AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 12, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
PENINSULA GAMING COMPANY, LLC
(Exact name of registrant as specified in its charter)
(FOR CO-REGISTRANTS, PLEASE SEE TABLE OF OTHER REGISTRANTS ON THE FOLLOWING
PAGE)
DELAWARE 7993 42-1483875
(State or other jurisdiction of (Primary standard industrial (I.R.S. Employer
incorporation or organization) classification code number) Identification No.)
------------------------
3RD STREET ICE HARBOR
P. O. BOX 1750
DUBUQUE, IOWA 52004-1683
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
------------------------------
NATALIE A. BAUM
3RD STREET ICE HARBOR
P. O. BOX 1750
DUBUQUE, IOWA 52004-1683
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------------
COPY TO:
RONALD S. BRODY, ESQ.
MAYER, BROWN & PLATT
1675 BROADWAY
NEW YORK, NEW YORK
(212) 506-2500
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this registration statement.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / ______________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / / ______________
CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PRICE PER UNIT OFFERING PRICE REGISTRATION FEE
12 1/4% Senior Secured Notes
due July 1, 2006,........................ $71,000,000 100%(1) $71,000,000 $19,738
(1) Calculated based on the book value of the securities to be received by the
registrant in the exchange in accordance with Rule 457(f)(2) under the
Securities Act of 1933.
(2) Pursuant to Rule 457(n) under the Securities Act of 1933, no separate fee is
payable for the subsidiary guarantees.
------------------------
THE CO-REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE CO-REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TABLE OF OTHER REGISTRANTS
STATE OF PRIMARY STANDARD
INCORPORATION I.R.S. EMPLOYER INDUSTRIAL
OR IDENTIFICATION CLASSIFICATION
EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER ORGANIZATION NO. CODE NUMBER
- -------------------------------------------------------- -------------- ---------------- -----------------------
Peninsula Gaming Corp. ................................. Delaware 52-2192665 7993
------------------------
PENINSULA GAMING CORP.
3RD STREET ICE HARBOR
P.O. BOX 1750
DUBUQUE, IOWA 52004-1683
(Address, including zip code, and telephone number, including area code,
of each of the co-registrant's principal executive offices)
------------------------
NATALIE A. BAUM
3RD STREET ICE HARBOR
P.O. BOX 1750
DUBUQUE, IOWA 52004-1683
(Name, address, including zip code, and telephone number, including area code,
of agent for service for each of the co-registrants)
COPY TO:
RONALD S. BRODY, ESQ.
MAYER, BROWN & PLATT
1675 BROADWAY
NEW YORK, NEW YORK
(212) 506-2500
------------------------
SUBJECT TO COMPLETION, DATED OCTOBER 12, 1999
THE INFORMATION IN THIS PROSPECTUS IS INCOMPLETE AND MAY BE CHANGED. WE MAY NOT
SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL
THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PROSPECTUS
PENINSULA GAMING COMPANY, LLC
AND
PENINSULA GAMING CORP.
OFFER TO EXCHANGE UP TO $71,000,000 OF OUR
SERIES B 12 1/4% SENIOR SECURED NOTES DUE 2006,
FOR ALL OF OUR OUTSTANDING
SERIES A 12 1/4% SENIOR SECURED NOTES DUE 2006
------------------------
- The exchange offer expires at 5:00 p.m., New York City time, on
, 1999, unless extended.
- The exchange offer is subject only to the conditions that the exchange
offer will not violate any applicable law or any interpretation of
applicable law by the staff of the Securities and Exchange Commission.
- All outstanding notes that are validly tendered and not validly withdrawn
will be exchanged.
- Tenders of outstanding notes may be withdrawn at any time before 5:00
p.m., New York City time, on the expiration date of the exchange offer.
- The exchange of notes will not be a taxable exchange for U.S. federal
income tax purposes.
- We will not receive any proceeds from the exchange offer.
- The terms of the new notes to be issued are substantially identical to
your notes, except that the new notes will not have transfer restrictions,
and you will not have registration rights.
- There is no established trading market for the new notes, and we do not
intend to apply for listing of the new notes on any securities exchange.
------------------------
FOR A DISCUSSION OF FACTORS THAT YOU SHOULD CONSIDER BEFORE YOU PARTICIPATE
IN THE EXCHANGE OFFER, SEE "RISK FACTORS" BEGINNING ON PAGE 12 OF THIS
PROSPECTUS.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL AND COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
NEITHER THE IOWA RACING AND GAMING COMMISSION NOR ANY OTHER REGULATORY
AGENCY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
The date of this prospectus is , 1999.
TABLE OF CONTENTS
PAGE
-----
Forward-looking Statements................................................................................. i
Prospectus Summary......................................................................................... 1
Risk Factors............................................................................................... 12
The Transactions........................................................................................... 23
Use of Proceeds............................................................................................ 23
Capitalization............................................................................................. 24
Selected Combined Financial Data........................................................................... 25
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 27
Business................................................................................................... 32
Quantitative and Qualitative Disclosure About Market Risk.................................................. 37
Regulatory Matters......................................................................................... 38
Management................................................................................................. 43
Principal Securityholders.................................................................................. 46
Certain Relationships and Related Transactions............................................................. 48
The Exchange Offer......................................................................................... 51
Description of the Notes................................................................................... 62
Description of Certain Indebtedness........................................................................ 100
Description of PGCL Membership Interests................................................................... 101
Description of PGP Membership Interests.................................................................... 102
Specific Federal Income Tax Considerations................................................................. 109
Plan of Distribution....................................................................................... 113
Legal Matters.............................................................................................. 113
Independent Auditors....................................................................................... 113
Index to Combined Financial Statements..................................................................... F-1
------------------------
You should rely only on the information contained in this prospectus. We
have not authorized any other person to provide you with different or additional
information. If anyone provides you with different or additional information,
you should not rely on it. The information in this prospectus is accurate as of
the date on the front cover.
FORWARD-LOOKING STATEMENTS
Throughout this prospectus we make "forward-looking statements" within the
meaning of Section 27A of the Securities Act and Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking
statements include the words "may," "will," "estimate," "intend," "continue,"
"believe," "expect" or "anticipate" and other similar words. The forward-looking
statements contained in this prospectus are generally located in the material
set forth under the headings "Prospectus Summary," "Risk Factors,"
"Capitalization," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business," but may be found in other locations
as well. These forward-looking statements generally relate to plans and
objectives for future operations and are based upon management's reasonable
estimates of future results or trends. Although we believe that the plans and
objectives reflected in or suggested by such forward-looking statements are
reasonable, such plans or objectives may not be achieved. Actual results may
differ from projected results due, but not limited, to unforeseen developments,
including developments relating to the following:
- the availability and adequacy of our cash flow to satisfy our obligations,
including payment of the notes and additional funds required to support
capital improvements and development,
i
- economic, competitive, demographic, business and other conditions in our
local and regional markets, including competition in the Dubuque gaming
market,
- changes or developments in the laws, regulations or taxes in the gaming
industry, including riverboat gaming and liquor regulation under Iowa law,
- actions taken or omitted to be taken by third parties, including
customers, suppliers, competitors, members and shareholders, as well as
legislative, regulatory, judicial and other governmental authorities,
- changes in business strategy, capital improvements, development plans,
including those due to environmental remediation concerns, or changes in
personnel or their compensation, including federal, state and local
minimum wage requirements,
- the loss of any license or permit, including the failure to obtain an
unconditional renewal of a required gaming license on a timely basis,
- the termination of our operating agreement with the Dubuque Racing
Association, Ltd. or the failure of the Dubuque Racing Association, Ltd.
to continue as our "qualified sponsoring organization,"
- the loss of our riverboat casino or land-based facilities due to casualty,
weather, mechanical failure or any extended or extraordinary maintenance
or inspection that may be required, and
- other factors discussed under "Risk Factors" or elsewhere in this
prospectus.
You should read this prospectus completely and with the understanding that
actual future results may be materially different from what the issuers of the
notes expect. We will not update forward-looking statements even though our
situation may change in the future.
ii
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL DATA, INCLUDING
THE COMBINED FINANCIAL STATEMENTS AND NOTES THERETO, APPEARING ELSEWHERE IN THIS
PROSPECTUS. ALL HISTORICAL FINANCIAL INFORMATION CONTAINED IN THIS PROSPECTUS
RELATES TO OUR PREDECESSOR COMPANIES, GREATER DUBUQUE RIVERBOAT ENTERTAINMENT
COMPANY, L.C. ("GDREC") AND HARBOR COMMUNITY INVESTMENT, L.C. ("HCI"), ON A
COMBINED BASIS. AS A RESULT OF THE CONSUMMATION OF THE TRANSACTIONS OUTLINED
UNDER "THE TRANSACTIONS," CERTAIN OF SUCH PREDECESSOR COMPANIES HISTORICAL
FINANCIAL INFORMATION MAY NOT BE MEANINGFUL TO AN UNDERSTANDING OF OUR FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. REFERENCES TO "WE," "US" AND "OUR"
GENERALLY REFER TO PENINSULA GAMING COMPANY, LLC ("PGCL") AND PENINSULA GAMING
CORP. ("PGC") ON A COMBINED BASIS AND DO NOT REFER TO PENINSULA GAMING PARTNERS,
LLC ("PGP"), THE DIRECT PARENT OF PGCL AND THE INDIRECT PARENT OF PGC. PGC IS A
CO-ISSUER OF THE NOTES AND WAS FORMED TO FACILITATE THE OFFERING OF THE NOTES
AND HAS NO ASSETS OR OPERATIONS. UNLESS THE CONTEXT OTHERWISE REQUIRES,
REFERENCES TO THE "SECURITIES" REFER TO THE NOTES. PROSPECTIVE INVESTORS SHOULD
CAREFULLY CONSIDER THE INFORMATION SET FORTH UNDER "RISK FACTORS" BEFORE
INVESTING IN THE SECURITIES.
THE EXCHANGE OFFER
We sold $71 million of our 12 1/4% Senior Secured Notes due 2006 to
Jefferies & Co., Inc., as an initial purchaser, in a private placement of our
notes on July 15, 1999. The initial purchaser resold those notes in reliance on
Rule 144A, and other exemptions under the Securities Act of 1933.
On July 15, 1999, we also entered into a registration rights agreement with
the initial purchaser in which we agreed, among other things, to:
- file a registration statement with the Securities and Exchange Commission
relating to the exchange offer on or before October 13, 1999;
- deliver to you this prospectus;
- cause the registration statement, which includes this prospectus, to
become effective on or before December 13, 1999; and
- complete the exchange offer within 180 days after the registration
statement becomes effective.
You are entitled to exchange your notes for new registered 12 1/4% Senior
Secured Notes due 2006, with substantially identical terms as your notes, except
for transfer restrictions and registration rights. If we do not complete the
exchange offer on or before 180 days after the registration statement becomes
effective, the interest rate on your notes will be increased. You should read
the discussion under the heading "The Exchange Offer--Purpose and Effect;
Registration Rights" and "Description of the Notes" for further information
regarding the new notes that we are offering in exchange for your notes.
We believe that you may resell the new notes issued in the exchange offer
without compliance with the registration and prospectus delivery provisions of
the Securities Act of 1933, subject to the conditions described under "The
Exchange Offer." You should read that section for further information regarding
the exchange offer.
THE COMPANY
We own and operate the Diamond Jo riverboat casino (the "Diamond Jo"), one
of only two licensed gaming operations in Dubuque, Iowa. We are the leading
gaming facility in our market, having captured approximately 60% of Dubuque's
casino gaming revenues since 1995, our first full year of operations. Our net
revenues in 1998 increased 7.6% from 1997 to $45.8 million, and our EBITDA (as
defined) increased 9.6% to $16.1 million for the same period. We attribute our
success to our competitive position and our unique local gaming operations,
offering the most gaming positions and
1
the only table games, video poker and video keno within 60 miles of Dubuque.
Further, we believe that additional competitors are effectively precluded from
entering our market due to constraints imposed by existing laws on the
availability of gaming licenses.
We anticipate continued growth through a combination of targeted marketing
initiatives, enhanced by our new electronic player tracking system, and locally
funded development programs, including the $27 million redevelopment project in
Dubuque's Ice Harbor, where the Diamond Jo is located. This project is designed
to establish the Ice Harbor as a community center and tourist destination.
Additionally, we intend to construct a hotel contiguous to the Diamond Jo to
capitalize on increased customer traffic anticipated from the Ice Harbor
redevelopment project and to expand our geographic reach. We believe that these
developments will provide us with opportunities to significantly expand our
customer base, resulting in increased revenues and EBITDA.
The Diamond Jo is a three-story, approximately 51,900 square foot riverboat
casino that has capacity for 1,390 patrons and features a spacious two-story
atrium. We offer our customers a selection of 650 slot machines and 39 table
games in approximately 17,800 square feet of gaming space. Adjacent to the
Diamond Jo is a two-story, approximately 33,000 square foot dockside pavilion,
featuring the recently renovated 116-seat Lighthouse Grill restaurant, the
175-seat Lucky Jo Saloon, the 30-seat Java Jo Coffee Bar, a gift shop, and the
205-seat Harbor View Room, a full service banquet facility. Approximately 1,000
conveniently located parking spaces are available to our patrons, including
valet parking. Our facilities are open seven days a week, and the Diamond Jo
functions primarily as a dockside riverboat with continuous boarding. The
Diamond Jo is centrally located in the Ice Harbor in downtown Dubuque and is
accessible from each of the major highways in the area. On average, more than
30,000 vehicles pass our site per day. Several cruise ships that operate on the
Mississippi River also stop at the Ice Harbor frequently during the summer
months. We share our dockside pavilion with the Iowa Welcome Center, featuring a
museum, historical exhibits and shops.
FAVORABLE OPERATING ENVIRONMENT
LIMITED COMPETITION. Our principal competition is the only other licensed
gaming facility in Dubuque, the Dubuque Greyhound Park (the "DGP"). The DGP is
located approximately three miles north of the Diamond Jo and offers 600 slot
machines along with live and simulcast greyhound racing and simulcast horse
racing on a limited basis. It is owned and operated by the Dubuque Racing
Association, Ltd. ("DRA"), a not-for-profit corporation. Under Iowa law, table
games, video poker, video keno and other electronic games of skill are not
permitted at the DGP.
STRONG DUBUQUE MARKET. We currently draw approximately 95% of our patrons
from within a 100-mile radius of the Diamond Jo, an area of approximately 2.8
million residents with an average household income of approximately $48,200.
Dubuque is situated at the intersection of Illinois, Iowa and Wisconsin, acts as
the region's trade hub and has a diverse employer base. Casino gaming revenues
in Dubuque have grown at a compound annual rate of 7.5% since 1996, and there
are no betting or loss limits in Iowa. Dubuque contains several tourist
attractions, drawing more than one million visitors annually. Galena, Illinois,
a historic community located 15 miles east of Dubuque, draws more than two
million visitors annually.
OPERATING STRATEGY
Key elements of our operating strategy include the following:
MAINTAIN LOYAL LOCAL CUSTOMER BASE. We believe that the Diamond Jo is among
the principal entertainment venues for residents in and around Dubuque. In order
to maintain and enhance goodwill within the Dubuque area, we sponsor numerous
community events. We believe we are Dubuque's largest sponsor of such events,
which include air shows, hydroplane races, concerts and holiday celebrations,
such as Memorial Day and 4th of July fireworks. We also regularly adjust our
overall
2
game mix to appeal to our target market. Our win per gaming position increased
by 8.9% in 1998 from 1997, which we believe is primarily due to our success in
changing our game mix during the year. To maintain our strong customer base, we
have also implemented extensive employee incentives and training programs
designed to provide a high level of personalized service to our customers.
IMPROVE PROFITABILITY PER CUSTOMER THROUGH TARGETED MARKETING. We have
developed marketing and promotional strategies designed to reward frequent
gaming customers. Patrons of the Diamond Jo are offered membership to our
players' club, known as the Diamond Club, which includes bimonthly mailings,
gaming incentives, and food and beverage discounts. In September 1998, we
installed a state-of-the-art electronic player tracking system to monitor slot
machine activity in real time, as well as the frequency and level of play for
our more than 100,000 Diamond Club members. This system enables us to focus our
marketing efforts on our most valued customers and increase revenues from our
existing customer base. Better tracking of, and communication with, our VIP
players through our new electronic player tracking system, among other things,
resulted in our win per admission increasing 7.3% for the six months ended June
30, 1999 compared to the same period in 1998.
ATTRACT NEW CUSTOMERS. In order to attract new customers and create a high
level of brand recognition, we frequently use billboard, print, radio and
television advertising throughout the Dubuque area. In addition, the City of
Dubuque's planned $27 million Ice Harbor redevelopment project should enable us
to significantly expand our customer base. This recently commenced redevelopment
project, which the City of Dubuque expects will be completed in several phases
over the next four years, includes plans for a historic steamboat, a promenade,
a docking facility, a museum, a wetland habitat (with several large aquariums
and an educational center) and an amphitheater. This redevelopment project is
designed to enhance the attractiveness of the Ice Harbor as a community center
and tourist destination, which we believe should lead to increased foot traffic
around the site of, and increased admissions to, the Diamond Jo. To further
capitalize on the Ice Harbor redevelopment project, we intend to develop a hotel
contiguous to our riverboat casino and dockside pavilion. The hotel is expected
to contain 100 to 150 guest rooms and offer meeting space to attract
professional and civic organizations for conferences, banquets and other events.
The hotel should enable us to extend our geographic reach and target certain
tourist markets, including more than two million annual visitors to Galena,
Illinois.
TERMS OF THE EXCHANGE OFFER
The exchange offer relates to the exchange of up to $71.0 million aggregate
principal amount of outstanding old notes for an equal aggregate principal
amount of registered new notes. The new notes will be obligations of Peninsula
Gaming Company, LLC and its wholly-owned subsidiary, Peninsula Gaming Corp., and
will be governed by the same indenture that governs the outstanding old notes.
NEW NOTES.................... We are offering registered 12 1/4% Senior Secured Notes due
2006 for your notes. The terms of the registered new notes
and your notes are substantially identical, except:
- the new notes will be registered under the Securities Act
of 1933;
- the new notes will not bear any legends restricting
transfer; and
- except under limited circumstances, your rights under the
registration rights agreement, including your right to
receive additional interest, will terminate.
3
THE EXCHANGE OFFER........... We are offering to exchange $1,000 in principal amount of
the new notes for each $1,000 in principal amount of your
old notes. As of the date of this prospectus, $71.0 million
aggregate principal amount of the old notes is outstanding.
EXPIRATION DATE.............. You have until 5:00 p.m., New York City time, on ,
1999 to validly tender your old notes if you want to
exchange your old notes for new notes. We may extend that
date under certain conditions.
CONDITIONS OF THE EXCHANGE
OFFER; EXTENSIONS;
AMENDMENTS................... You are not required to tender any minimum principal amount
of your old notes in order to participate in the exchange
offer. If you validly tender and do not validly withdraw
your old notes, your old notes will be exchanged for new
notes as long as the exchange offer does not violate any
applicable law or any interpretation of applicable law by
the staff of the Securities and Exchange Commission.
We may delay or extend the exchange offer and, if either of
the above conditions is not met, we may terminate the
exchange offer. We will notify you of any delay, extension
or termination of the exchange offer.
We may also waive any condition or amend the terms of the
exchange offer. If we materially amend the exchange offer,
we will notify you.
INTEREST..................... The first interest payment date on your old notes is January
1, 2000. Interest has accrued on your old notes since July
15, 1999, but not yet been paid. If your old notes are
exchanged for new notes, you will not receive any accrued
interest on your old notes. You will receive interest on
your new notes from July 15, 1999.
PROCEDURES FOR TENDERING OLD
NOTES; SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS............ If you want to participate in the exchange offer, you must
transmit a properly completed and signed letter of
transmittal, and all other documents required by the letter
of transmittal, to the exchange agent. Please send these
materials to the exchange agent at the address set forth in
the accompanying letter of transmittal prior to 5:00 p.m.,
New York City time, on the expiration date. You must also
send one of the following:
- certificates of your old notes;
- a timely confirmation of book-entry transfer of your old
notes into the exchange agent's account at The Depository
Trust Company; or
- the items required by the guaranteed delivery procedures
described below.
4
If you are a beneficial owner of your old notes and your old
notes are registered in the name of a nominee, such as a
broker, dealer, commercial bank or trust company, and you
wish to tender your old notes in the exchange offer, you
should instruct your nominee to promptly tender the old
notes on your behalf.
If you are a beneficial owner and you want to tender your
old notes on your own behalf, you must, before completing
and executing the letter of transmittal and delivering your
old notes, make appropriate arrangements to either register
ownership of your old notes in your name or obtain a
properly completed bond power from the registered holder of
your old notes.
By executing the letter of transmittal, you will represent
to us that:
- you are not our "affiliate" (as defined in Rule 405 under
the Securities Act of 1933);
- you will acquire the new notes in the ordinary course of
your business;
- you are not a broker-dealer that acquired your notes
directly from us in order to resell them pursuant to Rule
144A under the Securities Act of 1933 or any other
available exemption under the Securities Act of 1933;
- if you are a broker-dealer that acquired your notes as a
result of market-making or other trading activities, you
will deliver a prospectus in connection with any resale of
new notes; and
- you are not participating, do not intend to participate
and have no arrangement or understanding with any person to
participate in the distribution of the new notes.
If your old notes are not accepted for exchange for any
reason, we will return your old notes to you at our expense.
GUARANTEED DELIVERY
PROCEDURES................... If you wish to tender your old notes and:
- your old notes are not immediately available;
- you are unable to deliver on time your old notes or any
other document that you are required to deliver to the
exchange agent; or
- you cannot complete the procedures for delivery by
book-entry transfer on time;
then you may tender your old notes according to the
guaranteed delivery procedures that are discussed in the
letter of transmittal and in "The Exchange Offer--Guaranteed
Delivery Procedures."
5
ACCEPTANCE OF OLD NOTES AND
DELIVERY OF NEW NOTES........ We will accept all old notes that you have properly tendered
on time when all conditions of the exchange offer are
satisfied or waived. The new notes will be delivered
promptly after we accept the old notes.
WITHDRAWAL RIGHTS............ Tenders of old notes may be withdrawn at any time prior to
5:00 p.m., New York City time, on the expiration date.
THE EXCHANGE AGENT........... Firstar Bank, N.A. (formerly known as Firstar Bank of
Minnesota, N.A.) is the exchange agent. Its address and
telephone number are set forth in "The Exchange Offer--The
Exchange Agent; Assistance."
FEES AND EXPENSES............ We will pay all expenses relating to the exchange offer and
compliance with the registration rights agreement. We will
also pay certain transfer taxes, if applicable, relating to
the exchange offer.
RESALES OF NEW NOTES......... We believe that the new notes may be offered for resale,
resold and otherwise transferred by you without further
compliance with the registration and prospectus delivery
requirements of the Securities Act of 1933 if:
- you are not our "affiliate" (as defined in Rule 405 under
the Securities Act of 1933);
- you acquire the new notes in the ordinary course of your
business;
- you are not a broker-dealer that purchased old notes from
us to resell them pursuant to Rule 144A under the Securities
Act of 1933 or any other available exemption under the
Securities Act of 1933; and
- you are not participating, and have no arrangement or
understanding with any person to participate, in a
distribution (within the meaning of the Securities Act of
1933) of the new notes.
You should read the information under the heading "The
Exchange Offer--Resales of the New Notes" for a more
complete description of why we believe that you can freely
transfer new notes received in the exchange offer without
registration or delivery of a prospectus.
All broker-dealers that are issued new notes for their own
accounts in exchange for old notes that were acquired as a
result of market-making or other trading activities must
acknowledge that they will deliver a prospectus meeting the
requirements of the Securities Act of 1933 in connection
with any resale of the new notes. If you are a broker-dealer
and are required to deliver a prospectus, you may use this
prospectus for an offer to resell, a resale or other
transfer of the new notes.
6
FEDERAL INCOME TAX
CONSEQUENCES................. The issuance of the new notes will not constitute a taxable
exchange for U.S. federal income tax purposes. You will not
recognize any gain or loss upon receipt of the new notes in
exchange for old notes. See "Specific Federal Income Tax
Consequences."
REGISTRATION RIGHTS
AGREEMENT.................... In connection with the sale of the old notes, we entered
into a registration rights agreement with the initial
purchasers of the old notes that grants the holders of the
old notes registration rights. As a result of making and
consummating this exchange offer, we will have fulfilled
most of our obligations under the registration rights
agreement. If you do not tender your old notes in the
exchange offer, you will not have any further registration
rights under the registration rights agreement or otherwise
unless you were not eligible to participate in the exchange
offer or do not receive freely transferrable new notes in
the exchange offer. See "The Exchange Offer--Purpose and
Effect; Registration Rights."
CONSEQUENCES OF NOT EXCHANGING OLD NOTES
If you do not exchange your old notes for new notes in the exchange offer,
your old notes will continue to be subject to the restrictions on transfer
contained in the legend on the old notes. In general, the old notes may not be
offered or sold unless they are registered under the Securities Act of 1933.
However, you may offer or sell your old notes under an exemption from, or in a
transaction not subject to, the Securities Act of 1933 and applicable state
securities laws. We do not currently anticipate that we will register the old
notes under the Securities Act of 1933.
7
TERMS OF THE NEW NOTES
ISSUERS...................... Peninsula Gaming Company, LLC and its wholly-owned
subsidiary Peninsula Gaming Corp.
NOTES OFFERED................ $71,000,000 in principal amount of 12 1/4% Senior Secured
Notes due 2006.
MATURITY..................... July 1, 2006
INTEREST PAYMENT DATES....... Semiannually, beginning on January 1, 2000.
GUARANTEES................... Subject to certain exceptions, if we create or acquire new
subsidiaries, they will guarantee our obligations under the
notes.
RANKING...................... The notes will rank senior in right of payment to any of our
subordinated indebtedness and will rank equally with any of
our senior indebtedness.
OPTIONAL REDEMPTION.......... On or after July 1, 2003, all or some of the notes are
redeemable at our option at the following premiums, plus
interest:
FOR THE PERIOD BELOW PERCENTAGE
- --------------------------------------------------------------- -----------
On or after July 1, 2003....................................... 108.00%
On or after July 1, 2004....................................... 105.33%
July 1, 2005 and thereafter.................................... 102.67%
Prior to July 1, 2002, we may redeem up to 35% of the
principal amount of the notes at our option with the net
proceeds of certain equity offerings at 112.25% of their
face amount, plus interest.
REQUIRED REGULATORY
REDEMPTION................... The notes may be redeemed pursuant to certain required
regulatory redemptions.
CHANGE OF CONTROL OFFER...... Upon a change of control, holders of the notes will be given
the opportunity to sell us all or part of their notes at
101% of their face amount, plus interest.
CERTAIN INDENTURE
PROVISIONS................... The indenture governing the notes will limit what we may do.
For example, the provisions of the indenture will limit our
ability to among other things:
- incur more debt;
- pay dividends, redeem stock, or make other distributions;
- issue stock of subsidiaries;
- make investments;
- create liens;
- enter into transactions with affiliates;
8
- merge or consolidate; and
- transfer or sell assets.
In addition, the indenture governing the notes will prohibit
Peninsula Gaming Corp. from holding any assets, becoming
liable for any obligations (other than the notes) or
engaging in any business activity. These covenants are
subject to a number of important exceptions. See
"Description of Notes--Certain Covenants."
9
SUMMARY COMBINED FINANCIAL AND OPERATING DATA
The summary combined financial data set forth below for the years ended
December 31, 1996, 1997 and 1998 have been derived from the combined financial
statements of the predecessor companies included elsewhere in this prospectus,
which have been audited by Deloitte & Touche LLP, independent auditors, whose
report thereon is included with such combined financial statements. The summary
combined financial data for the six months ended June 30, 1998 and 1999, for the
last twelve months ended June 30, 1999, and at June 30, 1999 have been derived
from the unaudited combined financial statements of the predecessor companies
which, in the opinion of management, are prepared on a basis consistent with the
audited combined financial statements of the predecessor companies which appear
elsewhere in this prospectus and include all adjustments (consisting only of
normal and recurring adjustments) necessary for a fair presentation of our
financial position and results of operations at such dates and for such periods.
Financial and operating results for the six months ended June 30, 1998 and 1999
are not necessarily indicative of the results that may be expected for the full
fiscal year. The information presented below should be read in conjunction with,
and is qualified in its entirety by reference to, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the combined
financial statements and the notes thereto appearing elsewhere in this
prospectus.
TWELVE
MONTHS
SIX MONTHS ENDED ENDED
FISCAL YEARS ENDED DECEMBER 31, JUNE 30, JUNE 30,
---------------------------------------- ---------------------- ------------
1996 1997 1998 1998 1999 1999
------------ ------------ ------------ ---------- ---------- ------------
(DOLLARS IN THOUSANDS, EXCEPT OPERATING DATA)
STATEMENT OF OPERATIONS DATA:
Net Revenues..................... $ 42,252 $ 42,621 $ 45,849 $ 22,067 $ 22,903 $ 46,685
Operating expenses............... 30,708 28,089 30,670 14,576 15,887 31,981
Depreciation and amortization.... 2,026 1,826 1,895 898 1,066 2,063
Income from operations........... 9,518 12,706 13,284 6,593 5,950 12,641
OTHER FINANCIAL DATA:
Adjusted EBITDA(1)............... $ 14,013 $ 14,702 $ 16,107 $ 7,723 $ 7,641 $ 16,025
Adjusted EBITDA margin........... 33.2% 34.5% 35.1% 35% 33.4% 34.3%
Capital expenditures............. $ 17,812 $ 918 $ 1,393 $ 594 $ 358 $ 1,157
OPERATING DATA:
Number of admissions............. 1,109,399 1,111,155 1,142,008 546,035 527,289 1,123,262
Win per position per day......... $ 119 $ 117 $ 128 $ 124 $ 128 $ 130
Win per admission................ $ 36 $ 37 $ 39 $ 39 $ 42 $ 40
PRO FORMA DATA(2):
Ratio of EBITDA to net interest expense(3)......................................................... 1.9x
Ratio of net debt to EBITDA(4)..................................................................... 4.2x
AT JUNE 30, 1999
----------------------
AS
ACTUAL ADJUSTED(2)
--------- -----------
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents................................................................. $ 5,118 $ 3,969
Total assets.............................................................................. 27,177 86,657
Total debt................................................................................ 7,223 70,657
Preferred Membership Interests(5)......................................................... -- 7,000
Common membership interests(5)............................................................ 17,043 9,000
10
- ------------------------
(1) EBITDA represents earnings before interest, income taxes, depreciation and
amortization and excludes non-recurring charges and loss on sale of assets
for all periods presented. EBITDA for 1996 excludes $2.4 million of
operating lease expense related to the Diamond Jo prior to its purchase.
EBITDA is presented to enhance the understanding of our financial
performance and our ability to service our indebtedness, including the
notes. We understand that it is used by certain investors as one measure of
cash flow and enables a comparison of our performance with the performance
of other companies that report EBITDA. EBITDA is not a measurement
determined in accordance with generally accepted accounting principles
("GAAP") as an indicator of financial performance and should not be
considered an alternative to, or more meaningful than, net income or income
from operations, as an indicator of our operating performance, or cash flows
from operating activities as a measure of liquidity. Our definition of
EBITDA may not be the same as that used by other companies.
(2) Pro Forma Data and As Adjusted Balance Sheet Data give effect to (1) the
sale of our notes and the sale of PGP's convertible preferred membership
interests of PGP, (2) the capital contribution of the holders of common and
convertible preferred membership interests of PGP and (3) the application of
the net proceeds therefrom to consummate the acquisition of the Diamond Jo.
See "The Transactions," "Certain Relationships and Related
Transactions--Equity Contribution," "Description of PGCL Membership
Interests" and "Description of PGP Membership Interests."
(3) Pro Forma EBITDA is equal to EBITDA less $0.2 million of executive
compensation expense that will be incurred annually. Pro Forma net interest
expense is $8.5 million and is defined as total interest expense less
interest income and amortization of deferred financing costs and original
issue discount.
(4) Pro Forma net debt is defined as Adjusted total debt less As Adjusted cash
and cash equivalents in excess of cage cash. Pro Forma EBITDA is equal to
EBITDA less $0.2 million of executive compensation expense that will be
incurred annually.
(5) PGCL issued $7.0 million of preferred membership interests to GDREC and
received a $9.0 million capital contribution from PGP ($6.0 million of which
was contributed to the capital of PGP through the sale of common membership
interests and $3.0 million of which was contributed to the capital of PGP
through the sale of convertible preferred membership interests). See "The
Transactions," "Certain Relationships and Related Transactions--Equity
Contribution," "Description of PGCL Membership Interests" and "Description
of PGP Membership Interests."
11
RISK FACTORS
You should consider carefully the risk factors below as well as the other
information in this prospectus before tendering your old notes in the exchange
offer.
OLD NOTES SUBJECT TO TRANSFER RESTRICTIONS--YOU MAY NOT BE ABLE TO SELL YOUR OLD
NOTES IF YOU DO NOT EXCHANGE THEM FOR REGISTERED NEW NOTES IN THE EXCHANGE
OFFER.
If you do not exchange your old notes for new notes in the exchange offer,
your old notes will continue to be subject to the restrictions on transfer as
stated in the legend on the old notes. In general, you may not offer or sell the
old notes unless they are:
- registered under the Securities Act of 1933;
- offered or sold pursuant to an exemption from the Securities Act of 1933
and applicable state securities laws; or
- offered or sold in a transaction not subject to the Securities Act of 1933
and applicable state securities laws.
We do not currently anticipate that we will register the old notes under the
Securities Act of 1933. In addition, holders who do not tender their old notes,
except for certain instances involving the initial purchaser or holders of old
notes who are not eligible to participate in the exchange offer or who do not
receive freely transferrable new notes pursuant to the exchange offer, will not
have any further registration rights under the registration rights agreement or
otherwise and will not have rights to receive additional interest.
LIMITED MARKET FOR OLD NOTES--THE MARKET FOR OLD NOTES MAY BE SIGNIFICANTLY MORE
LIMITED AFTER THE EXCHANGE OFFER.
If old notes are tendered and accepted for exchange pursuant to the exchange
offer, the trading market for old notes that remain outstanding may be
significantly more limited. As a result, the liquidity of the old notes not
tendered for exchange may be adversely affected. The extent of the market for
old notes and the availability of price quotations would depend upon a number of
factors, including the number of holders of old notes remaining outstanding and
the interest of securities firms in maintaining a market in the old notes. An
issue of securities with a similar outstanding market value available for
trading, which is called the "float," may command a lower price than would be
comparable to an issue of securities with a greater float. As a result, the
market price for old notes that are not exchanged in the exchange offer may be
affected adversely as old notes exchanged pursuant to the exchange offer reduce
the float. The reduced float also may make the trading price of the old notes
that are not exchanged more volatile.
DEPENDENCE UPON A SINGLE GAMING SITE--OUR RESULTS OF OPERATIONS ARE DEPENDENT
SOLELY ON THE DIAMOND JO.
Our profitability is entirely dependent upon the Diamond Jo. If we are
closed or if access to the Diamond Jo is limited in any significant way, our
results of operations could be materially adversely affected. We will have
little or no operating revenues for any period that the Diamond Jo is not in
service. Our riverboat could be out of service due to, among other things,
casualty, mechanical failure or extended or extraordinary maintenance or
inspection. In addition, our riverboat is subject to United States Coast Guard
regulations which, among other things, govern its design, facilities and
operations. Our riverboat must hold, and currently possesses, a Certificate of
Inspection and a Certificate of Documentation from the United States Coast
Guard. Loss of the Certificate of Inspection would preclude our use of the
Diamond Jo as an operating riverboat. The United States Coast Guard requires
periodic hull inspections. Our next hull inspection is expected to take place by
April 2000. A
12
traditional dry dock hull inspection would result in the temporary loss of
service of our riverboat for up to approximately two weeks. The United States
Coast Guard, upon request and approval of such request, allows for an underwater
hull inspection instead of the traditional out of water dry dock inspection. An
underwater hull inspection does not result in any loss of services of the
riverboat. If the Coast Guard approves our request for an underwater hull
inspection, we will be required to perform another hull inspection within thirty
30 months from the date of such underwater hull inspection. At that time, we may
again seek approval from the Coast Guard for an underwater hull inspection in
order to avoid any loss of services of the riverboat.
The Diamond Jo is subject to the risk of severe weather, including snow,
high wind, blizzard and flooding. Severe weather conditions could cause
significant physical damage to the Diamond Jo and, for a period of time, result
in reduced hours of operation or access to the Diamond Jo or the complete
closure of the Diamond Jo. Severe weather may also cause the closure of highways
which provide access to the Diamond Jo. This would reduce the number of people
visiting the Diamond Jo. Any of these events could have a material adverse
effect on us. Although we maintain insurance policies, insurance proceeds may
not adequately compensate us for all economic consequences of any loss. Should a
loss occur, we could lose both our invested capital and anticipated profits from
the Diamond Jo.
We are also vulnerable to any negative economic, competitive, demographic or
other condition affecting the City of Dubuque and, to a lesser extent,
surrounding cities. If the local economy suffers a downturn or if any of the
area's larger employers, such as John Deere Dubuque Works, lay off workers, the
Diamond Jo may be adversely affected as the disposable income of consumers in
the area declines. Any of the foregoing factors could limit or result in a
decrease in the number of patrons at the Diamond Jo or a decrease in the amount
that patrons are willing to wager.
SUBSTANTIAL LEVERAGE--OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR
FINANCIAL HEALTH AND PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER THE NOTES.
We will have a significant amount of debt. In addition, subject to certain
exceptions set forth in the indenture governing the notes, we may incur
additional debt in the future, including indebtedness under our proposed $10.0
million credit facility. Our substantial debt will have important consequences
to you and significant effects on our future operations. Our substantial debt
may, among other things:
- increase our vulnerability to adverse economic and industry conditions or
a downturn in our business,
- limit our ability to fund or obtain additional financing for future
working capital, capital expenditures, and development projects, including
our planned hotel,
- limit our ability to fund a change of control offer,
- limit our flexibility in planning for, or reacting to, changes in our
business and industry,
- place us at a competitive disadvantage relative to the DGP and certain of
our other competitors that have less debt,
- limit our ability to borrow additional funds, and
- result in an event of default if we fail to comply with the financial and
other restrictive covenants contained in the indenture governing the notes
or in any new credit facility.
13
ABILITY TO SERVICE DEBT--TO SERVICE OUR DEBT, WE WILL REQUIRE A SIGNIFICANT
AMOUNT OF CASH. OUR ABILITY TO GENERATE CASH DEPENDS ON MANY FACTORS BEYOND OUR
CONTROL.
Our ability to service our obligations depends upon our future operating
performance, which will be subject to general economic conditions, industry
cycles and financial, business, regulatory and other factors affecting our
operations, many of which are beyond our control. Our business might not
continue to generate sufficient cash flow from operations in the future to
service our indebtedness or to satisfy our preferred membership interests and
other obligations, and we may be required, among other things, to seek
additional financing, to refinance or restructure all or a portion of such
obligations, to sell selected assets, or to reduce or delay planned capital
expenditures. Such measures might not be sufficient to enable us to service the
notes and satisfy our other obligations. In addition, any such financing,
refinancing or sale of assets might not be available to us on economically
favorable terms, if at all. We cannot assure you that our operating results,
cash flow and capital resources will be sufficient to satisfy our payment
obligations in the future, including under the notes. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
COMPETITION--INCREASED COMPETITION MAY HAVE A MATERIAL ADVERSE EFFECT ON OUR
BUSINESS.
The gaming industry is highly competitive. As new gaming opportunities arise
in existing gaming jurisdictions, in new gaming jurisdictions and on Native
American-owned lands, new or expanded operations by others can be expected to
increase competition in our industry and could limit new opportunities for us or
result in the saturation of certain gaming markets, including the market in
which we operate. Casino gaming does not have a long operating history in the
jurisdiction where we operate our gaming facility and other nearby jurisdictions
and, therefore, the effects of competition in these jurisdictions cannot be
predicted with any degree of certainty.
Our gaming operations are highly dependent upon the Dubuque area. We believe
that the primary competitive factors in Dubuque are location, availability and
convenience of parking, number and types of slot machines and gaming tables,
types and pricing of amenities, services, entertainment and overall atmosphere.
Since July 1997, our only competitor in the Dubuque area has been the DGP.
The DRA owns the DGP, which is located three miles from us. The DGP offers
certain amenities which we do not have, including live greyhound racing from May
through October and simulcast greyhound racing all year, as well as simulcast
horse racing on a limited basis. As a not-for-profit organization, the DRA
distributes a percentage of its cash flow from the DGP to the City of Dubuque
and local charities and, through such contributions, has developed a strong
relationship with the local community and city officials. The DRA also has no
long-term indebtedness and therefore may be able to react more quickly than us
to changes in our market. The DGP is also not subject to Iowa's cruising laws,
which require us to cruise 100 times per year for a minimum of two hours per
cruise. Although Iowa law currently prohibits the DGP from conducting certain
gaming operations, including table games, video poker, video keno and other
electronic games of skill, Iowa gaming laws may be amended in the future,
permitting the DGP to operate such gaming activities. We may face increased
competition from the DGP in the future, due to changes in Iowa gaming laws or a
variety of other factors which could have a material adverse effect on us.
Pursuant to our operating agreement with the DRA, hereinafter referred to as
the "DRA operating agreement," (1) we currently restrict the number of slot
machines at the DGP to 600 provided that we do not increase the number of slot
machines at the Diamond Jo to more than 650, and (2) we require that the
weighted average theoretical slot payback percentage at the DGP not exceed ours
by more than 0.5%. Although these restrictions terminate on March 31, 2002,
neither we nor the DRA may increase the number of slot machines unless the Iowa
Racing and Gaming
14
Commission (the "Gaming Commission") determines, among other things, that such
increase would not have a detrimental impact on the DRA's or our financial
viability, as applicable. If we or the DRA increase the weighted average
theoretical slot payback percentage or the number of slot machines, this could
increase competition. All of the restrictions under the DRA operating agreement
will terminate if we or any of our affiliates operate another gaming facility in
Dubuque County or the adjoining counties in Illinois or Wisconsin.
We also currently face limited competition from numerous other gaming
facilities located approximately 60 to 120 miles from us. These facilities
include the Miss Marquette, located in Marquette, Iowa; the Mississippi Belle
II, located in Clinton, Iowa; the Meskwaki Casino, a Native American gaming
establishment located in Tama, Iowa; certain other Native American gaming
establishments in Wisconsin and Minnesota; the Lady Luck Bettendorf, located in
Bettendorf, Iowa; the President Casino, located in Davenport, Iowa; and the
Casino Rock Island, located in Rock Island, Illinois. Under existing Iowa law,
the number of riverboat gaming licenses in Iowa is limited to ten, subject to
certain exceptions. There are currently nine licensed riverboat gaming
facilities operating in Iowa, and the Gaming Commission recently granted a
gaming license for a riverboat to be located south of Des Moines, Iowa,
approximately 250 miles from us, although that boat is not yet in operation.
Legislation was recently enacted in Illinois to provide for dockside gaming in
Illinois and to relocate an existing but non-operating riverboat gaming license
to Cook County, Illinois (outside the city limits of the City of Chicago).
Should Iowa or any neighboring state adopt more favorable gaming laws or laws
authorizing new or additional gaming facilities, such events could increase the
competition that we face.
In addition to competing with gaming facilities in Iowa, Illinois, Wisconsin
and Minnesota, we compete to some extent with gaming facilities nationally,
other forms of gaming on both a local and national level, including
state-sponsored lotteries, charitable gaming and pari-mutuel wagering, and other
forms of entertainment, including motion pictures, sporting events and other
recreational activities. It is possible that these secondary competitors could
reduce the number of visitors to the Diamond Jo or the amount they are willing
to wager, which could have a material adverse effect on us. See
"Business--Competition."
GAMING REGULATIONS--CHANGES IN GAMING LAWS AND OUR GAMING LICENSE STATUS MAY
HAVE A MATERIAL ADVERSE EFFECT ON US.
We are subject to regulation by the State of Iowa and, to a lesser extent,
by federal law. We are subject to regulations that apply specifically to the
gaming industry and casinos, in addition to regulations applicable to businesses
generally. Legislative or administrative changes in applicable legal
requirements, including legislation to prohibit casino gaming, have been
proposed from time to time. It is possible that the applicable requirements to
operate an Iowa gaming facility will become more stringent and burdensome, and
that taxes, fees and expenses may increase. It is also possible that the number
of authorized gaming licenses in Iowa may increase, which would intensify the
competition that we face. Our failure to comply with detailed regulatory
requirements may be grounds for the suspension or revocation of one or more of
our licenses which would have a material adverse effect on us. See "Regulatory
Matters."
Under Iowa law and regulations, the ownership and operation of casino
facilities in Iowa are subject to regulation by the Gaming Commission. The
Gaming Commission requires various licenses, findings of suitability,
registrations, permits and approvals to be held by us and our affiliates in
order to conduct gaming operations. The Gaming Commission may, among other
things, limit, condition, suspend or revoke a license to operate a gaming
facility for any of the various reasons set forth in Iowa law and regulations.
For example, Iowa law and regulations require the Gaming Commission to revoke a
license if, among other things, the licensee has been suspended from operating a
gambling operation in another jurisdiction, the licensee has made a false
statement of a material fact to the Gaming
15
Commission, or the licensee lacks financial responsibility sufficient for the
enterprise it conducts. Substantial fines or forfeiture of assets for violations
of gaming laws or regulations may be levied against us, our affiliates and the
persons involved in such violations. In addition, the actions of persons
associated with us and our management and employees, over whom we may have no
control, could jeopardize any licenses held by us in Iowa. The suspension or
revocation of any of our licenses, the levying of substantial fines on us or the
forfeiture of our assets would have a material adverse effect on us.
We have obtained all governmental licenses, findings of suitability,
registrations, permits and approvals necessary for the operation of the Diamond
Jo. However, gaming licenses and related approvals are deemed to be privileges
under Iowa law and regulations, and we can give no assurance that any additional
licenses, permits and approvals that may be required will be given or that
existing ones will not be revoked. Renewal is subject to, among other things,
continued satisfaction of suitability requirements. In addition, as a condition
to the issuance of our gaming license, we have committed to spend up to a
maximum of $11.5 million to develop a hotel contiguous to the Diamond Jo. Such
development process must be commenced by December 2000. Failure to satisfy such
conditions could result in the revocation of our gaming license, which would
prevent us from operating the Diamond Jo as a casino and would have a material
adverse effect on us. We can give no assurance that we will be successful in
satisfying such conditions, including obtaining the capital necessary to build
the hotel and, accordingly, we can give no assurance that we will successfully
renew our gaming license in a timely manner, or at all.
Proposals to amend or supplement Iowa's gaming statutes are frequently
introduced in the Iowa state legislature. In addition, the state legislature
from time to time considers proposals to amend or repeal existing laws and
regulations, which could effectively prohibit riverboat gaming in the State of
Iowa, limit the expansion of existing operations or otherwise adversely affect
our operations.
REQUIRED REGULATORY REDEMPTION--THE SECURITIES WILL BE REDEEMABLE IN ACCORDANCE
WITH CERTAIN REQUIRED REGULATORY REDEMPTIONS.
We are required to notify the Gaming Commission as to the identity of (and
may be required to submit background information regarding) each owner, partner
or any other person who has a beneficial interest of five percent (5%) or more,
direct or indirect, in PGCL. The Gaming Commission may also request that we
provide them with a list of persons holding beneficial ownership interests in
PGCL of less than five percent (5%). For purposes of these rules, "beneficial
interest" includes all direct and indirect forms of ownership or control, voting
power or investment power held through any contract, lien, lease, partnership,
stockholding, syndication, joint venture, understanding, relationship, present
or reversionary right, title or interest, or otherwise. The Gaming Commission
may determine that holders of the securities have a "beneficial interest" in
PGCL.
If any gaming authority, including the Gaming Commission, requires any
person, including a record or beneficial owner of the securities, to be
licensed, qualified or found suitable, such person must apply for a license,
qualification or finding of suitability within the time period specified by such
gaming authority. Such person would be required to pay all costs of obtaining
such license, qualification or finding of suitability. If a record or beneficial
owner of any of the securities is required to be licensed, qualified or found
suitable and is not licensed, qualified or found suitable by such gaming
authority within the applicable time period, such securities will be subject to
certain regulatory redemption procedures. See "Regulatory Matters--Regulatory
Requirements Applicable to Owners of the Securities and Others," "Description of
PGCL--Membership Interests--PGCL Operating Agreement," "Description of
Notes--Redemption" and "Description of PGP Membership Interests-- PGP Operating
Agreement."
16
DRA OPERATING AGREEMENT--OUR OPERATIONS ARE SUBJECT TO THE DRA OPERATING
AGREEMENT. IF THE DRA OPERATING AGREEMENT IS TERMINATED OR NOT EXTENDED, WE MAY
NOT BE ABLE TO OPERATE THE DIAMOND JO.
Under Iowa law, a license to operate a riverboat casino is granted to a
not-for-profit "qualified sponsoring organization," which may either operate the
riverboat itself or enter into an agreement with another party that must obtain
its own operator's license. We have entered into such an agreement with the DRA,
which holds the "qualified sponsoring organization" license for the Diamond Jo.
Under the DRA operating agreement, we are not required to pay any amounts to the
DRA for the right to operate the Diamond Jo unless the DRA's gaming revenues
from the DGP fall below specified amounts, in which case our required payments
would be significant. In addition, beginning April 1, 2000, we will be required
to pay to the DRA $0.50 per patron on the Diamond Jo, without regard to the
revenues of the DGP. If the DRA operating agreement is terminated or not
extended, we may not be able to operate the Diamond Jo. See "Reauthorization of
Gaming in Dubuque County, Iowa." For additional information concerning the DRA
operating agreement, see "Certain Relationships and Related
Transactions--Relationship with the Dubuque Racing Association."
