AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 23, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ARGOSY GAMING COMPANY
(Exact name of Registrant as specified in its charter)
DELAWARE 37-1304247
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
AND ITS GUARANTOR SUBSIDIARIES
ILLINOIS ALTON GAMING COMPANY 37-1261292
LOUISIANA ARGOSY OF LOUISIANA, INC. 72-1265121
LOUISIANA CATFISH QUEEN PARTNERSHIP IN COMMENDAM 72-1274791
INDIANA THE INDIANA GAMING COMPANY 37-1314871
IOWA IOWA GAMING COMPANY 37-1329487
LOUISIANA JAZZ ENTERPRISES, INC. 72-1214771
MISSOURI THE MISSOURI GAMING COMPANY 37-1311505
(State or other jurisdiction of (Exact name of Registrant as specified (I.R.S. Employer
incorporation or organization) in its charter) Identification No.)
219 PIASA STREET
ALTON, ILLINOIS 62002
(618) 474-7500
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive office)
JAMES B. PERRY
CHIEF EXECUTIVE OFFICER
219 PIASA STREET
ALTON, ILLINOIS 62002
(618) 474-7500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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COPY TO:
R. CABELL MORRIS, JR.
WINSTON & STRAWN
35 WEST WACKER DRIVE
CHICAGO, ILLINOIS 60601
(312) 558-5600
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
As soon 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: / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
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CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER SECURITY(1) OFFERING PRICE REGISTRATION FEE
10.750% Senior Subordinated
Notes Due 2009.................... $200,000,000 100% $200,000,000 $55,600
Guarantee of the 10.750% Senior
Subordinated Notes Due 2009....... $200,000,000 None(2) None(2) None(2)
(1) Estimated in accordance with Rule 457 under the Securities Act of 1993, as
amended, solely for purpose of computing the registration fee.
(2) Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee is
payable for the Guarantee.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THE EXCHANGE NOTES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THE EXCHANGE NOTES, AND IT IS NOT SEEKING AN OFFER TO BUY THE
EXCHANGE NOTES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS SUBJECT TO COMPLETION
DATED JULY 23, 1999
$200,000,000
[LOGO]
OFFER TO EXCHANGE
OUR 10 3/4% SENIOR SUBORDINATED NOTES DUE 2009
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR
ANY AND ALL OF OUR OUTSTANDING
10 3/4% SENIOR SUBORDINATED NOTES DUE 2009
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1999, UNLESS EXTENDED.
We are offering to exchange our 10 3/4% Senior Subordinated Notes due 2009
which have been registered under the Securities Act of 1933, as amended, for any
and all of our outstanding 10 3/4% Senior Subordinated Notes due 2009 issued on
June 3, 1999.
THE EXCHANGE NOTES
- The terms of the registered exchange notes to be issued are substantially
identical to the terms of the outstanding notes that we issued on June 3,
1999, except for transfer restrictions, registration rights and liquidated
damages provisions relating to the outstanding notes which will not apply
to the exchange notes.
- Interest on the exchange notes accrues at the rate of 10 3/4% per year,
payable in cash every six months on June 1 and December 1, with the first
interest payment on December 1, 1999.
- We may redeem any of the exchange notes beginning on June 1, 2004. The
initial redemption price is 105.375% of their principal amount plus
accrued interest. In addition before June 1, 2002, we may redeem up to 35%
of the exchange notes at a redemption price of 110.750% of their principal
amount plus accrued interest using proceeds from a public offering of our
capital stock.
- The exchange notes will rank equally with all of our other unsecured
senior subordinated indebtedness and will be junior to our senior
indebtedness. The exchange notes are guaranteed on a senior subordinated
basis by substantially all of our wholly-owned subsidiaries.
- We intend to list the exchange notes on the New York Stock Exchange.
MATERIAL TERMS OF THE EXCHANGE OFFER
- The exchange offer expires at 5:00 p.m., New York City time, on
, 1999, unless extended.
- All outstanding notes that are validly tendered and not validly withdrawn
will be exchanged for an equal principal amount of exchange notes which
are registered under the Securities Act of 1933.
- Tenders of outstanding notes may be withdrawn at any time prior to the
expiration of the exchange offer.
- The exchange offer is not subject to any minimum tender condition, but is
subject to the terms of the registration rights agreement that we entered
into on June 3, 1999 with the placement agents for the outstanding notes
and the guarantor subsidiaries.
- We will not receive any proceeds from the exchange offer. We will pay the
expenses of the exchange offer.
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NONE OF THE SECURITIES AND EXCHANGE COMMISSION, THE ILLINOIS GAMING BOARD,
THE INDIANA GAMING COMMISSION, THE IOWA RACING AND GAMING COMMISSION, THE
LOUISIANA GAMING CONTROL BOARD OR THE MISSOURI GAMING COMMISSION OR ANY OTHER
STATE REGULATORY BODY HAS PASSED UPON THE ADEQUACY OR ACCURACY OF THIS
PROSPECTUS OR THE INVESTMENT MERITS OF THE SECURITIES OFFERED IN THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL WE ACCEPT SURRENDER FOR
EXCHANGE FROM, HOLDERS OF OUTSTANDING NOTES IN ANY JURISDICTION IN WHICH THE
EXCHANGE OFFER OR ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
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The date of this prospectus is , 1999
TABLE OF CONTENTS
Where You Can Find More Information................................................... ii
Special Note Regarding Forward-Looking Statements..................................... iii
Summary............................................................................... 1
Risk Factors.......................................................................... 16
The Exchange Offer.................................................................... 26
Capitalization........................................................................ 35
Selected Historical Consolidated Financial Data....................................... 36
Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 38
The Company........................................................................... 47
Lawrenceburg Casino Partnership Agreement............................................. 55
Regulatory Matters.................................................................... 57
Management............................................................................ 74
Principal Stockholders................................................................ 76
Description of Our Other Indebtedness................................................. 78
Description of the Exchange Notes..................................................... 80
Material Federal Tax Considerations................................................... 127
Plan of Distribution.................................................................. 131
Legal Matters......................................................................... 131
Experts............................................................................... 131
Index to Financial Statements......................................................... F-1
i
WHERE YOU CAN FIND MORE INFORMATION
We filed a registration statement with the SEC under the Securities Act to
register the exchange notes to be issued in this exchange offer. As allowed by
the SEC's rules, this prospectus does not contain all of the information that
you can find in the registration statement and its exhibits. As a result,
statements made in this prospectus concerning the contents of a contract,
agreement or other document are not necessarily complete. If we have filed any
contract, agreement or other document as an exhibit to the registration
statement, you should read the exhibit for a more complete understanding of the
document or matter involved.
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference rooms. You can also obtain copies of these materials
from the public reference section of the SEC at 45 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The SEC also maintains a web site
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC (http: www.sec.gov).
We "incorporate by reference" into this prospectus the information we file
with the SEC, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus and information that we file subsequently
with the SEC will automatically update and supercede this prospectus. We have
filed the following documents with the SEC and they are incorporated in this
prospectus by reference:
(1) our Annual Report on Form 10-K for the year ended December 31, 1998;
(2) our Quarterly Report on Form 10-Q for the period ended March 31, 1999;
(3) our Current Reports on Form 8-K dated May 5, 1999, May 18, 1999 and June
8, 1999; and
(4) all documents subsequently filed by us with the SEC pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended, prior to the termination of this offering.
You may request a free copy of these filings (other than an exhibit to a
filing unless that exhibit is specifically incorporated by reference into that
filing) or any of the documents referred to in this prospectus by writing to or
telephoning us at the following address:
G. Dan Marshall
Director of Investor Relations
Argosy Gaming Company
219 Piasa Street
Alton, Illinois 62002
(618) 474-7500
The indenture governing the outstanding notes will also govern the exchange
notes. The outstanding notes and the exchange notes, together, are a single
series of debt securities. The indenture requires us to provide quarterly and
annual financial reports to holders of the exchange notes.
You should not assume that the information in this prospectus is accurate as
of any date other than the date of this prospectus, or the respective dates of
those documents we incorporate herein by reference, regardless of when you
received this prospectus. You should rely only on the information incorporated
by reference or provided in the registration statement. We have not authorized
anyone else to provide you with different information. The exchange offer is
being made to, and we will accept surrender for exchange from, holders of
outstanding notes only in jurisdictions where the exchange offer is permitted.
ii
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes "forward-looking statements." All statements
regarding our expected financial position, business, strategies and financing
plans under the headings "Summary," "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "The Company" and
elsewhere in this prospectus are forward-looking statements. The words
"believes," "estimates," "plans," "intends," "expects," "may," "will," "should,"
"seeks," "pro forma" or "anticipates," or other variations thereof (including
their use in the negative) identify forward-looking statements. Although we
believe that our expectations are reasonable based on our plans, beliefs and
assumptions, our expectations may prove to be incorrect. Important factors that
could cause actual results to be materially different include the following
factors:
- general economic conditions in our markets;
- increased competition in our markets, including the legalization of gaming
in states adjacent to our operations;
- our dependence on our Lawrenceburg, Indiana casino;
- our substantial leverage; and
- changes in laws or regulations, joint venture relations or decisions of
courts, regulators and governmental bodies.
For information with respect to these and other factors that could cause
actual results to differ from the expectations stated in the forward-looking
statements, see the text under the caption "Risk Factors." Potential investors
in the exchange notes are urged to consider these factors carefully in
evaluating the forward-looking statements contained or incorporated by reference
in this prospectus.
All subsequent written and oral forward-looking statements attributable to
us or persons acting on our behalf are expressly qualified in their entirety by
our cautionary statements. The forward-looking statements included or
incorporated in this prospectus are made only as of the date of this prospectus,
or as of the date of the document incorporated by reference. We do not intend,
and undertake no obligation, to update these forward-looking statements.
iii
SUMMARY
EXCEPT WHERE OTHERWISE NOTED, THE WORDS, "WE," "US," "OUR" AND SIMILAR
TERMS, AS WELL AS REFERENCES TO "ARGOSY" OR THE "COMPANY" REFER TO ARGOSY GAMING
COMPANY AND ALL OF ITS SUBSIDIARIES. WITH RESPECT TO THE DISCUSSION OF THE TERMS
OF THE EXCHANGE NOTES ON THE COVER PAGE AND IN THE SECTION ENTITLED "SUMMARY OF
THE EXCHANGE OFFER" "WE," "OUR," AND "US" REFER ONLY TO ARGOSY GAMING COMPANY
AND NOT TO ANY OF ITS SUBSIDIARIES. THE FOLLOWING SUMMARY CONTAINS BASIC
INFORMATION ABOUT THIS EXCHANGE OFFER. IT LIKELY DOES NOT CONTAIN ALL THE
INFORMATION THAT IS IMPORTANT TO YOU. FOR A MORE COMPLETE UNDERSTANDING OF THIS
EXCHANGE OFFER, WE ENCOURAGE YOU TO READ THIS ENTIRE PROSPECTUS AND THE
DOCUMENTS WE HAVE REFERRED TO YOU.
THE COMPANY
We are a leading owner and operator of five riverboat casinos located in
emerging gaming markets of the central United States. We pioneered riverboat
gaming in St. Louis, Kansas City, Baton Rouge and Sioux City by opening the
first casino in each of those markets. Our newest riverboat casino serves the
Cincinnati market from Lawrenceburg, Indiana and is the largest revenue
producing riverboat in the United States gaming industry. We operate the
Lawrenceburg casino through a joint-venture subsidiary of which we currently own
a 57.5% interest.
The following summarizes our casino properties:
PRINCIPAL METROPOLITAN 1998 NET APPROXIMATE GAMING
CASINO NAME MARKETS SERVED REVENUES POSITIONS
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(IN THOUSANDS)
Argosy Casino Lawrenceburg Cincinnati-Dayton-Columbus, $ 284,721 2,600
Ohio
Alton Belle Casino St. Louis, Missouri 72,064 900
Argosy Casino of Greater Kansas City, Missouri 76,960 1,400
Kansas City
Belle of Baton Rouge Baton Rouge, Louisiana 49,054 1,000
Casino
Belle of Sioux City Casino Sioux City, Iowa 23,526 600
Since mid-1997, we have been implementing a strategic plan designed to
transform us from a company focused on developing casino properties to one
focused on achieving superior operational performance. Our strategy emphasizes
increasing revenues and profits through expanding direct marketing programs,
investing in state-of-the-art gaming products, such as new slot machines and
player tracking systems, and improving cost controls. To achieve these goals we
have strengthened our executive management team with the addition of a new chief
executive officer and new vice presidents of operations and sales and marketing
and several other key operating executives each with significant casino industry
experience.
Our initiatives have had the greatest impact at our four western casinos in
Alton, Kansas City, Baton Rouge and Sioux City. For the year ended December 31,
1998, net revenues at the western casinos combined increased 8% to $222 million,
while EBITDA (earnings before interest, taxes, depreciation and amortization)
increased 44% to $34 million. The trend continued in the first quarter of 1999
with net revenues at the western casinos increasing 5% to $59 million and EBITDA
growing 60% to $11 million as compared to the first quarter of 1998. At
Lawrenceburg, 1998 net revenues grew to $285 million while EBITDA increased to
$106 million, due primarily to the casino becoming fully operational with the
completion of its hotel and permanent pavilion. First quarter net revenues in
1999 at Lawrenceburg increased 31% to $78 million while EBITDA grew 38% to $29
million as compared to the first quarter of 1998. Overall, we reported record
results in 1998 with a 47% increase in net revenues to $507 million and a 137%
increase in EBITDA to $121 million. In the first quarter of 1999, our net
revenues increased 19% to $137 million while EBITDA grew 47% to $35 million.
1
BUSINESS STRATEGY
By capitalizing on the extensive gaming industry experience of our
management team, we have developed a strategy to maximize the performance of our
operating assets and improve financial results. We continue to implement changes
at each of our properties to improve our competitive position, increase gaming
revenues and enhance profitability. The key elements of our business strategy
include: (1) utilizing direct marketing to encourage repeat business and foster
customer loyalty; (2) enhancing the gaming product at our casinos by investing
in state-of-the-art gaming equipment; (3) renovating our properties to create
more exciting gaming environments; and (4) increasing our financial flexibility
to enable us to pursue future business opportunities.
- REDIRECT MARKETING EFFORTS TOWARDS DIRECT MARKETING. We have changed our
marketing focus from mass marketing to direct and relationship marketing
to encourage repeat business and foster customer loyalty. At each of our
properties we use sophisticated player tracking systems to identify and
reward premium players and our most loyal customers. Based on a player's
gaming activity, we create targeted promotions including exclusive direct
mail offers and "member's only" concerts, parties, tournaments,
sweepstakes and special entertainment events.
- INVEST IN NEW GAMING EQUIPMENT. Historically, we used available capital to
develop new casinos while we deferred capital improvement projects and
gaming product upgrades at our existing facilities. Because slot machines
represent approximately 80% of our revenues, we began a program in 1998 to
systematically upgrade our gaming product with state-of-the-art slot
machines. We believe that regularly replacing slot machines with the most
popular products creates a more exciting gaming experience and increases
profitability. We invested in over 800 new slot machines in 1998. At our
western casinos, the upgraded machines increased the average daily revenue
over the older machines they replaced. At Lawrenceburg, additional new
slot product helped us take advantage of increased market demand. Going
forward we expect to replace an average of 15-20% of our gaming equipment
annually.
- RENOVATE OUR RIVERBOAT AND DOCKSIDE ENTERTAINMENT FACILITIES. To maintain
a fresh and exciting gaming experience for our customers, we have
developed a prudent capital investment plan to systematically renovate our
casino and entertainment facilities. By late-1999 we will complete a $12
million project at Alton that will replace the existing entertainment
pavilion with a newly-renovated barge that was originally used as the
Lawrenceburg temporary landing facility and an additional new barge. The
Alton renovation will significantly enhance the facility's restaurant and
entertainment amenities. In June 1999, we completed a $5 million
renovation and retheming of our Baton Rouge riverboat. The renovation of
the Baton Rouge riverboat's third deck features approximately 200 of the
newest and most popular video poker machines and gaming product upgrades
to target the video poker market. We are also considering expanding our
operations at Sioux City by replacing the existing support facility with
the three-level facility currently used in Alton.
- INCREASE FINANCIAL FLEXIBILITY. The issuance of the outstanding notes was
part of an overall refinancing plan designed to reduce borrowing costs,
extend debt maturities and increase our overall financial flexibility.
Future borrowing availability will enable us to complete the refurbishment
and upgrading of our facilities, fund a potential purchase of the minority
interests in our Lawrenceburg casino and pursue other strategic
opportunities.
CASINO PROPERTIES
ARGOSY CASINO LAWRENCEBURG
The Lawrenceburg casino is located on the Ohio River in Lawrenceburg,
Indiana approximately 15 miles west of Cincinnati and is the closest casino to
the Cincinnati metropolitan area. The casino
2
principally draws customers from the major metropolitan areas of Cincinnati,
Dayton and Columbus, Ohio and, to a lesser extent, Indianapolis, Indiana and
Lexington, Kentucky. Casinos operating in the Cincinnati market generated $428
million of gaming revenues in 1998, a 58% increase from 1997. The Lawrenceburg
casino's 1998 gaming revenues grew 107% to $265 million, representing
approximately 62% of total gaming revenues reported by the two riverboat casinos
operating in the Cincinnati market. For the first quarter of 1999, casino
revenues at the Lawrenceburg casino grew 32% to $73 million compared to the
first quarter of 1998. We operate the Lawrenceburg casino through a
joint-venture subsidiary of which we own a 57.5% interest.
The Lawrenceburg casino is one of the largest riverboats in the United
States with 74,300 square feet of gaming space on three levels with
approximately 2,000 slot machines and 104 table games. The vessel can
accommodate 4,400 passengers and crew; however, to enhance our customers'
comfort and enjoyment, we operate at a self-imposed capacity of 3,600
passengers. The complex also includes a 300 room hotel, which was completed in
June 1998, a 120,000 square foot land-based entertainment pavilion and support
facility featuring a 350 seat buffet restaurant, two specialty restaurants, an
entertainment lounge and a 1,750 space parking garage. We recently converted a
portion of the casino into an exclusive area for high-stakes customers.
ALTON BELLE CASINO
The Alton Belle Casino is located on the Mississippi River in Alton,
Illinois approximately 20 miles northeast of downtown St. Louis. The casino
draws its customers largely from the northern and eastern regions of the greater
St. Louis metropolitan area, as well as portions of central and southern
Illinois. Casinos operating in the St. Louis market generated $538 million of
gaming revenues in 1998, a 15% increase from 1997. The Alton Belle Casino's 1998
gaming revenues grew 10% to $68 million, representing approximately 13% of total
gaming revenues reported by the six riverboat and dockside casinos operating in
the St. Louis market. For the first quarter of 1999, casino revenues at the
Alton Belle Casino grew 6% to $18 million compared to the first quarter of 1998.
As an Illinois licensee, the Alton Belle Casino is not subject to Missouri's
$500 loss limit and therefore has a competitive advantage in attracting high-end
customers over competitors operating under Missouri licenses.
The Alton Belle Casino consists of a riverboat with 22,800 square feet of
gaming space, approximately 700 slot machines and 32 table games and a 37,000
square foot, three-level floating entertainment pavilion, which features a
sports/entertainment lounge, buffet and table service restaurant facilities and
conference facilities. By late-1999 we will replace our existing entertainment
pavilion with a newly-renovated barge that was originally used as the
Lawrenceburg temporary landing facility and an additional new barge. This $12
million project will feature larger and improved food and beverage venues and a
new main showroom.
ARGOSY CASINO OF GREATER KANSAS CITY
The Argosy Casino of Greater Kansas City is located on the Missouri River in
Riverside, Missouri on a 55-acre site approximately five miles from downtown
Kansas City. The casino primarily attracts customers who reside in the northern
and western regions of the Kansas City metropolitan market. Casinos operating in
the Kansas City market generated $458 million of gaming revenues in 1998, a 10%
increase from 1997. The Kansas City casino's 1998 gaming revenues grew 17% to
$72 million, representing approximately 16% of Kansas City total gaming revenues
reported by the dockside casinos operating in the Kansas City market. For the
first quarter of 1999, casino revenues at the Kansas City casino grew 5% to $19
million compared to the first quarter of 1998.
The Kansas City casino features 36,000 square feet of gaming space,
approximately 1,100 slot machines and 45 table games. The riverboat casino is
complemented by an 85,000 square foot land-based entertainment facility
featuring specialty and buffet restaurants, a sports/entertainment
3
lounge and 14,000 square feet of banquet/conference facilities. A 624-space
parking garage and a 1,262-space surface parking area are located adjacent to
the pavilion. In addition to our plans to upgrade older slot machines with newer
and more exciting models, we are considering expanding our current casino
complex. An expansion would allow us to provide patrons with nearly continuous
accessibility through staggered boarding times and increase the number of gaming
positions.
BELLE OF BATON ROUGE
The Belle of Baton Rouge is located on the Mississippi River in Baton Rouge,
Louisiana. The casino draws customers primarily from the Baton Rouge
metropolitan area. Casinos operating in the Baton Rouge market generated $117
million of gaming revenues in 1998, a 3% increase from 1997. This amount does
not include approximately $100 million of revenues generated in fiscal 1998 by
video poker machines operated in bars, restaurants and truck stops throughout
the Baton Rouge market and surrounding areas. The Belle of Baton Rouge's 1998
gaming revenues declined 2% to $47 million, representing 40% of total gaming
revenues reported by the two riverboat casinos operating in Baton Rouge. For the
first quarter of 1999 casino revenues at the Belle of Baton Rouge grew 4% to $13
million compared to the first quarter of 1998.
As a result of a 1996 general referendum, video poker machines are no longer
permitted in non-casino locations in the majority of Baton Rouge area parishes
as of July 1, 1999. Parishes that eliminated non-casino video poker represented
approximately $80 million of the Baton Rouge video poker market. To attract a
portion of the video poker market, we have refurbished our third deck into a
video poker area complete with approximately 200 of the newest and most popular
video poker machines available.
The Belle of Baton Rouge features 28,000 square feet of gaming space,
approximately 750 slot machines and 42 table games. The riverboat casino is
complemented by our adjacent real estate development known as Catfish Town.
Catfish Town includes a 50,000 square foot glass-enclosed atrium,
entertainment/sports lounge, buffet/coffee shop, conference facilities and
approximately 150,000 square feet of retail space that is currently available
for lease. A 733-space parking garage and a 271-space surface parking lot are
located adjacent to Catfish Town.
BELLE OF SIOUX CITY
The Belle of Sioux City is located on the Missouri River in downtown Sioux
City, Iowa. The casino draws customers from the Sioux City metropolitan area and
competes with two Native American casinos that are not required to report gaming
market data. The Sioux City casino's 1998 gaming revenues grew 9% to $23
million. For the first quarter of 1999, casino revenues at the Belle of Sioux
City grew 17% to $6 million compared to the first quarter of 1998. The riverboat
features 12,500 square feet of gaming space, 450 slot machines and 23 table
games. The casino is complemented by adjacent barge facilities featuring buffet
dining facilities, meeting space and administrative support offices. We are
significantly upgrading our Sioux City gaming product so that by the end of 1999
we will have replaced 95% of our electronic gaming devices over a two year
period. In addition, we are considering expanding our operations by replacing
the current support facility with the three-level facility used in Alton. We
operate the Belle of Sioux City through a joint-venture subsidiary, of which we
are the sole general partner and hold a 70% interest.
4
THE REFINANCINGS
The offering of the outstanding notes was part of a financing plan to
refinance substantially all of our existing indebtedness. Through this plan, we
reduced our debt service costs, extended our debt maturities and increased our
financial flexibility. The series of transactions consisted of the following:
- OUTSTANDING NOTE OFFERING. We issued an aggregate of $200 million
principal amount of the outstanding notes. The net proceeds of the
offering were used to fund a portion of the repurchase of the first
mortgage notes described below.
- CREDIT FACILITY. Concurrently with the issuance of the outstanding notes,
we and all of our wholly-owned operating subsidiaries as co-borrowers
entered into a new five year $200 million senior secured revolving bank
credit agreement. The credit facility is secured by liens on substantially
all of our assets and the assets of all of our wholly-owned operating
subsidiaries. Our joint-venture subsidiaries that operate the Argosy
Casino Lawrenceburg and the Belle of Sioux City Casino are not
co-borrowers under the credit facility. We used the initial borrowings
under the credit facility to fund the repurchase of approximately 90% of
our 13 1/4% first mortgage notes and the redemption of our 12% convertible
subordinated notes described below. We expect to use future borrowings to
finance capital improvements, to provide working capital and for general
corporate purposes. We have the right, within two years following the
closing of the credit facility, to arrange for a $75 million increase to
the borrowing availability under the credit facility. In addition, we have
the right, within two years following the closing, to arrange for a
further $150 million increase to fund the purchase of all outstanding
minority interests in the Lawrenceburg partnership.
- REPURCHASE OF 13 1/4% FIRST MORTGAGE NOTES AND CONSENT SOLICITATION. In
connection with the issuance of the outstanding notes, we commenced an
offer to purchase our $235 million principal amount of 13 1/4% first
mortgage notes due 2004. We also solicited consents to permit us to create
additional liens on the collateral securing our obligations under the
13 1/4% first mortgage notes and amend the indenture and the related
security documents of the 13 1/4% first mortgage notes to eliminate the
subsidiary guarantee provisions and most of the financial and restrictive
covenants in the indenture.
On May 18, 1999, we received consents to the amendments from holders of
approximately 90% of the outstanding principal amount of the 13 1/4% first
mortgage notes. On June 7, 1999, we repurchased all of the 13 1/4% first
mortgage notes that were tendered pursuant to our offer to purchase. As of
June 30, 1999 we have outstanding $22,242,000 13 1/4% first mortgage
notes. We are required under the terms of the credit facility to cash
collateralize our remaining obligations and call for redemption all
outstanding 13 1/4% first mortgage notes on the earliest redemption date,
June 1, 2000.
- REDEMPTION OF CONVERTIBLE SUBORDINATED NOTES. On June 8, 1999, we issued a
notice of redemption to redeem our $115 million aggregate principal amount
of 12% convertible subordinated notes due 2001, at a price equal to 102%
per note. On July 7, 1999, we redeemed all of our $115 million 12%
convertible subordinated notes using borrowings under the credit facility.
------------------------
We are a Delaware corporation. Our principal executive offices are located
at 219 Piasa Street, Alton, Illinois 62002 and our telephone number is (618)
474-7500. You may obtain additional information about us at our website,
www.argosycasinos.com.
5
THE EXCHANGE OFFER
The following summary highlights selected information regarding the exchange
offer and may not contain all of the information that is important to you. You
should read "The Exchange Offer" for a more complete description.
OUTSTANDING NOTES............... 10 3/4% Senior Subordinated Notes due 2009, which were
issued on June 3, 1999.
EXCHANGE NOTES.................. 10 3/4% Senior Subordinated Notes due 2009, which have
been registered under the Securities Act of 1933. The
terms of the exchange notes are substantially identical to
those of the outstanding notes, except that the transfer
restrictions, registration rights and liquidated damages
provisions relating to the outstanding notes do not apply
to the exchange notes.
The Exchange Offer.............. Up to $200,000,000 aggregate principal amount of exchange
notes registered under the Securities Act are being
offered in exchange for the same principal amount of the
outstanding notes. The terms of the exchange notes and the
outstanding notes are substantially identical. Outstanding
notes may be tendered for exchange in whole or in part in
any integral multiple of $1,000. We are making the
exchange offer in order to satisfy our obligations under
the registration rights agreement relating to the
outstanding notes. For a description of the procedures for
tendering the outstanding notes, see "The Exchange Offer--
Procedures for Tendering Outstanding Notes."
Expiration Date................. 5:00 p.m., New York City time, , 1999, unless the
exchange offer is extended, in which case the expiration
date will be the latest date and time to which the
exchange offer is extended. See "The Exchange Offer--Terms
of the Exchange Offer."
Conditions to the Exchange
Offer......................... The exchange offer is subject to customary conditions
described under "The Exchange Offer--Conditions to the
Offer." some of which we may waive in our sole discretion.
The exchange offer is not conditioned upon any minimum
principal amount of outstanding notes being tendered. We
reserve the right in our sole and absolute discretion,
subject to applicable law, at any time and from time to
time:
- to delay the acceptance of the outstanding notes for
exchange;
- to terminate the exchange offer if one or more specific
conditions have not been satisfied;
- to extend the expiration date of the exchange offer and
retain all outstanding notes tendered pursuant to the
exchange offer, subject, however, to the right of
holders of outstanding notes to withdraw their tendered
outstanding notes; or
- to waive any condition or otherwise amend the terms of
the exchange offer in any respect.
See "The Exchange Offer--Procedures for Tendering
Outstanding Notes."
Withdrawal Rights............... Tenders of outstanding notes may be withdrawn at any time
on or prior to the expiration date by delivering a written
notice of
6
withdraw to the exchange agent in conformity with the
procedures discussed under "The Exchange Offer--Withdrawal
of Tender."
Procedures for Tendering
Outstanding Notes............. Tendering holders of outstanding notes must complete and
sign a letter of transmittal in accordance with the
instructions contained in the letter of transmittal.
Tendering holders must forward the completed letter of
transmittal by mail, facsimile or hand delivery, together
with any other required documents, to the exchange agent,
or must submit to the exchange agent the outstanding notes
you are tendering or comply with the specified procedures
for guaranteed delivery of outstanding notes. Brokers,
dealers and commercial banks, trust companies and other
nominees may also effect tenders by book-entry transfer.
If your outstanding notes are registered in the name of a
broker, dealer, commercial bank, trust company or other
nominee, we urge you to contact your nominee holder
promptly if you wish to tender outstanding notes pursuant
to the exchange offer. See "The Exchange Offer--Procedures
for Tendering Outstanding Notes."
Letter of Transmittal and certificates representing
outstanding notes should not be sent to us. Those
documents should be sent only to the exchange agent. The
address and telephone and facsimile numbers of the
exchange agent are set forth in "The Exchange
Offer--Exchange Agent" and in the letter of transmittal.
GUARANTEED DELIVERY
PROCEDURES.................... If you are a registered holder of the outstanding notes
and wish to tender your outstanding notes in the exchange
offer, but
- the outstanding notes are not immediately available;
- time will not permit your outstanding notes or other
required documents to reach the exchange agent before the
expiration of the exchange offer, or
- the procedure for book-entry transfer cannot be
completed prior to the expiration of the exchange offer,
you may tender outstanding notes by following the
procedures described below under the caption "The Exchange
Offer-- Guaranteed Delivery Procedures".
Acceptance of Outstanding Notes
and Delivery of Exchange
Notes......................... Upon consummation of the exchange offer, we will accept
any and all outstanding notes that are properly tendered
in the exchange offer and not withdrawn prior to 5:00
p.m., New York City time, on the expiration date. The
exchange notes issued pursuant to the exchange offer will
be delivered promptly after acceptance of the outstanding
notes. See "The Exchange Offer-- Terms of the Exchange
Offer."
Resales of Exchange Notes....... We believe that you will be able to offer for resale,
resell or otherwise transfer exchange notes issued in the
exchange offer without compliance with the registration
and prospectus delivery provisions of the federal
securities laws, provided that:
7
- you are not a broker-dealer;
- you are not participating in a distribution of the
exchange notes; and
- you are not an "affiliate" Argosy Gaming Company, as the
term is defined in Rule 144A under the Securities Act of
1933.
Our belief is based on interpretations by the staff of the
SEC, as set forth in no-action letters issued to third
parties unrelated to us. The staff has not considered this
exchange offer in the context of a no-action letter, and
we cannot assure you that the staff would make a similar
determination with respect to this exchange offer.
If our belief is not accurate and you transfer an exchange
note without delivering a prospectus meeting the
requirements of the federal securities laws or without an
exemption from these laws, you may incur liability under
the federal securities laws. We do not and will not
assume, or indemnify you against, this liability.
Each broker-dealer that receives exchange notes for its
own account in exchange for outstanding notes which were
acquired by the broker-dealer as a result of market-making
or other trading activities must agree to deliver a
prospectus meeting the requirements of the federal
securities laws in connection with any resale of the
exchange notes. See "The Exchange Offer--Resales of the
Exchange Notes."
Exchange Agent.................. The exchange agent with respect to the exchange offer is
Bank One Trust Company, NA. The address and telephone and
facsimile numbers of the exchange agent are set forth in
"The Exchange Offer--Exchange Agent" and in the letter of
transmittal.
Use of Proceeds................. We will not receive any cash proceeds from the issuance of
the exchange notes offered hereby.
Material Federal Tax
Considerations................ You should review the information set forth under
"Material Federal Tax Considerations" prior to tendering
outstanding notes in the exchange offer.
Consequences of Not Exchanging
Outstanding Notes............. If you do not exchange your outstanding notes in the
exchange offer, your outstanding notes will continue to be
subject to the restrictions on transfer described in the
legend on the certificate for your outstanding notes. In
general, you may offer or sell your outstanding notes
only:
- if they are registered under the Securities Act and
applicable state securities laws;
- if they are offered or sold under an exemption from
registration under the Securities Act and applicable
state securities laws; or
- if they are offered or sold in a transaction not subject
to the Securities Act and applicable state securities
laws.
8
We do not currently intend to register the outstanding
notes under the Securities Act. For more information
regarding the consequences of not tendering your
outstanding notes, see "The Exchange Offer.
TERMS OF THE EXCHANGE NOTES
The exchange offer applies to an aggregate principal amount of $200,000,000
of the outstanding notes. The form and terms of the exchange notes will be
identical in all material respects to the form and terms of the outstanding
notes except:
- the exchange notes have been registered under the Securities Act and,
therefore, will not bear legends restricting their transfer;
- holders of exchange notes will not be entitled to any liquidated damages
under the registration rights agreement relating to the outstanding notes;
and
- holders of the exchange notes will not be, and upon consummation of the
exchange offer, holders of the outstanding notes will no longer be,
entitled to specific rights under the registration rights agreement for
the outstanding notes intended for the holders of unregistered securities.
The exchange notes will be our obligations entitled to the benefits of the
indenture. See "Description of the Exchange Notes."
Exchange Notes Offered.......... $200,000,000 aggregate principal amount of 10 3/4% Senior
Subordinated Notes.
Maturity Date................... June 1, 2009.
Interest........................ Interest on the exchange notes is payable semi-annually in
cash on June 1 and December 1, commencing on December 1,
1999. For a description of the requirement to offer to
exchange the exchange notes and the possible effect on the
interest rate, see "The Exchange Offer--Terms of the
Exchange".
Subsidiary Guarantees........... All of our wholly-owned operating subsidiaries will
guarantee the exchange notes. The joint-venture
subsidiaries that operate the Lawrenceburg casino and the
Sioux City casino will not guarantee the exchange notes.
If Argosy Gaming Company cannot make payments on the
exchange notes when they are due, the subsidiary
guarantors must make them instead.
Ranking......................... The exchange notes and subsidiary guarantees are unsecured
senior subordinated obligations of Argosy Gaming Company
and the subsidiary guarantors, respectively. The exchange
notes will rank junior to all of the senior indebtedness
of Argosy Gaming Company, including borrowings under the
credit facility and the subsidiary guarantees will rank
junior to the senior indebtedness of the subsidiary
guarantors.
Optional Redemption............. We may redeem some or all of the exchange notes beginning
on June 1, 2004, initially at 105.375% of their principal
amount, plus accrued interest and declining ratably to
100% of their principal amount, plus accrued interest, on
or after June 1, 2007.
Before June 1, 2002, we may redeem up to 35% of the
exchange notes with the proceeds of one or more public
offerings of our capital stock at a redemption price of
110.750% of their principal
9
amount, plus accrued interest. However, we may only make
such redemptions if at least $135 million aggregate
principal amount of exchange notes remains outstanding
after each redemption, excluding exchange notes held by us
or the subsidiary guarantors, and such redemption occurs
within 60 days of the date of the closing of the sale of
the capital stock. See "Description of the Exchange
Notes--Optional Redemption."
Mandatory Offer to Repurchase... If we experience specific kinds of changes of control, or
under certain circumstances, if we sell assets, we must
offer to repurchase the exchange notes at the prices
listed in "Description of the Exchange Notes."
Basic Covenants of the
Indenture..................... The terms of the outstanding notes do, and of the exchange
notes will, restrict our ability to, among other things:
- borrow money;
- pay dividends on, redeem or repurchase our capital
stock;
- make investments;
- incur liens on our assets to secure debt;
- merge or consolidate with another company; and
- transfer or sell our assets.
These covenants are subject to important exceptions and
qualifications which are described in "Description of the
Exchange Notes--Certain Covenants."
Covenants Relating to Sale of
Lawrenceburg Interests........ The terms of the outstanding notes do, and of the exchange
notes will, provide that upon certain sales of our
partnership interest in, or the assets of, the
Lawrenceburg partnership, we must either make an offer to
repurchase an amount of exchange notes such that the Debt
to EBITDA Ratio would be no greater than 3.5 to 1, or we
may call all, but not less than all of the exchange notes,
in each case at the prices listed in the section
"Description of the Exchange Notes--Certain Covenants--
Repurchase of Exchange Notes in Connection with Sale of
Lawrenceburg Interest." Certain other sales of such
partnership interest or assets will require us to comply
with the covenant described below under "Description of
Exchange Notes--Certain Covenants--Limitation on Asset
Sales."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that you should
carefully consider before deciding to tender your outstanding notes in the
exchange offer.
10
SUMMARY CONSOLIDATED FINANCIAL DATA
The following summary consolidated financial data has been derived from our
consolidated financial statements and should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and consolidated financial statements and notes thereto, included
elsewhere in this prospectus.
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT RATIO DATA)
STATEMENTS OF OPERATIONS DATA:
Casino revenues................ $ 138,425 $ 237,613 $ 228,388 $ 319,830 $ 473,505 $ 108,323 $ 129,128
Net revenues................... 153,045 252,691 244,817 344,083 506,668 115,700 137,391
Income (loss) from
operations................... 22,994 27,662 (10,751) 6,530 87,811 15,651 24,591
Interest expense............... 8,182 14,708 34,842 47,116 57,487 14,292 14,134
Minority interests............. 336 526 4,879 (6,916) (26,205) (4,606) (7,843)
Net income (loss).............. 9,635 6,953 (24,839) (40,213) 6,561 (2,537) 2,921
OTHER DATA:
EBITDA(a)(b)................... $ 39,529 $ 53,939 $ 29,548 $ 51,203 $ 121,247 $ 23,717 $ 34,864
Adjusted EBITDA(c)............. -- -- 29,266 36,777 81,536 15,757 23,914
Depreciation and
amortization................. 9,846 20,450 22,416 33,292 33,436 8,066 8,473
Capital expenditures........... 112,013 71,854 97,409 117,444 34,051 15,107 4,130
Cash provided by (used in):
Operating activities......... 24,783 49,564 (7,460) 31,628 81,663 21,466 30,237
Investing activities......... (118,714) (86,644) (179,810) (72,567) (14,181) (8,212) (4,130)
Financing activities......... 104,818 34,948 209,395 62,009 (36,979) (8,307) (10,028)
Ratio of EBITDA to interest
expense...................... 4.8x 3.7x 0.8x 1.1x 2.1x 1.7x 2.5x
Ratio of total debt to LTM
EBITDA....................... 2.9x 3.1x 12.9x 8.8x 3.5x 7.0x 3.2x
Ratio of Adjusted EBITDA to
Adjusted Interest
Expense(c)................... -- -- 0.8x 0.9x 1.7x 1.3x 1.9x
Ratio of Adjusted Total Debt to
Adjusted LTM EBITDA(c)....... -- -- 12.2x 10.1x 4.5x 8.5x 4.1x
Ratio of earnings to fixed
charges(d)(e)................ 2.3x 1.5x -- -- 1.5x 1.1x 1.7x
PRO FORMA DATA(F):
Pro forma ratio of EBITDA to interest expense.............................. 2.6x 3.1x
Pro forma ratio of total debt to LTM EBITDA................................ 3.5x 3.2x
Pro forma ratio of Adjusted EBITDA to
Adjusted Interest Expense................................................ 2.2x 2.5x
Pro forma ratio of Adjusted Total Debt to
Adjusted LTM EBITDA...................................................... 4.6x 4.1x
Pro forma ratio of earnings to fixed charges............................... 1.8x 2.1x
SEE FOOTNOTES ON FOLLOWING PAGES.
11
AS OF DECEMBER 31, AS OF MARCH 31, 1999
----------------------------------------------------- ----------------------
1994 1995 1996 1997 1998 ACTUAL AS ADJUSTED
--------- --------- --------- --------- --------- --------- -----------
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents....... $ 18,291 $ 16,159 $ 38,284 $ 59,354 $ 89,857 $ 105,936 $ 68,313
Total assets.................... 232,831 309,882 532,159 559,856 562,752 573,806 537,654
Long-term debt including current
maturities.................... 115,431 169,702 380,208 449,790 424,000 419,537 421,805
Total stockholders' equity...... 90,587 97,540 72,701 32,663 40,863 49,190 10,770
AS OF MARCH 31, 1999
-----------------------------------------------------------
SLOTS AND VIDEO
OPERATING DATA: CASINO SQUARE FOOTAGE POKER MACHINES GAMING TABLES
- ---------------------------------------------------------------- --------------------- ----------------- -----------------
PROPERTY
Argosy Casino Lawrenceburg...................................... 74,300 2,000 104
Alton Belle Casino.............................................. 22,800 700 32
Argosy Casino of Greater Kansas City............................ 36,000 1,100 45
Belle of Baton Rouge Casino..................................... 28,000 750 42
Belle of Sioux City Casino...................................... 12,500 450 23
------- ----- ---
Total......................................................... 173,600 5,000 246
------- ----- ---
------- ----- ---
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
(IN THOUSANDS)
CASINO REVENUES
Argosy Casino Lawrenceburg..................... $ 3,930 $ 127,908 $ 264,352 $ 55,570 $ 73,079
Alton Belle Casino............................. 72,369 61,877 67,798 17,029 18,109
Argosy Casino of Greater Kansas City........... 82,247 61,750 71,955 18,359 19,198
Belle of Baton Rouge Casino.................... 51,007 47,628 46,828 12,104 12,579
Belle of Sioux City Casino..................... 18,835 20,667 22,572 5,261 6,163
--------- --------- --------- --------- ---------
Total........................................ $ 228,388 $ 319,830 $ 473,505 $ 108,323 $ 129,128
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
NET REVENUES
Argosy Casino Lawrenceburg..................... $ 4,412 $ 137,024 $ 284,721 $ 59,751 $ 78,469
Alton Belle Casino............................. 77,933 67,208 72,064 18,058 18,993
Argosy Casino of Greater Kansas City........... 88,473 66,548 76,960 19,614 20,415
Belle of Baton Rouge Casino.................... 53,420 50,436 49,054 12,704 13,026
Belle of Sioux City Casino..................... 19,887 21,672 23,526 5,477 6,369
Other.......................................... 692 1,195 343 96 119
--------- --------- --------- --------- ---------
Total........................................ $ 244,817 $ 344,083 $ 506,668 $ 115,700 $ 137,391
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
INCOME (LOSS) FROM OPERATIONS(B)
Argosy Casino Lawrenceburg..................... $ 334 $ 25,625 $ 87,907 $ 17,287 $ 24,424
Alton Belle Casino............................. 12,240 7,489 13,850 3,393 3,982
Argosy Casino of Greater Kansas City........... 9,410 2,481 5,369 614 2,035
Belle of Baton Rouge Casino.................... 3,507 (4,146) (3,381) (1,457) (107)
Belle of Sioux City Casino..................... 295 848 1,919 264 845
Jazz(g)........................................ (3,435) (4,655) (6,312) (1,220) (1,231)
Corporate...................................... (14,207) (11,432) (9,990) (2,863) (3,226)
Other.......................................... (1,012) 1,701 (1,551) (367) (331)
--------- --------- --------- --------- ---------
Total........................................ $ 7,132 $ 17,911 $ 87,811 $ 15,651 $ 26,391
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
12
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
(IN THOUSANDS)
EBITDA(A)(B):
Argosy Casino Lawrenceburg................... $ 750 $ 38,471 $ 105,674 $ 21,227 $ 29,199
Alton Belle Casino........................... 16,446 11,944 17,835 4,357 5,008
Argosy Casino of Greater Kansas City......... 16,134 8,428 11,293 2,091 3,494
Belle of Baton Rouge Casino.................. 9,151 1,322 1,891 (164) 1,264
Belle of Sioux City Casino................... 1,141 1,861 3,016 518 1,125
Jazz(g)...................................... (2,053) (2,301) (3,633) (569) (556)
Corporate.................................... (12,520) (9,324) (9,436) (2,657) (3,219)
Lawrenceburg financial advisory fee(h)....... (38) (1,924) (5,200) (1,061) (1,460)
Other........................................ 537 2,726 (193) (25) 9
--------- --------- --------- --------- ---------
Total...................................... $ 29,548 $ 51,203 $ 121,247 $ 23,717 $ 34,864
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
- ------------------------
(a) EBITDA is defined as earnings before interest, taxes, depreciation and
amortization. EBITDA should not be construed as an alternative to operating
income or net income (as determined in accordance with generally accepted
accounting principles) as an indicator of the Company's operating
performance, or as an alternative to cash flows generated by operating,
investing and financing activities (as an indicator of cash flow or a
measure of liquidity). EBITDA is presented solely as a supplemental
disclosure because management believes that it is a widely used measure of
operating performance in the gaming industry and for companies with a
significant amount of depreciation and amortization. EBITDA may not be
comparable to similarly titled measures reported by other companies. The
Company has other significant uses of cash flows, including debt service and
capital expenditures, which are not reflected in EBITDA.
(b) Excludes one time charges of approximately $6.7 million for the year ended
December 31, 1994, $5.8 million for the year ended December 31, 1995, $17.9
million for the year ended December 31, 1996, $11.4 million for the year
ended December 31, 1997 and $1.8 million for the three months ended March
31, 1999. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
13
(c) The following table reflects adjustments necessary to calculate Adjusted
EBITDA, Adjusted Total Debt and Adjusted Interest Expense after
consideration of the Lawrenceburg minority interests. Adjusted EBITDA is
presented to reflect the elimination of that portion of EBITDA that is
attributable to the minority partners of the Lawrenceburg casino. Similarly,
Adjusted Total Debt and total interest expense eliminate that portion of
total debt and total interest expense owed or attributable to the minority
partners of the Lawrenceburg casino.
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
(IN THOUSANDS)
EBITDA
As reported....................... $ 29,548 $ 51,203 $ 121,247 $ 23,717 $ 34,864
Deduct EBITDA attributable to
Lawrenceburg minority
interests....................... (282) (14,426) (39,712) (7,960) (10,950)
--------- --------- --------- --------- ---------
Adjusted EBITDA................. $ 29,266 $ 36,777 $ 81,535 $ 15,757 $ 23,914
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
TOTAL DEBT
As reported....................... $ 380,208 $ 449,790 $ 424,000 $ 443,634 $ 419,537
Deduct Lawrenceburg partner
loans........................... (23,197) (67,134) (45,196) (61,897) (41,826)
Deduct 42.5% Lawrenceburg vessel
loan............................ -- (10,625) (9,225) (10,287) (8,841)
--------- --------- --------- --------- ---------
Adjusted Total Debt............. $ 357,011 $ 372,031 $ 369,579 $ 371,450 $ 368,870
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
TOTAL INTEREST EXPENSE
As reported....................... $ 34,842 $ 47,116 $ 57,487 $ 14,292 $ 14,134
Deduct interest on Lawrenceburg
partner loans................... (254) (6,667) (8,166) (2,236) (1,629)
Deduct 42.5% of interest on
Lawrenceburg vessel loan........ -- (36) (945) (245) (213)
--------- --------- --------- --------- ---------
Adjusted Total Interest
Expense....................... $ 34,588 $ 40,413 $ 48,376 $ 11,811 $ 12,292
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
(d) The ratio of earnings to fixed charges has been computed by dividing
earnings available for fixed charges (income before income taxes plus fixed
charges less capitalized interest and preferred equity return to
Lawrenceburg partner) by fixed charges (interest expense plus capitalized
interest plus preferred equity return to Lawrenceburg partner and one third
of rental expense (the portion deemed representative of the interest
factor)).
(e) The Company's earnings were inadequate to cover fixed charges for the years
ended 1996 and 1997 by approximately $45.9 million, and $45.3 million
respectively.
(f) The pro forma data for the year ended December 31, 1998 and for the three
months ended March 31, 1999 gives effect to the offering of the outstanding
notes, initial borrowings of $130.0 million under the credit facility; the
repurchase of the 13 1/4% first mortgage notes and the redemption of the 12%
convertible subordinated notes. The pro forma data assumes that such
transactions occurred on January 1, 1998, in the case of the year ended
December, 1998 and on January 1, 1999 in the case of the three months ended
March 31, 1999 and reflect a net reduction in interest expense and
amortization of debt issue costs.
(g) Jazz Enterprises, Inc. is our wholly-owned subsidiary which owns Catfish
Town.
(h) The Lawrenceburg joint-venture subsidiary pays a financial advisory fee
equal to 5.0% of its EBITDA to a minority partner.
14
Chart outlining organizational structure of Argosy Gaming Company and its
subsidiaries
15
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS AND OTHER INFORMATION IN
THIS PROSPECTUS BEFORE DECIDING TO TENDER YOUR OUTSTANDING NOTES IN THE EXCHANGE
OFFER.
SUBSTANTIAL LEVERAGE--OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT
OUR FINANCIAL CONDITION AND PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER
THESE EXCHANGE NOTES.
We have a substantial amount of indebtedness. The following table shows
certain important credit statistics. The amounts reflect our refinancing by
repurchasing approximately 90% of our 13 1/4% first mortgage notes, redeeming
our 12% convertible subordinated notes, borrowing $130.0 million under our
credit facility and completing the offering of the outstanding notes as of the
date specified below:
MARCH 31, 1999
----------------------
ACTUAL PRO FORMA
--------- -----------
(IN THOUSANDS)
Long term debt, including current portion............................... $ 419,537 $ 421,805
Stockholders' equity.................................................... 49,190 10,770
Debt to capitalization ratio............................................ 0.9x 1.0x
MARCH 31, 1999
--------------------------
ACTUAL PRO FORMA
----------- -------------
Ratio of earnings to fixed charges......................................... 1.7x 2.1x
Our substantial indebtedness could have important consequences to you. For
example, it could:
- make it more difficult for us to perform our obligations with respect to
these notes;
- increase our vulnerability to general adverse economic and industry
conditions;
- require us to dedicate a substantial portion of our cash flow from
operations to payments on our indebtedness, thereby reducing amounts
available for working capital, capital expenditures and other general
corporate purposes;
- limit our flexibility in planning for, or reacting to changes in our
business and the industry in which we operate;
- place us at a competitive disadvantage compared to our competitors that
have less debt; and
- limit our ability to borrow additional funds.
ABILITY TO SERVICE DEBT AND LIQUIDITY--WE WILL REQUIRE A SIGNIFICANT AMOUNT
OF CASH TO SERVICE OUR INDEBTEDNESS. OUR ABILITY TO GENERATE CASH DEPENDS ON
MANY FACTORS BEYOND OUR CONTROL.
Our ability to make payments on and to refinance our indebtedness, including
the exchange notes and the credit facility, will depend on our ability to
generate cash in the future. Our ability to generate cash is subject to general
economic, financial, competitive, legislative, regulatory and other factors that
are beyond our control.
We cannot assure you that our business will generate sufficient cash flow or
that future borrowings will be available to us in an amount sufficient to enable
us to pay our indebtedness, including these exchange notes, or to fund our other
liquidity needs including the possible expansions and maintenance of our
riverboat casinos and future developments. We may need to refinance all or a
portion of our indebtedness, including these exchange notes and the credit
facility, on or before maturity. We cannot assure you that we will be able to
refinance any of our indebtedness, including these exchange notes and our credit
facility, on commercially reasonable terms or at all.
16
ADDITIONAL BORROWINGS AVAILABLE--DESPITE OUR SIGNIFICANT INDEBTEDNESS, WE
AND OUR SUBSIDIARIES MAY STILL BE ABLE TO INCUR SUBSTANTIALLY MORE DEBT. THIS
COULD FURTHER EXACERBATE THE RISKS DESCRIBED ABOVE.
We and our subsidiaries may be able to incur substantial additional
indebtedness in the future. For example, the indenture permits us to increase
the borrowing availability of the credit facility by $75 million for general
corporate purposes and a further $150 million to fund potential offers to
purchase the minority interests in our Lawrenceburg partnership, for a total of
up to $425 million. The increases in availability are subject to a number of
contingencies, including lender approval. All of the borrowings under the credit
facility will be senior to the exchange notes and the guarantees of our
subsidiary guarantors. If new debt is added to our current debt levels, the
related risks that we now face could intensify.
SUBORDINATION--YOUR RIGHT TO RECEIVE PAYMENTS ON THE EXCHANGE NOTES WILL BE
JUNIOR TO THE CREDIT FACILITY AND POSSIBLY ALL OF OUR FUTURE BORROWINGS.
FURTHER, THE GUARANTEES OF THESE EXCHANGE NOTES ARE JUNIOR TO ALL OF THE
GUARANTOR SUBSIDIARIES' EXISTING INDEBTEDNESS TO THE SUBSIDIARIES' GUARANTEES OF
THE CREDIT FACILITY AND POSSIBLY TO ALL OF THEIR FUTURE BORROWINGS.
The exchange notes will be junior to all of our existing and future
indebtedness, other than trade payables and any future indebtedness that
expressly provides that it ranks equal with or junior to the exchange notes. The
guarantees will be junior to all of the guarantor subsidiaries' existing and
future indebtedness, other than trade payables and any future indebtedness that
expressly provides that it ranks equal with or junior to the guarantees. As a
result, upon any distribution to our creditors in a bankruptcy, liquidation or
reorganization or similar proceeding relating to us or a subsidiary guarantor,
the holders of senior indebtedness will be entitled to be paid in full in cash
before any payment may be made on the exchange notes or the guarantees.
In addition, all payments on the exchange notes and the guarantees will be
blocked in the event of a payment default under the credit facility and may be
blocked for up to 179 of 360 consecutive days in the event of non-payment
defaults on senior debt. In the event of a default on the exchange notes and any
resulting acceleration of the exchange notes, the holders of senior indebtedness
then outstanding will be entitled to payment in full in cash of all obligations
in respect of such senior indebtedness before any payment or distribution may be
made with respect to the exchange notes.
In the event of a bankruptcy, liquidation or reorganization or similar
proceeding relating to us or the subsidiary guarantors, you will participate
with trade creditors and all other holders of subordinated indebtedness in the
assets remaining after we have paid all of the senior debt. However, because the
indenture requires that amounts otherwise payable to holders of the exchange
notes in a bankruptcy or similar proceeding be paid to holders of senior debt
instead, you may receive less, ratably, than holders of trade payables in any
such proceeding. In any of these cases, we may not have sufficient funds to pay
all of our creditors and holders of exchange notes may receive less, ratably,
than the holders of senior debt.
At July 7, 1999, upon funding the redemption of our 12% convertible
subordinated notes, the exchange notes were subordinated to $152.2 million of
senior debt, and approximately $70.0 million was available for borrowing as
additional senior debt under our credit facility. Since some of our subsidiaries
will not guarantee the exchange notes, the exchange notes will be effectively
junior to all debt and other liabilities of these non-guarantor subsidiaries. In
the event of a bankruptcy, liquidation, reorganization or similar proceeding
relating to any of our non-guarantor subsidiaries, holders of their debt and
their trade creditors will generally be entitled to payment of their claims from
the assets of those subsidiaries before any assets are made available for
distribution to our creditors. The indenture allows us to borrow substantial
additional indebtedness in the future, including senior debt.
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ENCUMBRANCES ON ASSETS--IN ADDITION TO THE EXCHANGE NOTES BEING JUNIOR TO
THE CREDIT FACILITY AND POSSIBLY ALL OF OUR FUTURE BORROWINGS, THE EXCHANGE
NOTES WILL NOT BE SECURED BY ANY OF OUR ASSETS. FURTHER, OUR ASSETS WILL SECURE
THE CREDIT FACILITY AND POSSIBLY OTHER DEBT.
In addition to being subordinated to all of our existing and future
indebtedness, other than trade payables and any future indebtedness that
expressly provides that it ranks equal with, or subordinated in right of payment
to, the exchange notes, the exchange notes will not be secured by any of our
assets or any of the assets of our guarantor subsidiaries. Our obligations under
the credit facility will be secured by liens on substantially all of our assets.
If we become insolvent or are liquidated, or if payment under the credit
facility or of other secured obligations is accelerated, the lenders under the
credit facility or the obligees with respect to the other secured obligations
will be entitled to exercise the remedies available to a secured lender under
applicable law and the applicable agreements and instruments. Accordingly, our
secured lenders will have a prior claim with respect to our pledged assets and
the assets of the guarantor subsidiaries and there may not be sufficient assets
remaining to pay amounts due on the exchange notes then outstanding or to
satisfy the obligations under the guarantees.
