately $16.4
million to the City of East Chicago and its agencies for
transportation, job training, home buyer assistance and discrete
economic development initiatives, (2) pay a total of 3% of
adjusted gross gaming receipts to the City of East Chicago and to
two not-for-profit foundations for job training and housing and
commercial development, and (3) pay 0.75% of adjusted gross
gaming receipts for community development projects to a for-
profit corporation owned by the Manager. A significant increase
in the Company's tax rates could materially adversely affect the
Company. See "Regulation-Indiana."
SEASONALITY
Because of the climate in the Chicago metropolitan area, the
Company anticipates that the operations of East Chicago Showboat
will be seasonal with the heaviest activity during the period
from May through September. The seasonal nature of the Company's
business increases the negative impact that would result from
natural disasters or the loss of the Casino from service during
peak operating periods. Accordingly, the Company's results of
operations are likely to fluctuate from quarter to quarter and
the results for any fiscal quarter may not be indicative of
results for future fiscal quarters. The Company anticipates that
financial results for the first 12 months of operations will be
adversely affected by the expensing of costs associated with
start-up operations and should not be indicative of future
financial results. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations-Seasonality."
FORECLOSURE RESTRICTIONS; TITLE CONSIDERATIONS
In the event of an Event of Default by the Company under the
Indenture, before the Trustee or holders of the New Notes can
foreclose or take possession of East Chicago Showboat, the
Trustee or such holders may have to file applications with the
Indiana Commission, be investigated and be licensed by the
Indiana Commission. This process can take several months and,
accordingly, the ability of the Trustee or the holders of the New
Notes to foreclose could be substantially delayed or impaired.
Moreover, no assurance can be given that either the Trustee or
any holder will be found suitable or granted a license by the
Indiana Commission. Upon the occurrence of an Event of Default by
the Company, before the Trustee or holders can take possession of
or sell any collateral constituting security for the New Notes,
the Trustee or such holders, in addition to complying with
applicable Indiana gaming law, will have to comply with all
applicable federal and state judicial or non-judicial foreclosure
and sale laws. Such laws may include cure provisions, mandatory
sale notice provisions, manner of sale provisions and redemption
period provisions. Such provisions may
22
significantly increase the time associated with taking possession
or the sale of any collateral. Failure to comply with any
applicable provision could void the foreclosure on or sale of
such collateral. In addition, licensing requirements may limit
the number of potential bidders in a foreclosure sale, may delay
the sale and may adversely affect the sale price of the Company's
assets. See "Regulation-Indiana."
The leasehold estate pledged as security may be subject to
known and unknown environmental risks. Under the federal
Comprehensive Environmental Response Compensation and Liability
Act ("CERCLA"), as amended, for example, a secured lender may be
held liable, in certain limited circumstances, for the costs of
remediating a release of or preventing a threatened release of
hazardous substances at a mortgaged property. There may be
similar risks under state statutes or common law.
On October 19, 1995, the Manager entered into a
Redevelopment Project Lease with the City of East Chicago (the
"City") Department of Redevelopment (which has been assigned by
the Manager to the Company) pursuant to which the City granted
the Manager a leasehold interest in certain property in East
Chicago, Indiana ("Leased Premises") for a period of 30 years
from the date the Manager received the Certificate of Suitability
from the Indiana Commission (the "Commencement Date") which term
may be renewed for two additional thirty year terms at the
election of the Manager. The City of East Chicago obtained the
Leased Premises in the late 1950's from Inland Steel Company and
the deed transferring the site contained a restrictive covenant
requiring that the site be used as a public park. The Leased
Premises are also subject to certain easements and certain
mortgages (the "Inland Mortgages") created by or in favor of
Inland Steel Company. The City is preparing an eminent domain
action to terminate the restrictive covenant, which is intended
also to condemn certain other rights that Inland Steel Company
has in the Leased Premises, including the Inland Mortgages.
Additionally, Inland Steel Company has agreed to release the
mortgages on the Leased Premises and the Company is independently
negotiating the rescission of the restrictive covenant with
Inland Steel Company. No assurance can be given that (i) the City
will be successful in completing the eminent domain action, (ii)
that the Company will be successful in negotiating the rescission
of the restrictive covenant or (iii) that Inland Steel will
release the Inland Mortgages. The Company anticipates obtaining
title insurance from a title company which will insure against
losses as a result of the Inland Mortgages or of a final court
order prohibiting the proposed use of the site or ordering the
enforced ouster of the Company or cancellation of the
Redevelopment Project Lease Agreement. See "Material Agreements-
Redevelopment Project Lease with the City of East Chicago."
PREFERRED MARITIME LIENS AND LIENS ARISING DURING CONSTRUCTION;
PAYMENT AND PERFORMANCE BOND
Under federal law a tort claim against a vessel or the
furnishing of services or materials to a vessel generally gives
rise to a maritime lien against the vessel. Except for preferred
ship mortgages, there is no requirement that maritime liens be
recorded. Maritime liens may be enforced by the commencement of
an action in a United States District Court which could result in
the seizure of the vessel and, if the lien is not bonded or
otherwise disposed of, sale of the vessel. A first preferred ship
mortgage will be filed with the Coast Guard upon completion of
construction of the Casino vessel on behalf of the Trustee for
the ratable benefit of the holders of the New Notes. Certain
maritime liens are defined by federal statute to constitute
"preferred maritime liens." In the event of foreclosure of the
first preferred ship mortgage covering the Casino, preferred
maritime liens would have priority over the lien of the first
preferred ship mortgage.
During the construction of a vessel, as a matter of state
law, materialmen, laborers and others who perform services in
connection with such construction may have liens against the
vessel under construction which may have priority over security
interests perfected prior to the dates upon which such liens
arose. In addition, Indiana law provides contractors,
subcontractors and material suppliers with a lien on the
leasehold being improved by their services or supplies in order
to secure their right to be paid. Such parties may foreclose on
their liens if they are not paid in full. Pursuant to the Escrow
and Disbursement Agreement, the Company is subject to certain
fund control procedures intended to assure the proper payment of
contractors, subcontractors and material suppliers. The Company
also is required to obtain lien waivers from such parties in
connection with interim and final payments during the
construction period whereby such parties will release their lien
claims to the extent of such payments. In addition, the Company
has obtained a policy of title insurance for the benefit of the
holders of the Notes and will obtain future endorsements insuring
against any loss incurred as a result of mechanics' liens,
although the Company may be required to indemnify the title
insurance company for any losses resulting from claims arising
from mechanics liens.
23
The Trustee, for the ratable benefit of the holders of the
Notes, is named as an additional obligee on the Payment and
Performance Bond relating to construction of the Casino vessel by
Atlantic Marine, Inc. ("Atlantic Marine"). In addition, a first
preferred ship mortgage will be documented with the Coast Guard
upon completion of construction of the Casino vessel; however, no
security interest in the Casino vessel will be granted by
Atlantic Marine to the Trustee during construction of the Casino
vessel, and the construction contract relating thereto provides
that title to the Casino vessel will not pass to the Company
until construction is complete. Therefore, until construction is
completed, the Payment and Performance Bond will be the Trustee's
only security that the Company will take delivery of the Casino
vessel. There can be no assurance that the Payment and
Performance Bond will be sufficient to complete the Casino
vessel. Failure to take delivery of the Casino vessel within the
Company's anticipated delivery time would delay the expected
opening date of East Chicago Showboat, which would have a
material adverse effect on the Company.
In the event of a bankruptcy or other similar proceeding
involving Atlantic Marine, secured creditors of Atlantic Marine
could take priority over Atlantic Marine's other creditors in
respect of certain items of collateral in which they have a
security interest. Such collateral could include vessels under
construction, including the Casino vessel, title to which does
not pass under the construction contract relating thereto until
completion thereof. Thus, in the event of a bankruptcy or other
similar proceeding involving Atlantic Marine, there can be no
assurance that the Casino vessel would be completed or that the
Casino vessel would be delivered to the Company, or that the
Company would be adequately compensated for the loss thereof. See
"Description of New Notes-Security."
BANKRUPTCY CONSIDERATIONS
The right of the Trustee to repossess and dispose of the New
Note Collateral upon the occurrence of an Event of Default under
the Indenture is likely to be impaired significantly by
applicable federal or state bankruptcy law if a bankruptcy
proceeding were to be commenced by or against the Company,
whether by holders of the New Notes or other creditors (including
junior creditors), prior to such repossession and disposition.
Under applicable bankruptcy law, secured creditors such as the
holders of the New Notes are prohibited from repossessing their
security from a debtor in a bankruptcy case, or from disposing of
security repossessed from such debtor, without bankruptcy court
approval. Moreover, applicable bankruptcy law permits the debtor
to continue to retain and to use such collateral 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 certain circumstances, but it is generally
intended to protect the value of the secured creditors' interest
in the collateral and may include cash payments or the granting
of additional security, at such time and in such amount as the
court in its discretion may determine, for any diminution in the
value of the collateral as a result of the stay of repossession
or disposition or any use of the collateral by the debtor during
the pendency of the bankruptcy case. 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 New Notes could
be delayed following commencement of a bankruptcy case, whether
or when the Trustee could repossess or dispose of the New Note
Collateral, or whether or to what extent the holders of the New
Notes would be compensated for any delay in payment or loss of
value of the New Note Collateral through the requirement of
adequate protection.
The Showboat Partnership has leased the sites for East
Chicago Showboat from agencies of the City pursuant to a
Redevelopment Project Lease with the City (the "City Lease"). The
commencement of a bankruptcy case by the City could adversely
affect the Showboat Partnership's rights under the City Lease, if
the City should elect to "reject" the City Lease under Section
365(a) of the United States Bankruptcy Code (the "Bankruptcy
Code"). Although the Bankruptcy Code provides certain protections
to the lessee when a debtor-lessor rejects a lease, it is
uncertain whether the Showboat Partnership would benefit from
those protections. Rejection of the City Lease would prevent the
Showboat Partnership from operating East Chicago Showboat,
thereby having a material adverse effect on the Company.
In the event that the Showboat Partnership becomes a debtor
in a bankruptcy proceeding under the Bankruptcy Code within 90
days after the filing or perfection of the first preferred ship
mortgage, it is possible that the debtor, debtor in possession, a
trustee or any other representative of the estate of the Showboat
Partnership could argue that the perfection or filing of such
first preferred ship mortgage constituted an avoidable preference
within the meaning of Section 547 of the Bankruptcy Code and seek
to avoid the lien granted under such first preferred ship
mortgage on the Casino.
24
Such representative could argue that the transfer or filing of
the first preferred ship mortgage was made on account of an
antecedent debt while the debtor was insolvent and that it
enabled the Trustee, for the benefit of the holders of the New
Notes, to obtain more than they would have obtained in a
liquidation proceeding under chapter 7 of the Bankruptcy Code. In
particular, the issue of whether or not the debtor was insolvent
or whether the Trustee, for the benefit of the holders of the New
Notes, would obtain more than they would have received in a
chapter 7 liquidation proceeding are factual issues existing at
the time of the transfer or filing of the first preferred ship
mortgage and thereafter as determined by a bankruptcy court.
There can be no assurance as to the determination that would be
made by any bankruptcy court considering the foregoing. Such
bankruptcy court could determine to avoid the lien granted under
the first preferred ship mortgage.
POSSIBLE CONFLICTS OF INTEREST
Affiliates of Showboat are actively involved in the gaming
industry. Casinos owned or managed by such affiliated persons may
directly or indirectly compete with East Chicago Showboat. The
potential for conflicts of interest exists among Showboat and
affiliated persons for future business opportunities that may not
be presented to the Showboat Partnership. However, Waterfront and
Showboat have agreed that neither Waterfront nor Showboat nor
their affiliates shall engage in other gaming activities in
Indiana. If Showboat or Waterfront or their affiliates commence
gaming in Cook County, Illinois (any of such persons, a
"Commencing Partner"), the other partner (a "Non-commencing
Partner") may purchase 15% of the Commencing Partner's interest
in such gaming venture at the Commencing Partner's purchase price
at any time within one year of the opening of such operation (a
"Cook County Operation"). Both Waterfront and Showboat have
agreed that key customers of East Chicago Showboat shall not be
solicited to become customers of the Cook County Operation and
that no management talent from East Chicago Showboat shall be
assigned to the Cook County Operation without consent of the Non-
commencing Partner. Additionally, the Manager, Waterfront, and
Showboat and its affiliates, have entered into a declaration of
non-competition with the Indiana Commission, which provides that
if the Manager or the Showboat Partnership receives an owner's
license for East Chicago, Indiana, they shall not commence more
than one other casino gaming operation within a fifty-mile radius
of East Chicago Showboat for a period of five years beginning on
the date of issuance of an owner's license by the Indiana
Commission to the Manager or the Showboat Partnership. Adherence
to the declaration is a condition of the Certificate of
Suitability. The New Notes will be without recourse to the
general partners of the Showboat Partnership or to Showboat. In
addition, Showboat will act as Disbursement Agent under the
Escrow and Disbursement Agreement, thereby approving the
disbursement of all funds in the Escrow Account. See "Description
of New Notes-Escrow and Disbursement Agreement."
FRAUDULENT TRANSFER CONSIDERATIONS
Under applicable provisions of the Bankruptcy Code or
comparable provisions of state fraudulent transfer or conveyance
law, if the Company, at the time it issued the New Notes, (a)
incurred such indebtedness with the intent to hinder, delay or
defraud creditors, or (b)(i) received less than reasonably
equivalent value or fair consideration and (ii)(A) was insolvent
at the time of such incurrence, (B) was rendered insolvent by
reason of such incurrence (and the application of the proceeds
thereof), (C) was engaged or was about to engage in a business or
transaction for which the assets remaining with the Company
constituted unreasonably small capital to carry on their
business, or (D) intended to incur, or believed that they would
incur, debts beyond their ability to pay such debts as they
mature, then, in each such case, a court of competent
jurisdiction could avoid, in whole or in part, the New Notes or,
in the alternative, subordinate the New Notes to existing and
future indebtedness of the Company. The measure of insolvency for
purposes of the foregoing would likely vary depending upon the
law applied in such case. Generally, however, the Company would
be considered insolvent if the sum of its debts, including
contingent liabilities, was greater than all of its assets at a
fair valuation, or if the present fair salable value of their
assets was less than the amount that would be required to pay the
probable liabilities on their existing debts, including
contingent liabilities, as such debts become absolute and
matured. Management of the Company believes that, for purposes of
the Bankruptcy Code and state fraudulent transfer or conveyance
laws, the New Notes are being issued without the intent to
hinder, delay or defraud creditors and for proper purposes and in
good faith, that the Company will receive reasonably equivalent
value or fair consideration therefor, and that after the issuance
of the New Notes, the Company will be solvent, will have
sufficient capital for carrying on their business and will be
able to pay their debts as they mature. However, there can be no
assurance that a court passing on such issues would agree with
the determination of the Company's management.
25
ABSENCE OF PUBLIC TRADING MARKET; RESTRICTIONS ON TRANSFER
The New Notes have no established trading market and may not
be widely distributed. The Company does not intend to list the
New Notes on any national securities exchange or to seek the
admission thereof to trading in the Nasdaq National Market
System, and there can be no assurance as to the development of
any market or the liquidity of any market that may develop for
the New Notes. The Initial Purchasers have informed the Company
that they currently intend to make a market in the New Notes as
permitted by applicable laws and regulations; however, the
Initial Purchasers are not obligated to do so and may discontinue
any such market making at any time without notice. Accordingly,
there can be no assurance that a trading market for the New Notes
will develop or will provide liquidity to the holders thereof. If
a market does develop, the price of the New Notes may fluctuate
and liquidity may be limited. If a market for the New Notes does
not develop, purchasers may be unable to resell such securities
for an extended period of time, if at all. See "Notice to
Investors" and "Plan of Distribution."
THE EXCHANGE OFFER
PURPOSE AND EFFECT
The Old Notes were sold by the Company to the Initial
Purchasers on March 28, 1996, pursuant to the Purchase Agreement.
The Initial Purchasers subsequently resold the Old Notes in
reliance on Rule 144A under the Securities Act. The Company and
the Initial Purchasers also entered into the Registration Rights
Agreement, pursuant to which the Company agreed, with respect to
the Old Notes and subject to the Company's determination that the
Exchange Offer is permitted under applicable law, to (i) cause to
be filed, within 45 days after the Issuance Date, a registration
statement with the Commission under the Securities Act concerning
the Exchange Offer, (ii) use all reasonable efforts (a) to cause
such registration statement to be declared effective by the
Commission within 105 days after the Issuance Date and (b) to
cause the Exchange Offer to remain open for a period of not less
than 20 business days (or longer if required by applicable law).
This Exchange Offer is intended to satisfy the Company's exchange
offer obligations under the Registration Rights Agreement.
TERMS OF THE EXCHANGE OFFER
The Company hereby offers, upon the terms and subject to the
conditions set forth herein and in the accompanying Letter of
Transmittal, to exchange $1,000 in principal amount of New Notes
for each $1,000 in principal amount of its outstanding Old Notes.
The Company will accept for exchange any and all Old Notes that
are validly tendered on or prior to ________ ___, 1996, 5:00
p.m., New York City time. Tenders of the Old Notes may be
withdrawn at any time prior to ________ ___, 1996, 5:00 p.m.,
New York City time. The Exchange Offer is not conditioned upon
any minimum principal amount of Old Notes being tendered for
exchange. However, the Exchange Offer is subject to certain
customary conditions which may be waived by the Company, and to
the terms and provisions of the Registration Rights Agreement.
See "Termination of Certain Rights."
Old Notes may be tendered only in multiples of $1,000.
Subject to the foregoing, Holders may tender less than the
aggregate principal amount represented by the Old Notes held by
them, provided that they appropriately indicate this fact on the
Letter of Transmittal accompanying the tendered Old Notes (or so
indicate pursuant to the procedures for book-entry transfer).
As of the date of this Prospectus, $140.0 million in
aggregate principal amount of the Old Notes were outstanding, the
maximum amount authorized by the Indenture for all Notes. As of
April 30, 1996, there was one registered holder of the Old Notes,
Cede, which held the Old Notes for its participants. Solely for
reasons of administration (and for no other purpose), the Company
has fixed the close of business on __________, 1996, as the
record date (the "Record Date") for purposes of determining the
persons to whom this Prospectus and the Letter of Transmittal
will be mailed initially. Only a Holder of the Old Notes (or
such Holder's legal representative or attorney-in-fact) may
participate in the Exchange Offer. There will be no fixed record
date for determining Holders of the Old Notes entitled to
participate in the Exchange Offer. The Company believes that, as
of the date of this Prospectus, no Holder is an affiliate (as
defined in Rule 405 under the Securities Act) of the Company.
26
The Company shall be deemed to have accepted validly
tendered Old Notes when, as and if the Company has given oral or
written notice thereof to the Exchange Agent. The Exchange Agent
will act as agent for the tendering Holders for purposes of
tendering Old Notes to the Company and for the purposes of
receiving the New Notes from the Company in each case pursuant to
the terms of this Exchange Offer.
If any tendered Old Notes are not accepted for exchange
because of an invalid tender, the occurrence of certain other
events set forth herein or otherwise, certificates for any such
unaccepted Old Notes will be returned, without expense, to the
tendering Holder thereof as promptly as practicable after the
Expiration Date.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The Expiration Date shall be _____________, 1996 at
5:00 p.m. New York City time, unless the Company, in its sole
discretion, extends the Exchange Offer, in which case the
Expiration Date shall be the latest date and time to which the
Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will
notify the Exchange Agent of any extension by oral or written
notice and will make a public announcement thereof, each prior to
10:00 a.m., New York City time, on the next business day after
the previously scheduled Expiration Date.
The Company reserves the right, in its sole discretion,
(i) to delay accepting any Old Notes, (ii) to extend the Exchange
Offer, and (iii) to amend the terms of the Exchange Offer in any
manner. If the Exchange Offer is amended in a manner determined
by the Company to constitute a material change, the Company will
promptly disclose such amendments by means of a prospectus
supplement that will be distributed to the registered Holders of
the Old Notes. In certain circumstances a material amendment to
the Exchange Offer may require an extension of the Expiration
Date.
TERMINATION OF CERTAIN RIGHTS
The Company and the Initial Purchasers entered into the
Registration Rights Agreement on the Closing Date. Pursuant to
the Registration Rights Agreement, the Company agreed to file
with the Commission an Exchange Offer registration statement
("Exchange Offer Registration Statement") on the appropriate form
under the Securities Act with respect to the New Notes. Upon the
effectiveness of the Exchange Offer Registration Statement, the
Company will offer to the Holders of Transfer Restricted
Securities pursuant to the Exchange Offer who are able to make
certain representations, the opportunity to exchange their
Transfer Restricted Securities for New Notes. If (i) the Company
is not required to file the Exchange Offer Registration Statement
or permitted to consummate the Exchange Offer because the
Exchange Offer is not permitted by applicable law or Commission
policy or (ii) any Holder of Transfer Restricted Securities
notifies the Company within the specified time period that (A) it
is prohibited by law or Commission policy from participating in
the Exchange Offer or (B) that it may not resell the New Notes
acquired by it in the Exchange Offer to the public without
delivering a prospectus and the prospectus contained in the
Exchange Offer Registration Statement is not appropriate or
available for such resales or (C) that it is a broker-dealer and
owns Old Notes acquired directly from the Company or an affiliate
of the Company, the Company will file with the Commission a shelf
registration statement to cover resales of the Old Notes by the
Holders thereof who satisfy certain conditions relating to the
provision of information in connection with the shelf
registration statement. The Company will use its best efforts to
cause the applicable registration statement to be declared
effective as promptly as possible by the Commission. For purposes
of the foregoing, "Transfer Restricted Securities" means each Old
Note until (i) the date on which such Old Note has been exchanged
by a person other than a broker-dealer for a New Note in the
Exchange Offer, (ii) following the exchange by a broker-dealer in
the Exchange Offer of a Old Note for a New Note, the date on
which such New Note is sold to a purchaser who receives from such
broker-dealer on or prior to the date of such sale a copy of the
prospectus contained in the Exchange Offer Registration
Statement, (iii) the date on which such Old Note has been
effectively registered under the Securities Act and disposed of
in accordance with the shelf registration statement or (iv) the
date on which such Old Note is distributed to the public pursuant
to Rule 144 under the Securities Act.
The Registration Rights Agreement provides that (i) the
Company will file an Exchange Offer Registration Statement with
the Commission on or prior to 45 days after the Issuance Date,
(ii) the Company will use its best efforts to
27
have the Exchange Offer Registration Statement declared effective
by the Commission on or prior to 105 days after the Issuance
Date, (iii) unless the Exchange Offer would not be permitted by
applicable law or Commission policy, the Company will commence
the Exchange Offer and use its best efforts to issue on or prior
to 135 days after the Issuance Date, New Notes in exchange for
all Old Notes tendered prior thereto in the Exchange Offer and
(iv) if obligated to file the shelf registration statement, the
Company will use its best efforts to file the shelf registration
statement with the Commission on or prior to 60 days after such
filing obligation arises (and in any event within 105 days after
the Closing Date) and to cause the shelf registration statement
to be declared effective by the Commission on or prior to 135
days after the Issuance Date. If (a) the Company fails to file
any of the registration statements required by the Registration
Rights Agreement on or before the date specified for such filing,
(b) any of such registration statements is not declared effective
by the Commission on or prior to the date specified for such
effectiveness (the "Effectiveness Target Date"), or (c) the
Company fails to consummate the Exchange Offer or file a shelf
registration statement (if required) within 135 days of the
Issuance Date, or (d) the shelf registration statement or the
Exchange Offer Registration Statement is declared effective but
thereafter ceases to be effective or usable in connection with
resales of Transfer Restricted Securities during the periods
specified in the Registration Rights Agreement (each such event
referred to in clauses (a) through (d) above a "Registration
Default"), then the Company will pay liquidated damages
("Liquidated Damages") to each Holder of Old Notes, with respect
to the first 90-day period immediately following the occurrence
of such Registration Default in an amount equal to $.05 per week
per $1,000 principal amount of Old Notes held by such Holder. The
amount of the Liquidated Damages will increase by an additional
$.05 per week per $1,000 principal amount of Old Notes with
respect to each subsequent 90-day period until all Registration
Defaults have been cured, up to a maximum amount of Liquidated
Damages of $.50 per week per $1,000 principal amount of Old
Notes. All accrued Liquidated Damages will be paid by the Company
on each Damages Payment Date to the Global Note Holder (as
defined on page 85) by wire transfer of immediately available
funds or by federal funds check and to Holders of certificated
Old Notes by wire transfer to the accounts specified by them or
by mailing checks to their registered addresses if no such
accounts have been specified. Following the cure of all
Registration Defaults, the accrual of Liquidated Damages will
cease. Holders of New Notes, and, upon consummation of the
Exchange Offer or declaration of effectiveness of a Shelf
Registration Statement (provided such Shelf Registration
Statement remains effective for the requisite period of time),
Holders of Old Notes, will not be eligible to receive Liquidated
Damages.
Holders of Old Notes will be required to make certain
representations to the Company (as described in the Registration
Rights Agreement) in order to participate in the Exchange Offer
and will be required to deliver information to be used in
connection with the shelf registration statement and 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.
ACCRUED INTEREST ON THE OLD NOTES
The New Notes will bear interest at a rate equal to 13 1/2% per
annum from and including the New Note Issuance Date. Holders
whose Old Notes are accepted for exchange will have the right to
receive interest accrued thereon from the Issuance Date or the
last Interest Payment Date, as applicable, to, but not including,
the New Note Issuance Date, such interest to be payable with the
first interest payment on the New Notes. Interest on the Old
Notes accepted for exchange, which interest accrued at the rate
of 13 1/2% per annum, will cease to accrue on the day prior to
the New Note Issuance Date. See "Description of New Notes-
Principal, Maturity and Interest."
PROCEDURES FOR TENDERING OLD NOTES
The tender of a Holder's Old Notes as set forth below and
the acceptance thereof by the Company will constitute a binding
agreement between the tendering Holder and the Company upon the
terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal. Except as set
forth below, a Holder who wishes to tender Old Notes for exchange
pursuant to the Exchange Offer must transmit such Old Notes,
together with a properly completed and duly executed Letter of
Transmittal, including all other documents required by such
Letter of Transmittal, to the Exchange Agent at the address set
forth herein prior to 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 HOLDER. IF SUCH DELIVERY IS BY MAIL, IT IS
28
RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN
RECEIPT REQUESTED, BE USED. INSTEAD OF DELIVERY BY MAIL, IT IS
RECOMMENDED THAT THE HOLDER USE AN OVERNIGHT OR HAND DELIVERY
SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
ASSURE TIMELY DELIVERY.
Any financial institution that is a participant in DTC's
Book-Entry Transfer Facility System may make book-entry delivery
of the Old Notes by causing DTC to transfer such Old Notes into
the Exchange Agent's account in accordance with DTC's procedures
for such transfer. In connection with a book-entry transfer, a
Letter of Transmittal need not be transmitted to the Exchange
Agent, provided that the book-entry transfer procedure must be
complied with prior to 5:00 p.m., New York City time, on the
Expiration Date.
Each signature on a Letter of Transmittal or a notice of
withdrawal, as the case may be, must be guaranteed unless the Old
Notes surrendered for exchange pursuant hereto are tendered
(i) by a registered holder of the Old Notes who has not completed
either the box entitled "Special Issuance Instructions" or the
box entitled "Special Delivery Instructions" in the Letter of
Transmittal, or (ii) by an Eligible Institution (as defined on
page 29). In the event that a signature on a Letter of
Transmittal or a notice of withdrawal, as the case may be, is
required to be guaranteed, such guarantee must be by a firm which
is a member of a registered national securities exchange or the
National Association of Securities Dealers, Inc., a commercial
bank or trust company having an office or correspondent in the
United States or otherwise be an "eligible guarantor institution"
within the meaning of Rule 17Ad-15 under the Exchange Act
(collectively, "Eligible Institutions"). 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 either (i) be endorsed by the registered Holder, with the
signature thereon guaranteed by an Eligible Institution, or
(ii) be accompanied by a bond power, in satisfactory form as
determined by the Company in its sole discretion, duly executed
by the registered holder, with the signature thereon guaranteed
by an Eligible Institution. The term "registered holder" as used
herein with respect to the Old Notes means any person in whose
name the Old Notes are registered on the books of the Registrar.
All questions as to the validity, form, eligibility
(including time of receipt), acceptance and withdrawal of the Old
Notes tendered for exchange will be determined by the Company in
its sole discretion, which determination shall be final and
binding. The Company reserves the absolute right to reject any
and all Old Notes not properly tendered and to reject any Old
Notes the Company's acceptance of which might, in the judgment of
the Company or its counsel, be unlawful. The Company also
reserves the absolute right to waive any defects or
irregularities or conditions of the Exchange Offer as to
particular Old Notes either before or after the Expiration Date
(including the right to waive the ineligibility of any Holder who
seeks to tender Old Notes in the Exchange Offer). The
interpretation of the terms and conditions of the Exchange Offer
(including the Letter of Transmittal and the instructions
thereto) by the Company shall be final and binding on all
parties. Unless waived, any defects or irregularities in
connection with tenders of Old Notes for exchange must be cured
within such period of time as the Company shall determine. The
Company will use reasonable efforts to give notification of
defects or irregularities with respect to tenders of Old Notes
for exchange but shall not incur any liability for failure to
give such notification. Tenders of the Old Notes will not be
deemed to have been made until such irregularities have been
cured or waived.
If any Letter of Transmittal, endorsement, bond power, power
of attorney or any other document required by the Letter of
Transmittal is signed by a trustee, executor, administrator,
guardian, attorney-in-fact, officer of a corporation or other
person acting in a fiduciary or representative capacity, such
person should so indicate when signing, and, unless waived by the
Company, proper evidence satisfactory to the Company, in its sole
discretion, of such person's authority to so act must be
submitted.
Any beneficial owner of the Old Notes (a "Beneficial Owner")
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 such
registered holder promptly and instruct such registered holder to
tender on such Beneficial Owner's behalf. If such Beneficial
Owner wishes to tender directly, such Beneficial Owner must,
prior to completing and executing the Letter of Transmittal and
tendering Old Notes, make appropriate arrangements to register
ownership of the Old Notes in such Beneficial Owner's name.
Beneficial Owners should be aware that the transfer of registered
ownership may take considerable time.
29
By tendering, each registered Holder will represent to the
Company that, among other things (i) the New Notes to be acquired
in connection with the Exchange Offer by the Holder and each
Beneficial Owner of the Old Notes are being acquired by the
Holder and each Beneficial Owner in the ordinary course of
business of the Holder and each Beneficial Owner, (ii) the Holder
and each Beneficial Owner 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,
(iii) the Holder and each Beneficial Owner acknowledge and agree
that any person participating in the Exchange Offer for the
purpose of distributing the New Notes must comply with the
registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction
of the New Notes acquired by such person and cannot rely on the
position of the staff of the Commission set forth in no-action
letters that are discussed herein under "Resales of New Notes,"
(iv) that if the Holder is a broker-dealer that acquired Old
Notes as a result of market-making or other trading activities,
it will deliver a prospectus in connection with any resale of New
Notes acquired in the Exchange Offer, (v) the Holder and each
Beneficial Owner understand that a secondary resale transaction
described in clause (iii) above should be covered by an effective
registration statement containing the selling security holder
information required by Item 507 of Regulation S-K of the
Commission, and (vi) neither the Holder nor any Beneficial Owner
is an "affiliate," as defined under Rule 405 of the Securities
Act, of the Company except as otherwise disclosed to the Company
in writing. 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
Holders who wish to tender their Old Notes and (i) whose Old
Notes are not immediately available or (ii) who cannot deliver
their Old Notes or any other documents required by the Letter of
Transmittal to the Exchange Agent prior to the Expiration Date
(or complete the procedure for book-entry transfer on a timely
basis), may tender their Old Notes according to the guaranteed
delivery procedures set forth in the Letter of Transmittal.
Pursuant to such procedures: (i) such tender must be made by or
through an Eligible Institution and a Notice of Guaranteed
Delivery (as defined in the Letter of Transmittal) must be signed
by such Holder, (ii) on or prior to the Expiration Date, the
Exchange Agent must have received from the Holder and the
Eligible Institution a properly completed and duly executed
Notice of Guaranteed Delivery (by facsimile transmission, mail or
hand delivery) setting forth the name and address of the Holder,
the certificate number or numbers of the tendered Old Notes, and
the principal amount of tendered Old Notes, stating that the
tender is being made thereby and guaranteeing that, within five
business days after the date of delivery of the Notice of
Guaranteed Delivery, the tendered Old Notes, a duly executed
Letter of Transmittal and any other required documents will be
deposited by the Eligible Institution with the Exchange Agent,
and (iii) such properly completed and executed documents required
by the Letter of Transmittal and the tendered Old Notes in proper
form for transfer (or confirmation of a book-entry transfer of
such Old Notes into the Exchange Agent's account at DTC) must be
received by the Exchange Agent within five business days after
the Expiration Date. Any Holder who wishes to tender Old Notes
pursuant to the guaranteed delivery procedures described above
must ensure that the Exchange Agent receives the Notice of
Guaranteed Delivery and Letter of Transmittal relating to such
Old Notes prior to 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, the Company will accept any and all Old Notes
that are properly tendered in the Exchange Offer prior to 5:00
p.m. New York City time, on the Expiration Date. The New Notes
issued pursuant to the Exchange Offer will be delivered promptly
after acceptance of the Old Notes. For purposes of the Exchange
Offer, the Company shall be deemed to have accepted validly
tendered Old Notes, when, as, and if the Company has given oral
or written notice thereof to the Exchange Agent.
In all cases, issuances of New Notes for Old Notes that are
accepted for exchange pursuant to the Exchange Offer will be made
only after timely receipt by the Exchange Agent of such Old
Notes, a properly completed and duly executed Letter of
Transmittal and all other required documents (or of confirmation
of a book-entry transfer of such Old Notes into the Exchange
Agent's account at DTC); provided, however, that the Company
reserves the absolute right to waive any defects or
irregularities in the tender or conditions of the Exchange Offer.
If any tendered Old Notes are not
30
accepted for any reason, such unaccepted Old Notes will be
returned without expense to the tendering Holder thereof as
promptly as practicable after the expiration or termination of
the Exchange Offer.
WITHDRAWAL RIGHTS
Tenders of the Old Notes may be withdrawn by delivery of a
written notice to the Exchange Agent, at its address set forth
herein, at any time prior to 5:00 p.m., New York City time, on
the Expiration Date. Any such notice of withdrawal must
(i) specify the name of the person having deposited the Old Notes
to be withdrawn (the "Depositor"), (ii) identify the Old Notes to
be withdrawn (including the certificate number or numbers and
principal amount of such Old Notes, as applicable), (iii) be
signed by the Holder in the same manner as the original signature
on the Letter of Transmittal by which such Old Notes were
tendered (including any required signature guarantees) or be
accompanied by a bond power in the name of the person withdrawing
the tender, in satisfactory form as determined by the Company in
its sole discretion, duly executed by the registered Holder, with
the signature thereon guaranteed by an Eligible Institution
together with the other documents required upon transfer by the
Indenture, and (iv) specify the name in which such Old Notes are
to be re-registered, if different from the Depositor, pursuant to
such documents of transfer. All questions as to the validity,
form and eligibility (including time of receipt) of such notices
will be determined by the Company, in its sole discretion. The
Old Notes so withdrawn will be deemed not to have been validly
tendered for exchange for purposes of the Exchange Offer. Any
Old Notes which have been tendered for exchange but which are
withdrawn will be returned to the Holder thereof without cost to
such Holder as soon as practicable after withdrawal. Properly
withdrawn Old Notes may be retendered by following one of the
procedures described under "The Exchange Offer - Procedures for
Tendering Old Notes" at any time on or prior to the Expiration
Date.
CONSEQUENCES OF FAILURE TO TENDER OLD NOTES
Holders who do not tender their Old Notes by the Expiration
Date will be unable to exchange Old Notes for New Notes pursuant
to the Exchange Offer. Holders who acquired Old Notes pursuant
to the Offering and who do not participate in the Exchange Offer
can require the Company to file as promptly as practicable after
so requested a shelf registration statement relating to the Old
Notes and cause such shelf registration statement to be declared
effective by the 135th day following original issuance of the Old
Notes. Old Notes held by Holders who do not tender their Old
Notes pursuant to the Exchange Offer or who do not request that a
shelf registration statement be filed with respect to such Old
Notes may not be offered or sold in the United States or to, or
for the account or benefit of, U.S. persons except in accordance
with an applicable exemption from the registration requirements
thereof.
THE EXCHANGE AGENT; ASSISTANCE
American Bank National Association 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:
American Bank National Association
101 East 5th Street
St. Paul, Minnesota 55101
Attention: Frank Leslie
(612) 229-2600
By Facsimile: (612) 229-6415
Confirm by Telephone: (612) 229-2600
FEES AND EXPENSES
All expenses incident to the Company's consummation of the
Exchange Offer and compliance with the Registration Rights
Agreement will be borne by the Company, estimated at
approximately $100,000, including without
31
limitation: (i) all registration and filing fees and expenses
(including filings made with the National Association of
Securities Dealers, Inc., (including, if applicable, the fees and
expenses of any "qualified independent underwriter" and its
counsel, as may be required by the rules and regulations of the
National Association of Securities Dealers, Inc.)), (ii) all fees
and expenses of compliance with federal securities or state, or
other jurisdictions' securities laws, (iii) all expenses of
printing (including printing certificates for the New Notes and
prospectuses), messenger and delivery services and telephone,
(iv) all fees and disbursements of counsel for the Company and
the fees of counsel for the Initial Purchasers with respect to
the registration statement and any shelf registration statement,
(v) all application and filing fees in the event the New Notes
are listed on a national securities exchange or automated
quotation system, and (vi) all fees and disbursements of
independent certified public accountants of the Company
(including the expenses of any special audit and comfort letters
required by or incident to such performance).
The Company will, in any event, bear its internal expenses
(including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties),
the expense of any annual audit, and the fees and expenses of any
person, including special experts, retained by the Company.
The Company has not retained any dealer-manager in
connection with the Exchange Offer and will not make any payments
to brokers, dealers or others soliciting acceptance of the
Exchange Offer. The Company, however, will pay the Exchange
Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in
connection therewith.
The Company will pay all transfer taxes, if any, applicable
to the exchange of Old Notes pursuant to the Exchange Offer. If,
however, a transfer tax is imposed for any reason other than the
exchange of Old Notes pursuant to the Exchange Offer, then the
amount of any such transfer taxes (whether imposed on the
registered Holder or any other persons) will be payable by the
tendering Holder. If satisfactory evidence of payment of such
taxes or exemption is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed
directly to such tendering Holder.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as
the Old Notes, as reflected in the Company's accounting records
on the date of the exchange. Accordingly, no gain or loss will
be recognized by the Company for accounting purposes. The
expenses of the Exchange Offer will be amortized over the term of
the New Notes.
RESALES OF THE NEW NOTES
Based on an interpretation by the staff of the Commission
set forth in no-action letters issued to third parties, the
Company believes that the New Notes issued pursuant to the
Exchange Offer to a Holder in exchange for Old Notes may be
offered for resale, resold and otherwise transferred by such
Holder (other than (i) a broker-dealer who purchased Old Notes
directly from the Company for resale pursuant to Rule 144A under
the Securities Act or any other available exemption under the
Securities Act, or (ii) a person that is an affiliate of the
Company within the meaning of Rule 405 under the Securities Act)
without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that the Holder is
acquiring the New Notes in the ordinary course of business and is
not participating, and has no arrangement or understanding with
any person to participate, in the distribution of the New Notes.
However, if any Holder acquires New Notes in the Exchange Offer
for the purpose of distributing or participating in a
distribution of the New Notes, such Holder cannot rely on the
position of the staff of the Commission enunciated in Morgan
Stanley & Co., Incorporated (available June 5, 1991) and Exxon
Capital Holdings Corporation (available April 13, 1989), or
interpreted in the Commission's letter to Shearman and Sterling
(available July 2, 1993), or similar no-action or interpretive
letters and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a
secondary resale transaction, unless an exemption from
registration is otherwise available. Each broker-dealer that
receives New Notes for its own account in exchange for Old Notes,
where such Old Notes were acquired by such broker-dealer as a
result of market-making or other trading activities, must
acknowledge that it will deliver a prospectus in connection with
any resale of such New Notes. See "Plan of Distribution."
32
CAPITALIZATION
The Showboat Marina Partnership, which is referred to herein
as the "Manager," was organized on January 31, 1994, for the
purpose of developing East Chicago Showboat and originally held
the Certificate of Suitability granted by the Indiana Commission.