REAUTHORIZATION OF GAMING IN DUBUQUE COUNTY, IOWA--THE DUBUQUE COUNTY ELECTORATE
MUST VOTE IN 2002 AND EVERY EIGHT YEARS THEREAFTER WHETHER TO CONTINUE TO ALLOW
RIVERBOAT GAMING IN DUBUQUE COUNTY, IOWA. IF RIVERBOAT GAMING IS DISCONTINUED,
THIS WILL HAVE A MATERIAL ADVERSE EFFECT ON US.
Under Iowa law, a license to conduct gaming may be issued in a county only
if the county electorate has approved such gaming, and a reauthorization
referendum requiring majority approval must be held every eight years. On May
17, 1994, the electorate of Dubuque County, Iowa, which includes the City of
Dubuque, approved gaming by approximately 80% of the votes cast. If any such
reauthorization referendum is defeated, a previously issued gaming license will
remain valid for a total of nine years from the date of original issuance of the
license, subject to earlier nonrenewal or revocation under Iowa law and
regulations.
If a gaming reauthorization referendum to be submitted to the Dubuque County
electorate in the general election to be held in 2002 (the "2002 Referendum")
fails, our license which was issued on July 15, 1999 (the "date of licensure"
under Iowa law) and the DRA's sponsoring license will remain valid for nine
years from their respective dates of original issuance. Although Iowa law and
regulations are unclear as to whether the original issuance date of the DRA's
license is our date of licensure or on or before March 18, 1993 (the date the
DRA first received its gaming license as the qualified sponsoring organization
of the Diamond Jo), the Gaming Commission administrator has indicated to us in
writing that, in his opinion, the original issuance date of the DRA's sponsoring
license will be our date of licensure. We can give no assurance, however, that
such interpretation will be followed by the Gaming Commission or other
governmental authorities. If the 2002 Referendum fails and the original issuance
date of the DRA's license is determined to be on or before March 18, 1993, it is
unlikely that we would be able to conduct gaming operations on the Diamond Jo.
If the 2002 Referendum fails and the original issuance date of the DRA's license
is determined to be our date of licensure, we would be able to conduct gaming
operations on the Diamond Jo until 2008; PROVIDED, that the DRA operating
agreement is not terminated, as more fully discussed below.
If the 2002 Referendum fails, the DRA operating agreement does not currently
permit us to exercise our option to extend the term of such agreement without
the DRA's consent. However, the term of the DRA operating agreement was recently
extended through March 31, 2002, with two three-year renewal options thereafter,
subject to the satisfaction of certain conditions.
17
RISKS RELATED TO HOTEL/ICE HARBOR DEVELOPMENT--THERE CAN BE NO ASSURANCE THAT
EITHER THE HOTEL OR THE ICE HARBOR REDEVELOPMENT PROJECT WILL BE COMPLETED ON
TIME, IF AT ALL, WHICH, IN THE CASE OF THE HOTEL, COULD RESULT IN OUR INABILITY
TO RENEW OUR GAMING LICENSE.
As a condition to the grant of our gaming license, we are required by the
Gaming Commission to spend up to a maximum of $11.5 million toward the
development and construction of a hotel contiguous to the Diamond Jo unless the
costs of such development and construction exceed $11.5 million. To the extent
such costs exceed $11.5 million, we would be required to build a hotel only if
another entity, such as the City of Dubuque, funded such excess costs. The
development and construction of this hotel is expected to require additional
financing. There can be no assurance that such financing will be available to us
on satisfactory terms or, if necessary, that such financing will be approved by
the Gaming Commission or other governmental authorities. In addition, certain
covenants in the indenture governing the notes may restrict our ability to
obtain any such additional financing. Any such additional financing may also
cause us to become more leveraged, which could adversely affect our ability to
satisfy our debt service requirements with respect to the notes and our ability
to redeem preferred membership interests. In addition, the hotel development
project will be subject to various development and construction risks, including
but not limited to environmental problems, risks of delays in obtaining
necessary permits, licenses, and approvals, disruption to existing operations,
changes in law applicable to the project, shortages of materials and skilled
labor, labor disputes, work stoppages, engineering or geological problems, fire
and other natural disasters, weather interferences and other delays, any or all
of which could substantially increase costs or significantly delay or prevent
completion of such project. Moreover, it is possible that construction near the
Diamond Jo could adversely affect our operating results by discouraging patrons
from entering our facilities during the construction phase. Although our
financial commitment to build the hotel is limited to a maximum of $11.5
million, assuming we are able to build a hotel within such budgetary
constraints, our inability to commence the construction process by December 2000
may result in a refusal by the Gaming Commission to renew our gaming license,
which would prevent us from conducting gaming operations on the Diamond Jo. See
"Business--Properties."
We expect to develop a hotel concurrently with the proposed Ice Harbor
redevelopment project sponsored by the City of Dubuque together with individual
and corporate donors. We can give no assurance that funds necessary for the Ice
Harbor redevelopment project will be obtained or that this project will be
completed, as planned, within the next four years, if at all. Further, even if
the Ice Harbor redevelopment project is completed, we can give no assurance that
it will be successful in establishing the Ice Harbor as a community center and
tourist destination. If any of the foregoing were to occur, additional visitors
may not be attracted to the Ice Harbor.
LIQUOR REGULATION--REVOCATION OF OUR LIQUOR LICENSE, WHICH IS SUBJECT TO
EXTENSIVE REGULATION, COULD HAVE A MATERIAL ADVERSE EFFECT ON US.
The sale of alcoholic beverages by us will be subject to licensing, control
and regulation by state and local agencies in Iowa (the "Liquor Agencies").
Subject to certain exceptions, all persons who have a financial interest in us,
by ownership, loan or otherwise, must be disclosed in an application filed with,
and are subject to investigation by, the Liquor Agencies. All liquor licenses
are subject to annual renewal, are revocable and are not transferable. Persons
who have a direct or indirect interest in any Iowa liquor licensee, other than
hotel and restaurant liquor licensees, may be prohibited from purchasing or
holding the notes. The Liquor Agencies have broad powers to limit, condition,
suspend or revoke any liquor license. Any disciplinary action with respect to
our liquor licenses could, and any failure to renew or revocation of our liquor
license would, have a material adverse effect on us.
18
ENVIRONMENTAL MATTERS--WE ARE SUBJECT TO ENVIRONMENTAL LAWS AND POTENTIAL
EXPOSURE TO ENVIRONMENTAL LIABILITIES.
We are subject to various federal, state and local environmental laws,
ordinances and regulations, including those governing the remediation of soil
and groundwater contaminated by petroleum products or hazardous substances or
wastes, and the health and safety or our employees. Under certain of these laws,
ordinances or regulations, a current or previous owner or operator of property
may be liable for the costs of removal or remediation of certain hazardous
substances or petroleum products on, under, or in its property, without regard
to whether the owner or operator knew of, or caused, the presence of the
contaminants, and regardless of whether the practices that resulted in the
contamination were legal at the time they occurred. The presence of, or failure
to remediate properly, such substances may adversely affect the ability to sell
or rent such property or to borrow funds using such property as collateral.
Additionally, the owner of a site may be subject to claims by third parties
based on damages and costs resulting from environmental contamination emanating
from a site. We do not anticipate any material adverse effect on our earnings or
competitive position relating to environmental matters, but it is possible that
future developments could lead to material costs of environmental compliance for
us or materially impact our ability to construct a hotel.
We have reviewed environmental assessments (in some cases including soil and
groundwater testing) relating to certain of our currently owned and leased
properties in Dubuque, Iowa, and certain other properties we may lease from the
City of Dubuque or other parties, including property adjacent to the Diamond Jo
on which we propose to construct a hotel. As a result, we have become aware that
there is contamination present on some of these properties apparently due to
past industrial activities. With respect to parcels we currently own or lease,
we believe, based on the types and amount of contamination identified, the
anticipated uses of the property and the potential that the contamination, in
some cases, may have migrated onto our properties from nearby properties, that
any cost to clean up these properties will not result in a material adverse
effect on our earnings. With respect to the properties we may lease in
connection with the planned hotel, further investigations are underway to
determine the extent to which such properties are contaminated. We intend to
negotiate agreements with the owner(s) of such properties that will, among other
things, address in a satisfactory manner the responsibility for any
environmental cleanup or remediation that such properties may require. There can
be no assurance, however, that we will be able to negotiate such an arrangement
or that we may not be required to contribute toward cleaning up contamination on
the properties we own or lease. Any required remediation may materially and
adversely impact our plans and ability to build a hotel or may impact the City
of Dubuque's planned redevelopment project by, among other things, increasing
costs and delaying the initiation of such projects until such remediation is
complete. In addition, remediation may partially block access to the Diamond Jo,
thereby reducing the number of patrons that visit us.
TAXATION--AN INCREASE IN THE TAXES AND FEES THAT WE PAY COULD HAVE A MATERIAL
ADVERSE EFFECT ON US.
We believe that one of the primary reasons that jurisdictions have legalized
gaming is the prospect of significant additional revenue for such jurisdictions.
As a result, gaming companies, including us, are typically subject to
significant taxes and fees relating to their gaming operations, which are
subject to increase at any time. Currently, we are taxed at an effective rate of
approximately 20% of our adjusted gross receipts by the State of Iowa and we pay
the City of Dubuque a fee equal to $0.50 per patron. In addition, all Iowa
riverboats share equally in certain costs of the Gaming Commission and related
entities to administer gaming in Iowa, which is currently approximately $316,000
per year per riverboat. In addition, there have been proposals from time to time
to tax all gaming establishments, including riverboat casinos, at the federal
level. Any material increase in taxes or fees, or in costs of the Gaming
Commission and related entities, would have a material adverse affect on us. See
"Regulatory Matters."
19
DIFFICULTY IN ATTRACTING AND RETAINING QUALIFIED EMPLOYEES--WE BELIEVE THAT
THERE IS A SHORTAGE OF SKILLED LABOR IN THE GAMING INDUSTRY WHICH WILL MAKE IT
MORE DIFFICULT FOR US TO RETAIN QUALIFIED EMPLOYEES. AN INCREASE IN LABOR COSTS
COULD REDUCE OUR INCOME FROM OPERATIONS.
The operation of our business requires qualified executives, managers and
skilled employees with gaming industry experience. We believe that a shortage of
skilled labor exists in the gaming industry which will make it increasingly
difficult and expensive to attract and retain qualified employees. Moreover, the
low unemployment rate in the Dubuque area contributes to the limited pool of
skilled labor available to us. Increasing competition in our market is expected
to lead to higher costs in order to retain and attract qualified employees.
While we believe that we will be able to attract and retain qualified employees,
there can be no assurance that we will be able to do so.
We are dependent upon the available labor pool of unskilled and semi-skilled
employees. We are also subject to the Fair Labor Standards Act, which governs
such matters as minimum wage, overtime and other working conditions. In
addition, Iowa law effectively requires that we pay employees 25% more than the
federally mandated minimum wage rates. Changes in applicable state or federal
laws and regulations, particularly those governing minimum wages, could increase
labor costs, which could have a material adverse effect on our income from
operations.
POSSIBLE CONFLICTS OF INTEREST--POSSIBLE CONFLICTS OF INTEREST BETWEEN VARIOUS
ENTITIES COULD HAVE A MATERIAL ADVERSE EFFECT ON HOLDERS OF THE SECURITIES.
PGP, the parent and sole manager of PGCL, is primarily responsible for
managing the Diamond Jo. Neither PGP nor any of its affiliates is restricted
from managing other gaming operations, including new gaming ventures or
facilities that may compete with us, except that certain restrictions under the
DRA operating agreement will terminate if we or any of our affiliates operate
another gaming facility in Dubuque County or the adjoining counties of Illinois
or Wisconsin. Such activities could require significant amounts of time of PGP's
officers and managers. While we believe that any new ventures will not detract
from PGP's ability to manage and operate the Diamond Jo, there can be no
assurance that such ventures will not have a material adverse effect on PGCL or
PGP.
M. Brent Stevens and Andrew R. Whittaker, managers of PGP, are a managing
director and executive vice president, respectively, of Jefferies & Company,
Inc., the initial purchaser of the old notes. Mr. Stevens owns 22.5% of the
voting common membership interests of PGP. In addition, the initial purchaser
and certain of its affiliates, officers and employees are members of, and
control, PGP Investors, LLC, a Delaware limited liability company, which owns
39.0% of the voting common membership interests of PGP. As a result of the
above, the initial purchaser and certain of its affiliates, officers and
employees control us. There can be no assurance that all of our interests will
be aligned in the future. See "Principal Securityholders."
ABILITY TO REALIZE ON COLLATERAL--GAMING OR OTHER REGULATIONS MAY DELAY OR
OTHERWISE IMPEDE THE TRUSTEE'S ABILITY TO FORECLOSE ON THE COLLATERAL SECURING
THE NOTES.
Under the indenture governing the notes, if an event of default (as defined
under the caption "Description of Notes") and certain other conditions occur,
the trustee may accelerate the notes and, among other things, initiate a
proceeding to foreclose on the collateral securing the notes and take control of
our gaming operations. However, Iowa law and regulations or other laws may
impede the trustee's ability to take such actions. See "Description of
Notes--Security--Certain Gaming Law Limitations."
In addition, the trustee's ability to foreclose on the collateral securing
the notes will also be subject to provisions contained in an intercreditor
arrangement with the lenders under our proposed credit facility and certain
limitations arising under applicable bankruptcy and insolvency laws. See
20
"Description of Certain Indebtedness--Intercreditor Agreement" and "Description
of Notes-- Security--Certain Bankruptcy Limitations."
COLLATERAL VALUE--THE VALUE OF THE COLLATERAL SECURING THE NOTES MAY BE LESS
THAN THE AMOUNT DUE ON THE NOTES.
The liquidation value of the collateral securing the notes is unlikely to
produce proceeds in an amount sufficient to pay the principal of, premium, if
any, and accrued and unpaid interest and liquidated damages, if any, on the
notes. The ability of the trustee to foreclose on any of such collateral will be
subject to the provisions of the documents creating the trustee's security
interest in such collateral, as well as the considerations discussed in the
preceding section. In addition, there can be no assurance that the security
interest in the cash that constitutes collateral can be perfected under
applicable laws.
Furthermore, assets subject to capitalized lease obligations and purchase
money indebtedness will not be included in the collateral securing the notes;
and the liens on the collateral securing the notes will be effectively
subordinated to liens securing up to $10.0 million principal amount of
indebtedness that may be incurred under our proposed credit facility. As a
result, upon any distribution to our creditors or the creditors of any future
subsidiary guarantors in bankruptcy, liquidation, reorganization or similar
proceedings, our lenders under the new credit facility, capitalized lease
obligations and purchase money indebtedness will be entitled to be repaid in
full before any payment is made to you from the proceeds of the assets securing
such indebtedness.
In addition, the trustee under the indenture governing the notes and the
lenders under our proposed credit facility will enter into an intercreditor
agreement to govern the relationships among them and their obligations and
rights with respect to the collateral securing the notes and such new credit
facility. Financing by multiple lenders with security interests in common
collateral may result in increased complexity and lack of flexibility in debt
restructurings or other work-outs relating to us. See "Description of Certain
Indebtedness--Intercreditor Agreement" and "Description of Notes-- Security."
INABILITY TO REPURCHASE NOTES WHEN REQUIRED--AN ISSUER MAY NOT BE ABLE TO
REPURCHASE THE NOTES WHEN IT IS REQUIRED TO DO SO.
There can be no assurance that the issuers of the notes will have sufficient
funds to consummate a required regulatory redemption, an excess cash flow offer,
an excess proceeds offer, or a repurchase upon a change of control, or that any
such redemption or repurchase, if consummated, would not have a material adverse
effect on our business. See "Description of Notes--Redemption," "--Repurchase
Upon Change of Control," "--Excess Cash Flow Offer," "--Limitation on Asset
Sales," "Description of PGP Membership Interests--Convertible Preferred
Membership Interests--Repurchase Upon Change of Control" and "--PGP Operating
Agreement."
HOLDING COMPANY STRUCTURE--PGP IS DEPENDENT UPON DISTRIBUTIONS FROM PGCL TO
SATISFY ITS OBLIGATIONS AND/OR MAKE DISTRIBUTIONS.
The only asset of PGP is its interest in PGCL, and the operations of PGP
will be conducted exclusively through PGCL and its future sister subsidiaries,
if any. Accordingly, PGP's cash flow and the consequent ability of PGP to
satisfy its obligations and/or make distributions on its membership interests is
dependent upon earnings of PGCL and its future sister subsidiaries, if any, and
their ability to distribute those earnings to PGP, whether by distributions,
loans or otherwise. The payment of distributions or the making of loans to PGP
may be subject to statutory or contractual limitations and are subject to
various business considerations. However, the indenture governing the notes
restricts, and any future credit agreement would be expected to restrict,
distributions to PGP from PGCL. Any right
21
of PGP to receive assets upon a liquidation or reorganization of PGCL will be
effectively subordinated to the membership interests of PGCL that rank senior to
the common membership interests of PGCL held by PGP and the claims of PGCL's
creditors, including under the notes.
PUBLICLY TRADED PARTNERSHIP CLASSIFICATION--WE MAY BE SUBJECT TO CORPORATE LEVEL
FEDERAL INCOME TAX IF WE BECOME A PUBLICLY TRADED PARTNERSHIP.
We may be classified as a publicly traded partnership for U.S. federal
income tax purposes if either (1) the notes are classified as equity, rather
than debt, for U.S. federal income tax purposes and are deemed to be "publicly
traded" or (2) our equity interests are deemed to be "publicly traded." As a
publicly traded partnership, we would become subject to U.S. federal income tax
as a corporation which, in turn, may, among other things, materially adversely
affect our ability to make payments on the notes. In connection with the
original issuance of the old notes, Mayer, Brown & Platt delivered its opinion
to the effect that, for U.S. federal income tax purposes, (i) the notes will be
treated as indebtedness and (ii) we will not be treated as a publicly traded
partnership taxable as a corporation. Such opinion was based on certain factual
representations and assumptions. See "Specific United States Federal Income Tax
Considerations--U.S. Federal Tax Characterization of the Notes and PGCL."
Notwithstanding such opinion, the Internal Revenue Service may successfully
assert that we are subject to U.S. federal income taxation as a publicly traded
partnership.
YEAR 2000 COMPLIANCE--ALTHOUGH WE BELIEVE THAT WE ARE YEAR 2000 COMPLIANT, WE
CAN GIVE NO ASSURANCE THAT YEAR 2000 ISSUES WILL NOT NEGATIVELY AFFECT US.
The potential for system and processing failures of date-related data
resulting from computer-controlled systems using two digits rather than four to
define the applicable year is commonly referred to as the "Year 2000" problem.
For example, computer programs that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This problem could
result in system failure or miscalculations causing, in addition to significant
problems with suppliers or vendors, disruptions of our operations, including,
among other things, a temporary inability to process transactions, send invoices
or engage in similar normal business activities. We believe that we have taken
adequate steps to address the Year 2000 problem and do not anticipate that the
Year 2000 problem will have a material adverse effect on our operations. While
we believe our planning efforts are adequate to address Year 2000 concerns,
there can be no assurance that we will achieve the predicted estimates, and
actual results could differ materially from those planned or anticipated. For
additional information, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Year 2000 Readiness."
22
THE TRANSACTIONS
On July 15, 1999, we completed the acquisition of (1) the Diamond Jo,
pursuant to an asset purchase agreement, dated as of January 15, 1999, as
amended, between PGP and GDREC, and (2) certain related real property, pursuant
to a real property purchase agreement, dated as of January 15, 1999, between PGP
and HCI, for an aggregate purchase price of $77.0 million, subject to customary
post-closing adjustments. The purchase price was financed from (1) the issuance
and sale by PGCL of $7.0 million of preferred membership interests to GDREC, (2)
a capital contribution of $9.0 million from PGP (consisting of capital
contributions of $6.0 million from common members of PGP and $3.0 million of
proceeds from the issuance and sale by PGP of convertible preferred membership
interests) and (3) the net proceeds of the offering of the notes. Prior to the
consummation of the transactions contemplated by the acquisition agreements, PGP
assigned such agreements to PGCL. See "Certain Relationships and Related
Transactions--Equity Contribution," "Description of PGCL Membership Interests"
and "Description of PGP Membership Interests."
Pursuant to the acquisition agreements, GDREC and HCI have agreed to
indemnify us for losses we incur as a result of breaches of their
representations and warranties and for certain other matters. With certain
exceptions, these indemnification obligations are limited in amount, are secured
by the preferred membership interests in a face amount of $3.0 million and
expire after specified periods of time. To the extent not used to satisfy such
indemnification obligations, we must redeem $3.0 million of preferred membership
interests on or prior to January 15, 2001. See "Description of PGCL Membership
Interests--Preferred Membership Interests."
For a description of the properties that we acquired and the leases that we
entered into in connection with the transactions contemplated by the acquisition
agreements, see "Business-- Properties."
USE OF PROCEEDS
We will not receive any proceeds from the exchange offer. In consideration
for issuing the new notes, we will receive outstanding old notes in like
original principal amount at maturity. All old notes received in the exchange
offer will be canceled.
23
CAPITALIZATION
The following table sets forth, at June 30, 1999, (1) the actual combined
capitalization of GDREC and HCI, which collectively comprise the Diamond Jo and
related real property that we acquired in July 1999, and (2) our capitalization,
as adjusted to give effect to such acquisitions, the offering of the notes and
the equity contribution from PGP and the application of the net proceeds
therefrom. The following table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements and notes thereto included elsewhere in this
prospectus.
ACTUAL AS ADJUSTED
--------- -----------
JUNE 30, 1999
(DOLLARS IN THOUSANDS)
Cash and cash equivalents(1).......................................... $ 5,118 $ 3,969
--------- -----------
--------- -----------
Debt:
Senior Secured Notes(2)............................................... $ -- $ 70,181
Notes payable(3)...................................................... 6748 --
Capital lease obligations............................................. 476 476
--------- -----------
Total debt........................................................ 7,224 70,657
Preferred membership interests(4)..................................... -- 7,000
Common membership interests(4)........................................ 17,043 9,000
--------- -----------
Total capitalization.............................................. $ 24,267 $ 86,657
--------- -----------
--------- -----------
- ------------------------
(1) In connection with the acquisition of the Diamond Jo, we acquired $2.0
million of cash and cash equivalents from GDREC. Additionally, approximately
$2.0 million of the net proceeds from the offering of the notes and the
equity contribution received from PGP (which included, among other things,
the proceeds from the sale of PGP's convertible preferred membership
interests) after deduction for capitalized debt issuance costs and
acquisition and start-up costs shall be used for general corporate purposes.
(2) Reflects $71.0 million aggregate principal amount of notes less original
issue discount of approximately $0.8 million.
(3) Concurrently with the closing of the offering of the notes, GDREC repaid all
of its notes payable with the proceeds from the sale of the Diamond Jo.
(4) PGCL issued $7.0 million of preferred membership interests to GDREC and
received a $9.0 million equity contribution from PGP ($6.0 million of which
was contributed to the capital of PGP by common members of PGP and $3.0
million of which was contributed to the capital of PGP through the sale of
PGP's convertible preferred membership interests). See "The Transactions,"
"Certain Relationships and Related Transactions--Equity Contribution,"
"Description of PGCL Membership Interests" and "Description of PGP
Membership Interests."
24
SELECTED COMBINED FINANCIAL DATA
The selected combined financial data set forth below at December 31, 1997,
and 1998 and for the years ended December 31, 1996, 1997 and 1998 have been
derived from the combined financial statements of the predecessor companies
included elsewhere in this prospectus, which have been audited by Deloitte &
Touche LLP, independent auditors, whose report thereon is included with such
combined financial statements. The selected financial data at and for the years
ended December 31, 1994 and 1995 have been derived from the accounting records
of GDREC, and the balance sheet data at December 31, 1996 has been derived from
the combined accounting records of the predecessor companies, GDREC and HCI. The
selected combined financial data at and for the six months ended June 30, 1998
and 1999 are derived from the unaudited combined financial statements of the
predecessor companies, which, in the opinion of management, are prepared on a
basis consistent with the audited combined financial statements which appear
elsewhere in this prospectus and include all adjustments (consisting only of
normal and recurring adjustments) necessary for a fair presentation of the
combined financial position and results of operations of GDREC and HCI at such
dates and for such periods. Financial and operating results for the six months
ended June 30, 1998 and 1999 are not necessarily indicative of the results that
may be expected for the full fiscal year. The information presented below should
be read in conjunction with, and is qualified in its entirety by reference to,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the combined financial statements and the notes thereto
appearing elsewhere in this prospectus.
SIX MONTHS ENDED
FISCAL YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Revenues:
Casino......................................... $ 14,965 $ 30,493 $ 40,267 $ 40,572 $ 44,167 $ 21,238 $ 21,993
Food and beverage.............................. 489 1,457 2,104 2,034 1,960 927 1,060
Other.......................................... 67 191 308 395 275 131 106
Less: Promotional allowances................... (105) (408) (427) (380) (553) (229) (256)
--------- --------- --------- --------- --------- --------- ---------
Net revenues................................... 15,416 31,733 42,252 42,621 45,849 22,067 22,903
--------- --------- --------- --------- --------- --------- ---------
Expenses:
Casino......................................... 6,820 14,157 16,014 16,335 17,273 8,371 9,008
Food and beverage.............................. 548 1,681 2,980 2,557 2,830 1,343 1,572
Boat operations................................ 764 1,505 1,997 2,005 2,056 1,008 964
Other.......................................... 15 67 86 76 68 33 27
Selling, general and administrative............ 3,938 8,076 9,573 6,946 7,515 3,588 3,691
Depreciation and amortization.................. 636 1,133 2,026 1,826 1,895 898 1,066
Non-recurring expenses(1)...................... 55 101 58 170 928 233 625
--------- --------- --------- --------- --------- --------- ---------
Total expenses................................. 12,776 26,720 32,734 29,915 32,565 15,474 16,953
--------- --------- --------- --------- --------- --------- ---------
Income From Operations......................... 2,640 5,013 9,518 12,706 13,284 6,593 5,950
Other income (expense):
Interest income................................ 13 16 81 222 142 64 73
Interest expense............................... (1,017) (1,007) (1,813) (1,772) (1,142) (664) (319)
Loss on sale of assets......................... -- -- (6,878) (88) (74) (48) (98)
--------- --------- --------- --------- --------- --------- ---------
Total other expense............................ (1,004) (991) (8,610) (1,638) (1,074) (648) (344)
--------- --------- --------- --------- --------- --------- ---------
Net income..................................... $ 1,636 $ 4,022 $ 908 $ 11,068 $ 12,210 5,945 5,606
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Ratio of earnings to fixed charges(2).......... 2.4x 4.6x 1.5x 6.5x 10.8x 9.3x 16.1x
25
SIX MONTHS ENDED
FISCAL YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
OTHER DATA:
Adjusted EBITDA(3)............................. $ 3,331 $ 8,113 $ 14,013 $ 14,702 $ 16,107 $ 7,723 $ 7,641
Cash flows from operating activities........... 3,416 6,067 10,140 12,522 14,638 7,314 6,965
Cash flows from investing activities........... 2,078 3,257 (18,162) 4,196 (1,793) (518) 189
Cash flows from financing activities........... 452 2,760 10,249 (15,114) (12,806) (6,863) (7,857)
AT JUNE
AT DECEMBER 31, 30,
----------------------------------------------------- ---------
1994 1995 1996 1997 1998 1998
--------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:
Current assets.......................................... $ 2,176 $ 2,528 $ 6,661 $ 6,255 $ 6,767 $ 6,264
Total assets............................................ 14,684 21,713 33,440 28,915 29,252 28,526
Current liabilities..................................... 3,768 6,607 8,325 6,829 8,133 8,855
Total debt.............................................. 9,137 11,118 23,132 15,100 9,822 12,839
Total members' equity................................... 4,187 8,000 7,528 11,513 16,697 12,856
1999
---------
BALANCE SHEET DATA:
Current assets.......................................... $ 5,118
Total assets............................................ 27,177
Current liabilities..................................... 6,620
Total debt.............................................. 7,223
Total members' equity................................... 17,043
- ------------------------
(1) Consists of non-recurring charges related to sale of business and certain
litigation involving the prior owners of the Diamond Jo and GDREC.
(2) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as income before income taxes plus fixed charges. Fixed charges
include interest expense on all indebtedness, amortization of deferred
financing costs and one-third of rental expense on operating leases
representing that portion of rental expense deemed to be attributable to
interest.
(3) EBITDA represents earnings before interest, income taxes, depreciation and
amortization and excludes non-recurring charges and loss on sale of assets
for all periods presented. EBITDA for 1995 and 1996 excludes $1.9 million
and $2.4 million, respectively, of operating lease expense related to the
Diamond Jo prior to its purchase. EBITDA is presented to enhance the
understanding of our financial performance and our ability to service our
indebtedness, including the notes. We understand that it is used by certain
investors as one measure of cash flow and enables a comparison of our
performance with the performance of other companies that report EBITDA.
EBITDA is not a measurement determined in accordance with GAAP as an
indicator of financial performance and should not be considered an
alternative to, or more meaningful than, net income or income from
operations as an indicator of our operating performance, or cash flows from
operating activities as a measure of liquidity. Our definition of EBITDA may
not be the same as that used by other companies.
26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
"SELECTED COMBINED FINANCIAL DATA" AND THE COMBINED FINANCIAL STATEMENTS AND THE
RELATED NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. CERTAIN STATEMENTS
CONTAINED IN MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS CONSTITUTE "FORWARD- LOOKING STATEMENTS" WITHIN THE
MEANING OF THE LITIGATION REFORM ACT, WHICH INVOLVE RISKS AND UNCERTAINTIES. SEE
"FORWARD-LOOKING STATEMENTS."
We own and operate the Diamond Jo casino, the only riverboat gaming facility
in Dubuque, Iowa. The Diamond Jo opened in May 1994 with a small riverboat
gaming facility that included 332 slot machines and 17 table games. During 1994,
Iowa changed certain restrictions on gaming including (1) allowing slot machines
at racetracks, (2) requiring riverboats to make only 100 cruises per year
enabling them to operate predominantly dockside, (3) eliminating loss and
betting limits and (4) eliminating the space restrictions on gaming vessels that
could be used for gaming purposes. In October 1995, the Diamond Jo doubled its
size by replacing its smaller riverboat casino with the current riverboat
casino. Our current riverboat casino contains 650 slot machines and 39 table
games.
We derive approximately 96% of our net revenues from casino operations,
while the rest is derived primarily from food and beverage sales. Casino
operating expenses, which consist primarily of payroll and gaming taxes,
constitute approximately 40% of our casino revenues. Certain additional expenses
may be payable under the DRA operating agreement. See "Certain Relationships and
Related Transactions--Relationship with Dubuque Racing Association." Our
business activities since inception have been financed from (1) cash flow from
operations, (2) equity and other capital contributions of our members and (3)
secured financing.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
For the six months ended June 30, 1999 and 1998, Dubuque was a two-casino
market consisting of the Diamond Jo and the DGP. Casino gaming win in the
Dubuque market increased 9.3% to $38.3 million for the six months ended June 30,
1999 from $35.0 million for the six months ended June 30, 1998. We believe this
increase was primarily due to an increase in the number of slot machines at the
DGP from an average of 545 during the six month period ended June 30, 1998 to
600, an increase in popular nickel machines at the DGP from 58 to 104 and
changes in our game mix. Admissions to casinos in the Dubuque market decreased
.8% to 955,738 for the six months ended June 30, 1999 from 963,530 for the six
months ended June 30, 1998, primarily due to unusually inclement weather during
January 1999. For the six months ended June 30, 1999, our share of the Dubuque
market casino gaming win decreased 3.1% to 57.4% from 60.6% and casino
admissions decreased 1.5% to 55.2% from 56.7%, in each case, for the six months
ended June 30, 1998. We believe our market share decrease was primarily due to
the DGP reconfiguring its floor plan and increasing the number of its slot
machines from an average of approximately 545 during the six month period ended
June 30, 1998 to 600 at June 30, 1999, the maximum number the DGP is presently
contractually permitted to have.
Net revenues increased 3.8% to $22.9 million for the six months ended June
30, 1999 from $22.1 million for the six months ended June 30, 1998 due primarily
to improved marketing efforts, better tracking of, and communication with, our
VIP players through our new electronic player tracking system and a continued
review and change in our game mix. Our admissions for the six months ended June
30, 1999 decreased 3.4% to 527,289 from 546,035 for the six months ended June
30, 1998 primarily as a result of unusually inclement weather during January
1999. For the six months ended June 30, 1999, our win per admission increased
7.3% to $41.71 from $38.89 for the six months ended June 30, 1998 Our gaming
positions were unchanged at 949 at each of June 30, 1999 and June 30, 1998.
Consistent with an increase in net revenues, win per gaming position increased
3.6% to $128.04
27
for the six months ended June 30, 1999 from $123.64 for the six months ended
June 30, 1998. Our casino revenues also increased 3.6% to $22.0 million for the
six months ended June 30, 1999 from $21.2 million for the six months ended June
30, 1998. Casino revenues were derived 80.9% from slot machines and 19.1% from
table games for the six months ended June 30, 1999 compared to 80.3% from slot
machines and 19.7% from table games, respectively, for the six months ended June
30, 1998. The increase in casino revenues was due primarily to an increase in
slot revenues of 4.3% to $17.8 million for the six months ended June 30, 1999
from $17.1 million for the six months ended June 30, 1998. We believe that such
increases in slot revenues, casino revenues and win per gaming position were due
primarily to the same reasons net revenues increased for the six months ended
June 30, 1999 over the corresponding period of the prior year. Food and beverage
revenues and other revenues increased 10.2% to $1.2 million for the six months
ended June 30, 1999 compared to $1.1 million for the six months ended June 30,
1998, primarily due to an increase in food and beverage sales. Promotional
allowances increased by 11.7% to $0.26 million for the six months ended June 30,
1999 compared to $0.23 million for the six months ended June 30, 1998 due to an
increase in complimentary food and beverage provided to our Diamond Club
members. Promotional allowances represent the estimated value of goods and
services provided free of charge to casino patrons under our various marketing
programs.
Casino operating expenses increased 7.6% to $9.0 million or 41.0% of casino
revenues for the six months ended June 30, 1999 from $8.4 million or 39.4% of
casino revenues for the six months ended June 30, 1998. This increase of $0.6
million was due primarily to increased rental expense related to vendor
participation slot machines and higher gaming taxes as a result of higher
revenues. Food and beverage expenses increased 17.1% to $1.6 million for the six
months ended June 30, 1999 from $1.3 million for the six months ended June 30,
1998. We believe this increase was due to an increase in food cost due to
increased patronage at our bars and restaurants, an increase in food product
quality and an increase in payroll expenses. Selling, general and administrative
expenses increased 2.9% to $3.7 million for the six months ended June 30, 1999
from $3.6 million for the six months ended June 30, 1998, primarily due to an
increase in insurance costs as well as an increase in management bonus expenses.
Included in the six months ended June 30, 1999 and 1998 operating expenses were
non-recurring expenses of $0.6 million and $0.2 million, respectively, related
to the sale of the business and certain litigation involving the prior owners of
the Diamond Jo and GDREC.
Depreciation and amortization expense increased 18.7% to $1.1 million for
the six months ended June 30, 1999 from $0.9 million for the six months ended
June 30, 1998. This increase was due to the addition of our new electronic
player tracking system and the replacement/upgrade of slot machines. Net
interest expense was $0.2 million for the six months ended June 30, 1999 and
$0.6 million for the six months ended June 30, 1998. The reduction of interest
expense was due to a decline in outstanding debt and more favorable interest
rates on outstanding loans. Loss on disposal of assets was $0.1 million for the
six months ended June 30, 1999 and less than $0.1 million for the six months
ended June 30, 1998. These losses were attributable primarily to the
replacement/upgrade of slot machines.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
In 1998, Dubuque was a two-casino market consisting of the Diamond Jo and
the DGP. In 1997, Dubuque was a three-casino market for the months of January
through June and a two casino market for the months of July through December.
The third casino, the Silver Eagle, ceased operations in July 1997 due in part,
we believe, to competitive pressures and the effects of restrictive Illinois
gaming regulations. Casino gaming win in the Dubuque market increased 9.6% to
$73.5 million in 1998 from $67.1 million in 1997. We believe this increase was
primarily due to increased advertising and promotions by the Diamond Jo and the
DGP. Admissions to casinos in the Dubuque market of 2.0 million in 1998
increased 1.9% from admissions in 1997. Our share of the Dubuque market casino
gaming win and admissions were substantially unchanged at 60.0% and 56.7%,
respectively, in 1998, and 60.5% and 56.2%, respectively, in 1997.
28
Net revenues increased 7.6% to $45.8 million in 1998 from $42.6 million in
1997. Our admissions of 1.1 million in 1998 increased 2.8% from admissions in
1997. In 1998, win per admission increased 5.9% to $38.67 from $36.51 in 1997 as
a result of increased marketing expenditures, our new electronic player tracking
system and changes in our game mix, including hold percentages. Our gaming
positions were 949 at the end of both 1998 and 1997. In 1998, win per gaming
position increased 8.9% to $127.51 from $117.13 in 1997 as a result of the
foregoing reasons. Our casino revenues increased 8.9% to $44.2 million in 1998
from $40.6 million in 1997. Casino revenues were derived 80.9% from slot
machines and 19.1% from table games in 1998 compared to 79.3% and 20.7%,
respectively, in 1997. Slot revenues increased 10.9% to $35.7 million in 1998
from $32.2 million in 1997. This increase was primarily due to a 18.6% increase
in slot machine coin-in, which was partially offset by a decrease in the slot
machine hold percentage. We lowered the slot machine hold percentages to
encourage longer play from, and to enhance the overall gaming experience for,
our current customer base which we believe has resulted in increased slot
revenue. Table revenues were substantially unchanged at $8.5 million in 1998
compared to $8.4 million in 1997. Food and beverage and other revenues decreased
8.0% to $2.2 million in 1998 from $2.4 million in 1997 due to lower food and
beverage prices designed to attract more gaming customers. Promotional
allowances increased 45.6% to $0.6 million in 1998 from $0.4 million in 1997 due
to increased complimentary food and beverage provided to our Diamond Club
members.
Casino operating expenses increased 5.7% to $17.3 million in 1998 from $16.3
million in 1997, but decreased as a percentage of casino revenues to 39.1% in
1998 from 40.3% in 1997. The increase of $1.0 million was due primarily to
higher gaming taxes associated with the increased casino revenues that we
generated in 1998 as compared to 1997. Food and beverage expenses increased $0.3
million in 1998 due to an emphasis on serving higher quality food and beverages.
Selling, general and administrative expenses increased 8.2% to $7.5 million in
1998 from $6.9 million in 1997. The increase of $0.6 million was primarily the
result of higher employee benefit costs. Included in 1998 and 1997 operating
expenses were non-recurring expenses of $0.7 million and $0.1 million,
respectively, related to the sale of the business and $0.2 million and $0.1
million, respectively, related to certain litigation involving the prior owners
of the Diamond Jo and GDREC.
Depreciation and amortization expense increased 3.8% to $1.9 million in 1998
from $1.8 million in 1997. The increase in depreciation and amortization expense
was primarily due to the purchase of our new electronic player tracking system.
Net interest expense was $1.0 million and $1.5 million in 1998 and 1997,
respectively. The reduction of interest expense was due to a decline in
outstanding debt and more favorable interest rates on outstanding loans. Loss on
disposal of assets, which was primarily related to the replacement/upgrade of
slot machines, was substantially unchanged at $0.1 million.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
In 1997, Dubuque was a three-casino market for the months of January through
June and a two-casino market for the months of July through December. In 1996,
Dubuque was a two-casino market for the months of January through May and a
three-casino market for the months of June through December. After initially
closing in December 1995, the Silver Eagle reopened in May 1996 and then
permanently closed in July 1997. Casino gaming win in the Dubuque market
increased 5.8% to $67.1 million in 1997 from $63.4 million in 1996. We believe
this increase was primarily due to a 1.4% increase in casino admissions in the
Dubuque market to 2.0 million in 1997 from 1.9 million in 1996. Our share of the
Dubuque market casino gaming win and admissions were 60.5% and 56.2%,
respectively, in 1997 and 63.6% and 56.9%, respectively, in 1996. We believe our
market share declined in 1997 compared to 1996 as a result of an increase in the
number of slot machines at the DGP to 555 from 526.
Net revenues were substantially unchanged at $42.6 million in 1997 compared
to $42.3 million in 1996. Our admissions for 1997 and 1996 were substantially
unchanged at 1.1 million. In 1997, win per
29
admission was substantially unchanged at $36.51 compared to $36.30 in 1996. Our
gaming positions were 949 at the end of 1997 and 923 at the end of 1996. In
1997, win per gaming position decreased slightly to $117.13 from $119.20 in 1996
as a result of the increased number of gaming positions. Our casino revenues
were substantially unchanged at $40.6 million in 1997 compared to $40.3 million
in 1996. Casino revenues were derived 79.3% from slot machines and 20.7% from
table games for 1997 compared to 75.8% and 24.2%, respectively, for 1996. We
believe the change in revenues derived from slot machines and table games is
reflective of the increasing popularity of slot machines among our customer
base. Slot revenues increased 5.4% to $32.2 million in 1997 compared to $30.5
million in 1996. This increase was primarily due to a 8.3% increase in slot
machine coin-in, which was partially offset by a decrease in the slot machine
hold percentage. The increase in slot machine coin-in was the result of our
emphasis on lower denomination slot machines which received higher levels of
customer play. Table revenues decreased 13.9% to $8.4 million in 1997 from $9.7
million in 1996. The decrease in table revenues was due to a 14.1% decrease in
table game hold percentages. We believe the decline in table game hold
percentage was due to the increased sophistication of players of table games.
Food and beverage revenues, other revenues and promotional allowances were
substantially unchanged at $2.0 million in 1997 and 1996.
Casino operating expenses increased 2.0% to $16.3 million or 40.3% of casino
revenues in 1997 from $16.0 million or 39.8% of casino revenues in 1996. The
increase of $0.3 million was due primarily to increases in wages for casino
employees. Food and beverage expenses decreased $0.4 in 1997 million due to our
focus on controlling food costs. Selling, general and administrative expenses
decreased 27.4% to $6.9 million in 1997 from $9.6 million in 1996. This decrease
was primarily related to the elimination of the operating lease for our current
riverboat prior to its purchase in August 1996. Included in 1997 operating
expenses are non-recurring expenses of $0.1 million, related to the sale of the
business. Included in both 1997 and 1996 operating expenses are non-recurring
expenses of $0.1 million related to certain litigation involving the prior
owners of the Diamond Jo and GDREC.
Depreciation and amortization expense decreased 9.8% to $1.8 million in 1997
from $2.0 million in 1996. The decrease in depreciation and amortization expense
was due to the disposal of our original riverboat in December 1996. Net interest
expense was $1.5 million and $1.7 million in 1997 and 1996, respectively. The
reduction in interest expense was due to a decline in outstanding debt and more
favorable interest rates on outstanding loans. Loss on disposal of assets was
$0.1 million and $6.9 million in 1997 and 1996, respectively. The loss in 1997
was attributable almost entirely to the replacement/upgrade of slot machines
while the loss in 1996 was attributable primarily to the sale of our original
riverboat.
LIQUIDITY AND CAPITAL RESOURCES
During 1998, we generated $14.6 million in cash flows from operations as
compared to $12.5 million in 1997. The increase in cash flows from operations
was due to an increase in net income of $1.1 million and changes in working
capital of $0.9 million due to increases in accounts payable and accrued
expenses.
Net cash flows used for investing activities were $1.8 million in 1998. The
primary uses of funds were for maintenance capital expenditures. Net cash flows
provided by investing activities were $4.2 million in 1997. The majority of the
proceeds were from the payment of a note receivable from a related party
relating to the sale of our original riverboat in 1996.
Cash flows used by financing activities in 1998 were $12.8 million comprised
primarily of $5.8 million of payments on long-term debt and $7.0 million of
member distributions. Cash flows used by financing activities for 1997 were
$15.1 million comprised primarily of $8.0 million of payments on long-term debt
and $6.6 million of member distributions.
We believe that cash on hand and cash generated from operations will be
sufficient to satisfy our working capital requirements, maintenance capital
expenditures and other cash obligations. However,
30
we cannot assure you that this will be the case. If cash on hand and cash
generated from operations are insufficient to meet these obligations, we may
have to refinance our debt or sell certain of our assets to meet our
obligations. See "Risk Factors--Ability to Service Debt," "--DRA Operating
Agreement" and "--Taxation."
Under the terms of the indenture governing the notes, we have the ability to
obtain a new credit facility in the future to borrow up to $10.0 million if we
determine that the availability of such a facility would benefit our operations.
We expect to finance the future construction of our planned hotel out of cash
from operations and may secure additional financing through a portion of our new
credit facility. We expect that the total cost to build the hotel will not
exceed $11.5 million. There can be no assurance, however, that we will be able
to enter into such a credit facility on commercially reasonable terms. See "Risk
Factors--Risks Related to Hotel/Ice Harbor Development Plans."
SEASONALITY AND INFLATION
Our business is subject to seasonal fluctuations in the Iowa gaming
business, which is typically weaker from November through February as a result
of adverse weather conditions, and typically stronger from March through
October. In general, our payroll and general and administrative expenses are
affected by inflation. Although inflation has not had a material effect on our
business to date, we could experience the effects of inflation in future
periods.
YEAR 2000 READINESS
We have reviewed our computer systems, and we believe that our operations,
other than those of our vendors and suppliers, are Year 2000 compliant. The
software programs on which we rely for financial and gaming operations are Year
2000 compliant. We have updated or replaced our significant hardware.
We recently surveyed our vendors and suppliers to ascertain their Year 2000
compliance and to determine what precautions, if any, we must take to ensure
that Year 2000 issues do not interrupt our operations in early 2000. We have
received responses from a majority of our vendors and suppliers that they are
Year 2000 compliant. We believe that the vendors and suppliers who have not
responded to our surveys are not significant to our operations or may be
replaced. Although any of our suppliers or vendors could be affected by the Year
2000 issues, two areas of concern are payroll and electricity.
We rely on a third-party payroll service provider for timely payment of our
employees' wages. A failure of the computer systems of our payroll service
provider could result in unpaid wages, with a potential material adverse effect
on our operations. In December 1999, we intend to set aside sufficient cash
reserves to cover several weeks of payroll expense, which we would disburse to
our employees if Year 2000 problems prevent our payroll services provider from
making such payments.
We rely on a local utility for our electricity supply. However, we have the
capacity to generate electricity sufficient for our operating needs by running
generators powered by the riverboat's diesel engines. The Diamond Jo does not
cruise in the winter months, so our fuel consumption at that time of year is
minimal. We intend to store sufficient fuel by December 1999 to allow us to
generate electricity for our operations for several weeks, should our local
supplier of electricity fail to provide service at the beginning of next year.
In accordance with Coast Guard directives, we were required to prepare a
detailed contingency plan for dealing with Year 2000 issues by July of this
year. We have completed this plan and submitted it to the Coast Guard. The plan,
as required, addresses all of our major operations, including mechanical and
electrical systems.
The cost of our Year 2000 compliance program has not been material. We do
not anticipate future costs to materially affect our operations. See "Risk
Factors--Year 2000 Compliance."
31
BUSINESS
GENERAL
We own and operate the Diamond Jo riverboat casino, one of only two licensed
gaming operations in Dubuque, Iowa. We are the leading gaming facility in our
market, having captured approximately 60% of Dubuque's casino gaming revenues
since 1995, our first full year of operations. Our net revenues in 1998
increased 7.6% from 1997 to $45.8 million, and our EBITDA increased 9.6% to
$16.1 million for the same period. We attribute our success to our competitive
position and our unique local gaming operations, offering the most gaming
positions and the only table games, video poker and video keno within 60 miles
of Dubuque. Further, we believe that additional competitors are effectively
precluded from entering our market due to constraints imposed by existing laws
on the availability of gaming licenses.
We anticipate continued growth through a combination of targeted marketing
initiatives, enhanced by our new electronic player tracking system, and locally
funded development programs, including the $27 million redevelopment project in
Dubuque's Ice Harbor, where the Diamond Jo is located. This project is designed
to establish the Ice Harbor as a community center and tourist destination.
Additionally, we intend to construct a hotel contiguous to the Diamond Jo to
capitalize on increased customer traffic anticipated from the Ice Harbor
redevelopment project and to expand our geographic reach. We believe that these
developments will provide us with opportunities to significantly expand our
customer base, resulting in increased revenues and EBITDA.
THE DIAMOND JO
The Diamond Jo is a three-story, approximately 51,900 square foot riverboat
casino, replicating a classic 19th century paddlewheel. The riverboat has the
capacity for 1,390 patrons, features a spacious two-story atrium, and offers 650
slot machines and 39 table games in approximately 17,800 square feet of gaming
space. Adjacent to the Diamond Jo is a two-story, approximately 33,000 square
foot dockside pavilion, featuring the recently renovated 116-seat Lighthouse
Grill restaurant, the 175-seat Lucky Jo Saloon, the 30-seat Java Jo Coffee Bar,
a gift shop, and the 205-seat Harbor View Room, a full service banquet facility.
Approximately 1,000 convenient parking spaces are available to our patrons,
including valet parking. The Diamond Jo is open seven days a week (7 a.m. to 2
a.m. on Sunday, Monday, and Tuesday; 8 a.m. to 4 a.m. on Wednesday and Thursday;
and 24 hours on Friday and Saturday) and functions primarily as a dockside
riverboat with continuous boarding. The Diamond Jo is required by Iowa law to
cruise only 100 times per year, for a minimum of two hours per cruise, which we
satisfy by conducting a two-hour cruise at 7:00 a.m. on weekdays during the
spring and summer months.
The Diamond Jo operates from, and the dockside pavilion is located in,
Dubuque's Ice Harbor, a waterfront development on the Mississippi River in
downtown Dubuque. The Diamond Jo is centrally located in the Ice Harbor in
downtown Dubuque and is accessible from each of the major highways in the area.
On average, more than 30,000 vehicles pass our site per day. We share our
dockside pavilion with the Spirit of Dubuque dinner-boat and the Iowa Welcome
Center, featuring a museum, historical exhibits, shops, and an observation deck.
The Mississippi River Museum is located within a five-minute walk from our site.