RESTRICTIVE LOAN COVENANTS--RESTRICTIVE COVENANTS IN THE CREDIT FACILITY AND
THE INDENTURE MAY RESTRICT OUR ABILITY TO PURSUE OUR BUSINESS STRATEGIES. OUR
ABILITY TO COMPLY WITH THESE RESTRICTIONS DEPENDS ON MANY FACTORS BEYOND OUR
CONTROL.
The indenture and the credit facility will include certain restrictive
covenants that, among other things, restrict our ability to:
- borrow money;
- pay dividends on, redeem or repurchase our capital stock;
- make investments;
- incur liens on our assets to secure debt;
- merge or consolidate with another company; and
- transfer or sell our assets.
We will also be required by the credit facility to maintain certain
financial ratios, including maximum debt to EBITDA ratios and minimum fixed
charge coverage ratios. All of these restrictive covenants may restrict our
ability to make capital expenditures or to pursue other business strategies. Our
ability to comply with these and other provisions of the indenture and the
credit facility may be affected by changes in business condition or results of
operations, adverse regulatory developments or other events beyond our control.
The breach of any of these covenants could result in a default under our
indebtedness, which could cause those obligations to become due and payable. If
we default under our credit facility, we could be prohibited from making
payments with respect to the exchange notes until the default is cured or all
indebtedness under the credit facility or other senior debt is paid in full. If
our indebtedness were to be accelerated, there can be no assurance that we would
be able to repay it.
DEPENDENCE ON RESULTS OF LAWRENCEBURG CASINO--UNTIL THE LAWRENCEBURG CASINO
OPENED, WE HAD A RECENT HISTORY OF LOSSES.
We returned to profitability in 1998 and reported net income $6.6 million,
after reporting net losses of $24.8 million and $40.2 million in 1996 and 1997,
respectively. Our prior period losses were principally the result of substantial
interest expense incurred during the period when the Lawrenceburg casino was
under construction. The return to profitability in 1998 was due to earnings
generated by our Lawrenceburg casino, which moved from a temporary site to its
permanent site in December 1997 and became fully operational in June 1998 with
the completion of its hotel and permanent pavilion. During 1998, the
Lawrenceburg casino represented 56.2% of our net revenues and 82.9% of our
EBITDA,
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after taking into consideration management fees paid to a minority partner. Our
ability to maintain positive net income in the future and to meet our operating
and debt service requirements is substantially dependent upon the continued
success of the Lawrenceburg casino. The Lawrenceburg casino's operations could
be adversely affected by numerous factors including,
- increased competition;
- changes in applicable gaming or taxation regulations;
- adoption of gaming in the adjacent states of Ohio or Kentucky; and
- the occurrence of natural disasters, including flooding along the Ohio
River.
CERTAIN RISKS UNDER THE LAWRENCEBURG CASINO PARTNERSHIP AGREEMENT--THE
AGREEMENT CONTAINS PROVISIONS REQUIRING US TO BUY OUT OUR PARTNERS OR SELL OUR
PARTNERSHIP INTEREST AND REQUIRING OUR REMOVAL AS GENERAL PARTNER IN CERTAIN
CIRCUMSTANCES.
PARTNERSHIP INTEREST BUY-SELL OBLIGATIONS. The Lawrenceburg partnership
agreement provides that: (i) after December 10, 1999, each limited partner has
the right to sell its interest to the other partners (pro rata in accordance
with their respective percentage interests) or (ii) at any time after a deadlock
by the partners with respect to significant items in any annual operating budget
of the partnership for budget year 1999 and thereafter, any partner has a right
to sell its interest to the other partners.
After a partner gives notice of its intent to sell, the partners have 60
days to attempt in good faith to agree to a purchase price. If no agreement is
reached within 60 days, then the selling partner's interest is appraised to
determine its fair market value. After the appraised fair market value is
determined, the other partners have 60 days to reject a purchase of the interest
at that price. After such a rejection, the general partner is required to
solicit bids and sell all of the assets of the Lawrenceburg partnership within
twelve months to the highest bidder and following such sale, dissolve the
Lawrenceburg partnership.
No assurance can be given that we will have sufficient funds to acquire any
selling partner's interest in the circumstances provided for above or that we
will choose to make such a purchase. In such an event, the assets of the
Lawrenceburg partnership would have to be sold to the highest bidder as provided
above, which could result in our losing control of the Lawrenceburg casino. If
we sold the assets of the Lawrenceburg partnership, any outstanding amounts
under the credit facility would be accelerated. In addition, the indenture
provides that upon certain sales of our partnership interest in, or the assets
of, the Lawrenceburg partnership, we must either make an offer to repurchase an
amount of exchange notes such that the Debt to EBITDA Ratio would be no greater
than 3.5 to 1, or the Company may call all, but not less than all of the
exchange notes, in each case at the prices set forth in "Description of the
Exchange Notes--Certain Covenants--Repurchase of the Exchange Notes in
Connection with Sale of Lawrenceburg Interest." Certain other sales of such
partnership interest or assets will require us to comply with the covenant
described below under "Description of the Exchange Notes--Certain
Covenants--Limitation on Asset Sales."
In addition, the partnership agreement provides all partners with a right of
first refusal on transfers of any partnership interest. A foreclosure by a
secured creditor, such as the lenders under the credit facility, would
constitute a transfer of our partnership interest and under the partnership
agreement would provide all partners a right of first refusal to purchase that
partnership interest.
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REMOVAL AS GENERAL PARTNER. The Lawrenceburg partnership agreement provides
that our wholly-owned subsidiary, The Indiana Gaming Company, can be removed as
general partner of the partnership by the limited partners under certain limited
circumstances, including:
- a material breach (after notice and expiration of applicable cure periods)
of certain material provisions of the partnership agreement dealing with
such things as distributions to partners or the failure to obtain the
required consent of the limited partners for certain major decisions;
- if the general partner is convicted of embezzlement or fraud;
- certain bankruptcy events;
- if our partnership interest in the Lawrenceburg partnership is less than
40% due to sales or dilution for failure to pay required capital;
- a final unappealable judgment against The Indiana Gaming Company in excess
of $25 million which is uninsured and remains unsatisfied, unreleased or
unstayed for 180 days;
- certain acts by the general partner constituting "gross mismanagement;"
and
- if a secured creditor, such as the lenders under the credit facility, were
to foreclose on the pledge of our partnership interest in the Lawrenceburg
partnership.
Upon removal of The Indiana Gaming Company, as general partner, its general
partnership interest becomes a "special limited partner" interest with rights to
partner distributions but only limited voting rights on partnership matters.
Also, if the reason for the removal is an event described above, other than a
less than 40% ownership, the limited partners may acquire all, but not less than
all, of The Indiana Gaming Company's interest for fair market value as
determined by an appraisal process.
If we are forced to sell our partnership interest, we may be required to
call or make an offer to purchase the Notes. See "Description of the Exchange
Notes--Certain Covenants--Repurchase of the Exchange Notes in Connection with
Sale of Lawrenceburg Interest". Our business could be adversely affected if we
are removed as general partner or if we are forced to sell our partnership
interest.
COMPETITION--WE FACE INTENSE COMPETITION IN EACH OF OUR GAMING MARKETS.
The United States gaming industry is intensely competitive and features many
participants, including riverboat casinos, dockside casinos, land-based casinos,
video lottery and poker machines not located in casinos, Native American gaming
and other forms of gambling in the United States. Gaming competition is
particularly intense in each of the markets where we operate. Historically, we
have been an early entrant in each of our markets; however, as competing
properties have opened, our operating results in each of these markets have been
negatively affected. Many of our competitors have more gaming industry
experience, are larger and have significantly greater financial and other
resources. In addition, some of our direct competitors in certain markets may
have superior facilities and/or operating conditions in terms of: (i) dockside
versus cruising riverboat gaming; (ii) multiple riverboat casinos, which feature
more continuous boarding; (iii) amenities offered at the gaming facility and the
related support and entertainment facilities; (iv) convenient parking
facilities; (v) a location more favorably situated to the population base of a
market and ease of accessibility to the casino site; and (vi) favorable tax or
regulatory factors.
There could be further competition in our markets as a result of the
upgrading or expansion of facilities by existing market participants, the
entrance of new gaming participants into a market or legislative changes. We
expect each market in which we participate to be highly competitive. The
following paragraphs summarize the specific competitive environment in which
each of our riverboat casinos operate.
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ARGOSY CASINO LAWRENCEBURG. The Lawrenceburg casino currently faces
competition from one other riverboat casino in the Cincinnati market. In
addition, a riverboat casino opened in November 1998 in the Louisville, Kentucky
area approximately 100 miles from Lawrenceburg and a riverboat casino is
expected to open in 2000 approximately 45 miles from Lawrenceburg in Switzerland
County, Indiana.
ALTON BELLE CASINO. Our Alton casino faces competition from five riverboat
casino companies currently operating in the St. Louis area. Four of these
competitors are located in Missouri and one is located in Illinois.
ARGOSY CASINO OF GREATER KANSAS CITY. Our casino in Kansas City faces
competition from three casinos in the Kansas City area. Two of our competitors
operate two gaming vessels each, which allows them to offer more continuous
boarding than we are able to provide with one vessel. There was an additional
competitor in the Kansas City market that closed its facility in July 1998.
BELLE OF BATON ROUGE. Our Baton Rouge casino faces competition from a
casino located in downtown Baton Rouge, a nearby Native American casino and
multiple casinos throughout Louisiana.
BELLE OF SIOUX CITY. We compete with certain providers and operators of
video gaming in the neighboring state of South Dakota. In addition, we face
competition from two land-based Native American casinos, slot machines at a
pari-mutuel race track in Council Bluffs, Iowa and two riverboat casinos in the
Council Bluffs, Iowa/Omaha, Nebraska market.
POTENTIAL FOR FUTURE COMPETITION. Casino gaming is currently prohibited or
restricted in several states adjacent to Indiana, Iowa and Missouri. As a
result, residents of these states, principally Ohio, Kentucky, Nebraska and
Kansas, comprise a significant portion of the patrons at our Lawrenceburg, Sioux
City and Kansas City casinos. The legalization of casino gaming in Ohio or
Kentucky would increase competition with respect to the Lawrenceburg casino
because a substantial portion of the Lawrenceburg casino's customers live in
Ohio and Kentucky. The legalization of casino gaming in Kansas would increase
competition with respect to our Kansas City casino because residents of Kansas
comprise a significant portion of our target market. In early 1999, the Kansas
state legislature failed to pass a bill which would have authorized casino
gaming within its borders.
GAMING REGULATION--OUR OPERATIONS ARE STRICTLY REGULATED BY STATE AND LOCAL
AUTHORITIES.
LICENSING AND REGULATION BY GAMING AND LOCAL AUTHORITIES. The ownership and
operation of casino gaming facilities are subject to extensive state and local
regulation. These regulations apply not only to us, but also to our
subsidiaries, stockholders and officers and directors. The Illinois Gaming
Board, the Indiana Gaming Commission, the Iowa Racing and Gaming Commission, the
Louisiana Gaming Control Board and the Missouri Gaming Commission (herein
collectively referred to as "Applicable Gaming Commissions") have broad
discretion to, among other things, limit, condition, suspend, fail to renew or
revoke a gaming license or approval to own an equity interest in the Company or
our subsidiaries, for any cause they deem reasonable. The suspension, failure to
renew or revocation of any of our licenses or the levy on us of substantial
fines or forfeiture of assets would have a material adverse effect on our
business.
To date, we have obtained all governmental licenses, registrations, permits
and approvals necessary for the operation of our current gaming activities.
Gaming licenses and related approvals are deemed to be privileges under the laws
of our licensing states. We cannot assure you that the Applicable Gaming
Commissions will renew or not revoke our existing licenses or that they will
grant us any new licenses, permits or approvals that may be required in the
future. In addition, the loss of a license in one jurisdiction could trigger the
loss of a license or affect our eligibility for a license in another
jurisdiction.
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The approval of the Applicable Gaming Commissions is required for any
material debt or equity financing. We cannot assure you that we will obtain the
required approvals for future financings.
RISK OF ADVERSE CHANGES IN LAWS AND REGULATIONS. Regulations governing the
conduct of gaming activities and the obligations of gaming companies in any
jurisdiction in which we have gaming operations are subject to change and could
impose additional operating, financial or other burdens on the way we conduct
our business. Moreover, legislation to prohibit or limit gaming may be
introduced in the future in states where gaming has been legalized. The
enactment of any such legislation or adverse regulatory changes in jurisdictions
where we operate gaming facilities could have a material adverse effect on our
business.
GAMING TAXATION AND FEES. We believe that the prospect of significant
additional tax revenue is one of the primary reasons why new jurisdictions have
legalized gaming. As a result, gaming operators are typically subject to
significant taxes and fees in addition to normal federal and state corporate
income taxes. These taxes and fees are subject to increase at any time. We pay
substantial taxes and fees with respect to our operations and will likely incur
similar burdens in any other jurisdiction in which we conduct gaming operations
in the future. Any material increase, or the adoption of additional taxes or
fees, could have a material adverse effect on our future financial results. For
example, Illinois introduced a graduated tax structure on gaming revenues in
1998 that resulted in an increase in the gaming taxes paid by certain Illinois
casino operators other than us.
FRAUDULENT CONVEYANCE MATTERS--FEDERAL AND STATE STATUTES ALLOW COURTS,
UNDER SPECIFIC CIRCUMSTANCES, TO VOID GUARANTEES AND REQUIRE NOTEHOLDERS TO
RETURN PAYMENTS RECEIVED FROM GUARANTORS.
Under the federal bankruptcy law and comparable provisions of state
fraudulent transfer laws, a guarantee could be voided, or claims in respect of a
guarantee could be subordinated to all other debts of that guarantor if the
guarantor at the time it incurred the indebtedness evidenced by its guarantee:
- received less than reasonably equivalent value or fair consideration for
the incurrence of such guarantee and was insolvent or rendered insolvent
by reason of such incurrence;
- was engaged in a business or transaction for which the guarantor's
remaining assets constituted unreasonably small capital; or
- intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they mature.
In addition, any payment by that guarantor pursuant to its guarantee could
be voided and required to be returned to the guarantor, or to a fund for the
benefit of the creditors of the guarantor.
The measures of insolvency for purposes of these fraudulent transfer laws
will vary depending upon the law applied in any proceeding to determine whether
a fraudulent transfer has occurred. Generally, however, a guarantor would be
considered insolvent if:
- the sum of its debts, including contingent liabilities, was greater than
the fair saleable value of all of its assets;
- if the present fair saleable value of its assets was less than the amount
that would be required to pay its probable liability on its existing
debts, including contingent liabilities, as they become absolute and
mature; or
- it could not pay its debts as they become due.
The indenture requires that future subsidiaries guarantee the exchange
notes. These considerations will also apply to these guarantees.
22
On the basis of historical financial information, recent operating history
and other factors, we believe that each guarantor, after giving effect to its
guarantee of these exchange notes, and its guarantee of the credit facility will
not be insolvent, will not have unreasonably small capital for the business in
which it is engaged and will not have incurred debts beyond its ability to pay
such debts as they mature. We cannot assure you, however, as to what standard a
court would apply in making such determinations or that a court would agree with
our conclusions in this regard.
FINANCING CHANGE OF CONTROL OFFER--THE CREDIT FACILITY WILL PROHIBIT US FROM
PURCHASING ANY EXCHANGE NOTES. FURTHER, WE MAY NOT HAVE THE ABILITY TO RAISE THE
FUNDS NECESSARY TO FINANCE THE CHANGE OF CONTROL OFFER REQUIRED BY THE
INDENTURE.
Upon the occurrence of change of control events specified in the indenture,
we will be required to offer to repurchase all outstanding exchange notes.
Certain important corporate events such as leveraged recapitalizations, would
not constitute a change of control under the indenture. The credit facility
generally prohibits us from purchasing any exchange notes and will also provide
that specific change of control events will be a default under that agreement.
Any future credit or other debt agreements to which we become a party may
contain similar restrictions and provisions. If a change of control occurs at a
time when we are prohibited from purchasing exchange notes, we could seek the
consent of our lenders to purchase the exchange notes or we could attempt to
refinance the debt that contains that prohibition. However, we cannot assure you
that we will be able to obtain lender consent or refinance those borrowings.
Even if such a consent were obtained or the debt is refinanced, it is possible
that we will not have sufficient funds at the time of the change of control to
make the required repurchase of exchange notes. Our failure to purchase the
exchange notes would be a default under the indenture that would, in turn, be a
default under the credit facility and, potentially, other senior debt. If the
senior debt were to be accelerated, we may be unable to repay these amounts and
make the required repurchase of exchange notes. See "Description of the Exchange
Notes-- Repurchase at the Option of Holders."
LOSS OF A RIVERBOAT OR DOCKSIDE FACILITY FROM SERVICE--FLOODING, MECHANICAL
FAILURE, SEVERE WEATHER CONDITIONS OR COLLISION COULD DECREASE ATTENDANCE,
INCREASE EXPENSES AND INTERRUPT SERVICE AT OUR RIVERBOAT CASINOS.
Our revenues are generated primarily by gaming operations conducted on
riverboat casinos, which are supplemented by dockside entertainment and support
facilities. A riverboat or dockside facility could be lost from service for a
variety of reasons, including casualty, forces of nature, mechanical failure or
extended or extraordinary maintenance. In addition, our riverboats are subject
to risks generally associated with the movement of vessels on inland waterways,
including risks of collision or casualty due to river turbulence and traffic.
The areas in which our riverboats operate are subject to periodic flooding
that has caused us to experience decreased attendance and increased operating
expenses. Any flood or other severe weather condition could lead to the loss of
use of a riverboat or dockside facility for an extended period. In addition, a
significant portion of our land-based assets is not covered by flood insurance
and we do not currently have any business interruption insurance. The loss of
any riverboat from service, the inability to use a dockside facility or the loss
of parking or land-based facilities could have a material adverse effect on our
financial results.
U.S. Coast Guard regulations require a hull inspection for all riverboats at
five-year intervals. In the event that one of our riverboats failed its
inspection, the regulations would require us to remove the vessel from service
for repairs. Our riverboat located in Louisiana is due for this inspection in
mid-1999.
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PENDING INTERNAL REVENUE SERVICE AUDIT--AN ADVERSE RESULT IN A PENDING IRS
AUDIT COULD RESULT IN A SIGNIFICANT TAX LIABILITY.
As a result of an audit by the Internal Revenue Service of certain of our
predecessor entities, the IRS has proposed certain adjustments relating to the
1992 and 1993 tax years. The principal issues raised by the IRS involve the
status of a predecessor entity as an S-corporation and the deductibility of an
$8.5 million accommodation fee paid to William J. McEnery, a director and
significant shareholder of Argosy Gaming Company, in 1992 and 1993. The total
federal tax liability asserted by the IRS against us resulting from these
proposed adjustments is approximately $11.5 million, including interest through
March 31, 1999, but excluding penalties, if any. We have filed a protest with
the IRS and are vigorously contesting these proposed adjustments. While we
believe our predecessor entity has legal authority for its position that it met
the S-corporation requirements and properly deducted the accommodation fee, we
cannot assure you that its position will be upheld. An adverse judgment arising
from this contingent tax liability could have a material adverse effect on our
results of operations, financial position and cash flows. No provision has been
made for this contingency in our consolidated financial statements.
RISKS ASSOCIATED WITH UNDERPERFORMING BATON ROUGE CASINO--WE MAY HAVE TO
TAKE A CHARGE AGAINST THE BATON ROUGE CASINO'S LONG-LIVED ASSET VALUE IF ITS
OPERATING RESULTS DO NOT IMPROVE.
Our weakest performing asset is the Belle of Baton Rouge Casino and related
Catfish Town entertainment facility which is operated by our wholly-owned
subsidiary, Jazz Enterprises, Inc. Catfish Town provides the most convenient
access to our riverboat casino facility and as a result we keep the facility
climate controlled even though it is not fully utilized. In 1998, expenses
associated with operating Catfish Town produced $3.6 million of negative cash
flow. In addition, our Baton Rouge results are adversely affected by the terms
of a development agreement with the City of Baton Rouge. Under this agreement,
we are required to pay an incremental head tax of $2.50 per passenger until we
commence construction of a convention hotel near our facility. We recently
announced plans to construct a 300-room hotel in downtown Baton Rouge at a cost
of approximately $20 million. Construction will commence upon the approval of
the Baton Rouge Metropolitan Council. Once construction commences, the
incremental head tax will cease and we would save approximately $3 million
annually based on present passenger levels. We cannot assure you that we will
obtain approval of the hotel project or that the financial commitment required
of us will not exceed our original estimates.
RISKS ASSOCIATED WITH YEAR 2000 COMPUTER COMPLIANCE--OUR BUSINESS AND OUR
SUPPLIERS' BUSINESSES ARE HIGHLY DEPENDENT ON COMPUTER SYSTEMS. ANY COMPUTER
PROBLEMS DUE TO THE YEAR 2000 MAY ADVERSELY AFFECT OUR BUSINESS.
We use computer systems in virtually all areas of our operations. We have
determined that we will need to modify or replace significant portions of our
software so that our computer systems function properly with respect to dates in
the year 2000 and beyond. Furthermore, we are dependent on third-party software
for all of our major computer applications. Should we or certain of our vendors
not be "Y2K compliant," the operations of our riverboat casinos could be
disrupted for an indeterminate period of time, potentially having a material
adverse impact on results of operations. Possible consequences of our not being
Y2K compliant include, but are not limited to, problems with the updating and
accumulation of slot machine player marketing information. Additionally,
disruptions could occur to the compiling of financial information in our
back-office accounting, purchasing, inventory and payroll systems. Embedded
microchips in certain systems such as elevators, escalators and the heating,
ventilation and air conditioning could lead to interruptions in service. All of
these problems could inconvenience riverboat casino customers, resulting in a
loss of business.
We could also be exposed to a Y2K problem should certain of our suppliers
have disruptions to their operations due to Y2K problems. We do not consider
these problems to be as significant as those
24
with our own systems because in most instances we believe we could find
alternate vendors for our supplies. However, Y2K problems for certain suppliers,
such as utility providers, could result in disruptions to our riverboat casino
operations for an indeterminate period of time. Additionally, should providers
of financial services such as ATM's, credit card processing and credit card cash
advance experience Y2K problems, our operations could be adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000."
UNCERTAIN EFFECT OF NATIONAL GAMBLING IMPACT STUDY COMMISSION.
The United States Congress has established a National Gambling Impact and
Policy Commission to conduct a comprehensive study of the social and economic
impact of gaming in the United States. On June 18, 1999, the National Commission
issued a final report of its findings and conclusions, together with certain
recommendations for legislative and administrative action. Specifically, the
National Commission recommended a moratorium on the expansion of gaming. We do
not believe that the findings and recommendations of the National Commission
will have a material adverse effect on our business. However, we are unable at
this time to determine the ultimate disposition by Congress or state governments
of the National Commission's recommendations, or the impact, if any, the report
will have on us or the gaming industry in general.
LACK OF PUBLIC MARKET FOR THE NOTES--YOU MAY NOT BE ABLE TO SELL YOUR NOTES.
The outstanding notes were not registered under the Securities Act or under
the securities laws of any state and may not be resold unless they are
subsequently registered or an exemption from the registration requirements of
the Securities Act and applicable state securities laws is available. The
exchange notes will be registered under the Securities Act, but will constitute
a new issue of securities with no established trading market, and we cannot
assure you as to:
- the liquidity of any market that may develop;
- the ability of exchange note holders to sell their notes; or
- the price at which the exchange note holders would be able to sell their
notes. If such a market were to exist, the exchange notes may trade at
higher or lower prices than their principal amount or purchase price,
depending on many factors, including prevailing interest rates and the
market for similar debentures.
The notes are designated for trading among qualified institutional buyers in
The Portal-SM- Market. We understand that the Placement Agents presently intend
to make a market in the notes. However, they are not obligated to do so, and any
market-making activity with respect to the notes may be discontinued at any time
without notice. In addition, this market-making activity will be subject to the
limits imposed by the Securities Act and the Securities Exchange Act of 1934,
and may be limited during the exchange offer or the pendency of an applicable
shelf registration statement. We cannot assure you that an active trading market
will exist for the notes or that any trading market which does develop will be
liquid.
Outstanding notes that are not tendered or are tendered but not accepted
will, following the completion of the exchange offer, continue to be subject to
existing restrictions on transfer, and, upon completion of the exchange offer,
registration rights with respect to the outstanding notes will terminate. In
addition, any outstanding note holder who tenders in the exchange offer for the
purpose of participating in a distribution of the registered notes may be deemed
to have received restricted securities, and if so, will be required to comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction. To the extent that outstanding notes
are tendered and accepted in the exchange offer, the trading market for
untendered and tendered but unaccepted outstanding notes could be adversely
affected.
25
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
On June 8, 1999 we sold $200.0 million in principal amount at maturity of
the outstanding notes in a private placement through Morgan Stanley & Co.
Incorporated, Credit Suisse First Boston, SG Cowen and Banc One Capital Markets,
Inc. to a limited number of "Qualified Institutional Buyers," as defined under
the Securities Act of 1933. In connection with the sale of the outstanding
notes, we and Morgan Stanley & Co. Incorporated entered into a registration
rights agreement, dated as of June 8, 1999. Under that agreement, we must, among
other things, use our best efforts to file with the SEC a registration statement
under the Securities Act of 1933 covering the exchange offer and to cause that
registration statement to become effective under the Securities Act of 1933.
Upon the effectiveness of that registration statement, we must also offer each
holder of the outstanding notes the opportunity to exchange its securities for
an equal principal amount of exchange notes. You are a holder with respect to
the exchange offer if you are a person in whose name any outstanding notes are
registered on our books or any other person who has obtained a properly
completed assignment of outstanding notes from the registered holder.
We are making the exchange offer to comply with our obligations under the
registration rights agreement. A copy of the registration rights agreement has
been filed as an exhibit to the registration statement of which this prospectus
is a part.
In order to participate in the exchange offer, you must represent to Argosy
Gaming Company, among other things, that:
- you are not a broker-dealer;
- you are not participating in a distribution of the exchange notes; and
- you are not an "affiliate" of Argosy Gaming Company, as the term is
defined in Rule 144A under the Securities Act of 1933.
RESALE OF THE EXCHANGE NOTES
Based on previous interpretations by the staff of the SEC set forth in
no-action letters issued to third parties, we believe that the exchange notes
issued in the exchange offer may be offered for resale, resold and otherwise
transferred by you, except if you are our affiliate, without compliance with the
registration and prospectus delivery provisions of the Securities Act of 1933,
provided that the representations set forth in "Purpose and Effect of the
Exchange Offer" apply to you.
If you tender in the exchange offer with the intention of participating in a
distribution of the exchange notes, you cannot rely on the interpretation by the
staff of the SEC as set forth in the no-action letters and you must comply with
the registration and prospectus delivery requirements of the Securities Act of
1933 in connection with a secondary resale transaction. In the event that our
belief regarding resale is inaccurate, those who transfer exchange notes in
violation of the prospectus delivery provisions of the Securities Act of 1933
and without an exemption from registration under the federal securities laws may
incur liability under these laws. We do not assume, nor will we indemnify you
against, this liability.
The exchange offer is not being made to, nor will we accept surrenders for
exchange from, holders of compliance with the securities or blue sky laws of the
particular jurisdiction. Each broker-dealer that receives exchange notes for its
own account in exchange for outstanding notes, where the outstanding notes were
acquired by that broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of the exchange notes. In order to facilitate the
disposition of exchange notes by broker-dealers participating in the exchange
offer, we have agreed, subject to specific conditions, to make this prospectus,
as it may
26
be amended or supplemented from time to time, available for delivery by those
broker-dealers to satisfy their delivery obligations under the Securities Act of
1933.
TERMS OF THE EXCHANGE OFFER
Upon the terms and conditions in this prospectus, and in the accompanying
letter of transmittal, we will accept all outstanding notes validly tendered
prior to 5:00 p.m., New York City time, on the expiration date. We will issue
$1,000 in principal amount of exchange notes in exchange for an equal principal
amount of outstanding notes tendered and accepted in the exchange offer. You may
tender some or all of your outstanding notes tendered and accepted in the
exchange offer in any denomination of $1,000 or in integral multiples thereof.
In addition, in connection with any resales of exchange notes, any
broker-dealers who acquired outstanding notes for its own account as a result of
market-making activities or other trading activities must deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale of
the exchange notes. The SEC has taken the position that participating
broker-dealers may fulfill their prospectus delivery requirements for the
exchange notes other than a resale of an unsold allotment from the original
sales of outstanding notes, with the prospectus contained in the exchange offer
registration statement. Under the registration rights agreement we are required
to allow participating broker-dealers, and other persons, if any, subject to
similar prospectus delivery requirements, to use the prospectus contained in the
exchange offer registration statement in connection with the resale of exchange
notes. However, we are not required to amend or supplement this prospectus for a
period exceeding 90 days after the date of the last expiration date. "Expiration
Date" means 5:00 p.m. New York City time, on , 1999 unless we, in
our sole discretion, extended the exchange offer. If we do, the "expiration
date" will be 5:00 p.m. New York City time on the latest date to which the
exchange offer is extended. The expiration date will be at least 20 business
days from the date that this prospectus is mailed to the holders of the
outstanding notes. We have also agreed that in the event that either we do not
consummate the exchange offer or a shelf registration statement is not declared
effective on or prior to December 8, 1999, the interest rate of the outstanding
notes will be increased by one-half of one percent (.5%) per annum until the
earlier of the consummation of the exchange offer or the effectiveness of the
shelf registration statement.
If we consummate the exchange offer on or before December 8, 1999, we will
not be required to file a shelf registration statement to register any
outstanding notes, and the interest rate on any outstanding notes will remain at
the initial level of 10 3/4% per annum. The exchange offer will be deemed to
have been consummated upon our having exchanged, pursuant to the exchange offer,
exchange notes for all outstanding notes that have been properly tendered and
not withdrawn by the expiration date. In this event, holders of outstanding
notes not participating in the exchange offer who are seeking liquidity in their
investment would have to rely on exemptions to registration requirements under
the securities laws, including the Securities Act.
The form and terms of the exchange notes will be the same as the form and
terms of the outstanding notes except that the exchange notes will not bear
legends restricting the transfer thereof. The exchange notes will be issued
under and entitled to the benefits of the indenture.
As of the date of this prospectus, $200,000,000 aggregate principal amount
of the outstanding notes are outstanding and there is one registered holder
thereof. In connection with the issuance of the outstanding notes, we arranged
for the outstanding notes to be eligible for trading in the Private Offering,
Resale and Trading through Automated Linkages Market. The PORTAL market is the
National Association of Securities Dealers' screen based, automated market
trading of securities eligible for resale under Rule 144A. The exchange notes
will also be issuable and transferable in book-entry form through DTC.
27
We will be deemed to have accepted validly tendered outstanding notes when,
as and if we have given oral or written notice of acceptance to the exchange
agent. See "--Exchange Agent." The exchange agent will act as agent for the
tendering holders of outstanding notes for the purposes of receiving exchange
notes from us and delivering exchange notes to the holders.
If any tendered outstanding notes are not accepted for exchange because of
an invalid tender or the occurrence of certain other events described in this
prospectus, certificates for the unaccepted outstanding notes will be returned,
without expense, to the tendering holder as promptly as practicable after the
expiration date.
Holders of outstanding notes who tender in the exchange offer will not be
required to pay:
- brokerage commissions or fees; or
- transfer taxes with respect to the exchange of outstanding notes pursuant
to the exchange offer, subject to the instructions in the accompanying
letter of transmittal.
We will pay all charges and expenses, other than specified taxes, in
connection with the exchange offer. See "--Fees and Expenses."
Holders of outstanding notes do not have any appraisal or dissenters' rights
in connection with the exchange offer. We intend to conduct the exchange offer
in accordance with the provisions of the registration rights agreement and the
applicable requirements of the Exchange Act and the rules and regulations of the
SEC interpreting the Exchange Act. Outstanding notes that are not tendered for
exchange in the exchange offer will remain outstanding and be entitled and
continue to accrue interest, but will not be entitled to any rights or benefits
under the registration rights agreement. To the extent that outstanding notes
are tendered and accepted in the exchange offer, the trading market for
untendered and tendered but unaccepted outstanding notes could be adversely
affected.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "expiration date" means 5:00 p.m. New York City time, on
, 1999 unless we, in our sole discretion, extend the exchange offer.
If we do, the "expiration date" will be 5:00 p.m. New York City time on the
latest date to which the exchange offer is extended.
If we extend the expiration date, we will:
- notify the exchange agent of any extension by oral or written notice; and
- mail an announcement of the extension to the record holders of outstanding
notes prior to 9:00 a.m., New York City time, on the next business day
after the previously scheduled expiration date.
Any announcement may state that we are extending the exchange offer for a
specified period of time.
If any of the conditions listed under "Conditions to the Offer" occur and
are not waived by us, by giving oral or written notice to the exchange agent, we
reserve the right:
- to delay acceptance of any outstanding notes;
- to extend the exchange offer;
- to terminate the exchange offer;
- to refuse to accept outstanding notes not previously accepted, and
- to amend the terms of the exchange offer in any manner we deem to be
advantageous to the holders of the outstanding notes.
28
Any delay in acceptance, extension, termination or amendment will be
followed as promptly as possible by oral or written notice to the exchange
agent. If the exchange offer is amended in a manner we determine constitutes a
material change, we will promptly disclose the amendment in a way reasonably
calculated to inform you of the amendment.
Without limiting the manner in which we may choose to make public
announcements of any delay in acceptance, extension, termination or amendment of
the exchange offer, we have no obligation to publish, advertise, or otherwise
communicate any public announcement, other than by making a timely release to
the Dow Jones News Service.
INTEREST ON THE EXCHANGE NOTES
The exchange notes will bear interest from the last interest payment date on
which interest was paid on the outstanding notes. If interest has not yet been
paid, the outstanding notes will bear interest from June 8, 1999. Interest will
be paid with the first interest payment on the exchange notes. Interest on the
outstanding notes accepted for exchange will cease to accrue upon issuance of
the exchange notes.
The exchange notes will bear interest at a rate of 10 3/4% per annum.
Interest on the exchange notes will be payable semi-annually, in arrears, on
each June 1 and December 1 following the consummation of the exchange offer.
Untendered outstanding notes that are not exchanged for exchange notes pursuant
to the exchange offer will bear interest at a rate of 10 3/4% per annum after
the expiration date.
PROCEDURES FOR TENDERING OUTSTANDING NOTES
To tender in the exchange offer, you must do the following:
- complete, sign and date the letter of transmittal, or a facsimile of it;
- have the signatures guaranteed, if required by the letter of transmittal;
and
- mail or deliver the letter of transmittal, or the facsimile, together with
the outstanding notes and any other required documents, to the exchange
agent.
The exchange agent must receive these documents by 5:00 p.m., New York City
time, on the expiration date.
Any financial institution that is a participant in DTC's Book-Entry Transfer
Facility system may make book-entry delivery of the outstanding notes by causing
DTC to transfer the outstanding notes into the exchange agent's account via the
ATOP system in accordance with DTC's transfer procedure. Although delivery of
outstanding notes may be effected through book-entry transfer into the exchange
agent's account at DTC, the letter of transmittal, or its facsimile, with any
required signature guarantees and documents, must, in any case, be transmitted
to and received or confirmed by the exchange agent at its addresses in the
prospectus prior to 5:00 p.m., New York City time, on the expiration date.
DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH ITS PROCEDURES DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
Your tender of outstanding notes will constitute an agreement between you
and us in accordance with the terms and subject to the conditions in this
prospectus and in the letter of transmittal.
Delivery of all documents must be made to the exchange agent at its address
listed in this prospectus. Holders may also request that their respective
brokers, dealers, commercial banks, trust companies or nominees effect tender
for them.
The method of delivery of outstanding notes and the letter of transmittal
and all other required documents to the exchange agent is up to you. However,
you also bear the risks of non-delivery. Instead of delivery by mail, we
recommend that you use an overnight or hand delivery service. In all cases, you
should allow sufficient time to assure timely delivery. No letter of transmittal
should be sent to us.
29
Only a holder of outstanding notes may tender outstanding notes in the
exchange offer. The term "holder" with respect to the exchange offer means any
person in whose name outstanding notes are registered on our books or any other
person who has obtained a properly completed bond power from the registered
holder or any person whose outstanding notes are held of record by DTC who
desires to deliver the outstanding notes by book-entry transfer at DTC.
Any beneficial holder whose outstanding notes are registered in the name of
the holder's broker, dealer, commercial bank, trust company or other nominee and
who wishes to tender should contact the registered holder promptly and instruct
the registered holder to tender on the holder's behalf. If the beneficial holder
wishes to tender on the holder's own behalf, the beneficial holder must, prior
to completing and executing the letter of transmittal and delivering the
outstanding notes, either make appropriate arrangements to register ownership of
the outstanding notes in the holder's name or obtain a properly completed bond
power from the registered holder. The transfer of record ownership may take
considerable time.
Signatures on a letter of transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an "eligible institution" unless the outstanding
notes tendered are:
- tendered by a registered holder who has not completed the box entitled
"Special Issuance Instructions" or "Special Delivery Instructions" on the
letter of transmittal; or
- tendered for the account of an "eligible institution."
An eligible institution is:
- a member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc.;
- a commercial bank or trust company having an office or correspondent in
the United States, or an "eligible guarantor institution" within the
meaning of Rule 17Ad-15 under the Exchange Act; or
- an "eligible institution" that is a participant in a recognized medallion
signature guarantee program.
If the letter of transmittal is signed by a person other than the registered
holder of any outstanding notes listed therein, the outstanding notes tendered
must be endorsed or accompanied by appropriate bond powers which authorize that
person to tender the outstanding notes on behalf of the registered holder, in
either case signed as the name of the registered holder or holders appears on
the outstanding notes.
If the letter of transmittal or any outstanding notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, the person should indicate this when signing, and unless waived by us,
submit evidence satisfactory to us of that person's authority to so act with the
letter of transmittal.
We will determine, in our sole discretion, all questions as to the validity,
form, and eligibility, including time of receipt, acceptance and withdrawal of
the tendered outstanding notes. Our determination will be final and binding. We
reserve the absolute right to reject any all outstanding notes not properly
tendered or any outstanding notes of which our acceptant would, in the opinion
of our counsel, be unlawful. We also reserve the absolute right to waive any
irregularities or conditions of tender as to particular outstanding notes. Our
interpretation of the terms and conditions of the exchange offer, including the
instructions in the letter of transmittal, will be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of outstanding notes must be cured within the time as we determine. Neither we,
the exchange agent nor any other person is under any duty to give notification
of defects or irregularities with respect to tenders of outstanding notes.
Additionally, none of them will incur any liability for failure to give this
notification. Tenders of outstanding notes will not be deemed to have been made
until these irregularities have been cured or waived. Any outstanding notes
received by the exchange agent that have defects or irregularities not
30
cured or waived by use will be returned to you without cost by the exchange
agent, unless otherwise provided in the letter of transmittal as soon as
practicable after the expiration date.
In addition, we reserve the right in our sole discretion to:
- purchase or make offers for any outstanding notes that remain outstanding
subsequent to the expiration date;
- terminate the exchange offer according to the terms in "--Conditions to
the Offer"; and
- to the extent permitted by applicable law, purchase outstanding notes in
the open market, in privately negotiated transactions or otherwise.
The terms of any of these purchases or offers may differ from the terms of
the exchange offer.
GUARANTEED DELIVERY PROCEDURES
If you wish to tender your outstanding notes and either your outstanding
notes are not immediately available, or you cannot deliver your outstanding
notes, the letter of transmittal or any other required documents to the exchange
agent prior to the expiration date, or if you cannot complete the procedure for
book-entry transfer on a timely basis, you may effect a tender if:
- the tender is made through an eligible institution;
- prior to the expiration date, the exchange agent receives from an eligible
institution a properly completed and duly executed notice of guaranteed
delivery, by facsimile transmission, mail or hand delivery, stating the
name and address of the holder of the outstanding notes, the certificate
number or numbers of such outstanding notes and the principal amount of
outstanding notes tendered, stating the tender is being made, and
guaranteeing that, within three business days after the expiration date,
the letter of transmittal, or facsimile thereof, together with the
certificate(s) representing the outstanding notes, unless the book-entry
transfer procedures are to be used, to be tendered in proper form for
transfer and any other documents required by the letter of transmittal,
will be deposited by the eligible institution with the exchange agent; and
- the properly completed and executed letter of transmittal, or facsimile
thereof, together with the certificates representing all tendered
outstanding notes in proper form for transfer, or confirmation of a
book-entry transfer in to the exchange agent's account at DTC of
outstanding notes delivered electronically, and all other documents
required by the letter of transmittal are received by the exchange agent
within three business days after the expiration date.
If you wish to tender your outstanding notes according to the guaranteed
delivery procedures, make your request to the exchange agent and a notice of
guaranteed delivery will be sent to you.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, tenders of outstanding
notes may be withdrawn at any time prior to 5:00 p.m., New York City time, on
the expiration date.
To withdraw a tender of outstanding notes in the exchange offer, a written
or facsimile transmission notice of withdrawal must be received by the exchange
agent at the address given in the prospectus prior to 5:00 p.m., New York City
time, on the expiration date. Any notice of withdrawal must:
- specify the name of the person having deposited the outstanding notes to
be withdrawn;
- identify the outstanding notes to be withdrawn, including the certificate
number or numbers and principal amount of the outstanding notes;
- be signed by the depositor in the same manner as the original signature on
the letter of transmittal by tendering the outstanding notes, including
any required signature guarantees, or be accompanied by documents of
transfer sufficient to permit the trustee of the outstanding
31
notes to register the transfer of the outstanding notes into the name of
the depositor withdrawing the tender; and
- specify the name in which any outstanding notes are to be registered, if
different from that of the depositor.
All questions as to the validity, form and eligibility, including time of
receipt, of any withdrawal notices will be determined by us, and will be final
and binding on all parties. Any outstanding notes so withdrawn will be deemed
not to have been validly tendered for purposes of the exchange offer, and no
exchange notes will be issued unless the outstanding notes previously withdrawn
are validly retendered. Any outstanding notes that have been tendered but which
are not accepted for exchange will be returned to the holder without cost to the
holder as soon as practicable after withdrawal, rejection of tender or
termination of the exchange offer. Properly withdrawn outstanding notes may be
retendered by following one of the procedures described above under "Procedures
for Tendering Outstanding Notes" at any time prior to the expiration date.
CONDITIONS TO THE OFFER
Regardless of any other term of the exchange offer, we are not required to
accept for exchange or to exchange any outstanding notes that are not accepted
for exchange according to the terms of the exchange offer. Additionally, we may
terminate or amend the exchange offer as provided in this prospectus before
accepting the outstanding notes if:
- any action or proceeding is instituted or threatened in any court or by or
before any governmental agency with respect to the exchange offer, which,
in our judgment, might materially impair our ability to proceed with the
exchange offer, or
- any law, statute, rule or regulation is proposed, adopted or enacted, or
any existing law, statute, rule or regulation is interpreted by the staff
of the SEC in a manner, which, in our judgment, might materially impair
our ability to proceed with the exchange offer.
These conditions are for our sole benefit. We may assert them in whole or in
part at any time and from time to time, in our sole discretion. Our failure at
any time to exercise any of the foregoing rights shall not be deemed a waiver of
any right and the right shall be deemed an ongoing right which may be asserted
at any time and from time to time.
In addition, we will not accept for exchange any outstanding notes tendered,
and no exchange notes will be issued in exchange for any outstanding notes, if
at the time of tender:
- a stop order is threatened by the SEC or is in effect for the registration
statement that this prospectus is a part of, or
- a stop order is threatened or in effect regarding qualification of the
indenture under the Trust Indenture Act of 1939, as amended.
If we determine that we may terminate or amend the exchange offer, we may:
- refuse to accept any outstanding notes and return any tendered outstanding
notes to the holder;
- extend the exchange offer and retain all outstanding notes tendered prior
to the expiration of the exchange offer, subject to the rights of the
holders of tendered outstanding notes to withdraw their tendered
outstanding notes;
- waive the termination event with respect to the exchange offer and accept
all properly tendered outstanding notes that have not been withdrawn; or
- amend the exchange offer at any time prior to 5:00 p.m. New York City time
on the expiration date.
If the waiver or amendment constitutes a material change in the exchange
offer, we will disclose the change by means of a supplement to this prospectus
that will be distributed to each registered
32
holder of outstanding notes, and we will extend the exchange offer for a period
of five to ten business days, if the exchange offer would otherwise expire
during that period, depending on the significance of the waiver or amendment and
the manner of disclosure to the registered holders of the outstanding notes.
The exchange offer is not conditioned on any minimum principal amount of
outstanding notes being tendered for exchange.
CONSEQUENCES OF FAILURE TO EXCHANGE
Participation in the exchange offer is voluntary. You are urged to consult
with your financial and tax advisors in making your decision on what action to
take.
The outstanding notes which are not exchanged for the exchange notes
pursuant to the exchange offer will remain restricted securities. Accordingly,
such outstanding notes may be resold only:
- to a person whom the seller reasonably believes is a qualified
institutional buyer, as defined in Rule 144A under the Securities Act, in
a transaction meeting the requirements of Rule 144A;
- in a transaction meeting the requirements of Rule 144 under the Securities
Act;
- outside the United States to a foreign person in a transaction meeting the
requirements of Rule 904 under the Securities Act;
- in accordance with another exemption from the registration requirements of
the Securities Act, and based upon an opinion of counsel, if we so
request, to us; or
- pursuant to an effective registration statement.
and, in each case, in accordance with any applicable securities laws of any
state of the United States or any other applicable jurisdiction. We do not
currently anticipate that we will register the outstanding notes under the
Securities Act.
As a result of the making of, and upon acceptance for exchange of all
validly tendered outstanding notes pursuant to the terms of, this exchange
offer, we will have fulfilled a covenant contained in the registration rights
agreement. Holders of outstanding notes who do not tender their outstanding
notes in the exchange offer will continue to hold such outstanding notes and
will be entitled to all the rights and limitations applicable thereto under the
indenture, except for any such rights under the registration rights agreement
that by their terms terminate or cease to have further effectiveness as a result
of the making of this exchange offer. All untendered outstanding notes will
continue to be subject to the restrictions on transfer set forth in the
indenture. To the extent that outstanding notes are tendered and accepted in the
exchange offer, the trading market for untendered outstanding notes could be
adversely affected.
EXCHANGE AGENT
Bank One Trust Company, NA has been appointed as exchange agent for the
exchange offer. Questions and requests for assistance and requests for
additional copies of this prospectus or of the letter of transmittal should be
directed to the exchange agent addressed as follows:
BY MAIL OF OVERNIGHT DELIVERY: BY HAND DELIVERY:
Bank One Trust Company, NA Bank One Trust Company, NA
Corporate Trust Services c/o First Chicago Corporate Trust
235 West Schrock Road Services
Westerville, Ohio 43081 14 Wall Street
Attention: Lora Marsch 8th Floor
New York, New York 10005
FACSIMILE: (614) 248-9987
TELEPHONE: (800) 346-5153
33
FEES AND EXPENSES
We will bear the expenses of soliciting tenders pursuant to the exchange
offer. The principal solicitation for tenders pursuant to the exchange offer is
being made by mail.
Additional solicitations may be made by our officers and regular employees
and our affiliates in person, by telegraph or by telephone.
We will not make any payments to brokers, dealers or other persons
soliciting acceptances of the exchange offer. We will, however, pay the exchange
agent reasonable customary fees for its services and will reimburse the exchange
agent for its reasonable out-of-pocket expenses in connection with this exchange
offer. We may also pay brokerage houses and other custodians, nominees and
fiduciaries the reasonable out-of-pocket expenses they incur in forwarding
copies of this prospectus, letter of transmittal and related documents to the
beneficial owners of the outstanding notes and in handling or forwarding tenders
for exchange.
We will pay the fees and expenses incurred in connection with the exchange
offer, for the following:
- the exchange agent;
- the trustee;
- accounting; and
- legal services.
We will pay all transfer taxes, if any, applicable to the exchange of
outstanding notes pursuant to the exchange offer. The amount of these transfer
taxes, whether imposed on the registration holder or any other persons, will be
payable by the tendering holder if:
- certificates representing exchange notes or outstanding notes not tendered
or accepted for exchange are to be delivered to, or are to be registered
or issued in the name of, any person other than the registered holder of
the outstanding notes tendered;
- tendered outstanding notes are registered in the name of any person other
than the person signing the letter of transmittal; or
- a transfer tax is imposed for any reason other than the exchange of
outstanding notes pursuant to the exchange offer.
If satisfactory evidence of payment of, or exemption from, these taxes is
not submitted with the letter of transmittal, the amount of these transfer taxes
will be billed directly to the tendering holder.
ACCOUNTING TREATMENT
The exchange notes will be recorded at the same carrying value as the
outstanding notes, which is face value, as reflected in our accounting records
on the date of the exchange. Accordingly, no gain or loss for accounting
purposes will be recognized by us upon the consummation of the exchange offer.
The expenses of the exchange offer will be amortized by us over the term of the
exchange notes under generally accepted accounting principles.
34
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 1999 as
adjusted to give effect to the refinancings. See "Summary--The Company--The
Refinancings." Please read this table in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements and notes included in this prospectus.
MARCH 31, 1999
AS ADJUSTED
--------------
(IN THOUSANDS)
Cash and cash equivalents(a).......................................... $ 68,313
--------------
--------------
Current maturities of long-term debt.................................. $ 11,748
Long-term debt
Credit facility(b).................................................. 130,000
Notes............................................................... 200,000
13 1/4% first mortgage notes........................................ 22,242
12% convertible subordinated notes.................................. --
Other notes payable, less current portion........................... 57,815
--------------
Total long-term debt.............................................. 410,057
--------------
Minority interests.................................................... 34,518
Stockholders' equity:
Common stock; $.01 par value per share; 60,000,000 shares
authorized; 28,140,326 shares issued and outstanding.............. 281
Capital in excess of par............................................ 79,894
Retained (deficit) earnings(c)...................................... (69,405)
--------------
Total stockholders' equity........................................ 10,770
--------------
Total capitalization............................................ $467,093
--------------
--------------
- ------------------------
(a) On June 1, 1999 we made regularly scheduled interest payments of
approximately $22.5 million on our 13 1/4% first mortgage notes and 12%
convertible subordinated notes, which are not reflected above. Amount also
includes approximately $26.7 million held in a cash collateral account
required by the credit facility to secure our remaining obligations under
the 13 1/4% first mortgage notes.
(b) Amounts available for future borrowings under the credit facility would have
been approximately $70.0 million on an as adjusted basis, subject to certain
borrowing conditions, for a total availability of $200.0 million. See
"Description of Certain Indebtedness."
(c) As adjusted retained (deficit) earnings reflects the following extraordinary
charges associated with the early retirement of the 13 1/4% first mortgage
notes and the 12% convertible subordinated notes: (i) a $6.9 million
write-off of deferred financing costs; (ii) the $28.3 million repurchase
premium for the 13 1/4% first mortgage notes and the $2.3 million redemption
premium for the 12% convertible subordinated notes and (iii) fees of $0.9
million. No tax benefit from these transactions has been reflected as we are
in a net operating loss position.
35
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data for the Company presented below
under the captions "Statements of Operations Data" and "Balance Sheet Data" for
and as of the end of each of the five years ended December 31, 1998 are derived
from the Consolidated Financial Statements of the Company which have been
audited by Ernst & Young LLP, independent auditors. The selected statements of
operations data for the three months ended March 31, 1998 and 1999 and the
selected balance sheet data at March 31, 1998 and 1999 have been derived from
the unaudited condensed consolidated financial statements which are also
included in this prospectus and include all adjustments, consisting of normal
recurring accruals, that the Company considers necessary for a fair presentation
of its consolidated financial position and results of operations for such
periods. You should read the following information in conjunction with the
consolidated financial statements and notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
related notes included elsewhere in this prospectus.
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
STATEMENTS OF OPERATIONS DATA:
REVENUES:
Casino.............................. $ 138,425 $ 237,613 $ 228,388 $ 319,830 $ 473,505 $ 108,323 $ 129,128
Admissions.......................... 12,177 15,300 2,759 7,895 16,025 3,191 4,278
Food, beverage and other............ 12,036 18,537 29,212 34,836 51,057 11,133 13,593
--------- --------- --------- --------- --------- --------- ---------
162,638 271,450 260,359 362,561 540,587 122,647 146,999
Less: promotional allowances........ (9,593) (18,759) (15,542) (18,478) (33,919) (6,947) (9,608)
--------- --------- --------- --------- --------- --------- ---------
Net revenues...................... 153,045 252,691 244,817 344,083 506,668 115,700 137,391
--------- --------- --------- --------- --------- --------- ---------
COSTS AND EXPENSES:
Casino.............................. 65,176 117,284 121,004 163,935 221,682 52,623 59,450
Food, beverage and other............ 11,876 17,242 23,769 29,962 40,550 9,349 9,637
Other operating expenses............ 8,486 15,616 19,111 28,695 26,639 6,618 6,588
Selling, general and
administrative.................... 24,906 47,549 52,048 69,725 96,041 23,393 28,652
Depreciation and amortization....... 9,846 20,450 22,416 33,292 33,436 8,066 8,473
Development and preopening.......... 9,761 3,411 12,365 594 509 -- --
Other(a)............................ -- 3,477 4,855 11,350 -- -- --
--------- --------- --------- --------- --------- --------- ---------
Income (loss) from operations..... 22,994 27,662 (10,751) 6,530 87,811 15,651 24,591
--------- --------- --------- --------- --------- --------- ---------
Interest expense, net............... (7,101) (14,272) (30,607) (41,179) (53,905) (13,482) (13,227)
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before minority
interests, income taxes and
extraordinary item................ 15,893 13,390 (41,358) (34,649) 33,906 2,169 11,364
Minority interests.................. 336 526 4,879 (6,916) (26,205) (4,606) (7,843)
Income tax (expense) benefit........ (6,594) (6,963) 12,530 1,352 (1,140) (100) (600)
Extraordinary loss on extinguishment
of debt (net of income tax benefit
of $594).......................... -- -- (890) -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)................... 9,635 6,953 (24,839) (40,213) 6,561 (2,537) 2,921
Preferred stock dividends and
accretion......................... -- -- -- -- (820) -- (27)
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) attributable to
common shareholders............... $ 9,635 $ 6,953 $ (24,839) $ (40,213) $ 5,741 $ (2,537) $ 2,894
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Diluted income (loss) per share..... $ 0.40 $ 0.29 $ (1.02) $ (1.65) $ 0.23 $ (0.10) $ 0.10
Shares outstanding.................. 24,333 24,333 24,333 24,498 25,830 24,498 28,140
Ratio of earnings to fixed
charges(b)(c)..................... 2.3x 1.5x -- -- 1.5x 1.1x 1.7x
36
AS OF DECEMBER 31, AS OF MARCH 31,
----------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents........... $ 18,291 $ 16,159 $ 38,284 $ 59,354 $ 89,857 $ 64,301 $ 105,936
Total assets........................ 232,831 309,882 532,159 559,856 562,752 563,026 573,806
Long-term debt including current
maturities........................ 115,431 169,702 380,208 449,790 424,000 443,634 419,537
Total stockholders' equity.......... 90,587 97,540 72,701 32,663 40,863 30,192 49,190
- ------------------------
(a) Other includes nonrecurring charges in 1995 related to a note receivable
writeoff. For additional information on 1996 and 1997 nonrecurring charges
that comprise Other, see the Statement of Operations contained in the
Consolidated Financial Statements of the Company included elsewhere in this
prospectus.
(b) The ratio of earnings to fixed charges has been computed by dividing
earnings available for fixed charges (income before income taxes plus fixed
charges less capitalized interest and preferred equity return to
Lawrenceburg partner) by fixed charges (interest expenses plus capitalized
interest plus preferred equity return to Lawrenceburg partner and one third
of rental expense (the portion deemed representative of the interest
factor)).
(c) The Company's earnings were inadequate to cover fixed charges for the years
ended 1996 and 1997 by approximately $45.9 million and $45.3 million
respectively.
37
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Through our subsidiaries or joint ventures, we own and operate five
riverboat casinos: the Alton Belle Casino, in Alton, Illinois; the Argosy Casino
of Greater Kansas City in Riverside, Missouri; the Belle of Baton Rouge in Baton
Rouge, Louisiana; the Belle of Sioux City in Sioux City, Iowa; and the Argosy
Casino Lawrenceburg in Lawrenceburg, Indiana. We refer to our casinos in
Illinois, Iowa, Louisiana and Missouri as our "western casinos."
Our results of operations in 1998 improved dramatically due, in large part,
to the success of our Lawrenceburg casino, which moved to its permanent pavilion
in December, 1997 and completed its final phase of development in mid-1998 with
the opening of its 300-room hotel. The results also reflect the improved
operating performance at the four western casinos resulting from the continued
success of the strategic plan introduced in 1997.