On March 20, 1996, the Indiana Commission approved the transfer
of the Certificate of Suitability from the Manager to the
Showboat Partnership, which transfer occurred as of March 27,
1996. The Manager contributed all of its assets (except for the
capital stock of Second Century) and liabilities to the Showboat
Partnership as of March 28, 1996. The following table sets forth
the capitalization of the Company at March 31, 1996. This table
should be read in conjunction with the more detailed information
and financial statements appearing elsewhere in this Prospectus.
MARCH 31, 1996
ACTUAL
(IN MILLIONS)
Cash and cash equivalents $ 157.3
Long-term debt:
Notes $ 140.0
Capital Lease Financing -
Total long-term debt 140.0
Capital Contribution<F1> 39.0
Total capitalization $ 179.0
<FN>
<F1> Does not include any ascribed value for the Completion
Guarantee or the Standby Equity Commitment.
</FN>
33
SELECTED FINANCIAL DATA
The Showboat Marina Partnership, which is referred to herein
as the "Manager," was organized on January 31, 1994, for the
purpose of developing East Chicago Showboat and originally held
the Certificate of Suitability granted by the Indiana Commission.
On March 20, 1996, the Indiana Commission approved the transfer
of the Certificate of Suitability from the Manager to the
Showboat Partnership and the transfer occurred as of March 27,
1996. The Manager contributed all of its assets (except for the
capital stock of Second Century) and liabilities to the Showboat
Partnership as of March 28, 1996. The selected financial data
presented below for the period from March 29, 1996 (the
commencement of development of the Showboat Partnership) to
March 31, 1996 and prior periods have been derived from the
consolidated financial statements of the Showboat Partnership and
the Manager and are qualified in their entirety by, and should be
read in conjunction with, "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the
Financial Statements and notes thereto, and other financial
information included elsewhere in this Prospectus.
Showboat
Partnership Parent Partnership
Period from CumulativE
Period from January 31, period
March 29, 1996 Period from 1994 from
(commencement January 1, Year (inception) January
of development) 1996 through ended through 31, 1994
through March March 28, December December through
31, 1996 1996 31, 1995 31, 1994 March 31,
1996
(in thousands)
INCOME STATEMENT DATA:
Interest income<F1> $59 $ - $ - $ - $ 59
Interest expense 75 - - - 75
Net loss (16) - - - (16)
Ratio of earnings to
fixed charges
(deficiency)<F2> (34) - - - (34)
<FN>
<F1> The Showboat Partnership is in the development stage and,
accordingly, had no operating revenues during any of the
periods presented.
<F2> Ratio of earnings to fixed charges is not applicable as the
Showboat Partnership is in the development stage and,
accordingly, has no operating earnings during the periods
stated above.
</FN>
SHOWBOAT PARENT PARTNERSHIP
PARTNERSHIP
DECEMBER 31
MARCH 31, 1996 1995 1994
(IN MILLIONS)
BALANCE SHEET DATA:
Cash and cash equivalents $157.3 .4 -
Total assets 180.1 11.4 1.6
Long-term debt 140.0 - -
Total liabilities 141.1 .5 -
Partners' capital 39.0 10.9 1.6
34
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with,
and is qualified in its entirety by, the Showboat Partnership's
and its predecessors' financial statements, the notes thereto,
and certain other financial information included elsewhere in
this Prospectus.
DEVELOPMENT ACTIVITIES
The operations of the Showboat Partnership, and of Showboat
Marina Partnership, which contributed all of its assets (except
for the capital stock of Second Century) and liabilities to the
Showboat Partnership as of March 28, 1996, have been limited to
applying for appropriate gaming licenses for securing the land
for, arranging for construction of, finalizing the design of, and
developing financing for East Chicago Showboat. East Chicago
Showboat will contain approximately 51,000 square feet of gaming
space with approximately 1,700 slot machines and approximately 86
table games. Subject to obtaining the necessary gaming licenses,
other permits and financing, the Showboat Partnership expects
gaming operations at East Chicago Showboat to commence by July 1,
1997.
RESULTS OF OPERATIONS
The Showboat Partnership is in the development stage and has
capitalized all costs, except for some interest expense.
Accordingly, the Showboat Partnership does not have any
historical operating income. The Finance Corporation is wholly-
owned by the Showboat Partnership and was incorporated to assist
the Showboat Partnership in financing the East Chicago Showboat.
The capitalized costs consist primarily of land improvements,
economic development payments, vessel design and legal, audit,
consulting and design fees, financing and commitment fees,
interest on qualifying assets, and gaming application fees, all
associated with the development of East Chicago Showboat. The
Showboat Partnership anticipates that the results of its first
twelve months of operations will be adversely affected by
expensing of preopening costs and should not be indicative of
future operations. Future operating results will be subject to
significant business, economic, regulatory and competitive
uncertainties and contingencies, many of which are beyond the
control of the Showboat Partnership. While the Showboat
Partnership believes that East Chicago Showboat will be able to
attract a sufficient number of customers and achieve the level of
activity necessary to permit the Showboat Partnership and the
Finance Corporation to meet their payment obligations in
connection with the Notes, there can be no assurance with respect
thereto.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Showboat Partnership has met its
capital requirements through the $39.0 million Capital
Contribution and the $134.4 million net proceeds from the
Offering. The $195.0 million necessary to fund the design,
development, construction, equipping and opening of East Chicago
Showboat is expected to be derived from the $39.0 million Capital
Contribution, the proceeds from the issuance of the Old Notes,
and approximately $16.0 million of Capital Lease Financing. The
funds provided by these sources are expected to be sufficient to
develop and commence operations of East Chicago Showboat.
However, there can be no assurance that such funds will be
sufficient for the development and construction of East Chicago
Showboat. The Showboat Partnership has entered into a fixed price
contract for the construction of the Casino vessel and it expects
to enter into fixed or guaranteed maximum price contracts with
specified completion dates to construct substantial portions of
the Pavilion and other structures comprising East Chicago
Showboat. Fixed or guaranteed maximum price contracts are subject
to price adjustments if the plans and specifications are changed.
The unspent portion of the Capital Contribution and the net
proceeds of the Offering have been deposited into the Escrow
Account and invested in Cash Equivalents and will be disbursed
pursuant to the Escrow and Disbursement Agreement for the
construction of East Chicago Showboat. Showboat has entered into
the Completion Guarantee committing up to $30.0 million, subject
to certain exceptions, qualifications and limitations, to
complete the Minimum Facilities. Showboat also provided the
Standby Equity Commitment pursuant to which it has agreed to
cause to be made up to an aggregate of $30.0 million in
additional capital contributions to the Showboat Partnership
during the first three Operating Years if the Showboat
Partnership's Combined Cash Flow does not reach $35.0 million in
any one such Operating Year, subject to certain terms and
conditions; however, in no event shall Showboat be required to
contribute more than $15.0 million in
35
respect of any one such Operating Year. See "Risk Factors-
Completion Guarantee" and "-Standby Equity Commitment,"
"Description of New Notes-Completion Guarantee" and "-Standby
Equity Commitment."
On March 21, 1996, the Company entered into the Purchase
Agreement with the Initial Purchasers for the sale by the Company
of $140.0 million in aggregate principal amount of the Old Notes.
The Old Notes were purchased by the Initial Purchasers for resale
to qualified institutional investors in reliance on Rule 144A and
certain other exemptions under the Securities Act. The net
proceeds from the sale of the Old Notes (approximately $134.4
million after the deduction of a 3.5% discount to the Initial
Purchasers and estimated offering expenses of $600,000), the
$39.0 million Capital Contribution and the $16.0 million Capital
Lease Financing will be used to finance the design, development,
construction, equipping and opening of East Chicago Showboat on
Lake Michigan in East Chicago, Indiana for an approximate cost of
$195.0 million.
The following table sets forth the estimated sources and
uses of funds for the construction of East Chicago Showboat
through its expected opening date of July 1, 1997 (in millions):
SOURCES: USES<F1>:
Capital Contribution $ 39.0 Casino vessel $ 46.0
Notes 140.0 Gaming and other equipment ......... 17.2
Capital Lease Financing 16.0 Preopening expenses 11.0
Total Sources $195.0 Interest<F2> 16.6
Breakwater 16.4
Garage 15.8
Furniture, fixtures & equipment..... 11.9
Contingency 11.5
Pavilion ....... 10.5
Design and development fees......... 16.0
Economic development incentives..... 5.9
Site improvements and 5.6
infrastructure..
Offering discounts and expenses..... 5.6
Bankroll and working capital........ 5.0
Total Uses $195.0
<FN>
<F1> The Company believes that the construction budget is
reasonable and the Company expects that the Showboat
Partnership will enter into fixed or guaranteed maximum
price contracts (which are subject to price adjustment if
the plans and specifications are changed) for the
construction of a substantial portion of East Chicago
Showboat. On March 8, 1996, the Showboat Partnership
entered into a fixed price contract for construction of the
Casino vessel. Given the risks inherent in the construction
process, however, actual construction costs may be
significantly higher. See "Risk Factors-Constructions
Risks."
<F2> Interest is net of interest income anticipated to be earned
on the funds in the Escrow Account. Assumes interest income
of 4.0% on the cash balance in the Escrow Account.
</FN>
The Old Notes were issued and the New Notes will be issued
under the Indenture dated March 28, 1996. The following summary
of certain provisions of the Indenture does not purport to be
complete and is subject to the provisions of the Indenture and
the Notes. Capitalized terms not otherwise defined have the same
meanings assigned to them in the Indenture.
The Notes mature on March 15, 2003. Interest payment dates
under the Notes are March 15 and September 15, commencing
September 15, 1996. The Notes are senior secured obligations of
the Company. The Notes rank PARI PASSU, on a parity with, in
right of payment with all existing and future senior indebtedness
of the Company and senior in right of payment to all future
Subordinated Indebtedness of the Company. The Notes are without
recourse to the general partners of the Company or to Showboat.
36
The Notes may be redeemed at the option of the Company, in
whole or in part, at any time on and after March 15, 2000, at the
redemption prices set forth in the Indenture, plus accrued and
unpaid interest and Liquidated Damages thereon, if any, through
the redemption date.
Upon a Change of Control, each holder of Notes will have the
right to require the Company to repurchase all or part of such
holder's Notes at a price equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages thereon, if any, to the date of repurchase.
The Indenture contains certain covenants that, among other
things, limit the ability of the Company and its Restricted
Subsidiaries to incur additional Indebtedness and issue
Disqualified Stock, pay dividends or make other distributions,
repurchase Equity Interests or Subordinated Indebtedness, engage
in certain lease transactions, create certain liens, enter into
transactions with affiliates, sell assets, issue or sell certain
Equity Interests of the Company's subsidiaries or enter into
certain mergers and consolidations.
Pursuant to the Registration Rights Agreement, the Company
was required to commence the Exchange Offer pursuant to an
effective registration statement, or, for certain Holders and
under certain circumstances, cause the Old Notes to be registered
under the Securities Act pursuant to a resale shelf registration
statement. See "The Exchange Offer - Termination of Certain
Rights" for a description of consequences of failing to timely
meet the registration requirements for the Old Notes.
Following the commencement of operations of East Chicago
Showboat, the Company expects to fund its operating debt service
and capital needs from operating cash flow. Based upon the
Showboat Partnership's anticipated future operations, management
believes that available cash flow from East Chicago Showboat's
future operations, together with the proceeds from the Offering
and the Capital Contribution, will be adequate to meet the
Showboat Partnership's anticipated future requirements for
working capital, capital expenditures and scheduled payments of
principal of and interest and Liquidated Damages, if any, on the
Notes for the foreseeable future. No assurance can be given,
however, that operating cash flow will be sufficient for that
purpose. The Company intends to establish initial working capital
reserves to provide for anticipated short-term liquidity needs.
Although no additional financing is contemplated, the Company
will seek, if necessary and to the extent permitted under the
Indenture, additional financing through bank borrowings, debt or
equity financings. There can be no assurance that additional
financing, if needed, will be available to the Company, or that,
if available, the financing will be on terms favorable to the
Company. There is no assurance that the Company's estimate of its
reasonably anticipated liquidity needs is accurate or that new
business developments or other unforeseen events will not occur,
resulting in the need to raise additional funds. See "Risk
Factors-Substantial Leverage; Inability to Service Indebtedness."
COSTS EXPENDED TO DATE
Through March 31, 1996, approximately $15.5 million had been
expended on development of the East Chicago Showboat and the
purchase of property and equipment, approximately $6.2 million
had been expended on preopening expenses, licensing and
organizational costs, and approximately $1.1 million had been
expended on economic development costs as required by the
Company's letter agreement with the City of East Chicago.
SEASONALITY
The Company has no operating history. The Company
anticipates that activity at East Chicago Showboat will be
affected by weather conditions and that the heaviest activity
will be from May through September rather than October through
April when East Chicago experiences harsher weather.
Accordingly, the Company's results of operations may fluctuate
from quarter to quarter and the results for any fiscal quarter
may not be indicative of results for future fiscal quarters. See
"Risk Factors-Seasonality."
37
BUSINESS
OVERVIEW
The Showboat Partnership is developing and will own and
operate East Chicago Showboat, the sole licensed gaming facility
located in East Chicago, Indiana on Lake Michigan. Showboat,
which owns a controlling interest in the Showboat Partnership,
will design, develop, construct, equip, open and operate East
Chicago Showboat. Showboat is an international casino
entertainment company which owns and operates casino hotels in
Las Vegas, Nevada and Atlantic City, New Jersey and operates and
is the largest shareholder of the Sydney Harbour Casino in
Sydney, Australia. East Chicago Showboat will be strategically
located approximately 12 miles from downtown Chicago, Illinois.
The Showboat Partnership believes that East Chicago Showboat will
have the most direct and convenient access to the Interstate
Highway system of any of the existing or proposed northern
Indiana gaming operations. East Chicago Showboat will be located
adjacent to the off-ramp of Indiana State Highway 912, a divided
six-lane highway, which connects to Interstate Highways 90 and
80/94. The Showboat Partnership expects to receive an owner's
license and to open East Chicago Showboat by July 1, 1997.
The Showboat Marina Partnership was organized on January 31,
1994 for the purpose of developing East Chicago Showboat and held
the Certificate of Suitability until the Certificate of
Suitability was transferred to the Showboat Partnership as of
March 27, 1996. As of March 28, 1996, the Showboat Marina
Partnership contributed all of its assets (except for the capital
stock of Second Century) and liabilities to the Showboat
Partnership, which was organized as of March 1, 1996. Finance
Corporation was incorporated on March 7, 1996 to assist Showboat
Partnership in financing East Chicago Showboat. The principal
executive offices of the Showboat Partnership and the Finance
Corporation are located at 2001 East Columbus Drive, East
Chicago, Indiana 46312 and its telephone number is (219) 392-
1111.
EAST CHICAGO SHOWBOAT
East Chicago Showboat will be located at the Pastrick
Marina, which is currently used for private pleasure craft
docking. The Pastrick Marina will be expanded to accommodate the
Casino. The Showboat Partnership is developing the approximately
100,000 square foot Casino, which will contain approximately
51,000 square feet of gaming space on four of the Casino's five
levels. The Casino will feature approximately 1,700 slot machines
and approximately 86 table games and will resemble a modern
vacation cruise vessel.
The Showboat Partnership believes that upon completion, the
Casino will offer more gaming square feet and more gaming
positions than any other riverboat casino currently operating or
proposed to operate in the Chicago Gaming Market. Additional
attractions of the Casino will include escalators, elevators and
11 foot to 12.5 foot high ceilings. The Showboat Partnership
believes that East Chicago Showboat will be the only riverboat
casino in the Chicago Gaming Market with escalators. The Casino
will also have state-of-the-art design features intended to
provide customers with a smooth and comfortable ride during
cruises on Lake Michigan. East Chicago Showboat will provide
quality, friendly customer service. The Showboat Partnership
believes that customers will be attracted to East Chicago
Showboat due to its convenient and direct access to and from
state and federal highways, its availability of a wide variety of
table games and slot machines of varying denominations and its
spacious, comfortable environment.
Customers will enter the Casino on its second level or third
level via enclosed ramps from the adjacent Pavilion. Three of the
four gaming levels will be divided into two distinct gaming areas
separated by a lobby. The fourth level of the Casino will contain
a single gaming area, a passenger lounge, a snack bar and a
cocktail lounge.
Customers will enter the 100,000 square foot Pavilion
through the PORTE COCHERE, or covered driveway entrance, or
through the parking garage. The Company plans to create a festive
Mardi Gras party atmosphere through murals, street performers and
entertainers throughout the Pavilion. Customers entering the
Pavilion through the PORTE COCHERE will proceed from the first
floor lobby to the second floor public area. Customers entering
the Pavilion from the parking garage will enter the Pavilion from
an enclosed walkway directly into the Pavilion's second floor.
The second floor public area will include a reception desk, a
gift shop, a coffee shop/buffet, a food court and a cocktail
lounge. Customers may choose to board the Casino from the second
floor public area or from the Pavilion's third level lobby.
Administrative offices,
38
executive offices, accounting and employee support areas and
receiving platforms will be located on the first floor of the
Pavilion.
East Chicago Showboat will provide secure, well-lit customer
parking for approximately 2,500 vehicles, which will include an
approximately 1,000 space parking garage and surface parking for
approximately 1,500 vehicles. There will be 600 additional
parking spaces off-site for employee parking.
DESCRIPTION OF THE CHICAGO GAMING MARKET
The Chicago metropolitan area is the third most populated
metropolitan region in the United States. Six riverboat casinos
currently operate in the Chicago Gaming Market and three
riverboat casino operations (including East Chicago Showboat) are
proposed for the Chicago Gaming Market. The Showboat Partnership
believes that the Chicago Gaming Market has a favorable
demographic profile, with approximately 3.6 million adults
residing within 30 miles, approximately 5.9 million adults
residing within 60 miles and approximately 9.6 million adults
residing within 120 miles of East Chicago Showboat. According to
the United States Census Bureau 1994 statistics the average
household income and the per capita income of the population
within the Chicago Gaming Market was $43,935 and $16,431,
respectively, which compares favorably to the national average
household income and per capita income of $41,969 and $15,955,
respectively.
The Showboat Partnership believes that the Chicago Gaming
Market is an undersupplied gaming market and, as a result,
presents a significant opportunity for East Chicago Showboat. The
Showboat Partnership estimates that as of December 31, 1995, the
ratio of adult population to available casino square feet in the
Chicago Gaming Market was 56.7 to 1. Assuming each of the five
proposed riverboat casino operations was open as of December 31,
1995, this ratio would have been 27.2 to 1. The following table
compares the gaming demographics of the Chicago Gaming Market to
other major day trip casino gaming markets in the United States
for the year ended December 31, 1995:
ADULT SLOT TABLE
NUMBER NUMBER POPULATION MACHINE GAME
OF OF TO CASINO WIN/SLOT WIN/TABLE
METROPOLITAN AREA<F1> SLOTS TABLE SQ. DAY<F2> DAY<F2>
GAMES FT.<F2>
Chicago, Illinois 3,875 230 56.7 $ 364 $ 3,049
Foxwoods, Connecticut 3,870 - <F3> 30.2 407 - <F3>
Atlantic City, New Jersey 27,987 1,124 18.2 252 2,747
Bossier City/Shreveport,
Louisiana 2,911 162 9.2 296 2,178
Lake Charles, Louisiana 2,520 160 5.0 213 1,331
New Orleans, Louisiana 4,276 225 4.5 140 1,056
Gulf Coast, Mississippi 12,338 605 3.4 114 698
<FN>
<F1> Excludes areas in states, such as Iowa and Missouri, which
restrict the amount of individual wagers or aggregate loss.
<F2> Figures are the Company's estimates based on publicly
available tax and gaming information and published industry
reports.
<F3> Information not publicly available.
</FN>
39
The Chicago Gaming Market is currently generating one of the
highest levels of win per slot per day and win per table per day
of any of the gaming markets in the United States. The table
below summarizes the recent operating data for the four
riverboats operating in the Chicago Gaming Market during 1995.
Figures are the Showboat Partnership's estimates based on
publicly available tax and gaming information and published
industry reports (dollars in millions, except slot and table win
per day). There can be no assurance that the Chicago Gaming
Market will continue to, or that East Chicago Showboat will,
generate similar results in the future. See "Risk
Factors-Reliance on Single Gaming Market."
1995
JAN FEB MAR APR MAY JUNE
TOTAL GAMING REVENUES
AVERAGE POSITIONS: $ 57.3 $ 56.8 $ 64.1 $ 62.5 $ 63.2 $ 58.3
Slots 3,634 3,685 3,637 3,436 3,686 3,818
Tables 228 228 232 210 227 236
AVERAGE WIN/SLOT/DAY $ 314 $ 351 $ 367 $ 404 $ 364 $ 343
AVERAGE WIN/TABLE/DAY $ 3,105 $ 3,225 $ 3,163 $ 3,316 $ 3,059 $ 2,683
JULY AUG SEP OCT NOV DEC TOTAL
TOTAL GAMING REVENUES
AVERAGE POSITIONS: $ 67.5 $ 65.8 $ 64.7 $ 65.3 $ 64.1 $ 64.8 $ 754.5
Slots 3,856 3,857 3,858 3,857 3,864 3,875 3,756
Tables 234 234 234 234 232 230 230
AVERAGE WIN/SLOT/DAY $ 385 $ 372 $ 375 $ 376 $ 366 $ 349 $ 364
AVERAGE WIN/TABLE/DAY $ 2,970 $ 2,941 $ 3,027 $ 2,816 $ 3,126 $ 3,210 $ 3,049
MARKETING STRATEGY
The Showboat Partnership expects to effectively compete with
other Chicago Gaming Market venues due to its convenient,
accessible location, the size of its facilities, quality customer
service and direct marketing programs. The Casino will offer
approximately 26% more gaming positions than the largest of the
six casinos currently operating in the Chicago Gaming Market.
Four of the six existing casinos in the Chicago Gaming Market are
located in Illinois and Illinois gaming law limits its casinos to
1,200 gaming positions. East Chicago Showboat will be located
approximately 3.5 miles north of Interstate Highway 90 and 5.5
miles north of Interstate Highway 80/94. Customers traveling from
either of the Interstates will exit onto Indiana State Highway
912, a six-lane divided highway, which will lead directly into
East Chicago Showboat. The Showboat Partnership believes that
East Chicago Showboat will have the most direct and convenient
access from federal and state highways of any riverboat casino in
the Chicago Gaming Market.
The Showboat Partnership expects to capitalize on its
location by building and operating the largest of any of the
riverboat casinos currently operating or proposed to operate in
the Chicago Gaming Market. The size of the Casino will permit
East Chicago Showboat to offer a wide array of games in varying
denominations within a spacious interior.
The Showboat Partnership intends to utilize proven marketing
programs, such as a slot club and special promotions, which have
been successfully implemented at Showboat's other gaming
facilities. The Showboat Partnership believes that such marketing
programs will be transferable because the Chicago Gaming Market
is primarily a day trip market similar to the Atlantic City, New
Jersey market. The Showboat Partnership's marketing programs will
include data based marketing which will offer complimentary
merchandise, coin/cash rebates based on play, complimentary food
and free bus transportation to and from East Chicago Showboat.
The Showboat Partnership will also utilize competitive payouts on
gaming machines, value pricing of food and other amenities,
entertainment, and friendly, quality customer service to maximize
customer satisfaction.
The Showboat Partnership will also employ a comprehensive
marketing program to establish the Showboat name in the Chicago
metropolitan area. The Showboat Partnership expects to use
billboard, magazine, newspaper and radio advertising to increase
East Chicago Showboat's visibility and to promote an exciting and
entertaining image. The Showboat Partnership will promote the
construction progression and grand opening of East Chicago
Showboat. See "Risk Factors-Risk of New Venture; Lack of Prior
Operating History."
SHOWBOAT, INC.
Showboat, an international gaming company with over 40 years
of gaming experience, beneficially owns 55% of the partnership
interests of the Showboat Partnership, and Waterfront
beneficially owns the remaining partnership interests. Showboat,
through its subsidiaries, will design, develop, construct, equip
and operate East Chicago Showboat.
40
Showboat currently owns and operates the Atlantic City Showboat
and the Las Vegas Showboat and owns a 26.3% interest in and
manages through subsidiaries the Sydney Harbour Casino located in
Sydney, Australia. As of December 31, 1995, Showboat managed
casino properties containing a total of approximately 231,000
square feet of casino space, 5,450 slot machines, 258 table
games, 1,253 hotel rooms, 41,000 square feet of convention space,
18 restaurants and 2 showrooms. Showboat had revenues and EBITDA
of $428.6 million and $78.2 million, respectively, for the year
ended December 31, 1995. The Showboat Partnership will pay the
Manager a management fee equal to 2% of Net Revenues (as defined
in the Management Agreement) and 5% of EBITDA (as defined in the
Management Agreement), subject to the limitations set forth in
the "Restricted Payments" covenant of the Indenture.
Through its subsidiaries, Showboat has contributed $36.9
million of the $39.0 million Capital Contribution, which will be
used, in part, to develop and construct East Chicago Showboat. In
addition, Showboat has entered into a Completion Guarantee
pursuant to which Showboat has agreed to cause East Chicago
Showboat to become Operating and has guaranteed the payment of
all Project Costs owing prior to such completion up to a maximum
aggregate amount of $30.0 million. Showboat has also provided
the Standby Equity Commitment pursuant to which it has agreed to
cause to be made up to an aggregate of $30.0 million in
additional capital contributions to the Showboat Partnership
during the first three Operating Years if the Showboat
Partnership's Combined Cash Flow is less than $35.0 million for
any one such Operating Year. However, in no event will Showboat
be required to cause to be contributed more than $15.0 million to
the Showboat Partnership in respect of any one such Operating
Year. The Completion Guarantee and the Standby Equity Commitment
are subject to certain limitations, qualifications and
exceptions. See "Risk Factors-Completion Guarantee" and "-Standby
Equity Commitment" and "Description of New Notes-Completion
Guarantee" and "-Standby Equity Commitment."
Showboat's marketing and operating strategy is to develop a
high volume of traffic through its casinos, emphasizing slot
machine play. Showboat modifies its marketing and operating
strategy to maximize casino revenues by focusing on a specific
venue's unique location and demographics. The Atlantic City
Showboat targets the day trip customer by providing competitive
games and excellent service in an attractive and convenient
facility. The Las Vegas Showboat targets customers by offering
competitive slot machines, bingo, moderately priced food and
accommodations, a friendly "locals" atmosphere and a 106 lane
bowling center. The Atlantic City Showboat was voted best casino
in 1995 for the second straight year by the readers of the
Southern New Jersey COURIER POST, and the Las Vegas Showboat was
voted "best in Las Vegas" for slot machines, video poker, bingo,
keno and bowling in 1994 and "best in Las Vegas" for bingo in
1995 by the readers of the LAS VEGAS REVIEW JOURNAL.
Showboat designed, developed, constructed and operates the
Atlantic City Showboat, which opened March 30, 1987. The Atlantic
City Showboat is located at the eastern end of the Atlantic City
Boardwalk on approximately 13 acres. Access to the Atlantic City
Showboat's four-story podium, which houses the casino and a 20-
story hotel tower, is provided by two main entrances, one on the
Boardwalk and one on Pacific Avenue, which runs parallel to the
Boardwalk. A 17-story tower containing additional casino space
and 284 hotel rooms was recently added to the casino at a total
cost of approximately $93 million. The Atlantic City Showboat has
been designed to promote ease of customer access to the casino
and all other public areas of the casino hotel. The Atlantic City
Showboat contains approximately 96,000 square feet of gaming
space, containing approximately 3,450 slot machines, 88 table
games, six poker tables, a horse race simulcast facility, and a
keno facility. The facility also contains approximately 2,000
square feet of space for video games, approximately 27,000 square
feet of meeting rooms, convention, board room and exhibition
space and the 60 lane bowling center, including a snack bar and
cocktail lounge. The 20-story hotel tower and the adjacent 17-
story tower together feature 800 guest rooms. Many of the guest
rooms in both towers have a view of the ocean. Included in the
number of guest rooms are 59 suites, 40 of which have ocean-front
decks. Hotel occupancy has averaged 92.1% over the three year
period ended September 30, 1995. A nine-story parking garage is
located on-site at the Pacific Avenue entrance. The facility
provides self-parking for approximately 2,000 cars and a 14-bus
depot integrated within the casino podium and additional ground
level self-parking for approximately 950 cars. In addition, on-
site underground parking accommodates valet parking for
approximately 600 cars.
Showboat designed, developed, constructed and operates the
Las Vegas Showboat, which opened in 1954. The Las Vegas Showboat
features an approximately 75,000 square foot casino. The casino
is centrally located and contains approximately 1,500 slot
machines, 20 table games and a keno facility. The Las Vegas
Showboat also features a 453 room hotel, containing approximately
14,000 square feet of meeting room and banquet space, a 1,300
seat bingo parlor garden,
41
and a 106 lane bowling center. Hotel occupancy has averaged 89.7%
over the three year period ended September 30, 1995. The Las
Vegas Showboat covers approximately twenty-six acres and is
approximately two and one-half miles from the hotel casinos
located in downtown Las Vegas or on the Strip. Showboat completed
an approximately $21 million renovation of the Las Vegas Showboat
in December 1995. The renovation included expansion of the Mardi
Gras theme throughout the Las Vegas Showboat, replacement of the
roof over a portion of the casino which resulted in higher
ceilings, enlargement of the coffee shop and the Carnival Lounge
and improvement of the power plant and HVAC system.
Showboat is the manager and the largest shareholder of the
Sydney Harbour Casino, which commenced gaming operations in a
60,000 square foot interim casino in Sydney, Australia on
September 13, 1995. Showboat beneficially owns 26.3% of Sydney
Harbour Casino Holdings Limited, the parent company of the casino
licensee, and has an 85% interest in the management company which
operates the Sydney Harbour Casino. As a part of the 99-year
gaming license awarded to Sydney Harbour Casino, it will be the
only full-service casino in the State of New South Wales for 12
years. The interim Sydney Harbour Casino is located approximately
one mile from the Sydney central business district at Pyrmont Bay
next to Darling Harbour on Wharves 12 and 13, formerly a cruise
ship passenger terminal. The terminal building was renovated to
permit the operation of a casino containing approximately 500
slot machines and 150 table games.
The permanent Sydney Harbour Casino is expected to be open
in November 1997. The permanent Sydney Harbour Casino will
feature approximately 153,000 square feet of casino space,
including an approximately 22,000 square foot private gaming area
which is expected to be located on a separate level and which
will target a premium clientele. The Sydney Harbour Casino is
planned to have 1,500 slot machines and 200 table games. The
Sydney Harbour Casino will also contain themed restaurants,
cocktail lounges, a 2,000 seat lyric theatre, a 900 seat cabaret
style theatre and extensive public areas. The Sydney Harbour
Casino complex will include a 352 room hotel tower and an
adjacent condominium tower containing 139 privately owned units
with full hotel services.
The Showboat Star Casino was located on the south shore of
Lake Pontchartrain in New Orleans, Louisiana, approximately seven
miles from the New Orleans "French Quarter" and commenced gaming
operations on November 8, 1993. The riverboat contained
approximately 21,900 square feet of gaming space on three levels,
with approximately 770 slot machines and 40 table games. On-shore
facilities included a 34,000 square foot terminal building, which
contained a restaurant, a cocktail lounge and administrative
offices. The on-shore facility provided parking for approximately
1,150 cars. In 1993, a subsidiary of Showboat purchased a 30%
equity interest in the Showboat Star Partnership for $18.6 million.
In 1994, Showboat purchased an additional 20% equity interest in
the partnership for $9.0 million and in March 1995 it purchased
the remaining 50% equity interest from its partners for $25.0
million, subject to adjustment. The Showboat Star Partnership
elected to cease all gaming operations on March 9, 1995
due to conflicting interpretations by the Orleans Parish
District Attorney and an administrative law judge regarding the
Louisiana Riverboat Gaming Act relating to circumstances under
which a riverboat casino could conduct dockside gaming operations.
In unrelated transactions, the Showboat Star Partnership sold
certain of its assets and Showboat sold all of its equity interest
in Showboat Star Partnership resulting in a pretax gain to
Showboat of $2.6 million.
DESIGN AND CONSTRUCTION
Showboat, through its subsidiaries, will design, develop,
construct, equip and open East Chicago Showboat. Showboat, an
international gaming company with more than 40 years of
experience in the gaming industry, has successfully developed and
constructed the Atlantic City Showboat and renovated and expanded
the Las Vegas Showboat. Showboat also designed, developed,
constructed, equipped and opened the interim Sydney Harbour
Casino, constructed at a cost of $60 million, which opened in
September 1995 on time and substantially within budget. Showboat
is currently developing and constructing the approximately $540
million casino-hotel complex in Sydney, Australia, which it will
manage and in which it currently owns a 26.3% interest. The
Company believes that Showboat's experience in developing casinos
will help facilitate the construction of East Chicago Showboat.
The Showboat Partnership entered into a fixed price contract
for the construction of the Casino vessel and expects to enter
into fixed or guaranteed maximum price contracts with specific
completion dates for substantial portions of the Pavilion and
other structures comprising East Chicago Showboat. Guaranteed
maximum price contracts, however,
42
are subject to price adjustment if the plans and specifications
are changed. Development and construction costs will be funded
from draws against the Escrow Account in accordance with the
terms of the Escrow and Disbursement Agreement. Showboat has
entered into the Completion Guarantee committing up to $30.0
million, subject to certain exceptions, to complete the Minimum
Facilities. See "Risk Factors-Completion Guarantee" and "-Risks
of Construction" and "Description of New Notes-Completion
Guarantee." Set forth below is a description of the
qualifications and experience of the managers, contractors, the
architect, the designers and engineers for East Chicago Showboat.
Rodney Lay & Associates, Inc. ("RL&A"), a naval
architectural firm located in Jacksonville, Florida, has been
retained to provide the overall vessel design of the Casino. RL&A
was established in 1959, and has been actively designing cruising
and floating casinos since 1990. Over 20 RL&A designed casino
vessels have been built over the past five years including a
variety of traditional riverboats and 7 Casino Cats(TM), an RL&A
original design which was developed specifically for the casino
gaming industry. RL&A will modify the Casino Cat(TM) design for the
Showboat Partnership, making the Casino the largest gaming vessel
operating or currently proposed in the Chicago Gaming Market.
RL&A has previously worked with Atlantic Marine, the shipbuilder
of the Casino, in the construction of three Casino Cats(TM). Other
RL&A designed vessels include the Space Shuttle SRB recovery
ships, oceanographic research vessels, and container and cargo
ships. RL&A has provided designs for a variety of gaming
companies, including The Trump Organization, Harrah's, Station
Casinos, The Empress Group, Players International and Argosy
Gaming Company.
Atlantic Marine has been retained as the shipbuilder of the
Casino vessel. Atlantic Marine, based in Jacksonville, Florida,
is an experienced shipbuilder which has built over 230 maritime
vessels in a variety of styles and sizes in both steel and
aluminum for domestic and international markets during its 32
year history. Atlantic Marine has been involved in constructing
riverboat casino vessels since 1991, and has completed 11
riverboat casino vessels to date, ranging in style from antique
replica, Mississippi River steamboat designs to the modern Casino
Cat(TM) design which was originated by Rodney Lay & Associates, the
naval architect for the construction of the Casino. The Casino
will be the third in the Casino Cat(TM) series of vessels, which are
designed and built specifically for operation on the Great Lakes.
This design has been reviewed and approved by the United States
Coast Guard. Atlantic Marine has built casino vessels for a
variety of major clients, including, Steamboat Development
Corporation, Par-A-Dice Gaming Corporation, Argosy Gaming
Company, The Empress Group, Harvey's Iowa Management Group and
Trump Indiana. Upon completion, the Casino will cruise to the St.
Lawrence Seaway and maneuver through the locks monitored by the
St. Lawrence Seaway Commission, to enter the various Great Lakes
before reaching East Chicago, Indiana. While en route the Casino
will be at risk to adverse weather conditions and established
priorities for passage through the locks.
For a discussion of certain matters relating to the Casino
including the effects of certain maritime laws, bankruptcy laws
and the Payment and Performance Bond, see "Risk Factors-Preferred
Maritime Liens and Liens arising during Construction; Payment and
Performance Bond" and "-Bankruptcy Considerations."
C. Baxter & Associates International, Inc. ("Baxter &
Associates") has been retained to serve as a naval consultant.
Baxter & Associates has been involved in the construction,
owners' representation, design and engineering and governmental
approvals of over 19 riverboat casino vessels, ranging from
Mississippi Riverboat style vessels to passenger cruise vessels
operating on the East Coast of the United States.
The Hillier Group ("Hillier") has been retained by the
Showboat Partnership as the architect for the Pavilion. Founded
in 1966, Hillier is the fourth largest architecture firm in the
United States and has won more than 150 state, national and
international design awards. Hillier projects include the
approximately $93 million expansion of the Atlantic City
Showboat; the approximately $540 million Sydney Harbour Casino in
Sydney, Australia; the $45 million expansion of Harrah's Marina
Hotel in Atlantic City, New Jersey; the Howard Hughes Medical
Institute in Bethesda, Maryland; the 29-story Six St. Paul Center
in Baltimore, Maryland; and the Architecture School at the
University of Arizona.
Tonn & Blank, Incorporated ("Tonn & Blank") and KLM
Construction, Inc. ("KLM") have been retained to construct the
Pavilion, parking garage, and site improvements. Tonn & Blank,
located in Michigan City, Indiana, is an experienced contractor
in the Chicago region and has provided service to a broad client
base for over 70 years. Tonn & Blank has constructed a wide
variety of commercial, institutional and industrial projects in
the $25 million to $50 million contract range.
43
KLM was founded in 1978 and has completed numerous
commercial, industrial and residential projects including The New
York City Department of Transportation's 120,000 square foot
office building in Queens County and a 105,000 square foot office
building in Manhattan. Additionally, KLM has completed more than
1,200 residential units in multifamily buildings for private
developers, the New York City Housing Authority and the New York
City Department of Housing Preservation & Development. Currently,
KLM is in pre-construction for two projects in New York City. The
first is a 250-unit residential building in Queens county close
to La Guardia Airport. The second is a 35-story multiple-use
building on 34th Street in central Manhattan. That building will
contain 80,000 square feet of retail space in addition to 250
apartments in a tower above the commercial base.
Luhr Brothers, Inc. ("Luhr Brothers") has been retained to
construct the breakwater for the Pastrick Marina which serves as
a marina and mooring facility for the Casino. Luhr Brothers,
established in 1948, has performed extensive work for the Corps
of Engineers, including the construction of highways, railroad
structures and offshore jetties excavation and grading for dams
and reservoirs and dredging of inland waterways. Specific
projects completed by Luhr Brothers include a $42 million
contract for a Corps of Engineers dam for Clarence Cannon
Reservoir near Hannibal, Missouri and a $45 million contract for
embankment spillway and outlet works at Sulphur Springs, Texas.
Currently, Luhr Brothers is constructing a $43 million breakwater
near Sargent, Texas for the Corps of Engineers.
COMPETITION
East Chicago Showboat will be highly dependent on the
Chicago Gaming Market. While the Indiana gaming statutes allocate
only one riverboat owner's license to East Chicago, five
riverboat casino operations, including East Chicago Showboat, are
authorized in northern Indiana on Lake Michigan by the Indiana
statute and local referenda, and six additional licenses have
been authorized in southern Indiana. These numbers could be
changed through subsequent legislation. Owner's licenses have
been issued to two owners to conduct gaming operations in Gary,
Indiana and certificates of suitability have been issued for two
applicants in northern Indiana other than the Showboat
Partnership. Gambling operations are expected to commence at one
additional site in Northern Indiana prior to the opening of East
Chicago Showboat. There are currently four riverboat casinos
operating in Illinois within 50 miles of East Chicago. Illinois
has issued all ten riverboat casino gaming licenses authorized by
existing Illinois gaming law permitting each licensee to operate
riverboat casinos containing a maximum of 1,200 gaming positions
per license. There can be no assurance that Illinois gaming law
will not be revised to permit a greater number of gaming
positions per license. An increase in the number of gaming
positions per license permitted by Illinois gaming law could
reduce the percentage amount by which the Showboat Partnership's
gaming positions exceed the gaming positions of individual
casinos operating in Illinois within the Chicago Gaming Market.
Additionally, certain Illinois licensees operate two riverboats
from one location permitting more regular access to those
Illinois riverboats. Legislation has been introduced on numerous
occasions in recent years to expand riverboat gaming in Illinois,
including by authorizing new sites in the Chicago metropolitan
area with which East Chicago Showboat would compete and by
otherwise modifying existing regulations to decrease or eliminate
certain restrictions such as gaming position limitations. To
date, no such legislation has been enacted. It is impossible to
predict whether any such legislation, in Illinois or elsewhere,
will be enacted or whether, if passed, such legislation would
have a material adverse effect on the Showboat Partnership. There
can be no assurance the metropolitan Chicago market can support
the number of riverboat casinos which have been proposed or may
be operating at any time. See "Business-Description of the
Chicago Gaming Market."