Several cruise ships that operate on the Mississippi River, such as the Delta
Queen and the Mississippi Queen, stop at the Ice Harbor regularly during the
summer months. We believe that the Diamond Jo is among the principal
entertainment venues for residents in and around Dubuque.
CITY OF DUBUQUE
Dubuque is situated at the intersection of Illinois, Iowa and Wisconsin and
acts as the region's trade hub. Dubuque has a diverse employer base, which
includes John Deere Dubuque Works, Farmland Foods, Flexsteel Industries, CIGNA
Corporation and Eagle Manufacturing, as well as local
32
schools and hospitals. The Diamond Jo currently draws approximately 95% of its
patrons from within a 100-mile radius of the Diamond Jo, an area of
approximately 2.8 million residents with an average household income of
approximately $48,200. Casino gaming revenues in Dubuque have grown at a
compound annual rate of 7.5% since 1996, and there are no betting or loss limits
in Iowa. We believe that visitors to Dubuque and Galena, a historic community
located 15 miles east of Dubuque, offer us a potential additional source of
revenues. Dubuque contains several tourist attractions, drawing more than one
million visitors annually, and Galena draws more than two million visitors
annually.
In an effort to revitalize and enhance downtown Dubuque and to honor and
preserve the Mississippi River, the Dubuque County Historical Society's
Mississippi River Museum, the City of Dubuque, and the Dubuque Area Chamber of
Commerce Foundation and numerous private corporations, foundations and
individuals, as well as state and federal agencies, have recently commenced a
redevelopment project around the Ice Harbor in downtown Dubuque. This project is
expected to restore beauty and excitement to the Ice Harbor through the
development of eight different projects. 17.3 million has been funded to date
for this planned $27 million redevelopment project. Plans for the redevelopment
project, which the City of Dubuque expects will be completed in several phases
over the next four years, include the following:
- a retired steamboat where visitors will learn about navigation and how the
Mississippi River system of locks and dams works (recently put in place);
- a one-third mile promenade along the perimeter of the Fourth Street
Peninsula with decorative paving, historic lighting, benches, and
landscaping (construction to begin in October 1999);
- a 500-foot walkway along the Ice Harbor from the River Museum to the
Rivers Edge Plaza (construction to begin in June 2000);
- an eight-mile extension of the existing 18-mile Heritage Trail system with
links to riverfront parks and other attractions (construction to begin in
June 2000);
- a 5,000 square foot landscaped open area to be used as a dock for large
boats and a site for relaxation and river watching (construction to begin
in April 2001);
- a 70,000 square foot museum (construction to begin in 2000);
- an outdoor wetland habitat for wildlife with several large aquariums and a
unique educational center (construction to begin in July 2000); and
- a 7,500 square foot amphitheater with seating for 1,000 people for
festivals, music and drama to be constructed on the levee at the historic
Star Brewery (construction to begin in July 2001).
This redevelopment project is designed to enhance the attractiveness of the
Ice Harbor as a community center and tourist destination, which we believe
should lead to increased foot traffic around the site of, and increased
admissions to, the Diamond Jo. To further capitalize on the Ice Harbor
redevelopment project, we intend to develop a hotel contiguous to our riverboat
casino and dockside pavilion. The hotel is expected to contain 100 to 150 guest
rooms and offer meeting space to attract professional and civic organizations
for conferences, banquets and other events. The hotel should enable us to extend
our geographic reach and target certain tourists markets, including more than
two million annual visitors to Galena.
CASINO OPERATIONS
We regularly adjust our overall game mix to appeal to our target market,
based on, among other factors, the coin-in, hold percentage, location and age of
our various slot machines. Approximately 70% of the Diamond Jo's gaming
positions are slot machines. The 650 slot machines, all of which have bill
validators, include denominations of $0.05 to $25.00, with more than 97% of the
machines $1.00 or
33
lower in denomination. At any one time, approximately 20% to 25% of our slot
machines are video poker, video keno, and other electronic games of skill. Since
January 1996, we have replaced or installed conversion packages on approximately
413 slot machines. The recent authorization in Iowa of wide area progressives,
networks of slot machines throughout several casinos resulting in higher
jackpots, has allowed us to further improve our product mix with the
introduction of 8 linked slot machines. The 39 table games offered by the
Diamond Jo include three craps, two roulette, 25 blackjack, two Caribbean Stud,
two Let-It-Ride, and five poker tables, primarily with low betting limits.
During 1998, slot machines accounted for 80.9% of our gaming revenues,
generating an average win per slot machine per day of approximately $150. Table
games accounted for 19.1% of our gaming revenues in 1998, generating an average
win per table per day of approximately $586. Our win per gaming position
increased by 8.9% in 1998 from 1997, which we believe reflects our success in
changing our game mix during the year.
MARKETING STRATEGY
We have developed marketing and promotional strategies designed to attract
new customers and reward frequent gaming customers. In order to attract new
customers and create a high level of brand recognition, we frequently use
billboard, print, radio, and television advertising throughout the Dubuque area
as well as promotional offerings. In addition, in order to maintain and enhance
goodwill within the Dubuque area, we sponsor numerous community events. We
believe we are Dubuque's largest sponsor of such events, which include air
shows, hydroplane races, concerts and holiday celebrations, such as Memorial Day
and 4th of July fireworks. We have also implemented extensive employee
incentives and training programs designed to provide a high level of
personalized service to our customers. Patrons of the Diamond Jo are offered
membership to our players' club, known as the Diamond Club, which includes
bimonthly mailings, gaming incentives, and food and beverage discounts. In
September 1998, we installed a state-of-the-art electronic player tracking
system to monitor slot machine activity in real time, as well as the frequency
and level of play for our more than 100,000 Diamond Club members. This system
enables us to focus our marketing efforts on our most valued customers and
increase revenues from our existing customer base. Better tracking of, and
communications with, our VIP players through our new electronic player tracking
system, among other things, resulted in our win per admission increasing 7.3%
for the six months ended June 30, 1999 compared to the same period in 1998.
COMPETITION
GENERAL. Riverboat gaming licenses in the State of Iowa are granted to
not-for-profit "qualified sponsoring organizations" which may operate the
riverboats themselves or may enter into agreements with other parties to operate
the riverboats. The granting of new licenses requires regulatory approval, which
includes, among other things, satisfactory feasibility studies. The DRA is the
not-for-profit organization that holds the Diamond Jo's qualified sponsoring
organization gaming license and has contracted with us to operate the Diamond
Jo. See "Regulatory Matters" and "Certain Relationships and Related
Transactions--Relationship with Dubuque Racing Association."
In 1998, the Gaming Commission adopted a rule that limits the number of
riverboat gaming licenses in Iowa to ten, subject to certain exceptions
(including licenses issued to purchasers of existing licensed facilities and
licenses issued to replace an existing facility if its license is surrendered,
not renewed, or revoked) and prohibits the transfer of a license outside the
county in which the riverboat operated on May 1, 1998. There are currently nine
licensed riverboat gaming facilities operating in Iowa, and the Gaming
Commission recently approved a gaming license for a riverboat to be located
south of Des Moines, Iowa, approximately 250 miles from us, that is not yet in
operation. The rule also prohibits existing licensees from increasing the number
of table games or slot machines at their gaming facilities without prior Gaming
Commission approval. The 1999 legislature considered, but did not
34
adopt, proposals to further limit the number of riverboats and expansion of
existing boats and to make other changes in Iowa's gaming laws.
The Dubuque gaming market borders other neighboring gaming markets. These
neighboring markets include: (1) Elgin and Aurora, Illinois to the east; (2)
Marquette, Iowa and Native American gaming in Wisconsin and Minnesota to the
north; (3) Des Moines, Iowa and Native American gaming in Tama, Iowa to the
west; and (4) Clinton, Iowa and the Quad Cities (Bettendorf and Davenport, Iowa
and Moline and Rock Island, Illinois) to the south. We believe that the Diamond
Jo competes only indirectly with gaming facilities in these neighboring markets.
See "Risk Factors--Competition."
DUBUQUE. The Diamond Jo's principal competition is the only other licensed
gaming facility in Dubuque, the DGP. The DGP, which opened its casino in 1995,
is located three miles north of the Diamond Jo and offers 600 slot machines and
live greyhound racing from May through October of each year with simulcasts from
other greyhound tracks. The DGP also offers, on a limited basis, simulcasts of
horse races. The DGP is owned and operated by the DRA. As a not-for-profit
organization, the DRA distributes a percentage of its cash flow to the City of
Dubuque and local charities. The DRA operating agreement allows us to restrict
the number of slot machines at the DGP to 600 if we do not increase the number
of slot machines at the Diamond Jo to more than 650. In addition, subject to
certain conditions, the DRA operating agreement allows us to require that the
weighted average theoretical slot payback percentage at the DGP not exceed ours
by more than 0.5%. We have elected to apply both of these restrictions to the
DGP. Under Iowa law, table games, video poker, video keno and other electronic
games of skill are not permitted at the DGP and, subject to certain conditions,
we may prevent the DGP from having these games even if they were allowed to
operate them under Iowa law. See "Risk Factors--DRA Operating Agreement" and
"Certain Relationships and Related Transactions--Relationship with Dubuque
Racing Association."
The Diamond Jo competed with the Silver Eagle, which was located five miles
east of us in East Dubuque, Illinois, through substantially all of 1995 and from
May 1996 to July 1997, the date on which the Silver Eagle ceased operations. We
believe the Silver Eagle ceased operations as a result of competitive pressures
from (1) the Diamond Jo, which commenced operations of a larger riverboat during
1995, (2) the DGP, which commenced operations during 1995, and (3) relaxation of
Iowa gaming laws in 1995, permitting riverboat casinos in Iowa, such as the
Diamond Jo, to operate predominately dockside while Illinois legislation
required riverboat casinos in Illinois, such as the Silver Eagle, to operate
only while cruising. Legislation was recently enacted in Illinois to provide for
dockside gaming in Illinois (which dockside gaming is limited to ten licenses,
nine of which are currently active and the tenth of which, we believe, will be
located in Rosemont, Illinois) and to relocate the existing but inactive
riverboat gaming license to Cook County, Illinois (outside the city limits of
the City of Chicago). We believe that additional competitors are effectively
precluded from entering our market, due to constraints imposed by existing laws
on the availability of gaming licenses. See "Risk Factors--Competition."
Since 1995, our first full year of operations, we have consistently captured
approximately 60% of the casino gaming revenues in Dubuque.
EMPLOYEES
We maintain a staff of approximately 475 to 500 full-time equivalent
employees, depending upon the time of the year. None of our employees are
covered by a collective bargaining agreement. The Company has not experienced
any labor problems resulting in a work stoppage, and believes it maintains good
relations with its employees.
35
LEGAL PROCEEDINGS
Except as described below, we are not a party to, and none of our property
is the subject of, any pending legal proceedings other than litigation arising
in the normal course of business. We believe such litigation is either covered
by insurance or not material. We are not assuming liability for any litigation
involving the Diamond Jo or any of the related real property pursuant to our
acquisition of the Diamond Jo from GDREC and of such real property from HCI.
Such acquisitions are referred to herein as, the "acquisition of the Diamond
Jo."
The footnotes to the historical financial statements included in this
prospectus contain references to expenses associated with certain GDREC
ownership litigation. We are not a party to such litigation, and, under the
terms of our acquisition agreements, we have not assumed any liabilities in
connection with such litigation.
On June 3, 1999, GDREC filed an arbitration demand with the American
Arbitration Association concerning certain rights, privileges and preferences
relating to the preferred membership interests we issued in connection with our
acquisition of the Diamond Jo (including, without limitation, with respect to
preferences as to distributions and upon liquidation). Prior to consummation of
the acquisition of the Diamond Jo, however, GDREC's claims arising out of such
arbitration demand were resolved, and on July 15, 1999, the arbitration demand
was withdrawn by GDREC.
PROPERTIES
The properties acquired by us upon consummation of the acquisition of the
Diamond Jo are located within the historic Ice Harbor district on the west bank
of the Mississippi River in Dubuque, Iowa. These properties consist of several
parcels of real property owned by HCI. We own a fee interest in (1) the dockside
pavilion, consisting of approximately 33,000 square feet, (2) surface parking
lots within close proximity to the dockside pavilion, and (3) the walkway
connecting the dockside pavilion to the dock to which the Diamond Jo is moored.
In addition to the properties we purchased, we currently lease (1) property
used as a patio located between the dockside pavilion and the Diamond Jo and (2)
property used as surface parking consisting of approximately 445 parking spaces
that are in close proximity to the Diamond Jo, a portion of which is expected to
be used for construction of the new hotel. These leased properties are currently
owned by the City of Dubuque and leased to the DRA, which in turn subleases
these properties to us. The sublease requires us to pay one dollar ($1.00) per
year as rent. In connection with the acquisition of the Diamond Jo, we are
acquiring GDREC's interests in this sublease. The terms of the DRA lease with
the City of Dubuque and our sublease with the DRA have each been extended
through December 31, 2008.
The DRA is also party to a parking agreement by and among the City of
Dubuque, GDREC and other parties, which governs the use of the parking spaces we
currently sublease from the DRA. Pursuant to this parking agreement, our patrons
have the non-exclusive right to use the approximately 445 parking spaces
currently subleased from the DRA. This agreement also gives our patrons and
employees the non-exclusive right to use approximately 335 additional parking
spaces that are owned by the City of Dubuque and are located in close proximity
to the Diamond Jo. In exchange for these parking rights and the extension of the
sublease with the DRA, we are required, under certain circumstances, to share
costs of maintaining the subleased parking lots. In the future, we may amend the
parking agreement to reallocate parking spaces that may be affected by the
construction of our planned hotel.
The Gaming Commission approved our application for a license to operate a
gaming riverboat on May 20, 1999, effective upon the transfer of the Diamond Jo
to us. As a condition to the grant of our gaming license, we are required by the
Gaming Commission to spend up to a maximum of
36
$11.5 million to develop and construct a hotel contiguous to the Diamond Jo. It
is contemplated that the hotel will contain 100 to 150 guest rooms and offer
meeting space for conferences, banquets and other events. Although construction
of the new hotel is expected to result in the loss of certain existing parking
spaces, we believe there will be adequate alternatives available to address our
parking needs. Our ability to develop and construct the hotel will, among other
things, depend upon the availability of sufficient financing and our receipt of
necessary permits and licenses. We intend to commence construction of the hotel
by the end of December 2000. We presently have neither commitments for any
financing nor the requisite permits, licenses or approvals necessary for
construction of the proposed hotel, and no assurance can be given that such
financing, permits, licenses and approvals will be timely received, if at all.
See "Risk Factors--Risks Related to Hotel/Ice Harbor Development."
In connection with our commitment to develop and construct the hotel, we are
currently negotiating a lease (the "City Lease") with the City of Dubuque for
(1) certain real property on which we plan to construct the hotel, and (2) a
parcel of real property presently used as a patio for the dockside pavilion.
These properties are currently subject to the DRA sublease described above and,
assuming we enter into the City Lease, will be excluded from the DRA sublease
and instead will be leased by us directly from the City of Dubuque. Subject to
approval of the DRA and the Gaming Commission, we expect that the City Lease
will provide for a minimum lease term of thirty-nine (39) years and annual rent
of One Dollar ($1.00) through December 31, 2004. Thereafter, through the end of
the lease term annual rent is expected to be based on a percentage of the excess
by which the appraised value of the leased property exceeds the appraised value
of certain real estate to be deeded by HCI to the City of Dubuque on or prior to
the closing of the acquisition of the Diamond Jo. We will pay all property taxes
for properties leased from the City of Dubuque. We can give no assurances that
we will be able to enter into the City Lease on the terms described above or on
terms satisfactory to us.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We have $71 million principal amount of notes outstanding under our
indenture. We have no variable rate debt. Our fixed debt instruments are not
generally affected by a change in the market rates of interest and therefore,
such instruments generally do not have an impact on future earnings. However, as
our fixed rate debt matures, future earnings and cash flows may be impacted by
changes in interest rates related to debt incurred to fund repayments under
maturing facilities. Additionally, should we assume variable rate debt in the
future, we will be subject to market risk, which is the risk of loss from
changes in market prices and interest rates.
37
REGULATORY MATTERS
GENERAL
We are subject to regulation by the State of Iowa and, to a lesser extent,
by federal law. We are subject to regulations that apply specifically to the
gaming industry and casinos, in addition to regulations applicable to businesses
generally. Legislative or administrative changes in applicable legal
requirements, including legislation to prohibit casino gaming, have been
proposed from time to time. It is possible that the applicable requirements to
operate an Iowa gaming facility will become more stringent and burdensome, and
that taxes, fees and expenses may increase. It is also possible that the number
of authorized gaming licenses in Iowa may increase, which would intensify the
competition that we face. Our failure to comply with detailed regulatory
requirements may be grounds for the suspension or revocation of one or more of
our licenses which would have a material adverse effect on us. See "Risk
Factors--Gaming Regulations."
IOWA RIVERBOAT GAMING REGULATION
Our operations are subject to Chapter 99F of the Iowa Code and the
regulations promulgated thereunder and the licensing and regulatory control of
the Gaming Commission.
Under Iowa law, the legal age for gaming is 21, and wagering on a "gambling
game" is legal when conducted by a licensee on an "excursion gambling boat." An
"excursion gambling boat" is a self-propelled excursion boat, and a "gambling
game" is any game of chance authorized by the Gaming Commission. While dockside
casino gaming is currently authorized by the Gaming Commission, a licensed
excursion gambling boat is required to conduct at least one two-hour excursion
cruise each day for at least 100 days during the excursion season to operate
during the off-season. The excursion season is from April 1st through October
31st of each calendar year. The excursions conducted by the Diamond Jo during
the 1998 cruising season satisfied the requirements of Iowa law for the conduct
of off-season operations.
The legislation permitting riverboat gaming in Iowa authorizes the granting
of licenses to "qualified sponsoring organizations." A "qualified sponsoring
organization" is defined as a nonprofit corporation organized under Iowa law,
whether or not exempt from federal taxation, or a person or association that can
show to the satisfaction of the Gaming Commission that the person or association
is eligible for exemption from federal income taxation under SectionSection
501(c)(3), (4), (5), (6), (7), (8), (10) or (19) of the Internal Revenue Code (a
"not-for-profit corporation"). The not-for-profit corporation may operate the
riverboat itself, or it may enter into an agreement with another party (a "boat
operator") to operate the riverboat on its behalf. A boat operator must be
approved and licensed by the Gaming Commission. The DRA, a not-for-profit
corporation organized for the purpose of operating a pari-mutuel greyhound
racing facility in Dubuque, Iowa, first received a riverboat gaming license in
1990 and has served as the "qualified sponsoring organization" of the Diamond Jo
since March 18, 1993. The DRA subsequently entered into the DRA operating
agreement with GDREC, authorizing GDREC to operate riverboat gaming operations
in Dubuque. The DRA operating agreement was approved by the Gaming Commission on
March 18, 1993. The term of the DRA operating agreement currently runs until
March 31, 2002, with two three-year renewal options thereafter, subject to the
satisfaction of certain conditions. We will assume the rights and obligations of
GDREC under the DRA operating agreement. See "Certain Relationships and Related
Transactions--Relationship with Dubuque Racing Association."
Under Iowa law, a license to conduct gaming may be issued in a county only
if the county electorate has approved such gaming. The electorate of Dubuque
County, Iowa, which includes the City of Dubuque, approved gaming on May 17,
1994 by referendum, including gaming conducted by the Diamond Jo. Approximately
80% of the votes cast approved gaming at such time. However, the 2002 Referendum
must be held at the general election in 2002, and a reauthorization referendum
must be
38
held each eight years thereafter. Each such referendum requires the vote of a
majority of the votes cast. If any such reauthorization referendum is defeated,
Iowa law provides that any previously issued gaming license will remain valid
for a total of nine years from the date of original issuance of the license,
subject to earlier nonrenewal or revocation under Iowa law and regulations
applicable to all licenses.
For a discussion of possible adverse consequences to us if the 2002
Referendum does not pass, see "Risk Factors--DRA Operating Agreement" and
"--Reauthorization of Gaming in Dubuque County, Iowa."
Proposals to amend or supplement Iowa's gaming statutes are frequently
introduced in the Iowa state legislature. In addition, the state legislature
from time to time considers proposals to amend or repeal Iowa law and
regulations, which could effectively prohibit riverboat gaming in the State of
Iowa, limit the expansion of existing operations or otherwise affect our
operations. Although we do not believe that a prohibition of riverboat gaming in
Iowa is likely, we can give no assurance that changes in Iowa gaming laws will
not occur or that such changes will not have a material adverse effect on our
business. See "Risk Factors--Gaming Regulations."
The Gaming Commission adopted in 1998 a rule that prohibits licensees,
including the Diamond Jo, from increasing the number of gaming tables and gaming
machines without Gaming Commission approval. This approval is based on several
factors, including whether the increase will (1) positively impact the community
in which the licensee operates, (2) result in permanent improvements and
land-based developments and (3) have a detrimental impact on the financial
viability of other licensees operating in the same market. As a result of this
rule, we may be unable to increase the number of gaming positions on the Diamond
Jo.
Substantially all of the Diamond Jo's material transactions are subject to
review and approval by the Gaming Commission. All contracts or business
arrangements, verbal or written, with any related party or in which the term
exceeds three years or the total value of the contract exceeds $50,000 must be
submitted in advance to the Gaming Commission for approval. Additionally,
contracts negotiated between the Diamond Jo and a related party must be
accompanied by economic and qualitative justification.
We must submit detailed financial, operating and other reports to the Gaming
Commission. We must file monthly gaming reports indicating adjusted gross
receipts received from gambling games and the total number and amount of money
received from admissions. Additionally, we must file annual financial statements
covering all financial activities related to our operations for each fiscal
year. We must also keep detailed records regarding our equity structure and
owners.
Iowa has a graduated wagering tax on riverboat gambling equal to five
percent (5%) of the first one million dollars of adjusted gross receipts, ten
percent (10%) on the next two million dollars of adjusted gross receipts and
twenty percent (20%) on adjusted gross receipts of more than three million
dollars. In addition, Iowa riverboats share equally in certain costs of the
Gaming Commission and related entities to administer gaming in Iowa, which is
currently approximately $316,000 per year per riverboat. Further, the Diamond Jo
pays to the City of Dubuque a fee equal to $.50 per passenger. See "Risk
Factors--Taxation."
If the Gaming Commission decides that a gaming law or regulation has been
violated, the Gaming Commission has the power to assess fines, revoke or suspend
licenses or to take any other action as may be reasonable or appropriate to
enforce the gaming rules and regulations. In addition, renewal is subject to,
among other things, continued satisfaction of suitability requirements.
39
REGULATORY REQUIREMENTS APPLICABLE TO OWNERS OF THE SECURITIES AND OTHERS
We are required to notify the Gaming Commission as to the identity of (and
may be required to submit background information regarding) each director,
corporate officer and owner, partner, joint venturer, trustee or any other
person who has a beneficial interest of five percent (5%) or more, direct or
indirect, in PGCL. The Gaming Commission may also request that we provide them
with a list of persons holding beneficial ownership interests in PGCL of less
than five percent (5%). For purposes of these rules, "beneficial interest"
includes all direct and indirect forms of ownership or control, voting power or
investment power held through any contract, lien, lease, partnership,
stockholding, syndication, joint venture, understanding, relationship, present
or reversionary right, title or interest, or otherwise. The Gaming Commission
may determine that holders of the notes, PGCL's common membership interests and
preferred membership interests, and PGP's common membership interests and
convertible preferred membership interests have a "beneficial interest" in us.
The Gaming Commission may limit, make conditional, suspend or revoke the license
of a licensee in which a director, corporate officer or holder of a beneficial
interest in such person includes or involves any person or entity which is found
to be ineligible as a result of want of character, moral fitness, financial
responsibility, or professional qualifications or due to failure to meet other
criteria employed by the Gaming Commission.
If any gaming authority, including the Gaming Commission, requires any
person, including a record or beneficial owner of the securities, to be
licensed, qualified or found suitable, such person must apply for a license,
qualification or finding of suitability within the time period specified by such
gaming authority. Such person would be required to pay all costs of obtaining
such license, qualification or finding of suitability. If a record or beneficial
owner of any of the notes or any membership interest of PGP or PGCL is required
to be licensed, qualified or found suitable and is not licensed, qualified or
found suitable by such gaming authority within the applicable time period, such
notes or membership interests will be subject to certain regulatory redemption
procedures. See "Risk Factors--Required Regulatory Redemption," "Description of
PGCL Membership Interests--PGCL Operating Agreement," "Description of
Notes--Redemption" and "Description of PGP Membership Interests--PGP Operating
Agreement."
As of the date of this prospectus, the Gaming Commission has not required
the securityholders to apply for a finding of suitability to own the securities.
However, the Gaming Commission could require a holder of the securities to
submit such an application in the future.
FEDERAL REGULATION OF SLOT MACHINES
We are required to make annual filings with the U.S. Attorney General in
connection with the sale, distribution or operation of slot machines. All
requisite filings for the most recent year and the current year have been made.
POTENTIAL CHANGES IN TAX AND REGULATORY REQUIREMENTS
From time to time, federal and state legislators and officials have proposed
changes in tax law, or in the administration of such laws, affecting the gaming
industry. The Gaming Commission and the Iowa legislature consider from time to
time limitations on the expansion of gaming in Iowa and other changes in gaming
laws and regulations. See "Business--Competition." Proposals at the national
level have included a federal gaming tax and limitations on the federal income
tax deductibility of the cost of furnishing complimentary promotional items to
customers, as well as various measures which would require withholding on
amounts won by customers or on negotiated discounts provided to customers on
amounts owed to gaming companies. It is not possible to determine with certainty
the likelihood of possible changes in tax or other laws or in the administration
of such laws. Such changes, if adopted, could have a material adverse effect on
our financial results.
40
The United States Congress created a national commission, the National
Gaming Impact Study Commission, which generally has the duty to conduct a
comprehensive legal and factual study of gambling in the United States and
existing federal, state and local policies and practices with respect to the
legalization or prohibition of gambling activities, to formulate and propose
changes in such policies and practices and to recommend legislation and
administrative actions for such changes. The national commission issued its
report to President Clinton, Congress, state governors and Native American
tribal leaders on June 18, 1999. Any of the recommendations made by the national
commission could result in the enactment of new laws and/or the adoption of new
regulations which could adversely impact the gaming industry in general. We are
unable at this time to determine the ultimate disposition of any of the
recommendations that the national commission made.
LIQUOR REGULATIONS
The sale of alcoholic beverages by us is or will be subject to the
licensing, control and regulation by the Liquor Agencies, which include the City
of Dubuque and the Alcoholic Beverage Division of the Iowa Department of
Commerce. The applicable liquor laws allow the sale of liquor during legal hours
which are Monday through Saturday from 6 a.m. to 2 a.m. the next day and Sunday
from 8 a.m. to 2 a.m. on Monday. Subject to certain exceptions, all persons who
have a financial interest in us, by ownership, loan or otherwise, must be
disclosed in an application filed with, and are subject to investigation by, the
Liquor Agencies. Persons who have a direct or indirect interest in any Iowa
liquor license, other than hotel or restaurant liquor licenses, may be
prohibited from purchasing or holding the notes. All licenses are subject to
annual renewal, are revocable and are not transferable. The Liquor Agencies have
the full power to limit, condition, suspend or revoke any such license or to
place a liquor licensee on probation with or without conditions. Any such
disciplinary action could (and revocation would) have a material adverse effect
upon the operations of our business. Certain of our owners, officers and
managers must be investigated by the Liquor Agencies in connection with our
liquor permits. Changes in licensed positions must be approved by the Liquor
Agencies.
UNITED STATES COAST GUARD
The Diamond Jo is also regulated by the United States Coast Guard, whose
regulations affect boat design and stipulate on-board facilities, equipment and
personnel (including requirements that each vessel be operated by a minimum
complement of licensed personnel), in addition to restricting the number of
persons who can be aboard the boat at any one time. Our riverboat must hold, and
currently possesses, a Certificate of Inspection and a Certificate of
Documentation from the United States Coast Guard. Loss of the Certificate of
Inspection would preclude our use of the Diamond Jo as an operating riverboat.
In addition, the riverboat is subject to United States Coast Guard regulations
requiring periodic hull inspections. Our next hull inspection is expected to
take place by April 2000. A traditional dry dock hull inspection would result in
the temporary loss of service of the riverboat for up to approximately two
weeks. The United States Coast Guard, upon request and approval of such request,
allows for an underwater hull inspection instead of the traditional out of water
dry dock inspection. An underwater hull inspection does not result in any loss
of services of the riverboat. If the Coast Guard approves our request for an
underwater hull inspection, we will be required to perform another hull
inspection within thirty 30 months from the date of such underwater hull
inspection. At that time, we may again seek approval from the Coast Guard for an
underwater hull inspection in order to avoid any loss of services of the
riverboat.
All of our shipping employees employed on United States Coast Guard
regulated vessels, even those who have nothing to do with the actual operation
of the vessel, such as dealers, cocktail hostesses and security personnel, may
be subject to maritime law, which, among other things, exempts those employees
from state limits on workers' compensation awards. We maintain workers'
compensation insurance in compliance with applicable Iowa law.
41
THE SHIPPING ACT OF 1916; THE MERCHANT MARINE ACT OF 1936
The Shipping Act of 1916, as amended, and the Merchant Marine Act of 1936,
as amended, and applicable regulations thereunder contain provisions which would
prevent persons who are not citizens of the United States from holding in the
aggregate more than 25% of our outstanding membership interests, directly or
indirectly. PGCL's and PGP's respective operating agreements contain
prohibitions against any purchase or transfer of PGCL's or PGP's respective
membership interests to any person or entity if, following such purchase or
transfer, more than 25% of PGCL's membership interests are owned, directly or
indirectly, by persons who are not citizens of the United States. Any such
purchase or transfer in violation of PGCL's or PGP's respective operating
agreements is null and void, and PGCL and PGP will not recognize the purchaser,
transferee or purported beneficial owner as a direct or indirect holder of an
interest in PGCL or PGP, respectively, for any purpose. To the extent required
by maritime laws, the managing member, managers and the officers of PGP and PGCL
shall be citizens of the United States. See "Description of PGCL Membership
Interests--PGCL Operating Agreement" and "Description of PGP Membership
Interests--PGP Operating Agreement."
OTHER REGULATIONS
We are subject to federal, state and local environmental and safety and
health laws, regulations and ordinances that apply to non-gaming businesses
generally, such as the Clean Air Act, Federal Water Pollution Control Act,
Occupational Safety and Health Act, Resource Conservation Recovery Act, Oil
Pollution Act and Comprehensive Environmental Response, Compensation and
Liability Act, each as amended. We have not incurred, and do not expect to
incur, material expenditures with respect to such laws. There can be no
assurances, however, that we will not incur material liability pursuant to such
laws in the future. See "Risk Factors--Environmental Matters."
42
MANAGEMENT
OFFICERS OF PGCL AND MANAGERS OF PGP
PGP is our parent and sole manager. The following table sets forth the names
and ages of the executive officers of PGCL and of the managers and executive
officers of PGP.
NAME AGE POSITION
- -------------------------------- --- ----------------------------------------------------------------
M. Brent Stevens................ 38 Manager of PGP; Director of PGC; Chief Executive Officer of PGP
and PGCL; President and Treasurer of PGC
Natalie A. Baum................. 29 Chief Financial Officer and Controller of PGCL
Michael S. Luzich............... 45 Manager of PGP; Director of PGC; Vice President of Corporate
Development and Secretary of PGP; Vice President and Secretary
of PGC; Secretary of PGCL
Terrance W. Oliver.............. 50 Manager of PGP
William L. Westerman............ 67 Manager of PGP
Andrew R. Whittaker............. 37 Manager of PGP
MANAGEMENT PROFILES
Following is a brief description of the business experience of each of the
executive officers of PGCL and of the managers and executive officers of PGP
listed in the preceding table.
M. BRENT STEVENS, MANAGER OF PGP; CHIEF EXECUTIVE OFFICER OF PGP AND PGCL;
DIRECTOR OF PGC; PRESIDENT AND TREASURER OF PGC. Mr. Stevens is a managing
director of Jefferies & Company, Inc., which he joined in 1990.
NATALIE A. BAUM, CHIEF FINANCIAL OFFICER AND CONTROLLER OF PGCL. Ms. Baum
joined the Diamond Jo in November 1996 and was formerly employed by Aerie Hotels
and Resorts in Oak Brook, Illinois as Corporate Accounting Manager. She was
responsible for the corporate accounting functions of the Silver Eagle, the
Eagle Ridge Inn and Resorts, located in Galena, Illinois and the Essex Hotel,
located in Chicago, Illinois. She served as Internal Audit Manager for the
Silver Eagle and was a member of a development team that successfully pursued a
riverboat gaming license in Indiana.
MICHAEL S. LUZICH, MANAGER, VICE PRESIDENT OF CORPORATE DEVELOPMENT AND
SECRETARY OF PGP; DIRECTOR, VICE PRESIDENT AND SECRETARY OF PGC; SECRETARY OF
PGCL. Mr. Luzich is the founder and President of the Cambridge Investment
Group, L.L.C., an investment and development company located in Las Vegas,
Nevada. Prior to October 1995, Mr. Luzich was a founding partner and director of
Fitzgeralds New York, Inc. and Fitzgeralds Arizona Management, Inc., which are
development companies responsible, respectively, for the Turning Stone Casino
near Syracuse, New York, for the Oneida Tribe and the Cliff Castle Casino near
Sedona, Arizona, for the Yavapai-Apachi Tribe.
TERRANCE W. OLIVER, MANAGER OF PGP. Since 1993, Mr. Oliver has served as a
director of and consultant to Mikohn Gaming Corporation, a gaming equipment
manufacturer headquartered in Las Vegas. From 1988 until 1993, Mr. Oliver served
as Chairman of the Board to the predecessor company of Mikohn. From 1984 until
1996, Mr. Oliver was a founding shareholder, board member and executive officer
of Fitzgeralds Gaming Corporation. Mr. Oliver retired as the Chief Operating
Officer of Fitzgeralds Gaming Corporation in 1996.
WILLIAM L. WESTERMAN, MANAGER OF PGP. Since 1992, Mr. Westerman has assumed
the positions of Chairman of the Board, Chief Executive Officer and President of
Riviera, Inc. and Chairman of the Board and Chief Executive Officer of Riviera
Operating Corporation. From July 1, 1991 until his appointment as Chairman of
the Board, Mr. Westerman served as a consultant to Riviera, Inc. From
43
1973 until June 30, 1991, Mr. Westerman held various positions with Cellu-Craft
Inc. and Alusuisse Flexible Packaging, manufacturers of flexible packaging used
primarily for food products, including serving as President and Chief Executive
Officer of Cellu-Craft Inc. and President of Alusuisse Flexible Packaging, a
wholly owned subsidiary of Alusuisse, which purchased Cellu-Craft Inc. on June
30, 1989.
ANDREW R. WHITTAKER, MANAGER OF PGP. Mr. Whittaker is an executive vice
president of Jefferies & Company, Inc., which he joined in 1990.
EMPLOYMENT AND CONSULTING AGREEMENTS
JAMES P. RIX, FORMERLY CHIEF OPERATING OFFICER OF PGCL. Mr. Rix resigned as
our Chief Operating Officer, effective November 20, 1999. Mr. Rix entered into
an employment agreement with us which has a term of three years, commencing July
15, 1999. Under the terms of his employment agreement, Mr. Rix was paid a
signing bonus of $100,000 and was entitled to receive an annual base salary of
$250,000 and, subject to certain conditions, an annual performance based bonus.
Mr. Rix's employment agreement provides for severance payments upon the
occurrence of certain events specified in his agreement. Mr. Rix has agreed to
certain restrictions which will limit his ability to compete with us for a
one-year period following his termination of employment.
NATALIE A. BAUM. Ms. Baum has entered into an employment agreement with us
which has a term of two years commencing July 15, 1999 and which renews
automatically for successive one year terms, unless terminated by her or us for
reasons specified in her employment agreement. Under the terms of her employment
agreement, Ms. Baum is entitled to a signing bonus of $25,000, an annual base
salary of $82,500 and a yearly performance based bonus of at least $20,000. Ms.
Baum is further entitled to at least a 5% annual salary increase, the actual
amount of such increase to be determined by the board of managers of PGP. Ms.
Baum has agreed to certain restrictions which will limit her ability to compete
with us for a one-year period following her termination of employment.
MICHAEL S. LUZICH. PGP has entered into a consulting agreement with Mr.
Luzich, pursuant to which Mr. Luzich, in consideration for certain corporate
development and consulting services to be rendered thereunder, is entitled to
receive compensation consisting of base salary and incentive payments in an
aggregate annual amount not to exceed $340,000. The consulting agreement has a
one year term and, subject to the occurrence of certain termination events, is
renewable automatically for successive one year terms. Mr. Luzich is entitled to
reimbursement of reasonable business expenses as approved by the board of
managers of PGP and incurred in connection with the performance of his services.
EXECUTIVE COMPENSATION
We were not organized until 1999. Based on existing agreements with members
of our senior management, only Mr. Rix and Ms. Baum will receive compensation in
excess of $100,000 during 1999.
Subject to the approval of the holders of at least 85% of the voting common
membership interests of PGP, PGP's board of managers may, from time to time,
issue additional incentive based equity interests in PGP at no less than fair
market value.
44
SUMMARY COMPENSATION TABLE
The following table sets forth all compensation awarded to, earned by or
paid to each of our Chief Executive Officer and to each of our executive
officers for all services rendered since the date of consummation of the
acquisition on July 15, 1999.
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION -----------------
-------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL FISCAL SALARY COMPENSATION OPTIONS COMPENSATION
POSITION YEAR ($) BONUS ($) ($) (#) ($)
- -------------------------- ----------- ---------- ----------- ------------- ----------------- -------------
M. Brent Stevens.......... 1999 -- -- -- -- --
CHIEF EXECUTIVE OFFICER
Natalie A. Baum........... 1999 14,278.86(1) 20,000(2) -- -- 25,000(3)
CHIEF FINANCIAL OFFICER
James P. Rix.............. 1999 43,269.21(4) -- 501.38(5) -- 100,000(6)
FORMERLY, CHIEF
OPERATING OFFICER
- ------------------------
(1) Represents salary actually paid to Ms. Baum as of September 15, 1999.
(2) Ms. Baum is entitled to a minimum bonus of $20,000 pursuant to the terms of
her employment agreement.
(3) Ms. Baum received a $25,000 signing bonus upon commencement of her
employment.
(4) Represents salary actually paid to Mr. Rix as of September 22, 1999, the
date of his resignation as our Chief Operating Officer.
(5) Represents reimbursement of club membership dues.
(6) Mr. Rix received a $100,000 signing bonus upon commencement of his
employment.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
We have no standing Compensation Committees. All compensation decisions are
made by PGP, our parent and sole manager. The managers of PGP each participate
in the determination of executive officer compensation.
45
PRINCIPAL SECURITYHOLDERS
All of PGCL's outstanding common membership interests are owned by PGP, its
parent and sole manager. All of PGC's outstanding common stock is owned by PGCL.
The table below sets forth certain information regarding the beneficial
ownership of the voting common membership interests of PGP by (a) each person or
entity known by us to own beneficially 5% or more of the common membership
interests of PGP, (b) each manager and executive officer of PGP and (c) all
managers and executive officers of PGP as a group. GDREC holds 100% of our
issued and outstanding preferred membership interests, which, subject to limited
exceptions, will have no voting rights, except as required by applicable law. On
July 15, 1999, PGP issued 500,000 convertible preferred membership interests;
each of which is initially convertible into one PGP non-voting common membership
interest, representing 33.33% of the fully diluted common membership interests
of PGP on such date. PGP does not have outstanding any of its non-voting common
membership interests. See "Description of PGCL Membership Interests" and
"Description of PGP Membership Interests." Unless otherwise indicated, the
address of each manager or executive officer of PGP is c/o Peninsula Gaming
Company, LLC, 3rd Street Ice Harbor, P.O. Box 1750, Dubuque, IA 52004-1683.
VOTING COMMON
MEMBERSHIP INTERESTS PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) CLASS
- -------------------------------------------------- ------------------------------- -----------
M. Brent Stevens.................................. 225,000(2) 22.50%
11100 Santa Monica, 10th Floor
Los Angeles, CA 90071
PGP Investors, LLC(3)............................. 413,333(4) 41.33%
11100 Santa Monica, 10th Floor
Los Angeles, CA 90071
Michael S. Luzich................................. 300,000 30.00%
James P. Rix(5)................................... 46,667 4.67%
Terrance Oliver................................... 15,000 1.50%
Natalie A. Baum................................... 0 0%
William L. Westerman.............................. 0 0%
2901 Las Vegas Blvd., South
Las Vegas, NV 89109
Andrew R. Whittaker............................... 20,000(4) 2.00%
11100 Santa Monica, 10th Floor
Los Angeles, CA 90071
All managers and executive officers as a group (6 1,000,000 100.00%
persons)(6).....................................
- ------------------------
(1) The voting and investment power with regard to the PGP common membership
interests are restricted by the operating agreement of PGP. See "Description
of PGP Membership Interests--Common Membership Interests."
(2) Mr. Stevens holds 225,000 PGP common membership interests directly and
413,333 PGP common membership interests indirectly through PGP Investors,
LLC. Mr. Stevens is the sole managing member of PGP Investors and exercises
voting and investment power over the PGP common membership interests owned
by PGP Investors. Mr. Stevens does not own any membership interests in PGP
Investors, LLC.
46
(3) Mr. Stevens and Mr. Whittaker, managers of PGP, are a managing director and
executive vice president, respectively, of Jefferies & Company, Inc., the
initial purchaser in the offering of the old notes on July 15, 1999. In
addition, Jefferies & Company, Inc. and certain of its affiliates, officers
and employees are members of, and control, PGP Investors, LLC.
(4) Mr. Whittaker holds an economic interest in 20,000 PGP common membership
interests indirectly through his membership in PGP Investors, but does not
exercise voting or investment power with respect to, and disclaims a
beneficial ownership interest in, these PGP common membership interests.
(5) Under the terms of PGP's operating agreement, as a result of Mr. Rix's
resignation from his position as Chief Operating Officer of PGCL, PGP has
the right (but not the obligation) to purchase all of Mr. Rix's common
membership interests for the lesser of $280,000 or the fair market value of
his common membership interests as determined by PGP's board of managers.
(6) Includes 413,333 PGP common membership interests held by PGP Investors, LLC,
over which Mr. Stevens exercises voting and investment power.
47
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RELATIONSHIP WITH DUBUQUE RACING ASSOCIATION
The DRA is a not-for-profit corporation organized for the purpose of
operating the DGP, a pari-mutuel greyhound racing facility in Dubuque, Iowa. On
February 22, 1993, the DRA entered into the DRA operating agreement which
authorizes us to operate riverboat gaming operations in Dubuque. The DRA
operating agreement has since been amended several times. The present term of
the DRA operating agreement is through March 31, 2002. We have the right to
renew the DRA operating agreement for two succeeding three-year periods through
2008, subject to certain conditions, including that (1) the 2002 Referendum
passes (see "Risk Factors--DRA operating agreement" and "Regulatory
Matters--Iowa Riverboat Gaming Regulation"), (2) we materially comply with the
DRA operating agreement, (3) we continue to operate the Diamond Jo or a
replacement boat of equal or greater size or total gaming positions, which is
approved by the Gaming Commission, (4) both we and the DRA retain our gaming
licenses with the Gaming Commission, and (5) neither we nor any of our
affiliates operate another gaming facility in Dubuque County or the adjoining
counties of Illinois or Wisconsin. An extension of the term of the DRA operating
agreement through March 31, 2008, irrespective of the above conditions, was
recently unanimously approved in concept by the board of directors of the DRA,
conditioned on its review of final documentation and approval by the Gaming
Commission. This extension is also subject to approval of related amendments to
the DRA's lease with the City, our sublease with the DRA and the related parking
agreement by the DRA, the Gaming Commission and the City of Dubuque. See
"Business--Properties."
Beginning April 1, 2000, we will be required to make a $0.50 per admission
payment to the DRA, without regard to our revenues or profits. Based on 1998
admissions, such payment would amount to approximately $570,000. Under the DRA
operating agreement, subject to certain conditions, we are required to pay the
DRA, for the right to operate the Diamond Jo, an amount equal to 32% of the
first $30 million of our total gaming revenues, plus 8% of the next $12 million
of total gaming revenues, plus (under certain circumstances) 8% of the next $4
million of total gaming revenues, but only if such amount is greater than the
DRA's gaming revenues from the DGP. This formula is subject to change if the DRA
ceases to operate the DGP or if we operate a riverboat smaller than the current
Diamond Jo. We currently make no payments to the DRA because the DRA's revenues
from the DGP are greater than the specified percentage of our total gaming
revenues.
The DRA operating agreement allows us to restrict the number of slot
machines at the DGP to 600; PROVIDED, that we do not increase the number of slot
machines at the Diamond Jo to more than 650. In addition, we may require that
the weighted average theoretical slot payback percentage at the DGP not exceed
ours by more than 0.5% so long as the rates we set are reasonable and in good
faith. Additionally, we cannot require the DRA to change rates on its machines
more than four times per contract year. We have elected to apply both of these
restrictions to the DGP. These restrictions terminate on the earlier of (1) our
operation of a replacement riverboat that is not of equal or greater size than
the Diamond Jo or on which we operate fewer total gaming positions than on the
Diamond Jo and (2) March 31, 2002. Without these restrictions, either we or the
DRA may, (a) increase the number of slot machines upon a determination by the
Gaming Commission, among other things, that such additional slot machines would
not have a detrimental impact on the DRA's or our financial viability, as
applicable, and (b) increase the weighted average theoretical slot payback
percentage, either of which actions, if taken by the DRA, could result in
increased competition from the DGP. Iowa law currently prohibits pari-mutuels,
such as the DGP, from operating table games, and we believe that table games
will not become permissible at racetracks in Iowa. If changes to Iowa law prior
to April 1, 2000 permit pari-mutuels to operate table games, under the DRA
operating agreement, we are entitled to prohibit the DRA from operating table
games at the DGP. In such case, our ability to prohibit table games at the DGP
will terminate on the earlier of (1) our operation of a replacement riverboat
that is not of equal or greater size to the Diamond Jo or on which we operate
fewer total gaming positions
48
than on the Diamond Jo and (2) July 11, 2000. The above restrictions are subject
to the express approval and regulatory supervision of the Gaming Commission.
Additionally, all of the restrictions under the DRA operating agreement will
terminate if we or any of our affiliates operate another gaming facility in
Dubuque County or the adjoining counties of Illinois or Wisconsin. Under the DRA
operating agreement, we have the right to sell the Diamond Jo and related
facilities, subject to the approval of the Gaming Commission, as long as the
acquiror agrees to abide by the terms of the DRA operating agreement.
For a discussion of certain risks relating to the DRA operating agreement,
see "Risk Factors-- DRA Operating Agreement."
MANAGING MEMBER INDEMNIFICATION
Pursuant to our and PGP's operating agreements, we and PGP have agreed,
subject to certain exceptions, to indemnify and hold harmless our members, PGP
and PGP members, as the case may be, from liabilities incurred as a result of
their positions as our sole manager and as members of us or PGP, as the case may
be.
EQUITY CONTRIBUTION
The common members of PGP have made a capital contribution of $6.0 million
to PGP in exchange for their common membership interests. PGP immediately
contributed this $6.0 million and the $3.0 million raised in the offering of the
old notes through the sale of PGP's convertible preferred membership interests
to PGCL, in exchange for common membership interests in PGCL. PGCL used this
capital contribution from PGP to finance in part the acquisition of the Diamond
Jo. Additionally, we issued $7.0 million face amount of preferred membership
interests to GDREC in connection with the acquisition of the Diamond Jo. See
"Description of PGCL Membership Interests" and "Description of PGP Membership
Interests."
OPERATING AGREEMENT OF PGP
Pursuant to PGP's operating agreement, the management of PGP is vested in a
board of managers comprised of five individuals, two of whom must be independent
managers. At any time that M. Brent Stevens, together with any entity controlled
by Mr. Stevens, beneficially holds at least 5% of the voting common membership
interests of PGP, Mr. Stevens is entitled to designate three of PGP's managers,
including one of the two independent managers. The two independent managers
shall serve as members of the independent committee. Under PGP's operating
agreement, PGP Advisors, LLC, a Delaware limited liability company, of which Mr.
Stevens is the sole managing member, may from time to time render certain
financial advisory and consulting services to PGP and will be entitled to
receive commercially reasonable fees for such services consistent with industry
practices. Subject to the terms of the indenture governing the notes, such fees
will be paid by us as distributions to PGP.
At any time that Michael Luzich, together with any entity controlled by Mr.
Luzich, beneficially holds at least 5% of the voting common membership interests
of PGP, Mr. Luzich is entitled to designate two of PGP's managers, including the
other independent manager.
Presently, PGP's board of managers is comprised of five managers. A manager
may resign at any time, and the member who designates a manager may remove or
replace that manager from the board of managers at any time.
OPERATING AGREEMENT OF PGCL
Pursuant to the terms of PGCL's operating agreement, if we repay, redeem or
refinance 90% or more of the notes on or prior to July 1, 2003, certain members
of management, including
49
Messrs. Luzich and Stevens, will be entitled to receive, at Mr. Stevens'
discretion, an aggregate of $1.5 million payable by PGCL.
ENGAGEMENT OF MANAGEMENT CONSULTANT
We have engaged Riviera Gaming Management, Inc. to assist, on an interim
basis, with certain transitional matters, including the selection of a new chief
operating officer to oversee our riverboat casino operations. Riviera Gaming
Management, Inc., a wholly-owned subsidiary of Riviera Holdings Corporation,
which owns the Riviera Hotel & Casino in Las Vegas, Nevada, will be paid
customary fees and expenses in connection with this engagement. Mr. Westerman, a
manager on the board of managers of PGP, is Chairman of the Board of Riviera,
Inc., an affiliate of Riviera Gaming Management, Inc.