In mid-1997 we began implementing a plan to transform our company from one
focused on developing casino properties to one focused on superior operational
performance. Our focus on increasing revenues through direct marketing programs,
investing in product enhancements, including new slot machines and player
tracking systems and implementing cost control programs and operating
efficiencies has yielded increased cash flow and improved margins at each of the
western properties. At the Lawrenceburg casino, this focus has contributed to
the Lawrenceburg casino becoming the gaming industry's largest revenue-producing
riverboat casino in the U.S.
The key to our strategy was to identify and reward our loyal customers and
to enhance the gaming experience for those customers. We redirected our
marketing efforts through the use of sophisticated player tracking systems that
enable us to identify and reward premium players and loyal customers. We also
revamped our entertainment and event strategy by launching a series of private
parties and special events targeted to their preferences. In addition, we
incorporated an aggressive direct mail program at each of our properties aimed
at rewarding those same loyal customers with special offers and incentives.
We have improved cost containment measures at the property level to ensure
that program costs are in-line with revenue potential, and we have cut corporate
expenses by streamlining corporate activities. The most effective cost control
measure introduced in 1998 has been to link management's incentive compensation
at each property to the improved cash flow of its operation. As a result, each
property's management evaluated whether the costs of promotional and
entertainment programs benefited cash flow or enhanced revenues. The best
overall example of programs eliminated were bus programs. Every property reduced
its reliance on bus passengers and redirected those marketing dollars toward
targeting more serious gaming customers.
We are continually focused on our cost structure and will be cross-training
employees in an effort to reduce costs further. By giving our employees a
broader set of skills, they will be more efficient and effective. Cross-training
will enable us to service more customers and provide better customer service
with the same number of employees. Investing in training also helps reduce
turnover and the associated costs.
In 1999, we intend to aggressively follow through on our strategic
initiatives. We are planning additional investment in slot machines, table
games, and other gaming equipment at the western casinos. We recently completed
renovating and retheming the Baton Rouge casino and construction is underway to
renovate the Alton casino. We will continue to invest prudently in our
facilities in order to enhance the gaming experience of our customers. We
recently announced plans to construct a $20 million 300-room hotel in downtown
Baton Rouge. Development of a Baton Rouge hotel is a corporate priority because
once construction begins, annual cash flows at Baton Rouge will benefit by
38
$3 million annually due to the elimination of a $2.50 per passenger penalty head
tax (based on current passenger boarding levels).
We plan to begin construction upon approval of the Baton Rouge Metropolitan
Council, however, we can give you no assurances that we will obtain the
Council's approval or as to the ultimate financial commitment required of us.
Our ability to recover the carrying amount of the long-lived assets in Baton
Rouge is dependent on several factors including achieving anticipated operating
results, the competitive environment, and the hotel development. If we are
unable to develop the hotel or if our operating results do not improve through
cost efficiencies or following the elimination of video poker at competing
outlets, management's evaluation of recoverability could change and we could
record an impairment loss amounting to a substantial portion of our $115 million
Baton Rouge investment.
We have not recorded any federal tax expense on our 1998 or 1999 net income
or any federal tax benefit on our 1997 net loss, as we were in an operating loss
carryforward position.
Our net income for 1999 will include the effect of extraordinary charges in
the amount of $38.4 million associated with the early retirement of the 13 1/4%
first mortgage notes and the 12% convertible subordinated notes, specifically:
(i) a $6.9 million write-off of deferred financing costs; (ii) the $28.3 million
repurchase premium for the 13 1/4% first mortgage notes and the $2.3 million
redemption premium for the 12% convertible subordinated notes and (iii) fees of
$0.9 million. We do not expect to receive a tax benefit from these extraordinary
charges in 1999 as we are in a net operating loss position.
39
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain financial
information regarding our results of operations:
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
(IN THOUSANDS)
CASINO REVENUES
Argosy Casino Lawrenceburg................ $ 3,930 $ 127,908 $ 264,352 $ 55,570 $ 73,079
Alton Belle Casino........................ 72,369 61,877 67,798 17,029 18,109
Argosy Casino of Greater Kansas City...... 82,247 61,750 71,955 18,359 19,198
Belle of Baton Rouge Casino............... 51,007 47,628 46,828 12,104 12,579
Belle of Sioux City Casino................ 18,835 20,667 22,572 5,261 6,163
--------- --------- --------- --------- ---------
Total................................... $ 228,388 $ 319,830 $ 473,505 $ 108,323 $ 129,128
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
NET REVENUES
Argosy Casino Lawrenceburg................ $ 4,412 $ 137,024 $ 284,721 $ 59,751 $ 78,469
Alton Belle Casino........................ 77,933 67,208 72,064 18,058 18,993
Argosy Casino of Greater Kansas City...... 88,473 66,548 76,960 19,614 20,415
Belle of Baton Rouge Casino............... 53,420 50,436 49,054 12,704 13,026
Belle of Sioux City Casino................ 19,887 21,672 23,526 5,477 6,369
Other..................................... 692 1,195 343 96 119
--------- --------- --------- --------- ---------
Total................................... $ 244,817 $ 344,083 $ 506,668 $ 115,700 $ 137,391
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
INCOME (LOSS) FROM OPERATIONS(A)
Argosy Casino Lawrenceburg(b)............. $ 334 $ 25,625 $ 87,907 $ 17,287 $ 24,424
Alton Belle Casino........................ 12,240 7,489 13,850 3,393 3,982
Argosy Casino of Greater Kansas City(c)... 9,410 2,481 5,369 614 2,035
Belle of Baton Rouge Casino(d)............ 3,507 (4,146) (3,381) (1,457) (107)
Belle of Sioux City Casino................ 295 848 1,919 264 845
Jazz(e)................................... (3,435) (4,655) (6,312) (1,220) (1,231)
Corporate(f).............................. (14,207) (11,432) (9,990) (2,863) (3,226)
Other..................................... (1,012) 1,701 (1,551) (367) (331)
--------- --------- --------- --------- ---------
Total................................... $ 7,132 $ 17,911 $ 87,811 $ 15,651 $ 26,391
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
EBITDA(A)(G)
Argosy Casino Lawrenceburg(b)............. $ 750 $ 38,471 $ 105,674 $ 21,227 $ 29,199
Alton Belle Casino........................ 16,446 11,944 17,835 4,357 5,008
Argosy Casino of Greater Kansas City(c)... 16,134 8,428 11,293 2,091 3,494
Belle of Baton Rouge Casino(d)............ 9,151 1,322 1,891 (164) 1,264
Belle of Sioux City Casino................ 1,141 1,861 3,016 518 1,125
Jazz(e)................................... (2,053) (2,301) (3,633) (569) (556)
Corporate(f).............................. (12,520) (9,324) (9,436) (2,657) (3,219)
Lawrenceburg financial advisory fee(h).... (38) (1,924) (5,200) (1,061) (1,460)
Other..................................... 537 2,726 (193) (25) 9
--------- --------- --------- --------- ---------
Total................................... $ 29,548 $ 51,203 $ 121,247 $ 23,717 $ 34,864
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
- ------------------------
(a) Income from operations and EBITDA are presented before consideration of any
management fees paid to the Company and in the case of the Belle of Sioux
City and the Argosy Casino Lawrenceburg before the 30% and 42.5% minority
interests, respectively.
40
(b) Excludes preopening expenses of $11,528 for the year ended December 31,
1996.
(c) Excludes $3,508 for the year ended December 31, 1996 related to lease
termination costs in connection with assets formerly used at the Riverside
temporary facility.
(d) Excludes operating expenses of $1,347 for the year ended December 31, 1996
related to referendum costs.
(e) Jazz Enterprises, Inc. is our wholly-owned subsidiary which owns Catfish
Town.
(f) Excludes expenses related to a severance package and a settlement
arrangement of $1,800 for the three months ended March 31, 1999. Excludes
severance expenses of $1,750 and a loss of $9,600 in connection with a
writedown of assets held for sale for the year ended December 31, 1997 and a
charge of $1,500 relating to legal fees and printing costs in connection
with the postponement of a private debt placement for the year ended
December 31, 1996.
(g) EBITDA is defined as earnings before interest, taxes, depreciation and
amortization and is presented before any management fees paid to Argosy.
EBITDA should not be construed as an alternative to operating income or net
income (as determined in accordance with generally accepted accounting
principles) as an indicator of the Company's operating performance, or as an
alternative to cash flows generated by operating, investing and financing
activities (as an indicator of cash flow or a measure of liquidity). EBITDA
is presented solely as a supplemental disclosure because management believes
that it is a widely used measure of operating performance in the gaming
industry and for companies with a significant amount of depreciation and
amortization. EBITDA may not be comparable to similarly titled measures
reported by other companies. The Company has other significant uses of cash
flows, including debt service and capital expenditures, which are not
reflected in EBITDA.
(h) The Lawrenceburg partnership pays a financial advisory fee equal to 5.0% of
its EBITDA to a minority partner.
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
CASINO--Casino revenues for the three months ended March 31, 1999 increased
by $20.8 million to $129.1 million from $108.3 million for the three months
ended March 31, 1998 due primarily to a $17.5 million increase in casino
revenues at the Lawrenceburg casino, which generated total casino revenues of
$73.1 million for the three months ended March 31, 1999. The Company's other
properties reported an aggregate 6.2% increase in casino revenues from $52.8 to
$56.0 million. In particular, Alton casino revenues increased from $17.0 to
$18.1 million, Kansas City casino revenues increased from $18.4 to $19.2
million, Sioux City casino revenues increased from $5.3 to $6.2 million, and
Baton Rouge casino revenues increased from $12.1 to $12.6 million.
Casino expenses increased to $59.5 million for the three months ended March
31, 1999 from $52.6 million for the three months ended March 31, 1998. This
increase is primarily due to increased Lawrenceburg casino expenses of $6.3
million to $30.4 million attributable to the overall increase in Lawrenceburg
casino revenues of $17.5 million. Casino expenses at Alton increased $0.5
million due to the overall increase in Alton casino revenues of $1.1 million.
ADMISSIONS--Admissions revenues (net of complimentary admissions) decreased
slightly by $0.3 million to $1.5 million. Although the number of admissions
increased, more complimentary admissions were given to customers as part of
increased promotions.
FOOD, BEVERAGE AND OTHER--Food, beverage and other revenues increased $2.5
million to $13.6 million for the three month period ended March 31, 1999. This
increase is attributable to restaurants at the Lawrenceburg property being
opened the entire quarter in 1999. Food, beverage and other net profit improved
$2.2 million to $4.0 million for the three months ended March 31, 1999.
41
Alton and Kansas City each reported decreases in food and beverage revenues and
expenses. Alton's decrease was due to the closing of a restaurant during the
entire three months ended March 31, 1999 in conjunction with a major renovation.
Kansas City's decreases were primarily due to the decreased use of food and
beverage as a promotional item.
The Lawrenceburg hotel, which opened in May 1998, contributed $0.8 million
in net revenues and $0.2 million of operating profit. The hotel occupancy
percentage was 78% and the average daily room rate was $79.
OTHER OPERATING EXPENSES--Other operating expenses were virtually unchanged
at $6.6 million for the three months ended March 31, 1999 as compared to the
three months ended March 31, 1998.
SELLING, GENERAL AND ADMINISTRATIVE--Selling, general and administrative
expenses increased $5.3 million to $28.5 million for the three months ended
March 31, 1999 due primarily to an increase of $3.0 million at Lawrenceburg
relating to expanded promotions and additional payments due to the city due to
increased gaming revenue. Baton Rouge selling, general and administrative
expenses decreased by $0.5 million due to the elimination of the group sales
department as a result of cost reduction programs and a decrease in insurance
expense due to favorable claims experience. Corporate expenses increased by $1.8
million due to expenses related to a severance package and settlement
arrangement.
DEPRECIATION AND AMORTIZATION--Depreciation and amortization increased $0.4
million from $8.1 million for the three months ended March 31, 1998 to $8.5
million for the three months ended March 31, 1999, due to depreciation on the
Lawrenceburg hotel which was opened in May 1998.
INTEREST EXPENSE--Net interest expense decreased $0.3 million to $13.2
million for the three months ended March 31, 1999. This decrease is due to a
decrease in interest expense to a minority partner of $0.6 million offset by
capitalized interest of $0.5 million in the first three months of 1998.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
CASINO--Casino revenues for the year ended December 31, 1998, increased by
48.1% to $473.5 million from $319.8 million for the year ended December 31,
1997, due primarily to a $136.4 million increase in casino revenues at the
Lawrenceburg casino, which generated total casino revenues of $264.4 million for
the year ended December 31, 1998. The Company's other properties reported an
aggregate 9.0% increase in casino revenues from $191.9 to $209.2 million.
Specifically, Alton casino revenues increased from $61.9 to $67.8 million;
Kansas City casino revenues increased from $61.8 to $72.0 million; Sioux City
casino revenues increased from $20.7 to $22.6 million, offset by a decrease in
Baton Rouge casino revenues from $47.6 to $46.8 million.
Casino expenses increased 35.3% to $221.7 million for the year ended
December 31, 1998, from $163.9 million for the year ended December 31, 1997.
This is primarily due to a $52.2 million increase in Lawrenceburg casino
expenses associated with the overall increase in Lawrenceburg casino revenues.
Casino expenses increased $4.6 million at Kansas City in connection with the
increase in casino revenues. Alton casino expenses decreased slightly while
casino revenues increased 10%. This decrease in casino expenses in Alton is
attributable to improved operating efficiencies and the implementation of cost
reduction programs.
ADMISSIONS--Admissions revenues (net of complimentary admissions) increased
from $4.6 million in 1997 to $7.2 million in 1998 due to an increased number of
customers at the Lawrenceburg casino.
FOOD, BEVERAGE, AND OTHER--Food, beverage and other revenues increased from
$34.8 million to $51.1 million for the year ended December 31, 1998, due to the
expanded food and beverage facilities
42
in Lawrenceburg. Food, beverage and other net profit improved $5.6 million to
$10.5 million for the year ended December 31, 1998, due primarily to this
increase in sales.
The Lawrenceburg hotel, which opened in May 1998, contributed $2.5 million
in net revenues and $0.7 million of operating profit. The hotel occupancy
percentage was 73.5% and the average daily room rate was $79.
OTHER OPERATING EXPENSES--Other operating expenses decreased from $28.7
million to $26.6 million for the year ended December 31, 1998, due primarily to
a decrease at Lawrenceburg of $2.3 million related to renting the temporary
vessel in 1997.
SELLING, GENERAL AND ADMINISTRATIVE--Selling, general and administrative
expenses increased 37.7% to $96.0 million for the year ended December 31, 1998,
due primarily to an increase of $20.0 million at Lawrenceburg related to
expanded marketing and operating costs of the larger facility, an increase of
$2.3 million at Riverside due to expanded marketing efforts and a $1.4 million
charge related to a writeoff of deferred lease costs at the Catfish Town real
estate project in Baton Rouge. The increase in selling, general and
administrative expenses was offset by a $1.5 million decrease at Baton Rouge
related primarily to insurance costs.
DEPRECIATION AND AMORTIZATION--Depreciation and amortization increased
slightly to $33.4 million for the year ended December 31, 1998, from $33.3
million in 1997.
INTEREST EXPENSE--Net interest expense increased $12.7 million to $53.9
million for the year ended December 31, 1998. The increase in interest expense
is primarily attributable to a decrease of $7.3 million in the amount of
capitalized interest due to the completion of the final phase of the
Lawrenceburg project in June 1998, a weighted average increase of $11.0 million
in the balance of partner loans related to the Lawrenceburg casino, and an
equipment loan at the Lawrenceburg partnership which was outstanding for the
entire year of 1998.
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS--The Company reported
net income attributable to common stockholders of $5.7 million for the year
ended December 31, 1998 as opposed to a net loss of $40.2 million for the year
ended December 31, 1997, due primarily to the factors discussed above. In
addition, in 1998, the Company recorded $0.8 million in preferred dividends and
accretion related to the sale of Preferred Stock and Warrants in June 1998. In
1997, the Company recorded pretax charges of $9.6 million relating to the
write-down of assets held for sale and approximately $1.8 million in severance
expenses. Due to its net operating loss position, the Company's effective tax
rate for 1998 was 3.4%.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
CASINO--Casino revenues for the year ended December 31, 1997, increased to
$319.8 million from $228.4 million for the year ended December 31, 1996, due to
the opening of the Lawrenceburg casino, which generated $127.9 million of casino
revenues, offset by decreased revenues at three of the Company's other
properties. Alton casino revenues decreased from $72.4 to $61.9 million and
Kansas City casino revenues decreased from $82.2 to $61.8 million due to the
effects of increased competition. Baton Rouge casino revenues decreased from
$51.0 to $47.6 million due primarily to an overall decline in the Baton Rouge
market.
Casino expenses increased to $163.9 million for the year ended December 31,
1997, from $121.0 million for the year ended December 31, 1996, due primarily to
the opening of the Lawrenceburg casino. Casino expenses decreased in Alton,
Kansas City and Baton Rouge in connection with the decline in revenues.
43
ADMISSIONS--Admissions revenues (net of complimentary admissions) increased
from $0.6 million in 1996 to $4.6 million in 1997 due to net admission fees in
Lawrenceburg.
FOOD, BEVERAGE, AND OTHER--Food, beverage and other revenues increased $5.6
million to $34.8 million for the year ended December 31, 1997, due primarily to
the opening of the Lawrenceburg casino. Food, beverage and other expenses
increased from $23.8 million in 1996 to $30.0 million in 1997 due primarily to
the opening of the Lawrenceburg casino.
OTHER OPERATING EXPENSES--Other operating expenses increased $9.6 million to
$28.7 million for the year ended December 31, 1997. This increase is due
primarily to costs associated with operating the Lawrenceburg casino offset
somewhat by a $1.1 million decrease in Kansas City due to cost control measures.
SELLING, GENERAL AND ADMINISTRATIVE--Selling, general and administrative
expenses increased $17.7 million to $69.7 million for the year ended December
31, 1997, due primarily to the opening of the Lawrenceburg casino resulting in
an increase of $20.9 million. This amount was offset by decreased costs
recognized through cost savings initiatives implemented at the Company's other
properties and the corporate office, the absence of 1996 expenses of
approximately $1.5 million related to the Company's response to a Marion County,
Indiana grand jury document subpoena and the related postponement of a private
placement of first mortgage notes.
DEPRECIATION AND AMORTIZATION--Depreciation and amortization increased $10.9
million from $22.4 million for the year ended December 31, 1996, to $33.3
million for the year ended December 31, 1997. This increase is largely
attributable to additional assets associated with the Lawrenceburg casino.
DEVELOPMENT AND PREOPENING COSTS--Development and preopening costs decreased
from $12.4 million for the year ended December 31, 1996, to $0.6 million for the
year ended December 31, 1997, due primarily to expenses related to developing
the casino in Lawrenceburg, Indiana in 1996.
INTEREST EXPENSE--Net interest expense increased $10.6 million to $41.2
million for the year ended December 31, 1997. The increase is attributable to
borrowings on the Company's $235 million first mortgage notes that were issued
in June 1996. This increase was offset somewhat by $8.4 million of capitalized
interest in 1997, as opposed to $3.0 million in 1996.
NET LOSS--Net loss increased from $24.8 million for the year ended December
31, 1996, to $40.2 million for the year ended December 31, 1997, primarily for
the reasons discussed above. In addition, in 1997, the Company recorded pretax
charges of $9.6 million relating to the write-down of assets held for sale and
$1.8 million for severance expenses. In 1996 the Company recorded a pretax
charge of $3.5 million related to lease termination costs related to assets
formerly used at its temporary facility in Kansas City. Also, the Company
recorded an extraordinary loss of $0.9 million (net of tax) related to the
writeoff of deferred finance costs associated with extinguishment of its
revolving secured line of credit in 1996. The Company is in a net operating loss
position and, therefore, has not recorded any federal tax benefits against its
losses for the year ended December 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
During 1998, the Company generated cash flows from operating activities of
$81.7 million compared to $31.6 million for 1997. Cash flows from operating
activities increased by $59.5 million for the year ended December 31, 1998 over
1997 after eliminating the effects of income tax refunds in both years. This
increase is attributable to substantial cash flow increases from the
Lawrenceburg facility as well as improved cash flows from the Company's Alton,
Kansas City, Baton Rouge and Sioux City properties.
44
In the three months ended March 31, 1999, the Company generated cash flows
from operating activities of $30.2 million compared to $21.5 million for the
same period in 1998. This increase is attributable to improved operations at
each of the Company's five casino locations.
During 1998, the Company used cash flows for investing activities of $14.2
million versus $72.6 million for 1997. The primary use of funds in both years
was capital investment in the Company's properties including the construction of
the Lawrenceburg facility. Overall capital expenditures have decreased between
periods reflecting the completion of the Lawrenceburg casino.
In the three months ended March 31, 1999, the Company used cash flows for
investing activities of $4.1 million versus $8.2 million for the three months
ended March 31, 1998. The primary use of funds in 1998 was the completion of the
construction of the Lawrenceburg facility and hotel. Overall capital
expenditures have decreased between periods reflecting the completion of the
Lawrenceburg casino.
During 1998, the Company used $37.0 million in cash flows for financing
activities compared to generating $62.0 million of cash flows from financing
activities for the same period in 1997. The uses of cash flows in 1998 were to
repay loans related to the Company's Lawrenceburg casino, partnership equity
distributions at the Lawrenceburg partnership, and for payments on installment
contracts and other long-term debt, offset by net proceeds of $7.4 million from
the sale of Convertible Preferred Stock and Warrants in June 1998. The primary
sources of cash flows from financing activities in 1997 were $46.6 million in
loans from the Company's partner in Lawrenceburg and $25.0 million in proceeds
from an equipment loan at the Lawrenceburg partnership offset by payments on
installment contracts and payments to partners.
During the three months ended March 31, 1999, the Company used $10.0 million
in cash flows for financing activities compared to using $8.3 million of cash
flows for financing activities for the same period in 1998. The uses of cash
flows in both 1999 and 1998 were to repay loans related to the Company's
Lawrenceburg casino, partner equity distributions related to the Lawrenceburg
partnership and for payments on installment contracts and other long-term
obligations.
As of March 31, 1999, we had approximately $105.9 million of cash, cash
equivalents, and marketable securities, including approximately $20.6 million
held at the Lawrenceburg partnership.
During an ongoing audit, the Internal Revenue Service has challenged the
S-corporation status of a predecessor entity of the Company. If the IRS
challenge is successful, the Company currently estimates that it would require
up to approximately $13.8 million (excluding penalties) through March 31, 1999
to fund the potential federal and any state income tax liability. We believe we
have substantial legal grounds for our tax position related to this matter and
is vigorously contesting the IRS challenge; however, no assurance can be given
that we will not be required to pay some or all of the disputed amount.
We have made a significant investment in property and equipment and plans to
make significant additional investments at certain of its existing properties.
In 1999, we expect to spend approximately $25 million to fund its capital
expenditures program principally related to upgrading its gaming facilities and
purchasing gaming equipment.
In connection with the offering of the outstanding notes, we entered into a
$200 million senior secured credit facility with a term of five years. We used
the net proceeds from the offering of the outstanding notes and initial
borrowings under the credit facility to fund the repurchase of approximately 90%
of our 13 1/4% first mortgage notes and the redemption of our 12% convertible
subordinated notes. As of June 16, 1999, we had outstanding $22.2 million of
13 1/4% first mortgage notes. Under the terms of the credit facility, we are
required to redeem all of the outstanding 13 1/4% first mortgage notes on the
earliest redemption date, June 1, 2000.
45
Under the terms of the credit agreement, we have the right, within two years
following the closing of the credit facility, to arrange for a $75 million
increase to the borrowing availability under the credit facility. In addition,
we have the right, within two years following the closing, to arrange for a
further $150 million increase to fund the purchase of all outstanding minority
interests in the Lawrenceburg partnership. We expect to use future borrowings
under the credit facility to finance capital improvements, to provide working
capital and for general corporate purposes.
We believe that cash on hand, operating cash flows and borrowings under the
credit facility will be sufficient to fund our current operating, capital
expenditure and debt service obligations. While we believe that our sources of
liquidity are sufficient to meet its cash obligations during the next 12 months,
our ability to meet our operating and debt service requirements is substantially
dependent upon the success of the Lawrenceburg casino. If the operating results
of the Lawrenceburg casino would deteriorate significantly or there are any
other events that materially impact its sources or uses of cash, we may be
unable to meet future debt service payments without obtaining additional debt or
equity financing or without the disposition of assets. We cannot assure you that
we would be able to obtain such additional financing on suitable terms or sell
assets on favorable terms, if required.
YEAR 2000
We have determined that we will need to modify or replace significant
portions of its software so that our computer systems will function properly
with respect to dates in the year 2000 and beyond. As we are dependent on third
party software for all of our major applications we have initiated discussions
with our significant software vendors and financial institutions to ensure that
those parties have appropriate plans to remediate Year 2000 issues. Through
these discussions, we have determined that all of the systems that are critical
to our operations are either Year 2000 compliant or that Year 2000 compliant
versions exist that can be implemented by us.
The next phase in our efforts will be to plan for and implement the Year
2000 versions of the software into our systems. We have a September 1999 target
date to complete our implementation efforts.
As of March 31, 1999, we had incurred less than $200,000 of costs related to
Year 2000 issues. We estimate we will incur less than $300,000 in future
expenses to ensure all systems will function properly with respect to dates in
the Year 2000. These expenses are not expected to have a material adverse impact
on the financial position, cash flow or operations of our company.
46
THE COMPANY
We are a leading owner and operator of five riverboat casinos located in
emerging gaming markets of the central United States. We pioneered riverboat
gaming in St. Louis, Kansas City, Baton Rouge and Sioux City by opening the
first casino in each of those markets. Our newest riverboat casino serves the
Cincinnati market from Lawrenceburg, Indiana and is the largest revenue
producing riverboat in the United States gaming industry. We operate the
Lawrenceburg casino through a joint venture subsidiary of which we currently own
a 57.5% interest.
The following summarizes our casino properties:
APPROXIMATE
PRINCIPAL METROPOLITAN 1998 NET GAMING
CASINO NAME MARKETS SERVED REVENUES POSITIONS
- ------------------------------- ------------------------------- -------------- -------------
(IN THOUSANDS)
Argosy Casino Lawrenceburg Cincinnati-Dayton-Columbus, $ 284,721 2,600
Ohio
Alton Belle Casino St. Louis, Missouri 72,064 900
Argosy Casino of Greater Kansas Kansas City, Missouri 76,960 1,400
City
Belle of Baton Rouge Casino Baton Rouge, Louisiana 49,054 1,000
Belle of Sioux City Casino Sioux City, Iowa 23,526 600
Since mid-1997, we have been implementing a strategic plan designed to
transform us from a company focused on developing casino properties to one
focused on achieving superior operational performance. Our strategy emphasizes
increasing revenues and profits through expanding direct marketing programs,
investing in state-of-the-art gaming products, such as new slot machines and
player tracking systems, and improving cost controls. To achieve these goals we
have strengthened our executive management team with the addition of a new chief
executive officer and new vice presidents of operations and sales and marketing
and several other key operating executives each with significant casino industry
experience.
Our initiatives have had the greatest impact at our four western casinos in
Alton, Kansas City, Baton Rouge and Sioux City. For the year ended December 31,
1998, net revenues at the western casinos combined increased 8% to $222 million,
while EBITDA (earnings before interest, taxes, depreciation and amortization)
increased 44% to $34 million. The trend continued in the first quarter of 1999
with net revenues at the western casinos increasing 5% to $59 million and EBITDA
growing 60% to $11 million as compared to the first quarter of 1998. At
Lawrenceburg, 1998 net revenues grew to $285 million while EBITDA increased to
$106 million, due primarily to the casino becoming fully operational with the
completion of its hotel and permanent pavilion. First quarter net revenues in
1999 at Lawrenceburg increased 31% to $78 million while EBITDA grew 38% to $29
million as compared to the first quarter of 1998. Overall, we reported record
results in 1998 with a 47% increase in net revenues to $507 million and a 137%
increase in EBITDA to $121 million. In the first quarter of 1999, our net
revenues increased 19% to $137 million while EBITDA grew 47% to $35 million.
BUSINESS STRATEGY
By capitalizing on the extensive gaming industry experience of our
management team, we have developed a strategy to maximize the performance of our
operating assets and improve financial results. We continue to implement changes
at each of our properties to improve our competitive position, increase gaming
revenues and enhance profitability. The key elements of our business strategy
include: (1) utilizing direct marketing to encourage repeat business and foster
customer loyalty; (2) enhancing the gaming product at our casinos by investing
in state-of-the-art gaming equipment; (3) renovating our properties to create
more exciting gaming environments; and (4) increasing our financial flexibility
to enable us to pursue future business opportunities.
47
- REDIRECT MARKETING EFFORTS TOWARDS DIRECT MARKETING. We have changed our
marketing focus from mass marketing to direct and relationship marketing
to encourage repeat business and foster customer loyalty. At each of our
properties we use sophisticated player tracking systems to identify and
reward premium players and our most loyal customers. Based on a player's
gaming activity, we create targeted promotions including exclusive direct
mail offers and "member's only" concerts, parties, tournaments,
sweepstakes and special entertainment events.
- INVEST IN NEW GAMING EQUIPMENT. Historically, we used available capital to
develop new casinos while we deferred capital improvement projects and
gaming product upgrades at our existing facilities. Because slot machines
represent 80% of our revenues, we began a program in 1998 to
systematically upgrade our gaming product with state-of-the-art slot
machines. We believe that regularly replacing slot machines with the most
popular products creates a more exciting gaming experience and increases
profitability. We invested in over 800 new slot machines in 1998. At our
western casinos, the upgraded machines increased the average daily revenue
over the older machines they replaced. At Lawrenceburg, additional new
slot product helped us take advantage of increased market demand. Going
forward we expect to replace an average of 15-20% of our gaming equipment
annually.
- RENOVATE OUR RIVERBOAT AND DOCKSIDE ENTERTAINMENT FACILITIES. To maintain
a fresh and exciting gaming experience for our customers, we have
developed a prudent capital investment plan to systematically renovate our
casino and entertainment facilities. By late-1999 we will complete a $12
million project at Alton that will replace the existing entertainment
pavilion with a newly renovated barge that was originally used as the
Lawrenceburg temporary landing facility and an additional new barge. The
Alton renovation will significantly enhance the facility's restaurant and
entertainment amenities. In June 1999, we completed a $5 million
renovation and retheming of our Baton Rouge riverboat. The renovation of
the Baton Rouge riverboat's third deck features approximately 200 of the
newest and most popular video poker machines and gaming product upgrades
to target the video poker market. We are also considering expanding our
operations at Sioux City by replacing the existing support facility with
the three-level facility currently used in Alton.
- INCREASE FINANCIAL FLEXIBILITY. The issuance of the outstanding notes was
part of an overall refinancing plan designed to reduce borrowing costs,
extend debt maturities and increase our overall financial flexibility.
Future borrowing availability will enable us to complete the refurbishment
and upgrading of our facilities, fund a potential purchase of the minority
interests in our Lawrenceburg casino and pursue other strategic
opportunities.
CASINO PROPERTIES
ARGOSY CASINO LAWRENCEBURG
PROPERTY: The Lawrenceburg casino is located on the Ohio River in
Lawrenceburg, Indiana approximately 15 miles west of Cincinnati and is the
closest casino to the Cincinnati metropolitan area. The Lawrenceburg casino is
one of the largest riverboats in the United States with 74,300 square feet of
gaming space on three levels with approximately 2,000 slot machines and 104
table games. The vessel can accommodate 4,400 passengers and crew; however, to
enhance our customers' comfort and enjoyment, we operate at a self-imposed
capacity of 3,600 passengers. We typically conduct 9 two-hour cruises seven days
a week, with an additional cruise on Friday and Saturday evenings, for a total
of 65 cruises per week. Each cruise lasts two hours including a 30 minute
boarding time and we charge admission fees ranging from $5 to $9 depending on
the time and day of the cruise. Approximately 50% of our weekend cruises are
sold out. Indiana gaming law permits dockside gaming only when inclement weather
or water conditions prevent a riverboat from cruising. At such times, the
Lawrenceburg casino remains dockside and operates on its normal schedule.
48
The complex also includes a 300 room hotel, which was completed in June
1998, a 120,000 square foot land-based entertainment pavilion and support
facility featuring a 350 seat buffet restaurant, two specialty restaurants, an
entertainment lounge and a 1,750 space parking garage. Employee and overflow
parking is provided at a 1,400 space remote lot that is accessed by shuttle bus.
We opened the Lawrenceburg casino on December 10, 1996 and, through September
30, 1997, operated from a temporary site utilizing a leased vessel and
entertainment and support barge that featured approximately 1,275 gaming
positions. Parking for the temporary facility was provided by 1,400 space remote
lot from which we operated a shuttle to and from the casino. On October 1, 1997,
the Lawrenceburg casino commenced operations from its permanent riverboat
vessel, which it used on a limited capacity basis at the temporary site. On
December 9, 1997, the Lawrenceburg casino moved to its permanent site and became
fully operational in June 1998 with the completion of its hotel.
We are the sole general partner of, and hold a 57.5% general partnership
interest in, Indiana Gaming Company, L.P., a joint-venture subsidiary of the
Company that operates the Lawrenceburg casino. Conseco Entertainment L.L.C.
("Conseco"), an indirect subsidiary of Conseco, Inc., holds a 29.0% limited
partnership interest and certain other investors hold the remaining 13.5%
limited partnership interest in the Lawrenceburg partnership. We manage the
operations of the Lawrenceburg casino and receive a management fee of 7.5% of
EBITDA, while Conseco receives a financial advisory fee of 5.0% of EBITDA. For a
more complete description of the partnership agreement see "Lawrenceburg Casino
Partnership Agreement."
GAMING MARKET: The Lawrenceburg casino draws from a population of
approximately 1.6 million residents in the Cincinnati metropolitan area and an
additional 5.4 million people who reside within 100 miles of Lawrenceburg,
including the major metropolitan markets of Dayton and Columbus, Ohio and, to a
lesser extent, Indianapolis, Indiana and Lexington, Kentucky. We are currently
adding approximately 18,000 customers to our Lawrenceburg casino database each
month.
In the Cincinnati market, the Lawrenceburg casino directly competes with one
other riverboat casino, which was opened in October 1996. The two riverboat
casinos operating in the Cincinnati market generated $428 million of gaming
revenues in 1998, a 58% increase from 1997. The increase was largely
attributable to the December 1997 opening of the permanent Lawrenceburg casino.
The Lawrenceburg casino represented 57% of gaming position capacity in the
Cincinnati market, but captured 62% of the market's gaming revenues.
Our closest competitor is located approximately 15 miles further south of
Lawrenceburg in Rising Sun, Indiana. The principal traffic route between the
greater Cincinnati metropolitan market and northern Kentucky and that competing
gaming facility passes through Lawrenceburg. A new riverboat casino is expected
to open in 2000 approximately 45 miles from the Lawrenceburg in Switzerland
County, Indiana. This competitor will be located even further from Lawrenceburg
and we expect it will primarily draw customers from Lexington and the
northeastern suburbs of Louisville. In addition, a riverboat casino opened in
November 1998 in the Louisville, Kentucky area approximately 100 miles from
Lawrenceburg.
Indiana gaming law currently limits the number of gaming licenses to be
issued in the state to a total of 11, including a maximum of 5 licenses along
the Ohio River and a limit of one license per county. Casino gaming is not
currently permitted under the laws of either Ohio or Kentucky. Our Indiana
gaming license is subject to renewal in 2001 and on an annual basis thereafter.
Indiana gaming law does not restrict the size of a licensee's gaming facility or
place limits on customer losses or betting levels.
CAPITAL IMPROVEMENTS: In 1998, we focused our capital improvements at
Lawrenceburg on the gaming floor with upgrades to our signage and equipment,
adding over 200 slot machines and seven table games to meet increased demand. We
recently completed a $1.4 million renovation and upgrade of the riverboat casino
to create an exclusive high-stakes gaming area, including $100 minimum
49
blackjack tables and a slot area with $25 slot machines. In addition, we are
focusing on our customers' comfort by installing a smoke filtration system to
improve air quality in the riverboat and replacing the seating throughout the
casino. We plan to keep adding popular new games, primarily video slot machines,
in various denominations with more multi-nickel and 50-cent machines.
ALTON BELLE CASINO
PROPERTY: The Alton Belle Casino is located on the Mississippi River in
Alton, Illinois approximately 20 miles northeast of downtown St. Louis. We
commenced operations in Alton, Illinois in September 1991 as the first gaming
facility in Illinois and the St. Louis metropolitan market. Following the
success of our original Alton riverboat casino, we built and opened a larger
three-deck contemporary style cruise liner. The cruise liner features 22,800
square feet of gaming space, approximately 700 slot machines and 32 table games.
In June, Illinois passed a law permitting casinos to offer continuous dockside
gaming. As a result, the Alton Belle Casino remains dockside and offers its
customers unlimited ingress and egress during its hours of operation.
The existing Alton entertainment complex features a 37,000 square foot,
three-level floating entertainment pavilion, which includes a
sports/entertainment lounge, buffet and table service restaurant facilities and
conference facilities. By late-1999, we will replace our existing entertainment
pavilion with a newly-renovated barge that was originally used as the
Lawrenceburg temporary landing facility and an additional new barge. The new
entertainment pavilion will feature a newly designed entrance, larger and
improved food and beverage venues and a new main showroom offering better
viewing and more comfortable seating. Parking is available at an adjacent
city-owned surface parking facility and at two sites in the city of Alton, to
and from which we provide valet parking as well as free shuttle service.
GAMING MARKET: The Alton Belle Casino generally draws from a population of
approximately 2.5 million within the St. Louis metropolitan area and an
additional 1.2 million within a 100-mile radius of the City of St. Louis. The
target customers of the Alton Belle Casino are drawn largely from the northern
and eastern regions of the greater St. Louis metropolitan area, as well as
portions of central and southern Illinois.
The Alton Belle Casino faces competition from five other riverboat casino
companies currently operating in the St. Louis area and expects the level of
competition to remain intense in the future. As an Illinois licensee, the Alton
Belle Casino is not subject to Missouri's $500 loss limit and therefore has a
competitive advantage in attracting high-end customers over competitors
operating under Missouri licenses. The six riverboat casinos operating in the
St. Louis market generated $538 million of gaming revenues in 1998, a 15%
increase from 1997. The Alton Belle Casino represented approximately 9% of
gaming position capacity in the St. Louis market, but captured approximately 13%
of the market's gaming revenues.
Illinois gaming law currently limits the number of gaming licenses to be
issued in the state to 10. Each license permits the operation of up to two boats
as part of a single riverboat gaming operation with a combined maximum of 1,200
gaming positions. Our Illinois gaming license is subject to annual renewal in
October 1999.
CAPITAL IMPROVEMENTS: During 1998, we replaced nearly 220 slot machines and
invested over $1 million to upgrade our player tracking system at the Alton
Belle Casino. We are replacing our existing entertainment pavilion with the
newly renovated barge originally used as the Lawrenceburg temporary facility and
an additional new barge. This $12 million project will feature larger and
improved food and beverage venues and a new main showroom offering better
viewing and more comfortable seating. We also plan to replace nearly one-quarter
of our slot equipment. In addition, if we expand our casino complex in Kansas
City, we could replace the existing riverboat in Alton with the
50
larger boat from Kansas City to provide increased gaming capacity at Alton to
the maximum 1,200 positions permitted under Illinois law.
ARGOSY CASINO OF GREATER KANSAS CITY
PROPERTY: The Argosy Casino of Greater Kansas City is located on the
Missouri River in Riverside, Missouri on a 55-acre site approximately five miles
from downtown Kansas City. The riverboat features approximately 36,000 square
feet of gaming space, approximately 1,100 slot machines and 45 table games. The
Kansas City casino began operations in Kansas City, Missouri on June 22, 1994 as
the first gaming facility to open in the Kansas City market. Monday through
Friday the Kansas City casino typically conducts 10 two-hour "dockside simulated
cruises" permitting limited ingress and unlimited egress and offers 24-hour
gaming on Saturday and Sunday.
The Kansas City casino is complemented by an 85,000 square foot land-based
entertainment facility featuring specialty and buffet restaurants, a
sports/entertainment lounge and 14,000 square feet of banquet/conference
facilities. A 624-space parking garage and a 1,262-space surface parking area
are located adjacent to the pavilion.
GAMING MARKET: The Kansas City casino draws from a population of
approximately 1.6 million in the greater Kansas City metropolitan area and an
additional 900,000 within a 100-mile radius of Kansas City. The Kansas City
casino site offers convenient access from two major highways. The Kansas City
casino primarily attracts customers who reside in the northern and western
regions of the Kansas City metropolitan area.
We currently face competition from three other casinos in the Kansas City
area. Two of our competitors operate two gaming vessels each, which allows them
to offer more continuous boarding than we are able to provide with one vessel.
The four riverboat casinos operating in the Kansas City market generated $458
million of gaming revenues in 1998, a 10% increase from 1997. The increase in
gaming revenues occurred in spite of the closing of a Kansas City casino in July
1998. The Kansas City casino represented 13% of gaming position capacity in the
Kansas City market, but captured 16% of the market's gaming revenues.
Our Missouri gaming license is subject to renewal in June 2000 and again
every two years thereafter.
CAPITAL IMPROVEMENTS: Our primary capital investment focus at Kansas City
in 1998 was on enhancing and expanding our gaming product and player tracking
system. We allocated nearly $1 million to replace approximately 175 machines,
including adding machines with bill acceptor/loss limit software. In the future,
we plan to continue to upgrade older machines with exciting multi-coin slot
games and high resolution video. We are also considering expanding our Kansas
City casino complex. An expansion would increase the number of gaming positions
and offer our patrons staggered boarding times, thereby maximizing customer
convenience and eliminating the competitive disadvantage we currently face with
respect to certain of our competitors. If we expand in Kansas City, the existing
riverboat could be relocated to Alton to increase our gaming capacity at that
facility to the maximum 1,200 positions permitted under Illinois law.
BELLE OF BATON ROUGE
PROPERTY: The Belle of Baton Rouge is located on the Mississippi River in
downtown Baton Rouge, Louisiana. The riverboat features approximately 28,000
square feet of gaming space, approximately 750 slot machines and 42 table games.
The Belle of Baton Rouge began operations in September 1994 as the first
riverboat gaming facility in the Baton Rouge market. The Belle of Baton Rouge is
a three-level riverboat casino that typically conducts eight 3-hour cruises
seven days of the week. Louisiana gaming law provides that a gaming vessel need
not cruise if there is inclement weather
51
or if the river conditions endanger the passengers or crew. During such times
that the Belle of Baton Rouge is prevented from cruising it operates on an
unlimited ingress and egress schedule. Proposed regulations have been introduced
in the Louisiana general assembly that would limit the number of required
cruises per year. We view this legislation as a potential benefit as our market
research indicates that our Baton Rouge patrons prefer to gamble when the boat
is stationary.
The riverboat casino is complemented by our adjacent real estate development
known as Catfish Town. Catfish Town includes a 50,000 square foot glass-enclosed
atrium, entertainment/sports lounge, buffet/coffee shop, conference facilities
and approximately 150,000 square feet of retail space that is currently
available for lease. Catfish Town is located adjacent to Baton Rouge's
convention complex, the Centroplex, which has a 12,000-seat arena and a
30,000-square foot exhibition hall. We have improved customer accessibility to
the Belle of Baton Rouge by completing construction in October 1995 of a
733-space parking garage and by leasing in December 1995 a 271-space surface
parking lot adjacent to Catfish Town.
GAMING MARKET: The Belle of Baton Rouge draws from a population of
approximately 540,000 in the Baton Rouge metropolitan area. The Baton Rouge
casino faces competition from one casino located in downtown Baton Rouge, a
nearby Native American casino and multiple casinos throughout Louisiana. The two
riverboat casinos operating in the Baton Rouge market generated approximately
$117 million of gaming revenues in 1998, a 3% increase from 1997. This amount
does not include approximately $100 million of revenues generated by video poker
machines in bars, restaurants and truck stops throughout the Baton Rouge market.
The Belle of Baton Rouge Casino represented 46% of gaming position capacity in
the Baton Rouge market, but generated 40% of the market's gaming revenues.
As a result of a 1996 general referendum by which the public reaffirmed
casino gaming in Baton Rouge, video poker machines are no longer permitted in
non-casino locations in the majority of Baton Rouge parishes as of July 1, 1999.
In June, we completed a renovation of the Belle of Baton Rouge's facilities to
aggressively pursue the approximately $80 million portion of the video poker
market that is scheduled to be eliminated.
Our Louisiana license is subject to renewal in July 1999 and each year
thereafter.
CAPITAL IMPROVEMENTS: In June, 1999, we completed a nearly $5 million
renovation and retheming of all three levels of our Baton Rouge casino. The
major upgrade features an exciting new Caribbean pirate theme and a reconfigured
third deck including a video poker area with its own separate service and
featuring the newest and most popular video poker machines available. In July,
1999, we announced plans to develop a $20 million hotel as required by our
development agreement with the City of Baton Rouge.
JAZZ ENTERPRISES: Jazz Enterprises, Inc. owns and operates the Catfish Town
development adjacent to the riverboat casino. The development of the historical
Catfish Town riverfront warehouse district into a retail/entertainment district
was an integral element in obtaining a Louisiana gaming license for the Belle of
Baton Rouge Casino. Our original intent was to develop and operate the casino
and our joint-venture partner would develop and manage the Catfish Town real
estate and hotel. In 1995 our real estate partner experienced financial
difficulties, and to preserve our gaming license, we purchased Jazz Enterprises,
Inc.
Pursuant to a development agreement, Jazz Enterprises, Inc. has certain
obligations to the City of Baton Rouge including the obligation to construct a
convention size hotel or collect and pay to the City an incremental head tax of
$2.50 per passenger, fund a transportation system connecting downtown Baton
Rouge and Catfish Town and to develop the Catfish Town facility to accommodate
restaurants, retail space and entertainment and restaurant facilities. We
recently announced plans to build a $20 million 300-room hotel in Baton Rouge to
fulfill our obligations under the development agreement.
52
Once construction of the hotel begins, our annual cash flows at Baton Rouge will
benefit by $3 million due to the elimination of the incremental head tax.
BELLE OF SIOUX CITY
PROPERTY: The Belle of Sioux City is located on the Missouri River in
downtown Sioux City, Iowa. The riverboat features 12,500 square feet of gaming
space, 450 slot machines and 23 table games. The Belle of Sioux City typically
conducts one two-hour cruise each day for 100 days per year. At all other times
the Belle of Sioux City remains dockside and operates with unlimited ingress and
egress. The casino is complemented by adjacent barge facilities featuring buffet
dining facilities, meeting space and administrative support offices.
We became the manager of the Belle of Sioux City on October 4, 1994 and on
December 1, 1994 began operating the Belle of Sioux City through a partnership
in which we are a 70% general partner and Sioux City Riverboat Corp., Inc. is a
30% limited partner. As manager of the casino we receive a management fee of
4.5% based upon the facility's adjusted gross gaming revenues (as defined in the
management agreement).
GAMING MARKET: The Belle of Sioux City draws from a population of
approximately 80,000 in Sioux City and an estimated 100,000 residents within a
40-mile radius of Sioux City. The Belle of Sioux City competes primarily with
land-based Native American casinos that are not required to report gaming
revenues and other operating statistics, therefore market comparisons cannot be
made. We also compete with certain providers and operators of video gaming in
the neighboring state of South Dakota. In addition, we compete with slot
machines at a pari-mutuel race track in Council Bluffs, Iowa and from two
riverboat casinos in the Council Bluffs/Omaha, Nebraska market. Our Iowa gaming
license is subject to annual renewal each March.
CAPITAL IMPROVEMENTS: In 1998 we spent $1.2 million to enhance our
customers' gaming experience at the Belle of Sioux City. Specifically, we
partially renovated our facility, replaced outdated equipment and expanded our
parking resources. As a result of our capital expenditures, by the end of 1999,
we will have replaced 95% of our electronic gaming devices over a two year
period. In addition, we are considering replacing the one-level barge facility
with the three level facility currently used in Alton and retheming the facility
after the 1904 World's Fair. The improved facility will provide new venues for
our patrons, including fine dining, entertainment, conference and banquet
anemities.
INSURANCE
We carry property and casualty insurance on our land-based assets and our
vessels generally in the amount of their replacement costs with a nominal
deductible with respect to our land-based assets and a deductible equal to 2% of
the replacement value of the vessels. Our land-based assets are not currently
covered by flood insurance. Our general liability insurance with respect to
land-based operations has a limit of $1 million per occurrence and $2 million as
an annual aggregate with a $50,000 deductible. Our general liability insurance
with respect to our marine operations has a $100,000 per occurrence deductible
with per occurrence coverage up to a $75 million limit. With respect to worker's
compensation we have a $250,000 per occurrence deductible with a $1 million per
occurrence limit.
COMPETITION
The U.S. gaming industry is intensely competitive and features many
participants, including riverboat casinos, dockside casinos, land-based casinos,
video lottery and poker machines not located in casinos, Native American gaming
and other forms of gambling in the United States. Gaming competition is
particularly intense in each of the markets where we operate. Historically, we
have been an early entrant in each of our markets; however, as competing
properties have opened, our operating
53
results in each of these markets have been negatively affected. Many of our
competitors have more gaming industry experience, are larger and have
significantly greater financial and other resources. In addition, some of our
direct competitors in certain markets may have superior facilities and/or
operating conditions in terms of: (i) dockside versus cruising riverboat gaming;
(ii) multiple riverboat casinos, which feature more continuous boarding; (iii)
amenities offered at the gaming facility and the related support and
entertainment facilities; (iv) convenient parking facilities; (v) a location
more favorably situated to the population base of a market and ease of
accessibility to the casino site; and (vi) favorable tax or regulatory factors.
There could be further competition in our markets as a result of the
upgrading or expansion of facilities by existing market participants, the
entrance of new gaming participants into a market or legislative changes. We
expect each market in which we participate, both current and prospective, to be
highly competitive.
MARKETING
We have changed our marketing focus from mass marketing to direct and
relationship marketing in order to encourage repeat business and foster customer
loyalty. We have designed an overall marketing strategy to attain our objective
of utilizing direct marketing as our primary means of communicating with our
customers. Although the marketing plan for each of our properties is tailored to
the specific needs of the site, the overall strategic components are relatively
constant:
- Further refine and enhance our database marketing efforts;
- Create a full-service player development program to service our premium
customers;
- Aggressively market our gaming product and facility improvements;
- Refine, enhance and expand the schedule of parties, events and
entertainment; and
- Utilize public relations as a tool to increase awareness, and reinforce
marketing efforts by publicizing winners.
A key tactic in implementing our overall strategy is the effective use of
the information we obtain regarding our customers' playing activity. At each of
our properties, we encourage patrons to join the Argosy Preferred Club. We then
track the member's level of play through the use of sophisticated player
tracking systems. As of March 1999, we had over 800,000 active Preferred Club
members and we are adding, on average, over 26,000 new members each month. In
1998, we engaged database managers to enhance our database and oversee our data
collection and utilization programs. Utilizing the information from our
database, we create targeted promotions including exclusive direct mail offers
and "members only" parties, tournaments, sweepstakes and special entertainment
events.
EMPLOYEES
As of December 31, 1998, we employed approximately 4,146 full-time and 585
part-time employees. Approximately 2,354 employees, located throughout our
properties, are represented by the Seafarers International Union of North
America. We have collective bargaining agreements with that union which expire
at various times between July 1999 and June 2003. In Alton ten of our employees
are represented by the International Brotherhood of Electrical Workers and
approximately 73 employees are represented by the United Plant Guard Workers of
America. In addition, 18 employees located throughout our properties except
Alton are represented by American Maritime Officers Union.
We have not experienced any work stoppages and believe our labor relations
are generally satisfactory.
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LAWRENCEBURG CASINO PARTNERSHIP AGREEMENT
GENERAL. Through our wholly-owned subsidiary, The Indiana Gaming Company,
we are the majority partner in Indiana Gaming Company L.P., the Indiana
partnership that owns and operates the Lawrenceburg casino. The Indiana Gaming
Company, is the sole manager of the partnership and receives a fee of 7.5% of
EBITDA (as defined in the partnership agreement). The Indiana Gaming Company's
management of the casino is subject only to certain actions or major decisions
which require the consent of a majority in interest of the limited partners. The
largest minority partner, Conseco, receives a financial advisory fee of 5.0% of
EBITDA.
PARTNER DISTRIBUTIONS. After principal and interest on capital loans is
repaid, cash flow is distributed to the partners as follows:
- first, to the partners pro rata for tax payments in an amount equal to
their taxable net income for such period;
- second, to the partners as a prepayment of principal on capital loans to
be applied in the inverse order of maturity, up to 75% of the remaining
cash flow;
- third, in payment of a preferred return of 14% on any preferred equity
contributed by the partners;
- fourth, as a return of the preferred equity contributed by the partners;
- fifth, as a return of common equity contributed by the partners; and
- sixth, to the partners in accordance with their respective percentage
interests.
These distributions are required to be made no less frequently than
quarterly, but historically, they have been made monthly. The partnership
agreement provides that the net cash proceeds from a sale or refinancing are
distributed by the general partner in the same order as cash flow except that
the proceeds will be used to repay 100% of outstanding capital loans by the
partners.
PARTNERSHIP INTEREST BUY-SELL OBLIGATIONS. The Lawrenceburg partnership
agreement provides that: (i) after December 10, 1999, each limited partner has
the right to sell its interest to the other partners (pro rata in accordance
with their respective percentage interests) or (ii) at any time after a deadlock
by the partners with respect to significant items in any annual operating budget
of the partnership for budget year 1999 and thereafter, any partner has a right
to sell its interest to the other partners.
After the selling partner gives notice of its intent to sell, the partners
have 60 days to attempt in good faith to agree to a purchase price. If no
agreement is reached within 60 days, then the selling partner's interest is
appraised to determine its fair market value. After the appraised fair market
value of the selling partner's interest is determined, the other partners have
60 days to reject a purchase at that price. After such a rejection, the general
partner is required to solicit bids and sell all of the assets of the
Lawrenceburg partnership within twelve months to the highest bidder and
following such sale, dissolve Indiana Gaming Company L.P.
No assurance can be given that we will have sufficient funds to acquire any
selling partner's interest in the circumstances provided for above or that we
will choose to make such a purchase. In such an event, the assets of the
Lawrenceburg partnership would have to be sold to the highest bidder as provided
above, which could result in our losing control of the Lawrenceburg casino. If
we sold the assets of the Lawrenceburg partnership, any outstanding amounts
under the credit facility would be accelerated and under the indenture we would
be required to make an offer to purchase the exchange notes.
In addition, the partnership agreement provides all partners with a right of
first refusal on transfers of any partnership interest. A foreclosure by a
secured creditor, such as the lenders under the
55
credit facility, would constitute a transfer of our partnership interest and
under the partnership agreement provides all partners a right of first refusal
on that partnership interest.
REMOVAL AS GENERAL PARTNER. The partnership agreement provides that The
Indiana Gaming Company, can be removed as general partner of the partnership by
the limited partners under certain limited circumstances, including:
- a material breach (after notice and expiration of applicable cure periods)
of certain material provisions of the partnership agreement dealing with
such things as distributions to partners or the failure to obtain the
required consent of the limited partners for certain major decisions;
- if the general partner is convicted of embezzlement or fraud;
- certain bankruptcy events;
- if our partnership interest in the Lawrenceburg partnership is less than
40% due to sales or dilution for failure to pay required capital;
- a final unappealable judgment against The Indiana Gaming Company in excess
of $25 million which is uninsured and remains unsatisfied, unreleased or
unstayed for 180 days;
- certain acts by the general partner constituting "gross mismanagement;"
and
- if a secured creditor, such as the lenders under the credit facility, were
to foreclose on the pledge of our partnership interest in the Lawrenceburg
partnership.
Upon removal, the general partnership interest becomes a "special limited
partner" interest with rights to partner distributions but only limited voting
rights on partnership matters. Also, if the reason for the removal is an event
described above, other than a less than 40% ownership, the limited partners may
acquire all, but not less than all, of The Indiana Gaming Company's interest for
fair market value as determined by an appraisal process.
56
REGULATORY MATTERS
ILLINOIS
In February 1990, the State of Illinois pursuant to the Riverboat Gambling
Act (the "Riverboat Act") legalized riverboat gaming. The Riverboat Act
authorizes riverboat gaming upon any navigable stream within or forming a
boundary of the State of Illinois other than Lake Michigan. Newly enacted
legislation eliminated the prohibition on gaming operations in counties with
populations over 3,000,000. The Riverboat Act grants the Illinois Gaming Board
specific powers and duties, and all other powers which are necessary and proper
to effectuate the Riverboat Act. The Illinois Gaming Board's jurisdiction
extends to every person, association, corporation, partnership and trust
involved in riverboat gaming operations in the State of Illinois.
The Riverboat Act authorized a five member Illinois Gaming Board to issue up
to ten owner's licenses statewide. Each owner's license permits the operation of
up to two boats as a part of a single riverboat gaming operation with a combined
maximum of 1,200 gaming positions (as defined by the Illinois Gaming Board). In
addition to the ten owner's licenses which may be authorized under the Riverboat
Act, the Illinois Gaming Board may issue special event licenses allowing persons
who are not otherwise licensed to conduct riverboat gaming on a specified date
or series of dates. Riverboat gaming under such a license may take place on a
riverboat not normally used for riverboat gaming.