The Showboat Partnership also will compete with gaming
facilities nationwide, including riverboat gaming in Illinois,
Indiana, Iowa, Louisiana, Missouri and Mississippi and land-based
casinos in Colorado, Louisiana, Nevada, New Jersey, and South
Dakota, as well as various gaming operations on Native American
land, including those located in Arizona, Connecticut, Louisiana,
Michigan, Minnesota, New York and Wisconsin and possibly in
northern Indiana. Other jurisdictions may legalize various forms
of gaming and wagering that may compete with East Chicago
Showboat in the future, including those jurisdictions in close
proximity to East Chicago, Indiana. The Pokagon Band of
Potawatomi Indians (the "Pokagon Band") of southern Michigan and
northern Indiana has been federally recognized as an Indian
tribe. In February 1995, the Pokagon Band voted to build at least
one land-based casino in southern Michigan and in April 1995
voted to accept a casino development proposal from a national
casino operator. The Governor of Michigan signed an agreement
with the Pokagon Band in November 1995. Published reports
indicate that the Pokagon Band has asked the Governor of Indiana
to begin negotiating with regard to a land-based casino in
Indiana and that the governor has declined
44
to do so at this time. Gaming and wagering includes on-line
computer gambling, bingo, pull tab games, card clubs, pari-mutuel
betting on horse racing and dog racing, state sponsored
lotteries, video lottery terminals and video poker terminals, as
well as other forms of entertainment. The Indiana Horse Racing
Commission has issued a permit for pari-mutuel wagering on a
horse racetrack in Anderson, Indiana, and that permit holder also
has been issued licenses for three satellite wagering facilities,
including one in Merrillville, Indiana in the same county as East
Chicago Showboat. The legalization of casino gaming operations in
jurisdictions in close proximity to East Chicago Showboat would
have a material adverse effect on the Showboat Partnership. Other
changes in legislation could increase tax or other burdens on the
Showboat Partnership or could lessen restriction on competitors
of the Showboat Partnership in other jurisdictions, either of
which would have a material adverse effect on the operating
results of the Showboat Partnership.
The Showboat Partnership expects that certain of its
competitors may have significantly greater financial and other
resources than the Showboat Partnership. Given all of the
foregoing factors, it is possible that substantial competition
could have a material adverse effect on the Company's results of
operations. See "Risk Factors-Competition."
LEGAL PROCEEDINGS
On October 17, 1995, a complaint (the "Complaint") was filed
in the Circuit Court for Lake County, Indiana by an individual on
behalf of himself and the residents of the City of East Chicago
requesting a preliminary injunction to enjoin the Indiana
Commission from conducting a hearing on the Showboat
Partnership's application for the sole riverboat casino license
in East Chicago, Indiana, and from issuing a certificate of
suitability to the Showboat Partnership. The Complaint alleges
that the City of East Chicago failed to hold an open public
bidding process in selecting its applicants, and such failure is
in conflict with Indiana gaming laws. On October 19, 1995, the
Indiana Commission commenced the hearing on the East Chicago
application, but was served with a temporary restraining order
and halted the proceedings. Subsequently, in November 1995 the
temporary restraining order was dissolved on the basis that no
triable issues existed. The Indiana Commission thereafter
conducted further proceedings and granted the Certificate of
Suitability to the Manager on January 8, 1996. No assurance can
be given that the plaintiff or others may not seek another
temporary restraining order or injunction at a later time. An
unfavorable outcome of such litigation could have a material
adverse effect on the Showboat Partnership and its proposed
riverboat casino project in East Chicago, Indiana. See "Risk
Factors-Risks of Licensure and Permitting."
EMPLOYEES
The Showboat Partnership has 16 employees. When East Chicago
Showboat commences operations, management anticipates the
Showboat Partnership will have approximately 1,750 employees.
45
MATERIAL AGREEMENTS
Set forth below are summaries of the material terms of
certain material agreements to which the Showboat Partnership is
or will be a party. The following summaries do not purport to be
complete and are qualified in their entirety by reference to the
relevant agreements. Copies of such agreements are available upon
request to the Showboat Partnership addressed to the Showboat
Partnership at 2001 East Columbus Drive, East Chicago, Indiana
46312, Attention: Vice President - Finance and Administration,
telephone number (219) 392-1111, fax number (219) 398-0144. See
"Available Information." Capitalized terms used but not
otherwise defined herein shall have the meanings ascribed to such
terms in the agreement being described (unless otherwise
indicated).
SHOWBOAT MARINA CASINO PARTNERSHIP AGREEMENT
GENERAL. The Manager and the Showboat Marina Investment
Partnership, an Indiana general partnership (collectively the
"Partners") entered into a partnership agreement dated as of
March 1, 1996 (the "Partnership Agreement") in order to: (a)
acquire, design, construct, own and operate an excursion cruise
vessel casino development to be acquired and developed in the
City of East Chicago in the State of Indiana, and operated on
Lake Michigan; (b) acquire, lease, sell or otherwise dispose of
other properties used or useful in connection with the foregoing;
(c) carry on any other activities necessary or incidental to the
foregoing; and (d) engage in any other business if such business
is unanimously agreed to by the Partners.
TERM. The term of the Showboat Partnership continues until
the earlier to occur of (i) December 31, 2023 or (ii) the sale of
all or substantially all of the partnership property. Automatic
renewal of the Partnership Agreement will occur for successive
one year terms until terminated by the written consent of
Partners or by operation of law. If the Manager desires to
terminate the Showboat Partnership after the initial term or any
renewal term, the Manager must give written notice to the other
Partner at least 90 days prior to the end of the initial term or
any renewal term, and the Showboat Partnership will terminate at
the end of that term and shall be liquidated in accordance with
the Partnership Agreement.
CAPITALIZATION. The Partners have contributed the Capital
Contribution of $39.0 million, of which the Predecessor has
contributed $38.6 million and Showboat Marina Investment Partnership
has contributed $0.4 million. Further capital contributions
will be made when the Partners unanimously determine that
additional funds are needed, and such additional capital will
be contributed in proportion to the Partners' Interests
(as defined in the Partnership Agreement). Except as specified
in the Partnership Agreement, no Partner is entitled to a return
of its capital contribution, and no Partner is entitled to receive
property other than cash in return for its capital contribution.
No Partner has priority over another Partner with respect to
distributions or the return of capital contributions.
DISTRIBUTIONS. The Showboat Partnership's income, gains,
losses, deductions and credits will be allocated among the
Partners in proportion to their Partners' Interests which are 99%
and 1% for the Manager and the Showboat Marina Investment
Partnership, respectively. The Partnership Agreement provides
for quarterly distributions in an amount sufficient to enable the
Partners to pay their federal and state income tax liability.
Cash Available for Distribution (as defined therein) will be
distributed among the Partners in proportion to their respective
Partners' Interests at the times the Manager deems distributions
advisable, but not less frequently than quarterly. Cash Available
for Distribution means gross revenue less cash expenditures and
amounts set aside for reserves, but not including any amount
which, if distributed, would cause a default of any covenant
contained in any agreement between the Showboat Partnership and
any third-party lender, including the Indenture.
MANAGEMENT. The Manager shall have full, exclusive and
complete authority to direct and manage the affairs of the
Showboat Partnership. The Partners may hold annual meetings for
any reason.
TRANSFERS OF THE PARTNER INTERESTS. Subject to and in
accordance with Indiana gaming law, neither Partner may transfer
or assign its Interest without first giving written notice to the
other Partner of the proposed transfer (the "Transfer Notice").
Such other Partner shall have the option to acquire all or part
of the Interest proposed to be transferred within 10 days after
receiving the Transfer Notice. After such 10 day period, the
remaining Interest proposed to be transferred which has not been
acquired by the other Partner may, subject to the consent of the
other Partner which consent may not be
46
unreasonably withheld, be transferred upon the terms and
conditions contained in the Transfer Notice. Any transfer or
assignment, with consent, must be of all of such Partner's
Interest.
BOOKS AND RECORDS; ACCOUNTING. The books of the Showboat
Partnership will be maintained on a calendar year basis in
accordance with generally accepted accounting principles. The
Manager will select the certified public accountants, determine
all matters regarding methods of depreciation and accounting, and
will make all tax elections and decisions relating to taxes.
DISSOLUTION AND TERMINATION. The Showboat Partnership
shall be dissolved and terminated upon the first to occur of: (i)
the filing of bankruptcy, unless the Partners elect to continue
the Showboat Partnership; (ii) upon retirement or withdrawal by a
Partner, unless the Partners elect to continue the Partnership;
(iii) the expiration of the term of the Partnership; (iv) by
operation of law; (v) upon termination of the Amended and
Restated Showboat Marina Partnership Agreement; (vi) upon the
sale by the Showboat Partnership of all or substantially all of
its property and the final distribution of the proceeds thereof;
or (vii) upon the written consent of the Partners.
MANAGEMENT AGREEMENT
TERM. As of March 1, 1996 the Company entered into a
management agreement with the Manager ("Management Agreement")
for a term through December 31, 2023. The Management Agreement
will not be effective until it has been approved by the Indiana
Commission.
PURPOSE. The purpose of the Management Agreement is to
engage Manager as a consultant to the Showboat Partnership to
assist in designing the gaming area of the Casino, assist in
installing gaming equipment, assist in obtaining approvals and
licenses necessary to manage and operate East Chicago Showboat,
and to manage and operate East Chicago Showboat.
MANAGEMENT FEE. In consideration for the services provided
under the Management Agreement, the Showboat Partnership agreed
to pay the Manager a management fee equal to (i) 2% of Net
Revenues (as defined in the Management Agreement), and (ii) 5% of
EBITDA (as defined in the Management Agreement). The management
fee shall be paid monthly by deposit into a management fee bank
account. No management fee will be payable unless the Showboat
Partnership's Fixed Charge Coverage Ratio (as defined in the
Indenture) is greater than 1.5 to 1.0 for the immediately
preceding four fiscal quarters (after giving effect to the
payment of such fee) and no Default or Event of Default has
occurred and is continuing under the Indenture. If the management
fee cannot be paid because of the Fixed Charge Coverage Ratio
restriction, the management fee will accrue and, subject to the
restrictions in clause (y) of the "Restricted Payments" covenant,
will be paid over time in amounts that will not cause the Fixed
Charge Coverage Ratio to drop below 1.5 to 1.0. See "Description
of New Notes-Certain Covenants-Restricted Payments." In the event
of a bankruptcy, reorganization, insolvency, dissolution or other
winding-up of the Showboat Partnership, payment of the management
fee will be subordinated to the prior payment in full in cash of
all obligations under the Indenture and the Notes.
EXPENSES. The Management Agreement requires the Showboat
Partnership, at its sole cost and expense, to construct the
Project (as defined therein), install the furniture, fixtures and
equipment thereon and pay for all Project related pre-opening
expenses. In addition, except where the Management Agreement
expressly provides otherwise, all costs, expenses, funding or
operating deficits and operating capital, real property and
personal property taxes, insurance premiums and other liabilities
incurred due to the operations of the Project shall be the sole
and exclusive financial responsibility of the Company. After
commencement of operations, the Showboat Partnership shall
advance to the Manager, on a timely and prompt basis, the funds
necessary to conduct the affairs of the Project and maintain the
Project.
ACCOUNTING AND FINANCIAL RECORDS. The Manager shall cause
the Showboat Partnership's employees to maintain a complete
accounting system in connection with the operation of the
Project. Books and records shall be maintained in accordance with
GAAP, on a calendar year basis, and shall be retained at the
Project.
EMPLOYEES. All persons employed in connection with the
operations of the Casino shall be employees of the Showboat
Partnership, other than the Manager's management team. The
Showboat Partnership shall reimburse the
47
Manager for compensation paid to the management team. The Manager
shall determine the fitness and qualifications of all casino
employees, subject only to Indiana riverboat gaming licensing
standards.
BANK ACCOUNTS. Immediately upon giving written notice to
the Manager of the date on which operation of the Project shall
commence, the Showboat Partnership shall establish bank accounts
that are necessary for the operation of the Project. Gross
revenue from operations shall be deposited in the bank accounts
and the Showboat Partnership shall pay out of the bank accounts,
to the extent of the funds therein, all operating expenses and
other amounts required by the Manager to perform its obligations
under the Management Agreement.
ARBITRATION. If any dispute shall arise under the
Management Agreement, such dispute shall first be referred to a
committee in an attempt for the committee to resolve the matter.
If the dispute cannot be resolved by the committee, the matter
shall be resolved by binding arbitration in accordance with the
rules adopted by the American Arbitration Association or as the
parties may otherwise agree.
MANAGER'S DEFAULT. The Manager will be in default under
the Management Agreement if the Manager (a) fails to perform or
materially comply with any of the covenants, agreements, terms or
conditions contained in the Management Agreement applicable to
the Manager (other than monetary payments) and such failure shall
continue for a period of 30 days after written notice thereof
from the Company to the Manager specifying in detail the nature
of such failure, or, in the case such failure is of a nature that
it cannot, with due diligence and good faith, be cured within 30
days, if the Manager fails to proceed promptly and with all due
diligence and in good faith to cure the same and thereafter to
prosecute the curing of such failure to completion with all due
diligence within 90 days thereafter, or (b) takes or fails to
take any action to the extent required of the Manager under the
Management Agreement that creates a default under or breach of
any loan documents, any related contract or any requirement of
riverboat gaming authorities, unless the Manager cures such
default or breach prior to the expiration of applicable notice,
grace and cure periods, if any; provided, however, that the
Manager shall only be required to cure any defaults with respect
to which the Manager has a duty thereunder. If the only result of
the failure by the Manager to act is a monetary loss to the
Company which is not otherwise capable of being cured by the
Manager, then the Manager shall not be in default if the Manager
reimburses the Company for such losses within ten business days
of incurring such loss or otherwise protects the Company against
such loss in a manner reasonably acceptable to the Company.
THE SHOWBOAT PARTNERSHIP'S DEFAULT. If the Showboat
Partnership (a) fails to make any monetary payment required under
the Management Agreement on or before the due date and failure
continues for 5 business days after written notice from the
Manager specifying such failure, (b) fails to pay the entire
management fee for a period of 6 months, or (c) fails to perform
or materially comply with any of the other covenants, agreements,
terms or conditions contained in the Management Agreement
applicable to the Showboat Partnership (other than monetary
payments) and such failure shall continue for a period of 30 days
after written notice thereof from the Manager to the Showboat
Partnership specifying in detail the nature of such failure, the
Company will be in default under the Management Agreement.
Notwithstanding the foregoing, failure to pay any management fee
which is not permitted to be paid under the Indenture pursuant to
the "Restricted Payments" covenant therein shall not be a default
under the Management Agreement.
TERMINATION. The Management Agreement shall terminate upon
the occurrence of the following:
(a) in the event of a terminating event specified in
the Amended & Restated Showboat Marina Partnership Agreement
dated as of March 1, 1996;
(b) upon the occurrence of an event of default under
the Management Agreement and the expiration of the time to
cure; or
(c) upon the occurrence of a condemnation of the
Project as specified in the Management Agreement.
48
REDEVELOPMENT PROJECT LEASE WITH THE CITY OF EAST CHICAGO
TERM/RENT/CONSTRUCTION. On October 19, 1995, the Manager
entered into a Redevelopment Project Lease (the "Lease
Agreement") with the City of East Chicago (the "City"),
Department of Redevelopment pursuant to which the City granted
the Manager a leasehold interest in certain property in East
Chicago, Indiana ("Leased Premises") and to construct East
Chicago Showboat for a period of 30 years from the date the
Manager received the Certificate of Suitability from the Indiana
Commission (the "Commencement Date") which term may be renewed
for two additional thirty year terms at the election of the
Manager. The Manager received the Certificate of Suitability as
of January 8, 1996 and the Certificate of Suitability was
transferred to the Showboat Partnership as of March 27, 1996. In
connection with such transfer, the Manager assigned the Lease
Agreement to Showboat Partnership.
The Showboat Partnership is obligated to pay the City
$400,000 in annual rental with such rental being adjusted every
three years by the same percentage as the percentage increase in
the Consumer Price Index over the previous three years but with
each adjustment not to exceed 105% of the previous annual rental.
The annual rental is payable to the City on the Commencement Date
and on each anniversary of the Commencement Date with the first
annual rental payment to be paid one-half upon execution of the
lease and one-half upon the Commencement Date. The first annual
rental payments have been made. The Showboat Partnership must
allow reasonable public access to the marina and to the beach
area on the eastern portion of the Leased Premises.
Under the Lease Agreement the Showboat Partnership must
commence construction of East Chicago Showboat within 180 days
after receipt of the Certificate of Suitability from the Indiana
Commission and must complete construction within 18 months after
receipt of the Certificate of Suitability or pay the City
$250,000 per additional month until East Chicago Showboat is
substantially ready for operation. The Lease Agreement requires
the City to assist the Showboat Partnership with all procedural
steps that are reasonably and lawfully required for the Showboat
Partnership to finance and construct East Chicago Showboat,
including roadwork and egress of facilities.
MORTGAGE LIENS. The Showboat Partnership, and its
successors, may, without the City's consent, mortgage, assign,
lease, sublease, sell with right to lease back or repurchase, or
otherwise pledge or hypothecate its entire interest under the
Lease Agreement including the Leased Premises and East Chicago
Showboat, as security for or in connection with any loan or other
furnishing of funds from a lender (a "Provider") to finance or
refinance the Showboat Partnership's interest in the Leased
Premises or East Chicago Showboat or to obtain fixtures,
equipment or construction in connection therewith. The Notes are
secured by, among other things, a leasehold mortgage on the
Leased Premises. See "Description of New Notes-Security." The
City, subject to receipt of information concerning the identity
of the Provider, shall provide the Provider with a copy of all
notices to the Showboat Partnership under the Lease Agreement. In
the case of a default under the Lease Agreement, the City shall
not terminate the Lease Agreement until the Provider has had an
opportunity to cure the default, and the opportunity to enter
into a new lease with the City upon the termination of the Lease
Agreement. Should the Provider acquire the Showboat Partnership's
interest in the Lease Agreement, the Provider may assign the
Lease Agreement to a person holding a license to operate a
riverboat gaming casino and shall have no liability for the
performance or observance of the covenants and conditions of the
Lease Agreement to be performed on the part of the Showboat
Partnership and observed from and after the date of the
assignment. Any Provider acquiring the Showboat Partnership's
interest under the Lease Agreement must either obtain a license
to operate a riverboat casino or assign the Lease Agreement to a
person holding such a license.
DEFAULT. An Event of Default under the Lease Agreement
occurs: (i) if the Showboat Partnership fails or refuses to pay
when due the annual rental or other charges payable under the
Lease Agreement and such failure or refusal continues for a
period of 30 days after notice from the City; (ii) if the
Showboat Partnership fails or refuses to perform or comply with
any of the agreements, terms, covenants or conditions provided in
the Lease Agreement for a period of 30 days after notice from the
City, however, in the event such failure cannot be cured within
30 days, the cure period shall be extended until such time as the
failure is cured as long as the Showboat Partnership gives the
City written notice of intention to cure the failure and its cure
proposal and diligently pursues the same to completion; or (iii)
if the Showboat Partnership (a) is adjudicated bankrupt or
insolvent, (b) makes an assignment for the benefit of creditors
or files an answer seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar
relief under any federal, state or other bankruptcy or insolvency
state law, (c) seeks, consents to, or acquiesces in the
appointment of any
49
bankruptcy or insolvency trustee, receiver or liquidator, or (d)
within 60 days after the commencement of any proceeding against
the Showboat Partnership seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar
relief under any federal or state bankruptcy or insolvency law,
such proceeding has not been dismissed, vacated or stayed. If an
Event of Default occurs, subject to notice to and cure by the
Provider, the City may elect to terminate the Lease Agreement
within 60 days following written notice to the Showboat
Partnership no more than 60 days after the expiration of any cure
period.
TERMINATION. The Lease Agreement may be terminated by the
Showboat Partnership upon 90 days written notice (and upon
payment of one year's rent) to the City at any time after the
first eight years of the initial term if, in the Showboat
Partnership's opinion, continued operation of East Chicago
Showboat is no longer economically feasible. If someone other
than the Showboat Partnership receives the license to operate a
riverboat casino or the Showboat Partnership has not received a
riverboat owner's license within three years of the Commencement
Date, or the Showboat Partnership does not have its license
renewed or its license is revoked or suspended, either the
Showboat Partnership or the City may terminate the Lease
Agreement by written notice.
INDEMNIFICATION. The Showboat Partnership is required to
defend, indemnify and hold the City harmless from any liability
arising out of: (i) the Showboat Partnership's possession, use or
control of the Leased Premises or East Chicago Showboat; (ii) any
occurrence on or related to the Leased Premises or East Chicago
Showboat, including (a) loss or damage to property, (b) injury or
death of any person, or (c) environmental damage resulting from
East Chicago Showboat's use of the site; (iii) the Company's
breach of any covenant or obligation under the Lease Agreement.
The Showboat Partnership is not required to indemnify the City
against claims resulting from the City's failure to perform or
its negligence in the performance of its obligations or arising
from the willful actions of the City. The City shall indemnify
and hold the Showboat Partnership harmless (to the extent
permitted by law) from and against any and all claims resulting
from the sole negligence of the City in performance of its
obligations or arising from the willful actions of the City.
ECONOMIC BETTERMENT COMMITMENTS
As a condition to receiving the Certificate of Suitability,
the Showboat Partnership committed to contribute an aggregate of
3.75% of the Showboat Partnership's adjusted gross receipts to
fund economic and community development projects for the City of
East Chicago. The Showboat Partnership has committed to
contribute 3% of the Showboat Partnership's adjusted gross
receipts (as defined in the Indiana Riverboat Gambling Act) for
the benefit of economic development, education and community
development in the City. Of these monies, one-third will go to
the City, which shall select a board to determine the use of
these funds. One-third will go to the Twin City Education
Foundation, Inc., an Indiana nonprofit corporation ("TCEF"),
which will focus on funding training programs for workers for
nonriverboat-related jobs, in addition to a scholarship program
for post-secondary education for residents of the City. One-third
of the funds will be contributed to the East Chicago Community
Foundation, Inc., an Indiana nonprofit corporation ("ECCF"),
which will fund community development projects within the City.
The Showboat Partnership shall also reimburse the City for
expenses incurred in connection with the development of East
Chicago Showboat, including, but not limited to, professional
planning fees, professional design fees, engineering,
construction of infrastructure, including the construction of the
proposed on/off ramp from Highway 912, utilities or other
improvements at the Pastrick Marina or elsewhere related to East
Chicago Showboat, legal fees and costs, financial consulting fees
and other professional consulting fees deemed reasonably
necessary by the City. The Showboat Partnership also provided
approximately $70,000 in 1995 to enable the City to hire a full-
time city planner.
The Showboat Partnership has committed to fund the following
projects in the approximate amounts specified, regardless of the
issuance of a gaming license to the Showboat Partnership: (1)
Healthy East Chicago Wellness Program, with estimated
expenditures of $200,000 (approximately $14,000 of which was paid
in 1995); (2) comprehensive market development assessment for
various transportation corridors in the City, with estimated
expenditures of $70,000; (3) various capital improvements to the
City, with expenditures of $500,000; and (4) engineering fees
related to the water marketing project for extension of the
City's water main, with estimated expenditures of $500,000. The
Showboat Partnership expects to make these expenditures prior to
the date East Chicago Showboat becomes Operating. Fifty percent
50
of the funds expended by the Showboat Partnership in connection
with these four projects shall be credited against the 1% share
payable to the City during the first and, if necessary, second
years of operations, only, unless otherwise approved by the City.
The Showboat Partnership shall reimburse the City for costs
of any other required studies in connection with East Chicago
Showboat, and 50% of these costs shall be credited against the 1%
share payable to the City. The Showboat Partnership agreed to use
local, unionized labor in construction of East Chicago Showboat,
as well as the other projects to be undertaken by TCEF, ECCF and
Second Century. The Showboat Partnership shall establish an
assessment and training center for the benefit primarily of the
youth of East Chicago, and fifty percent of the expenses incurred
in establishing such center shall be credited against the 1%
share payable to the City. The Showboat Partnership shall also
provide training scholarships in the form of cost-free training
for the residents of the City who are hired as employees of East
Chicago Showboat.
The Showboat Partnership has committed to provide
approximately $4.6 million in general funding and equipment
funding for support and enhancement of neighborhood improvement
programs, law enforcement operations, public safety programs, the
East Chicago school system and infrastructure of East Chicago.
Through December 31, 1995, approximately $1.1 million had been
spent on these items. Funds expended by the Showboat Partnership
in connection with these programs shall not be credited against
the 1% share payable to the City.
As a condition of receiving the Certificate of Suitability,
the Manager created East Chicago Second Century, Inc., a for-
profit corporation ("Second Century"), which will be funded by
the Showboat Partnership in an amount equal to 0.75% of adjusted
gross receipts from East Chicago Showboat. Second Century will
direct its development activities at sites located within the
City and toward projects which are approved by the City.
The Showboat Partnership, through Second Century, has agreed
to commit to the following two community development projects:
(1) the building of 68 townhouses for moderate income East
Chicago citizens on the abandoned Washington School site; and (2)
the building of a five to eight unit retail center near the East
Chicago Showboat employee parking lot along Michigan Avenue. In
addition, the Showboat Partnership has agreed to commit to the
creation of a $5 million pool for a mortgage guarantee program to
assist a minimum of 250 residents of East Chicago by guaranteeing
up to 25% of the purchase price of a home; and the creation of a
$500,000 pool to provide for the Showboat Partnership employees
who are first time home buyers, down payment assistance of 5% of
the purchase price of a home up to a maximum of $5,000. These
expenditures are not subject to the 50% credit against future
incentive payments to the City of East Chicago.
All of the foregoing are conditions of the Certificate of
Suitability.
COMPLETION GUARANTEE
Pursuant to the Completion Guarantee, Showboat has agreed for the
benefit of the Showboat Partnership to complete East Chicago
Showboat so that it becomes Operating, and will guarantee the
payment of all Project Costs owing prior to such completion. The
Completion Guarantee is subject to certain limitations,
qualifications and exceptions. Showboat's obligation to complete
East Chicago Showboat so that it becomes Operating will not take
effect unless there are insufficient funds in the Escrow Account
(established pursuant to the Escrow and Disbursement Agreement)
to meet the costs of designing, developing, constructing,
equipping and opening East Chicago Showboat. In addition,
Showboat's obligations under the Completion Guarantee will be
limited to $30.0 million in the aggregate. Showboat's obligations
under the Completion Guarantee will be suspended during the
pendency of certain Force Majeure Events. Force Majeure Event is
defined as strikes, lockouts, or other labor trouble; fire or
other casualty; governmental preemption in connection with a
national emergency; breakdown, accident or other acts of God;
acts of war, insurrection, civil strife and commotion; failure to
supply despite reasonable diligence of the Showboat Partnership
or Showboat; any statute, rule, order or regulation of any
legislature or governmental agency or any department or
subdivision thereof; and litigation not caused by the Showboat
Partnership, Showboat or any of Showboat's affiliates; or any
other event outside the control of the Showboat Partnership or
Showboat; in each such case that shall make it physically
impossible or unlawful to cause East Chicago Showboat to become
Operating; provided, however, that none of the foregoing shall be
deemed to be a Force
51
Majeure Event to the extent it is not physically impossible or
unlawful to cause East Chicago Showboat to become Operating by
amending or altering the meaning of Minimum Facilities or
otherwise altering or amending a physical specification of East
Chicago Showboat (in which case Showboat shall have the
obligation pursuant to the Completion Guarantee to complete the
construction of East Chicago Showboat to such modified or amended
extent), and provided further, that the foregoing proviso shall
not prevent or cease to cause a Default or Event of Default under
the Indenture for failure to construct East Chicago Showboat in
accordance with the Minimum Facilities or the Plans. The
Completion Guarantee specifically states that in no event shall
Showboat incur, directly or indirectly, any obligation,
contingent or otherwise, for payment of the principal amount of
the New Notes. See "Risk Factors-Completion Guarantee" and
"Material Agreements-Completion Guarantee."
STANDBY EQUITY COMMITMENT
Showboat is providing to the Showboat Partnership the
Standby Equity Commitment pursuant to which it has agreed to
cause to be made up to an aggregate of $30.0 million in
additional capital contributions to the Showboat Partnership
during the first three Operating Years if the Showboat
Partnership's Combined Cash Flow is less than $35.0 million for
any one such Operating Year, however, in no event will Showboat
be required to cause to be contributed more than $15.0 million to
the Showboat Partnership in respect of any one such Operating
Year. Contributions made pursuant to the Standby Equity
Commitment must be made no later than 60 days after the end of
the applicable Operating Year. The Standby Equity Commitment is
subject to a number of limitations, qualifications and
exceptions. See "Risk Factors-Standby Equity Commitment" and
"Description of New Notes-Standby Equity Commitment."
52
REGULATION
INDIANA
In 1993, the State of Indiana passed a Riverboat Gambling
Act which created the Indiana Commission. The Indiana Commission
is given extensive powers and duties for the purposes of
administering, regulating and enforcing the system of riverboat
gaming. It is authorized to award no more than 11 gaming licenses
(five to counties contiguous to Lake Michigan, five to counties
contiguous to the Ohio River and one to a county contiguous to
Patoka Lake).
With the exception of Lake County, a county must pass a
referendum approving (by a majority of those who voted) riverboat
gaming before riverboat gaming can be legalized in that county.
If a referendum fails to pass in any county, another referendum
may not be held for another two years. Once a referendum has
passed in a county, the Riverboat Gambling Act requires any
proposed riverboat to operate from the most populous city in that
county, unless such city passes a resolution authorizing a
riverboat to operate elsewhere in the county. For Lake County,
the Riverboat Gambling Act provides that the second and third
most populous cities of the county, Hammond and East Chicago,
respectively, according to the 1990 census, may authorize
riverboat gaming within such cities, by passage of a municipal
referendum. Voters in both cities have passed such referenda.
Gary, Lake County's most populous city, is exempted by the
Riverboat Gambling Act from the gaming referendum requirement
altogether. Pursuant to Indiana Commission resolution, the cost
of any referendum is to be borne by all license applicants for
the voting county or municipality.
The Indiana Commission has jurisdiction and supervision over
all riverboat gaming operations in Indiana and all persons on
riverboats where gaming operations are conducted. These powers
and duties include authority to (1) investigate all applicants
for riverboat gaming licenses, (2) select among competing
applicants those that promote the most economic development in a
home dock area and that best serve the interest of the citizens
of Indiana, (3) establish fees for licenses, and (4) prescribe
all forms used by applicants. The Indiana Commission shall adopt
rules pursuant to statute for administering the gaming statute
and the conditions under which riverboat gaming in Indiana may be
conducted. The Indiana Commission has promulgated certain final
rules and has proposed additional rules governing the application
procedure and all other aspects of riverboat gaming in Indiana.
The Indiana Commission may suspend or revoke the license of a
licensee or a certificate of suitability or impose civil
penalties, in some cases without notice or hearing for any act in
violation of the Riverboat Gambling Act or for any other
fraudulent act or if the licensee or holder of such certificate
of suitability has not begun regular riverboat excursions prior
to the end of the twelve month period following the Indiana
Commission's approval of the application for an owner's license.
In addition, the Indiana Commission may revoke an owner's license
if it is determined by the Indiana Commission that revocation is
in the best interests of the state of Indiana. The Indiana
Commission will (1) authorize the route of the riverboat and
stops that the riverboat may make, (2) establish minimum amounts
of insurance and (3) after consulting with the Corps of
Engineers, determine which waterways are navigable waterways for
purposes of the Riverboat Gambling Act and determine which
navigable waterways are suitable for the operation of riverboats.
The Riverboat Gambling Act requires an extensive disclosure
of records and other information concerning an applicant,
including disclosure of all directors, officers and persons
holding one percent (1%) or more direct or indirect beneficial
interest.
In determining whether to grant an owner's license to an
applicant, the Indiana Commission shall consider (1) the
character, reputation, experience and financial integrity of the
applicant and any person who (a) directly or indirectly controls
the applicant, or (b) is directly or indirectly controlled by
either the applicant or a person who directly or indirectly
controls the applicant, (2) the facilities or proposed facilities
for the conduct of riverboat gaming, (3) the highest total
prospective revenue to be collected by the state from the conduct
of riverboat gaming, (4) the good faith affirmative action plan
to recruit, train and upgrade minorities in all employment
classifications, (5) the financial ability of the applicant to
purchase and maintain adequate liability and casualty insurance,
(6) whether the applicant has adequate capitalization to provide
and maintain the riverboat for the duration of the license and
(7) the extent to which the applicant meets or exceeds other
standards adopted by the Indiana Commission. The Indiana
Commission may also give favorable consideration to applicants
for economically depressed areas and applicants who provide for
significant development of a large geographic area. Each
applicant must pay an application fee of $50,000 and an
additional investigation fee of
53
$55,000. If the applicant is selected, the applicant must pay an
initial license fee of $25,000 and post a bond. A person holding
an owner's gaming license issued by the Indiana Commission may
not own more than a 10% interest in another such license. An
owner's license expires five years after the effective date of
the license; however, after three years the holder of an owner's
license will undergo a reinvestigation to ensure continued
suitability for licensure. Unless the license has been
terminated, expired or revoked, the gaming license may be renewed
if the Indiana Commission determines that the licensee has
satisfied all statutory and regulatory requirements. In
connection with its application for an owner's license, the
Manager, Waterfront, Showboat, and its affiliates declared to the
Indiana Commission that if the Manager, or upon the transfer of
the certificate of suitability to the Showboat Partnership, the
Showboat Partnership, receives a riverboat owner's license for
East Chicago, Indiana, they shall not commence more than one
other casino gaming operation within a fifty-mile radius of East
Chicago Showboat for a period of five years beginning on the date
of issuance of an owner's license by the Indiana Commission to
the Manager or the Showboat Partnership, as applicable. Adherence
to the non-competition declaration is a condition of the
Certificate of Suitability and the owner's license. A gaming
license is a revocable privilege and is not a property right.
There can be no assurance that the Showboat Partnership will
obtain an Indiana Gaming license.
Some municipalities have initiated their own review process.
The Indiana Commission has passed a resolution stating that
certain evaluations by local governments will be important
factors in the Indiana Commission's economic development
evaluation process. However, the Indiana Commission retains the
sole authority to award a license.
Minimum and maximum wagers on games are not established by
regulation but are left to the discretion of the licensee.
Wagering may not be conducted with money or other negotiable
currency. Riverboat gaming excursions are limited to a duration
of four hours unless expressly approved by the Indiana
Commission. No gaming may be conducted while the boat is docked
except (1) for 30-minute time periods at the beginning and end of
a cruise while the passengers are embarking and disembarking, (2)
if the master of the riverboat reasonably determines that
specific weather or water conditions present a danger to the
riverboat, its passengers and crew, (3) if either the vessel or
the docking facility is undergoing mechanical or structural
repair, (4) if water traffic conditions present a danger to (A)
the riverboat, riverboat passengers, and crew, or (B) other
vessels on the water, or (5) if the master has been notified that
a condition exists that would cause a violation of federal law if
the riverboat were to cruise.
An admission tax of $3.00 for each person admitted to the
gaming excursion is imposed upon the license owner. An additional
20% tax is imposed on the adjusted gross receipts received from
gaming operations, which is defined as the total of all cash and
property (including checks received by the licensee whether
collected or not) received, less the total of all cash paid out
as winnings to patrons and uncollected gaming receivables (not to
exceed 2%). The gaming license owner shall remit the admission
and wagering taxes before the close of business on the day
following the day on which the taxes were incurred. Legislation
was recently enacted in Indiana permitting the imposition of
property taxes on the riverboats at rates to be determined by
local taxing authorities of the jurisdiction in which a riverboat
operates. Pursuant to agreements with the City, and as reflected
in the Certificate of Suitability issued by the Commission, the
Showboat Partnership has agreed to (1) provide certain fixed
incentives of approximately $16.4 million to the City of East
Chicago and its agencies for transportation, job training, home
buyer assistance and discrete economic development initiatives,
(2) pay 3% of adjusted gross receipts to the City and two not-for-
profit foundations for its public schools and housing and
commercial development, and (3) pay 0.75% of adjusted gross
receipts for community development projects to a for-profit
corporation owned by the Manager.
The Indiana Commission is authorized to license suppliers
and certain occupations related to riverboat gaming. Gaming
equipment and supplies customarily used in conducting riverboat
gaming may be purchased or leased only from licensed suppliers.
The Indiana Riverboat Gambling Act places special emphasis
upon minority and women's business enterprise participation in
the riverboat industry. Any person issued a riverboat owner's
license must establish goals of expending at least 10% of the
total dollar value of the licensee's contracts for goods and
services with minority business enterprises and 5% of the total
dollar value of the licensee's contracts for goods and services
with women's business enterprises. The Indiana Commission may
suspend, limit or revoke the gaming owner's license or impose a
fine for failure to comply with statutory requirements.
54
COAST GUARD
Each cruising riverboat also is regulated by the Coast
Guard, whose regulations affect vessel design, construction,
operation (including requirements that each vessel be operated by
a minimum complement of licensed personnel) and maintenance in
addition to limiting the number of passengers/customers. The
Casino must hold a valid Coast Guard-issued certificate of
inspection and loss or suspension of such certificate could
preclude the use of the Casino. The Casino is subject to annual
as well as unannounced inspection by the Coast Guard and must be
drydocked every five years for inspection of the hull. Such
drydockings remove the Casino from service for a period of time
and can result in required repairs. The Showboat Partnership
believes that Coast Guard regulations, and the requirements of
operating and managing cruising gaming vessels generally, make it
more difficult and more expensive to conduct riverboat gaming
than to operate land-based casinos.
All shipboard employees of the Showboat Partnership employed
on 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, may be subject to the
Jones Act which, among other things, exempts those employees from
state limits on worker's compensation awards. The Showboat
Partnership intends to obtain such insurance to cover employee
claims.
In order for the Casino to be able to operate in the United
States coastwise trade, the Showboat Partnership must be a
"citizen of the United States," as defined in the Merchant Marine
Act, 1920, as amended, and the Shipping Act, 1916, as amended. A
partnership owning any vessel engaged in the United States
coastwide trade, such as the Showboat Partnership, is considered
a United States citizen for purposes of United States coastwide
requirements if at least 75% of the equity interest in the
partnership is owned by United States citizens and all general
partners are United States citizens.
OTHER FEDERAL, STATE AND LOCAL LEGISLATION AND REGULATIONS
Certain federal, state and local legislation and regulations
relating to safety, health and environmental matters that apply
to businesses generally, such as the Clean Air Act, the Clean
Water Act, the Occupational Safety and Health Act, the Resource
Conservation Recovery Act and the Comprehensive Environmental
Response, Compensation and Liability Act, apply to the Showboat
Partnership. In addition, certain legislation and regulations
that apply to vessels in general that operate in United States
waters, such as the Oil Pollution Act of 1990 (which among other
things, deals with liability for oil spills and requires a
certificate of financial responsibility for vessels operating in
United States waters), or within the jurisdiction of various
states would apply to the Showboat Partnership.
Although the Showboat Partnership does not anticipate making
material expenditures with respect to such laws and regulations,
the applicability of such laws and regulations may result in
additional costs to the Showboat Partnership.
55
MANAGEMENT
The following management team will oversee the development
and operation of East Chicago Showboat:
J. Kell Houssels, III, age 46, is the Chief Executive
Officer of Finance Corporation and has held such position since
March 1996. He has been a director of Showboat, Inc. since 1983.
He is currently also President and Chief Executive Officer of
Showboat, Inc. and Ocean Showboat, Inc. and director of Showboat,
Inc. and all of its subsidiaries. From May 1993 to June 1994, he
served as President and Chief Executive Officer of Showboat
Development Company. From January 1990 to May 1994, Mr. Houssels,
III served as Vice President of Showboat, Inc. From May 1993 to
June 1994, he served as President and Chief Executive Officer of
Atlantic City Showboat, Inc. and from January 1990 to May 1993,
he served as President and Chief Operating Officer of Atlantic
City Showboat, Inc.
Mark J. Miller, age 39, is a Director and the Treasurer of
Finance Corporation and he has held such positions since March
1996. He has been Executive Vice President-Operations of
Showboat, Inc. since June 1994; Vice President-Finance of Ocean
Showboat since April 1988; and Vice President-Finance, Chief
Financial Officer of Ocean Showboat since April 1991. From May
1994 to May 1995, Mr. Miller served as the President and Chief
Executive Officer of Atlantic City Showboat, Inc. From October
1993 to June 1994, he served as Executive Vice President and
Chief Operating Officer of Atlantic City Showboat, Inc. and he
was Vice President-Finance and Chief Financial Officer of
Atlantic City Showboat, Inc. from December 1988 to October 1993.