50
THE EXCHANGE OFFER
PURPOSE AND EFFECT; REGISTRATION RIGHTS
On July 15, 1999, we sold the old notes in a private placement to Jefferies
& Co., Inc., as the initial purchaser. The initial purchaser then resold the old
notes under an offering circular dated July 8, 1999 in reliance on Rule 144A,
and other available exemptions under the Securities Act of 1933, as amended. On
July 15, 1999, we also entered into a registration rights agreement with the
initial purchaser pursuant to which we agreed, among other things, to:
- file a registration statement with the Securities and Exchange Commission
relating to the exchange offer under the Securities Act of 1933 no later
than October 13, 1999;
- use our best efforts to cause the exchange offer registration statement to
be declared effective under the Securities Act of 1933 on or before
December 13, 1999;
- use our commercially reasonable efforts to commence the exchange offer
within 30 days after the exchange offer registration statement is declared
effective by the Securities and Exchange Commission;
- keep the exchange offer open for acceptance for at least 30 days after
notice of the exchange offer is mailed to holders of the old notes;
- keep the exchange offer registration statement effective until
consummation of the exchange offer;
- cause the exchange offer to be consummated not later than 30 business days
following the date of the effectiveness of the exchange offer registration
statement;
- promptly after the close of the exchange offer, accept for exchange all
old notes validly tendered for exchange prior to the expiration of the
exchange offer;
- promptly after the close of the exchange offer, deliver all validly
tendered old notes to the Firstar Bank, N.A., the trustee, and cause the
trustee to promptly deliver new notes to each holder equal in aggregate
principal amount to the old notes tendered for exchange by such holder.
Under the registration rights agreement, we agreed to file a shelf
registration statement if:
- we or the holders of a majority in aggregate principal amount of the old
notes determine, in our or their reasonable judgment, that they will not
receive new notes that they may resell to the public without volume
restriction under the Securities Act of 1933 and without similar
restriction under applicable blue sky or state securities laws;
- we are not permitted to effect the exchange offer under applicable law or
applicable interpretations of law by the Securities and Exchange
Commission staff;
- for any reason, the exchange offer is not consummated by January 11, 2000;
or
- within six months of the consummation of the exchange offer, any holder of
old notes notifies us that it:
(1) is not entitled to participate in the exchange offer; or
(2) may not resell the new notes acquired by it in the exchange offer to
the public without restriction under applicable state and federal securities
laws.
If we have not yet filed an exchange offer registration statement and we are
required to file a shelf registration statement, we must file the shelf
registration statement prior to October 13, 1999. If we have filed an exchange
offer registration statement and we are required to file a shelf registration
51
statement, we must use our commercially reasonable efforts to file the shelf
registration statement relating to the old notes on or before the 20th day after
the obligation to file the shelf registration statement arises. We will use our
best efforts to cause the shelf registration statement to be declared effective
as promptly as practicable after the filing thereof.
If the shelf registration statement is filed, we will use our best efforts
to keep the shelf registration statement continuously effective, supplemented
and amended until the second anniversary of the effective date of the shelf
registration statement or a shorter period that will terminate when all the
notes covered by the shelf registration statement have been sold pursuant to the
shelf registration statement or a subsequent shelf registration statement
covering all of the old notes has been declared effected under the Securities
Act.
A holder who sells old notes pursuant to the shelf registration statement
generally will be required to be named as a selling securityholder in the
prospectus and to deliver a copy of the prospectus to purchasers. If we are
required to file a shelf registration statement, we will provide to each holder
of the old notes copies of the prospectus that is a part of the shelf
registration statement and notify each such holder when the shelf registration
statement becomes effective. Such holder will be subject to some of the civil
liability provisions under the Securities Act of 1933 in connection with these
sales and will be bound by the provisions of the registration rights agreement
that are applicable to such holder (including certain indemnification and
contribution obligations).
The registration rights agreement requires us to pay the holders of the
notes additional interest if a registration default exists. A registration
default will exist if:
- we fail to file any of the registration statements required by the
registration rights agreement on or prior to the date specified for such
filing;
- any of such registration statements is not declared effective by the
Securities and Exchange Commission on or prior to the date specified for
such effectiveness;
- we have not exchanged new notes for all validly tendered old notes within
30 days after the exchange offer is declared effective by the Securities
and Exchange Commission; or
- the shelf registration statement is declared effective but thereafter,
during the period for which we are required to maintain the effectiveness
of the shelf registration statement, it ceases to be effective or usable
in connection with the resale of the new notes covered by the shelf
registration statement, and we fail to file and have declared effective a
subsequent shelf registration statement.
If a registration default exists, the Issuers will pay liquidated damages to
each holder of registrable notes, during the first 90-day period immediately
following the occurrence of such registration default in an amount equal to $.05
per week per $1,000 principal amount of notes held by such Holder. Thereafter,
the weekly liquidated damages amount will increase by $.05 per $1,000 principal
amount of the notes following each subsequent 90-day period following such
registration default up to a maximum of $.20 per week per $1,000 principal
amount of notes, until the registration default is cured. All accrued liquidated
damages will be paid in the same manner as interest payments on the notes on
semiannual damages payment dates that correspond to interest payment dates for
the notes. Following the cure of a registration default, the accrual of
liquidated damages will cease.
The exchange offer is intended to satisfy our exchange offer obligations
under the registration rights agreement. The above summary of the registration
rights agreements is not complete and is subject to, and qualified by reference
to, all of the provisions of the registration rights agreement. A copy of the
registration rights agreement is filed as an exhibit to the registration
statement that includes this prospectus.
52
If you participate in the exchange offer, you will, with limited exceptions,
receive notes that are freely tradeable and not subject to restrictions on
transfer. You should read this prospectus under the heading "--Resales of the
New Notes" for more information relating to your ability to transfer new notes.
The exchange offer is not being made to, nor will we accept tenders for
exchange from, holders of old notes in any jurisdiction in which the exchange
offer or the acceptance of the exchange offer would not be in compliance with
the securities laws or blue sky laws of such jurisdiction.
EXPIRATION DATE; EXTENSIONS
The expiration date at the exchange offer is , 1999 at 5:00
p.m., New York City time. We may extend the exchange offer in our sole
discretion. If we extend the exchange offer, the expiration date will be the
latest date and time to which the exchange offer is extended. We will notify the
exchange agent of any extension by oral or written notice and will make a public
announcement of the extension no later than 9:00 a.m., New York City time, on
the next business day after the previously scheduled expiration date.
We expressly reserve the right, in our sole and absolute discretion:
- to delay accepting any old notes;
- to extend the exchange offer;
- if any of the conditions under "--Conditions of the Exchange Offer" have
not been satisfied, to terminate the exchange offer; and
- to waive any condition or otherwise amend the terms of the exchange offer
in any manner.
If the exchange offer is amended in a manner we deem to constitute a
material change, we will promptly disclose the amendment by means of a
prospectus supplement that will be distributed to the registered holders of the
old notes. Any delay in acceptance, extension, termination or amendment will be
followed promptly by an oral or written notice of the event to the exchange
agent. We will also make a public announcement of the event. Without limiting
the manner in which we may choose to make any pubic announcement and subject to
applicable law, we have no obligation to publish, advertise or otherwise
communicate any such pubic announcement other than by issuing a release to a
national news service.
TERMS OF THE EXCHANGE OFFER
We are offering, upon the terms and subject to the conditions set forth in
this prospectus and in the accompanying letter of transmittal, to exchange
$1,000 in principal amount of new notes for each $1,000 in principal amount of
outstanding old notes. We will accept for exchange any and all old notes that
are validly tendered on or before 5:00 p.m., New York City time, on the
expiration date. Tenders of the old notes may be withdrawn at any time before
5:00 p.m., New York City time, on the expiration date. The exchange offer is not
conditioned upon any minimum principal amount of old notes being tendered for
exchange. However, the exchange offer is subject to the terms of the
registration rights agreement and the satisfaction of the conditions described
under "--Conditions of the Exchange Offer." Old notes may be tendered only in
multiples of $1,000. Holders may tender less than the aggregate principal amount
represented by their old notes if they appropriately indicate this fact on the
letter of transmittal accompanying the tendered old notes or indicate this fact
pursuant to the procedures for book-entry transfer described below.
As of the date of this prospectus, $71.0 million in aggregate principal
amount of the old notes were outstanding. Solely for reasons of administration,
we have fixed the close of business on , 1999 as the record date for
purposes of determining the persons to whom this prospectus and the letter
53
of transmittal will be mailed initially. Only a holder of the old notes (or such
holder's legal representative or attorney-in-fact) whose ownership is reflected
in the records of Firstar Bank, N.A., as registrar, or whose notes are held of
record by the depositary, may participate in the exchange offer. There will be
no fixed record date for determining the eligible holders of the old notes who
are entitled to participate in the exchange offer. We believe that, as of the
date of this prospectus, no holder is our "affiliate" (as defined in Rule 405
under the Securities Act of 1933).
We will be deemed to have accepted validly tendered old notes when, as and
if we give oral or written notice of our acceptance to the exchange agent. The
exchange agent will act as agent for the tendering holders of old notes and for
purposes of receiving the new notes from us. If any tendered old notes are not
accepted for exchange because of an invalid tender or otherwise, certificates
for the unaccepted old notes will be returned, without expense, to the tendering
holder as promptly as practicable after the expiration date.
Holders of old notes do not have appraisal or dissenters' rights under
applicable law or the indenture as a result of the exchange offer. We intend to
conduct the exchange offer in accordance with the applicable requirements of the
Securities Exchange Act of 1934 and the rules and regulations under the
Securities Exchange Act of 1934, including Rule 14e-1.
Holders who tender their old notes in the exchange offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the letter of transmittal, transfer taxes with respect to the exchange of old
notes pursuant to the exchange offer. We will pay all charges and expenses,
other than transfer taxes in certain circumstances, in connection with the
exchange offer. See "--Fees and Expenses."
NEITHER WE NOR OUR MANAGING MEMBER MAKES ANY RECOMMENDATION TO HOLDERS OF
OLD NOTES AS TO WHETHER TO TENDER ANY OF THEIR OLD NOTES PURSUANT TO THE
EXCHANGE OFFER. IN ADDITION, NO ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH
RECOMMENDATION. HOLDERS OF OLD NOTES MUST MAKE THEIR OWN DECISION WHETHER TO
PARTICIPATE IN THE EXCHANGE OFFER AND, IF THE HOLDER CHOOSES TO PARTICIPATE IN
THE EXCHANGE OFFER, THE AGGREGATE PRINCIPAL AMOUNT OF OLD NOTES TO TENDER, AFTER
READING CAREFULLY THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL AND CONSULTING
WITH THEIR ADVISORS, IF ANY, BASED ON THEIR OWN FINANCIAL POSITION AND
REQUIREMENTS.
CONDITIONS OF THE EXCHANGE OFFER
You must tender your old notes in accordance with the requirements of this
prospectus and the letter of transmittal in order to participate in the exchange
offer.
Notwithstanding any other provision of the exchange offer, or any extension
of the exchange offer, we will not be required to accept for exchange any old
notes, and we may terminate or amend the exchange offer if we are not permitted
to effect the exchange offer under applicable law or any interpretation of
applicable law by the staff of the Securities and Exchange Commission. If we
determine in our sole discretion that any of these events or conditions has
occurred, we may, subject to applicable law, terminate the exchange offer and
return all old notes tendered for exchange or may waive any condition or amend
the terms of the exchange offer.
We expect that the above conditions will be satisfied. The above conditions
are for our sole benefit and may be waived by us at any time in our sole
discretion. Our failure at any time to exercise any of the above rights will not
be a waiver of those rights and each right will be deemed an ongoing right that
may be asserted at any time. Any determination by us concerning the events
described above will be final and binding upon all parties.
54
INTEREST
Each new note will bear interest from the most recent date to which interest
has been paid or duly provided for on the old note surrendered in exchange for
such new note or, if no interest has been paid or duly provided for on such old
note, from July 15, 1999. Holders of the old notes whose old notes are accepted
for exchange will not receive accrued interest on their old notes for any period
from and after the last interest payment date to which interest has been paid or
duly provided for on their old notes prior to the original issue date of the new
notes or, if no such interest has been paid or duly provided for, will not
receive any accrued interest on their old notes, and will be deemed to have
waived the right to receive any interest on their old notes accrued from and
after such interest payment date or, if no such interest has been paid or duly
provided for, from and after July 15, 1999.
PROCEDURES FOR TENDERING OLD NOTES
The tender of a holder's old notes and our acceptance of old notes will
constitute a binding agreement between the tendering holder and us upon the
terms and conditions of this prospectus and the letter of transmittal. Unless a
holder tenders old notes according to the guaranteed delivery procedures or the
book-entry procedures described below, the holder must transmit the old notes,
together with a properly completed and executed letter of transmittal and all
other documents required by the letter of transmittal, to the exchange agent at
its address before 5:00 p.m., New York City time, on the expiration date. The
method of delivery of old notes, letters of transmittal and all other required
documents is at the election and risk of the tendering holder. If delivery is by
mail, we recommend delivery by registered mail, properly insured, with return
receipt requested. Instead of delivery by mail, we recommend that each holder
use an overnight or hand delivery service. In all cases, sufficient time should
be allowed to assure timely delivery.
Any beneficial owner of the old notes whose old notes are registered in the
name of a broker, dealer, commercial bank, trust company or other nominee and
who wishes to tender old notes in the exchange offer should contact that
registered holder promptly and instruct that registered holder to tender on its
behalf. If the beneficial owner wishes to tender directly, it must, prior to
completing and executing the letter of transmittal and tendering old notes, make
appropriate arrangements to register ownership of the old notes in its name.
Beneficial owners should be aware that the transfer of registered ownership may
take considerable time.
Any financial institution that is a participant in DTC's Book-Entry Transfer
Facility system may make book-entry delivery of the old notes by causing DTC to
transfer the old notes into the exchange agent's account in accordance with
DTC's procedures for such transfer. To be timely, book-entry delivery of old
notes requires receipt of a confirmation of a book-entry transfer before the
expiration date. Although delivery of the old notes may be effected through
book-entry transfer into the exchange agent's account at DTC, the letter of
transmittal, properly completed and executed, with any required signature
guarantees and any other required documents or an agent's message (as described
below), must in any case be delivered to and received by the exchange agent at
its address on or before the expiration date, or the guaranteed delivery
procedure set forth below must be complied with.
DTC has confirmed that the exchange offer is eligible for DTC's Automated
Tender Offer Program. Accordingly, participants in DTC's Automated Tender Offer
Program may, instead of physically completing and signing the applicable letter
of transmittal and delivering it to the exchange agent, electronically transmit
their acceptance of the exchange offer by causing DTC to transfer old notes to
the exchange agent in accordance with DTC's Automated Tender Offer Program
procedures for transfer. DTC will then send an agent's message to the exchange
agent.
The term "agent's message" means a message transmitted by DTC, received by
the exchange agent and forming part of the book-entry confirmation, which states
that DTC has received an express acknowledgment from a participant in DTC's
Automated Tender Offer Program that is tendering old
55
notes that are the subject of such book-entry confirmation; that the participant
has received and agrees to be bound by the terms of the applicable letter of
transmittal or, in the case of an agent's message relating to guaranteed
delivery, that the participant has received and agrees to be bound by the
applicable notice of guaranteed delivery; and that we may enforce such agreement
against that participant.
Each signature on a letter of transmittal or a notice of withdrawal must be
guaranteed unless the old notes are tendered:
- by a registered holder who has not completed the box entitled "Special
Delivery Instructions"; or
- for the account of an eligible institution (as described below).
If a signature on a letter of transmittal or a notice of withdrawal is
required to be guaranteed, the signature must be guaranteed by a participant in
a recognized Medallion Signature Program (a "Medallion Signature Guarantor"). If
the letter of transmittal is signed by a person other than the registered holder
of the old notes, the old notes surrendered for exchange must be endorsed by the
registered holder, with the signature guaranteed by a Medallion Signature
Guarantor. If any letter of transmittal, endorsement, bond power, power of
attorney or any other document required by the letter of transmittal is signed
by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person should sign in that capacity when signing. Such person must submit
to us evidence satisfactory, in our sole discretion, of his or her authority to
so act unless we waive such requirement.
As used in this prospectus with respect to the old notes, a "registered
holder" is any person in whose name the old notes are registered on the books of
the registrar. An "eligible institution" is a firm that is a member of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or any other "eligible guarantor institution"
as such term is defined in Rule 17Ad-15 under the Securities Exchange Act of
1934.
We will determine in our sole discretion all questions as to the validity,
form, eligibility (including time of receipt), acceptance and withdrawal of old
notes tendered for exchange. Our determination will be final and binding. We
reserve the absolute right to reject old notes not properly tendered and to
reject any old notes if acceptance might, in our judgment or our counsel's
judgment, be unlawful. We also reserve the absolute right to waive any defects
or irregularities or conditions of the exchange offer as to particular old notes
at any time, including the right to waive the ineligibility of any holder who
seeks to tender old notes in the exchange offer.
Our interpretation of the terms and conditions of the exchange offer,
including the letter of transmittal and its instructions, will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of old notes for exchange must be cured within such
period of time as we determine. Neither our company nor the exchange agent is
under any duty to give notification of defects in such tenders or will incur any
liability for failure to give such notification. The exchange agent will use
reasonable efforts to give notification of defects or irregularities with
respect to tenders of old notes for exchange but will not incur any liability
for failure to give such notification. Tenders of old notes will not be deemed
to have been made until such irregularities have been cured or waived.
By tendering, you will represent to us that, among other things:
- you are not our "affiliate" (as defined in Rule 405 under the Securities
Act of 1933);
- you will acquire the new notes in the ordinary course of your business;
56
- you are not a broker-dealer that acquired your notes directly from us in
order to resell them pursuant to Rule 144A under the Securities Act of
1933 or any other available exemption under the Securities Act of 1933;
- if you are a broker-dealer that acquired your notes as a result of
market-making or other trading activities, you will deliver a prospectus
in connection with any resale of new notes; and
- you are not participating, do not intend to participate and have no
arrangement or understanding with any person to participate in the
distribution of the new notes.
In connection with a book-entry transfer, each participant will confirm that
it makes the representations and warranties contained in the letter of
transmittal.
GUARANTEED DELIVERY PROCEDURES
If you wish to tender your old notes and:
- your old notes are not immediately available;
- you are unable to deliver on time your old notes or any other document
that you are required to deliver to the exchange agent; or
- you cannot complete the procedures for delivery by book-entry transfer on
time;
you may tender your old notes according to the guaranteed delivery procedures
described in the letter of transmittal. Those procedures require that:
- tender must be made by or through an eligible institution and a notice of
guaranteed delivery must be signed by the holder;
- on or before the expiration date, the exchange agent must receive from the
holder and the eligible institution a properly completed and executed
notice of guaranteed delivery by mail or hand delivery setting forth the
name and address of the holder, the certificate number or numbers of the
tendered old notes and the principal amount of tendered old notes; and
- properly completed and executed documents required by the letter of
transmittal and the tendered old notes in proper form for transfer or
confirmation of a book-entry transfer of such old notes into the exchange
agent's account at DTC must be received by the exchange agent within four
business days after the expiration date of the exchange offer.
Any holder who wishes to tender old notes pursuant to the guaranteed
delivery procedures must ensure that the exchange agent receives the notice of
guaranteed delivery and letter of transmittal relating to such old notes before
5:00 p.m., New York City time, on the expiration date.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all the conditions to the exchange offer, we
will accept old notes that are properly tendered in the exchange offer prior to
5:00 p.m., New York City time, on the expiration date. The new notes will be
delivered promptly after acceptance of the old notes. For purposes of the
exchange offer, we will be deemed to have accepted validly tendered old notes
when, as and if we have given notice to the exchange agent.
57
WITHDRAWAL RIGHTS
Tenders of the old notes may be withdrawn by delivery of a written or
facsimile transmission notice to the exchange agent at its address set forth
under "--The Exchange Agent; Assistance" at any time before 5:00 p.m., New York
City time, on the expiration date. Any such notice of withdrawal must:
- specify the name of the person having deposited the old notes to be
withdrawn;
- identify the old notes to be withdrawn, including the certificate number
or numbers and principal amount of such old notes, or, in the case of old
notes transferred by book-entry transfer, the name and number of the
account at DTC to be credited;
- be signed by the holder in the same manner as the original signature on
the letter of transmittal by which old notes were tendered, including any
required signature guarantees, or be accompanied by a bond power in the
name of the person withdrawing the tender, in satisfactory form as
determined by us in our sole discretion, executed by the registered
holder, with the signature guaranteed by a Medallion Signature Guarantor,
together with the other documents required upon transfer by the indenture;
and
- specify the name in which the old notes are to be re-registered, if
different from the person who deposited the old notes.
All questions as to the validity, form and eligibility (including time of
receipt) of such notices will be determined by us, in our sole discretion. Any
old notes withdrawn will be deemed not to have been validly tendered for
exchange for purposes of the exchange offer and will be returned to the holder
without cost as soon as practicable after withdrawal. Properly withdrawn old
notes may be retendered pursuant to the procedures described under "--Procedures
for Tendering Old Notes" at any time on or before the expiration date.
THE EXCHANGE AGENT; ASSISTANCE
Firstar Bank, N.A. is the exchange agent. All tendered old notes, executed
letters of transmittal and other related documents should be directed to the
exchange agent. Questions and requests for assistance and requests for
additional copies of the prospectus, the letter of transmittal and other related
documents should be addressed to the exchange agent as follows:
BY REGISTERED OR CERTIFIED MAIL: BY HAND OR OVERNIGHT COURIER:
Firstar Bank, N.A. Firstar Bank, N.A.
101 East Fifth Street 101 East Fifth Street
St. Paul, Minnesota 55101 St. Paul, Minnesota 55101
BY TELEPHONE OR FACSIMILE:
Phone: (651) 229-2600 Facsimile: (651) 229-6415
FEES AND EXPENSES
We will bear the expenses of soliciting old notes for exchange. The
principal solicitation is being made by mail by the exchange agent. Additional
solicitation may be made by telephone, facsimile or in person by officers and
regular employees of our company and our affiliates and by persons so engaged by
the exchange agent.
We will pay the exchange agent reasonable and customary fees for its
services and will reimburse the exchange agent for its reasonable out-of-pocket
expenses in connection with its services and pay other registration expenses,
including fees and expenses of the trustee under the indenture, filing fees,
blue sky fees and printing and distribution expenses.
58
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to brokers, dealers or others soliciting
acceptance of the exchange offer.
We will pay all transfer taxes, if any, applicable to the exchange of old
notes pursuant to the exchange offer. If, however, a transfer tax is imposed for
any reason other than the exchange of old notes pursuant to the exchange offer,
then the amount of those transfer taxes, whether imposed on the registered
holder or any other persons, will be payable by the tendering holder. If
satisfactory evidence of payment of those taxes or exemption is not submitted
with the letter of transmittal, the amount of those transfer taxes will be
billed directly to such tendering holder.
ACCOUNTING TREATMENT
The new notes will be recorded at the same carrying value as the old notes,
as reflected in our accounting records on the date of the exchange. Accordingly,
we will recognize no gain or loss for accounting purposes. The expenses of the
exchange offer will be amortized over the term of the new notes.
CONSEQUENCES OF NOT EXCHANGING OLD NOTES
As a result of this exchange offer, we will have fulfilled most of our
obligations under the registration rights agreement. Holders who do not tender
their old notes, except for certain instances involving the initial purchasers
or holders of old notes who are not eligible to participate in the exchange
offer or who do not receive freely transferrable new notes pursuant to the
exchange offer, will not have any further registration rights under the
registration rights agreement or otherwise and will not have rights to receive
additional interest. Accordingly, any holder who does not exchange its old notes
for new notes will continue to hold the untendered old notes and will be
entitled to all the rights and subject to all the limitations applicable under
the indenture, except to the extent that such rights or limitations, by their
terms, terminate or cease to have further effectiveness as a result of the
exchange offer.
Any old notes that are not exchanged for new notes pursuant to the exchange
offer will remain restricted securities within the meaning of the Securities Act
of 1933. In general, such old notes may be resold only:
- to our company or any of our subsidiaries;
- inside the United States to a "qualified institutional buyer" in
compliance with Rule 144A under the Securities Act of 1933;
- inside the United States to an institutional "accredited investor" (as
defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act of
1933) or an "accredited investor" that, prior to such transfer, furnishes
or has furnished on its behalf by a U.S. broker-dealer to the trustee
under the indenture a signed letter containing certain representations and
agreements relating to the restrictions on transfer of the new notes, the
form of which letter can be obtained from the trustee;
- outside the United States in compliance with Rule 904 under the Securities
Act of 1933;
- pursuant to the exemption from registration provided by Rule 144 under the
Securities Act of 1933, if available; or
- pursuant to an effective registration statement under the Securities Act
of 1933.
Each accredited investor that is not a qualified institutional buyer and
that is an original purchaser of any of the old notes from the initial
purchasers will be required to sign a letter confirming that it is
59
an accredited investor under the Securities Act of 1933 and that it acknowledges
the transfer restrictions summarized above.
RESALES OF THE NEW NOTES
We are making the exchange offer in reliance on the position of the staff of
the Securities and Exchange Commission as set forth in interpretive letters
addressed to third parties in other transactions. However, we have not sought
our own interpretive letter. Although there has been no indication of any change
in the staff's position, we cannot assure you that the staff of the Securities
and Exchange Commission would make a similar determination with respect to the
exchange offer as it has in its interpretive letters to third parties. Based on
these interpretations by the staff, and except as provided below, we believe
that new notes may be offered for resale, resold and otherwise transferred by a
holder who participates in the exchange offer and is not a broker-dealer without
further compliance with the registration and prospectus delivery provisions of
the Securities Act of 1933. In order to receive new notes that are freely
tradeable, a holder must acquire the new notes in the ordinary course of its
business and may not participate, or have any arrangement or understanding with
any person to participate, in the distribution (within the meaning of the
Securities Act of 1933) of the new notes. Holders wishing to participate in the
exchange offer must make the representations described in "--Procedures for
Tendering Old Notes" above.
Any holder of old notes:
- who is our "affiliate" (as defined in Rule 405 under the Securities Act of
1933);
- who did not acquire the new notes in the ordinary course of its business;
- who is a broker-dealer that purchased old notes from us to resell them
pursuant to Rule 144A under the Securities Act of 1933 or any other
available exemption under the Securities Act of 1933; or
- who intends to participate in the exchange offer for the purpose of
distributing (within the meaning of the Securities Act of 1933) new notes;
will be subject to separate restrictions. Each holder in any of the above
categories:
- will not be able to rely on the interpretations of the staff of the
Securities Act of 1933 in the above-mentioned interpretive letters;
- will not be permitted or entitled to tender old notes in the exchange
offer; and
- must comply with the registration and prospectus delivery requirements of
the Securities Act of 1933 in connection with any sale or other transfer
of old notes, unless such sale is made pursuant to an exemption from such
requirements.
In addition, if you are a broker-dealer holding old notes acquired for your
own account, then you may be deemed a statutory "underwriter" within the meaning
of the Securities Act of 1933 and must deliver a prospectus meeting the
requirements of the Securities Act of 1933 in connection with any resales of
your new notes. Each broker-dealer that receives new notes for its own account
pursuant to the exchange offer must acknowledge that it acquired the old notes
for its own account as a result of market-making activities or other trading
activities and must agree that it will deliver a prospectus meeting the
requirements of the Securities Act of 1933 in connection with any resale of
those new notes. The letter of transmittal states that, by making the above
acknowledgment and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act of 1933.
Based on the position taken by the staff of the Securities and Exchange
Commission in the interpretive letters referred to above, we believe that
broker-dealers that acquired old notes for their
60
own accounts, as a result of market-making or other trading activities
("Participating Broker-Dealers"), may fulfill their prospectus delivery
requirements with respect to the new notes received upon exchange of old notes
(other than old notes that represent an unsold allotment from the original sale
of the old notes) with a prospectus meeting the requirements of the Securities
Act of 1933, which may be the prospectus prepared for an exchange offer so long
as it contains a description of the plan of distribution with respect to the
resale of such new notes. Accordingly, this prospectus, as it may be amended or
supplemented, may be used by a Participating Broker-Dealer during the period
referred to below in connection with resales of new notes received in exchange
for old notes where such old notes were acquired by the Participating
Broker-Dealer for its own account as a result of market-making or other trading
activities. Subject to the provisions of the registration rights agreement, we
have agreed that this prospectus may be used by a Participating Broker-Dealer in
connection with resales of such new notes. See "Plan of Distribution." However,
a Participating Broker-Dealer that intends to use this prospectus in connection
with the resale of new notes received in exchange for old notes pursuant to the
exchange offer must notify us, or cause us to be notified, on or before the
expiration date of the exchange offer, that it is a Participating Broker-Dealer.
Such notice may be given in the space provided for that purpose in the letter of
transmittal or may be delivered to the exchange agent at the address set forth
under "--The Exchange Agent; Assistance." Any Participating Broker-Dealer that
is our "affiliate" may not rely on such interpretive letters and must comply
with the registration and prospectus delivery requirements of the Securities Act
of 1933 in connection with any resale transaction.
Each Participating Broker-Dealer that tenders old notes pursuant to the
exchange offer will be deemed to have agreed, by execution of the letter of
transmittal, that upon receipt of notice from us of the occurrence of any event
or the discovery of any fact that makes any statement contained in this
prospectus untrue in any material respect or that causes this prospectus to omit
to state a material fact necessary in order to make the statements contained
herein, in light of the circumstances under which they were made, not misleading
or of the occurrence of other events specified in the registration rights
agreement, such Participating Broker-Dealer will suspend the sale of new notes
pursuant to this prospectus until we have amended or supplemented this
prospectus to correct such misstatement or omission and have furnished copies of
the amended or supplemented prospectus to the Participating Broker-Dealer or we
have given notice that the sale of the new notes may be resumed, as the case may
be.
61
DESCRIPTION OF THE NOTES
The old notes were, and the new notes will be, issued as a single series of
securities pursuant to an indenture, dated as of July 15, 1999, among Peninsula
Gaming Company, LLC and Peninsula Gaming Corp., as issuers, and Firstar Bank,
N.A. (formerly known as Firstar Bank of Minnesota, N.A.), as trustee. The form
and terms of the new notes are substantially identical to the form and terms of
the old notes, except that the new notes:
- will be registered under the Securities Act of 1933; and
- will not bear any legends restricting transfer.
The new notes will be issued solely in exchange for an equal principal
amount of old notes, in registered form, without coupons and in denominations of
$1,000 and integral multiples thereof. As of the date of this prospectus, $71.0
million aggregate principal amount of old notes is outstanding.
In the following summaries:
- "new notes" refers to the registered notes being offered by this
prospectus;
- "old notes" refers to your old notes that may be exchanged for new notes
in the exchange offer;
- "notes" refers collectively to the new notes and the old notes;
- "Peninsula Gaming Company" refers only to Peninsula Gaming Company, LLC.
and not to its wholly-owned subsidiary Peninsula Gaming Corp.;
- "PGC" refers to Peninsula Gaming Corp., our only wholly-owned subsidiary.
PGC was incorporated solely for the purpose of serving as a co-issuer of
the notes in order to facilitate the offering of the notes. PGC does not
have any operations or assets and does not have any revenues. Investors
should not expect PGC to participate in servicing the principal, interest,
liquidated damages, if any, premium or any other payment obligations on
the notes. See "--Certain Covenants--Restrictions on Activities of PGC."
The following summaries of certain provisions of the indenture, the Security
Documents (defined below) and the registration rights agreement among the
issuers of the notes and the initial purchaser are not complete and are subject
to all the provisions of the indenture, the Security Documents and the
Registration rights agreement, including the definitions therein of certain
terms used below. The terms of the new notes include those stated in the
indenture and those made part of the indenture by reference to the Trust
Indenture Act of 1939, as amended. The new notes are subject to all such terms,
and the holders of the notes are referred to the indenture and the Trust
Indenture Act for a statement thereof. Wherever we refer to particular sections
or defined terms used in the indenture, such sections or defined terms are
automatically incorporated into this prospectus. We have filed a copy of the
indenture with the Securities and Exchange Commission and the indenture is
incorporated by reference into the registration statement. We will provide
copies of the indenture, the Security Documents and the registration rights
agreement upon request. The meanings of some of the terms that are important in
understanding the following summaries are set forth below under the subheading
"Certain Definitions."
Under certain circumstances, the Company may designate certain Subsidiaries
formed or acquired after the Issue Date as Unrestricted Subsidiaries.
Unrestricted Subsidiaries will not be subject to any of the restrictive
covenants set forth in the indenture.
PRINCIPAL, MATURITY AND INTEREST
The indenture does not limit the aggregate principal amount of notes that
may be issued thereunder and provides that, subject to the covenant in the
indenture described under "--Certain
62
Covenants--Limitation on Incurrence of Indebtedness," additional notes may be
issued thereunder from time to time, without the consent of the Holders of
previously issued notes, in an aggregate principal amount to be determined from
time to time by the Issuers; PROVIDED, that additional notes may not be issued
with original issue discount as determined under section 1271 ET SEQ. of the
Internal Revenue Code of 1986, as amended (the "Code"). The notes will mature on
July 1, 2006. Interest on the notes is payable semiannually on July 1 and
January 1 of each year, commencing on January 1, 2000, to Holders of record on
the immediately preceding June 15 and December 15, respectively. The notes bear
interest at 12 1/4% per annum from the date of original issuance. Interest on
the notes accrue from the most recent date to which interest has been paid or,
if no interest has been paid, from the date of original issuance. Interest is
computed on the basis of a 360-day year comprised of twelve 30-day months. The
notes are payable both as to principal and interest at the office or agency of
the Issuers maintained for such purpose within the City of New York or, at the
option of the Issuers, payment of interest may be made by check mailed to the
Holders at their respective addresses set forth in the register of Holders.
Until otherwise designated by the Issuers, the Issuers' office or agency will be
the office of the Trustee maintained for such purpose. If a payment date is a
Legal Holiday, payment may be made at that place on the next succeeding day that
is not a Legal Holiday, and no interest shall accrue for the intervening period.
The Trustee is presently our Paying Agent and Registrar. The Issuers may
change the Paying Agent or Registrar without prior notice to Holders and,
subject to certain exceptions, the Issuers or any of their respective
Subsidiaries may act as Paying Agent or Registrar.
REDEMPTION
AT THE OPTION OF THE COMPANY. Except as set forth below, the notes are not
redeemable at the Issuers' option prior to July 1, 2003. Thereafter, the notes
will be subject to redemption at the option of the Issuers, in whole or in part,
upon not less than 30 nor more than 60 days' notice, at the redemption prices
(expressed as percentages of principal amount) set forth below, plus accrued and
unpaid interest thereon, if any, to the applicable date of redemption, if
redeemed during the 12-month period beginning on July 1 of the years indicated
below:
YEAR PERCENTAGE
- ---------------------------------------------------------------------------------- -----------
2003.............................................................................. 108.00%
2004.............................................................................. 105.33%
2005 and thereafter............................................................... 102.67%
Notwithstanding the foregoing, at any time or from time to time prior to
July 1, 2002, the Issuers may redeem, at their option, up to 35% of the
aggregate principal amount of the notes then outstanding at a redemption price
of 112.25% of the principal amount thereof, plus accrued and unpaid interest
thereon, if any, through the applicable date of redemption, with the net cash
proceeds of one or more Equity Offerings; PROVIDED, that (i) such redemption
shall occur within 60 days of the date of closing of such Equity Offering and
(ii) at least 65% of the aggregate principal amount of notes issued on or after
the Issue Date remains outstanding immediately after giving effect to each such
redemption.
The restrictions on the optional redemption contained in the notes do not
limit the Company's right to separately make open market, privately negotiated
or other purchases of the notes from time to time.
REQUIRED REGULATORY REDEMPTION. Notwithstanding any other provisions
hereof, notes to be redeemed pursuant to a Required Regulatory Redemption are
redeemable by the Issuers, in whole or in part, at any time upon not less than
20 Business Days nor more than 60 days notice (or such earlier date as may be
ordered by any Governmental Authority) at a price equal to the lesser of (i) the
63
Holder's cost thereof and (ii) 100% of the principal amount thereof, plus in
either case accrued and unpaid interest thereon, if any, to the date of
redemption (or such earlier period as ordered by a Governmental Authority).
Under the indenture, the Issuers are not required to pay or reimburse any Holder
or beneficial owner of the notes for the expenses of any such Holder or
beneficial owner related to the application for any Gaming License,
qualification or finding of suitability in connection with a Required Regulatory
Redemption. Such expenses of any such Holder or beneficial owner will,
therefore, be the obligation of such Holder or beneficial owner.
MANDATORY. The notes are not entitled to any mandatory redemption (except
for a Required Regulatory Redemption) or have the benefit of any sinking fund.
REDEMPTION PROCEDURES. If less than all of the notes are to be redeemed at
any time, selection of notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which the notes are listed, or, if the notes are not so listed, on a
PRO RATA basis, by lot or by such method as the Trustee deems to be fair and
appropriate; PROVIDED, that notes in denominations of $1,000 or less may not be
redeemed in part. Except in the case of a Required Regulatory Redemption
requiring less notice, notice of redemption will be mailed by first-class mail
at least 30 but not more than 60 days before the redemption date to each Holder
to be redeemed at such Holder's registered address. If any note is to be
redeemed in part only, the notice of redemption that relates to such note will
state the portion of the principal amount thereof to be redeemed. A new note in
principal amount equal to the unredeemed portion thereof will be issued in the
name of the Holder thereof upon cancellation of the original note. On and after
the date of redemption, interest will cease to accrue on notes or portions
thereof called for redemption, unless the Issuers default in making such
redemption payment.
SUBSIDIARY GUARANTORS
The repayment of the notes is unconditionally and irrevocably guaranteed,
jointly and severally, by all future Restricted Subsidiaries. On the Issue Date,
the Company had no Subsidiaries other than PGC (which is a co-issuer and
co-obligor of the notes). The indenture provides that, so long as any notes
remain outstanding, any future Restricted Subsidiary shall enter into a
Subsidiary Guaranty.
If all of the Capital Stock of any Subsidiary Guarantor is sold by the
Company or any of its Subsidiaries to a Person (other than the Company or any of
its Subsidiaries) and the Net Proceeds from such Asset Sale are used in
accordance with the terms of the covenant described under "--Limitation on Asset
Sales," then such Subsidiary Guarantor shall be released and discharged from all
of its Obligations under its Subsidiary Guaranty and the indenture.
The Obligations of each Subsidiary Guarantor under its Subsidiary Guaranty
are limited to the maximum amount as will, after giving effect to all other
contingent and fixed liabilities of such Subsidiary Guarantor and after giving
effect to any collections from or payments made by or on behalf of any other
Subsidiary Guarantor in respect of the Obligations of such other Subsidiary
Guarantor under its Subsidiary Guaranty, result in the Obligations of such
Subsidiary Guarantor under its Subsidiary Guaranty not constituting a fraudulent
conveyance or fraudulent transfer under federal or state law and not rendering a
Subsidiary Guarantor insolvent.
SECURITY
The Company will assign and pledge, or cause to be assigned and pledged, as
collateral (the "Collateral") to the Trustee, for the benefit of the Trustee and
the Holders, as security for the Issuers' obligations with respect to the notes
all of its interest in:
(i) the riverboat and the land-based facility comprising the Diamond Jo,
including without limitation all leased property;
64
(ii) all real property and all additions or improvements thereon;
(iii) substantially all of its furniture, fixtures and equipment,
inventory, accounts, contract rights and other general intangibles,
trademarks and trade names; and
(iv) the Company's cash that is deposited in certain designated deposit
accounts.
Notwithstanding the foregoing, the Collateral shall not include the Excluded
Assets. In addition, there can be no assurance that the security interest in the
cash that constitutes collateral can be perfected under applicable laws.
The security interest in favor of the Trustee and the Holders was created in
the riverboat Collateral pursuant to a first preferred ship mortgage (the "Ship
Mortgage"), in real property Collateral pursuant to a mortgage (the "Shore
Mortgage" and, together with the Ship Mortgage, the "Mortgages"), and in all
other Collateral pursuant to a security agreement from the Company (and any
future Subsidiary Guarantors) in favor of the Trustee (the "Security Agreement"
and, together with the Mortgages, the "Security Documents"). The Trustee's
security interest in the Collateral is subordinated to a lien securing
Indebtedness outstanding under the Senior Credit Facility. In connection with
incurring any such Indebtedness, the Trustee is permitted to enter into an
Intercreditor Agreement substantially in the form of the Intercreditor Agreement
attached as an exhibit to the indenture.
The proceeds of any sale of the Collateral by the Trustee following an Event
of Default may not be sufficient to satisfy payments due on the notes. No
appraisals of any of the Collateral have been prepared in connection with the
offering of the notes. Moreover, the amount to be received upon such sale will
be dependent upon numerous factors, including the condition, age and useful life
of the Collateral at the time of such sale, as well as the timing and manner of
such sale. By its nature, all or some of the Collateral is illiquid and may have
no readily ascertainable market value. Additionally, due to certain applicable
gaming, real estate, bankruptcy, securities and other laws, the ability of the
Trustee on behalf of the Holders to exercise certain remedies under the
indenture and the Security Documents may be materially and adversely affected.
Accordingly, there can be no assurance that the Collateral, if saleable, can be
sold in a short period of time on commercially reasonable terms, if at all. See
"Risk Factors--Collateral."
If an Event of Default occurs and is continuing, the Trustee, on behalf of
the Holders, in addition to any rights or remedies available to it under the
indenture and the Security Documents, may, subject to the Intercreditor
Agreement, take such action as it deems advisable to protect and enforce its
rights in the Collateral, including the institution of sale or foreclosure
proceedings. While Indebtedness is outstanding under the Senior Credit Facility,
rights of the Holders and the Trustee are subject to the terms of the
Intercreditor Agreement. The proceeds received by the Trustee from any such sale
or foreclosure will, subject to the Intercreditor Agreement, be applied by the
Trustee first to pay the expenses of such sale or foreclosure and fees and other
amounts then payable to the Trustee under the indenture, and thereafter to pay
amounts due and payable with respect to the notes.
CERTAIN GAMING LAW LIMITATIONS. The Trustee's ability to foreclose upon the
Collateral is limited by relevant gaming laws, which generally require that
Persons who own or operate a casino or purchase or sell gaming equipment hold a
valid gaming license or permit and require the approval of the Gaming Commission
for any transfer of a Gaming License. No Person can hold a gaming license in the
State of Iowa unless that Person is found qualified and suitable by the relevant
Gaming Authorities. In order for the Trustee to be found qualified and suitable,
such Gaming Authorities would have discretionary authority to require the
Trustee and any or all of the Holders to file applications, be investigated and
be found qualified or suitable as an owner or operator of gaming establishments.
The applicant for qualification, a finding of suitability or licensing must pay
all costs of such investigation. If the Trustee is unable or chooses not to
qualify, be found suitable, or be licensed to own or operate such assets, it
would have to retain an entity so qualified, suitable or licensed to own or
operate such
65
assets or another entity that could obtain the appropriate license to own or
operate such assets. This licensing process requires a considerable amount of
time, taking several months at a minimum. In addition, in any foreclosure sale
or subsequent resale by the Trustee, licensing requirements under the relevant
gaming laws may limit the number of potential bidders and may delay any sale,
either of which events could have an adverse effect on the sale price of such
Collateral. Therefore, the practical value of realizing on the Collateral may,
without the appropriate Gaming Authority approval or timeliness, be limited.
Moreover, if a Default occurred after a disapproval of gaming in the 2002
Referendum, the Gaming Authority might be legally prohibited from permitting the
existing license to be transferred or from issuing a new license for the Diamond
Jo. See "Risk Factors--Reauthorization of Gaming in Dubuque County, Iowa."
CERTAIN BANKRUPTCY LIMITATIONS. The right of the Trustee to repossess and
dispose of the Collateral upon the occurrence of an Event of Default is likely
to be significantly impaired by applicable bankruptcy laws if a bankruptcy
proceeding were to be commenced by or against either of the Issuers prior to the
Trustee having repossessed and disposed of the Collateral. Under the Bankruptcy
Code, a secured creditor is prohibited from repossessing its security from a
debtor in a bankruptcy case, or from disposing of security repossessed from such
debtor, without bankruptcy court approval. Moreover, the Bankruptcy Code permits
the debtor to continue to retain and to use collateral owned as of the date of
the bankruptcy filing (and the proceeds, products, offspring, rents or profits
of such collateral to the extent provided by the security documents with respect
to such collateral and by applicable non-bankruptcy law) even though the debtor
is in default under the applicable debt instruments; PROVIDED, that the secured
creditor is given "adequate protection." The meaning of the term "adequate
protection" may vary according to circumstances. In view of the lack of a
precise definition of the term "adequate protection" and the broad discretionary
powers of a bankruptcy court, it is impossible to predict how long payments
under the notes could be delayed following commencement of a bankruptcy case,
whether or when the Trustee could repossess or dispose of the Collateral or
whether or to what extent Holders would be compensated for any delay in payment
or loss of value of the Collateral through the requirement of "adequate
protection." Furthermore, in the event a bankruptcy court determines the value
of the Collateral is not sufficient to repay all amounts due on the notes, the
Holders would hold secured claims only to the extent of the value of the
Collateral to which the Holders are entitled, and would hold unsecured claims
with respect to such shortfall. Applicable federal bankruptcy laws do not permit
the payment and/or accrual of post-petition interest, costs and attorneys' fees
during a debtor's bankruptcy case unless the claims are oversecured or the
debtor is solvent at the time of reorganization. In addition, if either Issuer
becomes the subject of a bankruptcy case, the bankruptcy court, among other
things, may avoid certain transfers made by the entity that is the subject of
the bankruptcy filing, including, without limitation, transfers held to be
fraudulent conveyances or preferences.
Further, certain limitations exist under the Merchant Marine Act of 1936 on
the ability of non-U.S. citizens to realize upon collateral consisting of
vessels documented under the laws of the United States. To the extent that the
Holders are non-U.S. citizens, such limitation could adversely affect the
ability of the Trustee to complete a foreclosure on the Collateral. This
ownership limitation may also reduce the number of potential purchasers of the
riverboat Collateral if the Trustee seeks to sell the riverboat Collateral as a
means of repaying the notes. The Trustee may be required to foreclose through a
federal admiralty court proceeding. Such a proceeding would entail compliance
with notice and other procedural requirements, and could require posting of a
substantial bond.
REPURCHASE UPON CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Issuers will offer to
repurchase all of the notes then outstanding (the "Change of Control Offer") at
a purchase price equal to 101% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the date of repurchase (the "Change of
66
Control Payment"). Within 30 days following any Change of Control, the Issuers
must mail or cause to be mailed a notice to each Holder stating, among other
things:
(i) the purchase price and the purchase date, which will be no earlier
than 30 days nor later than 45 days from the date such notice is mailed (the
"Change of Control Payment Date");
(ii) that any Holder electing to have notes purchased pursuant to a
Change of Control Offer will be required to surrender the notes, with the
form entitled "Option of Holder to Elect Purchase" on the reverse of the
notes completed, to the paying agent with respect to the notes (the "Paying
Agent") at the address specified in the notice prior to the close of
business on the third Business Day preceding the Change of Control Payment
Date; and
(iii) that the Holder will be entitled to withdraw such election if the
Paying Agent receives, not later than the close of business on the second
Business Day preceding the Change of Control Payment Date, a telegram,
telex, facsimile transmission or letter setting forth the name of the
Holder, the principal amount of notes delivered for purchase, and a
statement that such Holder is withdrawing his election to have such notes
purchased.
The Issuers will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the notes in connection with a Change of Control. To the extent
that the provisions of any securities laws or regulations conflict with the
"Change of Control" provisions of the indenture, the Issuers will comply with
the applicable securities laws and regulations and shall not be deemed to have
breached their obligations under the "Change of Control" provisions of the
indenture by virtue thereof.
On the Change of Control Payment Date, the Issuers will, to the extent
lawful, (i) accept for payment the notes or portions thereof tendered pursuant
to the Change of Control Offer, (ii) deposit with the Paying Agent an amount
equal to the Change of Control Payment in respect of all notes or portions
thereof so tendered and not withdrawn, and (iii) deliver or cause to be
delivered to the Trustee the notes so accepted, together with an Officers'
Certificate stating that the notes or portions thereof tendered to the Issuers
are accepted for payment. The Paying Agent will promptly mail to each Holder of
notes so accepted payment in an amount equal to the purchase price for such
notes, and the Trustee will authenticate and mail (or cause to be transferred by
book entry) to each Holder a new note equal in principal amount to any
unpurchased portion of the notes surrendered, if any; PROVIDED, that each such
new note will be in the principal amount of $1,000 or an integral multiple
thereof. The Issuers will announce the results of the Change of Control Offer on
or as soon as practicable after the Change of Control Payment Date.
Except as described above with respect to a Change of Control, the indenture
does not contain provisions that permit the Holders to require that the Issuers
repurchase or redeem the notes in the event of a takeover, recapitalization or
similar restructuring.
There can be no assurance that sufficient funds will be available at the
time of any Change of Control Offer to make required repurchases.
The Issuers will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the indenture applicable to a Change of Control Offer made by the Issuers,
and purchases all notes validly tendered and not withdrawn under such Change of
Control Offer.
The use of the term "all or substantially all" in provisions of the
indenture such as in the definition of "Change of Control" and under "--Merger,
Consolidation or Sale of Assets" has no clearly established meaning under New
York law (which governs the indenture) and has been the
67
subject of limited judicial interpretation in only a few jurisdictions.
Accordingly, there may be a degree of uncertainty in ascertaining whether any
particular transaction would involve a disposition of "all or substantially all"
of the assets of a Person. As a consequence, in the event the Holders elect to
exercise their rights under the indenture and the Issuers elect to contest such
election, there could be no assurance as to how a court would interpret the
phrase under New York law, which may have the effect of preventing the Trustee
or the Holders from successfully asserting that a Change of Control has
occurred.