An owner's license is issued for an initial period of three years (with a
fee of $25,000 for the first year and $5,000 for each of the following two
years). Our Illinois gaming license is subject to renewal in October, 1999.
Newly enacted legislation has extended the renewal period from annually to once
every four years. Our license is eligible for renewal upon:
- payment of a $5,000 fee; and
- the Illinois Gaming Board's determination that we continue to meet all of
the requirements of the Riverboat Act.
The Illinois Gaming Board also requires that officers, directors and employees
of a gaming operation be licensed. Licenses issued by the Illinois Gaming Board
may not be transferred to another person or entity. All licensees must maintain
their suitability for licensure and have a continuing duty to disclose any
material changes in information provided to the Illinois Gaming Board.
Pursuant to its rule making authority under the Illinois Riverboat Act, the
Illinois Gaming Board has adopted certain regulations that provide that any
beneficial owner of the legal or beneficial interests of a gaming company may be
required, and in the case of a beneficial owner of 5% or more of the legal or
beneficial interests (a "5% Holder") is required, to furnish a detailed personal
disclosure form to the Illinois Gaming Board. The Illinois Gaming Board uses the
personal disclosure form as the basis for its investigation to determine such
holder's suitability as a stockholder of the company. In the case of a 5%
Holder, the Illinois Gaming Board conducts such an investigation. The Illinois
Gaming Board's decisions as to suitability are based on the same criteria used
for a finding of preliminary suitability for licensure including:
- character;
- reputation;
- experience; and
- financial integrity.
If the Illinois Gaming Board determines that a holder is not suitable, the
holder is entitled to request a hearing; however, if no hearing is requested
after such determination or such finding is upheld after a
57
hearing, the holder is required to divest his shares of common stock of the
company. After a holder is required to divest and until divestiture, the
licensee is unable to distribute profits to such stockholder.
We are required to obtain formal approval from the Illinois Gaming Board for
changes in:
- our key personnel, including our officers, directors, managing agents, or
holders of a 5% or greater ownership interest in the business entity;
- our organizational form;
- our equity and debt capitalization;
- our investors and/or debt holders;
- our sources of funds;
- our economic development plan;
- the Alton Belle Casino's capacity or significant design changes;
- the number of gaming positions available on the Alton Belle Casino;
- anticipated economic impact; or
- oral or written agreements relating to the acquisition or disposition of
property of a value greater than $1 million.
A holder of an owner's license is allowed to make distributions to its partners,
stockholders or itself only to the extent that such distribution would not
impair the financial viability of the gaming operation. Factors to be considered
by the licensee include, but are not limited to, the following:
- working capital requirements;
- debt service requirements;
- requirements for repairs and maintenance; and
- capital expenditure requirements.
Minimum and maximum wagers on games are set by the licensee. Wagering may
not be conducted with money or negotiable currency. No person under the age of
21 is permitted to wager in Illinois, and wagers may only be taken from a person
present on a licensed riverboat. With respect to electronic gaming devices, the
payout percentage may not be less than 80% nor more than 100%.
Under the Riverboat Act, vessels must have:
- the capacity to hold a minimum of 500 persons if operating on the
Mississippi River or the Illinois River south of Marshall County, and a
minimum of 400 persons on any other waterway;
- be accessible to disabled persons;
- be either a replica of a 19th century Illinois riverboat or be a casino
cruise ship design; and
- comply with applicable federal and state laws, including but not limited
to U.S. Coast Guard regulations.
Pursuant to legislation enacted in June, 1999, we are not required to cruise
and may conduct gaming activities while remaining dockside offering unlimited
ingress and egress to our patrons.
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The Riverboat Act imposes a graduated wagering tax based on adjusted gross
receipts from gambling games at the following rates:
ADJUSTED GROSS RECEIPTS TAX RATE
- ---------------------------------------------------------------- -------------
Up to $25,000,000............................................... 15%
$25,000,001 to $50,000,000...................................... 20%
$50,000,001 to $75,000,000...................................... 25%
$75,000,001 to $100,000,000..................................... 30%
$100,000,001 and above.......................................... 35%
The tax imposed is to be paid by the licensed owner by wire transfer to the
Illinois Gaming Board on the day after the day when the wagers were made. The
Riverboat Act also requires that licensees pay a $2.00 admission tax for each
person admitted to the Alton Belle Casino. In addition, all use, occupancy and
excise taxes that apply to food and beverages and all taxes imposed on the sale
or use of tangible property apply to sales aboard riverboats. We also pay a $.25
admission tax to the City of Alton for each person admitted to the Alton Belle
Casino.
The Illinois Gaming Board is authorized to conduct investigations into the
conduct of gaming as it may deem necessary and proper and into alleged
violations of the Riverboat Act. Employees and agents of the Illinois Gaming
Board have access to and may inspect any facilities relating to riverboat gaming
operations at all times.
A holder of any license is subject to the imposition of fines, suspension or
revocation of such license, or other action for any act or failure to act by
himself or his agents or employees, that is injurious to the public health,
safety, morals, good order and general welfare of the people of the State of
Illinois, or that would discredit or tend to discredit the Illinois gaming
industry or the State of Illinois. Any riverboat operation not conducted in
compliance with the Riverboat Act may constitute an illegal gaming place and
consequently may be subject to criminal penalties, which penalties include
possible seizure, confiscation and destruction of illegal gaming devices and
seizure and sale of riverboats and dock facilities to pay any unsatisfied
judgment that may be recovered and any unsatisfied fine that may be levied. The
Illinois Gaming Board may revoke or suspend licenses, as the Illinois Board may
see fit and in compliance with applicable laws of Illinois regarding
administrative procedures and may suspend an owner's license, without notice or
hearing, upon a determination that the safety or health of patrons or employees
is jeopardized by continuing a riverboat's operation. The suspension may remain
in effect until the Illinois Gaming Board determines that the cause for
suspension has been abated and it may revoke the owner's license upon a
determination that the owner has not made satisfactory progress toward abating
the hazard.
The Illinois Gaming Board may waive any licensing requirement or procedure
provided by rule if it determines that such waiver is in the best interests of
the public and the gaming industry.
INDIANA
In June 1993, the Indiana legislature adopted legislation permitting
riverboat gambling in counties contiguous to Lake Michigan, the Ohio River and
Patoka Lake. The legislation granted authority to supervise gaming activities to
the seven-member Indiana Gaming Commission. The Indiana Gaming Commission is
empowered to administer, regulate and enforce the system of riverboat gaming
established under Indiana's Riverboat Gambling Act (the "Indiana Riverboat Act")
and has jurisdiction and supervision over all riverboat gaming operations in
Indiana, as well as all persons on riverboats where gaming operations are
conducted. The Indiana Gaming Commission has broad powers to regulate riverboat
gaming operations and to approve the form of ownership and financial structure
of not only riverboat owner licensees, but also their entity qualifiers, and
intermediary and holding companies. Further, the Indiana General Assembly has
the power to promulgate new laws and
59
implement amendments to the Indiana Riverboat Act, which can materially affect
the operation or economic viability of the gaming industry in Indiana.
The Indiana Riverboat Act requires the owner of a riverboat gaming operation
to hold an owner's license issued by the Indiana Gaming Commission. The Indiana
Gaming Commission is authorized to issue not more than 11 owner's licenses
statewide. Each license entitles the licensee to own and operate one riverboat
and gaming equipment as part of the gaming operation. A licensee may own no more
than a 10% interest in any other owner's license under the Indiana Riverboat
Act.
The Indiana Riverboat Act restricts the granting of the 11 owner's licenses
by location. The 11 licenses must be awarded as follows:
- two licenses for riverboats operating from Gary;
- one license for a riverboat operating in Hammond;
- one license for a riverboat operating in East Chicago;
- one license for a riverboat operating in any city located in LaPorte,
Porter or Lake counties, not including the above-named cities;
- five licenses for riverboats that operate upon the Ohio River from
counties contiguous thereto and with no more than one operating in any
county; and
- one license for a riverboat operating in Patoka Lake from either DuBois,
Crawford or Orange Counties.
Each owner's license runs for a period of five years after the effective
date of the license. Thereafter, the license is subject to renewal on an annual
basis upon a determination by the Indiana Gaming Commission that the licensee
continues to be eligible for an owner's license pursuant to the Indiana
Riverboat Act and the rules and regulations adopted thereunder. Our Indiana
gaming license is subject to renewal in 2001. A licensed owner undergoes a
complete investigation every three years. A licensed owner may apply for and may
hold other licenses that are necessary for the operation of a riverboat,
including licenses to sell alcoholic beverages, a license to prepare and serve
food and any other necessary license. Furthermore, the Indiana Riverboat Act
requires that officers, directors and employees of a gaming operation and
suppliers of gaming equipment, devices and supplies and certain other suppliers
be licensed. All Indiana state excise taxes, use taxes and gross retail taxes
apply to sales on a riverboat.
Applicants for licensure must submit comprehensive application and personal
disclosure forms and undergo an exhaustive background investigation prior to the
issuance of a license. The applicant must also disclose the identity of any
person in which the applicant has an equity interest of at least one percent
(1%) of all shares. The Indiana Gaming Commission has the authority to request
specific information on any shareholder.
A riverboat owner licensee or any other person may not lease, hypothecate,
borrow money against or loan money against an owner's riverboat gaming license.
An ownership interest in an owner's riverboat gaming license may only be
transferred in accordance with the regulations promulgated under the Indiana
Riverboat Act.
Pursuant to rules promulgated by the Indiana Gaming Commission, any person
(other than an institutional investor) who individually, or in association with
others, acquires directly or indirectly the beneficial ownership of 5% or more
of any class of voting securities of a publicly-traded corporation that is a
riverboat licensee or 5% or more of the beneficial interest in a riverboat
licensee, directly or indirectly, through any class of the voting securities of
any holding or intermediary company of a riverboat licensee shall apply to the
Indiana Gaming Commission for finding of suitability within 45 days after
acquiring the securities. Each institutional investor who, individually or in
association with
60
others, acquires, directly or indirectly, beneficial ownership of 5% or more of
any class of voting securities of a publicly-traded corporation that is a
riverboat licensee or 5% or more of the beneficial interest in a riverboat
licensee through any class of the voting securities of any holding or
intermediary company of a riverboat licensee shall notify the Indiana Gaming
Commission within 10 days after the institutional investor acquires the
securities and shall provide additional information and may be subject to a
finding of suitability as required by the Indiana Gaming Commission.
An institutional investor who would otherwise be subject to a suitability
finding shall, within 45 days, after acquiring the interests submit information
to the Indiana Gaming Commission including the following:
- a description of the institutional investor's business
- a statement as to why the institutional investor satisfies the
definitional requirements of an institutional investor under Indiana
gaming rule requirements;
- a certification made under oath and the penalty of perjury that the voting
securities were acquired and are held for investment purposes only and
were acquired and are held in the ordinary course of business as an
institutional investor and not for the purpose of causing, directly or
indirectly, the election of a majority of the board of directors, any
change in the corporate charter, bylaws, management, policies or
operations of a riverboat licensee;
- the name, address, telephone number, social security number or federal tax
identification number of the officers and directors, or their equivalents,
of the institutional investor, as well as each person who has the power to
direct or control the institutional investor's exercise of its voting
rights as a holder of voting securities of the riverboat licensee;
- the name of each person who beneficially owns 5% or more of the
institutional investor's voting securities or equivalent;
- a list of the institutional investor's affiliates;
- a list of all securities of the riverboat licensee that are or were
beneficially owned by the institutional investor or its affiliates within
the preceding one year;
- a list of all regulatory agencies with which the institutional investor,
or an affiliate that beneficially owns voting securities of the riverboat
licensee, files periodic reports; a disclosure of all criminal and
regulatory sanctions imposed during the preceding ten years; a copy of any
filing made under 15 U.S.C. 18(a); and
- any other additional information the Indiana Gaming Commission may request
to insure compliance with Indiana gaming laws.
Each institutional investor who, individually or in association with others,
acquires, directly or indirectly, the beneficial ownership of 15% or more of any
class of voting securities of a publicly-traded corporation that owns a
riverboat owner's license or 15% or more of the beneficial interest in a
riverboat licensee directly or indirectly through any class of voting securities
of any holding company or intermediary company of a riverboat licensee shall
apply to the Indiana Gaming Commission for a finding of suitability within 45
days after acquiring the securities.
An institutional investor means any of the following:
- a retirement fund administered by a public agency for the exclusive
benefit of federal, state or local public employees;
61
- an investment company registered under the Investment Company Act of 1940;
- a collective investment trust organized by banks under Part 9 of the Rules
of the Comptroller of the Currency;
- a closed end investment trust;
- a chartered or licensed life insurance company or property and casualty
insurance company;
- a banking, chartered or licensed lending institution;
- an investment adviser registered under the Investment Advisers Act of
1940; and
- any other entity the Indiana Gaming Commission determines constitutes an
institutional investor.
The Indiana Riverboat Act imposes a tax on admissions to gaming excursions
at a rate of $3.00 for each person admitted to the gaming excursion. This
admission tax is imposed upon the license owner conducting the gaming excursion
on a per-person basis without regard to the actual fee paid by the person using
the ticket, with the exception that no tax shall be paid by admittees who are
actual and necessary officials, employees of the licensee or other persons
actually working on the riverboat. The number and issuance of tax-free passes is
subject to the rules of the Indiana Gaming Commission. A list of all persons to
whom the tax-free passes are issued must be filed with the Indiana Gaming
Commission. A tax is imposed on the adjusted gross receipts received from gaming
games under the Indiana Riverboat Act at a rate of twenty percent (20%) of the
amount of the adjusted gross receipts. Adjusted gross receipts is defined as the
total of all cash and property (including checks received by a licensee),
whether collected or not, received by a licensee from gaming operations less the
total of all cash paid out as winnings to patrons including a provision for
uncollectible gaming receivables as is further set forth in the Indiana
Riverboat Act. The Indiana Gaming Commission may, from time to time, impose
other fees and assessments on riverboat owner licensees. In addition, all use,
excise and retail taxes apply to sales aboard riverboats.
Riverboats operating in Indiana must:
- have a valid certificate of inspection from the U.S. Coast Guard to carry
at least 500 passengers; and
- be at least 150 feet long.
Any riverboat that operates on the Ohio River must replicate, as nearly as
possible, historic Indiana steamboat passenger vessels of the nineteenth
century. Riverboats operating in Lake Michigan or Patoka Lake need not meet this
requirement.
Gaming sessions are generally required to be at least two hours and are
limited to a maximum duration of four hours. No gaming may be conducted while
the boat is docked, except
- for 30-minute time periods at the beginning and end of each cruise while
the passengers are embarking and disembarking (total gaming time is
limited to four hours, however, including the pre- and post-docking
periods); and
- when weather or water conditions prevent the boat from cruising.
The Indiana Gaming Commission may grant extended cruise hours at its discretion.
If the master of the riverboat reasonably determines and certifies in writing
that specific weather conditions or water conditions present a danger to the
riverboat and the riverboat's passengers and crew, the riverboat may remain
docked and gaming may take place until:
- the master determines that the conditions have sufficiently diminished for
the riverboat to safely proceed; or
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- the duration of the authorized excursion has expired.
No riverboat licensee or riverboat license applicant may enter into or
perform any contract or transaction in which it transfers or receives
consideration which is not commercially reasonable or which does not reflect the
fair market value of the goods or services rendered or received as determined at
the time the contract is executed. Any contract entered into by a riverboat
licensee or riverboat license applicant that exceeds the total dollar amount of
$50,000 shall be a written contract. A riverboat license applicant means an
applicant for a riverboat owner's license that has been issued a certificate of
suitability.
Pursuant to Indiana Gaming Commission rules, riverboat licensees and
riverboat license applicants must submit:
- an internal control procedure regarding purchasing transactions which must
contain provisions regarding ethical standards, compliance with state and
federal laws, and prohibitions on the acceptance of gifts and gratuities
by purchasing and contracting personnel from suppliers of goods or
services;
- any contract, transaction or series of transactions greater than $500,000
in any 12-month period to the Indiana Gaming Commission within 10 days of
execution; and
- submit a summary of all contracts or transactions greater than $50,000 in
any 12-month period on a quarterly basis.
The rules provide that contracts submitted to the Indiana Gaming Commission are
not submitted for approval, but grant the Indiana Gaming Commission authority to
cancel or terminate any contract that is not in compliance with Indiana law and
Indiana Gaming Commission rules or that does not maintain the integrity of the
riverboat gambling industry.
A riverboat owner licensee may not enter into or perform any contract or
transaction in which it transfers or receives consideration which is not
commercially reasonable or which does not reflect the fair market value of the
goods and services rendered or received. All contracts are subject to
disapproval by the Indiana Gaming Commission. A riverboat owner licensee or an
affiliate may not enter into a debt transaction of $1.0 million or more without
prior approval of the Indiana Gaming Commission. The Indiana Gaming Commission
has a rule requiring the reporting of certain currency transactions, which is
similar to that required by Federal authorities. See "--Other Applicable
Non-Gaming Regulations."
Indiana gaming laws provide that the opportunity for full minority and
women's business enterprise participation in the riverboat industry in Indiana
is essential to social and economic parity for minority and women business
persons. The Indiana Gaming Commission has the power to review compliance with
the goals of participation by minority and women business persons and impose
appropriate conditions on licensees to insure that goals for such business
enterprises are met. Under the Indiana Riverboat Act, a riverboat licensee or a
riverboat license applicant shall designate certain minimum percentages of the
value of its contracts for goods and services to be expended with minority
business enterprises and women's' business enterprises such that 10% of the
dollar value of the riverboat licensee's or the riverboat license applicant's
contracts for goods and services be expended with minority enterprises and 5% of
the dollar value of the riverboat licensee's or the riverboat license
applicant's contracts for goods and services be expended with women's business
enterprises. Expenditures with minority and women business enterprises are not
mutually exclusive. Licensees are required to report the dollar value and
percentage of contracts awarded to minority business enterprises and women's
business enterprises annually. If the Indiana Gaming Commission determines that
a licensee has not met these requirements, it may suspend, limit or revoke the
owner's license or fine or impose appropriate conditions on the licensee.
However, if a determination is made that a
63
person holding an owner's license has failed to demonstrate compliance, the
person has ninety (90) days from the date of determination to comply.
All licensees subject to the jurisdiction of the Indiana Gaming Commission
have a continuing duty to maintain suitability for licensure. The Indiana Gaming
Commission may initiate an investigation or disciplinary action or both against
a licensee about whom the commission has reason to believe is not maintaining
suitability for licensure, is not complying with licensure conditions, and/or is
not complying with Indiana gaming laws or regulations. The Indiana Gaming
Commission may suspend, revoke, restrict or place conditions on the license of a
licensee; require the removal of a licensee or an employee of a licensee; impose
a civil penalty or take any other action deemed necessary by the Indiana Gaming
Commission to insure compliance with Indiana gaming laws.
The Indiana Riverboat Act prohibits contributions to a candidate for a
state, legislative, or local office, or to a candidate's committee or to a
regular party committee by the holder of a riverboat owner's license or a
supplier's license, by an officer of a licensee or by an officer of a person
that holds at least a 1% interest in the licensee. The Indiana Gaming Commission
has promulgated a rule requiring quarterly reporting by the holder of a
riverboat owner's license or a supplier's license or officers of the licensee,
officers of persons that hold at least a 1% interest in the licensee, and of
persons who directly or indirectly own a 1% interest in the licensee.
The Indiana Gaming Commission adopted a rule which prohibits a distribution
by a riverboat licensee to its partners, shareholders, itself, or any affiliated
entity, if the distribution would impair the financial viability of the
riverboat gaming operation. The Indiana Gaming Commission has adopted a rule
which requires riverboat licensees to maintain, on a quarterly basis, a cash
reserve in the amount of the actual payout for three days, and the cash reserve
would include cash in the casino cage, cash in a bank account in Indiana or cash
equivalents not committed or obligated.
The Governor of Indiana has appointed a Gaming Impact Study Commission
chaired by the Attorney General to review the impact of all forms of gaming in
Indiana and to issue its final report by December 31, 1999.
IOWA
In 1989, the State of Iowa legalized riverboat gaming on the Mississippi and
Missouri Rivers and certain other waterways located in Iowa. The Excursion
Gambling Act grants the Iowa Racing and Gaming Commission (the "Iowa
Commission") jurisdiction over all gambling operations.
The legislation authorized the granting of licenses to conduct riverboat
gaming to nonprofit corporations which, in turn, are permitted to enter into
operating agreements with persons who are licensed by the Iowa Commission to
operate riverboat casinos. The number of licenses which may be granted is
limited to 10 and restricted to the counties where such boats were operating (or
licensed to operate in the future) as of May 1, 1998.
Gaming is permitted only on riverboats which recreate, as nearly as
practicable, Iowa's riverboat history and have a capacity for at least 250
persons with tickets. In addition, the licensee must utilize Iowa resources,
goods and services in the operation of the riverboat. An excursion gambling boat
must operate at least one excursion each day for 100 days during the excursion
season, (from April 1 through October 31). Excursions consist of a minimum two
hours during the excursion season. While an excursion gambling boat is docked,
passengers may embark or disembark at any time during its business hours. If
during the excursion season it is determined that it would be unsafe to complete
any portion of an excursion, or if mechanical problems prevent the completion of
any portion of an excursion, the boat may be allowed to remain dockside.
A gaming license will be issued for not more than three years and is subject
to annual renewals thereafter. Our Iowa gaming license is subject to renewal in
March 2000. The Iowa Commission has
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broad discretion with regard to such renewals. The annual license fee to operate
an excursion gambling boat is based on the passenger carrying capacity,
including crew, for which the excursion gambling boat is registered. The annual
fee is five dollars per person capacity. Licenses issued by the Iowa Commission
may not be transferred to another person or entity. We must submit detailed
financial and operating reports to the Iowa Commission.
Iowa statute stipulates that a referendum must be held in 2002 to reaffirm
gaming in each county that has gaming and further stipulates that similar
referenda be held every eight years thereafter. Minimum and maximum wagers on
games are set by the licensee. Wagering may only be conducted with chips,
wagering debit cards or coins. Wagers may only be made by persons 21 years of
age and older. A licensee may not accept a credit card to purchase coins, tokens
or other forms of credit to be wagered on gambling games.
The legislation imposes a graduated tax based on adjusted gross receipts at
the following rates:
ADJUSTED GROSS RECEIPTS TAX RATE
- ---------------------------------------------------------------- -------------
Up to $1,000,000................................................ 1%
$1,000,0001 to $3,000,000....................................... 10%
$3,000,001 and above............................................ 20%
The tax is to be paid by the licensee within 10 days after the close of business
of the day when the wagers were made. The legislation also permits the Iowa
Commission to impose an admission fee for each person embarking on an excursion
vessel, and the city or county in which gaming is conducted is permitted to
impose an admission fee of not greater than 50 cents.
Pursuant to its rule making authority, the Iowa Commission requires
officers, directors, owners, partners, joint venturers, trustees or other
persons who have a beneficial interest, direct or indirect, of 5 percent or
more, of the Company to be licensed by the Iowa Commission. The Iowa Commission
has jurisdiction to deny, suspend or revoke the license of an applicant or
licensee in which a director, officer, or holder of a beneficial interest
includes or involves any person or entity which would be, or is, ineligible in
any respect, such as through want of character, moral fitness, financial
responsibility, professional qualifications or due to failure to meet other
criteria employed by the Iowa Commission, to participate in gaming. The Iowa
Commission may order the ineligible person or entity to terminate all
relationships with the licensee or applicant, including divestiture of any
ownership interest or beneficial interest at acquisition cost. Any contract in
excess of $50,000 must be submitted to and approved by the Iowa Commission.
LOUISIANA
In July 1991, the Louisiana legislature adopted legislation permitting
certain types of gaming activity on certain rivers and waterways in Louisiana.
The legislation granted authority to supervise riverboat gaming activities to
the Louisiana Riverboat Gaming Commission and the Riverboat Gaming Enforcement
Division of the Louisiana State Police (the "Louisiana Enforcement Division").
The Louisiana Riverboat Gaming Commission was authorized to hear and determine
all appeals relative to the granting, suspension, revocation, condition or
renewal of all licenses, permits and applications. In addition, the Louisiana
Riverboat Gaming Commission was to establish rules providing for and
determining, among other things, authorized routes, duration of excursions and
the stops a riverboat may make, minimum levels of insurance, construction of
riverboats, periodic inspections and procedures for negotiable instrument
transactions involving patrons. The Louisiana Enforcement Division was
authorized, among other things, to investigate applicants and issue licenses,
investigate violations of the statute, conduct continuing reviews of gaming
activities and exercise other broad oversight powers. A gaming license is issued
for five years and the Company's license will be subject to renewal in July
1999.
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In an April 1996 special session of the Louisiana legislature, Louisiana
lawmakers passed a measure which established the Louisiana Gaming Control Board
and provides that such board shall be the successor to all prior authorities,
and the sole and exclusive authority, with regard to the regulation and
supervision of gaming operations and activities in Louisiana except for the
regulation of horse racing and offtrack betting and the conducting of charitable
gaming operations. Effective May 1, 1996, the powers, duties, functions, and
responsibilities of the Louisiana Riverboat Gaming Commission and the Louisiana
Enforcement Division, including those with respect to riverboat gaming, were
transferred to the Louisiana Gaming Control Board. The Louisiana Enforcement
Division retains certain enforcement powers and responsibilities relative to
investigations, audits, and imposing regulatory sanctions that are subject to
administrative review.
The laws and regulations of Louisiana seek to:
- prevent unsavory or unsuitable persons from having any direct or indirect
involvement with gaming at any time or in any capacity;
- establish and maintain responsible accounting practices and procedures;
- maintain effective control over the financial practices of licensees,
including establishing procedures for reliable record keeping and making
periodic reports to the Board;
- prevent cheating, and fraudulent practices;
- provide a source of state and local revenues through fees; and
- ensure that gaming licensees, to the extent practicable, employ and
contract with Louisiana residents, women and minorities.
The Louisiana Act specifies certain restrictions and conditions relating to
the operation of riverboat gaming, including but not limited to the following:
- in parishes bordering the Red River, gaming may be conducted dockside;
however, in all other authorized locations, gaming is not permitted while
a riverboat is docked, other than for forty-five minutes between
excursions, unless dangerous weather or water conditions exist;
- each round trip riverboat cruise may not be less than three nor more than
eight hours in duration, subject to specified exceptions;
- agents of the Board are permitted on board at any time during gaming
operations;
- gaming devices, equipment and supplies may be purchased or leased from
permitted suppliers;
- gaming may only take place in the designated gaming areas and upon
designated rivers or waterways;
- gaming equipment may not be possessed, maintained, or exhibited by any
person on a riverboat except in the specifically designated gaming area,
or a secure area used for inspection, repair, or storage of such
equipment;
- wagers may be received only from a person present on a licensed riverboat;
- persons under 21 are not permitted in designated gaming areas;
- except for slot machine play, wagers may be made only with tokens, chips
or electronic cards purchased from the licensee aboard a riverboat;
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- licensees may only use docking facilities and routes for which they are
licensed and may only board and discharge passengers at the riverboat's
licensed berth;
- licensees must have adequate protection and indemnity insurance;
- licensees must have all necessary federal and state licenses, certificates
and other regulatory approvals prior to operating a riverboat; and
- gaming may only be conducted in accordance with the terms of the license
and the rules and regulations adopted by the Board.
The transfer of a license or permit or an interest in a license or permit is
prohibited without prior approval of the Louisiana Gaming Control Board. The
sale, purchase, assignment, transfer, pledge or other hypothecation, lease,
disposition or acquisition by any person of securities which represents 5% or
more of the total outstanding shares issued by a corporation that holds a
license is subject to Louisiana Gaming Control Board review and approval or
disapproval. A security issued by a corporation that holds a license must
disclose these restrictions, although a publicly traded corporation incorporated
before January 15, 1992 is only required to include the statement of
restrictions for certificates issued after the corporation applies for a
license. Section 2501 of the regulations enacted by the Louisiana State Police
Riverboat Gaming Division pursuant to the Louisiana Act (the "Regulations")
requires prior written approval of the Board of all persons involved in the
sale, purchase, assignment, lease, grant or foreclosure of a security interest,
hypothecation, transfer, conveyance or acquisition of an ownership interest
(other than in a corporation) or economic interest of five percent (5%) or more
in any licensee.
Section 2523 of the Regulations requires 60 days prior notification to and
prior approval from the Board of:
- the application for, receipt, acceptance or modification of a loan;
- the use of any cash, property, credit, loan or line of credit; or
- guarantee or granting of other forms of security for a loan by a licensee
or person acting on a licensee's behalf.
There are exceptions to prior written approval including exceptions for any
transaction for less than $2.5 million in which all of the lending institutions
are federally regulated, or if the transaction involves publicly registered debt
and securities registered with the SEC and sold pursuant to a firm underwriting
agreement.
The failure of a licensee to comply with the requirements set forth above
may result in the suspension or revocation of that licensee's gaming license.
Additionally, if the Board finds that the individual owner or holder of a
security of a corporate license or intermediary company or any person with an
economic interest in a licensee is not qualified under the Louisiana Act, the
Board may require, under penalty of suspension or revocation of the license,
that the person not:
- receive dividends or interest on securities of the corporation;
- exercise directly or indirectly a right conferred by securities of the
corporation;
- receive remuneration or economic benefit from the licensee; or
- continue in an ownership or economic interest in the licensee.
Fees for conducting gaming activities on a riverboat include:
- $50,000 per riverboat for the first year of operation and $100,000 per
year per riverboat thereafter;
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- a state franchise fee of 15% of net gaming proceeds;
- a state license fee of 3.5% of net gaming proceeds; and
- a local fee of up to $2.50 per passenger.
A licensee must periodically report the following information to the Board,
which is not confidential and is to be available for public inspection: the
licensee's net gaming proceeds from all authorized games; the amount of tax paid
on net gaming proceeds; and all quarterly and annual financial statements
presenting historical data that are submitted to the Board, including annual
financial statements that have been audited by an independent certified public
accountant.
The Board has adopted rules governing the method for approval of the area of
operations and the rules and odds of authorized games and devices permitted, and
prescribing grounds and procedures for the revocation, limitation or suspension
of licenses and permits.
In April 1996, the Louisiana legislature approved legislation mandating
local option elections to determine whether to prohibit or continue to permit
three individual types of gaming in Louisiana on a parish-by-parish basis. The
referendum was brought before the Louisiana voters at the time of the November
1996 presidential election. Voters elected to permit riverboat gaming in all
parishes where it is presently conducted and to allow land-based casino gaming
in Orleans Parish. Voters in 31 parishes elected to permit video draw poker
devices, but in 33 parishes, including East Baton Rouge Parish, voters elected
to prohibit the devices. Current operators of video poker devices in East Baton
Rouge Parish (and the other parishes where voters elected to prohibit video
poker) would be allowed to operate until June 30, 1999.
In January 1996, a suit was filed in the Nineteenth Judicial District Court
to set aside the November 1996 general referendum. On May 24, 1999, the district
court issued an order that provided, among other things, that the referendum was
null and void in the parishes that voted to eliminate video poker. On appeal the
district court's order was overturned and the referendum was reaffirmed. The
plaintiffs have filed an appeal with the United States Supreme Court, however
the U.S. Supreme Court has not yet determined whether or not it will hear the
appeal. As of July 1, 1999 video poker machines were no longer permitted to
operate in those parishes that voted to prohibit the devices. At the present
time, we are uncertain what the Supreme Court's final resolution of the suit
will be and whether video poker machines will be allowed to once again operate
in non-casino locations in those parishes in which they were prohibited.
MISSOURI
Gaming was originally authorized in the State of Missouri on November 3,
1992, although no governmental action was taken to enforce or implement the
original law. On April 29, 1993, Missouri enacted the Missouri Gaming Law which
replaced the original law and established the Missouri Gaming Commission, which
is responsible for the licensing and regulation of riverboat gaming in Missouri.
The number of licenses which may be granted is not limited by statute or
regulation. The Missouri Gaming Law grants specific powers and duties to the
Missouri Gaming Commission to supervise riverboat gaming and implement the
Missouri Gaming Law and take any other action as may be reasonable or
appropriate to enforce the Missouri Gaming Law. The Missouri Gaming Commission
has discretion to approve permanently moored ("dockside") riverboat casinos if
it finds that the best interest of Missouri and the safety of the public
indicate the need for continuous docking of an excursion gambling boat.
Opponents of gaming in Missouri have brought several legal challenges to
gaming in the past and may possibly bring similar challenges in the future.
There can be no assurances that any future challenges, if brought, would not
further interfere with full-scale gaming operations in Missouri, including the
operations of the Company and its subsidiaries.
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On November 3, 1998, the citizens of the State of Missouri approved a
Constitutional amendment which was proposed by initiative petition, that
retroactively legalized lotteries, gift enterprises and games of chance aboard
excursion gambling boats and floating facilities located within artificial
spaces containing water that are within 1,000 feet of the closest edge of the
main channel of the Mississippi or Missouri Rivers. This amendment to the
Constitution was certified on November 23, 1998.
Under the Missouri Gaming Law, the ownership and operation of riverboat
gaming facilities in Missouri are subject to extensive state and local
regulation. If a company is granted a gaming license in Missouri, such company,
any subsidiaries it may form and its officers, directors, significant
shareholders and employees will be subject to regulations. The initial license
and first subsequent license renewal of an excursion gambling boat operator
shall be for a period of one year. Thereafter, license renewal periods shall be
two years. The Company's gaming license will be subject to renewal in June 2000.
However, the Missouri Gaming Commission may reopen license hearings at any time.
As part of the application and licensing process for a gaming license, the
applicant must submit detailed financial, operating and other reports to the
Missouri Gaming Commission. Each applicant has an ongoing duty to update the
information provided to the Missouri Gaming Commission in the application. In
addition to the information required of the applicant, directors, officers and
other key persons must submit applications which include detailed personal
financial information and are subject to thorough investigations. All gaming
employees must obtain an annual occupational license issued by the Missouri
Gaming Commission. Operators' licenses are issued through application to the
Missouri Gaming Commission, which requires, among other things:
- investigations into an applicant's character, financial responsibility and
experience qualifications;
- the submission of an affirmative action plan for the hiring and training
of minorities and women;
- the submission of an economic development or impact report.
License fees are a minimum of $50,000 for the initial application and a
minimum $25,000 annually thereafter.
The Missouri Gaming Commission may revoke or suspend gaming licenses and
impose other penalties for violation of the Missouri Gaming Law and the rules
and regulations which may be promulgated thereunder. Penalties include, but are
not limited to, forfeiture of all gaming equipment used in the conduct of
unauthorized gambling games and fines of up to three times a licensee's highest
daily gross receipts derived from wagering on the gambling games, whether
authorized or unauthorized, conducted during the preceding twelve months. In
addition, the Missouri Gaming Commission requires 60 days notice of, and may
disapprove or require delay pending further investigation of, transactions in
excess of the greater of $500,000 or 30% of licensee's net worth, up to
$1,000,000, which transactions involve or relate to the gaming licensee.
Pursuant to its rule making authority, the Missouri Gaming Commission has
adopted certain regulations which provide, among other things, that:
(1) riverboat excursions are limited to a duration of four hours, and gaming
may be conducted at any time during the excursion;
(2) no gaming licensee or occupational licensee may pledge, hypothecate or
transfer in any way any license, or any interest in a license, issued by
the Missouri Gaming Commission;
(3) without first notifying the Missouri Gaming Commission at least 60 days
prior to such consummation of any of the following transactions (and
during such period the Missouri
69
Gaming Commission may disapprove the transaction or require the
transaction to be delayed pending further investigation):
(a) any transfer or issuance of an ownership interest in a gaming
licensee (or holding company) that is not a publicly held entity or
(b) any pledge or hypothecation of, or grant of any type of security
interest (collectively, a "lien") in, an ownership interest in a
gaming licensee (or a holding company) that is not a publicly held
entity (which lien may only be made to or held by a financial
institution), provided that no such ownership interest may be
transferred pursuant to any such lien without a separate notice being
given to the Missouri Gaming Commission;
(4) at least 15 day's prior notice must be given to the Missouri Gaming
Commission of the intention to consummate any of the following
transactions (and the Missouri Gaming Commission may reopen the
licensing hearing of the applicable gaming licensee prior to or
following the consummation of such transaction to consider the effect of
the transaction on the gaming licensee's suitability):
(a) any issuance of ownership interests in a publicly held gaming
licensee (or holding company), if such issuance would involve,
directly or indirectly, an amount of ownership interests equaling 5%
or more of the ownership interests in the gaming licensee (or holding
company),
(b) any private incurrence of debt of $1,000,000 or more by a Class A
licensee (or any affiliated holding company),
(c) any public issuance of debt by a Class A licensee (or any affiliated
holding company) or
(d) any significant related party transactions;
(5) consummation of the following transactions must be reported to the
Missouri Gaming Commission no later than 7 days after such consummation:
(a) any transfer or issuance of ownership interests in a publicly held
gaming licensee (or holding company), if such transfer or issuance
has resulted in any entity or group of entities acting in concert
owning, directly or indirectly, a total amount of ownership interests
equaling 5% or more of the ownership interests in the gaming licensee
or holding company or
(b) the creation of any lien in 5% or more of the ownership interests in
a publicly held gaming licensee (or holding company), provided that
no such ownership interest may be transferred voluntarily or
involuntarily pursuant to any such lien without a separate notice
being given to the Missouri Gaming Commission;
(6) any Class A licensee must notify the Missouri Gaming Commission of its
intention or the intention of any affiliated entity to consummate any
transaction that involves or relates to the gaming licensee and has a
dollar value of $1,000,000 or more no later than 7 days after the
consummation of such transaction;
(7) the license held by a gaming licensee automatically becomes null and
void upon any change in control of the licensee (or its holding company)
unless the Missouri Gaming Commission has given its prior approval for
such change in control;
(8) no withdrawals of capital, loans, advances or distributions of any type
of assets in excess of 5% of the accumulated earnings of a Class A
licensee to anyone with an ownership interest in the licensee may occur
without the prior approval of the Missouri Gaming Commission;
70
(9) the Missouri Gaming Commission may take appropriate action against a
licensee or other person who has been disciplined in another
jurisdiction for gaming related activity; and
(10) no holder of a Class A license may enter into any contract relating to
its licensed activities for consideration in excess of fair market
value.
The Missouri Gaming Law imposes operational requirements on riverboat
operators, including a charge of two dollars per gaming customer per excursion
that licensees must pay to the Missouri Gaming Commission, a minimum payout
requirement of 80% for gambling devices, a 20% tax on adjusted gross receipts,
prohibitions against providing credit to gaming customers (except for the use of
credit cards and cashing checks) and a requirement that each licensee reimburse
the Missouri Gaming Commission for all costs of any Missouri Gaming Commission
staff necessary to protect the public on the licensee's riverboat. Licensees
must also submit to the Commission on a quarterly basis an audit of compliance
and of the financial transactions and condition of the licensee's total
operations for the calendar quarter and pay the associated auditing fees. The
Missouri Gaming Law provides for a loss limit of $500 per person per excursion.
Although the Missouri Gaming Law provides no limit on the amount of riverboat
space that may be used for gaming, the Missouri Gaming Commission is empowered
to impose such space limitations through the adoption of rules and regulations.
Additionally, U.S. Coast Guard safety regulations could affect the amount of
riverboat space that may be devoted to gaming. The Missouri Gaming Law also
includes requirements as to the form of riverboats, which must resemble
Missouri's riverboat history to the extent practicable and include certain
non-gaming amenities. With respect to the availability of dockside gaming, which
may be more profitable than cruise gaming, the Missouri Gaming Commission is
empowered to determine on a site by site basis where such gaming is in the best
interest of Missouri and the safety of the public and shall be permitted. All
licensees currently operating riverboat gaming operations in Missouri are
authorized to conduct all or a portion of their operations on a dockside basis.
We began dockside operations in August 1995. Dockside gaming in Missouri may
differ from dockside gaming in other states, such as Mississippi, because the
Missouri Gaming Commission has the ability to require "simulated cruising." This
requirement permits customers to board dockside riverboats only at specific
times and prohibits boarding during a certain portion of each simulated cruise,
which are required to be a minimum of two hours and a maximum of four hours.
Dockside gaming in Missouri may not be as profitable as dockside gaming in other
states, that allow for continuous customer ingress and egress.
The licensee may receive wagers only from a person present on a licensed
excursion gambling boat. Wagering shall not be conducted with money or other
negotiable currency. A person under 21 years of age may not make a wager on an
excursion gambling boat and may not be allowed in the area of the excursion boat
where gambling is being conducted.
The Missouri Gaming Commission is authorized to enter the premises of
excursion gambling boats, facilities, or other places of business of a licensee
in Missouri to determine compliance with the Missouri Gaming Law and to
investigate alleged violations of the Missouri Gaming Law or Missouri Gaming
Commission rules, orders or final decisions. A holder of any license shall be
subject to imposition of penalties, suspension or revocation of such license, or
other action for any act or failure to act by himself or his agents or employees
that is injurious to the public health, safety, morals, good order and general
welfare of the people of the state of Missouri, or that would discredit the
Missouri gaming industry or the state of Missouri. The Missouri Gaming
Commission may waive any licensing requirement or procedure for any type of
license if it determines that the waiver is in the best interests
of the public. In addition, an annual supplier's license is required of persons
who sell or lease gambling equipment, gambling supplies or both to any licensee.
A licensee licensed to conduct gambling games shall acquire all gambling games
or implements of gambling from a licensed supplier.
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LEGISLATIVE AND REGULATORY CONSIDERATIONS IN CERTAIN ADJACENT JURISDICTIONS
KANSAS. Casino gaming is currently illegal in Kansas as a constitutionally
prohibited form of lottery. In order to amend the Kansas constitution,
two-thirds of the members of each house of the Kansas legislature and a majority
of Kansas voters would have to approve a proposed amendment. Several Kansas
racetracks have publicly lobbied for the right to conduct casino games. In early
1999, the Kansas state legislature failed to pass a bill which would have
authorized casino gambling within its borders.
The State of Kansas has approved Class III Indian compacts with four
separate tribes authorizing the tribes to conduct table and keno games, but not
slot machines, on their respective reservation lands. One such casino is open
and is located approximately 60 miles from Kansas City.
KENTUCKY. Casino gaming is illegal in Kentucky as a constitutionally
prohibited form of lottery. In order to amend the Kentucky constitution,
three-fifths of the members of each house of the Kentucky legislature and a
majority of Kentucky voters would have to approve a proposed amendment. Several
Kentucky racetracks have publicly lobbied for the right to conduct casino games
and the current governor of Kentucky recently proposed a constitutional
amendment to allow 12 to 14 land-based casinos to operate, mainly along
Kentucky's borders, at convention hotels. In addition, Kentucky lottery
officials have publicly stated that they believe that a constitutional amendment
is not necessary and that casino gaming is permissible with legislative action.
OHIO. Casino gaming is illegal in Ohio as a constitutionally prohibited
form of lottery. In order to amend the Ohio constitution, three-fifths of the
members of each house of the Ohio legislature and a majority of Ohio voters
would have to approve any proposed amendment.
NEBRASKA. A number of efforts to expand gaming in Nebraska failed during
1996. After an effort to present a statewide referendum on legalizing casino
gaming failed in the Nebraska legislature, three separate voter petition drives
also failed.
FEDERAL AND NON-GAMING REGULATIONS
We are subject to certain federal, state and local safety and health laws,
regulations and ordinances that apply to businesses generally, such as the Clean
Air Act, Clean Water Act, Occupational Safety and Health Act, Resource
Conservation Recovery Act and Comprehensive Environmental Response, Compensation
and Liability Act. We have not made, and do not anticipate making, material
expenditures with respect to such environmental laws and regulations. However,
the coverage and attendant compliance costs associated with such laws,
regulations and ordinances may result in additional costs to us. For example, in
1990 the U.S. Congress enacted the Oil Pollution Act to consolidate and
reconcile mechanisms under various oil spill response laws. The Department of
Transportation has proposed regulations requiring owners and operators of
certain vessels to establish through the U.S. Coast Guard evidence of financial
responsibility in the amount of $5.5 million for clean-up of oil pollution. This
requirement would be satisfied by either proof of adequate insurance (including
self-insurance) or the posting of a surety bond or guaranty.
All vessels operated by us must comply with U.S. Coast Guard requirements as
to safety and must hold a Certificate of Seaworthiness or must be approved by
the American Bureau of Shipping ("ABS") for stabilization and flotation, and may
also be subject to local zoning and building codes. These requirements set
limits on the operation of the vessels and require individual licensing of all
personnel involved with the operation of the vessel. Loss of the Certificate of
Seaworthiness of a vessel would preclude its use as a riverboat. Every five
years, the outside of the hull of the vessels must be inspected. The U.S. Coast
Guard has developed a pilot program which utilizes underwater equipment to
complete a hull inspection while the vessel remains in service. This procedure
was utilized to inspect the Alton casino in February 1998. If the procedure is
ever disapproved by the U. S. Coast Guard, we
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would be required to remove a riverboat from service and seek to lease another
riverboat casino or discontinue operations for the inspection period.
All of our shipboard employees employed on U.S. Coast Guard regulated
vessels, including those who have nothing to do with the actual operation of the
vessel, such as dealers, waiters and security personnel, may be subject to the
Jones Act which, among other things, exempts these employees from state limits
on workers' compensation awards.
We are subject to the provisions of the Americans With Disabilities Act but
do not anticipate incurring significant expenses to bring our facilities or
procedures into compliance with such Act.
The Bank Secrecy Act (the "BSA"), enacted by Congress in 1985, requires
banks, other financial institutions and casinos to monitor receipts and
disbursements of currency in excess of $10,000 and report them to the United
States Department of the Treasury (the "Treasury"). In management's opinion, the
BSA may have resulted in a reduction in the volume of play by high level
wagerers. The Treasury has proposed tentative amendments to the BSA which would
apply solely to casinos and their reporting of currency transactions. The most
significant proposed change in the BSA is a reduction in the threshold at which
customer identification data must be obtained and documented by the casino, from
$10,000 to $3,000 (which may include the aggregation of smaller denomination
transactions). Additionally, the amendments would substantially increase the
record-keeping requirements imposed upon casinos relating to customer data,
currency and non-currency transactions. Management believes the proposed
amendments, if enacted in their current form, could result in a further
reduction in the volume of play by upper- and middle-level wagerers while adding
operating costs associated with the more extensive record-keeping requirements.
However, we do not expect that the effect on our operations would be material.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names and ages of our company's directors
and executive officers and the positions they hold.
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
William F. Cellini(a)................................ 64 Chairman of the Board of Directors
James B. Perry....................................... 49 President and Chief Executive Officer
Roger L. Archibald................................... 41 Vice President, Planning and Development
Dale R. Black........................................ 35 Vice President and Chief Financial Officer
James A. Gulbrandsen................................. 58 Vice President, Operations
Donald J. Malloy..................................... 37 Vice President, Secretary and General Counsel
G. Dan Marshall...................................... 54 Vice President, Treasurer and Director of Investor
Relations
Virginia M. McDowell................................. 41 Vice President, Sales and Marketing
Edward F. Brennan(b)................................. 57 Director
George L. Bristol(c)................................. 58 Director
F. Lance Callis(b)................................... 63 Director
Jimmy F. Gallagher(c)................................ 70 Director
William J. McEnery(a)................................ 56 Director
John B. Pratt, Sr.(b)................................ 76 Director
- ------------------------
(a) Messrs. Cellini and McEnery comprise a class of directors whose term expires
in 2002.
(b) Messrs. Callis, Pratt and Brennan comprise a class of directors whose term
expires in 2001.
(c) Messrs. Gallagher and Bristol comprise a class of directors whose term
expires in 2000.
WILLIAM F. CELLINI has been Chairman of the Company's Board of Directors
since February 1993. Mr. Cellini has served as Chief Executive Officer of New
Frontier Group, a real estate development, management and construction concern
with offices in Chicago and Springfield, Illinois since 1977. Mr. Cellini is a
member of the Nominating Committee of the Board of Directors.
JAMES B. PERRY has been President and Chief Executive Officer of the Company
since April 21, 1997 and has over 20 years of senior management experience in
the gaming, entertainment and leisure-time industries. From August 1996 to April
1997, Mr. Perry was President of the Hospitality Group of Keating Building
Group. From 1976 to August 1996, Mr. Perry was employed by Aztar Corporation in
numerous positions, including President and General Manager of TropWorld Casino
and Entertainment Resort in Atlantic City, New Jersey.
ROGER L. ARCHIBALD joined Argosy in January 1995 as Vice President, Planning
and Development. Prior to joining Argosy, Mr. Archibald served over 15 years at
Arthur Andersen.
DALE R. BLACK has been Vice President and Chief Financial Officer since
April 1998. From April 1993 to March 1998, Mr. Black served as Corporate
Controller. Prior to joining the Company, Mr. Black worked for 7 years in the
audit division of Arthur Andersen and 2 years for a national manufacturing
concern.
JAMES A. GULBRANDSEN has been Vice President, Operations since June 1, 1997.
Mr. Gulbrandsen is a veteran of over 30 years in the casino industry. From late
1996 to June 1997, Mr. Gulbrandsen was retired. From 1992 to 1996, Mr.
Gulbrandsen was an owner/operator of the Womack Casino in Cripple Creek,
Colorado.
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DONALD J. MALLOY has been Vice President and General Counsel since April 6,
1999. From January 1996 until April 1999, Mr. Malloy served as Vice President
and Corporate Counsel. On January 8, 1999 Mr. Malloy assumed the additional role
of Secretary. From June 1990 to December 1995, Mr. Malloy was an attorney with
the law firm of Winston & Strawn in Chicago, Illinois.
G. DAN MARSHALL has served as Vice President, Treasurer and Director of
Investor Relations since April 1993. Before coming to Argosy, Mr. Marshall spent
over 28 years on Wall Street with such firms as Reich & Tang, A.G. Becker and
First Options of Chicago.
VIRGINIA M. MCDOWELL has been Vice President, Sales and Marketing since June
1, 1997. From September 1996 to May 1997, Ms. McDowell was General Manager of
the Northeast Offices of Creative Data Services, Inc. From 1984 to August 1996,
Ms. McDowell held numerous positions with Aztar Corporation including Vice
President of Business Development of TropWorld Casino and Entertainment Resort
in Atlantic City, New Jersey.
EDWARD F. BRENNAN has been a principal in the law firm of Brennan, Jones &
Brennan P.C. (formerly Brennan, Cates & Constance) in Belleville, Illinois since
1987. He has been a member of the Board of Directors of the Company since
January 1995, and also serves on the Audit Committee and Compensation Committee
of the Board of Directors.
GEORGE L. BRISTOL has been President of GLB, Inc., a consulting firm, since
1977. He has been a member of the Board of Directors of the Company since
January 1995 and is a member of its Audit Committee. Mr. Bristrol was the Acting
Chief Executive Officer of the Company from January 13, 1997 to April 20, 1997.
F. LANCE CALLIS has been a partner with the law firm of Callis, Papa,
Jackstadt & Halloran P.C. (formerly Pratt & Callis, P.C.), with offices in St
Louis, Missouri and Granite City, Illinois, since 1986. Mr. Callis has been a
member of the Board of Directors of the Company since February 1993 and is a
member of its Compensation Committee and Nominating Committee.
JIMMY F. GALLAGHER has been a director of the Company since February 1993
and is currently a member of its Nominating Committee and Audit Committee. Mr.
Gallagher retired from the gaming industry in March 1991. From March 1990 to
March 1991, he was Supervisor of Casino Games for the Park Hotel and Casino in
Las Vegas, Nevada.
WILLIAM J. MCENERY has served as the president of Gas City, Ltd., an
operator of gasoline stations and convenience stores in Illinois and Florida
headquartered in Frankfort, Illinois, since 1965. Since 1992, Mr. McEnery has
been a director and investor in the Empress Riverboat Casino Corporation, the
owner and operator of riverboat casino operations in Joliet, Illinois and
Hammond, Indiana. Mr. McEnery has been a member of the Company's Board of
Directors since February 1993 and is a member of its Compensation Committee.
JOHN B. PRATT, SR. has practiced law in White Hall, Illinois as a sole
practitioner since 1986. He has been a member of the Board of Directors of the
Company since February 1993 and is a member of its Compensation Committee,
Nominating Committee and Audit Committee.
75
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of shares of our common stock as of March 31, 1999 by (i) each person
who, to our knowledge, owns more than 5% of our outstanding common stock, (ii)
by each of our directors and named executive officers and (iii) by all executive
officers and directors as a group.
SHARES
REPRESENTED
NUMBER OF BY CONVERTIBLE
NAME(A) SHARES SECURITIES(B) PERCENT
- ------------------------------------------------------------ ------------- -------------- -------
William F. Cellini.......................................... 1,843,456(c)(d) 31,075 6.7%
Edward F. Brennan........................................... 22,000(e) -- *
George L. Bristol........................................... 3,000(e) -- *
F. Lance Callis............................................. 1,537,778 17,512 5.6
Jimmy F. Gallagher.......................................... 1,337,778 -- 4.8
William J. McEnery.......................................... 1,527,778 -- 5.5
John B. Pratt, Sr........................................... 1,324,124(f) -- 4.7
James B. Perry.............................................. 309,000(e)(g) -- *
James A. Gulbrandsen........................................ 75,000(e)(h) -- *
Kornitzer Capital Management, Inc........................... 735,400(i) 1,729,661 8.3
Dimensional Fund Advisors, Inc.............................. 1,651,900(j) -- 5.9
James S. Connors............................................ 2,291,667(k) -- 8.2
Stephanie Pratt............................................. 1,124,124(f) -- 4.0
All directors and executive officers as a group (15
persons).................................................. 8,056,236(e) 48,587 28.8
- ------------------------
* Less than one percent.
(a) The address of each of the stockholders named in this table is c/o Argosy
Gaming Company, 219 Piasa Street, Alton, Illinois 62002, except for (i)
Kornitzer Capital Management, Inc. which is P.O. Box 918, Shawnee Mission,
Kansas 66201, (ii) Dimensional Fund Advisors, Inc. which is 1299 Ocean
Avenue, 11th Floor, Santa Monica, California 90401 and (iii) Ms. Stephanie
Pratt which is Box 104 Moro Road, Moro, Illinois 62067.
(b) Shares of common stock represented by such person's ownership of convertible
notes, which are convertible into common stock of the Company at any time
prior to maturity at a conversion price of $17.70 per share.
(c) Includes 381,945 shares held in Trust for William F. Cellini, Jr., as
beneficiary with an independent third party as sole trustee and 381,944
shares held in Trust for William F. Cellini, Jr., as beneficiary, with
William F. Cellini, Jr. and William F. Cellini, father of William F.
Cellini, Jr., as co-trustees. Mr. William F. Cellini disclaims beneficial
ownership of the 381,945 shares of common stock held in the William F.
Cellini, Jr. Trust by an independent third party as sole trustee.
(d) Includes 381,945 shares held in Trust for Claudia Marie Cellini, as
beneficiary with an independent third party as sole trustee and 381,944
shares held in Trust for William F. Cellini, Jr., as beneficiary, with
Claudia Marie Cellini and William F. Cellini, father of Claudia Marie
Cellini, as co-trustees. Mr. William F. Cellini disclaims beneficial
ownership of the 381,945 shares of common stock held in the Claudia Marie
Cellini Trust by an independent third party as sole trustee.
(e) Amounts shown include 3,000 shares of common stock for Edward F. Brennan,
3,000 shares of common stock for George L. Bristol, 200,000 shares of common
stock for James B. Perry, 35,000 shares of common stock for James A.
Gulbrandsen and 316,322 for all directors and executive officers as a group
represented by stock options exercisable within 60 days of February 26,
1999.
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(f) Includes 1,124,125 shares of common stock held by Mr. Pratt as Trustee
pursuant to a Voting Trust Agreement with Stephanie Pratt, his
sister-in-law, over which Mr. Pratt exercises sole voting power.
(g) Includes 100,000 shares of restricted common stock issued pursuant to an
Employment Agreement dated April 14, 1997 and governed by the terms of a
Restricted Stock Award Certificate and Deposit Agreement.
(h) Includes 40,000 shares of restricted common stock issued pursuant to an
Employment Agreement dated May 21, 1997 and governed by the terms of a
Restricted Stock Award Certificate and Deposit Agreement.
(i) According to Schedule 13G filed with the Securities and Exchange Commission
under the Exchange Act, Kornitzer Capital Management, Inc. has shared voting
power with respect to such shares.
(j) According to Schedule 13G filed with the Securities and Exchange Commission
under the Exchange Act, Dimensional Fund Advisors, Inc. has sole voting
power with respect to such shares.
(k) From February 25, 1993 until September 8, 1994, Mr. Connors was a director
of the Company.
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DESCRIPTION OF OUR OTHER INDEBTEDNESS
The following is a summary of important terms of our material indebtedness.