J. Keith Wallace, age 54, has been the President and Chief
Executive Officer of the Showboat Partnership and Showboat
Indiana, Inc. since January 1996 and Director of Finance
Corporation since March 1, 1996. From February 1995 to January
1996, Mr. Wallace was the President and Chief Executive Officer
of Showboat Operating Company. From May 1993 to February 1995, he
was the President and Chief Executive Officer of Lake
Pontchartrain Showboat, Inc. and Showboat Louisiana, Inc., from
June 1993 to April 1995. Mr. Wallace served as Executive Vice
President and Chief Operating Officer of Showboat Louisiana,
Inc., and Lake Pontchartrain Showboat, Inc., respectively. From
August 1990 to April 1993, Mr. Wallace was the Vice President and
General Manager of Showboat Operating Company.
Joseph G. O'Brien, III, age 33, has been the Vice President
of Finance and Administration for the Showboat Partnership since
May 1995, the Vice President - Finance and Chief Financial
Officer of Showboat Indiana, Inc. since April 1996 and the Vice
President Chief Financial Officer of Finance Corporation since
March 1996. From June of 1993 until April of 1995, Mr. O'Brien
served on the Executive Committee of the Showboat Star
Partnership in New Orleans, Louisiana; from February 1995 until
April 1995 he served as Acting Chief Operating Officer on the
Showboat Star Partnership; and from June 1993 until February of
1995 he served as Controller of the Showboat Star Partnership.
Prior to joining the Showboat Star Partnership, Mr. O'Brien was a
certified public accountant with the firm of Ericksen, Krentel,
Canton & LaPorte in New Orleans, Louisiana from July 1984 to June
1993.
Dominick J. Burzichelli, age 33. Mr. Burzichelli is Vice
President of Human Resources for the Showboat Partnership. Mr.
Burzichelli has been employed by Showboat since 1986 and has
served in the Human Resources department in various capacities
including Director and Manager levels. His areas of expertise
have included labor relations, recruitment and placement.
Michael A. Pannos, age 47. Mr. Pannos is Secretary and
Director of Finance Corporation since March 1996 and has been
Director and President of Waterfront since July 3, 1993. He is a
practicing attorney in the firm of Pannos & Mindel since 1980.
Mr. Pannos was elected as Chairman of the Indiana Democratic
Party in 1988. He was also elected Vice-President of the
Association of Democratic Chairs, and has served as a member of
the Rules Committee of the Democrat National Committee.
Thomas S. Cappas, age 61. Mr. Cappas is a Director of
Finance Corporation since March 1996 and has been Director,
Treasurer and Secretary of Waterfront since July 3, 1993. Since
1959, Mr. Cappas has been a practicing attorney in East Chicago,
Indiana. Mr. Cappas has held a variety of public sector positions
in East Chicago.
56
EXECUTIVE COMPENSATION
The following table sets forth all compensation paid by the
Showboat Partnership during 1995 to the officers and other
persons of the Showboat Partnership, in all capacities in which
they served.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
OTHER
NAME AND ANNUAL
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
J. Keith Wallace 1995 $ - $ - -
President and Chief
Executive Officer
Thomas C. Bonner 1995 $ 193,322 $ 116,580
President and Chief Ex -
ecutive Officer until
November 1995
Paul Sykes 1995 $ 119,333 $ 41,756
Vice President
Operations until
November 1995
Joseph O'Brien, III 1995 $ 56,250 $ 7,631
Vice President Finance
and Administration
Dominick Burzichelli 1995 $ 57,414 $ 11,756
Vice President Human
Resources
LONG-TERM COMPENSATION
AWARDS PAYOUTS<F1>
LONG- TERM
RESTRICTED SECURITIES INCENTIVE
Name and STOCK UNDERLYING PLANS ALL OTHER
Principal Position AWARDS OPTIONS/SARS PAYOUTS COMPENSATION
J. Keith Wallace - - $ - $ -
President and Chief
Executive Officer
Thomas C. Bonner - - $ 34,500<F2> $ 57,604<F3>
President and Chief Ex -
ecutive Officer until
November 1995
Paul Sykes - - $ 9,000<F4> $ 30,535<F5>
Vice President
Operations until
November 1995
Joseph O'Brien, III - - $ 9,000<F6> $ 24,622<F7>
Vice President Finance
and Administration
Dominick Burzichelli - - $ 3,000<F8> $ 21,075<F9>
Vice President Human
Resources
<FN>
<F1> Amounts represented in this column were received by the named
individuals under either the Showboat, Inc. 1989 Executive
Long Term Incentive Plan ("1989 Plan") or the Showboat, Inc.
1994 Executive Long Term Incentive Plan ("1994 Plan"), or
both. The 1989 Plan and the 1994 Plan are Showboat's incentive
plans which provide for awards of restricted stock options to
key executives of the Showboat Partnership's operating
subsidiaries.
<F2> Of this amount, $12,000 (800 shares) vested under the 1989
Plan, $15,000 (1,000 shares) vested under the 1994 Plan
(grants issued in 1994), and $7,500 (500 shares) vested under
the 1994 Plan (grants issued in 1995).
<F3> This amount primarily represents $4,350 for excess coverage
life insurance and medical reimbursement costs and $31,643,
$1,906, $9,500 and $10,205 for a relocation bonus, moving
expenses, a housing allowance and contributions to
Mr. Bonner's 401(k) Plan account, respectively.
<F4> This amount represents the vesting of 600 shares under the
1994 Plan (grants issued in 1994).
<F5> This amount primarily represents $2,954 for excess coverage
life insurance and medical reimbursement cost and $19,686,
$2,629 and $5,266 for a relocation bonus, moving expenses and
contributions to Mr. Sykes 401(k) Plan account, respectively.
<F6> This amount represents the vesting of 600 shares under the
1994 Plan (grants issued in 1995).
<F7> This amount primarily represents $1,795 for excess coverage
life insurance and medical reimbursement costs and $16,500,
$4,129 and $2,198 for a relocation bonus, moving expenses and
contributions to Mr. O'Brien's 401(k) Plan account,
respectively.
57
<F8> This amount represents the vesting of 200 shares under the
1994 Plan (grants issued in 1994).
<F9> This amount primarily represents $1,326 for excess coverage
life insurance and medical reimbursement costs and $11,117,
$5,450 and $3,176 for a relocation bonus, moving expenses and
contributions to Mr. Burzichelli's 401(k) Plan account,
respectively.
</FN>
58
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As of March 1, 1996 the Showboat Partnership entered into
the Management Agreement with the Manager for a term through
December 31, 2023. The Management Agreement will not be effective
until it has been approved by the Indiana Commission. The Manager
holds a 99% ownership interest in Showboat Partnership. In
consideration for the services provided under the Management
Agreement, the Showboat Partnership has agreed to pay the Manager
a management fee equal to (i) 2% of Net Revenues (as defined in
the Management Agreement) and (ii) 5% of EBITDA (as defined in
the Management Agreement), subject to the limitations set forth
in the "Restricted Payments" covenant of the Indenture. Mr.
Michael A. Pannos, a Director and Secretary of Finance
Corporation, beneficially owns 16.8% of Showboat Partnership and
Mr. Thomas S. Cappas, a Director of Finance Corporation,
beneficially owns 12.8% of Showboat Partnership. See "Material
Agreements-Management Agreement," "Management" and "Principal
Security Holders."
The Showboat Partnership intends to enter into certain
construction agreements with KLM and Tonn & Blank, providing for
such firms to act as general contractors for construction of the
Pavilion and parking garage. Nikos Kefalidis, the President of
KLM, beneficially owns 3.0% of the Showboat Partnership. The
Showboat Partnership has budgeted approximately $32.0 million for
construction of the Pavilion, parking garage, and site
improvements.
The Showboat Partnership's Partnership Agreement (the
"Partnership Agreement") provides that each Partner and its
Indemnified Persons (as defined therein) will not be liable,
responsible or accountable in damages or otherwise to the
Partnership, or to any of the Partners (as defined therein), for
any act or omission performed or omitted by them in good faith on
behalf of the Partnership and in a manner reasonably believed by
them to be within the scope of their authority and in the best
interests of the Partnership unless the acts or omissions
constitute either fraud, bad faith, gross negligence, or willful
misconduct as determined by final decision of a court of
competent jurisdiction or which occurred prior to the formation
of the Partnership.
In addition, to the extent that, at law or in equity, a
Partner or its Indemnified Persons have duties (including
fiduciary duties) and liabilities relating thereto to the Partner
or to the Partners, and their Indemnified Persons acting under
the Partnership Agreement or otherwise will not be liable to the
Partnership or to any Partner for its good faith reliance on the
provisions of the Partnership Agreement.
Section 78.751 of Chapter 78 of the Nevada Revised Statutes
contains provisions for indemnification of officers, directors,
employees and agents of the Showboat Partnership. The Articles
of Incorporation of Finance Corporation provides that no director
of Finance Corporation will be personally liable to Finance
Corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, except for liability: (i) for
breach of the director's fiduciary duties to Finance Corporation
or its stockholders; or (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing
violation of the law.
The Showboat Partnership intends to maintain a directors'
and officers' insurance policy which insures the officers and
directors of its general partners from any claim arising out of
an alleged wrongful act by such person in their respective
capacities as officers and directors of the its general partners.
The Finance Corporation's Articles of Incorporation also
provide that the Finance Corporation's Board of Directors may
cause the Finance Corporation to purchase and maintain insurance
on behalf of any present or past director or officer insuring
against any liability asserted against such person incurred in
the capacity of director or officer or arising out of such
status, whether or not the corporation would have the power to
indemnify such person. The Finance Corporation presently has
directors' and officers' liability insurance in effect.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons
controlling the Showboat Partnership pursuant to the foregoing
provisions, the Showboat Partnership has been informed that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
59
PRINCIPAL SECURITY HOLDERS
The following table sets forth the beneficial ownership of
the interests in the Showboat Partnership and the Finance
Corporation as of March 31, 1996 by each person known by the
Showboat Partnership and the Finance Corporation to (i)
beneficially own 5% or more of the outstanding Showboat
Partnership and the Finance Corporation interests, (ii) each
officer and director of Waterfront, and (iii) each executive
officer and director of Showboat Indiana, Inc., the general
partner of Showboat Indiana Investment Limited Partnership
("SIILP").
NAME AND ADDRESS OF % OWNERSHIP % BENEFICIAL % BENEFICIAL
BENEFICIAL OWNER WATERFRONT OWNERSHIP OWNERSHIP
SHOWBOAT FINANCE
PARTNERSHIP CORPORATION
Showboat Partnership - - 100.0%
2001 East Columbus Drive
East Chicago, Indiana 46312
Showboat Marina Partnership<F1> - 99.0% 99.0%
2001 East Columbus Drive
East Chicago, Indiana 46312
Showboat Marina Investment
Partnership<F1> - 1.0% 1.0%
2001 East Columbus Drive
East Chicago, Indiana 46312
SIILP<F2> - 55.0% 55.0%
2800 Fremont Street
Las Vegas, Nevada 89104
Waterfront<F3> - 45.0% 45.0%
8101 Polo Club Drive, Suite D
Merriville, Indiana 46410
J. Keith Wallace<F4> - - -
2001 East Columbus Drive
East Chicago, Indiana 46312
John D. Gaughan<F5> - - -
2800 Fremont Street
Las Vegas, Nevada 89104
J.K. Houssels<F5> - - -
2800 Fremont Street
Las Vegas, Nevada 89104
Frank A. Modica<F5> - - -
2800 Fremont Street
Las Vegas, Nevada 89104
H. Gregory Nasky<F6> - - -
2800 Fremont Street
Las Vegas, Nevada 89104
J. Kell Houssels, III<F7> - - -
2800 Fremont Street
Las Vegas, Nevada 89104
Leann Schneider<F8> - - -
2800 Fremont Street
Las Vegas, Nevada 89104
Michael A. Pannos<F9> 37.3% 16.8% 16.8%
8101 Polo Club Drive, Suite D
Merrillville, Indiana 46410
Thomas S. Cappas<F10> 28.4% 12.8% 12.8%
1802 E. Columbus Drive
East Chicago, Indiana 46312
<FN>
<F1> Showboat Marina Partnership and Showboat Marina Investment
Partnership are owned 55% by SIILP and 45% by Waterfront.
60
<F2> SIILP is wholly owned by subsidiaries of Showboat. Showboat
Indiana, Inc., a Nevada subsidiary of Showboat, is the sole
general partner of SIILP.
<F3> Waterfront, an Indiana corporation, is owned by 13 individual
investors. Investment and voting control of Waterfront are
vested in its stockholders and its board of directors.
<F4> Mr. Wallace is the President and Chief Executive Officer of
the Showboat Partnership, Showboat Indiana, Inc. and a
Director of Finance Corporation.
<F5> A Director of Showboat Indiana, Inc.
<F6> Mr. Nasky is the Secretary and a Director of Showboat Indiana,
Inc.
<F7> Mr. Houssels, III is the Chairman of the Board of Directors of
Showboat Indiana, Inc. and Finance Corporation.
<F8> Ms. Schneider is the Treasurer of Showboat Indiana, Inc.
<F9> Michael A. Pannos is a Director and the President of
Waterfront and is Secretary and Director of Finance
Corporation. Mr. Pannos' beneficial ownership in Waterfront
and the Company includes common stock of Waterfront owned by
his wife.
<F10> Thomas S. Cappas is a Director, Secretary and Treasurer of
Waterfront and is a Director of Finance Corporation. Mr.
Cappas' beneficial ownership includes common stock of
QWaterfront owned by his wife.
</FN>
61
DESCRIPTION OF NEW NOTES
GENERAL
The New Notes will be issued pursuant to an Indenture dated
as of March 28, 1996 (the "Indenture") among Showboat
Partnership, Finance Corporation and American Bank National
Association, as trustee (the "Trustee"). Except as otherwise
indicated below, the following summary applies to both the Old
Notes and the New Notes. As used herein, the term "Notes" shall
mean the Old Notes and the New Notes unless otherwise stated.
The terms of the Notes include those stated in the Indenture
and the Collateral Documents and those made part of the Indenture
by reference to the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"), as in effect on the date of the
Indenture. The Notes are subject to all such terms, and holders
thereof ("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 (i) the New Notes will be registered
under the Securities Act, and, therefore, will not bear legends
restricting the transfer thereof, (ii) holders of the New Notes
will not be entitled to Liquidated Damages, which terminate upon
consummation of the Exchange Offer, and (iii) holders of New
Notes will not be entitled to certain rights under the
Registration Rights Agreement intended for the holders of
unregistered securities. The New Notes will be issued solely in
exchange for an equal principal amount of Old Notes. As of the
date hereof, Old Notes in the aggregate principal amount of
$140.0 million are outstanding. See "The Exchange Offer." The
following summary of certain provisions of the Indenture, the
Collateral Documents and the Registration Rights Agreement does
not purport to be complete and is qualified in its entirety by
reference to such documents, including the definitions therein of
certain terms used below. The definitions of certain terms used
in the following summary are set forth below under "-Certain
Definitions." Copies of the Indenture, the Collateral Documents,
the Registration Rights Agreement and the other material
agreements described or referred to herein are available as set
forth under "Additional Information."
RANKING AND SECURITY
The Notes will rank senior in right of payment to all
Subordinated Indebtedness of the Company and will be secured by a
first priority lien on the Note Collateral, subject to Permitted
Liens, whether such Note Collateral is now owned or hereafter
acquired by the Company. Currently, there is no Indebtedness
senior to or PARI PASSU, equally and without preference, with the
Notes. The Note Collateral will include substantially all of the
assets comprising East Chicago Showboat (other than any assets
which if pledged, hypothecated or given as collateral security
would require the Trustee or a holder or beneficial owner of the
Notes to be licensed, qualified or found suitable by any
applicable Gaming Authority, and other than certain assets to the
extent such assets are financed by Indebtedness permitted to be
incurred and secured under the terms of the Indenture). See
"-Security."
In addition, the Notes will be secured by a pledge of the
Capital Stock of each Subsidiary now or hereafter owned by the
Company, including a pledge of the Capital Stock of Finance
Corporation, and of any intercompany notes held by the Company,
unless such pledge would in any way jeopardize obtaining or
maintaining a Gaming License or would require the Trustee or a
holder or beneficial owner of the Notes to be licensed, qualified
or found suitable by any applicable Gaming Authority. The Notes
will be without recourse to the general partners of the Company
or to Showboat.
Presently there are no other liabilities of the Company that
would have to be repaid nor any consents or waivers that would
have to be obtained prior to or concurrently with a repurchase.
In the event of a Default or Event of Default, the right of the
Trustee to realize upon and sell the Note Collateral is likely to
be significantly impaired by applicable bankruptcy and insolvency
laws if a proceeding under such laws were commenced in respect of
the Company or any Guarantor. Such laws may impose limitations
or prohibitions on the exercise of rights and remedies under the
Collateral Documents for a substantial or indefinite period of
time. In addition, neither the Trustee nor any holder is
permitted to operate or manage any casino unless such Person has
been licensed under applicable law for such purposes. Such
casino licensing requirements could delay the sale of any of the
Note Collateral in foreclosure and may adversely affect the sales
price thereof.
62
See "Risk Factors-Regulations," "-Foreclosure Restrictions;
Title Considerations" and "-Bankruptcy Considerations."
COMPLETION GUARANTEE
Pursuant to the Completion Guarantee, Showboat has agreed to
complete East Chicago Showboat so that it becomes Operating, and
has guaranteed the payment of all Project Costs owing prior to
such completion. The Completion Guarantee is subject to certain
limitations, qualifications and exceptions. Showboat's obligation
to complete East Chicago Showboat so that it becomes Operating
will not take effect unless there are insufficient funds in the
Escrow Account (established pursuant to the Escrow and
Disbursement Agreement) to meet the costs of designing,
developing, constructing, equipping and opening East Chicago
Showboat. In addition, Showboat's obligations under the
Completion Guarantee are limited to $30.0 million in the
aggregate. Showboat's obligations under the Completion Guarantee
will be suspended during the pendency of certain Force Majeure
Events. See "Risk Factors-Completion Guarantee" and "Material
Agreements-Completion Guarantee."
STANDBY EQUITY COMMITMENT
Pursuant to the Standby Equity Commitment, if during any of
the first three Operating Years the Company's Combined Cash Flow
is less than $35.0 million for any one such Operating Year,
Showboat will cause additional capital contributions to be made
to the Company in such amount that will result in net cash
proceeds to the Company in an amount equal to not less than the
difference between $35.0 million and the Company's Combined Cash
Flow for such Operating Year (the "Standby Equity Commitment
Proceeds"); PROVIDED, HOWEVER, that in no event shall Showboat be
required to contribute any more than $15.0 million in respect of
any one such Operating Year or more than $30.0 million in the
aggregate in respect of all three Operating Years. The Standby
Equity Commitment also provides that the Standby Equity
Commitment Proceeds shall be contributed to the Company no later
than 60 days after the end of the applicable Operating Year. See
"Risk Factors-Standby Equity Commitment," "Material
Agreements-Standby Equity Commitment" and "Selected Consolidated
Financial Data of Showboat, Inc."
PRINCIPAL, MATURITY AND INTEREST
The Notes will be senior secured obligations of the Company,
limited in aggregate principal amount to $140.0 million and will
mature on March 15, 2003.
Each New Note will bear interest at the rate of 13 1/2% per
annum on the principal amount then outstanding from the New Note
Issuance Date to the date of payment of such principal amount of
such New Note. Holders whose Old Notes are accepted for exchange
will have the right to receive interest accrued thereon from the
Issuance Date or the last Interest Payment Date, as applicable
to, but not including, the New Note Issuance Date, such interest
to be payable with the first interest payment on the New Notes.
Interest on the Old Notes accepted for exchange will cease to
accrue on the day prior to the New Note Issuance Date.
Installments of interest will be due and payable semi-annually in
arrears on March 15, and September 15 of each year to the holders
of record at the close of business on the immediately preceding
March 1, and September 1. Additionally, installments of accrued
and unpaid interest will become due and payable with respect to
any principal amount of the Notes that matures (whether at stated
maturity, upon acceleration, upon maturity of repurchase
obligation or otherwise) upon such maturity of such principal
amount of the Notes. Interest on the Notes will be computed on
the basis of a 360-day year, consisting of twelve 30-day months.
Each installment of interest will be calculated to accrue from
and including the most recent date to which interest has been
paid or provided for (or from and including the Issuance Date if
no installment of interest has been paid) to, but not including,
the date of payment.
Principal, premium, if any, and interest on the Notes will
be payable at the office or agency of the Company maintained for
such purpose within the City and State of New York or, at the
option of the Company, payment of interest may be made by check
mailed to the holders of the Notes at their respective addresses
set forth in the register of holders; PROVIDED that all payments
with respect to (i) Global Notes and (ii) $5 million or more in
principal amount of Certificated Notes the holders of which have
given wire transfer instructions to the Company, will be required
to be made by wire transfer of immediately available funds to the
accounts specified by the holders thereof. Until otherwise
designated by the
63
Company, its office or agency in New York will be the office of
the Trustee maintained for such purpose. The Notes will be issued
in registered form, without coupons, and in denominations of
$1,000 and integral multiples thereof.
MANDATORY REDEMPTION
Except as set forth below under "-Repurchase at the Option
of Holders," the Company will not be required to make mandatory
redemption or sinking fund payments prior to maturity with
respect to the Notes.
OPTIONAL REDEMPTION
Except as described below, the Notes will not be redeemable
at the Company's option prior to March 15, 2000. From and after
March 15, 2000, the Notes will be subject to redemption at the
option of the Company, 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 and Liquidated Damages thereon,
if any, to the applicable redemption date, if redeemed during the
twelve-month period beginning on March 15 of the years indicated
below:
PERCENTAGE
OF PRINCIPAL
YEAR AMOUNT
2000 106.750%
2001 103.375%
2002 and thereafter 100.000%
Notwithstanding the foregoing or any other provision hereof,
if any Gaming Authority requires that a holder or beneficial
owner of the Notes must be licensed, qualified or found suitable
under any applicable gaming laws in order to maintain any or
obtain any applied for Gaming License or franchise of the Company
or any Restricted Subsidiary under any applicable gaming laws,
and such holder or beneficial owner fails to apply for a license,
qualification or finding of suitability within 30 days after
being requested to do so by such Gaming Authority (or such lesser
period that may be required by such Gaming Authority) or if such
holder or beneficial owner is not so licensed, qualified or found
suitable by such Gaming Authority or the Company determines, upon
the written advice of counsel or any Gaming Authority, that the
ownership of the Notes would jeopardize or prevent the issuance
of any Gaming License to the Company or reinstatement or renewal
of any Gaming License held by the Company, the Company shall have
the right, at its option, (i) to require such holder or
beneficial owner to dispose of such holder's or beneficial
owner's Notes within 30 days of notice of such finding by the
applicable Gaming Authority that such holder or beneficial owner
will not be licensed, qualified or found suitable as directed by
such Gaming Authority or within 30 days of the Company's
determination, described herein, based upon written advice of
counsel or any Gaming Authority (or such earlier date as may be
required by the applicable Gaming Authority) or (ii) to call for
redemption of the Notes of such holder or beneficial owner at a
redemption price equal to the lesser of the principal amount
thereof or the price at which such holder or beneficial owner
acquired the Notes, together with, in either case, accrued and
unpaid interest thereon, if any, to the earlier of the date of
redemption or the date of the finding of unsuitability by such
Gaming Authority, which may be less than 30 days following the
notice of redemption if so ordered by such Gaming Authority. In
connection with any such redemption, and except as may be
required by a Gaming Authority, the Company shall comply with the
procedures contained in the Indenture for redemption of the
Notes. Under the Indenture, the Company is not required to pay or
reimburse any holder or beneficial owner of Notes who is required
to apply for such license, qualification or finding of
suitability for the costs of such application including
investigatory costs. Such expenses will, therefore, be the
obligation of such holder or beneficial owner. See "Risk
Factors-Regulation" and "Regulation."
REPURCHASE AT THE OPTION OF HOLDERS
The Company 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 or regulations are
applicable in connection with the repurchase of the Notes
pursuant to any offer to repurchase the Notes required by the
Indenture.
64
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company will
make an offer to purchase all or any part (equal to $1,000 or an
integral multiple thereof) of the Notes pursuant to the offer
described below (the "Change of Control Offer") at a purchase
price in cash (the "Change of Control Payment") equal to 101% of
the aggregate principal amount thereof, plus accrued and unpaid
interest to the date of purchase. Within 30 days following any
Change of Control, the Company will mail a notice to each holder
with the following information: (1) a Change of Control Offer is
being made pursuant to the covenant titled "Change of Control"
and all Notes properly tendered pursuant to such Change of
Control Offer will be accepted for payment; (2) the purchase
price and the purchase date, which will be no earlier than 30
days nor later than 60 days from the date on which such notice is
mailed, except as may otherwise be required by applicable law
(the "Change of Control Payment Date"); (3) any Note not properly
tendered will remain outstanding and continue to accrue interest;
(4) unless the Company defaults in the payment of the Change of
Control Payment, all Notes accepted for payment pursuant to the
Change of Control Offer will cease to accrue interest after the
Change of Control Payment Date; (5) holders electing to have any
Notes purchased pursuant to a Change of Control Offer will be
required to surrender the Notes, with the form titled "Option of
Holder to Elect Purchase" on the reverse thereof completed, to
the paying agent and 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; (6) holders will be entitled to
withdraw their tendered Notes and their election to require the
Company to purchase the Notes; PROVIDED that the Paying Agent
receives, not later than the close of business on the last day of
the Offer Period, a telegram, telex, facsimile transmission or
letter setting forth the name of the holder, the principal amount
of Notes tendered for purchase, and a statement that such holder
is withdrawing his tendered Notes and his election to have such
Notes purchased; and (7) holders whose Notes are being purchased
only in part will be issued Notes equal in principal amount to
the unpurchased portion of the Notes surrendered, which
unpurchased portion must be equal to $1,000 in principal amount
or an integral multiple thereof.
On the Change of Control Payment Date, the Company will, to
the extent permitted by law, (1) accept for payment all Notes or
portions thereof properly tendered pursuant to the Change of
Control Offer, (2) deposit with the Paying Agent an amount equal
to the aggregate Change of Control Payment in respect of all
Notes or portions thereof so tendered and (3) deliver, or cause
to be delivered, to the Trustee for cancellation, the Notes so
accepted, together with an Officers' Certificate stating that
such Notes or portions thereof have been tendered to and
purchased by the Company. The Paying Agent will promptly mail to
each holder the Change of Control Payment for such Notes, and the
Trustee will promptly authenticate and mail 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 a principal amount of $1,000 or an integral multiple
thereof. The Company will publicly announce the results of the
Change of Control Offer on or as soon as practicable after the
Change of Control Payment Date.
The existence of a holder's right to require the Company to
repurchase such holder's Notes upon the occurrence of a Change of
Control may deter a third party from seeking to acquire the
Company in a transaction that would constitute a Change of
Control.
The source of funds for any repurchase of Notes upon a
Change of Control will be the Company's cash or cash generated
from operations or other sources, including borrowings or sales
of assets or Capital Stock; however, there can be no assurance
that sufficient funds will be available at the time of any Change
of Control to make any required repurchases of the Notes. Any
failure by the Company to repurchase Notes tendered pursuant to a
Change of Control Offer will constitute an Event of Default. See
"Risk Factors-Substantial Leverage; Inability to Service
Indebtedness."
ASSET SALES
The Indenture provides that the Company will not, and will
not permit any of its Restricted Subsidiaries to, cause, make or
suffer to exist any Asset Sale, unless (i) no Default or Event of
Default exists or is continuing immediately prior to or after
giving effect to such Asset Sale, (ii) the Company or its
Restricted Subsidiary, as the case may be, receives consideration
at the time of such Asset Sale at least equal to the fair market
value (as determined by the Board of Directors and set forth in
an Officers' Certificate delivered to the Trustee) of the assets
sold or otherwise disposed of and (iii) at least 80% of the
consideration therefor received by the Company or such Restricted
Subsidiary, as the case may be, is in the
65
form of cash or Cash Equivalents; PROVIDED, HOWEVER, that the
amount of (a) any liabilities (as shown on the Company's or such
Restricted Subsidiary's, as the case may be, most recent balance
sheet or in the notes thereto) of the Company or any Restricted
Subsidiary, as the case may be (other than liabilities that are
by their terms expressly subordinated to the Notes or any Note
Guarantee), that are assumed or repaid by the transferee of any
such assets and (b) any notes or other obligations received by
the Company or any Restricted Subsidiary, as the case may be,
from such transferee that are converted by the Company or such
Restricted Subsidiary, as the case may be, into cash (to the
extent of the cash received) within 10 Business Days following
the closing of such Asset Sale, shall be deemed to be cash only
for purposes of satisfying clause (iii) of this paragraph and for
no other purpose under the Indenture.
Within 180 days after the Company's or any Restricted
Subsidiary's, as the case may be, receipt of the Net Proceeds of
any Asset Sale, the Company or such Restricted Subsidiary, as the
case may be, may apply the Net Proceeds from such Asset Sale to
an investment in any one or more businesses, capital expenditures
or other tangible assets of the Company or any Restricted
Subsidiary, in each case, engaged, used or useful in the
Principal Business, with no concurrent obligation to make an
offer to repurchase any Notes. Pending the final application of
any such Net Proceeds, the Company or such Restricted Subsidiary,
as the case may be, may temporarily reduce Indebtedness under a
revolving credit facility, if any, or otherwise invest such Net
Proceeds in Cash Equivalents, which shall be pledged to the
Trustee as security for the Notes if such unapplied Net Proceeds
aggregate more than $2 million at any time. Any Net Proceeds from
any Asset Sale that are not invested as provided in the first
sentence of this paragraph will be deemed to constitute "Excess
Proceeds." When the aggregate amount of Excess Proceeds exceeds
$7.5 million, the Company shall make an offer to all holders (an
"Asset Sale Offer") to purchase the maximum principal amount of
Notes, that is an integral multiple of $1,000, that may be
purchased out of the Excess Proceeds at a purchase price in cash
in an amount equal to 101% of the principal amount thereof, plus
accrued and unpaid interest to the date fixed for the closing of
such Asset Sale Offer, in accordance with the procedures set
forth in the Indenture. The Company will commence an Asset Sale
Offer with respect to Excess Proceeds within 10 Business Days
after the date that the Excess Proceeds exceed $7.5 million by
mailing the notice required pursuant to the terms of the
Indenture. If the aggregate principal amount of Notes tendered
pursuant to an Asset Sale Offer exceeds the amount of Excess
Proceeds, the Trustee shall select the Notes to be purchased in
the manner described below under the caption "-Selection and
Notice." To the extent that the aggregate amount of Notes
tendered pursuant to an Asset Sale Offer is less than the Excess
Proceeds, the Company may, subject to the other provisions of the
Indenture, use any remaining Excess Proceeds for general
corporate purposes. Upon completion of any such Asset Sale Offer,
the amount of Excess Proceeds shall be reset at zero. The
Indenture will also require the Company (or such Restricted
Subsidiary, as the case may be) to grant to the Trustee, on
behalf of the holders, a first priority lien on any properties or
assets acquired with the Net Proceeds of any such Asset Sale on
the terms set forth in the Indenture and the Collateral
Documents.
EVENT OF LOSS
The Indenture provides that within 12 months after any Event of
Loss with respect to Note Collateral with a fair market value (or
replacement cost, if greater) in excess of $1 million, the
Company or the affected Restricted Subsidiary, as the case may
be, may apply the Net Loss Proceeds from such Event of Loss to
the rebuilding, repair, replacement or construction of
improvements to East Chicago Showboat, with no concurrent
obligation to make any purchase of any Notes; PROVIDED that (i)
the Company delivers to the Trustee within 90 days of such Event
of Loss a written opinion from a reputable architect that East
Chicago Showboat with at least the Minimum Facilities can be
rebuilt, repaired, replaced, or constructed and Operating within
one year of such Event of Loss and that, with respect to any
Event of Loss that occurs on or prior to July 1, 1997, East
Chicago Showboat with at least the Minimum Facilities can be
rebuilt, repaired, replaced or constructed and Operating on or
prior to December 31, 1997, (ii) an Officer's Certificate
certifying that the Company has available from Net Loss Proceeds
or other sources sufficient funds to complete such rebuilding,
repair, replacement or construction, and (iii) the Net Loss
Proceeds are less than $75 million. Any Net Loss Proceeds from an
Event of Loss that are not reinvested or are not permitted to be
reinvested as provided in the first sentence of this paragraph
will be deemed "Excess Loss Proceeds." When the aggregate amount
of Excess Loss Proceeds exceeds $7.5 million, the Company shall
make an offer to all Holders (an "Event of Loss Offer") to
purchase the maximum principal amount of Notes, that is an
integral multiple of $1,000, that may be purchased out of the
Excess Loss Proceeds at a purchase price in cash in an amount
equal to 101% of the principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages thereon, if any, to the
date fixed for the closing of such Event of Loss Offer, in
accordance with the procedures set forth in the Indenture. If the
aggregate principal amount of Notes tendered pursuant to an Event
of Loss Offer exceeds the amount
66
of Excess Loss Proceeds, the Trustee will select the Notes to be
repurchased in the manner described below under the caption
"-Selection and Notice." To the extent that the aggregate amount
of Notes tendered pursuant to any Event of Loss Offer is less
than the Excess Loss Proceeds, the Company may, subject to the
other provisions of the Indenture, use any remaining Excess Loss
Proceeds for general corporate purposes. Upon completion of any
such Event of Loss Offer, the amount of Excess Loss Proceeds
shall be reset at zero. Pending any permitted rebuilding, repair,
replacement or construction or the completion of any Event of
Loss Offer, the Company shall pledge to the Trustee as additional
Note Collateral any Net Loss Proceeds or other cash on hand
required for such permitted rebuilding, repair, replacement or
construction pursuant to the terms of the mortgages relating to
East Chicago Showboat. Such pledged funds will be released to the
Company to pay for or reimburse the Company for the actual cost
of such permitted rebuilding, repair, replacement or
construction, or such Event of Loss Offer, pursuant to the terms
of the mortgages relating to East Chicago Showboat. Pending the
final application of the Net Loss Proceeds, such proceeds shall
be invested in Cash Equivalents which shall be pledged to the
Trustee as security for the Notes. The Indenture will also
require the Company or such Restricted Subsidiary to grant to the
Trustee, on behalf of the holders, a first priority lien on any
properties or assets rebuilt, repaired, replaced or constructed
with such Net Loss Proceeds on the terms set forth in the
Indenture and the Collateral Documents.
The Indenture will also provide that with respect to any
Event of Loss pursuant to clause (D) of the definition of "Event
of Loss" that has a fair market value (or replacement cost, if
greater) in excess of $15 million, the Company (or the affected
Restricted Subsidiary, as the case may be), will be required to
receive consideration at least (i) equal to the fair market value
(as determined by an Independent Financial Advisor) of the assets
subject to an Event of Loss and (ii) 90% of which is in the form
of cash or Cash Equivalents; PROVIDED, HOWEVER, that the amount
of (a) any liabilities (as shown on the Company's (or such
Restricted Subsidiary's, as the case may be), most recent balance
sheet or in the notes thereto) of the Company (or such Restricted
Subsidiary, as the case may be) (other than liabilities that are
by their terms expressly subordinated to the Notes or any Note
Guarantee) that are assumed or repaid by the transferee of any
such assets and (b) any notes or other obligations received by
the Company (or such Restricted Subsidiary, as the case may be),
from such transferee that are converted by the Company or such
Restricted Subsidiary, as the case may be, into cash (to the
extent of cash received) within 10 Business Days following the
closing of such sale of the assets subject to such Event of Loss,
shall be deemed to be cash only for purposes of satisfying clause
(ii) of this paragraph and for no other purpose under the
Indenture.
EXCESS CASH FLOW OFFER
The Indenture provides that within 90 days after each
Operating Year, the Company shall make an offer to all holders
(an "Excess Cash Flow Offer") to purchase the maximum principal
amount of Notes, that is an integral multiple of $1,000, that may
be purchased with 50% of the Company's Excess Cash Flow (the
"Excess Cash Flow Offer Amount") in respect of the Operating Year
then ended, at a purchase price in cash equal to 101% of the
principal amount of Notes to be purchased, plus accrued and
unpaid interest and Liquidated Damages thereon, if any, to the
date fixed for the closing of such Excess Cash Flow Offer (the
"Excess Cash Flow Purchase Price"), in accordance with the
procedures set forth in the Indenture. The Excess Cash Flow Offer
is required to remain open for 20 Business Days following its
commencement and no longer, except to the extent that a longer
period is required by applicable law. Upon the expiration of such
period, the Company will apply the Excess Cash Flow Offer Amount
to the purchase of all Notes tendered at the Excess Cash Flow
Purchase Price. If the aggregate principal amount of Notes
tendered pursuant to any such offer exceeds the amount of funds
available to repurchase such Notes, the Trustee will select the
Notes to be repurchased in the manner described below under the
caption "-Selection and Notice." To the extent that the aggregate
principal amount of Notes tendered pursuant to any Excess Cash
Flow Offer is less than the Excess Cash Flow Offer Amount with
respect thereto, the Company may, subject to the other provisions
of the Indenture, use any remaining Excess Cash Flow for general
corporate purposes.
CERTIFICATE OF SUITABILITY TRANSFER OFFER
The Indenture provides that if the Certificate of
Suitability has not been transferred from the Manager to the
Company by July 1, 1996, the Company shall make an offer to all
holders (a "Certificate of Suitability Transfer Offer") to
purchase all or any part (equal to $1,000 or an integral multiple
thereof) of the Notes then outstanding at a price in cash
67
equal to 101% of the aggregate principal amount thereof, plus
accrued and unpaid interest and Liquidated Damages thereon, if
any, to the date of purchase.
The Indenture also provides that until the earlier of (i)
the completion of such Certificate of Suitability Transfer Offer
or (ii) transfer of the Certificate of Suitability from the
Manager to the Company, the Company will cause the amount of
funds remaining in the Escrow Account to be no less than $147
million. The Certificate of Suitability was transferred to the
Company as of March 27, 1996.
SELECTION AND NOTICE
If less than all of the Notes are to be purchased in an
Asset Sale Offer, Event of Loss Offer or Excess Cash Flow Offer,
or redeemed at any time, selection of Notes for purchase or
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 other method as
the Trustee shall deem fair and appropriate (and in such manner
as complies with applicable legal requirements); PROVIDED, that
no Notes of $1,000 or less shall be purchased or redeemed in
part.
Notices of purchase or redemption shall be mailed by first
class mail, postage prepaid, at least 30 but not more than 60
days before the purchase or redemption date to each holder of
Notes to be purchased or redeemed at such Holder's registered
address. If any Note is to be purchased or redeemed in part only,
any notice of purchase or redemption that relates to such Note
shall state the portion of the principal amount thereof that has
been or is to be purchased or redeemed.
A new Note in principal amount equal to the unpurchased or
unredeemed portion of any Note purchased or redeemed in part will
be issued in the name of the holder thereof upon cancellation of
the original Note. On and after the purchase or redemption date,
unless the Company defaults in payment of the purchase or
redemption price, interest shall cease to accrue on Notes or
portions thereof purchased or called for redemption.
CERTAIN COVENANTS
TRANSFER OF CERTIFICATE OF SUITABILITY.
The Indenture provides that the Company will use its best
efforts to diligently pursue the transfer of the Certificate of
Suitability from the Manager to the Company. On March 27, 1996,
the Certificate of Suitability was transferred by the Manager to
the Company.
USE OF PROCEEDS
The Indenture provides that the Company will use the net
proceeds from the sale of the Old Notes and the proceeds from the
Capital Contribution, to the extent of cash remaining, and any
Additional Project Financing, to the extent received in cash, if
any, only for Permitted Proceed Uses. The Company will cause all
of such proceeds to be deposited into the Escrow Account and
disbursed only in accordance with the terms of the Escrow and
Disbursement Agreement.
CONSTRUCTION
The Indenture provides that the Company will cause
construction of East Chicago Showboat, including the furnishing,
fixturing and equipping thereof, to be prosecuted with diligence
and continuity in a good and workerlike manner substantially in
accordance with the Plans and within the Construction Budget.
GAMING LICENSES
The Indenture provides that the Company will use its best
efforts to obtain and retain in full force and effect at all
times all Gaming Licenses necessary for the operation of East
Chicago Showboat.