Management of the Company has no present intention to engage in a
transaction involving a Change of Control, although it is possible that the
Company could determine to do so in the future. Subject to the limitations
discussed below, the Company could, in the future, enter into certain
transactions, including acquisitions, refinancings or other recapitalizations,
that would not constitute a Change of Control under the indenture, but that
would increase the amount of Indebtedness outstanding at such time or otherwise
affect the Company's capital structure or credit ratings. Restrictions on the
ability of the Company to incur additional Indebtedness are contained in the
covenant described under "--Limitation on Incurrence of Indebtedness." Such
restrictions can only be waived with the consent of the holders of a majority in
principal amount of the notes then outstanding. Except for the limitations
contained in such covenant, however, the indenture will not contain any
covenants or protections that may afford Holders protection in the event of a
highly leveraged transaction.
EXCESS CASH FLOW OFFER
Within 120 days after the end of each Hotel Operating Year, the Issuers will
make an offer to all Holders (the "Excess Cash Flow Offer") to purchase the
maximum principal amount of notes that is an integral multiple of $1,000 that
may be purchased with 50% of Excess Cash Flow for such Operating Year (the
"Excess Cash Flow Offer Amount"), at a purchase price in cash equal to 101% of
the principal amount of the notes to be purchased, plus accrued and unpaid
interest to the date fixed for the closing of the Excess Cash Flow Offer. The
indenture provides that each Excess Cash Flow Offer will remain open for a
period of 20 Business Days and no longer, unless a longer period is required by
law (the "Excess Cash Flow Offer Period"). Promptly after the termination of the
Excess Cash Flow Offer Period, the Issuers will purchase and mail or deliver
payment for the Excess Cash Flow Offer Amount for the notes or portions thereof
tendered, PRO RATA or by such other method as may be required by law, or, if
less than the Excess Cash Flow Offer Amount has been tendered, all notes
tendered pursuant to the Excess Cash Flow Offer. The principal amount of notes
to be purchased pursuant to an Excess Cash Flow Offer may be reduced by the
principal amount of notes acquired by the Issuers through purchase or redemption
(other than pursuant to a Change of Control Offer or Excess Proceeds Offer)
surrendered to the Trustee for cancellation. If the aggregate amount of notes
tendered pursuant to any Excess Cash Flow Offer is less than the Excess Cash
Flow Offer Amount, the Company may, subject to the other provisions of the
indenture and the Collateral Documents, use any remaining Excess Cash Flow for
general corporate purposes.
Each Excess Cash Flow Offer will be conducted in compliance with applicable
regulations under the Federal securities laws, including Exchange Act Rule
14e-1. To the extent that the provisions of any securities laws or regulations
conflict with the Excess Cash Flow Offer provisions of the indenture, the
Issuers will comply with the applicable securities laws and regulations and
shall not be deemed to have breached their obligations under the Excess Cash
Flow Offer provisions of the indenture by virtue thereof.
The indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, create or suffer to exist or become effective
any restriction that would impair the ability of the Issuers to make an Excess
Cash Flow Offer or, if such Excess Cash Flow Offer is made, to pay for the notes
tendered for purchase.
68
There can be no assurance the Hotel will become Operating or, once
Operating, that sufficient funds will be available at the time of any Excess
Cash Flow Offer to make required repurchases.
CERTAIN COVENANTS
LIMITATION ON RESTRICTED PAYMENTS. The Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly
(i) declare or pay any dividend or make any distribution on account of
any Equity Interests of the Company or any of its Subsidiaries or make any
other payment to any Excluded Person or Affiliate thereof (other than (a)
dividends or distributions payable in Equity Interests (other than
Disqualified Capital Stock) of the Company or (b) amounts payable to the
Company or any Restricted Subsidiary);
(ii) purchase, redeem or otherwise acquire or retire for value any
Equity Interest of the Company, any Subsidiary or any other Affiliate of the
Company (other than any such Equity Interest owned by the Company or any
Restricted Subsidiary);
(iii) make any principal payment on, or purchase, redeem, defease or
otherwise acquire or retire for value any Indebtedness of the Company or any
Subsidiary Guarantor that is subordinated in right of payment to the notes
or such Subsidiary Guarantor's Subsidiary Guaranty thereof, as the case may
be, prior to any scheduled principal payment, sinking fund payment or other
payment at the stated maturity thereof; or
(iv) make any Restricted Investment
(all such payments and other actions set forth in clauses (i) through (iv) above
being collectively referred to as "Restricted Payments"), unless, at the time of
such Restricted Payment:
(a) no Default or Event of Default has occurred and is continuing or
would occur as a consequence thereof, and
(b) immediately after giving effect to such Restricted Payment on a PRO
FORMA basis, the Company could incur at least $1.00 of additional
Indebtedness under the Interest Coverage Ratio test set forth in the
covenant described under "--Limitation on Incurrence of Indebtedness," and
(c) such Restricted Payment (the value of any such payment, if other
than cash, being determined in good faith by the Managers of the Company and
evidenced by a resolution set forth in an Officers' Certificate delivered to
the Trustee), together with the aggregate of all other Restricted Payments
made after the Issue Date (including Restricted Payments permitted by
clauses (i) and (ii) of the next following paragraph and excluding
Restricted Payments permitted by the other clauses therein), is less than
the sum of:
(1) 50% of the Consolidated Net Income of the Company for the period
(taken as one accounting period) from the beginning of the first fiscal
quarter commencing immediately after the Issue Date to the end of the
Company's most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or, if
such Consolidated Net Income for such period is a deficit, 100% of such
deficit), plus
(2) 100% of the aggregate net cash proceeds (or of the net cash
proceeds received upon the conversion of non-cash proceeds into cash)
received by the Company from the issuance or sale, other than to a
Subsidiary, of Equity Interests of the Company (other than Disqualified
Capital Stock) after the Issue Date and on or prior to the time of such
Restricted Payment, plus
69
(3) 100% of the aggregate net cash proceeds (or of the net cash
proceeds received upon the conversion of non-cash proceeds into cash)
received by the Company from the issuance or sale, other than to a
Subsidiary, of any convertible or exchangeable debt security of the
Company that has been converted or exchanged into Equity Interests of the
Company (other than Disqualified Capital Stock) pursuant to the terms
thereof after the Issue Date and on or prior to the time of such
Restricted Payment (including any additional net proceeds received by the
Company upon such conversion or exchange), plus
(4) the aggregate Return from Unrestricted Subsidiaries after the
Issue Date and on or prior to the time of such Restricted Payment.
The foregoing provisions will not prohibit:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would not
have been prohibited by the provisions of the indenture;
(ii) the redemption, purchase, retirement or other acquisition of any
Equity Interests of the Company or Indebtedness of the Company or any
Restricted Subsidiary in exchange for, or out of the proceeds of, the
substantially concurrent sale (other than to a Subsidiary) of, other Equity
Interests of the Company (other than Disqualified Capital Stock);
(iii) with respect to each tax year that the Company qualifies as a Flow
Through Entity, and for so long as no Event of Default exists or would occur
as a consequence thereof, the payment of Permitted Tax Distributions;
PROVIDED, that (A) prior to the first payment of Permitted Tax Distributions
during the calendar year the Company provides an Officers' Certificate and
Opinion of Counsel to the effect that the Company and each Subsidiary in
respect of which such distributions are being made qualify as Flow Through
Entities for Federal income tax purposes and for the states in respect of
which such distributions are being made and (B) at the time of such
distribution, the most recent audited financial statements of the Company
provided to the Trustee pursuant to the covenant described under the caption
"--Reports," provide that the Company and each such Subsidiary were treated
as Flow Through Entities for the period of such financial statements;
(iv) the redemption, repurchase or payoff of any Indebtedness of the
Company or a Restricted Subsidiary with proceeds of any Refinancing
Indebtedness permitted to be incurred pursuant to the provision described
under "--Limitation on Incurrence of Indebtedness";
(v) distributions to PGP for (A) reasonable tax preparation, accounting,
legal and administrative fees and expenses incurred on behalf of the Issuers
or in connection with PGP's ownership of the Issuers, consistent with
industry practice and (B) compensation to PGP executive officers pursuant
to, and in accordance with, consulting agreements in effect on the Issue
Date;
(vi) payments on or with respect to the redemption of Seller Preferred
in an aggregate amount not to exceed $3.0 million;
(vii) reasonable and customary directors fees to, and indemnity provided
on behalf of, the Managers of PGP and the Company, and customary
reimbursement of travel and similar expenses incurred in the ordinary course
of business;
(viii) payment of a fee to certain members of management of PGCL and
PGP, including Mr. Luzich and Mr. Stevens, in the aggregate amount of $1.5
million, which fee shall be paid, at the discretion of Mr. Stevens, in the
event that we redeem or refinance 90% or more of the notes on or prior to
July 1, 2003; and
(ix) Restricted Payments in an aggregate amount not to exceed $1.0
million.
70
Not later than the date of making any Restricted Payment, the Company will
deliver to the Trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by this covenant were computed, which calculations may be based upon
the Company's latest available financial statements.
LIMITATION ON INCURRENCE OF INDEBTEDNESS. The Company will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly, (i)
create, incur, issue, assume, guaranty or otherwise become directly or
indirectly liable with respect to, contingently or otherwise (collectively,
"incur"), any Indebtedness (including, without limitation, Acquired Debt) or
(ii) issue any Disqualified Capital Stock; PROVIDED, that the Company may incur
Indebtedness (including, without limitation, Acquired Debt) and issue shares of
Disqualified Capital Stock (and a Restricted Subsidiary may incur Acquired Debt)
if (a) no Default or Event of Default shall have occurred and be continuing at
the time of, or would occur after giving effect on a PRO FORMA basis to such
incurrence or issuance, and (b) the Interest Coverage Ratio for the Company's
most recently ended four full fiscal quarters for which internal financial
statements are available immediately preceding the date on which such additional
Indebtedness is incurred or such Disqualified Capital Stock is issued would have
been not less than 2.0 to 1.0 for the period from the Issue Date through, but
not including, January 1, 2003, and 2.25 to 1.0 thereafter, in each case,
determined on a PRO FORMA basis (including a PRO FORMA application of the net
proceeds therefrom), as if the additional Indebtedness had been incurred, or the
Disqualified Capital Stock had been issued, as the case may be, at the beginning
of such four-quarter period; PROVIDED, that in the case of Indebtedness (other
than Indebtedness outstanding under the Senior Credit Facility, Purchase Money
Obligations, Capital Lease Obligations or Acquired Debt), the Weighted Average
Life to Maturity and final stated maturity of such Indebtedness is equal to or
greater than the Weighted Average Life to Maturity and final stated maturity of
the notes.
Notwithstanding the foregoing, the foregoing limitations will not prohibit
the incurrence of:
(i) Indebtedness under the Senior Credit Facility; PROVIDED,that the
aggregate principal amount of Indebtedness so incurred on any date, together
with all other Indebtedness incurred pursuant to this clause (i) and
outstanding on such date, shall not exceed (a) $10.0 million if such date is
on or prior to the 90th day following the date on which the Hotel is first
Operating, or $5.0 million if such date is after such 90th day, less (b) the
aggregate amount of commitment reductions contemplated by clause (iii) under
the caption "--Limitation on Asset Sales;"
(ii) Capital Lease Obligations or Purchase Money Obligations; PROVIDED,
that the aggregate principal amount of Indebtedness so incurred on any date,
together with all other Indebtedness incurred pursuant to this clause (ii)
and outstanding on such date, shall not exceed $2.5 million, at any time;
(iii) performance bonds, appeal bonds, surety bonds, insurance
obligations or bonds and other similar bonds or obligations (including
Obligations under bankers acceptances and letters of credit) incurred in the
ordinary course of business (including, without limitation, to maintain any
licenses or permits);
(iv) Hedging Obligations incurred to fix the interest rate on any
variable rate Indebtedness otherwise permitted by the indenture; PROVIDED,
that the notional principal amount of each such Hedging Obligation does not
exceed the principal amount of the Indebtedness to which such Hedging
Obligation relates;
(v) Indebtedness of the Company or any Subsidiary Guarantor owed to and
held by a Subsidiary Guarantor or the Company, as the case may be, that is
unsecured and subordinated in right of payment to the notes or the
Subsidiary Guaranty, as the case may be; PROVIDED, that any subsequent
issuance or transfer of any Capital Stock that results in any such
Subsidiary Guarantor ceasing to be a Subsidiary Guarantor or any transfer of
such Indebtedness (other than to the
71
Company or a Subsidiary Guarantor) shall be deemed, in each case, to
constitute the incurrence of such Indebtedness by the Company or such
Subsidiary Guarantor;
(vi) Indebtedness outstanding on the Issue Date, including the notes
outstanding on the Issue Date;
(vii) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument inadvertently
(except in the case of daylight overdrafts) drawn against insufficient funds
in the ordinary course of business;
(viii) any Subsidiary Guaranty of the notes; and
(ix) Indebtedness issued in exchange for, or the proceeds of which are
substantially contemporaneously used to extend, refinance, renew, replace,
or refund (collectively, "Refinance"), Indebtedness incurred pursuant to the
Interest Coverage Ratio test set forth in the immediately preceding
paragraph, clause (vi) above or this clause (ix) (the "Refinancing
Indebtedness"); PROVIDED, that (a) the principal amount of such Refinancing
Indebtedness does not exceed the principal amount of Indebtedness so
Refinanced (plus any required premiums and out-of-pocket expenses reasonably
incurred in connection therewith), (b) the Refinancing Indebtedness has a
final scheduled maturity that equals or exceeds the final stated maturity,
and a Weighted Average Life to Maturity that is equal to or greater than the
Weighted Average Life to Maturity, of the Indebtedness being Refinanced and
(c) the Refinancing Indebtedness ranks, in right of payment, no more
favorable to the notes or applicable Subsidiary Guaranty, as the case may
be, than the Indebtedness being Refinanced.
LIMITATION ON ASSET SALES. The Company will not, and will not permit any
Restricted Subsidiary to, make any Asset Sale unless
(i) the Company or such Restricted Subsidiary receives consideration at
the time of such Asset Sale not less than the fair market value of the
assets subject to such Asset Sale;
(ii) at least 75% of the consideration for such Asset Sale is in the
form of cash or Cash Equivalents or liabilities of the Company or any
Restricted Subsidiary (other than liabilities that are by their terms
subordinated to the notes or any Subsidiary Guaranty) that are assumed by
the transferee of such assets (PROVIDED, that following such Asset Sale
there is no further recourse to the Company or its Restricted Subsidiaries
with respect to such liabilities); and
(iii) within 270 days of such Asset Sale, the Net Proceeds thereof are
(a) invested in assets related to the business of the Company or its
Restricted Subsidiaries (which, in the case of an Asset Sale of the Diamond
Jo or any replacement Gaming Vessel (a "Replacement Vessel"), must be a
Gaming Vessel having a fair market value, as determined by an independent
appraisal, at least equal to the fair market value of the Diamond Jo or such
Replacement Vessel immediately preceding such Asset Sale), (b) applied to
repay Indebtedness under Purchase Money Obligations incurred in connection
with the assets so sold, (c) applied to repay Indebtedness under the Senior
Credit Facility and permanently reduce the commitment thereunder in the
amount of the Indebtedness so repaid or (d) to the extent not used as
provided in clauses (a), (b), or (c) or any combination thereof, applied to
make an offer to purchase notes as described below (an "Excess Proceeds
Offer"); PROVIDED, that the Company will not be required to make an Excess
Proceeds Offer until the amount of Excess Proceeds is greater than $5.0
million.
The provisions in clauses (i) and (ii) above shall not apply to an Event of
Loss.
Pending the final application of any Net Proceeds, the Company may
temporarily reduce Indebtedness under the Senior Credit Facility or temporarily
invest such Net Proceeds in Cash Equivalents.
72
Net Proceeds not invested or applied as set forth in the preceding clauses
(a), (b) or (c) constitute "Excess Proceeds." If the Company elects, or becomes
obligated to make an Excess Proceeds Offer, the Issuers will offer to purchase
notes having an aggregate principal amount equal to the Excess Proceeds (the
"Purchase Amount"), at a purchase price equal to 100% of the aggregate principal
amount thereof, plus accrued and unpaid interest, if any, to the purchase date.
The Issuers must commence such Excess Proceeds Offer not later than 30 days
after the expiration of the 270 day period following the Asset Sale that
produced such Excess Proceeds. If the aggregate purchase price for the notes
tendered pursuant to the Excess Proceeds Offer is less than the Excess Proceeds,
the Company and its Restricted Subsidiaries may use the portion of the Excess
Proceeds remaining after payment of such purchase price for general corporate
purposes.
The indenture provides that each Excess Proceeds Offer will remain open for
a period of 20 Business Days and no longer, unless a longer period is required
by law (the "Excess Proceeds Offer Period"). Promptly after the termination of
the Excess Proceeds Offer Period, the Issuers will purchase and mail or deliver
payment for the Purchase Amount for the notes or portions thereof tendered, PRO
RATA or by such other method as may be required by law, or, if less than the
Purchase Amount has been tendered, all notes tendered pursuant to the Excess
Proceeds Offer. The principal amount of notes to be purchased pursuant to an
Excess Proceeds Offer may be reduced by the principal amount of notes acquired
by the Issuers through purchase or redemption (other than pursuant to a Change
of Control Offer or an Excess Cash Flow Offer) subsequent to the date of the
Asset Sale and surrendered to the Trustee for cancellation.
Each Excess Proceeds Offer will be conducted in compliance with applicable
regulations under the Federal securities laws, including Exchange Act Rule
14e-1. To the extent that the provisions of any securities laws or regulations
conflict with the "Asset Sale" provisions of the indenture, the Issuers will
comply with the applicable securities laws and regulations and shall not be
deemed to have breached their obligations under the "Asset Sale" provisions of
the indenture by virtue thereof.
The indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, create or suffer to exist or become effective
any restriction that would impair the ability of the Issuers to make an Excess
Proceeds Offer upon an Asset Sale or, if such Excess Proceeds Offer is made, to
pay for the notes tendered for purchase.
There can be no assurance that sufficient funds will be available at the
time of any Excess Proceeds Offer to make required repurchases.
LIMITATION ON LIENS. The Company will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, create, incur, assume or
suffer to exist any Lien on any asset (including, without limitation, all real,
tangible or intangible property) of the Company or any Restricted Subsidiary,
whether now owned or hereafter acquired, or on any income or profits therefrom,
or assign or convey any right to receive income therefrom, except Permitted
Liens.
LIMITATION ON RESTRICTIONS ON SUBSIDIARY DIVIDENDS. The Company will not,
and will not permit any Restricted Subsidiary to, directly or indirectly, create
or otherwise cause or suffer to exist or become effective any encumbrance or
restriction on the ability of any Restricted Subsidiary to:
(i) pay dividends or make any other distributions to the Company or any
of its Restricted Subsidiaries (a) on such Restricted Subsidiary's Capital
Stock or (b) with respect to any other interest or participation in, or
measured by, such Restricted Subsidiary's profits, or
(ii) pay any Indebtedness owed to the Company or any of its Restricted
Subsidiaries, or
(iii) make loans or advances to the Company or any of its Restricted
Subsidiaries, or
(iv) transfer any of its assets to the Company or any of its Restricted
Subsidiaries,
73
except, with respect to clauses (i) through (iv) above, for such encumbrances or
restrictions existing under or by reason of:
(a) a Senior Credit Facility containing dividend or other payment
restrictions that are not more restrictive in any material respect than
those contained in the indenture on the Issue Date;
(b) the indenture, the Security Documents and the notes;
(c) applicable law or any applicable rule or order of any Governmental
Authority;
(d) Acquired Debt; PROVIDED, that such encumbrances and restrictions are
not applicable to any Person, or the properties or assets of any Person,
other than the Person, or the property or assets of the Person, so acquired;
(e) customary non-assignment and net worth provisions of any contract,
lease or license entered into in the ordinary course of business;
(f) customary restrictions on the transfer of assets subject to a
Permitted Lien imposed by the holder of such Lien;
(g) the agreements governing permitted Refinancing Indebtedness;
PROVIDED, that such restrictions contained in any agreement governing such
Refinancing Indebtedness are no more restrictive in any material respect
than those contained in any agreements governing the Indebtedness being
refinanced; and
(h) any restrictions with respect to a Restricted Subsidiary imposed
pursuant to a binding agreement that has been entered into for the sale or
disposition of all or substantially all of the Equity Interests or assets of
such Restricted Subsidiary; PROVIDED, that such restrictions only apply to
the Equity Interests or assets of such Restricted Subsidiary being sold.
MERGER, CONSOLIDATION OR SALE OF ASSETS. Neither Issuer may consolidate or
merge with or into (regardless of whether such Issuer is the surviving
corporation), or sell, assign, transfer, lease, convey or otherwise dispose of
all or substantially all of its properties or assets (determined on a
consolidated basis for the Company and its Restricted Subsidiaries) in one or
more related transactions to, any other Person, unless:
(i) such Issuer is the surviving Person or the Person formed by or
surviving any such consolidation or merger (if other than such Issuer) or to
which such sale, assignment, transfer, lease, conveyance or other
disposition has been made is a corporation organized and existing under the
laws of the United States of America, any state thereof or the District of
Columbia;
(ii) the Person formed by or surviving any such consolidation or merger
(if other than such Issuer) or the Person to which such sale, assignment,
transfer, lease, conveyance or other disposition has been made assumes all
the Obligations of such Issuer, pursuant to a supplemental indenture in a
form reasonably satisfactory to the Trustee, under the notes, the indenture,
the Security Documents and the Registration rights agreement;
(iii) immediately after giving effect to such transaction on a PRO FORMA
basis, no Default or Event of Default exists;
(iv) such transaction would not result in the loss or suspension or
material impairment of any Gaming License unless a comparable replacement
Gaming License is effective prior to or simultaneously with such loss,
suspension or material impairment; and
(v) such Issuer, or any Person formed by or surviving any such
consolidation or merger, or to which such sale, assignment, transfer, lease,
conveyance or other disposition has been made, (a) has Consolidated Net
Worth (immediately after the transaction but prior to any purchase
accounting adjustments resulting from the transaction) equal to or greater
than the Consolidated
74
Net Worth of such Issuer immediately preceding the transaction and (b) will
be permitted, at the time of such transaction and after giving PRO FORMA
effect thereto as if such transaction had occurred at the beginning of the
applicable four-quarter period, to incur at least $1.00 of additional
Indebtedness pursuant to the Interest Coverage Ratio test set forth in the
covenant described under "--Limitation on Incurrence of Indebtedness."
In the event of any transaction (other than a lease) described in and
complying with the conditions listed in the immediately preceding paragraph in
which such Issuer is not the surviving Person, such surviving Person or
transferee shall succeed to, and be substituted for, and may exercise every
right and power of, such Issuer under, and such Issuer shall be discharged from
its Obligations under, the indenture, the notes, the Security Documents and the
Registration rights agreement, with the same effect as if such successor Person
had been named as such Issuer herein or therein.
LIMITATION ON TRANSACTIONS WITH AFFILIATES. The Company will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly, sell,
lease, transfer or otherwise dispose of any of its properties or assets to, or
purchase any property or assets from, or enter into any contract, agreement,
understanding, loan, advance or guaranty with, or for the benefit of, any
Affiliate (each of the foregoing, an "Affiliate Transaction"), except for:
(i) Affiliate Transactions that, together with all related Affiliate
Transactions, have an aggregate value of not more than $1.0 million;
PROVIDED, that such transactions are conducted in good faith and on terms
that are no less favorable to the Company or the relevant Restricted
Subsidiary than those that would have been obtained in a comparable
transaction at such time by the Company or such Restricted Subsidiary on an
arm's-length basis from a Person that is not an Affiliate of the Company or
such Restricted Subsidiary;
(ii) Affiliate Transactions that, together with all related Affiliate
Transactions, have an aggregate value of not more than $5.0 million;
PROVIDED, that (a) a majority of the disinterested Managers of the Company
or, if none, a disinterested committee appointed by the Managers of the
Company for such purpose, determine that such transactions are conducted in
good faith and on terms that are no less favorable to the Company or the
relevant Restricted Subsidiary than those that would have been obtained in a
comparable transaction at such time by the Company or such Restricted
Subsidiary on an arm's-length basis from a Person that is not an Affiliate
of the Company or such Restricted Subsidiary and (b) prior to entering into
such transaction the Company shall have delivered to the Trustee an
Officers' Certificate certifying to such effect; or
(iii) Affiliate Transactions for which the Company delivers to the
Trustee an opinion as to the fairness to the Company or such Restricted
Subsidiary from a financial point of view issued by an accounting, appraisal
or investment banking firm of national standing.
Notwithstanding the foregoing, the following will be deemed not to be
Affiliate Transactions:
(a) transactions between or among the Issuers and/or any or all of the
Subsidiary Guarantors;
(b) Restricted Payments permitted by the provisions of the indenture
described above under "--Limitations on Restricted Payments"; and
(c) reasonable and customary compensation paid to officers, employees or
consultants of PGP, the Company or any Restricted Subsidiary, in each case
for services provided to the Company or any Restricted Subsidiary, as
determined in good faith by the Managers or senior executives of the
Company.
RESTRICTION ON SALE AND ISSUANCE OF SUBSIDIARY STOCK. The Company will not,
and will not permit any Restricted Subsidiary to, issue or sell any Equity
Interests (other than directors' qualifying shares) of any Restricted Subsidiary
to any Person other than the Company or a Wholly Owned Subsidiary of the
Company; PROVIDED, that the Company and its Restricted Subsidiaries may sell all
(but not less than
75
all) of the Capital Stock of a Restricted Subsidiary owned by the Company and
its Restricted Subsidiaries if the Net Proceeds from such Asset Sale are used in
accordance with the terms of the covenant described under "--Limitation on Asset
Sales."
RULE 144A INFORMATION REQUIREMENT. The Issuers (and the Subsidiary
Guarantors) will furnish to the Holders or beneficial holders of notes, upon
their written request, and to prospective purchasers thereof designated by such
Holders or beneficial holders, the information required to be delivered pursuant
to Rule 144A(d)(4) under the Securities Act for so long as is required for an
offer or sale of the notes to qualify for an exemption under Rule 144A.
SUBSIDIARY GUARANTORS. The Issuers will cause each Restricted Subsidiary to
(i) execute and deliver to the Trustee a supplemental indenture in form
reasonably satisfactory to the Trustee, pursuant to which such Restricted
Subsidiary shall unconditionally guarantee all of the Issuers' Obligations under
the notes and the indenture on the terms set forth in the indenture and (ii)
deliver to the Trustee an Opinion of Counsel that such supplemental indenture
has been duly authorized, executed and delivered by such Restricted Subsidiary
and constitutes a legal, valid, binding and enforceable obligation, of such
Restricted Subsidiary, in each case subject to customary qualifications.
Thereafter, such Restricted Subsidiary shall be a Subsidiary Guarantor for all
purposes of the indenture.
ADDITIONAL COLLATERAL. The Company will, and will cause each of the
Subsidiary Guarantors to, grant to the Trustee a first priority security
interest in all Collateral, whether owned on the Issue Date or thereafter
acquired, and to execute and deliver all documents and to take all action
reasonably necessary to perfect and protect such a security interest in favor of
the Trustee.
RESTRICTIONS ON ACTIVITIES OF PGC. PGC may not hold any assets, become
liable for any obligations or engage in any business activities; PROVIDED, that
PGC may be a co-obligor of the notes pursuant to the terms of the indenture and
any activities directly related or necessary in connection therewith.
LIMITATION ON LINES OF BUSINESS. The Company will not, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly engage to any
material extent in any line or lines of business activity other than that which,
in the reasonable good faith judgment of the Managers of the Company, is a
Related Business.
REPORTS. Regardless of whether required by the rules and regulations of the
Securities and Exchange Commission (the "Commission"), so long as any notes are
outstanding, the Company will furnish to the Trustee and Holders, within 15 days
after the Company is or would have been required to file such with the
Commission, (i) all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Forms 10-Q and 10-K
if the Company were required to file such Forms, including for each a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report thereon
by the Company's independent certified public accountants and (ii) all
information that would be required to be contained in a filing with the
Commission on Form 8-K if the Company were required to file such reports. From
and after the time the Company files a registration statement with the
Commission with respect to the notes, the Company will file such information
with the Commission so long as the Commission will accept such filings.
EVENTS OF DEFAULT AND REMEDIES
Each of the following constitutes an Event of Default under the indenture:
(i) default for 30 days in the payment when due of interest on the
notes;
(ii) default in payment of principal (or premium, if any) on the notes
when due at maturity, redemption, by acceleration or otherwise;
76
(iii) default in the performance or breach of the covenants in the
indenture described under "--Repurchase Upon Change of Control,"
"--Limitation on Restricted Payments," "--Limitation on Asset Sales," or
"--Merger, Consolidation or Sale of Assets;"
(iv) failure by the Issuers or any Subsidiary Guarantor for 60 days
after notice to comply with any other agreements in the indenture or the
notes;
(v) a default occurs under (after giving effect to any waivers,
amendments, applicable grace periods or any extension of any maturity date)
any mortgage, indenture or instrument under which there may be issued or by
which there may be secured or evidenced any Indebtedness for money borrowed
by the Issuers or any Restricted Subsidiary (or the payment of which is
guaranteed by the Issuers or any Restricted Subsidiary), whether such
Indebtedness or guaranty now exists or is created after the Issue Date, if
(a) either (1) such default results from the failure to pay principal of or
interest on such Indebtedness or (2) as a result of such default the
maturity of such Indebtedness has been accelerated, and (b) the principal
amount of such Indebtedness, together with the principal amount of any other
such Indebtedness with respect to which such a payment default (after the
expiration of any applicable grace period or any extension of the maturity
date) has occurred, or the maturity of which has been so accelerated,
exceeds $5.0 million in the aggregate;
(vi) failure by the Issuers or any Subsidiary to pay final judgments
(other than to the extent of any judgment as to which a reputable insurance
company has accepted liability) aggregating in excess of $5.0 million, which
judgments are not discharged, bonded or stayed within 60 days after their
entry;
(vii) the cessation of substantially all gaming operations of the
Company for more than 60 days, except as a result of an Event of Loss;
(viii) any revocation, suspension, expiration (without previous or
concurrent renewal) or loss of any Gaming License of the Company for more
than 90 days;
(ix) any event of default under a Security Document; and
(x) certain events of bankruptcy or insolvency with respect to the
Issuers or any of the Subsidiary Guarantors.
If an Event of Default occurs and is continuing, the Trustee may declare by
written notice to the Issuers, or the Holders of at least 25% in principal
amount of the then outstanding notes may declare by written notice to the
Issuers and the Trustee all the notes to be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency, all outstanding notes will become
due and payable without further action or notice. Holders may not enforce the
indenture or the notes except as provided in the indenture. Subject to certain
limitations, Holders of a majority in principal amount of the then outstanding
notes may direct the Trustee in its exercise of any trust or power.
The Holders of a majority in aggregate principal amount of the notes then
outstanding, by written notice to the Trustee, may on behalf of the Holders of
all of the notes (i) waive any existing Default or Event of Default and its
consequences under the indenture except a continuing Default or Event of Default
in the payment of interest on, or the principal of, the notes or a Default or an
Event of Default with respect to any covenant or provision which cannot be
modified or amended without the consent of the Holder of each outstanding note
affected, and/or (ii) rescind an acceleration and its consequences if the
rescission would not conflict with any judgment or decree if all existing Events
of Default (except nonpayment of principal or interest that has become due
solely because of the acceleration) have been cured or waived.
The Issuers are required, upon becoming aware of any Default or Event of
Default, to deliver to the Trustee a statement specifying such Default or Event
of Default and what action the Issuers are taking or propose to take with
respect thereto.
77
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator, stockholder, member or
controlling person of either of the Issuers or any Subsidiary Guarantor, as
such, will have any liability for any obligations of either of the Issuers or
any Subsidiary Guarantor under the notes, the indenture, the Security Documents
or the registration rights agreement or for any claim based on, in respect of,
or by reason of, such obligations or their creation. Each Holder by accepting a
note waives and releases all such liability. The waiver and release is part of
the consideration for issuance of the notes and the Subsidiary Guarantees. Such
waiver may not be effective to waive liabilities under the federal securities
laws, and it is the view of the Commission that such a waiver is against public
policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Issuers may, at their option and at any time, elect to have all of their
obligations discharged with respect to the outstanding notes ("Legal
Defeasance") except for (i) the rights of Holders of outstanding notes to
receive payments in respect of the principal of, premium, if any, and interest
on such notes when such payments are due from the trust referred to below, (ii)
the Issuers' obligations concerning issuing temporary notes, registration of
notes, mutilated, destroyed, lost or stolen notes and the maintenance of an
office or agency for payment and money for security payments held in trust,
(iii) the rights, powers, trusts, duties and immunities of the Trustee, and the
Issuers' and the Subsidiary Guarantors' obligations in connection therewith and
(iv) the Legal Defeasance provisions of the indenture.
In addition, the Issuers may, at their option and at any time, elect to have
their obligations released with respect to certain material covenants that are
described herein ("Covenant Defeasance") and thereafter any omission to comply
with such obligations shall not constitute a Default or Event of Default with
respect to the notes. In the event Covenant Defeasance occurs, certain events
(not including non-payment, bankruptcy, receivership, rehabilitation and
insolvency events) described under "Events of Default" will no longer constitute
an Event of Default with respect to the notes.
In order to exercise either Legal Defeasance or Covenant Defeasance,
(i) the Issuers must irrevocably deposit with the Trustee, in trust, or
the benefit of the Holders, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient,
in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest on the
outstanding notes on the stated maturity or on the applicable redemption
date, as the case may be, and the Issuers must specify whether the notes are
being defeased to maturity or to a particular redemption date;
(ii) in the case of Legal Defeasance, the Issuers shall have delivered
to the Trustee an Opinion of Counsel confirming that (a) the Issuers have
received from, or there has been published by, the Internal Revenue Service
a ruling or (b) since the Issue Date, there has been a change in the
applicable federal income tax law, in either case to the effect that, and
based thereon such Opinion of Counsel shall confirm that, the Holders of the
outstanding notes will not recognize income, gain or loss for federal income
tax purposes as a result of such Legal Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Legal Defeasance had not occurred;
(iii) in the case of Covenant Defeasance, the Issuers shall have
delivered to the Trustee an Opinion of Counsel confirming that the Holders
of the outstanding notes will not recognize income, gain or loss for federal
income tax purposes as a result of such Covenant Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such Covenant Defeasance had
not occurred;
78
(iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of
Default resulting from the borrowing of funds to be applied to such
deposit);
(v) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material agreement
or instrument (other than the indenture) to which the Issuers or any of the
Subsidiaries is a party or by which the Issuers or any of the Subsidiaries
is bound;
(vi) the Issuers must deliver to the Trustee an Officers' Certificate
stating that the deposit was not made by the Issuers with the intent of
preferring the Holders over the other creditors of the Issuers with the
intent of defeating, hindering, delaying or defrauding creditors of the
Issuers or others; and
(vii) each of the Issuers must deliver to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating, subject to certain
factual assumptions and bankruptcy and insolvency exceptions, that all
conditions precedent provided for in the indenture relating to the Legal
Defeasance or the Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange notes in accordance with the indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents, and the Issuers may
require a Holder to pay any taxes and fees required by law or permitted by the
indenture. The Issuers will not be required to transfer or exchange any note
selected for redemption. The Issuers will not be required to transfer or
exchange any note for a period of 15 days before a selection of notes to be
redeemed.
The registered holder of a note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the two succeeding paragraphs, the indenture and the
notes may be amended or supplemented with the consent of the Holders of at least
a majority in aggregate principal amount of the notes then outstanding
(including consents obtained in connection with a tender offer or exchange offer
for notes) and any existing Default or Event of Default (except certain payment
defaults) or compliance with any provision of the indenture or the notes may be
waived with the consent of the Holders of a majority in aggregate principal
amount of the then outstanding notes (including consents obtained in connection
with a tender offer or exchange offer for notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any notes held by a non-consenting Holder):
(i) reduce the principal amount of notes whose Holders must consent to
an amendment, supplement or waiver;
(ii) reduce the principal of, or the premium (including, without
limitation, redemption premium) on, or change the fixed maturity of, any
note; alter the provisions with respect to the payment on redemption of the
notes; or alter the price at which repurchases of the notes may be made
pursuant to an Excess Proceeds Offer or Change of Control Offer;
(iii) reduce the rate of or change the time for payment of interest,
including default interest, on any note;
(iv) waive a Default or Event of Default in the payment of principal of
or premium, if any, or interest on, or redemption payment with respect to,
any note (except a rescission of acceleration of
79
the notes by the Holders of at least a majority in aggregate principal
amount of the notes and a waiver of the payment default that resulted from
such acceleration);
(v) make any note payable in money other than that stated in the notes;
(vi) make any change in the provisions of the indenture relating to
waivers of past Defaults with respect to, or the rights of Holders to
receive, payments of principal of or interest on the notes;
(vii) waive a redemption payment with respect to any note;
(viii) adversely affect the contractual ranking of the notes or
Subsidiary Guarantees; or
(ix) make any change in the foregoing amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of the Holders, the
Issuers, the Subsidiary Guarantors and the Trustee may amend or supplement the
indenture or the notes to cure any ambiguity, defect or inconsistency, to
provide for uncertificated notes in addition to or in place of certificated
notes, to provide for the assumption of any of the Issuers' or the Subsidiary
Guarantors' obligations to Holders in the case of a merger or consolidation, to
make any change that would provide any additional rights or benefits to the
Holders or that does not adversely affect the legal rights of any such Holder
under the indenture or the notes, to release any Subsidiary Guaranty permitted
to be released under the terms of the indenture, or to comply with requirements
of the Commission in order to effect or maintain the qualification of the
indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Issuers, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee is permitted to engage in other
transactions; PROVIDED, that, if the Trustee acquires any conflicting interest,
it must eliminate such conflict within 90 days, apply to the Commission for
permission to continue, or resign.
The Holders of a majority in principal amount of the then outstanding notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The indenture provides that in case an Event of Default
occurs (and is not cured), the Trustee is required, in the exercise of its
power, to use the degree of care of a prudent person in the conduct of his or
her own affairs. Subject to such provisions, the Trustee is under no obligation
to exercise any of its rights or powers under the indenture at the request of
any Holder, unless such Holder shall have offered to the Trustee security and
indemnity satisfactory to it against any loss, liability or expense.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the indenture. Reference
is made to the indenture for a full definition of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"2002 REFERENDUM" means a gaming reauthorization referendum to be submitted
to the Dubuque County, Iowa electorate in the general election to be held in
2002.
"ACQUIRED DEBT" means Indebtedness of a Person existing at the time such
Person is merged with or into the Company or a Restricted Subsidiary or becomes
a Restricted Subsidiary, other than Indebtedness incurred in connection with, or
in contemplation of, such Person merging with or into the Company or a
Restricted Subsidiary or becoming a Restricted Subsidiary.
80
"ACQUISITION" means the Company's acquisition on the Issue Date of the
Diamond Jo from Greater Dubuque Riverboat Entertainment Company, L.C. ("GDREC"),
pursuant to that certain Asset Purchase Agreement, dated as of January 15, 1999,
as amended, between PGP (formerly AB Capital, LLC) and GDREC (the "Asset
Acquisition Agreement"), and certain related real property from Harbor Community
Investment, L.C. ("HCI"), pursuant to that certain Real Property Purchase
Agreement, dated as of January 15, 1999, between PGP (formerly AB Capital, LLC)
and HCI.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, will mean
(a) the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise or (b) beneficial
ownership of 10% or more of the voting securities of such Person.
Notwithstanding the foregoing, the Initial Purchaser shall be deemed not to be
an Affiliates of PGP, the Company or any Restricted Subsidiary.
"APPLICABLE CAPITAL GAIN TAX RATE" means a rate equal to the sum of (a) the
highest marginal federal income tax rate applicable to net capital gain of an
individual who is a citizen of the United States plus (b) the greater of (i) an
amount equal to the sum of the highest marginal state and local income tax rates
applicable to net capital gain of an individual who is a resident of the State
of California and (ii) an amount equal to the sum of the highest marginal state
and local income tax rates applicable to net capital gain of an individual who
is a resident of the State of Iowa, multiplied by a factor equal to 1 minus such
highest marginal federal income tax rate described in (a) above.
"APPLICABLE INCOME TAX RATE" means a rate equal to the sum of (a) the
highest marginal federal ordinary income tax rate applicable to an individual
who is a citizen of the United States plus (b) the greater of (i) an amount
equal to the sum of the highest marginal state and local ordinary income tax
rates applicable to an individual who is a resident of the State of California
and (ii) an amount equal to the sum of the highest marginal state and local
ordinary income tax rates applicable to an individual who is a resident of the
State of Iowa, multiplied by a factor equal to 1 minus such highest marginal
federal income tax rate described in (a) above.
"ASSET SALE" means any (i) direct or indirect sale, assignment, transfer,
lease, conveyance, or other disposition (including, without limitation, by way
of merger or consolidation) (collectively, a "transfer"), other than in the
ordinary course of business, of any assets of the Company or any Restricted
Subsidiary; (ii) direct or indirect issuance or sale of any Capital Stock of any
Restricted Subsidiary (other than directors' qualifying shares), in each case to
any Person (other than the Company or a Restricted Subsidiary); or (iii) Event
of Loss. For purposes of this definition, (a) any series of transactions that
are part of a common plan shall be deemed a single Asset Sale and (b) the term
"Asset Sale" shall not include (1) any exchange of gaming equipment or
furniture, fixtures or other equipment for replacement items in the ordinary
course of business, (2) any series of transactions that have a fair market value
(or result in gross proceeds) of less than $1.0 million or (3) any disposition
of all or substantially all of the assets of the Company that is governed under
and complies with the terms of the covenant described under "--Certain
Covenants--Merger, Consolidation or Sale of Assets."
"BENEFICIAL OWNER" has the meaning attributed to it in Rules 13d-3 and 13d-5
under the Exchange Act (as in effect on the Issue Date), whether or not
applicable, except that a "person" shall be deemed to have "beneficial
ownership" of all shares that any such person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time.
"BANKRUPTCY CODE" means the United States Bankruptcy Code, codified at 11
U.S.C. Section101-1330, as amended.
81
"BUSINESS DAY" means any day other than a Legal Holiday.
"CAPITAL LEASE OBLIGATION" means, as to any Person, the obligations of such
Person under a lease that are required to be classified and accounted for as
capital lease obligations under GAAP, and the amount of such obligations at any
date shall be the capitalized amount of such obligations at such date,
determined in accordance with GAAP.
"CAPITAL STOCK" means, (i) with respect to any Person that is a corporation,
any and all shares, interests, participations, rights or other equivalents
(however designated) of corporate stock, (ii) with respect to a limited
liability company, any and all membership interests, and (iii) with respect to
any other Person, any and all partnership or other equity interests of such
Person.
"CASH EQUIVALENT" means (i) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof); (ii) time deposits and
certificates of deposit and commercial paper issued by the parent corporation of
any domestic commercial bank of recognized standing having capital and surplus
in excess of $250.0 million and commercial paper issued by others rated at least
A-2 or the equivalent thereof by Standard & Poor's Corporation or at least P-2
or the equivalent thereof by Moody's Investors Service, Inc. and in each case
maturing within one year after the date of acquisition; (iii) investments in
money market funds substantially all of whose assets comprise securities of the
type described in clauses (i) and (ii) above and (iv) repurchase obligations for
underlying securities of the types and with the maturities described above.
"CHANGE OF CONTROL" means the occurrence of any of the following events:
(i) any merger or consolidation of the Company or PGP with or into any
Person or any sale, transfer or other conveyance, whether direct or
indirect, of all or substantially all of the assets of the Company or PGP,
on a consolidated basis, in one transaction or a series of related
transactions, if, immediately after giving effect to such transaction(s),
any "person" or "group" (as such terms are used for purposes of Sections
13(d) and 14(d) of the Exchange Act, whether or not applicable) (other than
an Excluded Person) is or becomes the "beneficial owner," directly or
indirectly, of more than 50% of the total voting power in the aggregate of
the Voting Stock of the transferee(s) or surviving entity or entities,
(ii) any "person" or "group" (as such terms are used for purposes of
Sections 13(d) and 14(d) of the Exchange Act, whether or not applicable)
(other than an Excluded Person) is or becomes the "beneficial owner,"
directly or indirectly, of more than 50% of the total voting power in the
aggregate of the Voting Stock of the Company or PGP,
(iii) after any bona fide underwritten registered public offering of
Capital Stock of the Company, during any period of 24 consecutive months
after the Issue Date, individuals who at the beginning of any such 24-month
period constituted the Managers of the Company (together with any new
Managers whose election by such Managers or whose nomination for election by
the Members was approved by a vote of a majority of the Managers then still
in office who were either Managers at the beginning of such period or whose
election or nomination for election was previously so approved, including
new Managers designated in or provided for in an agreement regarding the
merger, consolidation or sale, transfer or other conveyance, of all or
substantially all of the assets of the Company, if such agreement was
approved by a vote of such majority of Managers) cease for any reason to
constitute a majority of the Managers of the Company then in office,
(iv) the Company adopts a plan of liquidation, or
(v) the first day on which the Company fails to own 99% of the issued
and outstanding Equity Interests of PGC.
82
A "Change of Control" shall not occur solely by reason of a Permitted C-Corp
Conversion.
"COMPANY" means Peninsula Gaming Company, LLC, a Delaware limited liability
company.
"CONSOLIDATED EBITDA" means, with respect to any Person (the referent
Person) for any period, consolidated income (loss) from operations of such
Person and its subsidiaries for such period, determined in accordance with GAAP,
plus (to the extent such amounts are deducted in calculating such income (loss)
from operations of such Person for such period, and without duplication) (a)
amortization, depreciation and other non-cash charges (including, without
limitation, amortization of goodwill, deferred financing fees, and other
intangibles but excluding (i) non-cash charges incurred after the Issue Date
that require an accrual of or a reserve for cash charges for any future period
and (ii) normally recurring accruals such as reserves against accounts
receivables), and (b) non-capitalized transaction costs incurred in connection
with actual or proposed financings, acquisitions or divestitures, including the
offering of the notes; PROVIDED, that (i) the income from operations of any
Person that is not a Wholly Owned Subsidiary of the referent Person or that is
accounted for by the equity method of accounting will be included only to the
extent of the amount of dividends or distributions paid during such period to
the referent Person or a Wholly Owned Subsidiary of the referent Person, (ii)
the income from operations of any Person acquired in a pooling of interests
transaction for any period ending prior to the date of such acquisition will be
excluded, and (iii) the income from operations of any Restricted Subsidiary will
not be included to the extent that declarations of dividends or similar
distributions by that Restricted Subsidiary are not at the time permitted,
directly or indirectly, by operation of the terms of its organizational
documents or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulation applicable to that Restricted Subsidiary or its
owners.
"CONSOLIDATED INTEREST EXPENSE" means, with respect to any Person for any
period, (a) the consolidated interest expense of such Person and its
subsidiaries for such period, whether paid or accrued (including amortization of
original issue discount, noncash interest payment, and the interest component of
Capital Lease Obligations), to the extent such expense was deducted in computing
Consolidated Net Income of such Person for such period less (b) amortization
expense, write-off of deferred financing costs and any charge related to any
premium or penalty paid, in each case accrued during such period in connection
with redeeming or retiring any Indebtedness before its stated maturity, as
determined in accordance with GAAP, to the extent such expense, cost or charge
was included in the calculation made pursuant to clause (a) above.
"CONSOLIDATED NET INCOME" means, with respect to any Person (the referent
Person) for any period, the aggregate of the Net Income of such Person and its
subsidiaries for such period, determined on a consolidated basis in accordance
with GAAP; PROVIDED, that (i) the Net Income of any Person relating to any
portion of such period that such Person (a) is not a Wholly Owned Subsidiary of
the referent Person or (b) is accounted for by the equity method of accounting
will be included only to the extent of the amount of dividends or distributions
paid to the referent Person or a Wholly Owned Subsidiary of the referent Person
during such portion of such period, (ii) the Net Income of any Person acquired
in a pooling of interests transaction for any period ending prior to the date of
such acquisition will be excluded, and (iii) the Net Income of any Restricted
Subsidiary will not be included to the extent that declarations of dividends or
similar distributions by that Restricted Subsidiary are not at the time
permitted, directly or indirectly, by operation of the terms of its
organizational documents or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to that Restricted
Subsidiary or its owners.
"CONSOLIDATED NET WORTH" means, with respect to any Person, the total
stockholders' (or members') equity of such Person determined on a consolidated
basis in accordance with GAAP, adjusted to exclude (to the extent included in
calculating such stockholders' (or members') equity), (i) the amount of any such
stockholders' (or members') equity attributable to Disqualified Capital Stock or
treasury stock of such Person and its consolidated subsidiaries, and (ii) all
upward revaluations and other write-ups in the book value of any asset of such
Person or a consolidated subsidiary of such Person subsequent to the Issue Date,
and (iii) all Investments in subsidiaries of such Person that are not
consolidated subsidiaries and in Persons that are not subsidiaries of such
Person.
83
"DEFAULT" means any event that is, or after notice or the passage of time or
both would be, an Event of Default.
"DISQUALIFIED CAPITAL STOCK" means any Equity Interest that (i) either by
its terms (or by the terms of any security into which it is convertible or for
which it is exchangeable) is or upon the happening of an event would be required
to be redeemed or repurchased prior to the final stated maturity of the notes or
is redeemable at the option of the holder thereof at any time prior to such
final stated maturity, or (ii) is convertible into or exchangeable at the option
of the issuer thereof or any other Person for debt securities.
"EQUITY HOLDER" means (a) with respect to a corporation, each holder of
stock of such corporation, (b) with respect to a limited liability company or
similar entity, each member of such limited liability company or similar entity,
(c) with respect to a partnership, each partner of such partnership, (d) with
respect to any entity described in clause (a)(iv) of the definition of "Flow
Through Entity", the owner of such entity, and (e) with respect to a trust
described in clause (a)(v) of the definition of "Flow Through Entity", the
persons treated for federal income tax purposes as the owners thereof.
"EQUITY INTERESTS" means Capital Stock or warrants, options or other rights
to acquire Capital Stock (but excluding any debt security that is convertible
into, or exchangeable for, Capital Stock).