CREDIT FACILITY
CREDIT FACILITY. As part of the refinancing transactions completed in
connection with the issuance of the outstanding notes, we and all of our
wholly-owned operating subsidiaries entered into a senior secured revolving bank
credit facility with Wells Fargo Bank, N.A. and certain other lenders. Under the
credit facility, we may borrow up to $200 million. The credit facility has a
term of five years. The initial advances of $130 million under the credit
facility were used in connection with the repurchase of our 13 1/4% first
mortgage notes and the redemption of the 12% convertible subordinated notes
described below. Subsequent advances under the credit facility may be used to
fund a potential purchase of the minority interests in our Lawrenceburg casino,
to finance capital improvements, to provide working capital and for general
corporate purposes. We closed the credit facility concurrently with the
outstanding notes offering.
The credit facility is secured by liens on substantially all our assets. The
joint-venture subsidiaries that operate the Lawrenceburg casino and the Belle of
Sioux City Casino are not co-borrowers under the credit facility. The credit
facility is secured by a pledge of the common stock of all of our wholly-owned
subsidiaries and by liens on substantially all of their other assets. The credit
facility also contains customary representations and warranties and affirmative
and negative covenants, including, among others, covenants relating to financial
and compliance reporting, capital expenditures, restricted payments, maintenance
of certain financial ratios, incurrence of liens, sale or disposition of assets
and incurrence of other debt.
At our option, interest for advances under the credit facility accrues at
either:
- the rate of interest for 1, 2, 3, or 6 month dollar deposits as quoted on
the Telerate System Reports in the London interbank eurodollar market
("LIBOR") plus a spread ranging from 1.50% to 2.75%; or
- the higher of (1) the rate most recently announced by Wells Fargo as its
"prime rate" or (2) the Federal Funds Rate plus one-half of one percent
per annum (such higher rate, the "Base Rate") plus a spread ranging from
0.25% to 1.50%.
The credit facility provides that interest on LIBOR advances is payable at
the end of each applicable interest period or quarterly. Interest on Base Rate
advances is payable quarterly. Upon default, interest accrues at the Base Rate
plus 2.00%.
Under the terms of the credit facility, we have the right, within two years
following the closing of the credit facility, to arrange for a $75 million
increase to the borrowing availability under the credit facility. In addition,
we have the right, within two years following the closing, to arrange for a
further $150 million increase to fund the purchase of all outstanding minority
interests in the Lawrenceburg partnership. The increases in the facility remain
subject to a number of contingencies, including lender approval. We cannot
assure you that we will be able to obtain either of the increases to the credit
facility or that they will be available on acceptable terms. If we are unable to
secure the $150 million increase to the credit facility or obtain timely
alternative financing on acceptable terms, we may not be able to fund a
potential offer to purchase the minority interests in our Lawrenceburg
partnership.
At July 7, 1999, upon funding the redemption of our 12% convertible
subordinated notes, we had $130.0 million outstanding under the credit facility.
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FIRST MORTGAGE NOTES
In June, 1996, we issued $235 million principal amount of 13 1/4% first
mortgage notes due 2004. The 13 1/4% first mortgage notes are secured by, among
other things, a first priority security interest in substantially all of our
assets. In connection with the issuance of the outstanding notes, we commenced
an offer to purchase our $235 million principal amount of 13 1/4% first mortgage
notes due 2004. We also solicited consents to permit us to create additional
liens on the collateral securing our obligations under the 13 1/4% first
mortgage notes and amend the indenture and the related security documents of the
13 1/4% first mortgage notes to eliminate the subsidiary guarantee provisions
and most of the financial and restrictive covenants in the indenture.
On May 18, 1999, we received consents to the amendments from holders of
approximately 90% of the outstanding principal amount of the 13 1/4% first
mortgage notes. On June 7, 1999, we repurchased all of the 13 1/4% first
mortgage notes that were tendered pursuant to our offer to purchase. As of June
30, 1999 we have $22,242,000 principal amount of such notes outstanding. We are
required under the terms of the credit facility to cash collateralize our
remaining obligations and call for redemption all outstanding 13 1/4% first
mortgage notes on the earliest redemption date, June 1, 2000.
CONVERTIBLE SUBORDINATED NOTES
In June 1994, we issued $115 million principal amount of 12% convertible
subordinated notes due 2001. On June 8, 1999, we issued a notice of redemption
to redeem our $115 million aggregate principal amount of 12% convertible
subordinated notes due 2001, at a price equal to 102% per note. On July 7, 1999,
we redeemed all of our $115 million 12% convertible subordinated notes using
borrowings under the credit facility.
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DESCRIPTION OF THE EXCHANGE NOTES
Except as otherwise indicated below, the following summary applies to both
the outstanding notes and the exchange notes. For this section, the term "Notes"
means both the outstanding notes and the exchange notes unless otherwise
indicated.
The outstanding notes were, and the exchange notes will be, issued under the
indenture dated as of June 8, 1999, among the Company, the Subsidiary
Guarantors, as guarantors, and, Bank One Trust Company, NA, as trustee. In this
description, the word "Company" refers only to Argosy Gaming Company and not to
any of its subsidiaries.
The terms of the exchange notes are nearly identical to the outstanding
notes in all material respects, including interest rate and maturity, except
that the exchange notes will not be subject to:
- the restrictions on transfer; and
- the registration rights agreement's covenants regarding registration.
The following summary of certain provisions of the Indenture does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, all the provisions of the Indenture, including the definitions of
certain terms therein and those terms made a part thereof by the Trust Indenture
Act of 1939, as amended. We urge you to read the Indenture, because it and not
this description, defines your rights as holders of the Notes. You may obtain
copies of the Indenture from the Company upon request. Certain defined terms
used in this description but not defined below under "--Certain Definitions"
have the meanings assigned to them in the Indenture.
GENERAL
The Notes are unsecured senior subordinated obligations of the Company, in
an initial aggregate principal amount of $200 million, and mature on June 1,
2009. Subject to the covenants described below under "Covenants" and applicable
law, the Company may issue additional Notes under the Indenture. The Notes and
any additional Notes subsequently issued under the Indenture will be treated as
a single class for all purposes under the Indenture.
Interest on the Notes will accrue at the rate of 10 3/4% per annum and will
be payable semi-annually in arrears on June 1 and December 1, commencing on
December 1, 1999. The Company will make each interest payment to the Holders of
record on the immediately preceding May 15 and November 15. Interest on the
Notes will accrue from the date of original issuance or, if interest has already
been paid, from the date it was most recently paid.
As of June 8, 1999, all of our subsidiaries are "Restricted Subsidiaries,"
except Indiana Gaming Company, L.P. the subsidiary of the Company that operates
the Lawrenceburg Casino, which is an "Unrestricted Subsidiary." In addition, the
Indenture permits us to designate certain of our Restricted Subsidiaries as
Unrestricted Subsidiaries. Our Unrestricted Subsidiaries are not be subject to
many of the restrictive covenants in the Indenture and do not guarantee the
Notes.
If by the date that is six months after the Closing Date, we have not
consummated a registered exchange offer for the outstanding notes or caused a
shelf registration statement with respect to resales of the outstanding notes to
be declared effective, the interest rate will increase by 0.5% per annum until
the consummation of a registered exchange offer or the effectiveness of a shelf
registration statement.
In certain circumstances, if the Company sells its partnership interest in
Indiana Gaming Company L.P. or if Indiana Gaming L.P. sells substantially all of
its assets, the interest rate on the Notes will increase by 0.5% per annum. See
"--Certain Covenants--Repurchase of Exchange Notes in Connection with Sale of
Lawrenceburg Interest."
80
If a Holder has given wire transfer instructions to us, we will pay all
principal, interest and premium and Additional Interest, if any, on that
Holder's exchange notes in accordance with those instructions. All other
payments on the exchange notes will be made at the office or agency of the
Paying Agent and Registrar within the City and State of New York unless we elect
to make interest payments by check mailed to the Holders at their addresses set
forth in the register of Holders.
The exchange notes will be issued in fully registered form, without coupons,
in denominations of $1,000 and integral multiples of $1,000. See "--Book-Entry;
Delivery and Form." There is no service charge for any registration of transfer
or exchange of Notes, but we may require a Holder to pay any taxes and fees
required by law or permitted by the Indenture.
PAYING AGENT AND REGISTRAR FOR THE NOTES
The Trustee will initially act as Paying Agent and Registrar. We may change
the Paying Agent or Registrar without prior notice to the Holders, and the
Company or any of its Restricted Subsidiaries may act as Paying Agent or
Registrar.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and we may require a
Holder to pay any taxes and fees required by law or permitted by the Indenture.
We are not required to transfer or exchange any exchange note selected for
redemption. Also, we are not required to transfer or exchange any exchange note
for a period of 15 days before a selection of exchange notes to be redeemed. See
"--Book Entry; Delivery and Form" and "Transfer Restrictions" below.
The registered Holder of an exchange note will be treated as the owner of it
for all purposes.
SUBSIDIARY GUARANTEES
Our payment obligations under the Notes will be jointly and severally
guaranteed by our Subsidiary Guarantors and any of our future Restricted
Subsidiaries that have at any time a Fair Market Value of more than $250,000
provided that the aggregate Fair Market Value of Restricted Subsidiaries that
are not Subsidiary Guarantors will not at any time exceed $1.0 million. Each
Subsidiary Guarantee will be subordinated to the prior payment in full of all
Senior Indebtedness of that Subsidiary Guarantor. The obligations of each
Subsidiary Guarantor under its Subsidiary Guarantee will be limited so as not to
constitute a fraudulent conveyance under applicable law. See "Risk
Factors--Fraudulent Conveyance Matters."
Not all of our subsidiaries will guarantee the Notes. In particular, Indiana
Gaming Company L.P., our Unrestricted Subsidiary that operates the Lawrenceburg
Casino and Belle of Sioux City L.P., our Subsidiary that operates the Belle of
Sioux City will not be Subsidiary Guarantors of the Notes. In the event of a
bankruptcy, liquidation or reorganization of any of these non-guarantor
subsidiaries, these non-guarantor subsidiaries will pay the holders of their
debts and their trade creditors before they will be able to distribute any of
their assets to us. The Subsidiary Guarantors generated 45% of our consolidated
revenues in the twelve-month period ended March 31, 1999 and held 70% of our
consolidated assets as of March 31, 1999. See footnote 14 to our Consolidated
Financial Statements included at the back of this prospectus for more detail
about the division of our consolidated revenues and assets between our
Subsidiary Guarantors and non-guarantor subsidiaries. During 1998, the
Lawrenceburg casino represented 56.2% of our net revenues and 82.9% of EBITDA,
after taking into consideration management fees paid to a minority partner.
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A Subsidiary Guarantor may not sell or otherwise dispose of all or
substantially all of its assets to, or consolidate with or merge with or into
(whether or not such Subsidiary Guarantor is the surviving Person), another
Person, other than the Company or another Subsidiary Guarantor, unless:
(1) immediately after giving effect to such transaction, no Default or Event
of Default exists; and
(2) either:
(A) the Person acquiring the property in any such sale or disposition or
the Person formed by or surviving any such consolidation or merger
assumes all the obligations of that Subsidiary Guarantor under the
Indenture and its Subsidiary Guarantee pursuant to a supplemental
indenture satisfactory to the Trustee; or
(B) the Net Proceeds of such sale or other disposition are applied in
accordance with the "Limitations on Asset Sales" covenant described
below.
The Subsidiary Guarantee of a Subsidiary Guarantor will be released:
(1) in connection with any sale or other disposition of all or substantially
all of the assets of that Subsidiary Guarantor (including by way of
merger or consolidation) to a Person that is not (either before or after
giving effect to such transaction) the Company or a Subsidiary Guarantor,
if the Subsidiary Guarantor applies the Net Proceeds of that sale or
other disposition in accordance with the "Limitations on Asset Sales"
covenant described below;
(2) in connection with any sale of all of the Capital Stock of a Subsidiary
Guarantor to a Person that is not (either before or after giving effect
to such transaction) the Company or a Subsidiary Guarantor, if the
Company applies the Net Proceeds of that sale in accordance with the
"Limitation on Asset Sales" covenant described below; or
(3) if the Company designates any Subsidiary Guarantor as an Unrestricted
Subsidiary in accordance with the Indenture.
See "--Certain Covenants--Limitation on Asset Sales."
OPTIONAL REDEMPTION
On or after June 1, 2004, we may redeem all or a part of the exchange notes
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 Additional Interest, if any, thereon, to the applicable
redemption date, subject to the right of Holders of record on the relevant
record date that is on or prior to the redemption date to receive interest due
on an interest payment date, if redeemed during the twelve-month period
beginning on June 1, of the years indicated below:
YEAR PERCENTAGE
- -------------------------------------------------------------- -----------
2004.......................................................... 105.375%
2005.......................................................... 103.583%
2006.......................................................... 101.792%
2007 and thereafter........................................... 100.000%
In addition, at any time prior to June 1, 2002, the Company may on any one
or more occasions redeem up to 35% of the aggregate principal amount of the
exchange notes issued under the Indenture at a redemption price of 110.750% of
the principal amount thereof, plus accrued and unpaid interest and Additional
Interest, if any, to the redemption date (subject to the right of Holders of
record on the
82
relevant record date that is on or prior to the redemption date to receive
interest due on an interest payment date), with the Net Cash Proceeds of one or
more Public Equity Offerings; provided that:
(1) at least 65% of the aggregate principal amount of exchange notes remains
outstanding immediately after the occurrence of such redemption,
excluding the exchange notes held by us and our Subsidiaries); and
(2) the redemption occurs within 60 days of the date of the closing of
Public Equity Offering.
GAMING REDEMPTION
If any Gaming Authority:
(1) requests or requires a holder or beneficial owner of the exchange notes
to appear before, submit to the jurisdiction of or provide information
to, such Gaming Authority and such holder or beneficial owner either
refuses to do so or otherwise fails to comply with such request or
requirement within a reasonable period of time; or
(2) determines that any holder or beneficial owner of the exchange notes is
not suitable or qualified with respect to beneficial ownership of the
exchange notes,
then the Company may:
(1) require that such holder or beneficial owner dispose of its exchange
notes within 30 days (or such earlier date as required by the Gaming
Authority) of (A) the termination of the 30-day period described above
for the holder or beneficial owner to apply for a license, qualification
or finding of suitability or (B) the receipt of the notice from the
Gaming Authority that the holder or beneficial owner will not be
licensed, qualified or found suitable; or
(2) redeem the exchange notes of such holder or beneficial owner at a price
equal to the lesser of (A) the price at which such holder or beneficial
owner acquired such exchange notes or (B) the Fair Market Value of such
exchange notes or, if the exchange notes are listed on a national
securities exchange, the last reported sale price on the date the Company
notifies such holder or beneficial owner of the redemption.
Immediately upon a determination that a holder or beneficial owner will not
be licensed, qualified or found suitable, the holder or beneficial owner will
have no further rights (1) to exercise any right conferred by the exchange
notes, directly or indirectly, through any trustee, nominee or any other Person
or entity, or (2) to receive any interest or other distribution or payment with
respect to the exchange notes or any remuneration in any form from us for
services rendered or otherwise, except the redemption price of the exchange
notes. The holder or beneficial owner applying for a license, qualification or
finding of suitability must pay all costs of the licensure or investigation for
such qualification or finding of suitability.
SELECTION AND NOTICE
If less than all of the exchange notes are to be redeemed at any time, the
Trustee will select exchange notes for redemption as follows:
(1) if the exchange notes are listed, in compliance with the requirements of
the principal national securities exchange on which the exchange notes
are listed; or
(2) if the exchange notes are not so listed, on a pro rata basis, by lot or
by such method as the Trustee shall deem fair and appropriate.
83
No exchange notes of $1,000 or less shall be redeemed in part. Notices of
redemption shall be mailed by first class mail at least 30 but not more than 60
days before the redemption date to each Holder of Notes to be redeemed at its
registered address. Notices of redemption may not be conditional. If any
exchange note is to be redeemed in part only, the notice of redemption that
relates to that exchange note shall state the portion of the principal amount
thereof to be redeemed. A new exchange note in principal amount equal to the
unredeemed portion of the original exchange note will be issued in the name of
the Holder thereof upon cancellation of the original exchange note. Exchange
notes called for redemption become due on the date fixed for redemption. On and
after the redemption date, interest ceases to accrue on exchange notes or
portions of them called for redemption.
SINKING FUND
There will be no sinking fund payments for the exchange notes.
RANKING
The exchange notes will be senior subordinated Indebtedness of the Company
and the Subsidiary Guarantees will be senior subordinated Indebtedness of the
Subsidiary Guarantors. The payment of the Senior Subordinated Obligations will,
to the extent set forth in the Indenture, be subordinated in right of payment to
the prior payment in full, in cash or cash equivalents, of all Obligations due
in respect of existing and future Senior Indebtedness. The exchange notes will
be effectively junior to all debt and other liabilities of our subsidiaries that
do not guarantee the exchange notes. As of July 7, 1999, upon funding the
redemption of our 12% convertible notes, the Company and the Subsidiary
Guarantors had $152.2 million of Indebtedness, other than the notes, all of
which constitutes Senior Indebtedness. In addition, our non-guarantor
subsidiaries had approximately $87.1 million of debt and other liabilities.
Notwithstanding the foregoing, payment from the money or the proceeds of U.S.
Government Obligations held in any defeasance trust described under
"--Defeasance" below, will not be contractually subordinated in right of payment
to any Senior Indebtedness or subject to the restrictions described herein.
The holders of Senior Indebtedness will be entitled to receive payment in
full in cash or cash equivalents of all Obligations due in respect of Senior
Indebtedness (including, with respect to Designated Senior Indebtedness, any
interest accruing after the commencement of any proceeding described below at
the rate specified in the applicable Designated Senior Indebtedness whether or
not interest is an allowed claim enforceable against the Company in such
proceeding) before the Holders of the exchange notes will be entitled to receive
any payment on account of Senior Subordinated Obligations or any payment to
acquire any of the exchange notes for cash, property or securities, or any
distribution with respect to the exchange notes of any cash, property or
securities (except that Holders of the exchange notes may receive and retain
Permitted Junior Securities and payments made from the trust described under
"--Defeasance"), in the event of any distribution to creditors of the Company:
(1) in a liquidation or dissolution of us;
(2) in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to us or our property;
(3) in an assignment for the benefit of creditors; or
(4) in any marshaling of our assets and liabilities.
In addition, until all Obligations due with respect to Senior Indebtedness are
paid in full in cash or cash equivalents, any such distribution to which Holders
would be entitled shall be made to the holders
84
of Senior Indebtedness (except that Holders may receive and retain Permitted
Junior Securities and payments made from the trust described under
"--Defeasance").
The Company and the Subsidiary Guarantors also may not make any payment in
respect of any Senior Subordinated Obligations (except in Permitted Junior
Securities or from the trust described under "--Defeasance") if:
(1) a payment default on Designated Senior Indebtedness occurs and is
continuing beyond any applicable grace period; or
(2) any other default occurs and is continuing on any series of Designated
Senior Indebtedness that permits holders of that series of Designated
Senior Indebtedness to accelerate its maturity and the Trustee receives a
notice of such default (a "Payment Blockage Notice") from the trustee or
other representative for the holders of any Designated Senior Debt, or
the holders of at least a majority of the outstanding principal amount of
such Designated Senior Indebtedness.
Payments on the exchange notes and the Subsidiary Guarantees may and shall
be resumed:
(1) in the case of a payment default, upon the date on which such default is
cured or waived; and
(2) in case of a nonpayment default, the earlier of the date on which such
nonpayment default is cured or waived or 179 days after the date on which
the applicable Payment Blockage Notice is received.
No new Payment Blockage Notice may be delivered unless and until:
(1) 360 days have elapsed since the delivery of the immediately prior
Payment Blockage Notice; and
(2) all scheduled payments of principal, interest and premium and Additional
Interest, if any, on the exchange notes that have come due have been paid
in full in cash.
No nonpayment default that existed or was continuing on the date of delivery
of any Payment Blockage Notice to the Trustee shall be, or be made, the basis
for a subsequent Payment Blockage Notice.
Notwithstanding the foregoing, we will be permitted to redeem any Notes to
the extent required to do so by any Gaming Authority as described in "--Gaming
Redemption."
We must promptly notify holders of Senior Indebtedness if payment of the
Notes is accelerated because of an Event of Default.
Upon the occurrence of a Change in Control, certain Asset Sales, and certain
sales of its interest in the Lawrenceburg casino, we will be required to offer
to repurchase some or all of the exchange notes. See "Certain
Covenants--Limitation on Asset Sales," "--Repurchase of Exchange Notes upon a
Change of Control" and "Repurchase of Exchange Notes in Connection with Sale of
Lawrenceburg Interest." The Credit Facility currently prohibits us from
purchasing any exchange notes, and also provides that certain change of control
or asset sale events with respect to us would constitute a default under the
Credit Facility. Any future credit agreements or other agreements relating to
Senior Indebtedness to which we become a party may contain similar restrictions
and provisions. In the event a Change of Control, Asset Sale or sale of
Lawrenceburg interests occurs at a time when we are prohibited from purchasing
Notes, we could seek the consent of its senior lenders to the purchase of
exchange notes or could attempt to refinance the borrowings that contain such
prohibition. If we do not obtain such a consent or repay such borrowings, we
will remain prohibited from purchasing the exchange notes. In such case, our
failure to purchase tendered exchange notes would constitute an Event of Default
under the Indenture which would, in turn, constitute a default under such Senior
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Indebtedness. In such circumstances, the subordination provisions in the
Indenture would likely restrict payments to the Holders of the exchange notes.
By reason of the subordination provisions described above, in the event of
liquidation or insolvency, Holders of Notes may recover less, ratably, than
creditors of the Company who are holders of Senior Indebtedness.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the Indenture. Reference is made to the
Indenture for the full definition of all terms as well as any other capitalized
terms used herein for which no definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person existing at the time
such Person becomes a Restricted Subsidiary or assumed in connection with an
Asset Acquisition by a Restricted Subsidiary; PROVIDED that Indebtedness of such
Person which is redeemed, defeased, retired or otherwise repaid at the time of
or immediately upon consummation of the transactions by which such Person
becomes a Restricted Subsidiary or such Asset Acquisition shall not be Acquired
Indebtedness.
"Adjusted Consolidated Net Income" means, for any period, the aggregate net
income (or loss) of the Company and its Restricted Subsidiaries for such period
determined in conformity with GAAP; PROVIDED that the following items shall be
excluded in computing Adjusted Consolidated Net Income (without duplication):
(1) the net income of any Person that is not a Restricted Subsidiary, except
to the extent of the amount of dividends or other distributions actually
paid to us or any of our Restricted Subsidiaries by such Person during
such period;
(2) the net income (or loss) of any Person prior to the date it becomes a
Restricted Subsidiary or is merged into or consolidated with us or any of
our Restricted Subsidiaries or all or substantially all of the property
and assets of such Person are acquired by us or any of our Restricted
Subsidiaries;
(3) the net income of any Restricted Subsidiary to the extent that the
declaration or payment of dividends or similar distributions by such
Restricted Subsidiary of such net income is not at the time permitted by
the operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation
applicable to such Restricted Subsidiary;
(4) any gains or losses (on an after-tax basis) attributable to Asset Sales;
(5) solely for purposes of calculating the amount of Restricted Payments
that may be made pursuant to clause (C) of the first paragraph of the
"Limitation on Restricted Payments" covenant described below, any amount
paid or accrued as dividends on our Preferred Stock owned by Persons
other than us and any of our Restricted Subsidiaries;
(6) all extraordinary gains and extraordinary losses, including any premium,
fees and expenses payable in connection with the offering of the Notes,
the repurchase of the First Mortgage Notes, the redemption of the
Convertible Subordinated Notes and the initial establishment of the
Credit Facility;
(7) any non cash impairment loss determined in accordance with GAAP related
to the carrying value of (A) the long-lived assets associated with the
Belle of Baton Rouge Casino or (B) other assets owned by us or our
Restricted Subsidiaries as of the date of the Indenture that are recorded
in the ordinary course of business and are being used by us or have been
replaced by other comparable assets of us or our Restricted Subsidiaries;
and
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(8) the cumulative effect of a change in accounting principles.
"Affiliate" means, as applied to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Asset Acquisition" means (1) an investment by us or any of our Restricted
Subsidiaries in any other Person pursuant to which such Person shall become a
Restricted Subsidiary or shall be merged into or consolidated with us or any of
our Restricted Subsidiaries, PROVIDED that such Person's primary business is
related, ancillary or complementary to the businesses of our company and our
Restricted Subsidiaries on the date of such investment or (2) an acquisition by
us or any of our Restricted Subsidiaries of the property and assets of any
Person other than of our company or any of our Restricted Subsidiaries that
constitute substantially all of a division or line of business of such Person;
PROVIDED that the property and assets acquired are related, ancillary or
complementary to the businesses of our company and our Restricted Subsidiaries
on the date of such acquisition.
"Asset Disposition" means the sale or other disposition by us or any of our
Restricted Subsidiaries (other than to ourselves or another Restricted
Subsidiary) of (1) all or substantially all of the Capital Stock of any
Restricted Subsidiary or (2) all or substantially all of the assets that
constitute a division or line of business of our company or any of our
Restricted Subsidiaries.
"Asset Sale" means any sale, transfer or other disposition (including by way
of merger, consolidation or sale-leaseback transaction) in one transaction or a
series of related transactions by us or any of our Restricted Subsidiaries to
any Person other than ourselves or any of our Restricted Subsidiaries of (1) all
or any of the Capital Stock of any Restricted Subsidiary, (2) all or
substantially all of the property and assets of an operating unit or business of
our company or any of our Restricted Subsidiaries or (3) any other property and
assets (other than the Capital Stock of or other Investment in an Unrestricted
Subsidiary) that is outside the ordinary course of business of our company or
any of our Restricted Subsidiaries, in each case, other than a sale of all or
substantially all of the assets of our company in compliance with the "Merger,
Consolidation, or Sale of Assets" covenant described below; PROVIDED that "Asset
Sale" shall not include:
(1) sales or other dispositions of inventory, receivables and other current
assets in the ordinary course of business,
(2) sales, transfers or other dispositions of (i) assets constituting a
Restricted Payment permitted to be made under the "Limitation on
Restricted Payments" covenant or (ii) Investments permitted pursuant to
clause (6) of the definition of Permitted Investments,
(3) sales or other dispositions of assets for consideration at least equal
to the fair market value of the assets sold or disposed of, to the extent
that the consideration received are invested in accordance with clause
(B) of the "Limitation on Asset Sales" covenant,
(4) the sale or other transfer of any of our company's or any Restricted
Subsidiary's interest in Indiana Gaming Company L.P., which transaction
is governed by the "Repurchase of Exchange Notes in connection with Sale
of Lawrenceburg Interest" covenant described below,
(5) sales, transfers or other dispositions of assets with a Fair Market
Value not in excess of $1.0 million in any transaction or series of
related transactions, or
(6) sales, transfers or other dispositions of furniture, fixtures or
equipment that has become worn out, obsolete or damaged or otherwise
unsuitable for use in connection with the business of our company or our
Restricted Subsidiaries.
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"Attributable Debt" in respect of a sale and leaseback transaction means, at
the time of determination, the present value of the obligation of the lessee for
net rental payments during the remaining term of the lease included in such sale
and leaseback transaction including any period for which such lease has been
extended or may, at the option of the lessor, be extended. Such present value
shall be calculated using a discount rate equal to the rate of interest implicit
in such transaction, determined in accordance with GAAP.
"Average Life" means, at any date of determination with respect to any debt
security, the quotient obtained by dividing (1) the sum of the products of (A)
the number of years from such date of determination to the dates of each
successive scheduled principal payment of such debt security and (B) the amount
of such principal payment by (2) the sum of all such principal payments.
"Belle of Baton Rouge Casino" means the Belle of Baton Rouge Casino and the
related Catfish Town entertainment facility.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) in equity of such Person, whether outstanding on the
Closing Date or issued thereafter, including, without limitation, all Common
Stock and Preferred Stock.
"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real personal or mixed) of which the discounted present value
of the rental obligations of such Person as lessee, in conformity with GAAP, is
required to be capitalized on the balance sheet of such Person.
"Capitalized Lease Obligations" means the discounted present value of the
rental obligations under a Capitalized Lease.
"Change of Control" means the occurrence of any of the following:
(1) a "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2)
of the Exchange Act) other than a group comprised of one or more Excluded
Persons becomes the ultimate "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act) of more than 40% of the total voting power of the
Voting Stock of our company on a fully diluted basis;
(2) individuals who on the Closing Date constitute the Board of Directors
(together with any new directors whose election by the Board of Directors
or whose nomination by the Board of Directors for election by our
stockholders was approved by a vote of at least two-thirds of the members
of the Board of Directors then in office who either were members of the
Board of Directors on the Closing Date or whose election or nomination
for election was previously so approved) cease for any reason to
constitute a majority of the members of the Board of Directors then in
office;
(3) the direct or indirect sale, transfer, conveyance or other disposition
(other than by way of merger or consolidation), in one or a series of
related transactions, of all or substantially all of the properties or
assets of our company and our Subsidiaries taken as a whole to any
"person" (as that term is used in Section 13(d)(3) of the Exchange Act);
or
(4) the adoption of a plan relating to our liquidation or dissolution.
"Closing Date" means the date on which the Notes are originally issued under
the Indenture.
"Consolidated EBITDA" means, for any period, Adjusted Consolidated Net
Income for such period plus, to the extent such amount was deducted in
calculating such Adjusted Consolidated Net Income:
(1) Consolidated Interest Expense,
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(2) income taxes (other than income taxes (either positive or negative)
attributable to extraordinary and non-recurring gains or losses or sales
of assets),
(3) depreciation expense,
(4) amortization expense and
(5) all other non-cash items reducing Adjusted Consolidated Net Income
(other than items that will require cash payments and for which an
accrual or reserve is, or is required by GAAP to be, made), less all
non-cash items increasing Adjusted Consolidated Net Income (other than
normal recurring accruals of revenue in the ordinary course of business),
all as determined on a consolidated basis for us and our Restricted
Subsidiaries in conformity with GAAP,
PROVIDED that, if any Restricted Subsidiary is not a Wholly Owned Restricted
Subsidiary, Consolidated EBITDA shall be reduced (to the extent not otherwise
reduced in accordance with GAAP) by an amount equal to (A) the amount of the
Adjusted Consolidated Net Income attributable to such Restricted Subsidiary
multiplied by (B) the percentage ownership interest in the income of such
Restricted Subsidiary not owned on the last day of such period by us or any of
our Restricted Subsidiaries.
"Consolidated Indebtedness" means with respect to any Person at any date of
determination (without duplication):
(1) the total amount of Indebtedness of such Person and its Restricted
Subsidiaries, PLUS
(2) the total amount of Indebtedness of any other Person, to the extent that
such Indebtedness has been Guaranteed by the referrent Person or one or
more of its Restricted Subsidiaries, PLUS
(3) the aggregate liquidation value of all Disqualified Stock of such Person
and all preferred stock of Restricted Subsidiaries of such Person, in
each case, determined on a consolidated basis in accordance with GAAP.
"Consolidated Interest Expense" means, for any period, the aggregate amount
of:
(1) interest in respect of Indebtedness of our company and our Consolidated
Subsidiaries (including, without limitation, amortization of original
issue discount on any such Indebtedness, the interest portion of any
deferred payment obligation and imputed interest with respect to
Attributable Debt, calculated in accordance with the effective interest
method of accounting; all commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance
financing; the net costs associated with Interest Rate Agreements);
PROVIDED, HOWEVER, that "Consolidated Interest Expense" shall not include
interest in respect of (A) Indebtedness of Indiana Gaming Company L.P.
outstanding on the date of the Indenture that is owed to any minority
partner of Indiana Gaming Company L.P., (B) Indebtedness of Indiana
Gaming Company L.P. that is incurred after the date of the Indenture if
such Indebtedness is owed to any minority partner of Indiana Gaming
Company L.P. to the extent that Indiana Gaming Company L.P. concurrently
incurs Indebtedness to The Indiana Gaming Company on a pro rata basis,
based on The Indiana Gaming Company's percentage interest in Indiana
Gaming Company L.P.; and (C) the Indiana Gaming Company L.P. minority
partners' pro rata portion, based on such partners' percentage interest
in Indiana Gaming Company L.P., of Indebtedness of Indiana Gaming Company
L.P. (i) owed to third parties; and (ii) owed to any minority partner of
Indiana Gaming Company L.P. and incurred after the date of the Indenture
to the extent that such Indebtedness is not excluded from Consolidated
Interest Expense pursuant to clause (B) above;
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(2) all but the principal component of rentals in respect of Capitalized
Lease Obligations paid, accrued or scheduled to be paid or to be accrued
by us and our Restricted Subsidiaries during such period;
(3) any interest expense on Indebtedness of another Person that is
Guaranteed by such Person or one of its Subsidiaries or secured by a Lien
on assets of such Person or one of its Subsidiaries, whether or not such
Guarantee or Lien is called upon; and
(4) the product of (a) all dividends, whether paid or accrued and whether or
not in cash, on any series of preferred stock of such Person or any of
its Restricted Subsidiaries, other than dividends on Capital Stock
payable solely in our Capital Stock (other than Disqualified Stock) or to
us or one of our Restricted Subsidiaries, times (b) a fraction, the
numerator of which is one and the denominator of which is one minus the
then current combined federal, state and local statutory tax rate of such
Person, expressed as a decimal, in each case, on a consolidated basis and
in accordance with GAAP;
EXCLUDING, HOWEVER, (A) any amount of such interest of any Restricted Subsidiary
if the net income of such Restricted Subsidiary is excluded in the calculation
of Adjusted Consolidated Net Income pursuant to clause (3) of the definition
thereof (but only in the same proportion as the net income of such Restricted
Subsidiary is excluded from the calculation of Adjusted Consolidated Net Income
pursuant to clause (3) of the definition thereof) and (B) any premiums, fees and
expenses (and any amortization thereof) payable in connection with the offering
of the Notes, the repurchase of the First Mortgage Notes, redemption of
Convertible Subordinated Notes and the initial establishment of the Credit
Facility, all as determined on a consolidated basis (without taking into account
Unrestricted Subsidiaries) in conformity with GAAP.
"Consolidated Net Worth" means, at any date of determination, stockholders'
equity as set forth on the most recently available quarterly or annual
consolidated balance sheet of our company and our Restricted Subsidiaries (which
shall be as of a date not more than 135 days prior to the date of such
computation, and which shall not take into account Unrestricted Subsidiaries),
less any amounts attributable to Disqualified Stock or any equity security
convertible into or exchangeable for Indebtedness, the cost of treasury stock
and the principal amount of any promissory notes receivable from the sale of the
Capital Stock of our company or any of our Restricted Subsidiaries, each item to
be determined in conformity with GAAP (excluding the effects of foreign currency
exchange adjustments under Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 52).
"Consolidated Subsidiaries" means, for any Person, each Subsidiary of such
Person (whether existing on the date of the Indenture or created or acquired
thereafter) the financial statements of which are consolidated for financial
statement reporting purposes with the financial statements of such Person in
accordance with GAAP.
"Credit Facility" means the Credit Agreement dated the date of the
Indenture, among us, the Subsidiary Guarantors, and Wells Fargo Bank, N.A., as
administrative agent bank and the lenders referred to therein, together with any
agreements, instruments and documents executed or delivered pursuant to or in
connection with such Credit Facility (including, without limitation, any
Guarantees and security documents), in each case as such Credit Facility or such
agreements, instruments or documents may be amended, supplemented, extended,
renewed, refinanced or otherwise modified from time to time.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement.
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"Debt to EBITDA Ratio" means, on any Transaction Date, the ratio of (1) the
aggregate amount of Consolidated Indebtedness of our company and our Restricted
Subsidiaries as of such Transaction Date to (2) the aggregate amount of
Consolidated EBITDA of our company and our Restricted Subsidiaries for the then
most recent four fiscal quarters prior to such Transaction Date (the "Four
Quarter Period") for which reports have been filed with the Commission or
provided to the Trustee. In making the foregoing calculation:
(A) PRO FORMA effect shall be given to Asset Dispositions and Asset
Acquisitions (including giving PRO FORMA effect to the application of
proceeds of any Asset Disposition) that occur during the period (the
"Reference Period") commencing on the first day of the Four Quarter
Period and ending on the Transaction Date as if they had occurred and
such proceeds had been applied on the first day of such Reference Period;
and
(B) PRO FORMA effect shall be given to asset dispositions and asset
acquisitions (including giving PRO FORMA effect to the application of
proceeds of any asset disposition) that have been made by any Person that
has become a Restricted Subsidiary or has been merged with or into us or
any Restricted Subsidiary during such Reference Period and that would
have constituted Asset Dispositions or Asset Acquisitions had such
transactions occurred when such Person was a Restricted Subsidiary as if
such asset dispositions or asset acquisitions were Asset Dispositions or
Asset Acquisitions that occurred on the first day of such Reference
Period;
PROVIDED that to the extent that clause (A) or (B) of this sentence requires
that PRO FORMA effect be given to an Asset Acquisition or Asset Disposition,
such PRO FORMA calculation shall be based upon the four full fiscal quarters
immediately preceding the Transaction Date of the Person, or division or line of
business of the Person, that is acquired or disposed for which financial
information is available.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Senior Indebtedness" means
(1) any Indebtedness outstanding under the Credit Facility (except that any
Indebtedness which represents a partial refinancing of Indebtedness
theretofore outstanding pursuant to the Credit Facility, rather than a
complete refinancing thereof, shall only constitute Designated Senior
Indebtedness if such partial refinancing meets the requirements of clause
(2) below) and
(2) any other Senior Indebtedness that, at the date of determination, has an
aggregate principal amount outstanding of at least $20 million and that
had been specifically designated by us as "Designated Senior
Indebtedness."
"Disqualified Stock" means any class or series of Capital Stock of any
Person that by its terms or otherwise is (1) required to be redeemed prior to
the Stated Maturity of the exchange notes, (2) redeemable at the option of the
holder of such class or series of Capital Stock at any time prior to the Stated
Maturity of the exchange notes or (3) convertible into or exchangeable for
Capital Stock referred to in clause (1) or (2) above or Indebtedness having a
scheduled maturity prior to the Stated Maturity of the exchange notes; PROVIDED
that any Capital Stock that would not contribute Disqualified Stock but for
provisions thereof giving holders thereof the right to require such Person to
repurchase or redeem such Capital Stock upon the occurrence of an "asset sale"
or "change of control" occurring prior to the Stated Maturity of the exchange
notes shall not constitute Disqualified Stock if the "asset sale" or "change of
control" provisions applicable to such Capital Stock are no more favorable to
the holders of such Capital Stock than the provisions contained in "Limitation
on Asset Sales" and "Repurchase of Exchange Notes upon a Change of Control"
covenants described below and such Capital Stock specifically provides that such
Person will not repurchase or redeem any such stock pursuant to such provision
prior our repurchase of such exchange notes as are required to be
91
repurchased pursuant to the "Limitation on Asset Sales" and "Repurchase of
Exchange Notes upon a Change of Control" covenants described below.
"Excluded Persons" means William F. Cellini, F. Lance Callis, Jimmy F.
Gallagher, William J. McEnery, John B. Pratt, Sr., James S. Connors and
Stephanie Pratt, each of such person's immediate family or a trust or similar
entity existing solely for the benefit of such person or such person's immediate
family.
"Fair Market Value" means the price that would be paid in an arm's-length
transaction between an informed and willing seller under no compulsion to sell
and an informed and willing buyer under no compulsion to buy, as determined in
good faith by the Board of Directors, whose determination shall be conclusive if
evidenced by a resolution of the Board of Directors.
"First Mortgage Notes" means our first mortgage notes due 2004.
"FF&E Indebtedness" means any Indebtedness of our company or any of its
Restricted Subsidiaries that is Incurred to finance the acquisition or lease
after the date of the Indenture of furniture, fixtures or equipment ("FF&E")
used directly in the operation of any of our Material Casinos and secured solely
by a Lien on such FF&E, which Indebtedness has a principal amount not to exceed
100% of the cost of the FF&E so purchased or leased.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Closing Date, including, without limitation,
those set forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession. All ratios and computations contained or referred to in
the Indenture shall be computed in conformity with GAAP applied on a consistent
basis.
"Gaming Authority" means any agency, authority, board, bureau, commission,
department, office or instrumentality of the United States or foreign
government, any state province or any city or other political subdivision, or
any officer of official thereof, including the Illinois Gaming Board, the
Indiana Gaming Commission, the Iowa Racing and Gaming Commission, the Louisiana
Gaming Control Board, the Missouri Gaming Commission and any other agency with
authority to regulate any gaming operation (or proposed gaming operation) owned,
managed or operated by us or any of our Subsidiaries.
"Gaming License" means every license, franchise or other authorization
required to own, lease, operate or otherwise conduct the present and future
gaming activities of our company and our Subsidiaries.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and,
without limiting the generality of the foregoing, any obligation, direct or
indirect, contingent or otherwise, of such Person:
(1) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness of such other Person (whether arising by
virtue of partnership arrangements, or by agreements to keep-well, to
purchase assets, goods, securities or services (unless such purchase
arrangements are on arm's-length terms and are entered into in the
ordinary course of business), to take-or-pay, or to maintain financial
statement conditions or otherwise) or
(2) entered into for purposes of assuring in any other manner the obligee of
such Indebtedness of the payment thereof or to protect such obligee
against loss in respect thereof (in whole or in part); PROVIDED that the
term "Guarantee" shall not include endorsements for collection or deposit
in the ordinary course of business;
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EXCLUDING, HOWEVER, (A) Indebtedness of Indiana Gaming Company L.P. outstanding
on the date of the Indenture that is owed to any minority partner of Indiana
Gaming Company L.P., (B) Indebtedness of Indiana Gaming L.P. that is incurred
after the date of the Indenture if such Indebtedness is owed to any minority
partner of Indiana Gaming Company L.P. to the extent that Indiana Gaming Company
L.P. concurrently incurs Indebtedness to the Indiana Gaming Company on a pro
rata basis, based on The Indiana Gaming Company's percentage interest in Indiana
Gaming Company L.P. and (C) the Indiana Gaming Company L.P. minority partners'
pro rata portion, based on such partners' percentage interest in Indiana Gaming
Company L.P., of Indebtedness of Indiana Gaming Company L.P. (i) owed to third
parties and (ii) owed to any minority partner of Indiana Gaming Company L.P. and
incurred after the date of the Indenture to the extent that such Indebtedness is
not excluded from Consolidated Interest Expense pursuant to clause (B) above.
The term "Guarantee" used as a verb has a corresponding meaning.
"Incur" means, with respect to any Indebtedness, to incur, create, issue,
assume, Guarantee or otherwise become liable for or with respect to, or become
responsible for, the payment of, contingently or otherwise, such Indebtedness,
including an "Incurrence" of Acquired Indebtedness; PROVIDED that neither the
accrual of interest nor the accretion of original issue discount shall be
considered an Incurrence of Indebtedness.
"Indebtedness" means, with respect to any Person at any date of
determination (without duplication):
(1) all indebtedness of such Person for borrowed money;
(2) all obligations of such Person evidenced by bonds, debentures, notes or
other similar instruments;
(3) all obligations of such Person in respect of letters of credit or other
similar instruments (including reimbursement obligations with respect
thereto, but excluding obligations with respect to letters of credit
(including trade letters of credit) securing obligations (other than
obligations described in this definition) entered into in the ordinary
course of business of such Person to the extent such letters of credit
are not drawn upon or, if drawn upon, to the extent such drawing is
reimbursed no later than the third Business Day following receipt by such
Person of a demand for reimbursement following payment on the letter of
credit);
(4) all obligations of such Person to pay the deferred and unpaid purchase
price of property or services, which purchase price is due more than six
months after the date of placing such property in service or taking
delivery and title thereto or the completion of such services, except
Trade Payables;
(5) all Capitalized Lease Obligations;
(6) all Indebtedness of other Persons secured by a Lien on any asset of such
Person, whether or not such Indebtedness is assumed by such Person;
PROVIDED that the amount of such Indebtedness shall be the lesser of (A)
the Fair Market Value of such asset at such date of determination and (B)
the amount of such Indebtedness;
(7) all Indebtedness of other Persons Guaranteed by such Person to the
extent such Indebtedness is Guaranteed by such Person; and
(8) to the extent not otherwise included in this definition, obligations
under Currency Agreements and Interest Rate Agreements.
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and,
with respect to contingent obligations, the maximum liability upon the
occurrence of the contingency giving rise to the obligation, PROVIDED
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(A) that the amount outstanding at any time of any Indebtedness issued with
original issue discount is the face amount of such Indebtedness less the
remaining unamortized portion of the original issue discount of such
Indebtedness at such time as determined in conformity with GAAP, (B) that money
borrowed and set aside at the time of the Incurrence of any Indebtedness in
order to prefund the payment of the interest on such Indebtedness shall not be
deemed to be "Indebtedness" so long as such money is held to secure the payment
of such interest and (C) that Indebtedness shall not include any liability for
federal, state, local or other taxes.
"Interest Coverage Ratio" means, on any Transaction Date, the ratio of (1)
the aggregate amount of Consolidated EBITDA of our company and our Restricted
Subsidiaries for the then most recent four fiscal quarters prior to such
Transaction Date for which reports have been filed with the Commission or
provided to the Trustee (the "Four Quarter Period") to (2) the aggregate
Consolidated Interest Expense of our company and our Restricted Subsidiaries
during such Four Quarter Period. In making the foregoing calculation:
(A) PRO FORMA effect shall be given to any Indebtedness Incurred or repaid
during the period (the "Reference Period") commencing on the first day of
the Four Quarter Period and ending on the Transaction Date (other than
Indebtedness Incurred or repaid under a revolving credit or similar
arrangement to the extent of the commitment thereunder (or under any
predecessor revolving credit or similar arrangement) in effect on the
last day of such Four Quarter Period unless any portion of such
Indebtedness is projected, in the reasonable judgment of our senior
management, to remain outstanding for a period in excess of 12 months
from the date of the Incurrence thereof), in each case as if such
Indebtedness had been Incurred or repaid on the first day of such
Reference Period (and pro forma effect shall be given to eliminate
interest attributable to the Indebtedness represented by the First
Mortgage Notes upon the funding on the date of the Indenture of a special
purpose account with the trustee for the First Mortgage Notes and any
other Indebtedness which has been defeased either pursuant to a "covenant
defeasance" or "legal defeasance" in accordance with the instrument under
which it was incurred);
(B) Consolidated Interest Expense attributable to interest on any
Indebtedness (whether existing or being Incurred) computed on a PRO FORMA
basis and bearing a floating interest rate shall be computed as if the
rate in effect on the Transaction Date (taking into account any Interest
Rate Agreement applicable to such Indebtedness if such Interest Rate
Agreement has a remaining term in excess of 12 months or, if shorter, at
least equal to the remaining term of such Indebtedness) had been the
applicable rate for the entire period;
(C) PRO FORMA effect shall be given to Asset Dispositions and Asset
Acquisitions (including giving PRO FORMA effect to the application of
proceeds of any Asset Disposition) that occur during such Reference
Period as if they had occurred and such proceeds had been applied on the
first day of such Reference Period; and
(D) PRO FORMA effect shall be given to asset dispositions and asset
acquisitions (including giving PRO FORMA effect to the application of
proceeds of any asset disposition) that have been made by any Person that
has become a Restricted Subsidiary or has been merged with or into us or
any Restricted Subsidiary during such Reference Period and that would
have constituted Asset Dispositions or Asset Acquisitions had such
transactions occurred when such Person was a Restricted Subsidiary as if
such asset dispositions or asset acquisitions were Asset Dispositions or
Asset Acquisitions that occurred on the first day of such Reference
Period;
PROVIDED that to the extent that clause (C) or (D) of this sentence requires
that PRO FORMA effect be given to an Asset Acquisition or Asset Disposition,
such PRO FORMA calculation shall be based upon the four full fiscal quarters
immediately preceding the Transaction Date of the Person, or division or line of
business of the Person, that is acquired or disposed for which financial
information is available.
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"Interest Rate Agreement" means any interest rate protection agreement,
interest rate future agreement, interest rate option agreement, interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement,
interest rate hedge agreement, option or future contract or other similar
agreement or arrangement.
"Investment" in any Person means any direct or indirect advance, loan or
other extension of credit (including, without limitation, by way of Guarantee or
similar arrangement; but excluding advances to customers, suppliers or
contractors in the ordinary course of business that are, in conformity with
GAAP, recorded as accounts receivable or prepaid items on the balance sheet of
us or our Restricted Subsidiaries) or capital contribution to (by means of any
transfer of cash or other property to others or any payment for property or
services for the account or use of others), or any purchase or acquisition of
Capital Stock, bonds, notes, debentures or other similar instruments issued by,
such Person and shall include:
(1) the designation of a Restricted Subsidiary as an Unrestricted Subsidiary
and
(2) the retention of the Capital Stock (or any other Investment) by the
Company or any of its Restricted Subsidiaries, of (or in) any Person that
has ceased to be a Restricted Subsidiary, including without limitation,
by reason of any transaction permitted by clause (3) of the "Limitation
on the Issuance and Sale of Capital Stock of Restricted Subsidiaries"
covenant.
For purposes of the definition of "Unrestricted Subsidiaries" and the
"Limitation on Restricted Payments" covenant described below, the amount of or a
reduction in an Investment shall be equal to the fair market value thereof at
the time such Investment is made or reduced.
"Lawrenceburg Casino" means our hotel and casino located in Lawrenceburg,
Indiana.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (inducing, without limitation, any conditional sale or other
title retention agreement or lease in the nature thereof or any agreement to
give any security interest).
"Material Casino" means any gaming establishment possessing at least 400
slot machines and at least 20 table games.
"Minority Interests" means the partnership interests, including common and
preferred equity interests of, and the associated partner loans to, Indiana
Gaming Company L.P. of the partners of Indiana Gaming Company L.P. other than
the Company and its Restricted Subsidiaries.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means:
(1) with respect to any Asset Sale, the proceeds of such Asset Sale in the
form of cash or cash equivalents, including payments in respect of
deferred payment obligations (to the extent corresponding to the
principal, but not interest, component thereof) when received in the form
of cash or cash equivalents and proceeds from the conversion of other
property received when converted to cash or cash equivalents, net of
(A) brokerage commissions and other fees and expenses (including fees and
expenses of counsel and investment bankers) related to such Asset
Sale,
(B) provisions for all taxes (whether or not such taxes will actually be
paid or are payable) as a result of such Asset Sale without regard to
the consolidated results of operations of our company and our
Restricted Subsidiaries, taken as a whole,
(C) payments made to repay Indebtedness or any other obligation
outstanding at the time of such Asset Sale that either (I) is secured
by a Lien on the property or assets sold or (II) is required to be
paid as a result of such sale and
95
(D) appropriate amounts to be provided by the Company or any Restricted
Subsidiary as a reserve against any liabilities associated with such
Asset Sale, including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to
environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale, all as determined in
conformity with GAAP and
(2) with respect to any issuance or sale of Capital Stock, the proceeds of
such issuance or sale in the form of cash or cash equivalents, including
payments in respect of deferred payment obligations (to the extent
corresponding to the principal, but not interest, component thereof) when
received in the form of cash or cash equivalents and proceeds from the
conversion of other property received when converted to cash or cash
equivalents, net of attorney's fees, accountants' fees, underwriters' or
placement agents' fees, discounts or commissions and brokerage,
consultant and other fees incurred in connection with such issuance or
sale and net of taxes paid or payable as a result thereof.
"Non-Recourse Indebtedness" means Indebtedness:
(1) as to which neither nor any of our Restricted Subsidiaries (A) provides
credit support of any kind (including any undertaking, agreement or
instrument that would constitute Indebtedness) or (B) is directly or
indirectly liable as a guarantor or otherwise (other than the Indiana
Gaming Company solely in its capacity as general partner of Indiana
Gaming L.P.);
(2) 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 of our company or any of our Restricted
Subsidiaries to declare a default on such other Indebtedness or cause the
payment thereof to be accelerated or payable prior to its stated
maturity; and
(3) as to which the lenders have been notified in writing that they will not
have any recourse to the stock or assets of our company or any of our
Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Offer to Purchase" means an offer made by us to purchase Notes from the
Holders commenced by mailing a notice to the Trustee and each Holder stating:
(1) the covenant pursuant to which the offer is being made and that all
Notes validly tendered will be accepted for payment on a pro rata basis;
(2) the purchase price and the date of purchase (which shall be a Business
Day no earlier than 30 days nor later than 60 days from the date such
notice is mailed) (the "Payment Date");
(3) that any Note not tendered will continue to accrue interest pursuant to
its terms;
(4) that, unless we default in the payment of the purchase price, any Note
accepted for payment pursuant to the Offer to Purchase shall cease to
accrue interest on and after the Payment Date;
(5) that Holders electing to have a Note purchased pursuant to the Offer to
Purchase will be required to surrender the Note, together with the form
entitled "Option of the Holder to Elect Purchase" on the reverse side of
the Note completed, to the Paying Agent at the address specified in the
notice prior to the close of business on the Business Day immediately
preceding the Payment Date;
(6) that Holders will be entitled to withdraw their election if the Paying
Agent receives, not later than the close of business on the third
Business Day immediately preceding the Payment
96
Date, a telegram, facsimile transmission or letter setting forth the name
of such Holder, the principal amount of Notes delivered for purchase and
a statement that such Holder is withdrawing his election to have such
Notes purchased; and
(7) that Holders whose Notes are being purchased only in part will be issued
new Notes equal in principal amount to the unpurchased portion of the
Notes surrendered; PROVIDED that each Note purchased and each new Note
issued shall be in a principal amount of $1,000 or integral multiples
thereof.
On the Payment Date, we shall (i) accept for payment on a pro rata basis Notes
or portions thereof tendered pursuant to an Offer to Purchase; (ii) deposit with
the Paying Agent money sufficient to pay the purchase price of all Notes or
portions thereof so accepted; and (iii) deliver, or cause to be delivered, to
the Trustee all Notes or portions thereof so accepted together with an Officers'
Certificate specifying the Notes or portions thereof accepted for payment by us.
The Paying Agent shall promptly mail to the Holders of Notes so accepted payment
in an amount equal to the purchase price, and the Trustee shall promptly
authenticate and mail to such Holders a new Note equal in principal amount to
any unpurchased portion of the Note surrendered, PROVIDED that each Note
purchased and each new Note issued shall be in a principal amount of $1,000 or
integral multiples thereof. We will publicly announce the results of an Offer to
Purchase as soon as practicable after the Payment Date. The Trustee shall act as
the Paying Agent for an Offer to Purchase. We will comply with Rule 14e-l under
the Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable, in the event that we are
required to repurchase Notes pursuant to an Offer to Purchase.
"Permitted Investment" means:
(1) an Investment in our company or a Restricted Subsidiary or a Person
which will, upon the making of such investment, become a Restricted
Subsidiary or be merged or consolidated with or into or transfer or
convey all or substantially all its assets to, us or a Restricted
Subsidiary; PROVIDED that such person's primary business is related,
ancillary or complementary to the businesses of our company and our
Restricted Subsidiaries on the date of such Investment;
(2) Temporary Cash Investments;
(3) payroll, travel and similar advances to cover matters that are expected
at the time of such advances ultimately to be treated as expenses in
accordance with GAAP;
(4) stock, obligations or securities received in satisfaction of judgments;
(5) Interest Rate Agreements and Currency Agreements designed solely to
protect the Company or its Restricted Subsidiaries against fluctuations
in interest rates or foreign currency exchange rates;
(6) Investments in any Person the primary business of which is related,
ancillary or complementary to the businesses of our company and our
Restricted Subsidiaries; PROVIDED that at the time of such Investment the
aggregate amount of such Investments pursuant to this clause (6) does not
exceed $15.0 million;
(7) any purchase of less than 100% of the then outstanding Minority
Interests in Indiana Gaming Company L.P.; PROVIDED, that at the time of
such Investment,
(A) no Default or Event of Default shall have occurred and be continuing,
and
(B) either (i) we could Incur at least $1.00 of Indebtedness under the
first paragraph of the "Limitation on Indebtedness and Issuances of
Preferred Stock" covenant; or (ii) without regard to whether we could
incur any amount of Indebtedness, we would have been permitted to
make a Restricted Payment pursuant to clause (C) of the first
paragraph of
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the "Limitation on Restricted Payments" covenant described below
equal to the amount of the proposed expenditure for such purchase of
the Minority Interests.
(8) Investments in an Unrestricted Subsidiary which are used to develop a
hotel to be used in connection with a Material Casino; PROVIDED that at
the time of such Investment the aggregate amount of such Investments
pursuant to this clause (8) does not exceed $10.0 million; and
(9) early retirement of Indebtedness outstanding on the date of the
Indenture owed to former shareholders of Jazz Enterprises Inc..
"Permitted Junior Securities" means:
(1) Equity Interests in our company or any Subsidiary Guarantor; or
(2) debt securities that are subordinated to all Senior Indebtedness and any
debt securities issued in exchange for Senior Indebtedness to
substantially the same extent as, or to a greater extent than, the
exchange notes and the Subsidiary Guarantees are subordinated to Senior
Indebtedness under the Indenture.