68
RESTRICTED PAYMENTS
The Indenture provides that the Company will not, and will
not permit any of its Restricted Subsidiaries to, directly or
indirectly: (i) declare or pay any dividend or make any
distribution on account of the Company's or any of its Restricted
Subsidiaries' Equity Interests (other than (1) dividends or
distributions by the Company payable in Equity Interests (other
than Disqualified Stock) of the Company or (2) dividends or
distributions by a Restricted Subsidiary of the Company payable
to the Company); (ii) purchase, redeem or otherwise acquire or
retire for value any Equity Interests of the Company or any of
its Restricted Subsidiaries or any other Affiliate of the Company
(other than any such Equity Interests owned by the Company or any
Wholly Owned Restricted Subsidiary); (iii) purchase, redeem or
otherwise acquire or retire for value any Subordinated
Indebtedness of the Company or any of its Restricted
Subsidiaries; (iv) make any payment in respect of repayment or
reimbursement of amounts advanced under any obligation under the
Completion Guarantee or make any payment of any fee for services
to any Affiliate of any partner of the Company (other than a
reimbursement of actual out-of-pocket costs not to exceed fair
market value and other than any payment in the form of Equity
Interests that are not Disqualified Stock); or (v) make any
Restricted Investment (all such payments and other actions set
forth in clauses (i) through (v) above being collectively
referred to as "Restricted Payments"), unless, at the time of
such Restricted Payment:
(a) no Default or Event of Default shall have occurred
and be continuing or would occur as a consequence thereof;
(b) for any Restricted Payment, the Company would, at
the time of such Restricted Payment and after giving PRO
FORMA effect thereto as if such Restricted Payment had been
made at the beginning of the applicable four-quarter period,
have been permitted to incur at least $1.00 of additional
Indebtedness pursuant to the first paragraph of the
description of the covenant described below under the
caption "-Limitations on Incurrence of Indebtedness and
Issuance of Disqualified Stock"; and
(c) such Restricted Payment, together with the
aggregate of all other Restricted Payments made by the
Company and its Restricted Subsidiaries after the Issuance
Date (including Restricted Payments permitted by clauses (u)
and (x) in the next succeeding paragraph but excluding
Restricted Payments under clauses (v), (w), (y) and (z)), is
less than the sum of (i) 50% of the Combined Net Income
After Tax Distributions of the Company for the period (taken
as one accounting period) from the first day after East
Chicago Showboat is Operating to the end of the Company's
most recently ended fiscal quarter for which internal
financial statements are available (or, if such Combined Net
Income After Tax Distributions for such period is a deficit,
MINUS 100% of such deficit), PLUS (ii) 100% of the aggregate
net cash proceeds received by the Company since the Issuance
Date from the issue or sale of Equity Interests or debt
securities of the Company that have been converted into such
Equity Interests of the Company (other than (1) Equity
Interests or convertible debt securities of the Company sold
to a Restricted Subsidiary of the Company, (2) Disqualified
Stock or debt securities that have been converted into
Disqualified Stock, (3) Equity Interests the proceeds of
which were applied under clauses (v) and (w) of the next
paragraph and (4) Equity Interests issued or sold to comply
with the Standby Equity Commitment or the Completion
Guarantee), PLUS (iii) to the extent not otherwise included
in the Company's Combined Net Income After Tax
Distributions, 100% of the cash dividends or distributions
or the amount of the cash principal and interest payments
received since the Issuance Date by the Company or any
Restricted Subsidiary from any Unrestricted Subsidiary or in
respect of any Restricted Investment (other than dividends
or distributions to pay obligations of such Unrestricted
Subsidiary for income taxes), until the entire amount of the
Investment in such Unrestricted Subsidiary has been received
or the entire amount of such Restricted Investment has been
returned, as the case may be.
The foregoing provisions do not prohibit:
(u) the payment of any dividend or the making of any
distribution within 60 days after the date of declaration
thereof, if, at the date of declaration, such payment or
distribution would have complied with the provisions of the
Indenture;
69
(v) the redemption, repurchase, retirement or other
acquisition of any Equity Interests of the Company or any
Restricted Subsidiary in exchange for, or out of the
proceeds of, the substantially concurrent sale (other than
to a Restricted Subsidiary of the Company) of Equity
Interests of the Company (other than any Disqualified
Stock);
(w) the redemption, repurchase, retirement or other
acquisition of any Subordinated 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 Restricted Subsidiary of the Company) of Subordinated
Indebtedness of the Company or Equity Interests of the
Company (other than Disqualified Stock); PROVIDED, HOWEVER,
that (A) the principal amount of such Subordinated
Indebtedness shall not exceed the principal amount of the
Subordinated Indebtedness so redeemed, repurchased, retired
or otherwise acquired (plus the amount of reasonable
expenses incurred and any premium paid in connection
therewith); (B) the Subordinated Indebtedness shall have a
Weighted Average Life to Maturity equal to or greater than
the Weighted Average Life to Maturity of the Subordinated
Indebtedness being redeemed, repurchased, retired or
otherwise acquired, and (C) such Subordinated Indebtedness
is subordinated in right of payment to the Notes and any
Note Guarantee on terms at least as favorable to the Holders
as those contained in the documentation governing the
Subordinated Indebtedness being redeemed, repurchased,
retired or otherwise acquired;
(x) any redemption or purchase by the Company or any
Restricted Subsidiary of Equity Interests of the Company
required by a Gaming Authority in order to preserve a Gaming
License; (PROVIDED, that so long as such efforts do not
jeopardize any Gaming License, the Company or such
Restricted Subsidiary will have diligently attempted to find
a third-party purchaser for such Equity Interests and no
third-party purchaser acceptable to the applicable Gaming
Authority was willing to purchase such Equity Interests
within a time period acceptable to such Gaming Authority);
(y) the payment of fees to the Manager under the
Management Agreement; PROVIDED, HOWEVER, that: (A) no
Default or Event of Default shall have occurred and be
continuing by the Company; (B) at the time of payment of
such fees, the Company's Fixed Charge Coverage Ratio for the
Company's most recently ended four full fiscal quarters for
which internal financial statements are available
immediately preceding the date of such payment would have
been at least 1.5 to 1.0 (calculated on a pro forma cash
basis after only deducting such fees to the extent paid in
cash and not deferred for such period including any fees
deferred from a prior period to be paid in cash during such
period and not deducting any such fees to the extent
deferred and not paid in cash during such period); and (C)
any fees not paid pursuant to the previous provision shall
be deferred and may be paid only at such time that such fee
may be paid under this clause (y) or as a Restricted Payment
under paragraph (c) above; and
(z) quarterly distributions to the partners of the
Company in an amount not to exceed, with respect to any
fiscal year, an amount equal to the good faith estimate of
maximum federal and state income tax liability of the
Company in such period if it were a taxable Person at the
highest effective federal and state income tax rate of any
partner of the Parent Partnership. Each such quarterly
distribution shall not exceed the estimated federal and
state tax liability calculated on such basis. In addition,
the Company may make one annual tax distribution in respect
of any difference between the annual tax liability so
calculated and the estimated quarterly distributions made.
Any distribution of estimated tax payments that exceed the
annual tax liability so calculated will be applied to reduce
the distributions in the following year.
The amount of all Restricted Payments (other than cash)
shall be the fair market value (as determined in good faith by,
and evidenced by a resolution of, the Board of Directors set
forth in an Officers' Certificate delivered to the Trustee) on
the date of such Restricted Payment of the asset(s) proposed to
be transferred by the Company or such Restricted Subsidiary, as
the case may be, pursuant to such Restricted Payment. Not less
than once each fiscal quarter, the Company shall deliver to the
Trustee an Officers' Certificate stating that each Restricted
Payment made during the prior fiscal quarter was permitted and
setting forth the basis upon which the calculations required by
the covenant "Restricted Payments" were computed, which
calculations may be based upon the Company's latest available
financial statements. In addition, for purposes of determining
the amount of Restricted Investments outstanding at any time, all
Restricted Investments will be valued at their fair market value
at the time made (as determined in good faith by, and evidenced
by a
70
resolution of, the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee), and no
adjustments will be made for subsequent changes in fair market
value.
DESIGNATION OF UNRESTRICTED SUBSIDIARY
The Indenture provides that the Board of Directors may
designate any Restricted Subsidiary (other than Finance
Corporation) to be an Unrestricted Subsidiary; PROVIDED, that:
(i) at the time of designation, the Investment by the Company and
any of its Restricted Subsidiaries in such Subsidiary shall be
deemed a Restricted Investment (to the extent not previously
included as a Restricted Investment) made on the date of such
designation in the amount of the greater of (a) the net book
value of such Investment or (b) the fair market value of such
Investment (as determined in good faith by, and evidenced by a
resolution of, the Board of Directors set forth in an Officers'
Certificate delivered to the Trustee), (ii) since the Issuance
Date, such Unrestricted Subsidiary has not acquired any assets
from the Company or any Restricted Subsidiary, other than as
permitted by the provisions of the Indenture, including the
provisions described under the covenants titled "Restricted
Payments" and "Asset Sales"; (iii) at the time of designation, no
Default or Event of Default has occurred and is continuing or
will result immediately after such designation or as a result of
any Restricted Investment in such Subsidiary; (iv) at the time of
designation, such Subsidiary has no Indebtedness other than Non-
Recourse Indebtedness of such Subsidiary or a Note Guarantee; (v)
such Subsidiary does not own any Equity Interests in a Restricted
Subsidiary; (vi) such Subsidiary does not own or operate or
possess any material license, franchise or right used in
connection with the ownership or operation of any part of the
Project Assets of East Chicago Showboat; and (vii) such
Subsidiary does not operate any gaming operations in East
Chicago, Indiana or within a 50 mile radius of Chicago, Illinois,
or permit any gaming operations to be conducted on any property
owned by such Subsidiary in East Chicago, Indiana or within a 50
mile radius of Chicago, Illinois, other than operations that are
conducted by the Company or a Restricted Subsidiary pursuant to a
lease that extends beyond March 15, 2003.
An Unrestricted Subsidiary will cease to be an Unrestricted
Subsidiary and will become a Restricted Subsidiary if either (1)
at any time while it is a Subsidiary of the Company, (A) such
Subsidiary acquires any assets from the Company or any Restricted
Subsidiary other than as permitted by the provisions of the
Indenture, including the provisions described under the covenants
titled "Restricted Payments" and "Asset Sales"; (B) such
Subsidiary has any Indebtedness other than Non-Recourse
Indebtedness of such Subsidiary; (C) such Subsidiary owns any
Equity Interests in a Restricted Subsidiary of the Company; and
(D) such Subsidiary owns or operates or possesses any material
license, franchise or right used in connection with the ownership
or operation of any part of the Project Assets of East Chicago
Showboat or (2) the Company designates such Unrestricted
Subsidiary to be a Restricted Subsidiary and no Default or Event
of Default occurs or will be continuing immediately after such
designation.
Any such designation by the Board of Directors shall be
evidenced to the Trustee by filing with the Trustee a certified
copy of the resolution of the Board of Directors giving effect to
such designation and an Officers' Certificate certifying that
such designation complied with the foregoing conditions. As of
the Issuance Date, the Company will not have any Unrestricted
Subsidiaries. Unrestricted Subsidiaries will not be subject to
any of the restrictive covenants set forth in the Indenture and
will not be Guarantors.
LIMITATIONS ON INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF
DISQUALIFIED STOCK
The Indenture provides that the Company will not, and will
not permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable with respect to
(collectively, "incur" and correlatively, an "incurrence" of) any
Indebtedness (including Acquired Indebtedness) or issue any
shares of Disqualified Stock; PROVIDED, HOWEVER, that the Company
and its Restricted Subsidiaries may incur Indebtedness or issue
shares of Disqualified Stock if (i) East Chicago Showboat is
Operating, and (ii) the Company's Fixed Charge Coverage Ratio for
the Company's most recently ended four full fiscal quarters for
which internal financial statements are available immediately
preceding the date of such incurrence or issuance would have been
at least 2.0 to 1.0, determined on a PRO FORMA basis (including a
PRO FORMA application of the net proceeds therefrom) as if the
additional Indebtedness had been incurred or the Disqualified
Stock had been issued, as the case may be, and the application of
such proceeds had occurred, at the beginning of such four-quarter
period.
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The foregoing limitations do not apply to:
(a) the incurrence by the Company or any of its
Restricted Subsidiaries of Indebtedness for working capital
in an aggregate principal amount not to exceed $3 million at
any time outstanding;
(b) the incurrence by the Company or any of its
Restricted Subsidiaries of the Existing Indebtedness;
(c) the incurrence by the Company or any of its
Restricted Subsidiaries of Indebtedness represented by the
Notes or a Note Guarantee or obligations arising under the
Collateral Documents, to the extent that such obligations
would constitute Indebtedness;
(d) the incurrence by the Company or any of its
Restricted Subsidiaries of Indebtedness (the "Refinancing
Indebtedness") issued in exchange for, or the proceeds of
which are used to extend, refinance, renew, replace, or
refund Indebtedness referred to in the first paragraph of
this covenant or in clauses (b) or (c) or this clause (d);
PROVIDED, HOWEVER, that (1) the principal amount of such
Refinancing Indebtedness shall not exceed the principal
amount of Indebtedness so extended, refinanced, renewed,
replaced, substituted or refunded (plus the amount of
reasonable expenses incurred and any premium paid in
connection therewith), (2) the Refinancing Indebtedness
shall, if applicable, be subordinated in right and priority
of payment to the Notes and any Note Guarantee on terms at
least as favorable to the Holders of Notes as those
contained in the documentation governing the Indebtedness
being extended, refinanced, renewed, replaced, substituted
or refunded, and (3) the Refinancing Indebtedness shall have
a Weighted Average Life to Maturity equal to or greater than
the Weighted Average Life to Maturity of the Indebtedness
being extended, refinanced, renewed, replaced, substituted
or refunded;
(e) intercompany Indebtedness between or among the
Company and any Wholly Owned Restricted Subsidiary;
PROVIDED, HOWEVER, the obligations to pay principal,
interest or other amounts under such intercompany
Indebtedness is subordinated to the prior payment in full in
cash of the Notes and any Note Guarantee;
(f) Hedging Obligations that are incurred for the
purpose of fixing or hedging (1) interest rate risk with
respect to any floating rate Indebtedness that is permitted
by the terms of the Indenture to be outstanding or (2)
foreign currency exchange rate risk;
(g) the incurrence by the Company or any of its
Restricted Subsidiaries of Indebtedness represented by
Capital Lease Obligations or purchase money obligations, in
each case incurred for the purpose of financing all or any
part of the purchase or lease of personal property or
equipment used in the Principal Business of the Company or
such Restricted Subsidiary, in an aggregate principal amount
pursuant to this clause (g) not to exceed $16 million at any
time outstanding;
(h) the incurrence by the Company or any of its
Restricted Subsidiaries of Non-Recourse Financing used to
finance the purchase or lease of personal or real property
used in the business of the Company or any such Restricted
Subsidiary; PROVIDED, that (1) such Non-Recourse Financing
represents at least 80% of the purchase price of such
personal or real property, (2) the Indebtedness incurred
pursuant to this clause (h) shall not exceed $15 million at
any time outstanding, and (3) no such Indebtedness may be
incurred pursuant to this clause (h) unless East Chicago
Showboat is Operating and the Company shall have generated
at least $10 million of Combined Cash Flow in any one fiscal
quarter; and
(i) the incurrence by the Company or any of its
Restricted Subsidiaries of any other Indebtedness in an
aggregate principal amount pursuant to this clause (i) not
to exceed $4 million at any time outstanding.
The Indenture provides that the Company will not permit any
of its Unrestricted Subsidiaries to incur any Indebtedness
(including Acquired Indebtedness) or issue any shares of
Disqualified Stock, other than Non-Recourse
72
Indebtedness; PROVIDED, HOWEVER, that if any such
Unrestricted Subsidiary ceases to remain an Unrestricted
Subsidiary, such event shall be deemed to constitute the
incurrence of the Indebtedness of such Subsidiary by a Restricted
Subsidiary.
LIENS
The Indenture provides that the Company will not, and will
not permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur, assume or suffer to exist any Lien,
except Permitted Liens, on any asset owned as of the Issuance
Date or thereafter acquired by the Company or such Restricted
Subsidiary (including, without limitation, the Note Collateral),
or any income or profits therefrom, or assign or convey any right
to receive income or profits therefrom.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Indenture provides that the Company may not consolidate
or merge with or into or wind-up into (whether or not the Company
is the surviving Person), or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its
properties or assets in one or more related transactions to, any
Person unless (i) the Company is the surviving Person or the
Person formed by or surviving any such consolidation or merger
(if other than the Company) or to which such sale, assignment,
transfer, lease, conveyance or other disposition will have been
made is a corporation or partnership organized or existing under
the laws of the United States, any state thereof, the District of
Columbia, or any territory thereof; (ii) the Person formed by or
surviving any such consolidation or merger (if other than the
Company) or the Person to which such sale, assignment, transfer,
lease, conveyance or other disposition will have been made
assumes all of the obligations of the Company under the Indenture
and the Collateral Documents pursuant to a supplemental indenture
or other documents or instruments in form reasonably satisfactory
to the Trustee under the Notes and the Indenture; (iii)
immediately after such transaction, no Default or Event of
Default exists; (iv) such transaction will not result in the loss
or suspension or material impairment of any Gaming License; (v)
the Company or any Person formed by or surviving any such
consolidation or merger, or to which such sale, assignment,
transfer, lease, conveyance or other disposition will have been
made (a) will have Combined Net Worth (immediately after such
transaction but prior to any purchase accounting adjustments
resulting from such transaction) equal to or greater than the
Combined Net Worth of the Company immediately preceding such
transaction and (b) will, 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,
be permitted to incur at least $1.00 of additional Indebtedness
pursuant to the Fixed Charge Coverage Ratio test set forth in the
covenant titled "Limitations on Incurrence of Indebtedness and
Issuance of Disqualified Stock"; and (vi) such transaction would
not require any holder or beneficial owner of Notes to obtain a
Gaming License or be qualified or found suitable under the law of
any applicable gaming jurisdiction; PROVIDED that such holder or
beneficial owner would not have been required to obtain a Gaming
License or be qualified or found suitable under the laws of any
applicable gaming jurisdiction in the absence of such
transaction.
The phrase "all or substantially all" of the assets of the
Company as used in the Indenture has no clearly established
meaning under New York law (the Indenture's governing law). Such
phrase has been the subject of limited judicial interpretation in
a few jurisdictions and the phrase "all or substantially all" of
the assets will be interpreted based on the particular facts and
circumstances. As a result, there may be a degree of uncertainty
in ascertaining whether a sale or transfer of "all or
substantially all" of the assets of the Company has occurred.
TRANSACTIONS WITH AFFILIATES
The Indenture provides that the Company will not, and will
not permit any of its Restricted Subsidiaries to, 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 guarantee
with, or for the benefit of, any Affiliate (each of the
foregoing, an "Affiliate Transaction"), unless (i) such Affiliate
Transaction is on terms that are no less favorable to the Company
or the relevant Restricted Subsidiary than those that would have
been obtained in a comparable transaction by the Company or such
Restricted Subsidiary with an unrelated Person and (ii) the
Company delivers to the Trustee (a) with respect to any Affiliate
Transaction involving aggregate payments in excess of $1 million,
a resolution adopted by a majority of the disinterested non-
employee directors of the Board of Directors approving such
Affiliate Transaction and set forth in an Officers' Certificate
certifying that such Affiliate Transaction complies with clause
(i) above and (b) with
73
respect to any Affiliate Transaction involving aggregate
payments of or loans in the principal amount of $10 million or
more an opinion as to the fairness to the Company or such
Restricted Subsidiary from a financial point of view issued by an
Independent Financial Advisor. The foregoing provisions do not
apply to the following: (1) transactions between or among the
Company and/or any of its Restricted Subsidiaries; (2) Restricted
Payments permitted by the provisions of the Indenture described
above under the covenant titled "Restricted Payments"; (3)
purchases of Equity Interests (other than Disqualified Stock) by
any stockholder of the Company (or an Affiliate of a stockholder
of the Company); PROVIDED that such Equity Interests do not bear
cash dividends; (4) any payments due to the Manager under the
Management Agreement in the form executed prior to the Issuance
Date; (5) payments to Second Century, TCEF and ECCF relating to
the Company's economic development commitments to the City of
East Chicago under the Certificate of Suitability; and (6) the
transactions contemplated by the Completion Guarantee and the
Standby Equity Commitment.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Indenture provides that the Company will not, and will
not permit any of its Restricted Subsidiaries to, directly or
indirectly, create or otherwise cause or suffer to exist or
become effective any encumbrance or consensual restriction on the
ability of any such Restricted Subsidiary to (i) (a) pay
dividends or make any other distributions to the Company or any
of its Restricted Subsidiaries (1) on its Capital Stock or (2)
with respect to any other interest or participation in, or
measured by, its profits, or (b) pay any Indebtedness owed to the
Company or any of its Restricted Subsidiaries (other than in
respect of the subordination of such Indebtedness to the Notes or
the Note Guarantees, as the case may be), (ii) make loans or
advances to the Company or any of its Restricted Subsidiaries or
(iii) sell, lease, or transfer any of its properties or assets to
the Company or any of its Restricted Subsidiaries, except (in
each case) for such encumbrances or restrictions existing under
or by reason of (A) contractual encumbrances or restrictions in
effect on the Issuance Date, (B) the Indenture, the Notes, any
Note Guarantees and the Collateral Documents, (C) any instrument
governing Indebtedness or Capital Stock of a Person acquired by
the Company or any Restricted Subsidiary as in effect at the time
of such acquisition (except to the extent such Indebtedness was
incurred in connection with or in contemplation of such
acquisition), which encumbrance or restriction is 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 and replacements and accessions thereto, (D) customary
non-assignment provisions in leases entered into in the ordinary
course of business and consistent with past practices, (E)
purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the nature
discussed in clause (iii) above on the property so acquired, (F)
applicable law or any applicable rule or order of any Gaming
Authority, or (G) any encumbrances or restrictions imposed by any
amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings of the
contracts, instruments or obligations referred to in clauses (A)
through (F) above; PROVIDED, that such amendments, modifications,
restatements, renewals, increases, supplements, refundings,
replacements or refinancings are, in the good faith judgment of
the Board of Directors (as evidenced by a resolution thereof set
forth in an Officers' Certificate delivered to the Trustee), no
more restrictive with respect to such dividend and other payment
restrictions than those contained in the dividend or other
payment restrictions prior to such amendment, modification,
restatement, renewal, increase, supplement, refunding,
replacement or refinancing.
LINE OF BUSINESS
The Indenture provides that for so long as any Notes are
outstanding, the Company shall not, and shall not permit any of
its Restricted Subsidiaries to, engage in any business or
activity other than the Principal Business.
The Indenture will also provide that Finance Corporation
will not own or acquire any assets or properties, or conduct any
business or activities other than in connection with the issuance
of the Notes and observance of the provisions of the Indenture.
RESTRICTIONS ON LEASING AND DEDICATION OF PROPERTY
The Indenture provides that the Company will not, and will
not permit any of its Restricted Subsidiaries to, lease,
sublease, or grant a license, concession or other agreement to
occupy, manage or use any real or personal Project Assets
74
owned or leased by the Company or any Restricted Subsidiary
(each, a "Lease Transaction"), other than the following Lease
Transactions:
(i) the Company or any Restricted Subsidiary may enter
into a Lease Transaction with respect to any space on or
within East Chicago Showboat with any Person (other than an
Unrestricted Subsidiary with respect to any space on or
within East Chicago Showboat); PROVIDED that (a) such Lease
Transaction will not interfere with, impair or detract from
the operations of any of the Project Assets and will, in
the opinion of the Company, enhance the value and
operations of East Chicago Showboat and (b) such Lease
Transaction is at a fair market rent (in light of other
similar or comparable prevailing commercial transactions)
and contains such other terms such that the Lease
Transaction, taken as a whole, is commercially reasonable
and fair to the Company or such Restricted Subsidiary in
light of prevailing or comparable transactions in other
casinos, attractions or shopping venues;
(ii) the Company or any Restricted Subsidiary may enter
into a management or operating agreement with respect to any
Project Asset (other than any Project Asset or space used
for any casino or gaming operations) with any Person (other
than an Unrestricted Subsidiary); PROVIDED that (a) the
manager or operator has experience in managing or operating
similar operations, (b) such management or operating
agreement is on commercially reasonable and fair terms to
the Company or such Restricted Subsidiary and (c) such
management or operating agreement is terminable without
penalty to the Company or such Restricted Subsidiary upon no
more than 90 days written notice; and
(iii) the Company may dedicate land, easements or space
to any Governmental Authority, provided that such dedication
does not materially economically impair the use or
operations of East Chicago Showboat.
Notwithstanding the foregoing, the Indenture
provides that the Company shall not be permitted to enter
into any Lease Transaction: (x) if at the time of such
proposed Lease Transaction, a Default or Event of Default
has occurred and is continuing or would occur immediately
after entering into such Lease Transaction (or immediately
after any extension or renewal of such Lease Transaction
made at the option of the Company or any Restricted
Subsidiary); (y) that permits gaming or casino operations to
be conducted on such Leased Premises by a Person other than
the Company or a Restricted Subsidiary; or (z) if such Lease
Transaction provides that the Company or any Restricted
Subsidiary may subordinate its interest in the Leased
Premises to any lessee or any party providing financing to
any lessee.
The Trustee shall enter into a commercially customary
leasehold non-disturbance and attornment agreement with the
lessee under any Lease Transaction permitted under the covenant
described above. Such agreement, among other things, shall
provide that if the interests of the Company (or in the case of a
Lease Transaction being entered into by a Restricted Subsidiary,
the interests of the Restricted Subsidiary) in the Project Assets
subject to the Lease Transaction are acquired by the Trustee (on
behalf of the Holders of the Notes), whether by purchase and
sale, foreclosure, or deed in lieu of foreclosure or in any other
way, or by a successor to the Trustee, including, without
limitation, a purchaser at a foreclosure sale, then (1) the
interests of the lessee in the Project Assets subject to the
Lease Transaction shall continue in full force and effect and
shall not be terminated or disturbed, except in accordance with
the lease documentation applicable to the Lease Transaction, and
(2) the lessee in the Lease Transaction shall attorn to and be
bound to the Trustee (on behalf of the Holders of the Notes) its
successors and assigns under all terms, covenants and conditions
of the lease documentation applicable to the Lease Transaction.
Such agreement shall also contain such other provisions that are
commercially customary and that will not materially and adversely
affect the Lien granted by the Leasehold Mortgage, as certified
by the Board of Directors in an Officers' Certificate delivered
to the Trustee.
INSURANCE
The Indenture provides that, until the Notes have been paid
in full, the Company will, and will cause its Restricted
Subsidiaries to, maintain insurance with responsible carriers
against such risks and in such amounts as is customarily carried
by similar businesses with such deductibles, retentions, self
insured amounts and coinsurance provisions as are customarily
carried by similar businesses of similar size, including, without
limitation, property and
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casualty, and shall have provided insurance certificates
evidencing such insurance to the Trustee prior to the Issuance
Date and shall thereafter provide such certificates prior to the
anniversary or renewal date of each such policy, which
certificate shall expressly state the expiration date for each
policy listed. The Company will furnish or cause to be furnished
copies of the policies to the Trustee. The Indenture further
provides that customary insurance coverage will be deemed to
include the following: (i) workers' compensation insurance, to
the extent required to comply with all applicable state laws,
including a specific endorsement or separate policy covering
liability for Federal Longshoremen's and Harbor Workers'
Compensation Act (if any employees are so covered by such Act),
territorial, or United States laws and regulations or the laws
and regulations of any other applicable jurisdiction, (ii)
Protection and Indemnity Insurance Collision including Hull
liability insurance with minimum limits of $1 million, (iii)
umbrella or excess liability insurance providing liability limits
over and above the foregoing insurance up to a minimum limit of
$25 million, and (iv) property insurance protecting the property
against such risks and hazards as are from time to time covered
by an "all-risk" policy or a property policy covering "special"
causes of loss (such insurance shall provide coverage in not less
than the lesser of 120% of the outstanding principal amount of
Notes plus accrued and unpaid interest or 100% of actual
replacement value (as determined at each policy renewal based on
the F.W. Dodge Building Index or some other recognized means) of
any improvements and with a deductible for physical damage to the
Casino of not more than 2% of the insured value of the Casino and
a deductible for the land based facilities of not more than
$500,000 (other than earthquake and flood insurance, for which
the deductible may be up to 10% of such replacement value or such
greater amount as is available on reasonably commercial terms)).
All insurance required under the Indenture (except workers
compensation) shall name the Company and the Trustee as
additional insureds or loss payees, as the case may be, with
losses in excess of $1 million payable jointly to the Company and
the Trustee (unless a Default or Event of Default has occurred
and is then continuing, in which case all losses are payable
solely to the Trustee), with no recourse against the Trustee for
the payment of premiums, deductibles, commissions or club calls,
and for at least 30 days notice of cancellation. All such
insurance policies will be issued by carriers having an A.M. Best
& Company, Inc. rating of A- or higher and a financial size
category of not less than X, or if such carrier is not rated by
A.M. Best & Company, Inc., having the financial stability and
size deemed appropriate by an opinion from a reputable insurance
broker. The Indenture will provide that the Company will deliver
to the Trustee on the Issuance Date and each anniversary
thereafter a certificate of an insurance agent stating that the
insurance policies obtained by the Company and its Restricted
Subsidiaries comply with this provision and the related
applicable provisions of the Collateral Documents.
LIMITATION ON STATUS AS INVESTMENT COMPANY
The Indenture prohibits the Company and its Restricted
Subsidiaries from taking any action that would result in a
requirement to register as an "investment company" (as that term
is defined in the Investment Company Act of 1940, as amended), or
from otherwise becoming subject to regulation under the
Investment Company Act of 1940.
COLLATERAL DOCUMENTS
The Indenture provides that neither the Company nor any of
its Restricted Subsidiaries will amend, waive or modify, or take
or refrain from taking any action that has the effect of
amending, waiving or modifying any provision of the Collateral
Documents, to the extent that such amendment, waiver,
modification or action could have an adverse effect on the rights
of the Trustee or the Holders of the Notes; PROVIDED, that: (i)
the Note Collateral may be released or modified as expressly
provided in the Indenture and in the Collateral Documents; (ii)
any Note Guarantee and pledges may be released as expressly
provided in the Indenture and in the Collateral Documents; (iii)
the Construction Budgets may be amended as expressly provided in
the Escrow and Disbursement Agreement; and (iv) the Indenture and
any of the Collateral Documents may be otherwise amended, waived
or modified as set forth under the caption "-Amendment,
Supplement and Waiver."
FILING OF FIRST PREFERRED SHIP MORTGAGE
The Company will cause, as soon as practicable after
construction has been sufficiently completed to permit such
actions, the Casino to be a newly documented United States vessel
with the United States Coast Guard, and to file and perfect a
first preferred ship mortgage with respect to such vessel in
favor of the Trustee for the ratable benefit of the
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holders of the Notes. See "Risk Factors-Preferred Maritime
Liens and Liens arising during Construction; Payment and
Performance Bond."
FURTHER ASSURANCES
The Indenture provides that the Company will (and will cause
each of its Restricted Subsidiaries to) do, execute, acknowledge,
deliver, record, re-record, file, re-file, register and re-
register, as applicable, any and all such further acts, deeds,
conveyances, security agreements, mortgages, assignments,
estoppel certificates, financing statements and continuations
thereof, termination statements, notices of assignment,
transfers, certificates, assurances and other instruments as may
be required from time to time in order (i) to carry out more
effectively the purposes of the Collateral Documents, (ii) to
subject to the Liens created by any of the Collateral Documents
any of the properties, rights or interests required to be
encumbered thereby, (iii) to perfect and maintain the validity,
effectiveness and priority of any of the Collateral Documents and
the Liens intended to be created thereby, and (iv) to better
assure, convey, grant, assign, transfer, preserve, protect and
confirm to the Trustee any of the rights granted or now or
hereafter intended by the parties thereto to be granted to the
Trustee or under any other instrument executed in connection
therewith or granted to the Company under the Collateral
Documents or under any other instrument executed in connection
therewith.
REPORTS
The Indenture provides that whether or not required by the
rules and regulations of the Commission, and within the time
periods that are (or would be) prescribed thereby, so long as any
Notes are outstanding, the Company will furnish to the holders of
the Notes, (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 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 current reports that would be required to be filed with the
Commission on Form 8-K if the Company were required to file such
reports. In addition, whether or not required by the rules and
regulations of the Commission, the Company will file a copy of
all such information and reports with the Commission for public
availability (unless the Commission will not accept such a
filing) and make such information available to securities
analysts and prospective investors upon request. Furthermore, the
Company has agreed that, for so long as any Notes remain
outstanding, it will furnish to the Holders and to securities
analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act. All such requests, either written or
oral, should be made to the Company at 2001 East Columbus Drive,
East Chicago, Indiana 46312, Attention: Vice-President-Finance
and Administration, telephone no. (219) 392-1111, fax number
(219) 398-0144.
SECURITY
The Notes and the Note Guarantees are secured by a first
lien on the Note Collateral owned by the Company and any
Guarantor, whether now owned or hereafter acquired, subject to
Permitted Liens, which will include, without limitation, all of
the assets comprising East Chicago Showboat (other than any
assets which if pledged, hypothecated or given as collateral
security would require the Trustee or a holder or beneficial
owner of Notes to be licensed, qualified or found suitable and
other than certain assets to the extent such assets are permitted
to be financed by Indebtedness permitted to be incurred pursuant
to the covenant titled "Limitation on Incurrence of Indebtedness
and Issuance of Disqualified Stock" and such Indebtedness is
permitted to be secured pursuant to the covenant titled Liens
pursuant to clause (b), (c), (i) or (k) of the definition of
"Permitted Liens").
The Note Collateral will include: (i) a pledge of the funds
held in the Escrow Account including, without limitation, the net
proceeds from the Offering and the proceeds of the Capital
Contribution, to the extent of cash remaining, if any which
proceeds will be held in the Escrow Account until disbursed in
accordance with the terms of the Escrow and Disbursement
Agreement, (ii) a leasehold mortgage creating first priority
security interests in the Company's leasehold estates comprising
East Chicago Showboat and all related improvements, (iii) a
security agreement creating a first priority security interest in
all of the Company's accounts receivable, general intangibles,
inventory and other personal property (subject to certain
exceptions), and (iv) a collateral assignment of all material
agreements, licenses and permits
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entered into by, or granted to, the Company in connection
with the development, construction, ownership and operation of
East Chicago Showboat (collectively, the "Note Collateral").
Upon the completion of the construction of the Casino, the
Casino will be documented under the laws of the United States
with the Coast Guard and the Note Collateral will then include a
first preferred ship mortgage covering the Casino (and the
improvements thereon). Prior to such time as the Casino is so
documented (which will not occur until construction of the Casino
is completed), the Trustee, for the benefit of the holders of the
Notes, will be named as an obligee on a performance bond and a
payment bond guaranteeing the completion of the Casino by
Atlantic Marine, the shipyard constructing the Casino.
The proceeds of any sale of the Note Collateral in whole
pursuant to the Indenture and the related Collateral Documents
following an Event of Default may not be sufficient to satisfy
payments due on the Notes. In addition, the ability of the
Holders of the Notes to realize upon the Note Collateral may be
limited under gaming laws as described below, in the event of a
bankruptcy or pursuant to other applicable laws, including
securities laws. See "Risk Factors-Foreclosure Restrictions;
Title Considerations."
If an Event of Default occurs and is continuing, the
Trustee, on behalf of the holders of the Notes, in addition to
any rights or remedies available to it under the Indenture and
the Collateral Documents, may take such action as it deems
advisable to protect and enforce its rights in the Note
Collateral, including the institution of sale or foreclosure
proceedings. The proceeds received by the Trustee from any such
sale or foreclosure will 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. See "Risk Factors-Foreclosure Restrictions; Title
Considerations."
So long as no Event of Default shall have occurred and be
continuing, and subject to certain terms and conditions in the
Indenture and the Collateral Documents, the Company and its
Subsidiaries will be entitled to use the Note Collateral in a
manner consistent with normal business practices. Upon the
occurrence and during the continuance of an Event of Default, the
Trustee may sell the Note Collateral or any part thereof in
accordance with the terms of the Collateral Documents. All funds
distributed under the Collateral Documents and received by the
Trustee for the benefit of the Holders of the Notes shall be
distributed by the Trustee in accordance with the provisions of
the Indenture.
Under the terms of the Collateral Documents, the Trustee
will determine the circumstances and manner in which the Note
Collateral shall be disposed of, including, but not limited to,
the determination of whether to release all or any portion of the
Note Collateral from the Liens created by the Collateral
Documents and whether to foreclose on the Note Collateral
following an Event of Default. Subject to certain additional
provisions set forth in the Indenture, the Note Collateral may be
released from the Lien and security interest created by the
Indenture and the Collateral Documents at any time or from time
to time upon the request of the Company pursuant to an Officers'
Certificate delivered to the Trustee (i) certifying that all
terms and conditions precedent for release under the Indenture
and under any applicable Collateral Document have been met and
(ii) specifying (a) the identity of the Note Collateral to be
released and (b) the provision of the Indenture which authorizes
such release.
The Trustee shall release (at the sole cost and expense of
the Company) (i) all Note Collateral that is contributed, sold,
leased, conveyed, transferred or otherwise disposed of
(including, without limitation, any Note Collateral that does not
constitute Project Assets, and that is contributed, sold, leased,
conveyed, transferred or otherwise disposed of to an Unrestricted
Subsidiary, but excluding any such contribution, sale, lease,
conveyance, transfer or other distribution to the Company or a
Restricted Subsidiary); PROVIDED, that such contribution, sale,
lease, conveyance, transfer or other distribution is or will be
in accordance with the provisions of the Indenture, including,
without limitation, the requirement that the net proceeds from
such contribution, sale, lease, conveyance, transfer or other
distribution are or will be applied in accordance with the
Indenture and that no Default or Event of Default has occurred
and is continuing or would occur immediately following such
release; (ii) Note Collateral that is condemned, seized or taken
by the power of eminent domain or otherwise confiscated pursuant
to an Event of Loss; PROVIDED that the Net Loss Proceeds, if any,
from such Event of Loss are or will be applied in accordance with
the covenant described above under "Event of Loss" and that no
Default or Event of Default has occurred and is continuing or
would occur immediately following such release; (iii) Note
Collateral which may be released with the consent of Holders of
the Notes pursuant to the amendment provisions of the
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Indenture; (iv) all Note Collateral (except as provided in
the discharge and defeasance provisions of the Indenture and, in
particular, the funds in the trust fund described in such
provisions) upon discharge or defeasance of the Indenture in
accordance with the discharge and defeasance provisions thereof;
(v) all Note Collateral upon the payment in full of all
obligations of the Company with respect to the Notes; and (vi)
Note Collateral of a Guarantor whose Note Guarantee is released
pursuant to the terms of the Indenture.
The Indenture provides that the Net Proceeds of all Asset
Sales (if unapplied Net Proceeds of Asset Sales exceed $2 million
at any time) and the Net Loss Proceeds of all Events of Loss of
assets constituting Note Collateral (other than Permitted
Investments), as well as Excess Proceeds, shall be promptly and
without any commingling deposited with the Trustee subject to a
lien in favor of the Trustee for the benefit of the Holders of
the Notes unless and until applied as permitted under the
covenant described under "-Repurchase at the Option of
Holders-Asset Sales" or "-Event of Loss," as the case may be. The
Trustee shall release to the Company any Excess Proceeds or
Excess Loss Proceeds, as the case may be, that remain after
making an offer to purchase the Notes in compliance with the
covenant described under "-Repurchase at the Option of
Holders-Asset Sales" or "-Event of Loss," as the case may be.
Amounts so paid to the Trustee shall be invested or released in
accordance with the provisions of the Indenture.
The right of the Trustee to realize upon and sell the Note
Collateral is likely to be significantly impaired by applicable
bankruptcy and insolvency laws if a proceeding under such laws
were commenced in respect of the Company. Such laws may impose
limitations or prohibitions on the exercise of rights and
remedies under the Collateral Documents for a substantial or
indefinite period of time. In addition, neither the Trustee nor
any Holder of Notes is permitted to operate or manage any casino
unless such Person has been licensed under applicable law for
such purposes. Such casino licensing requirements could delay the
sale of any of the Note Collateral in foreclosure and may
adversely affect the sales price thereof. See "Risk
Factors-Bankruptcy Considerations."
Under CERCLA, a person "who, without participating in the
management of a . . . facility, holds indicia of ownership
primarily to protect his security interest" is not a property
owner, and thus not a responsible person under CERCLA. Lenders
have seldom been held liable under CERCLA. The lenders who have
been found liable have generally been found to have been
sufficiently involved in the mortgagors operations so that they
have "participated in the management of the borrower." CERCLA
does not specify the level of actual participation in management.
There is currently no controlling authority on this matter. In
connection with the Offering, the Company will agree to indemnify
the Trustee and the Holders for any environmental liabilities
arising from use by the Company of the Leased Premises.
The Trustee may appoint one or more collateral agents who
may be delegated any one or more of the duties or rights of the
Trustee under the Collateral Documents or which are specified in
any Collateral Documents.