"EQUITY OFFERING" means (i) an underwritten offering of Qualified Capital
Stock of the Company pursuant to a registration statement filed with and
declared effective by the Commission in accordance with the Securities Act or
(ii) an offering of Qualified Capital Stock of the Company pursuant to an
exemption from the registration requirements of the Securities Act.
"EVENT OF LOSS" means, with respect to any property or asset, any (i) loss,
destruction or damage of such property or asset or (ii) any condemnation,
seizure or taking, by exercise of the power of eminent domain or otherwise, of
such property or asset, or confiscation or requisition of the use of such
property or asset.
"EXCESS CASH FLOW" means, with respect to any Hotel Operating Year, the
Consolidated EBITDA of the Company for such Hotel Operating Year, less the sum
of (i) Consolidated Interest Expense of the Company that is paid in cash during
such Hotel Operating Year, (ii) up to $4.0 million in capital expenditures of
the Company and its Subsidiaries that are actually paid during such Hotel
Operating Year, (iii) principal payments made during such Hotel Operating Year
on Indebtedness permitted to be incurred pursuant to the covenant described
above under the caption "--Incurrence of Indebtedness" and (iv) Restricted
Payments identified in clauses (iii), (v), (vi), (vii) or (viii) of the second
sentence under the caption "Limitation on Restricted Payments" that are made
during such Hotel Operating Year.
"EXCLUDED ASSETS" means (i) cash, other than cash in bank and similar
accounts; (ii) assets securing Purchase Money Obligations or Capital Lease
Obligations permitted to be incurred under the indenture; (iii) any agreements,
permits, licenses or the like that cannot be subject to a Lien under the
Security Documents without the consent of third parties, which consent is not
obtained by the Company; and (iv) all Gaming Licenses; PROVIDED, that Excluded
Assets does not include the proceeds of assets under clause (ii), (iii) or (iv)
or of any other Collateral to the extent such proceeds do not constitute
Excluded Assets.
"EXCLUDED PERSON" means (i) M. Brent Stevens, Michael S. Luzich and any
Affiliate or Manager of PGP on the Issue Date (collectively, the "Existing
Holders"), (ii) any trust, corporation, partnership or other entity, the
beneficiaries, stockholders, partners or owners of which consist solely of the
Existing Holders and members of the immediate family of the Existing Holders or
(iii) any partnership the sole general partners of which consist solely of the
Existing Holders and members of the immediate family of the Existing Holders.
84
"FLOW THROUGH ENTITY" means an entity that (a) for Federal income tax
purposes constitutes (i) an "S corporation" (as defined in Section 1361(a) of
the Code), (ii) a "qualified subchapter S subsidiary" (as defined in Section
1361(b)(3)(B) of the Code), (iii) a "partnership" (within the meaning of Section
7701(a)(2) of the Code) other than a "publicly traded partnership" (as defined
in Section 7704 of the Code), (iv) an entity that is disregarded as an entity
separate from its owner under the Code, the Treasury regulations or any
published administrative guidance of the Internal Revenue Service, or (v) a
trust, the income of which is includible in the taxable income of the grantor or
another person under sections 671 through 679 of the Code (the entities
described in the immediately preceding clauses (i), (ii), (iii), (iv) and (v), a
"Federal Flow Through Entity") and (b) for state and local jurisdictions in
respect of which Permitted Tax Distributions are being made, is subject to
treatment on a basis under applicable state or local income tax law
substantially similar to a Federal Flow Through Entity.
"GAAP" means generally accepted accounting principles, as in effect from
time to time, set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as approved by a significant segment
of the accounting profession, and in the rules and regulations of the
Commission.
"GAAP" means gaap as in effect on the Issue Date.
"GAMING AUTHORITIES" means any agency, authority, board, bureau, commission,
department, office or instrumentality of any nature whatsoever of the United
States or foreign government, any state, province or city or other political
subdivision, whether now or hereafter existing, or any officer or official
thereof, including, without limitation, the Gaming Commission and any other
agency with authority to regulate any gaming operation (or proposed gaming
operation) owned, managed or operated by the Company or any of its Subsidiaries.
"GAMING COMMISSION" means the Iowa Racing and Gaming Commission, or any
successor Gaming Authority.
"GAMING LICENSES" means every material license, material franchise, material
registration, material qualification, findings of suitability or other material
approval or authorization required to own, lease, operate or otherwise conduct
or manage riverboat, dockside or land-based gaming activities in any state or
jurisdiction in which the Company or any of its Restricted Subsidiaries conducts
business (including, without limitation, all such licenses granted by the Gaming
Commission under Chapter 99F of the Iowa Code, and the rules and regulations
promulgated thereunder), and all applicable liquor licenses.
"GAMING VESSEL" means a riverboat casino (i) which is substantially similar
in size and space to the Diamond Jo, (ii) with at least the same overall
qualities and amenities as the Diamond Jo, and (iii) that is developed,
constructed and equipped to be in compliance with all federal, state and local
laws, including, without limitation, the cruising requirements of Chapter 99F of
the Iowa Code. In the event the laws of the State of Iowa change to permit the
development and operation of additional land-based casinos, the term "Gaming
Vessel" shall be deemed to include a land-based casino meeting the requirements
of clauses (i), (ii) and (iii) above.
"GOVERNMENT SECURITIES" means (i) direct obligations of the United States of
America for the timely payment of which its full faith and credit is pledged or
(ii) obligations of a Person controlled or supervised by and acting as an agency
or instrumentality of the United States of America the timely payment of which
is unconditionally guaranteed as a full faith and credit obligation by the
United States of America, which, in either case, are not callable or redeemable
at the option of the issuer thereof, and shall also include a depository receipt
issued by a bank (as defined in Section 3(a)(2) of the Securities Act), as
custodian with respect to any such Government Security or a specific payment of
principal of or interest on any such Government Security held by such custodian
for the account of the holder of such depository receipt; PROVIDED, that (except
as required by law) such custodian is not
85
authorized to make any deduction from the amount payable to the holder of such
depository receipt from any amount received by the custodian in respect of the
Government Security or the specific payment of principal of or interest on the
Government Security evidenced by such depository receipt.
"GOVERNMENTAL AUTHORITY" means any agency, authority, board, bureau,
commission, department, office or instrumentality of any nature whatsoever of
the United States or foreign government, any state, province or any city or
other political subdivision or otherwise and whether now or hereafter in
existence, or any officer or official thereof, and any maritime authority.
"GUARANTY" or "GUARANTEE," used as a noun, means any guaranty (other than by
endorsement of negotiable instruments for collection in the ordinary course of
business), direct or indirect, in any manner (including, without limitation,
letters of credit and reimbursement agreements in respect thereof), of all or
any part of any Indebtedness or other Obligation. "guarantee" or "guaranty" used
as a verb, has a correlative meaning.
"HEDGING OBLIGATIONS" means, with respect to any Person, the Obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates.
"HOLDER" means the Person in whose name a note is registered in the register
of the notes.
"HOTEL" means a hotel to be constructed by the Company or a Subsidiary of
the Company in or around Dubuque, Iowa, which is expected to be contiguous to
the Diamond Jo.
"HOTEL OPERATING YEAR" means (i) the four consecutive fiscal quarter period
of the Company beginning on the first day of the fiscal quarter commencing
immediately after the date that the Hotel first becomes Operating, and (ii) each
succeeding four consecutive fiscal quarter period.
"INDEBTEDNESS" of any Person means (without duplication) (i) all liabilities
and obligations, contingent or otherwise, of such Person (a) in respect of
borrowed money (regardless of whether the recourse of the lender is to the whole
of the assets of such Person or only to a portion thereof), (b) evidenced by
bonds, debentures, notes or other similar instruments, (c) representing the
deferred purchase price of property or services (other than trade payables on
customary terms incurred in the ordinary course of business), (d) created or
arising under any conditional sale or other title retention agreement with
respect to property acquired by such Person (even though the rights and remedies
of the seller or lender under such agreement in the event of default are limited
to repossession or sale of such property), (e) representing Capital Lease
Obligations, (f) under bankers' acceptance and letter of credit facilities, (g)
to purchase, redeem, retire, defease or otherwise acquire for value any
Disqualified Capital Stock, or (h) in respect of Hedging Obligations; (ii) all
Indebtedness of others that is guaranteed by such Person; and (iii) all
Indebtedness of others that is secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien on property (including, without limitation, accounts and contract
rights) owned by such Person, even though such Person has not assumed or become
liable for the payment of such Indebtedness; PROVIDED, that the amount of such
Indebtedness shall (to the extent such Person has not assumed or become liable
for the payment of such Indebtedness) be the lesser of (1) the fair market value
of such property at the time of determination and (2) the amount of such
Indebtedness. The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and the maximum liability, upon the occurrence of the contingency giving
rise to the obligation, of any contingent obligations at such date. The
principal amount outstanding of any Indebtedness issued with original issue
discount is the accreted value of such Indebtedness.
"INTEREST COVERAGE RATIO" means, for any period, the ratio of (i)
Consolidated EBITDA of the Company for such period, to (ii) Consolidated
Interest Expense of the Company for such period. In calculating Interest
Coverage Ratio for any period, PRO FORMA effect shall be given to the
incurrence,
86
assumption, guarantee, repayment, repurchase, redemption or retirement by the
Company or any of its Subsidiaries of any Indebtedness subsequent to the
commencement of the period for which the Interest Coverage Ratio is being
calculated, as if the same had occurred at the beginning of the applicable
period. For purposes of making the computation referred to above, acquisitions
that have been made by the Company or any of its Restricted Subsidiaries,
including all mergers and consolidations, subsequent to the commencement of such
period shall be calculated on a PRO FORMA basis, assuming that all such
acquisitions, mergers and consolidations had occurred on the first day of such
period and Consolidated EBITDA for such period shall be calculated without
giving effect to clause (ii) of the proviso set forth in the definition of
Consolidated EBITDA. Without limiting the foregoing, the financial information
of the Company with respect to any portion of such period that falls before the
Issue Date shall be adjusted to give PRO FORMA effect to the issuance of the
notes and the application of the proceeds therefrom as if they had occurred at
the beginning of such period.
"INVESTMENTS" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of loans,
guarantees, advances or capital contributions (excluding (i), payroll
commission, travel and similar advances to officers and employees of such Person
made in the ordinary course of business and (ii) bona fide accounts receivable
arising from the sale of goods or services in the ordinary course of business
consistent with past practice), purchases or other acquisitions for
consideration of Indebtedness, Equity Interests or other securities, and any
other items that are or would be classified as investments on a balance sheet
prepared in accordance with GAAP.
"IOWA CODE" means the Code of Iowa (1999), as amended from time to time.
"ISSUE DATE" means the date upon which the notes are first issued.
"ISSUERS" means PGC and the Company.
"LEGAL HOLIDAY" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York or at a place of payment are authorized by
law, regulation or executive order to remain closed.
"LIEN" means any mortgage, lien, pledge, charge, security interest or
encumbrance of any kind, regardless of whether filed, recorded or otherwise
perfected under applicable law (including any conditional sale or other title
retention agreement, any lease in the nature thereof, any option or other
agreement to sell or give a security interest in and any filing of or agreement
to give any financing statement under the Uniform Commercial Code (or equivalent
statutes) of any jurisdiction).
"MANAGERS" means, with respect to any Person (i) if such Person is a limited
liability company, the board member, board members, manager or managers
appointed pursuant to the operating agreement of such Person as then in effect
or (ii) otherwise, the members of the Board of Directors or other governing body
of such Person.
"MEMBERS" means the holders of all of the Voting Stock of the Company.
"NET INCOME" means, with respect to any Person for any period, (a) the net
income (loss) of such Person for such period, determined in accordance with
GAAP, excluding (to the extent included in calculating such net income) (i) any
gain or loss, together with any related taxes paid or accrued on such gain or
loss, realized in connection with any Asset Sales and dispositions pursuant to
sale-leaseback transactions, (ii) any extraordinary gain or loss, together with
any taxes paid or accrued on such gain or loss and (iii) amortization of
goodwill arising on the Issue Date from the Acquisition and related
transactions, reduced by (b) the maximum amount of Permitted Tax Distributions
for such period.
"NET PROCEEDS" means the aggregate proceeds received in the form of cash or
Cash Equivalents in respect of any Asset Sale (including issuance or other
payments in an Event of Loss and payments in respect of deferred payment
obligations and any cash or Cash Equivalents received upon the sale or
87
disposition of any non-cash consideration received in any Asset Sale, in each
case when received), net of:
(i) the reasonable and customary direct out-of-pocket costs relating to
such Asset Sale (including, without limitation, legal, accounting and
investment banking fees and sales commissions), other than any such costs
payable to an Affiliate of the Company,
(ii) taxes required to be paid by the Company, any of its Subsidiaries,
or any Equity Holder of the Company (or, in the case of any Company Equity
Holder that is a Flow Through Entity, the Upper Tier Equity Holder of such
Flow Through Entity) in connection with such Asset Sale in the taxable year
that such sale is consummated or in the immediately succeeding taxable year,
the computation of which shall take into account the reduction in tax
liability resulting from any available operating losses and net operating
loss carryovers, tax credits and tax credit carry forwards, and similar tax
attributes,
(iii) amounts required to be applied to the permanent repayment of
Indebtedness in connection with such Asset Sale, and
(iv) appropriate amounts provided as a reserve by the Company or any
Restricted Subsidiary, in accordance with GAAP, against any liabilities
associated with such Asset Sale and retained by the Company or such
Restricted Subsidiary, as the case may be, after such Asset Sale (including,
without limitation, as applicable, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities
under any indemnification obligations arising from such Asset Sale).
"OBLIGATION" means any principal, premium, interest, penalty, fee,
indemnification, reimbursement, damage and other obligation and liability
payable under the documentation governing any liability.
"OPERATING" means the Hotel is in a condition (including installation of
furnishings, fixtures and equipment) to receive customers in the ordinary course
of business, and is open to the general public and operating in accordance with
applicable law.
"OPINION OF COUNSEL" means an opinion from legal counsel who is reasonably
acceptable to the Trustee. Such counsel may be an employee of or counsel to
either of the Issuers, any Subsidiary of either of the Issuers or the Trustee.
"PERMITTED C-CORP CONVERSION" means a transaction resulting in the Company
becoming subject to tax under subchapter C of the Code (a "C Corporation");
PROVIDED, that:
(i) the C Corporation resulting from such transaction (a) is a
corporation organized and existing under the laws of any state of the United
States or the District of Columbia, (b) assumes all of the obligations of
the Company under the notes, the Security Documents and the indenture
pursuant to a supplemental indenture in form reasonably satisfactory to the
Trustee and (c) will have Consolidated Net Worth immediately after the
transaction equal to or greater than the Consolidated Net Worth of the
Company immediately preceding the transaction;
(ii) the Company shall have provided to the Trustee 30 days' advance
notice of such transaction and evidence reasonably satisfactory to the
Trustee regarding the maintenance of the perfection, priority and proof of
the security interest of the Trustee in the Collateral;
(iii) after giving effect to such transaction no Default or Event of
Default exists;
(iv) such transaction would not (a) result in the loss or suspension or
material impairment of any Gaming License unless a comparable replacement
Gaming License is effective prior to or simultaneously with such loss,
suspension or material impairment or (b) require any holder or beneficial
owner of notes to obtain a Gaming License or be qualified or found suitable
under the laws of any applicable gaming jurisdiction; and
88
(v) prior to consummation of such transaction, the Company shall have
delivered to the Trustee (a) an Opinion of Counsel to the effect that the
holders of the outstanding notes will not recognize income gain or loss for
federal income tax purposes as a result of such Permitted C-Corp Conversion
and will be subject to federal income tax on the same amounts, in the same
manner, and at the same times as would have been the case if such Permitted
C-Corp Conversion had not occurred and (b) an Officers' Certificate as to
compliance with all of the above conditions.
"PERMITTED INVESTMENTS" means:
(i) Investments in the Company or in any Wholly Owned Subsidiary;
(ii) Investments in Cash Equivalents;
(iii) Investments in a Person, if, as a result of such Investment, such
Person (a) becomes a Wholly Owned Subsidiary, or (b) is merged, consolidated
or amalgamated with or into, or transfers or conveys substantially all of
its assets to, or is liquidated into, the Company or a Wholly Owned
Subsidiary;
(iv) Hedging Obligations;
(v) Investments as a result of consideration received in connection with
an Asset Sale made in compliance with the covenant described under the
caption "--Limitation on Asset Sales";
(vi) Investments existing on the Issue Date;
(vii) Investments paid for solely with Capital Stock (other than
Disqualified Capital Stock) of the Company;
(viii) credit extensions to gaming customers in the ordinary course of
business, consistent with industry practice;
(ix) stock, obligations or securities received in settlement of debts
created in the ordinary course of business and owing to the Company (a) in
satisfaction of judgments or (b) pursuant to any plan of reorganization or
similar arrangement upon the bankruptcy or insolvency of trade creditors or
customers; and
(x) loans or other advances to employees of the Company and its
Subsidiaries made in the ordinary course of business in an aggregate amount
not to exceed $0.5 million at any one time outstanding.
"PERMITTED LIENS" means:
(i) Liens arising by reason of any judgment, decree or order of any
court for an amount and for a period not resulting in an Event of Default
with respect thereto, so long as such Lien is being contested in good faith
and is adequately bonded, and any appropriate legal proceedings that may
have been duly initiated for the review of such judgment, decree or order
shall not have been finally adversely terminated or the period within which
such proceedings may be initiated shall not have expired;
(ii) security for the performance of bids, tenders, trade, contracts
(other than contracts for the payment of money) or leases, surety and appeal
bonds, performance and return-of-money bonds and other obligations of a like
nature incurred in the ordinary course of business, consistent with industry
practice;
(iii) Liens (other than Liens arising under ERISA) for taxes,
assessments or other governmental charges not yet delinquent or that are
being contested in good faith and by appropriate proceedings if adequate
reserves with respect thereto are maintained on the books of the Company in
accordance with gaap;
89
(iv) Liens of carriers, warehousemen, mechanics, landlords, material
men, suppliers, repairmen or other like Liens arising by operation of law in
the ordinary course of business consistent with industry practices (other
than Liens arising under ERISA) and Liens on deposits made to obtain the
release of such Liens if (a) the underlying obligations are not overdue for
a period of more than 30 days or (b) such Liens are being contested in good
faith and by appropriate proceedings and adequate reserves with respect
thereto are maintained on the books of the Company in accordance with gaap;
(v) easements, rights of way, zoning and similar restrictions and other
similar encumbrances or title defects incurred in the ordinary course of
business, consistent with industry practices that, in the aggregate, are not
substantial in amount, and that do not in any case materially detract from
the value of the property subject thereto (as such property is used by the
Company or a Subsidiary) or interfere with the ordinary conduct of the
business of the Company or any of its Subsidiaries; PROVIDED, that such
Liens are not incurred in connection with borrowing money or any commitment
to loan money or extend credit;
(vi) pledges or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other
types of social security legislation or otherwise arising from statutory or
regulatory requirements of the Company or any of its Subsidiaries;
(vii) Liens securing Refinancing Indebtedness incurred in compliance
with the indenture to refinance Indebtedness secured by Liens; PROVIDED, (a)
such Liens do not extend to any additional property or assets; (b) if the
Liens securing the Indebtedness being refinanced were subordinated to or
PARI PASSU with the Liens securing the notes, the Subsidiary Guarantees or
any intercompany loan, as applicable, such new Liens are subordinated to or
PARI PASSU with such Liens to the same extent, and any related subordination
or intercreditor agreement is confirmed; and (c) such Liens are no more
adverse to the interests of Holders than the Liens replaced or extended
thereby;
(viii) Liens that secure Acquired Debt or Liens on property of a Person
existing at the time such Person is merged into or consolidated with, or
such property was acquired by, the Company or any Restricted Subsidiary;
PROVIDED, that such Liens do not extend to or cover any Person, property or
assets other than those of the Person or property being acquired and were
not put in place in anticipation of such acquisition;
(ix) Liens that secure Purchase Money Obligations or Capital Lease
Obligations permitted to be incurred under the indenture; PROVIDED that such
Liens do not extend to or cover any property or assets other than those
being acquired, leased or developed;
(x) whether or not existing on the Issue Date, Liens securing
Obligations under the indenture, the notes, the Subsidiary Guarantees or the
Security Documents;
(xi) Liens securing Indebtedness of the Company or any of its
Subsidiaries incurred pursuant to clause (i) under the caption "--Limitation
on Incurrence of Indebtedness";
(xii) with respect to any vessel included in the Collateral, certain
maritime liens, including liens for crew's wages and salvage;
(xiii) leases or subleases granted in the ordinary course of business
not materially interfering with the conduct of the business of the Company
or any of the Restricted Subsidiaries;
(xiv) Liens arising from precautionary Uniform Commercial Code financing
statement filings regarding operating leases entered into by the Company or
any of its Subsidiaries in the ordinary course of business;
(xv) Liens incurred in the ordinary course of business securing Hedging
Obligations, which Hedging Obligations relate to Indebtedness that is
otherwise permitted under the indenture;
90
(xvi) Liens existing on the Issue Date to the extent and in the manner
such Liens are in effect on the Issue Date;
(xvii) Liens on a pledge of the Capital Stock of any Unrestricted
Subsidiary securing any Indebtedness of such Unrestricted Subsidiary; and
(xviii) Liens securing reimbursement obligations with respect to
commercial letters of credit that encumber documents and other property
relating to such letters of credit and the products and proceeds thereof.
"PERMITTED TAX DISTRIBUTIONS" in respect of the Company and each Subsidiary
that qualifies as a Flow Through Entity means, with respect to any taxable year,
the sum of: (i) the product of (a) the excess of (1) all items of taxable income
or gain (other than capital gain) allocated by the Company to Equity Holders for
such year over (2) all items of taxable deduction or loss (other than capital
loss) allocated to such Equity Holders by the Company for such year and (b) the
Applicable Income Tax Rate, plus (ii) the product of (a) the net capital gain
(i.e., net long-term capital gain over net short-term capital loss), if any,
allocated by the Company to Equity Holders for such year and (b) the Applicable
Capital Gain Tax Rate, plus (iii) the product of (a) the net short-term capital
gain (i.e., net short-term capital gain in excess of net long-term capital
loss), if any, allocated by the Company to Equity Holders for such year and (b)
the Applicable Income Tax Rate, minus (iv) the aggregate Tax Loss Benefit Amount
for the Company for such year; PROVIDED, that in no event shall the Applicable
Income Tax Rate or the Applicable Capital Gain Tax Rate exceed the greater of
(1) the highest aggregate applicable effective marginal rate of federal, state,
and local income to which a corporation doing business in the State of
California would be subject in the relevant year of determination (as certified
to the Trustee by a nationally recognized tax accounting firm) plus 5% and (2)
60%. For purposes of calculating the amount of the Permitted Tax Distributions,
the proportionate part of the items of taxable income, gain, deduction or loss
(including capital gain or loss) of any Subsidiary that is a Flow Through Entity
shall be included in determining the taxable income, gain, deduction or loss
(including capital gain or loss) of the Company.
Estimated tax distributions shall be made within thirty days following March
15, May 15, August 15, and December 15 based upon an estimate of the excess of
(x) the tax distributions that would be payable for the period beginning on
January 1 of such year and ending on March 31, May 31, August 31, and December
31 if such period were a taxable year (computed as provided above) over (y)
distributions attributable to all prior periods during such taxable year.
The amount of the Permitted Tax Distribution shall be re-computed promptly
after (i) the filing by the Company and each Subsidiary that is treated as a
Flow Through Entity of their respective annual income tax returns and (ii) an
appropriate federal or state taxing authority finally determines that the amount
of the items of taxable income, gain, deduction, or loss of the Company or any
Subsidiary that is treated as a Flow Through Entity for any taxable year or the
aggregate Tax Loss Benefit Amounts carried forward to such taxable year should
be changed or adjusted (each of clauses (i) and (ii) a "Tax Calculation Event").
To the extent that the Permitted Tax Distributions previously paid to an Equity
Holder in respect of any taxable year are either greater than (a "Tax
Distribution Overage") or less than (a "Tax Distribution Shortfall") the
Permitted Tax Distributions with respect to such taxable year, as determined by
reference to the computation of the amount of the items of income, gain,
deduction, or loss of the Company and each Subsidiary in connection with a Tax
Calculation Event, the amount of the estimated Permitted Tax Distributions to be
made to such Equity Holder on the estimated tax distribution date immediately
following such Tax Calculation Event shall be reduced or increased as
appropriate to the extent of the Tax Distribution Overage or the Tax
Distribution Shortfall. To the extent that a Tax Distribution Overage remains
after the estimated tax distribution date immediately following such Tax
Calculation Event, the amount of the estimated Permitted Tax Distribution to be
91
made to such Equity Holder on the subsequent estimated tax distribution date
shall be reduced to the extent of such Tax Distribution Overage.
Prior to making any Permitted Tax Distributions, the Company shall require
each Equity Holder to agree that promptly after the second estimated tax
distribution date following a Tax Calculation Event, such Equity Holder shall
reimburse the Company to the extent of any remaining Tax Distribution Overage.
"PERSON" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint stock company, trust,
unincorporated organization, government or any agency or political subdivision
thereof, or any other entity.
"PGC" means Peninsula Gaming Corp., a Delaware corporation.
"PGP" means Peninsula Gaming Partners, LLC, a Delaware limited liability
company, the direct parent and sole manager of the Company, and the indirect
parent of PGC.
"PURCHASE MONEY OBLIGATIONS" means Indebtedness representing, or incurred to
finance (or to Refinance Indebtedness incurred to finance), the cost (i) of
acquiring any assets (including furniture, fixtures or equipment) and (ii) of
construction or build-out of facilities (including Purchase Money Obligations of
any other Person at the time such other Person is merged with or into or is
otherwise acquired by the Issuers); PROVIDED, that (a) the principal amount of
such Indebtedness does not exceed 80% of such cost, including construction
charges, (b) any Lien securing such Indebtedness does not extend to or cover any
other asset or property other than the asset or property being so acquired,
constructed or built and (c) such Indebtedness is (or the Indebtedness being
Refinanced was) incurred, and any Liens with respect thereto are granted, within
180 days of the acquisition or commencement of construction or build-out of such
property or asset.
"QUALIFIED CAPITAL STOCK" means, with respect to any Person, Capital Stock
of such Person other than Disqualified Capital Stock.
"RELATED BUSINESS" means the gaming, entertainment and hotel businesses
conducted (or proposed to be conducted) by the Company and its Subsidiaries as
of the Issue Date and any and all other businesses that in the good faith
judgment of the Managers of the Company are materially related or incidental
businesses (including, without limitation, food and beverage distribution
operations).
"RELATED PERSON" means any Person who controls, is controlled by or is under
common control with an Excluded Person; PROVIDED, that for purposes of this
definition "control" means the beneficial ownership of more than 50% of the
total voting power of the Voting Stock of a Person.
"REQUIRED REGULATORY REDEMPTION" means a redemption by the Issuers of any
Holder's notes pursuant to, and in accordance with, any order of any
Governmental Authority with appropriate jurisdiction and authority relating to a
Gaming License, or to the extent necessary in the reasonable, good faith
judgment of the Managers of the Company to prevent the loss, failure to obtain
or material impairment or to secure the reinstatement of, any Gaming License,
where such redemption or acquisition is required because the Holder or
beneficial owner of notes is required to be found suitable or to otherwise
qualify under any gaming or similar laws and is not found suitable or so
qualified within 30 days after being requested to do so (or such lesser period
that may be required by any Governmental Authority).
"RESTRICTED INVESTMENT" means an Investment other than a Permitted
Investment.
"RESTRICTED SUBSIDIARY" means a Subsidiary other than an Unrestricted
Subsidiary.
"RETURN FROM UNRESTRICTED SUBSIDIARIES" means (a) 50% of any dividends or
distributions received by the Company or a Restricted Subsidiary from an
Unrestricted Subsidiary, to the extent that such
92
dividends or distributions were not otherwise included in Consolidated Net
Income of the Company, plus (b) to the extent not otherwise included in
Consolidated Net Income of the Company, an amount equal to the net reduction in
Investments in Unrestricted Subsidiaries resulting from (i) repayments of the
principal of loans or advances or other transfers of assets to the Company or
any Restricted Subsidiary from Unrestricted Subsidiaries or (ii) the sale or
liquidation of any Unrestricted Subsidiaries, plus (c) to the extent that any
Unrestricted Subsidiary of the Company is designated to be a Restricted
Subsidiary, the fair market value of the Company's Investment in such Subsidiary
on the date of such designation.
"SELLER PREFERRED" means $7.0 million face amount of the Company's
redeemable preferred membership interests to be issued to GDREC on the Issue
Date pursuant to the terms of the Asset Acquisition Agreement.
"SENIOR CREDIT FACILITY" means any revolving credit agreement or similar
instrument, including, without limitation, working capital, construction
financing or equipment purchase lines of credit, entered into by the Company
governing the terms of a BONA FIDE borrowing from (i) a third party financial
institution that is primarily engaged in the business of commercial lending or
(ii) a vendor or other provider of financial accommodations in connection with
the purchase of equipment, in either case for valid business purposes, including
any related notes, guarantees, collateral documents, instruments and agreements
executed in connection therewith and, in each case, as amended, renewed,
refunded, replaced or refinanced from time to time; PROVIDED, that such
agreements or instruments (x) have terms and conditions (including with respect
to the applicable interest rates and fees) customary for similar facilities
extended to borrowers comparable to the Company, and (y) do not permit the
Company to incur Indebtedness in an aggregate principal amount at any time
outstanding in excess of $10.0 million.
"SUBSIDIARY" means, with respect to any Person, (i) any corporation,
association or other business entity (including a limited liability company) of
which more than 50% of the total voting power of shares of Voting Stock thereof
is at the time owned or controlled, directly or indirectly, by such Person or
one or more of the other subsidiaries of that Person or a combination thereof
and (ii) any partnership in which such Person or any of its subsidiaries is a
general partner.
"SUBSIDIARY" means any subsidiary of the Company.
"SUBSIDIARY GUARANTY" means an unconditional and irrevocable guaranty by a
Subsidiary Guarantor of the Obligations of the Issuers under the notes and the
indenture, on a senior unsecured basis, as set forth in the indenture, as
amended from time to time in accordance with the terms thereof.
"SUBSIDIARY GUARANTOR" means any Subsidiary that has executed and delivered
in accordance with the indenture a Subsidiary Guaranty, and such Person's
successors and assigns.
"TAX LOSS BENEFIT AMOUNT" means with respect to any taxable year, the amount
by which the Permitted Tax Distributions would be reduced were a net operating
loss or net capital loss from a prior taxable year of the Company ending
subsequent to the Issue Date carried forward to the applicable taxable year;
PROVIDED, that for such purpose the amount of any such net operating loss or net
capital loss shall be used only once and in each case shall be carried forward
to the next succeeding taxable year until so used. For purposes of calculating
the Tax Loss Benefit Amount, the proportionate part of the items of taxable
income, gain, deduction, or loss (including capital gain or loss) of any
Subsidiary that is a Flow Through Entity for a taxable year of such Subsidiary
ending subsequent to the Issue Date shall be included in determining the amount
of net operating loss or net capital loss of the Company.
"UNRESTRICTED SUBSIDIARY" means any Subsidiary that, at or prior to the time
of determination, shall have been designated by the Managers of the Company as
an Unrestricted Subsidiary; PROVIDED, that
93
such Subsidiary does not hold any Indebtedness or Capital Stock of, or any Lien
on any assets of, the Company or any Restricted Subsidiary. If, at any time, any
Unrestricted Subsidiary would fail to meet the foregoing requirements as an
Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of the indenture and any Indebtedness of such Subsidiary
shall be deemed to be incurred by a Restricted Subsidiary as of such date. The
Managers of the Company may at any time designate any Unrestricted Subsidiary to
be a Restricted Subsidiary; PROVIDED, that such designation shall be deemed to
be an incurrence of Indebtedness by a Restricted Subsidiary of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only be
permitted if (i) such Indebtedness is permitted under the Interest Coverage
Ratio test set forth in the covenant described under the caption "--Limitation
on Incurrence of Indebtedness" calculated on a pro forma basis as if such
designation had occurred at the beginning of the four-quarter reference period,
and (ii) no Default or Event of Default would be in existence following such
designation. The Company shall be deemed to make an Investment in each
Subsidiary designated as an Unrestricted Subsidiary immediately following such
designation in an amount equal to the Investment in such Subsidiary and its
subsidiaries immediately prior to such designation. Any such designation by the
Managers of the Company shall be evidenced to the Trustee by filing with the
Trustee a certified copy of the resolution of the Managers giving effect to such
designation and an Officers' Certificate certifying that such designation
complies with the foregoing conditions and is permitted by the covenant
described above under the caption "--Limitation on Incurrence of Indebtedness."
"UPPER TIER EQUITY HOLDER" means, in the case of any Flow Through Entity the
Equity Holder of which is, in turn, a Flow Through Entity, the person that is
ultimately subject to tax on a net income basis on the items of taxable income,
gain, deduction, and loss of the Company and its Subsidiaries that are Flow
Through Entities.
"VOTING STOCK" means, with respect to any Person, (i) one or more classes of
the Capital Stock of such Person having general voting power to elect at least a
majority of the Board of Directors, managers or trustees of such Person
(regardless of whether at the time Capital Stock of any other class or classes
have or might have voting power by reason of the happening of any contingency)
and (ii) any Capital Stock of such Person convertible or exchangeable without
restriction at the option of the holder thereof into Capital Stock of such
Person described in clause (i) above.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
at any date, the number of years (rounded to the nearest one-twelfth) obtained
by dividing (i) the then outstanding principal amount of such Indebtedness into
(ii) the total of the product obtained by multiplying (a) the amount of each
then remaining installment, sinking fund, serial maturity or other required
payments of principal, including payment at final maturity, in respect thereof,
by (b) the number of years (calculated to the nearest one-twelfth) that will
elapse between such date and the making of such payment.
"WHOLLY OWNED SUBSIDIARY" of any Person means a subsidiary of such Person
all the Capital Stock of which (other than directors' qualifying shares) is
owned directly or indirectly by such Person; provided, that with respect to the
Company, the term Wholly Owned Subsidiary shall exclude Unrestricted
Subsidiaries.
BOOK-ENTRY, DELIVERY AND FORM
The old notes offered and sold to qualified institutional buyers (as defined
under Rule 144A of the old notes are currently represented by one or more fully
registered global notes without interest coupons. The new notes issued in
exchange for the old notes will be represented by one or more fully registered
global notes, without interest coupons and will be deposited upon issuance with
the Trustee as custodian for The Depository Trust Company ("DTC"), in New York,
New York, and registered in the name of DTC or its nominee, in each case, for
credit to an account of a direct or indirect participant as described below.
94
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."
The notes (including beneficial interests in the global notes) are subject
to certain restrictions on transfer and bear a restrictive legend as described
under "Notice to Investors." In addition, transfer of beneficial interests in
the global notes are subject to the applicable rules and procedures of DTC and
its direct or indirect participants, which may change from time to time.
The notes may be presented for registration of transfer and exchange at the
offices of the Registrar.
DEPOSITORY PROCEDURES
DTC has advised the Issuers that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between Participants through electronic
book-entry changes in accounts of Participants. The Participants include
securities brokers and dealers (including the Initial Purchaser), banks, trust
companies, clearing corporations and certain other organizations. Access to
DTC's system is also available to other entities such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a Participant, either directly or indirectly (collectively, the "Indirect
Participants"). Persons who are not Participants may beneficially own securities
held by or on behalf of DTC only through the Participants or Indirect
Participants. The ownership interest and transfer of ownership interest of each
actual purchaser of each security held by or on behalf of DTC are recorded on
the records of the Participants and Indirect Participants.
DTC has also advised us that pursuant to procedures established by it, (i)
upon deposit of the global notes, DTC will credit the accounts of Participants
designated by the Initial Purchaser with portions of the principal amount of
global notes and (ii) ownership of such interests in the global notes will be
shown on, and the transfer of ownership thereof will be effected only through,
records maintained by DTC (with respect to Participants) or by Participants and
the Indirect Participants (with respect to other owners of beneficial interests
in the global notes).
Investors in the global notes may hold their interests therein directly
through DTC, if they are Participants in such system, or indirectly through
organizations that are Participants in such system. All interests in a global
note may be subject to the procedures and requirements of DTC.
The laws of some states require that certain persons take physical delivery
in definitive form of securities that they own. Consequently, the ability to
transfer beneficial interest in a global note to such persons may be limited to
that extent. Because DTC can act only on behalf of Participants, which in turn
act on behalf of Indirect Participants and certain banks, the ability of a
person having a beneficial interest in a global note to pledge such interest to
persons or entities that do not participate in the DTC system, or otherwise take
actions in respect of such interest, may be affected by the lack of a physical
certificate evidencing such interest. For certain other restrictions on the
transferability of the notes, see "--Exchange of Book-Entry Notes for
Certificated Notes."
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL NOTES WILL NOT
HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF
NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR
HOLDERS THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
Payments in respect of the principal, premium, liquidated damages, if any,
and interest on a global note registered in the name of DTC or its nominee will
be payable by the Trustee to DTC or its
95
nominee in its capacity as the registered Holder under the indenture. Under the
terms of the indenture, the Issuers and the Trustee will treat the persons in
whose names the notes, including the global notes, are registered as the owners
thereof for the purpose of receiving such payments and for any and all other
purposes whatsoever. Consequently, none of the Issuers, the Trustee or any agent
of the Issuers or the Trustee have or will have any responsibility or liability
for (i) any aspect of DTC's records or any Participant's or Indirect
Participant's records relating to or payments made on account of beneficial
ownership interests in the global notes, or for maintaining, supervising or
reviewing any of DTC's records or any Participant's or Indirect Participant's
records relating to the beneficial ownership interests in the global notes or
(ii) any other matter relating to the actions and practices of DTC or any of its
Participants or Indirect Participants.
DTC has advised the Issuers that its current practices, upon receipt of any
payment in respect of securities such as the notes (including principal and
interest), is to credit the accounts of the relevant Participants with the
payment on the payment date, in amounts proportionate to their respective
holdings in principal amount of beneficial interests in the relevant security
such as the global notes as shown on the records of DTC. Payments by
Participants and the Indirect Participants to the beneficial owners of notes
will be governed by standing instructions and customary practices and will not
be the responsibility of DTC, the Trustee or the Issuers. None of the Issuers or
the Trustee will be liable for any delay by DTC or its Participants in
identifying the beneficial owners of the notes, and the Issuers and the Trustee
may conclusively rely on and will be protected in relying on instructions from
DTC or its nominee as the registered owner of the notes for all purposes.
Interests in the global notes will trade in DTC's Same-Day Funds Settlement
System and secondary market trading activity in such interests will, therefore,
settle in immediately available funds, subject in all cases to the rules and
procedures of DTC and its Participants. Transfers between Participants in DTC
will be effected in accordance with DTC's procedures, and will be settled in
same-day funds.
DTC has advised the Issuers that it will take any action permitted to be
taken by a Holder of notes only at the direction of one or more Participants to
whose account DTC interests in the global notes are credited and only in respect
of such portion of the aggregate principal amount of the notes as to which such
Participant or Participants has or have given direction. However, if there is an
Event of Default under the notes, DTC reserves the right to exchange global
notes for legended notes in certificated form, and to distribute such notes to
its Participants.
The information in this section concerning DTC and its book-entry system has
been obtained from sources believed to be reliable, but the Issuers take no
responsibility for the accuracy thereof.
Although DTC has agreed to the foregoing procedures to facilitate transfers
of interests in the global notes among Participants in DTC, it is under no
obligation to perform or to continue to perform such procedures, and such
procedures may be discontinued at any time. Neither the Initial Purchaser nor
the Trustee will have any responsibility for the performance by DTC or its
Participants or Indirect Participants of their respective obligations under the
rules and procedures governing their operations.
EXCHANGE OF BOOK-ENTRY NOTES FOR CERTIFICATED NOTES
A global note is exchangeable for definitive notes in registered
certificated form if (i) DTC (a) notifies the Issuers that it is unwilling or
unable to continue as depositary for the global note and the Issuers thereupon
fail to appoint a successor depositary within 90 days or (b) has ceased to be a
clearing agency registered under the Exchange Act, or (ii) the Issuers, at their
option, notify the Trustee in writing that they elect to cause the issuance of
the notes in certificated form. In addition, beneficial interests in a global
note may be exchanged for certificated notes upon request but only upon at least
20 days' prior written notice given to the Trustee by or on behalf of DTC in
accordance with
96
customary procedures. In all cases, certificated notes delivered in exchange for
any global note or beneficial interest therein will be registered in the names,
and issued in any approved denominations, requested by or on behalf of the
depositary (in accordance with its customary procedures) and will bear the
restrictive legend referred to in "Notice to Investors" unless the Issuers
determine otherwise in compliance with applicable law.
CERTIFICATED NOTES
Subject to certain conditions, any person having a beneficial interest in a
global note may, upon request to the Trustee, exchange such beneficial interest
for notes in certificated form (a "Certificated Note"). Upon any such issuance,
the Trustee is required to register such Certificated Notes in the name of, and
cause the same to be delivered to, such person or persons (or the nominee of any
thereof). All such Certificated Notes would be subject to the legend
requirements described herein under "Notice to Investors." In addition, if (i)
the Issuers notify the Trustee in writing that DTC (x) is no longer willing or
able to act as a depositary and the Issuers are unable to locate a qualified
successor within 90 days or (y) has ceased to be a clearing agency registered
under the Exchange Act or (ii) the Issuers, at their option, notify the Trustee
in writing that they elect to cause the issuance of notes in the form of
Certificated Notes under the indenture, then, upon surrender by the global note
Holder of its global note, notes in such form will be issued to each person that
the global note Holder and the DTC identify as being the beneficial owner of the
related notes.
None of the Issuers or the Trustee will be liable for any delay by the
global note Holder or DTC in identifying the beneficial owners of notes and the
Trustee may conclusively rely on, and will be protected in relying on,
instructions from the global note Holder or DTC for all purposes.
SAME DAY SETTLEMENT AND PAYMENT
The indenture requires that payments in respect of the notes represented by
a global note (including principal, premium, if any, interest and liquidated
damages, if any, thereon) be made by wire transfer of immediately available next
day funds to the accounts specified by the global note Holder. With respect to
Certificated Notes, the Issuers will make all payments of principal, premium, if
any, interest and liquidated damages, if any, thereon 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 Issuers expect that secondary trading in the
Certificated Notes will also be settled in immediately available funds.
97
DESCRIPTION OF CERTAIN INDEBTEDNESS
NEW CREDIT FACILITY
We expect to enter into a new $10.0 million credit facility which will be
secured by substantially all of our current and future assets, other than
certain excluded assets. The lien on the collateral securing the new credit
facility will be senior to the lien on the collateral securing the notes. We
expect that the new credit facility will contain customary conditions to closing
and to borrowing and will contain representations and warranties customary in
other gaming-related financings. We also expect that the new credit facility
will contain certain financial covenants and restrictions on, among other
things, indebtedness, investments, distributions and mergers. There can be no
assurance that we will be able to enter into the new credit facility on terms
satisfactory to us or at all. The establishment of the new credit facility is
subject to approval of the Gaming Commission.
INTERCREDITOR AGREEMENT
In connection with entering into our new credit facility, we expect the
trustee under the indenture governing the notes will enter into an intercreditor
agreement with the lender under such credit facility. We anticipate that the
intercreditor agreement will provide, among other things, that (1) the lender's
lien on the collateral securing the new credit facility will be senior to the
lien on the collateral securing the notes, (2) during any insolvency
proceedings, the lender under such credit facility and the trustee under the
indenture governing the notes will coordinate their efforts to give effect to
the relative priority of their respective security interests in the collateral,
and (3) following an event of default (as defined in the intercreditor
agreement), all decisions with respect to such collateral, including the time
and method of any disposition thereof, will be made in accordance with the terms
of such intercreditor agreement.
98
DESCRIPTION OF PGCL MEMBERSHIP INTERESTS
All of PGCL's outstanding common membership interests are owned by its
parent, PGP, and all of PCGL's outstanding preferred membership interests are
owned by GDREC. All of PGC's outstanding common stock is owned by PGCL. See "The
Transactions." The following summary of certain material terms and provisions of
the membership interests of PGCL does not purport to be complete and is
qualified in its entirety by reference to the operating agreement of PGCL,
copies of which are available upon request.
COMMON MEMBERSHIP INTERESTS OF PGCL
PGP, as the holder of all of PGCL's issued and outstanding common membership
interests, is entitled to vote on all matters to be voted on by holders of
common membership interests of PGCL and, subject to certain limitations
contained in PGCL's operating agreement and the indenture governing the notes,
is entitled to dividends and other distributions if, as and when declared by
PGCL's managers out of funds legally available therefor.
PREFERRED MEMBERSHIP INTERESTS OF PGCL
GDREC, as the holder of all of PGCL's preferred membership interests, is
entitled to receive, subject to certain restrictions contained in the indenture
governing the notes, out of funds legally available therefor, cumulative
preferred distributions payable semiannually at an annual rate of 9% of the
original face amount thereof. Other than certain limited consent rights and as
required by law, holders of PGCL's preferred membership interests have no voting
rights.
Subject to certain limitations contained in the indenture governing the
notes, to the extent not used for any indemnification obligations of HCI and
GDREC under the acquisition agreements, PGCL must redeem $3.0 million in
original face amount of its preferred membership interests on January 15, 2001
at a redemption price of $3.0 million, plus any accrued and unpaid preferred
distributions through the date of redemption. Certain managers of PGP, who
collectively have the ability to control us, have guaranteed our obligation to
redeem up to $3.0 million of such preferred membership interests, plus any
accrued and unpaid preferred distributions through the date of redemption. The
balance of preferred membership interests not required to be redeemed by us on
January 15, 2001 must be redeemed by us 90 days after the seventh anniversary of
the closing date of the acquisition at a redemption price of $4.0 million, plus
any accrued and unpaid preferred distributions through the date of redemption.
Under the terms of the acquisition agreements, preferred membership
interests in an original face amount of $3.0 million are currently being held in
escrow until January 15, 2001 as security for certain indemnification
obligations of GDREC and HCI thereunder. See "The Transactions."
99
DESCRIPTION OF PGP MEMBERSHIP INTERESTS
The following summary of certain material terms and provisions of the
membership interests of PGP does not purport to be complete and is qualified in
its entirety by reference to the operating agreement of PGP, copies of which are
available upon request to PGP. Each purchaser of convertible preferred
membership interests hereby acknowledges and agrees that such membership
interests are subject to the provisions set forth below and all of the other
terms and conditions contained in PGP's operating agreement.
COMMON MEMBERSHIP INTERESTS
PGP has one class of voting common membership interests and one class of
non-voting common membership interests. Except as set forth under "--Voting" and
"--PGP Operating Agreement-- Required Regulatory Redemptions or Repurchases"
below, voting and non-voting common membership interests will be entitled to
identical rights and privileges (including, without limitation, rights to PRO
RATA distributions). $6.0 million of voting common membership interests are
outstanding. No non-voting common membership interests are outstanding. See "The
Transactions" and "Certain Relationships and Related Transactions--Equity
Contribution."
RANKING. Upon any liquidation, dissolution or winding up of PGP, the
holders of voting and non-voting common membership interests will be entitled to
share ratably with each other in the distribution of all of the assets of PGP,
after any required distribution to the holders of preferred membership interests
of PGP or other securities senior in right of payment to the common membership
interests, and after satisfaction of all of PGP's liabilities. See "Risk
Factors--Holding Company Structure."
ALLOCATION OF INCOME. Profits and losses of PGP will be allocated to each
holder of membership interests, whether common or preferred, PRO RATA according
to the percentage of membership interests held by such holder.
DISTRIBUTIONS. The holders of voting and non-voting common membership
interests are entitled to distributions if, as and when declared by the managers
of PGP, out of assets legally available therefor, subject to the restrictions
imposed by the indebtedness of PGP, if any, outstanding from time to time. Under
the indenture governing the notes, we may make Permitted Tax Distributions (as
defined in the section "Description of Notes") to PGP to enable PGP to
distribute to holders of PGP membership interests funds sufficient to pay tax
liabilities attributable to the holders' ownership of such interests. PGP
intends to distribute the proceeds (or a portion thereof) from Permitted Tax
Distributions PRO RATA to holders of PGP membership interests, if and when
received from PGCL, in amounts sufficient to enable holders of PGP membership
interests to pay tax liabilities attributable to the holders' ownership of such
interests.
In addition, subject to the terms of the indenture governing the notes, we
may make, from time to time, distributions to PGP in excess of Permitted Tax
Distributions. PGP may, in turn, from time to time, distribute to holders of
common membership interests amounts in excess of Permitted Tax Distributions;
PROVIDED, that in the case of any distributions made during any period that any
convertible preferred membership interests remain outstanding, such
distributions may not exceed the aggregate net income of PGP (I.E., aggregate
income of PGP less aggregate deductions and losses of PGP) previously allocated
to holders of such common membership interests.
REDEMPTIONS. Except as set forth below under "--PGP Operating
Agreement--Redemption Upon Termination" and "--Required Regulatory Redemptions
or Repurchases," the common membership interests may not be redeemed so long as
any convertible preferred membership interests are outstanding.
100
VOTING. Each holder of voting common membership interests is entitled to
vote on all matters to be voted on by the members of PGP, PRO RATA according to
the percentage of common membership interests held by such holder.
Except as required by law and with respect to certain other limited matters,
holders of non-voting common membership interests are not entitled to vote.
Pursuant to PGP's operating agreement, the management of PGP is vested in a
board of managers comprised of five individuals, two of whom must be independent
managers. As long as M. Brent Stevens, together with any entity controlled by
Mr. Stevens, beneficially holds at least 5% of the voting common membership
interests of PGP, Mr. Stevens is entitled to designate three of PGP's managers,
including one of the two independent managers. Additionally, as long as Michael
Luzich, together with any entity controlled by Mr. Luzich, beneficially holds at
least 5% of the voting common membership interests of PGP, Mr. Luzich is
entitled to designate two of PGP's managers, including the other independent
manager.