"Permitted Lender" means (1) the lenders under the Credit Facility, (2) any
affiliate of any lender under the Credit Facility, (3) any commercial bank,
savings bank or loan association having a combined capital and surplus of at
least $100.0 million, (4) any other financial institution, including a mutual
fund or other fund, having total assets of at least $250.0 million and (5) any
other Person that qualifies as a "qualified institutional buyer" pursuant to
Rule 144A under the Securities Act, any purchaser of Indebtedness pursuant to
Regulation S under the Securities Act and any purchaser of Indebtedness that is
registered under the Securities Act.
"Permitted Liens" means
(1) Liens securing obligations under Senior Indebtedness that is permitted
to be incurred pursuant to the Indenture including, without limitation,
the Credit Facility;
(2) Liens existing on the Closing Date;
(3) Liens granted after the Closing Date on any assets or Capital Stock of
our company or our Restricted Subsidiaries created in favor of the
Holders;
(4) Liens for taxes, assessments, governmental charges or claims that are
being contested in good faith by appropriate legal proceedings promptly
instituted and diligently conducted and for which a reserve or other
appropriate provision, if any, as shall be required in conformity with
GAAP shall have been made;
(5) statutory and common law Liens of landlords and carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen or other similar Liens
arising in the ordinary course of business and with respect to amounts
not yet delinquent or being contested in good faith by appropriate legal
proceedings promptly instituted and diligently conducted and for which a
reserve or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made;
(6) Liens incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other
types of social security;
(7) Liens incurred or deposits made to secure the performance of tenders,
bids, leases, statutory or regulatory obligations, bankers' acceptances,
surety and appeal bonds, government contracts, performance and
return-of-money bonds and other obligations of a similar nature incurred
in the ordinary course of business (exclusive of obligations for the
payment of borrowed money);
98
(8) easements, rights-of-way, municipal and zoning ordinances and similar
charges, encumbrances, title defects or other irregularities that do not
materially interfere with the ordinary course of business of our company
or any of our Restricted Subsidiaries;
(9) Liens (including extensions and renewals thereof) upon real or personal
property acquired after the Closing Date; provided that (a) such Lien is
created solely for the purpose of securing Indebtedness Incurred, in
accordance with the "Limitation on Indebtedness and Issuances of
Preferred Stock" covenant described below, to finance the cost (including
the cost of improvement or construction) of the item of property or
assets subject thereto and such Lien is created prior to, at the time of
or within six months after the later of the acquisition, the completion
of construction or the commencement of full operation of such property
(b) the principal amount of the Indebtedness secured by such Lien does
not exceed 100% of such cost and (c) any such Lien shall not extend to or
cover any property or assets other than such item of property or assets
and any improvements on such item;
(10) leases or subleases granted to others that do not materially interfere
with the ordinary course of business of our company and our Restricted
Subsidiaries, taken as a whole;
(11) Liens encumbering property or assets under construction arising from
progress or partial payments by a customer of our company or our
Restricted Subsidiaries relating to such property or assets;
(12) any interest or title of a lessor in the property subject to any
Capitalized Lease or operating lease;
(13) Liens arising from filing Uniform Commercial Code financing statements
regarding leases;
(14) Liens on property of, or on shares of Capital Stock or Indebtedness of,
any Person existing at the time such Person becomes or becomes a part of,
any Restricted Subsidiary, provided that such Liens do not extend to or
cover any property or assets of our company or any Restricted Subsidiary
other than the property or assets acquired;
(15) Liens in favor of us or any Restricted Subsidiary, other than Liens
securing intercompany Indebtedness incurred under clause (3) of the
second paragraph of the "Limitation on Indebtedness and Issuances of
Preferred Stock" covenant described below;
(16) Liens arising from the rendering of a final judgment or order against
us or any Restricted Subsidiary that does not give rise to an Event of
Default;
(17) Liens securing reimbursement obligations with respect to letters of
credit that encumber documents and other property relating to such
letters of credit and the products and proceeds thereof;
(18) Liens in favor of customs and revenue authorities arising as a matter
of law to secure payment of customs duties in connection with the
importation of goods;
(19) Liens encumbering customary initial deposits and margin deposits, and
other Liens that are within the general parameters customary in the
industry and incurred in the ordinary course of business, in each case,
securing Indebtedness under Interest Rate Agreements and Currency
Agreements and forward contracts, options, future contracts, futures
options or similar agreements or arrangements designed solely to protect
us or any of our Restricted Subsidiaries from fluctuations in interest
rates, currencies or the price of commodities;
(20) Liens arising out of conditional sale, title retention, consignment or
similar arrangements for the sale of goods entered into by us or any of
our Restricted Subsidiaries in the ordinary course of business in
accordance with the past practices of our company and our Restricted
Subsidiaries prior to the Closing Date;
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(21) Liens on or sales of receivables;
(22) Liens securing obligations under Currency Agreements and Interest Rate
Agreements entered into in the ordinary course of business; and
(23) Liens in addition to the foregoing incurred in the ordinary course of
business provided that the amount of the obligations secured by such
Liens does not exceed in the aggregate $5.0 million at any one time
outstanding and that (A) are not incurred in connection with the
borrowing of money or the obtaining of advances or credit (other than
trade credit in the ordinary course of business) and (B) do not in the
aggregate materially detract from the value of the property or materially
impair the use thereof in the operation of the business by us or any of
our Subsidiaries.
"Public Equity Offering" means an underwritten primary public offering of
Common Stock of our company pursuant to an effective registration statement
under the Securities Act.
"Restricted Subsidiary" means any Subsidiary of our company other than an
Unrestricted Subsidiary.
"S&P" means Standard & Poor's Ratings Group, a division of The McGraw-Hill
Companies, and its successors.
"Senior Indebtedness" means the following obligations of our company or a
Subsidiary Guarantor, whether outstanding on the Closing Date or thereafter
Incurred:
(1) all Indebtedness and all other monetary obligations (including, without
limitation, expenses, fees, principal, interest reimbursement obligations
under letters of credit and indemnities payable in connection therewith)
of our company or a Subsidiary Guarantor under (or in respect of) the
Credit Facility or any Interest Rate Agreement or Currency Agreement
relating to the Indebtedness under the Credit Facility and
(2) all other Indebtedness and all other monetary obligations of our company
or a Subsidiary Guarantor (other than the Notes), including principal and
interest on such Indebtedness, unless such Indebtedness, by its terms or
by the terms of any agreement or instrument pursuant to which such
Indebtedness is issued, is on a parity with, or subordinated in right of
payment to, the Notes or any Subsidiary Guarantee;
Notwithstanding anything to the contrary in clauses (1) and (2) above,
Senior Indebtedness shall not include:
(1) any Indebtedness of our company that, when Incurred, was without
recourse to us,
(2) any Indebtedness of our company to a Subsidiary or to a joint venture in
which we have an interest,
(3) any Indebtedness of our company, to the extent not permitted by the
"Limitation on Indebtedness and Issuances of Preferred Stock" covenant or
the "Limitation on Senior Subordinated Indebtedness" covenant described
below,
(4) any repurchase, redemption or other obligation in respect of
Disqualified Stock,
(5) any Indebtedness to any employee of our company or any of our
Subsidiaries,
(6) any liability for taxes owed or owing by us or any of our Subsidiaries
or
(7) any Trade Payables.
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"Senior Subordinated Obligations" means any principal of, premium, if any,
or interest on the exchange notes payable pursuant to the terms of the exchange
notes or the Subsidiary Guarantees or upon acceleration, including any amounts
received upon the exercise of rights of rescission or other rights of action
(including claims for damages) or otherwise, to the extent relating to the
purchase price of the exchange notes and the Subsidiary Guarantees or amounts
corresponding to such principal, premium, if any, or interest on the exchange
notes.
"Significant Subsidiary" means, at any date of determination, any Subsidiary
that, together with its Subsidiaries:
(1) for the most recent fiscal year of our company, accounted for more than
10% of the consolidated revenues of our company and our Subsidiaries or
(2) as of the end of such fiscal year, was the owner of more than 10% of the
consolidated assets of our company and our Subsidiaries, all as set forth
on our most recently available consolidated financial statements for such
fiscal year.
"Stated Maturity" means, (1) with respect to any debt security, the date
specified in such debt security as the fixed date on which the final installment
of principal of such debt security is due and payable and (2) with respect to
any scheduled installment of principal of or interest on any debt security, the
date specified in such debt security as the fixed date on which such installment
is due and payable.
"Subsidiary" means, with respect to any Person, any corporation, association
or other business entity of which more than 50% of the voting power of the
outstanding Voting Stock is owned, directly or indirectly, by such Person and
one or more other Subsidiaries of such Person.
"Subsidiary Guarantor" means (1) each of our Restricted Subsidiary and (2)
any other Subsidiary of our company that executes a Subsidiary Guarantee
pursuant to the "Additional Subsidiary Guarantees" covenant described below.
"Temporary Cash Investment" means any of the following:
(1) direct obligations of the United States of America or any agency thereof
or obligations fully and unconditionally guaranteed by the United States
of America or any agency thereof;
(2) demand deposit accounts, time deposit accounts, certificates of deposit
and money market deposits maturing within 180 days of the date of
acquisition thereof issued by a bank or trust company which is organized
under the laws of the United States of America, any state thereof or any
foreign country recognized by the United States of America, and which
bank or trust company has capital, surplus and undivided profits
aggregating in excess of $100 million (or the foreign currency equivalent
thereof and has outstanding debt which is rated "A" (or such similar
equivalent rating) or higher by at least one nationally recognized
statistical rating organization (as defined in Rule 436 under the
Securities Act) or any money-market fund sponsored by a registered broker
dealer or mutual fund distributor;
(3) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clause (1) above entered
into with a bank or trust company meeting the qualifications described in
clause (2) above;
(4) commercial paper, maturing not more than one year after the date of
acquisition, issued by a corporation (other than an Affiliate of the
Company) organized and in existence under the laws of the United States
of America, any state thereof or any foreign country recognized by the
United States of America with a rating at the time as of which any
investment therein is made of "P-2" (or higher) according to Moody's or
"A-2" (or higher) according to S&P;
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(5) securities with maturities of one year or less from the date of
acquisition issued or fully and conditionally guaranteed by any state,
commonwealth or territory of the United States of America, or by any
political subdivision or taxing authority thereof, and rated at least "A"
by S&P or Moody's; and
(6) other dollar demoninated securities issued by any Person incorporated in
the United States rated at least "A" or the equivalent by S&P or at least
"A2" or the equivalent by Moody's and in each case either (A) maturing
not more than one year after the date of acquisition or (B) which are
subject to a repricing arrangement (such as a Dutch auction) not more
than one year after the date of acquisition (and reprices at least yearly
thereafter) which the Person making the investment believes in good faith
will permit such Person to sell such security at par in connection with
such repricing mechanism.
"Trade Payables" means, with respect to any Person, any accounts payable or
any other indebtedness or monetary obligation to trade creditors created,
assumed or Guaranteed by such Person or any of its Subsidiaries arising in the
ordinary course of business in connection with the acquisition of goods or
services.
"Transaction Date" means, with respect to the Incurrence of any Indebtedness
by our company or any of its Restricted Subsidiaries, the date such Indebtedness
is to be Incurred and, with respect to any Restricted Payment, the date such
Restricted Payment is to be made.
"Unrestricted Subsidiary" means:
(1) any Subsidiary of our company that at the time of determination shall be
designated an Unrestricted Subsidiary by the Board of Directors in the
manner provided below, and
(2) any Subsidiary of an Unrestricted Subsidiary;
PROVIDED that such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or understanding
with us or any of our Restricted Subsidiaries unless the terms of any
such agreement, contract, arrangement or understanding are no less
favorable to us or such Restricted Subsidiary than those that might be
obtained at the time from Persons who are not our Affiliates;
(3) is a Person with respect to which neither we nor any of our Restricted
Subsidiaries has any direct or indirect obligation (a) to subscribe for
additional Equity Interests or (b) to maintain or preserve such Person's
financial condition or to cause such Person to achieve any specified
levels of operating results; and
(4) has not guaranteed or otherwise directly or indirectly provided credit
support for any Indebtedness of our company or any of our Restricted
Subsidiaries.
If, at any time, any Unrestricted Subsidiary would fail to meet the
preceding requirements as an Unrestricted Subsidiary, it shall thereafter cease
to be an Unrestricted Subsidiary for purposes of the Indenture and any
Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted
Subsidiary of our company as of such date and, if such Indebtedness is not
permitted to be incurred as of such date under the "Incurrence of Indebtedness
and Issuance of Preferred Stock" covenant described below, we shall be in
default of such covenant.
"U.S. Government Obligations" means securities that are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United
102
States of America, which, in either case, are not callable or redeemable at the
option of the issuer thereof at any time prior to the Stated Maturity of the
Notes, and shall also include a depository receipt issued by a bank or trust
company as custodian with respect to any such U.S. Government Obligation or a
specific payment of interest on or principal of any such U. S. Government
Obligation held by such custodian for the account of the holder of a 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
U. S. Government Obligation or the specific payment of interest on or principal
of the U.S. Governmental Obligation evidenced by such depository receipt.
"Voting Stock" means with respect to any Person, Capital Stock of any class
or kind ordinarily having the power to vote for the election of directors,
managers or other voting members of the governing body of such Person.
"Wholly Owned" means, with respect to any Subsidiary of any Person, the
ownership of all of the outstanding Capital Stock of such Subsidiary (other than
any director's qualifying shares or Investments by foreign nationals mandated by
applicable law) by such Person or one or more Wholly Owned Subsidiaries of such
Person.
COVENANTS
LIMITATION ON INDEBTEDNESS AND ISSUANCES OF PREFERRED STOCK
We will not, and will not permit any of our Restricted Subsidiaries to,
Incur any Indebtedness (other than the Notes and any guarantees thereof issued
on the Closing Date and other Indebtedness existing on the Closing Date) and we
will not issue any Disqualified Stock and will not permit any of our Restricted
Subsidiaries to issue any shares of preferred stock; PROVIDED that we may Incur
Indebtedness or issue Disqualified Stock and our Restricted Subsidiaries may
Incur Indebtedness or issue Disqualified Stock or preferred stock if, after
giving effect to the Incurrence of such Indebtedness or the issuance of such
Disqualified Stock or preferred stock and the receipt and application of the
proceeds therefrom, the Interest Coverage Ratio would be greater than 2.0:1.
Notwithstanding the foregoing, we and any Restricted Subsidiary (except as
specified below) may Incur each and all of the following:
(1) Subject to the provisions of the third paragraph of the covenant
entitled "Repurchase of Exchange Notes in Connection with Sale of
Lawrenceburg Interest," Indebtedness and letters of credit under the
Credit Facility in an aggregate principal amount at any one time
outstanding under this clause (1) (with letters of credit being deemed to
have a principal amount equal to the maximum potential liability of our
company and our Subsidiaries thereunder) not to exceed $275.0 million
less any amount of such Indebtedness permanently repaid as provided under
the "Limitation on Asset Sales" covenant described below;
(2) Subject to the provisions of the third paragraph of the covenant
entitled "Repurchase of Exchange Notes in Connection with Sale of
Lawrenceburg Interest," Indebtedness in an aggregate principal amount at
any one time outstanding under this clause (2) not to exceed $150.0
million less any amount of such Indebtedness permanently repaid as
provided under the "Limitation on Asset Sales" covenant described below;
PROVIDED that:
(A) the initial borrowing under the agreement governing such Indebtedness
is used exclusively to purchase at least 29.0% of the
then-outstanding interests of Indiana Gaming Company L.P.;
(B) all of the initial lenders or purchasers of such Indebtedness are
Permitted Lenders;
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(C) at the time of the initial borrowing under the agreement governing
such Indebtedness, after giving pro forma effect to the issuance of
all Indebtedness which is outstanding as of the date of determination
pursuant to the Credit Facility and which may otherwise be incurred
under such Credit Facility, the Interest Coverage Ratio would be at
least 1.5 to 1; and
(D) such Indebtedness is not issued with any equity or cash flow
participations.
(3) Indebtedness owed to us evidenced by a promissory note or to any
Restricted Subsidiary; PROVIDED that:
(A) if our company or any Subsidiary Guarantors is the obligor on such
Indebtedness and the payee is not us or a Subsidiary Guarantor, such
Indebtedness must be expressly subordinated to the prior payment in
full in cash of all Senior Subordinated Obligations with respect to
the exchange notes, in the case of us, or the Subsidiary Guarantee,
in the case of a Subsidiary Guarantor and
(B) any event which results in any such Restricted Subsidiary ceasing to
be a Restricted Subsidiary or any subsequent transfer of such
Indebtedness (other than to us another Restricted Subsidiary) shall
be deemed, in each case, to constitute an Incurrence of such
Indebtedness not permitted by this clause (3);
(4) Indebtedness issued in exchange for, or the net proceeds of which are
used to refinance or refund, then outstanding Indebtedness Incurred under
clauses (7), (8), (9) and (10) of this paragraph, and any refinancings
thereof in an amount not to exceed the amount so refinanced or refunded
(plus premiums, accrued interest, fees and expenses); PROVIDED that
Indebtedness the proceeds of which are used to refinance or refund the
exchange notes or Indebtedness that is PARI PASSU with, or subordinated
in right of payment to, the exchange notes shall only be permitted under
this clause (4) if:
(A) in case the exchange notes are refinanced in part or the Indebtedness
to be refinanced is PARI PASSU with the exchange notes, such new
Indebtedness, by its terms or by the terms of any agreement or
instrument pursuant to which such new Indebtedness is outstanding, is
expressly made PARI PASSU with, or subordinate in right of payment
to, the remaining exchange notes,
(B) in case the Indebtedness to be refinanced is subordinated in right of
payment to the exchange notes, such new Indebtedness, by its terms or
by the terms of any agreement or instrument pursuant to which such
new Indebtedness is issued or remains outstanding, is expressly made
subordinate in right of payment to the exchange notes at least to the
extent that the Indebtedness to be refinanced is subordinated to the
exchange notes and
(C) such new Indebtedness, determined as of the date of Incurrence of
such new Indebtedness, does not mature prior to the Stated Maturity
of the Indebtedness to be refinanced or refunded, and the Average
Life of such new Indebtedness is at least equal to the remaining
Average Life of the Indebtedness to be refinanced or refunded;
and PROVIDED FURTHER that in no event may our Indebtedness that is PARI PASSU or
subordinated in right of payment to the exchange notes be refinanced by means of
any Indebtedness of any Restricted Subsidiary pursuant to this clause (4);
(5) Indebtedness (A) in respect of performance, surety or appeal bonds
provided in the ordinary course of business, (B) under Currency
Agreements and Interest Rate Agreements; PROVIDED that such agreements
(I) are designed solely to protect us or our Restricted Subsidiaries
against fluctuations in foreign currency exchange rates or interest rates
and (II) do not increase the Indebtedness of the obligor outstanding at
any time other than as a result of
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fluctuations in foreign currency exchange rates or interest rates or by
reason of fees, indemnities and compensation payable thereunder; and (C)
arising from agreements providing for indemnification, adjustment of
purchase price or similar obligations, or from Guarantees or letters of
credit, surety bonds or performance bonds securing any obligations of our
company or any of our Restricted Subsidiaries pursuant to such
agreements, in any case Incurred in connection with the disposition of
any business, assets or Restricted Subsidiary (other than Guarantees of
Indebtedness Incurred by any Person acquiring all or any portion of such
business, assets or Restricted Subsidiary for the purpose of financing
such acquisition), in a principal amount not to exceed the gross proceeds
actually received by us or any Restricted Subsidiary in connection with
such disposition;
(6) the incurrence by us and the Subsidiary Guarantors of Indebtedness
represented by the exchange notes and the related Subsidiary Guarantees
to be issued pursuant to the Registration Rights Agreement;
(7) Indebtedness of our company, to the extent the net proceeds thereof are
promptly (A) used to purchase exchange notes tendered in an Offer to
Purchase made as a result of a Change in Control or (B) deposited to
defease the exchange notes as described below under "Defeasance";
(8) Guarantees of Indebtedness of our company or one of our Restricted
Subsidiaries or any of the Subsidiary Guarantors that was permitted to be
incurred by another provision of this covenant;
(9) FF&E Indebtedness, provided that the amount of such Indebtedness in the
aggregate outstanding at any time, including all refinancings,
replacements and refundings thereof, will not exceed $5.0 million
multiplied by the number of Material Casinos then operated by us or our
Restricted Subsidiaries; and
(10) Indebtedness of our company (in addition to Indebtedness permitted
under clauses (1) through (9) above) in an aggregate principal amount
outstanding at any time (together with refinancings thereof) not to
exceed $15.0 million.
Notwithstanding any other provision of this "Limitation on Indebtedness and
Issuances of Preferred Stock" covenant, the maximum amount of Indebtedness that
we or a Restricted Subsidiary may Incur pursuant to this "Limitation on
Indebtedness and Issuances of Preferred Stock" covenant shall not be deemed to
be exceeded, with respect to any outstanding Indebtedness due solely to the
result of fluctuations in the exchange rates of currencies. For purposes of
determining any particular amount of Indebtedness under this "Limitation on
Indebtedness and Issuances of Preferred Stock" covenant,
(1) Indebtedness incurred under the Credit Facility on or prior to the
Closing Date shall be treated as Incurred pursuant to clause (1) of the
second paragraph of this "Limitation on Indebtedness and Issuances of
Preferred Stock" covenant,
(2) Guarantees, Liens or obligations with respect to letters of credit
supporting Indebtedness which is included in the determination of such
particular amount shall not be included and
(3) any Liens granted pursuant to the equal and ratable provisions referred
to in the "Limitation on Liens" covenant described below shall not be
treated as Indebtedness.
For purposes of determining compliance with this "Limitation on Indebtedness and
Issuances of Preferred Stock" covenant, in the event that an item of
Indebtedness meets the criteria of more than one of the types of Indebtedness
described in the above clauses (other than Indebtedness referred to in clause
(1) of the preceding sentence), we, in our sole discretion, shall classify, and
from time to time may reclassify, such item of Indebtedness and only be required
to include the amount and type of such Indebtedness in one of such clauses.
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LIMITATION ON RESTRICTED PAYMENTS
We will not, and will not permit any Restricted Subsidiary to, directly or
indirectly:
(1) declare or pay any dividend or make any distribution on or with respect
to our or any Restricted Subsidiary's Capital Stock (other than dividends
or distributions payable solely in shares of its Capital Stock (other
than Disqualified Stock) or in options, warrants or other rights to
acquire shares of such Capital Stock) held by Persons other than us or
any of our Restricted Subsidiaries,
(2) purchase, redeem, retire or otherwise acquire for value any shares of
Capital Stock of our company or any Subsidiary of our company (including
options, warrants or other rights to acquire such shares of Capital
Stock) held by any Person;
(3) make any voluntary or optional principal payment, or voluntary or
optional redemption, repurchase, defeasance, or other acquisition or
retirement for value, of Indebtedness of our company or a Subsidiary
Guarantor that is subordinated in right of payment to the exchange notes
or any Subsidiary Guarantee, as the case may be; or
(4) make any Investment, other than a Permitted Investment, in any Person
(such payments or any other actions described in clauses (1) through (4)
above being collectively "Restricted Payments");
if, at the time of, and after giving effect to, the proposed Restricted Payment:
(A) a Default or Event of Default shall have occurred and be continuing,
(B) we could not Incur at least $1.00 of Indebtedness under the first
paragraph of the "Limitation on Indebtedness and Issuances of Preferred
Stock" covenant or
(C) the aggregate amount of all Restricted Payments, together with the
amount of any Investment that was made pursuant to clause (7)(B)(ii) of
the definition of "Permitted Investments" (the amount of any Restricted
Payment with a Fair Market Value in excess of $1.0 million, if other than
in cash, to be determined in good faith by the Board of Directors, whose
determination shall be conclusive and evidenced by a resolution of the
Board of Directors), made after the Closing Date shall exceed the sum of
(I) 50% of the aggregate amount of the Adjusted Consolidated Net Income
(or, if the Adjusted Consolidated Net Income is a loss, minus 100%
of the amount of such loss) (determined by excluding income
resulting from transfers of assets by the Company or a Restricted
Subsidiary to an Unrestricted Subsidiary) accrued on a cumulative
basis during the period (taken as one accounting period) beginning
on the first day of the fiscal quarter immediately following the
Closing Date and ending on the last day of the last fiscal quarter
preceding the Transaction Date for which reports have been filed
with the Commission or provided to the Trustee PLUS
(II) the aggregate Net Cash Proceeds received by us after the Closing
Date from the issuance and sale permitted by the Indenture of its
Capital Stock (other than Disqualified Stock) to a Person who is not
our Subsidiary, including an issuance or sale permitted by the
Indenture of Indebtedness of our company for cash subsequent to the
Closing Date upon the conversion of such Indebtedness into our
Capital Stock (other than Disqualified Stock), or from the issuance
to a Person who is not Subsidiary of our company of any options,
warrants or other rights to acquire our Capital Stock (in each case,
exclusive of any Disqualified Stock or any options, warrants or
other rights that are redeemable at the option of the holder, or are
required to be redeemed, prior to the Stated Maturity of the Notes)
PLUS
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(III) an amount equal to the net reduction in Investments treated as
Restricted Payments in any Person resulting from payments of
interest on Indebtedness, dividends, repayments of loans or
advances, or other transfers of assets, in each case to us or any
Restricted Subsidiary or from the Net Cash Proceeds from the sale
of any such Investment (except, in each case, to the extent any
such payment or proceeds are included in the calculation of
Adjusted Consolidated Net Income and except, in each case, for any
such sale that is not included in the definition of "Asset Sales"),
or from redesignations of Unrestricted Subsidiaries as Restricted
Subsidiaries (valued in each case as provided in the definition of
"Investments"), not to exceed, in each case, the amount of
Investments previously made by us or any Restricted Subsidiary in
such Person or Unrestricted Subsidiary.
The foregoing provision shall not be violated by reason of:
(1) the payment of any dividend within 60 days after the date of declaration
thereof if, at said date of declaration, such payment would comply with
the foregoing paragraph;
(2) the redemption, repurchase, defeasance or other acquisition or
retirement for value of Indebtedness that is subordinated in right of
payment to the Notes including premium, if any, and accrued and unpaid
interest, with the proceeds of, or in exchange for, Indebtedness Incurred
under clause (4) of the second paragraph of the "Limitation on
Indebtedness and Issuances of Preferred Stock" covenant;
(3) the repurchase, redemption or other acquisition of Capital Stock of our
company or an Unrestricted Subsidiary (or options, warrants or other
rights to acquire such Capital Stock) in exchange for, or out of the
proceeds of a substantially concurrent offering of, shares of our Capital
Stock (other than Disqualified Stock), or options, warrants or other
rights to acquire such Capital Stock;
(4) the making of any principal payment or the repurchase, redemption,
retirement, defeasance or other acquisition for value of our Indebtedness
which is subordinated in right of payment to the exchange notes in
exchange for, or out of the proceeds of, a substantially concurrent
offering of, shares of our Capital Stock (other than Disqualified Stock),
or options, warrants or other rights to acquire such Capital Stock;
(5) payments or distributions, to dissenting stockholders pursuant to
applicable law, pursuant to or in connection with a consolidation, merger
or transfer of assets that complies with the provisions of the Indenture
applicable to mergers, consolidations and transfers of all or
substantially all of the property and assets of our company;
(6) pro rata dividends or distributions on Common Stock of Restricted
Subsidiaries held by minority stockholders;
(7) the redemption or repurchase of any debt or equity securities of our
company or any Restricted Subsidiary required by, and in accordance with
any order of any Gaming Authority, PROVIDED, that we have used our
reasonable best efforts to effect a disposition of such securities to a
third-party and have been unable to do so; or
(8) other Restricted Payments in an aggregate amount not to exceed $15.0
million
PROVIDED that, except in the case of clauses (1) and (3), no Default or Event of
Default shall have occurred and be continuing or occur as a consequence of the
actions or payments set forth therein.
Each Restricted Payment permitted pursuant to the preceding paragraph (other
than the Restricted Payment referred to in clause (2) thereof, an exchange of
Capital Stock for Capital Stock or Indebtedness referred to in clause (3) or (4)
thereof), the Net Cash Proceeds from any issuance of Capital Stock referred to
in clauses (3) and (4), and any Investment that is made pursuant to
107
clause 7(B)(ii) of the definition of Permitted Investments shall be included in
calculating whether the conditions of clause (C) of the first paragraph of this
"Limitation on Restricted Payments" covenant have been met with respect to any
subsequent Restricted Payments. In the event the proceeds of an issuance of our
Capital Stock are used for the redemption, repurchase or other acquisition of
the Notes, or Indebtedness that is PARI PASSU with the exchange notes, then the
Net Cash Proceeds of such issuance shall be included in clause (C) of the first
paragraph of this "Limitation on Restricted Payments" covenant only to the
extent such proceeds are not used for such redemption, repurchase or other
acquisition of Indebtedness.
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES
We will not, and will not permit any Restricted Subsidiary to, create or
otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction of any kind on the ability of any Restricted
Subsidiary to
(1) pay dividends or make any other distributions permitted by applicable
law on any Capital Stock of such Restricted Subsidiary owned by us or any
other Restricted Subsidiary,
(2) pay any Indebtedness owed to us or any other Restricted Subsidiary,
(3) make loans or advances to our company or any other Restricted Subsidiary
or
(4) transfer any of our property or assets to ourselves or any other
Restricted Subsidiary.
The foregoing provisions shall not restrict any encumbrances or
restrictions:
(1) existing on the Closing Date in the Credit Facility, the Indenture or
any other agreements in effect on the Closing Date, and any extensions,
refinancings, renewals or replacements of such agreements; PROVIDED that
the encumbrances and restrictions in any such extensions, refinancings,
renewals or replacements are no less favorable in any material respect to
the Holders than those encumbrances or restrictions that are then in
effect and that are being extended, refinanced, renewed or replaced;
(2) existing under or by reason of applicable law or by order of any Gaming
Authority;
(3) existing with respect to any Person or the property or assets of such
Person acquired by us or any Restricted Subsidiary, existing at the time
of such acquisition and not incurred in contemplation thereof, which
encumbrances or restrictions are not applicable to any Person or the
property or assets of any Person other than such Person or the property
or assets of such Person so acquired;
(4) in the case of clause (4) of the first paragraph of this "Limitation on
Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries" covenant, (A) that restrict in a customary manner the
subletting, assignment or transfer of any property or asset that is a
lease, license, conveyance or contract or similar property or asset, (B)
existing by virtue of any transfer of, agreement to transfer, option or
right with respect to, or Lien on, any property or assets of our company
or any Restricted Subsidiary not otherwise prohibited by the Indenture or
(C) arising or agreed to in the ordinary course of business, not relating
to any Indebtedness, and that do not, individually or in the aggregate,
detract from the value of property or assets of our company or any
Restricted Subsidiary in any manner material to us or any Restricted
Subsidiary;
(5) with respect to a Restricted Subsidiary and imposed pursuant to an
agreement that has been entered into for the sale or disposition of all
or substantially all of the Capital Stock of, or property and assets of,
such Restricted Subsidiary; or
108
(6) contained in the terms of any Indebtedness or any agreement pursuant to
which such Indebtedness was issued if (A) the encumbrance or restriction
applies only in the event of a payment default or a default with respect
to a financial covenant contained in such Indebtedness or agreement, (B)
the encumbrance or restriction is not materially more disadvantageous to
the Holders of the Notes than is customary in comparable financings (as
determined by us) and (C) we determine that any such encumbrance or
restriction will not materially affect our ability to make principal or
interest payments on the exchange notes).
Nothing contained in this "Limitation on Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries" covenant shall prevent us or any Restricted
Subsidiary from (1) creating, incurring, assuming or suffering to exist any
Liens otherwise permitted in the "Limitation on Liens" covenant, (2) restricting
the sale or other disposition of property or assets of our company or any of its
Restricted Subsidiaries that secure Indebtedness of our company or any of its
Restricted Subsidiaries or (3) distributing cash flow from Indiana Gaming
Company L.P. in accordance with the provisions of its partnership agreement.
LIMITATION ON THE ISSUANCE AND SALE OF CAPITAL STOCK OF RESTRICTED SUBSIDIARIES
We will not sell, and will not permit any Restricted Subsidiary, directly or
indirectly, to issue or sell, any shares of Capital Stock of a Restricted
Subsidiary (including options, warrants or other rights to purchase shares of
such Capital Stock) except:
(1) to us or a Wholly Owned Restricted Subsidiary;
(2) issuances of director's qualifying shares or sales to foreign nationals
of shares of Capital Stock of foreign Restricted Subsidiaries, to the
extent required by applicable law; or
(3) if, (i) such issuance or sale is of all the Capital Stock of such
Restricted Subsidiary and (ii) the Net Cash Proceeds of any such issuance
or sale are applied in accordance with clause (A) or (B) of the
"Limitation on Asset Sales" covenant described below.
ADDITIONAL SUBSIDIARY GUARANTEES
If (1) a Restricted Subsidiary acquired or created after the date of the
Indenture has at any time a Fair Market Value of more than $250,000 or (2) any
Subsidiary of our company becomes a borrower or a guarantor under the Credit
Facility, then that Subsidiary must execute a Subsidiary Guarantee and deliver
an opinion of counsel, in accordance with the terms of the Indenture pursuant to
which such Subsidiary will become a Subsidiary Guarantor, on a senior
subordinated basis (pursuant to subordination provisions substantially similar
to those described above under the caption "--Ranking"), of our payment
obligations under the exchange notes and the Indenture; PROVIDED that the
aggregate Fair Market Value of our Restricted Subsidiaries that are not
Subsidiary Guarantors will not at any time exceed $1.0 million.
DESIGNATION OF RESTRICTED AND UNRESTRICTED SUBSIDIARIES
The Board of Directors may designate any Restricted Subsidiary (including
any newly acquired or newly formed Subsidiary of the Company) to be an
Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of, or
owns or holds any Lien on any property of, our company or any Restricted
Subsidiary; PROVIDED that:
(1) the value of all outstanding Investments owned by us and its Restricted
Subsidiaries in the Restricted Subsidiary being so designated will be
deemed to be an Investment made by us or such Restricted Subsidiary as of
the time of such designation
109
(2) the Investment referred to in clause (1) of this proviso would be
permitted under the "Limitation on Restricted Payments" covenant
described above;
(3) no Subsidiary of our company with an interest in Indiana Gaming Company
L.P., may become an Unrestricted Subsidiary; and
(4) such Restricted Subsidiary otherwise meets the definition of an
Unrestricted Subsidiary.
Indiana Gaming Company L.P. will initially be designated an Unrestricted
Subsidiary.
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; PROVIDED that:
(1) no Default or Event of Default shall have occurred and be continuing at
the time of or after giving effect to such designation and
(2) all Liens and Indebtedness of such Unrestricted Subsidiary outstanding
immediately after such designation would, if incurred at such time, have
been permitted to be Incurred (and shall be deemed to have been Incurred)
for all purposes of the Indenture.
We shall designate Indiana Gaming Company L.P. as a Restricted Subsidiary if
we or our Subsidiaries acquire all of the then outstanding Minority Interests in
Indiana Gaming Company L.P.
Any such designation by the Board of Directors shall be evidenced to the
Trustee by promptly filing with the Trustee a 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
provisions.
LIMITATION ON TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES
We will not, and will not permit any Restricted Subsidiary to, directly or
indirectly, enter into, renew or extend any transaction (including, without
limitation, the purchase, sale, lease or exchange of property or assets, or the
rendering of any service) with any holder (or any Affiliate of such holder) of
10% or more of any class of Capital Stock of our company or with any Affiliate
of our company or any Restricted Subsidiary, unless:
(1) such Affiliate Transaction is on fair and reasonable terms that are no
less favorable to us or the relevant Restricted Subsidiary than those
that would have been obtained, at the time of such transaction or, if
such transaction is pursuant to a written agreement, at the time of
execution of the agreement providing therefor, in a comparable
transaction by us or such Subsidiary with a Person that is not such a
holder or an Affiliate; and
(2) we deliver to the Trustee:
(a) with respect to any transaction or series of related transactions the
aggregate amount of which exceeds $2.0 million in value, a resolution
of the Board of Directors set forth in an Officers' Certificate
certifying that such Affiliate Transaction complies with this
covenant and that such Affiliate Transaction has been approved by a
majority of the disinterested members of the Board of Directors; and
(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$10.0 million, an opinion as to the fairness to the Holders of such
Affiliate Transaction from a financial point of view issued by an
accounting, appraisal or investment banking firm of national standing
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The foregoing limitation does not limit, and shall not apply to:
(1) any transaction solely between us and any of our Wholly Owned Restricted
Subsidiaries or solely between Wholly Owned Restricted Subsidiaries;
(2) the payment of reasonable and customary regular fees and indemnities to
our directors who are no our employees;
(3) any payments or other transactions pursuant to any tax-sharing agreement
between us and any other Person with which we file a consolidated tax
return or with which we are part of a consolidated group for tax
purposes;
(4) any sale of shares of our Capital Stock (other than Disqualified Stock);
or
(5) any Restricted Payments not prohibited by the "Limitation on Restricted
Payments" covenant.
LIMITATION ON LIENS
We will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, create, incur, assume or suffer to exist any Lien of any
kind securing Indebtedness, Attributable Debt or trade payables on any asset now
owned or hereafter acquired, except Permitted Liens.
LIMITATION ON ASSET SALES
We will not, and will not permit any Restricted Subsidiary to, consummate
any Asset Sale, unless (i) the consideration received by us or such Restricted
Subsidiary is at least equal to the fair market value of the assets sold or
disposed of and (ii) at least 75% of the consideration received consists of cash
or Temporary Cash Investments or the assumption of Indebtedness of our company
or any Restricted Subsidiary (other than Indebtedness to us or any Restricted
Subsidiary), PROVIDED that we or such Restricted Subsidiary are irrevocably and
unconditionally released from all liability under such Indebtedness.
Within twelve months after the receipt of any Net Cash Proceeds from one or
more Asset Sales occurring on or after the Closing Date, we shall or shall cause
the relevant Restricted Subsidiary to:
(1) (A) apply an amount equal to such Net Cash Proceeds to permanently repay
Senior Indebtedness of our company or any Subsidiary Guarantor or
Indebtedness of any other Restricted Subsidiary, in each case owing to a
Person other than us or any of our Restricted Subsidiaries; or
(B) invest an equal amount, or the amount not so applied pursuant to
clause (A) (or enter into a definitive agreement committing to so
invest within 12 months after the date of such agreement), in
property or assets (other than current assets) of a nature or type or
that are used in a business (or in a company having property and
assets of a nature or type, or engaged in a business) similar or
related to the nature or type of the property and assets of, or the
business of, our company and its Restricted Subsidiaries existing on
the date of such investment and
(2) apply (no later than the end of the 12-month period referred to in
clause (1)(B)) such excess Net Cash Proceeds (to the extent not
applied pursuant to clause (1)) as provided in the following
paragraph of this "Limitation on Asset Sales" covenant.
The amount of such excess Net Cash Proceeds required to be applied (or to be
committed to be applied) during such 12-month period as set forth in clause (1)
of the preceding sentence and not applied as so required by the end of such
period shall constitute "Excess Proceeds."
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If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to this
"Limitation on Asset Sales" covenant totals at least $10.0 million, we must
commence, not later than the fifteenth Business Day of such month, and
consummate an Offer to Purchase from the Holders (and if required by the terms
of any Indebtedness that is PARI PASSU with the exchange notes ("Pari Passu
Indebtedness"), from the holders of such Pari Passu Indebtedness) on a pro rata
basis an aggregate principal amount of exchange notes (and Pari Passu
Indebtedness) equal to the Excess Proceeds on such date, at a purchase price
equal to 100% of the principal amount thereof, plus, in each case, accrued
interest and Additional Interest, if any, to the Payment Date. If the aggregate
principal amount of exchange notes and any such Pari Passu Indebtedness tendered
by holders thereof exceeds the amount of Excess Proceeds, the exchange notes and
Pari Passu Indebtedness shall be purchased on a pro rata basis. Upon the
completion of any such Offers to Purchase, regardless of the amount of exchange
notes validly tendered, the amount of Excess Proceeds shall be reset to zero.
REPURCHASE OF EXCHANGE NOTES IN CONNECTION WITH SALE OF LAWRENCEBURG INTEREST
The Indenture will provide that, if (i) Indiana Gaming Company L.P. is an
Unrestricted Subsidiary and (ii) the amount of Consolidated EBITDA derived from
the Lawrenceburg Casino exceeds 50% of Consolidated EBITDA of our company and
its Restricted Subsidiaries:
(1) we and our Subsidiaries will not, and will not permit any of our
Subsidiaries to, in one or a series of related transactions, sell or
otherwise transfer any of our interest in Indiana Gaming Company L.P.,
whether directly by a sale of such interest or indirectly by the sale,
issuance or transfer of Capital Stock of any Subsidiary of our company
directly or indirectly owning such interest (a "Lawrenceburg Sale") and
(2) as long as we or a Restricted Subsidiary serves as general partner of
Indiana Gaming Company L.P., Indiana Gaming Company L.P. will not engage
in a sale of all or substantially all its assets, by way of merger,
consolidation or otherwise (a "Property Sale"),
unless:
(1) no Default or Event of Default shall have occurred and be continuing at
the time of, or would occur after giving effect on a PRO FORMA basis to,
such Lawrenceburg Sale or Property Sale;
(2) our Board of Directors determines in good faith that we or such
Subsidiary receives fair market value for such Lawrenceburg Sale or
Property Sale;
(3) our Board of Directors receives a favorable written opinion as to the
fairness of the transaction to us from a financial point of view issued
by an investment banking firm of nationally recognized standing; and
(4) within 120 business days of the date of such Lawrenceburg Sale or
Property Sale, either:
(A) we redeem all of the exchange notes upon not less than 30 days prior
written notice mailed by first-class mail to each Holder's registered
address or
(B) we consummate an irrevocable, unconditional cash offer to purchase at
least an aggregate principal amount (the "Tender Offer Amount") of
exchange notes that, if the we purchased all such exchange notes,
would result in the Debt to EBITDA Ratio being no greater than 3.5 to
1,
in each case, at the purchase price set forth below plus accrued and
unpaid interest and Additional Interest, if any, thereon, to the
repurchase date, if such Lawrenceburg Sale or
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Property Sale occurs during the twelve-month period beginning on June 1
of the years indicated below:
YEAR PERCENTAGE
- ---------------------------------------------------------------------------------- -----------
1999.............................................................................. 110.750%
2000.............................................................................. 109.675%
2001.............................................................................. 108.600%
2002.............................................................................. 107.525%
2003.............................................................................. 106.450%
and, thereafter at the prices set forth under the caption "Optional
Redemption" above.
Upon expiration of the offer described in clause (B) above, we will purchase all
exchange notes properly tendered (on a PRO RATA basis if the principal amount of
Notes tendered exceeds the Tender Offer Amount). After the purchase of all
exchange notes properly tendered, any remaining proceeds of the Lawrenceburg
Sale or Property Sale will be available for general corporate purposes.
Upon the consummation of the offer described in clause (B) above, the
interest rate on all of the remaining outstanding exchange notes will increase
by 0.50% per annum. If we comply with the preceding paragraph of this
"Repurchase of Exchange Notes in Connection with Sale of Lawrenceburg Interest"
covenant with respect to a Lawrenceburg Sale or Property Sale, the provisions of
the "Limitation on Asset Sales" and "Repurchase of Exchange Notes upon a Change
of Control" covenants shall not apply with respect to such Lawrenceburg Sale or
Property Sale.
Following a Lawrenceburg Sale or a Property Sale as described in the first
paragraph of this covenant, clauses (1) and (2) of the second paragraph under
the "Limitation on Indebtedness and Issuances of Preferred Stock" covenant
described above shall be of no further force or effect and neither we nor any of
our Restricted Subsidiaries shall be permitted to incur any Indebtedness
pursuant to such clauses; PROVIDED that, any Indebtedness incurred prior to such
Lawrenceburg Sale or Property Sale under such clauses that remains outstanding
after such Lawrenceburg Sale or Property Sale will not be deemed to be a
violation of this provision or the "Limitation on Indebtedness and Issuances of
Preferred Stock" covenant described above.
The Indenture will also provide that if (i) Indiana Gaming Company L.P. is
an Unrestricted Subsidiary and (ii) the amount of Consolidated EBITDA derived
from the Lawrenceburg casino is less than or equal to 50% of Consolidated EBITDA
of our company and our Restricted Subsidiaries:
(1) we and our Subsidiaries will not, and will not permit any of our
Subsidiaries to, consummate a Lawrenceburg Sale unless we treat such
Lawrenceburg Sale as an "Asset Sale" and comply with the "Limitation on
Asset Sales" covenant described above; and
(2) as long as we or a Restricted Subsidiary serves as general partner of
Indiana Gaming Company L.P., Indiana Gaming Company L.P. will not engage
in a Property Sale unless
(A) the consideration received by us or such Restricted Subsidiary is at
least equal to the fair market value of the assets sold or disposed
of,
(B) at least 75% of the consideration received consists of cash or
Temporary Cash Investments; and
(C) our and any Restricted Subsidiaries' pro rata share of the Net Cash
Proceeds of such Property Sale are distributed to us or any
Restricted Subsidiary of our company and we utilize such Net Cash
Proceeds in accordance with the second and third paragraphs of the
"Limitation or Asset Sales" covenant described above.
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We shall cause distributions from Indiana Gaming Company L.P. to The Indiana
Gaming Company to be promptly distributed to us.
LIMITATION ON SALE-LEASEBACK TRANSACTIONS
We will not, and will not permit any of our Restricted Subsidiaries to,
enter into any sale and leaseback transaction; PROVIDED that we or any
Restricted Subsidiary may enter into a sale and leaseback transaction if:
(1) we or such Restricted Subsidiary, as applicable, could have incurred
Indebtedness in an amount equal to the Attributable Debt relating to such
sale and leaseback transaction under (i) the Interest Coverage Ratio test
in the first paragraph of the "Incurrence of Indebtedness and Issuance of
Preferred Stock" covenant or (ii) clause (9) of the second paragraph of
the "Incurrence of Indebtedness and Issuance of Preferred Stock"
covenant;
(2) the gross cash proceeds of that sale and leaseback transaction are at
least equal to the fair market value, as determined in good faith by the
Board of Directors and set forth in an Officers' Certificate delivered to
the Trustee, of the property that is the subject of that sale and
leaseback transaction; and
(3) the transfer of assets in that sale and leaseback transaction is
permitted by, and we apply the proceeds of such transaction in compliance
with, the covenant described above under the caption "--Asset Sales."
LIMITATION ON SENIOR SUBORDINATED INDEBTEDNESS
We shall not Incur any Indebtedness that is subordinate in right of payment
to any Senior Indebtedness unless such Indebtedness is PARI PASSU with, or
subordinated in right of payment to, the exchange notes; PROVIDED that the
foregoing limitation shall not apply to distinctions between categories of our
Senior Indebtedness that exist by reason of any Liens or Guarantees arising or
created in respect of some but not all such Senior Indebtedness.
LIMITATION ON CERTAIN ACTIVITIES OF INDIANA GAMING COMPANY L.P.
The Indenture provides that as long as we or a Restricted Subsidiary are the
general partner of Indiana Gaming Company L.P., we will not permit Indiana
Gaming Company L.P. to Incur any Indebtedness other than Indebtedness which:
(1) is Non-Recourse Indebtedness; and
(2) by its terms, contains no restrictions of the type prohibited by
"Limitation on Dividends and Other Payment Restrictions Affecting
Subsidiaries."
The Indenture will provide that as long as we or a Restricted Subsidiary are
a partner of Indiana Gaming Company L.P., we will not permit Indiana Gaming
Company L.P. to amend the provisions of its partnership agreement dealing with
distributions in a manner which is adverse to the Holders of the exchange notes
or the provisions of its partnership agreement with respect to partnership
purpose, which is limited to the operation of the Lawrenceburg Casino.
LIMITATION ON BUSINESS ACTIVITIES
We will not, and will not permit any Subsidiary to, engage in any business
other than the gaming and hotel businesses and such business activities as are
incidental or related or complementary thereto, except to such extent as would
not be material to us and our Subsidiaries taken as a whole.
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LIMITATION ON STATUS AS INVESTMENT COMPANY
The Indenture prohibits us and the Subsidiary Guarantors from being required
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.
PAYMENTS FOR CONSENT
We will not, and will not permit any of our Subsidiaries to, directly or
indirectly, pay or cause to be paid any consideration to or for the benefit of
any Holder of exchange notes for or as an inducement to any consent, waiver or
amendment of any of the terms or provisions of the Indenture or the exchange
notes unless such consideration is offered to be paid and is paid to all Holders
of the exchange notes that consent, waive or agree to amend in the time frame
set forth in the solicitation documents relating to such consent, waiver or
agreement.
REPURCHASE OF EXCHANGE NOTES UPON A CHANGE OF CONTROL
We must commence, within 30 days of the occurrence of a Change of Control,
and consummate an Offer to Purchase for all exchange notes then outstanding, at
a purchase price equal to 101% of the principal amount thereof, plus accrued
interest and Additional Interest, if any, to the Payment Date.
There can be no assurance that we will have sufficient funds available at
the time of any Change of Control to make any debt payment (including
repurchases of Notes) required by the foregoing covenant (as well as may be
contained in any other of our securities which might be outstanding at the
time). The above covenant requiring us to repurchase the exchange notes will,
unless consents are obtained, require us to repay all indebtedness then
outstanding which by its terms would prohibit such exchange note repurchase,
either prior to or concurrently with such exchange note repurchase.
COMMISSION REPORTS AND REPORTS TO HOLDERS
Whether or not we are then required to file reports with the Commission, we
shall file with the Commission all such reports and other information as we
would be required to file with the Commission by Sections 13(a) or 15(d) under
the Securities Exchange Act of 1934 if it were subject thereto. We shall supply
the Trustee and each Holder or shall supply to the Trustee for forwarding to
each such Holder, without cost to such Holder, copies of such reports and other
information.
EVENTS OF DEFAULT
The following events will be defined as "Events of Default" in the
Indenture:
(1) default in the payment of principal of (or premium, if any, on) any Note
when the same becomes due and payable at maturity, upon acceleration,
redemption or otherwise whether or not such payment is prohibited by the
provisions described above under "--Ranking";
(2) default in the payment of interest on any Note when the same becomes due
and payable, and such default continues for a period of 30 days whether
or not such payment is prohibited by the provisions described above under
"--Ranking";
(3) default in the performance or breach of the provisions of the Indenture
applicable to mergers, consolidations and transfers of all or
substantially all of our assets or the failure to make or consummate an
Offer to Purchase in accordance with the "Limitation on Asset Sales" or
"Repurchase of Exchange Notes upon a Change of Control" covenant;
(4) we default in the performance of or breaches any covenant or agreement
in the Indenture or under the exchange notes (other than a default
specified in clause (1), (2) or (3) above) and such default or breach
continues for a period of 30 consecutive days after written notice by
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the Trustee or the Holders of 25% or more in aggregate principal amount
of the exchange notes;
(5) there occurs with respect to any issue or issues of Indebtedness of our
company or any Significant Subsidiary having an outstanding principal
amount of $10.0 million or more in the aggregate for all such issues of
all such Persons, whether such Indebtedness now exists or shall hereafter
be created, (I) an event of default that has caused the holder thereof to
declare such Indebtedness to be due and payable prior to its Stated
Maturity and such Indebtedness has not been discharged in full or such
acceleration has not been rescinded or annulled within 30 days of such
acceleration and/or (II) the failure to make a principal payment at the
final (but not any interim) fixed maturity and such defaulted payment
shall not have been made, waived or extended within 30 days of such
payment default;
(6) any final judgment or order (not covered by insurance) for the payment
of money in excess of $10.0 million in the aggregate for all such final
judgments or orders against all such Persons (treating any deductibles,
self-insurance or retention as not so covered) shall be rendered us or
any Significant Subsidiary and shall not be paid or discharged, and there
shall be any period of 60 consecutive days following entry of the final
judgment or order that causes the aggregate amount for all such final
judgments or orders outstanding and not paid or discharged against all
such Persons to exceed $10.0 million during which a stay of enforcement
of such final judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect;
(7) a court having jurisdiction in the premises enters a decree or order for
(A) relief in respect of us or any Significant Subsidiary in an
involuntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, (B) appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator or similar
official of our company or any Significant Subsidiary or for all or
substantially all of the property and assets of our company or any
Significant Subsidiary or (C) the winding up or liquidation of the
affairs of our company or any Significant Subsidiary and, in each case,
such decree or order shall remain unstayed and in effect for a period of
30 consecutive days;
(8) we or any Significant Subsidiary (A) commence a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter
in effect, or consents to the entry of an order for relief in an
involuntary case under any such law, (B) consent to the appointment of or
taking possession by a receiver, liquidator, assignee, custodian,
trustee, sequestrator or similar official of our company or any
Significant Subsidiary or for all or substantially all of the property
and assets of our company or any Significant Subsidiary or (C) effect any
general assignment for the benefit of creditors;
(9) except as permitted by the Indenture, any Subsidiary Guarantee shall be
held in any judicial proceeding to be unenforceable or invalid or shall
cease for any reason to be in full force and effect or any Guarantor, or
any Person acting on behalf of any Guarantor, shall deny or disaffirm its
obligations under its Subsidiary Guarantee; or
(10) the revocation, termination, suspension or other cessation of
effectiveness for a period or more than 90 consecutive days of any Gaming
License that results in the cessation or suspension of gaming operations
at the Lawrenceburg Casino or any Material Casino; PROVIDED that any
voluntary relinquishment of or failure to renew after revocation a Gaming
License of a Material Casino if such relinquishment or failure to renew
is, in the reasonable, good faith judgment of our Board of Directors,
evidenced by a resolution of such Board, both desirable in the conduct of
the business of our company and its Subsidiaries, taken as a whole, and
not disadvantageous in any material respect to the holders of the Notes
shall not constitute an Event of Default.
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If an Event of Default (other than an Event of Default specified in clause
(7) or (8) above that occurs with respect to us) occurs and is continuing under
the Indenture, the Trustee or the Holders of at least 25% in aggregate principal
amount of the exchange notes, then outstanding, by written notice to us (and to
the Trustee if such notice is given by the Holders), may, and the Trustee at the
request of such Holders shall, declare the principal of, premium, if any, and
accrued interest and Additional Interest, if any, on the exchange notes to be
immediately due and payable. Upon a declaration of acceleration, such principal
of, premium, if any, and accrued interest and Additional Interest, if any, shall
be immediately due and payable. In the event of a declaration of acceleration
because an Event of Default set forth in clause (5) above has occurred and is
continuing, such declaration of acceleration shall be automatically rescinded
and annulled if the event of default triggering such Event of Default pursuant
to clause (5) shall be remedied or cured by us or the relevant Significant
Subsidiary or waived by the holders of the relevant Indebtedness within 60 days
after the declaration of acceleration with respect thereto. If an Event of
Default specified in clause (7) or (8) above occurs with respect to us, the
principal of, premium, if any, and accrued interest or Additional Interest, if
any, on the exchange notes then outstanding shall IPSO FACTO become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder. The Holders of at least a majority in principal
amount of the outstanding exchange notes by written notice to us and to the
Trustee, may waive all past defaults and rescind and annul a declaration of
acceleration and its consequences if (i) all existing Events of Default, other
than the nonpayment of the principal of, premium, if any, and accrued interest
and Additional Interest, if any, on the exchange notes that have become due
solely by such declaration of acceleration, have been cured or waived and (ii)
the rescission would not conflict with any judgment or decree of a court of
competent jurisdiction. For information as to the waiver of defaults, see
"--Modification and Waiver."
The Holders of at least a majority in aggregate principal amount of the
outstanding exchange notes may direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee or exercising any trust
or power conferred on the Trustee. However, the Trustee may refuse to follow any
direction that conflicts with law or the Indenture, that may involve the Trustee
in personal liability, or that the Trustee determines in good faith may be
unduly prejudicial to the rights of Holders of exchange notes not joining in the
giving of such direction and may take any other action it deems proper that is
not inconsistent with any such direction received from Holders of exchange
notes.
A Holder may not pursue any remedy with respect to the Indenture or the
exchange notes unless:
(1) the Holder gives the Trustee written notice of a continuing Event of
Default;
(2) the Holders of at least 25% in aggregate principal amount of outstanding
exchange notes make a written request to the Trustee to pursue the
remedy;
(3) such Holder or Holders offer the Trustee indemnity satisfactory to the
Trustee against any costs, liability or expense;
(4) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer of indemnity; and
(5) during such 60-day period, the Holders of a majority in aggregate
principal amount of the outstanding exchange notes do not give the
Trustee a direction that is inconsistent with the request.
However, such limitations do not apply to the right of any Holder of an exchange
note to receive payment of the principal of, premium, if any, or accrued
interest and Additional Interest, if any, on, such exchange note or to bring
suit for the enforcement of any such payment, on or after the due date expressed
in the exchange notes, which right shall not be impaired or affected without the
consent of the Holder.