ESCROW AND DISBURSEMENT AGREEMENT
Pursuant to the Escrow and Disbursement Agreement entered
into between the Company, Finance Corporation, the Trustee, the
Escrow Agent and Showboat, as Disbursement Agent, the Company has
placed all of the net proceeds of the Offering into the Escrow
Account, together with funds received from the Capital
Contribution, to the extent of cash remaining, to be held in
escrow and invested in cash or Cash Equivalents by the Escrow
Agent until needed from time to time to fund the construction of
East Chicago Showboat. All such funds are held in the Escrow
Account until disbursed in accordance with the Escrow and
Disbursement Agreement. In addition, the Company will deposit
into the Escrow Account any Additional Project Financing, to the
extent received in cash, if any, and such Additional Project
Financing will also be subject to the terms and conditions of the
Escrow and Disbursement Agreement. Subject to certain exceptions
set forth in the Escrow and Disbursement Agreement, the
Disbursement Agent will authorize the disbursement of funds from
the Escrow Account only upon the satisfaction of the disbursement
conditions set forth in the Escrow and Disbursement Agreement.
Such conditions generally include that the Company deliver a
certificate certifying as to, among other things, the application
of the funds to be disbursed, the conformity of construction
undertaken to date with the plans and specifications, the
expectation that East Chicago Showboat will be Operating by
October 1, 1997, the obtaining of mechanic's and materialmen's
lien releases and title insurance policies or endorsements to
existing title insurance policies insuring against any
intervening liens, the accuracy of the Construction Budget, the
sufficiency of remaining funds to complete East Chicago Showboat
and the absence of an Event of Default under the Indenture and
the
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satisfaction of certain other conditions to disbursement set
forth in the Escrow and Disbursement Agreement. See "Risk
Factors-Possible Conflicts of Interest."
The Escrow and Disbursement Agreement also provides that the
Construction Budget may be amended from time to time under
certain circumstances as set forth therein. The Construction
Budget may be amended only upon the satisfaction of certain
conditions set forth in the Escrow and Disbursement Agreement.
Such conditions generally include that the Company deliver a
certificate certifying as to the reasonable necessity of the
amendment; the availability of funding to pay costs represented
by any line item increase, taking into account approved line item
decreases; the continued reasonableness of the Construction
Budget; conformity with plans and specifications; the expectation
taking into account approved line item changes that East Chicago
Showboat will be Operating by October 1, 1997; the sufficiency of
remaining funds to complete East Chicago Showboat within the line
item allocations, including allocations for contingencies; the
absence of an Event of Default under the Indenture; and certain
other conditions if the unallocated reserve is zero. In addition,
prior to any amendment to the Construction Budget, certain
additional conditions will be required to be satisfied by the
Company. Such additional conditions generally include that the
Company submit the proposed amendment in writing and identify
with particularity the availability of funds to pay for any
increased line item taking into account line item decreases. In
addition, the Escrow and Disbursement Agreement will provide that
construction line items may only be reduced upon evidence of the
occurrence of certain savings and that unallocated reserves may
be reduced by allocation to other line items.
In addition, the Escrow and Disbursement Agreement provides
that if any funds remain in the Escrow Account on the date East
Chicago Showboat is Operating and East Chicago Showboat shall
have generated at least $5 million of Combined Cash Flow in one
fiscal quarter, the Disbursement Agent shall, upon the direction
of the Company, direct the Escrow Agent, subject to certain
exceptions set forth in the Escrow and Disbursement Agreement, to
disburse all remaining funds, if any, in the Escrow Account to
any account or accounts specified by the Company.
The Company will be deemed to have expended all remaining
proceeds from the Capital Contribution prior to expending any
proceeds from the Offering. All funds in the Escrow Account have
been pledged as security for the repayment of the Notes and under
certain circumstances the funds in the Escrow Account will be
used to offer to redeem a portion of the Notes.
NOTE GUARANTEES
The Company's obligations under the Notes, the Indenture and
the related Collateral Documents will be jointly and severally
and unconditionally guaranteed by each Subsidiary of the Company
hereafter formed or acquired (other than Unrestricted
Subsidiaries) (a "Guarantor") and each Note Guarantee will be an
unsubordinated secured obligation of the respective Guarantor,
subject to certain exceptions noted in the Indenture. As of the
Issuance Date, the Company's only Subsidiary is Finance
Corporation and Finance Corporation is a co-issuer of the Notes.
The obligations of each Guarantor under its Note Guarantee
will be limited to the extent necessary under any applicable
corporate law to ensure it does not constitute a fraudulent
conveyance under applicable law.
Except in the event of a disposition of all or substantially
all of the assets of a Guarantor by way of merger or
consolidation, the Indenture provides that no Guarantor shall
consolidate with or merge with or into (whether or not such
Guarantor is the surviving Person), another Person, whether or
not affiliated with such Guarantor, unless (i) subject to the
provisions of the following paragraph and certain other
provisions of the Indenture, the Person formed by or surviving
any such consolidation or merger (if other than such Guarantor)
assumes all the obligations of such Guarantor pursuant to a
supplemental indenture and supplemental Collateral Documents in
form reasonably satisfactory to the Trustee pursuant to which
such Person shall unconditionally guarantee, on a senior secured
basis, all of such Guarantor's obligations under such Guarantor's
Note Guarantee, the Indenture and the Collateral Documents on the
terms set forth in the Indenture; (ii) immediately after giving
effect to such transaction, no Default or Event of Default
exists; (iii) such transaction will not result in the loss or
suspension or material impairment of any Gaming License; (iv)
such Guarantor, or any Person formed by or surviving any such
consolidation or merger, will have Combined Net Worth
(immediately after giving effect to such transaction), equal to
or greater than the Combined Net Worth of such Guarantor
immediately preceding the transaction;
80
and (v) such transactions would not require any holder of
Notes to obtain a Gaming License or be qualified under the laws
of any applicable gaming jurisdiction; PROVIDED that such holder
would not have been required to obtain a Gaming License or be
qualified under the laws of any applicable gaming jurisdiction in
the absence of such transactions.
The Indenture provides that in the event of (1) a sale or
other disposition of all or substantially all of the assets of
any Guarantor, by way of merger, consolidation or otherwise, (2)
a Restricted Subsidiary becoming an Unrestricted Subsidiary
pursuant to terms of the Indenture or (3) a sale or other
disposition of all of the Capital Stock of any Guarantor, then
such Guarantor (in the event of a sale or other disposition, by
way of such a merger, consolidation or otherwise, of all of the
capital stock of such Guarantor or the Restricted Subsidiary
becomes an Unrestricted Subsidiary pursuant to the terms of the
Indenture) or the corporation acquiring the property (in the
event of a sale or other disposition of all or substantially all
of the assets of such Guarantor) shall be released and relieved
of any obligations under its Note Guarantee; PROVIDED that (A)
immediately after giving effect to such transaction, no Default
or Event of Default shall have occurred and be continuing or
would occur as a consequence thereof and (B) the Net Proceeds of
such sale or other disposition are applied in accordance with the
applicable provisions of the Indenture. See "-Repurchase at
Option of Holders-Asset Sales."
The Indenture provides that the Company will cause each
Restricted Subsidiary to (i) execute and deliver to the Trustee a
supplemental indenture and supplemental Collateral Documents in
form reasonably satisfactory to the Trustee pursuant to which
such Restricted Subsidiary shall unconditionally guarantee, on an
unsubordinated secured basis, all of the Company's obligations
under the Notes, the Indenture and the Collateral Documents on
the terms set forth in the Indenture and (ii) deliver to the
Trustee an opinion of counsel that, subject to customary
assumptions and exclusions, such supplemental indenture and
supplemental Collateral Documents have been duly executed and
delivered by such Restricted Subsidiary. The Note Guarantee will
be secured by a lien or charge on all Note Collateral of such
Restricted Subsidiary. The Note Guarantee will be released if the
Company or its Restricted Subsidiaries cease to own any Equity
Interests in such Restricted Subsidiary or if such Restricted
Subsidiary becomes an Unrestricted Subsidiary in accordance with
the terms of the Indenture.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following
constitutes an Event of Default: (i) default in payment when due
and payable, upon redemption or otherwise, of principal of or
premium, if any, on the Notes or under any Note Guarantee; (ii)
default for 30 days or more in the payment when due of interest
or Liquidated Damages on the Notes or under any Note Guarantee;
(iii) East Chicago Showboat is not Operating by October 1, 1997
and continues to be not Operating; (iv) failure by the Company or
any Guarantor to comply with the provisions described under the
covenants titled "Change of Control," "Excess Cash Flow Offer,"
"Restricted Payments," "Asset Sales," "Events of Loss," "Use of
Proceeds," "Incurrence of Indebtedness and Issuance of
Disqualified Stock," and "Certificate of Suitability Transfer
Offer;" (v) failure by the Company or any Guarantor for 30 days
after receipt of written notice until December 31, 1997, and
thereafter for 60 days after receipt of written notice, to comply
with any of its other agreements in the Indenture, the Collateral
Documents, or the Notes; (vi) default under any mortgage,
indenture or instrument under which there is issued or by which
there is secured or evidenced any Indebtedness for money borrowed
by the Company or any of its Restricted Subsidiaries or the
payment of which is guaranteed by the Company or any of its
Restricted Subsidiaries, whether such Indebtedness or Guarantee
now exists or is created after the Issuance Date, which default
(a) is caused by a failure to pay when due principal of or
premium, if any, or interest on such Indebtedness prior to the
expiration of the grace period provided in such Indebtedness (a
"Payment Default") or (b) results in the acceleration of such
Indebtedness prior to its express maturity or would constitute a
default in the payment of such issue of Indebtedness at final
maturity of such issue and, in each case, the principal amount of
any such Indebtedness, together with the principal amount of any
other such Indebtedness under which a Payment Default then exists
or with respect to which the maturity thereof has been so
accelerated or which has not been paid at maturity, aggregates $5
million or more; (vii) failure by the Company or any of its
Restricted Subsidiaries to pay final judgments aggregating in
excess of $5 million, which final judgments remain unpaid,
undischarged and unstayed for a period of more than 60 days;
(viii) breach by the Company, any Guarantor or any of their
Subsidiaries of any representation or warranty set forth in any
Note Guarantee or any of the Collateral Documents, or default by
the Company or any Guarantor in the performance of any covenant
set forth in any Note Guarantee or any of the Collateral
Documents or the repudiation by the Company, any Guarantor or any
of their Subsidiaries of its obligations
81
under, or any judgment or decree by a court or governmental
agency of competent jurisdiction declaring the unenforceability
of, any Note Guarantee or any of the Collateral Documents for any
reason that would materially impair the benefits to the Trustee
or the holders of the Notes thereunder; (ix) certain events of
bankruptcy or insolvency with respect to the Company or any
Guarantor that is a Significant Subsidiary of the Company or any
group of Guarantors that together would constitute a Significant
Subsidiary of the Company or any dissolution or liquidation of
the Company; (x) revocation, termination, suspension or other
cessation of effectiveness of any Gaming License which results in
the cessation or suspension of gaming operations for a period of
more than 90 days at East Chicago Showboat and such cessation or
suspension of gaming operations is continuing or (xi) any failure
by Showboat to comply with the terms of the Completion Guarantee,
the Standby Equity Commitment or the Escrow and Disbursement
Agreement for 30 days after the receipt of written notice.
If any Event of Default (other than by reason of bankruptcy
or insolvency) occurs and is continuing, the Trustee or the
holders of at least 25% in principal amount of the then
outstanding Notes may declare the principal, premium, if any,
interest and any other monetary obligations on all the Notes to
be due and payable immediately. Notwithstanding the foregoing, in
the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company or any
Guarantor, all outstanding Notes will become due and payable
without further action or notice. Holders of the Notes 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, including the
exercise of any remedy under the Collateral Documents. The
Trustee may withhold from holders of Notes notice of any
continuing Default or Event of Default (except a Default or Event
of Default relating to the payment of principal or interest) if
it determines that withholding notice is in their interest. In
addition, the Trustee shall have no obligation to accelerate the
Notes if in the best judgment of the Trustee acceleration is not
in the best interest of the holders of the Notes.
In the case of any Event of Default occurring by reason of
any willful action (or inaction) taken (or not taken) by or on
behalf of the Company with the intention and for the purpose of
avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Notes
pursuant to the optional redemption provisions of the Indenture,
an equivalent premium shall also become and be immediately due
and payable to the extent permitted by law. If an Event of
Default occurs prior to March 15, 2000, by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the
Company with the intention and for the purpose of avoiding the
prohibition on redemption of the Notes prior to March 15, 2000,
then the implied call premium set forth in the Indenture for an
optional redemption on such date (as if an optional redemption
would have been permitted by the terms of the Indenture) shall
also become immediately due and payable to the extent permitted
by law.
The holders of a majority in aggregate principal amount of
the Notes then outstanding by notice to the Trustee may on behalf
of the holders of all of the Notes waive any existing Default or
Event of Default and its consequences under the Indenture except
a continuing Default or Event of Default in the payment of
interest on, premium, if any, or the principal of, any Note held
by a non-consenting holder.
Specific rights and remedies of the Trustee under the
Collateral Documents include the right of the Trustee or the
appropriate Person under federal or state law to sell the Note
Collateral and to apply the net proceeds to the Indebtedness
evidenced by the Notes in accordance with the terms of the
Indenture and the Collateral Documents. The Collateral Documents
will generally provide for the application of the internal laws
of the State of Indiana while the Indenture, the Notes and any
Note Guarantee will provide, with certain exceptions, for the
application of the internal laws of the State of New York. There
is no certainty regarding whether New York or Indiana law would
be applied by any court with respect to the enforcement of
remedies under the Notes, the Indenture, any Note Guarantee or
the Collateral Documents.
In the event of an Event of Default by the Company under the
Indenture, before the Trustee or holders of Notes can foreclose
or take possession of East Chicago Showboat, the Trustee or such
holders may have to file applications with the Indiana
Commission, be investigated and be licensed by the Indiana
Commission. This process can take several months and,
accordingly, the ability of the Trustee or the holders to
foreclose could be substantially delayed or impaired.
Additionally, this may effectively limit the number of potential
bidders and may delay such sales, either of which could adversely
affect the sale price of the Note Collateral. Moreover, no
assurance can be given that either the Trustee or any
82
holder will be found suitable or granted a license by the
Indiana Commission. See "Risk Factors-Foreclosure Restrictions;
Title Considerations."
The right of the Trustee to realize upon and sell the Note
Collateral is likely to be significantly impaired by applicable
bankruptcy and insolvency laws if a proceeding under such laws
were commenced in respect of the Company or any Guarantor. Such
laws may impose limitations or prohibitions on the exercise of
rights and remedies under the Collateral Documents for a
substantial or indefinite period of time.
The Company is required to deliver to the Trustee annually a
statement regarding compliance with the Indenture, and the
Company is required, within five Business Days, upon becoming
aware of any Default or Event of Default or any default under any
document, instrument or agreement representing Indebtedness of
the Company, to deliver to the Trustee a statement specifying
such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES,
STOCKHOLDERS AND PARTNERS
No director, officer, employee, incorporator, stockholder or
partner of the Company or the Guarantors, as such, shall have any
liability for any obligations of the Company or the Guarantors
under the Notes, any Note Guarantee, the Indenture, the
Collateral Documents, as applicable, or for any claim based on,
in respect of, or by reason of such obligations or their
creation. Each holder of the Notes by accepting a Note waives and
releases all such liability. The waiver and release are part of
the consideration for issuance of the Notes and the Note
Guarantees. 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.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The obligations of the Company and the Guarantors under the
Indenture will terminate (other than certain obligations) and the
Note Collateral will be released upon payment in full of all of
the Notes. The Company may, at its option and at any time, elect
to have all of its and any Guarantors obligations discharged with
respect to the outstanding Notes and any Note Guarantees ("Legal
Defeasance") except for (i) the rights of holders of outstanding
Notes to receive payments in respect of the principal of,
premium, if any, and interest and Liquidated Damages, if any, on
such Notes when such payments are due solely out of the trust
created pursuant to the Indenture, (ii) the Company's and any
Guarantor's obligations with respect to the Notes concerning
issuing temporary Notes, registration of Notes, mutilated,
destroyed, lost or stolen Notes and the maintenance of an office
or agency for payment and money for security payments held in
trust, (iii) the rights, powers, trusts, duties and immunities of
the Trustee, and the Company's and any Guarantor's obligations in
connection therewith and (iv) the Legal Defeasance provisions of
the Indenture. In addition, the Company may, at its option and at
any time, elect to have the obligations of the Company and any
Guarantor released with respect to certain covenants that are
described in the Indenture ("Covenant Defeasance") 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, events listed as items (iv-
viii) under "-Events of Default and Remedies" will no longer
constitute an Event of Default with respect to the Notes. Events
including non-payment of principal and interest, bankruptcy,
receivership, rehabilitation and insolvency also described under
"-Events of Default and Remedies" will continue as an Event of
Default with respect to the Notes. In addition, the Note
Collateral will be released upon Covenant Defeasance or Legal
Defeasance.
In order to exercise either Legal Defeasance or Covenant
Defeasance, (i) the Company must irrevocably deposit with the
Trustee, in trust, for the benefit of the holders of the Notes,
cash in United States 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 due on the outstanding Notes on the stated
maturity date or on the applicable redemption date, as the case
may be, and the Company must specify whether the Notes are being
defeased to maturity or to a particular redemption date; (ii) in
the case of Legal Defeasance, the Company shall have delivered to
the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that, subject to customary
assumptions and exclusions, (a) the Company has received from, or
there has been published by, the Internal Revenue Service a
ruling or (b) since the Issuance Date, there has been a
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change in the applicable United States federal income tax
laws, in either case to the effect that, and based thereon such
opinion of counsel in the United States shall confirm that,
subject to customary assumptions and exclusions, the holders of
the outstanding Notes will not recognize income, gain or loss for
United States federal income tax purposes as a result of such
Legal Defeasance and will be subject to United States federal
income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Legal Defeasance
had not occurred; (iii) in the case of Covenant Defeasance, the
Company shall have delivered to the Trustee an opinion of counsel
in the United States reasonably acceptable to the Trustee
confirming that, subject to customary assumptions and exclusions,
the holders of the outstanding Notes will not recognize income,
gain or loss for U.S. federal income tax purposes as a result of
such Covenant Defeasance and will be subject to United States
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 with respect to certain
Events of Default on the date of 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
Company or any of its Subsidiaries is a party or by which the
Company or any of its Subsidiaries is bound; (vi) the Company
shall have delivered to the Trustee an opinion of counsel to the
effect that, as of the date of such opinion and subject to
customary assumptions and exclusions following the deposit, the
trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting
creditor's rights generally under any applicable United States or
state law and that the Trustee has a perfected security interest
in such trust funds for the ratable benefit of the Holders of the
outstanding Notes; (vii) the Company shall have delivered to the
Trustee an Officers' Certificate stating that the deposit was not
made by the Company with the intent of preferring the holders of
the Notes over the other creditors of the Company with the intent
of defeating, hindering, delaying or defrauding any creditors of
the Company or others; and (viii) the Company shall have
delivered to the Trustee an Officers Certificate and an opinion
of counsel in the United States (which opinion of counsel may be
subject to customary assumptions and exclusions), each stating
that all conditions precedent provided for or relating to the
Legal Defeasance or the Covenant Defeasance have been complied
with.
TRANSFER AND EXCHANGE
A holder of Notes may transfer or exchange Notes in
accordance with the Indenture. The Registrar and the Trustee may
require a holder of Notes, among other things, to furnish
appropriate endorsements and transfer documents and the Company
may require a holder of Notes to pay any taxes and fees required
by law or permitted by the Indenture. The Company is not required
to transfer or exchange any Note selected for redemption. Also,
the Company is not 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 next three succeeding paragraphs,
the Indenture, the Notes, the Note Guarantees or the Collateral
Documents may be amended or supplemented with the consent of the
Holders of at least a majority in 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 compliance with any provision of the Indenture, the
Notes, the Note Guarantees or the Collateral Documents may be
waived with the consent of the holders of a majority in 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 nonconsenting
holder of Notes): (i) reduce the principal amount of Notes whose
holders must consent to an amendment, supplement or waiver; (ii)
reduce the principal or change the fixed maturity of any Note or
alter or waive the provisions with respect to the redemption of
the Notes (other than provisions relating to the covenants
described above under "-Repurchase at the Option of Holders");
(iii) reduce the rate or change the time for payment of interest
on any Note; (iv) waive a Default or Event of Default in the
payment of principal of, premium, if any, or interest on the
Notes (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); (v) make any Note payable in money other than
that stated in the Notes; (vi) make any change in the provisions
of the Indenture relating to waivers of past Defaults or the
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rights of holders of Notes to receive payments of principal
of or premium, if any, or interest on the Notes, (vii) release
all or substantially all of the Note Collateral from the Lien of
the Indenture or the Collateral Documents or (viii) make any
change in the foregoing amendment and waiver provisions.
Without the consent of holders of at least 66 2/3% of the
outstanding principal amount of Notes, the Company may not amend,
alter or waive the provisions set forth under "-Repurchase at the
Option of Holders-Change of Control."
Notwithstanding the foregoing, without the consent of any
holder of Notes, the Company and the Trustee together may amend
or supplement the Indenture, the Notes, the Note Guarantees or
the Collateral Documents to cure any ambiguity, defect or
inconsistency, to comply with the covenant "Mergers,
Consolidations and Sales of Assets," to provide for
uncertificated Notes in addition to or in place of certificated
Notes, to provide for the assumption of the Company's obligations
to holders of the Notes in the case of a merger or consolidation,
to make any change that would provide any additional rights or
benefits to the holders of the Notes (including providing for
additional Note Guarantees pursuant to the Indenture), or that
does not adversely affect the legal rights under the Indenture of
any such holder, to comply with requirements of the Commission in
order to effect or maintain the qualification of the Indenture
under the Trust Indenture Act or to enter into additional or
supplemental Collateral Documents.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of
the Trustee, should it become a creditor of the Company, 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; however, if it 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 shall occur
(which shall not be 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 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 of Notes, unless such holder shall have offered to the
Trustee security and indemnity satisfactory to it against any
loss, liability or expense. In addition, the Trustee will furnish
lists of holders or beneficial owners of the Notes to the Indiana
Commission upon request.
BOOK-ENTRY; DELIVERY AND FORM
Except as set forth in the next paragraph, the Notes to be
resold as set forth herein have been or will initially be issued
in the form of one or more Global Notes (collectively, the
"Global Note"), which have been or will be deposited on the date
of issuance with, or on behalf of, the Depositary Trust Company
(the "Depositary") and registered in the name of Cede & Co., as
nominee of the Depositary (such nominee being referred to herein
as the "Global Note Holder").
The Depositary is a limited-purpose trust company that was
created to hold securities for its participating organizations
(collectively, the "Participants" or the "Depositary's
Participants") and to facilitate the clearance and settlement of
transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants.
The Depositary's Participants include securities brokers and
dealers (including the Initial Purchasers), banks and trust
companies, clearing corporations and certain other organizations.
Access to the Depositary's system is also available to other
entities such as banks, brokers, dealers and trust companies
(collectively, the "Indirect Participants" or the "Depositary's
Indirect Participants") that clear through or maintain a
custodial relationship with a Participant, either directly or
indirectly. Persons who are not Participants may beneficially own
securities held by or on behalf of the Depositary only through
the Depositary's Participants or the Depositary's Indirect
Participants.
85
The Company expects that pursuant to procedures
established by the Depositary (i) upon deposit of the Global
Note, the Depositary has credited or will credit the accounts of
Participants designated by the Initial Purchasers with portions
of the principal amount of the Global Note and (ii) ownership of
the Notes evidenced by the Global Note will be shown on, and the
transfer of ownership thereof will be effected only through,
records maintained by the Depositary (with respect to the
interests of the Depositary's Participants), the Depositary's
Participants and the Depositary's Indirect Participants.
Prospective purchasers of the Notes are advised that 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 Notes evidenced by the Global Note will be
limited to such extent. For certain other restrictions on the
transferability of the Notes, see "Notice to Investors."
So long as the Global Note Holder is the registered owner of
any Notes, the Global Note Holder will be considered the sole
holder under the Indenture of any Notes evidenced by the Global
Note. Beneficial owners of Notes evidenced by the Global Note
will not be considered the owners or holders thereof under the
Indenture for any purpose, including with respect to the giving
of any directions, instructions or approvals to the Trustee
thereunder. Neither the Company nor the Trustee will have any
responsibility or liability for any aspect of the records of the
Depositary or for maintaining, supervising or reviewing any
records of the Depositary relating to the Notes.
Payments in respect of the principal of, premium, if any,
and interest and Liquidated Damages, if any, on any Notes
registered in the name of the Global Note Holder on the
applicable record date will be payable by the Trustee to or at
the direction of the Global Note Holder in its capacity as the
registered holder under the Indenture. Under the terms of the
Indenture, the Company and the Trustee may treat the persons in
whose names Notes, including the Global Note, are registered as
the owners thereof for the purpose of receiving such payments.
Consequently, neither the Company nor the Trustee has or will
have any responsibility or liability for the payment of such
amounts to beneficial owners of Notes. The Company believes,
however, that it is currently the policy of the Depositary to
immediately credit the accounts of the relevant Participants with
such payments, in amounts proportionate to their respective
holdings of beneficial interests in the relevant security as
shown on the records of the Depositary. Payments by the
Depositary's Participants and the Depositary's Indirect
Participants to the beneficial owners of Notes will be governed
by standing instructions and customary practice and will be the
responsibility of the Depositary's Participants or the
Depositary's Indirect Participants.
CERTIFICATED NOTES
Subject to certain conditions, any person having a
beneficial interest in the Global Note may, upon request to the
Trustee, exchange such beneficial interest for Notes in the form
of Certificated Notes ("Certificated Notes"). 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 thereof). All such Certificated
Notes would be subject to applicable legend requirements. In
addition, if (i) the Company notifies the Trustee in writing that
the Depositary is no longer willing or able to act as a
depositary and the Company is unable to locate a qualified
successor within 90 days or (ii) the Company, at its option,
notifies the Trustee in writing that it elects 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 Depositary identify as being
the beneficial owner of the related Notes.
Neither the Company nor the Trustee will be liable for any
delay by the Global Note Holder or the Depositary in identifying
the beneficial owners of Notes and the Company and the Trustee
may conclusively rely on, and will be protected in relying on,
instructions from the Global Note Holder or the Depositary for
all purposes.
SAME-DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the Notes
represented by the Global Note (including principal, premium, if
any, interest and Liquidated Damages, if any) be made by wire
transfer of immediately available funds to the accounts specified
by the Global Note Holder. If requested by a holder who holds $5
million or more in principal amount of Certificated Notes, and
with respect to all Global Notes, the Company will make all
payments of principal, premium, if any, interest and Liquidated
Damages, if any, by wire transfer of immediately available funds
to the
86
accounts specified by the holders thereof or, if no such
account is specified, by mailing a check to each such holder's
registered address. The Company expects that secondary trading in
the Certificated Notes will also be settled in immediately
available funds.
EXCHANGE OFFER; REGISTRATION RIGHTS
The Company and the Initial Purchasers entered into the
Registration Rights Agreement on the Closing Date. Pursuant to
the Registration Rights Agreement, the Company agreed to file
with the Commission the Exchange Offer Registration Statement on
the appropriate form under the Securities Act with respect to the
Notes. Upon the effectiveness of the Exchange Offer Registration
Statement, the Company will offer to the holders of Transfer
Restricted Securities pursuant to the Exchange Offer who are able
to make certain representations, the opportunity to exchange
their Transfer Restricted Securities for Exchange Notes. If (i)
the Company is not required to file the Exchange Offer
Registration Statement or permitted to consummate the Exchange
Offer because the Exchange Offer is not permitted by applicable
law or Commission policy or (ii) any holder of Transfer
Restricted Securities notifies the Company within the specified
time period that (A) it is prohibited by law or Commission policy
from participating in the Exchange Offer or (B) that it may not
resell the Notes acquired by it in the Exchange Offer to the
public without delivering a prospectus and the prospectus
contained in the Exchange Offer Registration Statement is not
appropriate or available for such resales or (C) that it is a
broker-dealer and owns Notes acquired directly from the Company
or an affiliate of the Company, the Company will file with the
Commission a shelf registration statement to cover resales of the
Notes by the holders thereof who satisfy certain conditions
relating to the provision of information in connection with the
shelf registration statement. The Company will use its best
efforts to cause the applicable registration statement to be
declared effective as promptly as possible by the Commission. For
purposes of the foregoing, "Transfer Restricted Securities" means
each Old Note until (i) the date on which such Old Note has been
exchanged by a person other than a broker-dealer for an New Note
in the Exchange Offer, (ii) following the exchange by a broker-
dealer in the Exchange Offer of an Old Note for a New Note, the
date on which such New Note is sold to a purchaser who receives
from such broker-dealer on or prior to the date of such sale a
copy of the prospectus contained in the Exchange Offer
Registration Statement, (iii) the date on which such Note has
been effectively registered under the Securities Act and disposed
of in accordance with the shelf registration statement or (iv)
the date on which such Note is distributed to the public pursuant
to Rule 144 under the Securities Act.
The Registration Rights Agreement provides that (i) the
Company will file an Exchange Offer Registration Statement with
the Commission on or prior to 45 days after the Issuance Date,
(ii) the Company will use its best efforts to have the Exchange
Offer Registration Statement declared effective by the Commission
on or prior to 105 days after the Issuance Date, (iii) unless the
Exchange Offer would not be permitted by applicable law or
Commission policy, the Company will commence the Exchange Offer
and use its best efforts to issue on or prior to 135 days after
the Issuance Date, Notes in exchange for all Old Notes tendered
prior thereto in the Exchange Offer and (iv) if obligated to file
the shelf registration statement, the Company will use its best
efforts to file the shelf registration statement with the
Commission on or prior to 60 days after such filing obligation
arises (and in any event within 105 days after the Closing Date)
and to cause the shelf registration statement to be declared
effective by the Commission on or prior to 135 days after the
Issuance Date. If (a) the Company fails to file any of the
registration statements required by the Registration Rights
Agreement on or before the date specified for such filing, (b)
any of such registration statements is not declared effective by
the Commission on or prior to the date specified for such
effectiveness (the "Effectiveness Target Date"), or (c) the
Company fails to consummate the Exchange Offer or file a shelf
registration statement (if required) within 135 days of the
Issuance Date, or (d) the shelf registration statement or the
Exchange Offer Registration Statement is declared effective but
thereafter ceases to be effective or usable in connection with
resales of Transfer Restricted Securities during the periods
specified in the Registration Rights Agreement (each such event
referred to in clauses (a) through (d) above a "Registration
Default"), then the Company will pay Liquidated Damages to each
holder of Old Notes, with respect to the first 90-day period
immediately following the occurrence of such Registration Default
in an amount equal to $.05 per week per $1,000 principal amount
of Old Notes held by such Holder. The amount of the Liquidated
Damages will increase by an additional $.05 per week per $1,000
principal amount of Notes with respect to each subsequent 90-day
period until all Registration Defaults have been cured, up to a
maximum amount of Liquidated Damages of $.50 per week per $1,000
principal amount of Notes. All accrued Liquidated Damages will be
paid by the Company on each Damages Payment Date to the Global
Note Holder by wire transfer of immediately available funds or by
federal funds check and to holders of Certificated Notes by wire
transfer to the accounts specified by them or by mailing checks
to their registered
87
addresses if no such accounts have been specified. Following
the cure of all Registration Defaults, the accrual of Liquidated
Damages will cease.
Holders of Notes will be required to make certain
representations to the Company (as described in the Registration
Rights Agreement) in order to participate in the Exchange Offer
and will be required to deliver information to be used in
connection with the shelf registration statement and 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.
GOVERNING LAW
The Indenture and the Notes, subject to certain exceptions,
will be governed by and construed in accordance with the internal
laws of the State of New York, without regard to the choice of
law rules thereof. The Collateral Documents will be governed,
subject to certain exceptions, by the laws of the State of
Indiana.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the
Indenture. Reference is made to the Indenture for a full
disclosure of all such terms, as well as any other capitalized
terms used herein for which no definition is provided.
"ACQUIRED INDEBTEDNESS" means, with respect to any specified
Person, (i) Indebtedness of any other Person existing at the time
such other Person merged with or into or became a Restricted
Subsidiary of such specified Person, including Indebtedness
incurred in connection with, or in contemplation of, such other
Person merging with or into or becoming a Restricted Subsidiary
of such specified Person and (ii) Indebtedness encumbering any
asset acquired by such specified Person or Restricted Subsidiary.
"ADDITIONAL PROJECT FINANCING" shall have the meaning
specified in the Escrow and Disbursement Agreement.
"AFFILIATE" of any specified Person means any other Person
directly or indirectly controlling, 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, shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting
securities, by agreement or otherwise; PROVIDED, HOWEVER, that
beneficial ownership of 10% or more of the voting securities of a
Person shall be deemed to be control.
"ASSET SALE" means (i) the sale, conveyance, transfer or
other disposition (whether in a single transaction or a series of
related transactions) of property or assets (including by way of
a sale and leaseback) of the Company or any Restricted Subsidiary
(each referred to in this definition as a "disposition") or (ii)
the issuance or sale of Equity Interests of any Restricted
Subsidiary (whether in a single transaction or a series of
related transactions), in each case, other than (a) a disposition
of inventory in the ordinary course of business, (b) the
disposition of all or substantially all of the assets of the
Company in a manner permitted pursuant to the provisions
described above under "Merger, Consolidation or Sale of Assets"
or any disposition that constitutes a Change of Control pursuant
to the Indenture, (c) any disposition that is a Restricted
Payment or that is a dividend or distribution permitted under the
covenant "Restricted Payments" or any Investment that is not
prohibited thereunder or any disposition of cash or Cash
Equivalents to an Unrestricted Subsidiary, (d) any single
disposition, or related series of dispositions, of assets with an
aggregate fair market value of less than $500,000, (f) any Event
of Loss and (g) any Lease Transaction.
"BOARD OF DIRECTORS" means the board of directors of
Showboat Indiana so long as Showboat Indiana is the controlling
entity of the managing general partner of the Company, and
thereafter means the board of directors of the entity controlling
the managing general partner of the Company.
88
"CAPITAL CONTRIBUTION" means $39 million in cash
contributed to the Company by the Parent Partnership in
connection with the purchase by the Parent Partnership of Capital
Stock of the Company.
"CAPITAL LEASE OBLIGATION" means, at the time any
determination thereof is to be made, the amount of the liability
in respect of a capital lease that would at such time be required
to be capitalized and reflected as a liability on the balance
sheet in accordance with GAAP.
"CAPITAL STOCK" means with respect to any Person, (i) any
and all shares, interests, participations, rights or other
equivalents (however designated) of corporate stock of such
Person, or (ii) if such Person is a partnership, partnership
interests (whether general or limited) and any other interest or
participation that confers on a Person the right to receive a
share of the profits and losses of, or distributions of assets
of, such partnership (excluding any contingent interest on
Indebtedness).
"CASH EQUIVALENTS" means (i) United States dollars, (ii)
securities issued or directly and fully guaranteed or insured by
the United States government or any agency or instrumentality
thereof having maturities of not more than six months from the
date of acquisition, (iii) certificates of deposit and eurodollar
time deposits with maturities of six months or less from the date
of acquisition, bankers' acceptances with maturities not
exceeding six months and overnight bank deposits, in each case
with any commercial bank having capital and surplus in excess of
$300 million, (iv) repurchase obligations with a term of not more
than seven days for underlying securities of the types described
in clauses (ii) and (iii) entered into with any financial
institution meeting the qualifications specified in clause (iii)
above, (v) commercial paper rated A-1 or the equivalent thereof
by Moody's Investors Service, Inc. or Standard & Poor's
Corporation, in each case maturing within one year after the date
of acquisition and (vi) investment funds investing solely in
securities of the types described in clauses (ii)-(v) above.
"CASINO" means the riverboat casino to be located in East
Chicago, Indiana on Lake Michigan.
"CERTIFICATE OF SUITABILITY" means the certificate of
suitability issued to the Parent Partnership by the Indiana
Commission on January 8, 1996, as in effect on the date of the
Indenture, as replaced by the certificate of suitability issued
to the Company.
"CHANGE OF CONTROL" means the occurrence of any of the
following: (i) the sale, lease or transfer, in one or a series of
transactions, of all or substantially all of the assets of the
Company and its Subsidiaries, taken as a whole, or the sale,
lease or transfer of the Casino (except in either case in
connection with an Event of Loss), (ii) the consummation of any
transaction or series of transactions the result of which is that
the Permitted Holder and its Related Parties beneficially owns
less than 50% of the general partnership interests of the Parent
Partnership or the manager or less than 50% of the total Equity
Interests of the Company, (iii) the consummation of any
transactions or series of transactions the result of which is
that the Parent Partnership owns less than 99% of the total
Equity Interests of the Company, (iv) the Company ceases to own,
directly or through its Wholly Owned Restricted Subsidiaries,
either (1) 100% of the Capital Stock of each entity that operates
or holds a Gaming License required for the operation of East
Chicago Showboat or (2) all or substantially all of the Project
Assets of East Chicago Showboat, or (v) the adoption of a plan
relating to the liquidation, dissolution or winding-up of the
Company.
"COLLATERAL DOCUMENTS" means, collectively, the Leasehold
Mortgage, Pledge Agreement, Payment and Performance Bond,
Security Agreement, Collateral Assignment, First Preferred Ship
Mortgage, Financing Statements, Escrow and Disbursement
Agreement, Project Title Insurance, Completion Guarantee,
Completion Guarantor Subordination Agreement, Standby Equity
Commitment or any other agreements, instruments, financing
statements or other documents that evidence, set forth or limit
the Lien of the Trustee in the Note Collateral.
"COMPANY" means Showboat Marina Casino Partnership, an
Indiana general partnership.
"COMBINED CASH FLOW" means, with respect to any Person for
any period, the Combined Net Income After Tax Distributions
(assuming all required payments to Second Century are accounted
for as an operating expense) of such Person for such period plus
(a) an amount equal to any extraordinary loss plus any net loss
realized in connection with any Asset Sale (to the extent such
losses were deducted in computing Combined Net Income), plus (b)
Combined Interest
89
Expense of such Person for such period, plus (c) Combined
Depreciation and Amortization Expense of such Person for such
period to the extent such depreciation and amortization were
deducted in computing Combined Net Income, plus (d) the amount
distributed in respect of the same period under clause (z) of the
covenant titled "Restricted Payments" in respect of income taxes,
in each case, on a combined basis for such Person and its
Restricted Subsidiaries and determined in accordance with GAAP.
"COMBINED DEPRECIATION AND AMORTIZATION EXPENSE" means with
respect to any Person for any period, the total amount of
depreciation and amortization expense and other noncash charges
(excluding any noncash item that represents an accrual, reserve
or amortization of a cash expenditure for a present or future
period) of such Person and its Restricted Subsidiaries for such
period on a combined basis as determined in accordance with GAAP.
"COMBINED INTEREST EXPENSE" means, with respect to any
period, the sum of (a) combined interest expense of such Person
and its Restricted Subsidiaries for such period, whether paid or
accrued, to the extent such expense was deducted in computing
Combined Net Income (including amortization of original issue
discount and non-cash interest payments, the interest component
of Capital Lease Obligations, and net payments (if any) pursuant
to Hedging Obligations, and excluding amortization of deferred
financing fees) and (b) commissions, discounts and other fees and
charges paid or accrued with respect to letters of credit and
bankers' acceptance financing.
"COMBINED NET INCOME AFTER TAX DISTRIBUTIONS" means, with
respect to any Person for any period, the aggregate of the Net
Income of such Person and its Restricted Subsidiaries for such
period, on a combined basis, determined in accordance with GAAP,
less all distributions in respect of such period under clause (z)
of the second paragraph under the covenant titled "Restricted
Payments"; PROVIDED, HOWEVER, that (i) the Net Income for such
period of any Person that is not a Subsidiary, or is an
Unrestricted Subsidiary, or that is accounted for by the equity
method of accounting, shall be included only to the extent of the
amount of dividends or distributions paid in cash (or to the
extent converted into cash) to the referent Person or a Wholly
Owned Subsidiary thereof in respect of such period, (ii) the Net
Income of any Person acquired in a pooling of interests
transaction shall not be included for any period prior to the
date of such acquisition, (iii) the Net Income for such period of
any Restricted Subsidiary that is not a Guarantor shall be
excluded to the extent that the declaration or payment of
dividends or similar distributions by that Restricted Subsidiary
of its Net Income is not at the date of determination permitted
without any prior governmental approval (which has not been
obtained) or, directly or indirectly, by the operation of the
terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation
applicable to that Restricted Subsidiary or its stockholders,
unless such restriction with respect to the payment of dividends
or in similar distributions has been legally waived, and (iv) the
cumulative effect of a change in accounting principles shall be
excluded.