RIGHTS OF FIRST REFUSAL AND CO-SALE RIGHTS. PGP's operating agreement
limits the transfer of common membership interests owned by its members. Certain
of these restrictions grant first to Mr. Stevens and Mr. Luzich, and second to
PGP, rights of first refusal and, if none of Mr. Stevens, Mr. Luzich and PGP
exercise their rights of first refusal and purchase the common membership
interests being transferred, grant all other common members co-sale rights on
the subsequent transfer of common membership interests.
REGISTRATION RIGHTS. Except under certain circumstances, including, without
limitation, an underwriter's cut-back and registration of shares to be offered
pursuant to an employee benefit plan, an exchange offer or certain merger
transactions, whenever PGP at any time after an initial public offering and in
connection with a secondary offering proposes to register any of its common
membership interests (or upon a Permitted C-Corp Conversion (as defined in the
section "Description of Notes"), shares of its common stock) under the
Securities Act, PGP will notify each holder of non-voting common membership
interests of the proposed filing and, if so requested by such holders, PGP will
use its good faith efforts to register non-voting common membership interests
(or non-voting common stock, as applicable) under the Securities Act.
CONVERTIBLE PREFERRED MEMBERSHIP INTERESTS
In connection with the acquisition of the Diamond Jo, PGP issued an
aggregate of $3.0 million face amount of its convertible preferred membership
interests in this offering. See "Certain Relationships and Related
Transactions--Equity Contribution."
CONVERSION RIGHTS AND ADJUSTMENTS. Each convertible preferred membership
interest is initially be convertible at any time at the option of the holder
thereof into one non-voting common membership interests of PGP, subject to
certain adjustment.
For a description of the non-voting common membership interests of PGP into
which the convertible preferred membership interests are convertible, see
"--Common Membership Interests."
ALLOCATION OF INCOME. Profits and losses of PGP will be allocated to each
holder of membership interests, whether common or preferred, PRO RATA according
to the percentage of membership interests held by such holder.
DISTRIBUTIONS. The holders of convertible preferred membership interests
are not entitled to any distributions on the convertible preferred membership
interests, except that under the indenture governing the notes, we may make
Permitted Tax Distributions to PGP to enable PGP to distribute to holders of PGP
membership interests funds sufficient to pay tax liabilities attributable to the
holders' ownership of such interests. PGP intends to distribute the proceeds (or
a portion thereof) from
101
Permitted Tax Distributions PRO RATA to holders of PGP membership interests, if
and when received from PGCL, in amounts sufficient to enable holders of PGP
membership interests to pay tax liabilities attributable to the holders'
ownership of such interests.
In addition, subject to the terms of the indenture governing the notes and
PGP's indebtedness, if any, we may make, from time to time, distributions to PGP
in excess of Permitted Tax Distributions. PGP may, in turn, from time to time,
distribute to holders of common membership interests amounts in excess of a PRO
RATA portion of Permitted Tax Distributions, provided that aggregate
distributions made to holders of common membership interests may not exceed the
aggregate net income of PGP (I.E., aggregate income of PGP less aggregate
deductions and losses of PGP) previously allocated to holders of such common
membership interests. Holders of convertible preferred membership interests are
not be entitled to receive any distributions in excess of a PRO RATA portion of
Permitted Tax Distributions, but their rights to share in the assets of PGP upon
redemption or liquidation will be generally preserved as reflected in their
capital account balances.
VOTING RIGHTS. The holders of convertible preferred membership interests
have no voting rights, except as required by law and as set forth below.
The operating agreement of PGP provides that PGP may not, without the
consent or approval of a majority-in-interest of the holders of convertible
preferred membership interests, (1) amend, modify or revise the operating
agreement if such amendment, modification or revision would adversely affect the
rights, privileges or preferences of the convertible preferred membership
interests thereunder or (2) issue any membership interests ranking on
liquidation senior to or PARI PASSU with the convertible preferred membership
interests. In addition, without the consent of all holders of convertible
preferred membership interests, PGP may not merge or consolidate with any
corporation, partnership or other entity and may not sell, lease or convey all
or substantially all of its assets to any entity, unless PGP shall be the
surviving entity, or the successor entity that acquires all or substantially all
of the assets of PGP shall expressly assume all obligations of PGP with respect
to the convertible preferred membership interests.
REDEMPTION. Except as set forth below under "--PGP Operating
Agreement--Required Regulatory Redemptions or Repurchases," the convertible
preferred membership interests are not subject to redemption and have no stated
maturity.
LIQUIDATION PREFERENCE. Upon any liquidation, dissolution or winding up of
PGP, the holders of convertible preferred membership interests, before any
distribution to common membership interests or other securities junior in right
of payment to the convertible preferred membership interests, are entitled to be
paid out of the assets of PGP available for distribution to its members an
amount equal to (the "Preferred Liquidation Preference") the greater of:
(1) the member's tax "capital account" (which for an initial holder of a
convertible preferred membership interest, will be the member's tax basis in
its membership interest, as described in "Certain United States Federal
Income Tax Considerations--U.S. Federal Income Tax Consequences For U.S.
Holders of Convertible Preferred Membership Interests and Non-Voting Common
Membership Interests of PGP--Basis in Membership Interests," less the
liabilities of PGP allocated to the members that are included in the
calculation of such tax basis); and
(2) the member's initial tax "capital account" attributable to the
member's convertible preferred membership interest (aggregating $3.0 million
for all convertible preferred membership interests at issuance), less the
excess (if any) of (i) the amount of cash previously distributed to the
member and all previous owners of the same membership interest over (ii) the
aggregate net income of PGP (i.e., aggregate income of PGP less aggregate
deductions and losses of PGP) previously allocated to the member and to all
previous owners of the same membership interest; PROVIDED HOWEVER, that in
the case of a liquidation of PGP, the amount payable under this
102
clause (2) would be subject to further reduction in the event that PGP is
unable to make special allocations of gross income to holders of convertible
preferred membership interests, as further described in PGP's operating
agreement.
If the assets of PGP available for distribution to the holders of
convertible preferred membership interests are insufficient to pay each holder
its applicable stated liquidation value, the holders of outstanding convertible
preferred membership interests shall share ratably in such distribution of
assets. See "Risk Factors--Holding Company Structure."
REPURCHASE UPON CHANGE OF CONTROL. Upon a Change of Control (as defined in
the section "Description of Notes"), all or part of the convertible preferred
membership interests of PGP shall be redeemable by PGP, at the option of the
holders thereof, at a redemption price equal to the Preferred Liquidation
Preference out of funds held by PGP legally available therefor. PGP will comply
with the requirements of Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the convertible
preferred membership interests in connection with a Change of Control. Except as
set forth in this paragraph, PGP is not required to offer to purchase the
convertible preferred membership interests in the event of a takeover,
recapitalization or similar event. There can be no assurance that sufficient
funds will be available at the time of any Change of Control to make required
repurchases.
PGP OPERATING AGREEMENT
REQUIREMENTS IMPOSED BY APPLICABLE GAMING LAWS. The operating agreement of
PGP provides that the members of PGP that are required to be licensed by the
Gaming Commission in order to own a beneficial interest in PGP or actively
engage in the management of PGP are required to timely submit all information
and timely perform any and all acts required to be performed in connection with
obtaining a gaming license issued by the Gaming Commission. We are required to
notify the Gaming Commission as to the identity of (and may be required to
submit background information regarding) each director, corporate officer and
owner, partner, joint venturer, trustee or any other person who has a
"beneficial interest" of five percent (5%) or more, direct or indirect, in PGCL.
The Gaming Commission may also request that we provide them with a list of
persons holding beneficial ownership interests in PGCL of less than five percent
(5%). The Gaming Commission may determine that holders of PGP's membership
interests have a "beneficial interest" in PGCL. See "Regulatory Matters--
Regulatory Requirements Applicable to the Owners of the Securities and Others."
To the extent any such holders fail to comply with the terms and provisions
of PGP's operating agreement relating to the submission of such information and
performance of such actions, such holder is required to indemnify PGP against
and hold PGP harmless from any loss, liability or damages suffered by PGP
resulting from such failure.
If any gaming authority requires a record or beneficial owner of the PGP
membership interests to be licensed, qualified or found suitable, such holder
must apply for a license, qualification or finding of suitability within the
time period specified by such gaming authority. Such owner would be required to
pay all costs of obtaining such license, qualification or finding of
suitability.
REQUIRED REGULATORY REDEMPTIONS OR REPURCHASES. Under the operating
agreement of PGP, all of the membership interests of PGP will be subject to
redemption or repurchase if:
(1) the holder of such membership interests is required by any gaming
authority to divest itself of such interests,
(2) the holder's ownership of such membership interests, as determined
by PGP in its reasonable good faith judgement, could reasonably be expected
to result in the revocation of or imposition of burdensome terms or
conditions on, interfere with, threaten, delay the issuance of or otherwise
impair, in each case, in any material respect any of our gaming licenses,
103
(3) the holder of such membership interests is licensed to hold such
interests and such gaming license is subsequently revoked or such holder
fails to have any gaming license required for it to hold such interest and
such failure continues for 30 consecutive days,
(4) the holder of such membership interests is found not to be suitable
(or found to be unsuitable) or to otherwise qualify under any applicable
gaming laws and PGP determines, in its reasonable good faith judgement, that
such unsuitability or inability to be qualified could reasonably be expected
to prevent or materially impair the acquisition or retention by us of any
gaming license, or
(5) the holder of such membership interests fails to comply with certain
of such holder's obligations with respect to gaming laws as set forth in
PGP's operating agreement.
Upon the occurrence of any of the events described in clauses (1) through
(5) above with respect to a holder of common membership interests (hereinafter,
an "Unsuitable Common Member"), PGP shall have the right to purchase (which
right shall be assignable by PGP) upon 5 days notice to such Unsuitable Common
Member and for 10 days thereafter, such common membership interests for an
amount equal to the lesser of (a) such Unsuitable Common Member's capital
contribution in respect of such common membership interests and (b) the current
fair market value of such common membership interests as determined by the board
of managers of PGP in its reasonable good faith judgement. If PGP elects not to
exercise such option, PGP shall promptly notify the holders of voting common
membership interests (other than the Unsuitable Common Member), who shall each,
for a period of ten (10) days following its receipt of such notice, have the
right to purchase, on a PRO RATA basis, all (but not less than all) of the
common membership interests of such Unsuitable Common Member at the fair market
value thereof as determined by the board of managers of PGP in its reasonable
good faith judgement. If the other holders of voting common membership interests
(other than the Unsuitable Common Member) elect not to exercise such option, PGP
must promptly purchase the common membership interests of such Unsuitable Common
Member for an amount equal to the lesser of (x) such Unsuitable Common Member's
capital contribution in respect of such common membership interests and (y) the
current fair market value of such common membership interests as determined by
the board of managers of PGP in its reasonable good faith judgement.
Upon the occurrence of any of the events described in clauses (1) through
(5) above with respect to a holder of convertible preferred membership interests
(hereinafter, an "Unsuitable Preferred Member"), PGP shall have the right to
purchase (which right shall be assignable by PGP) upon 5 days notice to such
Unsuitable Preferred Member and for ten 10 days thereafter, such convertible
preferred membership interests for an amount equal to the lesser of (a) the
Preferred Liquidation Preference and (b) the current fair market value of such
convertible preferred membership interests as determined by the board of
managers of PGP in its reasonable good faith judgement. If PGP elects not to
exercise such option, PGP shall promptly notify the holders of voting common
membership interests, who shall each, for a period of ten (10) days following
its receipt of such notice, have the right to purchase, on a PRO RATA basis, all
(but not less than all) of the convertible preferred membership interests of
such Unsuitable Preferred Member at the fair market value thereof as determined
by the board of managers of PGP in its reasonable good faith judgement. If the
holders of voting common membership interests elect not to exercise such option,
PGP must promptly purchase the convertible preferred membership interests of
such Unsuitable Preferred Member for an amount equal to the lesser of (x) the
Preferred Liquidation Preference and (y) the current fair market value of such
convertible preferred membership interests as determined by the board of
managers of PGP in its reasonable good faith judgement.
The purchase price to be paid by PGP to an Unsuitable Common Member or an
Unsuitable Preferred Member may be paid, at the option of PGP, in cash or a
promissory note with principal and interest payable annually and amortized over
not more than seven years and bearing interest at a rate per annum equal to the
sum of the prime lending rate published by the Wall Street Journal at the date
104
of redemption plus 2%. No Unsuitable Common Member or Unsuitable Preferred
Member shall be entitled to any compensation from us, PGP or any member of PGP
by reason of the redemption or repurchase of such member's membership interests.
For additional information regarding required regulatory redemptions, see
"Risk Factors-- Required Regulatory Redemption" and "Regulatory
Matters--Regulatory Requirements Applicable to the Owners of the Securities and
Others."
REDEMPTION UPON TERMINATION. If any officer or employee of PGP or PGCL
(other than Mr. Stevens or Mr. Luzich) is terminated by or resigns from PGP or
PGCL for any reason, and such officer or employee holds common membership
interests, preferred membership interests or other interests of PGP, PGP shall
have the right to purchase all such interests from such officer or employee for
an amount equal to the lesser of (a) the capital contribution made or other
consideration paid by such officer or employee in respect of such interests and
(b) the current fair market value of such interests as determined by the board
of managers of PGP in its reasonable good faith judgement.
CERTAIN TRANSFER RESTRICTIONS. The Transfer Agent will not register any
purchase or transfer of membership interests of PGP, and any purchase or
transfer or purported purchase or transfer and registration of such interests
will be void AB INITIO and of no effect, unless:
(i) in the determination of the managing member of PGP (subject to a
concurring determination by a majority of the members of the Independent
Committee), such transfer is pursuant to certain "safe harbors" contained in
PGP's operating agreement intended to ensure that PGP does not become a
"publicly traded partnership" under the Code, or
(ii) prior to the effectiveness of such transfer, the transferring
member delivers to the managing member of PGP an opinion of counsel
reasonably satisfactory to the managing member of PGP and a majority of the
members of the Independent Committee to the effect that such transfer will
not result in PGP being treated as a "publicly traded partnership" under the
Code.
The "safe harbors" referred to in clause (i) of the preceding sentence
include:
(i) transfers by a member and certain related persons in one or more
transactions during any 30 calendar day period of, in the aggregate, more
than 2% of the total interests in the capital or profits of PGP;
(ii) subject to certain notice requirements, transfers during any
calendar year of interests aggregating not more than 10% of the total
interests in the capital or profits of PGP (x) among holders of membership
interests or (y) between holders of membership interests and PGP, in each
case pursuant to certain procedures established by PGP, including procedures
for establishing on the last day of each calendar quarter the price at which
such membership interests may trade; and
(iii) transfers during any calendar year not described in clause (ii) of
this sentence aggregating not more than 2% of the total interests in the
capital or profits of PGP, subject to designation by the managing member of
PGP.
To the extent any person that has not been licensed and has not otherwise
satisfied all applicable suitability and other requirements imposed by
applicable gaming laws acquires (including upon conversion of the convertible
preferred membership interests into non-voting common membership interests),
directly or indirectly, in one or more transactions, equal to or in excess of
five percent (5%) of the issued and outstanding membership interests of PGP
(such excess amount, a "Disqualified Interest"), such transactions, solely to
the extent relating to the acquisition by such person of such Disqualified
Interest, shall be void AB INITIO and of no effect.
Any purchase or transfer or purported purchase or transfer of PGP membership
interests will be void AB INITIO and of no effect, if such purchase or transfer
would result in more than 25% of PGCL's
105
membership interests being owned, directly or indirectly, by persons who are not
citizens of the United States. See "Regulatory Matters--The Shipping Act of
1916; The Merchant Marine Act of 1936."
Transfers of membership interests of PGP are subject to certain additional
conditions contained in PGP's operating agreement, including, but not limited
to, (1) delivery by the transferring member of an opinion of counsel reasonably
acceptable to the board of managers of PGP that such transfer does not violate
any federal or state securities laws or any applicable gaming laws and (2) such
transferee's written agreement to be bound to the terms and provisions of PGP's
operating agreement and to execute Annex B hereto and such other documents and
instruments as the board of managers of PGP may deem necessary or appropriate
for admission of such transferee as a substitute member of PGP.
106
SPECIFIC FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the material federal income tax
considerations of the issuance of the new notes and the exchange offer and of
the ownership of notes by a beneficial owner who holds notes as capital assets
(generally, property held for investment) within the meaning of the Internal
Revenue Code of 1986, as amended (the "Code"). "U.S. holder" means a beneficial
owner of the securities who is a citizen or resident of the United States, a
corporation or partnership created or organized in the United States or under
the law of the United States or of any State or political subdivision of the
foregoing, any estate, the income of which is includable in gross income for
U.S. federal income tax purposes regardless of its source, or a trust if (i) a
court within the United States is able to exercise primary supervision over the
administration of the trust and (ii) one or more U.S. persons have the authority
to control all substantial decisions of the trust. "Non-U.S. holder" means a
beneficial owner of the securities who is not a U.S. holder. This summary does
not discuss all aspects of United States federal income taxation which may be
important to particular holders in light of their individual investment
circumstances, such as investors subject to special tax rules (e.g., financial
institutions, regulated investment companies, insurance companies,
broker-dealers, and tax-exempt organizations) or to persons that will hold the
securities as a part of a straddle, hedge, or synthetic security transaction for
United States federal income tax purposes or that have a functional currency
other than the United States dollar, all of whom may be subject to tax rules
that differ significantly from those summarized below. In addition, this summary
does not discuss the foreign, state or local tax considerations. The discussion
set forth below is based upon the Code, Treasury Regulations promulgated
thereunder, and administrative and judicial interpretations of the foregoing as
of the date hereof. Any of such authorities may be repealed, revoked or modified
so as to result in federal income tax consequences different from those
discussed below, possibly with retroactive effect. Persons considering the
exchange of a new note for an old note pursuant to the exchange offer should
consult their own tax advisors concerning the federal income tax consequences of
the exchange in light of their particular situations as well as any consequences
arising under the laws of any other taxing jurisdiction.
U.S. FEDERAL TAX CHARACTERIZATION OF THE NOTES AND PGCL
The proper U.S. federal income tax characterization of a particular
instrument as debt or equity is a question of fact, the resolution of which is
based primarily upon the substance of the instrument and the transaction
pursuant to which it is issued, rather than merely upon the form of the
transaction or the manner in which the instrument is labeled. Among the factors
set forth by the Internal Revenue Service and the courts to be taken into
account in determining, for U.S. federal income tax purposes, whether or not an
instrument constitutes indebtedness, is whether the issuer of the instrument is
adequately capitalized such that principal and interest are reasonably expected
to be repaid. If the notes are classified as equity, rather than indebtedness,
for U.S. federal income tax purposes and are deemed to be "publicly traded," we
would be classified as a publicly traded partnership under the Code. In
addition, we would also be classified as a publicly traded partnership under the
Code if our equity interests are deemed to be "publicly traded." As a publicly
traded partnership, we would become subject to U.S. federal income tax as a
corporation which, in turn, may, among other things, materially adversely affect
our ability to make payments on the notes.
In connection with the original issuance of the old notes, Mayer, Brown &
Platt delivered its opinion to the effect that, for U.S. federal income tax
purposes, (i) the notes will be treated as indebtedness, and (ii) we will not be
treated as a publicly traded partnership subject to U.S. federal income tax as a
corporation. Such opinion was based on certain factual representations and the
assumption that the terms of our operating agreement will be complied with,
including compliance with restrictions and, in certain circumstances,
prohibitions, on transfers of our membership interests except pursuant to
certain "safe harbors" provided in Treasury regulations regarding
characterization of partnerships as publicly traded partnerships.
107
Our operating agreement provides that unless a proposed transfer of our
membership interests is pursuant to such a "safe harbor," we must receive an
opinion of counsel prior to such proposed transfer to the effect that such
transfer will not cause us to become a publicly traded partnership. Our
operating agreement further provides that we may not recognize any transfers of
our membership interests that are not made pursuant to such safe harbors or
without the delivery of such opinion. Notwithstanding the opinion of Mayer,
Brown & Platt, the Internal Revenue Service (the "IRS") may be able to
successfully assert that the notes constitute equity, rather than indebtedness,
for U.S. federal income tax purposes, and are "publicly traded," or that our
equity interests are "publicly traded," and that as a result thereof, we are
subject to U.S. federal income taxation as a publicly traded partnership under
the Code.
The remainder of this discussion assumes, in accordance with counsel's
opinions, that for U.S. federal income tax purposes, the notes will be treated
as indebtedness, and PGCL will be treated as a partnership that is not a
publicly traded partnership.
CONSEQUENCES OF THE EXCHANGE OFFER TO EXCHANGING AND NONEXCHANGING HOLDERS
The exchange of a new note for an old note pursuant to the exchange offer
will not be taxable to an exchanging holder for U.S. federal income tax
purposes. As a result, for U.S. federal income tax purposes, (i) an exchanging
holder will not recognize any gain or loss on the exchange, (ii) an exchanging
holder will be required to include interest on a new note in gross income in the
manner described below, (iii) the holding period for the new note will include
the holding period for the old note, and (iv) the holder's tax basis in the new
note will be the same as its basis in the old note.
U.S. FEDERAL INCOME TAX CONSEQUENCES FOR U.S. HOLDERS OF THE NOTES
STATED INTEREST. A U.S. holder will be required to include stated interest
on the notes in its income when received or accrued in accordance with the
holder's method of tax accounting.
DISPOSITION OF NOTES. Upon the sale, exchange or other taxable disposition
of a note, a U.S. holder will recognize gain or loss, if any, generally equal to
the difference between the amount realized on the sale, exchange or retirement
(other than any amount attributable to accrued but unpaid stated interest, which
will be taxable as such) and such holder's adjusted tax basis in the note. Any
such gain or loss would generally be long-term capital gain or loss if the note
has been held for more than one year at the time of the disposition.
LIQUIDATED DAMAGES. The treatment described above regarding inclusions in
gross income in respect of the notes is based in part upon our determination
that, as of the date of issuance of the notes, the possibility is remote that
liquidated damages would be paid in respect of the old notes in the event of a
registration default as described above under "The Exchange Offer--Purpose and
Effect; Registration Rights." The IRS may take a different position, which could
affect the timing and character of income reported by U.S. holders of the notes.
While not free from doubt, if such liquidated damages are in fact paid, we
believe the liquidated damages would be taxable to a U.S. holder as ordinary
income in accordance with the holder's regular method of tax accounting.
PURCHASERS OF NOTES AT OTHER THAN ORIGINAL ISSUANCE. The above summary does
not discuss special rules that may affect the treatment of U.S. holders that
acquired notes other than at original issuance, including those provisions of
the Code relating to the treatment of "market discount" and "acquisition
premium." Any U.S. holder should consult its tax advisor as to the consequences
to the purchaser of the acquisition, ownership and disposition of notes.
108
U.S. FEDERAL INCOME TAX CONSEQUENCES FOR NON-U.S. HOLDERS OF THE NOTES
Under present U.S. federal income tax law, and subject to the discussion
below concerning backup withholding:
(a) no withholding of U.S. federal income tax will be required with
respect to the payment by us or any paying agent of principal or interest on
a note owned by a Non-U.S. holder, provided (i) that the beneficial owner
does not actually or constructively own 10% or more than a 10% interest in
our capital or profits within the meaning of section 871(h)(3) of the Code
and the regulations thereunder, (ii) the beneficial owner is not a
controlled foreign corporation that is related to us through stock ownership
and (iii) the beneficial owner satisfies the statement requirement
(described generally below) set forth in section 871(h) and section 881(c)
of the Code and the regulations thereunder and
(b) no withholding of U.S. federal income tax will be required with
respect to any gain or income realized by a Non-U.S. holder upon the sale,
exchange or retirement of a note.
To satisfy the requirement referred to in (a)(iii) above, the beneficial
owner of such note. or a financial institution holding the note on behalf of
such owner, must provide, in accordance with specified procedures, a paying
agent of ours with a statement to the effect that the beneficial owner is not a
U.S. person. Currently these requirements will be met if (1) the beneficial
owner provides his name and address, and certifies, under penalties of perjury,
that he is not a U.S. person (which certification may be made on an IRS Form
W-8BEN) or (2) a financial institution holding the note on behalf of the
beneficial owner certifies, under penalties of perjury, that such statement has
been received by it and furnishes a paying agent with a copy thereof. Under
Treasury regulations, which are anticipated to become effective for payments of
interest made after December 31, 2000 (the "Final Regulations"), the statement
requirement referred to in (a)(iii) above may also be satisfied with other
documentary evidence with respect to an offshore account or through certain
foreign intermediaries.
If a Non-U.S. holder cannot satisfy the requirements of the "portfolio
interest" exception described in (a) above, payments of premium, if any, and
interest made to such Non-U.S. holder will be subject to a 30% withholding tax
unless the beneficial owner of the note provides us or our paying agent, as the
case may be, with a properly executed (1) IRS Form 1001 (if delivered on or
prior to December 31, 1999) or IRS Form W-8BEN (or successor form) claiming an
exemption from withholding tax or a reduction in withholding tax under the
benefit of a tax treaty or (2) IRS Form 4224 (if delivered on or prior to
December 31, 1999) or IRS Form W-8ECI (or successor form) stating that interest
paid on the note is not subject to withholding tax because it is effectively
connected with the beneficial owner's conduct of a trade or business in the
United States. Under the Final Regulations, a Non-U.S. holder (or its agent,
where applicable) that files (i) an IRS Form 1001, must file a replacement IRS
Form W-8BEN by or before January 1, 2001, or (ii) an IRS Form 4224, must file a
replacement IRS Form W-8ECI by the expiration of IRS Form 4224 (one calendar
year from the date it was filed). Forms W-8BEN and W-8ECI are effective for the
calendar year in which they are signed and for the succeeding three calendar
years.
If a Non-U.S. holder is engaged in a trade or business in the United States
and interest on the note is effectively connected with the conduct of such trade
or business, the Non-U.S. holder, although exempt from the withholding tax
discussed above, will be subject to U.S. federal income tax on such interest on
a net income basis at applicable graduated rates. In addition, if such holder is
a foreign corporation, it may be subject to a branch profits tax equal to 30%
(or lower treaty rate) of its effectively connected earnings and profits for the
taxable year, subject to adjustments. For this purpose, such interest on a note
will be included in such foreign corporation's effectively connected earnings
and profits.
109
Any gain or income realized upon the sale, exchange or retirement of a note
generally will not be subject to U.S. federal income tax unless (i) such gain or
income is effectively connected with a trade or business in the United States of
the Non-U.S. holder, or (ii) in the case of a Non-U.S. holder who is an
individual, such individual is present in the United States for 183 days or more
in the taxable year of such sale, exchange or retirement, and certain other
conditions are met. Any such gain that is effectively connected with the conduct
of a United States trade or business by a Non-U.S. holder will be subject to
United States federal income tax on a net income basis at applicable graduated
rates and, if such Non-U.S. holder is a corporation, such gain may also be
subject to the 30% United States branch profits tax described above.
INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply to payments of
principal, any premium or interest paid on a note, the proceeds of the sale of a
note before maturity within the United States and certain other note amounts,
and "backup withholding" at a rate of 31 percent will apply if a non-exempt
beneficial owner of a note fails to provide the certification described below.
Each beneficial owner of a note (other than an exempt beneficial owner, such
as a corporation, tax-exempt organization, qualified pension and profit-sharing
trust or individual retirement account) will be required to provide, under
penalties of perjury, a certificate containing the beneficial owner's name,
address, correct U.S. federal taxpayer identification number and a statement
that the beneficial owner is not subject to backup withholding. Should a
non-exempt beneficial owner fail to provide the required certification, 31
percent of the amount otherwise payable to the beneficial owner will be withheld
from payment and remitted to the IRS as a credit against the beneficial owner's
federal income tax liability.
Under current law, information reporting and backup withholding will not
apply to payments of principal, premium (if any) and interest made by us or a
paying agent to a Non-U.S. holder on a note; PROVIDED the certification
described under "U.S. Federal Income Tax Consequences for Non-U.S. Holders"
above is received and the payor does not have actual knowledge that the
beneficial owner is a U.S. holder. However, the Final Regulations substantially
revise the procedures that withholding agents and payees must follow to comply
with, or establish an exemption from, these information reporting and backup
withholding provisions. Each beneficial owner of notes should consult such
owner's tax advisor regarding the tax consequences to such owner of the Final
Regulations.
THE FOREGOING SUMMARY IS INCLUDED FOR GENERAL INFORMATION ONLY. EACH HOLDER
OF OLD NOTES SHOULD CONSULT ITS TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES
TO IT OF THE EXCHANGE OFFER, INCLUDING THE APPLICATION OF AND EFFECT OF STATE,
LOCAL, FOREIGN AND OTHER TAX LAWS.
110
PLAN OF DISTRIBUTION
Each broker-dealer that receives new notes for its own account as a result
of market-making activities or other trading activities in connection with the
exchange offer must acknowledge that it will deliver a prospectus in connection
with any resale of new notes. This prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of new notes received in exchange for old notes where such old
notes were acquired as a result of market-making activities or other trading
activities.
We will receive no proceeds in connection with the exchange offer or any
sale of new notes by broker-dealers. New notes received by broker-dealers for
their own account pursuant to the exchange offer may be sold from time to time
in one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the new notes or a combination
of these methods of resale, at market prices prevailing at the time of resale,
at prices related to prevailing market prices or at negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
that may receive compensation in the form of commissions or concessions from the
broker-dealers or the purchasers of any new notes. Any broker-dealer that
resells new notes that were received by it for its own account pursuant to the
exchange offer and any broker or dealer that participates in a distribution of
new notes may be deemed to be an "underwriter" within the meaning of the
Securities Act of 1933, and any profit on any resale of new notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act of 1933. The letter of
transmittal states that by acknowledging that it will deliver, and by
delivering, a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act of 1933.
LEGAL MATTERS
Mayer, Brown & Platt, New York, will pass on the validity of, and certain
legal matters concerning, the new notes.
INDEPENDENT AUDITORS
The combined financial statements of Greater Dubuque Riverboat Entertainment
Company, L.C. and Harbor Community Investment, L.C. as of December 31, 1997 and
1998 and for each of the three years in the period ended December 31, 1998 and
the balance sheet of Peninsula Gaming Company, LLC as of July 15, 1999 included
in this prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their reports appearing herein and elsewhere in the
registration statement, and have been so included in reliance upon the reports
of such firm given upon their authority as experts in accounting and auditing.
Deloitte & Touche
Armstrong Center
Suite 500
222 Third Avenue, S.E.
Cedar Rapids, IA 52401
111
INDEX TO COMBINED FINANCIAL STATEMENTS
FINANCIAL STATEMENTS OF GDREC AND HCI
Independent Auditors' Report........................................................ F-2
Combined Balance Sheets at December 31, 1997 and 1998 and June 30, 1999
(unaudited)....................................................................... F-3
Combined Statements of Income for the years ended December 31, 1996, 1997 and 1998,
and for the six months ended June 30, 1998 (unaudited) and June 30, 1999
(unaudited)....................................................................... F-4
Combined Statements of Changes in Members' Equity for the years ended December 31,
1996, 1997 and 1998 and the six months ended June 30, 1999 (unaudited)............ F-5
Combined Statements of Cash Flows for the year ended December 31, 1996, 1997 and
1998 and the six months ended June 30, 1998 (unaudited) and June 30, 1999
(unaudited)....................................................................... F-6
Notes to Combined Financial Statements.............................................. F-7
BALANCE SHEET OF PENINSULA GAMING COMPANY LLC
Independent Auditors' Report........................................................ F-18
Balance Sheet at July 15, 1999...................................................... F-19
Note to Balance Sheet............................................................... F-20
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION OF THE COMPANY................... PF-1
Unaudited Pro Forma Combined Balance Sheet at June 30, 1999......................... PF-2
Unaudited Pro Forma Combined Statement of Income for the year ended
December 31, 1998................................................................. PF-3
Unaudited Pro Forma Combined Statement of Income for the six months ended
June 30, 1999..................................................................... PF-4
F-1
INDEPENDENT AUDITORS' REPORT
To the Members
Greater Dubuque Riverboat Entertainment Company, L.C
and Harbor Community Investment, L.C.
Dubuque, Iowa
We have audited the accompanying combined balance sheets of Greater Dubuque
Riverboat Entertainment Company, L.C. and Harbor Community Investment, L.C.,
both of which are under common ownership and common management, as of December
31, 1997 and 1998, and the related combined statements of income, changes in
members' 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
companies' 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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Greater
Dubuque Riverboat Entertainment Company, L.C. and Harbor Community Investment,
L.C. as of December 31, 1997 and 1998, and the combined results of their
operations and their combined cash flows for each of the three years in the
period ended December 31, 1998 in conformity with generally accepted accounting
principles.
Deloitte & Touche LLP
Cedar Rapids, Iowa
March 31, 1999
F-2
GREATER DUBUQUE RIVERBOAT ENTERTAINMENT COMPANY, L.C.
AND HARBOR COMMUNITY INVESTMENT, L.C.
COMBINED BALANCE SHEETS
DECEMBER 31,
----------------------------
JUNE 30,
1997 1998 1999
------------- ------------- -------------
(NOTE 2)
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................................... $ 5,782,377 $ 5,820,717 $ 5,118,094
Investments available for sale (Note 3)........................... 509,363
Accounts receivable............................................... 175,837 101,289 123,867
Inventory......................................................... 77,604 80,242 83,329
Prepaid expenses.................................................. 219,455 255,648 212,310
------------- ------------- -------------
Total current assets.......................................... 6,255,273 6,767,259 5,537,600
------------- ------------- -------------
PROPERTY AND EQUIPMENT--Net (Note 4)................................ 22,371,993 22,281,527 21,494,458
------------- ------------- -------------
OTHER ASSETS (Note 5)............................................... 287,748 203,446 145,276
------------- ------------- -------------
TOTAL............................................................... $ 28,915,014 $ 29,252,232 $ 27,177,334
------------- ------------- -------------
------------- ------------- -------------
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................................. $ 248,803 $ 420,266 $ 207,062
Accrued payroll and payroll taxes................................. 930,015 935,174 1,532,618
Other accrued expenses............................................ 1,123,161 1,377,597 1,171,392
Current maturities of long-term liabilities
(Notes 6 and 7)................................................. 4,527,274 5,399,565 3,708,551
------------- ------------- -------------
Total current liabilities..................................... 6,829,253 8,132,602 6,619,623
------------- ------------- -------------
LONG-TERM LIABILITIES:
Notes payable, net of current maturities (Note 6)................. 10,572,799 4,056,691 3,204,141
Capital lease obligations, net of current maturities (Note 7)..... 365,931 310,804
------------- ------------- -------------
Total long-term liabilities................................... 10,572,799 4,422,622 3,514,945
------------- ------------- -------------
Total liabilities............................................. 17,402,052 12,555,224 10,134,568
------------- ------------- -------------
COMMITMENTS AND CONTINGENCIES
(Notes 9 and 11)
MEMBERS' EQUITY (Note 12):
Member interest................................................... 4,100,000 4,100,000 4,100,000
Unrealized gain on investments available for sale................. 1,508
Retained earnings................................................. 7,412,962 12,595,500 12,942,766
------------- ------------- -------------
Total members' equity......................................... 11,512,962 16,697,008 17,042,766
------------- ------------- -------------
TOTAL............................................................... $ 28,915,014 $ 29,252,232 $ 27,177,334
------------- ------------- -------------
------------- ------------- -------------
See notes to combined financial statements.
F-3
GREATER DUBUQUE RIVERBOAT ENTERTAINMENT COMPANY, L.C.
AND HARBOR COMMUNITY INVESTMENT, L.C.
COMBINED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------------- ----------------------------
1996 1997 1998 1998 1999
------------- ------------- ------------- ------------- -------------
(UNAUDITED)
REVENUES:
Casino............................... $ 40,267,077 $ 40,571,618 $ 44,166,688 $ 21,237,844 $ 21,992,638
Food and beverage.................... 2,104,085 2,034,238 1,959,797 927,083 1,060,090
Other................................ 307,517 395,192 276,124 130,641 105,840
Less--promotional allowances......... (426,910) (379,938) (553,123) (229,016) (255,777)
------------- ------------- ------------- ------------- -------------
Net revenues....................... 42,251,769 42,621,110 45,849,486 22,066,552 22,902,791
------------- ------------- ------------- ------------- -------------
EXPENSES:
Casino............................... 16,013,531 16,334,849 17,272,814 8,371,204 9,007,588
Food and beverage.................... 2,980,277 2,556,795 2,830,575 1,342,537 1,572,301
Boat operations...................... 1,996,886 2,005,068 2,056,377 1,008,132 963,999
Other................................ 85,924 75,800 67,907 33,000 26,774
Selling, general and
administrative..................... 9,573,537 6,946,529 7,515,115 3,588,443 3,690,813
Depreciation and amortization........ 2,025,706 1,826,179 1,894,763 897,900 1,065,896
Sale of business expenses
(Note 13).......................... 93,350 716,655 181,474 326,620
Ownership litigation (Note 11)......... 58,318 76,833 211,388 51,104 298,537
------------- ------------- ------------- ------------- -------------
Total expenses......................... 32,734,179 29,915,403 32,565,594 15,473,794 16,952,528
------------- ------------- ------------- ------------- -------------
INCOME FROM
OPERATIONS........................... 9,517,590 12,705,707 13,283,892 6,592,758 5,950,263
------------- ------------- ------------- ------------- -------------
OTHER INCOME (EXPENSE):
Interest income...................... 80,510 222,238 141,967 64,212 72,423
Interest expense..................... (1,812,756) (1,772,165) (1,142,122) (664,266) (319,202)
Loss on sale of assets (Note 4)...... (6,877,512) (88,014) (73,726) (48,312) (97,750)
------------- ------------- ------------- ------------- -------------
Total other expense................ (8,609,758) (1,637,941) (1,073,881) (648,366) (344,529)
------------- ------------- ------------- ------------- -------------
NET INCOME............................. $ 907,832 $ 11,067,766 $ 12,210,011 $ 5,944,392 $ 5,605,734
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
See notes to combined financial statements.
F-4
GREATER DUBUQUE RIVERBOAT ENTERTAINMENT COMPANY, L.C.
AND HARBOR COMMUNITY INVESTMENT, L.C.
COMBINED STATEMENTS OF CHANGES IN MEMBERS' EQUITY
UNREALIZED
GAIN ON
INVESTMENTS TOTAL
MEMBER MEMBER AVAILABLE RETAINED MEMBERS'
UNITS INTEREST FOR SALE EARNINGS EQUITY
----------- ------------ ------------- ------------- -------------
BALANCE, JANUARY 1, 1996................... 116 $ 4,600,000 $ 3,400,250 $ 8,000,250
Net income............................... 907,832 907,832
Member distributions..................... (1,379,986) (1,379,986)
--- ------------ ------------- -------------
BALANCE, DECEMBER 31, 1996................. 116 4,600,000 2,928,096 7,528,096
Net income............................... 11,067,766 11,067,766
Member distributions..................... (6,582,900) (6,582,900)
Retired units............................ (4) (500,000) (500,000)
--- ------------ ------------- -------------
BALANCE, DECEMBER 31, 1997................. 112 4,100,000 7,412,962 11,512,962
Net income............................... 12,210,011 12,210,011
Member distributions..................... (7,027,473) (7,027,473)
Unrealized gain on securities available
for sale............................... $ 1,508 1,508
--- ------------ ------------- ------------- -------------
BALANCE, DECEMBER 31, 1998................. 112 $ 4,100,000 $ 1,508 $ 12,595,500 $ 16,697,008
Net income (unaudited)................... 5,605,734 5,605,734
Member distributions (unaudited)......... (5,258,468) (5,258,468)
Change in unrealized gain on securities
available for sale (unaudited)......... (1,508) (1,508)
--- ------------ ------------- ------------- -------------
BALANCE, JUNE 30, 1999 (unaudited)......... 112 $ 4,100,000 $ -- $ 12,942,766 $ 17,042,766
--- ------------ ------------- ------------- -------------
--- ------------ ------------- ------------- -------------
See notes to combined financial statements.
F-5
GREATER DUBUQUE RIVERBOAT ENTERTAINMENT COMPANY, L.C.
AND HARBOR COMMUNITY INVESTMENT, L.C.
COMBINED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------- ----------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ---------- ----------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................... $ 907,832 $11,067,766 $12,210,011 $5,944,392 $5,605,734
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization................... 2,025,706 1,826,179 1,894,763 897,900 1,065,897
Loss on sale of assets.......................... 6,877,512 88,014 73,726 48,312 97,750
Changes in assets and liabilities:
Accounts receivable............................. (102,540) 41,587 74,548 24,414 (22,578)
Inventory....................................... (22,371) 1,135 (2,638) (3,576) (3,085)
Prepaid expenses................................ 209,194 (23,760) (36,193) (96,578) 43,338
Other assets.................................... 58,896 (454) (7,483) (29,983)
Accounts payable................................ (579,381) (51,077) 171,463 166,130 (213,204)
Accrued expenses................................ 764,740 (427,731) 259,595 362,790 391,240
----------- ----------- ----------- ---------- ----------
Net cash provided by operating activities....... 10,139,588 12,521,659 14,637,792 7,313,801 6,965,092
----------- ----------- ----------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment.... 92,798 107,510 76,552 35,455
Purchase of property and equipment.............. (17,811,668) (918,496) (1,392,968) (594,329) (358,011)
Payment on notes receivable..................... 149,959 4,522,041
Proceeds from sale of available for sale
securities.................................... 512,000
Purchase of securities available for sale....... (507,855)
Purchase of certificate of deposit.............. (500,000)
Proceeds from maturity of certificate of
deposit....................................... 500,000
----------- ----------- ----------- ---------- ----------
Net cash provided (used) by investing
activities.................................... (18,161,709) 4,196,343 (1,793,313) (517,777) 189,444
----------- ----------- ----------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term liabilities............... (5,409,711) (8,031,439) (5,753,666) (2,260,996) (2,598,691)
Proceeds from long-term liabilities............. 17,423,595
Payments for debt refinancing costs............. (385,000) (25,000)
Member units retired............................ (500,000)
Member distributions............................ (1,379,986) (6,582,900) (7,027,473) (4,601,577) (5,258,468)
----------- ----------- ----------- ---------- ----------
Net cash provided (used) by financing
activities.................................... 10,248,898 (15,114,339) (12,806,139) (6,862,573) (7,857,159)
----------- ----------- ----------- ---------- ----------
NET INCREASE IN CASH............................ 2,226,777 1,603,663 38,340 (66,549) (702,623)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR............................. 1,951,937 4,178,714 5,782,377 5,782,377 5,820,717
----------- ----------- ----------- ---------- ----------
CASH AND CASH EQUIVALENTS AT
END OF YEAR................................... $ 4,178,714 $ 5,782,377 $ 5,820,717 $5,715,828 $5,118,094
----------- ----------- ----------- ---------- ----------
----------- ----------- ----------- ---------- ----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION--Cash paid during the year for
interest...................................... $ 1,673,052 $ 1,854,368 $ 1,148,868 $ 682,880 $ 340,164
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Unrealized gain on sale of securities available
for sale...................................... 1,508
Change in unrealized gain on securities
available for sale............................ 1508
Capital lease obligation incurred to acquire
equipment..................................... 475,780
Notes receivable obtained as a result of sale of
fixed asset................................... 4,672,000
See notes to combined financial statements.
F-6
GREATER DUBUQUE RIVERBOAT ENTERTAINMENT COMPANY, L.C.
AND HARBOR COMMUNITY INVESTMENT, L.C.
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION AND BUSINESS
Greater Dubuque Riverboat Entertainment Company, L.C. ("GDREC"), which is
licensed by the Iowa Racing and Gaming Commission ("IRGC"), is an Iowa limited
liability company with 52 members (who collectively own 112 units). GDREC was
organized and incorporated during May 1994 for the purpose of developing and
holding the ownership interest in a riverboat gaming operation located in
Dubuque, Iowa (the "Diamond Jo Casino").
The same members own Harbor Community Investment, L.C. ("HCI") which was
formed April 8, 1996 to own and lease land and buildings in an area of Dubuque,
Iowa known as the Ice Harbor.
The combined financial statements, therefore, include the accounts and
operations of GDREC and HCI. These two entities are collectively referred to as
the Company. All material intercompany balances and transactions have been
eliminated in the combined financial statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONCENTRATION OF RISKS--The Company's management estimates that regular
customers are concentrated within 100 miles of the facility representing
approximately 95% of the Company's customer base at December 31, 1996, 1997 and
1998. The remaining 5% includes groups, tourists and highway travelers that live
beyond 100 miles.
CASH AND CASH EQUIVALENTS--The Company considers all cash on hand and in
banks, certificates of deposit and other highly liquid debt instruments
purchased with original maturities of three months or less to be cash
equivalents.
INVESTMENTS AVAILABLE FOR SALE--The Company accounts for its investments
using Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" ("SFAS No. 115"). This
standard requires that certain debt and equity securities be adjusted to market
value at the end of each accounting period. Unrealized market value gains and
losses are charged to earnings if the securities are traded for short-term
profit. Otherwise, such unrealized gains and losses are charged or credited to a
separate component of members' equity.
Gains and losses on the sale of available for sale securities are determined
using the specific identification method. The amortization of premiums and the
accretion of discounts are recognized in interest income using the interest
method over the period to maturity.
ACCOUNTS RECEIVABLE--Bad debts are charged to operations in the year in
which the account is determined uncollectible.
INVENTORIES--Inventories consisting principally of food, beverages, and
operating supplies are stated at the lower of cost (first-in, first-out method)
or market.
PROPERTY AND EQUIPMENT--Property and equipment is carried at cost and
capitalized lease assets are stated at their fair value at the inception of the
lease. Major renewals are capitalized, while
F-7
GREATER DUBUQUE RIVERBOAT ENTERTAINMENT COMPANY, L.C.
AND HARBOR COMMUNITY INVESTMENT, L.C.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
maintenance and repairs are expensed when incurred. Depreciation and
amortization are computed by the straight-line method over the following
estimated useful lives:
Land improvements.............................................. 20-40 years
Building....................................................... 40 years
Riverboat and improvements..................................... 18-20 years
Leasehold improvements......................................... 20-40 years
Furniture, fixtures and equipment.............................. 3-10 years
Computer equipment............................................. 5 years
Vehicles....................................................... 5 years
INTANGIBLE ASSETS--Intangible assets subject to amortization include loan
commitment fees and organization costs. Loan commitment fees are being amortized
straight-line over the life of the related loan. Organization costs are being
amortized straight-line over a period of 60 months.
LONG-LIVED ASSETS--Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" requires, among other things, that an entity review its
long-lived assets and certain related intangibles for impairment whenever event
or changes in circumstances indicate that the carrying amount of an asset may
not be fully recoverable. Under the standard, if the sum of the expected future
undiscounted cash flows is less than the carrying amount of the asset, an
impairment loss is recognized. The impairment is measured based on the estimated
fair value of the asset. The Company does not believe that any such events or
changes have occurred.
FINANCIAL INSTRUMENTS--The carrying amount for financial instruments
included among cash and cash equivalents, accounts receivable, accounts payable
and security deposits approximates their fair value based on the short maturity
of those instruments. The carrying amount of notes payable approximates their
estimated fair value based on the credit, interest rate and terms of the
obligations.
INCOME TAXES--The Company is a limited liability Company. In lieu of
corporation income taxes, the members of a limited liability company are taxed
on their proportionate share of the Company's taxable income. Therefore, no
provision or liability for federal income taxes has been included in the
financial statements.
GAMING REVENUE--Gaming revenue is the net win from gaming activities, which
is the difference between gaming wins and losses.
PROMOTIONAL ALLOWANCES--Food, beverage, and other items furnished without
charge to customers are included in gross revenues at a value which approximates
retail and then deducted as complimentary services to arrive at net revenues.
The cost of such complimentary services is charged to
F-8
GREATER DUBUQUE RIVERBOAT ENTERTAINMENT COMPANY, L.C.
AND HARBOR COMMUNITY INVESTMENT, L.C.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
operating expenses in the department that provided the service. Such estimated
costs of providing complimentary services for the years ending December 31,
1996, 1997 and 1998 is as follows:
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------- ----------------------
1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
Food and beverage................ $ 214,928 $ 198,194 $ 255,354 $ 119,029 $ 118,247
Other............................ 21,607 10,530 14,264 6,773 7,801
ADVERTISING--The Company's policy is to expense all advertising costs as
incurred.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
RECENT ACCOUNTING PRONOUNCEMENTS--The Financial Accounting Standards Board
has issued a new standard, "Reporting Comprehensive Income" ("SFAS 130"). SFAS
130 requires the presentation and disclosure of comprehensive income, which is
defined as the change in a company's equity resulting from nonowner transactions
and events. SFAS 130 became effective December 15, 1997 and requires the
reclassification of all prior periods presented. The Company has adopted the
provisions of SFAS 130; however, the statement provides that an enterprise that
has no items of other comprehensive income for any period presented need only
report net income. The Company has no significant comprehensive income items for
any period presented; accordingly, the presentation and disclosure requirements
of SFAS 130 are not deemed necessary.
The FASB has also issued Statement 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131, which became
effective for fiscal years beginning after December 15, 1997, requires
publicly-held companies to report financial and descriptive information
concerning their reportable operating segments. An operating segment is designed
as a component of a business which (i) earns revenues and incurs expenses, (ii)
has its operating results reviewed on a regular basis by the company's chief
operating decision maker to determine how the company's resources should be
allocated and to assess its performance and (iii) has separate financial
information available. The Company's operations consist of its casino and
related facilities. The Company is considered a single operating unit due to the
dependence of the food and beverage and other operations on casino patrons. Such
noncasino activities are considered ancillary to the gaming business, are
reviewed as such by management and can not reasonably be presented as separate
operating segments. Accordingly, additional segment information is not presented
herein.
In June 1998, the FASB issued a new statement, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), effective for fiscal years
beginning after June 15, 2000. SFAS 133 requires, among other things, that
derivatives be recorded on the balance sheet at fair value. Changes in the fair
value of derivatives may, depending on circumstances, be recognized in earnings
or deferred as a component of shareholders' equity until a hedged transaction
occurs. In June 1999, the FASB issued Statement No. 137, Accounting for
Derivative Instruments and Hedging Activities--Deferral of
F-9
GREATER DUBUQUE RIVERBOAT ENTERTAINMENT COMPANY, L.C.