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The Holders of a majority in aggregate principal amount of the exchange
notes then outstanding, by notice to the Trustee, may on behalf of the Holders
of all of the exchange 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 the principal of or premium, if any, or interest on
the exchange notes.
The Indenture will require certain of our officers to certify, on or before
a date not more than 90 days after the end of each fiscal year, that a review
has been conducted of the activities of our company and our Restricted
Subsidiaries and our company's and Restricted Subsidiaries' performance under
the Indenture and that we have fulfilled all obligations thereunder, or, if
there has been a default in the fulfillment of any such obligation, specifying
each such default and the nature and status thereof. We will also be obligated
to notify the Trustee and the agent under the Credit Facility of any default or
defaults in the performance of any covenants or agreements under the Indenture.
CONSOLIDATION, MERGER AND SALE OF ASSETS
We will not consolidate with, merge with or into, or sell, convey, transfer,
lease or otherwise dispose of all or substantially all of our property and
assets (as an entirety or substantially an entirety in one transaction or a
series of related transactions) to any Person or permit any Person to merge with
or into us unless:
(1) we shall be the continuing Person, or the Person (if other than us)
formed by such consolidation or into which we are merged or that acquired
or leased our property and assets shall be a corporation organized and
validly existing under the laws of the United States of America or any
jurisdiction thereof and shall expressly assume, by a supplemental
indenture, executed and delivered to the Trustee, all of our obligations
on all of the exchange notes and under the Indenture;
(2) immediately after giving effect to such transaction, no Default or Event
of Default shall have occurred and be continuing;
(3) immediately after giving effect to such transaction on a PRO
FORMA basis, we or any Person becoming the successor obligor of the
exchange notes shall have a Consolidated Net Worth equal to or greater
than our Consolidated Net Worth immediately prior to such transaction;
(4) immediately after giving effect to such transaction on a PRO FORMA basis
we, or any Person becoming the successor obligor of the exchange notes,
as the case may be, could Incur at least $1.00 of Indebtedness under the
first paragraph of the "Limitation on Indebtedness and Issuances of
Preferred Stock" covenant; PROVIDED that this clause (4) shall not apply
to a consolidation, merger or sale of all (but not less than all) of our
assets if all Liens and Indebtedness of our company or any Person
becoming the successor obligor on the exchange notes, as the case may be,
and its Restricted Subsidiaries outstanding immediately after such
transaction would have been permitted (and all such Liens and
Indebtedness, other than Liens and Indebtedness of our company and our
Restricted Subsidiaries outstanding immediately prior to the transaction,
shall be deemed to have been Incurred) for all purposes of the Indenture;
and
(5) we deliver to the Trustee an Officers' Certificate (attaching the
arithmetic computations to demonstrate compliance with clauses (3) and
(4)) and opinion of counsel, in each case stating that such
consolidation, merger or transfer and such supplemental indenture
complies with this provision and that all conditions precedent provided
for herein relating to such transaction have been compiled with;
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PROVIDED, HOWEVER, that:
(1) clauses (3) and (4) above will not apply if, in the good faith
determination of our Board of Directors, whose determination shall be
evidenced by a resolution of the Board of Directors, the principal
purpose of such transaction is to change our state of incorporation and
any such transaction shall not have as one of its purposes the evasion of
the foregoing limitations; and
(2) this "Merger, Consolidation or Sale of Assets" covenant will not apply
to sales of property and assets with respect to which we have complied
with the "Repurchase of Exchange Notes in Connection with Sale of
Lawrenceburg Interest" covenant described above.
In addition, we may not, directly or indirectly, lease all or substantially
all of its properties or assets, in one or more related transactions, to any
other Person. This "Merger, Consolidation or Sale of Assets" covenant will not
apply to a sale, assignment, transfer, conveyance or other disposition of assets
between or among us and any of the Subsidiary Guarantors.
DEFEASANCE
We may, at our option and at any time, elect to have all of its obligations
discharged with respect to the outstanding exchange notes and all obligations of
the Subsidiary Guarantors discharged with respect to their Subsidiary Guarantees
("Legal Defeasance") except for:
(1) the rights of Holders of outstanding Notes to receive payments in
respect of the principal of, or interest or premium and Additional
Interest, if any, on such Notes when such payments are due from the trust
referred to below;
(2) our obligations with respect to the exchange notes concerning issuing
temporary exchange notes, registration of exchange notes, mutilated,
destroyed, lost or stolen exchange notes and the maintenance of an office
or agency for payment and money for security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the Trustee, and us
and the Subsidiary Guarantor's obligations in connection therewith; and
(4) the Legal Defeasance provisions of the Indenture.
In addition, we may, at our option and at any time, elect to have the
obligations of our company and the Subsidiary Guarantors released with respect
to certain covenants that are described in the Indenture ("Covenant Defeasance")
and thereafter any omission to comply with those covenants shall not constitute
a Default or Event of Default with respect to the exchange notes. In the event
Covenant Defeasance occurs, certain events (not including non-payment,
bankruptcy, receivership, rehabilitation and insolvency events) described under
"Events of Default" will no longer constitute an Event of Default with respect
to the exchange notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) we must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the exchange notes, cash in U.S. dollars, non-callable
Government Securities, or a combination thereof, in such amounts as will
be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, or interest and
premium and Additional Interest, if any, on the outstanding exchange
notes on the stated maturity or on the applicable redemption date, as the
case may be, and we must specify whether the exchange notes are being
defeased to maturity or to a particular redemption date;
(2) in the case of Legal Defeasance, we shall have delivered to the Trustee
an opinion of counsel reasonably acceptable to the Trustee confirming
that (a) we have received from, or there has been published by, the
Internal Revenue Service a ruling or (b) since the date of the
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Indenture, there has been a change in the applicable federal income tax
law, in either case to the effect that, and based thereon such opinion of
counsel shall confirm that, the Holders of the outstanding exchange notes
will not recognize income, gain or loss for federal income tax purposes
as a result of such Legal Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times
as would have been the case if such Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, we shall have delivered to the
Trustee an opinion of counsel reasonably acceptable to the Trustee
confirming that the Holders of the outstanding exchange notes will not
recognize income, gain or loss for federal income tax purposes as a
result of such Covenant Defeasance and will be subject to federal income
tax on the same amounts, in the same manner and at the same times as
would have been the case if such Covenant Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be continuing
either: (a) on the date of such deposit (other than a Default or Event of
Default resulting from the borrowing of funds to be applied to such
deposit); or (b) or insofar as Events of Default from bankruptcy or
insolvency events are concerned, at any time in the period ending on the
91st day after the date of deposit;
(5) 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 we or any of our
Subsidiaries is a party or by which we or any of our Subsidiaries is
bound;
(6) we must have delivered to the Trustee an opinion of counsel to the
effect that, assuming no intervening bankruptcy of our company or any
Subsidiary Guarantor between the date of deposit and the 91st day
following the deposit and assuming that no Holder is an "insider" of our
company under applicable bankruptcy law, after the 91st day following the
deposit, the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally;
(7) we must deliver to the Trustee an Officers' Certificate stating that the
deposit was not made by us with the intent of preferring the Holders of
exchange notes over our other creditors with the intent of defeating,
hindering, delaying or defrauding our creditors or others; and
(8) we must deliver to the Trustee an Officers' Certificate and an opinion
of counsel, each stating that all conditions precedent relating to the
Legal Defeasance or the Covenant Defeasance have been complied with.
MODIFICATION AND WAIVER
The Indenture may be amended, without the consent of any Holder, to:
(1) cure any ambiguity, defect or inconsistency in the Indenture;
PROVIDED that such amendments do not adversely affect the interests of
the Holders in any material respect;
(2) comply with the provisions described under "Consolidation, Merger and
Sale of Assets;"
(3) comply with any requirements of the Commission in connection with the
qualification of the Indenture under the Trust Indenture Act;
(4) evidence and provide for the acceptance of appointment by a successor
Trustee; or
(5) make any change that, in the good faith opinion of the Board of
Directors, does not materially and adversely affect the rights of any
Holder.
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Modifications and amendments of the Indenture may be made by us and the
Trustee with the consent of the Holders of not less than a majority in aggregate
principal amount of the outstanding exchange notes; PROVIDED, HOWEVER, that no
such modification or amendment may, without the consent of each Holder affected
thereby,
(1) change the Stated Maturity of the principal of, or any installment of
interest on, any exchange note;
(2) reduce the principal amount of, or premium, if any, or interest on, any
exchange note;
(3) change the place or currency of payment of principal of, or premium, if
any, or interest on, any exchange note;
(4) impair the right to institute suit for the enforcement of any payment on
or after the Stated Maturity (or, in the case of a redemption, on or
after the Redemption Date) of any exchange note;
(5) waive a default in the payment of principal of, premium, if any, or
interest on the exchange notes;
(6) modify the subordination provisions in a manner adverse to the Holders;
or
(7) reduce the percentage or aggregate principal amount of outstanding
exchange notes the consent of whose Holders is necessary for waiver of
compliance with certain provisions of the Indenture or for waiver of
certain defaults.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES, INCORPORATORS OR
STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of our company
or any Subsidiary Guarantor, as such, shall have any liability for any
obligations of our company or the Subsidiary Guarantors under the exchange
notes, the Indenture or the Subsidiary Guarantees or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each Holder of
exchange notes by accepting an exchange note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the exchange notes. The waiver may not be effective to waive liabilities under
the federal securities laws.
CONCERNING THE TRUSTEE
If the Trustee becomes a creditor of our company or any Subsidiary
Guarantor, the Indenture limits its right 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 SEC 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 and be continuing, the Trustee will be required, in the exercise of
its power, to use the degree of care of a prudent man 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.
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ADDITIONAL INFORMATION
Anyone who receives this Offering Prospectus may obtain a copy of the
Indenture and the related registration rights agreement without charge by
writing to Argosy Gaming Company, 219 Piasa Street, Alton, Illinois 62002,
Attention: General Counsel.
BOOK-ENTRY; DELIVERY AND FORM
Outstanding note offered and sold to qualified institutional buyers in
reliance on Rule 144A ("Rule 144A Notes") and any outstanding notes offered and
sold in offshore transactions in reliance on Regulation S ("Regulation S Notes")
were issued in registered, global form in minimum denominations of $1,000 and
integral multiples of $1,000 in excess thereof. The outstanding notes were
issued at the closing of the outstanding note's offering only against payment in
immediately available funds.
The Rule 144A Notes are represented by one or more notes in registered,
global form without interest coupons (collectively, the "Rule 144A Global
Notes"). The Regulation S Notes are represented by one or more notes in
registered, global form without interest coupons (collectively, the "Regulation
S Global Notes" and, together with the Rule 144A Global Notes, the "Global
Notes"). The Global Notes are on deposit with the Trustee as custodian for The
Depository Trust Company ("DTC"), in New York, New York, and registered in the
name of DTC or its nominee, in each case for credit to an account of a direct or
indirect participant in DTC as described below. Through and including the 40th
day after the later of the commencement of the issuance of the notes and the
issue date (such period through and including such 40th day, the "Restricted
Period"), beneficial interests in the Regulation S Global Notes may be held only
through the Euroclear System ("Euroclear") and Cedel, S.A. ("Cedel") (as
indirect participants in DTC), unless transferred to a person that takes
delivery through a Rule 144A Global Note in accordance with the certification
requirements described below. Beneficial interests in the Rule 144A Global Notes
may not be exchanged for beneficial interests in the Regulation S Global Notes
at any time except in the limited circumstances described below. See
"--Exchanges between Regulation S Notes and Rule 144A Notes."
Except as set forth below, the Global Notes may be transferred, in whole and
not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the Global Notes may not be exchanged for Notes
in certificated form except in the limited circumstances described below. See
"--Exchange of Book-Entry Notes for Certificated Notes." Except in the limited
circumstances described below, owners of beneficial interests in the Global
Notes will not be entitled to receive physical delivery of Notes in certificated
form.
Rule 144A Notes (including beneficial interests in the Rule 144A Global
Notes) will be subject to certain restrictions on transfer and will bear a
restrictive legend as described under "Notice to Investors." Regulation S Notes
will also bear the legend as described under "Notice to Investors." In addition,
transfers of beneficial interests in the Global Notes will be subject to the
applicable rules and procedures of DTC and its direct or indirect participants
(including, if applicable, those of Euroclear and Cedel), which may change from
time to time.
EXCHANGE NOTES
Exchange notes issued in exchange for outstanding notes originally offered
and sold (1) to QIBs in reliance on Rule 144A under the Securities Act or (2) in
reliance on Regulation S under the Securities Act will be represented by a
single, permanent Global Note in definitive, fully registered book-entry form
(the "Exchange Global Note" and together with the Rule 144A Global Note and the
Regulation S Global Note, the "Global Notes"), which will be registered in the
name DTC, or its nominee, on behalf of persons who receive exchange notes
represented thereby for credit to the respective accounts of such persons, or to
such other accounts as they may direct at DTC.
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Exchange notes issued in exchange for outstanding notes will be issued, upon
request, in fully registered form (together with the Certificated Notes, the
"Certificated Notes"), but otherwise such holders will only be entitled to
registration of their respective exchange notes in book-entry form under the
Exchange Global Note.
DEPOSITORY PROCEDURES
The following description of the operations and procedures of DTC, Euroclear
and Cedel are provided solely as a matter of convenience. These operations and
procedures are solely within the control of the respective settlement systems
and are subject to changes by them. The Company takes no responsibility for
these operations and procedures and urges investors to contact the system or
their participants directly to discuss these matters.
DTC has advised us that DTC is a limited-purpose trust company created to
hold securities for its participating organizations (collectively, the
"Participants") and to facilitate the clearance and settlement of transactions
in those securities between Participants through electronic book-entry changes
in accounts of its Participants. The Participants include securities brokers and
dealers (including the Placement Agents), banks, trust companies, clearing
corporations and certain other organizations. Access to DTC's system is also
available to other entities such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a Participant,
either directly or indirectly (collectively, the "Indirect Participants").
Persons who are not Participants may beneficially own securities held by or on
behalf of DTC only through the Participants or the Indirect Participants. The
ownership interests in, and transfers of ownership interests in, each security
held by or on behalf of DTC are recorded on the records of the Participants and
Indirect Participants.
DTC has also advised us that, pursuant to procedures established by it:
(1) upon deposit of the Global Notes, DTC will credit the accounts of
Participants designated by the Placement Agents with portions of the
principal amount of the Global Notes; and
(2) ownership of these interests in the Global Notes will be shown on, and
the transfer of ownership thereof will be effected only through, records
maintained by DTC (with respect to the Participants) or by the
Participants and the Indirect Participants (with respect to other owners
of beneficial interest in the Global Notes).
Investors in the Rule 144A Global Notes who are Participants in DTC's system
may hold their interests therein directly through DTC. Investors in the Rule
144A Global Notes who are not Participants may hold their interests therein
indirectly through organizations (including Euroclear and Cedel) which are
Participants in such system. Investors in the Regulation S Global Notes must
initially hold their interests therein through Euroclear or Cedel, if they are
participants in such systems, or indirectly through organizations that are
participants in such systems. After the expiration of the Restricted Period (but
not earlier), investors may also hold interests in the Regulation S Global Notes
through Participants in the DTC system other than Euroclear and Cedel. Euroclear
and Cedel will hold interests in the Regulation S Global Notes on behalf of
their participants through customers' securities accounts in their respective
names on the books of their respective depositories, which are Morgan Guaranty
Trust Company of New York, Brussels office, as operator of Euroclear, and
Citibank, N.A., as operator of Cedel. All interests in a Global Note, including
those held through Euroclear or Cedel, may be subject to the procedures and
requirements of DTC. Those interests held through Euroclear or Cedel may also be
subject to the procedures and requirements of such systems. The laws of some
states require that certain Persons take physical delivery in definitive form of
securities that they own. Consequently, the ability to transfer beneficial
interests in a Global Note to such Persons will be limited to that extent.
Because DTC can act only on behalf of Participants, which in turn act on behalf
of Indirect Participants, the ability of a Person having beneficial interests in
a Global Note to pledge
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such interests to Persons that do not participate in the DTC system, or
otherwise take actions in respect of such interests, may be affected by the lack
of a physical certificate evidencing such interests.
Except as described below, owners of interest in the Global Notes will not
have exchange notes registered in their names, will not receive physical
delivery of exchange notes in certificated form and will not be considered the
registered owners or "Holders" thereof under the Indenture for any purpose.
Payments in respect of the principal of, and interest and premium and
Additional Interest, if any, on a Global Note registered in the name of DTC or
its nominee will be payable to DTC in its capacity as the registered Holder
under the Indenture. Under the terms of the Indenture, we and the Trustee will
treat the Persons in whose names the exchange notes, including the Global Notes,
are registered as the owners thereof for the purpose of receiving payments and
for all other purposes. Consequently, neither we, the Trustee nor any agent of
the Company or the Trustee has or will have any responsibility or liability for:
(1) any aspect of DTC's records or any Participant's or Indirect
Participant's records relating to or payments made on account of
beneficial ownership interest in the Global Notes or for maintaining,
supervising or reviewing any of DTC's records or any Participant's or
Indirect Participant's records relating to the beneficial ownership
interests in the Global Notes; or
(2) any other matter relating to the actions and practices of DTC or any of
its Participants or Indirect Participants.
DTC has advised us that its current practice, upon receipt of any payment in
respect of securities such as the exchange notes (including principal and
interest), is to credit the accounts of the relevant Participants with the
payment on the payment date unless DTC has reason to believe it will not receive
payment on such payment date. Each relevant Participant is credited with an
amount proportionate to its beneficial ownership of an interest in the principal
amount of the relevant security as shown on the records of DTC. Payments by the
Participants and the Indirect Participants to the beneficial owners of Notes
will be governed by standing instructions and customary practices and will be
the responsibility of the Participants or the Indirect Participants and will not
be the responsibility of DTC, the Trustee or our company. Neither we nor the
Trustee will be liable for any delay by DTC or any of its Participants in
identifying the beneficial owners of the Notes, and we and the Trustee may
conclusively rely on and will be protected in relying on instructions from DTC
or its nominee for all purposes.
Subject to the transfer restrictions set forth under "Notice to Investors,"
transfers between Participants in DTC will be effected in accordance with DTC's
procedures, and will be settled in same-day funds, and transfers between
participants in Euroclear and Cedel will be effected in accordance with their
respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the
exchange notes described herein, cross-market transfers between the Participants
in DTC, on the one hand, and Euroclear or Cedel participants, on the other hand,
will be effected through DTC in accordance with DTC's rules on behalf of
Euroclear or Cedel, as the case may be, by its respective depositary; however,
such cross-market transactions will require delivery of instructions to
Euroclear or Cedel, as the case may be, by the counterparty in such system in
accordance with the rules and procedures and within the established deadlines
(Brussels time) of such system. Euroclear or Cedel, as the case may be, will, if
the transaction meets its settlement requirements, deliver instructions to its
respective depositary to take action to effect final settlement on its behalf by
delivering or receiving interests in the relevant Global Note in DTC, and making
or receiving payment in accordance with normal procedures for same-day funds
settlement applicable to DTC. Euroclear participants and Cedel participants may
not deliver instructions directly to the depositories for Euroclear or Cedel.
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DTC has advised us that it will take any action permitted to be taken by a
Holder only at the direction of one or more Participants to whose account DTC
has credited the interests in the Global Notes and only in respect of such
portion of the aggregate principal amount of the Notes as to which such
Participant or Participants has or have given such direction. However, if there
is an Event of Default under the Notes, DTC reserves the right to exchange the
Global Notes for legended Notes in certificated form, and to distribute such
Notes to its Participants.
Although DTC, Euroclear and Cedel have agreed to the foregoing procedures to
facilitate transfers of interests in the Rule 144A Global Notes and the
Regulation S Global Notes among participants in DTC, Euroclear and Cedel, they
are under no obligation to perform or to continue to perform such procedures,
and may discontinue such procedures at any time. Neither the Company nor the
Trustee nor any of their respective agents will have any responsibility for the
performance by DTC, Euroclear or Cedel or their respective participants or
indirect participants of their respective obligations under the rules and
procedures governing their operations.
EXCHANGE OF GLOBAL NOTES FOR CERTIFICATED NOTES
A Global Note is exchangeable for definitive Notes in registered
certificated form ("Certificated Notes") if:
(1) DTC (a) notifies us that it is unwilling or unable to continue as
depositary for the Global Notes and we fail to appoint a successor
depositary or (b) has ceased to be a clearing agency registered under the
Exchange Act;
(2) we, at our option, notify the Trustee in writing that it elects to cause
the issuance of the Certificated Notes; or
(3) there shall have occurred and be continuing a Default or Event of
Default with respect to the Notes.
In addition, beneficial interests in a Global Note may be exchanged for
Certificated Notes upon prior written notice given to the Trustee by or on
behalf of DTC in accordance with the Indenture. In all cases, Certificated Notes
delivered in exchange for any Global Note or beneficial interests in Global
Notes will be registered in the names, and issued in any approved denominations,
requested by or on behalf of the depositary (in accordance with its customary
procedures) and will bear the applicable restrictive legend referred to in
"Notice to Investors," unless that legend is not required by applicable law.
EXCHANGE OF CERTIFICATED NOTES FOR GLOBAL NOTES
Certificated Notes may not be exchanged for beneficial interests in any
Global Note unless the transferor first delivers to the Trustee a written
certificate (in the form provided in the Indenture) to the effect that such
transfer will comply with the appropriate transfer restrictions applicable to
such Notes. See "Notice to Investors."
EXCHANGES BETWEEN REGULATION S NOTES AND RULE 144A NOTES
Prior to the expiration of the Restricted Period, beneficial interests in
the Regulation S Global Note may be exchanged for beneficial interests in the
Rule 144A Global Note only if:
(1) such exchange occurs in connection with a transfer of the Notes pursuant
to Rule 144A; and
(2) the transferor first delivers to the Trustee a written certificate (in
the form provided in the Indenture) to the effect that the Notes are
being transferred to a Person:
(A) who the transferor reasonably believes to be a qualified
institutional buyer within the meaning of Rule 144A;
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(B) purchasing for its own account or the account of a qualified
institutional buyer in a transaction meeting the requirements of Rule
144A; and
(C) in accordance with all applicable securities laws of the states of
the United States and other jurisdictions.
Beneficial interest in a Rule 144A Global Note may be transferred to a
Person who takes delivery in the form of an interest in the Regulation S Global
Note, whether before or after the expiration of the Restricted Period, only if
the transferor first delivers to the Trustee a written certificate (in the form
provided in the Indenture) to the effect that such transfer is being made in
accordance with Rule 903 or 904 of Regulation S or Rule 144 (if available) and
that, if such transfer occurs prior to the expiration of the Restricted Period,
the interest transferred will be held immediately thereafter through Euroclear
or Cedel.
Transfers involving exchanges of beneficial interests between the Regulation
S Global Notes and the Rule 144A Global Notes will be effected in DTC by means
of an instruction originated by the Trustee through the DTC Deposit/Withdraw at
Custodian system. Accordingly, in connection with any such transfer, appropriate
adjustments will be made to reflect a decrease in the principal amount of the
Regulation S Global Note and a corresponding increase in the principal amount of
the Rule 144A Global Note or vice versa, as applicable. Any beneficial interest
in one of the Global Notes that is transferred to a Person who takes delivery in
the form of an interest in the other Global Note will, upon transfer, cease to
be an interest in such Global Note and will become an interest in the other
Global Note and, accordingly, will thereafter be subject to all transfer
restrictions and other procedures applicable to beneficial interest in such
other Global Note for so long as it remains such an interest. The policies and
practices of DTC may prohibit transfers of beneficial interests in the
Regulation S Global Note prior to the expiration of the Restricted Period.
SAME DAY SETTLEMENT AND PAYMENT
We will make payments in respect of the Notes represented by the Global
Notes (including principal, premium, if any, interest and Liquidated Damages, if
any) by wire transfer of immediately available funds to the accounts specified
by the Global Note Holder. We will make all payments of principal, interest and
premium and Additional Interest, if any, with respect to Certificated Notes by
wire transfer of immediately available funds to the 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 Notes represented by the Global Notes are
expected to be eligible to trade in the PORTAL market and to trade in DTC's
Same-Day Funds Settlement System, and any permitted secondary market trading
activity in such Notes will, therefore, be required by DTC to be settled in
immediately available funds. We expect that secondary trading in any
Certificated Notes will also be settled in immediately available funds.
Because of time zone differences, the securities account of a Euroclear or
Cedel participant purchasing an interest in a Global Note from a Participant in
DTC will be credited, and any such crediting will be reported to the relevant
Euroclear or Cedel participant, during the securities settlement processing day
(which must be a business day for Euroclear and Cedel) immediately following the
settlement date of DTC. DTC has advised us that cash received in Euroclear or
Cedel as a result of sales of interests in a Global Note by or through a
Euroclear or Cedel participant to a Participant in DTC will be received with
value on the settlement date of DTC but will be available in the relevant
Euroclear or Cedel cash account only as of the business day for Euroclear or
Cedel following DTC's settlement date.
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MATERIAL FEDERAL TAX CONSIDERATIONS
The following is a general discussion of certain material United States
federal income and estate tax considerations relating to the exchange by an
initial beneficial owner of the outstanding notes for exchange notes and of the
ownership and disposition of the exchange notes by an initial beneficial owner
of the exchange notes. This discussion is based upon the Internal Revenue Code
of 1986 as amended (the "Code"), existing and proposed Treasury Regulations, and
judicial decisions and administrative interpretations thereunder, as of the date
hereof, all of which are subject to change, possibly with retroactive effect, or
different interpretations. We cannot assure you that the IRS will not challenge
one or more of the tax considerations described herein, and we have not
obtained, nor do we intend to obtain, a ruling from the IRS or an opinion of
counsel with respect to the United States federal tax considerations resulting
from acquiring, holding or disposing of the notes.
In this discussion, we do not purport to address all tax considerations that
may be important to a particular holder in light of the holder's circumstances
(such as the alternative minimum tax provisions of the Code), or to certain
categories of investors (such as certain financial institutions, insurance
companies, tax-exempt organizations, dealers in securities, or persons who hold
the notes as part of a hedge, conversion transaction, straddle or other risk
reduction transaction) that may be subject to special rules. This discussion is
limited to initial holders who hold the notes as capital assets. This discussion
also does not address the tax considerations arising under the laws of any
foreign, state or local jurisdiction.
YOU SHOULD CONSULT YOUR OWN TAX ADVISORS AS TO THE PARTICULAR TAX
CONSIDERATIONS TO YOU OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF THE
NOTES, INCLUDING THE EFFECT AND APPLICABILITY OF STATE, LOCAL OR FOREIGN TAX
LAWS.
As used herein, the term "U.S. Holder" means a holder of a note that is:
(1) a citizen or resident of the United States for United States federal
income tax purposes, including an alien individual who is a lawful
permanent resident of the United States or meets the "substantial
presence" test prescribed under the Code;
(2) a corporation, partnership or other entity created or organized in or
under the laws of the United States or of any political subdivision
thereof;
(3) an estate, the income of which is subject to United States federal
income taxation regardless of its source; or
(4) a trust, the administration of which is subject to the primary
supervision of a court within the United States and which has one or more
United States persons with authority to control all substantial
decisions, or if the trust was in existence on August 20, 1996 and has
elected to continue to be treated as a United States person.
As used herein, the term "Non-U.S. Holder" means a holder of a note (within
the categories of holders addressed in this discussion) that is not a U.S.
Holder.
THE EXCHANGE OFFER
The exchange of outstanding notes for exchange notes pursuant to this
exchange offer should not constitute a taxable disposition of the outstanding
notes for United States federal income tax purposes because the exchange notes
should not be considered to differ materially in kind or extent from the
outstanding notes. Rather, any exchange notes received by you should be treated
as a continuation of your investment in the outstanding notes. As a result,
neither a U.S. Holder nor a Non-U.S. Holder should recognize taxable income,
gain or loss on such exchange for United States federal income tax purposes.
Such holder's holding period for the exchange notes should generally include the
holding
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period for the outstanding notes and such holder's adjusted tax basis in the
exchange notes should generally be the same as such holder's adjusted tax basis
in the outstanding notes for United States federal income tax purposes.
U.S. HOLDERS
INTEREST ON NOTES. We intend to take the position (which is described in
greater detail below) that the notes are not issued with original issue
discount. Accordingly, interest on the notes will be taxable to a U.S. Holder as
ordinary income at the time it is paid or accrued, depending on such holder's
method of tax accounting.
INTEREST INCREASE UPON SALE OF LAWRENCEBURG INTEREST. We intend to take the
position for United States federal income tax purposes that any payments of
increased interest after a partial repurchase of notes in connection with a
Lawrenceburg Sale or a Property Sale, as described above under "Repurchase of
notes in Connection with Sale of Lawrenceburg Interest," should be taxable to a
U.S. Holder as additional interest income when received or accrued, in
accordance with such holder's method of tax accounting. This position is based
in part on the assumption that as of the date of issuance of the outstanding
notes, the possibility that either Additional Interest or increased interest
after the repurchase of notes in connection with the Lawrenceburg Sale or
Property Sale will have to be paid is a "remote" or "incidental" contingency
within the meaning of applicable Treasury regulations. Our determination that
such possibility is a remote or incidental contingency is binding on a U.S.
Holder, unless such holder explicitly discloses to the IRS, on such holder's
return for the year during which the outstanding note was acquired, that such
holder is taking a different position. Regardless of our position, however, the
IRS may take the contrary position that the payment of increased interest after
the repurchase of notes in connection with the Lawrenceburg Sale or Property
Sale is not a remote or incidental contingency, which could cause the notes to
be treated as having been issued with original issue discount. Such contrary
position could affect the timing and character of both the holder's income from
the notes and our deduction with respect to the payments of increased interest
after the repurchase of notes in connection with the Lawrenceburg Sale or
Property Sale.
SALE, EXCHANGE, RETIREMENT OR OTHER TAXABLE DISPOSITION OF THE NOTES. Upon
the sale, exchange, retirement or other taxable disposition of a note, a U.S.
Holder will recognize gain or loss equal to the difference between the amount of
money and fair market value of property received in exchange for the note
(except to the extent attributable to the payment of accrued interest that the
holder has not already included in gross income, which amount generally will be
taxable as ordinary income) and the U.S. Holder's adjusted tax basis in the
note.
A U.S. Holder's adjusted tax basis in a note will generally equal the price
paid by the U.S. Holder for the note, decreased by any repayments of principal
received thereon and increased by the amount of accrued unpaid interest that the
holder has already included in gross income. Gain or loss realized on the sale,
exchange or retirement of a note will be capital gain or loss. For U.S. Holders
who are individuals, the gain generally is taxed at ordinary income tax rates if
the note is held for 12 months or less, and at a maximum statutory federal
income tax rate of 20% if the note is held for more than 12 months.
NON-U.S. HOLDERS
In the following discussion, we summarize the principal United States
federal income and estate tax considerations resulting from the ownership and
disposition of the notes by Non-U.S. Holders.
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INTEREST ON NOTES. Subject to the discussion below of backup withholding,
interest paid on the notes to a Non-U.S. Holder generally will qualify for the
"portfolio interest exemption" and therefore generally will not be subject to
United States federal income tax if:
(1) such interest is not effectively connected with the conduct of a trade
or business within the United States by such Non-U.S. Holder;
(2) the Non-U.S. Holder does not actually or constructively own 10% or more
of the total voting power of all classes of our stock entitled to vote;
(3) the Non-U.S. Holder is not a controlled foreign corporation with respect
to which we are a "related person" within the meaning of the Code;
(4) the Non-U.S. Holder is not a bank receiving interest pursuant to a loan
agreement entered into in the ordinary course of its trade or business;
and
(5) the beneficial owner, under penalty of perjury, certifies that the owner
is not a United States person and provides the owner's name and address.
If certain requirements are satisfied, the certification described in clause
(5) above may be provided by a securities clearing organization, a bank, or
other financial institution that holds customers' securities in the ordinary
course of its trade or business.
Under Treasury Regulations, which generally are effective for payments made
after December 31, 2000, subject to certain transition rules, the certification
described in clause (5) above may also be provided by a qualified intermediary
on behalf of one or more beneficial owners (or other intermediaries), provided
that such intermediary has entered into a withholding agreement with the IRS and
certain other conditions are met. A Non-U.S. Holder that is not exempt from tax
under these rules will be subject to United States federal income tax
withholding at a rate of 30% unless
(1) the interest is effectively connected with the conduct of a United
States trade or business, in which case the interest will be subject to
the United States federal income tax on net income that applies to United
States persons generally (and, with respect to corporate holders and
under certain circumstances, the branch profits tax); or
(2) the rate of withholding is reduced or eliminated by an applicable income
tax treaty; and
(3) in either case, the Non-U.S. Holder provides us with proper
certification as to the holder's exemption from withholding.
GAIN ON DISPOSITION OF THE NOTES. A Non-U.S. Holder generally will not be
subject to United States federal income tax on gain realized on the sale,
exchange or redemption of a note unless:
(1) in the case of an individual Non-U.S. Holder, such holder is present in
the United States for 183 days or more in the year of such sale, exchange
or redemption, and either:
(A) has a "tax home" in the United States and certain other requirements
are met; or
(B) the gain from the disposition is attributable to an office or other
fixed place of business in the United States;
(2) the Non-U.S. Holder is subject to tax pursuant to the provisions of U.S.
tax law applicable to certain U.S. expatriates; or
(3) the gain is effectively connected with the conduct of a United States
trade or business of the Non-U.S. Holder.
U.S. FEDERAL ESTATE TAX. A note held by an individual who at the time of
death is not a citizen or resident of the United States (as specially defined
for United States federal estate tax purposes) will not be subject to United
States federal estate tax if interest on the note is exempt from withholding
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under the "portfolio interest exemption" rules discussed above for "Non U.S.
Holders--Interest on Notes" (without regard to the certification requirement).
BACKUP WITHHOLDING AND INFORMATION REPORTING.
U.S. HOLDERS. Information reporting will apply to payments of interest on
or the proceeds of the sale or other disposition of the notes made by us with
respect to certain non-corporate U.S. Holders. A U.S. Holder will further be
subject to backup withholding at the rate of 31% with respect to interest,
principal and premium, if any, we pay on a note, unless the holder (1) is an
entity (including corporations, tax-exempt organizations and certain qualified
nominees) that is exempt from withholding and, when required, demonstrates this
fact; or (2) provides us with a correct taxpayer identification number,
certifies that the taxpayer identification number is correct and that the holder
has not been notified by the IRS that it is subject to backup withholding due to
underreporting of interest or dividends, and otherwise complies with applicable
requirements of the backup withholding rules. Any amount withheld under the
backup withholding rules is allowable as a credit against the U.S. Holder's
United States federal income tax liability, provided that the required
information is furnished to IRS.
NON-U.S. HOLDERS. We will, when required, report to the IRS and to each
Non-U.S. Holder the amount of any interest paid to, and the tax withheld with
respect to, such holder, regardless of whether any tax was actually withheld on
such payments. Copies of these information returns may also be made available to
the tax authorities of the country in which the Non-U.S. Holder resides under
the provisions of a specific treaty or agreement.
Under current Treasury Regulations, backup withholding and information
reporting will not apply to payments of interest on or principal of the notes by
us or our agent to a Non-U.S. Holder if the Non-U.S. Holder certifies as to its
Non-U.S. Holder status under penalties of perjury or otherwise establishes an
exemption (provided that neither we nor our agent have actual knowledge that the
holder is a U.S. person or that the conditions of any other exemptions are not
in fact satisfied). The payment of the proceeds on the disposition of notes to
or through the United States office of a United States or foreign broker will be
subject to information reporting and backup withholding unless the owner
provides the certification described above or otherwise establishes an
exemption. The proceeds of the disposition by a Non-U.S. Holder of notes to or
through a foreign office of a broker generally will not be subject to backup
withholding or information reporting. However, if such broker is a U.S. person,
a controlled foreign corporation or a foreign person deriving 50% or more of its
gross income from all sources for certain periods from activities that are
effectively connected with the conduct of a United States trade or business,
information reporting requirements will apply unless such broker has documentary
evidence in its files of the holder's status as a Non-U.S. Holder and has no
actual knowledge to the contrary or unless the holder otherwise establishes an
exemption.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules may be refunded or credited against the Non-U.S.
Holder's United States federal income tax liability provided that the required
information is furnished to the IRS.
New Treasury Regulations relating to withholding tax on income paid to
Non-U.S. Holders will generally be effective for payments made after December
31, 2000, subject to certain transition rules. In general, these new regulations
do not significantly alter the substantive withholding and information reporting
requirements, but rather unify current certification procedures and forms, and
clarify reliance standards. The new regulations also alter the procedures for
claiming benefits of an income tax treaty and permit the shifting of primary
responsibility for withholding to certain financial intermediaries acting on
behalf of beneficial owners under some circumstances. On January 15, 1999, the
IRS issued Notice 99-8, proposing certain changes to these new withholding
regulations for non-resident aliens and foreign corporations and providing a
model "qualified intermediary" withholding agreement to be entered into with the
IRS to allow certain institutions to certify on behalf of their non-U.S.
customers or account holders who invest in U.S. securities. We strongly urge
prospective Non-U.S. Holders to
130
consult their own tax advisors for information on the impact, if any, of these
new withholding regulations.
PLAN OF DISTRIBUTION
Each broker-dealer that receives exchange 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 exchange 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 exchange notes received in exchange for outstanding
exchange notes where such outstanding exchange notes were acquired as a result
of market-making activities or other trading activities.
We will not receive any proceeds from any sale of exchange notes by
broker-dealers. Exchange notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the exchange 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 or the purchasers of any such exchange notes. Any broker-dealer
that resells exchange 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 exchange notes may be deemed to be an "underwriter" within
the meaning of the Securities Act, and any profit on any such resale of exchange
notes and any commissions or concessions received by 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.
We 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. We have agreed to pay all expenses
incident to the exchange offer other than commissions or concessions of any
brokers or dealers and will indemnify original holders of the outstanding
exchange notes, including any broker-dealers, against certain liabilities,
including certain liabilities under the Securities Act.
LEGAL MATTERS
The validity of the exchange notes will be passed upon for us by Winston &
Strawn, Chicago, Illinois.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements at December 31, 1998 and 1997, and for each of the three
years in the period ended December 31, 1998, as set forth in their report. We
have included our consolidated financial statements in the prospectus and
elsewhere in the registration statement in reliance on Ernst & Young LLP's
report, given on their authority as experts in accounting and auditing.
131
INDEX TO FINANCIAL STATEMENTS
PAGE
---------
Report of Independent Auditors............................................................................. F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998............................................... F-3
Consolidated Statements of Operations for each of the fiscal years in the three-year period ended December
31, 1998................................................................................................. F-4
Consolidated Statements of Stockholders' Equity for each of the fiscal years in the three-year period ended
December 31, 1998........................................................................................ F-5
Consolidated Statements of Cash Flows for each of the fiscal years in the three-year period ended December
31, 1998................................................................................................. F-6
Notes to Consolidated Financial Statements................................................................. F-7
Condensed Consolidated Balance Sheets as of March 31, 1999 (unaudited)..................................... F-21
Condensed Consolidated Statements of Operations for the three months ended March 31, 1999 and 1998
(unaudited).............................................................................................. F-22
Condensed Consolidated Statements of Stockholders' Equity for the three months ended March 31, 1999
(unaudited).............................................................................................. F-23
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 1999 and 1998
(unaudited).............................................................................................. F-24
Notes to Condensed Consolidated Financial Statements (unaudited)........................................... F-25
F-1
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Argosy Gaming Company
We have audited the accompanying consolidated balance sheets of Argosy
Gaming Company as of December 31, 1998 and 1997, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Argosy Gaming
Company at December 31, 1998 and 1997, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
January 29, 1999
F-2
ARGOSY GAMING COMPANY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31,
--------------------
1998 1997
--------- ---------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................................................... $ 89,857 $ 59,354
Accounts receivable, net of allowance for doubtful accounts of $1,936 and $1,624,
respectively.............................................................................. 2,375 2,139
Income taxes receivable..................................................................... 747 1,176
Deferred income taxes....................................................................... 1,471 2,011
Other current assets........................................................................ 4,806 5,303
--------- ---------
Total current assets...................................................................... 99,256 69,983
--------- ---------
Net property and equipment.................................................................. 395,920 390,343
--------- ---------
OTHER ASSETS:
Restricted cash and cash equivalents........................................................ 25,545
Deferred finance costs, net of accumulated amortization of $6,363 and $4,312, respectively.. 8,758 10,809
Goodwill and other intangible assets, net of accumulated amortization of $5,353 and $3,360,
respectively.............................................................................. 51,817 54,689
Other....................................................................................... 7,001 8,487
--------- ---------
Total other assets........................................................................ 67,576 99,530
--------- ---------
Total assets................................................................................ $ 562,752 $ 559,856
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................................................................ $ 10,500 $ 12,570
Accrued payroll and related expenses........................................................ 9,857 8,912
Other accrued liabilities................................................................... 34,898 27,870
Accrued interest............................................................................ 4,490 6,299
Current maturities of long-term debt........................................................ 11,640 13,348
--------- ---------
Total current liabilities................................................................. 71,385 68,999
--------- ---------
LONG-TERM DEBT.............................................................................. 412,360 436,442
DEFERRED INCOME TAXES....................................................................... 1,943 1,947
OTHER LONG-TERM OBLIGATIONS................................................................. 201 2,186
MINORITY INTERESTS IN EQUITY OF CONSOLIDATED SUBSIDIARIES................................... 30,660 17,619
COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 17)
SERIES A CONVERTIBLE PREFERRED STOCK, $.01 PAR VALUE, 10,000,000 SHARES AUTHORIZED, 547
SHARES ISSUED AND OUTSTANDING............................................................. 5,340 --
STOCKHOLDERS' EQUITY:
Common stock, $.01 par; 60,000,000 shares authorized; 25,830,313 and 24,498,333 shares
issued and outstanding at December 31, 1998 and 1997, respectively........................ 258 245
Capital in excess of par.................................................................... 74,484 72,038
Retained (deficit) earnings................................................................. (33,879) (39,620)
--------- ---------
Total stockholders' equity................................................................ 40,863 32,663
--------- ---------
Total liabilities and stockholders' equity.................................................. $ 562,752 $ 559,856
--------- ---------
--------- ---------
See accompanying notes to consolidated financial statements.
F-3
ARGOSY GAMING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
YEARS ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
---------- ---------- ----------
REVENUES:
Casino....................................................................... $ 473,505 $ 319,830 $ 228,388
Admissions................................................................... 16,025 7,895 2,759
Food, beverage and other..................................................... 51,057 34,836 29,212
---------- ---------- ----------
540,587 362,561 260,359
Less promotional allowances.................................................. (33,919) (18,478) (15,542)
---------- ---------- ----------
Net revenues................................................................. 506,668 344,083 244,817
---------- ---------- ----------
COSTS AND EXPENSES:
Casino....................................................................... 221,682 163,935 121,004
Food, beverage and other..................................................... 40,550 29,962 23,769
Other operating expenses..................................................... 26,639 28,695 19,111
Selling, general and administrative.......................................... 96,041 69,725 52,048
Depreciation and amortization................................................ 33,436 33,292 22,416
Development and preopening costs............................................. 509 594 12,365
Lease termination costs...................................................... -- -- 3,508
Referendum expenses.......................................................... -- -- 1,347
Severance expenses........................................................... -- 1,750 --
Write-down of assets held for sale........................................... -- 9,600 --
---------- ---------- ----------
418,857 337,553 255,568
---------- ---------- ----------
Income (loss) from operations................................................ 87,811 6,530 (10,751)
---------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest income.............................................................. 3,582 5,937 4,235
Interest expense............................................................. (57,487) (47,116) (34,842)
---------- ---------- ----------
(53,905) (41,179) (30,607)
---------- ---------- ----------
Income (loss) before minority interests, income taxes and extraordinary
item....................................................................... 33,906 (34,649) (41,358)
Minority interests........................................................... (26,205) (6,916) 4,879
Income tax (expense) benefit................................................. (1,140) 1,352 12,530
---------- ---------- ----------
Net income (loss) before extraordinary item.................................. 6,561 (40,213) (23,949)
Extraordinary loss on extinguishment of debt (net of income tax benefit of
$594)...................................................................... -- -- (890)
---------- ---------- ----------
Net income (loss)............................................................ 6,561 (40,213) (24,839)
Preferred stock dividends and accretion...................................... (820) -- --
---------- ---------- ----------
Net income (loss) attributable to common stockholders........................ $ 5,741 $ (40,213) $ (24,839)
---------- ---------- ----------
---------- ---------- ----------
Basic net income (loss) per share............................................ $ 0.23 $ (1.65) $ (1.02)
---------- ---------- ----------
---------- ---------- ----------
Diluted net income (loss) per share.......................................... $ 0.23 $ (1.65) $ (1.02)
---------- ---------- ----------
---------- ---------- ----------
See accompanying notes to consolidated financial statements.
F-4
ARGOSY GAMING COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
CAPITAL IN RETAINED TOTAL
COMMON EXCESS OF EARNINGS STOCKHOLDERS'
SHARES STOCK PAR (DEFICIT) EQUITY
------------ ----------- ------------ ---------- ------------
Balance, December 31, 1995...................... 24,333,333 $ 243 $ 71,865 $ 25,432 $ 97,540
Net loss...................................... -- -- -- (24,839) (24,839)
------------ ----- ------------ ---------- ------------
Balance, December 31, 1996...................... 24,333,333 243 71,865 593 72,701
Restricted Stock issued....................... 165,000 2 173 -- 175
Net loss...................................... -- -- -- (40,213) (40,213)
------------ ----- ------------ ---------- ------------
Balance, December 31, 1997...................... 24,498,333 245 72,038 (39,620) 32,663
Restricted Stock compensation expense......... -- -- 239 -- 239
Issuance of Convertible Preferred Stock and
Warrants.................................... -- -- (235) -- (235)
Preferred Stock conversion.................... 1,331,980 13 2,442 -- 2,455
Net income.................................... -- -- -- 6,561 6,561
Preferred Stock dividends and accretion....... -- -- -- (820) (820)
------------ ----- ------------ ---------- ------------
Balance, December 31, 1998...................... 25,830,313 $ 258 $ 74,484 $ (33,879) $ 40,863
------------ ----- ------------ ---------- ------------
------------ ----- ------------ ---------- ------------
See accompanying notes to consolidated financial statements.
F-5
ARGOSY GAMING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
YEARS ENDED DECEMBER 31,
---------------------------------
1998 1997 1996
--------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).............................................................. $ 6,561 $ (40,213) $ (24,839)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation................................................................. 31,011 31,250 21,501
Amortization................................................................. 4,329 3,968 2,660
Deferred income taxes........................................................ 536 (753) (3,538)
Compensation expense recognized on issuance of stock......................... 239 175 --
Loss (gain) on the disposal of equipment..................................... 789 -- (153)
Minority interests........................................................... 26,205 6,916 (4,879)
Lease termination costs...................................................... -- -- 1,941
Extraordinary item........................................................... -- -- 890
Write-down of assets held for sale........................................... -- 9,600 --
Changes in operating assets and liabilities:
Accounts receivable........................................................ (236) (221) 1,279
Other current assets....................................................... 1,184 3,057 (2,033)
Accounts payable........................................................... (2,070) (2,723) 3,011
Accrued liabilities........................................................ 12,686 10,637 5,614
Income taxes receivable.................................................... 429 9,935 (8,914)
--------- ---------- ----------
Net cash provided by (used in) operating activities........................ 81,663 31,628 (7,460)
--------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sales of marketable securities............................................... -- -- 1,826
Proceeds from sales of property and equipment................................ -- -- 153
Long-term obligations........................................................ (6,583) (13,586) --
Purchases of property and equipment.......................................... (34,051) (117,444) (97,409)
Other long-term assets....................................................... 908 (543) 171
Restricted cash held by trustees............................................. 25,545 59,006 (84,551)
--------- ---------- ----------
Net cash used in investing activities...................................... (14,181) (72,567) (179,810)
--------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt..................................... -- 25,000 235,000
Proceeds (net of issuance costs) from sale of Convertible Preferred Stock and
Warrants................................................................... 7,365 -- --
Repayment of line of credit.................................................. (45,500)
Payments on installment contracts............................................ (3,514) (4,211) (2,991)
Payments on long-term debt................................................... (3,785) (115) (2,191)
Increase in deferred finance costs........................................... -- (638) (9,716)
Proceeds from (repayment of) partner loans................................... (21,939) 43,938 23,197
Capital contributions from partner........................................... 19,044
Partnership equity distributions............................................. (10,808) (1,514) --
Payment of preferred equity return to partner................................ (3,688) (1,163) --
Other........................................................................ (610) 712 (7,448)
--------- ---------- ----------
Net cash (used in) provided by financing activities........................ (36,979) 62,009 209,395
--------- ---------- ----------
Net increase in cash and cash equivalents...................................... 30,503 21,070 22,125
Cash and cash equivalents, beginning of year................................... 59,354 38,284 16,159
--------- ---------- ----------
Cash and cash equivalents, end of year......................................... $ 89,857 $ 59,354 $ 38,284
--------- ---------- ----------
--------- ---------- ----------
See accompanying notes to consolidated financial statements.
F-6
ARGOSY GAMING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION--Argosy Gaming Company (collectively with its
subsidiaries, "Argosy" or "Company") is engaged in the business of providing
casino style gaming and related entertainment to the public and, through its
subsidiaries or joint ventures, operates riverboat casinos in Alton, Illinois;
Lawrenceburg, Indiana; Riverside, Missouri; Baton Rouge, Louisiana; and Sioux
City, Iowa. Indiana Gaming Company, L.P. ("Indiana Partnership"), a limited
partnership in which the Company is general partner and holds a 57.5%
partnership interest, opened a riverboat casino and related entertainment and
support facilities at a temporary site in Lawrenceburg, Indiana on December 10,
1996. The Partnership opened its permanent pavilion on December 10, 1997, and
its hotel in May 1998.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates. The
consolidated financial statements include the accounts of Argosy and its
controlled subsidiaries and partnerships. All significant intercompany
transactions have been eliminated. Under certain conditions, subsidiaries are
required to obtain approval from state gaming authorities before making
distributions to Argosy.
Certain 1997 and 1996 amounts have been reclassified to conform to the 1998
presentation.
CASH AND CASH EQUIVALENTS--The Company considers cash and all highly liquid
investments with an original maturity of three months or less to be cash
equivalents.
PROPERTY AND EQUIPMENT--Property and equipment are recorded at cost.
Leasehold improvements are amortized over the life of the respective lease.
Depreciation is computed on the straight-line method over the following
estimated useful lives:
5 to 33
Buildings and shore improvements.............................. years
5 to 20
Riverboats, docks and improvements............................ years
5 to 10
Furniture, fixtures and equipment............................. years
IMPAIRMENT OF LONG-LIVED ASSETS--When events or circumstances indicate that
the carrying amount of long-lived assets to be held and used might not be
recoverable, the expected future undiscounted cash flows from the assets is
estimated and compared with the carrying amount of the assets. If the sum of the
estimated undiscounted cash flows is less than the carrying amount of the
assets, an impairment loss is recorded. The impairment loss is measured by
comparing the fair value of the assets with their carrying amount. Long-lived
assets that are held for disposal are reported at the lower of the assets'
carrying amount or fair value less costs related to the assets' disposition.
DEFERRED FINANCE COSTS--Deferred finance costs are amortized over the life
of the respective loans using the effective interest method.
GOODWILL AND OTHER INTANGIBLE ASSETS--Goodwill represents the cost in excess
of fair value of net assets acquired, and is amortized over 40 years. Other
intangible assets, primarily payments to cities, are amortized over the lives of
the respective leases or development agreements including extensions.
CASINO REVENUES AND PROMOTIONAL ALLOWANCES--The Company recognizes as casino
revenues the net win from gaming activities, which is the difference between
gaming wins and losses. The retail value of
F-7
ARGOSY GAMING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
admissions, hotel rooms, food, beverage and other items which were provided to
customers without charge has been included in revenues, and a corresponding
amount has been deducted as promotional allowances. The estimated direct cost of
providing promotional allowances has been included in costs and expenses as
follows:
YEARS ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
Admissions...................................................... $ 11,278 $ 6,935 $ 505
Hotel rooms..................................................... 757 -- --
Food, beverage and other........................................ 11,505 7,626 4,054
ADMISSIONS REVENUE--Admissions revenue is recognized at the time the related
service is performed.
ADVERTISING COSTS--The Company expenses advertising costs as incurred.
Advertising expense was $9,833, $12,475 and $9,192 in 1998, 1997 and 1996,
respectively.
DEVELOPMENT AND PREOPENING COSTS--Development costs incurred in an effort to
identify and develop new gaming locations are expensed as incurred, as there can
be no assurance that such costs, if capitalized, would be realizable. Preopening
costs are expensed as incurred.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
DECEMBER 31,
-----------------------
1998 1997
----------- ----------
Land................................................................. $ 39,002 $ 38,890
Buildings, leasehold and shore improvements.......................... 216,067 189,058
Riverboats, docks and improvements................................... 148,162 149,318
Furniture, fixtures and equipment.................................... 93,868 78,168
Construction in progress............................................. 217 6,695
----------- ----------
497,316 462,129
Less accumulated depreciation and amortization....................... (101,396) (71,786)
----------- ----------
Net property and equipment........................................... $ 395,920 $ 390,343
----------- ----------
----------- ----------
3. ASSETS HELD FOR SALE
The Company recorded a charge of $9,600 to adjust the carrying value of
certain assets held for sale to their estimated fair value in 1997. These assets
include the original riverboat casino the Company utilized in Alton, Illinois
from September 1991 until May 1993 and a barge utilized as a temporary landing
facility in Lawrenceburg, Indiana until December 10, 1997. The estimated fair
value of the assets was determined through discussions with a broker and
comparison to other riverboats and barges currently available for sale.
F-8
ARGOSY GAMING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
3. ASSETS HELD FOR SALE (CONTINUED)
The adjusted carrying value of the boat and barge of approximately $4,300 is
included in other assets in the accompanying balance sheets at December 31, 1998
and 1997.
4. OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following:
DECEMBER 31,
----------------------
1998 1997
---------- ----------
Accrued gaming and admission taxes.................................... $ 12,020 $ 2,386
Installment contracts payable......................................... 2,614 3,288
Slot club liability................................................... 3,667 2,475
Accrued insurance..................................................... 4,529 4,400
Current portion of long-term obligations.............................. -- 4,583
Other................................................................. 12,068 10,738
---------- ----------
$ 34,898 $ 27,870
---------- ----------
---------- ----------
5. LONG-TERM DEBT
Long-term debt consists of the following:
DECEMBER 31,
----------------------
1998 1997
---------- ----------
First mortgage notes due June 1, 2004, interest payable semi-annually
at 13.25%........................................................... $ 235,000 $ 235,000
Convertible subordinated notes due June 1, 2001, convertible into
common stock at $17.70 per share, interest payable semi-annually at
12%................................................................. 115,000 115,000
Notes payable, principal and interest payments due quarterly through
September 2015, discounted at 10.5%................................. 7,097 7,656
Notes payable, principal and interest payments due monthly through
December 2001, interest payable at prime + 1% (8.75% at December 31,
1998), secured by gaming vessel and certain equipment............... 21,707 25,000
Loans from partner, principal due in annual installments through 2004,
interest payable at prime + 6% (13.75% at December 31, 1998)........ 45,196 67,134
---------- ----------
424,000 449,790
Less: current maturities.............................................. 11,640 13,348
---------- ----------
Long-term debt, less current maturities............................... $ 412,360 $ 436,442
---------- ----------
---------- ----------
F-9
ARGOSY GAMING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
5. LONG-TERM DEBT (CONTINUED)
On June 5, 1996, the Company issued $235,000 of First Mortgage Notes due
2004 ("Mortgage Notes"). The Mortgage Notes are senior obligations of the
Company secured by substantially all of its assets, except the assets of the
Indiana Partnership, and are guaranteed by substantially all of the Company's
subsidiaries, other than the Indiana and Sioux City partnerships.
The Mortgage Notes contain certain restrictions on the payment of dividends
on the Company's common stock and the occurrence of additional indebtedness, as
well as other covenants customary in senior secured financings. Under terms of
the indenture governing the Mortgage Notes, Argosy is required to make cash
offers to purchase Mortgage Notes, at 101% of their principal amount, at an
amount equal to 50% of the proceeds from certain distributions, above specified
levels, received from the Indiana Partnership.
The Company used a portion of the proceeds from the issuance of the Mortgage
Notes to repay and terminate its senior secured line of credit ("Line of
Credit"). In connection with this early termination of the Line of Credit, the
Company expensed approximately $1,484 of deferred finance costs ($890 net of
tax).
The convertible subordinated notes ("Notes") are convertible into common
stock at any time and may be redeemed by the Company in whole or in part, at
specified percentages of principal plus accrued and unpaid interest to the date
of redemption. The Notes are subordinated to prior payment in full of all senior
indebtedness as defined, including such indebtedness incurred in the future.
Interest expense for the years ended December 31, 1998, 1997, and 1996, was
$57,487 (net of $1,086 capitalized), $47,116 (net of $8,391 capitalized), and
$34,842 (net of $3,033 capitalized), respectively.