"COMBINED NET WORTH" means, with respect to any Person at
any time, the sum of the following items, as shown on the
combined balance sheet of such Person and its Restricted
Subsidiaries as of such date (i) the common equity of such Person
and its Restricted Subsidiaries; plus (ii) (without duplication),
(a) the aggregate liquidation preference of Preferred Stock of
such Person and its Restricted Subsidiaries (other than
Disqualified Stock), and (b) any increase in depreciation and
amortization resulting from any purchase accounting treatment
from an acquisition or related financing; less (iii) any goodwill
incurred subsequent to the Issuance Date; and less (iv) any write
up of assets (in excess of fair market value) after the Issuance
Date, in each case on a combined basis for such Person and its
Restricted Subsidiaries determined in accordance with GAAP;
PROVIDED, that in calculating Combined Net Worth, any gain or
loss from any Asset Sale shall be excluded.
"CONSTRUCTION BUDGET" means itemized schedules setting forth
on a line item basis all of the costs (including financing costs)
estimated to be incurred in connection with the financing,
design, development, construction, equipping and opening of East
Chicago Showboat, as such schedules are delivered to the
Disbursement Agent on the Issuance Date and as amended from time
to time in accordance with the terms of the Escrow and
Disbursement Agreement.
"DEFAULT" means any event that is or with the passage of
time or the giving of notice or both would be an Event of
Default.
"DISQUALIFIED STOCK" means any Capital Stock which, by its
terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the
happening of any event, matures or is mandatorily redeemable,
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pursuant to a sinking fund obligation or otherwise, or is
redeemable at the option of the Holder thereof, in whole or in
part, on or prior to March 15, 2003.
"EAST CHICAGO SHOWBOAT" means the Casino, Pavilion, parking
garage, breakwater and other land-based and dockside facilities
proposed to be constructed in East Chicago, Indiana as described
in this Prospectus, as the Plans may be amended pursuant to the
Indenture and the Collateral Documents, but excluding (i) any
obsolete personal property or real property improvement
determined by the Board of Directors to be no longer useful or
necessary to the operations or support of East Chicago Showboat
and (ii) any equipment leased from a third party in the ordinary
course of business.
"ECCF" means East Chicago Community Foundation, Inc., an
Indiana non-profit corporation.
"EQUITY INTERESTS" means Capital Stock and all warrants,
options or other rights to acquire Capital Stock (but excluding
any debt security that is convertible into, or exchangeable for,
Capital Stock).
"ESCROW ACCOUNT" means that certain escrow account into
which the net proceeds from the sale of the Notes, together with
the Capital Contribution to the extent of cash remaining, if any,
have been deposited.
"ESCROW AND DISBURSEMENT AGREEMENT" means the Escrow and
Disbursement Agreement among the Company, Finance Corporation,
the Trustee and Showboat, as Escrow Agent and Disbursement Agent,
a form of which is attached to the Indenture as an exhibit.
"EVENT OF LOSS" means, with respect to any property or asset
(tangible or intangible, real or personal), any of the following:
(A) any loss, destruction or damage of such property or asset;
(B) any institution of any proceedings for the condemnation or
seizure of such property or asset or for the exercise of any
right of eminent domain; (C) any actual condemnation, seizure or
taking by exercise of the power of eminent domain or otherwise of
such property or asset, or confiscation of such property or asset
or the requisition of the use of such property or asset; or (D)
any settlement in lieu of clause (B) or (C) above; PROVIDED that
any event under clauses (B), (C) or (D) for the benefit of the
Company shall not be an Event of Loss.
"EXCESS CASH FLOW" means, for any period, the Company's
Combined Cash Flow, less the sum of (i) combined cash interest
expense (including the interest portion of any payments
associated with Capital Lease Obligations and capitalized
interest) of the Company and its Restricted Subsidiaries that is
actually paid during such period, (ii) up to $12 million in
combined capital expenditures of the Company and its Restricted
Subsidiaries that are actually made during such period, (iii)
principal payments on the Notes or any other Indebtedness
(including the principal portion of any Capital Lease
Obligations) of the Company and its Restricted Subsidiaries that
are actually made or paid during such period, (iv) the amount
distributed in respect of the same period under clause (z) of the
covenant titled "Restricted Payments" in respect of income taxes,
and (v) $3 million, all determined on a combined basis in
accordance with GAAP.
"EXISTING INDEBTEDNESS" means up to $1 million in aggregate
principal amount of Indebtedness (other than Capital Lease
Obligations) of the Company and its Restricted Subsidiaries in
existence on the Issuance Date, plus interest accruing thereon,
after application of the net proceeds of the sale of the Notes as
described in this Prospectus, until such amounts are repaid.
"FIRST MORTGAGE NOTE COLLATERAL" means all assets, now owned
or hereafter acquired, of the Company or any Guarantor defined as
Collateral in the Collateral Documents, which will initially
include all real estate, improvements and all personal property
owned by the Company and any Restricted Subsidiary with certain
exceptions as provided in the Collateral Documents and the
Indenture. Herein, the term "Note Collateral" is used in place
of "First Mortgage Note Collateral."
"FIRST MORTGAGE NOTES" means the 13 1/2% Series A First
Mortgage Notes due March 15, 2003 issued pursuant to the
Indenture and the 13 1/2% Series B First Mortgage Notes due March
15, 2003 to be issued pursuant to the Indenture. Herein, the
term "Notes" is used in place of "First Mortgage Notes."
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"FIRST PREFERRED SHIP MORTGAGE" means the first
preferred ship mortgage attached as an Exhibit to the Indenture.
"FIXED CHARGE COVERAGE RATIO" means, with respect to any
Person as of any date, the ratio of the Combined Cash Flow of
such Person for the most recently ended four full fiscal quarters
for which internal financial statements are available to Fixed
Charges for such period. In the event that the Company or any of
its Restricted Subsidiaries incurs, assumes, guarantees or
redeems any Indebtedness (other than revolving credit borrowings)
or issues Disqualified Stock subsequent to the commencement of
the period for which the Fixed Charge Coverage Ratio is being
calculated but prior to the event for which the calculation of
the Fixed Charge Coverage Ratio is made (the "Calculation Date"),
then the Fixed Charge Coverage Ratio shall be calculated giving
pro forma effect to such incurrence, assumption, guarantee or
redemption of Indebtedness, or such issuance or redemption of
Disqualified Stock, as if the same had occurred at the beginning
of the applicable four-quarter period. For purposes of making the
computation referred to above, acquisitions, dispositions and
discontinued operations (as determined in accordance with GAAP)
that have been made by the Company or any of its Restricted
Subsidiaries, including all mergers, consolidations and
dispositions, during the four-quarter reference period or
subsequent to such reference period and on or prior to the
Calculation Date shall be calculated on a pro forma basis
assuming that all such acquisitions, dispositions, discontinued
operations, mergers, consolidations (and the reduction of any
associated fixed charge obligations resulting therefrom) had
occurred on the first day of the applicable four-quarter
reference period.
"FIXED CHARGES" means, with respect to any Person for any
period, the sum of (i) Combined Interest Expense of such Person
for such period, (ii) any capitalized interest not deducted in
calculating Combined Net Income and (iii) to the extent not
included above, the maximum amount of interest which would have
to be paid by such Person or its Restricted Subsidiaries under a
Guarantee of Indebtedness of any other Person if such Guarantee
were called upon, in each case, on a combined basis and in
accordance with GAAP.
"GAAP" means generally accepted accounting principles 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 have been approved by a significant segment of
the accounting profession, which are in effect from time to time.
For the purposes of the Indenture, the term "combined" with
respect to any Person shall mean such Person combined with its
Restricted Subsidiaries, and shall not include any Unrestricted
Subsidiary.
"GAMING AUTHORITY" means any agency, authority, board,
bureau, commission, department, office or instrumentality of any
nature whatsoever of the United States of America or foreign
government, any state, province or any city or other political
subdivision, whether now or hereafter existing, or any officer or
official thereof, including without limitation, the Indiana
Commission and any other agency with authority to regulate any
gaming operation (or proposed gaming operation) owned, managed or
operated by the Company or any of its Subsidiaries.
"GAMING LICENSE" means every material license, franchise or
other authorization required to own, lease, operate or otherwise
conduct gaming activities of the Company or any of its
Subsidiaries, including without limitation, all such licenses
granted under the Indiana Riverboat Gambling Act, and the
regulations promulgated pursuant thereto, and any other
applicable federal, state, foreign or local laws.
"GOVERNMENT SECURITIES" means securities that are (a) direct
obligations of the United States of America for the timely
payment of which its full faith and credit is pledged or (b)
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.
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"GUARANTEE" means a guarantee (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.
"HEDGING OBLIGATIONS" means, with respect to any Person, the
obligations of such Person under (i) currency exchange or
interest rate swap agreements, currency exchange or interest rate
cap agreements and currency exchange or interest rate collar
agreements and (ii) other agreements or arrangements designed to
protect such Person against fluctuations in currency exchange or
interest rates.
"INDEBTEDNESS" means, with respect to any Person, (a) any
indebtedness of such Person, whether or not contingent (i) in
respect of borrowed money (ii) evidenced by bonds, notes,
debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof), (iii) representing
the balance deferred and unpaid of the purchase price of any
property (including Capital Lease Obligations), except any such
balance that constitutes an accrued expense or trade payable, or
(iv) representing any Hedging Obligations, if and to the extent
any of the foregoing indebtedness (other than letters of credit
and Hedging Obligations) would appear as a liability upon a
balance sheet of such Person prepared in accordance with GAAP,
(b) to the extent not otherwise included, any obligation by such
Person to be liable for, or to pay, as obligor, guarantor or
otherwise, on the Indebtedness of another Person (other than by
endorsement of negotiable instruments for collection in the
ordinary course of business) and (c) to the extent not otherwise
included, Indebtedness of another Person secured by a Lien on any
asset owned by such Person (whether or not such Indebtedness is
assumed by such Person). For purposes of this definition, the
term Indebtedness shall not include any amount of the liability
in respect of any operating lease that at such time would not be
required to be capitalized and reflected as a liability on a
balance sheet prepared in accordance with GAAP.
"INDEPENDENT FINANCIAL ADVISOR" means an accounting,
appraisal or investment banking firm of nationally recognized
standing that is, in the judgment of the Board of Directors, (i)
qualified to perform the task for which it has been engaged and
(ii) disinterested and independent with respect to the Company
and all of the Subsidiaries, each Affiliate of the Company, and
the Permitted Holder and its Related Parties.
"INTERCREDITOR AGREEMENT" means the Intercreditor Agreement,
a form of which is attached to the Indenture as an exhibit.
"INVESTMENTS" means, with respect to any Person, all
investments by such Person in other Persons (including
Affiliates) in the form of loans (including Guarantees and any
guarantee of performance for the benefit of a third Person or
commitment to invest in a third Person, in each case to the
extent of such guarantee or such commitment and measured at the
time such guarantee of performance or commitment to invest is
made), advances or capital contributions (excluding commission,
travel and similar advances to officers and employees made in the
ordinary course of business), purchases or other acquisitions for
consideration of Indebtedness, Equity Interests or other
securities and all other items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP.
"ISSUANCE DATE" means the closing date for the sale and
original issuance of the Notes.
"LEASEHOLD MORTGAGE" means that certain Leasehold Mortgage
and Security Agreement dated as of March 28, 1996 granted by the
Company in favor of the Trustee relating to the leasehold estate
as more particularly described therein.
"LIEN" means, with respect to any asset, any mortgage, lien,
pledge, charge, security interest or encumbrance of any kind in
respect of such asset, whether or not filed, recorded or
otherwise perfected under applicable law (including any
conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give
a security interest in and any filing of or agreement to give any
financing statement under the Uniform Commercial Code (or
equivalent statutes) of any jurisdiction).
"MANAGEMENT AGREEMENT" means the Management Agreement dated
as of March 1, 1996 between the Manager and the Company, as in
effect on the Issuance Date.
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"MANAGER" means Showboat Marina Partnership, an Indiana
general partnership.
"MINIMUM FACILITIES" means, with respect to East Chicago
Showboat, a passenger vessel fully documented and certified by
the Coast Guard licensed to accommodate at least 1,800 passengers
(in addition to master, crew and any other employees of the
Company) with all engines, propulsion, navigation, safety,
heating and air conditioning, and other marine equipment
necessary for the proper and safe operation of a cruising vessel
and with a casino of at least 1,800 gaming positions of operating
slot machines and operating table games (assuming 12 gaming
positions per craps table and 7 gaming positions per other
tables), 800 usable parking spaces in a parking garage, together
with all necessary dockside facilities for embarking and
disembarking passengers and all banking, coin, security and other
ancillary equipment and facilities necessary to operate East
Chicago Showboat on at least a 20 hour per day, seven day per
week, 365 day per year basis.
"NET INCOME" means, with respect to any Person, the net
income (loss) of such Person, determined in accordance with GAAP
and calculated before deducting any amortization of pre-opening
expenses incurred prior to the date East Chicago Showboat is
Operating and before any reduction in respect of Preferred Stock
dividends, excluding, however, (i) any gain (but not loss),
realized in connection with (a) any Asset Sale (including,
without limitation, dispositions pursuant to sale and leaseback
transactions) or (b) the disposition of any securities or the
extinguishment of any Indebtedness of such Person or any of its
Restricted Subsidiaries, and (iii) excluding any extraordinary
gain (but not loss).
"NET LOSS PROCEEDS" means the aggregate cash proceeds
received by the Company or any of its Restricted Subsidiaries in
respect of any Event of Loss, including, without limitation,
insurance proceeds from condemnation awards or damages awarded by
any judgment, net of the direct costs in recovery of such Net
Loss Proceeds (including, without limitation, legal, accounting,
appraisal and insurance adjuster fees) and any taxes paid or
payable as a result thereof.
"NET PROCEEDS" means the aggregate cash proceeds received by
the Company or any of its Restricted Subsidiaries in respect of
any Asset Sale, net of the direct costs relating to such Asset
Sale (including, without limitation, legal, accounting and
investment banking fees, and sales commissions), and any
relocation expenses incurred as a result thereof, taxes paid or
payable as a result thereof (after taking into account any
available tax credits or deductions and any tax sharing
arrangements), amounts required to be applied to the repayment of
Indebtedness secured by a Lien (other than the Notes) on the
asset or assets that are the subject of such Asset Sale and any
reserve for adjustment in respect of the sale price of such asset
or assets.
"NET REVENUES" means, with respect to any Person for any
period, the net revenues (after promotional allowances) of such
Person and its Restricted Subsidiaries calculated on a combined
basis in accordance with GAAP.
"NON-RECOURSE FINANCING" means Indebtedness incurred in
connection with the purchase or lease of personal or real
property useful in the Principal Business and as to which the
lender upon default (i) may seek recourse or payment only through
the return or sale of the property or equipment so purchased or
leased and (ii) may not otherwise assert a valid claim for
payment on such Indebtedness against the Company or any
Restricted Subsidiary or any other property of the Company or any
Restricted Subsidiary.
"NON-RECOURSE INDEBTEDNESS" means Indebtedness or
Disqualified Stock, as the case may be, or that portion of
Indebtedness or Disqualified Stock, as the case may be, (a) as
to which neither the Company nor any of its Restricted
Subsidiaries (i) provides credit support pursuant to any
undertaking, agreement or instrument that would constitute
Indebtedness or Disqualified Stock, as the case may be, or
(ii) is directly or indirectly liable, and (b) no default with
respect to which (including any rights that the holders
thereof may have to take enforcement action against an
Unrestricted Subsidiary) would permit (upon notice, lapse of time
or both) any holder of any other Indebtedness or Disqualified
Stock, as the case may be, of the Company or any of its
Restricted Subsidiaries to declare a default on such other
Indebtedness or Disqualified Stock, as the case may be, or cause
the payment thereof to be accelerated or payable prior to its
stated maturity.
"NOTE COLLATERAL" is used herein for the term "First
Mortgage Note Collateral," as used in the Indenture.
"NOTES" is used herein for the term "First Mortgage Notes,"
as used in the Indenture.
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"OBLIGATIONS" means any principal, interest, penalties,
fees, indemnifications, reimbursements, damages and other
liabilities payable under the documentation governing any
Indebtedness.
"OFFICERS' CERTIFICATE" means a certificate signed on behalf
of the Company or a Guarantor, as the case may be, by two
Officers of the Company or a Guarantor, as the case may be, one
of whom must be the principal executive officer, the principal
financial officer, the treasurer or the principal accounting
officer of the Company or a Guarantor, as the case may be, that
meets the requirements set forth in the Indenture.
"OPERATING" means, with respect to East Chicago Showboat,
the first time that (i) all Gaming Licenses have been granted,
are in full force and effect and have not been revoked or
suspended, (ii) all Liens (other than Liens created by the
Collateral Documents or Permitted Liens) related to the
construction of East Chicago Showboat have been discharged or, if
payment is not yet due or if such payment is contested in good
faith by the Company relating thereto, sufficient funds remain in
the Collateral Account to discharge such Liens, (iii) East
Chicago Showboat is in a condition (including installation of
furnishings, fixtures and equipment) to receive guests in the
ordinary course of business, (iv) gaming and other operations in
accordance with applicable law are open to the general public and
are being conducted at East Chicago Showboat with respect to at
least the Minimum Facilities, (v) the Casino has been certified
by the U.S. Coast Guard, and (vi) a notice of completion of East
Chicago Showboat has been duly recorded in Indiana.
"OPERATING YEAR" means the four full consecutive fiscal
quarter period of the Company first beginning after the date that
East Chicago Showboat first becomes Operating, and each
succeeding four full consecutive fiscal quarter period thereafter
that begins immediately after each anniversary of the date East
Chicago Showboat first becomes Operating.
"PARENT PARTNERSHIP" means Showboat Marina Partnership, an
Indiana general partnership.
"PERMITTED HOLDER" means Showboat.
"PERMITTED INVESTMENTS" means (a) any Investments in the
Company, any Guarantor or in any Restricted Subsidiary if the
Investments in such Restricted Subsidiary from the Company, any
Guarantor or any of the other Restricted Subsidiaries aggregate
less than $1 million; (b) any Investments in Cash Equivalents;
and (c) Investments by the Company or any Restricted Subsidiary
of the Company in any Person, if as a result of such Investment
(i) such Person becomes a Guarantor or (ii) such Person is
merged, consolidated or amalgamated with or into, or transfers or
conveys substantially all of its assets to, or is liquidated,
dissolved or wound-up into, the Company or a Guarantor.
"PERMITTED LIENS" means (a) Liens in favor of the Company;
PROVIDED that if such Liens are on any Note Collateral, that such
Liens are either collaterally assigned to the Trustee or
subordinate to the Lien in favor of the Trustee securing the
Notes or any Note Guarantee; (b) Liens on property of a Person
existing at the time such Person is merged into or consolidated
with or into, or wound up into, the Company or any Restricted
Subsidiary of the Company; PROVIDED, that such Liens were in
existence prior to the contemplation of such merger or
consolidation or winding up and do not extend to any other assets
other than those of the Person merged into or consolidated with
the Company or such Restricted Subsidiary and any replacement or
accession to such property; (c) Liens on property existing at the
time of acquisition thereof by the Company or any Restricted
Subsidiary of the Company; PROVIDED that such Liens were in
existence prior to the contemplation of such acquisition; (d)
Liens to secure the performance of statutory obligations, surety
or appeal bonds, performance bonds or other obligations of a like
nature incurred in the ordinary course of business or in the
construction of East Chicago Showboat and which obligations are
not expressly prohibited by the Indenture; PROVIDED, HOWEVER,
that the Company has obtained a title insurance endorsement
insuring against losses arising therewith or if such Lien arises
after completion of East Chicago Showboat, the Company has bonded
within a reasonable time after becoming aware of the existence of
such Lien; (e) Liens securing obligations in respect of the
Indenture, the Notes and any Note Guarantee; (f) any existing
Liens listed on the Project Title Insurance, as such term is
defined in the Leasehold Mortgage, and leases, to the extent
permitted pursuant to the covenant entitled "Restrictions on
Leasing and Dedication of Property"; (g) (1) Liens for taxes,
assessments or governmental charges or claims or (2) statutory
Liens of landlords, and carriers', warehousemen's, mechanics',
suppliers', materialmen's, repairmen's, crew wages, maritime or
other similar Liens arising in the ordinary course of business or
in the construction of East Chicago Showboat, in the case of each
of (1) and (2), with respect to amounts that either (A) are not
yet delinquent or (B) are being contested in good faith by
appropriate proceedings as to which appropriate reserves or other
provisions have been made in accordance with GAAP; PROVIDED,
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HOWEVER, that the Company has obtained a title insurance
endorsement insuring against losses arising therewith or if such
Lien arises after completion of East Chicago Showboat, the
Company has bonded within a reasonable time after becoming aware
of the existence of such Lien; (h) easements, rights-of-way,
navigational servitudes, restrictions, minor defects or
irregularities in title and other similar charges or encumbrances
which do not interfere in any material respect with the ordinary
conduct of business of the Company and its Restricted
Subsidiaries; (i) Liens securing purchase money or lease
obligations otherwise permitted by the Indenture incurred or
assumed in connection with the acquisition, purchase or lease of
real or personal property to be used in the Principal Business of
the Company or any of its Restricted Subsidiaries; PROVIDED, that
such Lien does not extend to any Note Collateral or to any
property or assets of the Company or any Restricted Subsidiary
other than the property or assets so purchased or leased; (j)
Liens on East Chicago Showboat or any related facilities or real
estate securing any Indebtedness permitted to be incurred
pursuant to the covenant titled "Incurrence of Indebtedness and
Issuance of Disqualified Stock," which is used to finance the
Project Expansion Costs of a Project Expansion; PROVIDED that (i)
such Lien is junior or PARI PASSU, meaning equally and without
preference, to the Lien securing the Notes; (ii) the aggregate
principal amount of such Indebtedness does not exceed 70% of the
aggregate Project Expansion Costs of such Project Expansion;
(iii) the Notes are secured by such Project Expansion on a senior
or PARI PASSU or equally and without preference basis with
respect to such Lien; and (iv) with respect to any Indebtedness
secured by a Lien ranking PARI PASSU or equally and without
preference with the Lien securing the Notes, (A) the holders of
such Indebtedness or any trustee or other representative thereof
becomes a party to an Intercreditor Agreement substantially in
the form attached to the Indenture as an exhibit and exercises
rights and remedies in accordance with the provisions thereof,
and (B) the Trustee receives an endorsement to its title
insurance policy relating to the Lien of the Leasehold Mortgage
insuring the continuing priority of such Lien as set forth in the
title insurance policy; and (k) a leasehold mortgage in favor of
a party financing the lessee of space within East Chicago
Showboat provided that (i) the lease affected by such leasehold
mortgage is permitted pursuant to the covenant entitled
"Restrictions on Leasing and Dedication of Property," (ii)
neither the Company nor any Restricted Subsidiary is liable for
the payment of any principal of, or interest or premium on, such
financing and (ii) the affected lease and leasehold mortgage are
expressly made subject and subordinate to the Lien of the
Leasehold Mortgage.
"PERMITTED PROCEED USES" means (i) funding interest payments
on the Notes, (ii) repurchasing of Notes pursuant to a repurchase
offer, (iii) funding Project Costs relating to East Chicago
Showboat in accordance with the Escrow and Disbursement Agreement
and (iv) providing working capital, to the extent of funds
remaining after the payment of the items set forth in clauses (i)
through (iii) above.
"PERSON" means any individual, corporation, partnership,
joint venture, association, joint-stock company, trust,
unincorporated organization, government or any agency or
political subdivision thereof or any other entity.
"PLANS" means all drawings, plans and specifications
prepared by or on behalf of the Company and its Restricted
Subsidiaries, as the same may be amended, modified or
supplemented from time to time, and, if required, submitted to
and approved by the appropriate Gaming Authorities, which
describe and show East Chicago Showboat and the labor and
materials necessary for construction thereof.
"PREFERRED STOCK" means any Equity Interest with a
preferential right of payment of dividends or upon liquidation,
dissolution, or winding up.
"PRINCIPAL BUSINESS" means the casino gaming and resort
business and any activity or business incidental, directly
related or similar thereto, or any business or activity that is a
reasonable extension, development or expansion thereof or
ancillary thereto, including any hotel, entertainment, recreation
or other activity or business designed to promote, market,
support, develop, construct or enhance the casino gaming and
resort business operated by the Company and its Restricted
Subsidiaries.
"PROJECT" means East Chicago Showboat.
"PROJECT ASSETS" means, with respect to East Chicago
Showboat at any time, all of the assets then in use related to
East Chicago Showboat including the Casino, Pavilion, parking
garage, breakwater any real estate assets, any buildings or
improvements thereon, and all equipment, furnishings and
fixtures, but excluding: (i) any obsolete personal property or
96
real property improvement determined by the Board of Directors to
be no longer useful or necessary to the operations or support of
East Chicago Showboat and (ii) any equipment leased from a third
party in the ordinary course of business.
"PROJECT COSTS" means, with respect to the construction or
development of East Chicago Showboat, the aggregate costs
required to complete the construction or development of East
Chicago Showboat, through the date on which East Chicago Showboat
is Operating in accordance with the Plans, the applicable legal
requirements and the Construction Budget.
"PROJECT EXPANSION" means any addition, improvement,
extension or capital repair to East Chicago Showboat or any
contiguous or adjacent property, including the purchases of real
estate improvements thereon, but excluding separable furniture.
"PROJECT EXPANSION COSTS" means, with respect to a Project
Expansion, the aggregate costs required to complete such Project
Expansion, including direct costs related thereto including, but
not limited to, construction management, architectural,
engineering, interior design, legal and other professional fees,
site work, utility installation, permits, certificates and bonds,
but excluding principal or interest payments on any Indebtedness,
operating expenses (including, but not limited to, non-
construction supplies and pre-opening expenses) and any
allocation to corporate overhead or administrative expenses of
the Company, any Guarantor, or any Subsidiary.
"PROJECT TITLE INSURANCE " means any lender's policy of
title insurance issued to the Trustee for the benefit of the
Holders.
"RELATED PARTIES" means any Wholly Owned Subsidiary of the
Permitted Holder.
"RESTRICTED INVESTMENT" means (i) an Investment other than a
Permitted Investment or (ii) any sale, conveyance, lease,
transfer or other disposition of assets at less than fair market
value to an Unrestricted Subsidiary; PROVIDED that the amount of
such Restricted Investment under this clause (ii) shall be such
difference in value.
"RESTRICTED SUBSIDIARY" means, at any time, any direct or
indirect Subsidiary of the Company that is not then an
Unrestricted Subsidiary; PROVIDED, HOWEVER, that upon the
occurrence of any Unrestricted Subsidiary ceasing to be an
Unrestricted Subsidiary, such Subsidiary shall be included in the
definition of Restricted Subsidiary.
"SECOND CENTURY" means East Chicago Second Century, Inc. or
any successor corporation that is entitled to receive 0.75% of
the Adjusted Gross Gaming Receipts (as defined in certain
economic development commitments to the City of East Chicago) of
East Chicago Showboat under the Certificate of Suitability.
"SHOWBOAT" means Showboat, Inc., a Nevada corporation.
"SHOWBOAT INDIANA" means Showboat Indiana, Inc., a Nevada
corporation.
"SIGNIFICANT SUBSIDIARY" means any Subsidiary which would be
a "significant subsidiary" as defined in Article 1, Rule 1-02 of
Regulation S-X, promulgated pursuant to the Act, as such
Regulation is in effect on the Issuance Date.
"SUBORDINATED INDEBTEDNESS" means any Indebtedness of the
Company or any of its Restricted Subsidiaries which is expressly
by its terms subordinated in right of payment to the Notes or any
Note Guarantee.
"SUBSIDIARY" means, with respect to any Person, (i) any
corporation, association, or other business entity (other than a
partnership) of which more than 50% of the total voting power of
shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time of
determination 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 of which
more than 50% of such partnership's capital accounts,
distribution rights or general or limited partnership interests
are owned or controlled, directly or indirectly, by such Person
or one or more of the other Subsidiaries of that Person or a
combination thereof.
97
"TCEF" means Twin City Education Foundation, Inc., an
Indiana non-profit corporation.
"UNRESTRICTED SUBSIDIARY" means any entity that would have
been a Restricted Subsidiary of the Company but for its
designation as an "Unrestricted Subsidiary" in accordance with
the provisions of the Indenture, so long as it remains an
Unrestricted Subsidiary in accordance with the terms of the
Indenture.
"VOTING STOCK" means, with respect to any Person, any class
or series of capital stock of such Person that is ordinarily
entitled to vote in the election of directors thereof at a
meeting of stockholders called for such purpose, without the
occurrence of any additional event or contingency.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to
any Indebtedness or Disqualified Stock, as the case may be, at
any date, the number of years obtained by dividing (a) the sum of
the products obtained by multiplying (x) 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 (y) the number of years
(calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (b) the then
outstanding principal amount or liquidation preference, as
applicable, of such Indebtedness or Disqualified Stock, as the
case may be.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" is any Wholly Owned
Subsidiary that is a Restricted Subsidiary.
"WHOLLY OWNED SUBSIDIARY" of any Person means a Subsidiary
of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying
shares) shall at the time be owned by such Person or by one or
more Wholly Owned Subsidiaries of such Person and one or more
Wholly Owned Subsidiaries of such Person.
98
CERTAIN U.S. INCOME TAX CONSIDERATIONS
The following discussion is a general summary of certain
material federal income tax consequences expected to result to
holders of the Notes. This discussion is based on laws,
regulations, rulings and judicial decisions now in effect, all of
which are subject to change. Any such change could be retroactive
in effect.
This discussion does not cover all aspects of federal income
taxation that may be relevant to a particular holder in light of
such holder's individual investment circumstances or to holders
that may be subject to special tax treatment (such as life
insurance companies, financial institutions, tax-exempt
organizations (including qualified pension or profit sharing
plans and foreign taxpayers), and no aspect of foreign, state or
local taxation is addressed. This discussion is limited to
holders who hold their Notes as "capital assets" (generally,
property held for investment) within the meaning of Section 1221
of the Internal Revenue Code of 1986, as amended (the "Code").
EACH HOLDER IS URGED TO CONSULT ITS OWN TAX ADVISOR FOR THE
FEDERAL AND STATE INCOME AND OTHER TAX CONSEQUENCES PECULIAR TO
SUCH HOLDER ARISING FROM HOLDING OR DISPOSING OF THE NOTES.
INTEREST
Holders will be required to report interest income for
federal income tax purposes for any interest earned on the Notes
in accordance with their method of tax accounting.
SALE, REDEMPTION AND MATURITY OF THE NOTES
A holder of Notes will recognize gain or loss, if any, on
the sale, redemption or maturity of a Note equal to the
difference between the fair market value of all consideration
received (excluding amounts received that are attributable to
accrued and unpaid interest, which amounts must be included as
ordinary interest income) upon such sale, redemption or maturity
of the Notes and such holder's adjusted tax basis in the Note.
Except to the extent of any unrecognized accrued market discount,
discussed below, such gain or loss will be capital gain or loss.
Generally, a holder who purchases Notes subsequent to
original issuance at a "market discount" (I.E., at a price below
the stated redemption price at maturity) must treat gain
recognized on the disposition of such Notes as ordinary income to
the extent market discount accrued while the debt instrument was
held by such holder, unless such holder made an election to
include such market discount in income as it accrued. Such an
election would apply to all market discount obligations acquired
on or after the first day of the first taxable year to which such
election applies and may be revoked only with the consent of the
IRS.
Holders who purchase Notes subsequent to original issuance
should consult their own tax advisors regarding the amount of any
market discount accrued with respect to Notes held by them.
AMORTIZABLE BOND PREMIUM
If the holder's initial tax basis in the Notes at
acquisition exceeds their amount payable at maturity, the excess
will be treated as "amortizable bond premium." In such case, the
holder may elect under Section 171 of the Code to amortize the
bond premium annually under a constant yield method. The holder's
adjusted tax basis in the Notes is decreased by the amount of the
allowable amortization. Because the Notes have early call
provision, holders must take such call provisions into account to
determine the amount of amortizable bond premium. Amortizable
bond premium is treated as an offset to interest received on the
obligation rather than as an interest deduction, except as may be
provided in the Treasury Regulations. An election to amortize
bond premium would apply to amortizable bond premium on all
taxable bonds held at or acquired after the beginning of the
holder's taxable year as to which the election is made, and may
be revoked only with the consent of the IRS. Holders who acquire
their Notes with amortizable bond premium should consult their
own tax advisor.
99
ISSUER OF THE NOTES
Showboat Partnership will claim all deductions for interest
expense with respect to the Notes. Showboat Partnership will not
treat Finance Corporation as the issuer of the Notes for federal
income tax purposes.
BACKUP WITHHOLDING
A holder of Notes may be subject to backup withholding at
the rate of 31% with respect to interest paid on, or gross
proceeds from, the sale of the Notes, unless such holder (a) is a
corporation or comes within certain other exempt categories or
(b) provides a correct taxpayer identification number, certifies
as to no loss of exemption from backup withholding and otherwise
complies with applicable requirements of the backup withholding
rules. A holder who does not provide Showboat Partnership with
its correct taxpayer identification number may be subject to
penalties imposed by the IRS.
Showboat Partnership will report to the holders of Notes and
the IRS the amount of any "reportable payments" (including any
interest paid) and any amount withheld with respect to the Notes
during the calendar year.
Any amounts withheld under the backup withholding rules will
be allowed as a refund or a credit against the holder's federal
income tax liability, provided that the required information is
furnished to the IRS.
100
PLAN OF DISTRIBUTION
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 such
New Notes. This Prospectus, as it may be amended or supplemented
from time to time, may be used by a broker-dealer in connection
with any resale of New Notes received in exchange for Old Notes
where such Old Notes were acquired as a result of market-making
activities or other trading activities. The Company has agreed,
starting on the Expiration Date and ending on the close of
business on the first anniversary of the Expiration Date, it will
make this Prospectus, as amended or supplemented, available to
any broker-dealer for use in connection with any such resale.
The Company will not receive any proceeds from any sale of
New Notes by broker-dealers. New Notes received by any broker-
dealer for their own account pursuant to the Exchange Offer may
be sold from time to time in one or more transactions in the over-
the-counter market, in negotiated transactions, through the
writing of options on the New Notes or a combination of such
methods of resale, at market prices prevailing at the time of
resale, at prices related to such prevailing market prices or
negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any
such broker-dealer and/or the purchasers of any such New Notes.
Any broker-dealer that resells New Notes that were received by it
for its own account pursuant to the Exchange Offer and any broker
or dealer that participates in a distribution of such New Notes
may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and
any commissions or concessions received by any such persons may
be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that by acknowledging that
it will deliver, and by delivering, a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
For a period of one year after the Expiration Date, the
Company will promptly send additional copies of this Prospectus
and any amendment or supplement to this Prospectus to any broker-
dealer that requests such documents in the Letter of Transmittal.
The Company has agreed to pay all expenses incident to the
Exchange Offer (including the expenses of counsel for the Initial
Purchasers and the Trustee) other than commissions or concessions
of any brokers or dealers and will indemnify the holders of the
Old Notes (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act.
101
LEGAL MATTERS
Certain legal matters with regard to the validity of the New
Notes will be passed upon for the Company by Kummer Kaempfer
Bonner & Renshaw, Las Vegas, Nevada. Also, certain legal matters
with respect to Showboat will be passed upon for Showboat by
Kummer Kaempfer Bonner & Renshaw, Las Vegas, Nevada. H. Gregory
Nasky, of counsel to the law firm of Kummer Kaempfer Bonner &
Renshaw, is a Director and the Secretary of Showboat Indiana,
Inc. and John N. Brewer, a partner with the law firm of Kummer
Kaempfer Bonner & Renshaw, is an Assistant Secretary of Showboat
Indiana, Inc. and Showboat Marina Finance Corporation.
EXPERTS
The consolidated financial statements of Showboat Marina
Casino Partnership as of March 31, 1996 and for the period from
March 29, 1996 (commencement of development) through March 31,
1996 and the financial statements of Showboat Marina Partnership
for the period January 1, 1996 through March 28, 1996, the year
ended December 31, 1995, and the period from January 31, 1994
(inception) through December 31, 1994 have been included herein
and in the Registration Statement in reliance upon the report of
KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm
as experts in accounting and auditing.
102
INDEX TO FINANCIAL STATEMENTS
Showboat Marina Casino Partnership (Partnership) and
Showboat Marina Partnership (Predecessor) PAGE
Independent Auditors' Report F-2
Balance Sheet as of March 31, 1996 F-3
Statement of Operations for the Period from March 29, 1996
(commencement of development) through March 31, 1996
F-4
Statement of Partners' Capital for the Period from
March 29, 1996 (commencement of development) through
March 31, 1996 F-5
Statements of Cash Flows for the Period from March 29, 1996
(commencement of development) through March 31, 1996 -
Partnership F-6
Statements of Cash Flows for the Period January 1, 1996
through March 28, 1996, the Year Ended December 31, 1995
and the Period January 31, 1994 (inception) though December
31, 1994 - Predecessor F-6
Notes to Consolidated Financial Statements F-7
F-1
INDEPENDENT AUDITORS' REPORT
The Partners
Showboat Marina Casino Partnership:
We have audited the accompanying consolidated balance sheet
of Showboat Marina Casino Partnership (Partnership) (a
development stage entity) as of March 31, 1996 and the related
consolidated statements of operations, partners' capital, and
cash flows for the period from March 29, 1996 (commencement of
development) through March 31, 1996 and the related statements of
cash flows of Showboat Marina Partnership (Predecessor) for the
period from January 1, 1996 through March 28, 1996, the year
ended December 31, 1995 and the period from January 31, 1994
(inception) through December 31, 1994. These consolidated
financial statements are the responsibility of the Partnership's
and Predecessor's management. Our responsibility is to express
an opinion on these consolidated financial statements based on
our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of Showboat Marina Casino Partnership (a
development stage entity) as of March 31, 1996, and the results
of its operations and cash flows for the period from March 29,
1996 (commencement of development) through March 31, 1996, in
conformity with generally accepted accounting principles.
Further in our opinion, the aforementioned Predecessor financial
statements present fairly, in all material respects, its cash
flows for the period from January 1, 1996 through March 28, 1996,
the year ended December 31, 1995 and the period from January 31,
1994 (inception) through December 31, 1994, in conformity with
generally accepted accounting principles.