AND HARBOR COMMUNITY INVESTMENT, L.C.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the Effective Date of FASB Statement No. 133. Under the new effective date, the
Company currently expects to adopt FASB Statement No. 133, Accounting for
Derivative Instruments and Hedging Activities, in year 2001. The effect on the
Company's financial position and results of operations is not expected to be
material.
REPORTING ON THE COSTS OF START-UP ACTIVITIES--In April 1998, the American
Institute of Certified Public Accountants issued the Statement of Position 98-5,
"Reporting on the Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-5 requires
that costs of start-up activities and organization costs be expensed as incurred
and is effective for the Company in 1999. The Company does not have significant
deferred start-up costs as of December 31, 1998, therefore the adoption of SOP
98-5, will not have a material impact on the Company's combined results of
operation or financial Position.
UNAUDITED INTERIM FINANCIAL STATEMENTS--The interim financial statements and
the related information in the notes as of June 30, 1999 and for the six months
ended June 30, 1998 and 1999 are unaudited. Such interim financial statements
have been prepared on the same basis as the audited financial statements and, in
the opinion of management, reflect all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation of the financial position,
the results of operations and cash flows for the interim periods presented. The
results of operations for the interim periods presented are not necessarily
indicative of the results to be expected for the full year.
3. INVESTMENTS AVAILABLE FOR SALE
Investments available for sale consist of shares of a bond fund. These
shares have an original cost of $507,855 and a fair market value of $509,363 as
of December 31, 1998. The unrealized gain for these securities was $1,508 as of
December 31, 1998. These securities are being accounted for in accordance with
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities".
F-10
GREATER DUBUQUE RIVERBOAT ENTERTAINMENT COMPANY, L.C.
AND HARBOR COMMUNITY INVESTMENT, L.C.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
4. PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
DECEMBER 31,
---------------------------- JUNE 30, 1999
1997 1998 (NOTE 2)
------------- ------------- -------------
(UNAUDITED)
Land............................................ $ 1,457,649 $ 1,461,943 $ 1,461,943
Building........................................ 3,696,371 3,818,613 3,795,675
Riverboats and improvements..................... 13,990,129 14,018,301 14,076,310
Furniture, fixtures and equipment............... 5,766,823 6,274,535 6,394,099
Computer equipment.............................. 290,847 426,738 411,764
Vehicles........................................ 29,609 66,127 66,127
Equipment held under capital lease
obligations................................... 775,780 775,780
------------- ------------- -------------
Subtotal........................................ 25,231,428 26,842,037 26,981,698
Accumulated depreciation........................ (2,859,435) (4,560,510) (5,487,240)
------------- ------------- -------------
Property and equipment, net..................... $ 22,371,993 $ 22,281,527 $ 21,494,458
------------- ------------- -------------
------------- ------------- -------------
During 1996, the Company sold its original casino riverboat to a third party
for a note receivable with a face value of $4,672,000 resulting in a loss of
approximately $6,884,000. Losses on sale of assets in 1997 and 1998 relate
primarily to the sale of slot machines.
5. OTHER ASSETS
Other assets are summarized as follows:
DECEMBER 31,
---------------------- JUNE 30, 1999
1997 1998 (NOTE 2)
---------- ---------- -------------
(UNAUDITED)
Loan fees.............................................. $ 385,000 $ 410,000 $ 410,000
Deposits and other..................................... 84,415 91,898 91,898
---------- ---------- -------------
Subtotal............................................... 469,415 501,898 501,898
Accumulated amortization............................... (181,667) (298,452) (356,622)
---------- ---------- -------------
Other assets, net...................................... $ 287,748 $ 203,446 $ 145,276
---------- ---------- -------------
---------- ---------- -------------
F-11
GREATER DUBUQUE RIVERBOAT ENTERTAINMENT COMPANY, L.C.
AND HARBOR COMMUNITY INVESTMENT, L.C.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
6. NOTES PAYABLE
Notes payable is as follows:
DECEMBER 31,
--------------------------- JUNE 30, 1999
1997 1998 (NOTE 2)
------------- ------------ -------------
(UNAUDITED)
Note payable to bank, due in monthly installments
of $355,000, including interest at a variable
rate of 2% above the 90-day LIBOR index rate
(current effective rate of 7.2% at December 31,
1998). Final payment is due August 1, 2000...... $ 9,946,402 $ 5,376,689 $ 3,409,144
Note payable to bank, due in monthly installments
of $26,630, including interest at a fixed rate
of 8.9% for the first 60 months, then .75% above
the prime interest rate as noted in the money
section of the Wall Street Journal. The note
matures September 18, 2006. The note payable is
secured by a real estate mortgage dated
September 18, 1996.............................. 1,930,430 1,776,394 1,695,048
Note payable due in monthly installments of
$90,652, including interest at a fixed rate of
11.75% through December 1, 1999. The note
payable is secured by slot machines financed by
the note
agreement....................................... 1,930,542 1,021,641 525,748
Note payable, interest only payments due monthly
at a fixed rate of 8.5% for the first six years
and for the last four years 1% over prime or
8.5%, whichever is greater through May 1, 2006,
at which time the remaining balance becomes due.
The note payable is secured by the real estate
purchased....................................... 1,044,130 968,563 938,707
Note payable, due in monthly installments of
$5,634, including interest at a fixed rate of
10.5% through September 1, 1999................. 248,569 203,120 179,069
------------- ------------ -------------
15,100,073 9,346,407 6,747,716
Less current maturities........................... 4,527,274 5,289,716 3,543,575
------------- ------------ -------------
Long-term debt.................................... $ 10,572,799 $ 4,056,691 $ 3,204,141
------------- ------------ -------------
------------- ------------ -------------
F-12
GREATER DUBUQUE RIVERBOAT ENTERTAINMENT COMPANY, L.C.
AND HARBOR COMMUNITY INVESTMENT, L.C.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
6. NOTES PAYABLE (CONTINUED)
During April 1998, the Company refinanced the note payable due August 1,
2000 to revise the previously stated fixed interest rate of 10% to a variable
interest rate of 2% above the 90-day LIBOR index rate. The note is
collateralized by the Diamond Jo Casino riverboat. The note agreement contains
various restrictive and financial covenants, which, among others, requires the
Company to maintain a tangible net worth of not less than $7.5 million,
restricts the Company's total debt service coverage ratio and facility debt
service coverage ratios to not be greater than 1.5 to 1.0. The Company was in
compliance with these covenants at December 31, 1998.
Principal payments on long-term debt for the years ended December 31 are due
as follows:
1999............................................................ $5,289,716
2000............................................................ 1,663,448
2001............................................................ 203,667
2002............................................................ 213,723
2003............................................................ 239,242
Thereafter...................................................... 1,736,611
---------
$9,346,407
---------
---------
7. CAPITAL LEASE OBLIGATION
Capital lease obligation at December 31, 1998 is as follows:
Liability under capital leases, due in monthly installments of
$21,356 for 24 months and $5,267 for one month, including
interest at a fixed rate of 9%. Final payment is due 25 months
after the initial payment is made. Payments are anticipated to
begin in August 1999 after final acceptance of the system. The
leases are collateralized by equipment with a net book value of
$736,990 at December 31, 1998.................................... $ 475,780
Less current portion............................................. (109,849)
---------
$ 365,931
---------
---------
Future minimum lease payments under capital lease at December 31, 1998 were
as follows:
1999............................................................. $ 129,217
2000............................................................. 258,435
2001............................................................. 134,485
---------
Total minimum lease payments..................................... 522,137
Less amounts representing interest............................... (46,357)
---------
Present value of future minimum lease payments................... 475,780
Less current portion............................................. (109,849)
---------
Long-term capital lease obligation............................... $ 365,931
---------
---------
F-13
GREATER DUBUQUE RIVERBOAT ENTERTAINMENT COMPANY, L.C.
AND HARBOR COMMUNITY INVESTMENT, L.C.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
8. EMPLOYEE BENEFIT PLAN
The Company started a qualified defined contribution plan under section
401(k) of the Internal Revenue Code during 1996. Under the plan, eligible
employees may elect to defer up to 15% of their salary, subject to Internal
Revenue Service limits. The Company may make a matching contribution to each
participant based upon a percentage set by the Company, prior to the end of each
plan year. Company matching contributions to the plan were $57,981, $191,100 and
$240,459 for the years ended
December 31, 1996, 1997 and 1998, respectively. Company matching contributions
to the plan for the periods ended June 30, 1998 and 1999 were $112,111
(unaudited) and $106,249 (unaudited), respectively.
9. LEASING ARRANGEMENTS
The Company leases various equipment under noncancelable operating leases.
The equipment leases require fixed monthly payments to be made ranging from $351
to $4,155 and certain other gaming machines and tables require contingent
monthly rental payments based on usage of the equipment. The leases expire on
various dates in 1999 and 2000. Rent expense was $153,790, $262,536 and $403,148
for the years ended December 31, 1996, 1997 and 1998, respectively, including
contingent rentals of $73,011, $103,506 and $226,374, respectively. Rent expense
for the periods ended June 30, 1998 and 1999 were $132,418 (unaudited) and
$542,068 (unaudited), respectively, including contingent rentals of $42,115
(unaudited) and $452,004 (unaudited), respectively.
The future minimum rental payments required under these leases during the
years ended December 31, 1998 are summarized as follows:
1999............................................................... $ 21,590
2000............................................................... 5,478
2001............................................................... 415
2002............................................................... 415
2003............................................................... 415
Thereafter......................................................... 3,735
---------
$ 32,048
---------
---------
10. UNINSURED CASH BALANCES
The Company maintains deposit accounts at several local banks. At various
times during the fiscal year and at December 31, 1998, the balances at
individual banks exceeded the maximum amount insured by the FDIC. Management
believes credit risk related to the uninsured balances is minimal.
11. COMMITMENTS AND CONTINGENCIES
During the 1997 fiscal year, the Company underwent a sales and use tax audit
by the Iowa Department of Revenue. At December 31, 1997, a liability of
approximately $178,000 was assessed, including total tax, penalty and interest
due. This amount was paid during 1998, however, the Company is vigorously
contesting the assessment.
A lawsuit has also been filed by one of the three original "active"
unit-holders (see Note 12) regarding a number of claims, some of which have been
narrowed by the court. The primary claim is in
F-14
GREATER DUBUQUE RIVERBOAT ENTERTAINMENT COMPANY, L.C.
AND HARBOR COMMUNITY INVESTMENT, L.C.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
11. COMMITMENTS AND CONTINGENCIES (CONTINUED)
regards to quantum merit for the value of the services rendered to the Company.
The court has narrowed that claim to those services rendered up to and including
the licensure of the Company in the Spring of 1993. An estimate of potential
liability, if any, as a result of the lawsuit was not possible as of the date of
this report.
The Company has incurred various legal expenses related to this lawsuit of
$58,318, $76,833 and $211,388 for the years ended December 31, 1996, 1997 and
1998, respectively. Legal expenses related to this lawsuit for the 6-month
periods ended June 30, 1998 and 1999 were $51,104 (unaudited) and $298,537
(unaudited), respectively.
The Company is involved in various other legal actions arising in the normal
course of business. In the opinion of management, such matters will not have a
material effect upon the financial position of the Company.
12. MEMBERS' EQUITY
Transfers of member interests are limited in that, in accordance with
Greater Dubuque Riverboat Entertainment Co., L.C.'s operating agreement, any
sale, exchange or transfer of a member's interest in the Company shall not be
effective unless the transaction is approved by:
1. The Manager, in writing, and
2. By a vote of the members holding a majority of the remaining units
and by a majority vote of the remaining members at a meeting of the members.
This limitation does not include the granting of a security interest,
pledge, lien, or encumbrance against any membership interest.
The profits, losses, and distributions of the Company are allocated among
the members in proportion to each member's respective percentage of Units of
Ownership when compared with total Units of Ownership issued. An exception to
this is that there is an initial unequal division of distributions in that 95%
of distributions are paid to non-developer "passive" members, and 5% to
developer "active" members until such time as said non-developer members have
received an amount equal to their original purchase price for Units of Ownership
purchased, plus 10%. Thereafter, any and all distributions are to be
proportionate to Units owned.
13. SALE OF BUSINESS EXPENSES
During 1997, the Company's ownership made a decision to pursue the sale of
GDREC and HCI. The sales process has resulted in the Company incurring various
expenses related to a valuation of the business, retaining the services of an
investment banker, environmental and market studies, legal and travel.
Sale of business expenses were $93,350 and $716,655 for the years ended
December 31, 1997 and 1998, respectively. Sale of business expenses for the six
month periods ended June 30, 1998 and 1999 were $181,474 (unaudited) and
$326,620 (unaudited).
F-15
GREATER DUBUQUE RIVERBOAT ENTERTAINMENT COMPANY, L.C.
AND HARBOR COMMUNITY INVESTMENT, L.C.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
14. DUBUQUE RACING ASSOCIATION, LTD. CONTRACT
Dubuque Racing Association, Ltd. (the "Association"), a qualified sponsoring
organization, presently holds a license to conduct gambling games under Chapter
99F and other Iowa statutes.
The Association owns Dubuque Greyhound Park, a traditional greyhound race
track with 600 slot machines and amenities including a gift shop, restaurant and
clubhouse.
In February of 1993, the Company entered into a contract (the "Operating
Agreement") with the Association relating to the operation of an excursion
gambling riverboat for three excursion seasons commencing April 1, 1993, under
gambling licenses held jointly.
In July of 1995, the Operating Agreement with the Association was amended.
Certain provisions of the amendment are as follows:
1. The Company shall have the option to renew and extend the Operating
Agreement for three consecutive three year terms. The option has been
exercised and the Operating Agreement has been extended to March 31, 2002.
2. Under the terms of the Operating Agreement, subject to certain
conditions, the Association shall receive the greater of the Association's
gaming revenues from the greyhound park for the period, or a percentage of
the total combined gaming revenues of the Association's from the greyhound
park and the Greater Dubuque Riverboat Entertainment Company, L.C., as
follows:
a. 32% of the first $30,000,000 of total combined gaming revenues,
plus
b. 8% of the total combined gaming revenues over $30,000,000, but
less than $42,000,000.
c. 8% of total combined gaming revenues between $42,000,000 and
$46,000,000 during any period for which no excursion boat gambling or
land based gambling operation is carried on from a Wisconsin or Illinois
gambling operation in Grant County, Wisconsin, or Jo Davies County,
Illinois.
Gaming revenues under this contract means adjusted gross receipts, less
gaming taxes.
3. Commencing April 1, 2000, and continuing thereafter, the Company
shall additionally pay the Association the sum of $.50 for each patron
admitted on the boat, which, based upon recent annual attendance, would
approximate $500,000 annually.
4. In the event the Company shall desire to sell or lease the excursion
gambling boat, its furnishings and gambling equipment and/or its interest in
any ticket sale facility or other buildings located in the Dubuque Ice
Harbor used in connection with the operation of an excursion gambling boat,
to a third party that does not agree to operate said asset subject to the
terms and conditions of the Operating Agreement, and obtains an acceptable
offer from said third party for the purchase or lease of the excursion
gambling boat and its furnishings, equipment, and/or its interest in said
building, the Association shall have the option to purchase or lease the
excursion gambling boat, its furnishings, equipment, and/or the Company's
interest in the building or its lease of the same for the amount of the
acceptable offer made by a third party and upon the same terms and
conditions as set forth in a third party offer.
F-16
GREATER DUBUQUE RIVERBOAT ENTERTAINMENT COMPANY, L.C.
AND HARBOR COMMUNITY INVESTMENT, L.C.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
14. DUBUQUE RACING ASSOCIATION, LTD. CONTRACT (CONTINUED)
Gaming revenues for the Association were $20,605,290, $25,840,009 and
$29,379,820 for December 31, 1996, 1997 and 1998, respectively, and therefore
payments made to the Association for the years ended December 31, 1996, 1997 and
1998 under the Operating Agreement were $0.
15. SUBSEQUENT EVENT (UNAUDITED)
In January 1999, the membership of the Company approved an agreement to sell
all of the Company's operating assets used in connection with the gaming
excursion riverboat business to Peninsula Gaming Partners, LLC or its designee
("PGP") for approximately $77,000,000. Pursuant to the terms of the acquisition
documents, PGP deposited $2,500,000 in an escrow account at a bank in Dubuque,
Iowa, to be applied against the total purchase price upon final closing of the
sale. On May 20, 1999, PGP's application for a gaming license to operate the
Diamond Jo was approved by the Iowa Racing and Gaming Commission, effective upon
the transfer of ownership of the Diamond Jo. The acquisition was consummated on
July 15, 1999.
F-17
INDEPENDENT AUDITOR'S REPORT
Peninsula Gaming Company, LLC
We have audited the accompanying balance sheet of Peninsula Gaming Company,
LLC as of July 15, 1999. This balance sheet is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such balance sheet presents fairly, in all material
respects, the financial position of Peninsula Gaming Company, LLC at July 15,
1999 in conformity with generally accepted accounting principles.
September 23, 1999
F-18
PENINSULA GAMING COMPANY, LLC
BALANCE SHEET
JULY 15, 1999
ASSETS--Receivable from Peninsula Gaming Partners, LLC.......................... $9,000,000
---------
---------
STOCKHOLDER'S EQUITY--Common membership interests............................... $9,000,000
---------
---------
See note to balance sheet
F-19
PENINSULA GAMING COMPANY, LLC
NOTE TO BALANCE SHEET
JULY 15, 1999
1. ORGANIZATION AND BUSINESS PURPOSE
Peninsula Gaming Company, LLC (the "Company") is a wholly-owned subsidiary
of Peninsula Gaming Partners, LLC ("PGP"). The company is a Delaware limited
liability company formed on January 26, 1999 for the purpose of purchasing
assets comprising the Diamond Jo Casino and related real property. To date, the
Company has had no significant activities.
The common membership interests of the Company are wholly-owned by PGP. The
Company and PGP completed the sale of $71,000,000 of 12 1/4% Senior Secured
Notes due 2006 and $3,000,000 in convertible preferred membership interests,
respectively, during July 1999. Concurrently with the sale of the securities,
the Company received a $9.0 million capital contribution from PGP ($6.0 million
of which was contributed to the capital of PGP by common members of PGP and $3.0
million of which was contributed to the capital of PGP through the sale by PGP
of convertible preferred membership interests as previously described). The $9.0
million receivable from PGP was classified as an asset due to the subsequent
payment of the receivable by PGP. The proceeds from the above transactions were
used to complete the purchase of certain assets comprising the Diamond Jo casino
and related real property.
* * * * *
F-20
GREATER DUBUQUE RIVERBOAT ENTERTAINMENT COMPANY, L.C.
AND HARBOR COMMUNITY INVESTMENT, L.C.
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined financial information (the
"Unaudited Pro Forma Combined Financial Information") of Peninsula Gaming
Company, LLC (the "Company") has been derived from the application of pro forma
adjustments to the combined historical financial statements of Greater Dubuque
Riverboat Entertainment Company, L.C. ("GDREC") and Harbor Community Investment,
L.C. ("HCI") included elsewhere herein, after giving effect to our acquisition
of the Diamond Jo casino from GDREC and related real property from HCI. The
Unaudited Pro Forma Combined Financial Information gives effect to the
acquisition as if such event had occurred on June 30, 1999 for purposes of the
unaudited pro forma combined balance sheet at June 30, 1999 and on January 1,
1998 and January 1, 1999, for purposes of the unaudited pro forma combined
statements of income for the year ended December 31, 1998 and the six months
ended June 30, 1999, respectively. The pro forma adjustments are described in
the accompanying notes.
The Unaudited Pro Forma Combined Financial Information is presented for
informational purposes only and does not purport to (i) represent what the
combined financial position or results of operations for the Company would
actually have been if the acquisition had occurred on the dates specified or
(ii) project the financial position or results of operations for the Company at
any future date or for any future periods. The foregoing constitute
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, which involve risks and uncertainties. See "Forward-Looking
Statements." The Unaudited Pro Forma Combined Financial Information should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the combined historical financial
statements of GDREC and HCI, and the notes thereto, included elsewhere herein.
The acquisition was accounted for under the purchase method of accounting.
The purchase price for the acquisition, including the related fees and expenses,
has been allocated to the tangible and identifiable intangible assets or
liabilities of the acquired businesses based upon the Company's preliminary
estimates of their fair value with the remainder allocated to goodwill. The
allocation of the purchase price for the acquisition is subject to revision when
additional information concerning asset and liability valuation becomes
available. The pro forma adjustments directly attributable to the acquisition
include adjustments to interest expense related to the issuance of the notes,
estimated transaction fees and expenses, and changes in amortization of
intangible assets relating to the allocation of the purchase price. These
amounts are assumed solely for the purpose of presenting the Unaudited Pro Forma
Combined Financial Information set forth below and actual amounts may differ
from assumptions set forth below.
PF-1
PENINSULA GAMING COMPANY, LLC
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
JUNE 30, 1999
-------------------------------------
PRO FORMA
HISTORICAL(1) ADJUSTMENTS PRO FORMA
------------ ----------- ----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................. $5,118,094 ($1,148,836)(2) $3,969,258
Accounts receivable................................................... 123,867 (123,867)(3) --
Inventory............................................................. 83,329 83,329
Prepaid expenses...................................................... 212,310 (212,310)(3) --
------------ ----------- ----------
Total current assets................................................ 5,537,600 (1,485,013) 4,052,587
Property and equipment--Net............................................. 21,494,458 21,494,458
Goodwill................................................................ 53,897,993(4) 53,897,993
Other Assets............................................................ 145,276 7,066,655(5) 7,211,931
------------ ----------- ----------
TOTAL................................................................... $27,177,334 5$9,479,635 $86,656,969
------------ ----------- ----------
------------ ----------- ----------
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES:
Accounts payable...................................................... $ 207,062 $(207,062)(3) --
Accrued payroll & payroll taxes....................................... 1,532,618 (1,532,618)(3) --
Other accrued expenses................................................ 1,171,392 (1,171,392)(3) --
Current maturities of long-term liabilities........................... 3,708,551 (3,543,575)(3) $ 164,976
------------ ----------- ----------
Total current liabilities........................................... 6,619,623 (6,454,647) 164,976
LONG-TERM LIABILITIES:
Notes payable, net of current......................................... 3,204,141 (3,204,141)(3) --
Senior secured notes.................................................. 70,181,189(6) 70,181,189
Capital lease obligations, net........................................ 310,804 310,804
------------ ----------- ----------
Total long-term liabilities......................................... 3,514,945 66,977,048 70,491,993
------------ ----------- ----------
Total liabilities................................................... 10,134,568 60,522,401 70,656,969
------------ ----------- ----------
Preferred membership interest, redeemable............................... 7,000,000(7) 7,000,000
MEMBERS' EQUITY
Member interest....................................................... 4,100,000 4,900,000(7) 9,000,000
Retained earnings..................................................... 12,942,766 (12,942,766)(7) --
------------ ----------- ----------
Total members' equity................................................. 17,042,766 (8,042,766) 9,000,000
------------ ----------- ----------
TOTAL................................................................... $27,177,334 5$9,479,635 $86,656,969
------------ ----------- ----------
------------ ----------- ----------
- ------------------------
(1) Represents the combined historical financial statements of GDREC and HCI.
See the combined financial statements and notes thereto included elsewhere
herein.
(2) Represents (a) the elimination of cash in excess of $2.0 million retained by
GDREC and the elimination of cash retained by HCI, (b) the recording of net
proceeds for the issuance of the notes of approximately $70.2 million less
estimated expenses of $4.1 million, (c) the payment of $70.0 million of cash
to GDREC and HCI pursuant to the acquisition agreements, and (d) the receipt
of $9.0 million from the issuance of common and convertible preferred
membership interests by PGP.
(3) Represents the elimination of assets and liabilities not purchased or
assumed under the acquisition agreements.
(4) Represents goodwill resulting from the acquisition which will be amortized
over a forty year period. The purchase price allocation is based upon
preliminary estimates of fair value and is subject to revision when
additional information concerning asset and liability valuation becomes
available.
(5) Represents (a) estimated capitalized debt issuance costs of $4.1 million
related to the issuance of the notes, (b) elimination of assets not
purchased under the acquisition agreements of $0.1 million, and (c) $3.1
million of acquisition and start-up costs that will be expensed on our
financial statements for the period from the start of operations to
September 30, 1999.
(6) Represents the issuance of the notes in an original principal amount of
$71.0 million less original issue discount of approximately $0.8 million.
(7) Adjustments, in accordance with purchase accounting, to reflect the
elimination of members' equity, PGCL's issuance of preferred membership
interests to GDREC and the capital contribution from Peninsula Gaming
Partners, LLC.
PF-2
PENINSULA GAMING COMPANY, LLC
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
PRO FORMA
HISTORICAL(1) ADJUSTMENTS PRO FORMA
------------ ----------- ----------
YEAR ENDED DECEMBER 31, 1998
-------------------------------------
REVENUES:
Casino........................................................... $44,166,688 $44,166,688
Food and beverage................................................ 1,959,797 1,959,797
Other............................................................ 276,124 276,124
Less--promotional allowances..................................... (553,123) (553,123)
------------ ----------
Net revenues................................................. 45,849,486 45,849,486
EXPENSES:
Casino........................................................... 17,272,814 17,272,814
Food and beverage................................................ 2,830,575 2,830,575
Boat operations.................................................. 2,056,377 2,056,377
Other............................................................ 67,907 67,907
Selling, general and administrative.............................. 7,515,115 $ 200,000(2) 7,715,115
Depreciation and amortization.................................... 1,894,763 (116,785)(3) 1,777,978
Goodwill amortization............................................ 1,347,450(4) 1,347,450
Sale of business expenses........................................ 716,655 (716,655)(5) --
Ownership litigation............................................. 211,388 (211,388)(5) --
------------ ----------- ----------
Total expenses............................................... 32,565,594 502,622 33,068,216
------------ ----------- ----------
INCOME FROM OPERATIONS............................................. 13,283,892 (502,622) 12,781,270
------------ ----------- ----------
OTHER INCOME (EXPENSE):
Interest income.................................................. 141,967 141,967
Interest expense................................................. (1,142,122) (8,259,569)(6) (9,401,691)
Loss on sale of assets........................................... (73,726) (73,726)
------------ ----------
Total other expense.......................................... (1,073,881) (8,259,569) (9,333,450)
------------ ----------- ----------
NET INCOME....................................................... $12,210,011 ($8,762,191) $3,447,820
------------ ----------- ----------
------------ ----------- ----------
- ------------------------------
(1) Represents the combined historical financial statements of GDREC and HCI.
See the combined financial statements and notes thereto included elsewhere
herein.
(2) Represents increased executive compensation expenses that will be incurred
annually from the consummation date of the acquisition.
(3) Represents the elimination of amortization expense related to intangible
assets not purchased.
(4) Represents the amortization of goodwill related to the acquisition
agreements over a forty year period.
(5) Represents the elimination of non-recurring expenses.
(6) Represents (a) the elimination of interest expense of $1.1 million, (b) an
increase in interest expense of $8.7 million on the notes calculated at an
assumed 12.25% interest rate per annum, and (c) the amortization of $4.1
million of deferred financing costs and original issue discount of
approximately $0.8 million over a period of seven years.
PF-3
PENINSULA GAMING COMPANY, LLC
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
PRO FORMA
HISTORICAL(1) ADJUSTMENTS PRO FORMA
------------ ----------- ----------
SIX MONTHS ENDED JUNE 30, 1999
-------------------------------------
REVENUES:
Casino............................................................... $21,992,638 $21,992,638
Food and beverage.................................................... 1,060,090 1,060,090
Other................................................................ 105,840 105,840
Less--promotional allowances......................................... (255,777) (255,777)
------------ ----------
Net revenues..................................................... 22,902,791 22,902,791
EXPENSES:
Casino............................................................... 9,007,588 9,007,588
Food and beverage.................................................... 1,572,301 1,572,301
Boat operations...................................................... 963,999 963,999
Other................................................................ 26,774 26,774
Selling, general and administrative.................................. 3,690,813 100,000(2) 3,790,813
Depreciation and amortization........................................ 1,065,896 (58,393)(3) 1,007,503
Goodwill amortization................................................ 673,725(4) 673,725
Sale of business expenses............................................ 326,620 (326,620)(5) --
Ownership litigation................................................. 298,537 (298,537)(5) --
------------ ----------- ----------
Total expenses................................................... 16,952,528 90,175 17,042,703
------------ ----------- ----------
INCOME FROM OPERATIONS................................................. 5,950,263 (90,175) 5,860,088
------------ ----------- ----------
OTHER INCOME (EXPENSE):
Interest income...................................................... 72,423 72,423
Interest expense..................................................... (319,202) (4,381,643)(6) (4,700,845)
Loss on sale of assets............................................... (97,750) (97,750)
------------ ----------- ----------
Total other expense.............................................. (344,529) (4,381,643) (4,726,172)
------------ ----------- ----------
NET INCOME............................................................. $5,605,734 ($4,471,818) $1,133,916
------------ ----------- ----------
------------ ----------- ----------
- ------------------------------
(1) Represents the combined historical financial statements of GDREC and HCI.
See the combined financial statements and notes thereto included elsewhere
herein.
(2) Represents increased executive compensation expenses that will be incurred
annually from the consummation date of the acquisition.
(3) Represents the elimination of amortization expense related to intangible
assets not purchased.
(4) Represents the amortization of goodwill related to the acquisition
agreements over a forty year period.
(5) Represents the elimination of non-recurring expenses.
(6) Represents (a) the elimination of interest expense of $0.3 million, (b) an
increase in interest expense of $4.3 million on the notes calculated at an
assumed 12.25% interest rate per annum, and (c) the amortization of $4.1
million of deferred financing costs and original issue discount of
approximately $0.8 million over a period of seven years.
PF-4
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF MEMBERS AND MANAGERS
Peninsula Gaming Company, LLC ("PGCL") is a limited liability company
organized under the laws of the state of Delaware. Section 18-108 of the
Delaware Limited Liability Company Act (the "Act") provides that, subject to
such standards and restrictions, if any, as are set forth in its limited
liability company agreement, a limited liability company may, and shall have the
power to, indemnify and hold harmless any member or manager or other person from
and against any and all califs and demands whatsoever.
Section 4.3 of the Amended and Restated Operating Agreement of Peninsula
Gaming Company LLC (the "Operating Agreement") provides that, to the fullest
extent permitted under applicable law, no member or managing member of PGCL
shall be deemed to violate the Operating Agreement or be liable, responsible or
accountable in damages or otherwise to any other member or managing member or
PGCL for any action or failure to act, unless such violation or liability is
attributable to such member's or managing member's gross negligence, willful
misconduct, bad faith or a continuing material breach of the Operating
Agreement. Without limiting the generality of the foregoing, each such member or
managing member shall, in the performance of its duties, be fully protected in
relying in good faith upon the records of PGCL and upon information, opinions,
reports or statements presented to such member or managing member by any other
person as to matters such member or managing member reasonably believes are
within such other person's professional or expert competence and that has been
selected with reasonable care by or on behalf of PGCL.
Section 4.4 of the Operating Agreement provides that, to the fullest extent
permitted under applicable law, PGCL shall severally indemnify and hold harmless
any person (an "INDEMNIFIED PARTY") who was or is a party, or is threatened to
be made a party, to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (including
any action by or in the right of PGCL) by reason of or arising from any acts or
omissions (or alleged acts or omissions) on behalf of PGCL or in furtherance of
the interests of PGCL arising out of the Indemnified Party's activities as a
member, managing member, officer, employee, trustee or agent of PGCL against
losses, damages or expenses (including attorneys' fees, judgments, fines and
amounts paid in settlement) actually and reasonably incurred by such Indemnified
Party in connection with such action, suit or proceeding and for which such
Indemnified Party has not otherwise been reimbursed, so long as such Indemnified
Party did not act in bad faith or in a manner constituting gross negligence or
willful misconduct. The termination of any action, suit or proceeding by
judgment, order, settlement or upon a plea of NOLO CONTENDERE or its equivalent
shall not of itself (except insofar as such judgment, order, settlement or plea
shall itself specifically provide) create a presumption that the Indemnified
Party acted in bad faith or in a manner constituting gross negligence or willful
misconduct.
Section 5.4 of the Operating Agreement provides that no officer of PGCL
shall be liable to PGCL or to the members of PGCL for acts or omissions of such
officer in connection with the business or affairs of PGCL, including, without
limitation, any breach of fiduciary duty of such officer as an officer of PGCL,
any mistake of judgment of such officer as an officer of PGCL and any business
decision of such officer as an officer of PGCL, except for acts or omissions of
such officer of PGCL that a final adjudication establishes involved breach of
such officer's duty of loyalty to PGCL or its members, intentional misconduct,
fraud or a knowing violation of the law that was material to the cause of action
subject to such final adjudication.
Section 5.4 of the Operating Agreement provides further that,
notwithstanding any other term or provision thereof, PGCL and/or its successor,
trustee or receiver may indemnify, defend and hold
II-1
harmless each of its officers and every individual who at any time was but
ceased to be an officer of PGCL, and the heirs and personal representative of
every officer of PGCL and of every such individual, against all claims, demands,
actions, losses, liabilities, damages, costs and expenses, which after the date
of Operating Agreement arise out of PGCL or its business or affairs, including
reasonable attorneys' fees incurred in defending all such matters.
Section 5.4 of the Operating Agreement provides further that, the
satisfaction of the indemnification obligations of PGCL under SECTION 5.4
thereof shall be from and limited to the assets of PGCL, and no member shall
have any personal liability for the satisfaction of any such indemnification
obligation.
Section 5.4 of the Operating Agreement provides further that, no amendment
or repeal of any term or provision of SECTION 5.4 thereof that otherwise would
restrict or limit any right or protection of an officer of PGCL or other
individuals thereunder shall apply to or have any effect on any such right or
protection of any officer of PGCL existing at the time of such amendment or
repeal or of any individual who at any time before such amendment or repeal was
but ceased to be an officer of PGCL, or of the heirs and personal representative
of any such officer of PGCL or other individual.
PGCL's managers and officers are insured by insurance policies obtained by
PGCL against certain liabilities for actions taken in such capacities, including
liabilities sunder the Securities Act of 1933.
Peninsula Gaming Corp. ("PGC") is a corporation organized under the laws of
the State of Delaware. Section 145 of the Delaware General Corporation Law
("DGCL") provides that a corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interest of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful; and
further that a corporation may indemnify such person against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with the
defense or settlement of such action or suit if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper. To the extent that a director, officer, employee or agent of
a corporation has been successful on the merits or otherwise in defense of any
such action, suit or proceeding, or in defense of any claim, issue or matter
therein, he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.
Article Sixth, Section 2 of the Certificate of Incorporation of PGC (the
"Certificate of Incorporation") provides that DGCL shall indemnify, in
accordance with its by-laws, to the fullest extent permitted from time to time
by the PGCL or any other applicable laws as presently or hereafter in effect,
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, including, without limitation, an
action by or in the right of PGC, by reason of his acting as a director or
officer of PGC (and PGC, in the discretion of the board of directors of PGC, may
so indemnify a
II-2
person by reason of the fact that he is or was an employee or agent of PGC or is
or was serving at the request of PGC in any other capacity for or on behalf of
PGC) against any liability or expense actually and reasonably incurred by such
person in respect thereof; PROVIDED, HOWEVER, the Corporation shall be required
to indemnify an officer or director in connection with an action, suit or
proceeding (or part thereof) initiated by such person only if such action, suit
or proceeding (or part thereof) was authorized by the Board of Directors of the
Corporation. Such indemnification is not exclusive of any other right to
indemnification provided by law or otherwise. The right to indemnification
conferred by this Section (2) shall be deemed to be a contract between the
Corporation and each person referred to herein.
Section 6.1 of the by-laws of PGC (the "By-laws") provides that, subject to
Section 6.3 of Article VI thereof, PGC shall indemnify, to the fullest extent
permitted by applicable law, now or hereafter in effect, any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of PGC) by reason of the
fact that he is or was a director or executive officer of PGC, or is or was a
director or executive officer of PGC serving at the request of PGC as a director
or executive officer of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of PGC, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful;
provided, however, PGC shall be required to indemnify an officer or director in
connection with an action, suit or proceeding initiated by such person only if
(i) such action, suit or proceeding was authorized by the board of directors of
PGC or (ii) the indemnification does not relate to any liability arising under
Section 16(b) of the Securities Exchange Act of 1934, as amended, or any of the
rules or regulations promulgated thereunder. The termination of any action, suit
or proceeding by judgment, order, settlement, conviction, or upon a plea of NOLO
CONTENDERE or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of PGC, and, with respect
to any criminal action or proceeding, had reasonable cause to believe that his
conduct was unlawful.
Section 6.2 of the By-laws provides that, subject to Section 6.3 of Article
VI thereof, PGC shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of PGC to procure a judgment in its favor by reason of
the fact that he is or was a director or executive officer of PGC, or is or was
a director or executive officer of PGC serving at the request of PGC as a
director or executive officer of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise against expenses
(including attorneys' fees) actually reasonably incurred by him in connection
with the defense or settlement of such action or suit if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of PGC; except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to PGC unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
Section 6.3 of the By-laws provides that any indemnification under Article
VI thereof (unless ordered by a court) shall be made by PGC only as authorized
in the specific case upon a determination that indemnification of the director
or executive officer is proper in the circumstances because he has met the
applicable standard of conduct set forth in Section 6.1 or Section 6.2 of
Article VI thereof, as the case may be. Such determination shall be made (i) by
the board of directors of PGC by a majority
II-3
vote of directors who were not parties to such action, suit or proceeding (even
if such majority vote constitutes less than a quorum), or (ii) if the majority
vote of disinterested directors so directs (even if such majority vote
constitutes less than a quorum), by independent legal counsel in a written
opinion, or (iii) by the stockholders. To the extent, however, that a director
or executive officer of PGC has been successful on the merits or otherwise in
defense of any action, suit or proceeding described above, or in defense of any
claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith, without the necessity of authorization in the specific
case.
Section 102 of the DGCL allows a corporation to eliminate or limit the
personal liability of a director of a corporation to the corporation or to any
of its stockholders for monetary damage for a breach of fiduciary duty as a
director, except in the case where the director (i) breaches his duty of loyalty
to the corporation or its stockholders, (ii) fails to act in good faith, engages
in intentional misconduct or knowingly violates a law, (iii) authorizes the
payment of a dividend or approves a stock purchase or redemption in violation of
Section 174 of the DGCL or (iv) obtains an improper personal benefit.
Article Sixth, Section 1 of the Certificate of Incorporation provides that
directors of PGC shall have no personal liability to PGC or its stockholders for
monetary damages for breach of fiduciary duty as a director; PROVIDED that
nothing contained in Article Sixth thereof shall eliminate or limit the
liability of a director (i) for any breach of a director's duty of loyalty to
PGC or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or knowing violations of law, (iii) under Section
174 of the DGCL, or (iv) for any transaction from which a director derived an
improper personal benefit. If the DGCL is amended to authorize corporate action
further eliminating or limiting the personal liability of directors, then by
virtue of Article Sixth thereof the liability of a director of PGC shall be
eliminated or limited to the fullest extent permitted by the DGCL, as so
amended.
Section 145 of the DGCL provides that a corporation may indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
corporation) by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interest of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful; and further that a corporation may indemnify such person
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, except that no indemnification
shall be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the corporation unless and only to the
extent that the Court of Chancery or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper. To the extent that a director,
officer, employee or agent of a corporation has been successful on the merits or
otherwise in defense of any such action, suit or proceeding, or in defense of
any claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
II-4
Article Sixth, Section 2 of the Certificate of Incorporation provides that,
directors of PGC shall have no personal liability to PGC or its stockholders for
monetary damages for breach of fiduciary duty as a director; PROVIDED that
nothing contained in this Article Sixth thereof shall eliminate or limit the
liability of a director (i) for any breach of a director's duty of loyalty to
PGC or its stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or knowing violations of law, (iii) under Section
174 of the DGCL, or (iv) for any transaction from which a director derived an
improper personal benefit. If the DGCL is amended to authorize corporate action
further eliminating or limiting the personal liability of directors, then by
virtue of Article Sixth of the Certificate of Incorporation of PGC the liability
of a director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the General Corporation Law of the State of Delaware, as so
amended.
Section 145 of the DGCL further provides that a corporation shall have power
to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation or enterprise, against any liability asserted against such
person and incurred by such person in such capacity, arising out of such
person's status as such, whether or not the corporation would otherwise have the
power to indemnify such person under Section 145.
Article Sixth, Section 6 of the Certificate of Incorporation provides that
PGC may purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee or agent of PGC, or is or was serving at the request
of PGC as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not PGC would have the power to indemnify him
against such liability under the provisions of Article Sixth thereof, the DGCL,
or otherwise.
Section 6.8 of the By-laws provides that PGC may purchase and maintain
insurance on behalf of any person who is or was a director or executive officer
of PGC, or is or was a director or executive officer of PGC serving at the
request of PGC as a director or executive officer of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not PGC would have
the power or the obligation to indemnify him against such liability under the
provisions of Article VI thereof.
All of PGC's directors and officers are insured by insurance policies
obtained by PGC against certain liabilities for actions taken in such
capacities, including liabilities sunder the Securities Act of 1933.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
See index to exhibits, which is incorporated by reference.
ITEM 22. UNDERTAKINGS
Each of the undersigned registrants hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) that, individually or in the aggregate,
represent a fundamental change in the information set forth in the
II-5
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Securities and Exchange Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered that remain unsold at the termination
of the offering.
(4) That, for purposes of determining any liability under the Securities
Act of 1933, 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.
(5) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the provisions described
in Item 20 or otherwise, the registrant has been advised that, in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of
expenses incurred or paid by a director, officer or controlling person of
the registrant in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in connection
with the securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of
such issue.
(6) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this
form within one business day of receipt of such request and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of this registration statement through the date of responding
to the request.
(7) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in this registration statement when
it became effective.
II-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, each of the
registrants has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York on October 11, 1999.
PENINSULA GAMING COMPANY, LLC
By: /s/ M. BRENT STEVENS
-----------------------------------------
M. Brent Stevens
CHIEF EXECUTIVE OFFICER
PENINSULA GAMING CORP.
By: /s/ M. BRENT STEVENS
-----------------------------------------
M. Brent Stevens
PRESIDENT
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Ronald S.
Brody the true and lawful attorney-in-fact and agent of the undersigned, with
full power of substitution and resubstitution, for and in the name, place and
stead of the undersigned, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this registration statement
and to file the same, with all exhibits thereto, and any and all documents in
connection therewith, with the Securities and Exchange Commission, and hereby
grants unto said 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, as
fully to all intents and purposes as the undersigned might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
II-7
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
Chief Executive Officer of
/s/ M. BRENT STEVENS PGCL and Peninsula October 11, 1999
- ------------------------------ Gaming Partners, LLC
M. Brent Stevens ("PGP")
Manager of PGP, the
Managing Member of PGCL
President, Treasurer and
Director of PGC
/s/ NATALIE A. BAUM October 11, 1999
- ------------------------------ Chief Financial Officer of
Natalie A. Baum PGCL
Vice President of
/s/ MICHAEL S. LUZICH Corporate Development, October 11, 1999
- ------------------------------ Secretary and Manager of
Michael S. Luzich PGP
Vice President, Secretary
and Director of PGC
Secretary of PGCL
/s/ TERRANCE W. OLIVER
- ------------------------------ Manager of PGP October 11, 1999
Terrance W. Oliver
/s/ WILLIAM L. WESTERMAN
- ------------------------------ Manager of PGP October 11, 1999
William L. Westerman
/s/ ANDREW R. WHITTAKER
- ------------------------------ Manager of PGP October 11, 1999
Andrew R. Whittaker
II-8
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
1 Purchase Agreement, dated July 8, 1999, by and among Peninsula Gaming Company, LLC, Peninsula Gaming
Corp., Peninsula Gaming Partners, LLC, and Jefferies & Company, Inc.
3.1A Certificate of Formation of Peninsula Gaming Company, LLC
3.1B Amendment to Certificate of Formation of Peninsula Gaming Company, LLC
3.2 Operating Agreement of Peninsula Gaming Company, LLC
3.3 Articles of Incorporation of Peninsula Gaming Corp.
3.4 By-laws of Peninsula Gaming Corp.
4.1 Specimen Certificate of Common Stock
4.2 Indenture, dated July 15, 1999, by and among Peninsula Gaming Company, LLC, Peninsula Gaming Corp. and
Firstar Bank of Minnesota, N.A., as trustee
4.5 Registration Rights Agreement, dated July 15, 1999, by and among Peninsula Gaming Company, LLC,
Peninsula Gaming Corp. and Jefferies & Company, Inc.
5 Opinion of Mayer, Brown & Platt as to the legality of the securities being registered
10.1A Asset Purchase Agreement, dated January 15, 1999, by and among Greater Dubuque Riverboat Entertainment
Company, L.C. and AB Capital, L.L.C.
10.1B Amendment to Asset Purchase Agreement, dated February 1, 1999, by and among Greater Dubuque Riverboat
Entertainment Company, L.C. and AB Capital, L.L.C.
10.2A Real Property Purchase Agreement, dated January 15, 1999, by and among Harbor Community Investment, L.C.
and AB Capital, L.L.C.
10.2B First Amendment to Real Property Purchase Agreement, dated July 15, 1999, by and among Harbor Community
Investment, L.C. and AB Capital, L.L.C.
10.3 Assignment Agreement, dated July 1, 1999, by and among Peninsula Gaming Partners, LLC (formerly AB
Capital, LLC) and Peninsula Gaming Company, LLC
10.4 Employment Agreement, dated April 15, 1999, by and among James P. Rix, AB Capital, L.L.C. and Peninsula
Gaming Company, LLC
10.5 Employment Agreement, dated July 15, 1999, by and among Natalie Baum and AB Capital, L.L.C.
10.6 Indemnification Agreement, dated June 7, 1999, by and among James P. Rix, AB Capital, L.L.C. and
Peninsula Gaming Company, LLC
10.7 Indemnification Agreement, dated June 7, 1999, by and among Natalie Baum and AB Capital, L.L.C. and
Peninsula Gaming Company, LLC
10.8 Bill of Sale, dated July 15, 1999, by and among Greater Dubuque Riverboat Entertainment Company, L.C.
and Peninsula Gaming Company, LLC
10.9A Operating Agreement, dated February 22, 1993, by and among Dubuque Racing Association, Ltd. and Greater
Dubuque Riverboat Entertainment Company, L.C.
10.9B Amendment to Operating Agreement, dated February 22, 1993, by and among Dubuque Racing Association, Ltd.
and Greater Dubuque Riverboat Entertainment Company, L.C.
10.9C Amendment to Operating Agreement, dated March 4, 1993, by and among Dubuque Racing Association, Ltd. and
Greater Dubuque Riverboat Entertainment Company, L.C.
10.9D Third Amendment to Operating Agreement, dated March 11, 1993, by and among Dubuque Racing Association,
Ltd. and Greater Dubuque Riverboat Entertainment Company, L.C.
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
10.9E Fourth Amendment to Operating Agreement, dated March 11, 1993, by and among Dubuque Racing Association,
Ltd. and Greater Dubuque Riverboat Entertainment Company, L.C.
10.9F Fifth Amendment to Operating Agreement, dated April 9, 1993, by and among Dubuque Racing Association,
Ltd. and Greater Dubuque Riverboat Entertainment Company, L.C.
10.9G Sixth Amendment to Operating Agreement, dated November 29, 1993, by and among Dubuque Racing
Association, Ltd. and Greater Dubuque Riverboat Entertainment Company, L.C.
10.9H Seventh Amendment to Operating Agreement, dated April 6, 1994, by and among Dubuque Racing Association,
Ltd. and Greater Dubuque Riverboat Entertainment Company, L.C.
10.9I Eighth Amendment to Operating Agreement, dated April 29, 1994, by and among Dubuque Racing Association,
Ltd. and Greater Dubuque Riverboat Entertainment Company, L.C.
10.9J Ninth Amendment to Operating Agreement, dated July 11, 1995, by and among Dubuque Racing Association,
Ltd. and Greater Dubuque Riverboat Entertainment Company, L.C.
10.9K Tenth Amendment to Operating Agreement, dated July 15, 1999, by and among Dubuque Racing Association,
Ltd. and Greater Dubuque Riverboat Entertainment Company, L.C.
10.10 Operating Agreement Assignment, dated July 15, 1999, by and among Greater Dubuque Riverboat
Entertainment Company, L.C. and Peninsula Gaming Company, LLC
10.11 First Preferred Ship Mortgage, dated July 15, 1999, by Peninsula Gaming Company, LLC in favor of Firstar
Bank of Minnesota, N.A., as trustee
10.12 Mortgage, Leasehold Mortgage, Assignment of Rents, Security Agreement and Fixture Financing Statement
dated July 15, 1999, by Peninsula Gaming Company, LLC in favor of Firstar Bank of Minnesota, N.A., as
trustee
10.13 Ice Harbor Parking Agreement Assignment, dated July 15, 1999, by and among Greater Dubuque Riverboat
Entertainment Company, L.C. and Peninsula Gaming Company, LLC
10.14 First Amendment to Sublease Agreement, dated July 15, 1999, by and among Dubuque Racing Association,
Ltd. and Greater Dubuque Riverboat Entertainment Company, L.C.
10.15 Sublease Assignment, dated July 15, 1999, by and among Greater Dubuque Entertainment Company, L.C. and
Peninsula Gaming Company, LLC
10.16 Iowa Racing and Gaming Commission Gaming License, dated July 15, 1999
10.17 Assignment of Iowa IGT Declaration and Agreement of Trust, dated July 15, 1999 by and among Greater
Dubuque Riverboat Entertainment Company, L.C. and Peninsula Gaming Company, LLC
12.1 Computation of ratio of earnings to fixed charges
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Mayer, Brown & Platt (contained in Exhibit 5)
24.1 Powers of attorney (contained on the signature page to this registration statement)
25.1 Form T-1 Statement of eligibility under the Trust Indenture Act of 1939 of Firstar Bank, N.A.
27.1 Financial Data Schedule
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
- ------------------------