Maturities of long-term debt at December 31, 1998 are as follows:
YEARS ENDED DECEMBER 31,
- ----------------------------------------------------------------------------------
1999.............................................................................. $ 11,640
2000.............................................................................. 12,078
2001.............................................................................. 137,406
2002.............................................................................. 8,275
2003.............................................................................. 8,358
Thereafter........................................................................ 246,243
6. CONVERTIBLE PREFERRED STOCK AND WARRANTS
On June 16, 1998, the Company issued $8,000 of Series A Convertible
Preferred Stock ("Preferred Shares"), together with warrants to purchase an
additional 292,612 shares of Common Stock at $3.89 per share. The Preferred
Shares mature in 2005, and the Company has the right to force conversion and/or
redemption at maturity. A portion of the proceeds was allocated to the warrants
and this discount will be accreted over seven years. The warrants expire in
2003.
The Preferred Shares provide for a 4% dividend per annum, payable in cash
and/or in kind, at the time of conversion or maturity, at the Company's option.
F-10
ARGOSY GAMING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
6. CONVERTIBLE PREFERRED STOCK AND WARRANTS (CONTINUED)
The Preferred Shares are convertible at the lower of the fixed initial
strike price ($3.89 per share) or a floating price. The fixed strike price may
be reset downward on March 11, 1999, depending on the then current market price
and is subject to adjustment upon the occurrence of certain events. The floating
price is based on the market price of the Company's common stock. The Preferred
Shares are convertible in increments and become fully convertible on January 10,
1999. The warrants may be exercised at the fixed strike price subject to the
same adjustment provisions.
This transaction provided for put and call options which, subject to certain
restrictions and limitations, allowed for up to an additional $8,000 of
Preferred Shares and Warrants to be issued. In December 1998, the Company
amended its agreement with the holders of the Preferred Shares to terminate both
the holders' right to purchase, and the Company's right to require such holders
to purchase, the additional $8 million tranche of Preferred Shares and related
warrants. The Company paid $625 to amend the agreement, and this amount is
included in preferred stock dividends and accretion in the accompanying
statement of operations for 1998. Through December 31, 1998, 253 Preferred
Shares had been converted into 1,331,980 shares of common stock. Through January
29, 1999, 443 Preferred Shares had been converted into 2,208,201 shares of
common stock.
7. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share:
DECEMBER 31,
-------------------------------------------
1998 1997 1996
------------- ------------- -------------
NUMERATOR:
Net income (loss)............................... $ 6,561 $ (40,213) $ (24,839)
Preferred stock dividends and accretion......... (820) -- --
------------- ------------- -------------
Numerator for basic and diluted earnings per
share
Net income (loss) attributable to common
stockholders................................ $ 5,741 $ (40,213) $ (24,839)
------------- ------------- -------------
------------- ------------- -------------
DENOMINATOR:
Denominator for basic earnings per share--
Weighted-average shares outstanding........... 24,498,905 24,333,333 24,333,333
Effect of dilutive securities:
Restricted stock.............................. 105,580 -- --
------------- ------------- -------------
Denominator for diluted earnings per
share--adjusted
Weighted-average shares and assumed
conversions................................. 24,604,485 24,333,333 24,333,333
------------- ------------- -------------
------------- ------------- -------------
Basic net income (loss) per share............... $ 0.23 $ (1.65) $ (1.02)
------------- ------------- -------------
------------- ------------- -------------
Diluted net income (loss) per share............. $ 0.23 $ (1.65) $ (1.02)
------------- ------------- -------------
------------- ------------- -------------
F-11
ARGOSY GAMING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
7. EARNINGS PER SHARE (CONTINUED)
Employee and directors stock options to purchase 1,592,179 shares of common
stock at prices ranging from $3.13 to $16.75 were not included in the
computation of diluted earnings per share because the options exercise price was
greater than the average market price of the common shares and, therefore, the
effect would be anti-dilutive.
Warrants to purchase 292,612 shares of common stock at $3.89 per share were
outstanding at December 31, 1998, but were not included in the computation of
diluted earnings per share because the exercise price was greater than the
average market price of the common shares and, therefore, the effect would be
anti-dilutive.
Convertible preferred stock (convertible into 1,528,081 weighted-average
shares of common stock at December 31, 1998) was not included in the computation
of diluted earnings as the amount of dividend and accretion recognized during
the year per weighted-average common share obtainable on conversion exceeded
basic earnings per share; thus the effect would be anti-dilutive.
Twelve percent convertible debentures (convertible into 6,497,175 shares of
common stock at $17.70 per share) were outstanding at December 31, 1998, but
were not included in the computation of diluted earnings per share as the net
interest expense per common share obtainable on conversion exceeded basic
earnings per share; thus the effect would be anti-dilutive.
8. INCOME TAXES
Income tax benefit (expense) for the years ended December 31, 1998, 1997 and
1996, consists of the following:
1998 1997 1996
--------- --------- ---------
Current:
Federal...................................................... $ -- $ -- $ 7,877
State........................................................ (604) 866 1,117
--------- --------- ---------
(604) 866 8,994
--------- --------- ---------
Deferred:
Federal...................................................... -- -- 2,521
State........................................................ (536) 486 1,015
--------- --------- ---------
(536) 486 3,536
--------- --------- ---------
Income tax benefit (expense)................................... $ (1,140) $ 1,352 $ 12,530
--------- --------- ---------
--------- --------- ---------
F-12
ARGOSY GAMING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
8. INCOME TAXES (CONTINUED)
The provision for income taxes for the years ended December 31, 1998, 1997
and 1996, differs from that computed at the federal statutory corporate tax rate
as follows:
1998 1997 1996
--------- --------- ---------
Federal statutory rate............................................. 35.0% (35.0)% (35.0)%
State income taxes, net of federal benefit......................... 2.2 (2.6) (2.5)
Valuation allowance................................................ (7.8) 38.7 --
Goodwill amortization.............................................. 0.6 0.4 0.5
Minority interest in partnership income............................ (27.0) (6.7) 4.6
Other, net......................................................... 0.4 1.3 2.1
--------- --------- ---------
3.4% (3.9)% (30.3)%
--------- --------- ---------
--------- --------- ---------
The tax effects of significant temporary differences representing deferred
tax assets and liabilities at December 31, 1998 and 1997, are as follows:
1998 1997
---------- ----------
Basis of assets held for sale......................................... $ 3,739 $ 3,727
Depreciation.......................................................... (14,241) (13,392)
Preopening............................................................ 3,709 4,755
Benefit of net operating loss carryforward............................ 18,357 17,986
Other, net............................................................ 575 1,320
---------- ----------
12,139 14,396
Valuation allowance................................................... (12,611) (14,332)
---------- ----------
Net deferred tax asset (liability).................................... $ (472) $ 64
---------- ----------
---------- ----------
The valuation allowance relates to deferred tax assets established under SFAS
109 for net operating loss carryforwards of approximately $42,800 and $46,600 at
December 31, 1998 and 1997, respectively. These loss carryforwards, which will
expire through 2012, will be carried forward to future years for possible
utilization.
9. SUPPLEMENTAL CASH FLOW INFORMATION
The Company acquired equipment in the amounts of $2,841, $4,154 and $5,191
in 1998, 1997 and 1996, respectively, which was financed through installment
contracts.
The Company paid $58,356, $51,185 and $33,302 for interest, and $784, $143
and $332 for income taxes in 1998, 1997 and 1996, respectively.
The Company issued 1,331,980 shares of additional common stock upon the
conversion of 253 shares of Preferred Stock.
F-13
ARGOSY GAMING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
10. LEASES
Future minimum lease payments for operating leases with initial terms in
excess of one year as of December 31, 1998, are as follows:
YEARS ENDING DECEMBER 31,
- -----------------------------------------------------------------------------------
1999............................................................................... $ 1,702
2000............................................................................... 1,231
2001............................................................................... 864
2002............................................................................... 450
2003............................................................................... 328
Thereafter......................................................................... 14,948
Rent expense for the years ended December 31, 1998, 1997 and 1996, was
$4,137, $7,205 and $6,204, respectively.
11. STOCK OPTION PLANS
The Company adopted the Argosy Gaming Company Stock Option Plan, as amended,
("Stock Option Plan"), which provides for the grant of non-qualified stock
options for up to 2,500,000 shares of common stock to key employees of the
Company. These options expire 10 years after their respective grant dates and
become exercisable over a specified vesting period. At December 31, 1998,
options for 843,241 shares are exercisable under the Stock Option Plan. The
weighted average life of outstanding options at December 31, 1998 is
approximately five years.
On November 7, 1997 ("Grant Date"), the Company's board of directors
approved a plan that allowed certain employees to exchange their existing stock
options for an amount of options equal to the number of options to be exchanged
multiplied by a fraction: the numerator of which is $4.25 (closing price on
Grant Date) and the denominator of which is the prior option price. This
exchange of options was finalized during 1998, and options for 625,373 shares of
stock were exchanged for options for 157,524 shares of stock.
The Company also has adopted the Argosy Gaming Company 1993 Directors Stock
Option Plan ("Directors Option Plan"), which provides for a total of 50,000
shares of common stock to be authorized and reserved for issuance. The Directors
Option Plan provides for the grant of non-qualified stock options at fair market
value to non-employee directors of the Company as of the date such individuals
become directors of the Company. These options expire five years after their
respective grant dates and become exercisable over a specified vesting period.
At December 31, 1998 options for 6,000 shares are exercisable under the
Directors' Option Plan.
The Company follows Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB 25"), and related interpretations in
accounting for its employee stock options. Under APB 25, when the exercise price
of employee stock options equals or exceeds the market price of the underlying
stock on the date of grant, no compensation expense is recognized.
The Company has adopted the disclosure only provisions of Statement of
Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock Based
Compensation." Accordingly, no compensation expense has been recognized for
either stock plan. Had the valuation methods under
F-14
ARGOSY GAMING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
11. STOCK OPTION PLANS (CONTINUED)
SFAS 123 been used for the Company's stock option grants, the fiscal 1998 pro
forma net income attributable to common shareholders would have been $5,579 and
the pro forma income per share would have been $0.23. The fair value of each
option was estimated on the date of grant using the Black-Scholes option pricing
model with the following assumptions: dividend yield of zero; expected
volatility 52.7%; risk-free interest rate of 6% and expected option life of
three years. The fiscal 1997 pro forma net loss would have been $40,336 and the
pro forma loss per share would have been $1.66. The fair value of each option
was estimated on the date of grant using the Black-Scholes option pricing model
with the following assumptions: dividend yield of zero; expected volatility
36.5%; risk-free interest rate of 6% and expected option life of five years.
There was no pro forma compensation expense in 1996. These pro forma amounts may
not be representative of future disclosures because the estimated fair value of
the options is amortized to expense over the vesting period and additional
options may be granted in the future.
A summary of stock option activity is as follows:
STOCK OPTION PLAN DIRECTORS OPTION PLAN
----------------------------- -------------------------------
EXERCISE PRICE EXERCISE PRICE
SHARES PER SHARE SHARES PER SHARE
---------- ----------------- --------- --------------------
Outstanding, December 31, 1995................... 2,415,253 $16.75 - $19.38 21,000 $ 11.50 - $19.00
Forfeited........................................ (10,000) 16.75 -- --
---------- ----------------- --------- --------------------
Outstanding, December 31, 1996................... 2,405,253 16.75 - 19.38 21,000 11.50 - 19.00
Granted.......................................... 406,000 3.13 - 3.44
Forfeited........................................ (744,343) 16.75 - 19.38 -- --
---------- ----------------- --------- --------------------
Outstanding, December 31, 1997................... 2,066,910 3.13 - 19.38 21,000 11.50 - 19.00
Exchange of options.............................. (467,849) 4.25 - 19.38 -- --
Granted.......................................... 232,156 3.31 - 3.44 -- --
Forfeited........................................ (239,038) 4.25 - 19.38 (15,000) 19.00
---------- ----------------- --------- --------------------
Outstanding, December 31, 1998................... 1,592,179 $ 3.13 - $16.75 6,000 $ 11.50
---------- ----------------- --------- --------------------
---------- ----------------- --------- --------------------
12. RESTRICTED STOCK
The Company issued 165,000 shares of restricted common stock to certain new
employees in 1997. The value of these shares at their respective grant dates
ranged from $3.13 to $3.63. In 1998, 66,000 shares of the restricted stock
vested, and in 2000, 99,000 shares will vest.
Compensation expense of $566 is being amortized over the period from the
date of grant until the respective vesting dates. Compensation expense of $239
and $175 was recognized in 1998 and 1997, respectively.
F-15
ARGOSY GAMING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
13. EMPLOYEES BENEFIT PLAN
The Company established a 401(k) defined-contribution plan which covers
substantially all of its full-time employees. Participants can contribute a
portion of their eligible salaries (as defined) subject to maximum limits, as
determined by provisions of the Internal Revenue Code. The Company will match a
portion of participants' contributions in an amount determined annually by the
Company. Expense recognized under the Plan was approximately $1,134, $2,168 and
$1,546 in 1998, 1997 and 1996, respectively.
14. SUBSIDIARY GUARANTORS
On June 5, 1996, the Company issued the Mortgage Notes in a private
placement transaction. In October 1996, the Company exchanged all of the
outstanding privately placed Mortgage Notes for a like amount of identical
Mortgage Notes registered with the Securities and Exchange Commission. The
Mortgage Notes rank senior in right of payment to all existing and future
indebtedness of the Company.
The Mortgage Notes are unconditionally guaranteed, on a joint and several
basis, by the following wholly owned subsidiaries of the Company: Alton Gaming
Company; The Missouri Gaming Company; The St. Louis Gaming Company; Iowa Gaming
Company; Jazz Enterprises, Inc.; Argosy of Louisiana, Inc.; Catfish Queen
Partnership in Commendam; and The Indiana Gaming Company (the "Guarantors"). The
Mortgage Notes are secured, subject to certain prior liens, by a first lien on
(i) substantially all of the assets of the Company including the assets used in
the Company's Alton, Riverside, Baton Rouge and Sioux City operations, (ii) a
pledge of all the capital stock of, and partnership interests in, the Company's
subsidiaries, excluding the Company's partnership interest in its Sioux City
property, (iii) a pledge of the intercompany notes payable to the Company from
its subsidiaries and (iv) an assignment of the proceeds of the management
agreement relating to the Lawrenceburg casino project. The collateral for the
Mortgage Notes does not include assets of the Indiana Partnership.
The following tables present summarized balance sheet information of the
Company as of December 31, 1998 and 1997, and summarized operating statement
information for the years ended December 31, 1998, 1997 and 1996. The column
labeled "Parent Company" represents the holding company for each of the
Company's direct subsidiaries; the column labeled "Guarantors" represents each
of the Company's direct subsidiaries; all of which are wholly owned by the
parent company; and the column labeled "Non-Guarantors" represents the
partnerships which operate the Company's casinos in Sioux City and in
Lawrenceburg. The Company believes that separate financial statements and other
disclosures regarding the Guarantors, except as otherwise required under
Regulation S-X, are not material to investors.
F-16
ARGOSY GAMING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
14. SUBSIDIARY GUARANTORS (CONTINUED)
Summarized balance sheet information as of December 31, 1998 and 1997, is as
follows:
DECEMBER 31, 1998
--------------------------------------------------------------------
PARENT
COMPANY GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ----------- --------------- ------------ ------------
ASSETS:
Current assets........................... $ 55,896 $ 22,236 $ 29,585 $ (8,461) $ 99,256
Non-current assets....................... 347,441 360,354 227,439 (471,738) 463,496
---------- ----------- --------------- ------------ ------------
$ 403,337 $ 382,590 $ 257,024 $ (480,199) $ 562,752
---------- ----------- --------------- ------------ ------------
---------- ----------- --------------- ------------ ------------
LIABILITIES AND EQUITY:
Current liabilities...................... $ 7,134 $ 47,507 $ 59,116 $ (42,372) $ 71,385
Non-current liabilities.................. 350,000 269,878 111,208 (285,922) 445,164
Convertible preferred stock.............. 5,340 -- -- -- 5,340
Stockholders' equity..................... 40,863 65,205 86,700 (151,905) 40,863
---------- ----------- --------------- ------------ ------------
$ 403,337 $ 382,590 $ 257,024 $ (480,199) $ 562,752
---------- ----------- --------------- ------------ ------------
---------- ----------- --------------- ------------ ------------
DECEMBER 31, 1997
--------------------------------------------------------------------
PARENT
COMPANY GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ----------- --------------- ------------ ------------
ASSETS:
Current assets........................... $ 10,106 $ 27,874 $ 44,581 $ (12,578) $ 69,983
Non-current assets....................... 381,368 387,009 222,577 (501,081) 489,873
---------- ----------- --------------- ------------ ------------
$ 391,474 $ 414,883 $ 267,158 $ (513,659) $ 559,856
---------- ----------- --------------- ------------ ------------
---------- ----------- --------------- ------------ ------------
LIABILITIES AND EQUITY:
Current liabilities...................... $ 8,811 $ 20,595 $ 57,088 $ (17,495) $ 68,999
Non-current liabilities.................. 350,000 348,504 169,605 (409,915) 458,194
Stockholders' equity..................... 32,663 45,784 40,465 (86,249) 32,663
---------- ----------- --------------- ------------ ------------
$ 391,474 $ 414,883 $ 267,158 $ (513,659) $ 559,856
---------- ----------- --------------- ------------ ------------
---------- ----------- --------------- ------------ ------------
F-17
ARGOSY GAMING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
14. SUBSIDIARY GUARANTORS (CONTINUED)
Summarized operating statement information for the years ended December 31,
1998, 1997 and 1996, is as follows:
YEAR ENDED DECEMBER 31, 1998
--------------------------------------------------------------------
PARENT
COMPANY GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ----------- --------------- ------------ ------------
Net revenues................................ $ 1,988 $ 230,867 $ 308,246 $ (34,433) $ 506,668
Costs and expenses.......................... 9,984 183,735 227,451 (2,313) 418,857
Net interest (expense) income............... (38,356) 4,067 (18,957) (659) (53,905)
Net income (loss) attributable to common
stockholders.............................. 5,741 27,832 56,285 (84,117) 5,741
YEAR ENDED DECEMBER 31, 1997
--------------------------------------------------------------------
PARENT
COMPANY GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ----------- --------------- ------------ ------------
Net revenues................................ $ 5,795 $ 189,388 $ 158,696 $ (9,796) $ 344,083
Costs and expenses.......................... 23,630 184,818 136,039 (6,934) 337,553
Net interest (expense) income............... (32,145) 2,366 (6,616) (4,784) (41,179)
Net (loss) income........................... (40,213) 8,696 10,599 (19,295) (40,213)
YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------------------------
PARENT
COMPANY GUARANTORS NON-GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ----------- --------------- ------------ ------------
Net revenues................................ $ 4,875 $ 211,319 $ 24,299 $ 4,324 $ 244,817
Costs and expenses.......................... 16,043 209,955 35,552 (5,982) 255,568
Net interest expense........................ (22,177) (7,176) (738) (516) (30,607)
Net (loss) income........................... (24,839) (2,297) (15,718) 18,015 (24,839)
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments at December
31, 1998, are as follows:
CARRYING
AMOUNT FAIR VALUE
---------- ----------
Cash and cash equivalents............................................. $ 89,857 $ 89,857
First mortgage notes.................................................. 235,000 258,794
Convertible subordinated notes........................................ 115,000 113,131
Other long-term debt.................................................. 74,000 74,000
The fair value of the first mortgage notes and the convertible subordinated
notes are based on quoted market prices. The Company estimates that the fair
value of the remainder of the Company's long-term debt approximates carrying
value.
F-18
ARGOSY GAMING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
16. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
FIRST SECOND THIRD FOURTH
---------- ---------- ---------- ----------
1998:
Net revenues..................................................... $ 115,700 $ 124,457 $ 133,533 $ 132,978
Income from operations........................................... 15,651 19,390 25,697 27,073
Other expense, net............................................... 13,482 13,363 13,694 13,366
Net income (loss) attributable to common stockholders............ (2,537) 244 4,016 4,018
Net income (loss) per share
Basic.......................................................... (0.10) 0.01 0.17 0.16
Diluted........................................................ (0.10) 0.01 0.15 0.14
FIRST SECOND THIRD FOURTH
---------- ---------- ---------- ----------
1997:
Net revenues..................................................... $ 82,495 $ 87,509 $ 82,351 $ 91,728
Income (loss) from operations (a)................................ 1,961 7,106 933 (3,470)
Other expense, net............................................... 10,460 9,920 9,778 11,021
Net loss......................................................... (9,017) (4,265) (9,623) (17,308)
Basic and diluted net loss per share............................. (0.37) (0.17) (0.39) (0.71)
- ------------------------
(a) Income from operations includes a charge of $1,750 related to severance
expense for the first quarter of 1997 and a charge of $9,600 for a
write-down of assets held for sale in the fourth quarter of 1997.
17. COMMITMENTS AND CONTINGENT LIABILITIES
LAWRENCEBURG, INDIANA--Under terms of the Lawrenceburg partnership
agreement, after December 10, 1999, each limited partner has the right to sell
its interest to the other partners (pro rata in accordance with their respective
percentage interests). In the event of this occurrence, if the partners cannot
agree on a selling price, the Indiana Partnership will be sold in its entirety.
OTHER--A predecessor entity to the Company ("Predecessor"), as a result of a
certain shareholder loan transaction, could be subject to federal and certain
state income taxes (plus interest and penalties, if any) if it is determined
that it failed to satisfy all of the requirements of the S-Corporation
provisions of the Internal Revenue Code relating to the prohibition concerning a
second class of stock.
An audit is currently being conducted by the Internal Revenue Service
("IRS") of the Company's federal income tax returns for the 1992 and 1993 tax
years and the IRS has identified the S-Corporation status as one of the issues,
although the IRS has yet to make a formal claim of deficiency. If the IRS
successfully challenges the Predecessor's S-Corporation status, the Company
would be required to pay federal and certain state income taxes on the
Predecessor's taxable income from the commencement of its operations until
February 25, 1993 (plus interest and penalties, if any, thereon until the date
of payment). If the Predecessor was required to pay federal and state income
taxes on its taxable earnings through February 25, 1993, such payments could
amount to approximately $13.5 million, including interest through December 31,
1998, but excluding penalties, if any. While the Company believes the
Predecessor has legal authority for its position that it is not subject to
federal
F-19
ARGOSY GAMING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
17. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
and certain state income taxes because it met the S-Corporation requirements, no
assurances can be given that the Predecessor's position will be upheld. This
contingent liability could have a material adverse effect on the Company's
results of operations, financial condition and cash flows. No provision has been
made for this contingency in the accompanying consolidated financial statements.
The Company is subject, from time to time, to various legal and regulatory
proceedings, in the ordinary course of business. The Company believes that
current proceedings will not have a material effect on the financial condition
of the Company.
F-20
ARGOSY GAMING COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
DECEMBER 31,
1998
MARCH 31, ------------
1999
-----------
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents........................................................... $ 105,936 $ 89,857
Other current assets................................................................ 9,165 9,399
----------- ------------
Total current assets.............................................................. 115,101 99,256
----------- ------------
NET PROPERTY AND EQUIPMENT............................................................ 392,106 395,920
----------- ------------
OTHER ASSETS:
Goodwill and other intangible assets, net........................................... 51,319 51,817
Other, net.......................................................................... 15,280 15,759
----------- ------------
Total other assets................................................................ 66,599 67,576
----------- ------------
TOTAL ASSETS.......................................................................... $ 573,806 $ 562,752
----------- ------------
----------- ------------
CURRENT LIABILITIES:
Accounts payable and accrued liabilities............................................ $ 66,819 $ 57,130
Other current liabilities........................................................... 13,342 14,255
----------- ------------
Total current liabilities......................................................... 80,161 71,385
----------- ------------
LONG-TERM DEBT........................................................................ 407,789 412,360
OTHER LONG-TERM OBLIGATIONS........................................................... 2,148 2,144
MINORITY INTERESTS IN EQUITY OF CONSOLIDATED SUBSIDIARIES............................. 34,518 30,660
SERIES A CONVERTIBLE PREFERRED STOCK, $.01 PAR VALUE 10,000,000 SHARES AUTHORIZED, 547
SHARES ISSUED AND OUTSTANDING AT DECEMBER 31, 1998.................................. -- 5,340
STOCKHOLDERS' EQUITY:
Common stock, $.01 par; 60,000,000 shares authorized; 28,140,326 shares issued and
outstanding at March 31, 1999; 25,830,313 shares issued and outstanding at
December 31, 1998................................................................. 281 258
Capital in excess of par............................................................ 79,894 74,484
Retained deficit.................................................................... (30,985) (33,879)
----------- ------------
Total stockholders' equity........................................................ 49,190 40,863
----------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............................................ $ 573,806 $ 562,752
----------- ------------
----------- ------------
See accompanying notes to condensed consolidated financial statements.
F-21
ARGOSY GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
THREE MONTHS ENDED
------------------------
MARCH 31, MARCH 31,
1999 1998
----------- -----------
(UNAUDITED)
REVENUES:
Casino................................................................................ $ 129,128 $ 108,323
Admissions............................................................................ 4,278 3,191
Food, beverage and other.............................................................. 13,593 11,133
----------- -----------
146,999 122,647
Less promotional allowances........................................................... (9,608) (6,947)
----------- -----------
Net revenues............................................................................ 137,391 115,700
----------- -----------
COSTS AND EXPENSES:
Casino................................................................................ 59,450 52,623
Food, beverage and other.............................................................. 9,637 9,349
Other operating expenses.............................................................. 6,588 6,618
Selling, general and administrative................................................... 28,652 23,393
Depreciation and amortization......................................................... 8,473 8,066
----------- -----------
112,800 100,049
----------- -----------
Income from operations.................................................................. 24,591 15,651
----------- -----------
OTHER INCOME (EXPENSE):
Interest income....................................................................... 907 810
Interest expense...................................................................... (14,134) (14,292)
----------- -----------
(13,227) (13,482)
----------- -----------
Income before income taxes and minority interests....................................... 11,364 2,169
Minority interests...................................................................... (7,843) (4,606)
Income tax expense...................................................................... (600) (100)
----------- -----------
Net income (loss)....................................................................... 2,921 (2,537)
Preferred stock dividends and accretion................................................. (27) --
----------- -----------
Net income (loss) attributable to common stockholders................................... $ 2,894 $ (2,537)
----------- -----------
----------- -----------
Basic income (loss) per share........................................................... $ 0.11 $ (0.10)
----------- -----------
----------- -----------
Diluted income (loss) per share......................................................... $ 0.10 $ (0.10)
----------- -----------
----------- -----------
See accompanying notes to condensed consolidated financial statements.
F-22
ARGOSY GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
CAPITAL IN TOTAL
COMMON EXCESS OF RETAINED STOCKHOLDERS'
SHARES STOCK PAR DEFICIT EQUITY
------------ ----------- ----------- ---------- ------------
Balance, December 31, 1998......................... 25,830,313 $ 258 $ 74,484 $ (33,879) $ 40,863
Restricted Stock compensation expense............ -- -- 66 -- 66
Preferred Stock conversion....................... 2,310,013 23 5,344 -- 5,367
Net income for the three months ended March 31,
1999........................................... -- -- -- 2,921 2,921
Preferred Stock dividends and accretion.......... -- -- -- (27) (27)
------------ ----- ----------- ---------- ------------
Balance, March 31, 1999............................ 28,140,326 $ 281 $ 79,894 $ (30,985) $ 49,190
------------ ----- ----------- ---------- ------------
------------ ----- ----------- ---------- ------------
See accompanying notes to condensed consolidated financial statements.
F-23
ARGOSY GAMING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
THREE MONTHS ENDED
-----------------------
MARCH 31, MARCH 31,
1999 1998
---------- -----------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)....................................................................... $ 2,921 $ (2,537)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation............................................................................ 7,948 7,438
Amortization............................................................................ 1,038 1,075
Compensation expense recognized on issuance of stock.................................... 66 66
Minority interests...................................................................... 7,843 4,606
Changes in operating assets and liabilities:
Other current assets.................................................................... 173 229
Accounts payable and other current liabilities.......................................... 10,248 10,589
---------- -----------
Net cash provided by operating activities............................................. 30,237 21,466
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment..................................................... (4,130) (15,107)
Decrease in restricted cash held by trustees............................................ -- 8,142
Decrease in long term obligations....................................................... -- (1,247)
---------- -----------
Net cash used in investing activities................................................. (4,130) (8,212)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt and installment contracts.................................... (2,113) (1,282)
Repayment of partner loans.............................................................. (3,368) (5,236)
Partnership equity distributions........................................................ (3,424) (1,714)
Payment of preferred equity return to partner........................................... (1,123) (75)
---------- -----------
Net cash used in financing activities................................................. (10,028) (8,307)
---------- -----------
Net increase in cash and cash equivalents................................................. 16,079 4,947
Cash and cash equivalents, beginning of period............................................ 89,857 59,354
---------- -----------
Cash and cash equivalents, end of period.................................................. $ 105,936 $ 64,301
---------- -----------
---------- -----------
See accompanying notes to condensed consolidated financial statements.
F-24
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. BASIS OF PRESENTATION
Argosy Gaming Company (collectively with its subsidiaries, "Argosy" or
"Company") is engaged in the business of providing casino style gaming and
related entertainment to the public and, through its subsidiaries or joint
ventures, operates riverboat casinos in Alton, Illinois; Lawrenceburg, Indiana;
Riverside, Missouri; Baton Rouge, Louisiana; and Sioux City, Iowa. Indiana
Gaming Company, L.P., ("Indiana Partnership") is a limited partnership which
owns the casino in Lawrenceburg, Indiana. The Company is the sole general
partner, holds a 57.5% interest and manages the Indiana Partnership.
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. Interim results may not necessarily be indicative of
results which may be expected for any other interim period or for the year as a
whole. For further information, refer to the financial statements and footnotes
thereto for the year ended December 31, 1998, included in the Company's Annual
Report on Form 10-K (File No. 1-11853). The accompanying unaudited condensed
consolidated financial statements contain all adjustments which are, in the
opinion of management, necessary to present fairly the financial position and
the results of operations for the periods indicated. Such adjustments include
only normal recurring accruals. Certain 1998 amounts have been reclassified to
conform to the 1999 financial statement presentation.
As of March 31, 1999 the Company is in a net operating loss position and,
therefore, has recorded a valuation allowance of $11,500 against its deferred
tax assets.
F-25
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
2. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings
per share:
THREE MONTHS ENDED
----------------------------
MARCH 31, MARCH 31,
1999 1998
------------- -------------
(UNAUDITED)
NUMERATOR:
Net income (loss).............................................. $ 2,921 $ (2,537)
Preferred stock dividends and accretion........................ (27) --
------------- -------------
Numerator for basic earnings per share--
Income (loss) attributable to common shareholders............ 2,894 (2,537)
Effect of dilutive securities:
Preferred stock dividends.................................... 27 --
------------- -------------
Numerator for diluted earnings per share--
Income (loss) available to common stockholders after assumed
conversions................................................ $ 2,921 $ (2,537)
DENOMINATOR:
Denominator for basic earnings per share--weighted-average
shares outstanding........................................... 27,114,690 24,333,333
Effect of dilutive securities:
Restricted stock............................................. 68,558 --
Employee stock options....................................... 119,470 --
Preferred stock.............................................. 1,046,624 --
Warrants..................................................... 12,987 --
------------- -------------
Dilutive potential common shares............................... 1,247,639 --
Denominator for diluted earnings per share--adjusted
Weighted-average shares and assumed conversions.............. 28,362,329 24,333,333
------------- -------------
------------- -------------
Basic earnings (loss) per share................................ $ 0.11 $ (0.10)
------------- -------------
------------- -------------
Diluted earnings (loss) per share.............................. $ 0.10 $ (0.10)
------------- -------------
------------- -------------
Additional employee and directors stock options to purchase 852,024 shares
of common stock at prices ranging from $4.25 to $16.75 were not included in the
computation of diluted earnings per share because the options exercise price was
greater than the average market price of the common shares and, therefore, the
effect would be anti-dilutive.
12% Convertible Debentures (convertible into 6,497,175 shares of common
stock at $17.70 per share) were outstanding at March 31, 1999 but were not
included in the computation of diluted earnings per share as the net interest
expense per common share obtainable on conversion exceeded basic earnings per
share, thus the effect would be anti-dilutive.
F-26
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
3. CONVERTIBLE PREFERRED STOCK AND WARRANTS
On June 16, 1998, the Company issued $8,000 of Series A Convertible
Preferred Stock ("Preferred Shares"), together with warrants to purchase an
additional 292,612 shares of Common Stock at $3.89 per share. The Preferred
Shares mature in 2005, and the Company had the right to force conversion and/or
redemption at maturity. A portion of the proceeds was allocated to the warrants
and this discount was to be accreted over seven years. The warrants expire in
2003.
The Preferred Shares provided for a 4% dividend per annum, payable in cash
and/or in kind, at the time of conversion or maturity, at the Company's option.
The Preferred Shares were convertible at the lower of the fixed initial
strike price ($3.89 per share) or a floating price. The floating price is based
on the market price of the Company's common stock. The warrants may be exercised
at the fixed strike price subject to the same adjustment provisions.
Through March 31, 1999, all 800 Preferred Shares had been converted into
3,641,993 shares of common stock. As of March 31, 1999 no warrants had yet been
converted.
4. COMMITMENTS AND CONTINGENT LIABILITIES
LAWRENCEBURG, INDIANA--Under terms of the Lawrenceburg partnership
agreement, after December 10, 1999, each limited partner has the right to sell
its interest to the other partners (pro rata in accordance with their respective
percentage interests). In the event of this occurrence, if the partners cannot
agree on a selling price, the Indiana Partnership will be sold in its entirety.
OTHER--A predecessor entity to the Company ("Predecessor"), as a result of a
certain shareholder loan transaction, could be subject to federal and certain
state income taxes (plus interest and penalties, if any) if it is determined
that it failed to satisfy all of the requirements of the S-Corporation
provisions of the Internal Revenue Code ("Code") relating to the prohibition
concerning a second class of stock.
An audit is currently being conducted by the Internal Revenue Service
("IRS") of the Company's federal income tax returns for the 1992 and 1993 tax
years and the IRS has identified the S-Corporation status as one of the issues,
although the IRS has yet to make a formal claim of deficiency. If the IRS
successfully challenges the Predecessor's S-Corporation status, the Company
would be required to pay federal and certain state income taxes on the
Predecessor's taxable income from the commencement of its operations until
February 25, 1993 (plus interest and penalties, if any, thereon until the date
of payment). If the Predecessor was required to pay federal and state income
taxes on its taxable earnings through February 25, 1993, such payments could
amount to approximately $13,800, including interest through March 31, 1999, but
excluding penalties, if any. While the Company believes the Predecessor has
legal authority for its position that it is not subject to federal and certain
state income taxes because it met the S-Corporation requirements, no assurances
can be given that the Predecessor's position will be upheld. No provision has
been made for this contingency in the accompanying condensed consolidated
financial statements.
The Company is subject, from time to time, to various legal and regulatory
proceedings, in the ordinary course of business. The Company believes that
current proceedings will not have a material effect on the financial condition
of the Company.
F-27
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
5. SUBSIDIARY GUARANTORS
The Company has issued $235 million First Mortgage Notes, due 2004,
("Mortgage Notes"). The Mortgage Notes rank senior in right of payment to all
existing and future indebtedness of the Company.
The Mortgage Notes are unconditionally guaranteed, on a joint and several
basis, by the following wholly-owned subsidiaries of the Company: Alton Gaming
Company, The Missouri Gaming Company, The St. Louis Gaming Company, Iowa Gaming
Company, Jazz Enterprises, Inc., Argosy of Louisiana, Inc., Catfish Queen
Partnership in Commendam and The Indiana Gaming Company (the "Guarantors"). The
Mortgage Notes are secured, subject to certain prior liens, by a first lien on
(i) substantially all of the assets of the Company including the assets used in
the Company's Alton, Riverside, Baton Rouge and Sioux City operations, (ii) a
pledge of all the capital stock of, and partnership interests in, the Company's
subsidiaries, excluding the Company's partnership interest in its Sioux City
property, (iii) a pledge of the intercompany notes payable to the Company from
its subsidiaries and (iv) an assignment of the proceeds of the management
agreement relating to the Lawrenceburg Casino project. The collateral for the
Mortgage Notes does not include assets of the Indiana Partnership.
The following tables present summarized balance sheet information of the
Company as of March 31, 1999 and December 31, 1998 and summarized operating
statement information for the three months ended March 31, 1999 and 1998. The
column labeled "Parent Company" represents the holding company for each of the
Company's direct subsidiaries, the column labeled "Guarantors" represents each
of the Company's direct subsidiaries, all of which are wholly-owned by the
parent company, and the column labeled "Non-Guarantors" represents the
partnerships which operate the Company's casinos in Sioux City, Iowa and
Lawrenceburg, Indiana. The Company believes that separate financial statements
and other disclosures regarding the Guarantors, except as otherwise required
under Regulation S-X, are not material to investors.
F-28
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Summarized balance sheet information as of March 31, 1999 and December 31,
1998 is as follows:
MARCH 31, 1999
----------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ----------- ----------- ------------ ------------
ASSETS:
Current assets............................... $ 70,314 $ 29,315 $ 24,222 $ (8,750) $ 115,101
Non-current assets........................... 350,029 374,589 225,748 (491,661) 458,705
---------- ----------- ----------- ------------ ------------
$ 420,343 $ 403,904 $ 249,970 $ (500,411) $ 573,806
---------- ----------- ----------- ------------ ------------
---------- ----------- ----------- ------------ ------------
LIABILITIES AND EQUITY:
Current liabilities.......................... $ 21,179 $ 68,096 $ 51,599 $ (60,713) $ 80,161
Non-current liabilities...................... 349,974 256,203 102,449 (264,171) 444,455
Stockholders' equity......................... 49,190 79,605 95,922 (175,527) 49,190
---------- ----------- ----------- ------------ ------------
$ 420,343 $ 403,904 $ 249,970 $ (500,411) $ 573,806
---------- ----------- ----------- ------------ ------------
---------- ----------- ----------- ------------ ------------
DECEMBER 31, 1998
----------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
---------- ----------- ----------- ------------ ------------
ASSETS:
Current assets............................... $ 55,896 $ 22,236 $ 29,585 $ (8,461) $ 99,256
Non-current assets........................... 347,441 360,354 227,439 (471,738) 463,496
---------- ----------- ----------- ------------ ------------
$ 403,337 $ 382,590 $ 257,024 $ (480,199) $ 562,752
---------- ----------- ----------- ------------ ------------
---------- ----------- ----------- ------------ ------------
LIABILITIES AND EQUITY:
Current liabilities.......................... $ 7,134 $ 47,507 $ 59,116 $ (42,372) $ 71,385
Non-current liabilities...................... 350,000 269,878 111,208 (285,922) 445,164
Convertible preferred stock.................. 5,340 -- -- -- 5,340
Stockholders' equity......................... 40,863 65,205 86,700 (151,905) 40,863
---------- ----------- ----------- ------------ ------------
$ 403,337 $ 382,590 $ 257,024 $ (480,199) $ 562,752
---------- ----------- ----------- ------------ ------------
---------- ----------- ----------- ------------ ------------
F-29
ARGOSY GAMING COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
Summarized operating statement information for the three months ended March
31, 1999 and 1998 is as follows:
THREE MONTHS ENDED MARCH 31, 1999
-----------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ----------- ----------- ------------ ------------
Net revenues..................................... $ 665 $ 62,552 $ 84,837 $ (10,663) $ 137,391
Costs and expenses............................... 5,025 46,600 62,041 (866) 112,800
Net interest expense (income).................... 9,738 (704) 4,193 -- 13,227
Net (loss) income................................ 2,894 9,767 17,278 (27,045) 2,894
THREE MONTHS ENDED MARCH 31, 1998
-----------------------------------------------------------------
PARENT NON-
COMPANY GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED
----------- ----------- ----------- ------------ ------------
Net revenues..................................... $ 167 $ 55,620 $ 65,228 $ (5,315) $ 115,700
Costs and expenses............................... 2,873 48,444 49,505 (773) 100,049
Net interest expense (income).................... 9,536 (1,305) 4,900 351 13,482
Net (loss) income................................ (2,537) 4,547 9,421 (13,968) (2,537)
F-30
ARGOSY GAMING COMPANY
OFFER TO EXCHANGE ALL OUTSTANDING 10 3/4% SENIOR SUBORDINATED NOTES DUE 2009
($200,000,000 PRINCIPAL AMOUNT)
FOR
REGISTERED 10 3/4% SENIOR SUBORDINATED NOTES DUE 2009
($200,000,000 PRINCIPAL AMOUNT)
PROSPECTUS
WE HAVE NOT AUTHORIZED ANY PERSON TO GIVE YOU ANY INFORMATION OR REPRESENT
ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST NOT RELY ON UNAUTHORIZED
INFORMATION. THIS PROSPECTUS DOES NOT OFFER TO SELL OR BUY ANY SECURITIES IN ANY
JURISDICTION WHERE IT IS UNLAWFUL. THE INFORMATION IN THIS PROSPECTUS IS CURRENT
AS OF JULY 22, 1999. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN
THIS PROSPECTUS IS ACCURATE AS OF ANY OTHER DATE.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law ("Delaware GCL")
empowers a corporation subject to certain limitations, to indemnify its
directors and officers against expenses (including attorneys' fees, judgments,
fines and certain settlements) actually and reasonably incurred by them in
connection with any suit or proceeding to which they are a party so long as they
acted in good faith and in a manner reasonably to be in or not opposed to the
best interests of the corporation, and, with respect to a criminal action or
proceeding, so long as they had no reasonable cause to believe their conduct to
have been unlawful. The Registrant's Certificate of Incorporation and By-laws
provide that the Registrant shall indemnify its directs and such of its
officers, employees and agents as the Board of Directs may determine from time
to time, to the fullest extent permitted by Section 145 of the Delaware GCL:
Section 102 of the Delaware GCL permits a Delaware corporation to include in
its certificate of incorporation a provision eliminating or limiting a
director's liability to a corporation or its stockholders for monetary damages
for breaches of fiduciary duty. The enabling statute provides, however, that
liability for breaches of the duty of loyalty, acts or omissions not in good
faith or involving intentional misconduct, or knowing violation of the law, and
the unlawful purchase or redemption of stock or payment of unlawful dividends or
the receipt of improper personal benefits cannot be eliminated or limited in
this manner. The Registrant's Certificate of Incorporation and By-laws include a
provision which eliminates, to the fullest extent permitted, director liability
for monetary damages for breaches of fiduciary duty.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION
- --------- -----------------------------------------------------------------------
3.1 Amended and Restated Certificate of Incorporation of the Company
(previously filed with the Securities and Exchange Commission ("SEC")
as an Exhibit to the Company's Registration Statement on Form S-1
(File No. 33-55878) and incorporated herein by reference).
3.2 Amended and Restated By-laws of the Company (previously filed with the
SEC as an Exhibit to the Company's Registration Statement on Form S-1
(File No. 33-55878) and incorporated herein by reference).
4.1 Form of the Company's 13 1/4% First Mortgage Notes due 2004 issued on
June 5, 1996 in the aggregate principal amount of $235,000,000
(previously filed with the SEC as an Exhibit to the Company's
Registration Statement on Form S-4 (File No. 333-7299) and
incorporated herein by reference).
4.2 Indenture dated as of June 5, 1996, by and among the Company, First
National Bank of Commerce, as Trustee, and the Guarantors named
therein, for the Company's $235,000,000 of 13 1/4% First Mortgage
Notes due 2004 (previously filed with the SEC as an Exhibit to the
Company's Registration Statement on Form S-4 (File No. 333-7299) and
incorporated herein by reference).
4.3 First Supplemental Indenture dated as of May 18, 1999, with respect to
the Indenture dated as of June 5, 1996, by and among the Company,
Bank One Trust Company, NA (as successor in interest to First
National Bank of Commerce), as Trustee, and
II-1
EXHIBIT
NUMBER DESCRIPTION
- --------- -----------------------------------------------------------------------
the Guarantors named therein, for the Company's 13 1/4% First
Mortgage Notes due 2004.
4.4 Specimen Common Stock Certificate (previously filed with the SEC as an
Exhibit to the Company's Registration Statement on Form S-1 (File No.
33-55878) and incorporated herein by reference).
4.5 Indenture dated as of June 8, 1999 by and among the Company, Bank One
Trust Company, as Trustee, and the Subsidiary Guarantors named
therein, for the Company's 10 3/4% Senior Subordinated Notes due
2009.
4.6 Form of the Company's 10 3/4% Senior Subordinated Notes due 2009 issued
on June 8, 1999 in the aggregate principal amount of $200,000,000
(included in Exhibit 4.22).
4.7 Registration Rights Agreement dated as of June 8, 1999 by and among the
Company, the Subsidiary Guarantors named therein and the Placement
Agents named therein.
4.8 Form of Exchange Agent Agreement between the Company and Bank One Trust
Company, NA.
5 Legal Opinion of Winston & Strawn regarding the validity of the
issuance of the 10 3/4% Senior Subordinated Notes due 2009.
9.1 Pratt Voting Trust Agreement dated as of May 5, 1992 by and between
John Biggs Pratt, Sr. and Stephanie Pratt (previously filed with the
SEC as an Exhibit to the Company's Registration Statement on Form S-1
(File No. 33-55878) and incorporated herein by reference).
10.1 Bond and Easement Agreement dated as of April 18, 1991 by and between
the Alton Riverboat Gambling Partnership and the City of Alton,
Illinois (previously filed with the SEC as an Exhibit to the
Company's Registration Statement on Form S-1 (File No. 33-55878) and
incorporated herein by reference).
10.2 Stock Option Plan (previously filed with the SEC as an Exhibit to the
Company's Registration Statement on Form S-1 (File No. 33-55878) and
incorporated herein by reference).
10.3 Form of Indemnification Agreement (previously filed with the SEC as an
Exhibit to the Company's Registration Statement on Form S-1 (File No.
33-55878) and incorporated herein by reference).
10.4 Director Option Plan (previously filed with the SEC as an Exhibit to
the Company's Registration Statement on Form S-1 (File No. 33-55878)
and incorporated herein by reference).
10.5 Employment Agreement between the Company and Virginia M. McDowell
(previously filed with the SEC as an Exhibit to the Company's Form
10-K for the year ended December 31, 1997 and incorporated herein by
reference).
10.6 Letter Agreement dated as of January 2, 1993 by and between L. Thomas
Lakin and the Alton Riverboat Gambling Partnership (previously filed
with the SEC as an Exhibit to the Company's Registration Statement on
Form S-1 (File No. 33-55878) and incorporated herein by reference).
10.7 Letter Agreement dated March 29, 1995 by and between Floyd C. Warmann
and the Company (previously filed with the SEC as an exhibit to the
Company's Form 10-K
II-2
EXHIBIT
NUMBER DESCRIPTION
- --------- -----------------------------------------------------------------------
for the year ended December 31, 1994 dated March 31, 1995 and
incorporated herein by reference).
10.8 Agreement to Purchase Stock dated January 30, 1995 by and among the
Company, Jazz Enterprises, Inc. and the signatory shareholders of
Jazz Enterprises, Inc. (previously filed with the SEC as an exhibit
to the Company's Form 10-K for the year ended December 31, 1994 and
incorporated herein by reference).
10.9 Contract dated June 7, 1993 by and among the City of Riverside,
Missouri, The Missouri Gaming Company and the Company, together with
amendments thereto (previously filed with the SEC as an Exhibit to
the Company's Form 8-K dated March 10, 1994 and incorporated herein
by reference).
10.10 Second Amended and Restated Agreement of Limited Partnership dated
February 21, 1996 of Indiana Gaming Company, L.P. (previously filed
with the SEC as an Exhibit to the Company's Form 10-K for the year
ended December 31, 1995 and incorporated herein by reference).
10.11 Management Agreement dated April 11, 1994 by and between Indiana Gaming
Company L.P. and The Indiana Gaming Company as amended by Amendment
No. 1 to Management Agreement dated February 21, 1996 (previously
filed with the SEC as an Exhibit to the Company's Form 10-K for the
year ended December 31, 1995 and incorporated herein by reference).
10.12 Affirmation of Limited Parent Guaranty of Argosy Gaming Company in
favor of the partners of Indiana Gaming Company, L.P. dated February
21, 1996 (previously filed with the SEC as an Exhibit to the
Company's Form 10-K for the year ended December 31, 1995 and
incorporated herein by reference).
10.13 Riverboat Gaming Development Agreement between the City of
Lawrenceburg, Indiana and Indiana Gaming Company L.P. dated as of
April 13, 1994 as amended by Amendment Number One to Riverboat
Development Agreement between the City of Lawrenceburg, Indiana and
Indiana Gaming Company L.P. dated as of December 28, 1995 (previously
filed with the SEC as an Exhibit to the Company's Form 10-K for the
year ended December 31, 1995 and incorporated herein by reference).
10.14 Guaranty of Development Agreement dated as of April 13, 1994 by the
Company in favor of the City of Lawrenceburg (previously filed with
the SEC as an Exhibit to the Company's Form 10-K for the year ended
December 31, 1995 and incorporated herein by reference.)
10.15 Form of Surety Bond and Guaranty, dated December 17, 1996, issued to
the Indiana Gaming Commission, as obligee with USF&G, as surety.
(previously filed with the SEC as an Exhibit to the Company's Form
10-K for the year ended December 31, 1996 and incorporated herein by
reference).
10.16 Employment Agreement between the Company and James B. Perry dated as of
April 22, 1999.
10.17 Employment Agreement between the Company and James G. Gulbrandsen.
(previously filed with the SEC as an Exhibit to the Company's Form
10-K for the year ended December 31, 1997 and incorporated herein by
reference).
II-3
EXHIBIT
NUMBER DESCRIPTION
- --------- -----------------------------------------------------------------------
10.18 Credit Agreement dated as of June 8, 1999 among the Company, Alton
Gaming Company, Argosy of Louisiana, Inc., Catfish Queen Partnership
in Commendam, The Indiana Gaming Company, Iowa Gaming Company, Jazz
Enterprises, Inc. and The Missouri Gaming Company, as Borrowers, the
Lenders named therein and Wells Fargo Bank, National Association, as
Agent Bank.
12 Computation of Ratio of Earnings to Fixed Charges
21 List of the Company's Subsidiaries (previously filed with the SEC as an
Exhibit to the Company's Form 10-K for the year ended December 31,
1998 and incorporated herein by reference).
23.1 Consent of Independent Auditors
23.2 Consent of Winston & Strawn (included in the opinion filed as Exhibit 5
hereto)
24 Powers of Attorney (included on signature pages of this Registration
Statement on Form S-4).
25 Statement of Eligibility and Qualification on Form T-1 under the Trust
Indenture Act of 1939 of Bank One Trust Company, NA, as Trustee under
the Indenture relating to the 10 3/4% Senior Subordinated Notes due
2009.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Instruction Letter.
(b) Financial Statement Schedules
None.
All schedules are omitted because the required information is not present in
amounts sufficient to require submission of the schedule or because the
information required is included in the financial statements or notes thereto.
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes that, for the purpose of
determining any liability under the Securities Act of 1933, as amended, each
filing of the Registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934 that is incorporated by reference
in this registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to
II-4
a court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired therein, that was not the subject of and included in the
registration statement when it became effective.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned thereunto duly authorized, in the City of Alton, State
of Illinois on July 22, 1999.
ARGOSY GAMING COMPANY
By: /s/ JAMES B. PERRY
-----------------------------------------
James B. Perry
PRESIDENT AND CHIEF EXECUTIVE OFFICER
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints James B. Perry and Dale R. Black as his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all post-effective amendments to the Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto each said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully as to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that each said
attorney-in-fact and agent or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons on the dates and
in the capacities indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
President and Chief
/s/ JAMES B. PERRY Executive Officer
- ------------------------------ (Principal Executive July 22, 1999
James B. Perry Officer)
Vice President and Chief
/s/ DALE R. BLACK Financial Officer
- ------------------------------ (Principal Financial July 22, 1999
Dale R. Black Officer and Principal
Account Officer)
/s/ WILLIAM F. CELLINI
- ------------------------------ Director July 22, 1999
William F. Cellini
/s/ EDWARD F. BRENNAN
- ------------------------------ Director July 22, 1999
Edward F. Brennan
S-1
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ GEORGE L. BRISTOL
- ------------------------------ Director July 22, 1999
George L. Bristol
/s/ F. LANCE CALLIS
- ------------------------------ Director July 22, 1999
F. Lance Callis
/s/ JIMMY F. GALLAGHER
- ------------------------------ Director July 22, 1999
Jimmy F. Gallagher
/s/ WILLIAM J. MCENERY
- ------------------------------ Director July 22, 1999
William J. McEnery
/s/ JOHN B. PRATT, SR.
- ------------------------------ Director July 22, 1999
John B. Pratt, Sr.
S-2
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned thereunto duly authorized, in the City of Alton, State
of Illinois on July 22, 1999.
ALTON GAMING COMPANY
By: /s/ JAMES B. PERRY
-----------------------------------------
James B. Perry
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons on the dates and
in the capacities indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ JAMES B. PERRY President and Sole
- ------------------------------ Director (Principal July 22, 1999
James B. Perry Executive Officer)
Treasurer (Principal
/s/ DALE R. BLACK Financial Officer and
- ------------------------------ Principal Accounting July 22, 1999
Dale R. Black Officer)
S-3
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned thereunto duly authorized, in the City of Alton, State
of Illinois on July 22, 1999.
ARGOSY OF LOUISIANA, INC.
By: /s/ JAMES B. PERRY
-----------------------------------------
James B. Perry
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons on the dates and
in the capacities indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ JAMES B. PERRY President and Sole
- ------------------------------ Director (Principal July 22, 1999
James B. Perry Executive Officer)
Treasurer (Principal
/s/ DALE R. BLACK Financial Officer and
- ------------------------------ Principal Accounting July 22, 1999
Dale R. Black Officer)
S-4
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned thereunto duly authorized, in the City of Alton, State
of Illinois on July 22, 1999.
CATFISH QUEEN PARTNERSHIP IN COMMENDAM
By: Argosy of Louisiana, Inc.
Its: General Partner
By: /s/ JAMES B. PERRY
-----------------------------------------
James B. Perry
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons on the dates and
in the capacities indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
President and Sole
Director (Principal
/s/ JAMES B. PERRY Executive Officer) of
- ------------------------------ Argosy of Louisiana, July 22, 1999
James B. Perry Inc., the general
partner of Catfish Queen
Partnership in Commendam
Treasurer (Principal
Financial Officer and
Principal Accounting
/s/ DALE R. BLACK Officer) of Argosy of
- ------------------------------ Louisiana, Inc., the July 22, 1999
Dale R. Black general partner of
Catfish Queen
Partnership in Commendam
S-5
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned thereunto duly authorized, in the City of Alton, State
of Illinois on July 22, 1999.
THE INDIANA GAMING COMPANY
By: /s/ JAMES B. PERRY
-----------------------------------------
James B. Perry
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons on the dates and
in the capacities indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ JAMES B. PERRY President and Sole
- ------------------------------ Director (Principal July 22, 1999
James B. Perry Executive Officer)
Treasurer (Principal
/s/ DALE R. BLACK Financial Officer and
- ------------------------------ Principal Accounting July 22, 1999
Dale R. Black Officer)
S-6
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned thereunto duly authorized, in the City of Alton, State
of Illinois on July 22, 1999.
IOWA GAMING COMPANY
By: /s/ JAMES B. PERRY
-----------------------------------------
James B. Perry
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons on the dates and
in the capacities indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ JAMES B. PERRY President and Sole
- ------------------------------ Director (Principal July 22, 1999
James B. Perry Executive Officer)
Treasurer (Principal
/s/ DALE R. BLACK Financial Officer and
- ------------------------------ Principal Accounting July 22, 1999
Dale R. Black Officer)
S-7
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned thereunto duly authorized, in the City of Alton, State
of Illinois on July 22, 1999.
JAZZ ENTERPRISES, INC.
By: /s/ JAMES B. PERRY
-----------------------------------------
James B. Perry
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons on the dates and
in the capacities indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ JAMES B. PERRY President and Sole
- ------------------------------ Director (Principal July 22, 1999
James B. Perry Executive Officer)
Treasurer (Principal
/s/ DALE R. BLACK Financial Officer and
- ------------------------------ Principal Accounting July 22, 1999
Dale R. Black Officer)
S-8
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned thereunto duly authorized, in the City of Alton, State
of Illinois on July 22, 1999.
THE MISSOURI GAMING COMPANY
By: /s/ JAMES B. PERRY
-----------------------------------------
James B. Perry
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons on the dates and
in the capacities indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ JAMES B. PERRY President and Sole
- ------------------------------ Director (Principal July 22, 1999
James B. Perry Executive Officer)
Treasurer (Principal
/s/ DALE R. BLACK Financial Officer and
- ------------------------------ Principal Accounting July 22, 1999
Dale R. Black Officer)
S-9