Las Vegas, Nevada
May 1, 1996
/S/ KPMG PEAT MARWICK LLP
F-2
SHOWBOAT MARINA CASINO PARTNERSHIP
(A DEVELOPMENT STAGE ENTITY)
CONSOLIDATED BALANCE SHEET
March 31, 1996
ASSETS
Cash held in escrow $ 157,295,018
Interest receivable 59,287
Property and equipment:
Land improvements 2,122,505
Furniture, fixtures and equipment 654,941
Construction in progress 10,413,434
Total property and equipment 13,190,880
Licensing costs 2,372,731
Economic development costs 1,120,275
Debt issuance costs 5,619,418
Other assets 425,060
9,537,484
$ 180,082,669
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 946,465
Accrued expenses 152,419
Long-term debt 140,000,000
Total liabilities 141,098,884
Commitments and contingencies
Partners' capital 38,983,785
$ 180,082,669
See accompanying notes to consolidated financial statements
F-3
SHOWBOAT MARINA CASINO PARTNERSHIP (PARTNERSHIP)
(A DEVELOPMENT STAGE ENTITY)
AND
Consolidated Statement of Operations
Period from March 29, 1996
(Commencement of development) through March 31, 1996
Interest income = 59,287
Interest expense, net of $ 17,630 capitalized (75,502)
Net loss accumulated during the development
stage = (16,215)
See accompanying notes to consolidated financial statements
F-4
SHOWBOAT MARINA CASINO PARTNERSHIP (PARTNERSHIP)
(A DEVELOPMENT STAGE ENTITY)
AND
Consolidated Statement of Partners' Capital
Period from March 29, 1996
(Commencement of development) through March 31, 1996
SHOWBOAT
SHOWBOAT MARINA
MARINA INVESTMENT
PARTNERSHIP PARTNERSHIP TOTAL
Balance at beginning of period....................... $ - $ - $ -
Capital contributions................................ 21,897,287 390,000 22,287,287
Net loss accumulated during the development
stage............................................... (16,053) (162) (16,215)
Transfer of net assets from Showboat Marina
Partnership......................................... 16,712,713 _ 16,712,713
Balance at March 31, 1996............................ $38,593,947 $ 389,838 $38,983,785
See accompanying notes to consolidated financial statements
F-5
SHOWBOAT MARINA CASINO PARTNERSHIP (PARTNERSHIP)
(A DEVELOPMENT STAGE ENTITY)
AND
SHOWBOAT MARINA PARTNERSHIP (PREDECESSOR)
Consolidated Statements of Cash Flows
PARTNERSHIP PREDECESSOR
PERIOD FROM
MARCH 29,
1996 PERIOD FROM
(COMMENCEMENT PERIOD FROM JANUARY 31, CUMULATIVE
OF JANUARY 1, 1994 PERIOD FROM
DEVELOPMENT) 1996 THROUGH (INCEPTION) JANUARY 31,
THROUGH MARCH MARCH 28, YEAR ENDED THROUGH 1994 THROUGH
31, 1996 1996 DECEMBER 31, DECEMBER MARCH 31,
1995 31, 1994 1996
Cash flows from
operating activities:
Net loss $ (16,215) $ - $ - $ - $ (16,215)
Interest receivable (59,287) - - - (59,287)
Licensing costs - (275,892) (1,466,579) (630,260) (2,372,731)
Other assets - (68,491) (337,345) (19,224) (425,060)
Accounts payable - 443,044 503,421 - 946,465
Accrued expenses 152,419 - - - 152,419
Net cash provided by
(used in) operating 76,917 98,661 (1,300,503) (649,484) (1,774,409)
activities
Cash flows from
investing activities:
Economic development
costs - (7,167) (1,113,108) - (1,120,275)
Purchase of land
improvements - (286,402) (1,788,699) (47,404) (2,122,505)
Purchase of property
and equipment - (198,112) (456,829) - (654,941)
Payments for
construction in - (5,245,575) (4,239,144) (928,715) (10,413,434)
progress
Advance to affiliate
- (400) - - (400)
Net cash used in
investing activities - (5,737,656) (7,597,780) (976,119) (14,311,555)
Cash flows from
financing
activities:
Proceeds from
issuance of notes
payable, net of 134,930,814 (550,232) - - 134,380,582
issuance costs
Loan from affiliate - 28,118,377 6,182,623 - 34,301,000
Capital contributions 22,287,287 (22,287,287) 3,074,397 1,625,603 4,700,000
Net cash provided by
financing activities 157,218,101 5,280,858 9,257,020 1,625,603 173,381,582
Net increase
(decrease) in cash 157,295,018 (358,137) 358,737 157,295,618
Cash at beginning of - 358,137 - - -
period
Cash at end of period $157,295,018 $ 600 $ 358,737 $ - $157,295,618
See accompanying notes to consolidated financial statement
F-6
SHOWBOAT MARINA CASINO PARTNERSHIP (PARTNERSHIP)
(A DEVELOPMENT STAGE ENTITY)
AND
SHOWBOAT MARINA PARTNERSHIP (PREDECESSOR)
Notes to Consolidated Financial Statements
March 31, 1996
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
The accompanying consolidated financial statements present
the financial position, results of operations and cash flows
of Showboat Marina Casino Partnership (a development stage
entity) and its wholly owned subsidiary, Showboat Marina
Finance Corporation (collectively the Partnership) as of and
for the period from March 29, 1996 (commencement of
development) through March 31, 1996. These financial
statements also present the cash flows of Showboat Marina
Partnership (Predecessor) for the period from January 1, 1996
through March 28, 1996, the year ended December 31, 1995 and
the period from January 31, 1994 (inception) through December
31, 1994. The Predecessor had no operations through
March 28, 1996 other than development and licensing
activities, the cost of which were capitalized and
subsequently contributed to the Partnership as described
below. Therefore a statement of operations has not been
provided for the Predecessor.
Showboat Marina Casino Partnership (Showboat Partnership) is
a general partnership and was formed as of March 1, 1996 for
the purpose of developing a riverboat casino complex in East
Chicago, Indiana to be operated on Lake Michigan. The
complex will consist of a gambling cruise vessel and a land
based support facility (the Casino). The Casino is expected
to contain approximately 51,000 square feet of gaming space
with approximately 1,700 slot machines and approximately
86 table games. Showboat Marina Finance Corporation (SMFC)
was incorporated on March 7, 1996 to assist Showboat
Partnership in financing the Casino. The Predecessor was
formed on January 31, 1994 and has been developing the
project prior to the formation of the Partnership.
The Partnership is owned 99% by the Predecessor and 1% by
Showboat Marina Investment Partnership. The Partnership is
effectively owned 55% by Showboat, Inc. (Showboat) and 45% by
Waterfront Entertainment and Development, Inc. (Waterfront)
through various partnership interests.
The Predecessor has applied for the sole riverboat gaming
license allocated to East Chicago, Indiana and was granted a
certificate of suitability (the Certificate of Suitability)
by the Indiana Gaming Commission on January 8, 1996. On
March 20, 1996, the Predecessor received approval to transfer
the Certificate of Suitability to the Partnership. As of
March 27, 1996, the Predecessor contributed the Certificate
of Suitability, and on March 28, 1996 all of its assets
(except for the capital stock of Second Century discussed in
Note 2), liabilities and obligations were contributed to the
Partnership.
Showboat, through subsidiaries and its majority interest in
the Predecessor, will manage the Casino through December 31,
2023 and will receive fees equal to 2% of net revenue and 4%
of EBITDA, as defined in the management agreement. The
management agreement requires the Partnership to construct
the facilities, install the furniture, fixtures and equipment
and pay for all preopening costs. After commencement of
operations, the Partnership shall advance, on a timely basis,
the funds necessary to conduct the affairs of and maintain
the Casino.
F-7
ECONOMIC DEVELOPMENT COSTS
The Partnership has incurred certain costs pursuant to an
agreement with the City of East Chicago to fund various
projects and programs for the benefit of East Chicago
residents. Fifty percent of the amount spent for these costs
may be credited as an offset against taxes due to East
Chicago based on gross receipts for a period not to exceed
two years. Any costs incurred in excess of the amount to be
offset will be amortized against operations.
LICENSING COSTS
The Partnership is incurring costs in order to obtain the
necessary gaming licenses, including legal costs, filing and
investigation fees, which are being capitalized until
commencement of operations, at which time such licensing
costs will be amortized over five years, the initial term of
the gaming license.
ORGANIZATIONAL COSTS
The Partnership is in the development stage and is currently
incurring organizational costs which are being capitalized
until operations of the riverboat casino complex commence, at
which time such organizational costs will be amortized over a
five year period. Organizational costs consist primarily of
legal fees associated with establishing the business.
INCOME TAXES
A provision for income taxes is not recorded because, as a
partnership, taxable income or loss is allocated and taxed to
the partners based on their respective percentage of
ownership. There is no significant difference between bases
of assets and liabilities for tax purposes and financial
reporting purposes.
FAIR VALUE OF CERTAIN FINANCIAL INSTRUMENTS
The carrying amount of receivables, accounts payable and
accrued expenses approximates fair value because of the short
term maturity of these instruments. See note 5 for
additional fair value disclosures.
USE OF ESTIMATES
Management of the Partnership has made estimates and
assumptions relating to the reporting of assets and
liabilities and the disclosure of contingent assets and
liabilities to prepare these financial statements in
conformity with generally accepted accounting principles.
Actual results could differ from those estimates.
(2) CASH HELD IN ESCROW
The cash received from the sale of the 13 1/2% first mortgage
notes, together with the funds received from capital
contributions were placed in an escrow account. Funds can
only be released by the escrow agent after certain conditions
are met. These conditions include that Showboat Partnership
deliver a certificate certifying as to, among other things,
the application of the funds to be disbursed, the conformity
of construction undertaken to date with the plans and
specifications, the expectation that East Chicago Showboat
will be operating by October 1, 1997, the obtaining of
mechanic's and materialmen's lien releases and title
insurance policies or endorsements to existing title
insurance policies insuring against any intervening liens,
the accuracy of the construction budget for the East Chicago
Showboat and the sufficiency of remaining funds to complete
East Chicago Showboat. The escrow agreement provides that
any funds remaining in the escrow account upon commencement
of operations may be disbursed once the Partnership generates
at least $5.0 million of combined cash flow in one fiscal
quarter.
F-8
(3) LAND IMPROVEMENTS
On October 19, 1995, the Predecessor entered into a
Redevelopment Project Lease (which was transferred to the
Partnership) with the City of East Chicago, Department of
Redevelopment pursuant to which the City of East Chicago
granted the Partnership a leasehold interest in certain
property in East Chicago, Indiana and the exclusive right to
dock and operate a riverboat casino in East Chicago, Indiana
and to construct ancillary land based facilities, which may
include restaurants, entertainment facilities and parking
areas. The Partnership is in the process of improving the
land covered by the lease and constructing land based
facilities thereon.
In exchange for such exclusivity, the Partnership is
obligated to pay East Chicago $400,000 in annual rental with
such rental being adjusted every three years by the same
percentage as the percentage increase in the Consumer Price
Index (CPI) over the previous three years subject to a
maximum 5% increase for each adjustment.
The term of the lease agreement is thirty years from the date
the Partnership received the Certificate of Suitability from
the Indiana Gaming Commission which occurred on January 8,
1996, which term may be renewed for two additional thirty
year terms at the election of the Partnership. The
Partnership shall complete construction within 18 months of
receiving the Certificate of Suitability or shall pay the
City of East Chicago $250,000 per additional month needed for
construction, unless the Partnership has opened a temporary
riverboat casino.
If someone other than the Partnership receives the license to
operate the Casino or the Partnership does not have its
license renewed or its license is revoked or suspended,
either party may terminate the lease agreement by written
notice.
(4) ECONOMIC DEVELOPMENT AGREEMENT
The Predecessor has entered into an agreement with the City
of East Chicago in April of 1994, subsequently amended in
April of 1995 and clarified through oral and written
presentations to the Indiana Gaming Commission. This agreement
was transferred to the Partnership on March 27, 1996 after
approval from the Indiana Gaming Commission.
The components of the economic development costs and the
subparagraphs explaining the nature of the costs at March 31,
1996 are as follows:
Economic development initiatives (4e) $1,000,878
Healthy East Chicago Wellness Program (3a) 14,085
City Planner payroll expenses (5a) 68,307
Training Scholarships (4a) 18,151
Reimbursement of expenses incurred by the City (5b) 18,854
$1,120,275
The agreement to promote the City's Economic Development,
above and beyond the economic benefits generated by the
capital investment at the site and the employment
opportunities to be created, consists of the following
components:
F-9
1. Upon commencement of gaming operations, the Partnership
will contribute annually to and for the benefit of
economic development, education and community development
in the City an amount equal to 3% of the Partnership's
adjusted gross receipts (as defined in the Indiana
Riverboat Gambling Act). Said contribution to be
distributed as follows:
a. 1% to the City of East Chicago
b. 1% to the Twin City Education Foundation, Inc. (TCEF)
- a nonprofit Indiana Corporation
c. 1% to the East Chicago Community Foundation, Inc.
(ECCF) - also a nonprofit Indiana Corporation
2. To serve as a catalyst for meaningful and significant
economic, commercial and housing development in East
Chicago, the Predecessor will create and fund
East Chicago Second Century, Inc. (Second Century), a for
profit development company, whose operations will be
funded by an annual contribution in an amount equal to
0.75% of adjusted gross gaming receipts of the
Partnership. The stock of Second Century, as well as any
operations or projects, will remain in the Predecessor.
All of Second Century's development activities and
projects will:
. be direct to sites located within East Chicago
. conform to the City's development and master
plans
. be subject to prior approval by the City.
As immediate priorities, the Predecessor agrees and the
City authorizes Second Century to proceed with
development of:
. a 5-8 unit retail center adjacent to the
Partnership's employee parking lot on Michigan
Avenue (project cost estimated at $4,000,000)
. a 68 unit townhouse complex for moderate income
citizens on the abandoned Washington High School
site. The Predecessor agrees that Second Century
will proceed with this townhouse development,
even if a gaming license is not granted to the
Partnership (project cost estimated at
$5,000,000).
3. In addition to the above contributions, expressed as a
percentage of adjusted gross gaming receipts, the
Partnership agrees to fund with fixed sum contributions
the following projects, up to the maximum amount defined
for each, regardless of whether or not a gaming license
is issued to the Partnership:
a. Healthy East Chicago Wellness Program, not to exceed
$200,000
b. Comprehensive Market Development Assessment for
various transportation corridors in East Chicago, not
to exceed $70,000
c. Various capital improvements to East Chicago, as
determined by the City, not to exceed $500,000
d. Engineering fees related to the water marketing
project for extension of East Chicago's water main to
south Lake County, not to exceed $500,000
F-10
e. Assessment and Training Center to benefit primarily
the youth, but ultimately all residents of East
Chicago. (No specific amount has been allocated to
this project, and although expressly defined in the
1994 letter of agreement, it was not accounted for in
the Economic Development analysis presented to the
Indiana Gaming Commission, nor was it considered in
the School of Public and Environmental Affairs report
generated by the Indiana Gaming Commission.)
Fifty percent of the fixed sums contributed by the
Partnership toward these five projects will be credited
against the 1% share of adjusted gross receipts payable
to East Chicago only during the first and, if necessary,
second year of operation, unless otherwise approved by
the City of East Chicago for credit in subsequent years.
The timing of these expenditures has not yet been agreed
to with the City of East Chicago.
4. In addition to fixed sum contributions which are to be
credited against East Chicago's 1% share, as defined in
the previous paragraph, the Partnership agrees to fund
the following programs, but not subject to the credit
against the City's 1% share of adjusted gross receipts;
the timing of these expenditures has not yet been agreed
to with the City of East Chicago:
a. Training scholarships in the form of cost free
training for East Chicago residents to be employed by
the Partnership, an estimated expense of $1,544,400,
including necessary licensing fees for such
employees.
b. The local share of the proposed Indiana State Highway
912 extension, projected at $3,500,000.
c. A pool of $500,000 to provide down payment assistance
of 5% of the purchase price of a home in East
Chicago, not to exceed $5,000 in each instance, for
Partnership employees who are first time home buyers.
d. A pool of $5,000,000 to guarantee mortgages up to 25%
of the purchase price of a home in East Chicago.
Whether funded by a fixed sum contribution or a line
of credit, the Partnership's liability is limited
only to the extent of losses that prompt a lender to
exercise the mortgage guarantee commitment.
e. A list of economic development initiatives totaling
$4,557,490 - the City reserving the right to
reallocate funds among various line items which are
broadly categorized under Neighborhood Improvement,
Law Enforcement, Other Public Safety, Schools and
Infrastructure/Equipment. The Partnership is
committed to funding these economic development
initiatives, whether granted a gaming license or not.
5. Finally, the Partnership agrees to reimburse the City of
East Chicago for the following expenses:
a. 1994 payroll expenses, not to exceed $70,000, for a
City Planner to be hired by the City, with the
understanding that the City will include the expenses
of the professional planner in its 1995 municipal
budget.
b. Expenses incurred by the City in connection with
development of the Project, including, but not
limited to, professional planning fees, engineering,
construction of infrastructure, utilities or other
improvements at the Pastrick Marina or elsewhere
related to the Project, legal fees and costs,
financial consulting fees, other professional
consulting fees deemed necessary by East Chicago.
F-11
Reimbursement of the above expenses is not conditioned
upon the Partnership being granted a gaming license, nor
is it subject to the credit against the City's 1% share
of adjusted gross receipts. However, the Partnership
also agrees to reimburse the City for the cost of any
studies, undertaken by the City in connection with the
Project, but not specifically described in the Economic
Development Agreement, with the understanding that 50% of
any such reimbursement will, in fact, be credited against
the City's 1% share of adjusted gross receipts.
6. Above and beyond the financial obligations contemplated
by the Economic Development Agreement, the Partnership is
also committed to:
a. give priority in hiring to qualified residents of
East Chicago
b. subscribe to prevailing standards for the hiring of
women and minorities
c. give priority in contracting vendors to local
companies, especially to women and minority owned
business enterprises
d. use local, unionized labor in construction of the
Project, as well as the other projects undertaken by
TCEF, ECCF and Second Century.
(5) LONG-TERM DEBT
On March 28, 1996, the Partnership issued $140,000,000 of 13-
1/2% First Mortgage Notes due 2003 (Notes) through a private
placement. The proceeds from the sale were $134,380,582, net
of underwriting discounts and commissions. The proceeds will
be used to develop the Casino. Interest is payable on the
Notes semiannually on March 15, and September 15 of each year
commencing September 15, 1996. The Notes will not be
redeemable prior to March 15, 2000, except as otherwise
required by a gaming authority. On and after March 15, 2000,
the Notes will be redeemable at the option of the
Partnership, in whole or in part, at redemption prices
ranging from 106.750% in 2000 through 100.000% in 2002 and
thereafter, as defined in the Indenture for the Note (Note
Indenture), plus accrued and unpaid interest and liquidated
damages, if any.
The Note Indenture places significant restrictions on the
incurrence of additional indebtedness, the creation of
additional liens on the collateral securing the Notes,
transactions with affiliates and payment of certain
restricted payments.
The carrying amount of the Partnership's notes approximates
fair value due to the recent issuance of the notes at the
market rate prevailing on March 28, 1996.
(6) COMMITMENTS AND CONTINGENCIES
Thompson Engineering has been retained to provide the
Partnership with basic services related to the reconstruction
and the construction phases of the development of the
riverboat casino complex. For basic services, the
Partnership shall compensate Thompson Engineering on a time
and material basis.
The Hillier Group has been retained by the Partnership as the
project architect for the pavilion, garage, water treatment
plant facade, vessel, and sitework. The Hillier Group will
provide the basic services related to the five phases:
Schematic Design Phase, Design Development Phase,
Construction Documents Phase,
F-12
Bidding or Negotiation Phase, and the Construction Phase. The
compensation for these basic services is time and materials.
Atlantic Marine, Inc. has been retained to build and equip
the Casino vessel. The contract price is fixed at
$36,000,000 and is not subject to any escalation whatsoever,
but is subject to adjustments, if any, as set forth in the
contract.
The Partnership has entered into numerous agreements and
financial commitments for the construction of leasehold
improvements as well as to promote the economic development
of the City of East Chicago that must be completed whether or
not an owner's license is issued to the Partnership. In the
event an owner's license is not issued, the fulfillment of
these commitments as well as the realization of the costs
already expended could have a material adverse impact on the
financial condition, results of operations and liquidity of
the Partnership.
On October 17, 1995, a complaint (the Complaint) was filed in
the Circuit Court of Lake County, Indiana by an individual on
behalf of himself and the residents of the City of East
Chicago requesting a preliminary injunction to enjoin the
Indiana Commission from conducting a hearing on the
Predecessor's application for the sole riverboat casino
license in East Chicago, Indiana, and from issuing a
Certificate of Suitability to the Predecessor. The Complaint
alleges that the City of East Chicago failed to hold an open
public bidding process in selecting its applicants, and such
failure is in conflict with Indiana gaming laws. On October
19, 1995, the Indiana Commission commenced the hearing on the
East Chicago application, but was served with a temporary
restraining order and halted the proceedings. Subsequently,
in November 1995 the temporary restraining order was dissolved
on the basis that no triable issues existed. The Indiana
Commission thereafter conducted further proceedings and granted
the Certificate of Suitability to the Partnership on January
8, 1996. No assurance can be given that the plaintiff or
others may not seek another temporary restraining order or
injunction at a later time. An unfavorable outcome of such
litigation could have a material adverse effect on the
Partnership and its proposed riverboat casino project in East
Chicago, Indiana.
(7) PARTNERS' CAPITAL
Showboat, beneficial owner of 55% of the Partnership, has
committed to a standby equity commitment of up to $30,000,000
and a completion guarantee of $30,000,000. The terms of
these agreements are as follows:
The standby equity commitment provides that if during any of
the first three full four-quarter periods after the riverboat
is operating the Partnership's combined cash flow is less
than $35,000,000 for any such full fiscal four-quarter
period, Showboat will cause to be contributed capital
contributions that will result in net cash proceeds to the
Partnership for not less than the difference between
$35,000,000 and the combined cash flow for the period;
provided, however, that in no event shall Showboat be
required to cause to be contributed more than $15,000,000 in
respect of any one such full fiscal four-quarter period or
more than $30,000,000 in the aggregate.
Showboat has also agreed to complete the project so that it
becomes operating and will guarantee the payment of all
project costs owing prior to such completion. The completion
guarantee will be subject to certain limitations,
qualifications and exceptions. This obligation goes into
effect only in the event there are insufficient funds to meet
the costs of developing, constructing and opening the
riverboat and is limited to $30,000,000 in the aggregate.
F-13
SELECTED CONSOLIDATED FINANCIAL DATA OF SHOWBOAT, INC.
The completion of East Chicago Showboat so that it becomes
Operating and payment of all Project Costs owing prior to such
completion is, subject to certain limitations, qualifications and
exceptions, guaranteed by Showboat. Showboat's obligation to
complete East Chicago Showboat so that it becomes Operating will
not take effect unless there are insufficient funds in the Escrow
Account pursuant to the Escrow and Disbursement Agreement to meet
the costs of designing, developing, constructing, equipping and
opening East Chicago Showboat. Showboat's obligations under the
Completion Guarantee are limited to $30.0 million in the
aggregate and its obligations will be suspended during the
pendency of any force majure event or other event outside the
control of the Company which makes completion of East Chicago
Showboat physically impossible or unlawful. Showboat is also
providing the Standby Equity Commitment pursuant to which it
agreed to cause to be made up to $30.0 million in additional
capital contributions to the Company during the first three
Operating Years if the Company's Combined Cash Flow is less than
$35.0 million for any one such Operating Year; however, in no
event shall Showboat be required to cause to be contributed more
than $15 million in respect of any one such Operating Year. "See
Risk Factors-Completion Guarantee," "-Standby Equity Commitment,"
"Description of New Notes-Completion Guarantee" and "-Standby
Equity Commitment."
The selected consolidated financial data presented below
under the captions Statement of Income Data and Balance Sheet
Data for, and as of the end of, each of the years in the five-
year period ended December 31, 1995, are derived from the
consolidated financial statements of Showboat, Inc. and
subsidiaries, which consolidated financial statements have been
audited.
Year Ended December 31,
1991 1992 1993
(In thousands, except per share and ratio data)
Statement of Income Data:
Net revenues $331,560 $355,236 $375,727
Total expenses 296,059 308,728 329,458
Income from operations from consolidated subsidiaries 35,501 46,508 46,269
Equity in income (loss) of unconsolidated affiliate -- -- (850)
Income from operations 35,501 46,508 45,419
Interest expense, net <F1> 25,399 23,894 21,481
Income tax expense (benefit) 4,088 6,757 10,474
Income before extraordinary items and cumulative
effect adjustment 6,014 15,857 13,464
Extraordinary items and cumulative effect adjustment 180 (3,408) (6,123)
Net income (loss) $ 6,194 $ 12,449 $ 7,341
Net income (loss) per share 0.55 1.08 0.49
Cash dividends declared per share 0.10 0.10 0.10
Ratio of earnings to fixed charges <F2> 1.29x 1.68x 1.67x
Other Data:
Depreciation and amortization 25,692 22,012 23,303
Capital expenditures 13,203 23,092 70,267
As of December 31,
1991 1992 1993
Balance Sheet Data:
Cash and cash equivalents $38,690 $99,601 $122,787
Total assets 320,032 384,900 470,700
Long-term debt (including current maturities) 213,004 209,116 280,617
Shareholders' equity 641,133 126,018 135,158
Three Months
Year Ended December 31, Ended
1994 1995 March 31, 1996
(In thousands, except per share (Unaudited)
and ratio data)
Statement of Income Data:
Net revenues $401,333 $428,592 $102,590
Total expenses 362,333 381,896 94,151
Income from operations from consolidated subsidiaries 39,000 46,696 8,439
Equity in income (loss) of unconsolidated affiliate 12,828 (22) --
Income from operations 51,828 46,674 8,439
Interest expense, net <F1> 24,580 23,467 6,207
Income tax expense (benefit) 11,549 11,435 (796)
Income before extraordinary items and cumulative
effect adjustment 15,699 13,175 (801)
Extraordinary items and cumulative effect adjustment -- -- --
Net income (loss) $ 15,699 $ 13,175 $ (801)
Net income (loss) per share 1.02 0.84 (0.05)
Cash dividends declared per share 0.10 0.10 0.025
Ratio of earnings to fixed charges <F2> 1.57x 1.22x 0.63
Other Data:
Depreciation and amortization 28,387 31,533 8,018
Capital expenditures 68,274 49,808 20,176
As of
1994 1995 March 31, 1996
Balance Sheet Data:
Cash and cash equivalents $ 90,429 $106,927 $ 74,360
Total assets 623,691 649,395 794,291
Long-term debt (including current maturities) 392,035 392,391 532,480
Shareholders' equity 157,461 173,941 178,196
<FN>
<F1> Interest expense, net of capitalized interest and interest
income.
S-1
<F2> The ratio of earnings to fixed charges has been computed by
dividing earnings available for fixed charges (income before
income taxes, extraordinary items and cumulative effect
adjustment plus fixed charges less capitalized interest) by
fixed charges (interest expense plus capitalized interest
plus the portion of rental expenses deemed to represent
interest).
</FN>
S-2
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Showboat Partnership's Partnership Agreement (the
"Partnership Agreement") provides that each Partner and its
Indemnified Persons (as defined therein) will not be liable,
responsible or accountable in damages or otherwise to the
Partnership, or to any of the Partners (as defined therein), for
any act or omission performed or omitted by them in good faith on
behalf of the Partnership and in a manner reasonably believed by
them to be within the scope of their authority and in the best
interests of the Partnership unless the acts or omissions
constitute either fraud, bad faith, gross negligence, or willful
misconduct as determined by final decision of a court of
competent jurisdiction or which occurred prior to the formation
of the Partnership.
In addition, to the extent that, at law or in equity, a
Partner or its Indemnified Persons have duties (including
fiduciary duties) and liabilities relating thereto to the Partner
or to the Partners, and their Indemnified Persons acting under
the Partnership Agreement or otherwise will not be liable to the
Partnership or to any Partner for its good faith reliance on the
provisions of the Partnership Agreement.
The Articles of Incorporation of Finance Corporation
provides that no director of Finance Corporation will be
personally liable to Finance Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director,
except for liability: (i) for breach of the director's fiduciary
duties to Finance Corporation or its stockholders; or (ii) for
acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of the law.
The Showboat Partnership intends to maintain a directors'
and officers' insurance policy which insures the officers and
directors of its general partners from any claim arising out of
an alleged wrongful act by such person in their respective
capacities as officers and directors of the its general partners.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
1.01 Purchase Agreement dated March 28, 1996 by Showboat
Marina Casino Partnership and Showboat Marina Finance
Corporation and confirmed and accepted by Donaldson,
Lufkin & Jenrette Securities Corporation and Nomura
Securities International, Inc. and Bear, Stearns & Co.
Inc.*
3.01 Articles of Incorporation of Showboat Marina Finance
Corporation, filed March 7, 1996.*
3.02 Bylaws of Showboat Marina Finance Corporation certified
March 21, 1996.*
3.03 Partnership Agreement by and between Showboat Marina
Partnership and Showboat Marina Investment Partnership
dated as of March 1, 1996.*
4.01 Indenture dated as of March 28, 1996, among Showboat
Marina Casino Partnership, Showboat Marina Finance
Corporation, Donaldson, Lufkin & Jenrette Securities
Corporation, Nomura Securities International, Inc.,
Bear, Stearns & Co. Inc. and American Bank National
Association, as trustee, relating to the 13 1/2 Series A
and Series B First Mortgage Notes due 2003.*
II-1
4.02 A/B Exchange Registration Rights Agreement dated as of
March 28, 1996 among Showboat Marina Casino Partnership,
Showboat Marina Finance Corporation, Donaldson, Lufkin &
Jenrette Securities Corporation, Nomura Securities
International, Inc. and Bear, Stearns & Co. Inc.*
4.03 Specimen of 13 1/2% Series B First Mortgage Notes due
2003.
4.04 Form of Letter of Transmittal to American Bank National
Association as Exchange Agent for exchange of 13 1/2%
Series A First Mortgage Notes due 2003.
5.01 Opinion and consent of Kummer Kaempfer Bonner & Renshaw
as to the legality of securities being registered.
10.01 Management Agreement dated March 28, 1996, by and
between Showboat Marina Casino Partnership and Showboat
Marina Partnership.*
10.02 Completion Guarantee dated March 28, 1996, by and
between Showboat, Inc. and American Bank National
Association, as trustee.*
10.03 Completion Guarantor Subordination Agreement dated March
28, 1996, by and between Showboat, Inc. and American
Bank National Association, as trustee.*
10.04 Standby Equity Commitment dated March 28, 1996, by and
among Showboat Marina Casino Partnership, Showboat
Marina Finance Corporation and Showboat, Inc.*
10.05 Manager's Consent and Subordination of Management
Agreement dated March 28, 1996, by and between Showboat
Marina Casino Partnership and Showboat Marina
Partnership.
10.06 Leasehold Mortgage, Assignment of Rents and Security
Agreement dated March 28, 1996 and made by Showboat
Marina Casino Partnership to American Bank National
Association, as trustee.*
10.07 Escrow and Disbursement Agreement dated March 28, 1996,
by and among Showboat Marina Casino Partnership,
Showboat Marina Finance Corporation and Showboat, Inc.
(as escrow agent and disbursement agent) and American
Bank National Association, as trustee.
10.08 Security Agreement dated March 28, 1996, among Showboat
Marina Casino Partnership, Showboat Marina Finance
Corporation and American Bank National Association, as
trustee.*
10.09 Environmental Indemnity Agreement dated March 28, 1996,
by and between Showboat, Inc. and American Bank National
Association.*
10.10 Assignment of Contracts and Documents dated March 28,
1996, by and between Showboat Marina Casino Partnership
and American Bank National Association, as trustee.*
10.11 Shipbuilding Contract between Atlantic Marine, Inc. and
Showboat Marina Casino Partnership, dated as of March 8,
1996.*
10.12 Economic Betterment Commitment Letter Agreement between
the City of East Chicago, Indiana and Showboat Marina
Casino Partnership, dated April 8, 1994.*
10.13 Economic Betterment Commitment Letter Agreement between
the City of East Chicago, Indiana and Showboat Marina
Casino Partnership, dated April 18, 1995.*
10.14 Noncompetition Agreement by and between the Indiana
Gaming Commission, Showboat, Inc., Waterfront
Entertainment and Development, Inc., and Showboat Marina
Partnership, dated December 15, 1995.*
II-2
10.15 Redevelopment Project Lease by and between Showboat
Marina Partnership and the City of East Chicago
Department of Redevelopment, dated October 19, 1995.*
10.16 Asset Transfer Agreement by and between Showboat Marina
Partnership and Showboat Marina Casino Partnership,
dated as of March 27, 1996.*
24.01 Consent of Kummer Kaempfer Bonner & Renshaw, contained
in Exhibit 5.01.*
24.02 Consent of KPMG Peat Marwick.
25.01 Powers of Attorney.*
26.01 Form T-1 Statement of Eligibility and Qualification
under the Trust Indenture Act of 1939.*<F1>
27.01 Financial Data Schedule.
*Previously filed
<FN>
<F1> The Form T-1 has been bound and filed separately on May 3,
1996 (File No. 22-27548)
</FN>
ITEM 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers,
and controlling persons of the registrants pursuant to the
foregoing provisions, or otherwise, the registrants have been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the registrants of expenses incurred
or paid by a director, officer or controlling person of the
registrants 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, each
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 of whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
The undersigned registrants hereby undertake to supply by
means of a post-effective amendment all information concerning a
transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration
statement when it became effective.
II-3
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE
REGISTRANTS HAVE DULY CAUSED THIS AMENDMENT TO BE SIGNED ON THEIR
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY
OF EAST CHICAGO, STATE OF INDIANA ON JUNE 19, 1996.
SHOWBOAT MARINA CASINO
PARTNERSHIP, an Indiana general
partnership
By: SHOWBOAT MARINA INVESTMENT By: SHOWBOAT MARINA PARTNERSHIP,
PARTNERSHIP, an Indiana an Indiana general
general partnership, a partnership, a general
general partner partner
By: SHOWBOAT INDIANA INVESTMENT By: SHOWBOAT INDIANA INVESTMENT
LIMITED PARTNERSHIP, a Nevada LIMITED PARTNERSHIP, a Nevada
limited partnership, a limited partnership, a
general partner general partner
By: SHOWBOAT INDIANA, INC., a By: SHOWBOAT INDIANA, INC., a
Nevada corporation, its Nevada corporation, its
general partner general partner
/s/ J. Keith Wallace /s/ J. Keith Wallace
J. Keith Wallace J. Keith Wallace
President and Chief Executive President and Chief Executive
Officer Officer
By: WATERFRONT ENTERTAINMENT AND By: WATERFRONT ENTERTAINMENT AND
DEVELOPMENT, INC., an Indiana DEVELOPMENT, INC., an Indiana
corporation, a general corporation, a general
partner partner
/s/ Michael A. Pannos /s/ Michael A. Pannos
Michael A. Pannos Michael A. Pannos
President President
SHOWBOAT MARINA FINANCE
CORPORATION, a Nevada corporation
/s/ Michael A. Pannos
By: Michael A. Pannos
Secretary
II-4
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933,
THIS AMENDMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURES TITLE DATE
SHOWBOAT MARINA PARTNERSHIP, an General Partner of June 19, 1996
Indiana general partnership Showboat Marina
Casino Partnership
By: SHOWBOAT INDIANA INVESTMENT
LIMITED PARTNERSHIP, a Nevada
limited partnership, a general
partner of Showboat Marina
Partnership
By: SHOWBOAT INDIANA , INC., a
Nevada corporation, its
general partner
/s/ J. Keith Wallace
J. Keith Wallace
President and
Chief Executive Officer
By: WATERFRONT ENTERTAINMENT AND
DEVELOPMENT, INC., an Indiana
corporation, a general partner
of Showboat Marina Partnership
/s/ Michael A. Pannos
Michael A. Pannos
President
II-5
SHOWBOAT MARINA INVESTMENT General Partner of June 19 , 1996
PARTNERSHIP Showboat Marina
Casino Partnership
By: SHOWBOAT INDIANA INVESTMENT
LIMITED PARTNERSHIP, a Nevada
limited partnership, a general
partner of Showboat Marina
Investment Partnership
By: SHOWBOAT INDIANA , INC., a
Nevada corporation, its
general partner
/s/ J. Keith Wallace
J. Keith Wallace
President and
Chief Executive Officer
By: WATERFRONT ENTERTAINMENT AND
DEVELOPMENT, INC., an Indiana
corporation, a general partner
of Showboat Marina Investment
Partnership
/s/ Michael A. Pannos
Michael A. Pannos
President
II-6
/s/ J. Keith Wallace President and Chief , 1996
J. Keith Wallace Executive
Officer of Showboat
Indiana, Inc.
(Principal Executive
Officer of Showboat
Indiana, Inc.)
Vice President Finance , 1996
and Chief Financial
Officer of Showboat
Indiana, Inc.
(Principal Financial
* and Accounting Officer
Joseph O'Brien, III of Showboat Indiana,
Inc.)
Director of Showboat , 1996
* Indiana, Inc.
J.K. Houssels
Director of Showboat , 1996
* Indiana, Inc.
John D. Gaughan
Director of Showboat , 1996
* Indiana, Inc.
Frank A. Modica
Director of Showboat , 1996
* Indiana, Inc.
H. Gregory Nasky
Director of Showboat , 1996
* Indiana, Inc.
J.K. Houssels, III
Director and President , 1996
of Waterfront
/s/ Michael A. Pannos Entertainment and
Michael A. Pannos Development, Inc.
(Principal Executive
Officer of Waterfront
Entertainment and
Development, Inc.
Director and Treasurer , 1996
* (Principal
Thomas S. Cappas Financial and
Accounting Officer) of
Waterfront
Entertainment and
Development, Inc.
*By /s/ J. Keith Wallace June 19, 1996
J. Keith Wallace
Attorney In Fact
II-7
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933,
THIS AMENDMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURES TITLE DATE
* Vice President Finance and , 1996
Joseph G. O'Brien, III Chief Financial Officer
(Principal Financial and
Accounting Officer)
* Director, President and Chief , 1996
J. Kell Houssels, III Executive Officer
* Director , 1996
Mark J. Miller
/s/ Michael A. Pannos Director , 1996
Michael A. Pannos
* Director , 1996
Thomas S. Cappas
/s/ J. Keith Wallace Director , 1996
J. Keith Wallace
*By /s/ J. Keith Wallace June 19, 1996
J. Keith Wallace
Attorney In Fact
II-8
EXHIBIT INDEX
EXHIBIT PAGE
NUMBER DESCRIPTION NO.
1.01 Purchase Agreement dated March 28, 1996 by
Showboat Marina Casino Partnership and Showboat
Marina Finance Corporation and confirmed and
accepted by Donaldson, Lufkin & Jenrette
Securities Corporation and Nomura Securities
International, Inc. and Bear, Stearns & Co. Inc.*
3.01 Articles of Incorporation of Showboat Marina
Finance Corporation, filed March 7, 1996.*
3.02 Bylaws of Showboat Marina Finance Corporation
certified March 21, 1996.*
3.03 Partnership Agreement by and between Showboat
Marina Partnership and Showboat Marina Investment
Partnership dated as of March 1, 1996.*
4.01 Indenture dated as of March 28, 1996, among
Showboat Marina Casino Partnership, Showboat
Marina Finance Corporation, Donaldson, Lufkin &
Jenrette Securities Corporation, Nomura Securities
International, Inc., Bear, Stearns & Co. Inc. and
American Bank National Association, as trustee,
relating to the 13 1/2 Series A and Series B First
Mortgage Notes due 2003.*
4.02 A/B Exchange Registration Rights Agreement dated
as of March 28, 1996 among Showboat Marina Casino
Partnership, Showboat Marina Finance Corporation,
Donaldson, Lufkin & Jenrette Securities
Corporation, Nomura Securities International, Inc.
and Bear, Stearns & Co. Inc.*
4.03 Specimen of 13 1/2% Series B First Mortgage Notes 128
due 2003.
4.04 Form of Letter of Transmittal to American Bank 141
National Association as Exchange Agent for
exchange of 13 1/2% Series A First Mortgage Notes
due 2003.
5.01 Opinion and consent of Kummer Kaempfer Bonner & 154
Renshaw as to the legality of securities being
registered.
10.01 Management Agreement dated March 28, 1996, by and
between Showboat Marina Casino Partnership and
Showboat Marina Partnership.*
10.02 Completion Guarantee dated March 28, 1996, by and
between Showboat, Inc. and American Bank National
Association, as trustee.*
10.03 Completion Guarantor Subordination Agreement dated
March 28, 1996, by and between Showboat, Inc. and
American Bank National Association, as trustee.*
10.04 Standby Equity Commitment dated March 28, 1996, by
and among Showboat Marina Casino Partnership,
Showboat Marina Finance Corporation and Showboat,
Inc.*
10.05 Manager's Consent and Subordination of Management 157
Agreement dated March 28, 1996, by and between
Showboat Marina Casino Partnership and Showboat
Marina Partnership.
10.06 Leasehold Mortgage, Assignment of Rents and
Security Agreement dated March 28, 1996 and made
by Showboat Marina Casino Partnership to American
Bank National Association, as trustee.*
10.07 Escrow and Disbursement Agreement dated March 28, 169
1996, by and among Showboat Marina Casino
Partnership, Showboat Marina Finance Corporation
and Showboat, Inc. (as escrow agent and
disbursement agent) and American Bank National
Association, as trustee.
10.08 Security Agreement dated March 28, 1996, among
Showboat Marina Casino Partnership, Showboat
Marina Finance Corporation and American Bank
National Association, as trustee.*
10.09 Environmental Indemnity Agreement dated March 28,
1996, by and between Showboat, Inc. and American
Bank National Association.*
10.10 Assignment of Contracts and Documents dated March
28, 1996, by and between Showboat Marina Casino
Partnership and American Bank National
Association, as trustee.*
10.11 Shipbuilding Contract between Atlantic Marine,
Inc. and Showboat Marina Casino Partnership, dated
as of March 8, 1996.*
10.12 Economic Betterment Commitment Letter Agreement
between the City of East Chicago, Indiana and
Showboat Marina Casino Partnership, dated April 8,
1994.*
10.13 Economic Betterment Commitment Letter Agreement
between the City of East Chicago, Indiana and
Showboat Marina Casino Partnership, dated April
18, 1995.*
10.14 Noncompetition Agreement by and between the
Indiana Gaming Commission, Showboat, Inc.,
Waterfront Entertainment and Development, Inc.,
and Showboat Marina Partnership, dated December
15, 1995.*
10.15 Redevelopment Project Lease by and between
Showboat Marina Partnership and the City of East
Chicago Department of Redevelopment, dated October
19, 1995.*
10.16 Asset Transfer Agreement by and between Showboat
Marina Partnership and Showboat Marina Casino
Partnership, dated as of March 27, 1996.*
24.01 Consent of Kummer Kaempfer Bonner & Renshaw,
contained in Exhibit 5.01.*
24.02 Consent of KPMG Peat Marwick. 253
25.01 Powers of Attorney.*
26.01 Form T-1 Statement of Eligibility and
Qualification under the Trust Indenture Act of
1939.*(1)
27.01 Financial Data Schedule.
*Previously filed
(1) The Form T-1 has been bound and filed separately on May 3,
1996 (File No. 22-27548).